form10k-105753_msx.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
(Mark
One)
|
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _________________ to______________________
Commission
File Number 0-422
MIDDLESEX
WATER COMPANY
(Exact
name of registrant as specified in its charter)
New Jersey
|
22-1114430
|
(State
of Incorporation)
|
(IRS
employer identification no.)
|
1500
Ronson Road, Iselin NJ 08830
(Address
of principal executive offices, including zip code)
(732)
634-1500
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class:
|
Name of each exchange on which
registered:
|
Common
Stock, No Par Value
|
The NASDAQ
Stock Market, LLC
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes ¨ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.Yes ¨ No þ
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 þ
No ¨
Indicate
by check mark whether the registrant has submitted and posted on their corporate
web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrants were required to submit and post
such files). Yes ¨
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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.
Large
accelerated filer ¨
|
Accelerated
filer þ
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No
þ
The
aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2009 was $194,315,725 based on the closing market price
of $14.45 per share.
The
number of shares outstanding for each of the registrant's classes of common
stock, as of March 2, 2010:
Common
Stock, No par Value 13,556,579 shares
outstanding
Documents Incorporated by
Reference
Proxy
Statement to be filed in connection with the Registrant’s Annual Meeting of
Stockholders to be held on May 25, 2010, which will be filed with the Securities
and Exchange Commission within 120 days of the end of our 2009 fiscal year, is
incorporated by reference into Part III.
FORM
10-K
INDEX
|
|
PAGE
|
|
1
|
|
|
|
PART
I
|
|
2
|
Item
1.
|
|
2
|
|
Overview
|
2
|
|
Financial
Information
|
4
|
|
Water
Supplies and Contracts
|
4
|
|
Employees
|
6
|
|
Competition
|
6
|
|
Regulation
|
6
|
|
Seasonality
|
8
|
|
Management
|
8
|
Item
1A.
|
|
10
|
Item
1B.
|
|
14
|
Item
2.
|
|
14
|
Item
3.
|
|
16
|
Item
4.
|
|
16
|
|
|
|
PART
II
|
|
17
|
Item
5.
|
|
|
|
|
17
|
Item
6.
|
|
19
|
Item
7.
|
|
|
|
|
19
|
Item
7A.
|
|
32
|
Item
8.
|
|
33
|
Item
9.
|
|
|
|
|
59
|
Item
9A.
|
|
59
|
Item
9B.
|
|
61
|
|
|
|
PART
III
|
|
62
|
Item
10.
|
|
62
|
Item
11.
|
|
62
|
Item
12.
|
|
62 |
|
|
62
|
Item
13.
|
|
62 |
|
|
62
|
Item
14.
|
|
62
|
PART
IV
|
|
62
|
Item
15.
|
|
62
|
|
|
|
|
64
|
|
65
|
Certain
statements contained in this annual report and in the documents incorporated by
reference constitute “forward-looking statements” within the meaning of Section
21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act
of 1933. Middlesex Water Company (the “Company”) intends that these
statements be covered by the safe harbors created under those
laws. These statements include, but are not limited to:
|
-
|
statements
as to expected financial condition, performance, prospects and earnings of
the Company;
|
|
-
|
statements
regarding strategic plans for
growth;
|
|
-
|
statements
regarding the amount and timing of rate increases and other regulatory
matters, including the recovery of certain costs recorded as regulatory
assets;
|
|
-
|
statements
as to the Company’s expected liquidity needs during the upcoming fiscal
year and beyond and statements as to the sources and availability of funds
to meet its liquidity needs;
|
|
-
|
statements
as to expected rates, consumption volumes, service fees, revenues,
margins, expenses and operating
results;
|
|
-
|
statements
as to the Company’s compliance with environmental laws and regulations and
estimations of the materiality of any related
costs;
|
|
-
|
statements
as to the safety and reliability of the Company’s equipment, facilities
and operations;
|
|
-
|
statements
as to financial projections;
|
|
-
|
statements
as to the ability of the Company to pay
dividends;
|
|
-
|
statements
as to the Company’s plans to renew municipal franchises and consents in
the territories it serves;
|
|
-
|
expectations
as to the amount of cash contributions to fund the Company’s retirement
benefit plans, including statements as to anticipated discount rates and
rates of return on plan assets;
|
|
-
|
statements
as to trends; and
|
|
-
|
statements
regarding the availability and quality of our water
supply.
|
These
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by the forward-looking statements. Important
factors that could cause actual results to differ materially from anticipated
results and outcomes include, but are not limited to:
|
-
|
the
effects of general economic
conditions;
|
|
-
|
increases
in competition in the markets served by the
Company;
|
|
-
|
the
ability of the Company to control operating expenses and to achieve
efficiencies in its operations;
|
|
-
|
the
availability of adequate supplies of
water;
|
|
-
|
actions
taken by government regulators, including decisions on rate increase
requests;
|
|
-
|
new
or additional water quality
standards;
|
|
-
|
weather
variations and other natural
phenomena;
|
|
-
|
the
existence of financially attractive acquisition candidates and the risks
involved in pursuing those
acquisitions;
|
|
-
|
acts
of war or terrorism;
|
|
-
|
significant
changes in the housing starts in
Delaware;
|
|
-
|
the
availability and cost of capital
resources;
|
|
-
|
other
factors discussed elsewhere in this annual report;
and
|
|
-
|
the
ability to translate Preliminary Survey & Investigation charges into
viable projects.
|
Many of
these factors are beyond the Company’s ability to control or
predict. Given these uncertainties, readers are cautioned not to
place undue reliance on any forward-looking statements, which only speak to the
Company’s understanding as of the date of this report. The Company does not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events, except as
may be required under applicable securities laws.
For an
additional discussion of factors that may affect the Company’s business and
results of operations, see Item 1A - Risk Factors.
Overview
Middlesex
Water Company (“Middlesex”) was incorporated as a water utility company in 1897
and owns and operates regulated water utility and wastewater systems in New
Jersey, Delaware and Pennsylvania. Middlesex also operates water and wastewater
systems under contract on behalf of municipal and private clients in New Jersey
and Delaware.
The terms
“the Company,” “we,” “our,” and “us” refer to Middlesex Water Company and its
subsidiaries, including Tidewater Utilities, Inc. (“Tidewater”) and Tidewater’s
wholly-owned subsidiaries, Southern Shores Water Company, LLC (“Southern
Shores”) and White Marsh Environmental Systems, Inc. (“White Marsh”). The
Company’s other subsidiaries are Pinelands Water Company (“Pinelands Water”) and
Pinelands Wastewater Company (“Pinelands Wastewater”) (collectively,
“Pinelands”), Utility Service Affiliates, Inc. (“USA”), Utility Service
Affiliates (Perth Amboy) Inc., (“USA-PA”), Tidewater Environmental Services,
Inc. (“TESI”) and Twin Lakes Utilities, Inc. (“Twin Lakes”).
Middlesex
principal executive offices are located at 1500 Ronson Road, Iselin, New Jersey
08830. Our telephone number is (732) 634-1500. Our internet website address is
http://www.middlesexwater.com. We make available, free of charge through our
internet website, reports and amendments filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, after such material is
electronically filed with or furnished to the United States Securities and
Exchange Commission (the SEC).
Middlesex
System
The
Middlesex System in New Jersey provides water services to approximately 59,800
retail customers, primarily in eastern Middlesex County, New Jersey and provides
water under wholesale contracts to the City of Rahway, Township of Edison, the
Boroughs of Highland Park and Sayreville and both the Old Bridge and the
Marlboro Township Municipal Utilities Authorities. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes. The Middlesex System also provides water treatment and
pumping services to the Township of East Brunswick under contract. The Middlesex
System, through its retail and contract sales, produced approximately 62% of our
2009 consolidated operating revenues.
The
Middlesex System’s retail customers are located in an area of approximately 55
square miles in Woodbridge Township, the City of South Amboy, the Boroughs of
Metuchen and Carteret, portions of the Township of Edison and the Borough of
South Plainfield in Middlesex County and, to a minor extent, a portion of the
Township of Clark in Union County. Retail customers include a mix of residential
customers, large industrial concerns and commercial and light industrial
facilities. These customers are located in generally well-developed areas of
central New Jersey.
The
contract customers of the Middlesex System comprise an area of approximately 146
square miles with a population of approximately 303,000. Contract sales to
Edison, Sayreville, Old Bridge, Marlboro and Rahway are supplemental to the
existing water systems of these customers. The Middlesex System provides treated
surface water under long-term agreements to East Brunswick, Marlboro, Old Bridge
and Sayreville consistent with a plan approved by the New Jersey Department of
Environmental Protection.
Middlesex
provides water service to approximately 300 customers in Cumberland County, New
Jersey. This system is referred to as Bayview and is not physically
interconnected with the Middlesex System. Bayview produced less than 1% of our
2009 consolidated operating revenues.
Tidewater
System
Tidewater,
together with its wholly-owned subsidiary, Southern Shores, provides water
services to approximately 33,200 retail customers for domestic, commercial and
fire protection purposes in over 300 separate community water systems in New
Castle, Kent and Sussex Counties, Delaware. White Marsh is an additional
wholly-owned subsidiary that is unregulated as to rates and operates water and
wastewater systems under contract for approximately 7,200 residential customers.
White Marsh also owns the office buildings that Tidewater uses as its central
business office campus. The Tidewater System produced approximately 25% of our
2009 consolidated operating revenues.
Utility
Service Affiliates-Perth Amboy
USA-PA
operates the City of Perth Amboy, NJ’s water and wastewater systems under a
20-year agreement, which expires in 2018. USA-PA serves approximately
10,500 customers, most of whom are served by both the water and wastewater
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 fixed fees, and may
receive variable fees, based on customer revenue growth. Fixed
fee revenues increase over the term of the 20-year contract based upon a
schedule of rates. USA-PA produced approximately 10% of our 2009 consolidated
operating revenues.
In
connection with the agreement, Middlesex guaranteed a series of Perth Amboy’s
municipal bonds in the principal amount of approximately $26.3 million, of which
approximately $19.7 million remains outstanding. In connection with the
agreement with Perth Amboy, USA-PA entered into a 20-year subcontract with a
wastewater operating company for the operation and maintenance of the Perth
Amboy wastewater collection system. The subcontract provides for the sharing of
certain fixed and variable fees and operating expenses.
Pinelands
System
Pinelands
Water provides water services to approximately 2,500 residential customers in
Burlington County, New Jersey. Pinelands Water produced less than 1% of our 2009
consolidated operating revenues. Pinelands Water is not physically
interconnected with the Middlesex System.
Pinelands
Wastewater provides wastewater services to approximately 2,500 residential
customers. Under contract, it also services one municipal wastewater system in
Burlington County, New Jersey with approximately 200 residential
customers. Pinelands Wastewater produced approximately 1% of our 2009
consolidated operating revenues.
Utility
Service Affiliates, Inc.
USA
provides residential customers in New Jersey and Delaware a water service line
and sewer lateral maintenance program called LineCareSM and
LineCare+SM,
respectively. These are maintenance programs that cover all parts, material and
labor required to repair or replace specific elements of the customer’s water
service line, customer shut-off valve and/or sewer lateral, in the event of a
failure. The Company’s responsibility for maintenance costs under the
programs is subject to annual limits. USA produced less than 1% of
our 2009 consolidated operating revenues.
TESI
System
TESI
provides wastewater services to approximately 1,900 residential retail customers
in Delaware. TESI produced less than 1% of our 2009 consolidated operating
revenues.
Twin
Lakes System
In
November 2009, Middlesex acquired the assets of a 120 customer water system in
Shohola, Pennsylvania. Twin Lakes produced less than 1% of our 2009 consolidated
operating revenues.
Financial
Information
Consolidated
operating revenues, operating income and net income are as follows:
|
|
Years Ended December 31,
|
|
|
|
(Thousands
of Dollars)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
Revenues
|
|
$ |
91,243 |
|
|
$ |
91,038 |
|
|
$ |
86,114 |
|
Operating
Income
|
|
$ |
20,161 |
|
|
$ |
24,019 |
|
|
$ |
22,671 |
|
Net
Income
|
|
$ |
9,977 |
|
|
$ |
12,208 |
|
|
$ |
11,843 |
|
Operating
revenues were earned from the following sources:
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
44.9
|
% |
|
|
45.1
|
% |
|
|
45.0
|
% |
Commercial
|
|
|
9.4 |
|
|
|
9.6 |
|
|
|
9.7 |
|
Industrial
|
|
|
9.0 |
|
|
|
9.3 |
|
|
|
9.9 |
|
Fire
Protection
|
|
|
10.5 |
|
|
|
10.4 |
|
|
|
10.3 |
|
Contract
Sales
|
|
|
13.1 |
|
|
|
13.1 |
|
|
|
12.5 |
|
Contract
Operations
|
|
|
10.9 |
|
|
|
10.5 |
|
|
|
10.3 |
|
Other
|
|
|
2.2 |
|
|
|
2.0 |
|
|
|
2.3 |
|
Total
|
|
|
100.0
|
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
Water
Supplies and Contracts
Our New
Jersey, Delaware and Pennsylvania water supply systems are physically separate
and are not interconnected. In New Jersey, the Pinelands System and Bayview
System are not interconnected with the Middlesex System or each other. We
believe that we have adequate sources of water supply to meet the current
service requirements of our present customers in New Jersey, Delaware and
Pennsylvania.
Middlesex
System
Our
Middlesex System, which produced approximately 16.6 billion gallons in 2009,
obtains water from surface sources and wells, or groundwater sources. In 2009,
surface sources of water provided approximately 73% of the Middlesex System’s
water supply, groundwater sources provided approximately 20% from 31 wells and
the balance was purchased from a non-affiliated water utility. Middlesex
System’s distribution storage facilities are used to supply water to customers
at times of peak demand, outages and emergencies.
The
principal source of surface water for the Middlesex System is the Delaware &
Raritan Canal, which is owned by the State of New Jersey and operated as a water
resource by the New Jersey Water Supply Authority. Middlesex is under
contract with the New Jersey Water Supply Authority, which expires November 30,
2023. The contract provides for average purchases of 27 million gallons per day
(mgd) of untreated water from the Delaware & Raritan Canal, augmented by the
Round Valley/Spruce Run Reservoir System. Surface water is pumped to, and
treated at the Middlesex Carl J. Olsen (CJO) Plant. Middlesex also has an
agreement with a non-affiliated regulated water utility for the purchase of
treated water. This long-term agreement, which expires February 27, 2011,
provides for minimum purchase of 2.5 mgd of treated water with provisions for
additional purchases.
Tidewater
System
Our
Tidewater System produced approximately 1.8 billion gallons in 2009 from 163
wells. In 2009, 1 new well was placed into service. We retired 6
wells for either water quality reasons or for the purpose of consolidating
production facilities for more cost-efficient operation. Tidewater expects to
continue to submit applications to Delaware regulatory authorities for the
approval of additional wells as growth, demand and water quality warrant. The
Tidewater System does not have a central treatment facility but has several
regional, as well as several smaller independent, treatment plants. Several of
its water systems in New Castle, Kent and Sussex Counties, Delaware have
interconnected transmission systems.
Pinelands
System
Water
supply to our Pinelands System is derived from four wells which produced
approximately 152 million gallons in 2009. The pumping capacity of the four
wells is 2.2 million gallons per day.
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, and the system provided overall treatment to 110 million gallons in
2009.
Bayview
System
Water
supply to Bayview customers is derived from two wells, which delivered
approximately 8.0 million gallons in 2009.
TESI
System
The TESI
System owns and operates six wastewater treatment systems in Southern Delaware.
The treatment plants provide clarification, sedimentation, and disinfection. The
combined total treatment capacity of the plants is 0.6 mgd. Current average flow
is approximately 0.2 mgd.
Twin
Lakes System
Water
supply to Twin Lakes’ customers is derived from two wells, which delivered
approximately 3.2 million gallons since Twin Lakes was acquired by Middlesex in
November 2009.
Employees
As of
December 31, 2009, we had a total of 285 employees. No employees are represented
by a union. We believe our employee relations are good. Wages and benefits are
reviewed annually and are considered competitive within both the industry and
the regions where we operate.
Competition
Our
business in our franchised service area is substantially free from direct
competition with other public utilities, municipalities and other entities.
However, our ability to provide contract water supply and wastewater services
and operations and maintenance services is subject to competition from other
public utilities, municipalities and other entities. Although Tidewater has been
granted an exclusive franchise for each of its existing community water systems,
its ability to expand service areas can be affected by the Delaware Public
Service Commission awarding franchises to other regulated water utilities with
whom we compete for such franchises and for projects.
Regulation
Our rates
charged to customers for water and wastewater services, the quality of the
services we provide and certain other matters are regulated by the following
state utility commissions (collectively, the Utility Commissions):
|
·
|
New
Jersey-New Jersey Board of Public Utilities
(NJBPU)
|
|
·
|
Delaware-Delaware
Public Service Commission (DEPSC)
|
|
·
|
Pennsylvania-Pennsylvania
Public Utilities Commission (PAPUC)
|
Our USA,
USA-PA and White Marsh subsidiaries are not regulated public utilities. However
they are subject to environmental regulation with respect to water and
wastewater effluent quality.
We are
subject to environmental and water quality regulation by the following
regulatory agencies (collectively, the Government Environmental Regulatory
Agencies):
|
·
|
United
States Environmental Protection Agency
(EPA)
|
|
·
|
New
Jersey Department of Environmental Protection (NJDEP) with respect to
operations in New Jersey
|
|
·
|
Delaware
Department of Natural Resources and Environmental Control (DEDNREC), the
Delaware Department of Health and Social Services-Division of Public
Health (DEDPH), and the Delaware River Basin Commission (DRBC) with
respect to operations in Delaware
|
|
·
|
Pennsylvania
Department of Environmental Protection (PADEP) with respect to operations
in Pennsylvania
|
In
addition, our issuances of equity securities are subject to the prior approval
of the NJBPU and require registration with the SEC. Our issuances of
long-term debt securities are subject to the prior approval of the appropriate
Utility Commissions.
Regulation
of Rates and Services
For
ratemaking purposes, we account separately for operations in New Jersey,
Delaware and Pennsylvania to facilitate independent ratemaking by the applicable
Utility Commissions.
In
determining our rates, the appropriate Utility Commissions consider the income,
expenses, rate base of property used and useful in providing service to the
public and a fair rate of return on investments within their separate
jurisdictions. Rate determinations by the appropriate Utility Commissions do not
guarantee particular rates of return to us for our New Jersey, Delaware and
Pennsylvania operations. Thus, we may not achieve the rates of return
permitted by the Utility Commissions. In addition, there can be no
assurance that any future rate increases will be granted or, if granted, that
they will be in the amounts requested.
Middlesex
Rate Matters
On July
1, 2009, Middlesex implemented a NJBPU-approved Purchased Water Adjustment
Clause (PWAC) in order to recover increased costs of $1.0 million to purchase
untreated water from the New Jersey Water Supply Authority and treated water
from a non-affiliated regulated water utility.
On August
17, 2009, Middlesex filed an application with the NJBPU seeking permission to
increase its base rates by 26.03%, or $15.1 million. The request was
made to seek recovery of increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial
customer demand patterns, as well as capital investment of approximately $39.0
million since Middlesex’s last rate filing in April of
2007. The proceeding is ongoing and we cannot predict with
certainty whether the NJBPU will ultimately approve, deny, or reduce the amount
of the request. A decision by the NJBPU is expected by the second
quarter of 2010.
Tidewater
Rate Matters
On
January 26, 2009, Tidewater filed an application with the DEPSC seeking
permission to increase its base rates by 32.54%, which was necessitated by
increased costs of operations, maintenance and taxes, as well as capital
investment since Tidewater’s last rate filing in April of 2006. On
September 9, 2009, the DEPSC approved a base rate settlement that had been
reached among the parties that reflects an overall increase of
14.95%. This rate increase approval is expected to generate
additional annual revenues of $3.0 million based on a 10.0% return on
equity.
Effective
January 1, 2009, Tidewater received approval from the DEPSC to increase their
Distribution System Improvement Charge (DSIC) from 2.94% to
5.25%. DSIC is a DEPSC approved rate that allows water utilities to
recover their investment in non-revenue producing capital improvements to the
water system between base rate proceedings. As of March 27, 2009,
this rate was set to zero in conjunction with interim rates approved in the base
rate case described above. On December 22, 2009, Tidewater received
approval from the DEPSC to increase their DSIC from 0.0% to 1.11% effective
January 1, 2010.
Southern
Shore Rate Matters
In
accordance with the tariff and underlying contract established for Southern
Shores, an annual rate increase of 3% was implemented on January 1, 2009. Under
the terms of the contract the increase cannot exceed the lesser of the regional
Consumer Price Index or 3%.
Water
and Wastewater Quality and Environmental Regulations
Government
Environmental Regulatory Agencies regulate our operations in New Jersey,
Delaware and Pennsylvania with respect to water supply, treatment and
distribution systems and the quality of the water. They also regulate our
operations with respect to wastewater collection and treatment.
Regulations
relating to water quality require us to perform tests to ensure our water meets
state and federal quality requirements. In addition, Government Environmental
Regulatory Agencies continuously review current regulations governing the limits
of certain organic compounds found in the water as byproducts of the treatment
process. We participate in industry-related research to identify the various
types of technology that might reduce the level of organic, inorganic and
synthetic compounds found in the water. The cost to water companies of complying
with the proposed water quality standards depends in part on the limits set in
the regulations and on the method selected to treat the water to the required
standards. We regularly test our water to determine compliance
with existing government environmental regulatory agencies’ primary water
quality standards.
Well
water treatment in our Tidewater System is by chlorination for disinfection
purposes and, in some cases, pH correction and filtration for nitrate and iron
removal.
Well
water treatment in the Pinelands, Bayview and Twin Lakes Systems (disinfection
only) is done at individual well sites.
The
NJDEP, DEDPH and PADEP monitor our activities and review the results of water
quality tests that are performed for adherence to applicable regulations. Other
applicable regulations include the Federal Lead and Copper
Rule, maximum contaminant levels established for various volatile organic
compounds, the Federal Surface Water Treatment Rule and the Federal Total
Coliform Rule.
Seasonality
Customer
demand for our water during the warmer months is generally greater than other
times of the year due primarily to additional consumption of water in connection
with irrigation systems, swimming pools, cooling systems and other outside water
use. Throughout the year, and particularly during typically warmer months,
demand may vary with temperature and rainfall timing and overall
levels. In the event that temperatures during the typically warmer
months are cooler than normal, or if there is more rainfall than normal, the
customer demand for our water may decrease and therefore, adversely affect our
revenues.
Management
This
table lists information concerning our executive management team:
Name
|
|
Age
|
|
Principal
Position(s)
|
Dennis
W. Doll
|
|
51
|
|
President
and Chief Executive Officer
|
A.
Bruce O’Connor
|
|
51
|
|
Vice
President and Chief Financial Officer
|
Richard
M. Risoldi
|
|
53
|
|
Vice
President-Operations and Chief Operating Officer
|
Kenneth
J. Quinn
|
|
62
|
|
Vice
President-General Counsel, Secretary and Treasurer
|
James
P. Garrett
|
|
63
|
|
Vice
President–Human Resources
|
Bernadette
M. Sohler
|
|
49
|
|
Vice
President-Corporate Affairs
|
Gerard
L. Esposito
|
|
58
|
|
President,
Tidewater Utilities, Inc.
|
Dennis W. Doll – Mr. Doll
joined the Company in November 2004 as Executive Vice President. He was elected
President and Chief Executive Officer and became a Director of Middlesex
effective January 1, 2006. He is also chairman for all subsidiaries of
Middlesex. Prior to joining the Company, Mr. Doll had been employed
in the regulated water utility business since 1985. Mr. Doll is Chairman of the
Board of Directors of the New Jersey Utilities Association and is a Director of
the National Association of Water Companies.
A. Bruce O’Connor – 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 was
elected Vice President and Chief Financial Officer in 1996. He is
responsible for financial reporting, customer service, rate cases,
cash
management
and financings. He is Treasurer and a Director of Tidewater Utilities, Inc.,
Tidewater Environmental Services, Inc., Utility Service Affiliates, Inc., and
White Marsh Environmental Systems, Inc. He is Vice President,
Treasurer and a Director of Utility Service Affiliates (Perth Amboy) Inc.,
Pinelands Water Company and Pinelands Wastewater Company. He is also
Vice President and Chief Financial Officer of Twin Lakes Utilities,
Inc.
Richard M. Risoldi – Mr.
Risoldi joined the Company in 1989 as Director of Production, responsible for
the operation and maintenance of the Company’s treatment and pumping
facilities. He was appointed Assistant Vice President of Operations
in 2003. He was elected Vice President-Subsidiary Operations in May 2004,
responsible for regulated and unregulated subsidiary operations and business
development. He was elected Vice President – Operations and designated Chief
Operating Officer in November 2009, effective upon Ronald Williams’ retirement
on January 1, 2010. He is a Director of Tidewater Utilities, Inc.,
Tidewater Environmental Services, Inc., White Marsh Environmental Systems Inc
and Utility Service Affiliates (Perth Amboy) Inc. He also serves as
Director and President of Pinelands Water Company, Pinelands Wastewater Company,
Utility Service Affiliates, Inc. and Twin Lakes Utilities, Inc.
Kenneth J. Quinn – Mr. Quinn
joined the Company in 2002 as General Counsel and was elected Assistant
Secretary in 2003. In 2004, Mr. Quinn was elected Vice President,
Secretary and Treasurer for Middlesex and Secretary and Assistant Treasurer for
all subsidiaries of Middlesex. Prior to joining the Company he had
been employed in private law practice. Prior to that, Mr. Quinn spent 10 years
as in-house counsel to two major banking institutions located in New Jersey. In
May 2003, he was elected Assistant Secretary of Tidewater Utilities, Inc.,
Pinelands Water Company, Pinelands Wastewater Company, Utility Service
Affiliates (Perth Amboy) Inc. and White Marsh Environmental Systems, Inc. He is
a member of the New Jersey State Bar Association and is also a member of the
Public Utility Law Section of the Bar.
James P. Garrett – Mr.
Garrett, a licensed attorney, joined the Company in 2003 as Assistant Vice
President–Human Resources. In May 2004, he was elected Vice President- Human
Resources and is responsible for all human resources and information technology
throughout the Company. Prior to his hire, Mr. Garrett was employed
by a national retail chain as Director of Organizational
Development.
Bernadette M. Sohler – Ms.
Sohler joined the Company in 1994 and was named Director of Communications in
2003 and promoted to Vice President-Corporate Affairs in March 2007 with
responsibilities for corporate, investor and employee communications, media and
government relations, marketing, community affairs and corporate philanthropic
activities. She also serves as Vice President of Utility Service
Affiliates, Inc.
Gerard L. Esposito – Mr.
Esposito joined Tidewater Utilities, Inc. in 1998 as Executive Vice
President. He was elected President of Tidewater and White Marsh
Environmental Systems, Inc. in 2003 and elected President of Tidewater
Environmental Services, Inc. in January 2005. Prior to joining the Company he
worked in various executive positions for Delaware environmental protection and
water quality governmental agencies. He is a Director of Tidewater Utilities,
Inc., Tidewater Environmental Services, Inc., and White Marsh Environmental
Systems, Inc.
Our
revenue and earnings depend on the rates we charge our customers. We cannot
raise utility rates in our regulated businesses without filing a petition with
the appropriate governmental agency. If these agencies modify, delay, or deny
our petition, our revenues will not increase and our earnings will decline
unless we are able to reduce costs.
The NJBPU
regulates our public utility companies in New Jersey with respect to rates and
charges for service, classification of accounts, awards of new service
territory, acquisitions, financings and other matters. That means, for example,
that we cannot raise the utility rates we charge to our customers without first
filing a petition with the NJBPU and going through a lengthy administrative
process. In much the same way, the DEPSC and the PAPUC regulate our public
utility companies in Delaware and Pennsylvania, respectively. We cannot give
assurance of when we will request approval for any such matter, nor can we
predict whether the NJBPU, DEPSC or PAPUC will approve, deny or reduce the
amount of such requests.
Certain
costs of doing business are not completely within our control. The failure to
obtain any rate increase would prevent us from increasing our revenues and,
unless we are able to reduce costs, would result in reduced
earnings.
General
economic conditions may materially and adversely affect our financial condition
and results of operations.
Recent
economic conditions have negatively impacted our customers’ water usage demands,
particularly the level of water usage demand by our commercial and industrial
customers in our Middlesex System. We are unable to determine when
these customers’ water demands may return to previous levels, or if the decline
in demand will continue indefinitely. The decrease in demand by our
commercial and industrial customers in our Middlesex System was one of the
factors that required our rate increase petition with the
NJBPU. There can be no assurance that the requested rate increase
will be approved in whole or in part by the NJBPU. If water demand by
our commercial and industrial customers in our Middlesex System does not return
to previous levels and/or our proposed rate increase is not approved wholly or
in part, our financial condition and results of operations could be negatively
impacted.
Recent
economic conditions have also impacted the volume and pace of residential
construction in our Delaware markets and in other states where
developer-projects are in various stages of completion. The timing
and extent of recovery of our engineering and other preliminary survey and
investigation charges is dependent upon the timing and extent to which such
projects are further developed.
We
are subject to environmental laws and regulations, including water quality and
wastewater effluent quality regulations, as well as other state and local
regulations. Compliance with those laws and regulations requires us to incur
costs and we are subject to fines or other sanctions for
non-compliance
Government
Environmental Regulatory Agencies regulate our operations in New Jersey,
Delaware and Pennsylvania with respect to water supply, treatment and
distribution systems and the quality of water. Government Environmental
Regulatory Agencies’ regulations relating to water quality require us to perform
expanded types of testing to ensure that our water meets state and federal water
quality requirements. We are subject to EPA regulations under the Federal Safe
Drinking Water Act, which 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. There are also
similar NJDEP regulations for our New Jersey water systems. The NJDEP, DEDPH and
PADEP monitor our activities and review the results of water
quality
tests that we perform for adherence to applicable regulations. In addition,
Government Environmental Regulatory Agencies are continually reviewing
regulations governing the limits of certain organic compounds found in the water
as byproducts of treatment.
We are
also subject to regulations related to fire protection services in New Jersey,
Delaware and Pennsylvania. In New Jersey there is no state-wide fire
protection regulatory agency. However, New Jersey regulations exist
as to the size of piping required regarding the provision of fire protection
services. In Delaware, fire protection is regulated statewide by the
Office of State Fire Marshal.
The cost
of compliance with the water and wastewater effluent quality standards depends
in part on the limits set in the regulations and on the method selected to
implement them. If new or more restrictive standards are imposed, the cost of
compliance could be very high and have an adverse impact on our revenues and
results of operations if we cannot recover those costs through our rates that we
charge our customers. The cost of compliance with fire protection
requirements could also be high and make us less profitable if we cannot recover
those costs through our rates charged to our customers.
In
addition, if we fail to comply with environmental or other laws and regulations
to which our business is subject, we could be fined or subject to other
sanctions, which could adversely impact our business or results of
operations.
We
depend upon our ability to raise money in the capital markets to finance some of
the costs of complying with laws and regulations, including environmental laws
and regulations or to pay for some of the costs of improvements to or the
expansion of our utility system assets. Our regulated utility companies cannot
issue debt or equity securities without regulatory approval.
We
require financing to fund the ongoing capital program for the improvement of our
utility system assets and for planned expansion of those systems. We expect to
spend approximately $89.1 million for capital projects through
2012. We must obtain regulatory approval to sell debt or equity
securities to raise money for these projects. If sufficient capital is not
available or the cost of capital is too high, or if the regulatory authorities
deny a petition of ours to sell debt or equity securities, we may not be able to
meet the costs of complying with environmental laws and regulations or the costs
of improving and expanding our utility system assets to the level we believe
necessary. This might result in the imposition of fines or
restrictions on our operations and may curtail our ability to improve upon and
expand our utility system assets.
Weather
conditions and overuse of underground aquifers may interfere with our sources of
water, demand for water services and our ability to supply water to
customers.
Our
ability to meet the existing and future water demands of our customers depends
on an adequate supply of water. Unexpected conditions may interfere with our
water supply sources. Drought and overuse of underground aquifers may limit the
availability of ground and/or surface water. Freezing weather may also
contribute to water transmission interruptions caused by pipe and/or main
breakage. Any interruption in our water supply could cause a reduction in our
revenue and profitability. These factors might adversely affect our ability to
supply water in sufficient quantities to our customers. Governmental drought
restrictions might result in decreased use of water services and can adversely
affect our revenue and earnings.
Our
business is subject to seasonal fluctuations, which could affect demand for our
water service and our revenues.
Demand
for our water during the warmer months is generally greater than during cooler
months due primarily to additional consumption of water in connection with
irrigation systems, swimming pools, cooling systems and
other
outside water use. Throughout the year, and particularly during typically warmer
months, demand may vary with temperature and rainfall levels. In the
event that temperatures during the typically warmer months are cooler than
normal, or if there is more rainfall than normal, the demand for our water may
decrease and adversely affect our revenues.
Our
water sources may become contaminated by naturally-occurring or man-made
compounds and events. This may cause disruption in services and impose costs to
restore the water to required levels of quality.
Our
sources of water may become contaminated by naturally-occurring or man-made
compounds and events. In the event that our water supply is contaminated, we may
have to interrupt the use of that water supply until we are able to install
treatment equipment or substitute the flow of water from an uncontaminated water
source through our transmission and distribution systems. We may also incur
significant costs in treating the contaminated water through the use of our
current treatment facilities, or development of new treatment methods. Our
inability to substitute water supply from an uncontaminated water source, or to
adequately treat the contaminated water source in a cost-effective manner may
reduce our revenues and make us less profitable.
We
face competition from other water and wastewater utilities and service providers
which might hinder our growth and reduce our profitability.
We face
risks of competition from other utilities authorized by federal, state or local
agencies. Once a state utility regulator grants a franchise to a utility to
serve a specific territory, that utility has an exclusive right to service that
territory. Although a new franchise offers some protection against competitors,
the pursuit of franchises is competitive, especially in Delaware, where new
franchises may be awarded to utilities based upon competitive negotiation.
Competing utilities have challenged, and may in the future challenge, our
applications for new franchises. Also, third parties entering into long-term
agreements to operate municipal systems might adversely affect us and our
long-term agreements to supply water on a contract basis to municipalities,
which could adversely affect our operating results.
We
have a long-term contractual obligation for water and wastewater system
operation and maintenance under which we may incur costs in excess of payments
received.
Middlesex
Water Company and USA-PA operate and maintain the water and wastewater systems
of the City of Perth Amboy, New Jersey under a 20-year contract expiring in
2018. This contract does not protect us against incurring costs in excess of
revenues we earn pursuant to the contract. There can be no absolute assurance
that we will not experience losses resulting from this contract. Losses under
this contract, or our failure or inability to perform, may have a material
adverse effect on our financial condition and results of operations. Also, in
connection with the contract, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed debt service payments on one of those
series of bonds, designated the Series C Serial Bonds, in the principal amount
of approximately $26.3 million. As of December 31, 2009, approximately $19.7
million of the Series C Serial Bonds remain outstanding. If Perth Amboy defaults
on its obligations to pay the bonds we have guaranteed, we would have to raise
funds to meet our obligations under that guarantee.
An
important element of our growth strategy is the acquisition of water and
wastewater assets, operations, contracts or companies. Any pending or future
acquisitions we decide to undertake may involve risks.
The
acquisition and/or operation of water and wastewater systems is an important
element in our growth strategy. This strategy depends on identifying suitable
opportunities and reaching mutually agreeable terms with
acquisition
candidates or contract partners. These negotiations, as well as the integration
of acquired businesses, could require us to incur significant costs and cause
diversion of our management’s time and resources. Further, acquisitions may
result in dilution of our equity securities, incurrence of debt and contingent
liabilities, fluctuations in quarterly results and other related expenses. In
addition, the assets, operations, contracts or companies we acquire may not
achieve the sales and profitability expected.
The
current concentration of our business in central New Jersey and Delaware makes
us susceptible to any adverse development in local regulatory, economic,
demographic, competitive and weather conditions.
Our New
Jersey water and wastewater businesses provide services to customers who are
located primarily in eastern Middlesex County, New Jersey. Water service is
provided under wholesale contracts to the Township of Edison, the Boroughs of
Highland Park and Sayreville, both the Old Bridge and the Marlboro Township
Municipal Utilities Authorities, and the City of Rahway in Union County, New
Jersey. We also provide water and wastewater services to customers in
the State of Delaware. Our revenues and operating results are
therefore subject to local regulatory, economic, demographic, competitive and
weather conditions in a relatively concentrated geographic area. A
change in any of these conditions could make it more costly or difficult for us
to conduct our business. In addition, any such change would have a
disproportionate effect on us, compared to water utility companies that do not
have such a geographic concentration.
The
necessity for ongoing security has and may continue to result in increased
operating costs.
Because
of the continuing threats to the health and security of the United States of
America, we employ procedures to review and modify, as necessary, security
measures at our facilities. We provide ongoing training and communications to
our employees about threats to our water supply and to their personal safety.
Our security measures include protocols regarding delivery and handling of
certain chemicals used in our business. We are at risk for terrorist attacks and
have incurred, and will continue to incur, costs for security measures to
protect our facilities, operations and supplies from such risks.
Our
ability to achieve growth in our market area is dependent on the residential
building market. Housing starts impact our rate of growth and
therefore, may not meet our expectations.
We expect
our revenues to increase from customer growth for our regulated water and
wastewater operations as a result of anticipated construction and sale of new
housing units. Although the residential building market in Delaware
has experienced growth in recent years, this growth has slowed due to current
economic conditions. If housing starts decline further, or do not
increase as we have projected, as a result of economic conditions or otherwise,
the timing and extent of our revenue growth may not meet our expectations, our
deferred project costs may not produce revenue-generating projects in the
timeframes anticipated and our financial results could be negatively
impacted.
There
can be no assurance that we will continue to pay dividends in the future or, if
dividends are paid, that they will be in amounts similar to past
dividends.
We have
paid dividends on our common stock each year since 1912 and have increased the
amount of dividends paid each year since 1973. Our earnings, financial
condition, capital requirements, applicable regulations and other factors,
including the timeliness and adequacy of rate increases, will determine both our
ability to pay dividends on common stock and the amount of those dividends.
There can be no assurance that we will continue to pay dividends in the future
or, if dividends are paid, that they will be in amounts similar to past
dividends.
If
we are unable to pay the principal and interest on our indebtedness as it comes
due or we default under certain other provisions of our loan documents, our
indebtedness could be accelerated and our results of operations and financial
condition could be adversely affected.
Our
ability to pay the principal and interest on our indebtedness as it comes due
will depend upon our current and future performance. Our performance
is affected by many factors, some of which are beyond our control. We
believe that our cash generated from operations, and, if necessary, borrowings
under our existing credit facilities will be sufficient to enable us to make our
debt payments as they become due. If, however, we do not generate
sufficient cash, we may be required to refinance our obligations or sell
additional equity, which may be on terms that are not as favorable to
us.
No
assurance can be given that any refinancing or sale or equity will be possible
when needed or that we will be able to negotiate acceptable terms. In
addition, our failure to comply with certain provisions contained in our trust
indentures and loan agreements relating to our outstanding indebtedness could
lead to a default under these documents, which could result in an acceleration
of our indebtedness.
We
depend significantly on the services of the members of our senior management
team, and the departure of any of those persons could cause our operating
results to suffer.
Our
success depends significantly on the continued individual and collective
contributions of our senior management team. If we lose the services
of any member of our senior management or are unable to hire and retain
experienced management personnel, our operating results could be negatively
impacted.
We
are subject to anti-takeover measures that may be used by existing management to
discourage, delay or prevent changes of control that might benefit
non-management shareholders.
Subsection
10A of the New Jersey Business Corporation Act, known as the New Jersey
Shareholders Protection Act, applies to us. The Shareholders Protection Act
deters merger proposals, tender offers or other attempts to effect changes in
control that are not approved by our Board of Directors. In addition, we have a
classified Board of Directors, which means only one-third of the Directors are
elected each year. A classified Board can make it harder for an acquirer to gain
control by voting its candidates onto the Board of Directors and may also deter
merger proposals and tender offers. Our Board of Directors also has the ability,
subject to obtaining NJBPU approval, to issue one or more series of preferred
stock having such number of shares, designation, preferences, voting rights,
limitations and other rights as the Board of Directors may fix. This could be
used by the Board of Directors to discourage, delay or prevent an acquisition
that might benefit non-management shareholders.
|
Unresolved
Staff Comments.
|
None.
Utility
Plant
The water
utility plant in our systems consist of source of supply, pumping, water
treatment, transmission and distribution, general facilities and all
appurtenances, including all connecting pipes.
The
wastewater utility plant in our systems consist of pumping, treatment,
collection mains, general facilities and all appurtenances, including all
connecting pipes.
Middlesex
System
The
Middlesex System’s principal source of surface supply is the Delaware &
Raritan Canal owned by the State of New Jersey and operated as a water resource
by the New Jersey Water Supply Authority.
Water is
withdrawn from the Delaware & Raritan Canal at New Brunswick, New Jersey
through our intake and pumping station, located on state-owned land bordering
the canal. Water is transported through two raw water pipelines for
treatment and distribution at our CJO Plant in Edison, New Jersey.
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 chlorine contact tanks, twelve rapid filters containing
gravel, sand and anthracite for water treatment and a steel washwater tank. The
CJO Plant also includes a computerized Supervisory Control and Data Acquisitions
system to monitor and control the CJO Plant and the water supply and
distribution system in the Middlesex System. There is an on-site
State certified laboratory capable of performing bacteriological, chemical,
process control and advanced instrumental chemical sampling and analysis. The
firm design capacity of the CJO Plant is 45 mgd (60 mgd maximum capacity). The
main pumping station at the CJO Plant has a design capacity of 90 mgd. The five
electric motor-driven, vertical turbine pumps presently installed have an
aggregate capacity of 72 mgd.
In
addition, there is a 15 mgd auxiliary pumping station located at the CJO Plant
location. 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.
The
transmission and distribution system is comprised of 734 miles of mains and
includes 23,200 feet of 48-inch reinforced concrete transmission main connecting
the CJO Plant to our distribution pipe network and related storage facilities.
Also included is a 58,600 foot transmission main and a 38,800 foot transmission
main, augmented with a long-term, non-exclusive agreement with the East
Brunswick system to transport water to several of our contract
customers.
The
Middlesex System’s storage facilities consist of a 10 million gallon reservoir
at the CJO Plant, 5 million gallon and 2 million gallon reservoirs in Edison
(Grandview), a 5 million gallon reservoir in Carteret (Eborn) and a 2 million
gallon reservoir at the Park Avenue Well Field.
In New
Jersey, we own the properties on which the Middlesex System’s 31 wells are
located, the properties on which our storage tanks are located as well as the
property where the CJO Plant is located. We also own our headquarters
complex located at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000
square foot office building and an adjacent 16,500 square foot maintenance
facility.
Tidewater
System
The
Tidewater System is comprised of 86 production plants that vary in pumping
capacity from 26,000 gallons per day to 2.0 mgd. Water is transported to our
customers through 604 miles of transmission and distribution mains. Storage
facilities include 46 tanks, with an aggregate capacity of 6.0 million gallons.
Our Delaware operations are managed from Tidewater’s offices in Dover, Delaware.
The Delaware office property, located on eleven-acre lot owned by White Marsh,
consists of two office buildings totaling approximately 17,000 square
feet.
Pinelands
System
Pinelands
Water owns well site and storage properties in Southampton Township, New Jersey.
The Pinelands Water storage facility is a 1.2 million gallon standpipe. Water is
transported to our customers through 18 miles of transmission and distribution
mains.
Pinelands
Wastewater System
Pinelands
Wastewater owns a 12 acre site on which its 0.5 million gallons per day capacity
tertiary treatment plant and connecting pipes are located. Its wastewater
collection system is comprised of approximately 24 miles of sewer
lines.
Bayview
System
Bayview
owns two well sites, which are located in Downe Township, Cumberland County, New
Jersey. Water is transported to its customers through our 4.2 mile distribution
system.
TESI
System
The TESI
System owns and operates six wastewater treatment systems in Southern Delaware.
The treatment plants provide clarification, sedimentation, and disinfection. The
combined total capacity of the plants is 0.6 mgd. TESI’s wastewater collection
system is comprised of approximately 30 miles of sewer lines.
Twin
Lakes System
Twin
Lakes owns one well site, which is located in the Township of Shohola, Pike
County, Pennsylvania. Water is transported to our customers through 3.7 miles of
distribution mains.
USA-PA,
USA and White Marsh
Our
non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own
utility plant property.
The
Company is a defendant in lawsuits in the normal course of business. We believe
the resolution of pending claims and legal proceedings will not have a material
adverse effect on the Company’s consolidated financial statements.
Item
5.
|
Market
for the Registrant's Common Equity and Related Stockholder
Matters.
|
The
Company’s common stock is traded on the NASDAQ Stock Market, LLC, under the
symbol MSEX. The following table shows the range of high and low share prices
per share for the common stock and the dividend paid to shareholders in such
quarter. As of December 31, 2009, there were 1,940 holders of
record.
2009
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$ |
17.91 |
|
|
$ |
14.74 |
|
|
$ |
0.1800 |
|
Third
Quarter
|
|
$ |
15.89 |
|
|
$ |
13.62 |
|
|
$ |
0.1775 |
|
Second
Quarter
|
|
$ |
15.29 |
|
|
$ |
12.61 |
|
|
$ |
0.1775 |
|
First
Quarter
|
|
$ |
17.71 |
|
|
$ |
11.64 |
|
|
$ |
0.1775 |
|
2008
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$ |
17.93 |
|
|
$ |
12.05 |
|
|
$ |
0.1775 |
|
Third
Quarter
|
|
$ |
18.52 |
|
|
$ |
15.68 |
|
|
$ |
0.1750 |
|
Second
Quarter
|
|
$ |
19.23 |
|
|
$ |
16.59 |
|
|
$ |
0.1750 |
|
First
Quarter
|
|
$ |
19.83 |
|
|
$ |
17.25 |
|
|
$ |
0.1750 |
|
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.
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 the event dividends on
the preferred stock are in arrears, no dividends may be declared or paid on the
common stock of the Company.
On
February 3, 2010, the Company filed a petition with the NJBPU seeking approval
to issue up to 2.0 million shares of its common stock in the form of a follow-on
offering during the second quarter of 2010. The proceeds from the
common stock offering will be used to retire short term debt.
The
Company periodically issues shares of common stock in connection with its
Dividend Reinvestment and Common Stock Purchase Plan (the DRP). The Company
raised approximately $1.3 million through the issuance of 84,498 shares under
the Plan during 2009. On December 23, 2009, the Company announced a
5% purchase discount for optional cash purchases and reinvested dividends under
the DRP. The discount applies to purchases made by the DRP between
February 1, 2010 and June 1, 2010.
The
Company has a stock compensation plan for its employees (the Employee Stock
Compensation Plan). The Company maintains an escrow account for 93,415 shares of
the Company's common stock for the Employee Stock Compensation Plan. Such stock
is subject to an agreement requiring forfeiture by the employee in the event of
termination of employment within five years of the award other than as a result
of retirement, death, disability or change in control. The maximum number of
shares authorized for grant under the 2008 Restricted
Stock
Plan is 300,000 shares. As of December 31,
2009, there are 248,405 shares available for future awards under the 2008
Restricted Stock Plan.
The
Company has a stock compensation plan for its outside directors (the Outside
Director Stock Compensation Plan). The maximum number of shares authorized for
grant under the Outside Director Stock Compensation Plan is
100,000. In 2009, 1,554 shares of common stock were granted and
issued to the Company’s outside directors under the Outside Director Stock
Compensation Plan. As of December 31, 2009, there are 98,446 shares available
for future grants under the Outside Director Stock Compensation
Plan.
Set forth
below is a line graph comparing the yearly change in the cumulative total return
(which includes reinvestment of dividends) of a $100 investment for the
Company’s common stock, a peer group of investor-owned water utilities, and the
Dow Jones Wilshire 5000 Stock Index for the period of five years commencing
December 31, 2004. The Dow Jones Wilshire 5000 Stock Index measures
the performance of all U.S. headquartered equity securities with readily
available price data.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
Middlesex Water Company, The Dow Jones Wilshire 5000 Index and a Peer
Group
*$100 invested on 12/31/04 in stock or
index-including reinvestment of dividends.
** Peer
group includes American States Water Company, American Water Works, Inc., Aqua
America Inc., Artesian Resources Corp., California Water Service Company,
Connecticut Water Service, Inc., Pennichuck Corp., SJW Corp., Southwest Water
Company, York Water Company and the Company.
|
|
December
31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Middlesex
Water Company
|
|
|
100.00 |
|
|
|
94.80 |
|
|
|
106.20 |
|
|
|
110.40 |
|
|
|
104.40 |
|
|
|
111.90 |
|
Dow
Jones Wilshire 5000
|
|
|
100.00 |
|
|
|
106.90 |
|
|
|
123.20 |
|
|
|
130.10 |
|
|
|
81.60 |
|
|
|
105.00 |
|
Peer
Group
|
|
|
100.00 |
|
|
|
130.50 |
|
|
|
130.90 |
|
|
|
125.80 |
|
|
|
120.30 |
|
|
|
120.60 |
|
CONSOLIDATED
SELECTED FINANCIAL DATA
|
|
(Thousands Except
per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Operating
Revenues
|
|
$ |
91,243 |
|
|
$ |
91,038 |
|
|
$ |
86,114 |
|
|
$ |
81,061 |
|
|
$ |
74,613 |
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and Maintenance
|
|
|
52,348 |
|
|
|
48,929 |
|
|
|
46,240 |
|
|
|
43,345 |
|
|
|
42,156 |
|
Depreciation
|
|
|
8,559 |
|
|
|
7,922 |
|
|
|
7,539 |
|
|
|
7,060 |
|
|
|
6,460 |
|
Other
Taxes
|
|
|
10,175 |
|
|
|
10,168 |
|
|
|
9,664 |
|
|
|
9,338 |
|
|
|
8,779 |
|
Total
Operating Expenses
|
|
|
71,082 |
|
|
|
67,019 |
|
|
|
63,443 |
|
|
|
59,743 |
|
|
|
57,395 |
|
Operating
Income
|
|
|
20,161 |
|
|
|
24,019 |
|
|
|
22,671 |
|
|
|
21,318 |
|
|
|
17,218 |
|
Other
Income, Net
|
|
|
1,726 |
|
|
|
1,302 |
|
|
|
1,527 |
|
|
|
774 |
|
|
|
740 |
|
Interest
Charges
|
|
|
6,750 |
|
|
|
7,057 |
|
|
|
6,619 |
|
|
|
7,012 |
|
|
|
6,245 |
|
Income
Taxes
|
|
|
5,160 |
|
|
|
6,056 |
|
|
|
5,736 |
|
|
|
5,041 |
|
|
|
3,237 |
|
Net
Income
|
|
|
9,977 |
|
|
|
12,208 |
|
|
|
11,843 |
|
|
|
10,039 |
|
|
|
8,476 |
|
Preferred
Stock Dividend
|
|
|
208 |
|
|
|
218 |
|
|
|
248 |
|
|
|
248 |
|
|
|
251 |
|
Earnings
Applicable to Common Stock
|
|
$ |
9,769 |
|
|
$ |
11,990 |
|
|
$ |
11,595 |
|
|
$ |
9,791 |
|
|
$ |
8,225 |
|
Earnings
per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.73 |
|
|
$ |
0.90 |
|
|
$ |
0.88 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
Diluted
|
|
$ |
0.72 |
|
|
$ |
0.89 |
|
|
$ |
0.87 |
|
|
$ |
0.82 |
|
|
$ |
0.71 |
|
Average
Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,454 |
|
|
|
13,317 |
|
|
|
13,203 |
|
|
|
11,844 |
|
|
|
11,445 |
|
Diluted
|
|
|
13,716 |
|
|
|
13,615 |
|
|
|
13,534 |
|
|
|
12,175 |
|
|
|
11,784 |
|
Dividends
Declared and Paid
|
|
$ |
0.713 |
|
|
$ |
0.703 |
|
|
$ |
0.693 |
|
|
$ |
0.683 |
|
|
$ |
0.673 |
|
Total
Assets
|
|
$ |
458,086 |
|
|
$ |
440,000 |
|
|
$ |
392,675 |
|
|
$ |
370,267 |
|
|
$ |
324,383 |
|
Convertible
Preferred Stock
|
|
$ |
2,273 |
|
|
$ |
2,273 |
|
|
$ |
2,856 |
|
|
$ |
2,856 |
|
|
$ |
2,856 |
|
Long-term
Debt
|
|
$ |
124,910 |
|
|
$ |
118,217 |
|
|
$ |
131,615 |
|
|
$ |
130,706 |
|
|
$ |
128,175 |
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operation.
|
The
following discussion of the Company’s historical results of operations and
financial condition should be read in conjunction with the Company’s
consolidated financial statements and related notes.
Management’s
Overview
Operations
Middlesex
Water Company has operated as a water utility in New Jersey since 1897, in
Delaware through our wholly-owned subsidiary, Tidewater, since 1992 and in
Pennsylvania through our wholly-owned subsidiary, Twin Lakes, since November
2009. We are in the business of collecting, treating and distributing
water for domestic, commercial, municipal, industrial and fire protection
purposes. We also operate a New Jersey municipal water and wastewater system
under contract and provide wastewater services in New Jersey and Delaware
through our subsidiaries. We are regulated as to rates charged to
customers for water and wastewater
services,
as to the quality of water service we provide and as to certain other matters in
New Jersey, Delaware and Pennsylvania. Only our USA, USA-PA and White Marsh
subsidiaries are not regulated utilities.
Our New
Jersey water utility system (the Middlesex System) provides water services to
approximately 59,800 retail customers, primarily in central New Jersey. The
Middlesex System also provides water service under contract to municipalities in
central New Jersey with a total population of approximately 303,000. In
partnership with our subsidiary, USA-PA, we operate the water supply system and
wastewater system for the City of Perth Amboy, New Jersey. Our Bayview
subsidiary provides water services in Downe Township, New Jersey. Our
other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide
water and wastewater services to residents in Southampton Township, New
Jersey.
USA
provides residential customers in New Jersey and Delaware a water service line
and sewer lateral maintenance programs called LineCareSM and
LineCare+SM,
respectively.
Our
Delaware subsidiaries, Tidewater and Southern Shores, provide water services to
approximately 33,200 retail customers in New Castle, Kent and Sussex Counties,
Delaware. Our TESI subsidiary provides wastewater services to approximately
1,900 residential retail customers. Tidewater’s subsidiary, White Marsh,
services an additional 7,200 customers in Kent and Sussex Counties through 68
operations and maintenance contracts. We expect the growth of our regulated
wastewater operations in Delaware will eventually become a more significant
component of our operations.
Our
Pennsylvania subsidiary, Twin Lakes, provides water services to approximately
120 retail customers in the Township of Shohola, Pike County,
Pennsylvania.
The
majority of our revenue is generated from retail and contract water services to
customers in our service areas. We record water service revenue as
such service is rendered and include estimates for amounts unbilled at the end
of the period for services provided after the last billing cycle. Fixed service
charges are billed in advance by our subsidiary, Tidewater, and are recognized
in revenue as the service is provided.
Rates
Middlesex - On August 17,
2009, Middlesex filed an application with the NJBPU seeking permission to
increase its base rates by 26.03%, or $15.1 million. The request was
made necessary by increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial
customer demand patterns as well as capital investment of approximately $39.0
million since Middlesex’s last rate filing in April of
2007. Discovery by the intervening parties has begun. We
cannot predict whether the NJBPU will ultimately approve, deny, or reduce the
amount of the request. A decision by the NJBPU is expected by the
second quarter of 2010.
On July
1, 2009, Middlesex implemented a NJBPU approved PWAC in order to recover
increased costs of $1.0 million to purchase untreated water from the New Jersey
Water Supply Authority and treated water from a non-affiliated regulated water
utility.
Tidewater - On January 26,
2009, Tidewater filed an application with the DEPSC seeking permission to
increase its base rates by 32.54%, which was necessitated by increased costs of
operations, maintenance and taxes, as well as capital investment since
Tidewater’s last rate filing in April of 2006. On September 9, 2009,
the DEPSC approved a base rate settlement that had been reached amongst the
parties that reflects an overall increase of 14.95%. This rate
increase approval is expected to generate additional annual revenues of $3.0
million based on a 10.0% return on common equity.
Effective
January 1, 2009, Tidewater received approval from the DEPSC to increase their
DSIC from 2.94% to 5.25%. DSIC is a DEPSC approved rate that allows
water utilities to recover their investment in non-revenue producing capital
improvements to the water system in between base rate increase
requests. As of March 27, 2009, this rate was set to zero in
conjunction with interim rates approved in the base rate case described
above. On December 22, 2009, Tidewater received approval from the
DEPSC to increase their DSIC from 0% to 1.11% effective January 1,
2010.
Southern Shores - In accordance with the
tariff and underlying contract established for Southern Shores, an annual rate
increase of 3% was implemented on January 1, 2009. Under the terms of the
contract the increase cannot exceed the lesser of the regional Consumer Price
Index or 3%.
Operating
Results by Segment
Our
ability to increase operating income and net income is based significantly on
four factors: weather, adequate and timely rate relief, effective cost
management, and customer growth. These factors are evident in the discussions
below which compare our results of operations from prior years.
The
Company has two operating segments, Regulated and Non-Regulated. Our Regulated
segment contributed 88%, 89% and 90% of total revenues, and 87%, 90% and 94% of
net income for the years ended December 31, 2009, 2008 and 2007, respectively.
The discussion of the Company’s results of operations is on a consolidated
basis, and includes significant factors by subsidiary. The segments in the
tables included below are comprised of the following companies: Regulated-
Middlesex, Tidewater, Pinelands, Southern Shores, TESI and Twin Lakes;
Non-Regulated- USA, USA-PA, and White Marsh.
Results
of Operations in 2009 Compared to 2008
|
|
(Millions
of Dollars)
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Regulated
|
|
|
Non-Regulated
|
|
|
Total
|
|
|
Regulated
|
|
|
Non-Regulated
|
|
|
Total
|
|
Revenues
|
|
$ |
80.6 |
|
|
$ |
10.6 |
|
|
$ |
91.2 |
|
|
$ |
81.1 |
|
|
$ |
9.9 |
|
|
$ |
91.0 |
|
Operations
and maintenance
|
|
|
44.2 |
|
|
|
8.1 |
|
|
|
52.3 |
|
|
|
41.2 |
|
|
|
7.7 |
|
|
|
48.9 |
|
Depreciation
|
|
|
8.4 |
|
|
|
0.1 |
|
|
|
8.5 |
|
|
|
7.8 |
|
|
|
0.1 |
|
|
|
7.9 |
|
Other
taxes
|
|
|
9.9 |
|
|
|
0.3 |
|
|
|
10.2 |
|
|
|
10.0 |
|
|
|
0.2 |
|
|
|
10.2 |
|
Operating
income
|
|
$ |
18.1 |
|
|
$ |
2.1 |
|
|
$ |
20.2 |
|
|
$ |
22.1 |
|
|
$ |
1.9 |
|
|
$ |
24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
1.4 |
|
|
|
0.3 |
|
|
|
1.7 |
|
|
|
0.9 |
|
|
|
0.4 |
|
|
|
1.3 |
|
Interest
expense
|
|
|
6.5 |
|
|
|
0.2 |
|
|
|
6.7 |
|
|
|
7.0 |
|
|
|
0.1 |
|
|
|
7.1 |
|
Income
taxes
|
|
|
4.3 |
|
|
|
0.9 |
|
|
|
5.2 |
|
|
|
5.0 |
|
|
|
1.0 |
|
|
|
6.0 |
|
Net
income
|
|
$ |
8.7 |
|
|
$ |
1.3 |
|
|
$ |
10.0 |
|
|
$ |
11.0 |
|
|
$ |
1.2 |
|
|
$ |
12.2 |
|
Operating
Revenues
Operating
revenues for the year ended December 31, 2009 increased $0.2 million from the
same period in 2008. This increase was primarily related to the
following factors:
|
·
|
Revenues
in our Middlesex System decreased $1.6 million, primarily as a result of
lower water consumption across our residential, commercial and industrial
customer classes. We experienced a
$1.9
|
million
decline in water use by our general retail metered customers compared to the
same period in 2008. This lower water consumption was attributable to
unfavorable weather as compared to prior years as well as decreased demand by
our large commercial and industrial customers. We are unable to
determine when these customers’ water demands may return to previous levels, or
if the decline in demand will continue indefinitely. Increased
revenues of $0.4 million from the PWAC implemented on July 1, 2009, offset some
of the consumption revenue decline. All other factors affecting
Middlesex system revenues accounted for a $0.1 million decrease in
revenues.
|
·
|
Revenues
in our Tidewater system increased $1.4 million. Revenue of $1.6 million
from increased rates helped to mitigate consumption revenue decreases of
$0.8 million, largely attributable to those same weather and usage
patterns described above. New customer growth and other
fees added $0.4 million of revenue. All other factors affecting
Tidewater system revenues accounted for a $0.2 million increase in
revenues.
|
|
·
|
USA-PA’s
fees for managing the Perth Amboy water and wastewater systems were $0.5
million higher than the same period in 2008, due mostly to higher
pass-through charges and scheduled management fee
increases.
|
|
·
|
All
other operations accounted for a decrease of $0.1 million in
revenues.
|
Operation
and Maintenance Expense
Operation
and maintenance expenses for the year ended December 31, 2009 increased $3.4
million from the same period in 2008. This increase was primarily related to the
following factors:
|
·
|
Labor
costs at our regulated entities increased $0.9 million in 2009 as compared
to 2008, primarily due to increases in wages and resources necessary to
meet the growing needs of our Delaware service territory and increased
overtime incurred in connection with a higher incidence of water main
breaks and system maintenance in our Middlesex
system.
|
|
·
|
Chemical
and residuals disposal expenses increased by $0.8 million in 2009 as
compared to 2008. Although unfavorable weather patterns and
economic conditions resulted in a decline in water production in our New
Jersey and Delaware systems, costs for chemicals and residuals disposal
increased due to a combination of unit cost disposal rate increases and
lower quality of untreated water, as influenced by abnormally high
rainfall during 2009.
|
|
·
|
Purchased
water costs in our Middlesex system increased $0.5 million in 2009 as
compared to 2008, primarily due to the full year’s effect of our
suppliers’ rate increases that went into effect in the fourth quarter of
2008.
|
|
·
|
Employee
retirement benefit plan expenses increased $0.4 million, primarily
resulting from increased qualified employee retirement benefit plan
expenses of $1.2 million, largely attributable to the investment
performance of the benefit plans’ assets, offset by a decrease of $0.8
million in life insurance program expenses due to market fluctuations in
the cash surrender value of life insurance
policies.
|
|
·
|
Uncollectible
accounts expense increased $0.4 million in 2009 as compared to 2008,
resulting from current economic
conditions.
|
|
·
|
Operating
costs for USA-PA increased $0.3 million, which are recovered under the
pass-through mechanism in the
contract.
|
|
·
|
All
other operating and maintenance expense categories increased $0.1 million
in 2009 as compared to 2008.
|
Depreciation
Depreciation
expense for the year ended December 31, 2009 increased $0.6 million from the
same period in 2008 due to a higher level of utility plant in
service.
Other Taxes
Other
taxes remained consistent with 2008, generally reflecting decreased taxes on
lower taxable gross revenues offset by increased payroll and real estate
taxes.
Other
Income, net
Other
Income, net for the year ended December 31, 2009 increased $0.4 million from the
same period in 2008, primarily due to increased Allowance for Funds Used During
Construction from higher capitalized interest resulting from our ongoing capital
program.
Interest
Expense
Interest
expense for the year ended December 31, 2009 decreased $0.4 million from the
same period in 2008. This decrease was primarily related to the
following factors:
|
·
|
Interest
expense on long term debt decreased $0.5 million in 2009 as compared to
2008, primarily resulting from lower average long-term debt outstanding in
2009.
|
|
·
|
Other
interest expense increased $0.1 million in 2009 as compared to 2008,
primarily due to increased interest costs from higher average short-term
debt outstanding in 2009 ($40.0 million) as compared to 2008 ($16.4
million) offset by decreased interest costs from lower average short term
debt interest rates in 2009 (1.73%) as compared to 2008
(3.69%).
|
Income
Taxes
Income
taxes for the year ended December 31, 2009 decreased $0.8 million as compared to
2008, primarily resulting from decreased operating income in 2009 as compared to
2008.
Net
Income and Earnings Per Share
Net
income for the year ended December 31, 2009 decreased $2.2 million from the same
period in 2008. Basic earnings per share decreased to $0.73 in 2009 as compared
to $0.90 in 2008. Diluted earnings per share decreased to $0.72 in
2009 as compared to $0.89 in 2008.
Results
of Operations in 2008 Compared to 2007
|
|
(Millions
of Dollars)
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Regulated
|
|
|
Non-Regulated
|
|
|
Total
|
|
|
Regulated
|
|
|
Non-Regulated
|
|
|
Total
|
|
Revenues
|
|
$ |
81.1 |
|
|
$ |
9.9 |
|
|
$ |
91.0 |
|
|
$ |
77.1 |
|
|
$ |
9.0 |
|
|
$ |
86.1 |
|
Operations
and maintenance
|
|
|
41.2 |
|
|
|
7.7 |
|
|
|
48.9 |
|
|
|
38.8 |
|
|
|
7.4 |
|
|
|
46.2 |
|
Depreciation
|
|
|
7.8 |
|
|
|
0.1 |
|
|
|
7.9 |
|
|
|
7.4 |
|
|
|
0.1 |
|
|
|
7.5 |
|
Other
taxes
|
|
|
10.0 |
|
|
|
0.2 |
|
|
|
10.2 |
|
|
|
9.5 |
|
|
|
0.2 |
|
|
|
9.7 |
|
Operating
income
|
|
$ |
22.1 |
|
|
$ |
1.9 |
|
|
$ |
24.0 |
|
|
$ |
21.4 |
|
|
$ |
1.3 |
|
|
$ |
22.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
0.9 |
|
|
|
0.4 |
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
- |
|
|
|
1.5 |
|
Interest
expense
|
|
|
7.0 |
|
|
|
0.1 |
|
|
|
7.1 |
|
|
|
6.6 |
|
|
|
- |
|
|
|
6.6 |
|
Income
taxes
|
|
|
5.0 |
|
|
|
1.0 |
|
|
|
6.0 |
|
|
|
5.2 |
|
|
|
0.6 |
|
|
|
5.8 |
|
Net
income
|
|
$ |
11.0 |
|
|
$ |
1.2 |
|
|
$ |
12.2 |
|
|
$ |
11.1 |
|
|
$ |
0.7 |
|
|
$ |
11.8 |
|
Operating
Revenues
Operating
revenues for the year rose $4.9 million over the same period in 2007. This
increase was primarily related to the following factors:
|
·
|
Revenues
in our Middlesex system increased $4.2 million as a result of a 9.1% base
rate increase implemented October 26, 2007. Middlesex revenues
decreased $1.1 million due to lower consumption by our customers during
2008.
|
|
·
|
Water
sales improved $0.8 million in our Delaware water systems. We recorded
additional revenue of $1.2 million as a result of an additional 12% base
rate increase that was granted to Tidewater effective February 28, 2007,
and DSIC rate increases of 1.62% and 2.94% that went into effect January
1, 2008 and July 1, 2008, respectively. Fees charged for
initial connection to our Delaware Water system were $0.4 million lower in
2008 as new residential and commercial development has slowed in our
Delaware service territories.
|
|
·
|
USA-PA’s
fees for managing the Perth Amboy water and wastewater systems were $0.5
million higher than the same period in 2007, due mostly to scheduled
increases in the fixed fee component of the
contract.
|
|
·
|
Revenues
from our regulated wastewater operations in Delaware increased $0.2
million due to customer growth.
|
|
·
|
All
other operations accounted for $0.3 million of additional
revenues.
|
Operation
and Maintenance Expense
Operation
and maintenance expenses increased $2.7 million. This increase was
primarily related to the following factors:
|
·
|
Even
though 2008 water production was lower than 2007 in our Middlesex and
Tidewater systems, our expenses increased $0.3 million due to higher costs
for water, electric power and
chemicals.
|
|
·
|
Labor
and benefits costs increased $1.3 million, which includes $0.7 million
recognized for employee benefits due to market fluctuations in the cash
surrender value of life insurance
policies.
|
|
·
|
The
costs to operate our regulated wastewater facilities in Delaware increased
$0.3 million due to acquisition of the Milton, Delaware municipal
wastewater system during 2007 and an increased number of wastewater
treatment facilities in operation in
Delaware.
|
|
·
|
Costs
for service claims under our LineCareSM
program were $0.1 million higher due in part to a 9.4% increase in the
number of subscribers in the program during
2008.
|
|
·
|
Operating
costs for USA-PA increased $0.3 million due to higher pass-through
charges.
|
|
·
|
All
other expense categories increased $0.4
million.
|
Depreciation
Depreciation
expense for 2008 increased by $0.4 million due to a higher level of utility
plant in service.
Other
Taxes
Other
taxes increased by $0.5 million generally reflecting additional taxes on higher
taxable gross revenues, payroll and real estate.
Other
Income, Net
Other
income was $0.2 million lower than 2007, primarily due to one-time gains
recorded in 2007 on two transactions related to assets no longer used in our
operations.
Interest
Expense
Interest
expense increased by $0.4 million as a result of a higher level of average
short-term debt outstanding when compared to 2007.
Income
Taxes
Income
tax expense based on our current year operating results was $0.2 million higher
than 2007 and reflects increased revenues due to higher water rates in New
Jersey and Delaware.
Net
Income and Earnings Per Share
Net
income increased to $12.2 million from $11.8 million in the prior year, and
basic earnings per share increased from $0.88 to $0.90. Diluted earnings per
share increased from $0.87 to $0.89.
Outlook
Our
revenues are expected to increase in 2010 from the full year’s effect of rate
increases granted to Tidewater in September 2009, the January 1, 2010 Tidewater
DSIC rate implementation and an anticipated rate increase for
Middlesex. There can be no assurances however, that the NJBPU will
grant Middlesex’s filed rate increase request in whole or in
part.
Revenues
and earnings will also be influenced by weather. Changes in these factors, as
well as increases in capital expenditures and operating costs, are the primary
factors in determining the need for rate increase requests. We
continue to implement plans to streamline operations and reduce operating
costs.
Ongoing
economic conditions continue to negatively impact our customers’ water
consumption, particularly the level of water usage by our commercial and
industrial customers in our Middlesex system. We are unable to
determine when these customers’ water demands may return to previous levels, or
if a reduced level of demand will continue indefinitely. The decrease
in demand by our commercial and industrial customers in our Middlesex system was
one of the factors that required our rate increase petition with the
NJBPU. If water demand by our commercial and industrial customers in
our Middlesex system does not return to previous levels and/or our proposed rate
increase is not approved in whole or in part, our financial condition and
results of operations could be negatively impacted.
As a
result of ongoing challenging economic conditions impacting the pace of new
residential home construction, there may be an increase in the amount of
Preliminary Survey & Investigation costs that will not be currently
recoverable in rates. In addition, the impact of the depressed
national and local economies on the residential housing market has resulted in
the suspension of construction activities on the North Carolina water and
wastewater facility we agreed to own and operate. We are not obligated to assume
ownership of the facilities until completion of construction by the present
owner and until homes are occupied and customers are connected. We entered into
this agreement in 2008 and have invested approximately $0.6 million.
Construction is expected to resume as demand for new residential housing
improves and we continue to preserve our rights for recovery of our investment
if the project does not move forward in a timeframe acceptable to
us.
On
February 3, 2010, the Company filed a petition with the NJBPU seeking approval
to issue up to 2.0 million shares of common stock in the form of a follow-on
offering during the second quarter of 2010. The proceeds from the
common stock offering will be used to retire short term debt. We
expect our level of short-term debt borrowing to decrease in 2010 as compared to
2009.
The
return on assets held in our retirement benefit plans during 2009 resulted in an
increase in the amount available to fund current and future
obligations. We expect this will help stabilize retirement plan
benefit expenses and retirement plan cash contributions in 2010.
Our
strategy includes continued revenue growth through acquisitions, internal
expansion, contract operations and when necessary, rate relief. We will continue
to pursue opportunities in both the regulated and non-regulated sectors that we
believe complement existing capabilities and will ultimately increase
shareholder value.
Liquidity
and Capital Resources
Cash
flows from operations are largely based on four factors: weather, adequate
and timely rate increases, effective cost management and customer growth. The
effect of those factors on net income is discussed in results of
operations.
For 2009,
cash flows from operating activities decreased $0.9 million to $18.5 million. As
described more fully in the Results of Operations section above, lower earnings
was the primary reason for the decrease in cash flow. The $18.5
million of net cash flow from operations enabled us to fund approximately 92% of
our utility plant expenditures internally for the period, with the remainder
funded by bank lines of credit and other loan commitments.
For 2008,
cash flows from operating activities increased $0.3 million to $19.4 million, as
compared to the prior year. This increase was primarily attributable to higher
net income and depreciation. The $19.4 million of net cash flow from operations
enabled us to fund approximately 64% of our utility plant expenditures for the
period internally, with the remainder funded with proceeds from equity issued
under our Dividend Reinvestment Plan, long-term borrowings and short-term
borrowings.
Increases
in certain operating costs will impact our liquidity and capital resources.
During 2009, we received rate relief for Middlesex, Tidewater and Southern
Shores and we have filed for a base rate increase for Middlesex. We continually
monitor the need for timely rate filing to minimize the lag between the time we
experience increased operating and capital costs and the time we receive
appropriate rate relief. There is no certainty, however, that the
NJBPU, DEPSC or PAPUC will approve any or all future requested
increases.
Capital
Expenditures and Commitments
To fund
our capital program, we use internally generated funds, short term and long term
debt borrowings, and when market conditions are favorable, proceeds from sales
of common stock under our DRP and offerings to the public.
The table
below summarizes our estimated capital expenditures for the years
2010-2012.
|
|
(Millions)
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
2010-2012 |
|
Mains
|
|
$ |
11,105 |
|
|
$ |
3,913 |
|
|
$ |
3,831 |
|
|
$ |
18,849 |
|
Service
Lines
|
|
|
1,172 |
|
|
|
1,112 |
|
|
|
1,112 |
|
|
|
3,396 |
|
RENEW
Program*
|
|
|
3,500 |
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
11,500 |
|
Information
Technology Systems
|
|
|
4,638 |
|
|
|
424 |
|
|
|
272 |
|
|
|
5,334 |
|
Meters
|
|
|
2,502 |
|
|
|
2,440 |
|
|
|
2,440 |
|
|
|
7,382 |
|
Hydrants
|
|
|
641 |
|
|
|
524 |
|
|
|
591 |
|
|
|
1,756 |
|
Plant
Improvements
|
|
|
8,606 |
|
|
|
10,333 |
|
|
|
17,578 |
|
|
|
36,517 |
|
Other
General Infrastructure Needs
|
|
|
2,169 |
|
|
|
1,194 |
|
|
|
998 |
|
|
|
4,361 |
|
Total
Estimated Capital Expenditures
|
|
$ |
34,333 |
|
|
$ |
23,940 |
|
|
$ |
30,822 |
|
|
$ |
89,095 |
|
* Program to clean and cement
unlined mains in the Middlesex System
The
actual amount and timing of capital expenditures is dependent on customer
growth, residential new home construction and sales and project
scheduling.
To pay
for our capital program in 2010, we plan on utilizing:
|
·
|
Internally
generated funds
|
|
·
|
Proceeds
from an anticipated common stock offering in the second quarter of
2010
|
|
·
|
Proceeds
from the sale of common stock through the
DRP
|
|
·
|
Funds
available and held in trust under existing New Jersey State Revolving Fund
(SRF) loans (currently, $4.1 million) and Delaware SRF loans (currently,
$1.9 million) and, if available, proceeds from 2010 Delaware and New
Jersey SRF programs. The SRF programs provide low cost financing for
projects that meet certain water quality and system improvement
benchmarks.
|
|
·
|
Funds
available under a Tidewater DEPSC approved loan (up to $10.0 million
available through June 30, 2010)
|
|
·
|
Short-term
borrowings, if necessary, through $58.0 million of available lines of
credit with several financial institutions. As of December 31,
2009, we had $42.9 million outstanding against the lines of
credit.
|
Sources
of Liquidity
Short-term
Debt. The Company had established lines of credit aggregating $53.0
million as of December 31, 2009. At December 31, 2009, the outstanding
borrowings under these credit lines were $42.9
million at a weighted average interest rate of 1.53%. In January
2010, the Company increased its available lines of credit to $58.0
million.
The
weighted average daily amounts of borrowings outstanding under the Company’s
credit lines and the weighted average interest rates on those amounts were $40.0
million and $16.4 million at 1.73% and 3.69% for the years ended December 31,
2009 and 2008, respectively.
Long-term Debt.
Subject to regulatory approval, the Company periodically finances capital
projects under SRF loan programs in New Jersey and Delaware. These government
programs provide financing at interest rates that are typically below rates
available in the broader financial markets. A portion of the borrowings under
the New Jersey SRF is interest-free. We participated in the Delaware SRF loan
program during 2009 and expect to participate in the 2010 Delaware SRF program
for up $1.1 million. We will also participate
in the New Jersey SRF program in 2010 for up to $4.0 million.
In March
2009, Tidewater closed on a $22.0 million DEPSC approved loan and immediately
used $7.0 million of the available funds to retire short-term debt. Terms for
the new long-term debt include an interest rate of 6.59%, final maturity in
April 2029 and equal principal payments over the life of the loan. In
June 2009, Tidewater borrowed $5.0 million at a rate of 7.05% with a final
maturity in January 2030 and equal principal payments over the life of the loan.
Tidewater can borrow the remaining $10.0 million in whole or in increments at
its discretion until June 30, 2010, at an interest rate based on market
conditions and with a maximum final maturity date of January 2030.
Substantially
all of the Utility Plant of the Company is subject to the lien of its mortgage,
which includes debt service and capital ratio covenants. The Company is in
compliance with all of its mortgage covenants and restrictions.
Common
Stock. The Company periodically issues shares of common stock in
connection with its DRP. The Company raised $1.3 million through the issuance of
shares under the DRP during 2009. On December 23, 2009, the Company announced a
5% purchase discount for optional cash purchases and reinvested dividends under
the DRP. The discount applies to purchases made by the DRP between
February 1, 2010 and June 1, 2010. As noted above, we anticipate issuing up to
2.0 million shares of common stock in the second quarter of 2010.
Contractual
Obligations
In the
course of normal business activities, the Company enters into a variety of
contractual obligations and commercial commitments. Some of these items result
in direct obligations on the Company’s balance sheet while others are
commitments, some firm and some based on uncertainties, which are disclosed in
the Company’s other underlying consolidated financial
statements.
The table
below presents our known contractual obligations for the periods specified as of
December 31, 2009.
|
|
Payment
Due by Period
|
|
|
|
(Millions
of Dollars)
|
|
|
|
Total
|
|
|
Less than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt
|
|
$ |
128.6 |
|
|
$ |
3.7 |
|
|
$ |
8.1 |
|
|
$ |
8.3 |
|
|
$ |
108.5 |
|
Notes
Payable
|
|
|
42.9 |
|
|
|
42.9 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
on Long-term Debt
|
|
|
95.0 |
|
|
|
6.2 |
|
|
|
12.0 |
|
|
|
11.3 |
|
|
|
65.5 |
|
Purchased
Water Contracts
|
|
|
37.1 |
|
|
|
5.0 |
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
21.9 |
|
Wastewater
Operations
|
|
|
43.4 |
|
|
|
4.3 |
|
|
|
9.0 |
|
|
|
9.5 |
|
|
|
20.6 |
|
Employee
Retirement Plans (1)
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
352.0 |
|
|
$ |
67.1 |
|
|
$ |
34.4 |
|
|
$ |
34.0 |
|
|
$ |
216.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts
are not determinable after one year due to the volatility of factors we
use to determine estimated future contributions to our employee retirement
benefit plans, including market performance, discount rates, long term
rates of return, healthcare cost trend rates, wage increases, participant
eligibility and participant turnover.
|
|
Guarantees
USA-PA
operates the City of Perth Amboy’s (Perth Amboy) water and wastewater systems
under a service contract agreement through June 30, 2018 (the Agreement). Under
the Agreement, USA-PA receives a fixed fee and a variable fee based on increased
system billing.
In
connection with the Agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. In 1998, as part of the Agreement negotiations with Perth Amboy,
Middlesex agreed to guarantee debt service payments on one of those series of
bonds, designated the Series C Serial Bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds. The Series C Serial Bonds have various maturity dates with the final
maturity date on September 1, 2015. As of December 31, 2009, approximately $19.7
million of the Series C Serial Bonds remained outstanding. To date,
Middlesex has not had to fund any debt service obligations as
guarantor.
We are
obligated to perform under the guarantee in the event notice is received from
the Series C Serial Bonds trustee of an impending debt service deficiency. Our
obligation in that case would be to pay scheduled debt service payments as they
come due. If Middlesex funds any debt service obligations as guarantor, there is
a provision in the agreement that requires Perth Amboy to reimburse us. There
are other provisions in the agreement that we believe make it unlikely that we
will be required to perform under the guarantee, such as scheduled annual rate
increases for the water and wastewater services as well as rate increases due to
unforeseen circumstances. In the event revenues from customers could not satisfy
the reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
could be used to raise the needed amount.
Critical
Accounting Policies and Estimates
The
application of accounting policies and standards often requires the use of
estimates, assumptions and judgments. The Company regularly evaluates these
estimates, assumptions and judgments, including those related to the calculation
of pension and postemployment benefits, unbilled revenues, and the
recoverability of certain assets, including regulatory assets. The
Company bases its estimates, assumptions and judgments on historical experience
and current operating environment. Changes in any of the variables
that are used for the Company’s estimates, assumptions and judgments may lead to
significantly different financial statement results.
Our
critical accounting policies are set forth below.
Regulatory
Accounting
We
maintain our books and records in accordance with accounting principles
generally accepted in the United States of America. Middlesex and
certain of its subsidiaries, which account for 88% of Operating Revenues and 98%
of Total Assets, are subject to regulation in the states in which they operate.
Those companies are required to maintain their accounts in accordance with
regulatory authorities’ rules and guidelines, which may differ from other
authoritative accounting pronouncements. In those instances, the Company follows
the guidance in the Financial Accounting Standards Board Accounting Standards
Codification Topic 980 Regulated Operations
(Regulatory Accounting).
In
accordance with Regulatory Accounting, costs and obligations are deferred if it
is probable that these items will be recognized for rate-making purposes in
future rates. Accordingly, we have recorded costs and obligations, which will be
amortized over various future periods. Any change in the assessment of the
probability of rate-making treatment will require us to change the accounting
treatment of the deferred item. We have no reason to believe any of the deferred
items that are recorded will be treated differently by the regulators in the
future.
Revenues
Revenues
from metered customers include amounts billed on a cycle basis and unbilled
amounts estimated from the last meter reading date to the end of the accounting
period. The estimated unbilled amounts are determined by utilizing factors which
include historical consumption usage and current climate and economic
conditions. Differences between estimated revenues and actual billings are
recorded in a subsequent period.
Revenues
from unmetered customers are billed at a fixed tariff rate in advance at the
beginning of each service period and are recognized in revenue ratably over the
service period.
Revenues
from the Perth Amboy management contract are comprised of fixed and variable
fees. Fixed fees, which have been set for the life of the contract, are billed
monthly and recorded as earned. Variable fees, which are based on billings and
other factors and are not material, are recorded upon approval of the amount by
Perth Amboy.
Postemployment
Retirement Benefit Plans
The costs
for providing postemployment retirement benefits are dependent upon numerous
factors, including actual plan experience and assumptions of future
experience. Future postemployment retirement benefit plan obligations
and expense will depend on future investment performance, changes in future
discount rates and
various
other demographic factors related to the population participating in the
Company’s postemployment retirement benefit plans, all of which can change
significantly in future years.
We
maintain a noncontributory defined benefit pension plan (Pension Benefits) which
covers substantially all employees with more than 1,000 hours of service and who
were hired prior to March 31, 2007.
The
Company has a postretirement benefit plan other than pensions (Other Benefits)
for substantially all of its retired employees. Employees hired after March 31,
2007 are not eligible to participate in this plan. Coverage includes healthcare
and life insurance.
The
allocation by asset category of postemployment employee benefit plan assets at
December 31, 2009 and 2008 is as follows:
|
|
Pension Plan
|
|
|
Other Benefits Plan
|
|
|
|
|
|
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Target
|
|
|
Range
|
|
Equity
Securities
|
|
|
59.2 |
% |
|
|
49.5 |
% |
|
|
40.4 |
% |
|
|
25.7 |
% |
|
|
60 |
% |
|
|
30-65 |
% |
Debt
Securities
|
|
|
36.4 |
% |
|
|
47.0 |
% |
|
|
49.5 |
% |
|
|
59.6 |
% |
|
|
38 |
% |
|
|
25-70 |
% |
Cash
|
|
|
4.1 |
% |
|
|
3.5 |
% |
|
|
9.0 |
% |
|
|
14.7 |
% |
|
|
2 |
% |
|
|
0-10 |
% |
Commodities
|
|
|
0.3 |
% |
|
|
- |
% |
|
|
1.1 |
% |
|
|
- |
% |
|
|
2 |
% |
|
|
0 |
% |
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
The
discount rate, compensation increase rate and long-term rate of return utilized
for determining our postemployment employee benefit plans’ future obligations as
of December 31, 2009 are as follows:
|
Pension
Plan
|
Other
Benefits Plan
|
Discount
Rate
|
5.95%
|
5.95%
|
Compensation
Increase
|
3.50%
|
3.50%
|
Long-term
Rate of Return
|
8.00%
|
7.50%
|
For 2009,
costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of
increase in the per capita cost of covered healthcare benefits and assumed a
decline of 1.0% per year through 2012 and 0.5% per year through 2014, resulting
in an annual rate of increase in the per capita cost of covered healthcare
benefits of 5% by year 2014.
The
following is a sensitivity analysis for certain actuarial assumptions used in
determining projected benefit obligations (PBO) and expenses for our
postemployment employee benefit plans:
Pension
Plan
Actuarial
Assumptions
|
Estimated
Increase/
(Decrease)
on
PBO
(000s)
|
Estimated
Increase/
(Decrease)
on
Expense
(000s)
|
Discount
Rate 1% Increase
|
(4,833)
|
(482)
|
Discount
Rate 1% Decrease
|
6,025
|
608
|
Other
Benefits Plan
Actuarial
Assumptions
|
Estimated
Increase/
(Decrease)
on
PBO
(000s)
|
Estimated
Increase/
(Decrease)
on
Expense
(000s)
|
Discount
Rate 1% Increase
|
(3,292)
|
(422)
|
Discount
Rate 1% Decrease
|
4,192
|
577
|
Healthcare
Cost Trend Rate 1% Increase
|
3,540
|
419
|
Healthcare
Cost Trend Rate 1% Decrease
|
(2,833)
|
(323)
|
The
discount rates used at our December 31 measurement date for determining future
postemployment employee benefit plans’ obligations and costs are determined
based on market rates for long-term, high-quality corporate bonds specific to
our Pension Plan and Other Benefits Plan’s asset allocation. The expected
long-term rate of return for Pension Plan and Other Benefits Plan assets is
determined based on historical returns and our asset allocation.
Recent
Accounting Standards
See Note
1(n) of the Notes to Consolidated Financial Statements for a discussion of
recent accounting pronouncements.
|
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 final maturity dates ranging from 2018 to
2038. Over the next twelve months, approximately $3.7 million of the
current portion of 26 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 our earnings.
|
Financial
Statements and Supplementary Data.
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Middlesex
Water Company
We have
audited the accompanying consolidated balance sheets and consolidated statements
of capital stock and long-term debt of Middlesex Water Company and subsidiaries
(the “Company”) as of December 31, 2009 and 2008, and the
related consolidated statements of income, common stockholders’ equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2009. The Company’s management is responsible for
these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2009 in conformity
with accounting principles generally accepted in the United States of
America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Middlesex Water Company’s internal control
over financial reporting as of December 31, 2009, based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 8, 2010 expressed an
unqualified opinion.
/s/
ParenteBeard LLC
|
Reading,
Pennsylvania
|
March
8, 2010
|
MIDDLESEX
WATER COMPANY
|
|
CONSOLIDATED BALANCE
SHEETS
|
|
(In
thousands)
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
ASSETS
|
|
|
|
2009
|
|
|
2008
|
|
UTILITY
PLANT:
|
|
Water
Production
|
|
$ |
113,124 |
|
|
$ |
107,517 |
|
|
|
Transmission
and Distribution
|
|
|
293,269 |
|
|
|
283,759 |
|
|
|
General
|
|
|
29,631 |
|
|
|
27,142 |
|
|
|
Construction
Work in Progress
|
|
|
17,547 |
|
|
|
11,653 |
|
|
|
TOTAL
|
|
|
453,571 |
|
|
|
430,071 |
|
|
|
Less
Accumulated Depreciation
|
|
|
77,027 |
|
|
|
70,544 |
|
|
|
UTILITY
PLANT - NET
|
|
|
376,544 |
|
|
|
359,527 |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
Cash
and Cash Equivalents
|
|
|
4,278 |
|
|
|
3,288 |
|
|
|
Accounts
Receivable, net
|
|
|
10,616 |
|
|
|
9,510 |
|
|
|
Unbilled
Revenues
|
|
|
4,424 |
|
|
|
4,822 |
|
|
|
Materials
and Supplies (at average cost)
|
|
|
1,618 |
|
|
|
1,475 |
|
|
|
Prepayments
|
|
|
1,109 |
|
|
|
1,481 |
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
22,045 |
|
|
|
20,576 |
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
CHARGES
|
|
Unamortized
Debt Expense
|
|
|
2,856 |
|
|
|
2,903 |
|
AND
OTHER ASSETS:
|
|
Preliminary
Survey and Investigation Charges
|
|
|
6,999 |
|
|
|
7,187 |
|
|
|
Regulatory
Assets
|
|
|
33,081 |
|
|
|
31,910 |
|
|
|
Operations
Contracts Fees Receivable
|
|
|
3,715 |
|
|
|
3,708 |
|
|
|
Restricted
Cash
|
|
|
5,266 |
|
|
|
7,049 |
|
|
|
Non-utility
Assets - Net
|
|
|
7,134 |
|
|
|
6,762 |
|
|
|
Other
|
|
|
446 |
|
|
|
378 |
|
|
|
TOTAL
DEFERRED CHARGES AND OTHER ASSETS
|
|
|
59,497 |
|
|
|
59,897 |
|
|
|
TOTAL
ASSETS
|
|
$ |
458,086 |
|
|
$ |
440,000 |
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
|
CAPITALIZATION:
|
|
Common
Stock, No Par Value
|
|
$ |
109,366 |
|
|
$ |
107,726 |
|
|
|
Retained
Earnings
|
|
|
30,265 |
|
|
|
30,077 |
|
|
|
TOTAL
COMMON EQUITY
|
|
|
139,631 |
|
|
|
137,803 |
|
|
|
Preferred
Stock
|
|
|
3,373 |
|
|
|
3,375 |
|
|
|
Long-term
Debt
|
|
|
124,910 |
|
|
|
118,217 |
|
|
|
TOTAL
CAPITALIZATION
|
|
|
267,914 |
|
|
|
259,395 |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
|
|
Current
Portion of Long-term Debt
|
|
|
3,710 |
|
|
|
17,985 |
|
LIABILITIES:
|
|
Notes
Payable
|
|
|
42,850 |
|
|
|
25,877 |
|
|
|
Accounts
Payable
|
|
|
4,348 |
|
|
|
5,689 |
|
|
|
Accrued
Taxes
|
|
|
5,686 |
|
|
|
7,781 |
|
|
|
Accrued
Interest
|
|
|
1,861 |
|
|
|
2,053 |
|
|
|
Unearned
Revenues and Advanced Service Fees
|
|
|
861 |
|
|
|
842 |
|
|
|
Other
|
|
|
1,352 |
|
|
|
1,243 |
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
60,668 |
|
|
|
61,470 |
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
CREDITS
|
|
Customer
Advances for Construction
|
|
|
20,806 |
|
|
|
22,089 |
|
AND
OTHER LIABILITIES:
|
|
Accumulated
Deferred Investment Tax Credits
|
|
|
1,303 |
|
|
|
1,382 |
|
|
|
Accumulated
Deferred Income Taxes
|
|
|
27,788 |
|
|
|
21,733 |
|
|
|
Employee
Benefit Plans
|
|
|
25,723 |
|
|
|
25,540 |
|
|
|
Regulatory
Liability - Cost of Utility Plant Removal
|
|
|
6,738 |
|
|
|
6,197 |
|
|
|
Other
|
|
|
275 |
|
|
|
963 |
|
|
|
TOTAL
DEFERRED CREDITS AND OTHER LIABILITIES
|
|
|
82,633 |
|
|
|
77,904 |
|
|
|
|
|
|
|
|
|
|
|
|
CONTRIBUTIONS
IN AID OF CONSTRUCTION
|
|
|
|
|
46,871 |
|
|
|
41,231 |
|
|
|
TOTAL
CAPITALIZATION AND LIABILITIES
|
|
$ |
458,086 |
|
|
$ |
440,000 |
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
MIDDLESEX
WATER COMPANY
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(In
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
$ |
91,243 |
|
|
$ |
91,038 |
|
|
$ |
86,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
47,770 |
|
|
|
44,782 |
|
|
|
42,117 |
|
Maintenance
|
|
|
4,578 |
|
|
|
4,147 |
|
|
|
4,123 |
|
Depreciation
|
|
|
8,559 |
|
|
|
7,922 |
|
|
|
7,539 |
|
Other Taxes
|
|
|
10,175 |
|
|
|
10,168 |
|
|
|
9,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
71,082 |
|
|
|
67,019 |
|
|
|
63,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
20,161 |
|
|
|
24,019 |
|
|
|
22,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Funds Used During Construction
|
|
|
1,001 |
|
|
|
667 |
|
|
|
537 |
|
Other
Income
|
|
|
1,011 |
|
|
|
906 |
|
|
|
1,153 |
|
Other Expense
|
|
|
(286 |
) |
|
|
(271 |
) |
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income, net
|
|
|
1,726 |
|
|
|
1,302 |
|
|
|
1,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Charges
|
|
|
6,750 |
|
|
|
7,057 |
|
|
|
6,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes
|
|
|
15,137 |
|
|
|
18,264 |
|
|
|
17,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
|
5,160 |
|
|
|
6,056 |
|
|
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
9,977 |
|
|
|
12,208 |
|
|
|
11,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Dividend
Requirements
|
|
|
208 |
|
|
|
218 |
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Applicable to Common
Stock
|
|
$ |
9,769 |
|
|
$ |
11,990 |
|
|
$ |
11,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.73 |
|
|
$ |
0.90 |
|
|
$ |
0.88 |
|
Diluted
|
|
$ |
0.72 |
|
|
$ |
0.89 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding :
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,454 |
|
|
|
13,317 |
|
|
|
13,203 |
|
Diluted
|
|
|
13,716 |
|
|
|
13,615 |
|
|
|
13,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Paid per Common Share
|
|
$ |
0.713 |
|
|
$ |
0.703 |
|
|
$ |
0.693 |
|
See Notes
to Consolidated Financial Statements.
MIDDLESEX
WATER COMPANY
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
9,977 |
|
|
$ |
12,208 |
|
|
$ |
11,843 |
|
Adjustments
to Reconcile Net Income to
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
9,217 |
|
|
|
8,530 |
|
|
|
8,176 |
|
Provision
for Deferred Income Taxes and ITC
|
|
|
5,522 |
|
|
|
1,032 |
|
|
|
399 |
|
Equity
Portion of AFUDC
|
|
|
(580 |
) |
|
|
(348 |
) |
|
|
(255 |
) |
Cash
Surrender Value of Life Insurance
|
|
|
(387 |
) |
|
|
576 |
|
|
|
(271 |
) |
Gain
on Disposal of Equity Investments
|
|
|
- |
|
|
|
(86 |
) |
|
|
- |
|
Gain
on Sale of Real Estate
|
|
|
- |
|
|
|
- |
|
|
|
(267 |
) |
Stock
Compensation Expense
|
|
|
386 |
|
|
|
288 |
|
|
|
273 |
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(1,112 |
) |
|
|
(807 |
) |
|
|
(2,752 |
) |
Unbilled
Revenues
|
|
|
398 |
|
|
|
(213 |
) |
|
|
(596 |
) |
Materials
& Supplies
|
|
|
(143 |
) |
|
|
(270 |
) |
|
|
101 |
|
Prepayments
|
|
|
372 |
|
|
|
(118 |
) |
|
|
(134 |
) |
Other
Assets
|
|
|
(564 |
) |
|
|
(351 |
) |
|
|
(9 |
) |
Accounts
Payable
|
|
|
(1,341 |
) |
|
|
147 |
|
|
|
986 |
|
Accrued
Taxes
|
|
|
(2,096 |
) |
|
|
206 |
|
|
|
941 |
|
Accrued
Interest
|
|
|
(192 |
) |
|
|
137 |
|
|
|
36 |
|
Employee
Benefit Plans
|
|
|
(354 |
) |
|
|
(1,146 |
) |
|
|
239 |
|
Unearned
Revenue & Advanced Service Fees
|
|
|
19 |
|
|
|
84 |
|
|
|
157 |
|
Other
Liabilities
|
|