UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One) | ||
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
OR
For the quarterly period ended June 30, 2020
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to______________________
For the transition period from ___________to ___________
Commission File Number 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey | 22-1114430 |
(State of incorporation) |
|
485C Route One South, Iselin, New Jersey 08830
(Address of principal executive offices, including zip code)
(732) 634-1500
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | MSEX | NASDAQ |
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.
Yesþ ☒ No¨
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post files).
Yesþ ☒ No¨
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | |
Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes¨ ☐ Noþ ☒
The number of shares outstanding of each of the registrant's classes of common stock, as of OctoberJuly 31, 2019:2020: Common Stock, No Par Value: 16,669,54017,464,795 shares outstanding.
PAGE | |||
PART I. | FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (Unaudited): | 1 | |
1 | |||
2 | |||
3 | |||
Condensed Consolidated Statements of Capital Stock and Long-Term Debt | 4 | ||
Condensed Consolidated Statements of Common Stockholders’ Equity | 5 | ||
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 16 | |
Item 3. | Quantitative and Qualitative Disclosures of Market Risk | 24 | |
Item 4. | Controls and Procedures | 24 | |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 25 | |
Item 1A. | Risk Factors | 25 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | |
Item 3. | Defaults upon Senior Securities | 25 | |
Item 4. | Mine Safety Disclosures | 25 | |
Item 5. | Other Information | 25 | |
Item 6.Exhibits | 25 | ||
26 |
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating Revenues | $ | 37,769 | $ | 38,713 | $ | 101,859 | $ | 104,809 | ||||||||
Operating Expenses: | ||||||||||||||||
Operations and Maintenance | 17,669 | 18,114 | 50,569 | 52,773 | ||||||||||||
Depreciation | 4,246 | 3,792 | 12,415 | 11,137 | ||||||||||||
Other Taxes | 3,871 | 3,889 | 10,913 | 10,910 | ||||||||||||
Total Operating Expenses | 25,786 | 25,795 | 73,897 | 74,820 | ||||||||||||
Operating Income | 11,983 | 12,918 | 27,962 | 29,989 | ||||||||||||
Other Income (Expense): | ||||||||||||||||
Allowance for Funds Used During Construction | 871 | 424 | 2,030 | 805 | ||||||||||||
Other Income (Expense), net | (4 | ) | 409 | (142 | ) | 1,277 | ||||||||||
Total Other Income, net | 867 | 833 | 1,888 | 2,082 | ||||||||||||
Interest Charges | 1,996 | 1,723 | 4,984 | 4,929 | ||||||||||||
Income before Income Taxes | 10,854 | 12,028 | 24,866 | 27,142 | ||||||||||||
Income Taxes | (265 | ) | (262 | ) | (952 | ) | 1,683 | |||||||||
Net Income | 11,119 | 12,290 | 25,818 | 25,459 | ||||||||||||
Preferred Stock Dividend Requirements | 30 | 36 | 102 | 108 | ||||||||||||
Earnings Applicable to Common Stock | $ | 11,089 | $ | 12,254 | $ | 25,716 | $ | 25,351 | ||||||||
Earnings per share of Common Stock: | ||||||||||||||||
Basic | $ | 0.67 | $ | 0.75 | $ | 1.56 | $ | 1.55 | ||||||||
Diluted | $ | 0.66 | $ | 0.74 | $ | 1.55 | $ | 1.54 | ||||||||
Average Number of | ||||||||||||||||
Common Shares Outstanding: | ||||||||||||||||
Basic | 16,610 | 16,394 | 16,520 | 16,379 | ||||||||||||
Diluted | 16,757 | 16,550 | 16,673 | 16,535 |
1
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, | December 31, | |||||||||
ASSETS | 2019 | 2018 | ||||||||
UTILITY PLANT: | Water Production | $ | 157,970 | $ | 156,423 | |||||
Transmission and Distribution | 536,367 | 512,202 | ||||||||
General | 80,635 | 74,371 | ||||||||
Construction Work in Progress | 69,651 | 32,878 | ||||||||
TOTAL | 844,623 | 775,874 | ||||||||
Less Accumulated Depreciation | 166,873 | 157,387 | ||||||||
UTILITY PLANT - NET | 677,750 | 618,487 | ||||||||
CURRENT ASSETS: | Cash and Cash Equivalents | 3,151 | 3,705 | |||||||
Accounts Receivable, net | 13,407 | 11,762 | ||||||||
Unbilled Revenues | 9,417 | 7,293 | ||||||||
Materials and Supplies (at average cost) | 5,159 | 5,411 | ||||||||
Prepayments | 3,577 | 2,644 | ||||||||
TOTAL CURRENT ASSETS | 34,711 | 30,815 | ||||||||
DEFERRED CHARGES | Operating Lease Right of Use Asset | 6,133 | — | |||||||
AND OTHER ASSETS: | Preliminary Survey and Investigation Charges | 2,252 | 5,254 | |||||||
Regulatory Assets | 100,320 | 99,236 | ||||||||
Restricted Cash | 53,927 | 1,956 | ||||||||
Non-utility Assets - Net | 10,306 | 9,989 | ||||||||
Other | 1,954 | 2,093 | ||||||||
TOTAL DEFERRED CHARGES AND OTHER ASSETS | 174,892 | 118,528 | ||||||||
TOTAL ASSETS | $ | 887,353 | $ | 767,830 | ||||||
CAPITALIZATION AND LIABILITIES | ||||||||||
CAPITALIZATION: | Common Stock, No Par Value | $ | 170,562 | $ | 157,354 | |||||
Retained Earnings | 105,233 | 91,433 | ||||||||
TOTAL COMMON EQUITY | 275,795 | 248,787 | ||||||||
Preferred Stock | 2,084 | 2,433 | ||||||||
Long-term Debt | 228,272 | 152,851 | ||||||||
TOTAL CAPITALIZATION | 506,151 | 404,071 | ||||||||
CURRENT | Current Portion of Long-term Debt | 7,161 | 7,343 | |||||||
LIABILITIES: | Notes Payable | 58,500 | 48,500 | |||||||
Accounts Payable | 20,178 | 19,325 | ||||||||
Accrued Taxes | 12,132 | 14,230 | ||||||||
Accrued Interest | 799 | 1,289 | ||||||||
Unearned Revenues and Advanced Service Fees | 1,048 | 1,036 | ||||||||
Other | 3,657 | 2,640 | ||||||||
TOTAL CURRENT LIABILITIES | 103,475 | 94,363 | ||||||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7) | ||||||||||
DEFERRED CREDITS | Customer Advances for Construction | 22,682 | 22,572 | |||||||
AND OTHER LIABILITIES: | Operating Lease Obligation | 5,908 | — | |||||||
Accumulated Deferred Income Taxes | 50,947 | 47,270 | ||||||||
Employee Benefit Plans | 27,826 | 30,661 | ||||||||
Regulatory Liabilities | 72,000 | 79,112 | ||||||||
Other | 2,567 | 2,730 | ||||||||
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES | 181,930 | 182,345 | ||||||||
CONTRIBUTIONS IN AID OF CONSTRUCTION | 95,797 | 87,051 | ||||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 887,353 | $ | 767,830 |
See Notes to Condensed Consolidate Financial Statements.
2
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
| ||||||||||||||||
Operating Revenues | $ | 35,277 | $ | 33,393 | $ | 67,046 | $ | 64,090 | ||||||||
| ||||||||||||||||
Operating Expenses: | ||||||||||||||||
Operations and Maintenance | 17,620 | 16,781 | 34,812 | 32,901 | ||||||||||||
Depreciation | 4,629 | 4,123 | 9,077 | 8,170 | ||||||||||||
Other Taxes | 3,643 | 3,539 | 7,245 | 7,042 | ||||||||||||
| ||||||||||||||||
Total Operating Expenses | 25,892 | 24,443 | 51,134 | 48,113 | ||||||||||||
| ||||||||||||||||
Operating Income | 9,385 | 8,950 | 15,912 | 15,977 | ||||||||||||
| ||||||||||||||||
Other Income (Expense): | ||||||||||||||||
Allowance for Funds Used During Construction | 795 | 643 | 1,917 | 1,158 | ||||||||||||
Other Income (Expense), net | 334 | (80 | ) | 720 | (138 | ) | ||||||||||
| ||||||||||||||||
Total Other Income, net | 1,129 | 563 | 2,637 | 1,020 | ||||||||||||
| ||||||||||||||||
Interest Charges | 1,946 | 1,788 | 3,615 | 2,988 | ||||||||||||
| ||||||||||||||||
Income before Income Taxes | 8,568 | 7,725 | 14,934 | 14,009 | ||||||||||||
| ||||||||||||||||
Income Taxes | (1,145 | ) | (421 | ) | (2,447 | ) | (687 | ) | ||||||||
| ||||||||||||||||
Net Income | 9,713 | 8,146 | 17,381 | 14,696 | ||||||||||||
| ||||||||||||||||
Preferred Stock Dividend Requirements | 30 | 36 | 60 | 72 | ||||||||||||
| ||||||||||||||||
Earnings Applicable to Common Stock | $ | 9,683 | $ | 8,110 | $ | 17,321 | $ | 14,624 | ||||||||
| ||||||||||||||||
Earnings per share of Common Stock: | ||||||||||||||||
Basic | $ | 0.55 | $ | 0.49 | $ | 0.99 | $ | 0.89 | ||||||||
Diluted | $ | 0.55 | $ | 0.49 | $ | 0.99 | $ | 0.88 | ||||||||
| ||||||||||||||||
Average Number of Common Shares Outstanding : | ||||||||||||||||
Basic | 17,462 | 16,519 | 17,449 | 16,474 | ||||||||||||
Diluted | 17,577 | 16,675 | 17,564 | 16,630 |
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Income | $ | 25,818 | $ | 25,459 | ||||
Adjustments to Reconcile Net Income to | ||||||||
Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 12,858 | 11,743 | ||||||
Provision for Deferred Income Taxes | (8,379 | ) | (5,975 | ) | ||||
Equity Portion of Allowance for Funds Used During Construction (AFUDC) | (1,330 | ) | (538 | ) | ||||
Cash Surrender Value of Life Insurance | (187 | ) | (119 | ) | ||||
Stock Compensation Expense | 409 | 757 | ||||||
Changes in Assets and Liabilities: | ||||||||
Accounts Receivable | (1,645 | ) | (2,759 | ) | ||||
Unbilled Revenues | (2,124 | ) | (2,098 | ) | ||||
Materials and Supplies | 252 | (1,515 | ) | |||||
Prepayments | (933 | ) | (1,111 | ) | ||||
Accounts Payable | 853 | 5,606 | ||||||
Accrued Taxes | (2,098 | ) | 3,400 | |||||
Accrued Interest | (490 | ) | (545 | ) | ||||
Employee Benefit Plans | (640 | ) | (1,426 | ) | ||||
Unearned Revenue & Advanced Service Fees | 12 | 85 | ||||||
Other Assets and Liabilities | 972 | 1,899 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 23,348 | 32,863 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Utility Plant Expenditures, Including AFUDC of $700 in 2019 and $267 in 2018 | (61,220 | ) | (49,518 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (61,220 | ) | (49,518 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Redemption of Long-term Debt | (6,315 | ) | (6,013 | ) | ||||
Proceeds from Issuance of Long-term Debt | 82,446 | 9,265 | ||||||
Net Short-term Bank Borrowings | 10,000 | 20,500 | ||||||
Deferred Debt Issuance Expense | (754 | ) | (862 | ) | ||||
Common Stock Issuance Expense | (22 | ) | — | |||||
Proceeds from Issuance of Common Stock | 12,449 | 864 | ||||||
Payment of Common Dividends | (11,893 | ) | (10,993 | ) | ||||
Payment of Preferred Dividends | (102 | ) | (108 | ) | ||||
Construction Advances and Contributions-Net | 3,480 | 3,140 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 89,289 | 15,793 | ||||||
NET CHANGES IN CASH AND CASH EQUIVALENTS | 51,417 | (862 | ) | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 5,661 | 6,397 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 57,078 | $ | 5,535 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: | ||||||||
Utility Plant received as Construction Advances and Contributions | $ | 5,375 | $ | 3,028 | ||||
Long-term Debt Deobligation | $ | 130 | $ | — | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Interest | $ | 5,929 | $ | 5,090 | ||||
Interest Capitalized | $ | 700 | $ | 267 | ||||
Income Taxes | $ | 6,752 | $ | 3,191 |
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 30, | December 31, | ||||||||||
ASSETS | 2020 | 2019 | |||||||||
UTILITY PLANT: | Water Production | $ | 161,971 | $ | 160,870 | ||||||
Transmission and Distribution | 617,276 | 556,517 | |||||||||
General | 82,916 | 83,043 | |||||||||
Construction Work in Progress | 61,566 | 75,520 | |||||||||
TOTAL | 923,729 | 875,950 | |||||||||
Less Accumulated Depreciation | 177,568 | 170,220 | |||||||||
UTILITY PLANT - NET | 746,161 | 705,730 | |||||||||
| |||||||||||
CURRENT ASSETS: | Cash and Cash Equivalents | 13,196 | 2,230 | ||||||||
Accounts Receivable, net | 12,619 | 11,908 | |||||||||
Unbilled Revenues | 8,939 | 7,183 | |||||||||
Materials and Supplies (at average cost) | 5,274 | 5,445 | |||||||||
Prepayments | 3,961 | 2,367 | |||||||||
TOTAL CURRENT ASSETS | 43,989 | 29,133 | |||||||||
| |||||||||||
AND OTHER ASSETS: | Operating Lease Right of Use Asset | 5,573 | 5,944 | ||||||||
Preliminary Survey and Investigation Charges | 2,670 | 2,054 | |||||||||
Regulatory Assets | 111,494 | 110,479 | |||||||||
Restricted Cash | 28,936 | 44,269 | |||||||||
Non-utility Assets - Net | 10,639 | 10,370 | |||||||||
Other | 1,408 | 1,899 | |||||||||
TOTAL DEFERRED CHARGES AND OTHER ASSETS | 160,720 | 175,015 | |||||||||
TOTAL ASSETS | $ | 950,870 | $ | 909,878 | |||||||
| |||||||||||
CAPITALIZATION AND LIABILITIES | |||||||||||
CAPITALIZATION: | Common Stock, No Par Value | $ | 216,365 | 215,125 | |||||||
Retained Earnings | 117,008 | 108,667 | |||||||||
TOTAL COMMON EQUITY | 333,373 | 323,792 | |||||||||
Preferred Stock | 2,084 | 2,084 | |||||||||
Long-term Debt | 237,939 | 230,777 | |||||||||
TOTAL CAPITALIZATION | 573,396 | 556,653 | |||||||||
| |||||||||||
CURRENT | Current Portion of Long-term Debt | 7,340 | 7,178 | ||||||||
LIABILITIES: | Notes Payable | 37,500 | 20,000 | ||||||||
Accounts Payable | 22,803 | 23,306 | |||||||||
Accrued Taxes | 10,106 | 7,635 | |||||||||
Accrued Interest | 2,092 | 2,031 | |||||||||
Unearned Revenues and Advanced Service Fees | 1,329 | 1,211 | |||||||||
Other | 3,124 | 3,620 | |||||||||
TOTAL CURRENT LIABILITIES | 84,294 | 64,981 | |||||||||
| |||||||||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7) | |||||||||||
DEFERRED CREDITS | Customer Advances for Construction | 24,342 | 23,905 | ||||||||
AND OTHER LIABILITIES: | Lease Obligations | 5,329 | 5,732 | ||||||||
Accumulated Deferred Income Taxes | 57,350 | 54,408 | |||||||||
Employee Benefit Plans | 33,731 | 34,671 | |||||||||
Regulatory Liabilities | 64,998 | 69,152 | |||||||||
Other | 2,480 | 2,546 | |||||||||
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES | 188,230 | 190,414 | |||||||||
| |||||||||||
CONTRIBUTIONS IN AID OF CONSTRUCTION | 104,950 | 97,830 | |||||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 950,870 | $ | 909,878 |
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Income | $ | 17,381 | $ | 14,696 | ||||
Adjustments to Reconcile Net Income to | ||||||||
Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 10,304 | 8,455 | ||||||
Provision for Deferred Income Taxes and Investment Tax Credits | (7,206 | ) | (5,075 | ) | ||||
Equity Portion of Allowance for Funds Used During Construction (AFUDC) | (1,182 | ) | (775 | ) | ||||
Cash Surrender Value of Life Insurance | (47 | ) | (200 | ) | ||||
Stock Compensation Expense | 632 | 703 | ||||||
Changes in Assets and Liabilities: | ||||||||
Accounts Receivable | (711 | ) | 6 | |||||
Unbilled Revenues | (1,756 | ) | (952 | ) | ||||
Materials & Supplies | 171 | 36 | ||||||
Prepayments | (1,594 | ) | (1,273 | ) | ||||
Accounts Payable | (503 | ) | (1,269 | ) | ||||
Accrued Taxes | 2,471 | (1,840 | ) | |||||
Accrued Interest | 61 | (10 | ) | |||||
Employee Benefit Plans | 840 | (2,804 | ) | |||||
Unearned Revenue & Advanced Service Fees | 118 | 11 | ||||||
Other Assets and Liabilities | 1,840 | 1,911 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 20,819 | 11,620 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Utility Plant Expenditures, Including AFUDC of $735 in 2020, $383 in 2019 | (45,417 | ) | (35,698 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (45,417 | ) | (35,698 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Redemption of Long-term Debt | (2,288 | ) | (2,356 | ) | ||||
Proceeds from Issuance of Long-term Debt | 9,721 | 13,217 | ||||||
Net Short-term Bank Borrowings | 17,500 | 10,900 | ||||||
Deferred Debt Issuance Expense | (33 | ) | (1 | ) | ||||
Common Stock Issuance Expense | (37 | ) | (5 | ) | ||||
Proceeds from Issuance of Common Stock | 608 | 7,081 | ||||||
Payment of Common Dividends | (8,942 | ) | (7,906 | ) | ||||
Payment of Preferred Dividends | (60 | ) | (72 | ) | ||||
Construction Advances and Contributions-Net | 3,762 | 1,719 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 20,231 | 22,577 | ||||||
NET CHANGES IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (4,367 | ) | (1,501 | ) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 46,499 | 5,661 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 42,132 | $ | 4,160 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: | ||||||||
Utility Plant received as Construction Advances and Contributions | $ | 3,796 | $ | 3,825 | ||||
Long term Debt Deobligation | $ | - | $ | 130 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Interest | $ | 3,754 | $ | 3,401 | ||||
Interest Capitalized | $ | 735 | $ | 383 | ||||
Income Taxes | $ | 377 | $ | 5,842 |
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT
(Unaudited)
(In thousandsthousands)
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Common Stock, No Par Value | ||||||||
Shares Authorized - 40,000 | ||||||||
Shares Outstanding - 2019 - 16,670; 2018 - 16,403 | $ | 170,562 | $ | 157,354 | ||||
Retained Earnings | 105,233 | 91,433 | ||||||
TOTAL COMMON EQUITY | $ | 275,795 | $ | 248,787 | ||||
Cumulative Preferred Stock, No Par Value: | ||||||||
Shares Authorized - 2019 - 123; 2018 - 126 | ||||||||
Shares Outstanding - 2019 - 20; 2018 - 23 | ||||||||
Convertible: | ||||||||
Shares Outstanding, $7.00 Series - 10 | 1,005 | 1,005 | ||||||
Shares Outstanding, $8.00 Series - 2019 - 0; 2018 - 3 | — | 349 | ||||||
Nonredeemable: | ||||||||
Shares Outstanding, $7.00 Series - 1 | 79 | 79 | ||||||
Shares Outstanding, $4.75 Series - 10 | 1,000 | 1,000 | ||||||
TOTAL PREFERRED STOCK | $ | 2,084 | $ | 2,433 | ||||
Long-term Debt: | ||||||||
8.05%, Amortizing Secured Note, due December 20, 2021 | $ | 715 | $ | 924 | ||||
6.25%, Amortizing Secured Note, due May 19, 2028 | 3,640 | 3,955 | ||||||
6.44%, Amortizing Secured Note, due August 25, 2030 | 3,057 | 3,267 | ||||||
6.46%, Amortizing Secured Note, due September 19, 2031 | 3,337 | 3,547 | ||||||
4.22%, State Revolving Trust Note, due December 31, 2022 | 202 | 228 | ||||||
3.60%, State Revolving Trust Note, due May 1, 2025 | 1,519 | 1,632 | ||||||
3.30% State Revolving Trust Note, due March 1, 2026 | 309 | 351 | ||||||
3.49%, State Revolving Trust Note, due January 25, 2027 | 349 | 389 | ||||||
4.03%, State Revolving Trust Note, due December 1, 2026 | 474 | 501 | ||||||
4.00% to 5.00%, State Revolving Trust Bond, due August 1, 2021 | 60 | 111 | ||||||
0.00%, State Revolving Fund Bond, due August 1, 2021 | 50 | 88 | ||||||
3.64%, State Revolving Trust Note, due July 1, 2028 | 225 | 235 | ||||||
3.64%, State Revolving Trust Note, due January 1, 2028 | 73 | 77 | ||||||
3.45%, State Revolving Trust Note, due August 1, 2031 | 851 | 907 | ||||||
6.59%, Amortizing Secured Note, due April 20, 2029 | 3,343 | 3,604 | ||||||
7.05%, Amortizing Secured Note, due January 20, 2030 | 2,583 | 2,771 | ||||||
5.69%, Amortizing Secured Note, due January 20, 2030 | 5,299 | 5,684 | ||||||
4.45%, Amortizing Secured Note, due April 20, 2040 | 9,057 | 9,387 | ||||||
4.47%, Amortizing Secured Note, due April 20, 2040 | 3,361 | 3,483 | ||||||
3.75%, State Revolving Trust Note, due July 1, 2031 | 1,892 | 1,954 | ||||||
2.00%, State Revolving Trust Note, due February 1, 2036 | 1,013 | 1,064 | ||||||
3.75%, State Revolving Trust Note, due November 30, 2030 | 990 | 1,024 | ||||||
0.00% Construction Loans | 38,171 | 16,509 | ||||||
First Mortgage Bonds: | ||||||||
0.00%, Series Z, due August 1, 2019 | — | 113 | ||||||
5.25% to 5.75%, Series AA, due August 1, 2019 | — | 155 | ||||||
0.00%, Series BB, due August 1, 2021 | 241 | 362 | ||||||
4.00% to 5.00%, Series CC, due August 1, 2021 | 331 | 489 | ||||||
0.00%, Series EE, due August 1, 2023 | 1,455 | 1,876 | ||||||
3.00% to 5.50%, Series FF, due August 1, 2024 | 2,440 | 2,980 | ||||||
0.00%, Series GG, due August 1, 2026 | 633 | 723 | ||||||
4.00% to 5.00%, Series HH, due August 1, 2026 | 710 | 795 | ||||||
0.00%, Series II, due August 1, 2024 | 429 | 520 | ||||||
3.40% to 5.00%, Series JJ, due August 1, 2027 | 588 | 671 | ||||||
0.00%, Series KK, due August 1, 2028 | 807 | 898 | ||||||
5.00% to 5.50%, Series LL, due August 1, 2028 | 928 | 1,010 | ||||||
0.00%, Series MM, due August 1, 2030 | 1,037 | 1,137 | ||||||
3.00% to 4.375%, Series NN, due August 1, 2030 | 1,190 | 1,415 | ||||||
0.00%, Series OO, due August 1, 2031 | 1,806 | 1,956 | ||||||
2.00% to 5.00%, Series PP, due August 1, 2031 | 660 | 700 | ||||||
5.00%, Series QQ, due October 1, 2023 | 9,915 | 9,915 | ||||||
3.80%, Series RR, due October 1, 2038 | 22,500 | 22,500 | ||||||
4.25%, Series SS, due October 1, 2047 | 23,000 | 23,000 | ||||||
0.00%, Series TT, due August 1, 2032 | 1,957 | 2,107 | ||||||
3.00% to 3.25%, Series UU, due August 1, 2032 | 755 | 800 | ||||||
0.00%, Series VV, due August 1, 2033 | 2,003 | 2,147 | ||||||
3.00% to 5.00%, Series WW, due August 1, 2033 | 755 | 795 | ||||||
0.00%, Series XX, due August 1, 2047 | 10,627 | 11,006 | ||||||
3.00% to 5.00%, Series YY, due August 1, 2047 | 3,785 | 3,860 | ||||||
0.00%, Series 2018A, due August 1, 2047 | 6,678 | 6,917 | ||||||
3.00%-5.00%, Series 2018B, due August 1, 2047 | 2,320 | 2,365 | ||||||
4.00%, Series 2019A, due August 1, 2059 | 32,500 | — | ||||||
5.00%, Series 2019B, due August 1, 2059 | 21,200 | — | ||||||
SUBTOTAL LONG-TERM DEBT | 231,820 | 162,904 | ||||||
Add: Premium on Issuance of Long-term Debt | 8,164 | 1,259 | ||||||
Less: Unamortized Debt Expense | (4,551 | ) | (3,969 | ) | ||||
Less: Current Portion of Long-term Debt | (7,161 | ) | (7,343 | ) | ||||
TOTAL LONG-TERM DEBT | $ | 228,272 | $ | 152,851 |
June 30, | December 31, | ||||||||
2020 | 2019 | ||||||||
Common Stock, No Par Value | |||||||||
Shares Authorized - 40,000 | |||||||||
Shares Outstanding - 2020 - 17,464; 2019 - 17,434 | $ | 216,365 | $ | 215,125 | |||||
Retained Earnings | 117,008 | 108,667 | |||||||
TOTAL COMMON EQUITY | $ | 333,373 | $ | 323,792 | |||||
Cumulative Preferred Stock, No Par Value: | |||||||||
Shares Authorized - 120 | |||||||||
Shares Outstanding - 2020 - 20: 2019 - 20 | |||||||||
Convertible: | |||||||||
Shares Outstanding, $7.00 Series - 10 | $ | 1,005 | $ | 1,005 | |||||
Nonredeemable: | |||||||||
Shares Outstanding, $7.00 Series - 1 | 79 | 79 | |||||||
Shares Outstanding, $4.75 Series - 10 | 1,000 | 1,000 | |||||||
TOTAL PREFERRED STOCK | $ | 2,084 | $ | 2,084 | |||||
Long-term Debt: | |||||||||
8.05%, Amortizing Secured Note, due December 20, 2021 | $ | 493 | $ | 643 | |||||
6.25%, Amortizing Secured Note, due May 19, 2028 | 3,325 | 3,535 | |||||||
6.44%, Amortizing Secured Note, due August 25, 2030 | 2,847 | 2,987 | |||||||
6.46%, Amortizing Secured Note, due September 19, 2031 | 3,127 | 3,267 | |||||||
4.22%, State Revolving Trust Note, due December 31, 2022 | 147 | 175 | |||||||
3.60%, State Revolving Trust Note, due May 1, 2025 | 1,288 | 1,405 | |||||||
3.30% State Revolving Trust Note, due March 1, 2026 | 288 | 309 | |||||||
3.49%, State Revolving Trust Note, due January 25, 2027 | 328 | 349 | |||||||
4.03%, State Revolving Trust Note, due December 1, 2026 | 419 | 446 | |||||||
4.00% to 5.00%, State Revolving Trust Bond, due August 1, 2021 | 60 | 60 | |||||||
0.00%, State Revolving Fund Bond, due August 1, 2021 | 48 | 50 | |||||||
3.64%, State Revolving Trust Note, due July 1, 2028 | 214 | 214 | |||||||
3.64%, State Revolving Trust Note, due January 1, 2028 | 69 | 69 | |||||||
3.45%, State Revolving Trust Note, due August 1, 2031 | 822 | 851 | |||||||
6.59%, Amortizing Secured Note, due April 20, 2029 | 3,081 | 3,255 | |||||||
7.05%, Amortizing Secured Note, due January 20, 2030 | 2,396 | 2,521 | |||||||
5.69%, Amortizing Secured Note, due January 20, 2030 | 4,915 | 5,171 | |||||||
4.45%, Amortizing Secured Note, due April 20, 2040 | 8,727 | 8,946 | |||||||
4.47%, Amortizing Secured Note, due April 20, 2040 | 3,238 | 3,320 | |||||||
3.75%, State Revolving Trust Note, due July 1, 2031 | 1,829 | 1,829 | |||||||
2.00%, State Revolving Trust Note, due February 1, 2036 | 987 | 1,013 | |||||||
2.00%, State Revolving Trust Note, due November 1, 2038 | 1,579 | 1,309 | |||||||
3.75%, State Revolving Trust Note, due November 30, 2030 | 919 | 955 | |||||||
0.00% Construction Loans | 49,918 | 40,467 | |||||||
First Mortgage Bonds: | |||||||||
0.00%, Series BB, due August 1, 2021 | 235 | 241 | |||||||
4.00% to 5.00%, Series CC, due August 1, 2021 | 331 | 331 | |||||||
0.00%, Series EE, due August 1, 2023 | 1,407 | 1,456 | |||||||
3.00% to 5.50%, Series FF, due August 1, 2024 | 2,440 | 2,440 | |||||||
0.00%, Series GG, due August 1, 2026 | 621 | 632 | |||||||
4.00% to 5.00%, Series HH, due August 1, 2026 | 710 | 710 | |||||||
0.00%, Series II, due August 1, 2024 | 416 | 429 | |||||||
3.40% to 5.00%, Series JJ, due August 1, 2027 | 588 | 588 | |||||||
0.00%, Series KK, due August 1, 2028 | 790 | 807 | |||||||
5.00% to 5.50%, Series LL, due August 1, 2028 | 928 | 928 | |||||||
0.00%, Series MM, due August 1, 2030 | 1,003 | 1,037 | |||||||
3.00% to 4.375%, Series NN, due August 1, 2030 | 1,190 | 1,190 | |||||||
0.00%, Series OO, due August 1, 2031 | 1,756 | 1,806 | |||||||
2.00% to 5.00%, Series PP, due August 1, 2031 | 660 | 660 | |||||||
5.00%, Series QQ, due October 1, 2023 | 9,915 | 9,915 | |||||||
3.80%, Series RR, due October 1, 2038 | 22,500 | 22,500 | |||||||
4.25%, Series SS, due October 1, 2047 | 23,000 | 23,000 | |||||||
0.00%, Series TT, due August 1, 2032 | 1,906 | 1,957 | |||||||
3.00% to 3.25%, Series UU, due August 1, 2032 | 755 | 755 | |||||||
0.00%, Series VV, due August 1, 2033 | 1,956 | 2,004 | |||||||
3.00% to 5.00%, Series WW, due August 1, 2033 | 755 | 755 | |||||||
0.00%, Series XX, due August 1, 2047 | 10,500 | 10,627 | |||||||
3.00% to 5.00%, Series YY, due August 1, 2047 | 3,785 | 3,785 | |||||||
0.00%, Series 2018A, 2017 RENEW due August 1, 2047 | 6,599 | 6,678 | |||||||
3.00%-5.00%, Series 2018B, 2017 RENEW due August 1, 2047 | 2,320 | 2,320 | |||||||
4.00%, Series 2019A, due August 1, 2059 | 32,500 | 32,500 | |||||||
5.00%, Series 2019B, due August 1, 2059 | 21,200 | 21,200 | |||||||
SUBTOTAL LONG-TERM DEBT | 241,830 | 234,397 | |||||||
Add: Premium on Issuance of Long-term Debt | 7,866 | 8,064 | |||||||
Less: Unamortized Debt Expense | (4,417 | ) | (4,506 | ) | |||||
Less: Current Portion of Long-term Debt | (7,340 | ) | (7,178 | ) | |||||
TOTAL LONG-TERM DEBT | $ | 237,939 | $ | 230,777 |
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
Common | Common | |||||||||||||||
Stock | Stock | Retained | ||||||||||||||
Shares | Amount | Earnings | Total | |||||||||||||
For the Three Months Ended September 30, 2018 | ||||||||||||||||
Balance at July 1, 2018 | 16,392 | 156,251 | 79,826 | $ | 236,077 | |||||||||||
Net Income | — | — | 12,290 | 12,290 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 8 | 266 | — | 266 | ||||||||||||
Restricted Stock Award, Net - Employees | — | 242 | — | 242 | ||||||||||||
Shares Forfeited | (2 | ) | (18 | ) | — | (18 | ) | |||||||||
Cash Dividends on Common Stock ($0.2238 per share) | — | — | (3,667 | ) | (3,667 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (36 | ) | (36 | ) | ||||||||||
Balance at September 30, 2018 | 16,398 | $ | 156,741 | $ | 88,413 | $ | 245,154 | |||||||||
For the Nine Months Ended September 30, 2018 | ||||||||||||||||
Balance at January 1, 2018 | 16,352 | $ | 155,120 | $ | 74,055 | $ | 229,175 | |||||||||
Net Income | — | — | 25,459 | 25,459 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 21 | 864 | — | 864 | ||||||||||||
Restricted Stock Award, Net - Employees | 23 | 628 | — | 628 | ||||||||||||
Stock Award - Board Of Directors | 4 | 147 | — | 147 | ||||||||||||
Shares Forfeited | (2 | ) | (18 | ) | — | (18 | ) | |||||||||
Cash Dividends on Common Stock ($0.6713 per share) | — | — | (10,993 | ) | (10,993 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (108 | ) | (108 | ) | ||||||||||
Balance at September 30, 2018 | 16,398 | $ | 156,741 | $ | 88,413 | $ | 245,154 | |||||||||
For the Three Months Ended September 30, 2019 | ||||||||||||||||
Balance at July 1, 2019 | 16,554 | $ | 165,138 | $ | 98,146 | $ | 263,284 | |||||||||
Net Income | — | — | 11,119 | 11,119 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 92 | 5,368 | — | 5,368 | ||||||||||||
Restricted Stock Award, Net - Employees | 1 | 172 | — | 172 | ||||||||||||
Shares Forefeited | (18 | ) | (466 | ) | — | (466 | ) | |||||||||
Conversion of $8.00 Convertible Preferred Stock | 41 | 350 | — | 350 | ||||||||||||
Cash Dividends on Common Stock ($0.2400 per share) | — | — | (3,987 | ) | (3,987 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (30 | ) | (30 | ) | ||||||||||
Common Stock Expenses | — | — | (15 | ) | (15 | ) | ||||||||||
Balance at September 30, 2019 | 16,670 | $ | 170,562 | $ | 105,233 | $ | 275,795 | |||||||||
For the Nine Months Ended September 30, 2019 | ||||||||||||||||
Balance at January 1, 2019 | 16,403 | $ | 157,354 | $ | 91,433 | $ | 248,787 | |||||||||
Net Income | — | — | 25,818 | 25,818 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 222 | 12,449 | — | 12,449 | ||||||||||||
Restricted Stock Award, Net - Employees | 18 | 679 | — | 679 | ||||||||||||
Stock Award - Board Of Directors | 4 | 196 | — | 196 | ||||||||||||
Shares Forefeited | (18 | ) | (466 | ) | — | (466 | ) | |||||||||
Conversion of $8.00 Convertible Preferred Stock | 41 | 350 | — | 350 | ||||||||||||
Cash Dividends on Common Stock ($0.7200 per share) | — | — | (11,893 | ) | (11,893 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (102 | ) | (102 | ) | ||||||||||
Common Stock Expenses | — | — | (23 | ) | (23 | ) | ||||||||||
Balance at September 30, 2019 | 16,670 | $ | 170,562 | $ | 105,233 | $ | 275,795 |
Common | Common | |||||||||||||||
Stock | Stock | Retained | ||||||||||||||
Shares | Amount | Earnings | Total | |||||||||||||
For the Three Months Ended June 30, 2019 | ||||||||||||||||
Balance at April 1, 2019 | 16,451 | $ | 160,142 | $ | 94,000 | $ | 254,142 | |||||||||
Net Income | — | — | 8,146 | 8,146 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 82 | 4,522 | — | 4,522 | ||||||||||||
Restricted Stock Award, Net - Employees | 17 | 278 | — | 278 | ||||||||||||
Stock Award - Board Of Directors | 4 | 196 | — | 196 | ||||||||||||
Cash Dividends on Common Stock ($0.2400 per share) | — | — | (3,964 | ) | (3,964 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (36 | ) | (36 | ) | ||||||||||
Balance at June 30, 2019 | 16,554 | $ | 165,138 | $ | 98,146 | $ | 263,284 | |||||||||
For the Six Months Ended June 30, 2019 | ||||||||||||||||
Balance at January 1, 2019 | 16,403 | $ | 157,354 | $ | 91,433 | $ | 248,787 | |||||||||
Net Income | — | — | 14,696 | 14,696 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 130 | 7,081 | — | 7,081 | ||||||||||||
Restricted Stock Award, Net - Employees | 17 | 507 | — | 507 | ||||||||||||
Stock Award - Board Of Directors | 4 | 196 | — | 196 | ||||||||||||
Cash Dividends on Common Stock ($0.4800 per share) | — | — | (7,906 | ) | (7,906 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (72 | ) | (72 | ) | ||||||||||
Common Stock Expenses | — | — | (5 | ) | (5 | ) | ||||||||||
Balance at June 30, 2019 | 16,554 | $ | 165,138 | $ | 98,146 | $ | 263,284 | |||||||||
For the Three Months Ended June 30, 2020 | ||||||||||||||||
Balance at April 1, 2020 | 17,439 | $ | 215,600 | $ | 111,800 | $ | 327,400 | |||||||||
Net Income | — | — | 9,713 | 9,713 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 4 | 294 | — | 294 | ||||||||||||
Restricted Stock Award - Net - Employees | 17 | 226 | — | 226 | ||||||||||||
Restricted Stock Award - Board of Directors | 4 | 245 | — | 245 | ||||||||||||
Cash Dividends on Common Stock ($0.2563 per share) | — | — | (4,475 | ) | (4,475 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (30 | ) | (30 | ) | ||||||||||
Balance at June 30, 2020 | 17,464 |
|
| $ | 216,365 |
|
| $ | 117,008 |
|
| $ | 333,373 | |||
For the Six Months Ended June 30, 2020 | ||||||||||||||||
Balance at January 1, 2020 | 17,434 | $ | 215,125 | $ | 108,667 | $ | 323,792 | |||||||||
Net Income | — | — | 17,381 | 17,381 | ||||||||||||
Dividend Reinvestment & Common Stock Purchase Plan | 9 | 608 | — | 608 | ||||||||||||
Restricted Stock Award - Net - Employees | 17 | 387 | — | 387 | ||||||||||||
Restricted Stock Award - Board Of Directors | 4 | 245 | 245 | |||||||||||||
Cash Dividends on Common Stock ($0.5125 per share) | — | — | (8,942 | ) | (8,942 | ) | ||||||||||
Cash Dividends on Preferred Stock | — | — | (60 | ) | (60 | ) | ||||||||||
Common Stock Expenses | — | — | (38 | ) | (38 | ) | ||||||||||
Balance at June 30, 2020 | 17,464 | $ | 216,365 | $ | 117,008 | $ | 333,373 |
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Recent Developments
Middlesex Water Company (Middlesex or the Company) 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 Twin Lakes Utilities, Inc. (Twin Lakes). 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 20182019 Annual Report on Form 10-K (2018(the 2019 Form 10-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 (including normal recurring accruals) to present fairly the financial position as of SeptemberJune 30, 2019 and2020, the results of operations for the three month and six month periods ended June 30, 2020 and 2019 and cash flows for the three month and ninesix month periods ended SeptemberJune 30, 20192020 and 2018.2019. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2018,2019, has been derived from the Company’s audited financial statements for the year ended December 31, 20182019 included in the 20182019 Form 10-K.
Recent Developments
Tidewater to Acquire Water SystemsNovel Coronavirus (COVID-19) - On October 8, 2019,March 13, 2020, the United States declared the COVID-19 pandemic a national emergency. The impact on changing economic conditions due to COVID-19 is uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. While the Company’s operations and capital construction program have not been significantly disrupted to date from COVID-19, we are unable to accurately assess the impact that COVID-19 will have on our business, our customers and our vendors prospectively, due to numerous uncertainties, including the severity of the pandemic, the duration of the outbreak and actions which could potentially be taken by governmental and/or regulatory authorities. The Company has drawn partially on its available lines of credit to provide additional liquidity in the event there is a negative impact to the Company’s business, results of operations, financial condition or liquidity resulting from COVID-19. As of July 31, 2020, there remains $106.5 million available under these lines of credit (see Note 6, Short-term Borrowings for further information on lines of credit). In addition, the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC) approved Tidewater’s requesthave allowed for potential future recovery of COVID-19 related incremental costs in customer rates by regulated utilities in their respective jurisdictions. Neither jurisdiction has yet to purchaseestablish a timetable or method for formally seeking cost recovery. We will continue to monitor and evaluate the water utility assetsCOVID-19 situation and its impact to the Company’s business, results of J.H. Wilkersonoperations, financial condition and Son, Inc.liquidity.
Contract Operations – In May 2020, USA, through a competitive bidding process, was awarded a ten-year, $8.3 million contract to operate and transfer the Certificate of Public Convenience and Necessity in order for Tidewater to serve the approximate 1,000 customers currently connected to eight community water systems located mostly in eastern Sussex County, Delaware. The DEPSC also authorized Tidewater to maintain the existing rates that these customers currently pay.Borough of Highland Park, New Jersey’s water and wastewater systems. The transaction is expected to close in the fourth quarter of 2019.contract commenced July 1, 2020.
Recently Adopted Accounting Guidance
LeasesCredit Losses on Financial Instruments -On January 1, 2019, the Company adoptedThe Financial Accounting Standards Board (FASB) issued guidance relatedon the measurement of credit losses on financial instruments, including trade receivables, which requires expected credit losses to leases which required lessees to recognize a lease liabilitybe measured based on historical experience, current conditions and a right-of-use asset. The Company electedreasonable and supportable forecasts that affect the optional transition method of adoption option to apply the requirementscollectability of the standard in the periodreported amount of adoption with no restatement of prior periods.financial assets. The Company utilized the package of transition practical expedients provided by the new guidance including carrying forward prior conclusions relatedbecame effective January 1, 2020. For the Company, this applies primarily to contracts that contain leasesaccounts receivable and lease classification. The Company also utilized the transition practical expedient permitting entities to forgo the evaluation of existing land easement arrangements to determine if they contain a lease. Land easement arrangements, or modifications to existing arrangements, entered into after adoption of this guidance will need to be evaluated to determine if they meet the definition of a lease.unbilled revenue balances. The adoption of this guidance resulted in the recording ofdid not have a $6.7 million right-of-use asset, a $7.1 million lease liability and a $0.4 million regulatory assetmaterial impact on the Company’s consolidated balance sheet asfinancial statements.
Expected credit losses on accounts receivable and unbilled revenues are based on historical write-offs combined with an evaluation of January 1, 2019. For further discussion, see “Leases” inNote 7 – Commitmentscurrent conditions and Contingent Liabilities.
reasonable and supportable forecasts. Customer accounts are written off when collection efforts have been exhausted.
There are no other new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s financial statements.
6
Note 2–Rate and Regulatory Matters
Middlesex –In December 2018,March 2020, the New Jersey Board of Public Utilities (NJBPU)NJBPU approved Middlesex’s petition to establishreset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional annual costs of less than $0.1$0.6 million primarily for the purchase of treated water from a non-affiliated water utility regulated by the NJBPU. The new PWAC rate became effective on April 4, 2020. A PWAC is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings. The PWACIt is reset to zero once those increased costs are included in base rates. The PWAC tariff rate became effective on January 1, 2019.
Tidewater -Effective July 1, 2019,2020, Tidewater resetincreased its DEPSC approvedDEPSC-approved Distribution System Improvement Charge (DSIC) rate, which is expected to generate revenuesrevenue of approximately $0.5 million annually. A DSIC is a rate-mechanism that allows water utilities to recover investments in, and generate a return on, qualifying capital improvements made between base rate proceedings.
In February 2019, Tidewater received approval fromSouthern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to reduce itsa 2,200 unit condominium community in Sussex County, Delaware. Under the agreement, current rates effective March 1, 2019,will remain in effect until December 31, 2024, but should there be unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period, rates are permitted to be adjusted to reflect such cost changes. Thereafter, rate increases, if any, cannot exceed the lower corporate income tax rate enacted bylesser of theTax Cuts and Jobs Act of 2017 (Tax Act), resulting in an overall rate decrease of 3.35%, regional Consumer Price Index or $1.0 million of revenues,3%. The new agreement expires on an annual basis. The DEPSC alsoDecember 31, 2029.
Twin Lakes - In March 2020, the Pennsylvania Public Utilities Commission (PAPUC) approved a one-time credit of $0.7 million to customers’ accounts related to the lower corporate income tax rate.
Pinelands -On October 25, 2019, Pinelands Water and Pinelands Wastewater concluded their base rate case matters when the NJBPU approved a $0.5$0.1 million increase in annualannualized base rates effective November 4, 2019.for Twin Lakes. In MarchJuly 2019, Pinelands Water and Pinelands WastewaterTwin Lakes had filed petitionsa petition with the NJBPUPAPUC seeking permission to increase annualized base rates by approximately $0.7$0.2 million, per year. The requests were necessitated by capital infrastructure investments both companies had made, and increased operations and maintenance costs. The new rates became effective April 19, 2020.
Twin LakesCOVID-19 -In July 2019, Twin Lakes filed a petition withThe NJBPU and the Pennsylvania Public Utilities Commission (PAPUC) seeking permissionDEPSC have allowed for potential future recovery in customer rates of additional costs related to increase base rates by approximately $0.2 million per year. This request was necessitated by capital infrastructure investments Twin Lakes has made and increased operations and maintenance costs. We cannot predict whether the PAPUC will ultimately approve, deny, or reduce the amountCOVID-19 (for further discussion of the request. A decision byimpact of COVID-19 on the PAPUC is not expected before the first quarterCompany, see Note 1- Basis of 2020.Presentation and Recent Developments, Recent Developments).
Note 3 – Capitalization
Common Stock -During the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, there were 221,558 common shares ($12.4 million) and 21,0019,378 common shares (approximately $0.9$0.6 million) and 129,675 common shares ($7.1 million), respectively, issued under the Middlesex Water Company Investment Plan (Investment(the Investment Plan). OnIn January 2, 2019, the Company began offering shareshad activated a limited share purchase discount feature of its common stock for purchase at a 5% discount to participants in the Investment Plan. InA 5% discount was available until August 2019, when the 200,0000.2 million share purchase limit established for the 5% discount program was reached and the program was concluded.discount feature terminated.
In September 2019, the Company determined it had inadvertently sold shares of its common stock through the Investment Plan from August 1, 2018 through September 3, 2019 (Eligible Period) after the registration statement covering sales through the Investment Plan had expired and therefore was no longer effective. Under applicable federal securities laws, participants in the Investment Plan who purchased shares of common stock have a right to rescind their Eligible Period purchases and require the Company to repurchase these shares for an amount equal to the price paid by the participant, less any dividends paid on the purchased shares, plus interest.
In October 2019, the Company’s Board of Directors approved a plan to voluntarily offer a right of rescission (Rescission Offer) to Investment Plan participants who purchased shares of the Company’s common stock during the Eligible Period. During the Eligible Period, Investment Plan participants purchased 232,643 shares at an average price of $55.79 per share.
On October 11, 2019, the Company filed a supplement to the Investment Plan prospectus (Prospectus Supplement) with the United States Securities and Exchange Commission registering both the Rescission Offer and the 232,643 shares sold during the Eligible Period and notifying eligible Investment Plan participants of the specific details of the Rescission Offer. Investment Plan participants have thirty (30) days from the notification date to decide to accept or reject the Rescission Offer. Based on the current market price of the Company’s common stock, the Company does not expect that the exercise of any applicable rescission rights under the Rescission Offer by participants will have a material impact on its results of operations, financial condition or liquidity.
7
For the nine months ended September 30, 2019, 3,000 shares (approximately $0.3 million) of the Company’s no par $8.00 Series Cumulative and Convertible Preferred Stock were converted into 41,142 shares of common stock.
In May 2019, Middlesex received approval from the NJBPU to issue and sell up to 1,500,000 shares of its common stock in one or more transactions through December 31, 2022. Sales of additional shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure investment program. As described below in “Long-term Debt”, the NJBPU approved the New Jersey Economic Development Authority (NJEDA) debt funding component of the financing plan.
Long-term Debt -Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant and other assets.plant. To the extent possible, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates that are typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The current interest rate on the Company’s current construction loan borrowings is zero percent (0%). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The current term of the long-term loans currently offered through the NJIB is up to thirty years. The current portion of the principal balance having a stated interest rate of zero percent (0%) is 75% with the remaining portion of 25% having a market based interest rate.
The NJIB generally schedules its long-term debt financings in May and November. Middlesex currently has two projects that are in the construction loan phase of the New Jersey SRF program:program as follows:
1)
In April 2018, the NJBPU approved Middlesex’s request to participate in the NJIB loan program to fund the construction of a large-diameter transmission pipeline from the Carl J. Olsen water treatment plant in Edison, New Jersey and interconnect with our distribution system. Middlesex closed on a $43.5 million NJIB interest-free construction loan in August 2018. Through June 30, 2020, Middlesex has drawn a total of $41.3 million and expects to continue to draw down on this construction loan through the third quarter of 2020.
2)
In March 2018, the NJBPU approved Middlesex’s request to participate in the NJIB loan program to fund the 2018 RENEW Program, which is an ongoing initiative to eliminate unlined water distribution mains in the Middlesex system. Middlesex closed on an $8.7 million NJIB construction loan in September 2018 and completed withdrawal of the proceeds in October 2019.
The Company expects that the large-diameter transmission pipeline and the 2018 RENEW construction loans will be included in the NJIB MayNovember 2020 long-term debt financing program.
In MaySeptember 2018, Middlesex repaid its RENEW 2017 interest-freethe NJIB announced changes to the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan by issuingcloses after September 2018. Under the amended regulations, the principal balance having a stated interest rate of zero percent (0%) is 25% of the loan balance with the remaining 75% having a market based interest rate. This is limited to the NJIB first mortgage bonds$10.0 million of the loan. Loan amounts above $10.0 million do not participate in the amount0% rate program, but do participate at the market based interest rate. As a result of $9.5 million designated as Series 2018A ($7.1 million) and Series 2018B ($2.4 million). The interest rate onall these changes, the Series 2018A bond is zero and the interest rate on the Series 2018B bond ranges between 3.0% and 5.0%. The final maturity date for both bonds is August 1, 2047, with scheduled debt service payments over the life of the loans.
8
In 2019,Company’s future capital funding plan does not include participating in the NJIB de-obligated principal payments of $0.1 million on Series NN ofSRF program unless the Company’s First Mortgage Bonds.
In orderterms are further amended to help ensure adherence to its comprehensive financing plan, Middlesex received approval from the NJBPU in February 2019 to issue and sell up to $140 million of First Mortgage Bonds (FMB) through the NJEDA in one orbecome more transactions through December 31, 2022. Because the interest paidfavorable to the bondholders is exempt from federal and New Jersey income taxes, the interest rate on debt issued through the NJEDA is generally lower than otherwise achievable in the traditional taxable corporate bond market. However, the interest received by the bondholder is subject to the Alternative Minimum Tax.
Company.
In August 2019, Middlesex priced and closed on a NJEDANew Jersey Economic Development Authority (NJEDA) debt financing transaction of $53.7 million by issuing FMBsFirst Mortgage Bonds (FMB) designated as Series 2019A ($32.5 million at coupon interest rate of 4.0%) and Series 2019B ($21.2 million at coupon interest rate of 5.0%). The proceeds, including an issuance premium of $7.1 million, are being used to finance several projects under the Water For Tomorrow capital program initiated by the Company to upgrade and replace aging water utility infrastructure. The total proceeds of $60.8 million, initially recorded as Restricted Cash on the balance sheet, is held in escrow by a bond trustee and are drawn down by requisition for the qualifying projects. Through SeptemberJune 30, 2019,2020, Middlesex has drawn a total of $7.6$32.3 million and currently expects to draw the remaining $53.2$28.5 million of proceeds, currently included in Restricted Cash, through the third quarter of 2021.
In May 2020, Middlesex received approval from the NJBPU to borrow up to $100.0 million, in one or more private placement transactions to help fund Middlesex’s multi-year capital construction program. Although Middlesex intends to close on a private placement loan of up to $40 million before the end of 2020, ongoing volatility in the financial markets may influence the timing and amount of the transaction.
In March 2018, the DEPSC approved Tidewater’s request to borrow up to $0.9 million under the Delaware SRF program to fund the replacement of an entire water distribution system of a small Delaware community. Tidewater closed on the SRF loan in May 2018. In April 2019, Tidewater received approval from the DEPSC to increase the borrowing to $1.7 million based on revised project cost estimates. Tidewater closed on the additional SRF loan in October 2019 and immediately began drawing oncompleted withdrawal of the combined loan amount with expected draws continuing through the first quarter ofproceeds in April 2020.
Fair Value of Financial Instruments - The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBFMBs and State Revolving FundSRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:
June 30, 2020 | December 31, 2019 | |||
Carrying | Fair | Carrying | Fair | |
Amount | Value | Amount | Value | |
Bonds | $150,876 | $162,257 | $151,361 | $160,772 |
September 30, 2019 | December 31, 2018 | |||
Carrying | Fair | Carrying | Fair | |
Amount | Value | Amount | Value | |
Bonds | $151,361 | $154,355 | $101,411 | $102,789 |
For other long-term debt for which there was no quoted market price and there is not an active trading market, it was not practicable to estimate their fair value (for details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series noted as “Amortizing Secured Note”, “State Revolving Trust Note” and “Construction Loans” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $80.5$91.0 million and $61.5$83.0 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. Customer advances for construction have carrying amounts of $22.7$24.3 million and $22.6$23.9 million at Septemberas of June 30, 20192020 and December 31, 2018,2019, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.
9
Note 4 – Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding during the period presented. Diluted EPS assumes the conversion of boththe Convertible Preferred Stock $7.00 Series in 2020 and the Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock $8.00 Series.Series in 2019.
(In Thousands Except per Share Amounts) | (In Thousands Except per Share Amounts) | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||||||||||||||||||
Basic: | Income | Shares | Income | Shares | Income | Shares | Income | Shares | ||||||||||||||||||||||||
Net Income | $ | 11,119 | 16,610 | $ | 12,290 | 16,394 | $ | 9,713 | 17,462 | $ | 8,146 | 16,519 | ||||||||||||||||||||
Preferred Dividend | (30 | ) | (36 | ) | (30 | ) | (36 | ) | ||||||||||||||||||||||||
Earnings Applicable to Common Stock | $ | 11,089 | 16,610 | $ | 12,254 | 16,394 | $ | 9,683 | 17,462 | $ | 8,110 | 16,519 | ||||||||||||||||||||
Basic EPS | $ | 0.67 | $ | 0.75 | $ | 0.55 | $ | 0.49 | ||||||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||
Earnings Applicable to Common Stock | $ | 11,089 | 16,610 | $ | 12,254 | 16,394 | $ | 9,683 | 17,462 | $ | 8,110 | 16,519 | ||||||||||||||||||||
$7.00 Series Preferred Dividend | 17 | 115 | 17 | 115 | 17 | 115 | 17 | 115 | ||||||||||||||||||||||||
$8.00 Series Preferred Dividend | — | 32 | 6 | 41 | — | — | 6 | 41 | ||||||||||||||||||||||||
Adjusted Earnings Applicable to Common Stock | $ | 11,106 | 16,757 | $ | 12,277 | 16,550 | $ | 9,700 | 17,577 | $ | 8,133 | 16,675 | ||||||||||||||||||||
Diluted EPS | $ | 0.66 | $ | 0.74 | $ | 0.55 | $ | 0.49 |
(In Thousands Except per Share Amounts) | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Basic: | Income | Shares | Income | Shares | ||||||||||||
Net Income | $ | 25,818 | 16,520 | $ | 25,459 | 16,379 | ||||||||||
Preferred Dividend | (102 | ) | (108 | ) | ||||||||||||
Earnings Applicable to Common Stock | $ | 25,716 | 16,520 | $ | 25,351 | 16,379 | ||||||||||
Basic EPS | $ | 1.56 | $ | 1.55 | ||||||||||||
Diluted: | ||||||||||||||||
Earnings Applicable to Common Stock | $ | 25,716 | 16,520 | $ | 25,351 | 16,379 | ||||||||||
$7.00 Series Preferred Dividend | 50 | 115 | 50 | 115 | ||||||||||||
$8.00 Series Preferred Dividend | 12 | 38 | 18 | 41 | ||||||||||||
Adjusted Earnings Applicable to Common Stock | $ | 25,778 | 16,673 | $ | 25,419 | 16,535 | ||||||||||
Diluted EPS | $ | 1.55 | $ | 1.54 |
(In Thousands Except per Share Amounts) | ||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Basic: | Income | Shares | Income | Shares | ||||||||||||
Net Income | $ | 17,381 | 17,449 | $ | 14,696 | 16,474 | ||||||||||
Preferred Dividend | (60 | ) | (72 | ) | ||||||||||||
Earnings Applicable to Common Stock | $ | 17,321 | 17,449 | $ | 14,624 | 16,474 | ||||||||||
| ||||||||||||||||
Basic EPS | $ | 0.99 | $ | 0.89 | ||||||||||||
| ||||||||||||||||
Diluted: | ||||||||||||||||
Earnings Applicable to Common Stock | $ | 17,321 | 17,449 | $ | 14,624 | 16,474 | ||||||||||
$7.00 Series Preferred Dividend | 34 | 115 | 34 | 115 | ||||||||||||
$8.00 Series Preferred Dividend | — | — | 12 | 41 | ||||||||||||
Adjusted Earnings Applicable to Common Stock | $ | 17,355 | 17,564 | $ | 14,670 | 16,630 | ||||||||||
| ||||||||||||||||
Diluted EPS | $ | 0.99 | $ | 0.88 |
Note 5 – Business Segment Data
The Company has identified two2 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, Delaware and Pennsylvania. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by New Jersey, Delaware and Pennsylvania with respect to utility services within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.
(In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Operations by Segments: | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Regulated | $ | 35,000 | $ | 34,628 | $ | 93,342 | $ | 93,002 | $ | 32,289 | $ | 30,444 | $ | 61,226 | $ | 58,342 | ||||||||||||||||
Non – Regulated | 3,020 | 4,304 | 9,032 | 12,286 | 3,180 | 3,087 | 6,141 | 6,012 | ||||||||||||||||||||||||
Inter-segment Elimination | (251 | ) | (219 | ) | (515 | ) | (479 | ) | (192 | ) | (138 | ) | (321 | ) | (264 | ) | ||||||||||||||||
Consolidated Revenues | $ | 37,769 | $ | 38,713 | $ | 101,859 | $ | 104,809 | $ | 35,277 | $ | 33,393 | $ | 67,046 | $ | 64,090 | ||||||||||||||||
Operating Income: | ||||||||||||||||||||||||||||||||
Regulated | $ | 11,001 | $ | 12,214 | $ | 24,937 | $ | 27,827 | $ | 8,639 | $ | 7,903 | $ | 14,480 | $ | 13,936 | ||||||||||||||||
Non – Regulated | 982 | 704 | 3,025 | 2,162 | 746 | 1,047 | 1,432 | 2,041 | ||||||||||||||||||||||||
Consolidated Operating Income | $ | 11,983 | $ | 12,918 | $ | 27,962 | $ | 29,989 | $ | 9,385 | $ | 8,950 | $ | 15,912 | $ | 15,977 | ||||||||||||||||
Net Income: | ||||||||||||||||||||||||||||||||
Regulated | $ | 10,409 | $ | 11,770 | $ | 23,700 | $ | 23,904 | $ | 9,192 | $ | 7,423 | $ | 16,371 | $ | 13,290 | ||||||||||||||||
Non – Regulated | 710 | 520 | 2,118 | 1,555 | 521 | 723 | 1,010 | 1,406 | ||||||||||||||||||||||||
Consolidated Net Income | $ | 11,119 | $ | 12,290 | $ | 25,818 | $ | 25,459 | $ | 9,713 | $ | 8,146 | $ | 17,381 | $ | 14,696 | ||||||||||||||||
Capital Expenditures: | ||||||||||||||||||||||||||||||||
Regulated | $ | 25,437 | $ | 21,141 | $ | 60,998 | $ | 49,469 | $ | 19,913 | $ | 23,268 | $ | 44,882 | $ | 35,561 | ||||||||||||||||
Non – Regulated | 85 | — | 222 | 49 | 357 | 106 | 535 | 137 | ||||||||||||||||||||||||
Total Capital Expenditures | $ | 25,522 | $ | 21,141 | $ | 61,220 | $ | 49,518 | $ | 20,270 | $ | 23,374 | $ | 45,417 | $ | 35,698 | ||||||||||||||||
As of | As of | As of | As of | ||||||||||||||
September 30, | December 31, | June 30, | December 31, | ||||||||||||||
2019 | 2018 | 2020 | 2019 | ||||||||||||||
Assets: | |||||||||||||||||
Regulated | $ | 886,280 | $ | 764,749 | $ | 953,703 | $ | 910,081 | |||||||||
Non – Regulated | 9,593 | 8,994 | 10,150 | 9,686 | |||||||||||||
Inter-segment Elimination | (8,520 | ) | (5,913 | ) | (12,983 | ) | (9,889 | ) | |||||||||
Consolidated Assets | $ | 887,353 | $ | 767,830 | $ | 950,870 | $ | 909,878 |
Note 6 – Short-term Borrowings
As of September 30, 2019, theThe Company retainedmaintains lines of credit aggregating $120.0 million, an increase of $20.0 million from June 30, 2019. In October 2019,$140.0 million.
(Millions) | |||||||||||||||||
As of June 30, 2020 | Renewal Date | ||||||||||||||||
Outstanding | Available | Maximum | Credit Type | ||||||||||||||
Bank of America | $ | 1.0 | $ | 59.0 | $ | 60.0 | Uncommitted | September 18, 2020 | |||||||||
PNC Bank | 29.0 | 39.0 | 68.0 | Committed | January 31, 2022 | ||||||||||||
CoBank | 7.5 | 4.5 | 12.0 | Committed | November 30, 2020 | ||||||||||||
$ | 37.5 | $ | 102.5 | $ | 140.0 |
The interest rate for borrowings under the Company increased its lines of credit is set using the London InterBank Offered Rate (LIBOR) and adding a credit spread, which varies by financial institution. There is no requirement for a compensating balance under any of the established lines of credit. The CoBank line of credit is expected to $140.0 million. At September 30, 2019,be renewed during the third quarter of 2020 for a term of twenty-four months. The Bank of America line of credit is renewed on an annual basis prior to its expiration.
The weighted average interest rate on the outstanding borrowings at June 30, 2020 under these credit lines were $58.5 million at a weighted average interest rate of 3.06%is 1.21%.
11
The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted average interest rates on those amounts were as follows:
(In Thousands) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Average Daily Amounts Outstanding | $ | 58,259 | $ | 43,402 | $ | 56,881 | $ | 34,332 | ||||||||
Weighted Average Interest Rates | 3.26% | 3.24% | 3.45% | 3.09% |
(In Thousands) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Average Daily Amounts Outstanding | $ | 36,445 | $ | 50,992 | $ | 28,901 | $ | 50,485 | |||||||
Weighted Average Interest Rates | 1.65 | % | 3.52 | % | 1.96 | % | 3.57 | % |
The maturity dates for the $58.5$37.5 million outstanding as of SeptemberJune 30, 20192020 are in October 2019July 2020 through December 2019August 2020 and are extendablerenewable at the discretion of the Company.
Interest rates for short-term borrowings under the lines of credit are below the prime rate with no requirement for compensating balances.11
Note 7 – Commitments and Contingent Liabilities
Water Supply- Middlesex has an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through November 30, 2023, which provides for an average purchase of 27.0 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds.
Middlesex also has an agreement with a non-affiliated regulatedNJBPU-regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2021,28, 2026, provides for the minimum purchase of 3.0 mgd of treated water with provisions for additional purchases.
purchases if needed.
Tidewater contracts with the City of Dover, Delaware to purchase 15.0 million gallons of treated water annually.
Purchased water costs are shown below:
(In Thousands) | ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | (In Thousands) | ||||||||||||||||||||||||||||||
September 30, | September 30, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | June 30, | June 30, | |||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Treated | $ | 818 | $ | 836 | $ | 2,415 | $ | 2,427 |
| $ | 932 | $ | 827 | $ | 1,725 | $ | 1,597 | |||||||||||||||
Untreated | 878 | 948 | 2,521 | 2,728 |
| 782 | 782 | 1,652 | 1,643 | |||||||||||||||||||||||
Total Costs | $ | 1,696 | $ | 1,784 | $ | 4,936 | $ | 5,155 |
| $ | 1,714 | $ | 1,609 | $ | 3,377 | $ | 3,240 |
Guarantees-As part of an agreement with the County of Monmouth, New Jersey (County), Middlesex serves as guarantor of the performance of Applied Water Management, Inc. (AWM), an unaffiliated wastewater treatment contractor, to operate a County-owned leachate pretreatment facility at the Monmouth County Reclamation Center in Tinton Falls, New Jersey. The performance guaranty is effective through 20282029 unless another guarantor, acceptable to the County, replaces Middlesex before such date. Under agreements with AWM and Natural Systems Utilities, LLC (NSU), the parent company of AWM, Middlesex earns a fee for providing the performance guaranty. In addition, Middlesex may provide operational support to the facility, as needed, andneeded. AWM and NSU, servingits parent company, Natural Systems Utilities (NSU), serve as guarantor to Middlesex with respect to the performance of AWM and have indemnified Middlesex against any claims that may arise under the Middlesex guaranty to the County.
If requiredrequested to perform under the guaranty to the County and, if AWM and NSU, as guarantor to Middlesex, do not fulfill their obligations to indemnify Middlesex against any claims that may arise under the Middlesex guaranty to the County, Middlesex would be required to fulfill the remaining operational commitment of AWM. As of September 30, 2019The liability and December 31, 2018,asset for the liability recognizedguaranty are included in Other Non-Current Liabilities and Other Non-Current Assets on the balance sheet for the guaranty isand are approximately $1.3 million and $1.4 million as of June 30, 2020 and $1.5 million,December 31, 2019, respectively.
In November 2019, Middlesex was notified that the County terminated its Agreement with AWM. AWM had initiated legal action against the County in the Superior Court of New Jersey, Monmouth County that in part contests the County’s exercise of this termination. The County filed a counter-claim against NSU and has brought Middlesex into the suit as a third-party defendant. We continue to monitor this litigation; however, given the cancellation of the underlying operating contract by the County, we do not anticipate the ultimate outcome will have a material impact on the Company’s results of operations or financial condition.
Leases-The Company determines if ana contractual arrangement ismeets the criteria to be characterized as a lease at inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.
The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any financefinancing leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company.
The right-of-use (ROU) asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such, the Company used an estimated incremental borrowing rate (4.03%) based on the information available at commencement date in determining the present value of lease payments.
Given the impacts of accounting for regulated operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are consistent with lease expense and waswere $0.2 million and $0.1 million for each of the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively and $0.5$0.4 million and $0.3 million for the ninesix months ended SeptemberJune 30, 2020 and 2019, and 2018, respectively.
Information related to operating lease ROU assets and lease liabilities is as follows:
(In Millions) | ||||
September 30, 2019 | ||||
ROU Asset at Lease Inception | $ | 7.3 | ||
Accumulated Amortization | (1.2 | ) | ||
Current ROU Asset | $ | 6.1 |
| (In Millions) | ||||||||
| As of June 30, 2020 | As of December 31, 2019 | |||||||
ROU Asset at Lease Inception |
| $ | 7.3 | $ | 7.3 | ||||
Accumulated Amortization |
| (1.7 | ) | (1.4 | ) | ||||
Current ROU Asset |
| $ | 5.6 | $ | 5.9 |
The Company’s future minimum operating lease commitments as of September 30, 2019 are as follows:
(In Millions) | ||||
September 30, 2019 | ||||
2019 | $ | 0.2 | ||
2020 | 0.8 | |||
2021 | 0.8 | |||
2022 | 0.8 | |||
2023 | 0.8 | |||
Thereafter | 5.2 | |||
Total Lease Payments | $ | 8.6 | ||
Imputed Interest | (2.0 | ) | ||
Present Value of Lease Payments | 6.6 | |||
Less Current Portion* | (0.7 | ) | ||
Non-Current Lease Liability | $ | 5.9 | ||
*Included in Other Current Liabilities |
13
|
| (In Millions) | |||
|
| June 30, 2020 | |||
2020 |
| $ | 0.4 |
| |
2021 |
|
| 0.8 |
| |
2022 |
| 0.8 |
| ||
2023 |
|
| 0.8 |
| |
2024 |
|
| 0.8 |
| |
Thereafter |
|
| 4.4 |
| |
Total Lease Payments |
| $ | 8.0 |
| |
Imputed Interest |
|
| (1.9 | ) | |
Present Value of Lease Payments |
|
| 6.1 |
| |
Less Current Portion* |
|
| (0.8 | ) | |
Non-Current Lease Liability |
| $ | 5.3 |
| |
|
|
|
|
| |
*Included in Other Current Liabilities |
|
|
|
|
Construction - The Company has forecasted to spend approximately $105$119 million for its construction program in 2019.2020. The Company has entered into several contractual construction agreementscontracts that, in the aggregate, obligate it to expendexpenditure of an estimated $68$43 million in the future. The timing and amount of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain projects.projects and could be impacted if the effects of the COVID-19 pandemic continue for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see Note 1- Basis of Presentation and Recent Developments, Recent Developments).
LitigationContingencies - The Based on our operations in the heavily-regulated water and wastewater industries, the Company is a defendantroutinely involved in disputes, claims, lawsuits in the normal course of business. Weand other regulatory and legal matters, including responsibility for fines and penalties relative to regulatory compliance. At this time, Management does not believe the final resolution of pending claims and legal proceedingsany such matters, whether asserted or unasserted, will not have a material adverse effect on the Company’s consolidated financial statements.position, results of operations or cash flows. In addition, the Company maintains business insurance coverage that may mitigate the effect of any current or future loss contingencies.
Change in Control Agreements - The Company has Change in Control Agreements with certain of its officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company.
Note 8 – Employee Benefit Plans
Pension Benefits - The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but do participate in a defined contribution plan that provides for a potential annual contribution in an amount that is at the discretion of the Company. In order to be eligible for a contribution, the participant must be employed by the Company on December 31st of the year to which the contribution relates. For the three monthsand six month periods ended SeptemberJune 30, 20192020, the Company did not make any Pension Plan cash contributions. For the three and 2018,six month periods ended June 30, 2019, the Company made Pension Plan cash contributions of $1.3$0.5 million and $1.1 million, respectively. For each of the nine months ended September 30, 2019 and 2018, the Company made Pension Plan cash contributions of $2.3$1.0 million, respectively. The Company expects to make Pension Plan cash contributions of approximately $1.3$3.0 million over the remainder of the current year. The Company also maintains an unfunded supplemental retirement benefit plan for certain active and retired Company officers and currently pays $0.4 million in annual benefits to the retired participants.
Other Postretirement Benefits-The Company’s retirement plan other than pensions (Other Benefits Plan) covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. For each of the three monthsand six month periods ended SeptemberJune 30, 20192020, the Company made Other Benefits Plan cash contributions of $0.3 million, respectively. For the three and 2018,six month periods ended June 30, 2019, the Company made Other Benefits Plan cash contributions of $0.2 million and $0.4 million, respectively. For the nine months ended September 30, 2019 and 2018, theThe Company madedoes not expect to make any additional Other Benefits Plan cash contributions of $0.6 million and $0.5 million, respectively. The Company expects to make Other Benefits Plan cash contributions of approximately $0.8 million over the remainder of the current year.
The following tables set forth information relating to the Company’s periodic costs for its employee retirement benefit plans:
(In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Service Cost | $ | 543 | $ | 607 | $ | 210 | $ | 284 | $ | 609 | $ | 543 | $ | 248 | $ | 210 | ||||||||||||||||
Interest Cost | 857 | 765 | 496 | 474 | 775 | 857 | 425 | 496 | ||||||||||||||||||||||||
Expected Return on Assets | (1,173 | ) | (1,218 | ) | (613 | ) | (637 | ) | (1,409 | ) | (1,173 | ) | (721 | ) | (613 | ) | ||||||||||||||||
Amortization of Unrecognized Losses | 404 | 415 | 330 | 447 | 515 | 404 | 338 | 330 | ||||||||||||||||||||||||
Amortization of Unrecognized Prior Service Cost (Credit) | — | — | — | (402 | ) | |||||||||||||||||||||||||||
Net Periodic Benefit Cost* | $ | 631 | $ | 569 | $ | 423 | $ | 166 | $ | 490 | $ | 631 | $ | 290 | $ | 423 |
14
Six Months Ended June 30, | ||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
| ||||||||||||||||
Service Cost | $ | 1,217 | $ | 1,085 | $ | 497 | $ | 420 | ||||||||
Interest Cost | 1,550 | 1,713 | 850 | 992 | ||||||||||||
Expected Return on Assets | (2,818 | ) | (2,347 | ) | (1,442 | ) | (1,226 | ) | ||||||||
Amortization of Unrecognized Losses | 1,030 | 809 | 676 | 660 | ||||||||||||
Net Periodic Benefit Cost* | $ | 979 | $ | 1,260 | $ | 581 | $ | 846 |
(In Thousands) | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Service Cost | $ | 1,628 | $ | 1,820 | $ | 630 | $ | 851 | ||||||||
Interest Cost | 2,570 | 2,296 | 1,488 | 1,423 | ||||||||||||
Expected Return on Assets | (3,520 | ) | (3,653 | ) | (1,838 | ) | (1,912 | ) | ||||||||
Amortization of Unrecognized Losses | 1,213 | 1,244 | 989 | 1,340 | ||||||||||||
Amortization of Unrecognized Prior Service Cost (Credit) | — | — | — | (1,205 | ) | |||||||||||
Net Periodic Benefit Cost* | $ | 1,891 | $ | 1,707 | $ | 1,269 | $ | 497 |
*Service cost is included in Operations and Maintenance expense on Consolidated Statements of Income; all other amounts are included in Other Income/Expense, net.
Note 9 – Revenue Recognition from Contracts with Customers
The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services to residential, industrial, commercial, fire protection and wholesale customers, as well as non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
The Company’s regulated revenue from contracts with customers is derived from tariff-based sales that result from the obligation to provide water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. The Company’s residential customers are billed quarterly while most of the Company’s industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 and 30 days after the invoice date. The Company recognizes revenue as the water and wastewater services are delivered to customers and records unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in its service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance of service provided to Tidewater customers and are recognized as service is provided.
Non-regulated service contract revenues consist of base service fees, as well as fees for additional billable services provided to customers, are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. Certain of theseThese contracts continueexpire at various times through 2022December 2028 and thus contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain termination provisions.
Substantially all operating revenues and accounts receivable are from contracts with customers. The Company records an allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories.
The Company’s contracts do not contain any significant financing components.
The Company’s operating revenues are comprised of the following:
(In Thousands) | ||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Regulated Tariff Sales | ||||||||||||||||||||||||||||||||
Residential | $ | 20,693 | $ | 19,788 | $ | 54,453 | $ | 53,303 | $ | 19,454 | $ | 17,780 | $ | 36,135 | $ | 33,760 | ||||||||||||||||
Commercial | 4,487 | 4,418 | 11,539 | 11,298 | 3,649 | 3,744 | 7,018 | 7,053 | ||||||||||||||||||||||||
Industrial | 2,723 | 2,868 | 7,242 | 7,869 | 2,175 | 2,321 | 4,256 | 4,519 | ||||||||||||||||||||||||
Fire Protection | 3,100 | 3,084 | 9,211 | 9,045 | 3,060 | 3,098 | 6,106 | 6,111 | ||||||||||||||||||||||||
Wholesale | 3,813 | 4,319 | 10,582 | 11,211 | 3,827 | 3,429 | 7,525 | 6,768 | ||||||||||||||||||||||||
Non-Regulated Contract Operations | 2,919 | 4,203 | 8,729 | 11,983 | 3,076 | 2,986 | 5,934 | 5,810 | ||||||||||||||||||||||||
Total Revenue from Contracts with Customers | $ | 37,735 | $ | 38,680 | $ | 101,756 | $ | 104,709 | $ | 35,241 | $ | 33,358 | $ | 66,974 | $ | 64,021 | ||||||||||||||||
Other Regulated Revenues | 184 | 151 | 315 | 276 | 124 | 73 | 186 | 131 | ||||||||||||||||||||||||
Other Non-Regulated Revenues | 101 | 101 | 303 | 303 | 104 | 100 | 207 | 202 | ||||||||||||||||||||||||
Inter-segment Elimination | (251 | ) | (219 | ) | (515 | ) | (479 | ) | (192 | ) | (138 | ) | (321 | ) | (264 | ) | ||||||||||||||||
Total Revenue | $ | 37,769 | $ | 38,713 | $ | 101,859 | $ | 104,809 | $ | 35,277 | $ | 33,393 | $ | 67,046 | $ | 64,090 |
Note 10 – Income Taxes
As part of its 2014 Federal income tax return, the Company adopted the final Internal Revenue Service (IRS) tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. The adoption resulted in a net reduction of $17.6 million in taxes previously remitted to the IRS, for which the Company has already sought and received the tax refunds. A reserve provision against refunded taxes of $2.3 million was recorded in 2015 at the time of filing its change in accounting method based on a possible challenge by the IRS during an audit examination. The Company’s 2014 federal income tax return was subsequently selected for examination by the IRS. In 2018, the Company increased its income tax reserve provision to $4.1 million. During the first quarter of 2019, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs and the IRS concluded its audit of the Company’s 2014 federal income tax return. The modifications also impacted the Company’s filed 2015, 2016 and 2017 federal income tax returns. In March 2019 and June 2019, the Company paid $0.8$2.7 million in income taxesconnection with the conclusion and closing of the 2014-2017 tax return audits and $0.1 million in interest respectively, in connection with the conclusion and closing of the 2014 and 2015 tax return audits. As of SeptemberJune 30, 2019,2020, the Company has reduced its income tax reserve provision and interest expense liability to $2.4$0.5 million and $0.1$0.2 million, respectively. In October 2019, the Company paid $1.9 million in income taxes in connection with the conclusion and closing of the 2016 and 2017 tax return audits.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Middlesex Water Company (Middlesex or the Company) included elsewhere herein and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
Forward-Looking Statements
Certain statements contained in this periodic report and in the documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The Company intends that these statements be covered by the safe harbors created under those laws. They include, but are not limited to statements as to:
-
expected financial condition, performance, prospects and earnings of the Company;
-
strategic plans for growth;
-
the amount and timing of rate increases and other regulatory matters, including the recovery of certain costs recorded as regulatory assets;
-
the Company’s expected liquidity needs during the upcoming fiscal year and beyond and the sources and availability of funds to meet its liquidity needs;
-
expected customer rates, consumption volumes, service fees, revenues, margins, expenses and operating results;
-
financial projections;
-
the expected amount of cash contributions to fund the Company’s retirement benefit plans, anticipated discount rates and rates of return on plan assets;
-
the ability of the Company to pay dividends;
-
the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs;
-
the safety and reliability of the Company’s equipment, facilities and operations;
-
the Company’s plans to renew municipal franchises and consents in the territories it serves;
-
trends; and
-
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:
-
effects of general economic conditions; - increases in competition for growth in non-franchised markets to be potentially served by the Company; - ability of the Company to adequately control selected operating expenses which are necessary to maintain safe and proper utility services, and which may be beyond the Company’s control; - availability of adequate supplies of water; - actions taken by government regulators, including decisions on rate increase requests; - new or modified water quality standards; - weather variations and other natural phenomena impacting utility operations; - financial and operating risks associated with acquisitions and, or privatizations; - acts of war or terrorism; - changes in the pace of housing development; - availability and cost of capital resources; - impact of the Novel Coronavirus (COVID-19) pandemic; and - other factors discussed elsewhere in this quarterly report. |
17
Many of these factors are beyond the Company’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which only speak to the Company’s understanding as of the date of this report. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A. - Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
Overview
Middlesex Water Company (Middlesex) has operated as a water utility in New Jersey since 1897, in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992 and in Pennsylvania through our wholly-owned subsidiary, Twin Lakes Utilities, Inc. (Twin Lakes), since 2009. We are in the business of collecting, treating and distributing water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate two New Jersey municipal water and wastewater systems under contract and provide regulated wastewater services in New Jersey and Delaware through four of our other subsidiaries. We are regulated as to rates charged to customers for water and wastewater services, as to the quality of water service we provide and as to certain other matters in New Jersey, Delaware and Pennsylvania. Only our Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc. (White Marsh) subsidiaries are not regulated utilities.
Our New Jersey water utility system (the Middlesex System) provides water services to approximately 61,000 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 219,000.over 0.2 million. Our Bayview subsidiary provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and wastewater services to approximately 2,500 customers in Southampton Township, New Jersey.
Our Delaware subsidiaries, Tidewater and Southern Shores Water Company, LLC (Southern Shores), provide water services to approximately 47,00051,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,0001,800 customers in Delaware and Maryland through various operations and maintenance contracts.
Our Tidewater Environmental Services, Inc. (TESI) subsidiary provides wastewater services to approximately 3,6003,800 residential retail customers in Sussex Counties, Delaware.
USA-PA operates the water and wastewater systems for the City of Perth Amboy, New Jersey (Perth Amboy) under a 10-year operations and maintenance contract expiring in 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency responses and management of capital projects funded by Perth Amboy. USA-PA does not manage the billing, collections and customer service functions of Perth Amboy.
USA operates the Borough of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a ten-year operations and maintenance contract expiring in 2022. In addition to performing day to day operations, USA is responsible for billing, collections, customer service, emergency responses and management of capital projects funded by Avalon.
Under a marketing agreement with HomeServe USA (HomeServe), USA offers residential customers in New Jersey and Delaware a menu of water and wastewater related home maintenance programs. HomeServe is a leading national provider of such home maintenance service programs. USA receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts. Beginning July 1, 2020, USA began operating the Borough of Highland Park, New Jersey’s water and wastewater systems. USA also provides unregulated water and wastewater services under contract with several other New Jersey municipalities.
Our Pennsylvania subsidiary, Twin Lakes, provides water services to approximately 120 retail customers in the Township of Shohola, Pike County, Pennsylvania.
Recent Developments
COVID-19 - On March 13, 2020, the United States declared the COVID-19 pandemic a national emergency. The impact on changing economic conditions due to COVID-19 is uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. While the Company’s operations and capital construction program have not been significantly disrupted to date from COVID-19, we are unable to accurately assess the impact that COVID-19 will have on our business, our customers and our vendors prospectively due to numerous uncertainties, including the severity of the pandemic, the duration of the outbreak and actions which could potentially be taken by governmental and/or regulatory authorities. The Company has drawn partially on its available lines of credit to provide additional liquidity in the event there is a negative impact to the Company’s business, results of operations, financial condition or liquidity resulting from COVID-19. As of July 31, 2020, there remains $106.5 million available under these lines of credit (see Note 6, Short-term Borrowings for further information on lines of credit). In addition, the New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission have allowed for potential future recovery of COVID-19 related incremental costs in customer rates by regulated utilities in their respective jurisdictions. Neither jurisdiction has yet to establish a timetable or method for formally seeking cost recovery. We will continue to monitor and evaluate the COVID-19 situation and its impact to the Company’s business, results of operations, financial condition and liquidity.
Contract Operations – In May 2020, USA, through a competitive bidding process, was awarded a ten-year, $8.3 million contract to operate and maintain the Borough of Highland Park, New Jersey’s water and wastewater systems. The contract commenced July 1, 2020.
Capital Construction Program -The Company’s multi-year capital construction program Water for Tomorrow, encompasses numerous projects designed to upgrade and replace utility infrastructure as well as enhance the integrity and reliability of assets to better serve the current and future generations of water and wastewater customers. The Company plans to invest approximately $105$119 million in 20192020 in connection with this plan for projects that include, but are not limited to;
to:
Pinelands’•
Enhanced treatment process at the Company’s largest water treatment plant in Edison, New Jersey, to mitigate the formation of disinfection by-products that can develop during the water treatment process;
•
Enhanced treatment processes at the Company’s primary wellfield in South Plainfield, New Jersey to comply with new, more stringent water quality regulations and integrate surge mitigation along with revisions to corrosion control and chlorination;
•
Replacement of approximately six miles of water mains including service lines, valves, fire hydrants and meters in Edison and South Amboy, New Jersey;
•
Construction of a new replacement wastewater treatment plant to serve our customers in the Town of Milton, Delaware;
•
Relocation of water meters from inside customers’ premises to exterior meter pits to allow more timely access by crews in emergencies, enhance customer safety and convenience and reduce non-revenue water; and
•
Additional standby emergency power generation.
The actual amount and timing of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain capital projects and may be significantly impacted if the effects of COVID-19 continue for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see Note 1- Basis of Presentation and Recent Developments, Recent Developments).
Twin Lakes Base Rate Increases Approved –On October 25, 2019, Pinelands Water and Pinelands Wastewater concluded their base rate matters when the New Jersey Board of Public Utilities (NJBPU) approved a $0.5 million increase in annual base rates, effective November 4, 2019. Increase - In March 2019, Pinelands Water and Pinelands Wastewater had filed petitions with the NJBPU seeking permission to increase base rates by approximately $0.7 million per year. The requests were necessitated by capital infrastructure investments both companies had made and increased operations and maintenance costs.
Tidewater to Acquire Water Systems - On October 8, 2019, the Delaware Public Service Commission (DEPSC) approved Tidewater’s request to purchase the water utility assets of J.H. Wilkerson and Son, Inc. and transfer the Certificate of Public Convenience and Necessity in order for Tidewater to serve the approximate 1,000 customers currently connected to eight community water systems located mostly in eastern Sussex County, Delaware. The DEPSC also authorized Tidewater to maintain the existing rates that these customers currently pay. The transaction is expected to close in the fourth quarter of 2019.
Middlesex Issues $53.7 Million of First Mortgage Bonds -As part of the Company’s comprehensive financing plan to fund its Water for Tomorrow capital construction program, in August 2019, Middlesex priced and closed on a New Jersey Economic Development Authority debt financing transaction of $53.7 million by issuing First Mortgage Bonds designated as Series 2019A ($32.5 million at coupon interest rate of 4.0%) and Series 2019B ($21.2 million at coupon interest rate of 5.0%). The proceeds, including an issuance premium of $7.1 million, are being used to finance several projects, including certain of the projects noted above. Through September 30, 2019, Middlesex has drawn a total of $7.6 million from the proceeds and expects to draw the remaining $53.2 million through the third quarter of 2021.
Twin Lakes Files for Rate Increase -In July 2019, Twin Lakes filed a petition with2020, the Pennsylvania Public Utilities Commission (PAPUC) approved a $0.1 million increase in annualized base rates for Twin Lakes. In July 2019, Twin Lakes had filed a petition with the PAPUC seeking permission to increase annualized base rates by approximately $0.2 million, per year. This request was necessitated by capital infrastructure investments Twin Lakes has made and increased operations and maintenance costs. We cannot predict whether the PAPUC will ultimately approve, deny, or reduce the amount of the request. A decision by the PAPUC is not expected before the first quarter ofThe new rates became effective April 19, 2020.
19
Middlesex Receives Financing Approval -Private Placement – In May 2019,2020, Middlesex received approval from the NJBPU approved Middlesex’s petition with the NJBPU seeking approval to issue and sellborrow up to 1,500,000 shares of its common stock$100.0 million, in one or more private placement transactions through December 31, 2022. Salesto help fund Middlesex’s multi-year capital construction program. Although Middlesex intends to close on a private placement loan of additional sharesup to $40 million before the end of common stock are also part2020, ongoing volatility in the financial markets may influence the timing and amount of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure investment plan.transaction.
Outlook
Outlook
OurNormally, our ability to increase operating income and net income is based significantly on four factors: weather, adequate and timely rate relief, effective cost management and customer growth (which are evident in comparison discussions in the Results of Operations section below). Revenues in the first quarter of 2019 were favorably impacted by Middlesex’s April 2018 base water rate increase. Weather patterns experiencedover the last three years in 2017 and 2018,our service territories, which resulted in lower customer demand for water, have continued to occurmay reoccur in 2019 and have impacted revenues and net income. Actuarially-determined non-service retirement benefit plan2020. As operating costs are expectedanticipated to increase in 2019. We2020 in a variety of categories, we continue to implement plans to further streamline operations and further reduce, and mitigate increases in, operating costs. Changes in customer water usage habits, as well as increases in capital expenditures and operating costs, are significant factors in determining the timing and extent of rate increase requests.
An additional factor that is expected to affect our outlook over the remainder of 2020 is the impact of COVID-19 on the general economy and the resulting impact on our customers. For example, while many commercial business operations have closed or curtailed operations as a result of the State of Emergency Orders (SEOs) issued by the Governors of the respective states in which we operate, resulting in lower water demand for that class of customer, usage by residential customers has increased due in part to SEOs and remote working arrangements. (for further discussion of the impact of COVID-19 on the Company, see Note 1- Basis of Presentation and Recent Developments, Recent Developments). In addition, our customer collection efforts have been suspended based on SEOs. Those same SEOs have declared utility construction projects to be essential and therefore, are allowed to continue subject to nationally-established COVID-19 safety precautions.
Organic residential customer growth through September 2019 has beenfor 2020 is expected to be consistent with that experienced in recent years.
Our strategy for profitable growth is focused on the following key areas:
•
Invest in projects, products and services that complement our core water and wastewater competencies;
•
Timely and adequate recovery of infrastructure investments and other costs to maintain service quality;
•
Prudent acquisitions of investor and municipally-owned water and wastewater utilities; and
•
Operation of municipal and industrial water and wastewater systems on a contract basis which meet our risk/reward profile.
Operating Results by Segment
The discussion of the Company’s operating results is on a consolidated basis and includes significant factors by subsidiary. The Company has two operating segments, Regulated and Non-Regulated. The operations of the Regulated segment are subject to regulations promulgated by state public utility commissions as to rates and levelslevel of service. Rates and levelslevel of service in the Non-Regulated segment are subject to the terms of individually-negotiated and executed contracts with municipal, industrial and other clients. Both segments are subject to federal and state environmental, water and wastewater quality and other associated legal and regulatory requirements.
The segments in the tables included below consist of the following companies: Regulated-Middlesex, Tidewater, Pinelands, Southern Shores, TESI and Twin Lakes; Non-Regulated-USA, USA-PA, and White Marsh.
20
Results of Operations – Three Months Ended SeptemberJune 30, 20192020
(In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Regulated | Non- Regulated | Total | Regulated | Non- Regulated | Total | Regulated | Non- Regulated | Total | Regulated | Non- Regulated | Total | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 34,850 | $ | 2,919 | $ | 37,769 | $ | 34,510 | $ | 4,203 | $ | 38,713 | $ | 32,201 | $ | 3,076 | $ | 35,277 | $ | 30,406 | $ | 2,987 | $ | 33,393 | ||||||||||||||||||||||||
Operations and maintenance expenses | 15,859 | 1,810 | 17,669 | 14,764 | 3,350 | 18,114 | 15,397 | 2,223 | 17,620 | 14,957 | 1,824 | 16,781 | ||||||||||||||||||||||||||||||||||||
Depreciation expense | 4,182 | 64 | 4,246 | 3,745 | 47 | 3,792 | 4,578 | 51 | 4,629 | 4,061 | 62 | 4,123 | ||||||||||||||||||||||||||||||||||||
Other taxes | 3,808 | 63 | 3,871 | 3,787 | 102 | 3,889 | 3,587 | 56 | 3,643 | 3,485 | 54 | 3,539 | ||||||||||||||||||||||||||||||||||||
Operating income | 11,001 | 982 | 11,983 | 12,214 | 704 | 12,918 | 8,639 | 746 | 9,385 | 7,903 | 1,047 | 8,950 | ||||||||||||||||||||||||||||||||||||
Other income, net | 824 | 43 | 867 | 772 | 61 | 833 | 1,107 | 22 | 1,129 | 558 | 5 | 563 | ||||||||||||||||||||||||||||||||||||
Interest expense | 1,996 | — | 1,996 | 1,723 | — | 1,723 | 1,941 | 5 | 1,946 | 1,788 | - | 1,788 | ||||||||||||||||||||||||||||||||||||
Income taxes | (580 | ) | 315 | (265 | ) | (507 | ) | 245 | (262 | ) | (1,387 | ) | 242 | (1,145 | ) | (750 | ) | 329 | (421 | ) | ||||||||||||||||||||||||||||
Net income | $ | 10,409 | $ | 710 | $ | 11,119 | $ | 11,770 | $ | 520 | $ | 12,290 | $ | 9,192 | $ | 521 | $ | 9,713 | $ | 7,423 | $ | 723 | $ | 8,146 |
Operating Revenues
Operating revenues for the three months ended SeptemberJune 30, 2019 decreased $0.92020 increased $1.9 million from the same period in 2018. This decrease was related2019 due to the following factors:
•
Middlesex System revenues increased $0.6 million due to increased customer demand;
•
Tidewater System revenues increased $1.0 million due to increased customer demand and additional customers;
•
Pinelands revenues increased $0.1 million due to the base rate increase that went into effect in November 2019; and
•
All other revenue categories increased $0.2 million.
Operation and Maintenance Expense
Operation and maintenance expenses for the three months ended SeptemberJune 30, 2019 decreased $0.42020 increased $0.8 million from the same period in 2018, primarily related2019 due to the following factors:
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Depreciation•
Retirement benefit plan expenses increased $0.2 million primarily due to higher actuarially-determined retirement benefit plan service expense;
•
Variable production costs increased $0.5 million due to higher customer demand and higher treatment costs due to weather-impacted changes in raw water quality;
•
Labor costs rose $0.2 million due to additional employees required for regulatory and other operational needs, and wage increases overall averaging approximately 3%; and
•
All other operation and maintenance expense categories decreased $0.1 million.
Depreciation
Depreciation expense for the three months ended SeptemberJune 30, 20192020 increased $0.5 million from the same period in 20182019 due to a higher level of utility plant in service.
Other Taxes
Other taxes for the three months ended SeptemberJune 30, 2019 remained consistent with2020 increased $0.1 million from the same period in 20182019 primarily due to lowerhigher revenue related taxes on lowerincreased revenues in our Middlesex system offset by higher payroll taxes.system.
Other Income, net
Other Income, net for the three months ended SeptemberJune 30, 2019 remained consistent with2020 increased $0.6 million from the same period in 2018,2019 primarily due to higher Allowance for Funds Used During Construction resulting from a higher level of capital construction projects in progress offset by higherand lower actuarially-determined postretirement benefit plan non-service expense.
Interest Charges
Expense
Interest chargesexpense for the three months ended SeptemberJune 30, 20192020 increased $0.3 million from the same period in 2018 due to higher average short-term and long-term debt outstanding partially offset by lower interest related to Internal Revenue Service (IRS) examinations of the Company’s federal income tax returns.
Income Taxes
Income taxes for the three months ended September 30, 2019 remained consistent with the same period in 2018, primarily due to lower-pre-tax income and a decrease in Tidewater’s effective income tax rate in March 2019, reflecting the rate reduction approved by the DEPSCto reflect the lower corporate income tax rate resulting from implementation of theTax Act. The decrease in Tidewater’s effective tax rate has also resulted in a corresponding decrease in operating revenues.Offsetting the decreases above were lower tax deductible repair and maintenance expenses, which results in higher tax expense.
Net Income and Earnings Per Share
Net income for the three months ended September 30, 2019 decreased $1.2 million as compared with the same period in 2018. Basic earnings per share were $0.67 and $0.75 for the three months ended September 30, 2019 and 2018, respectively. Diluted earnings per share were $0.66 and $0.74 for the three months ended September 30, 2019 and 2018, respectively.
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Results of Operations – Nine Months Ended September 30, 2019
(In Thousands) | ||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Regulated | Non- Regulated | Total | Regulated | Non- Regulated | Total | |||||||||||||||||||
Revenues | $ | 93,130 | $ | 8,729 | $ | 101,859 | $ | 92,826 | $ | 11,983 | $ | 104,809 | ||||||||||||
Operations and maintenance expenses | 45,233 | 5,336 | 50,569 | 43,390 | 9,383 | 52,773 | ||||||||||||||||||
Depreciation expense | 12,229 | 186 | 12,415 | 10,999 | 138 | 11,137 | ||||||||||||||||||
Other taxes | 10,731 | 182 | 10,913 | 10,610 | 300 | 10,910 | ||||||||||||||||||
Operating income | 24,937 | 3,025 | 27,962 | 27,827 | 2,162 | 29,989 | ||||||||||||||||||
Other income, net | 1,835 | 53 | 1,888 | 1,985 | 97 | 2,082 | ||||||||||||||||||
Interest expense | 4,984 | — | 4,984 | 4,929 | — | 4,929 | ||||||||||||||||||
Income taxes | (1,912 | ) | 960 | (952 | ) | 979 | 704 | 1,683 | ||||||||||||||||
Net income | $ | 23,700 | $ | 2,118 | $ | 25,818 | $ | 23,904 | $ | 1,555 | $ | 25,459 |
Operating Revenues
Operating revenues for the nine months ended September 30, 2019 decreased $3.0 million from the same period in 2018. This decrease was related to the following factors:
Operation and Maintenance Expense
Operation and maintenance expenses for the nine months ended September 30, 2019 decreased $2.2 million from the same period in 2018, primarily related to the following factors:
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Depreciation
Depreciation expense for the nine months ended September 30, 2019 increased $1.3 million from the same period in 2018 due to a higher level of utility plant in service.
Other Taxes
Other taxes for the nine months ended September 30, 2019 remained consistent with the same period in 2018 primarily due to lower revenue related taxes on lower revenues in our Middlesex system offset by higher payroll taxes.
Other Income, net
Other Income, net for the nine months ended September 30, 2019 decreased $0.2 million from the same period in 2018, primarily due tohigher actuarially-determined postretirement benefit plan non-service expense and the sale of wastewater franchise rights by our TESI subsidiary in the second quarter of 2018. This decrease was partially offset by higher Allowance for Funds Used During Construction resulting from a higher level of capital construction projects in progress.
Interest Charges
Interest charges for the nine months ended September 30, 2019 increased $0.1 million from the same period in 2018 due to higher average short-term and long-term debt outstanding in 20192020 as compared to 20182019 partially offset by lower average interest associated with IRS examinations of the Company’s federal income tax returns.rates.
Income Taxes
Income taxes for the ninethree months ended SeptemberJune 30, 20192020 decreased $2.6$0.7 million from the same period in 2018,2019, primarily due to lower pre-tax income and the regulatory accounting treatment of tax benefits associated with the adoption of the tangible property regulations, prescribed by the IRS, which was approved in Middlesex’s 2018 base rate case decision. In addition, Tidewater’s effective income tax rate was decreased in March 2019, reflecting the rate reduction approved by the DEPSCto reflect the lower corporate income tax rate resulting from implementation of theTax Act. This has resulted in a corresponding decrease in operating revenuesdecision.
Net Income and Earnings Per Share
Net income for the ninethree months ended SeptemberJune 30, 20192020 increased $0.4$1.6 million as compared with the same period in 2018.2019. Basic earnings per share were $1.56$0.55 and $1.55$0.49 for the ninethree months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Diluted earnings per share were $1.55also $0.55 and $1.54$0.49 for the ninethree months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
Results of Operations – Six Months Ended June 30, 2020
(In Thousands) | ||||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Regulated | Non- Regulated | Total | Regulated | Non- Regulated | Total | |||||||||||||||||||
Revenues | $ | 61,112 | $ | 5,934 | $ | 67,046 | $ | 58,280 | $ | 5,810 | $ | 64,090 | ||||||||||||
Operations and maintenance expenses | 30,540 | 4,272 | 34,812 | 29,374 | 3,527 | 32,901 | ||||||||||||||||||
Depreciation expense | 8,978 | 99 | 9,077 | 8,047 | 123 | 8,170 | ||||||||||||||||||
Other taxes | 7,114 | 131 | 7,245 | 6,923 | 119 | 7,042 | ||||||||||||||||||
Operating income | 14,480 | 1,432 | 15,912 | 13,936 | 2,041 | 15,977 | ||||||||||||||||||
| ||||||||||||||||||||||||
Other income, net | 2,579 | 58 | 2,637 | 1,010 | 10 | 1,020 | ||||||||||||||||||
Interest expense | 3,609 | 6 | 3,615 | 2,988 | - | 2,988 | ||||||||||||||||||
Income taxes | (2,921 | ) | 474 | (2,447 | ) | (1,332 | ) | 645 | (687 | ) | ||||||||||||||
Net income | $ | 16,371 | 1,010 | 17,381 | $ | 13,290 | $ | 1,406 | $ | 14,696 |
Operating Revenues
Operating revenues for the six months ended June 30, 2020 increased $3.0 million from the same period in 2019 due to the following factors:
•
Middlesex System revenues increased $1.1 million due to increased customer demand;
•
Tidewater System revenues increased $1.4 million due to increased customer demand and additional customers;
•
Pinelands revenues increased $0.2 million due to the base rate increase that went into effect in November 2019;
•
Non-regulated revenues increased $0.1 million due to increased supplemental services to existing customers under contract; and
•
All other revenue categories increased $0.2 million.
Operation and Maintenance Expense
Operation and maintenance expenses for the six months ended June 30, 2020 increased $1.9 million from the same period in 2019 due to the following factors:
•
Retirement benefit plan expenses increased $0.4 million primarily due to higher actuarially-determined retirement benefit plan service expense;
•
Variable production costs increased $0.7 million due to higher customer demand and higher treatment costs due to weather-impacted changes in raw water quality;
•
Labor costs rose $0.4 million due to additional employees required for regulatory and other operational needs, and wage increases overall averaging approximately 3%; and
•
All other operation and maintenance expense categories increased $0.4 million.
Depreciation
Depreciation expense for the six months ended June 30, 2020 increased $0.9 million from the same period in 2019 due to a higher level of utility plant in service.
Other Taxes
Other taxes for the six months ended June 30, 2020 increased $0.2 million from the same period in 2019 primarily due to higher revenue related taxes on increased revenues in our Middlesex system.
Other Income, net
Other Income, net for the six months ended June 30, 2020 increased $1.6 million from the same period in 2019 primarily due to higher Allowance for Funds Used During Construction resulting from a higher level of capital projects in progress and lower actuarially-determined postretirement benefit plan non-service expense.
Interest Expense
Interest expense for the six months ended June 30, 2020 increased $0.6 million from the same period in 2019 due to higher average short-term and long-term debt outstanding in 2020 as compared to 2019 partially offset by lower average interest rates.
Income Taxes
Income taxes for the six months ended June 30, 2020 decreased $1.8 million from the same period in 2019, primarily due to the regulatory accounting treatment of tax benefits associated with the adoption of the tangible property regulations, which was approved in Middlesex’s 2018 base rate case decision.
Net Income and Earnings Per Share
Net income for the six months ended June 30, 2020 increased $2.7 million as compared with the same period in 2019. Basic earnings per share were $0.99 and $0.89 for the six months ended June 30, 2020 and 2019, respectively. Diluted earnings per share were $0.99 and $0.88 for the six months ended June 30, 2020 and 2019, respectively.
Liquidity and Capital Resources
Operating Cash Flows
Cash flows from operations are largely based on four factors: weather, adequate and timely rate increases, effective cost management and growth. The effect of those factors on net income is discussed in “Results of Operations.”
For the ninesix months Septemberended June 30, 2019,2020, cash flows from operating activities decreased $9.5increased $9.2 million to $23.3 million from the same period in 2018.$20.8 million. The decreaseincrease in cash flows from operating activities primarily resulted from the timing of payments to vendors and increasedreduced income tax payments. Utility plant expenditures for the period were primarily funded by financing activities.payments, reduced employee benefit plan contributions and higher net income.
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Investing Cash Flows
For the ninesix months ended SeptemberJune 30, 2019,2020, cash flows used in investing activities increased $11.7$9.7 million to $61.2 million from the same period in 2018.$45.4 million. The increase in cash flows used in investing activities resulted from increased utility plant expenditures.
For further discussion on the Company’s future capital expenditures and expected funding sources, see “Capital Expenditures and Commitments” below.
Financing Cash Flows
For the ninesix months ended SeptemberJune 30, 2019,2020, cash flows from financing activities increased $73.5decreased $2.3 million to $89.3 million from the same period in 2018.$20.2 million. The majority of the increasedecrease in cash flows provided by financing activities is due to the net increase in long-term and short-term debt funding and increasedlower proceeds from the issuance of long-term debt and common stock under the Middlesex Water Company Investment Plan (the Investment Plan). partially offset by the net increase in short-term funding.
In September 2019, the Company determined it had inadvertently sold shares of its common stock through the Investment Plan from August 1, 2018 through September 3, 2019 (Eligible Period) after the registration statement covering sales through the Investment Plan had expired and therefore was no longer effective. In October 2019, the Company’s Board of Directors approved a plan to voluntarily offer a right of rescission (Rescission Offer) to Investment Plan participants who purchased shares of the Company’s common stock during the Eligible Period. During the Eligible Period, Investment Plan participants purchased 232,643 shares of Company common stock at an average price of $55.79 per share. The Rescission Offer ends in November 2019. Based on the current market price of the Company’s common stock, the Company does not expect that the exercise of any applicable rescission rights will have a material impact on its results of operations, financial condition or liquidity. For more information, see discussion under “Common Stock” inNote 3 – Capitalization.
Capital Expenditures and Commitments
To fund our capital program, we may use internally generated funds, short-term and long-term debt borrowings, proceeds from sales of common stock under the Investment Plan and proceeds from newsales offerings to the public of our common stock. See below for a more detailed discussion regarding the funding of our capital program.
The capital investment program for 20192020 is currently estimated to be approximately $105$119 million. Through SeptemberJune 30, 2019,2020, we have expended $61$45 million and expect to incur approximately $44$74 million for capital projects for the remainder of 2019.
2020.
We currently project that we maywill expend approximately $220$179 million for capital projects in 20202021 and 2021.2022. The actual amount and timing of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain capital projects.
The timing of capital expenditures could be impacted if the effects of COVID-19 continue for an extended period of time (for further discussion of the impact of COVID-19 on the Company, see the Recent Developments section of Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements).
To pay forfund our capital program for the remainder of 2019,2020, we plan on utilizing:
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•
Internally generated funds;
•
Short-term borrowings, as needed, through $140 million of lines of credit established with three financial institutions. As of June 30, 2020, there was $102.5 million of available credit under these lines (for further discussion on Company lines of credit, see Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements);
•
Proceeds from the New Jersey State Revolving Fund (SRF). SRF programs provide low cost financing for projects that meet certain water quality and system improvement benchmarks;
•
Proceeds from the August 2019 issuance and sale of First Mortgage Bonds through the New Jersey Economic Development Authority;
•
Proceeds from the Investment Plan; and
•
Proceeds from the sale and issuance of debt securities in one or more private placement offerings (for further information, see discussion under Recent Developments-Middlesex Private Placement).
In order to fully fund the ongoing large investment program in our utility plant infrastructure and maintain a balanced capital structure consistent with the basis on which customers’ rates are established for a regulated water utility, Middlesex may offer for sale additional shares of its common stock. The amount, the timing and the method of sale of the common stock is dependent on the timing of the construction expenditures, the level of additional debt financing and financial market conditions. As approved by the NJBPU, the Company is authorized to issue and sell up to 0.7 million shares of its common stock in one or more transactions through December 31, 2022.
Recent Accounting Pronouncements – See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements and guidance.
Item 3.Quantitative and Qualitative Disclosures of Market Risk
We are exposed to market risk associated with changes in interest rates and commodity prices. The Company is subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company’s interest rate risk related to existing fixed rate, long-term debt is not material due to the term of the majority of our First Mortgage Bonds, which have final maturity dates ranging from 2021 to 2059. Over the next twelve months, approximately $7.2$7.3 million of the current portion of existing long-term debt instruments will mature. Applying a hypothetical change in the rate of interest charged by 10% on those borrowings, would not have a material effect on our earnings.
Our risks associated with commodity price increases for chemicals, electricity and other commodities are reduced through contractual arrangements and the ability to recover price increases through rates. Non-performance by these commodity suppliers could have a material adverse impact on our results of operations, financial position and cash flows.
We are exposed to credit risk for both our Regulated and Non-Regulated business segments. Our Regulated operations serve residential, commercial, industrial and municipal customers while our Non-Regulated operations engage in business activities with developers, government entities and other customers. Our primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the non-payment of customer accounts receivable balances. Our credit risk is managed through established credit and collection policies which are in compliance with applicable regulatory requirements and involve monitoring of customer exposure and the use of credit risk mitigation measures such as letters of credit or prepayment arrangements. Our credit portfolio is diversified with no significant customer or industry concentrations. In addition, our Regulated businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates.
The Company's retirement benefit plan assets are exposedsubject to fluctuating market prices of debt and equity securities. Changes to the Company's retirement benefit plan asset values can impact the Company's retirement benefit plan expense, funded status and future minimum funding requirements. Our risk is mitigated by our ability to recover retirement benefit plan costs through rates for regulated utility services charged to our customers.
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Item 4.Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities and Exchange Act of 1934 (the Exchange Act), an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted by the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure.
Item 1.Legal Proceedings
None.
Item 1A.Risk Factors
The information aboutfollowing risk factor is provided to update the risk factors does not differ materially from thosepreviously disclosed under the heading “Risk Factors” set forth in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The Novel Coronavirus (COVID-19) pandemic and the attempt to contain it may harm our business, results of operations, financial condition and liquidity.
On March 13, 2020, the United States declared the COVID-19 pandemic a national emergency. The impact that COVID-19 will have on the Company, our customers and our vendors prospectively depends on numerous uncertainties, including the severity of the pandemic, the duration of the outbreak, and actions which could potentially be taken by governmental and/or regulatory authorities’ and could have an adverse effect on the Company’s business, results of operations, financial condition, and liquidity.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6. | Exhibits | |
|
| |
31.1 |
31.2 |
32.1 | Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.2 | Section 906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Schema Document |
101.CAL | XBRL Calculation Linkbase Document |
101.LAB | XBRL Labels Linkbase Document |
101.PRE | XBRL Presentation Linkbase Document |
101.DEF | XBRL Definition Linkbase Document |
104
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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.
MIDDLESEX WATER COMPANY | ||
By: | /s/A. Bruce O’Connor | |
A. Bruce O’Connor | ||
Senior Vice President, Treasurer and | ||
Chief Financial Officer | ||
(Principal Accounting Officer) |
Date: November 1, 2019July 31, 2020
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