SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: June 30, 2003 No. 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
(Address of principal executive offices) (Zip Code)
(732) 634-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES |X|. NO |_|.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2003
----- ----------------------------
Common Stock, No Par Value 7,859,926
Explanatory Note - Restatement of condensed consolidated financial statements
The condensed consolidated financial statements as of June 30, 2003 and December
31, 2002 and for the six and twelve month periods ended June 30, 2003 and 2002,
included in this Quarterly Report on Form 10-Q/A have been restated as discussed
in Note 6 to the condensed consolidated financial statements.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, each item of the Form 10-Q for the
quarter ended June 30, 2003 as originally filed on August 13, 2003 that was
affected by the restatement has been amended to the extent affected and restated
in its entirety. NO ATTEMPT HAS BEEN MADE IN THIS FORM 10-Q/A TO MODIFY OR
UPDATE OTHER DISCLOSURES AS PRESENTED IN THE ORIGINAL FORM 10-Q EXCEPT FOR
UPDATES MADE TO PART I, ITEM 4, PART II ITEM 6(a), AND EXHIBITS 31, 31.1, 32
and 32.1.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Condensed Consolidated Statements of Income 1
Condensed Consolidated Balance Sheets (Restated) 2
Condensed Consolidated Statements of Capitalization and Retained Earnings 4
Condensed Consolidated Statements of Cash Flows (Restated) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures of Market Risk 13
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Operating Revenues $ 15,997,966 $ 15,525,335 $ 30,979,339 $ 29,754,738 $ 63,157,387 $ 61,495,253
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses:
Operations 7,793,242 7,524,713 15,604,871 14,738,281 30,785,511 29,580,398
Maintenance 805,824 659,835 1,781,678 1,317,399 3,311,488 2,755,718
Depreciation 1,338,617 1,312,830 2,618,797 2,608,548 4,973,517 5,150,995
Other Taxes 1,961,134 1,940,649 3,869,262 3,788,315 7,818,102 7,799,150
Income Taxes 991,545 1,036,013 1,621,278 1,738,912 3,881,661 4,031,861
------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses 12,890,362 12,474,040 25,495,886 24,191,455 50,770,279 49,318,122
------------ ------------ ------------ ------------ ------------ ------------
Operating Income 3,107,604 3,051,295 5,483,453 5,563,283 12,387,108 12,177,131
Other Income:
Allowance for Funds Used During Construction 65,199 81,691 157,805 151,974 275,499 253,325
Other Income 22,248 11,940 42,191 55,547 235,968 140,978
Other Expense (48,555) (7,125) (67,724) (22,819) (122,019) (162,068)
------------ ------------ ------------ ------------ ------------ ------------
Total Other Income 38,892 86,506 132,272 184,702 389,448 232,235
Interest Charges 1,342,690 1,248,442 2,587,038 2,581,920 5,148,581 5,092,046
------------ ------------ ------------ ------------ ------------ ------------
Net Income 1,803,806 1,889,359 3,028,687 3,166,065 7,627,975 7,317,320
Preferred Stock Dividend Requirements 63,696 63,696 127,393 127,393 254,786 254,786
------------ ------------ ------------ ------------ ------------ ------------
Earnings Applicable to Common Stock $ 1,740,110 $ 1,825,663 $ 2,901,294 $ 3,038,672 $ 7,373,189 $ 7,062,534
============ ============ ============ ============ ============ ============
Earnings per share of Common Stock:
Basic $ 0.22 $ 0.24 $ 0.37 $ 0.40 $ 0.95 $ 0.92
Diluted $ 0.22 $ 0.24 $ 0.37 $ 0.40 $ 0.94 $ 0.92
Weighted Average Number of
Common Shares Outstanding :
Basic 7,844,447 7,702,843 7,814,329 7,671,517 7,781,045 7,640,530
Diluted 8,101,802 7,960,198 8,071,684 7,928,872 8,038,400 7,897,885
Cash Dividends Paid per Common Share $ 0.215 $ 0.210 $ 0.430 $ 0.420 $ 0.855 $ 0.837
See Notes to Condensed Consolidated Financial Statements.
-1-
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Restated
Note 6
-----------------------------
June 30, December 31,
2003 2002
------------- -------------
UTILITY PLANT:
Water Production $ 73,352,025 $ 72,212,878
Transmission and Distribution 164,569,626 158,412,075
General 18,836,767 18,618,211
Construction Work in Progress 6,669,656 6,619,767
------------- -------------
TOTAL 263,428,074 255,862,931
Less Accumulated Depreciation 50,148,452 47,919,527
------------- -------------
UTILITY PLANT-NET 213,279,622 207,943,404
------------- -------------
NONUTILITY ASSETS-NET 3,608,108 3,424,492
------------- -------------
CURRENT ASSETS:
Cash and Cash Equivalents 2,782,476 2,937,894
Accounts Receivable (net of allowance
for doubtful accounts) 6,294,080 6,028,302
Unbilled Revenues 3,870,049 3,181,091
Materials and Supplies (at average cost) 1,412,922 1,190,337
Prepayments and Other Current Assets 1,381,002 815,392
------------- -------------
TOTAL CURRENT ASSETS 15,740,529 14,153,016
------------- -------------
DEFERRED CHARGES AND OTHER ASSETS:
Unamortized Debt Expense 3,297,286 3,239,364
Preliminary Survey and Investigation Charges 1,533,607 1,098,468
Regulatory Assets
Income Taxes 6,287,873 6,287,873
Post Retirement Costs 826,156 869,260
Restricted Cash 5,243,878 6,146,699
Other 1,335,890 1,441,656
------------- -------------
TOTAL DEFERRED CHARGES AND OTHER ASSETS 18,524,690 19,083,320
------------- -------------
TOTAL ASSETS $ 251,152,949 $ 244,604,232
============= =============
See Notes to Condensed Consolidated Financial Statements.
-2-
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
------------ ------------
TOTAL CAPITALIZATION (see accompanying statements) $179,716,005 $168,047,689
------------ ------------
CURRENT LIABILITIES:
Current Portion of Long-term Debt 1,059,279 639,427
Notes Payable 8,975,000 17,650,000
Accounts Payable 3,753,896 2,059,877
Taxes Accrued 7,034,893 5,898,751
Interest Accrued 1,669,283 1,614,278
Other 1,501,719 1,716,270
------------ ------------
TOTAL CURRENT LIABILITIES 23,994,070 29,578,603
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 5)
DEFERRED CREDITS:
Customer Advances for Construction 10,680,522 10,881,815
Accumulated Deferred Investment Tax Credits 1,814,491 1,853,799
Accumulated Deferred Federal Income Taxes 13,357,393 13,241,901
Employee Benefit Plans 5,689,389 5,279,737
Other 721,802 814,897
------------ ------------
TOTAL DEFERRED CREDITS 32,263,597 32,072,149
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 15,179,277 14,905,791
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $251,152,949 $244,604,232
============ ============
See Notes to Condensed Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
(Unaudited)
June 30, December 31,
2003 2002
------------- -------------
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 20,000,000
Shares Outstanding - 2003 - 7,859,926 $ 55,840,359 $ 53,866,250
2002 - 7,767,367
Restricted Stock Plan (447,241) (552,081)
------------- -------------
TOTAL COMMON STOCK 55,393,118 53,314,169
------------- -------------
Cumulative Preference Stock, No Par Value
Shares Authorized, 100,000; Shares Outstanding, None
Cumulative Preferred Stock, No Par Value
Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
------------- -------------
TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
------------- -------------
Long-term Debt:
8.05% Amortizing Secured Note, due December 20, 2021 3,170,716 3,203,401
6.25% Amortizing Secured Note, due May 22, 2028 10,465,000 --
4.22% State Revolving Trust Note, due December 31, 2022 192,281 67,350
4.00% State Revolving Trust Bond, due September 1, 2021 850,000 850,000
0.00% State Revolving Fund Bond, due September 1, 2021 718,634 730,017
First Mortgage Bonds:
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due September 1, 2018 848,464 862,088
4.25%, Series Y, due September 1, 2018 1,010,000 1,010,000
0.00%, Series Z, due September 1, 2019 1,875,500 1,907,568
5.25%, Series AA, due September 1, 2019 2,265,000 2,265,000
0.00%, Series BB, due September 1, 2021 2,251,718 2,287,385
4.00%, Series CC, due September 1, 2021 2,440,000 2,440,000
5.10%, Series DD, due January 1, 2032 6,000,000 6,000,000
------------- -------------
SUBTOTAL LONG-TERM DEBT 98,587,313 88,122,809
------------- -------------
Less: Current Portion of Long-term Debt (1,059,279) (639,427)
------------- -------------
TOTAL LONG-TERM DEBT 97,528,034 87,483,382
------------- -------------
TOTAL COMMON STOCK, PREFERRED $ 156,984,214 $ 144,860,613
STOCK AND LONG-TERM DEBT ============= =============
Six Months Year Ended
Ended December 31,
June 30, 2003 2002
------------- -------------
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $ 23,187,076 $ 22,190,691
Net Income 3,028,687 7,765,353
------------- -------------
TOTAL 26,215,763 29,956,044
------------- -------------
Cash Dividends:
Cumulative Preferred Stock 127,393 254,786
Common Stock 3,356,579 6,510,494
Common Stock Expenses -- 3,688
------------- -------------
TOTAL DEDUCTIONS 3,483,972 6,768,968
------------- -------------
BALANCE AT END OF PERIOD $ 22,731,791 $ 23,187,076
============= =============
See Notes to Condensed Consolidated Financial Statements.
-4-
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Restated
Note 6
------------------------------------------------------------
Six Months Ended June 30, Twelve Months Ended June 30,
2003 2002 2003 2002
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,028,687 $ 3,166,065 $ 7,627,975 $ 7,317,320
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,812,856 2,804,251 4,971,872 5,414,409
Provision for Deferred Income Taxes 76,184 90,289 133,919 310,131
Allowance for Funds Used During Construction (157,805) (137,551) (289,922) (238,902)
Changes in Current Assets and Liabilities:
Accounts Receivable (265,778) 560,162 (188,522) 135,888
Accounts Payable 1,694,019 1,367,259 (9,697) 1,557,415
Accrued Taxes 1,136,142 443,512 260,504 (17,149)
Accrued Interest 55,005 (21,123) (123,490) 7,557
Unbilled Revenues (688,958) (864,041) (204,993) (190,555)
Employee Benefit Plans 409,652 (276,646) 703,360 (43,776)
Other-Net (1,061,384) (748,014) (1,129,105) 31,519
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,038,620 6,384,163 11,751,901 14,283,857
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (8,331,615) (9,044,088) (15,776,622) (18,060,208)
Restricted Cash 902,689 1,123,856 2,403,241 (5,266,208)
Proceeds from Real Estate Dispositions 344,972 -- 344,972 --
Preliminary Survey and Investigation Charges (435,139) (9,957) (580,028) 80,269
Other-Net 13,689 (31,143) 73,774 1,043,873
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (7,505,404) (7,961,332) (13,534,663) (22,202,274)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (160,427) (6,077,409) (526,854) (6,217,913)
Proceeds from Issuance of Long-term Debt 10,624,931 6,000,000 10,692,281 12,390,000
Short-term Bank Borrowings (8,675,000) (600,000) (3,650,000) 3,525,000
Deferred Debt Issuance Expenses (145,442) (600,208) (56,052) (609,763)
Restricted Cash 132 219,588 219,720 219,588
Proceeds from Issuance of Common Stock-Net 2,078,949 2,391,794 2,898,015 3,004,665
Payment of Common Dividends (3,356,579) (3,219,158) (6,647,915) (6,388,894)
Payment of Preferred Dividends (127,393) (127,393) (254,786) (254,786)
Construction Advances and Contributions-Net 72,193 336,477 609,921 571,868
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 311,364 (1,676,309) 3,284,330 6,239,765
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (155,420) (3,253,478) 1,501,568 (1,678,652)
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,937,894 4,534,384 1,280,906 2,959,558
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,782,474 $ 1,280,906 $ 2,782,474 $ 1,280,906
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 2,322,428 $ 2,420,438 $ 4,736,109 $ 4,750,071
Income Taxes $ 819,897 $ 1,622,500 $ 3,434,397 $ 4,139,500
See Notes to Condensed Consolidated Financial Statements.
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Bayview Water
Company. Southern Shores Water Company, LLC and White Marsh Environmental
Systems, Inc. are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly owned subsidiaries (the Company) are
reported on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
The consolidated notes within the Form 10-K are applicable to these financial
statements and, in the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the financial
position as of June 30, 2003 and the results of operations and cash flows for
the periods ended June 30, 2003 and 2002. Information included in the Balance
Sheet at December 31, 2002, has been derived from the Company's audited,
restated financial statements for the year ended December 31, 2002. Certain
reclassifications of prior period data have been made to conform with current
presentation.
Note 2 - Capitalization
Common Stock - During the six months ended June 30, 2003, there were 92,559
common shares ($2.1 million) issued under the Company's Dividend Reinvestment
and Common Stock Purchase Plan. The Plan is offering a 5% discount on optional
cash payments and reinvested dividends that began on February 28, 2003. The
discount is scheduled to continue until the earlier of September 2, 2003 or when
150,000 shares are issued during the discount period.
Long-term Debt - Tidewater received approval from the Delaware Public Service
Commission (PSC) to borrow $13.8 million to fund a portion of its multi-year
capital program and refinance some of its short-term debt. Subsequent to the PSC
approval, in April 2003, Tidewater closed on a Delaware State Revolving Fund
(SRF) loan of $3.3 million. The Delaware SRF program will allow, but does not
obligate, Tidewater to draw down against a General Obligation Note for six
specific projects. Tidewater will be charged an annual fee, which is a
combination of interest charges and administrative fees, of 3.60% on the
outstanding principal amount. All unpaid principal and fees must be paid on or
before May 1, 2025. In May 2003, Tidewater completed a loan transaction of $10.5
million with CoBank, a financial institution specializing in loans to rural
utilities. Terms of the loan include an interest rate of 6.25% and a maximum
loan life of twenty-five years with monthly principal payments. The proceeds
were used to retire short-term debt.
-6-
Note 3 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
(In Thousands Except for per Share Amounts)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
2003 2002 2003 2002 2003 2002
Basic: Income Shares Income Shares Income Shares Income Shares Income Shares Income Shares
------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,804 7,844 $1,890 7,703 $3,028 7,814 $3,166 7,672 $7,628 7,781 $7,318 7,641
Preferred Dividend (64) (64) (127) (127) (255) (255)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings Applicable
to Common Stock $1,740 7,844 $1,826 7,703 $2,901 7,814 $3,039 7,672 $7,373 7,781 $7,063 7,641
Basic EPS $ 0.22 $ 0.24 $ 0.37 $ 0.40 $ 0.95 $ 0.92
------------------------------------------------------------------------------------------------------------------------------------
Diluted:
------------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $1,740 7,844 $1,826 7,703 $2,901 7,814 $3,039 7,672 $7,373 7,781 $7,063 7,641
$7.00 Series Dividend 26 134 26 134 52 134 52 134 104 134 104 134
$8.00 Series Dividend 24 123 24 123 48 123 48 123 96 123 96 123
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Adjusted Earnings
Applicable to
Common Stock $1,790 8,101 $1,876 7,960 $3,001 8,071 $3,139 7,929 $7,573 8,038 $7,263 7,898
Diluted EPS $ 0.22 $ 0.24 $ 0.37 $ 0.40 $ 0.94 $ 0.92
Note 4 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in the consolidated notes to the financial statements
included in the Form 10-K. Inter-segment transactions relating to operational
costs are treated as pass through expenses. Finance charges on inter-segment
loan activities are based on interest rates that are below what would normally
be charged by a third party lender.
-7-
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
Operations by Segments: 2003 2002 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------
Revenues:
Regulated $ 14,118 $ 13,661 $ 27,067 $ 26,188 $ 55,277 $ 54,014
Non - Regulated 1,904 1,873 3,948 3,585 7,939 7,517
Inter-segment Elimination (24) (9) (36) (18) (59) (36)
-------- -------- -------- -------- -------- --------
Consolidated Revenues $ 15,998 $ 15,525 $ 30,979 $ 29,755 $ 63,157 $ 61,495
-------- -------- -------- -------- -------- --------
Operating Income:
Regulated $ 3,026 $ 2,970 $ 5,299 $ 5,427 $ 11,904 $ 11,795
Non - Regulated 82 81 184 136 483 382
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Consolidated Operating Income $ 3,108 $ 3,051 $ 5,483 $ 5,563 $ 12,387 $ 12,177
-------- -------- -------- -------- -------- --------
Depreciation:
Regulated $ 1,326 $ 1,303 $ 2,596 $ 2,590 $ 4,931 $ 5,104
Non - Regulated 13 10 23 19 43 47
Inter-segment Elimination Cons -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Depreciation $ 1,339 $ 1,313 $ 2,619 $ 2,609 $ 4,974 $ 5,151
-------- -------- -------- -------- -------- --------
Other Income:
Regulated $ 795 $ 682 $ 1,405 $ 1,104 $ 3,077 $ 2,023
Non - Regulated (33) 1 (33) 35 (46) 42
Inter-segment Elimination (723) (596) (1,240) (954) (2,642) (1,833)
-------- -------- -------- -------- -------- --------
Consolidated Other Income $ 39 $ 87 $ 132 $ 185 $ 389 $ 232
-------- -------- -------- -------- -------- --------
Interest Expense:
Regulated $ 1,672 $ 1,526 $ 3,222 $ 3,107 $ 6,398 $ 6,055
Non - Regulated 28 13 43 26 71 54
Inter-segment Elimination (357) (291) (678) (551) (1,320) (1,017)
-------- -------- -------- -------- -------- --------
Consolidated Interest Expense $ 1,343 $ 1,248 $ 2,587 $ 2,582 $ 5,149 $ 5,092
-------- -------- -------- -------- -------- --------
Net Income:
Regulated $ 2,149 $ 2,126 $ 3,482 $ 3,424 $ 8,581 $ 7,763
Non - Regulated 21 69 109 145 368 370
Inter-segment Elimination (366) (305) (562) (403) (1,321) (816)
-------- -------- -------- -------- -------- --------
Consolidated Net Income $ 1,804 $ 1,890 $ 3,029 $ 3,166 $ 7,628 $ 7,317
-------- -------- -------- -------- -------- --------
Capital Expenditures:
Regulated $ 4,304 $ 5,215 $ 7,775 $ 8,975 $ 14,860 $ 17,957
Non - Regulated (114) 25 557 69 917 103
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Capital Expenditures $ 4,190 $ 5,240 $ 8,332 $ 9,044 $ 15,777 $ 18,060
-------- -------- -------- -------- -------- --------
As of As of
June 30, December 31,
2003 2002
-----------------------
Assets:
Regulated $ 280,425 $ 280,655
Non - Regulated 4,134 4,093
Inter-segment Elimination (33,406) (40,144)
--------- ---------
Consolidated Assets $ 251,153 $ 244,604
--------- ---------
-8-
Note 5 - Commitments and Contingent Liabilities
Litigation - A claim is pending against the Company for damages in excess of
$10.0 million involving the break of both a Company water line and an
underground electric power cable in close proximity to it. The power cable
contained both electric lines and petroleum based insulating fluid. The Company
is insured for damages except for damages resulting from pollution discharge,
which the Company is advised is approximately $0.2 million. Causation and
liability have not been established. Management is unable to determine the
outcome of the litigation and its impact on the financial conditions or results
of operations.
A claim is pending involving a construction subcontractor, the Company's general
contractor and the Company concerning a major construction project. The dispute
relates to work required to be performed under a construction contract and
related subcontracts and includes payment issues and timing/delay issues. The
matter was instituted in 2001 and is pending in Superior Court, Middlesex
County, New Jersey. The full amount at issue is not fully known at this stage of
the litigation. At this time, management is unable to determine the impact, if
any, on the financial statements.
Note 6 - Restatement of Condensed Consolidated Financial Statements
The condensed consolidated financial statements as of June 30, 2003 and December
31, 2002 and for the six and twelve month periods ended June 30, 2003 and 2002
have been restated to correct the classification of certain amounts. The
reclassifications were made to present the amount of Restricted Cash as a non
current asset rather than a current asset in the condensed consolidated balance
sheets at June 30, 2003 and December 31, 2002, and to present changes in
Restricted Cash related to capital expenditures as an investing activity rather
than a financing activity in the condensed consolidated statements of cash flows
for the six and twelve month periods ended June 30, 2003 and 2002. Previously,
such amounts and changes in amounts therein were presented as Temporary Cash
Investments - Restricted. Those amounts and changes in those amounts are
currently described as Restricted Cash. The restatement had no effect on
reported total assets, net income, earnings applicable to common stock, cash
flows from operations or liquidity.
A summary of the effects of the restatement is as follows:
June 30, June 30, December 31, December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2003 2003 2002 2002
--------------------------------------------------------------------------------------------------------------------------
As As
Previously As Previously As
Current Assets: Reported Restated Reported Restated
--------------------------------------------------------------------------------------------------------------------------
Temporary Cash Investments - Restricted $ 5,243,878 $ -- $ 6,146,699 $ --
--------------------------------------------------------------------------------------------------------------------------
Total Current Assets $ 20,984,407 $ 15,740,529 $ 20,299,715 $ 14,153,016
--------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
--------------------------------------------------------------------------------------------------------------------------
Restricted Cash $ -- $ 5,243,878 $ -- $ 6,146,699
--------------------------------------------------------------------------------------------------------------------------
Total Deferred Charges and Other Assets $ 13,280,812 $ 18,524,690 $ 12,936,621 $ 19,083,320
--------------------------------------------------------------------------------------------------------------------------
Six Six Six Six
Months Ended Months Ended Months Ended Months Ended
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
--------------------------------------------------------------------------------------------------------------------------
As As
Previously As Previously As
Cash Flows From Investing Activities: Reported Restated Reported Restated
--------------------------------------------------------------------------------------------------------------------------
Restricted Cash $ -- $ 902,689 $ -- $ 1,123,856
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities: $ (8,408,093) $ (7,505,404) $ (9,085,188) $ (7,961,332)
--------------------------------------------------------------------------------------------------------------------------
Six Six Six Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
----------------------------------------------------------------
As As
Previously As Previously As
Cash Flows From Financing Activities: Reported Restated Reported Restated
--------------------------------------------------------------------------------------------------------------------------
Temporary Cash Investments -
Restricted $ 902,821 $ -- $ 1,343,444 $ --
Restricted Cash $ -- $ 132 $ -- $ 219,588
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities: $ 1,214,053 $ 311,364 $ (552,453) $ (1,676,309)
--------------------------------------------------------------------------------------------------------------------------
-9-
Twelve Twelve Twelve Twelve
Months Ended Months Ended Months Ended Months Ended
June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
--------------------------------------------------------------------------------------------------------------------------
As As
Previously As Previously As
Cash Flows From Investing Activities: Reported Restated Reported Restated
--------------------------------------------------------------------------------------------------------------------------
Restricted Cash $ -- $ 2,403,241 $ -- $ (5,266,208)
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities: $(15,937,904) $(13,534,663) $(16,936,066) $(22,202,274)
--------------------------------------------------------------------------------------------------------------------------
Twelve Twelve Twelve Twelve
Months Ended Months Ended Months Ended Months Ended
June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
---------------------------------------------------------------
As As
Previously As Previously As
Cash Flows From Financing Activities: Reported Restated Reported Restated
--------------------------------------------------------------------------------------------------------------------------
Temporary Cash Investments -
Restricted $ 2,622,961 $ -- $ (5,046,620) $ --
Restricted Cash $ -- $ 219,720 $ -- $ 219,588
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities: $ 5,687,571 $ 3,284,330 $ 973,557 $ 6,239,765
--------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements as of June 30, 2003 and December
31, 2002 and for the six and twelve month periods ended June 30, 2003 and 2002,
included in this Quarterly Report on Form 10-Q/A have been restated as discussed
in Note 6 to the condensed consolidated financial statements.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, each item of the Form 10-Q for the
quarter ended June 30, 2003 as originally filed on August 13, 2003 that was
affected by the restatement has been amended to the extent affected and restated
in its entirety. NO ATTEMPT HAS BEEN MADE IN THIS FORM 10-Q/A TO MODIFY OR
UPDATE OTHER DISCLOSURES AS PRESENTED IN THE ORIGINAL FORM 10-Q EXCEPT FOR
UPDATES MADE TO PART I, ITEM 4, PART II ITEM 6(a) AND EXHIBITS 31, 31.1, 32 and
32.1.
Results of Operations - Three Months Ended June 30, 2003
Operating revenues for the three months ended June 30, 2003 were up $0.5 million
or 3.0% from the same period in 2002. While water sales declined by $0.1 million
in our New Jersey systems due to weather conditions, revenues rose in our
Delaware service territories. Quarterly customer growth of 10.9% in Delaware
provided additional consumption sales, facility charges and connection fees of
$0.5 million. An increase in base rates in the first quarter of 2003 also helped
to increase revenues by $0.1 million.
Operating expenses increased $0.4 million or 3.3%. Main repair expenses
increased by $0.1 million. Water treatment expenses rose by $0.1 million.
Payroll costs, consulting fees, and general office expenses increased by $0.2
million.
-10-
Interest expense increased $0.1 million or 7.5%. In addition to the higher level
of overall debt outstanding as compared to last year, Tidewater converted $10.5
million of its short-term debt to long-term debt. Although the interest rate is
an attractive 6.25% for a loan with a final maturity in 2028, the interest rate
is significantly higher than current short-term rates.
Net income decreased by 4.5% to $1.8 million and basic and diluted earnings per
share decreased to $0.22 from $0.24 per share.
Results of Operations - Six Months Ended June 30, 2003
Operating revenues for the six months ended June 30, 2003 were up $1.2 million
or 4.1% from the same period in 2002. Customer growth of 10.9% in Delaware
provided additional consumption sales, facility charges and connection fees of
$0.7 million. An increase in base rates in the first quarter of 2003 also helped
to increase revenues by $0.2 million. Services fees from our operations and
maintenance contracts rose by $0.3 million due to an increase of fees under the
City of Perth Amboy contract.
Operating expenses increased $1.3 million or 5.4%. 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 higher sewer
costs of $0.2 million associated with the City of Perth Amboy contract.
Increases in payroll costs, audit fees, legal fees and employee benefits pushed
up costs by $0.7 million. All other costs of operations increased by $0.1
million.
Income taxes decreased $0.1 million or 6.8%, reflecting a lower amount
of taxable income.
Other taxes increased $0.1 million or 2.1%, reflecting higher taxes on taxable
gross revenue.
Net income decreased by $0.1 million and basic and diluted earnings per share
decreased to $0.37 from $0.40 per share.
Results of Operations - Twelve Months Ended June 30, 2003
Operating revenues for the twelve months ended June 30, 2003 were up $1.7
million to $63.2 million amounting to a 2.7% increase. Consumption decreased by
$0.5 million in our New Jersey systems. Delaware revenues increased by $1.6
million consisting of $0.4 million in higher rates, $0.3 million in water sales,
and $0.9 million in facility charges and connection fees. Service fees from our
operations and maintenance contracts rose by $0.4 million due to an increase in
fees under the City of Perth Amboy contract. The acquisition of the Southern
Shores Water Company in August 2001 contributed an increase of $0.1 million. All
other revenues increased by $0.1 million.
Operating expenses increased $1.5 million or 2.9%. Operations and maintenance
expenses increased $1.8 million or 5.4%. Costs related to main breaks resulting
from severe winter weather conditions in the first quarter of 2003 contributed
to additional costs of $0.3 million. There were higher sewer costs of $0.2
million the City of Perth Amboy contract. Higher operating costs in our Delaware
operations of $0.5 million correlates to increases in consumption, customers and
employees. Increases in payroll costs, audit fees, legal fees, and employee
benefits pushed up costs by $0.7 million. All other costs of operations
increased by $0.1 million.
-11-
Interest expense increased $0.1 million or 1.1% in addition to the higher level
of overall debt outstanding as compared to last year.
Income taxes decreased $0.2 million or 3.7%, reflecting a lower amount
of taxable income.
Net income increased 4.3% to $7.6 million. Basic earnings per share increased by
$0.03 to $0.95 per share and diluted earnings per share increased by 2.2% to
$0.94 per share.
Capital Resources
The Company's capital program for 2003 is estimated to be $18.9 million and
includes $10.9 million for water system additions and improvements for our
Delaware systems, $3.0 million for the RENEW Program, which is our program to
clean and cement line approximately nine miles of unlined mains in the Middlesex
System. There is a total of approximately 143 miles of unlined mains in the 730
mile Middlesex System. Additional expenditures on the upgrade to the CJO Plant
are estimated at $0.1 million. The capital program also includes $4.9 million
for scheduled upgrades to our existing systems in New Jersey. The scheduled
upgrades consist of $0.6 million for mains, $0.6 million for service lines, $0.3
million for meters, $0.1 million for hydrants, $0.4 million for distribution
system improvements and $2.9 million for various other items.
Liquidity
The capital program in Delaware will be financed through a combination of a
capital contribution and short-term debt financing from Middlesex, as well as
long-term financing through the State Revolving Fund (SRF) in Delaware.
Middlesex, Tidewater and Bayview each have secured long-term financing with
their respective state agencies for certain capital projects. SRF provides low
cost financing for projects that meet certain water quality improvement
benchmarks. The proceeds from those loans will be used in 2003 through 2005.
(See Note 2 to the Condensed Consolidated Financial Statements.) Other capital
expenditures will be financed through internally generated funds and sale of
common stock through the Dividend Reinvestment and Common Stock Purchase Plan
(DRP). Capital expenditures of $8.3 million have been incurred in the six months
ended June 30, 2003. The Company will also utilize short-term borrowings through
$30.0 million of available lines of credit it has with three commercial banks
for working capital purposes. At June 30, 2003, there was $9.0 million
outstanding against the lines of credit.
Outlook
While revenues continue to grow in Delaware because of customer growth and rate
increases, cool wet weather has reduced consumption demands in our New Jersey
systems. This trend has continued into the third quarter in both New Jersey and
Delaware. At the same time, certain operating costs will be increasing as we go
forward. With the deregulation of the electricity generation market in New
Jersey on August 1, 2003, Middlesex electric commodity costs are expected to
increase over 30%. On that same date the remaining regulated portion of the
electricity rates rose 15%. The New Jersey Water Supply Authority will be
changing the way it contracts for supplemental water purchases with all contract
customers, including Middlesex. These changes, which are anticipated to be
effective January 1, 2004, are expected to increase our cost of raw water by at
least 8.5%.
Costs for the 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, have prompted Middlesex to begin the process to
prepare a rate relief petition for filing with the New Jersey Board of Public
Utilities (BPU).
-12-
Tidewater received approval for a 2.49% Distribution System Improvement Charge
(DSIC) from the Delaware Public Service Commission (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 six month period and a 7.5% overall limitation.
The Company continues to pursue regulated and non-regulated opportunities in New
Jersey and Delaware. Recently, Middlesex was identified as the successful bidder
to acquire the 2,400 customer water and wastewater systems of the Borough of
Keyport, New Jersey. Prior to seeking the approval of the BPU to purchase the
systems, which are located in northern Monmouth County, a referendum will be
placed on the ballot in November 2003 seeking approval from Keyport residents.
Any acquisition would also be subject to an agreement on contract terms.
White Marsh Environmental Systems, a wholly subsidiary of Tidewater, has begun a
campaign 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 $100,000. Although the
expected results of operations are not material compared to the consolidated
group, we believe it puts us in a better position to obtain additional
wastewater and water projects in Delaware.
Forward-Looking Information
Certain matters discussed in this report on Form 10-Q/A are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, objectives, expectations and events concerning various
matters such as capital expenditures, earnings, litigation, growth potential,
rate and other regulatory matters, liquidity, capital resources and accounting
matters. Actual results in each case could differ materially from those
currently anticipated in such statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate, long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our Amortizing Secured Notes and
First Mortgage Bonds, which have maturity dates ranging from 2009 to 2038. Over
the next twelve months, approximately $1.0 million of the current portion of
eleven existing long-term debt instruments will mature. Applying a hypothetical
change in the rate of interest charged by 10% on those borrowings would not have
a material effect on earnings.
-13-
Item 4. Controls and Procedures
Subsequent to the evaluation referenced in Middlesex Water Company's Quarterly
report on Form 10-Q filed August 13, 2003, the Company has re-evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures. This re-evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and the Chief Financial Officer. Based upon that evaluation,
the Company's Chief Executive Officer and the Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective during the
period covered by this quarterly report. There have been no significant changes
in the Company's internal controls or in other factors which could significantly
affect internal controls subsequent to the date the Company carried out its
re-evaluation except for the following change in internal controls over
financial reporting.
Management has identified a significant deficiency in the operation of internal
controls over financial reporting relating to the classification of cash
restricted for construction projects on the Consolidated Balance Sheet as
a non-current asset and the change in cash restricted for construction projects
on the Consolidated Statements of Cash Flows as an investing activity. As a
result thereof, management has expanded its periodic review process of asset
classification decisions to enhance the reliability and effectiveness of the
financial reporting process.
Based upon the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's internal controls over
financial reporting are effective in meeting the objectives as described below
based on the aforementioned changes in internal controls.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
-14-
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders held on May 28, 2003.
Matters voted upon at the meeting:
Nominees for Class I, term expiring 2006
FOR WITHHOLD
--- --------
John C. Cutting 6,388,667 96,023
John P. Mulkerin 6,415,723 68,967
Dennis G. Sullivan 6,389,342 95,348
Nominees for Class II, term expiring 2004
FOR WITHHOLD
--- --------
Annette Catino 6,417,915 66,775
Walter G. Reinhard 6,416,052 68,638
Resolution approving appointment of Deloitte & Touche LLP,
Certified Public Accountants, as independent auditors for
2003:
FOR AGAINST ABSTAIN
--- ------- -------
6,420,385 39,455 24,850
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 31: Section 302 Certification by Dennis G.
Sullivan Pursuant to Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934.
Exhibit 31.1: Section 302 Certification by A.
Bruce O'Connor Pursuant to Rules 13a-14 and 15d-14
of the Securities Exchange Act of 1934.
Exhibit 32: Section 906 Certification by Dennis G.
Sullivan Pursuant to 18 U.S.C. ss.1350
Exhibit 32.1: Section 906 Certification by A.
Bruce O'Connor Pursuant to 18 U.S.C. ss.1350
(b) Reports
on Form 8-K: Filed August 1, 2003
-15-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDDLESEX WATER COMPANY
By: /s/ A. Bruce O'Connor
---------------------------------
A. Bruce O'Connor
Vice President and Controller and
Chief Financial Officer
-16-