SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: March 31, 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
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2002
----- -----------------------------
Common Stock, No Par Value 7,659,344
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 10
Item 3. Quantitative and Qualitative Disclosures of Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURE 13
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Twelve Months
Ended March 31, Ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues $14,229,403 $13,143,898 $60,723,650 $54,639,352
----------- ----------- ----------- -----------
Operating Expenses:
Operations 7,213,568 7,022,231 29,212,127 27,813,186
Maintenance 657,564 622,369 2,753,784 2,498,941
Depreciation 1,295,718 1,249,845 5,097,272 4,804,646
Other Taxes 1,851,660 1,702,997 7,789,069 6,966,568
Federal Income Taxes 698,905 474,936 3,937,614 2,597,625
----------- ----------- ----------- -----------
Total Operating Expenses 11,717,415 11,072,378 48,789,866 44,680,966
----------- ----------- ----------- -----------
Operating Income 2,511,988 2,071,520 11,933,784 9,958,386
Other Income:
Allowance for Funds Used During Construction 70,283 15,905 193,987 133,890
Other - Net 27,913 71,159 319,105 262,596
----------- ----------- ----------- -----------
Total Other Income 98,196 87,064 513,092 396,486
Income Before Interest Charges 2,610,184 2,158,584 12,446,876 10,354,872
----------- ----------- ----------- -----------
Interest Charges 1,333,478 1,274,934 5,100,836 5,072,278
----------- ----------- ----------- -----------
Net Income 1,276,706 883,650 7,346,040 5,282,594
Preferred Stock Dividend Requirements 63,697 63,697 254,786 254,786
----------- ----------- ----------- -----------
Earnings Applicable to Common Stock $ 1,213,009 $ 819,953 $ 7,091,254 5,027,808
=========== =========== =========== =========
Earnings per share of Common Stock:
Basic $ 0.16 $ 0.11 $ 0.93 $ 0.67
Diluted $ 0.16 $ 0.11 $ 0.93 $ 0.67
Average Number of
Common Shares Outstanding :
Basic 7,639,843 7,578,897 7,613,209 7,550,765
Diluted 7,897,198 7,836,252 7,870,564 7,808,120
Cash Dividends Paid per Common Share $ 0.210 $ 0.207 $ 0.833 $ 0.820
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
March 31, December 31,
2002 2001
---- ----
(Unaudited)
UTILITY PLANT:
Water Production $ 70,116,500 $ 69,636,415
Transmission and Distribution 146,617,145 145,409,761
General 20,852,737 20,797,621
Construction Work in Progress 5,732,869 3,890,406
------------ ------------
TOTAL 243,319,251 239,734,203
Less Accumulated Depreciation 44,711,989 43,670,744
------------ ------------
UTILITY PLANT-NET 198,607,262 196,063,459
------------ ------------
NONUTILITY ASSETS-NET 3,030,868 2,996,119
------------ ------------
CURRENT ASSETS:
Cash and Cash Equivalents 3,090,094 4,534,384
Temporary Cash Investments-Restricted 8,031,185 9,210,283
Accounts Receivable (net of allowance
for doubtful accounts) 5,425,643 6,665,720
Unbilled Revenues 2,976,667 2,801,015
Materials and Supplies (at average cost) 1,113,557 1,027,920
Prepayments and Other Current Assets 712,913 869,693
------------ ------------
TOTAL CURRENT ASSETS 21,350,059 25,109,015
------------ ------------
DEFERRED CHARGES:
Unamortized Debt Expense 3,448,815 2,873,976
Preliminary Survey and Investigation Charges 910,723 943,622
Regulatory Assets
Income Taxes 6,038,474 6,038,474
Post Retirement Costs 933,916 955,468
Other 1,420,707 1,393,540
------------ ------------
TOTAL DEFERRED CHARGES 12,752,635 12,205,080
------------ ------------
TOTAL $235,740,824 $236,373,673
============ ============
See Notes to Consolidated Financial Statements.
-2-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
March 31, December 31,
2002 2001
---- ----
(Unaudited)
CAPITALIZATION (see accompanying statements) $164,765,234 $164,493,833
------------ ------------
CURRENT LIABILITIES:
Current Portion of Long-term Debt 405,436 358,836
Notes Payable 11,625,000 13,225,000
Accounts Payable 2,134,051 2,396,335
Taxes Accrued 8,374,961 6,330,877
Interest Accrued 850,197 1,813,896
Other 1,477,810 1,845,642
------------ ------------
TOTAL CURRENT LIABILITIES 24,867,455 25,970,586
------------ ------------
DEFERRED CREDITS:
Customer Advances for Construction 10,823,228 10,789,513
Accumulated Deferred Investment Tax Credits 1,912,762 1,932,416
Accumulated Deferred Federal Income Taxes 12,716,937 12,716,171
Employee Benefit Plans 5,414,549 5,262,676
Other 1,100,176 1,084,590
------------ ------------
TOTAL DEFERRED CREDITS 31,967,652 31,785,366
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 14,140,483 14,123,888
------------ ------------
TOTAL $235,740,824 $236,373,673
============ ============
See Notes to Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
March 31, December 31,
2002 2001
---- ----
(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 10,000,000
Shares Outstanding - 2002 - 7,659,344; 2001 - 7,626,002 $ 50,873,002 $ 50,099,621
Retained Earnings 21,797,612 22,190,691
------------- -------------
TOTAL COMMON EQUITY 72,670,614 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
------------- -------------
TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
------------- -------------
Long-term Debt:
8.05% Amortizing Secured Note, due December 20, 2021 3,249,762 3,264,536
4.00% State Revolving Trust Bond, due September 1, 2021 850,000 850,000
0.00% State Revolving Fund Bond, due September 1, 2021 750,000 750,000
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 -- 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due August 1, 2018 903,168 917,363
4.53%, Series Y, due August 1, 2018 1,055,000 1,055,000
0.00%, Series Z, due September 1, 2019 1,989,064 2,022,396
5.25%, Series AA, due September 1, 2019 2,350,000 2,350,000
0.00%, Series BB, due September 1, 2021 2,350,000 2,350,000
4.00%, Series CC, due September 1, 2021 2,440,000 2,440,000
5.10%, Series DD, due January 1, 2032 6,000,000 --
------------- -------------
SUBTOTAL LONG-TERM DEBT 88,436,994 88,499,295
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Less: Current Portion of Long-term Debt (405,436) (358,836)
------------- -------------
TOTAL LONG-TERM DEBT 88,031,558 88,140,459
------------- -------------
TOTAL CAPITALIZATION $ 164,765,234 $ 164,493,833
============= =============
Three Months Ended Year Ended
March 31, December 31,
2002 2001
---- ----
(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $ 22,190,691 $ 21,796,707
Net Income 1,276,706 6,952,984
------------- -------------
TOTAL 23,467,397 28,749,691
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Cash Dividends:
Cumulative Preferred Stock 63,697 254,786
Common Stock 1,602,400 6,304,214
Common Stock Expenses 3,688 --
------------- -------------
TOTAL DEDUCTIONS 1,669,785 6,559,000
------------- -------------
BALANCE AT END OF PERIOD $ 21,797,612 $ 22,190,691
============= =============
See Notes to Consolidated Financial Statements
-4-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, Twelve Months Ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,276,706 $ 883,650 $ 7,346,040 $ 5,282,594
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,392,152 1,326,079 5,369,609 5,032,106
Provision for Deferred Income Taxes 766 (44,195) 363,933 122,299
Allowance for Funds Used During Construction (70,283) (15,905) (193,987) (133,890)
Changes in Current Assets and Liabilities:
Accounts Receivable 1,240,077 (330,564) 187,717 (423,022)
Accounts Payable (262,284) (550,351) 245,740 (45,716)
Accrued Taxes 2,044,084 1,698,302 626,337 592,705
Accrued Interest (963,699) (1,083,430) 136,107 (12,655)
Unbilled Revenues (175,652) 329,033 (336,657) 46,552
Employee Benefit Plans 151,873 229,162 527,023 (13,523)
Other-Net (371,978) (128,281) 9,882 (352,024)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,261,762 2,313,500 14,281,744 10,095,426
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (3,803,987) (1,283,172) (15,267,847) (12,262,310)
Note Receivable -- (8,000) 105,500 (41,000)
Preliminary Survey and Investigation Charges 32,899 (226,949) (110,646) (328,762)
Other-Net (5,366) (75,658) 573,295 (799,333)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (3,776,454) (1,593,779) (14,699,698) (13,431,405)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (6,062,301) (61,542) (6,216,618) (240,340)
Proceeds from Issuance of Long-term Debt 6,000,000 -- 12,390,000 --
Short-term Bank Borrowings (1,600,000) 975,000 4,600,000 4,525,000
Deferred Debt Issuance Expenses (600,301) -- (611,741) (41,617)
Temporary Cash Investments-Restricted 1,179,098 217,211 (5,428,735) 2,998,994
Proceeds from Issuance of Common Stock-Net 769,693 324,678 1,706,150 1,233,375
Payment of Common Dividends (1,602,400) (1,565,712) (6,340,902) (6,189,310)
Payment of Preferred Dividends (63,697) (63,697) (254,786) (254,786)
Construction Advances and Contributions-Net 50,310 140,769 481,098 690,585
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,929,598) (33,293) 324,466 2,721,901
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,444,290) 686,428 (93,488) (614,078)
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,534,384 2,497,154 3,183,582 3,797,660
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,090,094 $ 3,183,582 $ 3,090,094 $ 3,183,582
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 2,217,732 $ 2,311,016 $ 4,686,925 $ 4,787,960
Income Taxes $ 60,000 $ 125,000 $ 3,609,792 $ 2,102,100
See Notes to Consolidated Financial Statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Bayview Water
Company. 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.
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 March 31, 2002 and the results of operations and its cash flows for the
periods ended March 31, 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. 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. Evidentiary hearings have
been scheduled for the mid-July 2002. Tidewater hopes to receive a decision
early in the fourth quarter of 2002.
All parties to the Bayview base rate case have agreed to settle the matter prior
to evidentiary hearings. This settlement, which still must be approved by the
New Jersey Board of Public Utilities (BPU), calls for a six-part phase-in over a
thirteen month period of a 120.3% increase or $0.1 million of additional
revenues. This rate increase is needed to support the cost for replacement of
the entire water distribution system in Fortescue, New Jersey. This matter,
which was initiated in December 2001, is expected to be completed in June 2002.
Note 3 - Capitalization
Common Stock - During the three months ended March 31, 2002, there were 33,342
common shares ($0.7 million) issued under the Company's Dividend Reinvestment
and Common Stock Purchase Plan. The increase in participation in this Plan can
be attributed to the 5% discount on optional cash payments and reinvested
dividends that began on March 1, 2002. The discount is scheduled to continue
until the earlier of August 1, 2002 or when 100,000 shares are issued during the
discount period.
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-
Note 3 - Capitalization (cont'd.)
Bayview has submitted its financial application with the New Jersey State
Revolving Fund to borrow up to $750,000 for the design and construction of an
elevated water storage tank. This financing, which also requires New Jersey
Board of Public Utilities approval, is scheduled to be completed in November
2002.
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 Twelve Months Ended
March 31 March 31
2002 2001 2002 2001
Basic: Income Shares Income Shares Income Shares Income Shares
-----------------------------------------------------------------------------------------------------------------------
Net Income $ 1,277 7,640 $ 884 7,579 $ 7,346 7,613 $ 5,283 7,551
Preferred Dividend (64) (64) (255) (255)
------- ----- ------- ----- ------- ----- ------- -----
Earnings Applicable
to Common Stock $ 1,213 7,640 $ 820 7,579 $ 7,091 7,613 $ 5,028 7,551
Basic EPS $ 0.16 $ 0.11 $ 0.93 $ 0.67
Diluted:
-----------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $ 1,213 7,640 $ 820 7,579 $ 7,091 7,613 $ 5,028 7,551
$7.00 Series Dividend 26 134 26 134 104 134 104 134
$8.00 Series Dividend 24 123 24 123 96 123 96 123
------- ----- ------- ----- ------- ----- ------- -----
Adjusted Earnings
Applicable to
Common Stock $ 1,263 7,897 $ 870 7,836 $ 7,291 7,870 $ 5,228 7,808
Diluted EPS $ 0.16 $ 0.11 $ 0.93 $ 0.67
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems in New Jersey and Delaware. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in Note 1 to the Consolidated
Financial Statements. Inter-segment transactions relating to operational costs
are treated as pass through expenses. Finance charges on inter-segment loan
activities are based on interest rates that are below what would normally be
charged by a third party lender.
-7-
(Thousands of Dollars)
Three Months Ended Twelve Months Ended
March 31, March 31,
Operations by Segments: 2002 2001 2002 2001
----------------------------------------------------------------------------------------
Revenues:
Regulated $ 12,527 $ 11,410 $ 53,412 $ 47,752
Non - Regulated 1,711 1,743 7,347 6,923
Inter-segment Elimination (9) (9) (36) (36)
-------- -------- -------- --------
Consolidated Revenues $ 14,229 $ 13,144 $ 60,723 $ 54,639
-------- -------- -------- --------
Operating Income:
Regulated $ 2,456 $ 2,020 $ 11,527 $ 9,576
Non - Regulated 56 52 406 382
Inter-segment Elimination -- -- -- --
-------- -------- -------- --------
Consolidated Operating Income $ 2,512 $ 2,072 $ 11,933 $ 9,958
-------- -------- -------- --------
Depreciation/Amortization:
Regulated $ 1,287 $ 1,236 $ 5,046 $ 4,748
Non - Regulated 9 14 51 57
Inter-segment Elimination -- -- -- --
Consolidated
-------- -------- -------- --------
Depreciation/Amortization $ 1,296 $ 1,250 $ 5,097 $ 4,805
-------- -------- -------- --------
Other Income:
Regulated $ 422 $ 236 $ 1,959 $ 1,311
Non - Regulated 34 50 46 57
Inter-segment Elimination (358) (199) (1,492) (972)
-------- -------- -------- --------
Consolidated Other Income $ 98 $ 87 $ 513 $ 396
-------- -------- -------- --------
Interest Expense:
Regulated $ 1,581 $ 1,482 $ 6,006 $ 5,790
Non - Regulated 13 14 55 49
Inter-segment Elimination (261) (221) (960) (767)
-------- -------- -------- --------
Consolidated Interest Expense $ 1,333 $ 1,275 $ 5,101 $ 5,072
-------- -------- -------- --------
Net Income:
Regulated $ 1,298 $ 774 $ 7,481 $ 5,097
Non - Regulated 76 88 397 391
Inter-segment Elimination (97) 22 (532) (206)
-------- -------- -------- --------
Consolidated Net Income $ 1,277 $ 884 $ 7,346 $ 5,282
-------- -------- -------- --------
Capital Expenditures:
Regulated $ 3,760 $ 1,249 $ 15,161 $ 12,124
Non - Regulated 44 34 107 138
Inter-segment Elimination -- -- -- --
-------- -------- -------- --------
Total Capital Expenditures $ 3,804 $ 1,283 $ 15,268 $ 12,262
-------- -------- -------- --------
As of As of
March 31, December 31,
2002 2001
Assets:
Regulated $265,410 $264,601
Non - Regulated 3,566 3,858
Inter-segment Elimination (33,235) (32,085)
-------- --------
Consolidated Assets $235,741 $236,374
-------- --------
-8-
Note 6 - Intangible Assets
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." on January 1, 2002. Under SFAS No. 142,
goodwill is considered a nonamortizable asset and will be subject to an annual
review for impairment and when other events or circumstances indicate an
impairment may have occurred. The Company has recorded the excess of the
purchase price over the historical cost of regulated water utility property as
an acquisition adjustment, which is consistent with SFAS No.71, "Accounting for
the Effects of Certain Types of Regulation". Approximately $0.7 million of the
$2.4 million balance of unamortized acquisition adjustments at January 1, 2002
is currently recoverable in rates. Therefore, under SFAS No. 71, the Company
will continue to amortize the associated remaining balance. Amortization on the
$1.7 remaining million has ceased as of January 1, 2002. Even though the Company
is not recovering $1.7 million through its rates, it does not believe those
assets are impaired. As part of those acquisitions, wide area water utility
franchises were among the assets acquired by the Company. These franchises are
located in the growth corridors in Kent and Sussex County, Delaware.
The following table shows the effect on Net Income and Earnings Per Share as if
this accounting standard had been adopted for all periods reflected in this
report.
(In Thousands Except per Share Amount)
Three Months Ended Twelve Months Ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Net Income $1,277 $ 884 $ 7,346 $ 5,283
Acquisition Adjustment -- 10 -- 41
------ ------ ------- -------
As Adjusted $1,277 $ 894 $ 7,346 $ 5,324
====== ====== ======= =======
Basic Earnings Per Share $ 0.16 $ 0.11 $ 0.93 $ 0.67
Acquisition Adjustment -- -- -- 0.01
------ ------ ------- -------
As Adjusted $ 0.16 $ 0.11 $ 0.93 $ 0.68
====== ====== ======= =======
Diluted Earnings Per Share $ 0.16 $ 0.11 $ 0.93 $ 0.67
Acquisition Adjustment -- -- -- 0.01
------ ------ ------- -------
As Adjusted $ 0.16 $ 0.11 $ 0.93 $ 0.68
====== ====== ======= =======
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended March 31, 2002
Operating revenues for the three months ended March 31, 2002 were up $1.1
million or 8.26% from the same period in 2001. Higher base rates in our New
Jersey and Delaware service territories provided $0.9 million of the increase.
Lower consumption in our New Jersey systems were offset completely by revenues
from customer growth within existing systems in Delaware. The acquisition of
Bayview and Southern Shores generated the remaining revenue increase of $0.2
million.
Operating expenses increased $0.6 million or 5.83%. Operations and maintenance
expenses increased $0.2 million or 3.0% over the prior period. Depreciation
expense increased 3.7% over the same period from last year. Plant improvements
amounted to $10.7 million over the last twelve months.
Other taxes rose $0.1 million due to higher revenue related taxes on additional
revenues from our regulated New Jersey operations and increased real estate
taxes in both New Jersey and Delaware. Federal income taxes rose 47.2%,
reflecting a higher amount of current taxable income.
Interest charges rose 4.59% due to a higher level of long-term and short-term
debt outstanding during the quarter. Lower interest rates on the short-term debt
helped reduce the level of the increase.
Net income grew by 44.5% to $1.3 million.
Results of Operations - Twelve Months Ended March 31, 2002
Operating revenues for the twelve months ended March 31, 2002 were up $6.1
million to $60.7 million. Higher consumption in all our service territories
provided $1.9 million of additional revenue. Fueling the consumption growth in
Delaware was the 9.0% increase in the customer base since March 2001. Rate
increases accounted for $3.4 million. Service fees from our operations and
maintenance contracts rose $0.4 million due to an increase in fixed fees earned
under the City of Perth Amboy contract. The $0.4 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 9.2%. Maintenance costs increased
by $0.3 million due to the inclusion of costs of $0.1 million associated with
the Bayview and Southern Shores systems as well as higher repair costs in our
Middlesex system and contract operations. Depreciation expense increased $0.3
million or 6.1% as a result of utility plant additions of $21.7 million since
March 2000.
Other taxes increased by $0.8 million due to higher revenue related taxes from
our regulated New Jersey operations and increased real estate taxes in both New
Jersey and Delaware. Federal income taxes rose $1.3 million or 51.6% as a result
of the higher amount of taxable income.
Other income rose $0.1 million due in part to 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. Offsetting that gain were lower
earnings on short-term investments.
Net income increased 39.1% to $7.3 million. Basic and diluted earnings per share
jumped by 39.0% to $0.93 per share.
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Capital Resources
The Company's capital program for 2002 is estimated to be $23.2 million and
includes $12.6 million for water system additions and improvements for our
Delaware systems, $2.5 million for the RENEW Program, which is our program to
clean and cement line approximately nine miles of unlined mains in the Middlesex
System. There is a total of approximately 150 miles of unlined mains in the 730
mile Middlesex System. Additional expenditures on the upgrade to the CJO Plant
are estimated at $1.6 million. The capital program also includes $6.5 million
for scheduled upgrades to our existing systems in New Jersey. The scheduled
upgrades consist of $2.4 million for mains, $0.9 million for service lines, $0.3
million for meters, $0.3 million for hydrants, $0.1 million for computer systems
and $2.5 million for various other items.
Liquidity
The capital program in Delaware will be financed through a combination of a
capital contribution and short-term debt financing from Middlesex, as well as
long-term financing through the State Revolving Fund (SRF) in Delaware.
Middlesex, Tidewater and Bayview each have secured long-term financing with
their respective state agencies for certain capital projects. SRF provides low
cost financing for projects that meet certain water quality improvement
benchmarks. The proceeds from those loans will be used in 2002 through 2004. See
Note 3 to the Consolidated Financial Statements. Other capital expenditures will
be financed through internally generated funds and sale of common stock through
the Dividend Reinvestment and Common Stock Purchase Plan (DRP). Capital
expenditures of $3.8 million have been incurred in the three months ended March
31, 2002. The Company will also utilize short-term borrowings through $30.0
million of available lines of credit it has with three commercial banks for
working capital purposes. At March 31, 2002, there was $11.6 million outstanding
against the lines of credit.
Outlook
For the second time in three years, the State of New Jersey has declared a
drought emergency and issued water restrictions in our New Jersey service
territories. Significantly different from the 1999 restrictions is the
identification of six drought regions in the State. Middlesex County, where a
significant portion of our sales take place, is in one of two regions that are
under less severe water use restrictions than the rest of New Jersey. Although
personal car washing and pavement cleaning with water are banned, our customers
are permitted to water lawns on an odd-even day system. Customers in our
Pinelands and Bayview systems are restricted further to lawn watering only on
two weekdays. Water restrictions will impact revenues and earnings.
Even though recent precipitation in April has been above normal levels, the New
Jersey Department of Environmental Protection (DEP) and the Board of Public
Utilities continues to develop plans to divert water supplies from areas where
there is abundant reserves to the severely affected areas of the state.
Middlesex derives more than 75% of its water supply from New Jersey Water Supply
Authority's (NJWSA) Delaware and Raritan Canal as augmented by the Round
Valley/Spruce Run Reservoir System. Because that reservoir system is currently
at 85% capacity, the DEP approved the diversion of nineteen million gallons a
day into the North Jersey Water District. We believe this underscores the
strength and adequacy of the water supply that has been developed by the NJWSA
for Central New Jersey. However, a return to below normal levels of
precipitation could cause the DEP to further restrict water usage.
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In Delaware, a drought warning has been declared by the Governor. Water users
have been asked and are encouraged to conserve water. Tidewater, which operates
south of the Delaware and Chesapeake Canal (D&C Canal), relies on well water for
100% of its water supply. The State of Delaware is primarily concerned about the
larger surface water systems north of the D&C Canal, which draw their water from
rivers and reservoirs. It is expected that drought-related conservation in
Delaware will somewhat temper revenue increases from the projected 9% customer
growth for 2002 as well as the 8% interim rate increase.
Forward Looking Information
Certain matters discussed in this report on Form 10-Q are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, objectives, expectations and events concerning various
matters such as capital expenditures, earnings, litigation, growth potential,
rate and other regulatory matters, liquidity, capital resources and accounting
matters. Actual results in each case could differ materially from those
currently anticipated in such statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate, long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.4 million of the current portion of four existing long-term
debt instruments will mature. Applying a hypothetical change in the rate of
interest charged by 10% on those borrowings would not have a material effect on
earnings.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 April 3, 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MIDDLESEX WATER COMPANY
(Registrant)
/s/ A. Bruce O'Connor
-----------------------------
Date: May 14, 2002 A. Bruce O'Connor
Vice President and Controller
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