Back to GetFilings.com
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, 1999 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)
(732) 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 17, 2000 was $144,706,167 based on the closing market price
of $28.875 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 17, 2000
----- -----------------------------
Common Stock, No par Value 5,011,469
Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant's Annual Meeting
of Shareholders to be held on May 24, 2000 as to Part III.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
PAGE
----
PART I
Item 1. Business:
General
Retail Sales
Contract Sales
Contract Services
Financial Information
Water Supplies and Contracts
Competition
Regulation
Regulation of Rates and Services
Water Quality and Environmental Regulations
Employees
Executive Officers of Middlesex Water Company
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote
of Security Holders
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters:
Price Range of Common Stock
Approximate Number of Equity Security
Holders as of December 31, 1999
Dividends
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Signatures
Exhibit Index
PART I
Item 1. Business
--------
Overview
Middlesex Water Company was incorporated as a water utility company in 1897 and
operates water utility systems in central and southern New Jersey and in
Delaware as well as a wastewater utility in southern New Jersey. The water
utility system in central New Jersey, which we call the "Middlesex System,"
produced 75.9% of the Company's 1999 revenues. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes.
Our Middlesex System provides water services to approximately 57,000 retail
customers, primarily in eastern Middlesex County, New Jersey and provides water
on a wholesale basis under contract to the Township of Edison, the Boroughs of
Highland Park and Sayreville and both the Old Bridge and the Marlboro Township
Municipal Utilities Authorities. Under a special contract, the Middlesex System
also provides water treatment and pumping services to the Township of East
Brunswick.
The Middlesex System's retail customers are located in an area of approximately
55 square miles in Woodbridge Township, the Boroughs of Metuchen and Carteret,
portions of Edison Township and the Borough of South Plainfield in Middlesex
County and a portion of the Township of Clark in Union County. The retail
customers include a mix of residential customers, large industrial concerns and
commercial and light industrial facilities. These retail customers are located
in generally well developed areas of central New Jersey. The contract customers
of the Middlesex System comprise an area of approximately 141 square miles with
a population of approximately 267,000. Contract sales to Edison, Sayreville, Old
Bridge and Marlboro are supplemental to the existing water systems of these
customers. The State of New Jersey in the mid-1980's approved plans to increase
available surface water supply to these and other municipalities in the South
River Basin area of the State through contracts with water suppliers outside the
South River Basin. The State saw this as a way to reduce the use of ground water
and depletion of acquifers. Our long-term contracts to pump treated surface
water to East Brunswick, Marlboro, Old Bridge and Sayreville are consistent with
the State approved plan.
We have four wholly-owned subsidiaries:
o Tidewater Utilities, Inc. ("Tidewater"), provides water service to
approximately 12,700 retail customers for residential, commercial and
fire protection purposes in over 150 separate community water systems
in Kent, Sussex and New Castle Counties, Delaware. Public Water Supply
Company, Inc. (Public), formerly a wholly-owned subsidiary of
Tidewater, was merged into Tidewater effective February 1, 2000. The
combined entity will continue under the Tidewater name. We refer to our
Delaware operations as the "Tidewater Systems". The Tidewater Systems
produced approximately 8.1% of our total revenues in 1999. White Marsh
Environmental Systems, Inc., a wholly-owned subsidiary of Tidewater,
owns the office building that Tidewater uses as its business office and
also provides operations and maintenance contract services to area
wastewater systems.
o Pinelands Water Company services 2,300 residential customers in
Burlington County, New Jersey. We refer to this water utility as the
"Pinelands System." The Pinelands System produced approximately 0.7% of
our total revenues in 1999.
o Pinelands Wastewater Company services approximately 2,300 primarily
residential retail customers and, under contract, one municipal
wastewater system in Burlington County, New Jersey with about 200
residential customers. We refer to this wastewater utility as the
"Pinelands Wastewater System." The Pinelands Wastewater System produced
approximately 1.3% of our total revenues in 1999.
o Utility Service Affiliates, Inc. (USA) - On December 2, 1999, Middlesex
implemented a franchise agreement with the City of South Amboy (South
Amboy) to provide water service and install water system facilities in
South Amboy. The agreement between Middlesex and South Amboy,
originally signed in December 1998, received approval from the BPU on
November 18, 1999. The implementation of the franchise agreement has
significantly impacted two existing agreements entered into by the
parties in 1994.
The first agreement was for the sale of water to South Amboy on a
wholesale basis. The second agreement, which included Middlesex's
wholly-owned subsidiary USA, was a contract to provide management
services for a fixed fee. In conjunction with the franchise agreement,
the water sales contract was eliminated. In addition, the management
services contract was extended through May 2045 and significantly
modified to correspond with the terms and conditions of the franchise
agreement. Certain advances made by USA to South Amboy at the
commencement of the management services contract have been forgiven in
consideration for the franchise agreement. Fixed fee revenues
recognized under the original contract have been eliminated in lieu of
revenues derived from providing water to South Amboy's 2,600 customers.
Under the original contract, USA produced approximately 0.8% of our
total 1999 revenues.
o Utility Service Affiliates (Perth Amboy) Inc., which we refer to as
("USA-PA"), along with Middlesex Water Company, operates and maintains
the City of Perth Amboy's water system and the wastewater system under
a 20 year contract. USA-PA is paid a fixed fee and a variable fee based
on increased system billings. Fixed fee payments to USA-PA in the
agreement rise from $6.4 million in the first year to $9.7 million by
year 20. The agreement also requires USA-PA to lease from the City all
of the City's employees who currently work on the City's water system
or wastewater system. In connection with the agreement, the City of
Perth Amboy, through the Middlesex County Improvement Authority, issued
$68.0 million in three series of bonds. One of those series of bonds,
in principal amount of $26.3 million, was guaranteed by the Company.
The City guaranteed the two other series of bonds. The Company also
guaranteed the performance of our subsidiary, USA-PA. USA-PA entered
into a subcontract with a sewer contracting firm for the operation and
maintenance of the City's wastewater system. City employees who now
work on the City's wastewater system are subleased by the subcontractor
from USA-PA. Of the $6.4 million fixed fee paid to USA-PA in the first
year of the agreement, $3.0 million was paid to the subcontractor.
USA-PA began to operate and maintain the City's systems on January 1,
1999. USA-PA produced approximately 13.2% of our total revenues in
1999.
Financial Information
- ---------------------
Consolidated operating revenues and operating income relating primarily to
operating water utilities are as follows:
(000's)
Years Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Operating Revenues $53,497 $43,058 $40,294
====== ====== ======
Operating Income $10,665 $ 9,149 $ 8,768
====== ====== ======
Operating revenues were derived from the following sources:
Years Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Residential 36.9% 41.4% 40.3%
Commercial 10.2 11.4 11.4
Industrial 12.1 15.8 16.5
Fire Protection 10.2 11.5 11.6
Contract Sales 15.6 17.5 18.3
Contract Operations 14.0 1.1 1.1
Other 1.0 1.3 0.8
----- ----- -----
TOTAL 100.0% 100.0% 100.0%
===== ===== =====
Water Supplies and Contracts
- ----------------------------
Our water utility plant consists of sources of supply, pumping, water treatment,
transmission, distribution and general facilities located in New Jersey and
Delaware. Our New Jersey and Delaware water supply systems are physically
separate and are not interconnected. In addition, in New Jersey, the Pinelands
System is not interconnected with the Middlesex System. In the opinion of
management, we have adequate sources of water supply to meet the current and
anticipated future service requirements of our present customers in New Jersey
and Delaware.
Middlesex System:
- -----------------
Our Middlesex System obtains water from both surface sources and from wells
which we call groundwater sources. In 1999 surface sources of water provided
approximately 68.2% of the Middlesex System's water supply, groundwater from
wells provided approximately 24.6% and the balance of 7.2% was purchased from
Elizabethtown Water Company ("Elizabethtown"), a nonaffiliated water utility.
Middlesex System's distribution storage facilities are used to supply water to
its customers at times of peak demand, outages and emergencies.
The principal source of surface supply for the Middlesex System is the Delaware
and Raritan Canal (D&R Canal), owned by the State of New Jersey and operated as
a water resource by the New Jersey Water Supply Authority ("NJWSA"). Under a
multistate compact, the NJWSA is entitled to divert water from the Delaware
River into the D&R Canal.
This supply, together with water in the Round Valley and Spruce Run Reservoir
System, provide a safe yield of 225 million gallons per day (mgd), which
supplies our Middlesex System and other large water purveyors contractually
regulated by the NJWSA. We have contracts with the NJWSA to divert a maximum of
20 mgd of untreated water from the D&R Canal. In addition, we have a one-year
agreement for an additional 5 mgd, renewed through April 30, 2000. We also have
an agreement with Elizabethtown, effective through December 31, 2005, which
provides for the minimum purchase of 3 mgd of treated water with provisions for
additional purchases. This Contract also allows us to purchase additional water
from Elizabethtown on an emergent basis.
Our Middlesex System also derives water from groundwater sources equipped with
electric motor driven deep well turbine type pumps. The Middlesex System has 31
wells, which provide an aggregate pump capacity of approximately 27 mgd.
The Middlesex System's groundwater sources are:
1999 Maximum Daily
Pumpage Pump
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ----- -------- ----- --------
Park Avenue 15 11.4 15.2 South Plainfield
Tingley Lane North 4 3.2 2.8 Edison
Tingley Lane South 5 1.3 2.6 Edison
Spring Lake 4 1.3 2.8 South Plainfield
Sprague Avenue #1 1 1.0 1.1 South Plainfield
Sprague Avenue #2 1 1.3 1.3 South Plainfield
Maple Avenue 1 0.8 0.9 South Plainfield
-- ---- ----
Total 31
==
Tidewater Systems:
- ------------------
Water supply to Delaware customers is derived from the Tidewater Systems' 157
wells, which provided overall system delivery of 790 million gallons during
1999. The Tidewater Systems do not have a central treatment facility. Several of
its water systems in Sussex County and New Castle County, Delaware have
interconnected transmission systems. Treatment is by chlorination and, in some
cases, pH correction and filtration.
Pinelands System:
- -----------------
The Pinelands System obtains its water supply from four wells drilled into the
Mt. Laurel aquifer. The wells are equipped with three electric motor driven deep
well turbine pumps and one is equipped with an electric motor driven submersible
pump. Disinfection is done at individual well sites, which are located in
Southampton Township, New Jersey. The wells have an aggregate pump capacity of
2.2 mgd. In 1999, the maximum daily pumpage was 1.9 million gallons.
Pinelands Wastewater System:
The Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
discharge permit issued by the New Jersey Department of Environmental Protection
("DEP") .
Competition
- -----------
Our business in our franchised service areas is substantially free from direct
competition with other public utilities, municipalities and other entities.
However, our ability to provide some contract water supply and wastewater
services and operations and maintenance services is subject to competition from
other public utilities, municipalities and other entities. Although the
Tidewater System has been granted an exclusive franchise for each of its
existing community water systems, its ability to expand service areas has been
affected by the Delaware Department of Natural Resources and Environmental
Control (DNREC) awarding franchises to other regulated water purveyors,
including franchises granted to service community water systems around and in
between the Tidewater Systems service areas.
Regulation
- ----------
We are subject to regulation as to our rates, services and other matters by the
states of New Jersey and Delaware with respect to utility service within those
states and with respect to environmental and water quality matters. We are also
subject to environmental and water quality regulation by the United States
Environmental Protection Agency ("EPA").
Regulation of Rates and Services
- --------------------------------
New Jersey operations are subject to regulation by the BPU. Similarly, our
Delaware operations are subject to regulation by the Public Service Commission
(PSC). These regulatory authorities have jurisdiction with respect to rates,
service, accounting procedures, the issuance of securities and other matters. In
determining our rates, the BPU and the PSC consider the income, expenses, rate
base of property used and useful in providing service to the public and a fair
rate of return on that property. Rate determinations by the BPU do not guarantee
particular rates of return to the Company for our New Jersey operations nor do
rate determinations by the PSC guarantee particular rates of return for our
Delaware operations. Thus, we may not achieve the rates of return allowed by the
BPU or the PSC.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999. Concurrently with the rate increase
request, an application was filed and approved by the PSC for a corporate merger
of Tidewater and Public. Public merged into Tidewater effective February 1,
2000. A rate decision by the PSC is expected in the second quarter of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the Carl J. Olsen Water Treatment Plant (CJO
Plant).
This project was necessary to meet the new and anticipated regulatory standards
concerning water quality and to increase the plant's production capacity.
Water Quality and Environmental Regulations
- -------------------------------------------
Both the EPA and the DEP regulate our operations in New Jersey with respect to
water supply, treatment and distribution systems and the quality of the water,
as do the EPA, the DNREC, and the Delaware Department of Health with respect to
operations in Delaware.
Federal, Delaware and New Jersey regulations adopted over the past five years
relating to water quality require expanded types of testing by the Company to
insure that its water meets State and Federal water quality requirements.
In addition, environmental regulatory agencies are reviewing current regulations
governing the limits of certain organic compounds found in the water as
byproducts of treatment. The Company believes the CJO Plant upgrade and
expansion will allow the Company to be in a stronger position to meet any such
future regulations with regard to its Middlesex System. Regular testing of our
water demonstrates that we are in compliance with existing Federal, New Jersey
and Delaware primary water quality standards.
The DEP and the Delaware Department of Health monitor the activities of the
Company and review the results of water quality tests performed by the Company
for adherence to applicable regulations. Other regulations applicable to the
Company include the Lead and Copper Rule, the maximum contaminant levels
established for various volatile organic compounds, the Federal Surface Water
Treatment Rule, and the Total Coliform Rule.
Employees
- ---------
As of December 31, 1999, we had a total of 143 employees in New Jersey, and a
total of 37 employees in Delaware. No employees are represented by a union.
Management considers its relations with its employees to be satisfactory. Wages
and benefits are reviewed annually and are considered competitive within the
industry.
Executive Officers of Middlesex Water Company
- ---------------------------------------------
Walter J. Brady - age 58; Senior Vice President-Administration; term expires May
2000. Mr. Brady, who joined the Company in 1962, was elected Assistant
Secretary-Assistant Treasurer in 1979, Assistant Vice President in 1982, Vice
President-Human Resources in 1987, Vice President-Administration in 1989 and
Senior Vice President of Administration in 1998. He serves as Plan Administrator
of the Pension Plan. He is a Director of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater
Company and Utility Service Affiliates, Inc., and a Vice President and Director
of Utility Service Affiliates (Perth Amboy) Inc.
A. Bruce O'Connor - age 41; Vice President and Controller; term expires May
2000. Mr. O'Connor, a Certified Public Accountant, joined the Company in 1990 as
Assistant Controller and was elected Controller in 1992 and Vice President in
1995. He assumed the designated title of Vice President and Controller and Chief
Financial Officer in May 1996. He is responsible for financial reporting,
customer service, rate cases, cash management and financings. He was formerly
employed by Deloitte & Touche LLP, a certified public accounting firm from 1984
to 1990. He is Director and Treasurer of Tidewater Utilities, Inc., Treasurer of
White Marsh Environmental Systems, Inc., Public Water Supply Company, Inc. and
Utility Service Affiliates, Inc., Vice President and Director of Pinelands Water
Company and Pinelands Wastewater Company and Vice President and Treasurer of
Utility Service Affiliates (Perth Amboy) Inc.
Marion F. Reynolds - age 60; Vice President, Secretary and Treasurer; term
expires May 2000. Ms. Reynolds, who had been Secretary-Treasurer since 1987 was
elected Vice President, Secretary and Treasurer in 1993. Prior to her election
she had been employed by Public Service Electric and Gas Company, Newark, New
Jersey since 1958, and was elected Assistant Corporate Secretary in 1976. She is
Secretary of Tidewater Utilities, Inc. White Marsh Environmental Systems, Inc.,
and Utility Service Affiliates (Perth Amboy) Inc. and Secretary/Treasurer of
Pinelands Water Company and Pinelands Wastewater Company and a Director and
Secretary of Utility Service Affiliates, Inc.
Richard A. Russo - age 54; Executive Vice President; term expires May 2000. Mr.
Russo, who had been Vice President-Operations since 1989 was elected Executive
Vice President in 1995 and is responsible for engineering, water production,
water treatment and distribution maintenance. He has been a director of
Middlesex since 1994. He was formerly employed by Trenton Water Works as General
Superintendent and Chief Engineer since 1979. He is President and Director of
Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Public Water
Supply Company, Inc., Pinelands Water Company and Pinelands Wastewater Company.
He is Executive Vice President and Director of Utility Service Affiliates, Inc.
and Utility Service Affiliates (Perth Amboy) Inc. Mr. Russo also serves as Vice
President and a Director of Sussex Shores Water Company.
Dennis G. Sullivan - age 58; Vice President and General Counsel, Assistant
Secretary-Assistant Treasurer; term expires May 2000. Mr. Sullivan has been a
Director of Middlesex since October 1999. Mr. Sullivan was hired in 1984 as
Corporate Attorney, responsible for general corporate internal legal matters. He
was elected Assistant Secretary-Assistant Treasurer in 1988 and Vice President
and General Counsel in 1990. He is Assistant Secretary and Assistant Treasurer
and a Director of Tidewater Utilities, Inc., Vice President, Assistant Secretary
and Director of White Marsh Environmental Systems, Inc. and Public Water Supply
Company Inc., a Director and Assistant Secretary of Pinelands Water Company and
Pinelands Wastewater Company, a Director and Assistant Secretary of Utility
Service Affiliates, Inc., and a Director and Assistant Secretary of Utility
Service Affiliates (Perth Amboy) Inc.
J. Richard Tompkins - age 61; Chairman of the Board and President; term expires
May 2000. Mr. Tompkins was elected President of the Company in 1981 and was
elected Chairman of the Board in 1990. In 1979 he was employed by Associated
Utility Services, an independent utility consulting firm in New Jersey, as Vice
President. From 1962 to 1979 he was employed by Buck, Seifert & Jost,
Incorporated, consulting engineers in New Jersey and was appointed Vice
President in 1973. He is Chairman and Director of Tidewater Utilities, Inc.,
White Marsh Environmental Systems, Inc., Pinelands Water Company and Pinelands
Wastewater Company; Director of Public Water Supply Company, Inc. and Director
and President of Utility Service Affiliates, Inc. and Utility Service Affiliates
(Perth Amboy) Inc. He is also a Director of New Jersey Utilities Association and
Raritan Bay Healthcare Foundation.
Ronald F. Williams - age 51; Vice President-Operations; term expires May 2000.
Mr. Williams was hired in March 1995 as Assistant Vice President-Operations,
responsible for the Company's Engineering and Distribution Departments. He was
elected Vice President-Operations in October 1995. He was formerly employed with
the Garden State Water Company as President and Chief Executive Officer since
1991. He is Director and Vice President of Utility Service Affiliates, Inc., and
Utility Service Affiliates (Perth Amboy) Inc.
Item 2. Properties
----------
The water utility properties of our systems consist of source of supply,
pumping, water treatment, transmission and distribution and general facilities.
Middlesex System:
The Middlesex System's principal source of surface supply is the D&R Canal owned
by the State of New Jersey and operated as a water resource by the NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick, New Jersey through our
intake and pumping station located on State owned land bordering the Canal. It
is transported through our 54-inch supply main for treatment and distribution at
the CJO Plant. Facilities at the CJO Plant consist of source of supply, pumping,
water treatment, transmission, storage, laboratory and general facilities. We
monitor water quality at the CJO Plant, at each well field and throughout the
distribution system to determine that federal and state water quality standards
are met.
The design capacity of the intake and pumping station in New Brunswick, New
Jersey, is 80 mgd. The four electric motor driven vertical turbine pumps
presently installed have an aggregate design capacity of 82 mgd. The design
capacity of our raw water supply main is 55 mgd. We also have a 58,600 foot
transmission main, a long term lease agreement with the City of Perth Amboy for
the use of a 38,800 foot transmission main, and a long term, nonexclusive
"wheeling agreement" with the East Brunswick system, all used to transport water
to several of our contract customers.
The CJO Plant includes chemical storage and chemical feed equipment, two dual
rapid mixing basins, four upflow clarifiers, which are also called
Superpulsators, four underground reinforced concrete chlorine contact tanks,
twelve rapid filters containing gravel, sand and anthracite for water treatment
and a steel washwater tank. The Plant also includes a computerized Supervisory
Control and Data Acquisition (SCADA) system to monitor and control the CJO Plant
and the water supply and distribution system in the Middlesex System. The firm
design capacity of the CJO Plant is now 45 mgd (60 mgd maximum capacity). The
main pumping station at the CJO Plant has a design capacity of 90 mgd. The four
electric motor driven vertical turbine pumps presently installed have an
aggregate capacity of 72 mgd.
In addition to the main pumping station at the CJO Plant, there is a 15 mgd
auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the 10 million gallon distribution storage reservoir directly into
the distribution system.
We have a RENEW Program in the Middlesex System to clean and line with cement
previously unlined mains. There are approximately 160 miles of unlined mains in
the 670 mile Middlesex System. In 2000, we will clean and line approximately
nine miles of unlined mains.
Middlesex System's storage facilities consist of a 10 mg reservoir at the CJO
Plant, 5 mg and 2 mg reservoirs in Edison, a 5 mg reservoir in Carteret and a 2
mg reservoir at the Park Avenue Well Field.
We own the properties in New Jersey on which Middlesex System's 31 wells are
located. We also own our headquarters complex at 1500 Ronson Road, Iselin, New
Jersey, consisting of a 27,000 square foot, two story office building and an
adjacent 16,500 square foot maintenance facility.
Tidewater Systems:
The Tidewater Systems' storage facilities include 31 ground level storage tanks
with the following capacities: twenty-one 30,000 gallon tanks, two 25,000 gallon
tanks, three 125,000 gallon tanks, one 132,000 gallon tank, one 80,000 gallon
tank, one 35,000 gallon tank, one 85,000 gallon tank and one elevated storage
tank with a capacity of 300,000 gallons.
Our Delaware operations are managed from Tidewater's leased offices in Odessa,
Delaware and Millsboro, Delaware. Tidewater's office property, which is owned by
its wholly-owned subsidiary, White Marsh Environmental Systems, Inc., (White
Marsh) consists of a 2,400 square foot building situated on a one (1) acre lot.
In January 2000, White Marsh purchased two future office sites. A ten acre site
located in Dover will be the future location of Tidewater's primary business
office. A three acre site located in Millsboro will be used to operate the
southern portion of our territory and will replace the existing leased office.
Tidewater will maintain an office in Odessa, but on a smaller scale. We are
exploring several options for the existing Odessa property.
Pinelands System:
Pinelands Water Company owns well site properties, which are located in
Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2 mg
standpipe.
Pinelands Wastewater System:
Pinelands Wastewater Company owns a 12-acre site on which its 0.5 mgd capacity
tertiary treatment plant is located.
Item 3. Legal Proceedings
-----------------
A motel in our Middlesex service area in 1994, and again in 1997, suffered
outbreaks of Legionella. Claims resulting from the death of a motel guest from
Legionella in 1997 and claims by two other patrons alleging illness as a result
of their stay at the motel in 1997 have been brought against the motel and
against us. We have substantial insurance coverage, which we believe will be
sufficient for all claims in this matter other than for punitive damages. While
the outcome of this case remains uncertain, we believe that the final resolution
will not have a significant effect on financial conditions or results of
operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. The Bankruptcy Court has stayed all claims against the tenant except, to
the extent the tenant is insured, claims brought by us arising from claims made
against us by other tenants and the landlord. Under New Jersey case law, we do
not have financial responsibility to parties to the extent they receive payments
under their own insurance policies. We do not know either the total amount of
claims against us or how much of that amount will be covered by the parties' own
insurance policies. Our counsel in the litigation advises us that the case is
unlikely to be resolved rapidly. We believe we have substantial defenses to the
claims against us although we do not have insurance coverage for them.
The Company has been notified of a potential claim of $5.6 million involving the
break of both a Company water line and an underground electric power cable in
close proximity to it. The power cable contained both electric lines and
petroleum based insulating fluid. The Company is insured for damages except for
damages resulting from pollution discharge, which the Company is advised is
approximately $0.2 million. Causation and liability have not been established.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters Price Range of Common Stock
-----------------------------------
The following table shows the range of closing prices for the Common Stock on
the NASDAQ Stock Market for the calendar quarter indicated.
1999 High Low Dividend
---- ---- --- --------
First Quarter $25 7/16 $21 $29 1/2
Second Quarter 25 3/4 21 5/8 29 1/2
Third Quarter 39 1/2 25 29 1/2
Fourth Quarter 35 7/8 29 1/2 30 1/2
1998 High Low Dividend
---- ---- --- --------
First Quarter $22 1/2 $19 7/8 $0.28 1/2
Second Quarter 21 1/4 19 1/4 0.28 1/2
Third Quarter 22 20 1/8 0.28 1/2
Fourth Quarter 25 3/4 21 1/4 0.29 1/2
Approximate Number of Equity Security Holders as of December 31, 1999
- ---------------------------------------------------------------------
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No Par Value 2,211
Cumulative Preferred Stock, No Par Value:
$7 Series 14
$4.75 Series 1
Cumulative Convertible Preferred Stock, No Par Value:
$7 Series 4
$8 Series 3
Dividends
- ---------
The Company has paid dividends on its Common Stock each year since 1912.
Although it is the present intention of the Board of Directors of the Company to
continue to pay regular quarterly cash dividends on its Common Stock, the
payment of future dividends is contingent upon the future earnings of the
Company, its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.
The Common Stock of the Company is traded on the NASDAQ Stock Market under the
symbol MSEX.
Item 6. Selected Financial Data
-----------------------
Consolidated Selected Financial Data, page 20.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
The companies referred to herein are defined in Note 1(a), Notes to Consolidated
Financial Statements, included in Item 8 in Part II of this Form 10-K.
Liquidity and Capital Resources
The Company's actual capital expenditures for 1998 and 1999 and projected
requirements through 2002 are detailed as follows:
(in millions)
1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CJO Plant $ 18.6 $ 12.0 $ 2.0 $ -- $ --
Delaware Systems 3.2 3.1 7.1 6.7 3.6
RENEW Program 2.1 2.1 2.2 2.2 2.2
Scheduled upgrades to
existing systems 3.4 7.3 6.8 7.2 10.3
------- ------- ------- ------- -------
Total $ 27.3 $ 24.5 $ 18.1 $ 16.1 $ 16.1
------- ------- ------- ------- -------
Our plan to finance these projects is underway. Middlesex issued $4.5 million of
First Mortgage Bonds through the New Jersey State Revolving Fund to cover the
cost of the 2000 and 2001 RENEW Program, which is our program to clean and
cement line approximately 17 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. The financing of our Delaware Systems capital program may be a
combination of internal funds from Middlesex and long-term debt financing from
either a financial institution or the Company. The debt financing decision will
be based upon the terms of financing available to our Delaware Systems. We
expect to be able to cover the costs of scheduled upgrades to the existing
systems with the cash flow generated from our utility operations through the
year 2002.
The Company currently has ten series of First Mortgage Bonds outstanding in the
aggregate principal amount of $79.2 million. The First Mortgage Bonds have been
issued under and secured by a mortgage indenture and supplements thereto, which
constitute a direct first mortgage lien upon substantially all of the property
of Middlesex. Tidewater borrowed funds under a $3.5 million, 8.05% Amortizing
Secured Note due December 20, 2021. Approximately $3.4 million was outstanding
under that note as of December 31, 1999.
From time to time, it may be necessary to utilize all or part of the $18.0
million in total lines of credit we have available with two commercial banks for
working capital purposes or to provide interim funds until long-term financing
is arranged. At December 31, 1999, we had $2.0 million of loans outstanding
against those lines of credit.
Results of Operations
1999 Compared to 1998
Operating revenues were up $10.4 million or 24.1% over 1998. This significant
increase was attributable to several factors. USA-PA began providing services
under its 20-year management contract with the City of Perth Amboy, which
accounted for $7.0 million of the increased revenues. Rate increases for all our
regulated companies amounted to $3.8 million in additional revenues. Customer
growth in our Delaware service territory contributed $0.4 million. Drought
related consumption decreases in New Jersey and a one-time refund to a large
industrial user offset some of the current year increases in the amount of $0.8
million. Record water usage in New Jersey during July and early August was
completely offset by the statewide drought restrictions imposed by the Governor
of New Jersey on August 6, 1999. Generally, these restrictions were subsequently
lifted on September 27, 1999. At all times, Middlesex had adequate sources of
water to supply its customers.
This fact, along with the Company's objection to such a broad water restriction,
was communicated to State authorities. The Company is continuing its effort to
change the State procedures for drought emergency declarations.
Total operating expenses also rose significantly over last year. The increase
over 1998 was $8.9 million or 26.3%. Operations and maintenance costs associated
with the services provided to the City of Perth Amboy accounted for $5.7
million. Purchased water costs were up $0.3 million, while purchased power
increased $0.1 million. Water treatment costs rose $0.3 million. Increased
staffing levels pushed labor and benefits up by $0.4 million. An unusual number
of emergency repairs, both in terms of quantity and severity, increased
maintenance by $0.5 million.
Depreciation expense jumped 18.2% or $0.6 million. The activation of the
improvements to the Carl J. Olsen Treatment Plant (CJO Plant) increased
depreciable property by over $35.0 million.
Other taxes rose $0.8 million due mostly to revenue related taxes. The increase
in federal income taxes was $0.2 million or 6.3%. Deferred taxes on construction
related activities tempered the effect of the current tax expense.
Other income's slight increase of $0.1 million represents the net financing
activities associated with the CJO Plant construction program. Allowance for
Funds Used During Construction (AFUDC) increased by $0.3 million while interest
income on excess cash fell by $0.2 million.
The increase in total interest charges of $0.3 million represents a full year
impact of the three series of First Mortgage Bonds issued during 1998.
Net income reached another record high by increasing $1.4 million or 21.5%. Even
with an increase of more than ten percent shares outstanding, due to the 0.5
million shares issued in December 1998, earnings per share also reached record
territory again. Basic earnings per share rose 8.5% to $1.54.
Results of Operations
1998 Compared to 1997
Operating Revenues were up $2.8 million or 6.9% over 1997. The increase was
attributable to several factors. Rate increases accounted for $1.7 million of
additional revenues. In January 1998, Middlesex implemented a BPU approved rate
increase of 4.4%, and Pinelands Water and Wastewater Companies implemented the
second part of a three-phase rate increase. The final phase was put in place in
January 1999. In addition, $0.5 million was added to revenues by the inclusion
of Public for the entire year of 1998 compared to five months in 1997. Public
was acquired on July 31, 1997. The continued double-digit growth of 11.5% in
Tidewater's customer base also contributed $0.5 million in revenues.
Higher revenues were partially offset by increased operating expenses of $2.4
million or 7.6%. The increases were related primarily to the following factors.
Purchased water and water treatment expenses reflected a combined increase of
$0.2 million as a result of Middlesex changing the composition of the water
sources it uses to supply its customers. Purchased power increased $0.2 million
due in part to a large credit Middlesex received in 1997 from its power
provider. Mandated recognition of postretirement benefit costs other than
pensions and amortization of BPU approved regulatory deferrals added $0.5
million and $0.2 million, respectively, to expenses. Labor costs were higher by
$0.5 million, and the inclusion of Public's expenses for a full year accounted
for $0.3 million of the increase.
Depreciation expense increased $0.2 million or 7.0% based on newly constructed
utility plant placed in service in 1998 and utility plant acquired through the
acquisition of Public.
Other Taxes increased $0.3 million and related mostly to revenue-related taxes
and employers' payroll taxes. The decrease in federal income taxes is due to a
lower amount of deferred taxes, which offset an increased amount of current
taxable income.
Other income increased $1.4 million compared to 1997. An increase of $0.9
million in AFUDC was related to the capital expenditures incurred in connection
with the upgrade of the CJO Plant. Interest income rose $0.5 million as a result
of the unexpended proceeds available for investment from the Series W Mortgage
Bonds issued in March 1998.
Total interest charges rose $1.1 million. This increase reflects $0.9 million of
interest expense related to the Series W Mortgage Bonds and increased interest
of $0.2 million on a higher level of short-term borrowings under existing lines
of credit incurred to finance the capital program on an interim basis.
The $0.1 million increase in preferred stock dividend requirements reflects the
issuance on July 31, 1997, of the $8.00 preferred stock series to complete the
acquisition of Public. Basic and diluted earnings per share increased $0.09 and
$0.08, respectively, over 1997. The $0.01 per share dilution in 1998 is the
result of the two series of convertible preferred stock currently outstanding.
Regulatory Matters
On January 1, 1999, USA-PA began operating the City of Perth Amboy's water and
wastewater systems under a 20-year agreement.
Perth Amboy has a population of 40,000 and has approximately 8,600 customers,
most of whom are served by both systems. The agreement is being effected under
New Jersey's Water Supply Public-Private Contracting Act and the New Jersey
Wastewater Public/Private Contracting Act.
Under the agreement, USA-PA receives a fixed fee and a variable fee based on
increased system billing. Fixed fee payments began at $6.4 million in the first
year and will increase to $9.7 million in year 20. The agreement also requires
USA-PA to lease from Perth Amboy all of its employees who currently work on the
Perth Amboy water and wastewater systems. In connection with the agreement,
Perth Amboy, through the Middlesex County Improvement Authority, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, USA-PA simultaneously entered
into a 20-year subcontract with a sewer contracting firm for the operation and
maintenance of the Perth Amboy wastewater system. The subcontract requires the
sharing of certain fixed and variable fees and operating expenses.
In December 1999, Middlesex closed on a franchise agreement with the City of
South Amboy (South Amboy) to provide water service and install water system
facilities in South Amboy. The agreement between Middlesex and South Amboy,
originally signed in December 1998, received approval from the New Jersey Board
of Public Utilities on November 18, 1999. See Note 4 to the Consolidated
Financial Statements.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999.
Concurrently with the rate increase request, an application was filed and
approved by the PSC for a corporate merger of Tidewater and Public. Public
merged into Tidewater effective February 1, 2000. The last increase in base
rates for Tidewater and Public were in 1991 and 1992, respectively. A rate
decision by the PSC is expected in the second quarter of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the CJO Plant. This project was necessary to
meet the new and anticipated regulatory standards concerning water quality and
to increase the plant's production capacity. The Company's original rate
request, which was filed in September 1998, was for $8.0 million.
On January 29, 1998, the BPU approved an increase in the rates of Middlesex by
4.4% or $1.5 million. Under the approval, the allowed return on equity is 11.0%
with an overall rate of return of 8.56%. The increase includes the recovery of
postretirement costs other than pension expenses, which are mandated by the
Company's compliance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
In January 1997, the BPU approved a stipulation agreed to by the parties to the
Pinelands Water and Wastewater Companies' rate cases. The stipulations allow for
a combined rate increase, which will result in $0.4 million additional revenues.
The new rates were phased in over a three-year period to minimize the impact on
customers. The final phase was implemented in January 1999.
Accounting Standards
In 1998, The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133." 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.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises and standardizes disclosure requirements for pension and
other post-retirement benefit plans but does not change the measurement or
recognition of those plans. Effective January 1, 1998, the Company adopted SFAS
No. 132. See Note 8 to the Consolidated Financial Statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting certain financial and
descriptive information about operating segments in complete sets of financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. The Company began reporting the
information required under this statement in the first quarter of 1999. See Note
9 the Consolidated Financial Statements.
Year 2000 Readiness
The Company, through its year 2000 Committee, implemented computer system
enhancements and contingency plans to protect against service interruption.
Contingency plans included installation of back-up generators, increased supply
of critical materials for water production, additional human resources on-duty
and on-call and special communication protocol with state emergency personnel
and Company management. Additional costs associated with these plans amounted to
less than $0.1 million.
Also, part of the planning process involved monthly assessment submissions to
utility regulatory authorities as to the Company's readiness. We are pleased to
report that no service interruption occurred as a result of the calendar year
changing to 2000.
Qualitative and Quantitative Disclosures About Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.2 million of the current portion of three existing long-term
debt instruments will mature. Combining this amount with the $2.0 million in
short-term debt outstanding at December 31, 1999, and applying a hypothetical
change in the rate of interest charged by 10% on those borrowings, would not
have a material effect on earnings.
Outlook
Revenues are expected to continue to grow in 2000. The annualized effect of rate
increases implemented in Delaware and New Jersey, along with anticipated
customer growth in Delaware, should also enhance earnings. The level of earnings
may be impacted by the ultimate outcome of the Tidewater base rate case
currently under review by the PSC and the Company's ability to maintain costs at
reasonable levels. Revenues and, therefore, earnings may also be affected by
weather conditions.
Our strategy is for continued growth through acquisitions, internal expansion,
public/private partnerships and rate relief. Opportunities in both the regulated
and non-regulated sectors that are financially sound, complement existing
operations and increase shareholder value will be pursued. We are currently
pursuing several opportunities in Delaware, which could significantly increase
our customer base.
Certain matters discussed in this annual report are "forward-looking statements"
intended to qualify for safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. Such statements address future plans,
objectives, expectations and events concerning various matters such as capital
expenditures, earnings, litigation, growth potential, rate, regulatory matters,
liquidity, capital resources and accounting matters. Actual results in each case
could differ materially from those currently anticipated in such statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 7a. Qualitative and Quantitive Disclosure About Market Risk
-------------------------------------------------------
This information is incorporated herein by reference to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 16.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Consolidated Financial Statements and Supplementary Financial Data:
Consolidated Balance Sheet at December 31, 1999 and 1998, Pages 21-22
Consolidated Statements of Income for the years ended December 31, 1999, 1998
and 1997, Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at December 31, 1999
and 1998, Page 24.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997, Page 25.
Consolidated Statements of Retained Earnings for the years ended December 31,
1999 and 1998, Page 26.
Notes to Consolidated Financial Statements, Pages 27-39.
Independent Auditors' Report, Page 40.
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosures
-------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information with respect to Directors of Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.
Information regarding the Executive Officers of Middlesex Water Company is
included under Item 1 in Part 1 of this Form 10-K.
Item 11. Executive Compensation
----------------------
This Information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
--------------
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. The following Financial Statements and supplementary data
are included in Part II, Item 8.
Management's Discussion and Analysis, Pages 12-17.
Consolidated Balance Sheets at December 31, 1999, and 1998, Pages
21-22.
Consolidated Statements of Income for each of the three years in
the period ended December 31, 1999 1998 and 1997 Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at
December 31, 1999, and 1998, Page 24.
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999, 1998 and 1997 Page 25.
Consolidated Statements of Retained Earnings for each of the three
years in the period ended December 31, 1999, 1998 and 1997 Page 26.
Notes to Consolidated Financial Statements, Pages 27-39.
Independent Auditors' Report, Page 40.
(a) 2. Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions
under which they are required or because the required information
is shown in the financial statements or notes thereto.
(a) 3. Exhibits
See Exhibit listing on Pages 43-46.
(b) Reports on Form 8-K
None
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 53,497 $ 43,058 $ 40,294 $ 38,025 $ 37,847 $ 36,122
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operations and Maintenance 28,887 21,523 19,513 18,817 18,057 16,975
Depreciation 3,885 3,285 3,071 2,929 2,814 2,650
Other Taxes 6,871 6,102 5,782 5,569 5,479 5,343
Income Taxes 3,189 2,999 3,135 2,526 2,975 2,766
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 42,832 33,909 31,501 29,841 29,325 27,734
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 10,665 9,149 8,793 8,184 8,522 8,388
Other Income 1,911 1,795 405 288 303 151
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 12,576 10,944 9,198 8,472 8,825 8,539
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Charges 4,695 4,423 3,337 3,304 3,121 3,044
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 7,881 6,521 5,861 5,168 5,704 5,495
Preferred Stock Dividend 301 319 226 159 159 188
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 7,580 $ 6,202 $ 5,635 $ 5,009 $ 5,545 $ 5,307
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic $ 1.54 $ 1.42 $ 1.33 $ 1.20 $ 1.36 $ 1.33
Diluted $ 1.52 $ 1.41 $ 1.33 $ 1.20 $ 1.36 $ 1.32
Average Shares Outstanding:
Basic 4,926,893 4,353,879 4,235,082 4,169,334 4,078,890 4,003,393
Diluted 5,148,513 4,580,305 4,382,345 4,258,740 4,168,296 4,092,799
Dividends Declared and Paid $ 1.19 $ 1.15 1.12 1/2 $ 1.10 1/2 $ 1.08 1/2 $ 1.05 3/4
Total Assets $ 215,036 $ 203,501 $ 159,761 $ 148,660 $ 144,822 $ 132,413
Convertible Preferred Stock $ 2,961 $ 3,894 $ 3,894 $ 1,566 $ 1,566 $ 1,566
Long-term Debt $ 82,330 $ 78,032 $ 52,918 $ 52,961 $ 52,960 $ 49,500
- -----------------------------------------------------------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------------
1999 1998
------------ ------------
UTILITY PLANT:
Water Production $ 70,316,961 $ 28,154,961
Transmission and Distribution 122,002,931 118,234,900
General 19,717,575 19,300,406
Construction Work in Progress 2,858,703 25,794,061
------------ ------------
TOTAL 214,896,170 191,484,328
Less Accumulated Depreciation 35,174,531 32,367,936
------------ ------------
UTILITY PLANT - NET 179,721,639 159,116,392
------------ ------------
NONUTILITY ASSETS - NET 2,087,498 3,710,437
CURRENT ASSETS:
Cash and Cash Equivalents 5,169,772 9,388,822
Temporary Cash Investments - Restricted 5,731,827 9,776,072
Accounts Receivable 5,969,546 4,886,067
Unbilled Revenues 2,627,863 2,298,148
Materials and Supplies (at average cost) 956,950 906,866
Prepayments 616,224 528,348
------------ ------------
TOTAL CURRENT ASSETS 21,072,182 27,784,323
------------ ------------
DEFERRED CHARGES: Unamortized Debt Expense 3,029,362 3,143,384
Preliminary Survey and Investigation Charges 472,287 276,202
Regulatory Assets:
Income Taxes (Note 3) 5,955,879 5,788,752
Postretirement Costs (Note 8) 1,127,884 1,214,092
Other (Note 2) 1,568,934 2,467,674
------------ ------------
TOTAL DEFERRED CHARGES 12,154,346 12,890,104
------------ ------------
TOTAL $215,035,665 $203,501,256
------------ ------------
See Notes to Consolidated Financial Statements.
CAPITALIZATION AND LIABILITIES
December 31,
-----------------------------
1999 1998
------------ ------------
CAPITALIZATION
Common Stock $ 47,593,514 $ 45,507,172
Retained Earnings 22,895,844 21,222,294
------------ ------------
TOTAL COMMON EQUITY 70,489,358 66,729,466
Cumulative Preferred Stock 4,063,062 4,995,635
Long-term Debt 82,329,592 78,031,513
------------ ------------
TOTAL CAPITALIZATION 156,882,012 149,756,614
CURRENT
LIABILITIES:
Current Portion of Long-term Debt 201,921 71,730
Notes Payable 2,000,000 1,000,000
Accounts Payable 3,392,432 3,851,659
Taxes Accrued 5,358,737 5,220,669
Interest Accrued 1,760,470 1,701,330
Other 1,591,706 1,354,673
------------ ------------
TOTAL CURRENT LIABILITIES 14,305,266 13,200,061
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
DEFERRED CREDITS:
Customer Advances for Construction 11,775,581 11,275,660
Accumulated Deferred Investment Tax Credits (Note 3) 2,089,650 2,165,384
Accumulated Deferred Federal Income Taxes (Note 3) 12,113,286 12,070,474
Employee Benefit Plans (Note 8) 4,656,575 3,762,516
Other 1,059,206 791,460
------------ ------------
TOTAL DEFERRED CREDITS 31,694,298 30,065,494
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 12,154,089 10,479,087
------------ ------------
TOTAL $215,035,665 $203,501,256
------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
OPERATING REVENUES (Note 2) $53,497,153 $43,057,966 $40,294,118
----------- ----------- -----------
OPERATING EXPENSES:
Operations (Note 4) 26,268,347 19,807,472 17,771,892
Maintenance 2,618,679 1,715,357 1,741,487
Depreciation 3,884,650 3,284,669 3,070,843
Other Taxes 6,871,105 6,101,719 5,781,641
Federal Income Taxes (Note 3) 3,188,893 2,999,288 3,135,118
----------- ----------- -----------
TOTAL OPERATING EXPENSES 42,831,674 33,908,505 31,500,981
----------- ----------- -----------
OPERATING INCOME 10,665,479 9,149,461 8,793,137
----------- ----------- -----------
OTHER INCOME:
Allowance for Funds Used During Construction 1,350,016 1,050,044 147,912
Other - Net 560,991 745,322 256,554
TOTAL OTHER INCOME 1,911,007 1,795,366 404,466
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 12,576,486 10,944,827 9,197,603
----------- ----------- -----------
INTEREST CHARGES:
Interest on Long-term Debt 4,469,709 4,088,631 3,163,035
Amortization of Debt Expense 136,290 132,049 121,089
Other Interest Expense 89,446 202,921 52,573
----------- ----------- -----------
TOTAL INTEREST CHARGES 4,695,445 4,423,601 3,336,697
----------- ----------- -----------
NET INCOME 7,881,041 6,521,226 5,860,906
----------- ----------- -----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 300,786 318,786 226,027
----------- ----------- -----------
EARNINGS APPLICABLE TO COMMON STOCK $ 7,580,255 $ 6,202,440 $ 5,634,879
----------- ----------- -----------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
Earnings per Share (Note 7):
Basic $ 1.54 $ 1.42 $ 1.33
Diluted $ 1.52 $ 1.41 $ 1.33
Average Number of Shares Outstanding (Note 7):
Basic 4,926,893 4,353,879 4,235,082
Diluted 5,148,153 4,580,305 4,382,345
Dividends Paid per Share $ 1.19 $ 1.15 $ 1.12 1/2
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
Years Ended December 31,
------------------------------
1999 1998
------------ ------------
Common Stock, No Par Value (Note 7):
Shares Authorized - 10,000,000
Shares Outstanding - 1999 - 5,000,589 $ 48,116,537
1998 - 4,897,069 $ 45,889,980
Restricted Stock Plan (Note 8) (523,023) (382,80)
------------ ------------
TOTAL COMMON STOCK 47,593,514 45,507,172
------------ ------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 7):
Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 2,331,430
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 4,995,635
------------ ------------
Long-term Debt (Note 7):
8.05%, Amortizing Secured Note, due December 20, 2021 3,371,527 3,418,243
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due September 1, 2018 1,024,986 1,050,000
4.53%, Series Y, due September 1, 2018 1,135,000 1,135,000
0.00%, Series Z, due September 1, 2019 2,150,000 --
5.25%, Series AA, due September 1, 2019 2,350,000 --
------------ ------------
SUBTOTAL LONG-TERM DEBT 82,531,513 78,103,243
------------ ------------
Less: Current Portion of Long-term Debt (201,921) (71,730)
------------ ------------
TOTAL LONG-TERM DEBT $ 82,329,592 $ 78,031,513
------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------------------
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,881,041 $ 6,521,226 $ 5,860,906
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 4,303,192 3,796,607 3,145,218
Provision for Deferred Income Taxes (124,315) 134,976 778,521
Allowance for Funds Used During Construction (1,350,016) (1,050,044) (147,912)
Changes in Assets and Liabilities:
Accounts Receivable (1,083,479) (1,091,207) 305,079
Accounts Payable (459,227) 302,246 2,173,616
Accrued Taxes 138,068 78,580 612,904
Accrued Interest 59,140 517,769 11,170
Unbilled Revenues (329,715) (122,214) 29,344
Employee Benefit Plans 894,059 1,015,280 536,342
Other-Net 111,068 313,982 (678,476)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,039,816 10,417,201 12,626,712
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (23,281,735) (26,275,281) (10,233,685)
Cash from Acquisition of Subsidiary -- 158,436
Notes Receivable 2,806,102 (1,619,065) 5,963
Preliminary Survey & Investigation Charges (196,085) (62,552) (458,016)
Other-Net (158,596) (654,605) (779,145)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (20,830,314) (28,611,503) (11,306,447)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (71,730) (42,710) (41,780)
Proceeds from Issuance of Long-term Debt 4,500,000 25,185,000 --
Short-term Bank Borrowings 1,000,000 435,299 --
Deferred Debt Issuance Expenses (22,268) (502,200) --
Temporary Cash Investments-Restricted 4,044,245 (9,557,285) 9,996
Proceeds from Issuance of Common Stock-Net 1,104,469 14,288,456 1,147,418
Payment of Common Dividends (5,857,405) (4,987,013) (4,761,327)
Payment of Preferred Dividends (300,786) (318,751) (239,361)
Construction Advances and Contributions-Net 2,174,923 569,034 1,032,721
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,571,448 25,069,830 (2,852,333)
------------ ------------ ------------
NET CHANGES IN CASH AND CASH EQUIVALENTS (4,219,050) 6,875,528 (1,532,068)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,388,822 2,513,294 4,045,362
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,169,772 $ 9,388,822 $ 2,513,294
------------ ------------ ------------
*Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 3,137,411 $ 2,810,578 $ 3,045,867
Income Taxes $ 3,728,700 $ 3,162,975 $ 1,702,200
------------ ------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
BALANCE AT BEGINNING OF YEAR $21,222,294 $20,087,065 $19,226,847
NET INCOME 7,881,041 6,521,226 5,860,906
----------- ----------- -----------
TOTAL 29,103,335 26,608,291 25,087,753
----------- ----------- -----------
CASH DIVIDENDS:
Cumulative Preferred Stock 300,786 318,751 239,361
Common Stock 5,857,405 4,987,013 4,761,327
COMMON STOCK EXPENSES 49,300 80,233 --
----------- ----------- -----------
TOTAL DEDUCTIONS 6,207,491 5,385,997 5,000,688
----------- ----------- -----------
BALANCE AT END OF YEAR $22,895,844 $21,222,294 $20,087,065
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA)
and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA). White Marsh
Environmental Systems, Inc., is a wholly-owned subsidiary of Tidewater. Public
Water Supply Company, Inc., which was also a wholly-owned subsidiary of
Tidewater, was merged into Tidewater effective February 1, 2000. The combined
entity will continue to operate under the Tidewater name. The financial
statements for Middlesex and its wholly-owned subsidiaries (the Company) are
reported on a consolidated basis. All intercompany accounts and transactions
have been eliminated.
(b) System of Accounts - Middlesex, Pinelands Water and Pinelands Wastewater
maintain their accounts in accordance with the Uniform System of Accounts
prescribed by the Board of Public Utilities of the State of New Jersey (BPU).
Tidewater maintains its accounts in accordance with the Public Service
Commission of Delaware (PSC) requirements.
(c) Utility Plant is stated at original cost as defined for regulatory purposes.
Property accounts are charged with the cost of betterments and major
replacements of property. Cost includes direct material, labor and indirect
charges for pension benefits and payroll taxes. The cost of labor, materials,
supervision and other expenses incurred in making repairs and minor replacements
and in maintaining the properties is charged to the appropriate expense
accounts. At December 31, 1999, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
(d) Depreciation is computed by each regulated member of the Company utilizing a
rate approved by the applicable regulatory authority. The Accumulated Provision
for Depreciation is charged with the cost of property retired, together with
removal costs, less salvage.
(e) Allowance for Funds Used During Construction (AFUDC) - Middlesex, Tidewater,
Pinelands Water and Pinelands Wastewater capitalize AFUDC, which represents the
cost of financing major projects during construction. AFUDC is added to the
construction costs of individual projects exceeding specific cost thresholds
established for each company and then depreciated along with the rest of the
utility plant's costs over its estimated useful life. AFUDC is calculated using
each company's weighted cost of debt and equity.
(f) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 1999, 1998 and 1997, and the corresponding expense and deduction
for those years, is less than $0.1 million.
(g) Revenues from regulated activities are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for services
provided subsequent to the last billing cycle. Fixed service charges are billed
in advance by Tidewater and are recognized in revenue as the service is
provided. Management contract fees are recorded as earned.
(h) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues. As authorized by the BPU, main cleaning and lining costs,
tank painting and regulatory expenses are amortized over 3 to 15-year periods.
(i) Income Taxes - Middlesex files a consolidated federal income tax return for
the Company and income taxes are allocated based on the separate return method.
Investment tax credits have been deferred and are amortized over the estimated
useful life of the related property.
(j) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents represent bank
balances, commercial paper and money market funds maturing in less than 90 days.
(k) 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.
(l) In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133." 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 this accounting standard,
which is required to be adopted in the first quarter of 2001.
(m) Certain prior year amounts have been reclassified to conform to the current
year reporting.
Note 2 - Rates and Revenues
In December 1999, Middlesex closed on a franchise agreement with the City of
South Amboy (South Amboy) to provide water service and install water system
facilities in South Amboy. The agreement between Middlesex and South Amboy,
originally signed in December 1998, received approval from the BPU on November
18, 1999. See Note 4.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999. Concurrently with the rate increase
request, an application was filed and approved by the PSC for a corporate merger
of Tidewater and Public. Public merged into Tidewater effective February 1,
2000. The last increase in base rates for Tidewater and Public were in 1991 and
1992, respectively. A rate decision by the PSC is expected in the second quarter
of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the Carl J. Olsen Water Treatment Plant. This
project was necessary to meet the new and anticipated regulatory standards
concerning water quality and to increase the plant's production capacity. The
Company's original rate request, which was filed in September 1998, was for $8.0
million.
In January 1998, the BPU approved an increase in the rates of Middlesex by 4.4%,
or $1.5 million. Under the approval, the allowed return on equity is 11.0% with
an overall rate of return of 8.56%. The increase includes the recovery of
postretirement costs other than pension expenses, which are mandated by the
Company's compliance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
In January 1997, the BPU approved a stipulation agreed to by the parties to the
Pinelands Water and Wastewater Companies' rate cases. The stipulations allow for
a combined rate increase, which will result in $0.4 million additional revenues.
The new rates were phased in over a three-year period to minimize the impact on
customers. The final phase was implemented in January 1999.
Included in Deferred Charges-Other are $1.3 million of deferred costs at
December 31, 1999, which Middlesex, Pinelands Water and Pinelands Wastewater are
recovering through rates over periods of 3 to 15 years. The BPU has excluded
these costs from their rate bases and, therefore, they are not earning a return
on the unamortized costs during the recovery periods.
Note 3 - Income Taxes
Federal income tax expense differs from the amount computed by applying the
statutory rate on book income subject to tax for the following reasons:
Years Ended December 31,
(Thousands of Dollars)
1999 1998 1997
------- ------- -------
Income Tax at Statutory Rate of 34% $ 3,764 $ 3,237 $ 2,956
Tax Effect of:
AFUDC (459) (357) (49)
Other (116) 119 (133)
------- ------- -------
Total Federal Income Tax Expense $ 3,189 $ 2,999 $ 2,774
------- ------- -------
Federal income tax expense is comprised of the following:
Current $ 3,432 $ 2,975 $ 2,117
Deferred:
Customer Advances 45 51 63
Accelerated Depreciation 234 595 753
Employee Benefit Plans (304) (358) (107)
Investment Tax Credit (76) (72) (72)
Other (142) (192) 20
------- ------- -------
Total Federal Income Tax Expense $ 3,189 $ 2,999 $ 2,774
------- ------- -------
Charged to:
Operating Expense $ 3,189 $ 2,999 $ 3,135
Other Income-Net -- -- (361)
------- ------- -------
Total Provision $ 3,189 $ 2,999 $ 2,774
------- ------- -------
The statutory review period for income tax returns for the years prior to 1996
has been closed. The Company is required to set up deferred income taxes for all
temporary differences regardless of the regulatory ratemaking treatment.
However, if it is probable that these additional taxes will be passed on to
ratepayers, an offsetting regulatory asset or liability can be recorded.
Management believes that it is probable that the consolidated deferred income
tax liability of approximately $6.0 million will be recovered in future rates.
Therefore, a regulatory asset has been set up to offset the increased liability.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. The components of the net deferred
tax liability are as follows:
Years Ended December 31,
(Thousands of Dollars)
1999 1998
-------- --------
Utility Plant Related $ 17,953 $ 17,549
Customer Advances (4,628) (4,669)
Employee Benefits (1,110) (813)
Other (102) 3
-------- --------
Total Deferred Tax Liability $ 12,113 $ 12,070
======== ========
Note 4 - Commitments and Contingent Liabilities
Service Agreement - In December 1998, the Company's subsidiary, USA-PA, entered
into a 20-year agreement with the City of Perth Amboy, New Jersey (Perth Amboy)
and the Middlesex County Improvement Authority (MCIA) to operate and maintain
the water and wastewater systems of Perth Amboy. USA-PA began operating Perth
Amboy's systems on January 1, 1999.
Perth Amboy has a population of 40,000 and has approximately 8,600 customers,
most of whom are served by both systems. The agreement was effected under New
Jersey's Water Supply Public-Private Contracting Act and the New Jersey
Wastewater Public/Private Contracting Act. Under the agreement, USA-PA receives
a fixed fee and a variable fee based on increased system billing. Fixed fee
payments began at $6.4 million in the first year and will increase to $9.7 in
year 20. The agreement also requires USA-PA to lease from Perth Amboy all of its
employees who currently work on the Perth Amboy water and wastewater systems. In
connection with the agreement, Perth Amboy through the MCIA, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, effective January 1, 1999, USA-PA
entered into a 20-year subcontract with a sewer contracting firm for the
operation and maintenance of the Perth Amboy wastewater system. The subcontract
requires the sharing of certain fixed and variable fees and operating expenses.
Franchise Agreement/Service Agreement - On December 2, 1999, Middlesex
implemented a franchise agreement with the City of South Amboy (South Amboy) to
provide water service and install water system facilities in South Amboy. The
agreement between Middlesex and South Amboy, originally signed in December 1998,
received approval from the BPU on November 18, 1999. The implementation of the
franchise agreement has significantly impacted two existing agreements entered
into by the parties in 1994.
The first agreement was for the sale of water to South Amboy on a wholesale
basis. The second agreement, which included Middlesex's wholly-owned subsidiary
USA, was a contract to provide management services for a fixed fee. In
conjunction with the franchise agreement, the water sales contract was
eliminated. In addition, the management services contract was extended through
May 2045 and significantly modified to correspond with the terms and conditions
of the franchise agreement. Certain advances made by USA to South Amboy at the
commencement of the management services contract have been forgiven in
consideration for the franchise agreement. Fixed fee revenues recognized under
the original contract have been eliminated in lieu of revenues derived from
providing water to South Amboy's 2,600 customers. In 1999, 1998 and 1997,
service contract revenues recognized under the original contract were $0.4
million, $0.5 million and $0.4 million, respectively.
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 1999, 1998 and 1997
costs under this agreement were $1.7 million, $1.6 million and $1.5 million,
respectively.
Middlesex also has an agreement with the New Jersey Water Supply Authority
(NJWSA), which expires November 1, 2013, and provides for the minimum purchase
of 20 mgd of untreated water from the Delaware and Raritan Canal and the Raritan
River. In addition, the Company has a supplemental one-year agreement for an
additional 5 mgd through April 30, 2000. This agreement is renewable on an
annual basis. The total costs under this agreement in 1999, 1998 and 1997 were
$2.0 million, $1.8 million and $1.7 million, respectively.
Construction - The Company plans to spend approximately $18.1 million in 2000
and $16.1 million in 2001 and in 2002 on its construction program. Substantially
all of the utility plant of the Company is subject to the lien of its mortgage,
which also includes certain restrictions as to cash dividend payments and other
distributions on common stock.
Litigation - A motel in our Middlesex service area in 1994, and again in 1997,
suffered outbreaks of Legionella. Claims resulting from the death of a motel
guest from Legionella in 1997 and claims by two other patrons alleging illness
as a result of their stay at the motel in 1997 have been brought against the
motel and against us. We have substantial insurance coverage, which we believe
will be sufficient for all claims in this matter other than for punitive
damages. While the outcome of this case remains uncertain, we believe that the
final resolution will not have a significant effect on financial conditions or
results of operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. The Bankruptcy Court has stayed all claims against the tenant except, to
the extent the tenant is insured, claims brought by us arising from claims made
against us by other tenants and the landlord. Under New Jersey case law, we will
not have financial responsibility to parties to the extent they receive payments
under their own insurance policies. We do not know either the total amount of
claims against us or how much of that amount will be covered by the parties' own
insurance policies. Our counsel in the litigation advises us that the case is
unlikely to be resolved rapidly. We believe we have substantial defenses to the
claims against us although we do not have insurance coverage for them.
The Company has been notified of a potential claim of $5.6 million involving the
break of both a Company water line and an underground electric power cable in
close proximity to it. The power cable contained both electric lines and
petroleum based insulating fluid. The Company is insured for damages except for
damages resulting from pollution discharge, which the Company is advised is
approximately $0.2 million. Causation and liability have not been established.
Note 5 - Lines of Credit, Notes Payable and
Restricted Cash
(Thousands of Dollars)
1999 1998 1997
------- ------- -------
Established Lines at Year End $18,000 $28,000 $20,000
Maximum Amount Outstanding 3,000 4,575 --
Average Outstanding 1,129 2,653 --
Notes Payable at Year End 2,000 1,000 --
Weighted Average Interest Rate 5.37% 5.37% --
To accommodate the funding requirements of the Company's on-going capital
program, in December 1997 the Board of Directors authorized an increase in the
amount of lines of credit for up to $30 million. Short-term borrowings are below
the prime rate with some requirements for compensating balances not exceeding 1%
of the line.
Restricted temporary cash investments at December 31, 1999, include $ 4.9
million balance of proceeds from the Series X, Y, Z and AA First Mortgage Bonds
issuances. These funds are held in trusts and restricted to specific capital
expenditures and debt service requirements. Series X and Y proceeds can only be
used for the 1999 main cleaning and cement lining program. Series Z and AA
proceeds can only be used for the 2000 and 2001 main cleaning and cement lining
programs.
Note 6 - Quarterly Operating Results - Unaudited
Quarterly operating results for 1999 and 1998 are as follows:
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
1999 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
Operating Revenues $11,680 $ 13,813 $15,392 $12,612 $53,497
Operating Income 1,946 2,981 3,615 2,123 10,665
Net Income 1,493 2,572 2,781 1,035 7,881
Basic Earnings per Share $ .29 $ .51 $ .55 $ .19 $ 1.54
Diluted Earnings per Share .29 .50 .54 .19 1.52
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
Operating Revenues $ 9,769 $ 10,591 $ 12,074 $ 10,624 $ 43,058
Operating Income 1,948 2,268 2,978 1,955 9,149
Net Income 1,263 1,574 2,348 1,336 6,521
Basic Earnings per Share $ 0.28 $ 0.34 $ 0.52 $ 0.28 $ 1.42
Diluted Earnings per Share 0.28 0.34 0.51 0.28 1.41
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 7 - Capitalization
All the transactions discussed below related to the issuance or redemption of
securities were approved by the BPU, except where noted.
Common Stock
In December 1998, the Company completed the sale of 517,000 shares of its no par
common stock at a price of $24.625 per share. Most of the offering proceeds were
used to fund a portion of the cost of the CJO Plant upgrade. In addition, other
capital improvement expenditures for the Company's utility systems were funded
by the proceeds.
In June 1998, the Company increased the number of shares authorized under the
Dividend Reinvestment and Common Stock Purchase Plan (DRP) from 900,000 to
1,700,000 shares. The cumulative number of shares issued under the DRP at
December 31, 1999, is 886,557. In October 1997, the Board of Directors approved
a 5% discount on the first 100,000 shares of common stock sold to participants
of the Company's DRP between the period of January 2, 1998, and June 1, 1998.
During 1999, 1998 and 1997, 48,664 shares ($1.3 million), 110,852 shares ($2.3
million) and 64,148 shares ($1.1 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, 1999, no
restrictions were placed on common dividends.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. In 1999, the
number of authorized Preferred Stock, without par value, was reduced from
149,980 shares to 140,497 shares to account for the conversion of 8,000 shares
of the $8.00 Series into 54,856 shares of the Company's common shares in 1999
and the cancellation of 1,483 shares of the nonredeemable $7.00 Series
previously redeemed. At December 31, 1999, and 1998, respectively, 37,898 and
45,898 shares of Preferred Stock presently authorized were outstanding. There
were no dividends in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for six shares of the Company's common stock. In addition, the Company may
redeem up to 10% of the outstanding convertible stock in any calendar year at a
price equal to the fair market value of six shares of the Company's common stock
for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for 6.857 shares of the Company's common stock. The preferred shares are
convertible at the election of the security holder until 2004. After that date
Middlesex also has the right to elect the conversion feature.
Long-term Debt
On November 5, 1999, the Company issued $2.150 million, designated as Series Z,
and $2.350 million, designated as Series AA, First Mortgage Bonds through the
New Jersey State Revolving Fund (SRF). Series Z has a zero interest cost, while
Series AA has a coupon rate that varies from 5.25% to 5.75%. The SRF program,
which is administered by the New Jersey Environmental Infrastructure Trust,
evolved from the Federal Environmental Protection Agency's (EPA) regulations
issued under the Safe Drinking Water Act. Under this program, investor-owned
public water utilities can apply for construction loans, which are funded by the
participating state and the EPA through the state environmental agency. In New
Jersey, initial project approval must be granted by the New Jersey Department of
Environmental Protection. Funds from the EPA, which can equal up to 50% of
construction costs, are loaned at a zero interest cost; the interest rate on the
state portion of the loan is based upon the prevailing market conditions at time
of issuance. Interest paid to the bondholders