SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: June 30, 2000 No. 0-422
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MIDDLESEX WATER COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
-------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2000
----- ----------------------------
Common Stock, No Par Value 5,019,803
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Capitalization and
Retained Earnings 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures of Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURE 15
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
2000 1999 2000 1999 2000 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $14,057,242 $13,812,788 $27,038,331 $25,492,681 $55,042,803 $48,190,192
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Operations 7,189,473 6,518,377 14,111,742 12,725,835 27,654,254 23,211,822
Maintenance 637,689 605,963 1,316,354 1,246,460 2,688,573 2,195,536
Depreciation 1,160,508 878,049 2,306,641 1,738,924 4,452,367 3,399,870
Other Taxes 1,764,805 1,762,473 3,433,195 3,292,322 7,011,978 6,479,797
Federal Income Taxes 776,656 1,067,082 1,291,025 1,562,280 2,917,638 3,042,879
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses 11,529,131 10,831,944 22,458,957 20,565,821 44,724,810 38,329,904
----------- ----------- ----------- ----------- ----------- -----------
Operating Income 2,528,111 2,980,844 4,579,374 4,926,860 10,317,993 9,860,288
Other Income:
Allowance for Funds Used During Construction 27,588 590,614 44,764 1,076,836 317,944 1,774,824
Other - Net 37,910 170,026 75,265 383,004 253,252 844,071
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income 65,498 760,640 120,029 1,459,840 571,196 2,618,895
Income Before Interest Charges 2,593,609 3,741,484 4,699,403 6,386,700 10,889,189 12,479,183
----------- ----------- ----------- ----------- ----------- -----------
Interest Charges 1,225,128 1,169,463 2,424,806 2,321,470 4,798,781 4,729,986
----------- ----------- ----------- ----------- ----------- -----------
Net Income 1,368,481 2,572,021 2,274,597 4,065,230 6,090,408 7,749,197
Preferred Stock Dividend Requirements 63,696 79,696 127,393 159,393 268,786 318,786
----------- ----------- ----------- ----------- ----------- -----------
Earnings Applicable to Common Stock $ 1,304,785 $ 2,492,325 $ 2,147,204 $ 3,905,837 $ 5,821,622 $ 7,430,411
=========== =========== =========== =========== =========== ===========
Earnings per share of Common Stock:
Basic $ 0.26 $ 0.51 $ 0.43 $ 0.80 $ 1.17 $ 1.60
Diluted $ 0.26 $ 0.50 $ 0.43 $ 0.79 $ 1.17 $ 1.58
Average Number of
Common Shares Outstanding :
Basic 5,014,922 4,913,299 5,010,138 4,907,683 4,977,788 4,650,036
Diluted 5,186,492 5,139,725 5,181,708 5,134,109 5,171,784 4,876,462
Cash Dividends Paid per Common Share $0.30 1/2 $0.29 1/2 $ 0.61 $ 0.59 $ 1.21 $ 1.17
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
UTILITY PLANT:
Water Production $ 65,446,050 $ 70,316,961
Transmission and Distribution 132,137,370 122,002,931
General 19,906,578 19,717,575
Construction Work in Progress 2,484,248 2,858,703
------------ ------------
TOTAL 219,974,246 214,896,170
Less Accumulated Depreciation 37,124,498 35,174,531
------------ ------------
UTILITY PLANT-NET 182,849,748 179,721,639
------------ ------------
NONUTILITY ASSETS-NET 2,598,065 2,087,498
------------ ------------
CURRENT ASSETS:
Cash and Cash Equivalents 2,116,423 5,169,772
Temporary Cash Investments-Restricted 5,853,154 5,731,827
Accounts Receivable (net of allowance
for doubtful accounts) 6,068,719 5,969,546
Unbilled Revenues 3,176,560 2,627,863
Materials and Supplies (at average cost) 1,144,376 956,950
Prepayments and Other Current Assets 465,840 616,224
------------ ------------
TOTAL CURRENT ASSETS 18,825,072 21,072,182
------------ ------------
DEFERRED CHARGES:
Unamortized Debt Expense 3,020,480 3,029,362
Preliminary Survey and Investigation Charges 694,863 472,287
Regulatory Assets
Income Taxes 5,955,879 5,955,879
Post Retirement Costs 1,084,780 1,127,884
Other 1,893,895 1,568,934
------------ ------------
TOTAL DEFERRED CHARGES 12,649,897 12,154,346
------------ ------------
TOTAL $216,922,782 $215,035,665
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------- ---------------------
(Unaudited)
<S> <C> <C>
CAPITALIZATION (see accompanying statements) $156,544,938 $156,882,012
--------------------- ---------------------
CURRENT LIABILITIES:
Current Portion of Long-term Debt 209,770 201,921
Notes Payable 3,000,000 2,000,000
Accounts Payable 2,914,365 3,392,432
Taxes Accrued 6,102,214 5,358,737
Interest Accrued 1,808,330 1,760,470
Other 1,513,337 1,591,706
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 15,548,016 14,305,266
--------------------- ---------------------
DEFERRED CREDITS:
Customer Advances for Construction 11,470,930 11,775,581
Accumulated Deferred Investment Tax Credits 2,050,341 2,089,650
Accumulated Deferred Federal Income Taxes 12,201,860 12,113,286
Employee Benefit Plans 5,213,804 4,656,575
Other 1,370,484 1,059,206
--------------------- ---------------------
TOTAL DEFERRED CREDITS 32,307,419 31,694,298
--------------------- ---------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 12,522,409 12,154,089
--------------------- ---------------------
TOTAL $216,922,782 $215,035,665
===================== =====================
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
June 30, December 31,
2000 1999
------------- --------------
(Unaudited)
<S> <C> <C>
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 10,000,000
Shares Outstanding - 2000 - 5,019,803; 1999 - 4,919,143 $ 48,211,985 $ 47,593,514
Retained Earnings 21,988,336 22,895,844
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TOTAL COMMON EQUITY 70,200,321 70,489,358
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Cumulative Preference Stock, No Par Value
Shares Authorized, 100,000; Shares Outstanding, None
Cumulative Preferred Stock, No Par Value, Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
------------- -------------
TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
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Long-term Debt:
8.02% Amortizing Secured Note, due December 20, 2021 3,346,550 3,371,527
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due August 1, 2018 1,009,775 1,024,986
4.53%, Series Y, due August 1, 2018 1,135,000 1,135,000
0.00%, Series Z, due September 1, 2019 2,150,000 2,150,000
5.25%, Series AA, due September 1, 2019 2,350,000 2,350,000
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SUBTOTAL LONG-TERM DEBT 82,491,325 82,531,513
------------- -------------
Less: Current Portion of Long-term Debt (209,770) (201,921)
------------- -------------
TOTAL LONG-TERM DEBT 82,281,555 82,329,592
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TOTAL CAPITALIZATION $ 156,544,938 $ 156,882,012
============= =============
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
2000 1999
------------- ----------------
(Unaudited)
<S> <C> <C>
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $ 22,895,844 $ 21,222,294
Net Income 2,274,597 7,881,041
------------- ---------------
TOTAL 25,170,441 29,103,335
------------- ---------------
Cash Dividends:
Cumulative Preferred Stock 127,393 300,786
Common Stock 3,054,712 5,857,405
Common Stock Expenses 0 49,300
------------- ---------------
TOTAL DEDUCTIONS 3,182,105 6,207,491
------------- ----------------
BALANCE AT END OF PERIOD $ 21,988,336 $ 22,895,844
============= ================
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, Twelve Months Ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,274,597 $ 4,065,230 $ 6,090,408 $ 7,749,197
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,415,146 1,922,686 4,795,652 3,911,940
Provision for Deferred Income Taxes 88,574 (241,357) 205,616 (326,597)
Allowance for Funds Used During Construction (44,764) (1,076,836) (317,944) (1,774,824)
Changes in Current Assets and Liabilities:
Accounts Receivable (99,172) (1,293,751) 111,100 (1,312,254)
Accounts Payable (477,847) (1,598,203) 661,129 (621,983)
Accrued Taxes 743,476 793,434 88,110 424,017
Accrued Interest 47,860 37,855 69,145 139,814
Unbilled Revenues (548,699) (819,502) (58,912) (560,471)
Employee Benefit Plans 557,229 497,622 953,666 1,034,122
Other-Net (142,399) 111,098 (142,429) 643,711
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,814,001 2,398,276 12,455,541 9,306,672
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (5,887,054) (10,380,376) (18,788,413) (26,363,023)
Note Receivable (13,500) 33,472 2,759,130 78,631
Preliminary Survey and Investigation Charges (222,576) (68,781) (349,880) (129,947)
Other-Net (82,740) (4,962) (236,374) (325,675)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (6,205,870) (10,420,647) (16,615,537) (26,740,014)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (40,188) (22,834) (89,084) (44,668)
Proceeds from Issuance of Long-term Debt -- -- 4,500,000 2,185,000
Short-term Bank Borrowings 1,000,000 2,000,000 -- (1,476,932)
Deferred Debt Issuance Expenses -- (1,864) (20,404) (29,968)
Temporary Cash Investments-Restricted (121,327) 6,959,215 (3,036,297) 13,926,260
Proceeds from Issuance of Common Stock-Net 618,471 512,251 1,210,689 13,273,832
Payment of Common Dividends (3,054,712) (2,893,889) (6,018,228) (5,425,365)
Payment of Preferred Dividends (127,393) (159,393) (268,786) (318,786)
Construction Advances and Contributions-Net 63,669 893,669 1,344,923 1,510,259
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,661,480) 7,287,155 (2,377,187) 23,599,632
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,053,349) (735,216) (6,537,183) 6,166,290
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,169,772 9,388,822 8,653,606 2,487,316
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,116,423 $ 8,653,606 $ 2,116,423 $ 8,653,606
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 2,236,251 $ 1,124,063 $ 4,249,599 $ 2,650,978
Income Taxes $ 988,450 $ 1,514,400 $ 3,202,750 $ 3,377,375
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA). White Marsh
Environmental Systems, Inc. is a wholly-owned subsidiary of Tidewater. The
financial statements for Middlesex and its wholly owned subsidiaries (the
Company) are reported on a consolidated basis. All intercompany accounts and
transactions have been eliminated.
The consolidated notes accompanying the 1999 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of June 30, 2000 and the results of operations and its cash flows for the
periods ended June 30, 2000 and 1999. Information included in the Balance Sheet
as of December 31, 1999, has been derived from the Company's audited financial
statements included in its annual report on Form 10-K for the year ended
December 31, 1999.
Note 2 - Regulatory Matters
Three base rate increase petitions were filed with the New Jersey Board of
Public Utilities (BPU).
Pinelands Pinelands
Middlesex Water Wastewater
--------- ----- ----------
Date Filed June 22, 2000 July 7, 2000 July 7, 2000
Amount $ 6.6 million $ 0.1 million $ 0.2 million
% Increase 15.92% 31.3% 22.3%
Return on Equity 11.80% 12.00% 12.00%
Last Increase May 13, 1999 January 28, 1999 January 28, 1999
The requested increases are necessary to cover higher operations and maintenance
costs, depreciation and taxes. In addition, continued significant plant
investment in the Middlesex system also contributed to the rate request.
The last rate increase for the Pinelands Companies represented the final stage
of a three-phase implementation. The first increase was effective January 28,
1997. The Company does not expect the three rate matters to be resolved until
after the close of this calendar year.
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<PAGE>
On March 31, 2000, Tidewater amended its base rate increase petition from 38.3%
to 21.2%. The original petition was filed with the Delaware Public Service
Commission (PSC) in September 1999. The lower request is due mostly to lower
than projected capital expenditures. Evidentiary hearings were held in mid-April
2000.
The hearing examiner issued his report, which recommends an increase of
approximately 5.50%. Several issues that account for a large portion of the
requested increase remain in dispute. These include return on equity, utility
plant and depreciation rates. Tidewater intends to file exceptions to the
recommendations in this matter, which is scheduled for a hearing before the PSC
in mid-September.
Note 3 - Capitalization
Common Stock - During the three months ended June 30, 2000, 8,334 common shares
($0.2 million) were issued under the Company's Dividend Reinvestment and Common
Stock Purchase Plan.
Note 4 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
<TABLE>
<CAPTION>
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
2000 1999 2000 1999 2000 1999
Basic: Income Shares Income Shares Income Shares Income Shares Income Shares Income Shares
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $1,368 5,015 $2,572 4,913 $2,275 5,010 $4,065 4,908 $6,090 4,978 $7,750 4,650
Preferred Dividend (64) (80) (127) (159) (269) (319)
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Earnings Applicable
to Common Stock $1,304 5,015 $2,492 4,913 $2,148 5,010 $3,906 4,908 $5,821 4,978 $7,431 4,650
Basic EPS $ .26 $ .51 $ .43 $ .80 $1.17 $1.60
Diluted:
--------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $1,304 5,015 $2,492 4,913 $2,148 5,010 $3,906 4,908 $5,821 4,978 $7,431 4,650
$7.00 Series 26 89 26 89 52 89 52 89 104 89 104 89
Dividend
$8.00 Series 137 105 160 137
Dividend 24 82 40 137 48 82 80 110
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Adjusted Earnings
Applicable to
Common Stock $1,354 5,186 $2,558 5,139 2,248 5,181 $4,038 5,134 $6,035 5,172 $7,695 4,876
Diluted EPS $0.26 $0.50 $0.43 $0.79 $1.17 $1.58
</TABLE>
-7-
<PAGE>
Note 5 - Business Segment Data
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems in New Jersey and Delaware. On January
1, 1999 the Company began operating the water and wastewater systems of the City
of Perth Amboy, New Jersey under a service contract. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies in Note 1 to the Consolidated Financial Statements.
Inter-segment transactions relating to operational costs are treated as pass
through expenses. Finance charges on inter-segment loan activities are based on
interest rates that are below what would normally be charged by a third party
lender.
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations by Segments:
Revenues:
Regulated $ 12,287 $ 11,970 $ 23,578 $ 21,895 $ 47,731 $ 44,374
Non - Regulated 1,779 1,857 3,478 3,618 7,348 3,850
Inter-segment Elimination (9) (14) (18) (20) (36) (34)
-------- -------- -------- -------- -------- --------
Consolidated Revenues $ 14,057 $ 13,813 $ 27,038 $ 25,493 $ 55,043 $ 48,190
-------- -------- -------- -------- -------- --------
Operating Income:
Regulated $ 2,385 $ 2,770 $ 4,354 $ 4,587 $ 9,506 $ 9,444
Non - Regulated 143 211 225 340 812 416
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Consolidated Operating Income $ 2,528 $ 2,981 $ 4,579 $ 4,927 $ 10,318 $ 9,860
-------- -------- -------- -------- -------- --------
Depreciation/Amortization:
Regulated $ 1,147 $ 872 $ 2,281 $ 1,728 $ 4,413 $ 3,389
Non - Regulated 14 6 26 11 39 11
Inter-segment Elimination -- -- -- -- -- --
Consolidated
-------- -------- -------- -------- -------- --------
Depreciation/Amortization $ 1,161 $ 878 $ 2,307 $ 1,739 $ 4,452 $ 3,400
-------- -------- -------- -------- -------- --------
Other Income:
Regulated $ 395 $ 1,201 $ 604 $ 2,041 $ 1,980 $ 3,637
Non - Regulated -- -- (3) -- (3) --
Inter-segment Elimination (330) (440) (481) (581) (1,406) (1,018)
-------- -------- -------- -------- -------- --------
Consolidated Other Income $ 65 $ 761 $ 120 $ 1,460 $ 571 $ 2,619
-------- -------- -------- -------- -------- --------
Interest Expense:
Regulated $ 1,370 $ 1,250 $ 2,707 $ 2,479 $ 5,321 $ 5,011
Non - Regulated 23 57 45 104 145 192
Inter-segment Elimination (168) (138) (327) (262) (667) (473)
-------- -------- -------- -------- -------- --------
Consolidated Interest Expense $ 1,225 $ 1,169 $ 2,425 $ 2,321 $ 4,799 $ 4,730
-------- -------- -------- -------- -------- --------
Net Income:
Regulated $ 1,410 $ 2,720 $ 2,250 $ 4,149 $ 6,164 $ 8,070
Non - Regulated 120 154 179 236 664 225
Inter-segment Elimination (162) (302) (154) (320) (738) (546)
-------- -------- -------- -------- -------- --------
Consolidated Net Income $ 1,368 $ 2,572 $ 2,275 $ 4,065 $ 6,090 $ 7,749
-------- -------- -------- -------- -------- --------
Capital Expenditures:
Regulated $ 3,178 $ 4,175 $ 5,367 $ 10,381 $ 18,257 $ 26,362
Non - Regulated 49 (3) 520 148 531 205
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Capital Expenditures $ 3,227 $ 4,172 $ 5,887 $ 10,529 $ 18,788 $ 26,567
-------- -------- -------- -------- -------- --------
<CAPTION>
As of As of
June 30, December 31,
2000 1999
Assets:
Regulated $235,855 $231,650
Non - Regulated 2,828 2,405
Inter-segment Elimination (21,760) (19,019)
-------- --------
Consolidated Assets $216,923 $215,036
-------- --------
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended June 30, 2000
Operating revenues rose $0.2 million for the quarter. Weather related
consumption decreases in our New Jersey operating revenues offset substantially
all of the $0.8 million from the May 1999 rate increase for Middlesex. Customer
growth in our Delaware operations contributed $0.2 million. Our customer base in
Delaware grew by over 25%, which includes the acquisition of 12 mobile home park
water systems in early 2000. Consumption was flat due to similar weather
patterns experienced in New Jersey.
Operations expense rose $0.7 million or 10.30%, which included higher water
treatment costs of $0.3 million, labor and benefit costs of $0.2 million.
Increases in all other areas accounted for the remaining $0.2 million.
Depreciation expense increased 32.2% over the same period from last year. The
improvements to Middlesex primary treatment facility, the Carl J. Olsen
Treatment Plant (CJO Plant), were placed in service July 1999 causing most of
the $0.3 million increase in depreciation expense.
The expense for Federal income taxes fell $0.3 million reflecting lower earnings
during the quarter.
Other income fell by $0.7 million compared to the same three-month period in
1999. With the completion of the CJO Plant, we ceased recording an Allowance for
Funds Used During Construction (AFUDC), which resulted in a decrease of just
under $0.6 million. Interest income decreased by more than $0.1 million due to a
lower level of funds available for short-term investment.
The preferred stock dividend requirement decreased by 20% as a result of the
partial exercise of the conversion feature of the $8.00 Series of Preferred
Stock in late 1999.
Net income fell 46.7% to $1.4 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year and higher operations costs.
Results of Operations - Six Months Ended June 30, 2000
Operating revenues rose $1.5 million or 6.1% for the year. The May 1999 rate
increase for Middlesex accounted for $1.8 million. Weather related consumption
decreases in our New Jersey operating revenues offset those rate related
increases by $0.9 million. Customer and consumption growth in our Delaware
operations contributed $0.5 million. Contract services revenues increased $0.1
million.
Operations expenses rose $1.4 million or 10.9%, which is attributable to all
operating categories. Some of the more significant increases were for water
treatment costs increased $0.4 million. Labor and benefits added $0.4 million.
Purchased water increased $0.1 million.
Depreciation expense increased $0.6 million or 32.7% as a result of the CJO
Plant completion in July 1999.
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The expense for Federal income taxes fell $0.3 million reflecting lower earnings
during the quarter.
Other income fell $1.3 million with lower AFUDC accounting for approximately
$1.0 million of the decline and lower earnings on excess funds falling by $0.3
million.
Net income fell 44.1% to $2.3 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year, higher operations costs and increased depreciation
expense.
The 20.1% decrease in preferred stock dividend requirements reflects the partial
exercise of the conversion feature of the $8.00 Series of Preferred Stock in
late 1999.
Results of Operations - Twelve Months Ended June 30, 2000
Operating revenues rose $6.8 million or 14.2% for the twelve-month period. The
May 1999 rate increase for Middlesex accounted for $4.3 million. Current year
weather patterns and last year's mid-summer drought restrictions decreased our
New Jersey operating revenues by $1.4 million. A one-time refund to a large
industrial customer of Middlesex also reduced revenues by $0.6 million. Customer
and consumption growth in our Delaware operations contributed an additional $0.8
million to revenues. Contract services revenues for the operation of the Perth
Amboy water and wastewater systems increased $3.7 million. USA-PA initiated
services under this contract on January 1, 1999.
Operating expenses for the twelve months increased 16.7% or $6.4 million. Fifty
percent of the increase is due to a full years worth of costs associated with
the service contract to operate the water and wastewater systems of Perth Amboy.
There were also increases in water treatment costs of $ 0.7 million, labor and
benefits of $ 0.6 million, purchased water of $0.2 million. Maintenance expenses
increased 22.5% due to increased emergency repairs for main and service breaks
in both New Jersey and Delaware. Most of the depreciation expense increase of
$1.1 million or 31.0% was a result of the CJO Plant completion in July 1999.
Taxes other than income taxes increased $0.5 million. Revenue related taxes were
up due to the higher rate related revenues in New Jersey. This accounted for 65%
of the increase. Real estate taxes and payroll related taxes were also up for
the period.
Income taxes fell 4.1%, which reflects current lower earnings. The decline was
somewhat offset by lower deferred tax benefits in the current period.
Other income fell $2.0 million with lower AFUDC accounting for approximately
$1.5 million of the decline and lower earnings on excess funds accounting for
the balance of the decline.
Net income fell 21.4% to $6.1 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year, higher operations costs and increased depreciation
expense.
The 15.7% decrease in preferred stock dividend requirements reflects the partial
exercise of the conversion feature of the $8.00 Series of Preferred Stock in
late 1999.
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Capital Resources
The Company's capital program for 2000 is estimated to be $18.1 million and
includes $7.1 million for water system additions and improvements for our
Delaware systems and $2.2 million for the RENEW Program, which is our program to
clean and cement line approximately nine miles of unlined mains in the Middlesex
System. There is a total of approximately 160 miles of unlined mains in the 670
mile Middlesex System. Final expenditures on the upgrade to the CJO Plant are
estimated at $2.0 million. The capital program also includes $6.8 million for
scheduled upgrades to our existing systems in New Jersey. The scheduled upgrades
consists of $1.0 million for mains, $0.8 million for service lines, $0.5 million
for meters, $0.4 million for hydrants, $0.8 million for computer systems and
$3.3 million for various other items.
Liquidity
Middlesex issued $4.5 million of First Mortgage Bonds in November 1999 through
the New Jersey State Revolving Fund (SRF). $2.2 million of that financing will
be used to cover the cost of the 2000 RENEW Program. The balance will be used to
fund the 2001 RENEW program. The capital program in Delaware will be financed
through a combination of a capital contribution from Middlesex and long-term
debt financing from either a financial institution or the Company. Other capital
expenditures will be financed through internally generated funds and sale of
common stock through the Dividend Reinvestment and Common Stock Purchase Plan
(DRP). Capital expenditures of $5.9 million have been incurred during the six
months ended June 30, 2000. The Company may also utilize short-term borrowings
through $18.0 million of available lines of credit it has with two commercial
banks for working capital purposes. At June 30, 2000, there was $3.0 million
outstanding against the lines of credit.
Accounting Standards
In June 1998, The Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. The Company is currently evaluating the requirements of the
accounting standard, which is required to be adopted in the first quarter of
2001.
Outlook
Earnings for 2000 are expected to be at least 15% percent below calendar year
1999 results. In addition, to the discussion in this report on first half
results, other factors will impact our earnings over the second half of the
year. Cool and wet weather patterns continue in our service territories, which
has reduced customer demand. Less than anticipated rate relief in Delaware will
reduce our ability to earn a fair and reasonable return on our investment. We
believe it will be necessary to file for rate relief in Delaware during the
fourth quarter. We have filed for rate relief in our regulated New Jersey
franchise areas, but a decision is not expected until the close of the year
2000.
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Forward Looking Information
Certain matters discussed in this report on Form 10-Q are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, objective, expectations and events concerning various
matters such as capital expenditures, earnings, litigation, growth potential,
rate and other regulatory matters, liquidity and capital resources and
accounting matters. Actual results in each case could differ materially from
those currently anticipated in such statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate, long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.2 million of the current portion of four existing long-term
debt instruments will mature. Applying a hypothetical change in the rate of
interest charged by 10% on those borrowings, would not have a material effect on
earnings.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders held May 24, 2000.
Matters voted upon at the meeting:
ELECTION OF DIRECTORS
Nominees for Class I term expiring in 2003.
FOR WITHHOLD
--------- --------
John C. Cutting 3,961,277 54,408
John P. Mulkerin 3,963,633 52,052
Dennis G. Sullivan 3,942,744 72,941
Nominees for Class III term expiring in 2002.
FOR WITHHOLD
--------- --------
John R. Middleton 3,958,209 57,476
Resolution approving appointment of Deloitte & Touche LLP,
Certified Public Accountants, as independent auditors for
2000:
FOR AGAINST ABSTAIN
--- ------- -------
3,977,987 14,440 23,258
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No. 27, Financial Data Schedule.
(b) Reports on Form 8-K: None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MIDDLESEX WATER COMPANY
(Registrant)
/s/A. Bruce O'Connor
--------------------
Date: August 14, 2000 A. Bruce O'Connor
Vice President and Controller
