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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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(Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 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
(Exact name of registrant as specified in its charter)
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New Jersey 22-1114430
(State of incorporation) (IRS employer identification no.)
1500 Ronson Road, Iselin, NJ 08830(Address
(Address of principal executive offices, including zip code)
(732) 634-1500(Registrant’s
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):
Yes |X| No |_|
The number of shares outstanding of each of the registrant’sregistrant's classes of common
stock, as of October 29, 2004:May 2, 2005: Common Stock, No Par Value: 11,344,17211,380,682 shares
outstanding.
INDEX
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MIDDLESEX
MIDDLESEX WATER COMPANY
COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Twelve Months Ended September 30, |
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| 2004 |
| 2003 |
| 2004 |
| 2003 |
| 2004 |
| 2003 |
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Operating Revenues |
| $ | 19,856,688 |
| $ | 17,585,575 |
| $ | 53,502,334 |
| $ | 48,564,914 |
| $ | 69,048,634 |
| $ | 63,759,946 |
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Operating Expenses: |
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| Operations |
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| 9,193,804 |
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| 8,687,828 |
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| 27,455,475 |
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| 24,292,699 |
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| 35,828,875 |
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| 31,478,131 |
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| Maintenance |
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| 759,352 |
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| 830,877 |
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| 2,430,319 |
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| 2,612,556 |
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| 3,346,876 |
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| 3,457,835 |
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| Depreciation |
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| 1,467,523 |
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| 1,342,059 |
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| 4,353,222 |
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| 3,960,856 |
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| 5,755,093 |
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| 5,242,946 |
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| Other Taxes |
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| 2,224,028 |
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| 2,081,210 |
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| 6,195,329 |
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| 5,950,472 |
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| 8,060,775 |
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| 7,854,295 |
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| Income Taxes |
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| 1,714,802 |
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| 1,143,264 |
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| 3,240,804 |
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| 2,764,542 |
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| 3,713,480 |
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| 3,592,126 |
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| Total Operating Expenses |
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| 15,359,509 |
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| 14,085,238 |
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| 43,675,149 |
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| 39,581,125 |
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| 56,705,099 |
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| 51,625,333 |
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| Operating Income |
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| 4,497,179 |
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| 3,500,337 |
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| 9,827,185 |
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| 8,983,789 |
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| 12,343,535 |
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| 12,134,613 |
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Other Income: |
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| Allowance for Funds Used During Construction |
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| 179,173 |
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| 95,448 |
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| 309,455 |
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| 253,253 |
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| 372,121 |
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| 336,482 |
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| Other Income |
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| 33,418 |
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| 41,705 |
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| 170,983 |
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| 83,896 |
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| 218,586 |
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| 199,144 |
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| Other Expense |
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| (85 | ) |
| (984 | ) |
| (29,761 | ) |
| (68,708 | ) |
| (50,984 | ) |
| (122,367 | ) | ||
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| Total Other Income, net |
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| 212,506 |
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| 136,169 |
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| 450,677 |
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| 268,441 |
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| 539,723 |
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| 413,259 |
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Interest Charges |
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| 1,347,475 |
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| 1,243,888 |
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| 3,991,681 |
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| 3,830,926 |
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| 5,387,785 |
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| 5,099,090 |
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Net Income |
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| 3,362,210 |
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| 2,392,618 |
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| 6,286,181 |
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| 5,421,304 |
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| 7,495,473 |
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| 7,448,782 |
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Preferred Stock Dividend Requirements |
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| 63,697 |
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| 63,697 |
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| 191,090 |
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| 191,090 |
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| 254,786 |
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| 254,786 |
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Earnings Applicable to Common Stock |
| $ | 3,298,513 |
| $ | 2,328,921 |
| $ | 6,095,091 |
| $ | 5,230,214 |
| $ | 7,240,687 |
| $ | 7,193,996 |
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Earnings per share of Common Stock: |
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| Basic |
| $ | 0.29 |
| $ | 0.22 |
| $ | 0.55 |
| $ | 0.50 |
| $ | 0.67 |
| $ | 0.69 |
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| Diluted |
| $ | 0.29 |
| $ | 0.22 |
| $ | 0.55 |
| $ | 0.50 |
| $ | 0.66 |
| $ | 0.68 |
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Average Number of |
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| Common Shares Outstanding : |
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| Basic |
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| 11,316,768 |
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| 10,505,517 |
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| 10,989,209 |
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| 10,448,226 |
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| 10,880,220 |
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| 10,472,573 |
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| Diluted |
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| 11,659,908 |
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| 10,848,657 |
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| 11,332,349 |
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| 10,791,366 |
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| 11,223,360 |
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| 10,815,713 |
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Cash Dividends Paid per Common Share |
| $ | 0.1650 |
| $ | 0.1613 |
| $ | 0.4950 |
| $ | 0.4839 |
| $ | 0.6600 |
| $ | 0.6452 |
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Three Months Ended March 31, 2005 2004 =========================== Operating Revenues $16,742,903 $15,875,733 --------------------------- Operating Expenses: Operations 9,041,996 8,904,091 Maintenance 898,685 862,508 Depreciation 1,548,048 1,436,230 Other Taxes 2,083,134 1,945,194 Income Taxes 666,770 507,359 --------------------------- Total Operating Expenses 14,238,633 13,655,382 --------------------------- Operating Income 2,504,270 2,220,351 Other Income: Allowance for Funds Used During Construction 210,450 49,561 Other Income 55,219 19,806 Other Expense (8,145) (3,236) --------------------------- Total Other Income, net 257,524 66,131 Interest Charges 1,382,092 1,252,842 --------------------------- Net Income 1,379,702 1,033,640 Preferred Stock Dividend Requirements 63,697 63,697 --------------------------- Earnings Applicable to Common Stock $ 1,316,005 $ 969,943 --------------------------- Earnings per share of Common Stock: Basic $ 0.12 $ 0.09 Diluted $ 0.12 $ 0.09 Average Number of Common Shares Outstanding : Basic 11,367,475 10,579,095 Diluted 11,710,615 10,922,235 Cash Dividends Paid per Common Share $ 0.1675 $ 0.1650 See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| September 30, |
| December 31, |
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ASSETS |
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UTILITY PLANT: | Water Production |
| $ | 79,388,120 |
| $ | 77,265,782 |
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| Transmission and Distribution |
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| 178,501,289 |
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| 174,455,437 |
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| General |
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| 20,061,010 |
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| 19,776,293 |
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| Construction Work in Progress |
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| 16,517,777 |
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| 2,798,070 |
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| TOTAL |
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| 294,468,196 |
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| 274,295,582 |
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| Less Accumulated Depreciation |
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| 50,782,036 |
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| 47,510,797 |
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| UTILITY PLANT - NET |
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| 243,686,160 |
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| 226,784,785 |
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| NONUTILITY ASSETS - NET |
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| 4,337,165 |
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| 4,147,685 |
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CURRENT ASSETS: | Cash and Cash Equivalents |
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| 2,601,686 |
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| 3,005,610 |
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| Accounts Receivable |
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| 7,180,976 |
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| 5,682,608 |
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| Unbilled Revenues |
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| 4,124,599 |
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| 3,234,788 |
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| Materials and Supplies (at average cost) |
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| 1,594,800 |
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| 1,419,142 |
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| Prepayments |
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| 1,035,892 |
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| 1,009,304 |
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| TOTAL CURRENT ASSETS |
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| 16,537,953 |
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| 14,351,452 |
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DEFERRED CHARGES | Unamortized Debt Expense |
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| 3,166,448 |
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| 3,272,783 |
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Preliminary Survey and Investigation Charges |
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| 882,065 |
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| 1,380,771 |
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| Regulatory Assets |
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| 8,655,119 |
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| 8,216,117 |
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| Operations Contracts Fees Receivable |
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| 699,806 |
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| 699,806 |
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| Restricted Cash |
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| 1,437,163 |
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| 3,825,420 |
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| Other |
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| 545,272 |
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| 513,116 |
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| TOTAL DEFERRED CHARGES AND OTHER ASSETS |
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| 15,385,873 |
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| 17,908,013 |
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| TOTAL ASSETS |
| $ | 279,947,151 |
| $ | 263,191,935 |
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CAPITALIZATION AND LIABILITIES |
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CAPITALIZATION: | Common Stock, No Par Value |
| $ | 71,583,902 |
| $ | 56,924,028 |
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| Retained Earnings |
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| 22,908,761 |
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| 22,668,348 |
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| Accumulated Other Comprehensive Income, net of tax |
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| 35,904 |
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| 50,808 |
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| TOTAL COMMON EQUITY |
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| 94,528,567 |
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| 79,643,184 |
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| Preferred Stock |
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| 4,063,062 |
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| 4,063,062 |
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| Long-term Debt |
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| 100,277,424 |
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| 97,376,847 |
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| TOTAL CAPITALIZATION |
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| 198,869,053 |
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| 181,083,093 |
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CURRENT | Current Portion of Long-term Debt |
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| 1,089,578 |
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| 1,067,258 |
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Notes Payable |
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| 6,000,000 |
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| 12,500,000 |
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| Accounts Payable |
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| 7,408,853 |
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| 4,777,400 |
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| Taxes Accrued |
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| 7,863,080 |
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| 6,258,739 |
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| Interest Accrued |
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| 711,915 |
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| 1,810,639 |
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| Unearned Revenues and Advanced Service Fees |
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| 744,851 |
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| 602,854 |
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| Other |
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| 815,683 |
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| 678,596 |
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| TOTAL CURRENT LIABILITIES |
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| 24,633,960 |
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| 27,695,486 |
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COMMITMENTS AND CONTINGENT LIABILITIES (Note 6) |
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DEFERRED CREDITS: | Customer Advances for Construction |
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| 12,275,493 |
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| 11,711,846 |
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| Accumulated Deferred Investment Tax Credits |
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| 1,716,220 |
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| 1,775,183 |
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| Accumulated Deferred Income Taxes |
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| 14,617,451 |
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| 14,125,970 |
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| Employee Benefit Plans |
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| 5,252,701 |
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| 5,086,988 |
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| Regulatory Liability - Cost of Utility Plant Removal |
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| 5,234,354 |
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| 4,830,308 |
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| Other |
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| 861,444 |
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| 909,498 |
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| TOTAL DEFERRED CREDITS |
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| 39,957,663 |
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| 38,439,793 |
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CONTRIBUTIONS IN AID OF CONSTRUCTION |
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| 16,486,475 |
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| 15,973,563 |
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| TOTAL CAPITALIZATION AND LIABILITIES |
| $ | 279,947,151 |
| $ | 263,191,935 |
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MIDDLESEX
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FLOWS
(Unaudited)
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| Nine Months Ended September 30, |
| Twelve Months Ended September 30, |
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| 2004 |
| 2003 |
| 2004 |
| 2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Income |
| $ | 6,286,181 |
| $ | 5,421,304 |
| $ | 7,495,473 |
| $ | 7,448,782 |
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Adjustments to Reconcile Net Income to |
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| Net Cash Provided by Operating Activities: |
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| Depreciation and Amortization |
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| 4,735,468 |
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| 4,288,489 |
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| 6,080,842 |
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| 5,755,882 |
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| Provision for Deferred Income Taxes |
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| 182,178 |
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| 231,330 |
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| 257,767 |
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| 390,279 |
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| Allowance for Funds Used During Construction |
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| (309,455 | ) |
| (253,253 | ) |
| (372,121 | ) |
| (336,482 | ) | |||
| Changes in Assets and Liabilities: |
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| Accounts Receivable |
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| (1,498,368 | ) |
| (739,938 | ) |
| (412,736 | ) |
| 94,629 |
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| Unbilled Revenues |
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| (889,811 | ) |
| (690,448 | ) |
| (253,060 | ) |
| (445,748 | ) | |||
| Materials & Supplies |
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| (175,658 | ) |
| (137,097 | ) |
| (267,366 | ) |
| (193,632 | ) | |||
| Prepayments |
|
| (26,588 | ) |
| (334,983 | ) |
| 114,483 |
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| (62,000 | ) | |||
| Other Assets |
|
| (479,433 | ) |
| (655,528 | ) |
| 451,897 |
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| (827,383 | ) | |||
| Operations Contracts Receivable |
|
| — |
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| — |
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| (699,806 | ) |
| — |
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| Accounts Payable |
|
| 2,631,453 |
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| 1,172,965 |
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| 3,718,919 |
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| 998,840 |
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| Accrued Taxes |
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| 1,612,018 |
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| 930,136 |
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| 1,015,697 |
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| (76,575 | ) | |||
| Accrued Interest |
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| (1,098,724 | ) |
| (875,333 | ) |
| (27,030 | ) |
| 45,723 |
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| Employee Benefit Plans |
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| 165,713 |
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| (290,201 | ) |
| 263,165 |
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| (156,753 | ) | |||
| Unearned Revenue & Advanced Service Fees |
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| 141,997 |
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| (137,555 | ) |
| 465,817 |
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| (147,636 | ) | |||
| Other Liabilities |
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| 89,033 |
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| 689,285 |
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| (836,683 | ) |
| 132,147 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
| 11,366,004 |
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| 8,619,173 |
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| 16,995,258 |
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| 12,620,073 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Utility Plant Expenditures* |
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| (20,629,121 | ) |
| (13,121,493 | ) |
| (27,081,833 | ) |
| (16,789,966 | ) | |||
| Cash Surrender Value & Other Investments |
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| (123,714 | ) |
| — |
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| (590,004 | ) |
| (4,438 | ) | |||
| Restricted Cash |
|
| 2,388,257 |
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| 1,254,887 |
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| 3,454,528 |
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| 2,933,258 |
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| Investment in Associated Companies |
|
| — |
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| — |
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| — |
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| (20,618 | ) | |||
| Proceeds from Real Estate Dispositions |
|
| — |
|
| 344,972 |
|
| 187,950 |
|
| 344,972 |
| |||
| Preliminary Survey & Investigation Charges |
|
| 498,706 |
|
| (645,659 | ) |
| 862,062 |
|
| (863,174 | ) | |||
| Other Assets |
|
| — |
|
| (169,003 | ) |
| 121,739 |
|
| (229,301 | ) | |||
|
|
|
|
|
| ||||||||||||
NET CASH USED IN INVESTING ACTIVITIES |
|
| (17,865,872 | ) |
| (12,336,296 | ) |
| (23,045,558 | ) |
| (14,629,267 | ) | ||||
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Redemption of Long-term Debt |
|
| (943,353 | ) |
| (762,143 | ) |
| (1,065,637 | ) |
| (777,944 | ) | |||
| Proceeds from Issuance of Long-term Debt |
|
| 3,866,250 |
|
| 11,155,568 |
|
| 3,916,405 |
|
| 11,156,853 |
| |||
| Net Short-term Bank Borrowings (Repayments) |
|
| (6,500,000 | ) |
| (5,150,000 | ) |
| (6,500,000 | ) |
| (4,750,000 | ) | |||
| Deferred Debt Issuance Expenses |
|
| (17,618 | ) |
| (196,935 | ) |
| (15,167 | ) |
| (206,195 | ) | |||
| Common Stock Issuance Expense |
|
| (379,532 | ) |
| — |
|
| (482,816 | ) |
| (3,688 | ) | |||
| Restricted Cash |
|
| — |
|
| 132 |
|
| (11 | ) |
| 132 |
| |||
| Proceeds from Issuance of Common Stock |
|
| 14,659,874 |
|
| 2,980,026 |
|
| 15,289,707 |
|
| 3,353,942 |
| |||
| Payment of Common Dividends |
|
| (5,475,146 | ) |
| (5,050,066 | ) |
| (7,216,334 | ) |
| (6,717,698 | ) | |||
| Payment of Preferred Dividends |
|
| (191,090 | ) |
| (191,090 | ) |
| (254,786 | ) |
| (254,786 | ) | |||
| Construction Advances and Contributions-Net |
|
| 1,076,559 |
|
| 968,685 |
|
| 2,005,677 |
|
| 1,406,449 |
| |||
|
|
|
|
|
| ||||||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
| 6,095,944 |
|
| 3,754,177 |
|
| 5,677,038 |
|
| 3,207,065 |
| ||||
|
|
|
|
|
| ||||||||||||
NET CHANGES IN CASH AND CASH EQUIVALENTS |
|
| (403,924 | ) |
| 37,054 |
|
| (373,262 | ) |
| 1,197,871 |
| ||||
|
|
|
|
|
| ||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
| 3,005,610 |
|
| 2,937,894 |
|
| 2,974,948 |
|
| 1,777,077 |
| ||||
|
|
|
|
|
| ||||||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
| $ | 2,601,686 |
| $ | 2,974,948 |
| $ | 2,601,686 |
| $ | 2,974,948 |
| ||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
*Excludes Allowance for Funds Used During Construction. |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cash Paid During the Year for: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Cash Paid for Interest |
| $ | 5,090,405 |
| $ | 4,764,452 |
| $ | 5,387,831 |
| $ | 4,929,207 |
| |||
| Interest Capitalized |
| $ | (309,455 | ) | $ | (253,253 | ) | $ | (372,121 | ) | $ | (336,482 | ) | |||
| Income Taxes |
| $ | 1,755,500 |
| $ | 1,615,000 |
| $ | 2,612,500 |
| $ | 3,122,500 |
| |||
|
|
|
|
|
| ||||||||||||
MIDDLESEX
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
DEBT
(Unaudited)
|
| September 30, |
| December 31, |
| |||||||
|
|
|
| |||||||||
Common Stock, No Par Value |
|
|
|
|
|
|
| |||||
| Shares Authorized - 20,000,000 |
|
|
|
|
|
|
| ||||
| Shares Outstanding - 2004 - 11,327,237 |
| $ | 71,583,902 |
| $ | 56,924,028 |
| ||||
2003 - 10,566,937 |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| |||||
Retained Earnings |
|
| 22,908,761 |
|
| 22,668,348 |
| |||||
Accumulated Other Comprehensive Income, net of tax |
|
| 35,904 |
|
| 50,808 |
| |||||
|
|
|
| |||||||||
| TOTAL COMMON EQUITY |
|
| 94,528,567 |
|
| 79,643,184 |
| ||||
|
|
|
| |||||||||
|
|
|
|
|
|
|
| |||||
Cumulative Preference Stock, No Par Value: |
|
|
|
|
|
|
| |||||
| Shares Authorized - 100,000 |
|
|
|
|
|
|
| ||||
| Shares Outstanding - None |
|
|
|
|
|
|
| ||||
Cumulative Preferred Stock, No Par Value |
|
|
|
|
|
|
| |||||
| Shares Authorized - 140,497 |
|
|
|
|
|
|
| ||||
| Convertible: |
|
|
|
|
|
|
| ||||
| Shares Outstanding, $7.00 Series - 14,881 |
|
| 1,562,505 |
|
| 1,562,505 |
| ||||
| Shares Outstanding, $8.00 Series - 12,000 |
|
| 1,398,857 |
|
| 1,398,857 |
| ||||
| Nonredeemable: |
|
|
|
|
|
|
| ||||
| Shares Outstanding, $7.00 Series - 1,017 |
|
| 101,700 |
|
| 101,700 |
| ||||
| Shares Outstanding, $4.75 Series - 10,000 |
|
| 1,000,000 |
|
| 1,000,000 |
| ||||
|
|
|
| |||||||||
| TOTAL PREFERRED STOCK |
|
| 4,063,062 |
|
| 4,063,062 |
| ||||
|
|
|
| |||||||||
|
|
|
|
|
|
|
| |||||
Long-term Debt |
|
|
|
|
|
|
| |||||
| 8.05%, Amortizing Secured Note, due December 20, 2021 |
|
| 3,082,294 |
|
| 3,136,531 |
| ||||
| 6.25%, Amortizing Secured Note, due May 22, 2028 |
|
| 9,940,000 |
|
| 10,255,000 |
| ||||
| 4.22%, State Revolving Trust Note, due December 31, 2022 |
|
| 374,775 |
|
| 192,281 |
| ||||
| 3.60%, State Revolving Trust Note, due May 1, 2025 |
|
| 2,348,316 |
|
| 580,792 |
| ||||
| 4.00%, State Revolving Trust Bond, due September 1, 2021 |
|
| 790,000 |
|
| 820,000 |
| ||||
| 0.00%, State Revolving Fund Bond, due September 1, 2021 |
|
| 652,306 |
|
| 690,833 |
| ||||
| 0.00%, State Revolving Fund Note, due September 1, 2025 |
|
| 1,916,232 |
|
| — |
| ||||
| First Mortgage Bonds: |
|
|
|
|
|
|
| ||||
| 5.20%, Series S, due October 1, 2022 |
|
| 12,000,000 |
|
| 12,000,000 |
| ||||
| 5.25%, Series T, due October 1, 2023 |
|
| 6,500,000 |
|
| 6,500,000 |
| ||||
| 6.40%, Series U, due February 1, 2009 |
|
| 15,000,000 |
|
| 15,000,000 |
| ||||
| 5.25%, Series V, due February 1, 2029 |
|
| 10,000,000 |
|
| 10,000,000 |
| ||||
| 5.35%, Series W, due February 1, 2038 |
|
| 23,000,000 |
|
| 23,000,000 |
| ||||
| 0.00%, Series X, due September 1, 2018 |
|
| 755,006 |
|
| 807,956 |
| ||||
| 4.25%, Series Y, due September 1, 2018 |
|
| 920,000 |
|
| 965,000 |
| ||||
| 0.00%, Series Z, due September 1, 2019 |
|
| 1,679,979 |
|
| 1,792,435 |
| ||||
| 5.25%, Series AA, due September 1, 2019 |
|
| 2,085,000 |
|
| 2,175,000 |
| ||||
| 0.00%, Series BB, due September 1, 2021 |
|
| 2,048,094 |
|
| 2,168,277 |
| ||||
| 4.00%, Series CC, due September 1, 2021 |
|
| 2,275,000 |
|
| 2,360,000 |
| ||||
| 5.10%, Series DD, due January 1, 2032 |
|
| 6,000,000 |
|
| 6,000,000 |
| ||||
|
|
|
| |||||||||
| SUBTOTAL LONG-TERM DEBT |
|
| 101,367,002 |
|
| 98,444,105 |
| ||||
|
|
|
| |||||||||
| Less: Current Portion of Long-term Debt |
|
| (1,089,578 | ) |
| (1,067,258 | ) | ||||
|
|
|
| |||||||||
| TOTAL LONG-TERM DEBT |
| $ | 100,277,424 |
| $ | 97,376,847 |
| ||||
|
|
|
| |||||||||
MIDDLESEX WATER COMPANYCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| Twelve Months Ended |
| |||||||||||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| |||||||
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income |
| $ | 3,362,210 |
| $ | 2,392,618 |
| $ | 6,286,181 |
| $ | 5,421,304 |
| $ | 7,495,473 |
| $ | 7,448,782 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in Value of Equity Investments, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net of Income Tax |
|
| (11,703 | ) |
| — |
|
| (14,904 | ) |
| — |
|
| 35,904 |
|
| — |
| |
|
|
|
|
|
|
|
| |||||||||||||
| Other Comprehensive Income |
|
| (11,703 | ) |
| — |
|
| (14,904 | ) |
| — |
|
| 35,904 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |||||||||||||
Comprehensive Income |
| $ | 3,350,507 |
| $ | 2,392,618 |
| $ | 6,271,277 |
| $ | 5,421,304 |
| $ | 7,531,377 |
| $ | 7,448,782 |
| |
|
|
|
|
|
|
|
| |||||||||||||
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 –- Summary of Significant Accounting Policies
Organization –- Middlesex Water Company (Middlesex or the Company)(Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Tidewater
Environmental Services, Inc. (TESI), 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) and Bayview Water Company. Southern Shores Water
Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc.
(White Marsh) are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly owned subsidiaries (the Company) are
reported on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
The consolidated notes within the 20032004 Form 10-K/A-210-K are applicable to these
financial statements and, in the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of September 30, 2004March 31, 2005 and the
results of operations for the three nine, and twelve month periods ended September 30,March 31, 2005 and 2004, and 2003,
and cash flows for the nine and twelvethree month periods ended September 30, 2004March 31, 2005 and 2003.2004.
Information included in the Balance Sheet as of December 31, 2003,2004, has been
derived from the Company’sCompany's audited financial statements for the year ended
December 31, 2003. Certain reclassifications of prior period data have been made to conform with current presentation.
2004.
Recent Accounting Pronouncements - In MayDecember 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No.123(R) "Share-Based Payment" (SFAS 123(R)), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees". The Statement requires that
the cost resulting from all share-based payment transactions be recognized in
the financial statements. The Statement also establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement method in
accounting for share-based payment transactions with employees, except for
equity instruments held by employee share ownership plans. This statement was
originally effective for quarters beginning after June 15, 2005, however on
April 14, 2005, the Securities and Exchange Commission adopted a rule which
makes the provisions of SFAS 123(R) effective for fiscal periods beginning after
June 15, 2005 (January 1, 2006 for the Company). The Company currently
recognizes compensation expense at fair value for stock-based payment awards in
accordance with SFAS No. 123 "Accounting for Stock-Based Compensation," and does
not anticipate adoption of this standard will have a material impact on its
financial position, results of operations, or cash flows.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29 (SFAS 153). SFAS 153 addresses the
measurement of exchanges of nonmonetary assets and redefines the scope of
transactions that should be measured based on the fair value of the assets
exchanged. SFAS 153 is effective for nonmonetary asset exchanges occurring in
quarters beginning after June 15, 2005. The Company does not anticipate adoption
of this standard will have a material impact on its financial position, results
of operations, or cash flows.
In May 2004, the FASB issued FASB Staff Position (FSP) 106-2, “Accounting"Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003”2003" (FSP 106-2). FSP 106-2 provides guidance on the
accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Medicare Drug Act) for employers who sponsor
postretirement health care plans that provide prescription drug benefits. FSP
106-2 also requires those employers to provide certain disclosures
5
“actuarially equivalent”"actuarially equivalent" to the benefits of
Medicare Part D to be eligible for a non-taxable federal subsidy. FSP 106-2 is
effective for the first interim or annual period beginning after June 15, 2004.
FSP 106-2 provides that if the effect of the Medicare Drug Act is not considered
a significant event, the measurement date for the adoption of FSP 106-2 is
delayed until the next regular measurement date. Based on Management's
discussions with its Actuary, Management determined the effect of the Medicare
Drug Act is not considered a significant event and thus the Company will accountaccounted
for the effects of FSP 106-2 at its next measurement date (January 1, 2005). The
adoption of FSP 106-2 willdid not have a material effect on the Company’sCompany's financial
statements.
In March 2004, the Emerging Issues Task Force (EITF) reached consensus on EITF
No. 03-1, “The"The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments”Investments" (EITF 03-1). EITF 03-1 further defines the meaning of an
“other-than-temporary impairment”"other-than-temporary impairment" and its application to debt and equity
securities. Impairment occurs when the fair value of a security is less than its
cost basis. When such a condition exists, the investor is required to evaluate
whether the impairment is other-than-temporary as defined in EITF 03-1. When an
impairment is other-than-temporary, the security must be written down to its
fair value. EITF 03-1 also requires additional annual quantitative and
qualitative disclosures for available for sale and held to maturity impaired
investments that are not other-than temporarily impaired. On September 30, 2004,
the FASB issued FSP EITF 03-1-1, “Effective"Effective date of Paragraph’sParagraph's 10-20 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments”Investments" (FSP EITF 03-1-1). FSP EITF 03-1-1 delayed
the effective date for the measurement and recognition guidance contained in
EITF 03-1 until further implementation guidance is issued. The Company does not
expect any material effects from the adoption of EITF 03-1 on its financial
statements.
Rate Matters - Effective May 27, 2004, Middlesex Water Company received approval fromIn March 2005, the New Jersey BoardFASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" (FIN 47), to clarify the term
"conditional asset retirement obligation" as used in Statement of Public Utilities (BPU)Financial
Accounting Standards SFAS No. 143, "Accounting for Asset Retirement
Obligations." Conditional asset retirement obligation refers to a 9.5%, legal
obligation to perform an asset retirement activity in which the timing and/or
$4.3 million increase in its water rates. This increase representsmethod of settlement are conditional on a portionfuture event that may or may not be
within the control of the Company’s November 2003 requestentity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and/or
method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a total rate increase of 17.8% to coverconditional asset retirement obligation if the
costs of its increased capital investment, as well as maintenance and operating expenses.
Effective June 24, 2004, Pinelands Water Company and Pinelands Wastewater Company received approval from the BPU for rate increases of 9.2% and 9.9%, respectively, or approximately $131,000 in the aggregate. This increase represents a portionfair value of the Company’sliability can be reasonably estimated. The fair value of a
liability for the conditional asset retirement obligation should be recognized
when incurred, generally, upon acquisition, construction, development and/or
through the normal operation of the asset. Uncertainty about the timing and/or
method of settlement should be factored into the measurement of the liability
when sufficient information exists. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending after December 2003 request15, 2005 (December 31, 2005 for calendar-year
enterprises). The Company does not anticipate adoption of this standard will
have a total rate increasematerial impact on its financial position, results of approximately $250,000 to help offset the increasing costs associatedoperations, or cash
flows.
Rate Matters - As part of an approved settlement with capital improvements, and the operation and maintenance of their systems.
Effective June 25, 2004, Tidewater received approval from the Delaware Public
Service Commission (PSC) for an interim rate increase of 15%, or $1.5 million increase in its water rates, which includes 4.5% of previously implemented Distribution System Improvement Charges (DSIC). Onon October 19, 2004, the PSC approved a settlement between Tidewater and interveners in the matter. The settlement allows the 15% interim rates to become permanent. This increase represents a portion of the Company’s April 2004 request for a 24% rate increase to accommodate the growth of Tidewater’s customer base, improvements to water treatment, fire protection and to interconnect systems for service reliability and back-up. As part of the settlement, Tidewater will bewas eligible to apply
for a second phase rate increase of $0.5 million, provided it completescompleted a number
of capital projects within a specified time schedule. Tidewater must filefiled an
application for this increase no earlier thanon March 2005 nor later than May28, 2005. Upon verification of project
completion, the new rates will becomebecame effective 30 days after the filing date.on April 27, 2005. Tidewater also
agreed to waive its right to file DSICDistribution System Improvement Charges (DISC)
applications over the next three six-month cycles (January and July 2005, and
January 2006) and to defer making an application for a general rate increase
until after April 27, 2006.
6
2006.
2005. The increase cannot exceed
the lesser of the regional Consumer Price Index or 3%.
Stock Based Compensation -As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), the The Company elected to accountrecognizes compensation expense at fair
value for its stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Had compensation costs for the Company’s restricted stock plan been determined basedawards in accordance with SFAS 123. As discussed
in Note 1, SFAS 123(R) is effective for fiscal periods beginning after June 15,
2005. The Company does not anticipate that the adoption of this standard will
have a material impact on the methodology prescribed in SFAS No. 123, there would have been no effect on its financial position, results of operations, or cash
flows.
Note 2 –- Capitalization
Common Stock – In May 2004, -During the Company had a common stock offering of 700,000 shares that was priced at $19.80. The majority of the net proceeds of approximately $13.3 million were used to repay most of the Company’s outstanding short-term borrowings. During the ninethree months ended September 30, 2004,March 31, 2005, there were 60,30018,631
common shares (approximately $1.4$0.4 million) issued under the Company’sCompany's Dividend
Reinvestment and Common Stock Purchase Plan.
On April 28, 2005, the Company
filed with the Securities and Exchange Commission on Form S-3 to issue shares
under its Dividend Reinvestment and Common Stock Purchase Plan at a 5% discount
on optional cash payments and reinvested dividends for a six-month period
commencing on June 1, 2005, and concluding on December 1, 2005.
Long-term Debt – On March 24, 2004, -On May 6, 2005, Tidewater filed an application with the PSC
seeking approval to finance up to $16.0 million in the form of long-term debt
securities. Of this amount, Tidewater received loan approval fromin April 2005 under
the PSC to borrow $0.8 million to fund a portion of its multi-year capital program. Subsequent to the PSC approval, Tidewater closed on a Delaware State Revolving Fund (SRF) loanprogram of $0.8$2.0 million. The Delaware
SRF program will allow,allows, but does not obligate, Tidewater to draw down against a
General Obligation Note for threetwo specific projects.projects over a two-year period ending
in April 2007. The interest rate is set on the loan closing date and is based on
62.5% of the interest rate for a 10+ year high quality corporate bond. Tidewater
has received a commitment letter from CoBank, a rural cooperative financial
institution, approving the conversion of Tidewater's existing $7.0 million
short-term borrowings with CoBank and an additional $7.0 million of funding for
an aggregated $14.0 million mortgage type loan to be repaid over a term of 25
years. The terms of the CoBank loan allows, but does not obligate, Tidewater to
draw down against the additional $7.0 million at any time after the loan closing
through August 31, 2006. During that period, there is a commitment fee of 12.5
basis points, or 0.125%, on the unused balance. The interest rate for the CoBank
loan will be chargeda variable rate set weekly by CoBank, with Tidewater having an
annual fee, which isoption to fix the interest rate at any time over the life of the loan at a
combinationmargin over CoBank's cost of interest chargesfunds. The SRF and administrative fees, of 3.30% on the outstanding principal amount. All unpaid principal and feesCoBank borrowings must be
paid on or before March 1, 2026.
Middlesex received approval fromapproved by the BPU to issue up to $18.0 million of first mortgage bonds through the New Jersey Environmental Infrastructure Trust under the New Jersey SRF program. Of this amount, $5.0 million of interim SRF funding was made availablePSC prior to the Company prior the closing of the first mortgage bonds. At September 30, 2004, the Company had $1.9 million in borrowings outstanding under the interim SRF funding at 0% interest. The Company closed on $16.6 million of Series EE and FF bonds on November 4, 2004, which included the interim borrowings.
loan closings.
7
–- Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding. Diluted EPS assumes the conversion of both the Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock $8.00 Series.
(In
(In Thousands Except for per Share Amounts)
|
|
| Three Months Ended September 30, |
| ||||||||||||||
| Basic: |
| 2004 |
| Wtd Average |
| 2003 |
| Wtd Average |
| ||||||||
|
|
|
|
|
| |||||||||||||
| Net Income |
| $ | 3,362 |
|
|
| 11,317 |
|
| $ | 2,393 |
|
|
| 10,506 |
|
|
| Preferred Dividend |
|
| (64 | ) |
|
|
|
|
|
| (64 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Earnings Applicable to Common Stock |
| $ | 3,298 |
|
|
| 11,317 |
|
| $ | 2,329 |
|
|
| 10,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic EPS |
| $ | 0.29 |
|
|
|
|
|
| $ | 0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Earnings Applicable to Common Stock |
| $ | 3,298 |
|
|
| 11,317 |
|
| $ | 2,329 |
|
|
| 10,506 |
|
|
| $7.00 Series Dividend |
|
| 26 |
|
|
| 179 |
|
|
| 26 |
|
|
| 179 |
|
|
| $8.00 Series Dividend |
|
| 24 |
|
|
| 164 |
|
|
| 24 |
|
|
| 164 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Adjusted Earnings Applicable to Common Stock |
| $ | 3,348 |
|
|
| 11,660 |
|
| $ | 2,379 |
|
|
| 10,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted EPS |
| $ | 0.29 |
|
|
|
|
|
| $ | 0.22 |
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||||
| Basic: |
| 2004 |
| Wtd Average |
| 2003 |
| Wtd Average |
| ||||||||
|
|
|
|
|
| |||||||||||||
| Net Income |
| $ | 6,286 |
|
|
| 10,989 |
|
| $ | 5,421 |
|
|
| 10,448 |
|
|
| Preferred Dividend |
|
| (191 | ) |
|
|
|
|
|
| (191 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Earnings Applicable to Common Stock |
| $ | 6,095 |
|
|
| 10,989 |
|
| $ | 5,230 |
|
|
| 10,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic EPS |
| $ | 0.55 |
|
|
|
|
|
| $ | 0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Earnings Applicable to Common Stock |
| $ | 6,095 |
|
|
| 10,989 |
|
| $ | 5,230 |
|
|
| 10,448 |
|
|
| $7.00 Series Dividend |
|
| 78 |
|
|
| 179 |
|
|
| 78 |
|
|
| 179 |
|
|
| $8.00 Series Dividend |
|
| 72 |
|
|
| 164 |
|
|
| 72 |
|
|
| 164 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Adjusted Earnings Applicable to Common Stock |
| $ | 6,245 |
|
|
| 11,332 |
|
| $ | 5,380 |
|
|
| 10,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted EPS |
| $ | 0.55 |
|
|
|
|
|
| $ | 0.50 |
|
|
|
|
|
|
|
|
| Twelve Months Ended September 30, |
| ||||||||||||||
| Basic: |
| 2004 |
| Wtd Average |
| 2003 |
| Wtd Average |
| ||||||||
|
|
|
|
|
| |||||||||||||
| Net Income |
| $ | 7,495 |
|
|
| 10,880 |
|
| $ | 7,449 |
|
|
| 10,473 |
|
|
| Preferred Dividend |
|
| (255 | ) |
|
|
|
|
|
| (255 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Earnings Applicable to Common Stock |
| $ | 7,240 |
|
|
| 10,880 |
|
| $ | 7,194 |
|
|
| 10,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic EPS |
| $ | 0.67 |
|
|
|
|
|
| $ | 0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Earnings Applicable to Common Stock |
| $ | 7,240 |
|
|
| 10,880 |
|
| $ | 7,194 |
|
|
| 10,473 |
|
|
| $7.00 Series Dividend |
|
| 104 |
|
|
| 179 |
|
|
| 104 |
|
|
| 179 |
|
|
| $8.00 Series Dividend |
|
| 96 |
|
|
| 164 |
|
|
| 96 |
|
|
| 164 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Adjusted Earnings Applicable to Common Stock |
| $ | 7,440 |
|
|
| 11,223 |
|
| $ | 7,394 |
|
|
| 10,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted EPS |
| $ | 0.66 |
|
|
|
|
|
| $ | 0.68 | �� |
|
|
|
|
|
Note 4 –- Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. ItThis segment also operatesincludes the
operations of a regulated wastewater system in New Jersey. The Company is
subject to regulations as to its rates, services and other matters by the States
of New Jersey and Delaware with respect to utility services within these States.
The other segment is theprimarily includes non-regulated contract services for the
operation and maintenance of municipal and private water and wastewater systems
in New Jersey and Delaware. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies in the
Consolidated Notes to the Financial Statements in the Company’sCompany's Annual Report
for the period ended December 31, 20032004 filed on Form 10-K/A-2.10-K. Inter-segment
transactions relating to operational costs are treated as pass throughpass-through expenses.
Finance charges on inter-segment loan activities are based on interest rates
that are below what would normally be charged by a third party lender. These
inter-segment transactions are eliminated in the Company’sCompany's consolidated
financial statements.
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
|
|
|
|
|
| |||||
|
| Three Months Ended |
| Nine Months Ended |
| Twelve Months Ended |
| |||||||||||||
Operations by Segments: |
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| |||||||
|
|
|
|
|
|
| ||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Regulated |
| $ | 17,296 |
| $ | 15,360 |
| $ | 45,786 |
| $ | 42,427 |
| $ | 59,067 |
| $ | 55,669 |
| |
Non – Regulated |
|
| 2,590 |
|
| 2,256 |
|
| 7,806 |
|
| 6,204 |
|
| 10,102 |
|
| 8,169 |
| |
Inter-segment Elimination |
|
| (30 | ) |
| (30 | ) |
| (90 | ) |
| (66 | ) |
| (120 | ) |
| (78 | ) | |
|
|
|
|
|
|
|
| |||||||||||||
Consolidated Revenues |
| $ | 19,856 |
| $ | 17,586 |
| $ | 53,502 |
| $ | 48,565 |
| $ | 69,049 |
| $ | 63,760 |
| |
|
|
|
|
|
|
|
| |||||||||||||
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Regulated |
| $ | 4,341 |
| $ | 3,329 |
| $ | 9,454 |
| $ | 8,629 |
| $ | 11,840 |
| $ | 11,573 |
| |
Non – Regulated |
|
| 156 |
|
| 171 |
|
| 373 |
|
| 355 |
|
| 504 |
|
| 562 |
| |
|
|
|
|
|
|
|
| |||||||||||||
Consolidated Operating Income |
| $ | 4,497 |
| $ | 3,500 |
| $ | 9,827 |
| $ | 8,984 |
| $ | 12,344 |
| $ | 12,135 |
| |
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Regulated |
| $ | 3,245 |
| $ | 2,260 |
| $ | 6,026 |
| $ | 5,179 |
| $ | 7,139 |
| $ | 7,014 |
| |
Non – Regulated |
|
| 117 |
|
| 133 |
|
| 260 |
|
| 242 |
|
| 356 |
|
| 435 |
| |
|
|
|
|
|
|
|
| |||||||||||||
Consolidated Net Income |
| $ | 3,362 |
| $ | 2,393 |
| $ | 6,286 |
| $ | 5,421 |
| $ | 7,495 |
| $ | 7,449 |
| |
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Regulated |
| $ | 11,563 |
| $ | 4,784 |
| $ | 20,478 |
| $ | 12,559 |
| $ | 26,921 |
| $ | 15,999 |
| |
Non – Regulated |
|
| 31 |
|
| 1 |
|
| 151 |
|
| 562 |
|
| 161 |
|
| 791 |
| |
|
|
|
|
|
|
|
| |||||||||||||
Total Capital Expenditures |
| $ | 11,594 |
| $ | 4,785 |
| $ | 20,629 |
| $ | 13,121 |
| $ | 27,082 |
| $ | 16,790 |
| |
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| |||
|
|
|
| |||||
Assets: |
|
|
|
|
|
|
| |
Regulated |
| $ | 276,516 |
| $ | 259,689 |
| |
Non – Regulated |
|
| 5,322 |
|
| 5,223 |
| |
Inter-segment Elimination |
|
| (1,891 | ) |
| (1,720 | ) | |
|
|
|
| |||||
Consolidated Assets |
| $ | 279,947 |
| $ | 263,192 |
| |
|
|
|
|
(Dollars in Thousands)
Three Months Ended
March 31,
Operations by Segments: 2005 2004
---------------------------------------------------------------------
Revenues:
Regulated $ 14,759 $ 13,391
Non - Regulated 2,014 2,515
Inter-segment Elimination (30) (30)
----------------------------
Consolidated Revenues $ 16,743 $ 15,876
----------------------------
Operating Income:
Regulated $ 2,374 $ 2,073
Non - Regulated 130 147
----------------------------
Consolidated Operating Income $ 2,504 $ 2,220
----------------------------
Net Income:
Regulated $ 1,273 $ 925
Non - Regulated 107 109
----------------------------
Consolidated Net Income $ 1,380 $ 1,034
----------------------------
Capital Expenditures:
Regulated $ 4,133 $ 2,862
Non - Regulated 59 74
----------------------------
Total Capital Expenditures $ 4,192 $ 2,936
----------------------------
As of As of
March 31, 2005 December 31, 2004
-------------- -----------------
Assets:
Regulated $ 294,609 $ 296,260
Non - Regulated 5,061 4,943
Inter-segment Elimination (2,181) (2,074)
----------------------------
Consolidated Assets $ 297,489 $ 299,129
----------------------------
Note 5 –- Short-term Borrowings
The Board of Directors has authorized lines of credit for up to an aggregate of
$40.0 million. As of September 30, 2004,March 31, 2005, the Company has established revolving lines of credit
aggregating $40.0 million. At September 30, 2004,March 31, 2005, the outstanding borrowings under
these credit lines were $6.0$9.5 million at a weighted average interest rate of
2.15%4.05%. As of that date, the Company had borrowing capacity of $34.0$30.5 million
under its credit lines.
The weighted average daily amounts of borrowings outstanding under the Company’sCompany's
credit lines and the weighted average interest rates on those amounts were $4.9$10.4
million and $10.5$13.8 million at 2.05%3.85% and 1.71%1.56% for the three months ended September 30,March
31, 2005 and 2004, and 2003, respectively.
The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted average interest rates on those amounts were $8.7 million and $14.5 million at 1.60% and 1.93% for the nine months ended September 30, 2004 and 2003, respectively.
Note 6 –- Commitments and Contingent Liabilities
A lawsuit was filed in 1998 against the Company for damages involving the break
of both a Company water line and an underground electric power cable containing
both electric lines and petroleum based insulating fluid. The electric utility
also asserted claims against the Company. The lawsuit was settled in 2003, and
by agreement, the electric utility’sutility's counterclaim for approximately $1.1 million
in damages was submitted to binding arbitration, in which the agreed maximum
exposure of the Company is $0.3 million.million, which the Company has accrued for.
While we are unable to predict the outcome of the arbitration, we believe that
we have substantial defenses.
The Company is a defendant in various lawsuits. We believe the resolution of
pending claims and legal proceedings will not have not recorded any liability fora material adverse effect on
the claim.
A claim involving a construction subcontractor, the Company’s general contractor and the Company concerning a major construction project was settled during October 2004. The matter was instituted in 2001, and related to work required to be performed under a construction contract and related subcontracts and included payment issues and timing/delay issues. The amount that was determined to be due from us for the work performed was $1.4 million and was recorded as an addition to utility plant in service as of September 30, 2004.
Company's consolidated financial statements.
Note 7 –- Employee Retirement Benefit Plans
Pension – - The Company has a noncontributory defined benefit pension plan, which
covers substantially all employees with more than 1,000 hours of service. The Company expects
to make cash contributions of $0.8 million during the current year. These
contributions are expected to be made during the second quarter of 2005. In
addition, the Company maintains an unfunded supplemental pension plan for its
executives.
Based on the 2004 pension plan valuation, the Company made cash contributions of $0.5 million during the current year, which is a decrease from the $1.0 million estimate disclosed at December 31, 2003. The Company does not anticipate the need for additional cash contributions at this time.
Post-retirement Benefits Other Than Pensions – - The Company has a post-retirement
benefit plan other than pensions for substantially all of its retired employees.
Coverage includes healthcare and life insurance. Retiree contributions are
dependent on credited years of service. Based on the 2004 post-retirement benefit plan valuation, theThe Company expects to make total cash
contributions of $1.2 million during the current year, which is an increase from the $1.0 million estimate disclosed at December 31, 2003. The Companyyear. These contributions will
be made contributions of $0.2 millioneach quarter during the third quarter of 2004 and $0.5 million for the nine-months ended September 30, 2004.
2005.
The following table sets forth information relating to the Company’sCompany's periodic
costs for its retirement plans.
|
|
| (Dollars in Thousands) |
| ||||||||||
|
|
| Pension Benefits |
| Other Benefits |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| Three Months Ended September 30, |
| ||||||||||
|
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service Cost |
| $ | 186 |
| $ | 171 |
| $ | 106 |
| $ | 66 |
|
| Interest Cost |
|
| 346 |
|
| 339 |
|
| 145 |
|
| 121 |
|
| Expected Return on Assets |
|
| (372 | ) |
| (318 | ) |
| (53 | ) |
| (44 | ) |
| Amortization of Unrecognized Losses |
|
| — |
|
| — |
|
| 73 |
|
| 36 |
|
| Amortization of Unrecognized Prior Service Cost |
|
| 23 |
|
| 23 |
|
| — |
|
| — |
|
| Amortization of Transition Obligation |
|
| — |
|
| — |
|
| 34 |
|
| 34 |
|
|
|
|
|
|
|
| ||||||||
| Net Periodic Benefit Cost |
| $ | 183 |
| $ | 215 |
| $ | 305 |
| $ | 213 |
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Other Benefits |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| Nine Months Ended September 30, |
| ||||||||||
|
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service Cost |
| $ | 559 |
| $ | 513 |
| $ | 319 |
| $ | 197 |
|
| Interest Cost |
|
| 1,039 |
|
| 1,017 |
|
| 435 |
|
| 363 |
|
| Expected Return on Assets |
|
| (1,118 | ) |
| (954 | ) |
| (160 | ) |
| (131 | ) |
| Amortization of Unrecognized Losses |
|
| — |
|
| — |
|
| 219 |
|
| 107 |
|
| Amortization of Unrecognized Prior Service Cost |
|
| 69 |
|
| 69 |
|
| — |
|
| — |
|
| Amortization of Transition Obligation |
|
| — |
|
| — |
|
| 102 |
|
| 102 |
|
|
|
|
|
|
|
| ||||||||
| Net Periodic Benefit Cost |
| $ | 549 |
| $ | 645 |
| $ | 915 |
| $ | 638 |
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Other Benefits |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| Twelve Months Ended September 30, |
| ||||||||||
|
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service Cost |
| $ | 730 |
| $ | 694 |
| $ | 385 |
| $ | 253 |
|
| Interest Cost |
|
| 1,379 |
|
| 1,342 |
|
| 557 |
|
| 479 |
|
| Expected Return on Assets |
|
| (1,437 | ) |
| (1,275 | ) |
| (204 | ) |
| (162 | ) |
| Amortization of Unrecognized Losses |
|
| — |
|
| — |
|
| 255 |
|
| 135 |
|
| Amortization of Unrecognized Prior Service Cost |
|
| 92 |
|
| 92 |
|
| — |
|
| — |
|
| Amortization of Transition Obligation |
|
| — |
|
| 1 |
|
| 135 |
|
| 135 |
|
|
|
|
|
|
|
| ||||||||
| Net Periodic Benefit Cost |
| $ | 764 |
| $ | 854 |
| $ | 1,128 |
| $ | 840 |
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Operations
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company included
elsewhere herein and with the company’sCompany's Annual Report on Form 10-K/A-210-K for the
fiscal year ended December 31, 2003.
2004. Forward-Looking Statements
Certain statements contained in this quarterly report are “forward-looking statements”"forward-looking
statements" within the meaning of federal securities laws. The Company intends
that these statements be covered by the safe harbors created under those laws.
These statements include, but are not limited to:
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- 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; - statements regarding expectations and events concerning capital expenditures; - statements as to the Company's expected liquidity needs during fiscal 2005 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 cost of cash contributions to fund the Company's pension plan, 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:
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- 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 base
rate increase requests;
- new or additional water quality standards;
- weather variations and other natural phenomena;
- acts of war or terrorism; and
- other factors discussed elsewhere in this quarterly report.
Many of these factors are beyond the Company’sCompany'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’s12
For an additional discussion of factors that may affect the Company’sCompany's business
and results of operations, see Risk Factors in our Prospectus filedthe Company's Annual Report on
Form 424(b)(4) dated May 7,10-K for the fiscal year ended December 31, 2004.
Overview
The Company has operated as a water utility in New Jersey since 1897, and in
Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in
the business of collecting, treating, distributing and selling 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 in New Jersey and for water services in Delaware, as to the
quality of water service we provide and as to certain other matters. Our USA,
USA-PA and White Marsh subsidiaries are not regulated utilities.
It is anticipated that rates for certain wastewater services in Delaware are also to be regulated.
Our New Jersey water utility system (the Middlesex System) provides water services to approximately 58,000 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 267,000. Through our subsidiary, USA-PA, we operate the water supply system and wastewater system for the City of Perth Amboy, New Jersey. Our other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and wastewater services to residents in Southampton Township, New Jersey.
Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services
to approximately 25,000 retail customers in New Castle, Kent, and Sussex
Counties, Delaware. Our TESI subsidiary commenced operations during 2005 as a
regulated wastewater utility in Delaware. Although TESI has responded to
numerous requests for proposal, the Company does not have any customers or
revenues as of March 31, 2005. Our other Delaware subsidiary, White Marsh,
serves an additional 1,900 customers in Kent and Sussex Counties.
Our USA subsidiary provides customers within the Middlesex System a service line maintenance program called LineCareSM. 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.
Our ability to increase operating income and net income is based significantly
on three factors: weather, adequate and timely rate increases,relief, and customer growth.
13
Rate Increases
Effective May 27, 2004,
The Company anticipates that its Middlesex Water Company received approval fromsubsidiary will file for a base rate
increase with the New Jersey Board of Public Utilities (BPU) for a 9.5%, or $4.3 million increase in its water rates.during the second
quarter of 2005. This increase represents a portion of the Company’s November 2003 request for a total rate increase of 17.8%is intended to coverrecover the costs of its increased
capital investment,investments, including a $9.7 million raw water pipeline, as well as
maintenancehigher operating and operatingcorporate governance expenses.
Effective June 24, 2004, Pinelands Water Company and Pinelands Wastewater Company received approval from the BPU for rate increases
As part of 9.2% and 9.9%, respectively, or approximately $131,000 in the aggregate. This increase represents a portion of the Company’s December 2003 request for a total rate increase of approximately $250,000 to help offset the increasing costs associatedan approved settlement with capital improvements, and the operation and maintenance of their systems.
Effective June 25, 2004, Tidewater received approval from the Delaware Public Service Commission
(PSC) for an interim rate increase of 15%, or $1.5 million increase in its water rates, which includes 4.5% of previously implemented Distribution System Improvement Charge (DSIC). Onon October 19, 2004, the PSC approved a settlement between Tidewater and interveners in the matter. The settlement allows the 15% interim rates to become permanent. This increase represents a portion of the Company’s April 2004 request for a total rate increase of 24% to accommodate the growth of Tidewater’s customer base, improvements to water treatment, fire protection and to interconnect systems for service reliability and back-up. As part of the settlement, Tidewater will bewas eligible to apply for a second phase
rate increase of $0.5 million, provided it completescompleted a number of capital
projects within a specified time schedule. Tidewater must filefiled an application for
this increase no earlier thanon March 2005 nor later than May28, 2005. Upon verification of project completion, the
new rates will becomebecame effective 30 days after the filing date.on April 27, 2005. Tidewater also agreed to waive its
right to file DSIC applications over the next three six-month cycles (January
and July 2005, and January 2006) and to defer making an application for a
general rate increase until after April 1, 2006.
New Pipeline Project
During June 2004,
In accordance with the Company began constructiontariff established for Southern Shores, an annual rate
increase of a $9.7 million raw water pipeline from its pump station in New Brunswick, New Jersey to its Water Treatment Plant in Edison, New Jersey. This new 60” pipeline will ensure backup water supply and will provide security and necessary redundancy for3% was implemented on January 1, 2005. The increase cannot exceed
the Company’s existing concrete supply line. The Company anticipateslesser of the pipeline construction project will be completed by Spring 2005, and will be financed through low interest loans obtained through the New Jersey Environmental Infrastructure Trust.
regional Consumer Price Index or 3%.
Results of Operations –- Three Months Ended September 30, 2004
March 31, 2005
Operating revenues for the three months ended September 30, 2004March 31, 2005 increased $2.3$0.9
million or 12.9%5.5% from the same period in 2003.2004. Water sales improved by $1.1$0.9
million in our New Jersey systems, which was primarily a result of base rate
increases.
The increased water sales were partially offset by decreased water
consumption during the current year period as compared to the prior year.
Revenues rose in our Delaware service territories by $0.8$0.5 million. Customer
growth in Delaware provided additional water consumption sales, facility charges
and connection fees oftotaling $0.4 million, and basemillion. Base rate increases accounted for $0.4 million.
Our new meter services venture through USA provided $0.6 million of additional revenues for completed installations. Revenues from our City of Perth Amboy contract decreased by $0.3 million due to scheduled reductions in fixed fees. All other operations accounted for
$0.1 million of higher revenues.
the increase.
USA had reduced revenues of $0.5 million as compared to the same period in 2004.
This reduction was due to our meter services venture completing its original
contracts during December 2004. USA has not bid on, and consequently has not
obtained any additional meter services contracts for 2005. Revenues for all of
our other operations were consistent with the same period in 2004.
While we anticipate continued growth in the number of customers and increased
water consumption among our Delaware systems, such growth and increased
consumption cannot be guaranteed. Weather conditions may adversely impact future
water consumption even with anin spite of anticipated growth in the number of customers. Our
New Jersey systems are also highly dependent on the effects of weather. Our
ability to generate operating revenues by our meter services venture is
dependent upon our ability to obtain additional contracts, and there can be no
assurance that we will be the successful bidder. USA did not submit bids for any
meter service contracts during the thirdfirst quarter and currently does not expect
to submit any bids in the fourthsecond quarter. The existing meterAs a result of anticipated regulation
of wastewater services contracts are expectedin Delaware, we have established a new regulated
wastewater operation (TESI) that commenced operations during fiscal 2005. Due to
be completed during the fourth quarterstart-up nature of 2004.
this operation, we expect our expenses with respect to
this subsidiary to exceed its revenues in the near term.
14
$1.3$0.6 million or 9.0%4.3%. Operation and maintenance
expenses increased $0.4$0.2 million or 4.6%1.8%. The costs of our meter services venture increased $0.5 million due to completed installations and corporate governance related fees increased $0.1 million. These increases were partially offset by reduced costs related to our City of Perth Amboy contract of $0.2 million due to the reduced water treatment costs and a decrease of $0.1 million for water main costs in our Middlesex system. All other operating expenses increased $0.1 million.
Depreciation expense increased $0.1 million or 9.3%, primarily as a result of a higher level of utility plant in service. Since September 30, 2003, our net investment in utility plant has increased by $13.5 million.
Other taxes increased by $0.1 million, reflecting higher taxes on taxable gross revenues. Higher income taxes of $0.6 million over the prior year are attributable to improved operating results for 2004 as compared to 2003.
Other income increased $0.1 million, primarily due to higher AFUDC as a result of an increase in capital projects in New Jersey and Delaware.
Interest expense increased by $0.1 million, primarily due to higher average long-term borrowings as compared to the prior year period.
Net income increased by 40.5% to $3.3 million, and basic and diluted earnings per share increased from $0.22 to $0.29. The increase in earnings per share was impacted by the higher number of shares outstanding during the current year as a result of the sale of 700,000 shares of common stock in May 2004.
Results of Operations – Nine Months Ended September 30, 2004
Operating revenues for the nine months ended September 30, 2004 increased $4.9 million or 10.2% from the same period in 2003. Customer growth of 10.7% in Delaware provided additional consumption sales, facility charges and connection fees of $0.6 million, and base rate increases helped to improve revenues by $1.0 million. Revenues in New Jersey increased $1.7 million, primarily due to increased base rates. Our new meter services venture contributed an additional $1.8 million for completed installations. Revenues from our City of Perth Amboy contract decreased by $0.4 million due to scheduled reductions in fixed fees. All other revenues increased $0.2 million.
Operating expenses increased $4.1 million or 10.3%. Operation and maintenance expenses increased $3.0 million or 11.1%. In New Jersey, source of supply, which is primarily purchased water, and pumping costs, which is primarily purchased power, increased by $0.7 million. Purchased water increased as a result of a change in the unit cost and structure and base purchases under the raw water contract with the New Jersey Water Supply Authority and an increase in the cost of finished water by a non-affiliated water utility. Purchased power costs are higher due to the effect of the August 1, 2003 deregulation of electric generation in New Jersey and a rate increase on the remaining portion of electric service. Payroll and benefits costs, insurance
and corporate governance related fees increased $0.5$0.3 million. As previously discussed,Water treatment
costs for the Middlesex System increased $0.1 million. The continuing growth of
our Delaware systems resulted in higher costs of water treatment, additional
employees and related benefit expenses and insurance of $0.6$0.2 million.
The These increases were
partially offset by reduced costs ofrelated to our meter services venture, increased $1.6 million, primarily due to completed installations. Costs related to our City of Perth Amboy contractwhich
decreased by $0.3$0.5 million due to reduced water treatment and real estate costs, and water main costs decreased by $0.2 million in our Middlesex system.the completion of the original projects during
December 2004. All other operating costs decreased byexpenses increased $0.1 million.
All other operating costs increased $0.1 million.
Depreciation expense increased $0.4$0.1 million or 9.9%, primarily as a result of a higher level of utility plant in service.
Other taxes increased by $0.2 million, reflecting higher taxes on taxable gross revenues. Higher income taxes of $0.5 million over the prior year period are attributable to improved operating results for 2004 as compared to 2003.
Other income increased $0.2 million, primarily due the recognition of a gain on the sale of real estate that had previously been deferred pending the outcome of the Middlesex rate case and higher AFUDC as a result of an increase in capital projects in New Jersey and Delaware.
Interest expense increased by $0.2 million, primarily due to higher average long-term borrowings as compared to the prior year period.
Net income increased by 16.0% to $6.3 million from $5.4 million in the prior year, and basic and diluted earnings per share increased from $0.50 to $0.55. The increase in earnings per share was impacted by the higher number of shares outstanding during the current year as a result of the sale of 700,000 shares of common stock in May 2004.
Results of Operations – Twelve Months Ended September 30, 2004
Operating revenues for the twelve months ended September 30, 2004 were $69.0 million, an increase of $5.3 million or 8.3%, compared to the twelve-month period ended September 30, 2003. Customer growth of 10.7% in Delaware provided additional consumption, connection fees and fixed services fees of $1.0 million. Base rate increases accounted for an additional $1.1 million. The Middlesex rate increase approved effective May 27, 2004 helped increase revenues by $1.5 million. Cool, wet weather caused consumption revenue to decline in New Jersey by $0.3 million. Service fees from our new meter services venture contributed $2.1 million primarily for completed installations. Wastewater operations and maintenance contract revenues increased by $0.2 million, due to customer growth. Revenues from our City of Perth Amboy contract decreased by $0.4 million due to scheduled reductions in fixed fees. All other revenues increased by $0.1 million.
Operating expenses increased $5.1 million or 9.8%. Operations and maintenance expenses increased $4.2 million or 12.1%. In New Jersey, water treatment, source of supply and pumping costs increased by $0.7 million. Purchased water increased as a result of a change in the unit cost structure and base purchases under the raw water contract with the New Jersey Water Supply Authority and an increase in the cost of finished water by a non-affiliated water utility. Purchased power costs are higher due to the effect of the August 1, 2003 deregulation of electric generation in New Jersey and a rate increase on the remaining regulated portion of electric service. Payroll and benefits costs, insurance and corporate governance related fees increased $0.8 million. Due to the continuing growth of our Delaware systems, the costs of water treatment, additional employees and related benefit expenses, insurance, bad debts, and consulting fees increased $1.0 million.
The costs of our meter services venture increased $1.8 million, primarily due to completed installations. Wastewater operations and maintenance costs increased by $0.2 million, as a result of the larger customer base. Costs related to our City of Perth Amboy contract decreased by $0.4 million due to due to reduced water treatment and real estate costs. All other operating costs increased by $0.1 million.
Depreciation expense increased $0.5 million or 9.8%7.8%, primarily as a result of a
higher level of utility plant in service. Since September 30, 2002,March 31, 2004, our net
investment in utility plant has increased by $32.5$21.9 million.
Other taxes increased by $0.1 million, reflecting higher taxes on taxable gross
revenues. Higher income taxes of $0.2 million over the prior year are
attributable to improved operating results for 2005 as compared to 2004.
Other income increased $0.2 million, primarily due to higher AFUDC as a result
of increases in capital projects in New Jersey and Delaware.
Interest expense increased by $0.3$0.1 million, primarily due to higher average
long-term borrowings and higher average interest rates charged on short-term
borrowings as compared to the prior year period.
Net income increased by less than 1.0%33.5% to $7.5$1.4 million, from $7.4 million for the prior twelve-month period. However,and basic and diluted earnings
per share decreased by $0.02increased from $0.09 to $0.67 and $0.66 per share, respectively, due to the increase in the number of common shares outstanding that resulted from the stock issuance previously discussed.
$0.12. Liquidity and Capital Resources
Cash flows from operations are largely baseddependent on three factors: weather,
adequate and timely rate increases, and customer growth. The effect of those
factors on net income is discussed in results of operations. For the ninethree
months ended September 30, 2004,March 31, 2005, cash flows from operating activities increased $2.7were $3.0
million, to $11.4 million, as comparedwhich was comparable to the prior year. This increase was primarily attributable to improved profitability during the current year period and the timing of payments to vendors and taxes. The $11.4$3.0 million of net cash
flow from operations allowed us to fund approximately 55%71% of our utility plant
expenditures for the period, with the remainder funded with both short-term andrestricted cash from
the proceeds of previously issued long-term borrowings.
The Company’sCompany's capital program for 20042005 is estimated to be $28.9$28.5 million and
includes $13.1$16.5 million for water system additions and improvements for our
Delaware systems, $5.5$3.4 million for a portion ofto complete the secondnew raw water line to Middlesex’sthe
Middlesex primary water treatment plant that began in 2004, and $4.1$3.3 million for
the RENEW Program, which is our program to clean and cement line approximately
nine miles of unlined mains in the Middlesex System, of which eight were complete at September 30, 2004.System. There remains a total of
approximately 130129 miles of unlined mains in the 730-mile Middlesex System. Additional expenditures on the upgrade to the CJO Plant are estimated at $3.0 million. The
capital program also includes $3.2$5.3 million for other scheduled upgrades to our
existing systems in New Jersey. The scheduled upgrades consist of $1.5$1.1 million
for improvements to existing plant, $1.2 million for mains, $0.8 million for
service lines, $0.3 million for meters, $0.2$0.3 million for hydrants, and $0.4$1.6
million for computer systems.
systems and various other items.
To pay for our capital program in 2004,2005, we will utilize internally generated
funds and funds available under existing New Jersey Environmental Infrastructure
Trust loans (currently, $4.1$9.1 million) and Delaware State Revolving Fund (SRF)
loans (currently, $2.2$1.5 million), which provide low cost financing for projects
that meet certain water quality and system improvement benchmarks. If necessary,
we will also utilize short-term borrowings through $40.0 million of available
lines of credit with three commercial banks. As of September 30, 2004,March 31, 2005, there was
$6.0$9.5 million outstanding against the lines of credit.
15
Going forward into 20052006 through 2006,2007, we currently project that we will be required to expend
approximately $38.5$45.9 million for capital projects. Plans to finance those projects are underway as we have received approval to borrow up to $18.0 million underTo the New Jersey Environmental Infrastructure Trust program. The Company closed on $16.6 million under the program on November 4, 2004. We anticipate that someextent possible and
because of the favorable interest rates available to regulated water utilities,
we will finance our capital projects in Delaware will be eligible for the Delaware State Revolving Fund program in that state and we are pursuing those opportunities.expenditures under SRF loan programs. We also expect
to use internally generated funds and proceeds from the sale of common stock
through the Dividend Reinvestment and Common Stock Purchase Plan.
In addition to the effect of weather conditions on revenues, increases in
certain operating costs will impact our liquidity and capital resources. As
described in our overview section, we have recently received rate relief for
Middlesex, the Pinelands Companies and Tidewater. Changes in operating costs and
timing of capital projects will have an impact on revenues, earnings, and cash
flows and will also impact the needtiming of when we filefilings for future rate increases.
Recent Accounting Pronouncements – - In MayDecember 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No.123(R) "Share-Based Payment", which replaces SFAS No. 123, "Accounting for
Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Statement requires that the cost resulting from
all share-based payment transactions be recognized in the financial statements.
The Statement also establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all entities to
apply a fair-value-based measurement method in accounting for share-based
payment transactions with employees, except for equity instruments held by
employee share ownership plans. This statement was originally effective for
quarters beginning after June 15, 2005, however on April 14, 2005, the
Securities and Exchange Commission adopted a rule which makes the provisions of
SFAS 123(R) effective for fiscal periods beginning after June 15, 2005 (January
1, 2006 for the Company). The Company currently recognizes compensation expense
at fair value for stock-based payment awards in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation," and does not anticipate adoption of
this standard will have a material impact on its financial position, results of
operations, or cash flows.
16
“Accounting"Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003”2003" (FSP 106-2). FSP 106-2 provides guidance on the
accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Medicare Drug Act) for employers who sponsor
postretirement health care plans that provide prescription drug benefits. FSP
106-2 also requires those employers to provide certain disclosures regarding the
effect of the federal subsidy provided by the Medicare Drug Act. The Medicare
Drug Act generally permits plan sponsors that provide retiree prescription drug
benefits that are “actuarially equivalent”"actuarially equivalent" to the benefits of Medicare Part D to
be eligible for a non-taxable federal subsidy. FSP 106-2 is effective for the
first interim or annual period beginning after June 15, 2004. FSP 106-2 provides
that if the effect of the Medicare Drug Act is not considered a significant
event, the measurement date for the adoption of FSP 106-2 is delayed until the
next regular measurement date. Based on Management's discussiondiscussions with its
Actuary, Management determined the effect of the Medicare Drug Act is not
considered a significant event and thus the Company will accountaccounted for the effects of
FSP 106-2 at its next measurement date (January 1, 2005). The adoption of FSP
106-2 willdid not have a material effect on the Company’sCompany's financial statements.
In March 2004, the EITFEmerging Issues Task Force (EITF) reached consensus on EITF
03-1.No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" (EITF 03-1). EITF 03-1 further defines the meaning of an
“other-than-temporary impairment”"other-than-temporary impairment" and its application to debt and equity
securities. Impairment occurs when the fair value of a security is less than its
cost basis. When such a condition exists, the investor is required to evaluate
whether the impairment is other-than-temporary as defined in EITF 03-1. When an
impairment is other-than-temporary, the security must be written down to its
fair value. EITF 03-1 also requires additional annual quantitative and
qualitative disclosures for available for sale and held to maturity impaired
investments that are not other-than temporarily impaired. On September 30, 2004,
the FASB issued FSP EITF 03-1-1.03-1-1, "Effective date of Paragraph's 10-20 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" (FSP EITF 03-1-1). FSP EITF 03-1-1 delayed
the effective date for the measurement and recognition guidance contained in
EITF 03-1 until further implementation guidance is issued. The Company does not
expect any material effects from the adoption of EITF 03-1 on its financial
statements.
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’sCompany's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our Amortizing Secured Notes and
First Mortgage Bonds, which have maturity dates ranging from 2009 to 2038. Over
the next twelve months, approximately $1.1 million of the current portion of
eleven existing long-term debt instruments will mature. Applying a hypothetical
change in the rate of interest charged by 10% on those borrowings would not have
a material effect on earnings.
ItemItem 4. Controls and Procedures
Procedures
As required by Rule 13a-15 under the Exchange Act, an evaluation of the
effectiveness of the design and operation of the Company’sCompany's disclosure controls
and procedures was conducted by the Company’sCompany's Chief Executive Officer along with
the Company’sCompany's Chief Financial Officer. Based upon that evaluation, the Company’sCompany's
Chief Executive Officer and the Company’sCompany's Chief Financial Officer concluded that
the Company’sCompany's disclosure controls and procedures are effective as of the end of
the period covered by this Report. There have been no significant changes in the
Company’sCompany's internal controls or in other factors, which could significantly
affect internal controls during the quarter ended September 30, 2004.
March 31, 2005.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission’sCommission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company’sCompany's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
PART
PART II. OTHER INFORMATION
ItemINFORMATION
Item 1. Legal Proceedings
A claim involving a construction subcontractor,Proceedings
Reference is made to the Company’s general contractor andCompany's Annual Report on Form 10-K for the Company concerning a major construction project was settled during Octoberyear ended
December 31, 2004.
The matter was instituted in 2001, and related to work required to be performed under a construction contract and related subcontracts and included payment issues and timing/delay issues. The amount that was determined to be due from us for work performed was $1.4 million and was recorded as an addition to utility plant in service as of September 30, 2004.
ItemItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
Proceeds None.
Item
Item 3. Defaults Upon Senior Securities
Securities None.
Item
Item 4. Submission of Matters to a Vote of Security Holders
Holders None.
Item
18
Information
Information None.
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SIGNATURES
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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