As filed with the Securities and Exchange Commission on November 26, 2003
Registration Statement No.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
New Jersey | | 22-1114430 |
New Jersey | | 22-1114430 |
| (State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
|
1500 Ronson Road, Iselin, New Jersey 08830 (Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
MARION F. REYNOLDS
A. BRUCE O’CONNOR
Vice President Secretary and TreasurerChief Financial Officer
1500 Ronson Road, Iselin, New Jersey 08830-3020 (Name, address, including zip code, and telephone number,
including area code, of agent for service)
With Copies to:
| | |
PETER D. HUTCHEON, ESQ. | | JUSTIN P. KLEIN, ESQ. |
Norris, McLaughlin & Marcus, P.A.
721 Route 202-206, P.O. Box 1018
Somerville, New Jersey 08876-1018
(908) 722-0700 | | JUSTIN P. KLEIN, ESQ.
Ballard Spahr Andrews & Ingersoll, LLP |
721 Route 202-206, P.O. Box 1018 | |
1735 Market Street, 51stFloor |
Somerville, New Jersey 08876-1018 | |
Philadelphia, Pennsylvania 19103-7599 |
(908) 722-0700 | |
(215) 665-8500 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant to dividend or reinvestment plans, please check the following box.
o¨If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with dividend or reinvestment plans, check the following box.
o¨If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act,
of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective, registration statement for the same offering.
o¨If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o¨If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434, please462(e) under the Securities Act, check the following box. o
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨o
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered | | Amount to be registered (1) | | Proposed maximum offering price per share (2) | | Proposed maximum aggregate offering price (2) | | Amount of registration fee |
|
Common Stock | | 800,000 shares | | $18.78 | | $15,024,000 | | $1,215.44 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | Proposed Maximum | | | Proposed Maximum | | | Amount of |
| Title of Each Class of | | | Amount to be | | | Offering Price per | | | Aggregate Offering | | | Registration |
| Securities to be Registered | | | Registered(1) | | | Share(2) | | | Price(2) | | | Fee |
| | | | | | | | | | | | | |
| Common Stock | | | 1,495,000 shares | | | $19.225 | | | $28,741,375 | | | $3,075 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| |
| (1) | Includes 100,000195,000 shares which may be purchased by the Underwritersunderwriters to cover over-allotments, if any. |
|
| (2) | Solely for purposes of calculating the registration fee, a proposed offering price of $18.78$19.225 per share has been assumed in accordance with Rule 457(c), which was the average of the high and low prices of the Common Stock as reported by theThe Nasdaq NationalGlobal Select Market System on November 21, 2003.October 4, 2006. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not including an offer to buy these securities in any state where the offer or sale is not permitted.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
|
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 2003OCTOBER 6, 2006. 1,300,000 Shares
We are offering
700,0001,300,000 shares of our common stock with this prospectus.
Our common stock is listed for trading on
theThe Nasdaq
Stock Market’s NationalGlobal Select Market under the symbol
MSEX.“MSEX”. On
November 25, 2003October 5, 2006, the last reported sale price for our common stock was
$19.35$18.64 per share.
We have granted the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to
100,000195,000 additional shares of common stock upon the same terms and conditions as the shares offered hereby to cover over-allotments, if any.
Investing in our common stock involves risk. See “Risk Factors” beginning on page 5 of this prospectus. | | | Per Share
| | Total
| | | | |
| | Per Share | | | Total | |
| | | | | | |
| Public offering price | | $ | | | | $ | | |
Underwriting discounts and commissions | | $ | | | | $ | | |
Proceeds to Middlesex Water Company | | $ | | | | $ | | |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Janney Montgomery Scott LLC, on behalf of the underwriters, expects to deliver the shares on or about ,
2004.2006.JANNEY MONTGOMERY SCOTTLLC
| |
| Janney Montgomery Scott llc | EDWARD D. JONES & CO., L.P.A.G. Edwards |
The date of this prospectus is , 2004.2006.
[INSERT MAP]
This Prospectus Summary calls your attention to the most significant aspects of the offering covered by this document, but may not contain all the information that is important to you. Unless otherwise indicated, we have assumed in presenting information about outstanding shares of common stock, including per share information, that the Underwriters’underwriters’ over-allotment option will not be exercised. All share information and per share prices contained in this prospectus reflect our four-for-three common stock split effective November 14, 2003. The terms “Company”“Company,” “we,” “our,” and “us” refer to Middlesex Water Company and its subsidiaries, including Tidewater Utilities, Inc. (“Tidewater”) (and Tidewater’s wholly-owned subsidiaries, Southern Shores Water Company, LLC (“Southern Shores”) and White Marsh Environmental Systems, Inc. (“White Marsh”)), Tidewater Environmental Services, Inc. (“TESI”), Pinelands Water Company (“Pinelands Water”) and Pinelands Wastewater Company (“Pinelands Wastewater” and collectively with Pinelands Water, “Pinelands”), Utility Service Affiliates, Inc. (“USA”), and Utility Service Affiliates (Perth Amboy) Inc., (“USA-PA”) and Bayview Water Company (“Bayview”). The term “you” refers to a prospective investor. The term “Middlesex System” refers to our central New Jersey water utility. To understand the offering fully and for a more complete description of the offering you should read this entire document carefully, including especially the “Risk Factors” section, as well as the documents to which we have referred you to.in the section entitled “Where You Can Find More Information.” Middlesex Water Company has operated as a water utility in New Jersey since 1897, and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate a New Jersey municipal water and wastewater system under contract and provide wastewater services in New Jersey and Delaware through our subsidiaries. We are regulated as to
the rates charged to customers for water and wastewater services,
in New Jersey and for water services in Delaware, as to the quality of water service we provide and as to certain other matters. Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
Our
New Jersey water utility system (the “Middlesex System”)Middlesex System provides water
servicesservice to approximately
58,00058,500 retail customers, primarily in central New Jersey. The Middlesex System also provides water service under contract to municipalities in central New Jersey with a total population of approximately
267,000. In partnership with294,000. Through our subsidiary, USA-PA, we operate the water supply system and wastewater system for the City of Perth Amboy, New Jersey. Our other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and wastewater services to residents in Southampton Township, New Jersey.
Our USA subsidiary offers residential customers in New Jersey and Delaware a service line maintenance program called LineCaresm.
Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services to approximately 23,00029,100 retail customers in New Castle, Kent and Sussex Counties, Delaware. Our other DelawareTESI subsidiary provides regulated wastewater service to approximately 30 residential retail customers in Delaware. Our White Marsh servicessubsidiary serves an additional 1,9004,000 customers under unregulated operating contracts with various owners of small water and wastewater systems in Kent and Sussex Counties. Our customer base in Delaware has the potential to grow substantially withwithin the existing territories we currently serve. Assuming maximum build-out in theThe developments we currentlyeither serve or have entered into contracts to serve have obtained approvals to build additional housing units. If those additional housing units are under contract with,built and sold, we project our customer base towould grow to 38,000 customers – an increase of 65% – even41,000 without the acquisition of additional housing developments. Further, there is significant economic development and population growth within and near many of our Delaware service areas. For example, according to the United States Census Bureau, from 19902000 to 2000,2005, the population in Kent and Sussex Counties is estimated to have increased 14.1%13.6% and 38.3%12.7%, respectively.
1
Our strategy is focused on four key areas:
| | |
| • | Serve as a trusted and continually-improving provider of safe, reliable and cost-effective water, wastewater and related services. |
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| • | Provide a comprehensive suite of water and wastewater solutions in the rapidly developing Delaware market that results in profitable growth. |
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| • | Pursue profitable, core growth in New Jersey. |
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| • | Invest in products, services and other viable opportunities that complement our core competencies. |
Recent Developments
Earnings for Six Months ended June 30, 2006
For the six months ended June 30, 2006, our revenues were $39.3 million, an increase of $4.1 million from the same period in 2005. Water sales increased by $0.6 million resulting from hot, dry weather. Base rate increases contributed $2.3 million of the increase. Water consumption and related fees from customer growth, primarily in the Delaware subsidiaries, added $0.6 million of the increase, while additional revenues from other sources contributed $0.6 million. Operating expenses increased to $21.2 million, an increase of $0.9 million over the same period in 2005. Approximately $0.3 million of this increase is due to increased costs for wages and benefits, some of which is resulting from the addition of employees to support growth. Pumping and water treatment costs for our Middlesex System increased by $0.3 million. The remaining $0.3 million of the increase relates to a combination of additional wastewater treatment costs in Delaware and various miscellaneous items.
We
strivereported earnings applicable to
increase shareholder value by:maintaining and strengthening our position as a reliable providercommon stock of quality water and wastewater services;
continuing to increase our retail customer base in Delaware;
providing new water and wastewater service related businesses that are not regulated utilities;
acquiring other water and wastewater utilities; and
pursuing additional contracts$2.9 million, or $0.25 per share, for the operation and management of municipal water and wastewater systems.
Recent Developments
Dividend Increase
We have paid cash dividends on our common stock each year since 1912. On October 23, 2003, our Board of Directors approved a 2.3% increase in our quarterly cash dividend from $0.1613quarter ended June 30, 2006, compared with $1.9 million, or $0.16 per share to $0.1650 per share. This increase will be effective for our cash dividend payable on December 1, 2003, to shareholders of record on November 14, 2003. This represents an increasethe same period in the dividend rate on an annualized basis from $0.6452 per share to $0.66 per share effective with the December 1, 2003 dividend payment. The annual dividend has increased every year since 1973.
2005.
Four-for-Three Common Stock SplitOn August 28, 2003, our Board of Directors approved a four-for-three split of our common stock. The stock split was made effective on November 14, 2003, to shareholders of record on November 1, 2003. This is the second time we have split our common stock in the past two years. All share and per share amounts set forth in this prospectus have been restated to reflect such stock splits.
Tidewater Rate Case FilingsRequest
Middlesex Water Company filed a 17.8% base rate increase petition with the New Jersey Board of Public Utilities (“BPU”) on November 5, 2003. Increased operating expenses and utility plant investment necessitated the rate increase request.
In April 2006, Tidewater filed for
ana $5.5 million, or 38.6%, base rate increase
in its Distribution System Improvement Charge (“DSIC”) on November 24, 2003 with the Delaware Public Service Commission (“PSC”).
The request is intended to recover increased costs of operations, maintenance and taxes, as well as capital investment of approximately $23.8 million since rates were last established in March 2005. We cannot predict
however, whether the
BPU or PSC will
ultimately approve, deny, or reduce the amount of
ourthe request.
Additionally, we expect to fileConcurrent with the rate filing, Tidewater also submitted a
baserequest for a 15% interim rate increase
petition with the BPU for our two Pinelands subsidiaries priorsubject to
December 31, 2003, requesting up to an overall increase for those systems of approximately 20%.Our Address and Telephone Number
refund as allowed under PSC regulations. The interim rates went into effect on June 27, 2006.
Corporate Information
Our executive offices are located at 1500 Ronson Road, Iselin, New Jersey 08830-3020 and our08830-3020. Our telephone number is (732) 634-1500.634-1500 and our website is located atwww.middlesexwater.com. The information on our website is not part of this prospectus.
THE OFFERING2
The Offering
| | | |
| Common Stock offered no par value | | 700,0001,300,000 shares |
| |
Common Stock to be outstanding after the offering | | 11,247,18012,961,332 shares(1) |
| |
The Nasdaq Global Select Market symbol | | MSEX |
| |
Common Stock 52-week price range (through November 25, 2003)
| | Low: $15.38 per share High: $21.23 per share
|
| |
Annualized dividend rate
| | $0.66$16.50 per share |
| (through October 5, 2006) | | High: $22.68 per share |
|
| Annualized dividend rate | | $0.68 per share |
|
| Use of proceeds | | We expect to use the net proceeds to repay in full all of our outstanding short-term borrowings.borrowings and to fund our ongoing construction program. |
|
| Risk Factors | | Investing in our common stock involves risks. See “Risk Factors” beginning on page 5 for a description of the risks that you should consider before you decide to invest in shares of our common stock. |
| |
| (1) | The shares of our common stock to be outstanding after the offering is based on the number of11,661,332 shares outstanding as of October 31, 2003.4, 2006. |
SUMMARY CONSOLIDATED FINANCIAL DATA3
(In thousands, except per share data)
Summary Consolidated Financial Data
The following table sets forth summary consolidated financial data for the periods indicated. All share and per share amounts reflect the four-for-three common stock split effective November 14, 2003. The summary consolidated financial data as of SeptemberJune 30, 2003,2006 and 2005, and for the ninesix months ended SeptemberJune 30, 20032006 and 2002,2005, have been derived from our unaudited financial statements which have been incorporated by reference in this prospectus, and in the opinion of management, contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of SeptemberJune 30, 2003,2006 and 2005, and the results of operations for the ninesix month periods ended SeptemberJune 30, 20032006 and 2002. Operating results for the nine months ended September 30, 2003, are not necessarily indicative of results which may be expected for the full year.2005. The summary consolidated financial data as of December 31, 20022005 and 2001,2004, and for the three years ended December 31, 2002,2005, have been derived from our audited financial statements, which have been incorporated by reference in this prospectus. The summary consolidated financial data as of December 31, 2000,2003, has been derived from audited financial statements not included or incorporated by reference herein. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) located elsewhere in this prospectus and theour Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q that are incorporated by reference in this prospectus. Historical and interim operating results are not necessarily indicative of results for any other interim period orand operating results for athe six months ended June 30, 2006, are not necessarily indicative of operating results which may be expected for the full year.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months | | | |
| | | Ended June 30, | | | Years Ended December 31, | |
| | | | | | | |
| | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | | | | | | | |
| | | (In thousands, except per share data) | |
Consolidated Income Statement Data: | | | | | | | | | | | | | | | | | | | | |
| | Operating Revenues | | $ | 39,267 | | | $ | 35,174 | | | $ | 74,613 | | | $ | 70,991 | | | $ | 64,111 | |
| | Operating Expenses | | | 29,146 | | | | 27,744 | | | | 57,395 | | | | 54,058 | | | | 49,374 | |
| | Net Income | | | 4,780 | | | | 3,326 | | | | 8,476 | | | | 8,446 | | | | 6,631 | |
| | Earnings Applicable to Common Stock | | $ | 4,656 | | | $ | 3,198 | | | $ | 8,225 | | | $ | 8,191 | | | $ | 6,376 | |
| | | | | | | | | | | | | | | | |
| | Earnings per Share of Common Stock: | | | | | | | | | | | | | | | | | | | | |
| | | Basic | | $ | 0.40 | | | $ | 0.28 | | | $ | 0.72 | | | $ | 0.74 | | | $ | 0.61 | |
| | | | | | | | | | | | | | | | |
| | | Diluted | | $ | 0.40 | | | $ | 0.28 | | | $ | 0.71 | | | $ | 0.73 | | | $ | 0.61 | |
| | | | | | | | | | | | | | | | |
| | Dividends Paid per Share of Common Stock | | $ | 0.340 | | | $ | 0.335 | | | $ | 0.673 | | | $ | 0.663 | | | $ | 0.649 | |
| | Average Number of Shares Outstanding: | | | | | | | | | | | | | | | | | | | | |
| | | Basic | | | 11,602 | | | | 11,380 | | | | 11,445 | | | | 11,080 | | | | 10,475 | |
| | | Diluted | | | 11,933 | | | | 11,723 | | | | 11,784 | | | | 11,423 | | | | 10,818 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | As of June 30, | | | As of December 31, | |
| | | | | | | |
| | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | | | | | | | |
| | | (In thousands) | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
| | Total Assets | | $ | 337,433 | | | $ | 311,191 | | | $ | 324,383 | | | $ | 305,634 | | | $ | 267,956 | |
| | Utility Plant-Net | | | 293,929 | | | | 267,545 | | | | 282,961 | | | | 258,319 | | | | 231,549 | |
| | Common Equity | | | 101,073 | | | | 95,733 | | | | 99,592 | | | | 95,129 | | | | 79,643 | |
| | Long-Term Debt (excluding current portion) | | | 127,482 | | | | 115,376 | | | | 128,175 | | | | 115,281 | | | | 97,377 | |
| | Short-Term Debt | | | 14,670 | | | | 15,186 | | | | 5,931 | | | | 12,091 | | | | 13,567 | |
| | Total Debt | | | 142,152 | | | | 130,562 | | | | 134,106 | | | | 127,372 | | | | 110,944 | |
| | | Nine Months Ended
September 30,
| | Year Ended December 31,
|
| | | 2003
| | 2002
| | 2002
| | 2001
| | 2000
|
Consolidated Income Statement Data: | | | | | | | | | | | | | | | |
Operating Revenues | | $ | 48,565 | | $ | 46,738 | | $ | 61,933 | | $ | 59,638 | | $ | 54,477 |
Operating Expenses | | | 39,581 | | | 37,422 | | | 49,466 | | | 48,145 | | | 44,538 |
Net Income | | | 5,421 | | | 5,738 | | | 7,765 | | | 6,953 | | | 5,305 |
Earnings Applicable to Common Stock | | | 5,230 | | | 5,547 | | | 7,511 | | | 6,698 | | | 5,051 |
Earnings per Share of Common Stock: | | | | | | | | | | | | | | | |
Basic | | $ | 0.50 | | $ | 0.54 | | $ | 0.73 | | $ | 0.66 | | $ | 0.50 |
Diluted | | | 0.50 | | | 0.54 | | | 0.73 | | | 0.66 | | | 0.50 |
Dividends Paid per Share of Common Stock | | $ | 0.484 | | $ | 0.473 | | $ | 0.634 | | $ | 0.623 | | $ | 0.613 |
Average Number of Shares Outstanding: | | | | | | | | | | | | | | | |
Basic | | | 10,448 | | | 10,258 | | | 10,277 | | | 10,128 | | | 10,041 |
Diluted | | | 10,791 | | | 10,602 | | | 10,621 | | | 10,472 | | | 10,385 |
| | |
| | | As of September 30,
| | As of December 31,
|
| | | 2003
| | 2002
| | 2002
| | 2001
| | 2000
|
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | |
Total Assets | | $ | 255,005 | | $ | 243,048 | | $ | 244,604 | | $ | 236,374 | | $ | 219,400 |
Utility Plant-Net | | | 216,824 | | | 205,218 | | | 207,943 | | | 196,063 | | | 188,278 |
Common Equity | | | 79,661 | | | 75,835 | | | 76,501 | | | 72,290 | | | 70,635 |
Convertible Preferred Stock | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 |
Nonredeemable Preferred Stock | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 |
Long-Term Debt (excluding current portion) | | | 97,456 | | | 87,499 | | | 87,483 | | | 88,140 | | | 82,109 |
Total Debt | | | 111,016 | | | 105,387 | | | 105,733 | | | 101,724 | | | 88,374 |
We have described for you below some risks involved in investing in the common stock offered under this prospectus. We believe the risks and uncertainties described below are the most significant ones we face. You should carefully consider each of the following factors and all of the information both in this prospectus and in the other documents we have filed with the Securities and Exchange Commission which are incorporated in this prospectus by reference.We are subject to regulation in
Our revenue and earnings depend on the rates we charge our customers andcustomers. We cannot raise utility rates in our regulated businesses without first filing a petition with the appropriate governmental agency. TheseIf these agencies may modify, delay, or deny our petition, which may adversely affect our business.revenues will not increase and our earnings will decline unless we are able to reduce costs.
The
BPUNew Jersey Board of Public Utilities (“BPU”) regulates
all of our public utility companies in New
Jersey. The BPU regulates these utilitiesJersey with respect to rates and charges for service, classification of accounts, awards of new service territory, acquisitions,
financings and other matters. That means, for example, that we cannot raise the utility rates we charge to our customers without first filing a petition with the BPU and going through a lengthy administrative process. In much the same way, the PSC regulates our public utility companies in Delaware. We cannot give
assurancesassurance of when we will request approval for any such matter, nor can we predict whether the BPU or PSC will approve, deny or reduce the amount of
any such requests.
Certain costs of doing business are not
completely within our control.
For example, beginning on August 1, 2003, with the deregulation of the electricity generation market in New Jersey, our electric commodity unit costs increased by over 40% and the remaining regulated portion of our electricity rates rose 15%. These and other increased costs have prompted us to file a rate increase petition with the BPU. There can be no assurance, however, that we will receive BPU approval for this, or any future rate increases, to address increased electricity or any other increased costs. The failure to obtain any rate increase would
have a material adverse effect onprevent us from increasing our
financial condition.revenues and, unless we are able to reduce costs, would result in reduced earnings.
We are subject to environmental and other governmentalsafety laws and regulations, that may impose costs and restrictions on our business.Federal, state, regional and local governmental entities regulate many aspects of our business. Among the most important of these are our water diversion rights, ourincluding water quality and wastewater effluent quality regulations, as well as other environmental matters. We cannot predict whether we will be able to continue to complystate and local regulations. Compliance with these laws and regulations requires us to incur costs and we are subject to fines or other sanctions for non-compliance.
The United States Environmental Protection Agency (“EPA”) and New Jersey Department of Environmental Protection (“DEP”) regulate our operations in New Jersey with respect to water supply, treatment and distribution systems and the quality of the water. Our operations in Delaware are regulated by the EPA, Delaware Department of Natural Resources and Environmental Control (“DNREC”), Delaware Department of Health and Social Services-Division of Public Health (“DPH”), and Delaware River Basin Commission (“DRBC”) with respect to water supply, treatment and distribution systems and the quality of water. Federal, New Jersey and Delaware regulations relating to water quality require us to perform expanded types of testing to ensure that our water meets state and federal water quality requirements. We are subject to EPA regulations under the Federal Safe Drinking Water Act, which include the Lead and Copper Rule, the maximum contaminant levels established for various volatile organic compounds, the Federal Surface Water Treatment Rule and the Total Coliform Rule. There are also similar state regulations by the DEP in New Jersey. The DEP and DPH monitor our activities and review the results of water quality tests that we perform for adherence to applicable regulations. In addition, environmental regulatory agencies are continually reviewing regulations governing the limits of certain organic compounds found in water as currentlybyproducts of treatment.
We are also subject to regulations related to fire protection services. In Delaware, fire protection is regulated statewide by the Office of State Fire Marshal. In New Jersey there is no state-wide fire protection regulatory agency, but state regulations exist as to the size of piping required regarding the provision of fire protection services.
The cost of compliance with the water and wastewater effluent quality standards depends in effect or as they may changepart on the limits set in the future.regulations and on the method selected to implement them. If new or more restrictive standards are imposed, the cost of compliance could be very high and have an adverse impact on our revenues and results of operations if we cannot recover those costs through our rates that we charge our customers. The cost of compliance with fire protection requirements could also be high and make us less profitable if we cannot recover those costs through our rates charged to our customers.
5
In addition, if we fail to comply with governmentenvironmental or other laws and regulations itto which our business is subject, we could be fined or subject to other sanctions, which could adversely impact our business or results of operations.
We are currently appealing a notice of violation and request for corrective action issued by the Delaware Fire Marshal regarding the alleged failure of one of the community water systems operated by Tidewater to meet Delaware fire protection requirements. If our appeal is unsuccessful, our operating results could be materially affected.
In July 2005, Tidewater received a notice of violation and request for corrective action issued by the Delaware Fire Marshal regarding the alleged failure of one of the community water systems operated by Tidewater to meet Delaware fire protection requirements. Tidewater appealed the Fire Marshal’s decision with the Delaware State Fire Prevention Commission (the “SFPC”) and, in November 2005, the SFPC denied Tidewater’s appeal. In December 2005, Tidewater filed an appeal of the SFPC’s decision with the Sussex County Superior Court in Delaware, which is still pending. There are approximately 67 of our other systems that may not meet the Delaware Fire Marshal’s recent interpretation of the fire protection requirements. If the Delaware Fire Marshal’s interpretation of the regulations is upheld upon appeal, we may be required to make corrections to the system at issue and the Delaware Fire Marshal could issue notices of violation and requests for corrective action for some or all of the approximately 67 other community systems. At this time, we cannot predict how many community water systems would ultimately require corrective action if our appeal is unsuccessful nor can we predict the timing and the cost of any required corrective actions. We will apply to the PSC to increase base rates to recover the costs of any such corrective actions. However, if corrective actions need to be taken at several community water systems, our costs could be significant, and to the extent the PSC does not approve rate increases to offset these costs, or if there is a significant delay in receiving approval for such rate increases, such costs could have a material adverse effect on our financial condition andoperating results.
We depend upon our results of operations.These entities regulate the quality of water we supplyability to our customers, as well as our water supply, treatment and distribution systems. These governmental agencies continually review such regulations and may propose new, more restrictive requirementsraise money in the future. These may include stricter limitations on the permissible levelscapital markets to finance some of certain chemicals and compounds in the water. We do not know what the costs may beof complying with laws and regulations, including environmental laws and regulations, or to meet such stricter limits, if adopted as new lawspay for some of the costs of improvements to or regulations. Those costs could be very high and may have a material adverse effect onexpansion of our financial condition and results of operations.
utility system assets. Our regulated utility companies cannot issue debt or equity securities without regulatory approval.
We require financing
to grow our business. Any failure to obtain adequate capital to finance expansion and ongoing capital programs may have a material adverse effect on our financial condition and results of operations.We require financing to continue our expansion efforts and to fund our ongoing capital program. Going forward into 2004 through 2006, we project that we will be requiredprogram for the improvement of our utility system assets and for planned expansion of those systems. We expect to expend approximately $67.0spend between $86 million and $112 million for ongoing capital projects.projects through 2008. We would needmust obtain regulatory approval if we wanted to sell debt or equity securities to raise capitalmoney for suchthese projects. We may find in the future thatIf sufficient capital is not available, that the cost of
capital is too high, for future expansion and construction, or thatif the regulatory authorities deny oura petition of ours to sell debt or equity securities. Any failuresecurities, we may not be able to obtain adequate capitalmeet the costs of complying with environmental laws and regulations or the costs of improving and expanding our utility system assets to finance our expansion and construction programs could impact our contractual obligations and capital programs, and have a material adverse effectthe level we believe necessary. This might result in the imposition of fines or restrictions on our financial conditionoperations and results of operations.
may curtail our ability to improve upon and expand our utility system assets.
Weather conditions and overuse of underground aquifers may interfere with our sources of water, demand for water services and our ability to supply water to customers. Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water. Unexpected conditions may interfere with our water supply sources. Drought and overuse of underground aquifers may limit the availability of ground andand/or surface water. Freezing weather may also contribute to water transmission interruptions caused by pipe and/or main breakage. Any interruption in our water supply could cause a reduction in our revenue and profitability. These factors might adversely affect our ability to supply water in sufficient quantities to our customers. Governmental drought restrictions might result in decreased use of water services and can adversely affect our revenue and earnings. Additionally, cool and wet weather may reduce consumption demands, also adversely affecting our revenue and earnings. Freezing weather may also contribute
6
Our business is subject to water transmission interruptions caused by pipe and main breakage. Any interruption inseasonal fluctuations, which could affect demand for our water supply could have a material adverse effect onservice and our financial conditionrevenues.
Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and
results of operations.other outside water use. Throughout the year, and particularly during typically warmer months, demand may vary with temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.
Our water sources may become contaminated by naturally occurringnaturally-occurring or man-made compounds and events. This may cause disruption in services and adversely affect our business.impose costs to restore the water to required levels of quality.
Our sources of water may become contaminated by naturally-occurring or man-made compounds and events. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to install treatment equipment or substitute the flow of water from an uncontaminated water source through our transmission and distribution systems. We may also incur significant costs in treating the contaminated water through expansionthe use of our current treatment facilities, or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, may reduce our revenues and make us less profitable.
We face competition from other water and wastewater utilities and service providers, which might hinder our growth and reduce our profitability.
We face risks of competition from other utilities authorized by federal, state or local agencies. Once a state utility regulator grants a franchise to a utility to serve a specific territory, that utility has an exclusive right to service that territory. Although a new franchise offers some protection against competitors, the pursuit of franchises is competitive, especially in Delaware where new franchises may be awarded to utilities based upon competitive negotiation. Competing utilities have challenged, and may in the future challenge, our applications for new franchises. Also, third parties entering into long-term agreements to operate municipal systems might adversely affect us and our long-term agreements to supply water on a contract basis to municipalities, which could adversely affect our operating results.
We have a long-term contractual obligation for water and wastewater system operation and maintenance under which we may incur costs in excess of payments received.
Middlesex Water Company and USA-PA operate and maintain the water and wastewater systems of the City of Perth Amboy, New Jersey under a20-year contract expiring in 2018. This contract does not protect us against incurring costs in excess of revenues we earn pursuant to the contract. There can be no assurance that we will not experience losses resulting from this contract. Losses under this contract or our failure or inability to perform may have a material adverse effect on our financial condition and results of operations.
Additionally, Also, in connection with the contract, Perth Amboy, through the Middlesex County Improvement Authority, issued approximately $68.0 million in three series of bonds. Middlesex guaranteed one of those series of bonds, designated the Series C Serial Bonds, in the wakeprincipal amount of approximately $26.3 million. As of June 30, 2006, approximately $23.9 million of Perth Amboy’s bonds we have guaranteed remain outstanding. If Perth Amboy defaults on its obligations to pay the bonds we have guaranteed, we would have to raise funds to meet our obligations under that guarantee.
An important element of our growth strategy is the acquisition of water and wastewater assets, operations, contracts or companies. Any pending or future acquisitions we decide to undertake may involve risks.
The acquisition and/or operation of water and wastewater systems is an important element in our growth strategy. This strategy depends on identifying suitable opportunities and reaching mutually agreeable terms with acquisition candidates or contract partners. These negotiations, as well as the integration of acquired
7
businesses, could require us to incur significant costs and cause diversion of our management’s time and resources. Further, acquisitions may result in dilution of our equity securities, incurrence of debt and contingent liabilities, fluctuations in quarterly results and other related expenses. In addition, the assets, operations, contracts or companies we acquire may not achieve the sales and profitability expected.
The current concentration of our business in central New Jersey and Delaware makes us susceptible to any adverse development in local regulatory, economic, demographic, competitive and weather conditions.
Our Middlesex System, which accounted for 69% of our 2005 revenue and 68% of our revenue during the first six months of 2006, provides water services to retail customers who are located primarily in eastern Middlesex County, New Jersey and provides water under wholesale contracts to the Township of Edison, the Boroughs of Highland Park and Sayreville, and both the Old Bridge and the Marlboro Township Municipal Utilities Authorities, and the City of Rahway in Union County, New Jersey. Our Tidewater System provides water services to retail customers in the State of Delaware. Our revenues and operating results are therefore subject to local regulatory, economic, demographic, competitive and weather conditions in a relatively concentrated geographic area. A change in any of these conditions could make it more costly or difficult for us to conduct our business. In addition, any such change would have a disproportionate effect on us, compared to water utility companies that do not have such a geographic concentration.
The necessity for increased security has and may continue to result in increased operating costs.
Since the September 11, 2001 terrorist attacks and the
ensuingcontinuing threats to the health and security of the United States of America, we have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We are at risk for terrorist attacks and have
incurred, and will continue to
bear,incur, increased costs for security precautions to protect our facilities, operations and supplies from such risks.
Our ability to achieve growth in Delaware is somewhat dependent on the residential building market in the territories we serve. If housing starts decline significantly, our rate of growth may not meet our expectations.
We
face competitionexpect our revenues to increase from
other utilitiescustomer growth in Delaware for our regulated water operations and,
service providers which might adversely affect our growth and financial condition.We face the risks of competition from other utilities authorized by federal, state or local agencies. Once a utility regulator grants a service territory to a utility, that utility is usuallylesser degree, our regulated wastewater operations as a result of the only one to service that territory.anticipated construction and sale of new housing units in the territories we serve. Although a new territory offers some protection against competitors, the pursuit of service territories is competitive, especiallyresidential building market in Delaware where new territories may be awarded to utilities based upon competitive negotiation. Competing utilities have challenged, and mayhas experienced growth in recent years, this growth my not continue in the future challenge,future. If housing starts in the Delaware territories we serve decline significantly as a result of economic conditions or otherwise, our applications for new service territories. Also, third parties entering into long-term agreements to operate municipal systems might adversely affect usrevenue growth may not meet our expectations and our long-term agreements to supply water on a contract basis to municipalities.
We have a long-term contractual obligation for water and wastewater system operation and maintenance under which we may incur costs in excess of payments received.
Middlesex Water Company and USA-PA operate and maintain the water and wastewater systems of Perth Amboy, New Jersey under a multi-year contract. This contract does not protect us against incurring costs in
excess of payments we will receive pursuant to the contract. There canfinancial results could be no assurance that we will not experience losses resulting from this contract. Losses under this contract or our failure or inability to perform may have a material adverse effect on our financial condition and results of operations. Also, in connection with this contract, Perth Amboy, through the Middlesex County Improvement Authority, issued approximately $68.0 million in three series of bonds. We have guaranteed one of those series of bonds in the principal amount of approximately $26.3 million. If Perth Amboy defaults on its obligations to pay the bonds we have guaranteed, it may have a material adverse effect on our financial condition and results of operations.
An important element of our growth strategy is the acquisition of water and wastewater systems. Any pending or future acquisitions we decide to undertake may involve risks.
The acquisition and integration of water and wastewater systems is an important element in our growth strategy. This strategy depends on identifying suitable acquisition opportunities and reaching mutually agreeable terms with acquisition candidates. The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant costs and cause diversion of our management’s time and resources. Further, acquisitions may result in the dilution of our equity securities, incurrence of debt and contingent liabilities, fluctuations in quarterly results and other acquisition related expenses. In addition, the businesses and other assets we acquire may not achieve the sales and profitability expected. Some or all of these potential outcomes could have a material adverse effect on our business and results of operations.
We depend significantly on the services of the members of our senior management team, and the departure of any of those persons could cause our operating results to suffer.
Our success depends significantly on the continued individual and collective contributions of our senior management team. The loss of the services of any member of our senior management or the inability to hire and retain experienced management personnel could have a material adverse effect on our business and results of operations.
negatively impacted.
We have restrictions on our dividends. There can also be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividendsdividends.. Our Restated Certificate of Incorporation and our Indenture of Mortgage dated as of April 1, 1927, as supplemented, (“Mortgage”) impose conditions on our ability to pay dividends. We have paid dividends on our common stock each year since 1912 and have increased the amount of dividends paid each year since 1973.
Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on common stock and the amount of those dividends. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.
8
If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.
Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance. Our performance is affected by many factors, some of which are beyond our control. We believe that our cash generated from operations, and, if necessary, borrowings under our existing credit facilities, will be sufficient to enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are not as favorable to us.
No assurance can be given that any refinancing or sale of equity will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust indentures and loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could result in an acceleration of our indebtedness.
There is a limited trading market for our common stock; you may not be able to resell your shares at or above the price you pay for them.
Although our common stock is listed for trading on The Nasdaq Global Select Market, the trading in our common stock has substantially less liquidity than many other companies listed on The Nasdaq Global Select Market. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Because of the limited volume of trading in our common stock, a sale of a significant number of shares of our common stock in the open market could cause our stock price to decline. We cannot provide any assurance that this offering will increase the volume of trading in our common stock.
We depend significantly on the services of the members of our senior management team, and the departure of any of those persons could cause our operating results to suffer.
Our success depends significantly on the continued individual and collective contributions of our senior management team. If we lose the services of any member of our senior management or are unable to hire and retain experienced management personnel, it could affect our operating results.
We are subject to anti-takeover measures that may be used by existing management to discourage, delay or prevent changes of control.control that might benefit non-management shareholders.
Subsection 10A of the New Jersey Business Corporation Act, known as the Shareholder Protection Act, applies to us. The Shareholder Protection Act deters merger proposals, tender offers or other attempts to effect changes in our control that are not negotiated and approved by our Board of Directors. In addition, we have a classified Board of Directors, which means only one thirdone-third of the Directors are elected each year. A classified Board can make it harder for an acquirer to gain control by voting its candidates onto the Board of Directors and may also deter merger proposals and tender offers. Our Board of Directors also has the ability, subject to obtaining BPU approval, to issue one or more series of preferred stock having such number of shares, designation, preferences, voting rights, limitations and other rights as the Board of Directors may fix. This could be used by the Board of Directors to discourage, delay or prevent an acquisition.acquisition that might benefit non-management shareholders.
9
FORWARD-LOOKING STATEMENTSWe discuss certain matters
Certain statements contained in this
document which are not historical facts, but which are “forward looking statements.” We intendprospectus 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
“forward looking statements” to qualify forstatements be covered by the safe harbors
from liability established by the Private Securities Litigation Reform Act of 1995.created under those laws. These
“forward looking statements”statements include, but are not limited
to, statements regarding:to: our expected profitability and results of operations;
strategic plans for growth;
| | |
| • | statements as to expected financial condition, performance, prospects and earnings of the Company; |
|
| • | statements regarding strategic plans for growth; |
|
| • | statements regarding the amount and timing of rate increases and other regulatory matters; |
|
| • | statements regarding expectations and events concerning capital expenditures; |
|
| • | statements as to the Company’s expected liquidity needs during fiscal 2006 and beyond and statements as to the sources and availability of funds to meet its liquidity needs; |
|
| • | statements as to expected rates, consumption volumes, service fees, revenues, margins, expenses and operating results; |
|
| • | statements as to the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs; |
|
| • | statements as to the safety and reliability of the Company’s equipment, facilities and operations; |
|
| • | statements as to financial projections; |
|
| • | statements as to the ability of the Company to pay dividends; |
|
| • | statements as to the Company’s plans to renew municipal franchises and consents in the territories it serves; |
|
| • | expectations as to the amount of cash contributions to fund the Company’s retirement benefit plans, including statements as to anticipated discount rates and rates of return on plan assets; |
|
| • | statements as to trends; and |
|
| • | statements regarding the availability and quality of our water supply. |
These forward-looking statements are subject to risks, uncertainties and other regulatory matters;
expectations and events concerning capital expenditures; and
the availability of our water supply.
The “forward looking statements” in this prospectus reflect what we currently anticipate will happen in each case. What actually happensfactors that could cause actual results to differ materially from what we currently anticipate will happen. We are not promisingfuture results expressed or implied by the forward-looking statements. Important factors that could cause actual results to make any public announcement when we think “forward looking statements” in this document are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason.
Important matters that may affect what will actually happendiffer materially from anticipated results and outcomes include, but are not limited to:
| | |
| • | the effects of general economic conditions; |
|
| • | increases in competition in the markets served by the Company; |
|
| • | the ability of the Company to control operating expenses and to achieve efficiencies in its operations; |
|
| • | the availability of adequate supplies of water; |
|
| • | actions taken by government regulators, including decisions on base rate increase requests; |
|
| • | new or additional water quality standards; |
|
| • | weather variations and other natural phenomena; |
|
| • | the existence of attractive acquisition candidates and the risks involved in pursuing those acquisitions; |
|
| • | acts of war or terrorism; |
|
| • | significant changes in the housing starts in Delaware; |
|
| • | the availability and cost of capital resources; and |
|
| • | other factors discussed elsewhere in this prospectus. |
Many of these factors are beyond the Company’s ability to general stock market risks, government regulationcontrol 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 prospectus. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
For an additional discussion of factors that may affect the Company’s business and fluctuating economic conditions.results of operations, see Risk Factors.
10
Based on an assumed offering price of $19.00, the net proceeds from the sale of the common stock offered by this prospectus, after deducting the
Underwriters’underwriters’ commissions and estimated offering expenses, is estimated to be
$12.5 million.$23.5 million (or $27.4 million if the underwriters exercise their over-allotment options in full). We expect to use the net proceeds to
finance our ongoing construction program and to repay
in full all of our outstanding short-term borrowings,
which, as of October 5, 2006, consist of borrowings from PNC Bank ($
10.0 million at 1.67% interest, maturing on January 16, 2004)4.5 million), Bank of America ($9.5 million), and
Fleet BankCoBank ($
2.5 million at 1.56% interest, maturing on January 16, 2004)4.9 million). These short-term borrowings were
primarily incurred to finance
expensescosts associated with our capital program in
Delaware.Delaware, which amounted to $15.8 million for the twelve months ended June 30, 2006.
CAPITALIZATIONShown in the
The following table
below are the components of our capital structuresets forth, as of
SeptemberJune 30,
20032006, our capitalization on an actual basis and on an adjusted basis
reflectingto give effect to the sale of the shares of common stock in this offering at an assumed offering price of $19.00 per share and the anticipated application of the net proceeds from
this offering as described in “Use of Proceeds.” This table should be read in conjunction with our Consolidated Financial Statements and the
sale and issuance of 700,000 shares ofaccompanying Notes to Consolidated Financial Statements in our
common stock under this offering:| | | September 30, 2003 (Dollars in thousands)
| |
| | | Actual
| | % of
Capitalization
| | | As
Adjusted
| | % of
Capitalization
| |
Common Stock Equity | | $ | 79,661 | | 44.0 | % | | $ | 92,161 | | 47.6 | % |
Preferred Stock | | | | | | | | | | | | |
Convertible | | | 2,961 | | 1.6 | % | | | 2,961 | | 1.5 | % |
Nonredeemable | | | 1,102 | | 0.6 | % | | | 1,102 | | 0.6 | % |
Long-Term Debt (1) | | | 97,456 | | 53.8 | % | | | 97,456 | | 50.3 | % |
| | |
|
| |
|
| |
|
| |
|
|
Total Capitalization | | $ | 181,180 | | 100.0 | % | | $ | 193,680 | | 100.0 | % |
| | |
|
| |
|
| |
|
| |
|
|
Short-Term Debt (2) | | $ | 13,561 | | | | | $ | 1,061 | | | |
| | |
|
| | | | |
|
| | | |
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 that is incorporated by reference herein. | | | | | | | | | | | | | | | | | | |
| | | As of June 30, 2006 | |
| | | | |
| | | | | % of | | | | | % of | |
| | | Actual | | | Capitalization | | | As Adjusted | | | Capitalization | |
| | | | | | | | | | | | | |
| | | (In thousands) | |
| Common Stock Equity | | $ | 101,073 | | | | 43.5 | % | | $ | 124,542 | | | | 48.7 | % |
| Preferred Stock: | | | | | | | | | | | | | | | | |
| | Convertible | | | 2,856 | | | | 1.2 | % | | | 2,856 | | | | 1.1 | % |
| | Nonredeemable | | | 1,102 | | | | 0.5 | % | | | 1,102 | | | | 0.4 | % |
| Long-Term Debt(1) | | | 127,482 | | | | 54.8 | % | | | 127,482 | | | | 49.8 | % |
| | | | | | | | | | | | | |
| Total Capitalization | | $ | 232,513 | | | | 100.0 | % | | $ | 255,982 | | | | 100.0 | % |
| | | | | | | | | | | | | |
| Short-Term Debt(2) | | $ | 14,670 | | | | | | | $ | 2,070 | | | | | |
| | | | | | | | | | | | | |
| |
| (1) | Excludes current maturities. |
|
| (2) | Includes current maturities of long-term debt. |
11
COMMON STOCK PRICE RANGE AND DIVIDENDS Our common stock is listed on The Nasdaq Global Select Market and trades under the symbol “MSEX.” On October 4, 2006 we had 2,035 common shareholders of record.
The following table sets forth the range of sales prices of the common stock, as reported by The Nasdaq Global Select Market and dividends paid thereon for the periods indicated.
| | | | | | | | | | | | | | |
| | | | | | | Quarterly | |
| | | | | | | Cash | |
| | | | | | | Dividend | |
| Period: | | High | | | Low | | | per Share | |
| | | | | | | | | | |
| 2006: | | | | | | | | | | | | |
| | Fourth Quarter (through October 5, 2006) | | $ | 19.50 | | | $ | 18.62 | | | | | |
| | Third Quarter | | | 20.50 | | | | 17.58 | | | $ | 0.1700 | |
| | Second Quarter | | | 19.34 | | | | 16.50 | | | | 0.1700 | |
| | First Quarter | | | 19.72 | | | | 17.03 | | | | 0.1700 | |
| 2005: | | | | | | | | | | | | |
| | Fourth Quarter | | $ | 23.34 | | | $ | 17.31 | | | $ | 0.1700 | |
| | Third Quarter | | | 23.47 | | | | 19.05 | | | | 0.1675 | |
| | Second Quarter | | | 20.00 | | | | 17.07 | | | | 0.1675 | |
| | First Quarter | | | 19.16 | | | | 17.64 | | | | 0.1675 | |
| 2004: | | | | | | | | | | | | |
| | Fourth Quarter | | $ | 20.72 | | | $ | 17.06 | | | $ | 0.1675 | |
| | Third Quarter | | | 19.50 | | | | 16.65 | | | | 0.1650 | |
| | Second Quarter | | | 21.81 | | | | 18.83 | | | | 0.1650 | |
| | First Quarter | | | 21.32 | | | | 19.38 | | | | 0.1650 | |
Cash dividends on our common stock have been paid each year since 1912, and the annual dividend has increased every year since 1973.
On October 23, 2003, the Board of Directors declared a quarterly cash dividend of $0.165 per share payable on December 1, 2003, to shareholders of record on November 14, 2003, reflecting an increase of 2.3%.The Board of Directors’ policy has been to pay cash dividends on the common stock on a quarterly basis. Future cash dividends will be dependent upon our earnings, financial condition, capital demands and other factors, and will be determined in accordance with policies established by the Board of Directors.
12
Our common stock is listed on the Nasdaq National Market and trades under the symbol “MSEX.” On October 31, 2003 we had 2,102 common shareholders of record.
The following table sets forth the range of sales prices of the common stock, as reported by the Nasdaq National Market and dividends paid thereon for the periods indicated. All share and per share amounts reflect the four-for-three common stock split effective November 14, 2003.
| | | Sales Price
| | | |
| | | Quarterly Cash
Dividends
| |
| | | High
| | Low
| |
2003: | | | | | | | | | | |
Fourth Quarter (through November 25, 2003) | | $ | 20.61 | | $ | 18.19 | | $ | 0.1650 | (1) |
Third Quarter | | | 21.23 | | | 17.72 | | | 0.1613 | |
Second Quarter | | | 18.49 | | | 16.32 | | | 0.1613 | |
First Quarter | | | 18.00 | | | 15.77 | | | 0.1613 | |
| | | |
2002: | | | | | | | | | | |
Fourth Quarter | | $ | 17.36 | | $ | 15.38 | | $ | 0.1613 | |
Third Quarter | | | 19.43 | | | 13.73 | | | 0.1575 | |
Second Quarter | | | 20.04 | | | 15.53 | | | 0.1575 | |
First Quarter | | | 17.74 | | | 16.70 | | | 0.1575 | |
| | | |
2001: | | | | | | | | | | |
Fourth Quarter | | $ | 17.23 | | $ | 14.69 | | $ | 0.1575 | |
Third Quarter | | | 17.12 | | | 15.50 | | | 0.1538 | |
Second Quarter | | | 18.73 | | | 15.00 | | | 0.1538 | |
First Quarter | | | 17.00 | | | 14.69 | | | 0.1538 | |
(1) | Payable on December 31, 2003. |
SELECTED CONSOLIDATED FINANCIAL DATA(In thousands, except per share data)
The following table sets forth selected consolidated financial data for the periods indicated. All share and per share amounts reflect the four-for-three common stock split effective November 14, 2003. The selected consolidated financial data as of September 30, 2003, and for the nine months ended September 30, 2003 and 2002, have been derived from our unaudited financial statements which have been incorporated by reference in this prospectus, and in the opinion of management, contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2003, and the results of operations for the nine month periods ended September 30, 2003 and 2002. Operating results for the nine months ended September 30, 2003, are not necessarily indicative of results which may be expected for the full year. The selected consolidated financial data as of December 31, 2002 and 2001, and for the three years ended December 31, 2002, have been derived from our audited financial statements which have been incorporated by reference in this prospectus. The selected consolidated financial data as of December 31, 2000, 1999 and 1998, and for the two years ended December 31, 1999, have been derived from audited financial statements not included herein. The information set forth below should be read in conjunction with MD&A, located elsewhere in this prospectus, and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements incorporated by reference in this prospectus. Historical and interim operating results are not necessarily indicative of results for any other interim period or for a full year.
| | | Nine Months Ended
September 30,
| | Year Ended December 31,
|
| | | 2003
| | 2002
| | 2002
| | 2001(1)
| | 2000
| | 1999(2)
| | 1998
|
Consolidated Income Statement Data: | | | | | | | | | | | | | | | | | | | | | |
Operating Revenues | | $ | 48,565 | | $ | 46,738 | | $ | 61,933 | | $ | 59,638 | | $ | 54,477 | | $ | 53,497 | | $ | 43,058 |
Operating Expenses | | | 39,581 | | | 37,422 | | | 49,466 | | | 48,145 | | | 44,538 | | | 42,832 | | | 33,909 |
Net Income | | | 5,421 | | | 5,738 | | | 7,765 | | | 6,953 | | | 5,305 | | | 7,881 | | | 6,521 |
Earnings Applicable to Common Stock | | | 5,230 | | | 5,547 | | | 7,511 | | | 6,698 | | | 5,051 | | | 7,580 | | | 6,202 |
Earnings per Share of Common Stock: | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.50 | | $ | 0.54 | | $ | 0.73 | | $ | 0.66 | | $ | 0.50 | | $ | 0.77 | | $ | 0.71 |
Diluted | | | 0.50 | | | 0.54 | | | 0.73 | | | 0.66 | | | 0.50 | | | 0.76 | | | 0.71 |
Dividends Paid per Share of Common Stock | | $ | 0.484 | | $ | 0.473 | | $ | 0.634 | | $ | 0.623 | | $ | 0.613 | | $ | 0.593 | | $ | 0.578 |
Average Number of Shares Outstanding: | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 10,448 | | | 10,258 | | | 10,277 | | | 10,128 | | | 10,041 | | | 9,851 | | | 8,706 |
Diluted | | | 10,791 | | | 10,602 | | | 10,621 | | | 10,472 | | | 10,385 | | | 10.294 | | | 9,158 |
| | |
| | | As of September 30,
| | As of December 31,
|
| | | 2003
| | 2002
| | 2002
| | 2001(1)
| | 2000
| | 1999(2)
| | 1998
|
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | |
Total Assets | | $ | 255,005 | | $ | 243,048 | | $ | 244,604 | | $ | 236,374 | | $ | 219,400 | | $ | 215,036 | | $ | 203,501 |
Utility Plant-Net | | | 216,824 | | | 205,218 | | | 207,943 | | | 196,063 | | | 188,278 | | | 179,722 | | | 159,116 |
Common Equity | | | 79,661 | | | 75,835 | | | 76,501 | | | 72,290 | | | 70,635 | | | 70,489 | | | 66,729 |
Convertible Preferred Stock | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 | | | 2,961 |
Nonredeemable Preferred Stock | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 |
Long-Term Debt (excluding current portion) | | | 97,456 | | | 87,499 | | | 87,483 | | | 88,140 | | | 82,109 | | | 82,330 | | | 78,032 |
Total Debt | | | 111,016 | | | 105,387 | | | 105,733 | | | 101,724 | | | 88,374 | | | 84,532 | | | 79,103 |
(1) | In 2001, we acquired the assets of a 300-customer water utility in Cumberland County, New Jersey, which we now operate as Bayview, and we also acquired Southern Shores, a 2,200-customer system in Southern Delaware. |
(2) | Beginning January 1, 1999, USA-PA, along with Middlesex, has operated and maintained the City of Perth Amboy’s water and wastewater systems. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Middlesex Water Company has operated as a water utility in New Jersey since 1897, and in Delaware, through our wholly-owned subsidiary, Tidewater, since 1992. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate a New Jersey municipal water and wastewater system under contract and provide wastewater services in New Jersey and Delaware through our subsidiaries. We are regulated as to rates charged to customers for water and wastewater services in New Jersey and for water services in Delaware, as to the quality of water service we provide and as to certain other matters. Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
Our New Jersey water utility system (the “Middlesex System”) provides water services to approximately 58,000 retail customers, primarily in central New Jersey. The Middlesex System also provides water service under contract to municipalities in central New Jersey with a total population of approximately 267,000. In partnership with our subsidiary, USA-PA, we operate the water supply system and wastewater system for the City of Perth Amboy, New Jersey. Our other New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide water and wastewater services to residents in Southampton Township, New Jersey.
Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services to approximately 23,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Our other Delaware subsidiary, White Marsh, services an additional 1,900 customers in Kent and Sussex Counties.
The majority of our revenue is generated from retail and contract water services to customers in our service areas. We record water service revenue as such service is rendered and include estimates for amounts unbilled at the end of the period for services provided after the last billing cycle. Fixed service charges are billed in advance by our subsidiary, Tidewater, and are recognized in revenue as the service is provided.
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements contained in our most recent Annual Report on Form 10-K and our most recently filed Quarterly Report on Form 10-Q. All share and per share amounts discussed below reflect the four-for-three common stock split effective November 14, 2003.
Results of Operations—Nine Months Ended September 30, 2003
Operating revenues for the nine months rose $1.8 million or 3.9% over the same period in 2002. Customer growth of 9.1% in Delaware provided additional facility charges and connection fees of $1.2 million. Higher base rates in our Delaware service territories provided $0.5 million of the increase. Cool and wet weather in the Mid-Atlantic region pushed Tidewater’s consumption revenue down by $0.4 million and Middlesex consumption revenue down by $0.1 million. Revenues from our operations and maintenance contracts rose $0.5 million due to scheduled increases in fixed fees under the City of Perth Amboy contract. Wastewater operations in Delaware provided $0.1 million in additional revenues.
Operating expenses increased by $2.2 million or 5.8%. Costs related to main breaks resulting from severe winter weather conditions in the first quarter of 2003 contributed to additional expenses of $0.3 million. There were also higher sewer disposal costs of $0.3 million for USA-PA. An increase in our Delaware employee base, general wage increases and higher costs associated with employee medical and retirement benefits pushed up costs by $0.4 million. In New Jersey, payroll costs, employee benefits and legal fees pushed up costs by $0.8 million. Water treatment, source of supply and pumping costs increased by $0.4 million combined. Other taxes
increased by $0.2 million generally due to payroll related taxes and real estate taxes in both New Jersey and Delaware. Lower federal income taxes of $0.5 million over last year are attributable to the unfavorable operating results during the first nine months of 2003.
Depreciation expense increased by $0.3 million or 7.6% due to a higher level of utility plant in service.
Other income decreased by $0.1 million as interest rates fell on short-term cash balance investments.
Allowance for funds used during construction rose $0.1 million for the year as Tidewater’s capital program now includes larger projects with longer construction schedules.
Net income decreased to $5.4 million from $5.7 million and basic and diluted earnings per share decreased by $0.04 to $0.50.
Results of Operations 2002 Compared to 2001
Operating revenues increased $2.3 million or 3.9% over the prior year. Higher base rates in New Jersey and Delaware provided $1.9 million of the increase. A full year of ownership of the Bayview and Southern Shores systems generated additional revenue of $0.4 million. Service fees from our operation and maintenance contracts rose $0.2 million due to an increase in fixed fees for sewer disposal under the City of Perth Amboy contract.
Consumption revenues decreased by $0.2 million. Drought restrictions in New Jersey caused decreased usage in the amount of $1.3 million. The continued double-digit growth of our Tidewater customer base offset $1.1 million of the lower consumption revenues.
Operating expenses increased $1.3 million for the year. Operation and maintenance (“O&M”) expenses accounted for $1.0 million of the increase. There were higher sewer costs of $0.2 million for USA-PA. General wage increases, higher costs associated with employee medical and retirement benefits and an increase in our Delaware employee base, pushed up O&M costs by $0.7 million. Approximately $0.2 million was due to the inclusion of expenses of Southern Shores for the entire year. Increases in business insurances, audit fees and stock exchange filing fees amounted to $0.2 million. A favorable decrease in water production and treatment costs of $0.3 million was due to drought related consumption decreases in our New Jersey operations.
Other taxes increased by $0.2 million due to revenue related taxes in New Jersey, increased real estate taxes and payroll taxes in both New Jersey and Delaware. Higher federal income taxes of $0.2 million over 2001 were attributable to favorable operating results over that year.
Depreciation expense decreased by $0.1 million, or 1.7%, due to the full recovery of our investment in transportation equipment, which we depreciate at a higher rate than our mains and appurtenances.
Allowance for funds used during construction rose $0.1 million for the year as the capital programs of Middlesex Water Company and Tidewater now include larger projects with longer construction periods. Other income was lower by $0.2 million due mostly to the recognition of a one time gain reported in 2001 by a small investor-owned water utility in southern Delaware, in which we own a 23% interest.
Even though there was a higher level of long-term and short-term debt outstanding compared to 2001, lower interest rates on short-term debt and the $6.0 million refinancing of long-term debt at a lower rate helped to keep the interest expense increase to 2.0% or $0.1 million.
Net income rose to $7.8 million from $7.0 million and basic and diluted earnings per share rose $0.07 from $0.66 to $0.73 per share.
Results of Operations 2001 Compared to 2000
Operating revenues grew to $59.6 million from $54.5 million amounting to a 9.4% increase. Favorable weather patterns resulted in higher consumption in our New Jersey service areas and provided $2.1 million of additional revenues. Delaware enjoyed both favorable weather patterns and customer growth of 24%, which accounted for its revenue increase of $1.1 million. Rate increases, primarily in New Jersey, accounted for $2.0 million of revenue.
Total operating expenses rose 8.1% or $3.6 million over 2000. The cost of purchased water increased by $0.2 million, due to higher sales in the Middlesex System. This increased the operations expense portion of total operating expenses. Employee labor and benefits rose $0.4 million and rate case expenses were $0.2 million higher than 2000. Business insurances increased by $0.2 million. Maintenance increased by almost $0.2 million with almost 40% of the increase attributable to the two new systems, Southern Shores and Bayview, acquired in 2001.
Depreciation expense increased by almost 7.5% or less than $0.4 million. In addition to the increase to Utility Plant of $9.7 million during the year, an increase in the PSC approved composite depreciation rate for Tidewater were the primary reasons for the increase of this expense category.
Increases in real estate taxes of almost $0.2 million and gross receipts and franchise taxes on higher sales for us of $0.4 million accounted for much of the variance in other taxes. Federal income taxes grew by $1.1 million as net income rebounded by 31% compared to 2000. Other income jumped 38% as a result of a one-time gain by a small investor-owned water utility in southern Delaware. We are a 23% equity owner of that water utility.
Rate relief in New Jersey, customer growth in Delaware and the return of more typical spring and summer weather patterns to both regions, fueled higher revenues and the resulting increased net income.
Liquidity and Capital Resources
Our capital program for 2003 is estimated to be $18.0 million. We plan to expend $11.0 million for water system additions and improvements for our Delaware systems, which include the construction of two elevated tanks, a sludge removal plant and the creation of several new wells and interconnections. We have spent $2.7 million for the RENEW program, which is our program to clean and cement line unlined mains in the Middlesex System. There is a total of approximately 143 miles of unlined mains in the 730-mile Middlesex System. In 2003, 5.3 miles of unlined mains were cleaned and cement lined. The capital program also includes $4.3 million for scheduled upgrades to our existing systems in New Jersey. The scheduled upgrades consist of $0.7 million for mains, $0.8 million for service lines, $0.3 million for meters, $0.3 million for hydrants, $0.1 million for computer systems and $2.1 million for various other items. As of September 30, 2003, we had expended $13.1 million on our capital program.
To pay for our remaining capital program in 2003, we will utilize internally generated funds and funds available under existing New Jersey Environmental Infrastructure Trust (“NJEIT”) loans and Delaware State Revolving Fund (“SRF”) loans, which provide low cost financing for projects that meet certain water quality and system improvement benchmarks. If necessary, we will also utilize short-term borrowings through $30.0 million of available lines of credit with three commercial banks. As of September 30, 2003, we had $12.5 million outstanding against the lines of credit. We expect to use the net proceeds from this offering to repay in full all of our outstanding short-term borrowings.
The table below presents the estimated capital expenditures, in millions, for all our companies for 2004, 2005 and 2006:
| | | 2004
| | 2005
| | 2006
|
Delaware Systems | | $ | 14.1 | | $ | 12.8 | | $ | 7.6 |
Raw Water Line | | | 6.0 | | | 4.0 | | | 0.0 |
RENEW Program | | | 3.8 | | | 3.0 | | | 3.0 |
Scheduled Upgrades to Existing Systems | | | 4.5 | | | 4.6 | | | 3.5 |
| | |
|
| |
|
| |
|
|
Total | | $ | 28.4 | | $ | 24.4 | | $ | 14.1 |
| | |
|
| |
|
| |
|
|
Going forward into 2004 through 2006, we currently project that we will be required to expend approximately $67.0 million for capital projects. Plans to finance those projects are underway as we expect to receive approval to borrow up to $17.0 million under the NJEIT program in November of 2004. We anticipate that some of the capital projects in Delaware will be eligible for the SRF program in that state and we are pursuing those opportunities. We also expect to use internally generated funds and proceeds from the sale of common stock through the Dividend Reinvestment and Common Stock Purchase Plan.
Increases in certain operating costs will impact our liquidity and capital resources. For example, beginning on August 1, 2003, with the deregulation of the electricity generation market in New Jersey, our electric commodity unit costs increased by over 40% and the remaining regulated portion of our electricity rates rose 15%. Furthermore, the New Jersey Water Supply Authority (“NJWSA”) changed the way it contracts for supplemental water purchases with all contract customers, including us. These changes, which are effective January 1, 2004, are expected to increase our cost of raw water by at least 8.5%. Also, costs for our employee pension plan continue to rise as the return on plan assets have dropped due to the overall performance of the stock market prior to 2003. These increasing costs, when added to already higher costs for business insurances and security costs, prompted us to file for a 17.8% base rate increase with the BPU. We currently anticipate that this matter could be decided by the summer of 2004. There is no certainty, however, that the BPU will approve any or all of the requested increase.
In Delaware, Tidewater received approval for a 2.49% DSIC from the PSC, effective for services rendered on or after July 1, 2003. The DSIC is a separate rate mechanism that allows for cost recovery of certain capital improvement costs incurred in between base rate filings. Delaware regulated water utilities are allowed to apply for a DSIC every six months with the maximum increase limited to 5.0% in any twelve month period and a 7.5% overall limitation. Tidewater filed a petition for an increase in its DSIC to be effective January 1, 2004. When added to the existing DSIC rate, the new rate will be 4.89% over base rates. In addition, because Tidewater continues to make significant capital additions and improvements to its new and existing systems, it believes it will be necessary to file for a base rate increase by early spring 2004. That increase request, which is expected to be in excess of 20%, is due to the $20.0 million of additional utility plant placed in service or to be placed in service since the last rate case.
Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”), which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is generally effective after June 30, 2003. The adoption of SFAS 149 did not have any effect on our financial statements.
FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities And Equity (“SFAS 150”), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have any effect on our financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements (“FIN 46”). The adoption of FIN 46 is not expected to have any effect on our financial statements.
OUR COMPANY
Middlesex Water Company was incorporated as a water utility company in 1897 and owns and operates regulated water
and wastewater utility systems in
central and southern New Jersey and in
Delaware as well as a regulated wastewater utility in southern New Jersey.Delaware. We also operate water and wastewater systems on behalf of others in New Jersey and Delaware.
The Middlesex System
in New Jersey provides water services to approximately
58,00058,500 retail customers, primarily in eastern Middlesex County, New Jersey and provides water under
contractwholesale contracts to the
City of Rahway, Township of Edison, the Boroughs of Highland Park and Sayreville, and both the Old Bridge and the Marlboro Township Municipal Utilities Authorities. The Middlesex System treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. Under a special contract, the Middlesex System also provides water treatment and pumping services to the Township of East Brunswick. The Middlesex System, through its retail and contract
service operations, producedsales, accounted for approximately
73%69% of our
20022005 revenue and
70%68% of
our revenue during the first
ninesix months of
2003.2006. Revenues for the Bayview System, with water services for approximately 300 customers in Cumberland County, New Jersey, are included in the revenue for the Middlesex System in 2006.
The Middlesex System’s retail customers are located in an area of approximately 55 square miles in Woodbridge Township, the City of South Amboy, the Boroughs of Metuchen and Carteret, portions of Edison Township and the Borough of South Plainfield in Middlesex County and, to a minor extent, a portion of the
City of Rahway and the Township of Clark in Union County. The retail customers include a mix of residential customers, large industrial concerns and commercial and light industrial facilities. These retail customers are located in generally
well- developedwell-developed areas of central New Jersey. The contract customers of the Middlesex System comprise an area of approximately 141 square miles with a population of approximately
267,000. Contract sales to Edison, Sayreville, Old Bridge and Marlboro are supplemental to the existing water systems of these customers. The State of New Jersey in the mid-1980’s approved plans to increase available surface water supply to the South River Basin area of the state to permit a reduced use of ground water in this area. The Middlesex System provides treated surface water under long-term agreements to East Brunswick, Marlboro, Old Bridge and Sayreville consistent with the state-approved plan.294,000.
Tidewater,
Utilities, Inc., together with its wholly-owned subsidiary, Southern Shores,
Water Company, L.L.C., provides water services to approximately
23,00029,100 retail customers for domestic, commercial and fire protection purposes in over
240271 separate community water systems in New Castle, Kent and Sussex Counties,
Delaware. The Tidewater Systems produced approximately 13% of our total revenue in 2002 and 15% of our revenue during the first nine months of 2003.Delaware (the “Tidewater System”). Tidewater has another wholly-owned subsidiary, White Marsh,
Environmental Systems, Inc., which
operates water and wastewater systems under contract for approximately 4,000 customers and also owns the office building that Tidewater uses as its business
office, and which operates water and wastewater systems under contract.office. White Marsh’s rates for water and wastewater operations are not regulated by the PSC.
The Tidewater System accounted for approximately 17% of our total revenue in 2005 and 18% of revenue during the first six months of 2006.
Utility Service Affiliates (Perth Amboy)Utility Service Affiliates (Perth Amboy) Inc.,
�� USA-PA operates the City of Perth Amboy’s water and wastewater systems under a
20-year agreement, which expires in 2018. Perth Amboy has a population of
approximately 40,000 and has approximately
9,3009,600 customers, most of whom are served by both systems. The agreement was effected under New Jersey’s Water Supply Public-Private Contracting Act and the New Jersey Wastewater Public/Private Contracting Act and requires USA-PA to lease from Perth Amboy all of its employees who currently work on the Perth Amboy water and wastewater systems. Under the agreement, USA-PA receives both fixed and variable
fees based on increased system billing. Fixed fee payments began at $6.4were $7.4 million in the first year2005 and are to increase over the term of the20-year contract to $9.7 million. Variable fees in 2002 were approximately $0.2$10.2 million. USA-PA producedaccounted for approximately 12%10% of our total revenue in 20022005 and 12%10% of our revenue during the first ninesix months of 2003.
2006.
In connection with these systems,the agreement with Perth Amboy, we guaranteed a series of Perth Amboy’s municipal bonds in the principal amount of approximately $26.3 million.million, of which approximately $23.9 million remains outstanding. In addition toconnection with the agreement with Perth Amboy, USA-PA entered into a20-year subcontract with a wastewater operating company for the operation and maintenance of the Perth Amboy
13
wastewater system. The subcontract provides for the sharing of certain fixed and variable fees and operating expenses.
Pinelands Water
Companyprovides water services
2,300to approximately 2,400 residential customers in Burlington County, New Jersey.
The Pinelands
System produced approximately 0.6%Water accounted for less than 1% of our total revenue in
20022005 and
0.7%less than 1% of our revenue during the first
ninesix months of
2003.2006. Pinelands Wastewater Companyprovides wastewater services to approximately 2,3002,400 primarily residential retail customers. Under contract, it also services one municipal wastewater system in Burlington County, New Jersey with about 200 residential customers. The Pinelands Wastewater System producedaccounted for approximately 1.4%1% of our total revenue in 20022005 and 1.3%approximately 1% of our revenue during the first ninesix months of 2003.
2006.
Utility Service Affiliates, Inc.Bayview SystemIn 1999, we implemented a franchise agreement with the City of South Amboy (“South Amboy”) to provide
Our Bayview System provides water service
and install water system facilities in South Amboy. The South Amboy franchise was approved by the BPU and its implementation significantly impacted two existing agreements entered into by the parties. The first agreement was for the sale of water to
South Amboy on a wholesale basis. The second agreement was for the provision of management services for a fixed fee.Bayview System
In April 2001, Bayview Water Company bought the assets of a 300-customer water utilityapproximately 300 customers in Cumberland County, New Jersey. The Bayview System producedformerly was operated by our Bayview Water Company subsidiary, which we merged into Middlesex Water Company effective January 1, 2006. As a result, the revenues for the Bayview System are included within the Middlesex System for the first six months of 2006.
Utility Service Affiliates, Inc.
USA provides residential customers in New Jersey and Delaware a service line maintenance program called LineCaresm. LineCaresm is an affordable maintenance program that covers all parts, material and labor required to repair or replace specific elements of the customer’s water service line and customer shut-off valve in the event of a failure. USA accounted for less than
1.0%1% of our total revenue in
20022005 and less than
1.0%1% of our revenue during the first
ninesix months of
2003.2006.
TESI System
TESI, which began in 2005, provides wastewater services to approximately 30 residential retail customers in Delaware. TESI contributed less than 1% of our total revenue in 2005 and less than 1% of our revenue for the first six months of 2006.
Our StrategyWe strive to increase shareholder value by:
maintaining and strengthening our position Our strategy is focused on four key areas:
| | |
| • | Serve as a trusted and continually-improving provider of safe, reliable and cost-effective water, wastewater and related services. |
|
| • | Provide a comprehensive suite of water and wastewater solutions in the rapidly developing Delaware market that results in profitable growth. |
|
| • | Pursue profitable, core growth in New Jersey. |
|
| • | Invest in products, services and other viable opportunities that complement our core competencies. |
Serve as a reliable provider of quality waterTrusted and wastewater services;
continuing to increase our retail customer base in Delaware;
providing new water and wastewater service related businesses that are not regulated utilities;
acquiring other water and wastewater utilities; and
pursuing additional contracts for the operation and management of municipal water and wastewater systems.
Maintain and Strengthen our Position as a ReliableContinually-Improving Provider of QualitySafe, Reliable and Cost-effective Water, Wastewater and Wastewater ServicesRelated Services.
We
believe that we meet or are better than all primary regulatory requirements for water quality. We also believe that we have adequate suppliesregularly invest in our facilities to
provide water in sufficient quantities to meet our customers’ currentimprove the reliability and
future requirements in allsecurity of our
service areas.utility infrastructure. In
order2005, we made capital investments towards meeting increasingly stringent federal and state water quality standards and addressing the water supply needs of new and existing customers. As part of this investment, a second raw water pipeline that stretches from the raw water pumping station on the Delaware & Raritan Canal in New Brunswick, New Jersey to
maintain and improve our
ability to provide qualityprimary water in sufficient quantities, we regularly upgrade our facilities. We completed the upgrade and expansion of our Carl J. Olsen (“CJO”) Planttreatment plant in Edison, New Jersey went into operation in 2000 in order to meet more stringent regulatory requirements anticipated for water qualityearly March 2005. The second pipeline is providing additional security and to increase ourreliability and added capacity to meet peak-day demands forour water in the utility system serviced by the CJO Plant.distribution system.
14
We also continue to improve our central New Jersey distribution system by cleaning and cement lining unlined pipe through our RENEW Program (“RENEW”). In
2003,2006, we
cleanedexpect to clean and
lined 5.3line five miles of water main in
the Iselin and Colonia sections of Woodbridge Township, New Jersey. This program helps eliminate interior pipe restrictions and improves water quality and flow. In addition to rehabilitating the older water mains, RENEW provides for new valves, hydrants and service lines to be installed where necessary. Since establishing RENEW in 1995, we have rehabilitated approximately
53.560 miles of water main. Since 1999, the funding for this program has come from low-interest
loansfinancing from
the State Revolving Fund Program administered by the New Jersey Environmental Infrastructure
Trust.ContinueTrust program.
In addition, solar power is helping us to Increaseaddress our Retail Customer Baseenergy needs. We believe in exploring alternative energy sources where these efforts make economic sense for the benefit of our customers. With the help of a grant from the New Jersey Board of Public Utilities Office of Clean Energy’s Renewable Energy Program, we installed a solar electric generation system at our primary water treatment plant in Edison, New Jersey. The system, which is a combination of fixed roof panels and a ground tracker system, is designed to produce approximately 4% of the power used at the plant annually.
Provide a Comprehensive Suite of Water and Wastewater Solutions in the Rapidly Developing Delaware Market that Results in Profitable Growth. Since 1992, we have increased our retail customer base in Delaware from approximately 3,000 to approximately
23,00029,100 through acquisitions and customer growth.
In August 2001, our Tidewater subsidiary acquired Southern Shores, a 2,200-customer system in southern Delaware. Our customer base in Delaware has the potential to
grow substantially withcontinue substantial growth within the existing territories we currently serve.
Assuming maximum build-out in theThe developments we
currentlyeither serve or
have entered into contracts to serve have obtained approvals to build additional housing units. If those additional housing units are
under contract with,built and sold, we project our customer base
towould grow to
38,000 customers – an increase of 65% – even41,000 without the acquisition of additional
developments.contracts. Any slowdown in construction of new residential development in Delaware will delay that growth. Further, there is significant economic development and population growth within and near many of our Delaware service areas. For example, according to the United States Census Bureau, from
1990-2000,2000 - 2005, the population in Kent and Sussex Counties
is estimated to have increased
14.1%13.6% and
38.3%12.7%, respectively.
Provide New Water
Our strategy is to offer a suite of services to this expanding market relating to the design, building, operating and
Wastewater Service Related Businessesfinancing of water and wastewater systems, including systems inside and outside of our franchise areas and systems owned by others that
are not Regulated Utilitieswe service under contracts. Our Tidewater and Southern Shores subsidiaries provide regulated water services.
TESI, formed in 2005, is a regulated wastewater utility in Delaware. We intend to grow this business by obtaining additional franchises and constructing wastewater collection and treatment systems to meet the needs of developers, municipalities and commercial entities.
White Marsh
has begun a campaigncontinues to seek to acquire contracts to operate non-regulated wastewater systems throughout Delaware.
Systems currently under contract or expected to be signed shortly will generate annual revenues of approximately $0.1 million. We believe
this campaign puts us in a better position to obtain additionalour water and wastewater
projectscontract operations business provides us with additional tools to help grow our regulated water and wastewater businesses in Delaware.
Middlesex Water Company
Pursue Profitable, Core Growth in New Jersey.
We expect core growth in New Jersey to come from water and USAwastewater management services as well as through service line protection services.
We provide water and wastewater utility management services through our subsidiaries in New Jersey, including contract operations, maintenance and bulk water supply. We have jointly entered into a venture with an entity that offers meter installationsignificant operational expertise and related services. This venture seeksare committed to obtain competitively bid service contractsworking with municipalities, developers and industry to find solutions that meet their needs and to pursue opportunities for profitable growth.
USA is actively marketing its LineCaresm service line protection program to customers throughout our service territories. We are also marketing LineCaresm to homeowners in the Mid-Atlanticlocal municipalities outside of our existing service areas.
15
Invest in Products, Services and New England regions. The contract work may include any or all of the following: meter purchases, replacement meter program, new meter program and meter testing.Acquire Other Water and Wastewater UtilitiesViable Opportunities that Complement our Core Competencies.
We have successfully grown through acquisitions in the past and will continue to seek such growth opportunities in the future. We intend to
continue to pursue acquisitions of municipally-owned and investor-owned water and wastewater systems and
will continue to engage in activities with respect to potential acquisitions, such as identifying suitable acquisition opportunities
analyzing and investigating potential acquisitions, and attempting to negotiate mutually agreeable terms with acquisition candidates.
Pursue Additional Contracts for the Operation and Management of Municipal Water and Wastewater Systems
Since January 1, 1999, USA-PA has operated and maintained the City of Perth Amboy’s water and wastewater systems. We
are paid both fixed and variable fees based on increased system billings. In light of the success we have had with this contract, we continue to seek opportunities to enter into contracts with additional
municipalities to operate their water and wastewater systems.
Recent Accounting Standard
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 requires recognition of the overfunded or underfunded status of defined benefit pension and other postretirement plans as an asset or liability on the balance sheet and recognition of changes in that funded status in the year in which the changes occur through comprehensive income. For example,an underfunded plan, the incremental liability to be recorded would be equal to the difference between the projected benefit obligation and the fair value of plan assets. SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”) and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”) allowed for deferred recognition of this liability through amortization of this difference over time. Under SFAS 158, actuarial gains and losses and prior service costs and credits that arise during the period but, pursuant to SFAS 87 and SFAS 106 were not yet recognized as components of net periodic benefit cost, will be recognized as a component of Other Comprehensive Income (net of tax). SFAS 158 also requires an adjustment to the beginning balance of retained earnings (net of tax) for any transition obligation remaining from the initial application of SFAS 87 and SFAS 106. Such amounts subsequently will not be amortized as a component of net periodic benefit cost. We will be required to adopt SFAS 158 as of December 31, 2006.
Because we are subject to regulation in
August 2003,the states in which we
submitted a bidoperate, we are required to
operate water and wastewater facilities for two major military installations locatedmaintain our accounts in
New Jersey. In addition, we have been awarded an operation and maintenance contractaccordance with the
townregulatory authority’s rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, we follow the guidance of
Ocean View, Delaware. Such contracts provide another waySFAS No. 71, “Accounting for
us to expand our service territoriesthe Effects of Certain Types of Regulation” (“SFAS 71”). Based on prior regulatory practice, and
increase the number of customers we serve.Summary of Statistical Information (Consolidated Operations)
The following table sets forth certain summary statistical information for our Company.
| | | Nine Months Ended September 30,
| | Year Ended December 31,
|
| | | 2003
| | 2002
| | 2001
| | 2000
| | 1999
| | 1998
|
| | | | | (In thousands) |
REVENUES | | | | | | | | | | | | | | | | | | |
Residential | | $ | 19,162 | | $ | 24,793 | | $ | 22,916 | | $ | 20,640 | | $ | 19,724 | | $ | 17,816 |
Commercial | | | 4,770 | | | 6,032 | | | 6,054 | | | 5,691 | | | 5,447 | | | 4,917 |
Industrial | | | 5,569 | | | 7,368 | | | 7,544 | | | 7,116 | | | 6,483 | | | 6,801 |
Fire Protection | | | 5,146 | | | 6,495 | | | 6,182 | | | 5,816 | | | 5,477 | | | 4,967 |
Contract Sales | | | 6,467 | | | 8,728 | | | 8,806 | | | 7,808 | | | 8,321 | | | 7,519 |
Contract Operations | | | 6,074 | | | 7,465 | | | 7,288 | | | 6,837 | | | 7,489 | | | 465 |
Other | | | 1,377 | | | 1,052 | | | 848 | | | 569 | | | 556 | | | 573 |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Total | | $ | 47,188 | | $ | 61,933 | | $ | 59,638 | | $ | 54,477 | | $ | 53,497 | | $ | 43,058 |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | |
| | | As of September 30,
| | Year Ended December 31,
|
| | | 2003
| | 2002
| | 2001
| | 2000
| | 1999
| | 1998
|
Customers | | | 93,916 | | | 91,922 | | | 88,985 | | | 84,300 | | | 80,573 | | | 69,316 |
Population Served (Retail) | | | 371,000 | | | 362,936 | | | 351,252 | | | 337,000 | | | 322,000 | | | 271,000 |
Miles of Main | | | 1,138 | | | 1,118 | | | 1,070 | | | 1,011 | | | 967 | | | 962 |
Fire Hydrants | | | 5,876 | | | 5,791 | | | 5,663 | | | 5,250 | | | 5,049 | | | 4,913 |
Pumpage (million gallons) | | | 13,878 | | | 18,158 | | | 18,722 | | | 17,991 | | | 18,484 | | | 17,552 |
Average Daily Pumpage (million gallons) | | | 50.8 | | | 49.7 | | | 51.3 | | | 49.2 | | | 50.6 | | | 48.1 |
Water Supplies and Contracts
Our New Jersey and Delaware water supply systems are physically separate and are not interconnected. In New Jersey, the Pinelands System and Bayview System are not interconnectedin accordance with the Middlesex System or each other. We believeguidance provided by SFAS 71, we have adequate sourceswill record approximately $13.5 million of water supply to meet the currentunderfunded pension and anticipated future service requirementspostretirement obligations, which otherwise would be recognized as Other Comprehensive Income as of our present customers in New Jersey and Delaware.
Middlesex System
Our Middlesex System obtains water from surface sources and wells, which we call groundwater sources. Surface sources of water provided approximately 70% of the Middlesex System’s water supply in 2002 and 77% in the first nine months of 2003; groundwater from wells provided approximately 23% in 2002 and 16% in the first nine months of 2003; and the balance of 7% in 2002 and 7% in the first nine months of 2003 was purchased from a nonaffiliated water utility. Middlesex System’s distribution storage facilities are used to supply water to its customers at times of peak demand, outages and emergencies.
The principal source of surface water supply for the Middlesex System is the Delaware & Raritan (“D&R”) Canal, which is owned by the State of New Jersey and operatedDecember 31, 2006 under SFAS 158, as a water resource by the NJWSA. Middlesex
has recently entered into a renewedRegulatory Asset, and modified agreement with the NJWSA, which is effective January 1, 2004 and expires November 30, 2023, and provides an average purchase of 27 million gallons per day (“mgd”) of untreated water from the D&R Canal, augmented by the Round Valley/Spruce Run Reservoir System. The total costs under the predecessor agreements in each of 2002, 2001 and 2000 were $1.9 million and were $1.5 million in the first nine months of 2003. We project that due to the renewed and modified agreement, expenses resulting from this agreement will increase our cost of raw water by at least 8.5% on a going forward basis. Middlesex also has an agreement with a nonaffiliated water utility for the purchase of treated water. This agreement, which expires December 31, 2005, provides for the minimum purchase of 3 mgd of treated water with provisions for additional purchases. The totalrecover those costs in the first nine months of 2003, and each of 2002, 2001 and 2000 under this agreement were $1.4 million, $1.8 million, $1.7 million and $1.6 million, respectively.
Our Middlesex System also derives water from groundwater sources equipped with electric motor-driven, deepwell turbine-type pumps. The Middlesex System has 31 wells, which provide an aggregate pump capacity of approximately 27 mgd.
Tidewater Systems
Water supplyour rates charged to Delaware customers is derived from the Tidewater Systems’ 213 wells which provided overall system delivery of 1,369 million gallons (“mg”) during 2002, and 228 wells providing 917 mg during the first nine months of 2003. The Tidewater Systemscustomers. We do not anticipate that the adoption of this standard will have a central treatment facility. Severalmaterial impact on our financial position, results of its water systems in New Castle, Kentoperations, and Sussex Counties, Delaware have interconnected transmission systems. Tidewater continues to submit applications to Delaware regulatory authorities for the approval of additional wellscash flows, except as demand warrants.
Pinelands System
Water supply to our Pinelands System is derived from four wells drilled into the Mt. Laurel aquifer which provided overall system delivery of 155 mg in 2002 and 134 mg during the first nine months of 2003.
Bayview System
Water supply to Bayview customers is derived from two wells, which provided an overall system delivery of 11 mg in 2002, and 8 mg during the first nine months of 2003. Each well has treatment facilities. Bayview has completed the replacement of its entire distribution system with approximately 16,000 feet of mains, valves and hydrants.
Pinelands Wastewater System
The Pinelands Wastewater System discharges into the South Branch of the Rancocas Creek through a tertiary treatment plant that provides clarification, sedimentation, filtration and disinfection. The total capacity of the plant is 0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid discharge permit issued by the New Jersey Department of Environmental Protection (“DEP”).
Utility Plant
The water utility plant in our systems consist of source of supply, pumping, water treatment, transmission and distribution, general facilities and all appurtenances, including all connecting pipes.
Middlesex System
The Middlesex System’s principal source of surface supply is the D&R Canal owned by the State of New Jersey and operated as a water resource by the NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick, New Jersey through our intake and pumping station located on state-owned land bordering the canal. It is transported through our 54 inch supply main for treatment and distribution at the CJO Plant. The design capacity of our raw water supply main is 55 mgd. Facilities at the CJO Plant consist of source of supply, pumping, water treatment, transmission, storage, laboratory and general facilities. In 2000, we substantially completed the upgrade and expansion of the CJO Plant, which began in 1997. We monitor water quality at the CJO Plant, each well field and throughout the distribution system to determine that federal and state water quality standards are met.
The design capacity of the intake and pumping station in New Brunswick, New Jersey, and the raw water supply main located there, is 80 mgd. The four electric motor-driven, vertical turbine pumps presently installed have an aggregate design capacity of 82 mgd. Associated facilities are the 4,900 feet of 54-inch reinforced concrete water main connecting the intake and pumping station with the CJO Plant, 23,200 feet of 48-inch reinforced concrete transmission main connecting the CJO Plant to our distribution pipe network, and related storage, pumping, control, laboratory and other facilities. We also have a 58,600 foot transmission main, a 38,800 foot transmission main, and a long-term, nonexclusive agreement with the East Brunswick system, all used to transport water to several of our contract customers.
The CJO Plant includes chemical storage and chemical feed equipment, two dual rapid mixing basins, four upflow clarifiers which are also called superpulsators, four underground reinforced chlorine contact tanks, twelve rapid filters containing gravel, sand and anthracite for water treatment and a steel washwater tank. The plant also includes a computerized Supervisory Control and Data Acquisitions (“SCADA”) system to monitor and control the CJO Plant and the water supply and distribution system in the Middlesex System. The firm design capacity of the CJO Plant is now 45 mgd (60 mgd maximum capacity). The main pumping station at the CJO Plant has a design capacity of 90 mgd. The four electric motor-driven, vertical turbine pumps presently installed have an aggregate capacity of 72 mgd.
In addition to the main pumping station at the CJO Plant, there is a 15 mgd auxiliary pumping station located in a separate building. It has a dedicated substation and emergency power supply provided by a diesel-driven generator. It pumps from the 10 mg distribution storage reservoir directly into the distribution system.
Middlesex System’s storage facilities consist of a 10 mg reservoir at the CJO Plant, 5 mg and 2 mg reservoirs in Edison (Grandview), a 5 mg reservoir in Carteret (Eborn) and a 2 mg reservoir at the Park Avenue Well Field.
We own the properties in New Jersey on which Middlesex System’s 31 wells are located. We also own our headquarters complex at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000 square foot, two story office building and an adjacent 16,500 square foot maintenance facility.
Tidewater Systems
The Tidewater Systems’ storage facilities include 37 storage tanks, with an aggregate capacity of 3.1 mg. Our Delaware operations are managed from Tidewater’s leased offices in Dover, Delaware and Millsboro, Delaware. Tidewater’s Dover, Delaware office property, located on property owned by White Marsh, consists of a 6,800 square foot office building situated on an eleven-acre lot. White Marsh also owns another business site for which it is exploring several options for future use.
Pinelands System
Pinelands Water Company owns well site properties which are located in Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2 mg standpipe.
Pinelands Wastewater System
Pinelands Wastewater Company owns a 12 acre site on which its 0.5 mgd capacity tertiary treatment plant and connecting pipes are located.
Bayview System
Bayview owns two wells, which are located in Downe Township, Cumberland County, New Jersey.
USA-PA, USA and White Marsh
Our non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own utility plant property.
described above.
As of
SeptemberJune 30,
2003,2006, we had a total of
147148 employees in New Jersey, and a total of
6087 employees in Delaware. In addition, we lease
3720 employees under the USA-PA contract with the
cityCity of Perth Amboy, New Jersey. No employees are represented by a union except the leased
employees.employees who are subject to a collective bargaining agreement with the City of Perth Amboy. We believe our employee relations are good. Wages and benefits, other than for leased employees, are reviewed annually and are considered competitive within
both the
industry.industry and the regions where we operate.
Our business in our franchised service areasarea is substantially free from direct competition with other public utilities, municipalities and other entities. However, our ability to provide some contract water supply and wastewater services and operations and maintenance services is subject to competition from other public utilities, municipalities and other entities. Although Tidewater has been granted an exclusive franchise for
16
each of its existing community water systems, its ability to expand service areas can be affected by the PSC awarding franchises to other regulated water
utilities.utilities with whom we compete for such franchises.
We are regulated as to rates charged to customers for water and wastewater services in New Jersey and
for water services in Delaware, as to the quality of
water servicethe services we provide and as to certain other matters. Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities. We are
also subject to environmental and water quality regulation by the
United States Environmental Protection Agency (“EPA”), Delaware Department of Natural Resources and Environmental Control (“DNREC”), Delaware Department of Health and Social Services—Division of Public Health (“DPH”)EPA, and the
Delaware River Basin Commission (“DRBC”)DEP with respect to operations in New Jersey and DNREC, the DPH, and the DRBC with respect to operations in Delaware.
We are also subject to certain regulations regarding fire protection services in the areas we serve. In addition, our issuances of securities
including the common stock offered under this prospectus, isare subject to the prior approval of the
BPU.SEC and the BPU or the PSC.
Regulation of Rates and Services New Jersey water and wastewater service operations (excluding the operations of USA-PA) are subject to regulation by the BPU. Similarly, our Delaware water
serviceand wastewater operations are subject to regulation by the PSC. These regulatory authorities have jurisdiction with respect to rates, service, accounting procedures, the issuance of securities and other matters of utility companies operating within the States of New Jersey and Delaware, respectively. For ratemaking purposes, we account separately for operations in New Jersey and Delaware to facilitate independent ratemaking by the BPU for New Jersey operations and the PSC for Delaware operations.
In determining our rates, the BPU and the PSC consider the income, expenses, rate base of property used and useful in providing service to the public and a fair rate of return on that property each within its separate jurisdiction. Rate determinations by the BPU do not guarantee particular rates of return to us for our New Jersey operations nor do rate determinations by the PSC guarantee particular rates of return for our Delaware operations. Thus, we may not achieve the rates of return permitted by the BPU or the PSC.
Middlesex Water Company filed a 17.8% base rate increase petition with the BPU on November 5, 2003. Increased operating expenses and utility plant investment necessitated the rate increase request. Further, on November 24, 2003, Tidewater filed for an increase in its DSIC with the PSC. Rate increases attributable to a DSIC are limited to 5% in a twelve month period. The additional increase in this request is 2.4% and would be effective January 1, 2004. When added to the existing DSIC rate, the new rate would be 4.89% over base rates. Tidewater believes it will be necessary to file for a base rate increase by early spring, 2004. In accordance with the tariff established for Southern Shores, a rate increase based on the Consumer Price Index will be implemented on January 1, 2004. Other than rates for the Southern Shores system, there can be no assurance that any rate increases will be granted or, if granted, that they will be in the amounts we requested. Further, we expect to file a base rate increase petition with the BPU for Pinelands prior to December 31, 2003, requesting up to an overall increase for those systems of approximately 20%.
Water Quality and Environmental Regulations Both the EPA and the DEP regulate our operations in New Jersey with respect to water supply, treatment and distribution systems and the quality of the
water, as do thewater. The EPA, DNREC, DPH and DRBC
regulate our operations in Delaware with respect to
operations in Delaware.water supply, treatment and distribution systems and the quality of the water.
Federal, New Jersey and Delaware regulations adopted
over the past five years relating to water quality require us to perform expanded types of testing to
insureensure that our water meets state and federal water quality requirements. In addition, environmental regulatory agencies are reviewing current regulations governing the limits of certain organic compounds found in the water as byproducts of treatment. We participate in industry-related research to identify the various types of technology that might reduce the level of organic, inorganic and synthetic compounds found in the water. The cost to water companies of complying with the proposed water quality standards depends in part on the limits set in the regulations and on the method selected to implement such reduction. We believe the CJO Plant capabilities put us in a strong position to meet any such future standards with regard to our Middlesex System. We
use regular testing ofregularly test our water to determine compliance with existing federal, New Jersey and Delaware primary water quality
standards, and believe that expansion will allow us to be in a stronger position to meet any such future regulations regarding our Middlesex System.standards.
Well
water treatment in our Tidewater
SystemsSystem is by chlorination and, in some cases, pH correction and
filtration. Treatmentfiltration for nitrate and iron removal. Well water treatment in the Pinelands
System (disinfectionand Bayview Systems (chlorination only) is done at individual well sites.
As more fully discussed in our most recent Annual Report on Form 10-K, we are subject to EPA regulations as to maximum contaminant levels under the Federal Safe Drinking Water Act. There are also similar state regulations by the DEP in New Jersey.
The DEP and the DPH monitor our activities and review the results of water quality tests that we performare performed for adherence to applicable regulations. Other regulations applicable to us include the Lead and Copper Rule, the maximum contaminant levels established for various volatile organic compounds, the Federal Surface Water Treatment Rule and the Total Coliform Rule.
MANAGEMENT17
Fire Protection Standards
We are also subject to regulations related to fire protection services. In Delaware, fire protection is regulated by the Office of State Fire Marshal. In New Jersey there is no formal regulatory agency, but state regulations exist as to the size of piping required regarding the provision of fire protection services. Noncompliance with fire protection regulations and requirements could require capital expenditures by the Company to take corrective action.
18
MANAGEMENT
This table lists information concerning our senior management team:
Name
| | Age
| | Position(s)
|
Dennis G. Sullivan
| | 62 |
| Name | | Age | | | Position(s) |
| | | | | |
| Dennis W. Doll | | | 47 | | | President and Chief Executive Officer |
A. Bruce O’Connor | | 45 | 48 | | | Vice President Controller and Chief Financial Officer |
Ronald F. Williams | | 54 | 56 | | | Vice President–President — Operations and Chief Operating Officer |
Marion F. Reynolds
Kenneth J. Quinn | | 64 | 58 | | | Vice President, General Counsel, Secretary and Treasurer |
Kenneth J. Quinn
James P. Garrett | | 55 | 59 | | General Counsel and Assistant Secretary |
James P. Garrett
| | 57 | | Assistant Vice President–President — Human Resources |
Richard M. Risoldi | | 47 | 50 | | Assistant | Vice President of— Subsidiary Operations |
Gerard L. Esposito | | 52 | 54 | | | President, Tidewater Utilities, Inc. |
Dennis G. SullivanW. Doll– — Mr.
Sullivan has beenDoll, a Certified Public Accountant, joined the Company in November 2004 as Executive Vice President. He was elected President and Chief Executive Officer and became a Director of
Middlesexthe Company effective January 1, 2006. Prior to joining the Company, Mr. Doll was employed by Elizabethtown Water Company since
October 1999.1985, serving most recently as a member of the senior leadership team of the Northeast Region of American Water, which was comprised of Elizabethtown Water Company, New Jersey-American Water Company and Long Island Water Corporation and included other regulated and non-regulated subsidiaries. In this capacity, Mr.
Sullivan was hired in 1984Doll served as
Corporate Attorney, responsible for general corporate internal legal matters. He was elected Assistant Secretary-Assistant Treasurer in 1988 and Vice President
— Finance & Controller and
General Counselserved previously, as Vice President — Merger Integration. Prior to 2001, Mr. Doll served as Vice President & Controller of Elizabethtown, Elizabethtown’s parent company, E’town Corporation, and various other regulated and non-regulated subsidiaries, primarily engaged in
1990. He is chairman of the
Boardwater and
Director of Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company, Bayview Water Company, Utility Service Affiliates, Inc., Utility Service Affiliates (Perth Amboy) Inc. and Bayview Water Company. He is alsowastewater fields. Effective January 1, 2006, Mr. Doll assumed the subsidiary directorships previously held by the previous Chief Executive Officer, Dennis G. Sullivan. Mr. Doll became a
Directordirector of the New Jersey Utilities Association and the National Association of Water
Companies.Companies effective January 1, 2006.
A. Bruce O’Connor– — Mr. O’Connor, a Certified Public Accountant, joined the Company in 1990 as Assistant Controller and was elected Controller in 1992 and Vice President in 1995. He was elected Vice President and Controller and Chief Financial Officer in
May 1996.
In July 2004, his Controller responsibilities were assigned to the newly created Corporate Controller position. He is responsible for financial reporting, customer service, rate cases, cash management and financings. He
was formerly employed by Deloitte & Touche LLP, a certified public accounting firm from 1984 to 1990. He is Treasurer and
a Director of Tidewater Utilities, Inc.,
Bayview Water Company and Utility Service Affiliates (Perth Amboy)Tidewater Environmental Services, Inc., Utility Service Affiliates, Inc., and White Marsh Environmental Systems, Inc. He is Vice President,
and Treasurer and
a Director of
Utility Service Affiliates (Perth Amboy) Inc., Pinelands Water Company and Pinelands Wastewater Company.
Ronald F. Williams– — Mr. Williams was hired in
March 1995 as Assistant Vice
President–President — Operations, responsible for the Company’s Engineering and Distribution Departments. He was elected Vice
President–President — Operations in October 1995.
Mr. Williams was elected to the additional posts of Assistant Secretary and Assistant Treasurer for the Company in 2004. He was formerly employed with the Garden State Water Company as President and Chief Executive
Officer since 1991.Officer. He is a Director and President of Utility Service Affiliates (Perth Amboy) Inc.
, and Director of Utility Service Affiliates, Inc., Pinelands Water Company and Pinelands Wastewater Company.Marion F. Reynolds–Ms. Reynolds, who had been Secretary-Treasurer since 1987 was elected Vice President, Secretary and Treasurer in 1993. Prior to her election she had been employed by Public Service Electric and Gas Company, Newark, New Jersey since 1958, and was elected Assistant Corporate Secretary in 1976. She is Secretary of Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company and Bayview Water Company and Secretary and a Director of Utility Service Affiliates (Perth Amboy) Inc., and Utility Service Affiliates, Inc.
Kenneth J. Quinn– — Mr. Quinn joined the Company in 2002 as General Counsel and was elected Assistant Secretary in 2003. In 2004, Mr. Quinn was elected Vice President, Secretary and Treasurer for the Company and Secretary and Assistant Treasurer for all subsidiaries of Middlesex Water Company. He has been engaged in the practice of law for 2932 years and prior to joining the Company he had been employed by the law firm of Schenck, Price, Smith and King in Morristown, New Jersey. Prior to that, Mr. Quinn spent 10 years as in-house counsel to two major banking institutions located in New Jersey. In May 2003, he was elected Assistant Secretary of Tidewater Utilities, Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility Service Affiliates (Perth Amboy) Inc., Bayview Water Company and White Marsh Environmental Systems, Inc. He is a member of the New Jersey State Bar Association and is also a member of the Public Utility Law Section of the Bar.
19
James P. Garrett– — Mr. Garrett joined the Company in
May, 2003 as Assistant Vice
President–President — Human
Resources. In May 2004, he was elected Vice President-Human Resources. Prior to his hire, Mr. Garrett was employed by Toys “R” Us, Inc.
from 1980-2003,for 23 years, most recently as Director of Organizational Development. Mr. Garrett is responsible for all human resource programs and activities at Middlesex Water Company
Inc; Pinelands Water Company; Pinelands Waste Water Company; Bayview Water Company; Utility Services Affiliates, Inc; Tidewater Utilities, Inc. and
White Marsh Environmental Systems, Inc.its subsidiaries.
Richard M. Risoldi– — Mr. Risoldi joined the Company in 1989 as Director of Production, responsible for the operation and maintenance of the Company’s treatment and pumping facilities. He was appointed Assistant Vice President of Operations in
January 2003. He was
formally employed by the Trenton Water Utilityelected Vice President in May 2004, responsible for regulated subsidiary operations and
the North Jersey Water Supply Commission.business development. He is a
Director of Tidewater Utilities, Inc. and White Marsh Environmental Systems Inc. He is also serves as Director and President of Pinelands Water Company, Pinelands Wastewater Company,
Bayview Water Company and Utility Service Affiliates, Inc.
Gerard L. Esposito– — Mr. Esposito joined the CompanyTidewater Utilities, Inc. in 1998 as Executive Vice President. He was elected President of Tidewater and White Marsh Environmental Systems, Inc. in 2003 and elected President of Tidewater Environmental Services, Inc. in January 2005. Prior to joining the Company he worked for 22 years in various executive positions for Delaware environmental protection and water quality governmental agencies. In 1989, Mr. Esposito became the Director of the Delaware Division of Water Resources, responsible for the administration of all of Delaware’s water pollution, water supply, water quality, wetlands and environmental laboratory programs. He is a directorDirector of Tidewater Utilities, Inc., Tidewater Environmental Services, Inc., and also serves as a director and president of WhitemarshWhite Marsh Environmental Systems, Inc.
20
DESCRIPTION OF CAPITAL STOCKAll share and per share amounts discussed herein reflect the four-for-three common stock split effective November 14, 2003.
Our authorized capital stock consists of 20,000,000 shares of common stock, without par value,
140,497139,497 shares of Cumulative Preferred Stock, without par value, and 100,000 shares of Cumulative Preference Stock, without par value. As of October
31, 2003,4, 2006, there were
10,547,18011,661,332 shares of common stock outstanding, four series of Cumulative Preferred Stock representing a total of
37,89836,898 shares outstanding and no shares of the Cumulative Preference Stock outstanding. The issuance of the common stock offered hereby is subject to approval by the BPU.
The transfer agent for the common stock is Registrar and Transfer Company. Our outstanding common stock is traded on
theThe Nasdaq
NationalGlobal Select Market System.
Certain New Jersey state laws and provisions in our Restated Certificate of Incorporation may deter or prevent a change in control of us and/or a change in management, even if desired by a majority of the shareholders.
The following is a brief summary of certain information relating to our common stock, Preferred Stock and Preference Stock. This summary does not purport to be complete and is intended to outline such information in general terms only.
Our Restated Certificate of Incorporation provides that whenever full dividends have been paid on the Preferred Stock and the Preference Stock outstanding for all past quarterly periods, the Board of Directors may declare and pay dividends on the common stock out of legally available funds.
The dividend rate for our varying classes of Preferred Stock is as follows:
$7$7.00 per share per annum for the
$7$7.00 Series Cumulative Preferred Stock, $4.75 per share per annum for the $4.75 Series Cumulative Preferred Stock,
$7$7.00 per share per annum for the
$7$7.00 Cumulative and Convertible Preferred Stock, and
$8$8.00 per share per annum for the
$8$8.00 Series Cumulative and Convertible Preferred Stock.
Every holder of the common stock is entitled to one vote for each share held of record. Our Restated Certificate of Incorporation and By-laws provide for a Board of Directors divided into three classes of directors serving staggered three-year terms. A classified board has the effect of increasing the time required to effect a change in control of the Board of Directors. Our By-laws provide that nominations for directors must be (i) made in writing, (ii) received by the Secretary of the Company not less than 21 days prior to the date fixed for the meeting of shareholders and (iii) accompanied by the written consent of the nominee to serve as a director. In addition, the Restated Certificate of Incorporation provides that the By-laws may only be amended by shareholders if the holders of two-thirds or more of the issued and outstanding shares of common stock vote for the amendment. Our Restated Certificate of Incorporation also provides that shareholders may take action only at an annual or special meeting upon prior notice and pursuant to a vote.
No holder of Preferred Stock or Preference Stock (none of which Preference Stock has been issued) has any right to vote for the election of directors or, except as otherwise required by law, for any other purpose; provided, however, that if and whenever dividends on the outstanding Preferred Stock are in arrears in an amount equal to at least four quarterly dividends, the holders of the outstanding Preferred Stock of all series, voting as a class, are entitled, until all dividends in arrears are paid, to elect two members to the Board of Directors, which two members shall be in addition to the directors elected by the holders of the common stock. Whenever dividends on the outstanding Preference Stock are in arrears in an amount equal to at least four quarterly dividends, the holders
of the outstanding Preference Stock of all series, voting as a class, are entitled, until all dividends in arrears are paid, to elect two members to the Board of Directors, which two members shall be in addition to the members elected by the holders of the common stock and by the holders of the Preferred Stock. In addition, unless certain tests set forth in our charter are met, the consent of the holders of a majority of the outstanding shares of Preferred Stock of all series, voting as a class, is required for issuance or sale of any additional series of Preferred Stock or any class of stock ranking prior to or on a parity
21
with the Preferred Stock as to dividends or distributions. The consent of the holders of two-thirds in interest of the outstanding Preferred Stock of all series, voting as a class, is required to create or authorize any stock ranking prior to the Preference Stock as to dividends or in liquidation, or to create or authorize any obligation or security convertible into shares of any such stock, except that such consent is not required with respect to any increase in the number of shares of Preferred Stock which we are authorized to issue or with respect to the creation and establishment of any series of our Preferred Stock.
The conversion feature of the no par $7.00 Series Cumulative and Convertible Preferred Stock allows the holders of such shares of preferred stock to exchange one convertible preferred share for
ninetwelve shares of our common stock. In addition, we may redeem up to 10% of the outstanding convertible stock in any calendar year at a price equal to the fair market value of twelve
(12) shares of our common stock for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Series Cumulative and Convertible Preferred Stock allows the holders of such shares to exchange one convertible preferred share for 13.714 shares of our common stock. The preferred shares
arewere convertible at the election of the security holder until 2004.
AfterSince that time, both we and the holders of the $8.00 Series Cumulative and Convertible Preferred Stock
and have the right to convert the shares of preferred stock into our common stock.
Holders of common stock are entitled to share on a pro-rata basis, subject to the rights of holders of our First Mortgage Bonds, Preferred Stock or Preference Stock, in our assets legally available for distribution to shareholders in the event of our liquidation, dissolution or winding up.
Restriction on Acquisitions As a New Jersey corporation with its headquarters and principal operations in the state, we are a “resident domestic corporation” as defined in New Jersey’s Shareholder Protection Act (the “Act”). The Act bars any “business combination” as defined in that Act (generally, a merger or other acquisition transaction) with any person or affiliate of a person who owns 10% or more of the outstanding voting stock of a resident domestic corporation for a period of five years after such person first owns 10% or more of such stock, unless the “business combination” both is approved by the board of directors of the resident domestic corporation prior to the time that person acquires 10% or more of the resident domestic corporation’s voting stock and meets certain other statutory criteria.
22
DIVIDEND REINVESTMENT PLAN We have a Dividend Reinvestment and Common Stock Purchase Plan (“DRIP”DRP”) under which participating shareholders may have cash dividends on all or a portion of their shares of common stock or Cumulative Preferred Stock automatically reinvested in newly issued shares of common stock and may invest at the same time up to an additional $25,000 per quarter in newly issued shares of common stock. Under the DRIP,DRP, we may permit the purchase of shares of common stock at ninety-five (95) percent (95%) of market value for specified periods as announced by us from time to time. We last authorized the purchase of shares of common stock at ninety-five percent (95%) of market value during the period of February 28, 2003June 1, 2005 to September 2, 2003.December 1, 2005. As currently in effect, any purchase of shares under the DRIPDRP is at full market value. No commission or service charge is paid by participants in connection with any of their purchases under the DRIP.DRP. The number of shares authorized under the DRIPDRP is 1,700,000 shares. The cumulative numberamount of shares issued under the DRIPDRP as of December 31, 2002October 4, 2006 is 1,089,831.1,567,249.
23
Subject to the terms and conditions of an underwriting agreement dated ,
2003,2006, the underwriters named below, for whom Janney Montgomery Scott LLC and
Edward D. JonesA.G. Edwards &
Co., L.P.Sons, Inc. are serving as the representatives (the “Representatives”), have severally agreed to purchase, and we have agreed to sell to the underwriters, the aggregate number of shares of common stock set forth opposite their respective names below at the public offering price less the underwriting discount on the cover page of this prospectus.
Underwriters
| | Number
of Shares
|
Janney Montgomery Scott LLC
| | |
Edward D. Jones & Co., L.P.
| | Number of | |
| Underwriters | | Shares | |
| | | |
| Janney Montgomery Scott LLC | | | | |
| |
Total
A.G. Edwards & Sons, Inc. | | 700,000 | | |
| | |
| |
| Total | | | 1,300,000 | |
| | | |
The underwriting agreement provides that obligations of the underwriters to purchase the shares and accept the delivery of the common stock that are being offered are subject to
certain conditions precedent including the
approvalabsence of any materially adverse change in our business, the receipt of certain
legal matters by counsel to the underwriterscertificates, opinions and
to certain other conditions. Eachletters from us, our attorneys and independent auditors. The offering is being made on a firm commitment basis and, thus, each underwriter is obligated to purchase all of the shares of the common stock being offered by this prospectus (other than shares of common stock covered by the over-allotment option described below) if it purchases any of the shares of common stock.
The underwriters propose to offer some of the shares of common stock to the public initially at the offering price per share shown on the cover page of this prospectus and may offer shares to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering of the common stock, the public offering price and the concessions may be changed by the underwriters.
The offering of common stock is made for delivery when, as and if accepted by the underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The underwriters reserve the right to reject any order for the purchase of common stock in whole or in part.
The following table shows the per share and total underwriting discount to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase the over-allotment shares:
| | | Per Share
| | Total
| | | | | | | | | | | | |
| | | Without
Over-allotment
Per Share | | | With
Over-allotment
Total | |
| | Without
Over-allotment
| | | With
Over-allotment
| |
| | Without | | | With | | | Without | | | With | |
| | Over-Allotment | | | Over-Allotment | | | Over-Allotment | | | Over-Allotment | |
| | | | | | | | | | | | |
| Underwriter Discounts and Commissions to be paid by us | | $ | | | | $ | | | | $ | | | | $ | | |
We estimate that our
out-of-pocketout-of-pocket expenses for this offering will be approximately
$ .$245,000. We have also agreed to pay the underwriters a non-accountable expense allowance of $50,000.
We have granted to the underwriters an option, exercisable for up to 30 days after the date of this prospectus, to purchase up to
100,000195,000 additional shares of common stock, at the same price per share as the public offering price, less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriters may exercise such option only to cover over-allotments in the sale of the shares of common stock offered by this prospectus. To the extent the underwriters exercise this option, each of the underwriters has a firm commitment, subject to certain conditions, to purchase a number of the additional shares of common stock proportionate to such underwriter’s initial commitment as indicated in the table above that lists the underwriters.
In connection with this offering and in compliance with applicable securities laws, the underwriters may over-allot (i.e., sell more shares of common stock than is shown on the cover page of this prospectus) and may effect transactions that stabilize, maintain or otherwise affect the market price of the common stock at levels
24
above those which might otherwise prevail in the open market. Such transactions may include placing bids for the common stock or effecting purchases of the common stock for the purpose of pegging, fixing or maintaining the price of the common stock or for the purpose of reducing a short position created in connection with the offering.
A short position may be covered by exercise of the over-allotment option described above in place of or in addition to open market purchases. The underwriters are not required to engage in any of these activities and any such activities, if commenced, may be discontinued at any time.
Additionally,
In connection with this offering, the underwriters may
engage in syndicate covering transactions, whichmake short sales of our shares of common stock and may purchase those shares on the open market to cover positions created by short sales. Short sales involve
purchasesthe sale by the underwriters of a greater number of shares
than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s over-allotment option to purchase additional shares in the offering. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares on the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase on the open market as compared to the price at which they may purchase shares through the over-allotment option. “Naked” short sales are sales in excess of the
common stockover-allotment option. The underwriters may close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward price pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in the
distribution has been completed in orderoffering. Similar to other purchase transactions, the underwriters’ purchases to cover
the syndicate short
positions.sales may have the effect of raising or maintaining the market price of the our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.
The underwriters may also impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the shares of the common stock originally sold by that syndicate member are purchased in a stabilizing transaction or syndicate covering transaction to cover syndicate short positions. The imposition of a penalty bid may have an effect on the price of the common stock to the extent that it may discourage resales of the common stock.
In connection with this offering, the underwriters, selling group members or their respective affiliates who are qualified market makers on
theThe Nasdaq
NationalGlobal Select Market may engage in passive market making transactions in our common stock on
theThe Nasdaq
NationalGlobal Select Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as amended, during the five business days prior to the pricing of the offering before the commencement of offers and sales of the common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security. If all independent bids are lowered below the passive market maker’s bid, however, such bid must then be lowered when certain purchase limits are exceeded.
We and the underwriters make no representation or prediction as to the direction or magnitude of any effect that these transactions may have on the price of the common stock. In addition, we and the underwriters make no representation that the underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.
Each underwriter does not intend to confirm sales of the common stock to any accounts over which it exercises discretionary authority.
Our directors, executive officers and certain of our other shareholders have agreed that they will not, without the Representatives’ prior written consent for a period of 90 days after the effective date of the Registration Statement, sell, offer to sell, contract to sell, or otherwise dispose of, directly or indirectly, any shares of common stock of the Company or any securities convertible into, or exercisable or exchangeable for, common stock of the Company (other than shares issuable pursuant to a plan for employees in effect on the date of this prospectus).
25
We have agreed to indemnify the underwriters against certain liabilities that may be incurred in connection with this offering, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the underwriters may be required to make in respect thereof.
Certain legal matters in connection with the validity of the common stock offered hereby will be passed upon for us by Norris, McLaughlin & Marcus, P.A., Somerville, New Jersey. Walter G. Reinhard, Esq., a member of the firm of Norris, McLaughlin & Marcus, P.A., is one of our Directors and owns
1,4531,936 of our
shares.shares as of October 4, 2006. Certain legal matters will be passed upon for the
Underwritersunderwriters by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania.
The
consolidated financial statements
and management’s report on the effectiveness of internal control over financial reporting incorporated in this prospectus by reference from
ourthe Company’s Annual Report on Form
10-K for the year ended December 31,
20022005 have been audited by Deloitte & Touche LLP,
an independent
auditors,registered public accounting firm, as stated in their
report,reports, which
isare incorporated herein by reference, and have been so incorporated in reliance upon the
reportreports of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION We
are a reporting company and file annual, quarterly and
specialcurrent reports, proxy statements, and other information with the
Securities and Exchange Commission (the “Commission”).SEC. You may read and copy
any of thethese reports,
proxy statements, and other information
we file at the
Commission’sSEC’s public reference
facilitiesroom located
in Washington at
Judiciary Plaza, Room 1024, 450 Fifth100 F Street
N.W.N.E., Washington,
D.C. 20549DC 20549. You can request copies of these documents by writing to the SEC and
atpaying a fee for the
regional offices of the SEC. You maycopying cost. Please call the SEC at
1-800-SEC-0330 for
furthermore information about the
operation of the public reference rooms.
Copies of such material can also be obtained from the Public Reference Section of the commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Our SEC filings are also available
to the public over the Internet at the
Commission’sSEC’s web site
which is locatedat http://www.sec.gov. In addition, you can read and copy our SEC filings at the
following address: http://www.sec.gov.office of the National Association of Securities Dealers, Inc. at 1735 K Street, Washington, DC 20006.
This prospectus is a part of a registration statement on Form
S-3 (which, together with all exhibits filed along with it, will be referred to as the “Registration Statement”) which we filed with the Commission to register the securities we are offering. Certain information and details which may be important to specific investment decisions may be found in other parts of the Registration Statement, including its exhibits, but are left out of this prospectus in accordance with the rules and regulations of the Commission. To see more detail, you may wish to review the Registration Statement and its exhibits. Copies of the Registration Statement and its exhibits are on file at the offices of the Commission and may be obtained upon payment of the prescribed fee or may be examined without charge at the public reference facilities of the Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Commission’s rules allow us to “incorporate by reference” the information we file with the Commission, which means we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. We incorporate by reference the documents listed below, which already have been filed with the Commission, and certain information we may file in the future will automatically update and take the place of information already filed. The following documents are incorporated by reference: (a) our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003; (b) our Annual Report on Form 10-K filed on March 16, 2006 for the year ended December 31, 2002;2005; (b) our Quarterly Reports on Form 10-Q filed on May 8, 2006 and August 4, 2006; and (c) our Current Reports on Form 8-K filed on January 3, 2006, March 16, 2006, April 30, 2003, July 31, 2003, September 16, 2003, October 31, 20035, 2006, April 28, 2006, May 1, 2006, May 8, 2006, and NovemberAugust 4, 2006; and (d) our current reports filed on Form 8-K/ A filed on March 6, 2003.2006 and May 1, 2006. The Commission file number for the incorporated documents is 0-422.
26
In addition to the documents already filed, all reports and other documents which we file in the future with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, before this stock offering ends, shall also be incorporated by reference in this prospectus.
You may request a copy of any of these filings. Such requests should be directed to:
Ms. Marion F. Reynolds,Mr. Kenneth J. Quinn, Vice President,
General Counsel, Secretary and Treasurer, Middlesex Water Company, 1500 Ronson Road, Iselin, New Jersey 08830, Phone No. (732) 634 -1500. You will not be charged for these copies unless you request exhibits, for which we will charge you a minimal fee. However, you will not be charged for exhibits in any case where the exhibit you request is specifically incorporated by reference into another document which is incorporated by this prospectus.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
27
We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this prospectus. You must not rely on any unauthorized information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not offer to sell any shares in any jurisdiction where it is unlawful. The information in this prospectus is current as of the date shown on the cover page.
700,000
Common Stock
PROSPECTUS
Janney Montgomery Scott llc
PROSPECTUSA.G. Edwards
JANNEY MONTGOMERY SCOTTLLC
EDWARD D. JONES & CO., L.P.
The date of this prospectus is , 2004.2006.
INFORMATION NOT REQUIRED IN PROSPECTUSItem 14. Other Expenses of Issuance and Distribution
| |
| Item 14. | Other Expenses of Issuance and Distribution |
The costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with this Offering (all amounts are estimated except the registration fee) are as follows:
Item
| | To Be Paid By The Company
|
Securities and Exchange Commission registration fee | | $ | 1,215 |
National Association of Securities Dealers, Inc. fee | | | 2,002 |
Nasdaq listing fee | | | 8,000 |
Accounting fees and expenses | | | 25,000 |
Legal fees and expenses | | | 70,000 |
Printing | | | 25,000 |
Blue Sky fees and expenses | | | 2,000 |
Transfer agent fees and expenses | | | 1,000 |
Miscellaneous | | | 5,783 |
| | |
|
|
Total | | $ | 140,000 |
| | |
|
|
Item 15. Indemnification of Directors and Officers
| | | | | | |
| | | To be Paid by | |
| Item | | the Company | |
| | | | |
| Securities and Exchange Commission registration fee | | $ | 3,075.00 | |
| National Association of Securities Dealers, Inc. fee | | | 3,374.00 | |
| Nasdaq listing fee | | | 14,950.00 | |
| Accounting fees and expenses | | | 60,000.00 | |
| Legal fees and expenses | | | 115,000.00 | |
| Printing | | | 40,000.00 | |
| Transfer agent fees and expenses | | | 1,000.00 | |
| Miscellaneous | | | 57,601.00 | |
| | | | |
| | Total | | $ | 295,000.00 | |
| | | | |
| |
| Item 15. | Indemnification of Directors and Officers |
Section 14A:3-5 of the New Jersey Business Corporation Act (the “NJBCA”) gives the Company power to indemnify each of its directors and officers against expenses and liabilities in connection with any proceeding involving him by reason of his being or having been a director or officer if (a) he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and (b) with respect to any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. However, in a proceeding by or in the right of the Company, there shall be no indemnification in respect of any liabilities or expenses if the officer or director shall have been adjudged liable to the Company unless the Court in such proceeding determines he is entitled to indemnity for such liabilities and/or expenses. No indemnification shall be made to or on behalf of a director or officer if a judgment or other final adjudication adverse to such director or officer establishes that his acts or omissions (a) were in breach of his duty of loyalty to the Company and its shareholders, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the director or officer of an improper personal benefit. The NJBCA defines an act or omission in breach of a person’s duty of loyalty as an act or omission which that person knows or believes to be contrary to the best interests of the Corporation or its shareholders in connection with a matter in which he has a material conflict of interest. If a director or officer is successful in a proceeding, the statute mandates that the Company indemnify him against expenses.
Article V of the Company’s By-laws provides:
“Any present or future director or officer of the Company and any present or future director or officer of any other corporation serving as such at the request of the Company because of the Company’s interest in such other corporation, or the legal representative of any such director or officer, shall be indemnified by the Company against reasonable costs, expenses (exclusive of any amount paid to the Company in settlement), and counsel fees paid or incurred in connection with any action, suit, or proceeding to which any such director or officer or his legal representative may be made a party by reason of his being or having been such director or officer, provided, (1) said action, suit, or proceeding shall be prosecuted against such director or officer or against his legal representative to final determination, and it shall not be finally adjudged in said action, suit, or proceeding that he had been derelict in the performance of his duties as such
| |
| “Any present or future director or officer of the Company and any present or future director or officer of any other corporation serving as such at the request of the Company because of the Company’s interest in such other corporation, or the legal representative of any such director or officer, shall be indemnified by the Company against reasonable costs, expenses (exclusive of any amount paid to the Company in settlement), and counsel fees paid or incurred in connection with any action, suit, or proceeding to which any such director or officer or his legal representative may be made a party by reason of his being or having been such director or officer, provided, (1) said action, suit, or proceeding shall be prosecuted against such director or officer or against his legal representative to final determination, and it shall not be finally adjudged in said action, suit, or proceeding that he had been derelict in the performance of his duties as such director or officer, or (2) said action, suit or proceeding shall be settled or otherwise terminated as against such director or officer or his legal representative without a final determination on the merits, and it shall be determined by the Board of Directors (or, at the option of the |
II-1
director or officer, or (2) said action, suit or proceeding shall be settled or otherwise terminated as against such director or officer or his legal representative without a final determination on the merits, and it shall be determined by the Board of Directors (or, at the option of the Board of Directors, by a disinterested person or persons selected by the Board of Directors to determine the matter) that said director or officer had not in any substantial way been derelict in the performance of his duties as charged in such action, suit, or proceeding. The right of indemnification provided by this By-law shall be in addition to and not in restriction or limitation of any other privilege or power which the Company may have with respect to the indemnification or reimbursement of directors, officers, or employees.”
| |
| Board of Directors, by a disinterested person or persons selected by the Board of Directors to determine the matter) that said director or officer had not in any substantial way been derelict in the performance of his duties as charged in such action, suit, or proceeding. The right of indemnification provided by this By-law shall be in addition to and not in restriction or limitation of any other privilege or power which the Company may have with respect to the indemnification or reimbursement of directors, officers, or employees.” |
The Company has in effect a
$20 million$20,000,000.00 policy of insurance indemnifying it against certain liabilities to directors and officers of the Company, and indemnifying directors and officers of the Company against certain of the liabilities which they may incur in acting in their capacities as such, all within specific limits. The insurance
was purchased from the Federal Insurance Company, a subsidiary of the Chubb Group of Insurance Companies, forhas a term expiring May 31,
2004.2007.
Pursuant to Section 14A:2-7 of the NJBCA, the Company’s shareholders adopted an amendment to the Company’s Certificate of Incorporation which provides that a director or officer shall not be personally liable to the Company or its shareholders for damages for breach of any duty owed to the Company or its shareholders, except that such provision shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (a) in breach of such person’s duty of loyalty to the Company or its shareholders, (b) not in good faith or involving a knowing violation of law or (e) resulting in receipt by such person of an improper personal benefit.
Item 16. Exhibits
Exhibits designated with an asterisk (*) are filed herewith. Exhibits designated with two asterisks (**) will be filed by amendment. The exhibits not so designated have heretofore been filed with the Commission and are incorporated herein by reference to the documents indicated.
Exhibit
No.
| | Document Description
|
| |
1.1**Item 16. | Exhibits |
| | | | | |
| Exhibit | | |
| No. | | Document Description |
| | | |
| | 1 | .1* | | Form of Underwriting Agreement. |
| | 4 | .1 | | Form of Common Stock Certificate, is incorporated by reference to Exhibit 2(a) filed with the Company’s Registration Statement No. 2-55058. |
| | 4 | .2 | | Articles 7A through 7F, 8, 9 and 10 of the Restated Certificate of Incorporation are incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the Year ended December 31, 1998. |
| | 4 | .3 | | Certificate of Correction of Middlesex Water Company filed with the State of New Jersey on April 30, 1999, is incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003. |
| | 4 | .4 | | Certificate of Amendment to the Restated Certificate of Incorporation of Middlesex Water Company, filed with the State of New Jersey on February 17, 2000, is incorporated herein by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003. |
| | 4 | .5 | | Certificate of Amendment to the Restated Certificate of Incorporation of Middlesex Water Company, filed with the State of New Jersey on June 5, 2002, is incorporated herein by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K/A-2 for the year ended December 31, 2003. |
| | 4 | .6 | | By-laws of Middlesex Water Company are incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. |
| | 5 | ** | | Opinion of Counsel Re: Legality of Securities Registered. |
| | 23 | .1** | | Consent of Independent Registered Public Accounting Firm. |
| | 23 | .2** | | Consent of Counsel is included in its legal opinion filed as Exhibit 5. |
| | 24 | | | Power of Attorney (is included as a part of the signature page of this registration statement). |
| | |
| | Form of Underwriting Agreement.* | To be filed by amendment. |
| |
4.1** | | Form of Common Stock Certificate, is incorporated by reference to Exhibit 2(a) filed with the Company’s Registration Statement No. 2-55058.Filed herewith. |
II-2
| |
4.2Item 17. | | Articles 7A through 7F, 8, 9 and 10 of the Restated Certificate of Incorporation as amended are incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the Year ended December 31, 1998. |
| |
4.3* | | Certificate of Correction of Middlesex Water Company filed with the State of New Jersey on April 30, 1999. |
| |
4.4* | | Certificate of Amendment to the Restated Certificate of Incorporation Middlesex Water Company, filed with the State of New Jersey on February 17, 2000. |
| |
4.5* | | Certificate of Amendment to the Restated Certificate of Incorporation Middlesex Water Company, filed with the State of New Jersey on June 5, 2002. |
| |
5* | | Opinion of Counsel Re: Legality of Securities Registered. |
| |
23.1* | | Independent Auditors’ Consent |
| |
23.2* | | Consent of Counsel is included in its legal opinion filed as Exhibit 5. |
| |
24 | | Power of Attorney (is included as a part of the signature page of this registration statement).Undertakings |
II-2
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “1933 Act”), may be available to directors, officers and controlling persons of the
CompanyRegistrant pursuant to the
New Jersey Business Corporation Act, the By-laws of the Company, the Underwriting Agreement,foregoing provisions, or otherwise, the
CompanyRegistrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the
CompanyRegistrant of expenses incurred or paid by a director, officer, or controlling person of the
CompanyRegistrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the
CompanyRegistrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
The undersigned
CompanyRegistrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the 1933 Act shall be deemed to be part of the registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) For the purposes of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
| |
| (1) For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the 1933 Act shall be deemed to be part of the registration statement as of the time it was declared effective. |
|
| (2) For the purposes of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
|
| (3) For purposes of determining any liability under the 1933 Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Woodbridge, State of New Jersey on the
266th day of November, 2003.October, 2006.MIDDLESEX WATER COMPANY
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By
| MIDDLESEX WATER COMPANY |
| | |
| | By: | /s/ DENNIS G. SULLIVAN Dennis W. Doll
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| DENNIS G. SULLIVANW. DOLL |
| | | President and Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis
G. SullivanW. Doll and A. Bruce O’Connor, and either of them (with full power in each to act alone), his true and lawful
attorneys-in-fact,attorneys-in-fact, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-factattorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said
attorneys-in-fact,attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
/s/ DENNIS G. SULLIVAN
Dennis G. Sullivan
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/s/Dennis W. Doll
Dennis W. Doll | | President, Chief Executive Officer
and Director | | November 26, 2003
October 6, 2006 |
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/s/ J. RICHARD TOMPKINS
J. Richard Tompkins
J. Richard Tompkins | | Chairman of the Board | | November 26, 2003
October 6, 2006 |
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/s/ JOHN C. CUTTING
John C. Cutting
John C. Cutting | | Director | | November 26, 2003
October 6, 2006 |
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/s/ JOHN P. MULKERIN
John P. Mulkerin
John P. Mulkerin | | Director | | November 26, 2003
October 6, 2006 |
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/s/ STEPHEN H. MUNDY
Stephen H. Mundy
| | Director
| | November 26, 2003
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/s/ WALTER G. REINHARD
Walter G. Reinhard
Walter G. Reinhard | | Director | | November 26, 2003
October 6, 2006 |
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/s/ ANNETTE CATINO
Annette Catino
Annette Catino | | Director | | November 26, 2003
October 6, 2006 |
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/s/ JOHN R. MIDDLETON, M.D.
John R. Middleton
John R. Middleton | | Director | | November 26, 2003
October 6, 2006 |
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/s/ JEFFRIES SHEIN
Jeffries Shein
Jeffries Shein | | Director | | November 26, 2003
October 6, 2006 |
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/s/ A. BRUCE O’CONNOR
A. Bruce O’Connor
A. Bruce O’Connor | | Vice President and Controller (Chief
Chief Financial Officer) Officer | | November 26, 2003
October 6, 2006 |
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