SECURITIES AND 0EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: September 30, 2002 No. 0-422
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MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 2002
----- ---------------------------------
Common Stock, No Par Value 7,745,169
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements:
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Capitalization and Retained Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures of Market Risk 11
PART II. OTHER INFORMATION 12
SIGNATURE 13
CERTIFICATIONS 14-15
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Nine Months Twelve Months
Ended September 30, Ended September 30, Ended September 30,
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Operating Revenues $16,983,016 $16,065,400 $46,737,754 $43,963,030 $62,412,869 $57,014,243
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Operations 7,995,208 7,297,815 22,733,489 21,476,488 30,277,791 28,020,909
Maintenance 684,530 704,953 2,001,929 1,985,223 2,735,295 2,532,044
Depreciation 1,072,630 1,264,812 3,681,178 3,773,764 4,958,813 4,997,323
Other Taxes 2,096,025 2,031,965 5,915,163 5,618,902 7,936,667 7,245,901
Federal Income Taxes 1,381,791 1,233,979 3,089,880 2,697,309 4,106,216 3,142,499
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses 13,230,184 12,533,524 37,421,639 35,551,686 50,014,782 45,938,676
----------- ----------- ----------- ----------- ----------- -----------
Operating Income 3,752,832 3,531,876 9,316,115 8,411,344 12,398,087 11,075,567
Other Income:
Allowance for Funds Used During Construction 34,465 38,776 186,439 77,034 249,014 91,154
Other - Net 77,893 29,017 110,621 445,186 27,786 562,013
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income 112,358 67,793 297,060 522,220 276,800 653,167
Income Before Interest Charges 3,865,190 3,599,669 9,613,175 8,933,564 12,674,887 11,728,734
----------- ----------- ----------- ----------- ----------- -----------
Interest Charges 1,293,379 1,226,153 3,875,299 3,758,319 5,159,272 5,060,469
----------- ----------- ----------- ----------- ----------- -----------
Net Income 2,571,811 2,373,516 5,737,876 5,175,245 7,515,615 6,668,265
Preferred Stock Dividend Requirements 63,697 63,697 191,090 191,090 254,786 254,786
----------- ----------- ----------- ----------- ----------- -----------
Earnings Applicable to Common Stock $ 2,508,114 $ 2,309,819 $ 5,546,786 $ 4,984,155 $ 7,260,829 $ 6,413,479
=========== =========== =========== =========== =========== ===========
Earnings per share of Common Stock:
Basic $ 0.32 $ 0.30 $ 0.72 $ 0.66 $ 0.95 $ 0.85
Diluted $ 0.32 $ 0.30 $ 0.71 $ 0.65 $ 0.94 $ 0.84
Average Number of
Common Shares Outstanding :
Basic 7,736,859 7,600,919 7,693,537 7,591,104 7,674,795 7,584,633
Diluted 7,994,214 7,858,274 7,950,892 7,848,459 7,932,150 7,841,988
Cash Dividends Paid per Common Share $ 0.210 $ 0.207 $ 0.630 $ 0.620 $ 0.840 $ 0.827
* All share and per share amounts reflect the three-for-two common stock split
effective January 2, 2002.
See Notes to Consolidated Financial Statements.
-1-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
September 30, December 31,
2002 2001
---- ----
(Unaudited)
UTILITY PLANT:
Water Production $ 71,447,751 $ 69,636,415
Transmission and Distribution 152,595,966 145,409,761
General 21,441,962 20,797,621
Construction Work in Progress 6,476,277 3,890,406
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TOTAL 251,961,956 239,734,203
Less Accumulated Depreciation 46,744,227 43,670,744
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UTILITY PLANT-NET 205,217,729 196,063,459
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NONUTILITY ASSETS-NET 3,150,897 2,996,119
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CURRENT ASSETS:
Cash and Cash Equivalents 1,777,077 4,534,384
Temporary Cash Investments-Restricted 7,825,070 9,210,283
Accounts Receivable (net of allowance
for doubtful accounts) 6,862,869 6,665,720
Unbilled Revenues 3,425,791 2,801,015
Materials and Supplies (at average cost) 1,133,802 1,027,920
Prepayments and Other Current Assets 1,088,375 869,693
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TOTAL CURRENT ASSETS 22,112,984 25,109,015
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DEFERRED CHARGES:
Unamortized Debt Expense 3,277,437 2,873,976
Preliminary Survey and Investigation Charges 880,953 943,622
Regulatory Assets
Income Taxes 6,038,474 6,038,474
Post Retirement Costs 890,812 955,468
Other 1,478,368 1,393,540
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TOTAL DEFERRED CHARGES 12,566,044 12,205,080
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TOTAL $243,047,654 $236,373,673
============ ============
See Notes to Consolidated Financial Statements.
-2-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
September 30, December 31,
2002 2001
---- ----
(Unaudited)
CAPITALIZATION (see accompanying statements) $167,397,308 $164,493,833
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CURRENT LIABILITIES:
Current Portion of Long-term Debt 637,945 358,836
Notes Payable 17,250,000 13,225,000
Accounts Payable 2,094,312 2,396,335
Taxes Accrued 6,905,462 6,330,877
Interest Accrued 693,222 1,813,896
Other 1,816,449 1,845,642
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TOTAL CURRENT LIABILITIES 29,397,390 25,970,586
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DEFERRED CREDITS:
Customer Advances for Construction 10,498,491 10,789,513
Accumulated Deferred Investment Tax Credits 1,873,453 1,932,416
Accumulated Deferred Federal Income Taxes 12,754,936 12,716,171
Employee Benefit Plans 5,146,289 5,262,676
Other 1,128,432 1,084,590
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TOTAL DEFERRED CREDITS 31,401,601 31,785,366
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CONTRIBUTIONS IN AID OF CONSTRUCTION 14,851,355 14,123,888
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TOTAL $243,047,654 $236,373,673
============ ============
See Notes to Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
September 30, December 31,
2002 2001
---- ----
(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 20,000,000
Shares Outstanding - 2002 - 7,745,169 $ 52,943,939 $ 50,099,621
2001 - 7,626,002
Retained Earnings 22,890,926 22,190,691
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TOTAL COMMON EQUITY 75,834,865 72,290,312
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Cumulative Preference Stock, No Par Value
Shares Authorized, 100,000; Shares Outstanding, None
Cumulative Preferred Stock, No Par Value, Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
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TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
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Long-term Debt:
8.05% Amortizing Secured Note, due December 20, 2021 3,219,203 3,264,536
4.22% State Revolving Trust Note, due December 31, 2022 66,065 --
4.00% State Revolving Trust Bond, due September 1, 2021 850,000 850,000
0.00% State Revolving Fund Bond, due September 1, 2021 730,017 750,000
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 -- 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due August 1, 2018 862,088 917,363
4.53%, Series Y, due August 1, 2018 1,010,000 1,055,000
0.00%, Series Z, due September 1, 2019 1,907,568 2,022,396
5.25%, Series AA, due September 1, 2019 2,265,000 2,350,000
0.00%, Series BB, due September 1, 2021 2,287,385 2,350,000
4.00%, Series CC, due September 1, 2021 2,440,000 2,440,000
5.10%, Series DD, due January 1, 2032 6,000,000 --
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SUBTOTAL LONG-TERM DEBT 88,137,326 88,499,295
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Less: Current Portion of Long-term Debt (637,945) (358,836)
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TOTAL LONG-TERM DEBT 87,499,381 88,140,459
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TOTAL CAPITALIZATION $ 167,397,308 $ 164,493,833
============= =============
Nine Months Ended Year Ended
September 30, December 31,
2002 2001
---- ----
(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $22,190,691 $21,796,707
Net Income 5,737,876 6,952,984
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TOTAL 27,928,567 28,749,691
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Cash Dividends:
Cumulative Preferred Stock 191,090 254,786
Common Stock 4,842,863 6,304,214
Common Stock Expenses 3,688 --
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TOTAL DEDUCTIONS 5,037,641 6,559,000
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BALANCE AT END OF PERIOD $22,890,926 $22,190,691
============= =============
See Notes to Consolidated Financial Statements.
-4-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept 30 Twelve Months Ended Sept 30
2002 2001 2002 2001
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,737,876 $ 5,175,245 $ 7,515,615 $ 6,668,265
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,969,132 4,041,507 5,231,161 5,329,980
Provision for Deferred Income Taxes 38,765 245,139 112,598 211,708
Allowance for Funds Used During Construction (186,439) (77,034) (249,014) (91,154)
Changes in Current Assets and Liabilities:
Accounts Receivable (197,149) (1,682,305) 102,232 (740,433)
Accounts Payable (302,023) (533,231) 188,881 (360,834)
Accrued Taxes 574,585 955,034 (99,894) 406,305
Accrued Interest (1,120,674) (1,053,436) (50,862) (182,888)
Unbilled Revenues (624,776) 27,644 (484,392) 60,363
Employee Benefit Plans (116,387) 518,383 (30,458) (242,582)
Other-Net (574,807) (495,110) 173,882 (846,549)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,198,103 7,121,836 12,409,749 10,212,181
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (12,820,622) (8,854,026) (16,713,628) (12,561,298)
Note Receivable -- 97,500 -- 85,500
Preliminary Survey and Investigation Charges 62,669 (312,012) 4,187 (371,667)
Other-Net 12,737 84,326 431,414 (811,036)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (12,745,216) (8,984,212) (16,278,027) (13,658,501)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (6,428,035) (201,414) (6,442,480) (214,622)
Proceeds from Issuance of Long-term Debt 6,066,065 (895) 12,456,960 (895)
Short-term Bank Borrowings 4,025,000 5,650,000 5,550,000 5,675,000
Deferred Debt Issuance Expenses (501,558) (4,739) (508,259) (46,356)
Temporary Cash Investments-Restricted 1,385,213 216,941 (5,222,350) 1,760,034
Proceeds from Issuance of Common Stock-Net 2,840,631 945,871 3,155,895 1,252,666
Payment of Common Dividends (4,842,862) (4,704,789) (6,442,287) (6,267,651)
Payment of Preferred Dividends (191,089) (191,090) (254,785) (254,786)
Construction Advances and Contributions-Net 436,441 265,417 742,581 676,168
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 2,789,806 1,975,302 3,035,275 2,579,558
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,757,307) 112,926 (833,003) (866,762)
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,534,384 2,497,154 2,610,080 3,476,842
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,777,077 $ 2,610,080 $ 1,777,077 $ 2,610,080
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 4,752,593 $ 4,477,610 $ 5,055,192 $ 4,846,371
Income Taxes $ 2,729,500 $ 1,972,792 $ 4,431,500 $ 2,852,792
See Notes to Consolidated Financial Statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Bayview Water Company
(Bayview). Southern Shores Water Company, LLC and White Marsh Environmental
Systems, Inc. are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly owned subsidiaries (the Company) are
reported on a consolidated basis. All intercompany accounts and transactions
have been eliminated. On January 1, 2002 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." There was no impact on the results of operations upon adoption of this
accounting method.
The consolidated notes accompanying the 2001 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of September 30, 2002 and the results of operations and its cash flows for the
periods ended September 30, 2002 and 2001. Information included in the Balance
Sheet as of December 31, 2001, has been derived from the Company's audited
financial statements included in its annual report on Form 10-K for the year
ended December 31, 2001.
Note 2 - Regulatory Matters
Base Rate Cases - On January 25, 2002, Tidewater filed for a 24.0% or $1.5
million phased-in rate increase. Although the financial information submitted in
its petition supports a 30.8% increase, Tidewater has requested the lower amount
and a three-phase increase in an attempt to reduce potential rate shock to its
customers. The first phase increase of 8.0% was implemented under the interim
rate rules on April 1, 2002. An update of the original filing supports a 28.8%
increase. Three separate Public Comment Sessions were held in April 2002. These
meetings afford our customers the opportunity to express their opinions, which
become part of the legal record, on the rate increase as well as water quality
and the operations of the water systems. Tidewater, the Ratepayer Advocate and
the Delaware Public Service Commission (PSC) Staff have agreed to a stipulated
rate base. For the remaining unresolved issues, evidentiary hearings were held
on July 17 and 18, 2002. The most significant issue is the PSC Staff's position
imputing a hypothetical capital structure and debt cost by using Middlesex
consolidated capital structure and cost of debt. Tidewater utilized its actual
capital structure and debt cost in its rate filing, which we believe is
consistent with the Delaware regulatory rules and court rulings. Tidewater
cannot predict the outcome of this rate case, but hopes to receive a decision by
the end of 2002.
Note 3 - Capitalization
Common Stock - During the three months ended September 30, 2002, 16,579 common
shares ($0.4 million) were issued under the Company's Dividend Reinvestment and
Common Stock Purchase Plan.
Long-term Debt - On February 6, 2002, Middlesex issued its $6.0 million, 5.10%,
Series DD First Mortgage Bonds. The proceeds were used to redeem and retire the
$6.0 million, 7.25%, Series R First Mortgage Bonds on March 5, 2002.
-6-
Bayview had submitted its financial application with the New Jersey State
Revolving Fund (NJSRF) to borrow up to $750,000 for the design and construction
of an elevated water storage tank. Due to tank location and permitting issues,
Bayview is unable to meet the NJSRF 2002 financing timetable and has requested
that its application be bypassed for this year. We are currently evaluating
which fiscal year financing timetable is most appropriate for this project.
Note 4 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
(In Thousands Except for per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
2002 2001 2002 2001 2002 2001
Basic: Income Shares Income Shares Income Shares Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,572 7,737 $2,374 7,601 $ 5,738 7,694 $ 5,175 7,591 $ 7,516 7,675 $ 6,668 7,585
Preferred Dividend (64) (64) (191) (191) (255) (255)
Earnings Applicable
to Common Stock $ 2,508 7,737 $ 2,310 7,601 $ 5,547 7,694 $ 4,984 7,591 $ 7,261 7,675 $ 6,413 7,585
- ------------------------------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.32 $ 0.30 $ 0.72 $ 0.66 $ 0.95 $ 0.85
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $ 2,508 7,737 $ 2,310 7,601 $ 5,547 7,694 $ 4,984 7,591 $ 7,261 7,675 $ 6,413 7,585
$7.00 Series
Dividend 26 134 26 134 78 134 78 134 104 134 104 134
$8.00 Series
Dividend 24 123 24 123 72 123 72 123 96 123 96 123
Adjusted Earnings
Applicable to
Common Stock $ 2,558 7,994 $ 2,360 7,858 $ 5,697 7,951 $ 5,134 7,848 $ 7,461 7,932 $ 6,613 7,842
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.32 $ 0.30 $ 0.71 $ 0.65 $ 0.94 $ 0.84
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems. The accounting policies of the
segments are the same as those described in the Summary of Significant
Accounting Policies in Note 1 to the Consolidated Financial Statements.
Inter-segment transactions relating to operational costs are treated as pass
interest rates that are below what would normally be charged by a third party
lender.
-7-
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
Operations by Segments: 2002 2001 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
Regulated $ 14,968 $ 14,389 $ 41,156 $ 38,858 $ 54,593 $ 50,256
Non - Regulated 2,026 1,685 5,611 5,132 7,858 6,794
Inter-segment Elimination (11) (9) (29) (27) (38) (36)
-----------------------------------------------------------------------------------
Consolidated Revenues $ 16,983 $ 16,065 $ 46,738 $ 43,963 $ 62,413 $ 57,014
-----------------------------------------------------------------------------------
Operating Income:
Regulated $ 3,661 $ 3,415 $ 9,088 $ 8,137 $ 12,041 $ 10,705
Non - Regulated 92 117 228 274 357 371
Inter-segment Elimination -- -- -- -- -- --
-----------------------------------------------------------------------------------
Consolidated Operating Income $ 3,753 $ 3,532 $ 9,316 $ 8,411 $ 12,398 $ 11,076
-----------------------------------------------------------------------------------
Depreciation/Amortization:
Regulated $ 1,063 $ 1,251 $ 3,653 $ 3,732 $ 4,916 $ 4,940
Non - Regulated 10 14 28 42 43 57
Inter-segment Elimination Consolidation -- -- -- -- -- --
-----------------------------------------------------------------------------------
Depreciation/Amortization $ 1,073 $ 1,265 $ 3,681 $ 3,774 $ 4,959 $ 4,997
-----------------------------------------------------------------------------------
Other Income:
Regulated $ 858 $ 542 $ 1,962 $ 1,396 $ 2,339 $ 1,789
Non - Regulated (13) 4 23 59 26 65
Inter-segment Elimination (733) (478) (1,688) (933) (2,088) (1,201)
-----------------------------------------------------------------------------------
Consolidated Other Income $ 112 $ 68 $ 297 $ 522 $ 277 $ 653
-----------------------------------------------------------------------------------
Interest Expense:
Regulated $ 1,575 $ 1,439 $ 4,681 $ 4,397 $ 6,190 $ 5,899
Non - Regulated 13 14 40 42 54 28
Inter-segment Elimination (295) (227) (846) (681) (1,085) (867)
-----------------------------------------------------------------------------------
Consolidated Interest Expense $ 1,293 $ 1,226 $ 3,875 $ 3,758 $ 5,159 $ 5,060
-----------------------------------------------------------------------------------
Net Income:
Regulated $ 2,945 $ 2,518 $ 6,369 $ 5,135 $ 8,190 $ 6,595
Non - Regulated 66 107 211 292 329 407
Inter-segment Elimination (439) (251) (842) (252) (1,003) (334)
-----------------------------------------------------------------------------------
Consolidated Net Income $ 2,572 $ 2,374 $ 5,738 $ 5,175 $ 7,516 $ 6,668
-----------------------------------------------------------------------------------
Capital Expenditures:
Regulated $ 3,645 $ 5,102 $ 12,620 $ 8,769 $ 16,500 $ 12,430
Non - Regulated 132 21 201 85 214 131
Inter-segment Elimination -- -- -- -- -- --
-----------------------------------------------------------------------------------
Total Capital Expenditures $ 3,777 $ 5,123 $ 12,821 $ 8,854 $ 16,714 $ 12,561
-----------------------------------------------------------------------------------
As of As of
September 30, December 31,
2002 2001
---- ----
Assets:
Regulated $277,332 $264,601
Non - Regulated 3,707 3,858
Inter-segment Elimination (37,991) (32,085)
-------- --------
Consolidated Assets $243,048 $236,374
======== ========
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended September 30, 2002
Operating revenues for the three months ended September 30, 2002 were up $0.9
million or 5.71% from the same period in 2001. Higher base rates in Delaware
provided $0.2 million of the increase. Although sales were flat in New Jersey,
revenues grew by $0.3 million from customer growth in Delaware. Service fees
from our operations and maintenance contracts rose $0.3 million due to an
increase in fixed fees for sewer disposal costs under the City of Perth Amboy
contract. The acquisition of Southern Shores generated the remaining revenue
increase of $0.1 million.
Operating expenses increased $0.7 million or 5.57%. Operations and Maintenance
(O&M) expenses increased $0.7 million or 8.46% over the prior period.
Approximately $0.1 million of this increase is due to the inclusion of Southern
Shores expenses. O&M expenses rose $0.2 million in New Jersey due to increased
employee benefits and business insurance costs. Tidewater O&M expenses increased
by $0.1 million as customer growth increased production related costs and the
need for additional employees. There were higher sewer disposal costs of $0.3
million for USA-PA.
Depreciation expense decreased $0.2 million, or 15.19% due to a one-time
reconciliation of depreciation on transportation equipment. Those fixed assets
had been fully depreciated prior to 2002.
Higher Federal income taxes of $0.1 million over last year are attributable to
favorable operating results during the last three months.
Net income for the quarter was up $0.2 million from the same period in 2001 and
earnings per share increased $0.02 per share.
Results of Operations - Nine Months Ended September 30, 2002
Operating revenues for the nine months rose $2.8 million or 6.31% over the prior
year. Higher base rates in our New Jersey and Delaware service territories
provided $1.9 million of the increase. Consumption growth of $0.8 million in
Delaware was offset completely by lower consumption in our Middlesex system.
Service fees from our operations and maintenance contracts rose $0.5 million due
to an increase in fixed fees for sewer disposal costs under the City of Perth
Amboy contract. The acquisition of Bayview and Southern Shores generated
additional revenues of $0.4 million.
Operating expenses increased by $1.9 million for the year. O&M expenses
accounted for $1.3 million of the increase. There were higher sewer disposal
costs of $0.6 million for USA-PA. An increase in our Delaware employee base,
general wage increases and higher costs associated with employee medical and
retirement benefits pushed up O&M costs by $0.4 million. Approximately $0.2
million is due to the inclusion of O&M expenses of Southern Shores for the
entire period. In New Jersey, lower production costs offset most of the effect
of higher employee related expenses and business insurance costs.
Other taxes increased by $0.3 million generally due to revenue related taxes on
higher New Jersey based revenues and increased real estate taxes in both New
Jersey and Delaware. Higher Federal income taxes of $0.4 million over last year
are attributable to the favorable operating results during the first nine months
of 2002.
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AFUDC rose $0.1 million for the year as Tidewater's capital program now includes
larger projects with longer construction schedules. Other income was lower by
$0.3 million due mostly to the recognition in 2001 of a one-time gain reported
by an entity that Middlesex owns a 23% equity interest.
Even though there is a higher level of long-term and short-term debt outstanding
compared to last year, lower interest rates on short-term debt and the $6.0
million refinancing of long-term debt at a lower rate helped to keep the
interest expense increase to 3.1%.
Net income rose to $5.7 million from $5.2 million and basic and diluted earnings
per share rose $0.06.
Results of Operations - Twelve Months Ended September 30, 2002
Operating revenues for the twelve months ended September 30, 2002 were up $5.4
million to $62.4 million. Higher consumption in our Delaware service territories
provided $1.2 million of additional revenue. Fueling the consumption growth is
the 12.8% increase in our Delaware customer base since September 2001.
Consumption revenue fell $0.3 million in New Jersey due to the impact of
mandatory drought restrictions put in place in early 2002. Rate increases in New
Jersey and Delaware accounted for $2.8 million. Service fees from our operations
and maintenance contracts rose $1.0 million, due to increased fixed fees for
sewer disposal costs under the City of Perth Amboy contract. The $0.7 million
balance of the increase is the result of the acquisition of the Bayview and
Southern Shores water utilities.
Operating expenses increased $4.1 million or 8.87%. The $2.5 million increase in
O&M costs is attributable to a $1.0 million increase for sewer disposal costs
under the City of Perth Amboy contract and the inclusion of costs of $0.3
million associated with the Bayview and Southern Shores systems. In addition,
purchased water was up $0.2 million and employee-related and business insurance
costs rose to $1.0 million.
Other taxes increased by $0.7 million due to higher revenue related taxes from
our regulated New Jersey operations and increased real estate taxes in both New
Jersey and Delaware. Federal income taxes rose $1.0 million, or 30.67% as a
result of the higher amount of taxable income.
Other income fell $0.4 million due in part to the recognition in 2001 of a
one-time gain of $0.3 million on the sale of excess land by a small investor
owned utility in Southern Delaware. Middlesex is a 23% equity owner of that
utility. Lower earnings on short-term investments also reduced other income.
Net income increased 12.71% to $7.5 million. Basic and diluted earnings per
share jumped by $0.10 to $0.95 and $0.94 per share respectively.
Capital Resources
The Company's capital program for 2002 is estimated to be $17.5 million and
includes $7.4 million for water system additions and improvements for our
Delaware systems, $3.0 million for the RENEW Program, which is our program to
clean and cement line approximately nine miles of unlined mains in the Middlesex
system. There is a total of approximately 150 miles of unlined mains in the
730-mile Middlesex system. Additional expenditures on the upgrade to the CJO
Plant are estimated at $0.6 million. The capital program also includes $6.5
million for scheduled upgrades to our existing systems in New Jersey. The
scheduled upgrades consist of $2.4 million for mains, $0.9 million for service
lines, $0.3 million for meters, $0.3 million for hydrants, $0.1 million for
computer systems and $2.5 million for various other items.
-10-
Liquidity
The capital program in Delaware will be financed through a combination of a
capital contribution and short- term debt financing from Middlesex, as well as
long-term financing through the State Revolving Fund (SRF) in Delaware.
Middlesex, Tidewater and Bayview have secured long-term financing with their
respective state agencies for certain capital projects. SRF provides low cost
financing for projects that meet certain water quality improvement benchmarks.
The proceeds from those loans will be used from 2002 through 2004 (see Note 3 to
the Consolidated Financial Statements). Other capital expenditures will be
financed through internally generated funds and sale of common stock through the
Dividend Reinvestment and Common Stock Purchase Plan (DRP). Capital expenditures
of $12.2 million have been incurred in the nine months ended September 30, 2002.
The Company will also utilize short-term borrowings through $30.0 million of
available lines of credit with three commercial banks for working capital
purposes. At September 30, 2002, there was $17.3 million outstanding against the
lines of credit.
Outlook
After implementing more restrictive water use rules in late August 2002, the
State of New Jersey once again eased its water restrictions that had been
declared as part of the statewide drought emergency. Personal car washing is
permitted on weekends and residents are permitted to water lawns on an odd-even
day system. The loosening of restrictions will have a minimal impact for the
remainder of 2002. We are encouraged by recent weather patterns, which have
helped refill the State's reservoir system. The State relies on the reservoir
levels to help determine the level of water restriction rules necessary to
impose on the residents of New Jersey.
Earlier in the year, a drought warning had been declared by the Governor of
Delaware. Water users have been asked and are encouraged to conserve water.
Tidewater, which operates south of the Delaware and Chesapeake Canal (D&C
Canal), relies on well water for 100% of its water supply. The State of Delaware
is primarily concerned about the larger surface water systems north of the D&C
Canal, which draw their water from rivers and reservoirs. It is expected that
drought-related conservation in Delaware will somewhat temper revenue increases
from the projected 9% customer growth for 2002 as well as the 8% interim rate
increase.
Forward Looking Information
Certain matters discussed in this report on Form 10-Q are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, objectives, expectations and events concerning various
matters such as capital expenditures, earnings, litigation, growth potential,
rate and other regulatory matters, liquidity, capital resources and accounting
matters. Actual results in each case could differ materially from those
currently anticipated in such statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate, long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.6 million of the current portion of nine existing long-term
debt instruments will mature. Applying a hypothetical change in the rate of
interest charged by 10% on those borrowings would not have a material effect on
earnings.
-11-
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer along with the Company's Chief Financial Officer. Based upon
that evaluation, the Company's Chief Executive Officer along with the Company's
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: Filed August 21, 2002
-12-
SIGNATURES
I, J. Richard Tompkins, hereby certify that, to the best of my knowledge,
the periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)) and that information contained in
said periodic report fairly presents, in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ J. Richard Tompkins
-------------------------
J. Richard Tompkins
Chief Executive Officer
I, A. Bruce O'Connor, hereby certify that, to the best of my knowledge, the
periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)) and that information contained in
said periodic report fairly presents, in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ A. Bruce O'Connor
-------------------------
A. Bruce O'Connor
Chief Financial Officer
Date: November 14, 2002
-13-
CERTIFICATIONS*
---------------
I, J. Richard Tompkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Middlesex Water
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ J. Richard Tompkins
-------------------------
J. Richard Tompkins
Chief Executive Officer
-14-
CERTIFICATIONS*
---------------
I, A. Bruce O'Connor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Middlesex Water
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ A. Bruce O'Connor
-------------------------
A. Bruce O'Connor
Chief Financial Officer
-15-