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
For the Fiscal Year ended December 31, 1995 No. 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(908) 634-1500
--------------
(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
--------------------------
(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 18, 1996 was $75,235,026 based on the closing market price
of $18.125 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 18, 1996
----- -----------------------------
Common Stock, No par Value 4,150,898
- -------------------------- ---------
Documents Incorporated by Reference
Annual Report to shareholders for fiscal year ended December 31, 1995; pages 8
through 21. Parts II and IV.
<PAGE>
PART I
Item 1. Business
General
Middlesex Water Company (Middlesex or Company), has operated as a water
utility in New Jersey since its organization in 1897 and is in the business of
collecting, treating and distributing water for domestic, commercial, industrial
and fire protection purposes in the State and, since 1992, in the State of
Delaware through its acquisition of Tidewater Utilities, Inc. (Tidewater), as a
wholly-owned subsidiary. In April 1995, Middlesex completed the purchase of the
assets of a 2,200 customer water utility and a 2,200 customer wastewater utility
in Burlington County, New Jersey. The systems were acquired through the
Company's wholly-owned subsidiaries of Pinelands Water Company and Pinelands
Wastewater Company (jointly Pinelands). All water system's are completely
metered, including contract sales, except for fire hydrant service. The rates
charged for water services must be approved by regulatory authorities. In May
1995, Middlesex and its wholly-owned subsidiary, Utility Service Affiliates,
Inc., jointly entered into a five-year contract with the City of South Amboy to
operate and maintain the City's 2,600 customer water system. The contract is
subject to renewal for three future five-year periods.
Retail Sales
Middlesex provides water services to retail customers primarily in eastern
Middlesex County, New Jersey. Water services are now furnished to approximately
53,000 retail customers located in an area of approximately 55 square miles of
New Jersey in Woodbridge Township, the Boroughs of Metuchen and Carteret,
portions of Edison Township and the Borough of South Plainfield in Middlesex
County and, to a minor extent, 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.
Tidewater provides water services to almost 6,000 retail customers for
domestic, commercial and fire protection purposes in over 75 community water
systems located in Kent, Sussex and New Castle Counties in Delaware.
Pinelands provides water and wastewater services to approximately 2,200
retail customers in Burlington County, New Jersey.
Contract Sales
Middlesex also provides water on a wholesale basis in New Jersey to the
Township of Edison (Edison), the Borough of Highland Park (Highland Park), the
City of South Amboy (South Amboy), the Old Bridge Municipal Utilities Authority
(Old Bridge), the Borough of Sayreville (Sayreville) and the Marlboro Township
Municipal Utilities Authority (Marlboro). Under special contract, the Company
also provides water treatment and pumping services to the Township of East
Brunswick (East Brunswick). East Brunswick, South Amboy, Old Bridge, Sayreville
and Marlboro are within an area designated as the South River Basin Study Area.
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<PAGE>
The South River Basin Study Area refers to parts of southern Middlesex and
northern Monmouth Counties addressed by a 1980's study conducted by the New
Jersey Department of Environmental Protection (DEP). According to that study,
ninety-five percent of the area's water supply was derived from groundwater
sources that were being overpumped at that time and projected growth of the
region would further over stress these groundwater resources. These conditions
prompted the DEP to create Water Supply Critical Area No. 1 (Critical Area)
covering portions of Middlesex, Monmouth and Ocean Counties and to promulgate
mandatory reductions in groundwater withdrawals within the Critical Area. During
the same mid-1980's time period, East Brunswick entered into a special contract
with the Company and in 1986 began receiving water treatment and pumping
services under that contract.
In 1986, as part of the State's South River Basin Feasibility Study, the
Company outlined to the DEP and other interested parties a plan to construct
facilities to ensure potable water supplies into this area through the year
2020. In connection with this project, the Company entered into long-term water
supply agreements with Old Bridge, Marlboro and Sayreville, and the DEP approved
these agreements.
As an interim measure to address the immediate needs of this region, an
agreement was reached between the Company and the City of Perth Amboy for the
lease of a large diameter pipeline which extends from the northern shore of the
Raritan River to central Old Bridge. This pipeline was rehabilitated, isolated
from the Perth Amboy system and connected to the Middlesex system, and now
provides a supply of the Company's water to substantial portions of the Critical
Area (Old Bridge, Sayreville, Marlboro and South Amboy).
The South River Basin Transmission Main was scheduled to be constructed in
three stages, designated Sections C, B, and A, to meet the increasing demands of
the customers in the Critical Area. Section C, which was connected to Marlboro
in 1991, comprises a 6.5 mile main extending the Middlesex system from the
southern end of the Perth Amboy line to Marlboro Township in Monmouth County.
The Company completed construction of Section B, a 5 mile extension northwest
through Old Bridge to East Brunswick, that was operational in 1993. In 1993, an
interconnecting pipeline was constructed by East Brunswick thereby providing for
an alternative means of transporting water from the Carl J. Olsen Water
Treatment Plant (CJO Plant) to the South River Basin customers. The Company
currently anticipates that Section A may be constructed later this decade, when
demands in the region grow, and will directly connect Sections B and C to the
Company's CJO Plant in Edison.
Financial Information
Consolidated operating revenues and operating income relating primarily to
operating water utilities are as follows:
(000's)
Years Ended December 31,
---------------------------------------
1995 1994 1993
------- ------- -------
Operating Revenues $37,847 $36,122 $35,479
------- ------- -------
Operating Income $ 8,912 $ 8,477 $ 8,156
------- ------- -------
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<PAGE>
Operating revenues were derived from the following sources:
Years Ended December 31,
------------------------------------
1995 1994 1993
------ ------ ------
Residential 40.2% 39.6% 39.6%
Commercial 11.6 11.9 11.8
Industrial 17.6 18.3 18.3
Fire Protection 12.0 12.1 12.2
Contract Sales 17.6 17.5 17.6
Miscellaneous 1.0 0.6 0.5
----- ----- -----
TOTAL 100.0% 100.0% 100.0%
===== ===== =====
Water Supplies and Contracts
The Company's water utility plant consists of source of supply, pumping,
water treatment, transmission, distribution and general facilities located in
New Jersey and Delaware. The New Jersey and Delaware water supply systems are
physically separate and are not interconnected. The newely acquired Pinelands
system is not interconnected to the Middlesex system.
Middlesex obtains water from both surface and groundwater sources. In 1995,
surface sources of water provided approximately 65% of the Company's water
supply, groundwater from wells provided approximately 30% and the balance of 5%
was purchased from Elizabethtown Water Company (Elizabethtown), a nonaffiliated
water utility. The Company's distribution storage facilities are used to supply
water at times of peak demand and for outages and emergencies.
The principal source of surface supply in New Jersey 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). The Company has
contracts with the NJWSA to divert a maximum of 20 million gallons per day (mgd)
of untreated water from the D&R Canal as augmented by the Round Valley/Spruce
Run Reservoir System. In addition, the Company has a one-year agreement for an
additional 5 mgd renewed through April 30, 1996. The Company also has 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.
Water is also derived from groundwater sources equipped with electric
motor-driven deep-well turbine type pumps. Middlesex has 32 wells, which provide
a pumpage capacity of approximately 23 mgd. These include the wells of the Park
Avenue and Sprague Avenue Well Fields (with a pumpage capacity of over 12 mgd)
which during 1993 were provided with treatment, refurbished and retrofitted to
insure compliance with water quality standards. See "Regulation - Water Quality
and Environmental Regulations."
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<PAGE>
The Company's New Jersey groundwater sources are:
<TABLE>
<CAPTION>
1995 Max. Day
Pumpage
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ----- -------- ----- --------
<S> <C> <C> <C> <C>
Park Avenue 15 10.3 10.5 South Plainfield
Tingley Lane North 4 3.1 3.1 Edison
Tingley Lane South 5 2.3 2.6 Edison
Spring Lake 4 1.2 1.5 South Plainfield
Sprague Avenue #1 1 1.2 1.4 South Plainfield
Sprague Avenue #2 1 1.2 1.3 South Plainfield
Maple Avenue 1 1.1 1.3 South Plainfield
Thermal Well 1 0.2 0.2 Edison
--
Total 32
==
Pinelands System
----------------
Leisuretowne/Hampton Lakes 4 2.0 2.2 Southampton Township
</TABLE>
Water supply to Delaware customers is derived from Tidewater's 77 wells,
which provided overall system delivery of 350 mg during 1995. Tidewater does not
have a central treatment facility. Several of the water systems in Sussex County
have an interconnected transmission system. Construction to link several water
systems in New Castle County was completed during 1995. Tidewater currently has
applications before the Delaware regulatory authorities for the approval of
additional wells. Treatment is by chlorination and, in some cases, pH correction
and filtration. Water supply to Pinelands Water customers is through four (4)
wells drilled into the Mt. Laurel aquifer. Treatment (disinfection only) is done
at individual well sites.
The Pinelands sewer system discharges into the south branch of the
Rancoccos Creek through a tertiary treatment plant. The total capacity of the
plant is 0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
NJPDES permit issued by the DEP.
In the opinion of management, the Company has adequate sources of water
supply and other facilities to meet current and anticipated future service
requirements in New Jersey, and each of the Tidewater community water systems
has adequate sources of water supply and other facilities to meet current and
anticipated future service requirements within that water system area.
Competition
The business of the Company is substantially free from direct competition
with other public utilities, municipalities and other public agencies. Although
Tidewater has been granted an exclusive franchise for each of its existing
community water systems, its ability to expand service areas can be affected by
the Delaware Department of Natural Resources and Environmental Control (DNREC)
awarding franchises to other regulated water purveyors.
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<PAGE>
Regulation
The Company is subject to regulation as to its 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.
The Company is also subject to regulation as to environmental and water quality
matters by the United States Environmental Protection Agency (EPA).
Regulation of Rates and Services
The Company and its Pinelands subsidiaries are subject to regulation by the
New Jersey Board of Public Utilities (BPU), and Tidewater is similarly subject
to regulation by the Delaware Public Service Commission (PSC). These regulatory
authorities have jurisdiction with respect to rates, service, accounting
procedures, the issuance of securities and other matters of utility companies
operating within the States of New Jersey and Delaware, respectively. The
Company and Tidewater, for ratemaking purposes, account separately for
operations in New Jersey and in Delaware so as to facilitate independent
ratemaking by the BPU for New Jersey operations and the PSC for Delaware
operations.
Water Quality and Environmental Regulations
Both the EPA and the DEP regulate the Company's operation in New Jersey
with respect to water supply, treatment and distribution systems and the quality
of the water, as do the EPA and the DNREC 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, the environmental regulatory agencies are reviewing current
regulations governing the limits of certain organic compounds found in the water
as by-products of treatment. The Company, as with many other water companies,
participates in industry-related research to identify the various types of
technology that might reduce the level of organic, inorganic and synthetic
compounds found in the water. The cost to water companies of complying with the
proposed water quality standards depends in part on the limits set in the
regulation and on the method selected to implement such reduction; however, the
cost to the Company of complying with proposed regulations promulgated in light
of some of the standards being discussed might, depending upon the treatment
process selected, be as high as $10 million, based upon current estimates. The
Company has already begun studies to evaluate alternative treatment processes
for upgrading the CJO Plant. The regular testing by the Company of the water it
supplies shows that the Company is in compliance with existing Federal, New
Jersey and Delaware water quality requirements.
As required by the Federal Safe Drinking Water Act (FSDWA), the EPA has
established maximum contaminant levels (MCLs) for various substances found in
drinking water. As authorized by similar state legislation, the DEP has set MCLs
for certain substances which are more restrictive than the MCLs set by the EPA.
In certain cases, the EPA and the DEP have also mandated that certain treatment
procedures be followed in addition to satisfying MCLs established for specific
contaminants. The DEP and the DNREC have assumed primacy for
- 5 -
<PAGE>
enforcing the FSDWA in New Jersey and Delaware, respectively, and, in that
capacity, 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 water utilities generally, including the
Company, include the Lead and Copper Rule (LCR), the MCLs established for
various volatile organic compounds (VOCs), the Federal Surface Water Treatment
Rule, and the Total Coliform Rule.
The LCR requires the Company to test on a sample basis the quantity of lead
and copper in drinking water at the customer's tap and, if certain contaminant
levels (Action Levels) are exceeded, to notify customers, initiate a public
information campaign advising customers how to minimize exposure to lead and
copper, add corrosion inhibitors to water to minimize leaching of lead from
piping, faucets and soldered joints into water consumed at the tap, and
implement applicable source water treatment requirements. Tests taken within the
Company's system yielded results well below the Action Levels.
VOCs, including primarily petro-chemicals, may percolate into groundwater
aquifers from surface sources. The Company has found VOCs in excess of the
applicable MCLs in certain of the Middlesex system wells and has constructed air
stripping facilities which remove such contaminants from the water by venting
them into the atmosphere. In 1990 the air stripping facility was complete at the
Spring Lake Well Field. Construction of a similar facility was completed in 1993
and is operational to treat water from the Park Avenue and Sprague Avenue Well
Fields, along with a 2 mg storage reservoir. To the extent that contamination in
excess of applicable MCLs occurs at wells lacking air stripping and related
facilities, the Company will consider building such facilities if feasible and
cost effective. VOCs have not been identified in the Delaware wells.
Federal and State regulations and controls concerning water quality,
pollution and the effluent from treatment facilities are still in the process of
being developed, and it is not possible to predict the scope or enforceability
of regulations or standards which may be established in the future, or the cost
and effect of existing and potential regulations and legislation upon any of the
existing and proposed facilities and operations of the Company. Further, recent
and possible future developments with respect to the identification and
measurement of various elements in water supplies and concern with respect to
the impact of one or more of such elements on public health may in the future
require the Company to replace or modify all or portions of their various water
supplies, to develop replacement supplies and/or to implement new treatment
techniques. In addition, the Company anticipates that threatened and actual
contamination of water sources may become an increasing problem in the future.
The Company has expended and may in the future be required to expend substantial
amounts to prevent or remove said contamination or to develop alternative water
supplies. Any such developments may increase operating costs and capital
requirements. Since the rate regulation methodology of both the BPU and the PSC
permits a utility to recover through rates prudently incurred expenses and
investments in plant, based upon past BPU and PSC practice, the Company expects
that all such expenditures and costs should ultimately be recoverable through
rates for water service.
Employees
As of December 31, 1995, the Company had a total of 140 employees in New
Jersey, and Tidewater had a total of 17 employees in Delaware. None of these
employees is represented
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<PAGE>
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.
Item 2. Properties
The Company's water utility plant consists of source of supply, pumping,
water treatment, transmission and distribution and general facilities.
The Company's principal source of 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 and processed for
distribution by the Company. Its facilities consist of an intake and pumping
station located on State-owned land bordering the Canal, a water treatment plant
in Edison Township (CJO Plant) on property owned by the Company, 4,901 feet of
54-inch reinforced concrete water main connecting the CJO Plant and the intake
and pumping station, 23,168 feet of 48-inch reinforced concrete transmission
main connecting the water treatment plant to the Company's distribution pipe
network, and related storage, pumping, control, laboratory and other facilities.
The CJO Plant was placed into service in 1969.
The design capacity of the intake and pumping station in New Brunswick, New
Jersey, and the raw water main is 80 mgd. The four electric motor-driven
vertical turbine pumps presently installed have an aggregate design capacity of
65 mgd. The station is designed to permit its pumping capacity to be increased
to 80 mgd by the installation of additional pumping units without structural
changes. The station has an emergency power supply provided by a diesel-driven
generator which, in the event of a power failure, will automatically become the
power source to provide uninterrupted water service.
The CJO Plant includes chemical storage and chemical feed equipment,
dual-rapid mixing basins, four reinforced concrete mechanical flocculation
compartments, four underground reinforced concrete settling basins, eight rapid
filters containing gravel, sand and anthracite for water treatment and a steel
wash-water tank. The nominal design capacity of the CJO Plant is 30 mgd (45 mgd
maximum capacity). Provision has been made to increase the nominal design
capacity to 60 mgd (90 mgd maximum capacity) by the future construction of
additional treatment facilities. The Company is currently studying treatment
technologies prior to making a decision on the expansion of this facility.
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 65 mgd. The station is constructed so that an
additional pumping unit can be installed without structural change.
In addition to the main pumping station at the CJO Plant, there is a l5 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 l0 mg reservoir directly into the distribution system.
- 7 -
<PAGE>
The Company also owns property and other facilities located at the
Robinson's Branch of the Rahway River. The storage facilities, consisting of an
impounding reservoir, have been classified as nonutility plant. They are located
in Clark Township, near the north central part of the territory served. The
reservoir has a capacity of 232 mg and a tributary drainage area of
approximately 25 square miles. There are no treatment facilities at this site.
The Company owns the properties on which its 32 wells are located. The
Company owns its two-building headquarters complex at 1500 Ronson Road, Iselin,
New Jersey, consisting of a 27,000 square foot, two-story office building and a
16,500 square foot maintenance facility. The Company's Delaware operations are
managed from Tidewater's newly leased offices in Odessa, Delaware. The property,
owned by White Marsh Environmental Systems, Inc., a wholly-owned subsidiary of
Tidewater consists of a newly renovated 1,600 square foot building situated on a
one (1) acre lot with ample room for expansion. The area is commercially zoned.
Pinelands Water owns the well site properties which are located in Southampton
Township, New Jersey. The 12 acre wastewater plant site is owned by Pinelands
Wastewater.
Middlesex storage facilities consist of a 10 mg reservoir at the CJO Plant,
5 mg and 2 mg reservoirs in Edison (Grandview), 5 mg reservoir in Carteret
(Eborn) and 2 mg reservoir at the Park Avenue Well Field. Pinelands Water
storage facility is a 1.2 mg standpipe. Tidewater's systems include 18 ground
level storage tanks with the following capacities; 11 - 30,000 gallons, 4 -
25,000 gallons, 2 - 120,000 gallons and 1 - 82,000 gallons.
Item 3. Legal Proceedings
A local entity and its owner have filed a negligence claim against the
Company, for which the Company is insured, with a claim for punitive damages
which may not be insured. Their action alleges financial losses arising out of
improper water pressure and service. An amendment to the claim alleges damages
resulting from some poor quality water. Other parties who dealt with the
claimants have joined the matter. Without taking a position on the negligence
claim, the Company does not believe that the claim for punitive damages will
prevail. While the outcome of this case is not presently determinable,
management believes that the final resolution will not have a significant effect
on the Company's financial position or results of operations or cash flows.
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
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<PAGE>
The following table shows the range of closing prices for the Common Stock
on the NASDAQ Stock Market for the calendar quarter indicated.
1995 High Low Dividend
---- ---- --- --------
First Quarter $17.00 $15.25 $0.27
Second Quarter 16.50 15.25 0.27
Third Quarter 17.75 15.75 0.27
Fourth Quarter 18.75 16.75 0.27 1/2
1994 High Low Dividend
---- ---- --- --------
First Quarter $21.25 $19.25 $0.26 1/4
Second Quarter 20.00 16.00 0.26 1/4
Third Quarter 18.25 15.75 0.26 1/4
Fourth Quarter 18.50 16.25 0.27
Approximate Number of Equity Security Holders As of December 31, 1995
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No par Value 2,353
Cumulative Preferred Stock, No par Value:
$7 Series 33
$4.75 Series 1
Cumulative Convertible Preferred Stock, No par Value:
$7 Series 4
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.
Item 6. Selected Financial Data
This information is incorporated herein by reference to the attached
Exhibit 13, 1995 Annual Report to Shareholders, Page 21.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated herein by reference to the attached
Exhibit 13, 1995 Annual Report to Shareholders, Pages 8 and 9.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and Independent Auditors' Report are
incorporated herein by reference to the attached Exhibit 13, 1995 Annual Report
to Shareholders, Pages 10 through 20. The supplementary data is included as
indicated under Part IV, Item 14.
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
The following information is provided with respect to each Director and
Executive Officer of the Company.
<TABLE>
<CAPTION>
Director Term
Name Age Since Expires Position
---- --- ----- ------- --------
<S> <C> <C> <C> <C>
Walter J. Brady 54 N/A N/A Vice President-Administration
Ernest C. Gere 63 1988 5/97 Senior Vice President & Chief Financial
Officer
Stephen H. Mundy 62 1977 5/98 Director
A. Bruce O'Connor 37 N/A N/A Vice President and Controller
Philip H. Reardon 59 1991 5/97 Director
Marion F. Reynolds 56 N/A N/A Vice President, Secretary and Treasurer
Richard A. Russo 50 1994 5/98 Executive Vice President
Carolina M. Schneider 77 1982 5/98 Director
William E. Scott 76 1978 5/96 Director
Jeffries Shein 55 1990 5/96 Director
Dennis G. Sullivan 54 N/A N/A Vice President and General Counsel,
Assistant Secretary-Assistant Treasurer
J. Richard Tompkins 57 1981 5/96 Chairman of the Board and President
Ronald F. Williams 47 N/A N/A Vice President-Operations
Joseph S. Yewaisis 56 1989 5/97 Director
</TABLE>
Walter J. 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, and Vice President-Administration in 1989. He
had served in the capacity of Manager of Accounting from 1977 to 1985. He is a
Director of White Marsh Environmental Systems, Inc., Pinelands Water Company,
Pinelands Wastewater Company and Utility Service Affiliates, Inc.
Ernest C. Gere, who had been Vice President & Controller of the Company since
1978 was promoted to Senior Vice President & Controller in 1986 and is
responsible for rate cases, cash management, financings and pension benefit
plans. He was employed by the Company from 1964 to 1970 and from 1976 to
present. On January 1, 1992 he assumed the designated title of Senior Vice
President & Chief Financial Officer. He is Treasurer and Director of Tidewater
Utilities,
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<PAGE>
Inc., Vice President and Director of Pinelands Water Company and Pinelands
Wastewater Company. Mr. Gere will retire from active employment with Middlesex
and its subsidiaries, effective March 31, 1996.
Stephen H. Mundy until his retirement in 1995, was Vice President of A. Stanley
Mundy, Inc., public utility contractors, Virginia Beach, Virginia, since 1985
and was a Partner of A. Stanley Mundy & Co.
A. Bruce O'Connor who joined the Company in 1990 as Assistant Controller was
elected Controller in 1992 and Vice President in 1995. He was formerly employed
by Deloitte & Touche LLP, a certified public accounting firm from 1984 to 1990.
He is Controller of Tidewater Utilities, Inc., and Treasurer of White Marsh
Environmental Systems, Inc., and Utility Service Affiliates, Inc.
Philip H. Reardon has been President and Chief Executive Officer of Essex County
Gas Company, Amesbury, Massachusetts, since December 1992, and prior to that
date was President and Chief Executive Officer of New Jersey Natural Gas
Company, Wall, New Jersey since 1987. He is a Director of Essex County Gas
Company, New England Gas Association and First Ocean National Bank, Newberry
Port, MA.
Marion F. 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., and Secretary/Treasurer of Pinelands Water Company
and Pinelands Wastewater Company and a Director of Utility Service Affiliates,
Inc.
Richard A. 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 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 also Executive Vice President and Director of Utility
Service Affiliates, Inc.
Carolina M. Schneider, until her retirement in 1987, was Secretary-Treasurer of
the Company since 1948.
William E. Scott, until his retirement in 1985, was Senior Executive Vice
President of Public Service Electric and Gas Company (PSE&G), Newark, New Jersey
since 1984 and had been Executive Vice President-Finance of PSE&G for over five
years. He is a Trustee of Delta Dental Plan of New Jersey, Inc.
Jeffries Shein is a Partner in the firm of Jacobson, Goldfarb & Tanzman
Associates, a large industrial and commercial brokerage firm in New Jersey. He
is a Director of First Savings Bank/SLA of Perth Amboy, New Jersey.
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<PAGE>
Dennis G. 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 was employed in a private law practice from 1981 to 1984 as a staff
attorney. He is Assistant Secretary and Assistant Treasurer and a Director of
Tidewater Utilities, Inc., Vice President, Secretary and Director of White Marsh
Environmental Systems, Inc.; a Director of Pinelands Water Company and Pinelands
Wastewater Company and a Director and Secretary of Utility Service Affiliates,
Inc.
Ronald F. 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.
J. Richard 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, Pinelands
Wastewater Company and Utility Service Affiliates, Inc. He is also a Director of
Raritan Bay Healthcare Foundation.
Joseph S. Yewaisis is Chairman of the Board and President of First Savings
Bank/SLA of Perth Amboy, New Jersey and a Director. He is also a Director of
Financial Institutions Retirement Fund, Raritan Bay Healthcare Foundation,
Chairman of the Board of Regents of St. Peter's College and Chairman of the
Board of Raritan Bay Medical Center.
- 12 -
<PAGE>
Item 11. Executive Compensation
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the years 1995,
1994 and 1993 of the Chief Executive Officer and the other four most highly
compensated officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Restricted All
Principal Position Other Annual Stock Other Annual
------------------ Year Salary Compensation Awards Compensation
---- ------ ------------ ------ ------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C>
J. Richard Tompkins 1995 $217,261 $7,652 $42,188 $7,560
Chairman of the Board 1994 $208,350 $7,491 $22,855 $7,280
and President 1993 $190,150 $6,771 $18,075 $6,720
Ernest C. Gere 1995 $132,100 $7,941 $13,500 $4,620
Senior Vice President & 1994 $128,323 $7,073 $13,060 $4,480
Chief Financial Officer 1993 $119,350 $6,042 $ 9,038 $4,235
Richard A. Russo 1995 $132,885 $5,941 $16,875 $4,616
Executive Vice President 1994 $121,504 $3,236 $13,060 $4,249
1993 $110,350 $2,676 $12,653 $3,850
Walter J. Brady 1995 $111,350 $3,000 $10,125 $3,885
Vice President- 1994 $107,350 $2,881 $ 9,795 $3,745
Administration 1993 $101,350 $2,828 $ 9,038 $3,535
Dennis G. Sullivan 1995 $106,816 $3,136 $13,500 $3,710
Vice President & 1994 $ 99,754 $2,962 $11,428 $3,479
General Counsel 1993 $ 89,950 $2,716 $ 9,038 $3,136
Assistant Secretary &
Assistant Treasurer
</TABLE>
(1) Includes Auto Allowance and Group Life Insurance for all officers and
Directors Fees for Messrs. Tompkins, Gere and Russo.
(2) The number and value of Restricted Stock held in escrow as of December 31,
1995 were as follows: Mr. Tompkins - 10,900/$166,893; Mr. Gere -
4,500/$68,063; Mr. Russo - 5,300/$81,138; Mr. Brady - 4,100/$61,423; and
Mr. Sullivan - 4,800/$72,720. Generally, the restrictions lapse on these
awards five years from the date of grant. The restrictions on Mr. Gere's
awards will lapse on March 31, 1996, Mr. Gere's retirement date. The
restrictions also lapse in the event of a change in control of the Company.
All dividends on these shares are paid to the awardees.
(3) Employer contribution to the Company's Defined Contribution Plan.
- 13 -
<PAGE>
COMPENSATION PURSUANT TO PENSION PLANS
Annual Benefit based on Compensation and Years of Service
<TABLE>
<CAPTION>
Final Years of Service
Year's ----------------
Compensation 15 20 25 30 35 45
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$100,000 $60,611 $60,611 $60,611 $60,611 $60,611 $ 73,102
$125,000 $79,361 $79,361 $79,361 $79,361 $79,361 $ 92,852
$150,000 $98,111 $98,111 $98,111 $98,111 $98,111 $112,602
$175,000 $116,861 $116,861 $116,861 $116,861 $116,861 $116,861
$200,000 $135,611 $135,611 $135,611 $135,611 $135,611 $135,611
$225,000 $154,361 $154,361 $154,361 $154,361 $154,361 $154,361
$250,000 $173,111 $173,111 $173,111 $173,111 $173,111 $173,111
$300,000 $210,611 $210,611 $210,611 $210,611 $210,611 $210,611
</TABLE>
All employees who receive pay for 1,000 hours during the year are included
in the Plan. Under the noncontributory trusteed defined benefit plan current
service costs are funded annually. The Company's annual contribution is
determined on an actuarial basis. Benefits are measured from the member's entry
date and accrue to normal retirement date or date of early retirement. Benefits
are calculated, at normal retirement, at 1.25% of pay up to the Executive's
benefit integration level, plus 1.9% of such excess pay, multiplied by service
to normal retirement date, capped at 35 years of such excess pay, multiplied by
service to normal retirement date of age 65. Average pay is the highest annual
average of total pay during any 5 consecutive years within the 10 calendar-year
period prior to normal retirement date. The benefit integration level is based
on the 1995 Summary Compensation Table. The benefit amounts are not subject to
any deduction for Social Security benefits or other offset amounts.
During the year 1995, the Company made a contribution to the Pension Plan
in the amount of $372,000. The range of the permissible Plan contribution was
$351,000 to $385,000. Remuneration covered under the Pension Plan includes base
wages only and not Directors' fees.
The estimated credited years of service based on normal retirement at age
65 includes 22 years, 21 years, 20 years, 44 years and 22 years for Messrs.
Tompkins, Gere, Russo, Brady and Sullivan, respectively.
Supplemental Executive Retirement Plan - All executive officers are
eligible to participate in the Deferred Compensation Plan known as the
Supplemental Executive Retirement Plan at the direction of the Board of
Directors.
A participant who retires on his normal retirement date is entitled to an
annual retirement benefit equal to 75% of his compensation reduced by his
primary Social Security benefit and further reduced by any benefit payable from
the Qualified Pension Plan. In certain cases further reductions are made for
benefits from other employment.
Vesting provisions start at 50% for 5 years of service and increases 10%
for each year of service for a maximum of 100% vesting at 10 years of service.
Annual retirement benefits are payable for 15 years either to the participant or
his beneficiary.
- 14 -
<PAGE>
Retirement benefits may be in the form of single life annuity, joint and
50% survivors annuity, joint and 100% survivors annuity, single life annuity
with a 10-year certain period and single life annuity with a 15-year certain
period paid on an actuarial equivalent basis.
The Company is not obligated to set aside or earmark any monies or other
assets specifically for the purpose of funding the Plan. The benefits are in the
form of an unfunded obligation of the Company. The Company has elected to
purchase Corporate-owned life insurance as a means of satisfying its obligation
under this Plan. The Company reserves the right to terminate any plan of life
insurance at any time, however, a participant is entitled to any benefits he
would have been entitled to under the Plan provisions. For the year 1995 the
Company paid life insurance premiums totaling $131,767, for Messrs. Tompkins,
Gere, Russo, Brady and Sullivan, which provides a preretirement net death
benefit of 1-1/2 times base salary at date of death.
Defined Contribution Plan - The Company matches 100% of that portion of the
contribution which does not exceed 1% of basic pay plus an additional 50% of
that portion from 2% to 6% of basic pay. Distributions under the Plan are made
upon normal retirement, total and permanent disability or death and are subject
to certain vesting provisions as to Company contributions. During 1995, this
Plan was converted from an after tax plan to a 401(k) pre tax plan.
Compensation of Directors
A director who is not an officer of the Company or its subsidiary is paid
an annual retainer of $6,000, increased from $5,400 and a fee of $500 for
attendance at Board of Directors (Board) meetings, a fee of $250 for attendance
at special meetings of the Board, and a fee of $150 for attendance at special
Board committee meetings by means of communications facilities, and a fee of
$350, increased from $300 for each committee meeting attended. Committee
chairmen receive an additional $200 for each committee meeting chaired.
Directors who are officers of the Company are paid a fee of $250 for each
meeting of the Board attended. Directors of all subsidiaries, except USA receive
$50 for attendance at Board meetings. All fee increases were effective February
1, 1996.
Compensation Committee Interlocks and Insider Participation
During 1995, the members of the Executive Development and Compensation
Committee were William E. Scott, Stephen H. Mundy, and Jeffries Shein. During
1995 no member of the Executive Development and Compensation Committee was an
officer or employee of the Company or a subsidiary. Mr. Stephen H. Mundy has a
financial interest in a construction company that was awarded a contract in the
amount of $0.9 million in 1995.
Report of the Executive Development and Compensation Committee
The compensation program for executive officers of the Company is
administered by the Executive Development and Compensation Committee of the
Board of Directors. The 1995 Committee was composed of three independent
directors: William E. Scott, Stephen H. Mundy and Jeffries Shein. The Committee
is responsible for setting and administering the policies which govern annual
compensation and Restricted Stock awards. Policies and plans developed by the
Committee are approved by the full Board of Directors.
- 15 -
<PAGE>
The Committee's compensation policies and plans applicable to the executive
officers seek to enhance the profitability of the Company and shareholder value,
as well as control costs and maintain reasonable rates for the customers. The
Committee's practices reflect policies that compensation should (1) attract and
retain well-qualified executives, (2) support short- and long-term goals and
objectives of the Company, (3) reward individuals for outstanding contributions
to the Company's success, (4) be meaningfully related to the value created for
shareholders, and (5) relate to maintenance of good customer relations and
reasonable rates.
The Committee meets with Mr. Tompkins to evaluate the performance of the
other executive officers and meets in the absence of Mr. Tompkins to evaluate
his performance. The Committee reports on all executive evaluations to the full
Board of Directors.
Base salary levels are reviewed annually using compensation data produced
by an outside compensation expert for similar positions and comparable
companies. Base salaries for satisfactory performance are targeted at the median
of the competitive market. Individual performance of the executive is determined
and taken into account when setting salaries against the competitive market
data. The Committee reviews, as well, the individual's efforts on cost control
and his or her contributions to the results of the year. The Committee also
reviews the Company's financial results compared with prior years and compared
with other companies. It compares salaries with both water and general industry
salaries.
The factors and criteria upon which Mr. Tompkins' compensation was based
generally include those discussed with respect to all the executive officers.
Specifically, however, his salary is based on his overall performance and that
of the Company. His salary was set at a rate which was approximately the median
of the utility market and below that of the general industry. In addition, in
evaluating the performance of the CEO, the Committee has taken particular note
of management's success with respect to the growth of the Company.
The Company maintains a restricted stock plan for the purpose of attracting
and retaining certain key employees of the Company who have contributed, or are
likely to contribute, significantly to the long-term performance and growth of
the Company. This plan is designed to enhance financial performance, customer
service and corporate efficiency through a performance-based stock award. Annual
stock awards are based upon several factors including the participant's ability
to contribute to the overall success of the Company.
The level of awards and the value of the performance are reviewed annually
by the Committee. The Committee submits reports on all executive evaluations and
restricted stock awards to the full Board of Directors for approval.
1996 Executive Development and
Compensation Committee
Jeffries Shein, Chairman
Stephen H. Mundy
William E. Scott
- 16 -
<PAGE>
Performance Graph
Set forth below is a line graph comparing the yearly change in the
cumulative total return (which includes reinvestment of dividends) of a $100
investment for the Company's Common Stock, the NASDAQ and a peer group of
investor-owned water utilities for the period of five years commencing December
31, 1990. The peer group includes Aquarion Company, California Water Service
Company, Connecticut Water Service, Inc., Consumers Water Company, E'town
Corporation, IWC Resources Corporation, Philadelphia Suburban Corporation, SJW
Corporation, Southern California Water Company, United Water Resources and the
Company.
[GRAPHIC]
In the printed document there is a line graph depicting the following:
- --------------------------------------------------------------------------------
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- --------------------------------------------------------------------------------
MSEX $100 $130 $171 $226 $183 $219
- --------------------------------------------------------------------------------
NASDAQ 100 161 187 215 210 296
- --------------------------------------------------------------------------------
Peer Group 100 130 146 166 155 177
- --------------------------------------------------------------------------------
- 17 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information made known to the Company as of
December 31, 1995 of any person or group to be a beneficial owner of more than
five percent of the Company's Common Stock.
Number of Shares
Beneficially Owned
and Nature of Percent
Name and Address Beneficial Ownership(1) of Class
---------------- -------------------- --------
PNC Bank Corp. 299,602 7.24
One PNC Plaza
Pittsburgh, PA 15265
(1) Beneficial owner has sole power to vote and dispose of shares.
The following information pertains to the Common Stock of the Company
beneficially owned, directly or indirectly, by all Directors and Officers of the
Company as a group, as of December 31, 1995.
Common Stock
------------
Number Percent
of of
Shares Class
------ -----
Walter J. Brady 7,022 .17
Ernest C. Gere 6,490 .16
Stephen H. Mundy 30,154 .73
A. Bruce O'Connor 1,632 .04
Philip H. Reardon 4,487 .10
Marion F. Reynolds 7,562 .18
Richard A. Russo 6,702 .16
Carolina M. Schneider 7,920 .19
William E. Scott 5,071 .12
Jeffries Shein 53,534 1.29
Dennis G. Sullivan 6,568 .16
J. Richard Tompkins 16,958 .41
Ronald F. Williams 48 -
Joseph S. Yewaisis 1,871 .05
------- ----
Totals 156,019 3.76
======= ====
No Preferred Stock is beneficially owned, directly or indirectly by any Officer
or Director.
Item 13. Certain Relationships and Related Transactions
During 1995, 1994 and 1993, the Company had transactions with a
construction company in which a Director has a financial interest. Major
construction transactions were awarded on the basis of negotiated bids approved
by the Board of Directors (with the interested
- 18 -
<PAGE>
Director abstaining) and amounted to $0.9 million, $0.6 million and $0.6 million
for the years 1995, 1994 and 1993, respectively. These amounts included less
than $0.1 million due the construction company at December 31, 1995, 1994 and
1993.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following information is incorporated herein by reference to the attached
Exhibit 13, 1995, Annual Report to Shareholders, pages 8 through 21:
Management's Discussion and Analysis, Pages 8-9
Consolidated Balance Sheets at December 31, 1995, and 1994, Pages 10-11
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1995, Page 12
Consolidated Statements of Capital Stock and Long-term Debt at December 31,
1995, and 1994 Page 13
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1995, Page 14
Consolidated Statements of Retained Earnings for each of the three years in the
period ended December 31, 1995, Page 15
Notes to Consolidated Financial Statements, Pages 15-20
Independent Auditors' Report, Page 20
(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 21-23.
(b) Reports on Form 8-K
None
- 19 -
<PAGE>
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 /J. Richard Tompkins/ 3/28/96
------------------------------------
J. Richard Tompkins Date
Senior Vice President & Chief
Financial Officer and Director /Ernest C. Gere/ 3/28/96
------------------------------------
Ernest C. Gere Date
Vice President and Controller /A. Bruce O'Connor/ 3/28/96
Principal Accounting Officer ------------------------------------
A. Bruce O'Connor Date
Executive Vice President and /Richard A. Russo/ 3/28/96
Director ------------------------------------
Richard A. Russo Date
Director /Stephen H. Mundy/ 3/28/96
------------------------------------
Stephen H. Mundy Date
Director /Philip H. Reardon/ 3/28/96
------------------------------------
Philip H. Reardon Date
Director /Carolina M. Schneider/ 3/28/96
------------------------------------
Carolina M. Schneider Date
Director /William E. Scott/ 3/28/96
------------------------------------
William E. Scott Date
Director /Jeffries Shein/ 3/28/96
------------------------------------
Jeffries Shein Date
Director /Joseph S. Yewaisis/ 3/28/96
------------------------------------
Joseph S. Yewaisis Date
- 20 -
<PAGE>
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 1993
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 No. 4,
Form S-3, under Securities Act of 1933 filed
May 28, 1993, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
10.1 Agreement, dated December 4, 1990, between
the Company and Elizabethtown Water Company. 33-54922 10.1
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, April 1, 1946, April 1,
1949, February 1, 1955 and December 1, 1959. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indenture, dated as
of January 15, 1963, between the Company
and Union County Trust Company, as Trustee. 2-21470 4(b)
10.4 Copy of Supplemental Indentures, dated as
of July 1, 1964, June 1, 1965, February 1, 1968,
December 1, 1968, December 1, 1970, December 1,
1972 and June 15, 1991, between the Company and 10.4 - 10.9
Union County Trust Company, as Trustee 33-54922 and 10.16
- 21 -
<PAGE>
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- ----------------------------- ------------ -------
10.5 Copy of Supplemental Indenture, dated as of
April 1, 1979, between the Company and United
Counties Trust Company, as successor Trustee. 2-64770 5.9
10.6 Copy of Supplemental Indenture, dated as of
April 1, 1983, between the Company and United
Counties Trust Company, as successor Trustee. 2-94106 10.12
10.7 Copy of Supplemental Indenture, dated as of
August 15, 1988, between the Company and United
Counties Trust Company, as Trustee. 33-31476 4.3
10.8 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
10.9 Copy of Supply Agreement, dated as of November
17, 1986, between the Company and the Old Bridge
Municipal Utilities Authority. 33-31476 10.12
10.10 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
10.11 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.
10.12 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.
10.13 Copy of Treating and Pumping Agreement, dated
April 9, 1984, between the Company and the
Township of East Brunswick. 33-31476 10.17
10.14 Copy of Supply Agreement, dated June 4, 1990,
between the Company and Edison Township. 33-54922 10.24
- 22 -
<PAGE>
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- ----------------------------- ------------ -------
10.15 Copy of Supply Agreement, dated as of December 5,
1991, between the Company and the Borough of
Highland Park. 33-54922 10.25
10.16 Copy of Pipeline Lease Agreement, dated as of
January 9, 1987, between the Company and the
City of Perth Amboy. 33-31476 10.20
10.17 Copy of Supplemental Executive Retirement
Plan, effective January 1, 1984, as amended. 33-31476 10.21
10.18 Copy of 1989 Restricted Stock Plan, filed as
Appendix A to the Company's Definitive Proxy
Statement, dated April 19, 1989, and filed
April 5, 1989. 33-31476 10.22
10.19 Amendment to Supplemental Executive Retirement
Plan, dated May 23, 1990, filed as Exhibit No. 10.23
of 1991 Form 10-K.
10.20 Copy of Transmission Agreement, dated October 16,
1992, between the Company and the Township of
East Brunswick. 33-54922 10.23
10.21 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
10.22 Copy of Supplemental Indentures, dated March 1,
1993 (Series P-1), 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.
10.23 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.
*13 Annual Report to Shareholders for the year ended
December 31, 1995, pages 8 through 21.
*23 Independent Auditors' Consent.
*27 Financial Data Schedule
- 23 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company's expenditures on property, plant and equipment during 1995 totaled
$9.0 million and consisted of the following: $2.3 million for the utility plant
purchased by the Pinelands Companies; $3.8 million for routine capital
additions, which include transmission and distribution mains, hydrants, service
lines, meters, and general equipment; $0.6 million for the Route 1 main
relocation; $0.3 million for the South Amboy Transmission Main; and $2.0 million
for water systems development in Delaware. These expenditures were financed by
some utilization of the December 31, 1994 cash balance, internally-generated
funds from operations, the sale of common stock through the Dividend
Reinvestment Plan and proceeds from the amortizing secured term note.
The Company has projected capital expenditures of $12.9 million, $17.6 million,
and $16.0 million, for 1996, 1997, and 1998, respectively. For 1996, $5.0
million is for routine capital expenditures; $2.6 million for water systems
additions and improvements in Delaware; $1.0 million for plant modifications and
improvements; $3.5 million for treatment of well supplies; $0.2 million for the
South River Basin regional supply; and $0.6 million for miscellaneous items. For
1997 and 1998 combined, $11.1 million is for routine capital expenditures; $21.1
million for treatment plant modifications and improvements; $0.5 million for the
South River Basin regional supply; and $0.9 million for miscellaneous items.
Sources of Capital - To finance the 1996 Capital Program, the Company will
utilize the balance available under the amortizing secured term note,
internally-generated cash and cash balances on hand at December 31, 1995, and
possibly short-term borrowings through available lines of credit. The 1997 and
1998 Capital Programs, although not firm at this time, will require some form of
external financing.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Operating revenues increased $1.7 million or 4.8% over the previous year. Of
that amount, $0.5 million is due to the inclusion of the Pinelands Companies for
almost nine months during 1995. The remainder is the result of increased
consumption, which is due to Tidewater increasing their customer base by 13% and
the extended dry weather pattern during the summer.
Operations and maintenance expenses increased by $0.8 million or 4.6% over 1994.
Of this increase, $0.4 million relates to the inclusion of the Pinelands
Companies. Additionally, there were increases in water treatment of $0.3
million; pumping expenses of $0.2 million; and transmission and distribution
expenses of $0.2 million; which were offset by decreases in purchased water of
$0.2 million; and administrative and general expenses of $0.1 million.
Depreciation increased $0.2 million or 6.2% due to a higher depreciation base
and the inclusion of the newly acquired subsidiaries. Taxes, other than income
taxes, increased $0.1 million or 2.5% due largely to higher revenue-related
taxes. Federal income taxes increased $0.2 million due to higher taxable income.
Net income increased 3.8% reflecting overall higher revenues, continued
monitoring of operating expenses, and a noted increase in Tidewater's customer
base.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' which requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The FASB also issued SFAS No. 123, 'Accounting for Stock-Based
Compensation.' SFAS No. 123, establishes financial accounting and reporting
standards for stock-based compensation plans. The Company is evaluating the
requirements of SFAS No. 121 and No. 123, both of which must be adopted in
fiscal year 1996 and currently believes that they will not have a material
impact on its results of operations or cash flows.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Operating revenues increased $0.6 million or 1.7% over the previous year. Of
that amount, $1.0 million is due to the 1993 rate increase, and $0.4 million is
due to a decrease in consumption for all classes of customers.
Operations and maintenance expenses increased by $0.2 million or 1.3% over 1993.
The principal components of the increase were for administrative and general
expenses and purchased water.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Depreciation increased $0.3 million or 11.5% due to a higher depreciation base
and a higher depreciation rate of 2.17% granted as part of the 1993 rate
increase. Taxes, other than income taxes, increased $0.1 million or 2.3% due
largely to higher revenue-related taxes. Federal income taxes decreased $0.3
million due to lower taxable income. The other income decreased $0.3 million due
to lower earnings on investments, less funds available for investments, and no
Allowance for Funds Used During Construction (AFUDC). The decrease in preferred
stock dividends reflects the redemption of the $8.25 and $6.00 Redeemable Series
and partial redemption of the $7.00 Series.
Net income remained stable despite the less than 2% increase in revenues. This
was accomplished by continued monitoring of operating expenses, lower taxes and
interest charges, and higher earnings from Tidewater operations.
OUTLOOK FOR 1996
The Company expects modest gains in revenue with the continued growth
opportunities in Delaware, the full effect of the service contract with South
Amboy and anticipated rate relief for the Pinelands Companies by the fourth
quarter. A projected favorable inflation rate, along with low interest rates,
are just two of the tools that will assist management in our effort to monitor
and control costs and finance future growth at a reasonable cost. The need for
base rate case filings for Middlesex and Tidewater will be evaluated if there
are deviations from projected growth and consumption levels. Constant monitoring
will assure that timely rate relief will be sought.
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 generally
accepted accounting principles 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.
J. RICHARD TOMPKINS ERNEST C. GERE A. BRUCE O'CONNOR
J. Richard Tompkins Ernest C. Gere A. Bruce O'Connor
Chairman of the Board Senior Vice President & Chief Vice President and
and President Financial Officer Controller
February 14, 1996
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITY PLANT Water Production $ 27,598,613 $ 25,612,023
(NOTE 5): Transmission and Distribution 97,359,802 93,334,300
General 18,169,056 11,202,947
Construction Work in Progress 1,207,538 262,249
------------------------------------------------------------------------------------------------
TOTAL 144,335,009 130,411,519
Less Accumulated Depreciation 26,402,377 21,668,506
------------------------------------------------------------------------------------------------
UTILITY PLANT - NET 117,932,632 108,743,013
------------------------------------------------------------------------------------------------
NONUTILITY ASSETS - NET 1,735,048 400,209
- ----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS: Cash and Cash Equivalents 4,900,640 3,854,186
Marketable Securities 1,548 933,298
Temporary Cash Investments - Restricted 77,190 289,552
Accounts Receivable 4,224,653 4,236,800
Unbilled Revenues 2,170,143 2,143,795
Materials and Supplies (at average cost) 1,030,801 991,116
Prepayments 584,124 503,808
------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,989,099 12,952,555
------------------------------------------------------------------------------------------------
DEFERRED Unamortized Debt Expense 2,969,281 3,082,420
CHARGES: Preliminary Survey and Investigation Charges 833,869 653,328
Regulatory Assets:
Income Taxes (Note 3) 6,052,524 4,950,522
Postretirement Costs (Note 4) 1,108,009 868,008
Other (Note 2) 1,201,745 762,703
------------------------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES 12,165,428 10,316,981
------------------------------------------------------------------------------------------------
TOTAL $144,822,207 $132,412,758
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Capitalization and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITALIZATION Common Stock $ 28,820,844 $ 27,151,673
(SEE ACCOMPANYING Retained Earnings 18,822,817 17,699,422
STATEMENTS AND ----------------------------------------------------------------------------------------------
NOTE 9): TOTAL COMMON EQUITY 47,643,661 44,851,095
----------------------------------------------------------------------------------------------
Cumulative Preferred Stock 2,666,305 2,790,105
Long-term Debt 52,960,000 49,500,000
----------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION 103,269,966 97,141,200
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT Accounts Payable 1,521,515 1,616,945
LIABILITIES: Current Portion of Long-term Debt 240,000 --
Customer Deposits 348,631 308,174
Taxes Accrued 4,321,919 4,444,372
Interest Accrued 1,216,851 1,134,223
Other 1,161,630 877,283
----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,810,546 8,380,997
- ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 5)
- ---------------------------------------------------------------------------------------------------------------------------
DEFERRED Customer Advances for Construction 9,207,565 9,199,363
CREDITS: Accumulated Deferred Investment Tax Credits (Note 3) 2,380,416 2,452,096
Accumulated Deferred Federal Income Taxes (Note 3) 11,147,627 9,767,241
Other 1,985,654 1,312,961
----------------------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS 24,721,262 22,731,661
----------------------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 8,020,433 4,158,900
----------------------------------------------------------------------------------------------
TOTAL $144,822,207 $132,412,758
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
OPERATING REVENUES (NOTE 2) $37,846,899 $36,122,475 $35,478,810
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Operations:
Water Purchased (Note 5) 2,656,423 2,769,265 2,749,514
Other 13,323,581 12,567,008 12,441,830
Maintenance 1,686,051 1,549,970 1,460,476
Depreciation 2,813,927 2,649,657 2,375,910
Taxes, other than Income Taxes 5,479,299 5,343,563 5,222,320
Federal Income Taxes (Note 3) 2,975,227 2,766,361 3,072,303
- ------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 28,934,508 27,645,824 27,322,353
- ------------------------------------------------------------------------------------------------------------
OPERATING INCOME 8,912,391 8,476,651 8,156,457
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME/(EXPENSE):
Allowance for Funds Used During
Construction - Equity 21,654 -- 166,724
Other - Net (115,539) 62,418 170,922
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME/(EXPENSE) (93,885) 62,418 337,646
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 8,818,506 8,539,069 8,494,103
- ------------------------------------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on Long-term Debt 2,922,008 2,882,731 2,772,227
Allowance for Funds Used During
Construction - Debt (5,606) -- (108,398)
Amortization of Debt Expense 121,138 118,657 144,043
Other Interest Expense 77,222 42,309 206,605
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST CHARGES 3,114,762 3,043,697 3,014,477
- ------------------------------------------------------------------------------------------------------------
NET INCOME 5,703,744 5,495,372 5,479,626
- ------------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 158,932 188,357 255,722
- ------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $5,544,812 $ 5,307,015 $ 5,223,904
- ------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
- ------------------------------------------------------------------------------------------------------------
Earnings $ 1.36 $ 1.33 $ 1.33
Dividends Paid $ 1.08 1/2 $ 1.05 3/4 $ 1.01 1/4
Average Number of Shares Outstanding 4,078,890 4,003,393 3,924,363
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, No Par Value (Notes 4 and 9)
Shares Authorized - 6,000,000
Shares Outstanding - 1995 - 4,136,972 $29,110,095
1994 - 4,030,834 $27,412,913
Restricted Stock Plan (289,251) (261,240)
- ----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK $28,820,844 $27,151,673
- ----------------------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 9)
Shares Authorized - 69,418
Convertible:
Shares Outstanding, $7.00 Series - 14,901 $ 1,564,605 $ 1,564,605
Nonredeemable:
Shares Outstanding, $7.00 Series - 1995 - 1,017 101,700
1994 - 2,255 225,500
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------
TOTAL CUMULATIVE PREFERRED STOCK $ 2,666,305 $ 2,790,105
- ----------------------------------------------------------------------------------------------------------
Long-term Debt (Note 9):
8.02%, Amortizing Secured Note, due December 20, 2021 $ 2,500,000 $ --
7.00%, Promissory Notes due April 21, 2000 1,200,000 --
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
- ----------------------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT $53,200,000 $49,500,000
- ----------------------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (240,000) --
- ----------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $52,960,000 $49,500,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 5,703,744 $ 5,495,372 $ 5,479,626
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,925,928 2,961,727 2,789,869
Provision for Deferred Income Taxes 278,384 639,381 5,882
Allowance for Funds Used During Construction (27,260) -- (275,122)
Changes in Current Assets and Liabilities:
Accounts Receivable 12,147 (694,293) (691,296)
Materials and Supplies (36,907) (24,109) (49,290)
Accounts Payable (95,430) 144,923 (609,161)
Accrued Income Taxes (122,453) 77,450 610,448
Accrued Interest 82,628 191,728 (190,808)
Unbilled Revenues (26,348) 102,820 (254,393)
Other - Net 227,334 (53,483) 209,890
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,921,767 8,841,516 7,025,645
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (8,990,408) (5,979,113) (6,910,274)
Notes Receivable (1,250,000) -- --
Preliminary Survey & Investigation Charges (180,541) 11,819 (103,664)
Marketable Securities 931,750 (933,298) --
Other - Net (93,919) (345,778) (374,369)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (9,583,118) (7,246,370) (7,388,307)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt -- (12,500,000) (24,050,000)
Proceeds from Issuance of Long-term Debt 3,700,000 25,000,000 18,500,000
Temporary Cash Investments - Restricted 212,362 2,633,653 896,173
Proceeds from Issuance of Common Stock - Net 1,669,171 928,459 1,579,332
Deferred Debt Issuance Expenses (53,719) (1,167,605) (1,009,839)
Payment of Preferred Dividends (158,497) (180,006) (287,461)
Payment of Common Dividends (4,421,852) (4,231,410) (3,971,830)
Construction Advances and Contributions - Net 884,140 878,204 1,205,394
Redemption of Preferred Stock (123,800) (1,248,500) (66,000)
Short-term Bank Borrowings (Repayments) -- (9,000,000) 7,950,000
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,707,805 1,112,795 745,769
- ---------------------------------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS 1,046,454 2,707,941 383,107
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,854,186 1,146,245 763,138
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,900,640 $ 3,854,186 $ 1,146,245
- ---------------------------------------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction.
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 2,877,483 $ 2,722,327 $ 2,874,586
Income Taxes $ 3,078,000 $ 2,453,936 $ 3,028,767
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $17,699,422 $16,615,466 $15,426,065
NET INCOME 5,703,744 5,495,372 5,479,626
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 23,403,166 22,110,838 20,905,691
CASH DIVIDENDS:
Cumulative Preferred Stock 158,497 180,006 287,461
Common Stock 4,421,852 4,231,410 3,971,830
COMMON STOCK EXPENSES -- -- 30,934
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS 4,580,349 4,411,416 4,290,225
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $18,822,817 $17,699,422 $16,615,466
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
________________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization - Middlesex Water Company (Middlesex or the Company) is the
parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater),
Pinelands Water Company, Pinelands Wastewater Company, and Utility Service
Affiliates, Inc., (USA). White Marsh Environmental Systems, Inc., is a wholly-
owned subsidiary of Tidewater. The financial statements for Middlesex and its
wholly-owned subsidiaries (Consolidated Group) 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).
(c) Utility Plant - 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. Middlesex and Tidewater
capitalize an Allowance for Funds Used During Construction on individual
projects with costs exceeding specific thresholds for each company. Depreciation
is computed by each regulated member of the Consolidated Group 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. 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.
(d) Marketable Securities - Short-term investments in U.S. Treasury Bills not
otherwise reported as cash equivalents are recorded at cost, which approximates
market value.
(e) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 1995, 1994 and 1993, and the corresponding expense and deduction
for those years, is each less than $0.1 million.
(f) Revenues - In general, revenues are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for water used
subsequent to the last billing cycle. Service charges are billed in advance by
two subsidiaries and are recognized in revenue as the service is provided.
(g) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues. As authorized by the BPU, main cleaning and lining costs are
being amortized over a 14-year period; depreciation study, the alternate
treatment pilot study and acquisition costs over 36 months; and rate case
expenses over 18 months.
(h) Income Taxes - Middlesex files a consolidated Federal income tax return for
the Consolidated Group and income taxes are allocated based on the separate
return method. Investment tax credits have been deferred and are being amortized
over the estimated useful life of the related property.
(i) 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, commercial
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
paper, money market funds, and U.S. Treasury Bills maturing in less than 90
days.
(j) Use of Estimates - Conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from those
estimates.
(k) The FASB issued SFAS No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of,' which requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The FASB also issued SFAS No. 123, 'Accounting for Stock-Based
Compensation.' SFAS No. 123 establishes financial accounting and reporting
standards for stock-based compensation plans. The Company is evaluating the
requirements of SFAS No. 121 and No. 123, both of which must be adopted in
fiscal year 1996 and currently believes that they will not have a material
impact on its results of operations or cash flows.
(l) Certain prior year amounts have been reclassified to conform to the current
year reporting.
NOTE 2 - RATES AND REVENUES
On April 30, 1993, the BPU approved a stipulation agreed to by the parties to
Middlesex's rate case which was filed in September 1992. The stipulation allowed
for an overall rate increase of 9.33% or $2.8 million, which was implemented on
May 1, 1993, based upon several elements, including an 11.5% return on equity,
an increased depreciation rate of 2.17% and the addition of two significant
construction projects to Utility Plant in the amount of $13.4 million.
On April 21, 1995, the BPU approved the $2.3 million asset purchase of a 2,200
customer water utility and a 2,200 customer wastewater utility by Pinelands
Water Company and Pinelands Wastewater Company, respectively. The transaction
was financed by a combination of cash on hand and promissory notes (see Note 9).
These systems, which are located in Burlington County, New Jersey, will not have
any material impact on the Company's revenues and will require substantial rate
increases to attain profitability. Applications for rate relief, which will
include the recovery of an acquisition adjustment, are expected to be filed
during the first quarter of 1996.
On July 13, 1995, Middlesex received approval from the BPU for a Purchased Water
Adjustment Clause (PWAC) rate decrease pertaining to $0.1 million of lower
costs. A PWAC is a regulatory vehicle that allows New Jersey water utilities to
pass along to, or credit, customers' changes in the cost of purchasing water,
without the need for filing a full base rate case. A PWAC was first implemented
by Middlesex in July 1994, which allowed for the recovery of $0.1 million of
increased costs. The Company expects to file a petition with the BPU during the
first quarter of 1996 seeking to change the PWAC for anticipated changes in
purchased water costs.
Included in Deferred Charges-Other is $0.1 million of deferred costs at December
31, 1995, which Middlesex is recovering through rates over periods ranging from
3 to 14 years. The BPU has excluded these costs from rate base and, therefore,
Middlesex is not earning a return on these costs during the recovery period.
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------
Income Tax at Statutory Rate of
34% $ 2,951 $ 2,809 $ 2,908
Tax Effect of:
Allowance for Funds Used
During Construction (9) -- (94)
Other 33 (43) 258
- -----------------------------------------------------------------
Total Federal Income Tax Expense $ 2,975 $ 2,766 $ 3,072
- -----------------------------------------------------------------
Federal income tax expense is comprised of the following:
Current $ 2,726 $ 2,219 $ 3,124
Deferred:
Customer Advances (265) (123) (217)
Accelerated Depreciation 637 617 730
Revenue Taxes (6) (403) (400)
Bond Redemptions (16) 477 --
Investment Tax Credit (72) (72) (69)
Other (29) 51 (96)
- -----------------------------------------------------------------
Total Federal Income Tax Expense $ 2,975 $ 2,766 $ 3,072
- -----------------------------------------------------------------
</TABLE>
The statutory review period for income tax returns for the years prior to 1992
have been closed.
The Company adopted SFAS No. 109, 'Accounting for Income Taxes', effective
January 1, 1993. Adoption of this statement requires that deferred income taxes
be set up 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 is to be recorded
by the Company. Management believes that it is probable that the consolidated
deferred income tax liability of approximately $6.1 million, resulting from the
adoption of SFAS No. 109, will be recovered in future rates and, therefore, a
regulatory asset has been set up to offset the increased liability. The adoption
of SFAS No. 109 did not have an effect on the Consolidated Statements of Income.
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:
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1995 1994
<S> <C> <C>
- -------------------------------------------------------------
Utility Plant Related $ 15,180 $ 13,613
Customer Advances (3,856) (3,740)
Other (176) (106)
- -------------------------------------------------------------
Total Deferred Tax
Liability $ 11,148 $ 9,767
- -------------------------------------------------------------
</TABLE>
NOTE 4 - EMPLOYEE BENEFIT PLANS
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 annual contributions to the plan consistent with the funding requirements
of Federal laws and regulations.
Pension expense for 1995, 1994 and 1993 was $372,000, $218,000, and $240,000,
respectively.
Plan assets consist primarily of corporate equities, cash equivalents, and stock
and bond funds. The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheets.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------
Actuarial present value of plan benefits:
Vested benefits $ (8,172) $ (7,021)
Nonvested benefits (31) (43)
Impact of estimated future
compensation charges (2,964) (2,479)
- ---------------------------------------------------------------
Projected plan benefits (11,167) (9,543)
Plan assets at fair value 11,705 9,443
- ---------------------------------------------------------------
Plan assets in excess of
projected plan benefits 538 (100)
Unrecognized net obligation 86 100
Unrecognized net gain (701) (77)
- ---------------------------------------------------------------
Accrued pension cost recognized
in the balance sheet $ (77) $ (77)
- ---------------------------------------------------------------
Net pension cost includes the following components:
Service cost benefits earned
during the period $ 344 $ 309
Interest cost on projected
benefit obligation 763 698
Return on plan assets (749) (788)
Net amortization and deferral 14 (1)
- ---------------------------------------------------------------
Net pension cost $ 372 $ 218
- ---------------------------------------------------------------
</TABLE>
The assumptions used in determining the actuarial present value of the projected
obligation at December 31, 1995, and December 31, 1994, were discount rates of
7.25% and 8.0% and compensation increases of 4.75% and 5.5%, respectively. The
expected long-term rate of return on plan assets used in determining net
periodic cost was 8.0%.
Effective January 1, 1993, the Company adopted SFAS No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions.' SFAS No. 106
requires employers to accrue the estimated cost of retiree benefit payments
during the years the employee provides services.
The Company previously expensed the cost of these benefits, which are
principally health care, as premiums were incurred. SFAS No. 106 allows
recognition of the cumulative effect of the liability in the year of the
adoption or the amortization of the obligation over a period of up to 20 years.
Middlesex elected to recognize this obligation of $4.7 million over a period of
20 years.
Middlesex provides certain health care and life insurance benefits for
substantially all of its retired employees. In 1995, 1994 and 1993, the Company
recognized $185,000, $176,000, and $168,000, respectively, as an expense for
postretirement health care and life insurance benefits. The plan's funded status
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Retirees $ 1,623 $ 1,461
Fully eligible plan
participants 776 582
Other active plan participants 758 815
- -------------------------------------------------------------
Accumulated postretirement
benefit obligation 3,157 2,858
- -------------------------------------------------------------
Plan assets at fair value -- --
Unrecognized net gain 1,948 2,242
Unrecognized prior service cost -- --
Unrecognized transition
obligation (3,997) (4,232)
- -------------------------------------------------------------
Accrued postretirement benefit
obligation $ 1,108 $ 868
- -------------------------------------------------------------
</TABLE>
Net postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned
during the year $ 83 $ 87
Interest cost on accumulated
postretirement benefit
obligation 212 218
Amortization of net gain (105) (104)
Amortization of transition
obligation 235 235
Regulatory deferral (240) (260)
- --------------------------------------------------------------
Net postretirement benefit cost $ 185 $ 176
- --------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for 1995 was 8% decreasing linearly each
successive year until it reaches 5% in 1998, after which it remains constant. A
one percentage point increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation by 15% and the 1995
net postretirement benefit cost by approximately 11%. The assumed discount rate
used in determining the accumulated postretirement benefit
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
obligation in 1995 and 1994 was 7.25% and 8%, respectively.
Middlesex sought rate relief for the increased costs in the 1993 stipulated rate
case. The stipulation, approved by the BPU, provided that the costs 'will
continue to be included in Petitioner's cost of service for ratemaking purposes
and recoverable in rates on a pay-as-you-go basis; and the costs prudently
incurred and booked in accordance with SFAS No. 106 will be recoverable in
future rates; and Middlesex will account for the difference between the accrued
costs as determined under SFAS No. 106 and the level of pay-as-you-go costs
built into rates as a regulatory asset pursuant to SFAS No. 71, 'Accounting for
the Effects of Certain Types of Regulation.' SFAS No. 71 allows regulated
entities to defer costs that are normally expensed, where it is probable by the
actions of the regulator, that recovery in future rates is allowable. The
regulatory asset at December 31, 1995 and 1994 was $1.1 million and $0.9
million, respectively.'
The stipulation also provided that 'the issue of cash versus accrual accounting
should be revisited, and, to the extent that it is determined that proper
ratemaking policy or regulations or policy statements issued by the Financial
Accounting Standards Board or the Securities and Exchange Commission require a
change to accrual accounting for ratemaking purposes, the accumulated regulatory
asset will be recoverable in rates over an appropriate amortization period.'
The Company maintains a restricted stock plan, under which 38,900 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 60,000
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. The
expenses for 1995, 1994 and 1993 were not considered material.
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES
Service Agreement - On May 19, 1995, Middlesex and USA jointly entered into a
five-year contract with the City of South Amboy to operate and maintain the
City's 2,600 customer water system. The Contract, which is subject to renewal
for three future five-year periods, is expected to produce approximately $1.5
million in revenues for the first five years with only a minimal impact on
earnings.
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 minimum purchased
under the contract for 1994 and 1993 was 2 mgd. The 1995, 1994 and 1993 costs
under this agreement were $0.9 million, $1.0 million and $0.9 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. In addition,
the Company has a supplemental one-year agreement for an additional 5 mgd
renewed through April 30, 1996. This agreement is renewable on an annual basis.
The total costs for 1995, 1994 and 1993 were $1.7 million, $1.8 million and $1.9
million, respectively.
Construction - The Company plans to spend approximately $12.9 million in 1996 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 local entity and its owner have filed a negligence claim against
the Company, for which the Company is insured, with a claim for punitive damages
which may not be insured. Their action alleges financial losses arising out of
improper water pressure and service. An amendment to the claim alleges damages
resulting from some poor quality water. Other parties who dealt with the
claimants have joined the matter. Without taking a position on the negligence
claim, the Company does not believe that the claim for punitive damages will
prevail. While the outcome of this case is not presently determinable,
management believes that the final resolution will not have a significant effect
on the Company's financial position or results of operations or cash flows.
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Established Lines of Credit $20,000 $15,500 $20,000
Amounts Outstanding at
December 31 -- -- 9,000
Maximum Amount Outstanding -- 11,000 9,000
Average Outstanding Balance -- 1,769 5,435
Weighted Average Interest Rate -- 3.4% 3.5%
</TABLE>
Short-term borrowings are generally below the prime rate with no requirements
for compensating balances.
Temporary cash investments of $0.1 million at the end of 1995 represented the
balance of New Jersey Economic Development Authority (NJEDA) Bond Proceeds held
in trust and its use is restricted to specific expenditures.
As part of the service agreement with the City of South Amboy, on June 1, 1995,
USA made an investment in the form of a loan of $1.25 million, which is included
in nonutility assets on the Consolidated Balance Sheet. Principal repayment and
the interest rate are based upon renewal provisions of the contract.
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1995, 1994 and 1993, the Company had transactions with a construction
company in which a Director has a financial interest. Major construction
transactions were awarded on the basis of negotiated bids approved by the Board
of Directors (with the interested Director abstaining) and amounted to $0.9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
million, $0.6 million and $0.6 million for the years 1995, 1994 and 1993,
respectively. These amounts included less than $0.1 million due the construction
company at December 31, 1995, 1994 and 1993.
NOTE 8 - QUARTERLY OPERATING RESULTS - UNAUDITED
Quarterly operating results for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER YEAR
1995 (THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Operating Revenues $ 8,740 $ 9,608 $10,447 $ 9,052 $37,847
Operating Income 1,970 2,285 2,788 1,869 8,912
Net Income 1,213 1,507 1,922 1,062 5,704
Earnings per Common
Share $ 0.29 $ 0.36 $ 0.46 $ 0.25 $ 1.36
1994
- ----------------------------------------------------------------------------------
Operating Revenues $ 8,569 $ 9,196 $ 9,457 $ 8,900 $36,122
Operating Income 1,933 2,214 2,426 1,904 8,477
Net Income 1,208 1,520 1,617 1,150 5,495
Earnings per Common
Share $ 0.29 $ 0.37 $ 0.39 $ 0.28 $ 1.33
</TABLE>
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.
NOTE 9 - CAPITALIZATION
All the transactions discussed in Note 9 related to the issuance or redemption
of securities were approved by the BPU, except where noted.
Common Stock
In May 1993, the number of shares available for issue and sale under the
Company's Dividend Reinvestment and Common Stock Purchase Plan (DRP) was
increased by 500,000 to a total of 900,000 shares. The cumulative number of
shares issued under the DRP at December 31, 1995 is 629,466.
During 1995, 1994 and 1993, 106,138 shares ($1.7 million), 51,447 shares ($0.9
million), and 88,416 shares ($1.6 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, 1995, 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. At December 31,
1995, no dividends were in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock, which is effective in 1997, 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.
On February 1, 1994, the Company redeemed and retired all the outstanding
preferred shares of the $6.00 Series (7,800 shares) and $8.25 Series (4,440
shares) at the stated redemption price of $101 per share, for $1.2 million.
Both the $4.75 Series and the $7.00 Series are redeemable at the option of the
Company and in November 1994 an offer to purchase the $7.00 Series at the stated
redemption price of $100 per share was extended to all holders of this stock.
The Company has purchased and retired 1,483 shares of the $7.00 Series as of
December 31, 1995. Since there is no premium associated with the redemption,
approval from the BPU was not required.
Long-term Debt
On March 1, 1993, the Company redeemed the $2.5 million, 10.50%, Series P, First
Mortgage Bonds, originally due March 1, 2003, and the redemption was funded by
issuing Series P-1, First Mortgage Bonds, due December 1, 1993.
On September 29, 1993, the Company issued $18.5 million of First Mortgage Bonds.
Proceeds of the $12 million, designated as Series S, with a maturity date of
October 1, 2022, and an interest rate of 5.20%, were used to redeem the Series
O, First Mortgage Bonds ($9.5 million) and the Series P-1, First Mortgage Bonds
($2.5 million). Proceeds of the $6.5 million, designated as Series T, with a
maturity date of October 1, 2023, and an interest rate of 5.25%, were used to
fund certain capital projects, including portions of Section B of the South
River Basin Transmission Main and the Park Avenue Well Field Treatment
Facilities.
On February 1, 1994, the Company redeemed the $10 million, 8%, Series Q, First
Mortgage Bonds, originally due August 1, 2018. This redemption was funded by
issuing $10 million, 5.25%, Series V, First Mortgage Bonds, due February 1,
2029.
Series O, P and Q were originally issued in cooperation with the NJEDA. The
subsequent redemption of these bonds was also accomplished through the NJEDA.
The interest on the Series S, T and V is tax-exempt for Federal and New Jersey
income tax purposes. However, the interest on Series T and V is subject to
Alternative Minimum Tax.
On February 2, 1994, the Company issued $15 million of taxable First Mortgage
Bonds, designated as Series U, with a maturity date of February 1, 2009, and a
coupon rate of 6.40%. In anticipation of this bond issue, the Company redeemed
Series J ($2.5 million), Series L ($2.0 million) and Series N ($1.5 million) on
December 1, 1993; Series I ($4.8 million) on December 31, 1993; and Series K
($2.5 million) on February 1, 1994. The balance of the proceeds from Series U
was used to reimburse the Company for previously incurred financing costs.
On September 13, 1995, Tidewater received approval from the Delaware PSC to
borrow up to $3.5 million
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
through an amortizing secured term bank loan. The terms of the loan agreement
provide for a maximum term of twenty five years from the initial advance with
the interest rate fixed on the date of any advance by the bank. Tidewater has
until December 31, 1996, to draw down the full proceeds of the available loan
amount. On October 27, 1995, Tidewater received $2.5 million at a rate of 8.02%.
The proceeds of the loan were used to fund 1995 capital expenditures with the
balance available to fund 1996 capital expenditures.
As part of the asset purchase by the Pinelands Companies, promissory notes of
$1.2 million were issued. The terms of the notes call for a 7% rate of interest
payable in annual installments, along with 20% of the original note principal.
The final installment is due on April 21, 2000.
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
receivable 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, 1995, the carrying amount and fair market
value of its Bonds were $49.5 million and $48.4 million, respectively. For other
long-term debt for which there were no quoted market prices, it was not
practicable to estimate their fair value. The carrying amount of these
instruments at December 31, 1995, was $3.5 million. The Company's customer
advances for construction have a carrying value of $9.2 million at December 31,
1995. 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.
- --------------------------------------------------------------------------------
Independent Auditors' Report
MIDDLESEX WATER COMPANY:
[ MIDDLESEX WATER LOGO ]
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, 1995 and 1994 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, 1995. 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 generally accepted auditing
standards. 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, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 14, 1996
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
<TABLE>
<CAPTION>
1995 (2) 1994 1993 1992 (1) 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 37,847 $ 36,122 $ 35,479 $ 30,861 $ 29,853
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations and Maintenance 17,666 16,886 16,653 14,715 13,454
Depreciation 2,814 2,650 2,376 1,961 1,834
Taxes, other than Income Taxes 5,479 5,343 5,222 4,620 5,132
Income Taxes 2,975 2,766 3,072 2,351 2,377
- --------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSE 28,934 27,645 27,323 23,647 22,797
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 8,913 8,477 8,156 7,214 7,056
OTHER INCOME/(EXPENSE) - NET (94) 62 338 515 205
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE
INTEREST CHARGES 8,819 8,539 8,494 7,729 7,261
- --------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES 3,115 3,044 3,014 3,267 3,156
- --------------------------------------------------------------------------------------------------------------------
NET INCOME 5,704 5,495 5,480 4,462 4,105
PREFERRED STOCK DIVIDEND REQUIREMENTS 159 188 256 186 161
- --------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 5,545 $ 5,307 $ 5,224 $ 4,276 $ 3,944
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK $ 1.36 $ 1.33 $ 1.33 $ 1.20 $ 1.14
Average Number of Shares Outstanding for
the Year 4,078,890 4,003,393 3,924,363 3,568,499 3,477,406
Dividends Declared and Paid $ 1.08 1/2 $ 1.05 3/4 $ 1.01 1/4 $ 0.97 $ 0.94 1/2
Total Assets $ 144,822 $ 132,413 $ 125,676 $ 113,843 $ 100,014
Redeemable Preferred Stock -- -- $ 1,158 $ 1,224 $ 1,290
Long-term Debt $ 52,960 $ 49,500 $ 37,000 $ 42,550 $ 45,350
<CAPTION>
1990 1985
- ------------------------------------------------------------------------
OPERATING REVENUES $ 26,417 $ 20,313
- ------------------------------------------------------------------------
OPERATING EXPENSES:
Operations and Maintenance 13,185 8,722
Depreciation 1,592 1,000
Taxes, other than Income Taxes 4,201 3,325
Income Taxes 1,426 2,296
- ------------------------------------------------------------------------
TOTAL OPERATING EXPENSE 20,404 15,343
- ------------------------------------------------------------------------
OPERATING INCOME 6,013 4,970
OTHER INCOME/(EXPENSE) - NET 282 383
- ------------------------------------------------------------------------
INCOME BEFORE
INTEREST CHARGES 6,295 5,353
- ------------------------------------------------------------------------
INTEREST CHARGES 2,828 2,191
- ------------------------------------------------------------------------
NET INCOME 3,467 3,162
PREFERRED STOCK DIVIDEND REQUIREMENTS 166 190
- ------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 3,301 $ 2,972
- ------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK $ 0.96 $ 1.01
Average Number of Shares Outstanding for
the Year 3,439,042 2,938,244
Dividends Declared and Paid $ 0.92 1/2 $ 0.76
Total Assets $ 93,093 $ 71,915
Redeemable Preferred Stock $ 1,356 $ 1,686
Long-term Debt $ 39,350 $ 30,470
</TABLE>
STATISTICAL SUMMARY
<TABLE>
<CAPTION>
1995 (2) 1994 1993 1992 (1) 1991 1990 1985
- -----------------------------------------------------------------------------------------------------------------
REVENUES (Thousands of Dollars):
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Residential $ 15,202 $ 14,306 $ 14,042 $ 11,733 $ 11,624 $ 10,533 $ 9,420
Commercial 4,393 4,282 4,170 3,616 3,549 3,287 2,497
Industrial 6,669 6,598 6,481 6,044 5,768 5,349 5,193
Fire Protection 4,543 4,352 4,312 3,905 3,772 3,512 2,915
Contract Sales 6,658 6,322 6,232 5,477 5,098 3,635 246
Other 382 262 242 86 42 101 42
- -----------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 37,847 $ 36,122 $ 35,479 $ 30,861 $ 29,853 $ 26,417 $ 20,313
CAPITALIZATION RATIOS:
Long-term Debt 51% 51% 50% 49% 56% 53% 53%
Preferred Stock 3 3 4 5 3 4 5
Common Stock Equity 46 46 46 46 41 43 42
- -----------------------------------------------------------------------------------------------------------------
TOTAL RATIOS 100% 100% 100% 100% 100% 100% 100%
BOOK VALUE OF COMMON STOCK $ 11.52 $ 11.13 $ 10.77 $ 10.29 $ 9.44 $ 9.25 $ 8.18
Meters in Service 61,332 58,371 57,318 56,340 52,356 52,167 50,193
Population Served (Retail) 245,000 233,000 229,000 225,000 209,000 209,000 200,000
Miles of Main (3) 701 663 661 655 654 647 629
Fire Hydrants (3) 4,186 4,092 4,072 4,046 4,024 4,011 3,810
Pumpage (million gallons) 17,380 16,794 16,789 15,174 14,572 13,390 9,275
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes Tidewater Utilities, Inc. as of October 20, 1992.
(2) Includes Pinelands Water and Pinelands Wastewater as of April 22, 1995.
(3) Excludes Tidewater Utilities, Inc.
- --------------------------------------------------------------------------------
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-11717 of Middlesex Water Company on Form S-3 of our report dated February 14,
1996, incorporated by reference in this Annual Report on Form 10-K of Middlesex
Water Company and its subsidiaries for the year ended December 31, 1995.
/DELOITTE & TOUCHE LLP/
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 000066004
<NAME> MIDDLESEX WATER COMPANY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 117,932,632
<OTHER-PROPERTY-AND-INVEST> 1,735,048
<TOTAL-CURRENT-ASSETS> 12,989,099
<TOTAL-DEFERRED-CHARGES> 12,165,428
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 144,822,207
<COMMON> 28,820,844
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 18,822,817
<TOTAL-COMMON-STOCKHOLDERS-EQ> 47,643,661
0
2,666,305
<LONG-TERM-DEBT-NET> 52,960,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 240,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 41,312,241
<TOT-CAPITALIZATION-AND-LIAB> 144,822,207
<GROSS-OPERATING-REVENUE> 37,846,899
<INCOME-TAX-EXPENSE> 2,975,227
<OTHER-OPERATING-EXPENSES> 25,959,281
<TOTAL-OPERATING-EXPENSES> 28,934,508
<OPERATING-INCOME-LOSS> 8,912,391
<OTHER-INCOME-NET> (93,885)
<INCOME-BEFORE-INTEREST-EXPEN> 8,818,506
<TOTAL-INTEREST-EXPENSE> 3,114,762
<NET-INCOME> 5,703,744
158,932
<EARNINGS-AVAILABLE-FOR-COMM> 5,544,812
<COMMON-STOCK-DIVIDENDS> 4,421,852
<TOTAL-INTEREST-ON-BONDS> 2,885,250
<CASH-FLOW-OPERATIONS> 8,921,767
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
