Company Quick10K Filing
Quick10K
Middlesex Water
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$59.78 16 $984
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-08 Exhibits
8-K 2019-10-03 Other Events
8-K 2019-09-25 Enter Agreement, Exhibits
8-K 2019-09-23 Amend Bylaw, Exhibits
8-K 2019-09-06 Amend Bylaw, Other Events, Exhibits
8-K 2019-09-06 Other Events, Exhibits
8-K 2019-08-05 Exhibits
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-07-25 Other Events, Exhibits
8-K 2019-07-17 Regulation FD, Exhibits
8-K 2019-07-02 Officers, Exhibits
8-K 2019-05-22 Other Events, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-04-25 Other Events, Exhibits
8-K 2019-04-22 Officers, Exhibits
8-K 2019-03-08 Earnings, Exhibits
8-K 2019-01-29 Other Events, Exhibits
8-K 2018-12-18 Exhibits
8-K 2018-11-02 Earnings, Exhibits
8-K 2018-10-29 Exhibits
8-K 2018-10-24 Other Events, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-26 Other Events, Exhibits
8-K 2018-07-18 Exhibits
8-K 2018-05-24 Exhibits
8-K 2018-05-23 Other Events, Exhibits
8-K 2018-04-25 Other Events, Exhibits
8-K 2018-03-27 Exhibits
8-K 2018-01-29 Other Events, Exhibits
AWK American Water Works Company 22,520
WTR Aqua America 9,439
MTZ Mastec 4,691
SJW SJW Group 1,890
DY Dycom Industries 1,409
MYRG MYR Group 461
GWRS Global Water Resources 253
PLPC Preformed Line Products 244
PCYO Pure Cycle 243
CWCO Consolidated Water 226
MSEX 2019-06-30
Note 1 - Basis of Presentation and Recent Developments
Note 2 - Rate and Regulatory Matters
Note 3 - Capitalization
Note 4 - Earnings per Share
Note 5 - Business Segment Data
Note 6 - Short-Term Borrowings
Note 7 - Commitments and Contingent Liabilities
Note 8 - Employee Benefit Plans
Note 9 - Revenue Recognition From Contracts with Customers
Note 10 - Income Taxes
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures of Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits 31.1 Section 302 Certification By Dennis W. Doll Pursuant To Rules 13A-14 and 15D-14 of The Securities Exchange Act of 1934.
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Middlesex Water Earnings 2019-06-30

MSEX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q-22548_msx.htm 10-Q

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)  
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________ to______________________

 

Commission File Number     0-422

 

MIDDLESEX WATER COMPANY

(Exact name of registrant as specified in its charter)

New Jersey

(State of incorporation)

22-1114430

(IRS employer identification no.)

 

485C Route One South, Iselin, New Jersey 08830

(Address of principal executive offices, including zip code)

(732) 634-1500

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock MSEX NASDAQ 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post files).

Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨     Accelerated filer þ Non-accelerated filer ¨
Smaller reporting company ¨   Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No þ

The number of shares outstanding of each of the registrant's classes of common stock, as of July 31, 2019: Common Stock, No Par Value: 16,568,090 shares outstanding.

 

 

INDEX

 

 

PART I. FINANCIAL INFORMATION PAGE
     
Item 1. Financial Statements (Unaudited):  
     
  Condensed Consolidated Statements of Income 1
     
  Condensed Consolidated Balance Sheets 2
     
  Condensed Consolidated Statements of Cash Flows 3
     
  Condensed Consolidated Statements of Capital Stock and Long-Term Debt 4
     
  Condensed Consolidated Statements of Common Common Stockholders’ Equity 5
     
  Notes to Unaudited Condensed Consolidated Financial Statements 6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures of Market Risk 25
     
Item 4. Controls and Procedures 26
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibits 27
     
SIGNATURES 28

 

 

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands except per share amounts)

 

   Three Months Ended June 30,  Six Months Ended June 30,
   2019  2018  2019  2018
             
Operating Revenues  $33,393   $34,919   $64,090   $66,096 
                     
Operating Expenses:                    
Operations and Maintenance   16,781    16,825    32,901    34,659 
Depreciation   4,123    3,736    8,170    7,345 
Other Taxes   3,539    3,637    7,042    7,021 
                     
Total Operating Expenses   24,443    24,198    48,113    49,025 
                     
Operating Income   8,950    10,721    15,977    17,071 
                     
Other Income (Expense):                    
Allowance for Funds Used During Construction   643    214    1,158    381 
Other Income (Expense), net   (80)   571    (138)   868 
                     
Total Other Income, net   563    785    1,020    1,249 
                     
Interest Charges   1,788    2,068    2,988    3,206 
                     
Income before Income Taxes   7,725    9,438    14,009    15,114 
                     
Income Taxes   (421)   763    (687)   1,945 
                     
Net Income   8,146    8,675    14,696    13,169 
                     
Preferred Stock Dividend Requirements   36    36    72    72 
                     
Earnings Applicable to Common Stock  $8,110   $8,639   $14,624   $13,097 
                     
Earnings per share of Common Stock:                    
Basic  $0.49   $0.53   $0.89   $0.80 
Diluted  $0.49   $0.52   $0.88   $0.80 
                     
Average Number of                    
Common Shares Outstanding :                    
Basic   16,519    16,388    16,474    16,371 
Diluted   16,675    16,544    16,630    16,527 
                     
Cash Dividends Paid per Common Share  $0.2400   $0.2238   $0.4800   $0.4475 

 

 See Notes to Condensed Consolidated Financial Statements.

 

1 

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

      June 30,  December 31,
ASSETS     2019  2018
UTILITY PLANT:  Water Production  $157,634   $156,423 
   Transmission and Distribution   525,843    512,202 
   General   78,442    74,371 
   Construction Work in Progress   56,215    32,878 
   TOTAL   818,134    775,874 
   Less Accumulated Depreciation   163,890    157,387 
   UTILITY PLANT - NET   654,244    618,487 
              
CURRENT ASSETS:  Cash and Cash Equivalents   2,990    3,705 
   Accounts Receivable, net   11,756    11,762 
   Unbilled Revenues   8,245    7,293 
   Materials and Supplies (at average cost)   5,375    5,411 
   Prepayments   3,917    2,644 
   TOTAL CURRENT ASSETS   32,283    30,815 
              
DEFERRED CHARGES  Operating Lease Right of Use Asset   6,323     
AND OTHER ASSETS:  Preliminary Survey and Investigation Charges   2,116    5,254 
   Regulatory Assets   99,130    99,236 
   Restricted Cash   1,170    1,956 
   Non-utility Assets - Net   10,322    9,989 
   Other   1,983    2,093 
   TOTAL DEFERRED CHARGES AND OTHER ASSETS   121,044    118,528 
   TOTAL ASSETS  $807,571   $767,830 
              
CAPITALIZATION AND LIABILITIES          
CAPITALIZATION:  Common Stock, No Par Value  $165,138   $157,354 
   Retained Earnings   98,146    91,433 
   TOTAL COMMON EQUITY   263,284    248,787 
   Preferred Stock   2,433    2,433 
   Long-term Debt   163,574    152,851 
   TOTAL CAPITALIZATION   429,291    404,071 
              
CURRENT  Current Portion of Long-term Debt   7,353    7,343 
LIABILITIES:  Notes Payable   59,400    48,500 
   Accounts Payable   18,056    19,325 
   Accrued Taxes   12,390    14,230 
   Accrued Interest   1,279    1,289 
   Unearned Revenues and Advanced Service Fees   1,047    1,036 
   Other   3,007    2,640 
   TOTAL CURRENT LIABILITIES   102,532    94,363 
              
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)         
              
DEFERRED CREDITS  Customer Advances for Construction   23,389    22,572 
AND OTHER LIABILITIES:  Operating Lease Obligation   6,084     
   Accumulated Deferred Income Taxes   48,617    47,270 
   Employee Benefit Plans   29,310    30,661 
   Regulatory Liabilities   73,957    79,112 
   Other   2,612    2,730 
   TOTAL DEFERRED CREDITS AND OTHER LIABILITIES   183,969    182,345 
              
CONTRIBUTIONS IN AID OF CONSTRUCTION   91,779    87,051 
   TOTAL CAPITALIZATION AND LIABILITIES  $807,571   $767,830 

 

See Notes to Condensed Consolidated Financial Statements.

2 

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Six Months Ended June 30,
   2019  2018
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Income  $14,696   $13,169 
Adjustments to Reconcile Net Income to          
Net Cash Provided by Operating Activities:          
Depreciation and Amortization   8,455    7,793 
Provision for Deferred Income Taxes and Investment Tax Credits   (5,075)   (2,760)
Equity Portion of Allowance for Funds Used During Construction (AFUDC)   (775)   (256)
Cash Surrender Value of Life Insurance   (200)   (60)
Stock Compensation Expense   703    535 
Changes in Assets and Liabilities:          
Accounts Receivable   6    (226)
Unbilled Revenues   (952)   (1,745)
Materials & Supplies   36    (708)
Prepayments   (1,273)   (1,397)
Accounts Payable   (1,269)   2,484 
Accrued Taxes   (1,840)   3,282 
Accrued Interest   (10)   166 
Employee Benefit Plans   (2,804)   (2,478)
Unearned Revenue & Advanced Service Fees   11    23 
Other Assets and Liabilities   1,911    1,401 
           
NET CASH PROVIDED BY OPERATING ACTIVITIES   11,620    19,223 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Utility Plant Expenditures, Including AFUDC of $383 in 2019, $125 in 2018   (35,698)   (28,377)
           
NET CASH USED IN INVESTING ACTIVITIES   (35,698)   (28,377)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Redemption of Long-term Debt   (2,356)   (2,144)
Proceeds from Issuance of Long-term Debt   13,217    5,567 
Net Short-term Bank Borrowings   10,900    11,000 
Deferred Debt Issuance Expense   (1)   (75)
Common Stock Issuance Expense   (5)    
Proceeds from Issuance of Common Stock   7,081    596 
Payment of Common Dividends   (7,906)   (7,325)
Payment of Preferred Dividends   (72)   (72)
Construction Advances and Contributions-Net   1,719    1,040 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   22,577    8,587 
NET CHANGES IN CASH AND CASH EQUIVALENTS   (1,501)   (567)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD   5,661    6,397 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD  $4,160   $5,830 
           
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:          
Utility Plant received as Construction Advances and Contributions  $3,825   $2,064 
Long term Debt Deobligation  $130   $ 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:          
   Cash Paid During the Year for:          
Interest  $3,401   $2,711 
Interest Capitalized  $383   $125 
Income Taxes  $5,842   $1,989 

 

See Notes to Condensed Consolidated Financial Statements.  

3 

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT

(Unaudited)

(In thousands)

   June 30,  December 31,
   2019  2018
Common Stock, No Par Value          
Shares Authorized -    40,000          
Shares Outstanding -  2019 - 16,554; 2018 - 16,403  $165,138   $157,354 
           
Retained Earnings   98,146    91,433 
TOTAL COMMON EQUITY  $263,284   $248,787 
           
Cumulative Preferred Stock, No Par Value:          
Shares Authorized - 126          
Shares Outstanding - 23          
   Convertible:          
Shares Outstanding, $7.00 Series - 10   1,005    1,005 
Shares Outstanding, $8.00 Series - 3   349    349 
   Nonredeemable:          
Shares Outstanding, $7.00 Series -   1   79    79 
Shares Outstanding, $4.75 Series - 10   1,000    1,000 
TOTAL PREFERRED STOCK  $2,433   $2,433 
           
Long-term Debt:          
   8.05%, Amortizing Secured Note, due December 20, 2021  $786   $924 
   6.25%, Amortizing Secured Note, due May 19, 2028   3,745    3,955 
   6.44%, Amortizing Secured Note, due August 25, 2030   3,127    3,267 
   6.46%, Amortizing Secured Note, due September 19, 2031   3,407    3,547 
   4.22%, State Revolving Trust Note, due December 31, 2022   202    228 
   3.60%, State Revolving Trust Note, due May 1, 2025   1,519    1,632 
   3.30% State Revolving Trust Note, due March 1, 2026   330    351 
   3.49%, State Revolving Trust Note, due January 25, 2027   369    389 
   4.03%, State Revolving Trust Note, due December 1, 2026   474    501 
   4.00% to 5.00%, State Revolving Trust Bond, due August 1, 2021   111    111 
   0.00%, State Revolving Fund Bond, due August 1, 2021   85    88 
   3.64%, State Revolving Trust Note, due July 1, 2028   225    235 
   3.64%, State Revolving Trust Note, due January 1, 2028   73    77 
   3.45%, State Revolving Trust Note, due August 1, 2031   880    907 
   6.59%, Amortizing Secured Note, due April 20, 2029   3,430    3,604 
   7.05%, Amortizing Secured Note, due January 20, 2030   2,646    2,771 
   5.69%, Amortizing Secured Note, due January 20, 2030   5,427    5,684 
   4.45%, Amortizing Secured Note, due April 20, 2040   9,167    9,387 
   4.47%, Amortizing Secured Note, due April 20, 2040   3,401    3,483 
   3.75%, State Revolving Trust Note, due July 1, 2031   1,892    1,954 
   2.00%, State Revolving Trust Note, due February 1, 2036   1,039    1,064 
   3.75%, State Revolving Trust Note, due November 30, 2030   990    1,024 
   0.00% Construction Loans   29,726    16,509 
   First Mortgage Bonds:          
 0.00%, Series Z, due August 1, 2019   113    113 
 5.25% to 5.75%, Series AA, due August 1, 2019   155    155 
 0.00%, Series BB, due August 1, 2021   354    362 
 4.00% to 5.00%, Series CC, due August 1, 2021   489    489 
 0.00%, Series EE, due August 1, 2023   1,818    1,876 
 3.00% to 5.50%, Series FF, due August 1, 2024   2,980    2,980 
 0.00%, Series GG, due August 1, 2026   710    723 
 4.00% to 5.00%, Series HH, due August 1, 2026   795    795 
 0.00%, Series II, due August 1, 2024   506    520 
 3.40% to 5.00%, Series JJ, due August 1, 2027   671    671 
 0.00%, Series KK, due August 1, 2028   880    898 
 5.00% to 5.50%, Series LL, due August 1, 2028   1,010    1,010 
 0.00%, Series MM, due August 1, 2030   1,103    1,137 
 3.00% to 4.375%, Series NN, due August 1, 2030   1,285    1,415 
 0.00%, Series OO, due August 1, 2031   1,906    1,956 
 2.00% to 5.00%, Series PP, due August 1, 2031   700    700 
 5.00%, Series QQ, due October 1, 2023   9,915    9,915 
 3.80%, Series RR, due October 1, 2038   22,500    22,500 
 4.25%, Series SS, due October 1, 2047   23,000    23,000 
 0.00%, Series TT, due August 1, 2032   2,057    2,107 
 3.00% to 3.25%, Series UU, due August 1, 2032   800    800 
 0.00%, Series VV, due August 1, 2033   2,099    2,147 
 3.00% to 5.00%, Series WW, due August 1, 2033   795    795 
 0.00%, Series XX, due August 1, 2047   10,880    11,006 
 3.00% to 5.00%, Series YY, due August 1, 2047   3,860    3,860 
 0.00%, Series 2018A, due August 1, 2047   6,837    6,917 
 3.00%-5.00%, Series 2018B, due August 1, 2047   2,365    2,365 
SUBTOTAL LONG-TERM DEBT   173,634    162,904 
Add: Premium on Issuance of Long-term Debt   1,150    1,259 
Less: Unamortized Debt Expense   (3,857)   (3,969)
Less: Current Portion of Long-term Debt   (7,353)   (7,343)
TOTAL LONG-TERM DEBT  $163,574   $152,851 

 

See Notes to Condensed Consolidated Financial Statements.

4 

MIDDLESEX WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

 

   Common  Common      
   Stock  Stock  Retained   
   Shares  Amount  Earnings  Total
             
For the Three Months Ended June 30, 2018                    
Balance at April 1, 2018   16,358   $155,580   $74,855   $230,435 
Net Income           8,675    8,675 
Dividend Reinvestment & Common Stock Purchase Plan   7    310        310 
Restricted Stock Award, Net - Employees   23    214        214 
Stock Award - Board Of Directors   4    147        147 
Shares Forefeited                 
Cash Dividends on Common Stock           (3,666)   (3,666)
Cash Dividends on Preferred Stock           (36)   (36)
Balance at June 30, 2018   16,392   $156,251   $79,828   $236,079 
                     
For the Six Months Ended June 30, 2018                    
Balance at January 1, 2018   16,352   $155,120   $74,056   $229,176 
Net Income           13,169    13,169 
Dividend Reinvestment & Common Stock Purchase Plan   15    596        596 
Restricted Stock Award, Net - Employees   23    388        388 
Stock Award - Board Of Directors   4    147        147 
Shares Forefeited   (2)            
Cash Dividends on Common Stock           (7,325)   (7,325)
Cash Dividends on Preferred Stock           (72)   (72)
Balance at June 30, 2018   16,392   $156,251   $79,828   $236,079 
                     
For the Three Months Ended June 30, 2019                    
Balance at April 1, 2019   16,451   $160,142   $94,000   $254,142 
Net Income           8,146    8,146 
Dividend Reinvestment & Common Stock Purchase Plan   82    4,522        4,522 
Restricted Stock Award, Net - Employees   17    278        278 
Stock Award - Board Of Directors   4    196        196 
Cash Dividends on Common Stock           (3,964)   (3,964)
Cash Dividends on Preferred Stock           (36)   (36)
Balance at June 30, 2019   16,554   $165,138   $98,146   $263,284 
                     
For the Six Months Ended June 30, 2019                    
Balance at January 1, 2019   16,403   $157,354   $91,433   $248,787 
Net Income           14,696    14,696 
Dividend Reinvestment & Common Stock Purchase Plan   130    7,081        7,081 
Restricted Stock Award, Net - Employees   17    507        507 
Stock Award - Board Of Directors   4    196        196 
Cash Dividends on Common Stock           (7,906)   (7,906)
Cash Dividends on Preferred Stock           (72)   (72)
Common Stock Expenses           (5)   (5)
Balance at June 30, 2019   16,554   $165,138   $98,146   $263,284 

 

See Notes to Condensed Consolidated Financial Statements.

5 

MIDDLESEX WATER COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Basis of Presentation and Recent Developments

 

Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Tidewater Environmental Services, Inc. (TESI), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates  (Perth Amboy) Inc. (USA-PA), and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. The financial statements for Middlesex and its wholly-owned subsidiaries (the Company) are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.

 

The consolidated notes within the 2018 Annual Report on Form 10-K (2018 Form 10-K) are applicable to these financial statements and, in the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (including normal recurring accruals) to present fairly the financial position as of June 30, 2019 and the results of operations and cash flows for the three month and six month periods ended June 30, 2019 and 2018. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2018, has been derived from the Company’s audited financial statements for the year ended December 31, 2018 included in the 2018 Form 10-K.

 

Recently Adopted Accounting Guidance

 

Leases - On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) issued guidance related to leases which required lessees to recognize a lease liability and a right-of-use asset. The Company elected the optional transition method of adoption option to apply the requirements of the standard in the period of adoption with no restatement of prior periods. The Company utilized the package of transition practical expedients provided by the new guidance, including carrying forward prior conclusions related to contracts that contain leases and lease classification. The Company also utilized the transition practical expedient permitting entities to forgo the evaluation of existing land easement arrangements to determine if they contain a lease. Land easement arrangements, or modifications to existing arrangements, entered into after adoption of this guidance will need to be evaluated to determine if they meet the definition of a lease. The adoption of this guidance resulted in the recording of a $6.7 million right-of-use asset, a $7.1 million lease liability and a $0.4 million regulatory asset on the Company’s consolidated balance sheet as of January 1, 2019. For further discussion, see “Leases” in Note 7 – Commitments and Contingent Liabilities.

 

There are no other new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s financial statements.

 

Note 2 Rate and Regulatory Matters

 

Middlesex – In December 2018, the New Jersey Board of Public Utilities (NJBPU) approved Middlesex’s petition to establish its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional annual costs of less than $0.1 million, primarily for the purchase of treated water from a non-affiliated water utility regulated by the NJBPU. A PWAC is a rate mechanism that allows for recovery of increased purchased water costs between base rate case filings. The PWAC is reset to zero once those increased costs are included in base rates. The PWAC tariff rate became effective on January 1, 2019.

 

Tidewater - Effective July 1, 2019, Tidewater reset its Delaware Public Service Commission (DEPSC) approved Distribution System Improvement Charge rate, which is expected to generate revenues of approximately $0.5 million annually.

 

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In February 2019, Tidewater received approval from the DEPSC to reduce its rates, effective March 1, 2019, to reflect the lower corporate income tax rate enacted by the Tax Cuts and Jobs Act of 2017 (Tax Act), resulting in an overall rate decrease of 3.35%, or $1.0 million of revenues, on an annual basis. The DEPSC also approved a one-time credit of $0.7 million to customers’ accounts related to the lower corporate income tax rate.

 

Pinelands - In March 2019, Pinelands Water and Pinelands Wastewater filed separate petitions with the NJBPU seeking permission to increase base rates by approximately $0.2 million and $0.5 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in either matter is not expected before the fourth quarter of 2019.

 

Twin Lakes - In July 2019, Twin Lakes filed a petition with the Pennsylvania Public Utilities Commission (PAPUC) seeking permission to increase base rates by approximately $0.2 million per year. This request was necessitated by capital infrastructure investments Twin Lakes has made, or has committed to make, and increased operations and maintenance costs. We cannot predict whether the PAPUC will ultimately approve, deny, or reduce the amount of the request. A decision by the PAPUC is not expected before the first quarter of 2020.

 

Note 3 – Capitalization

 

Common Stock - During the six months ended June 30, 2019 and 2018, there were 129,675 common shares ($7.1 million) and 15,026 common shares (approximately $0.6 million), respectively, issued under the Middlesex Water Company Investment Plan (Investment Plan). On January 2, 2019, the Company began offering shares of its common stock for purchase at a 5% discount to participants in the Investment Plan. The discount offering will continue until 200,000 shares are purchased at the discounted price or December 30, 2019, whichever event occurs first.  The discount applies to all common stock purchases made under the Investment Plan, whether by optional cash payment or by dividend reinvestment.

 

In May 2019, Middlesex received approval from the NJBPU to issue and sell up to 1,500,000 shares of its common stock in one or more transactions through December 31, 2022. Sales of additional shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure investment program. As described below in “Long-term Debt”, the NJBPU approved the New Jersey Economic Development Authority (NJEDA) debt funding component of the financing plan.

 

Long-term Debt - Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant and other assets. To the extent possible, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates that are typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The current interest rate on construction loan borrowings is zero percent (0%). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (0%) and a portion of the principal balance at a market interest rate at the time of closing using the credit rating of the State of New Jersey. The current term of the long-term loans offered through the NJIB is up to thirty years. The current portion of the principal balance having a stated interest rate of zero percent (0%) is 75% with the remaining portion of 25% having a market based interest rate.

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The NJIB generally schedules its long-term debt financings in May and November. Middlesex currently has two projects that are in the construction loan phase of New Jersey SRF program:

 

1)In April 2018, the NJBPU approved Middlesex’s request to participate in the NJIB loan program to fund the construction of a large-diameter transmission pipeline from the CJO water treatment plant and interconnect with our distribution system. Middlesex closed on a $43.5 million NJIB interest-free construction loan in August 2018. Through June 30, 2019, Middlesex has drawn a total of $22.5 million and expects to draw down the remaining proceeds through the first quarter of 2020.

 

2)In March 2018, the NJBPU approved Middlesex’s request to borrow up to $14.0 million under the NJIB program to fund the 2018 RENEW Program, which is an ongoing initiative to eliminate all unlined water distribution mains in the Middlesex system. Middlesex closed on an $8.7 million NJIB construction loan in September 2018. Through June 30, 2019, Middlesex has drawn a total of $7.2 million and expects to draw the remaining proceeds during the remainder of 2019. The NJIB has informed the Company that the RENEW 2018 interest-free construction loan is scheduled for the May 2020 long-term debt financing program.

 

In May 2018, Middlesex repaid its $9.5 million RENEW 2017 interest-free construction loan by issuing to the NJIB first mortgage bonds designated as Series 2018A ($7.1 million) and Series 2018B ($2.4 million). The interest rate on the Series 2018A bond is zero and the interest rate on the Series 2018B bond ranges between 3.0% and 5.0%. Through June 30, 2019, Middlesex has drawn a total of $8.9 million and expects to finish drawing on this loan during the third quarter of 2019. The final maturity date for both bonds is August 1, 2047, with scheduled debt service payments over the life of the loans.

 

In order to help ensure adherence to its comprehensive financing plan, Middlesex received approval from the NJBPU in February 2019 to issue and sell up to $140 million of First Mortgage Bonds (FMB) through the NJEDA in one or more transactions through December 31, 2022. Because the interest paid to the bondholders is exempt from federal and New Jersey income taxes, the interest rate on FMB issued through the NJEDA is generally lower than otherwise achievable in the traditional taxable corporate bond market. However, the interest is subject to the Alternative Minimum Tax. Middlesex has selected an underwriter to market and sell up to $60 million of FMB in August 2019.

 

In March 2018, the DEPSC approved Tidewater’s request to borrow up to $0.9 million under the Delaware SRF program to fund the replacement of an entire water distribution system of a small Delaware subdivision. Tidewater closed on this SRF loan in May 2018. In April 2019, Tidewater received approval from the DEPSC to increase the borrowing to $1.7 million based on revised project cost estimates. Tidewater expects to close on this additional SRF loan in August 2019 and expects to draw down on the loan beginning in the fourth quarter of 2019 through the second quarter of 2020.

 

In 2019, the NJIB de-obligated principal payments of $0.1 million on Series NN of the Company’s First Mortgage Bonds.

 

Fair Value of Financial Instruments - The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments for which it is practicable to estimate that value. The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMB and State Revolving Fund Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes

8 

 

payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:

 

 

  June 30, 2019 December 31, 2018
  Carrying Fair Carrying Fair
  Amount Value Amount Value
Bonds $100,780 $103,550 $101,411 $102,789

 

For other long-term debt for which there was no quoted market price and there is not an active trading market, it was not practicable to estimate their fair value (for details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series noted as “Amortizing Secured Note”, “State Revolving Trust Note” and “Construction Loans” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $72.9 million and $61.5 million at June 30, 2019 and December 31, 2018, respectively. Customer advances for construction have carrying amounts of $23.4 million and $22.6 million at June 30, 2019 and December 31, 2018, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases.

 

Note 4 – Earnings Per Share

 

Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding during the period presented. Diluted EPS assumes the conversion of both the Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock $8.00 Series.

 

   (In Thousands Except per Share Amounts)
   Three Months Ended June 30,
   2019  2018
Basic:    Income  Shares  Income  Shares
Net Income  $8,146    16,519   $8,675    16,388 
Preferred Dividend   (36)        (36)     
Earnings Applicable to Common Stock  $8,110    16,519   $8,639    16,388 
                     
Basic EPS  $0.49        $0.53      
                     
Diluted:                    
Earnings Applicable to Common Stock  $8,110    16,519   $8,639    16,388 
$7.00 Series Preferred Dividend   17    115    17    115 
$8.00 Series Preferred Dividend   6    41    6    41 
Adjusted Earnings Applicable to  Common Stock  $8,133    16,675   $8,662    16,544 
                     
Diluted EPS  $0.49        $0.52      

9 

   (In Thousands Except per Share Amounts)
   Six Months Ended June 30,
   2019  2018
Basic:    Income  Shares  Income  Shares
Net Income  $14,696    16,474   $13,169    16,371 
Preferred Dividend   (72)        (72)     
Earnings Applicable to Common Stock  $14,624    16,474   $13,097    16,371 
                     
Basic EPS  $0.89        $0.80      
                     
Diluted:                    
Earnings Applicable to Common Stock  $14,624    16,474   $13,097    16,371 
$7.00 Series Preferred Dividend   34    115    34    115 
$8.00 Series Preferred Dividend   12    41    12    41 
Adjusted Earnings Applicable to  Common Stock  $14,670    16,630   $13,143    16,527 
                     
Diluted EPS  $0.88        $0.80      

 

Note 5 – 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, Delaware and Pennsylvania. This segment also includes regulated wastewater systems in New Jersey and Delaware. The Company is subject to regulations as to its rates, services and other matters by New Jersey, Delaware and Pennsylvania with respect to utility services within these states. The other segment is primarily comprised of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Inter-segment transactions relating to operational costs are treated as pass-through expenses. Finance charges on inter-segment loan activities are based on interest rates that are below what would normally be charged by a third party lender.

 

10 

   (In Thousands)
   Three Months Ended  Six Months Ended
   June 30,  June 30,
Operations by Segments:  2019  2018  2019  2018
Revenues:            
   Regulated  $30,444   $31,168   $58,342   $58,374 
   Non – Regulated   3,087    3,882    6,012    7,982 
Inter-segment Elimination   (138)   (131)   (264)   (260)
Consolidated Revenues  $33,393   $34,919   $64,090   $66,096 
                     
Operating Income:                    
   Regulated  $7,903   $9,988   $13,936   $15,613 
   Non – Regulated   1,047    733    2,041    1,458 
Consolidated Operating Income  $8,950   $10,721   $15,977   $17,071 
                     
Net Income:                    
   Regulated  $7,423   $8,151   $13,290   $12,134 
   Non – Regulated   723    524    1,406    1,035 
Consolidated Net Income  $8,146   $8,675   $14,696   $13,169 
                     
Capital Expenditures:                    
  Regulated  $23,268   $18,350   $35,561   $28,328 
   Non – Regulated   106    16    137    49 
Total Capital Expenditures  $23,374   $18,366   $35,698   $28,377 
                     

 

   As of  As of
    June 30,  December 31,
    2019  2018
Assets:          
   Regulated  $807,021   $764,749 
   Non – Regulated   9,093    8,994 
Inter-segment Elimination   (8,543)   (5,913)
Consolidated Assets  $807,571   $767,830 

 

Note 6 – Short-term Borrowings

 

As of June 30, 2019, the Company retains lines of credit aggregating $100.0 million. At June 30, 2019, the outstanding borrowings under these credit lines were $59.4 million at a weighted average interest rate of 3.41%.

 

The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted average interest rates on those amounts were as follows:

 

   (In Thousands)
   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2019  2018  2019  2018
Average Daily Amounts Outstanding  $50,992   $31,555   $50,485   $29,721 
Weighted Average Interest Rates   3.52%    3.10%    3.57%    2.94% 

 

The maturity dates for the $59.4 million outstanding as of June 30, 2019 are in July 2019 through September 2019 and are extendable at the discretion of the Company.

11 

Interest rates for short-term borrowings under the lines of credit are below the prime rate with no requirement for compensating balances.

 

Note 7 – Commitments and Contingent Liabilities

 

Water Supply - Middlesex has an agreement with the New Jersey Water Supply Authority (NJWSA) for the purchase of untreated water through November 30, 2023, which provides for an average purchase of 27.0 million gallons a day (mgd). Pricing is set annually by the NJWSA through a public rate making process. The agreement has provisions for additional pricing in the event Middlesex overdrafts or exceeds certain monthly and annual thresholds.

 

Middlesex also has an agreement with a non-affiliated regulated water utility for the purchase of treated water. This agreement, which expires February 27, 2021, provides for the minimum purchase of 3.0 mgd of treated water with provisions for additional purchases.

 

Tidewater contracts with the City of Dover, Delaware to purchase 15.0 million gallons of treated water annually.

 

Purchased water costs are shown below:

 

   (In Thousands)
   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2019  2018  2019  2018
             
Treated  $827   $703   $1,597   $1,591 
Untreated   782    850    1,643    1,780 
Total Costs  $1,609   $1,553   $3,240   $3,371 

 

Guarantees - As part of an agreement with the County of Monmouth, New Jersey (County), Middlesex serves as guarantor of the performance of Applied Water Management, Inc. (AWM), an unaffiliated wastewater contractor, to operate a County-owned leachate pretreatment facility at the Monmouth County Reclamation Center in Tinton Falls, New Jersey. The performance guaranty is effective through 2028 unless another guarantor, acceptable to the County, replaces Middlesex before such date. Under agreements with AWM and Natural Systems Utilities, LLC (NSU), the parent company of AWM, Middlesex earns a fee for providing the performance guaranty. In addition, Middlesex may provide operational support to the facility, as needed, and AWM and NSU, serving as guarantor to Middlesex with respect to the performance of AWM, have indemnified Middlesex against any claims that may arise under the Middlesex guaranty to the County.

 

If requested to perform under the guaranty to the County and, if AWM and NSU, as guarantor to Middlesex, do not fulfill their obligations to indemnify Middlesex against any claims that may arise under the Middlesex guaranty to the County, Middlesex would be required to fulfill the remaining operational commitment of AWM. As of both June 30, 2019 and December 31, 2018, the liability recognized in Other Non-Current Liabilities on the balance sheet for the guaranty is approximately $1.5 million.

 

Leases - The Company determines if an arrangement is a lease at inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.

 

The Company has entered into an operating lease of office space for administrative purposes, expiring in 2030. The Company has not entered into any finance leases. The exercise of a lease renewal option for the Company’s administrative offices is solely at the discretion of the Company.

12 

The right-of-use (ROU) asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit discount rate and as such the Company used an estimated incremental borrowing rate (4.03%) based on the information available at commencement date in determining the present value of lease payments.

 

Given the impacts of accounting for regulated operations, and the resulting recognition of expense at the amounts recovered in customer rates, expenditures for operating leases are consistent with lease expense and were $0.1 million and less than $0.1 million for the three months ended June 30, 2019 and 2018, respectively and $0.3 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively.

 

Information related to operating lease ROU assets and lease liabilities is as follows:

 

   (In Millions)
   June 30, 2019
ROU Asset at Lease Inception  $7.3 
Accumulated Amortization   (1.0)
Current ROU Asset  $6.3 

 

The Company’s future minimum operating lease commitments as of June30, 2019 are as follows:

 

   (In Millions)
   June 30, 2019
2019  $0.3 
2020   0.8 
2021   0.8 
2022   0.8 
2023   0.8 
Thereafter   5.3 
Total Lease Payments  $8.8 
Imputed Interest   (2.0)
Present Value of Lease Payments   6.8 
Less Current Portion*   (0.7)
Non-Current Lease Liability  $6.1 

 

*Included in Other Current Liabilities
     

 

Construction - The Company has forecasted to spend approximately $116 million for its construction program in 2019. The Company has entered into several contractual construction agreements that, in the aggregate, obligate it to expend an estimated $77 million in the future. The timing and amount of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain projects.

 

Litigation - The Company is a defendant in lawsuits in the normal course of business. We believe the resolution of pending claims and legal proceedings will not have a material adverse effect on the Company’s consolidated financial statements.

 

Change in Control Agreements - The Company has Change in Control Agreements with certain of its officers that provide compensation and benefits in the event of termination of employment in connection with a change in control of the Company.

13 

Note 8 – Employee Benefit Plans

 

Pension Benefits - The Company’s Pension Plan covers all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this plan, but do participate in a defined contribution plan that provides for a potential annual contribution in an amount that is at the discretion of the Company. In order to be eligible for a contribution, the participant must be employed by the Company on December 31st of the year to which the contribution relates. For the three months ended June 30, 2019 and 2018, the Company made Pension Plan cash contributions of $0.5 million and $0.8 million, respectively. For the six months ended June 30, 2019 and 2018, the Company made Pension Plan cash contributions of $1.0 million and $1.3 million, respectively. The Company expects to make Pension Plan cash contributions of approximately $2.6 million over the remainder of the current year. The Company also maintains an unfunded supplemental retirement benefit plan for certain active and retired Company officers and currently pays $0.4 million in annual benefits to the retired participants.

 

Other Postretirement Benefits - The Company’s retirement plan other than pensions (Other Benefits Plan) covers substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. For each of the three months ended June 30, 2019 and 2018, the Company made Other Benefits Plan cash contributions of $0.2 million, respectively. For each of the six months ended June 30, 2019 and 2018, the Company made Other Benefits Plan cash contributions of $0.4 million, respectively. The Company expects to make Other Benefits Plan cash contributions of approximately $1.0 million over the remainder of the current year.

 

The following tables set forth information relating to the Company’s periodic costs for its employee retirement benefit plans:

 

   (In Thousands)
   Pension Benefits  Other Benefits
   Three Months Ended June 30,
   2019  2018  2019  2018
             
Service Cost  $543   $607   $210   $284 
Interest Cost   857    765    496    474 
Expected Return on Assets   (1,173)   (1,218)   (613)   (637)
Amortization of Unrecognized Losses   404    415    330    447 
Amortization of Unrecognized Prior Service Cost (Credit)               (402)
Net Periodic Benefit Cost*  $631   $569   $423   $166 

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   (In Thousands)
   Pension Benefits  Other Benefits
   Six Months Ended June 30,
   2019  2018  2019  2018
             
Service Cost  $1,085   $1,213   $420   $567 
Interest Cost   1,713    1,530    992    949 
Expected Return on Assets   (2,347)   (2,435)   (1,226)   (1,275)
Amortization of Unrecognized Losses   809    829    660    894 
Amortization of Unrecognized Prior Service Cost (Credit)               (803)
Net Periodic Benefit Cost*  $1,260   $1,137   $846   $332 
                     
*Service cost is included in Operations and Maintenance expense on Consolidated Statements of Income; all other amounts are included in Other Income/Expense, net.

 

Note 9 – Revenue Recognition from Contracts with Customers

 

The Company’s revenues are primarily generated from regulated tariff-based sales of water and wastewater services and non-regulated operation and maintenance contracts for services on water and wastewater systems owned by others. Revenue from contracts with customers is recognized when control of a promised good or service is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

 

The Company’s regulated revenue from contracts with customers is derived from tariff-based sales that result from the obligation to provide water and wastewater services to residential, industrial, commercial, fire-protection and wholesale customers. The Company’s residential customers are billed quarterly while most of the Company’s industrial, commercial, fire-protection and wholesale customers are billed monthly. Payments by customers are due between 15 and 30 days after the invoice date. The Company recognizes revenue as the water and wastewater services are delivered to customers and records unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing factors such as historical customer data, regional weather indicators and general economic conditions in its service territories. Unearned Revenues and Advance Service Fees include fixed service charge billings in advance of service provided to Tidewater customers and are recognized as service is provided.

 

Non-regulated service contract revenues consist of base service fees, as well as fees for additional billable services provided to customers, are billed monthly and are due within 30 days after the invoice date. The Company considers the amounts billed to represent the value of these services provided to customers. Certain of these contracts continue through 2022 and thus contain remaining performance obligations for which the Company expects to recognize revenue in the future. These contracts also contain termination provisions.

 

Substantially all operating revenues and accounts receivable are from contracts with customers. The Company records an allowance for doubtful accounts based on historical write-offs combined with an evaluation of current economic conditions within its service territories.

 

The Company’s contracts do not contain any significant financing components.

 

15 

 

The Company’s operating revenues are comprised of the following:

 

   (In Thousands)
   Three Months Ended June 30,  Six Months Ended June 30,
   2019  2018  2019  2018
Regulated Tariff Sales                    
Residential  $17,780   $17,892   $33,760   $33,515 
Commercial   3,744    3,771    7,053    6,880 
Industrial   2,321    2,689    4,519    5,001 
Fire Protection   3,098    3,073    6,111    5,961 
Wholesale   3,429    3,680    6,768    6,892 
Non-Regulated Contract Operations   2,986    3,781    5,810    7,780 
Total Revenue from Contracts with Customers  $33,358   $34,886   $64,021   $66,029 
Other Regulated Revenues   73    63    131    125 
Other Non-Regulated Revenues   100    101    202    202 
Inter-segment Elimination   (138)   (131)   (264)   (260)
Total Revenue  $33,393   $34,919   $64,090   $66,096 

 

Note 10 – Income Taxes

 

As part of its 2014 Federal income tax return, the Company adopted the final Internal Revenue Service (IRS) tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. The adoption resulted in a net reduction of $17.6 million in taxes previously remitted to the IRS, for which the Company has already sought and received the tax refunds. A reserve provision against refunded taxes of $2.3 million was recorded in 2015 at the time of filing its change in accounting method based on a possible challenge by the IRS during an audit examination. The Company’s 2014 federal income tax return was subsequently selected for examination by the IRS. In 2018, the Company increased its income tax reserve provision to $4.1 million. During the first quarter of 2019, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs and the IRS concluded its audit of the Company’s 2014 federal income tax return. The modifications also impacted the Company’s filed 2015, 2016 and 2017 federal income tax returns. In 2019, the Company paid $0.8 million in income taxes and $0.1 million in interest in connection with the conclusion and closing of the 2014 and 2015 tax return audits and reduced its income tax reserve provision and interest expense liability to $3.1 million and $0.2 million, respectively. The IRS is currently examining the 2016 and 2017 tax returns to determine the impact of the modifications on those filings and pending completion of those examinations, the final tax liability could be different than the recorded reserve provision.

 

16 

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Middlesex Water Company (Middlesex or the Company) included elsewhere herein and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Forward-Looking Statements

Certain statements contained in this periodic report and in the documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The Company intends that these statements be covered by the safe harbors created under those laws.  They include, but are not limited to statements as to:

 

-expected financial condition, performance, prospects and earnings of the Company;
-strategic plans for growth;
-the amount and timing of rate increases and other regulatory matters, including the recovery of certain costs recorded as regulatory assets;
-the Company’s expected liquidity needs during the upcoming fiscal year and beyond and the sources and availability of funds to meet its liquidity needs;
-expected customer rates, consumption volumes, service fees, revenues, margins, expenses and operating results;
-financial projections;
-the expected amount of cash contributions to fund the Company’s retirement benefit plans, anticipated discount rates and rates of return on retirement benefit plan assets;
-the ability of the Company to pay dividends;
-the Company’s compliance with environmental laws and regulations and estimations of the materiality of any related costs;
-the safety and reliability of the Company’s equipment, facilities and operations;
-trends; and
-the availability and quality of our water supply.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from anticipated results and outcomes include, but are not limited to:

 

-effects of general economic conditions;
-competition for growth in non-franchised markets to be potentially served by the Company;
-ability of the Company to adequately control selected operating expenses which are necessary to maintain safe and proper utility services, and which may be beyond the Company’s control;
-availability of adequate supplies of water;
-ability to maintain compliance with all regulatory requirements with respect to water and wastewater treatment, distribution and collection;
-actions taken by government regulators, including decisions on rate increase requests;
-ability to meet new or modified water and wastewater quality standards;
-weather variations and other natural phenomena impacting utility operations;
-financial and operating risks associated with acquisitions and/or privatizations;
-acts of war or terrorism;
-changes in the pace of residential housing development;
-actions against the company that could be brought by third parties;
-availability and cost of capital resources; and
-other factors discussed elsewhere in this quarterly report.

 

Many of these factors are beyond the Company’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which only speak to the Company’s understanding as of the date of this report. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or, to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

 

17 

For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A. - Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

Overview

 

Middlesex Water Company (Middlesex) has operated as a water utility in New Jersey since 1897, in Delaware through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992 and in Pennsylvania through our wholly-owned subsidiary, Twin Lakes Utilities, Inc. (Twin Lakes), since 2009. We are in the business of collecting, treating and distributing water for domestic, commercial, municipal, industrial and fire protection purposes. We also operate two New Jersey municipal water and wastewater systems under contract and provide regulated wastewater services in New Jersey and Delaware through four of our other subsidiaries. We are regulated as to rates charged to customers for water and wastewater services, as to the quality of water service we provide and as to certain other matters in New Jersey, Delaware and Pennsylvania. Only our Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc. (White Marsh) subsidiaries are not regulated utilities.

 

Our New Jersey water utility system (the Middlesex System) provides water services to approximately 61,000 retail customers, primarily in central New Jersey. The Middlesex System also provides water service under contract to municipalities in central New Jersey with a total population of approximately 219,000. Our Bayview subsidiary provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and wastewater services to approximately 2,500 customers in Southampton Township, New Jersey.

 

Our Delaware subsidiaries, Tidewater and Southern Shores Water Company, LLC (Southern Shores), provide water services to approximately 47,000 retail customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, services approximately 4,000 customers in Delaware and Maryland through various operations and maintenance contracts.

 

Our Tidewater Environmental Services, Inc. (TESI) subsidiary provides wastewater services to approximately 3,600 residential retail customers in Sussex Counties, Delaware.

 

USA-PA operates the water and wastewater systems for the City of Perth Amboy, New Jersey (Perth Amboy) under a 10-year operations and maintenance contract expiring in 2028. In addition to performing day-to day operations, USA-PA is also responsible for emergency responses and management of capital projects funded by Perth Amboy. USA-PA does not manage the billing, collections and customer service functions of Perth Amboy.

 

USA operates the Borough of Avalon, New Jersey’s (Avalon) water utility, sewer utility and storm water system under a ten-year operations and maintenance contract expiring in 2022. In addition to performing day to day operations, USA is responsible for billing, collections, customer service, emergency responses and management of capital projects funded by Avalon.

 

Under a marketing agreement with HomeServe USA (HomeServe), USA offers residential customers in New Jersey and Delaware a menu of water and wastewater related home maintenance programs. HomeServe is a leading national provider of such home maintenance service programs. USA receives a service fee for the billing, cash collection and other administrative matters associated with HomeServe’s service contracts. USA also provides unregulated water and wastewater services under contract with several New Jersey municipalities.

 

18 

Our Pennsylvania subsidiary, Twin Lakes, provides water services to approximately 120 retail customers in the Township of Shohola, Pike County, Pennsylvania.

 

Recent Developments

 

Capital Construction Program - The Company’s multi-year capital construction program encompasses numerous projects designed to upgrade and replace utility infrastructure as well as enhance the integrity and reliability of assets to better serve the current and future generations of water and wastewater customers. The Company plans to invest approximately $116 million in 2019 in connection with this plan for projects that include, but are not limited to;

·Construction of a 4.6 mile water transmission pipeline to provide critical resiliency and redundancy to the Company’s water transmission system in New Jersey;
·Replacement of four miles of water mains including service lines, valves, fire hydrants and meters in Carteret, New Jersey;
·Enhanced treatment process at the Company’s largest water plant in Edison Township, New Jersey, to mitigate the formation of disinfection by-products that can develop during treatment;
·Relocation of water meters from inside customers’ premises to exterior meter pits to allow quicker access by crews in emergencies, enhanced customer safety and convenience and reduced unmetered water; and
·Additional standby emergency power generation.

 

Pinelands Files for Rate Increases - In March 2019, Pinelands Water and Pinelands Wastewater filed separate petitions with the New Jersey Board of Public Utilities (NJBPU) seeking permission to increase base rates by approximately $0.2 million and $0.5 million per year, respectively. These requests were necessitated by capital infrastructure investments both companies have made, or have committed to make, and increased operations and maintenance costs. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the requests. A decision by the NJBPU in either matter is not expected before the fourth quarter of 2019.

 

Middlesex Receives Financing Approval - In May 2019, the NJBPU approved Middlesex’s petition with the NJBPU seeking approval to issue and sell up to 1,500,000 shares of its common stock in one or more transactions through December 31, 2022. Sales of additional shares of common stock are part of the Company’s comprehensive financing plan to fund its multi-year utility plant infrastructure investment plan.

 

Twin Lakes Files for Rate Increase - In July 2019, Twin Lakes filed a petition with the Pennsylvania Public Utilities Commission (PAPUC) seeking permission to increase base rates by approximately $0.2 million per year. This request was necessitated by capital infrastructure investments Twin Lakes has made, or has committed to make, and increased operations and maintenance costs. We cannot predict whether the PAPUC will ultimately approve, deny, or reduce the amount of the request. A decision by the PAPUC is not expected before the first quarter of 2020.

 

Outlook

 

Our ability to increase operating income and net income is based significantly on four factors: weather, adequate and timely rate relief, effective cost management and customer growth (which are evident in comparison discussions in the Results of Operations section below). Revenues in the first quarter of 2019 were favorably impacted by Middlesex’s April 2018 base water rate increase. Weather patterns experienced in 2017 and 2018, which resulted in lower customer demand for water, continue to occur in 2019 and have impacted revenues and net income. Actuarially-determined non-service retirement benefit plan costs are expected to increase in 2019. We continue to implement plans to further streamline operations and further reduce, and mitigate increases in, operating costs. Changes in customer water usage habits, as well as increases in capital expenditures and operating costs, are significant factors in determining the timing and extent of rate increase requests.

 

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Organic residential customer growth through June 2019 has been consistent with that experienced in recent years.

 

Our strategy for profitable growth is focused on the following key areas:

 

·Prudent acquisitions of investor and municipally-owned water and wastewater utilities;
·Timely and adequate recovery of infrastructure investments and other costs to maintain service quality;
·Operation of municipal and industrial water and wastewater systems on a contract basis; and
·Invest in projects, products and services that complement our core water and wastewater competencies.

 

Operating Results by Segment

 

The discussion of the Company’s operating results is on a consolidated basis and includes significant factors by subsidiary. The Company has two operating segments, Regulated and Non-Regulated. The operations of the Regulated segment are subject to regulations promulgated by state public utility commissions as to rates and level of service. Rates and level service in the Non-Regulated segment are subject to the terms of individually-negotiated and executed contracts with municipal, industrial and other clients. Both segments are subject to federal and state environmental, water and wastewater quality and other associated legal and regulatory requirements.

 

The segments in the tables included below consist of the following companies: Regulated-Middlesex, Tidewater, Pinelands, Southern Shores, TESI and Twin Lakes; Non-Regulated-USA, USA-PA, and White Marsh.

 

Results of Operations – Three Months Ended June 30, 2019

 

   (In Thousands) 
   Three Months Ended June 30, 
   2019   2018 
   Regulated   Non-
Regulated
   Total   Regulated   Non-
Regulated
   Total 
Revenues  $30,406   $2,987   $33,393   $31,138   $3,781   $34,919 
Operations and maintenance expenses   14,957    1,824    16,781    13,918    2,907    16,825 
Depreciation expense   4,061    62    4,123    3,690    46    3,736 
Other taxes   3,485    54    3,539    3,542    95    3,637 
  Operating income   7,903    1,047    8,950    9,988    733    10,721 
                               
Other income, net   558    5    563    764    21    785 
Interest expense   1,788        1,788    2,068        2,068 
Income taxes   (750)   329    (421)   533    230    763 
  Net income  $7,423   $723   $8,146   $8,151   $524   $8,675 

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Operating Revenues

 

Operating revenues for the three months ended June 30, 2019 decreased $1.5 million from the same period in 2018. This decrease was related to the following factors:

 

·Middlesex System revenues decreased $0.9 million due to the following:
oUnfavorable weather reduced water demand from our general meter service and wholesale contract customers, resulting in lower revenues of $0.8 million and $0.2 million, respectively; and
oAll other revenue categories increased $0.1 million;
·Tidewater System revenues increased $0.1 million due to additional customers, which was tempered by lower weather related water demand and reduced base tariff rates. The reduction in base rates was approved by the Delaware Public Service Commission (DEPSC) and became effective March 1, 2019, and was prompted by the lower corporate income tax rate enacted under the Tax Cuts and Jobs Act of 2017 (Tax Act). There is a corresponding decrease in income tax expense;
·Non-regulated revenues decreased by $0.8 million primarily due to changes resulting from USA-PA’s new 10 year contract with Perth Amboy. Under the new contract effective January 1, 2019, USA-PA has direct management control for wastewater services, for which USA-PA is compensated. Under the prior contract, USA-PA utilized, and was compensated for, a sub-contractor. This results in a corresponding decrease in operations and maintenance expense; and
·All other revenue categories increased $0.1 million.

 

Operation and Maintenance Expense

 

Operation and maintenance expenses for the three months ended June 30, 2019 remained consistent with the same period in 2018, primarily related to the following factors:

 

·Non-regulated operation and maintenance expenses decreased $1.1 million, primarily due to our new Perth Amboy operating contract, effective January 1, 2019, under which USA-PA no longer incurs sub-contractor fees for wastewater services. This results in a corresponding decrease in operating revenues;
·Labor costs in our regulated subsidiaries increased $0.4 million due to increased headcount and increased average labor rates;
·Rent costs increased $0.1 million due to the January 2019 commencement of our lease of new corporate administrative office space;
·Health insurance costs increased $0.1 million due to increased premiums and headcount;
·Increased costs of $0.1 million for water main break activity in our Middlesex System in the second quarter of 2019 as compared to the second quarter of 2018; and
·All other operation and maintenance expense categories increased $0.4 million.

 

Depreciation

 

Depreciation expense for the three months ended June 30, 2019 increased $0.4 million from the same period in 2018 due to a higher level of utility plant in service.

 

Other Taxes

 

Other taxes for the three months ended June 30, 2019 decreased $0.1 million from the same period in 2018 primarily due to lower revenue related taxes on lower revenues in our Middlesex system.

 

Other Income, net

 

Other Income, net for the three months ended June 30, 2019 decreased $0.2 million from the same period in 2018, primarily due to higher actuarially-determined postretirement benefit plan non-service expense and the sale of wastewater franchise rights by our TESI subsidiary in the second quarter of 2018. This decrease was partially offset by higher Allowance for Funds Used During Construction resulting from a higher level of capital construction projects in progress.

 

21 

Interest Charges

 

Interest charges for the three months ended June 30, 2019 decreased $0.3 million from the same period in 2018 due to lower interest related to Internal Revenue Service (IRS) examinations of the Company’s federal income tax returns. This decrease was partially offset by higher average short-term debt outstanding at increased interest rates in 2019 as compared to 2018.

 

Income Taxes

 

Income taxes for the three months ended June 30, 2019 decreased $1.2 million from the same period in 2018, primarily due to the regulatory accounting treatment of tax benefits associated with the adoption of tangible property regulations prescribed by the IRS, which was approved in Middlesex’s 2018 base rate case decision, and lower-pre-tax income. In addition, Tidewater’s effective income tax rate was decreased in March 2019, reflecting the rate reduction approved by the DEPSC to reflect the lower corporate income tax rate resulting from implementation of the Tax Act. This has resulted in a corresponding decrease in operating revenues.

 

Net Income and Earnings Per Share

 

Net income for the three months ended June 30, 2019 decreased $0.5 million as compared with the same period in 2018. Basic earnings per share were $0.49 and $0.53 for the three months ended June 30, 2019 and 2018, respectively. Diluted earnings per share were $0.49 and $0.52 for the three months ended June 30, 2019 and 2018, respectively.

 

Results of Operations – Six Months Ended June 30, 2019

 

   (In Thousands) 
   Six Months Ended June 30, 
   2019   2018 
    Regulated   Non-
Regulated
   Total    Regulated   Non-
Regulated
   Total 
Revenues  $58,280   $5,810   $64,090   $58,316   $7,780   $66,096 
Operations and maintenance expenses   29,374    3,527    32,901    28,626    6,033    34,659 
Depreciation expense   8,047    123    8,170    7,254    91    7,345 
Other taxes   6,923    119    7,042    6,823    198    7,021 
  Operating income   13,936    2,041    15,977    15,613    1,458    17,071 
                               
Other income, net   1,010    10    1,020    1,213    36    1,249 
Interest expense   2,988        2,988    3,206        3,206 
Income taxes   (1,332)   645    (687)   1,486    459    1,945 
  Net income  $13,290   $1,406   $14,696   $12,134   $1,035   $13,169 

 

Operating Revenues

 

Operating revenues for the six months ended June 30, 2019 decreased $2.0 million from the same period in 2018. This decrease was related to the following factors:

 

·Middlesex System revenues decreased $0.1 million due to the following:
oUnfavorable weather reduced water demand from our general meter service and wholesale contract customers, resulting in reduced revenues of $1.1 million and $0.2 million, respectively; and;

22 

oEffective April 1, 2018, a NJBPU-approved base rate increase resulted in higher revenues of $1.2 million;
·Tidewater System revenues remained consistent primarily due to additional customers, which was tempered by lower weather related water demand and reduced base tariff rates. The reduction in base rates was approved by the DEPSC and became effective March 1, 2019, and was prompted by the lower corporate income tax rate enacted under the Tax Act. There is a corresponding decrease in income tax expense; and
·Non-regulated revenues decreased by $2.0 million primarily due to changes resulting from USA-PA’s new 10 year contract with Perth Amboy. Under the new contract, effective January 1, 2019, USA-PA has direct management control for wastewater services, for which USA-PA is compensated. Under the prior contract, USA-PA utilized, and was compensated for, a sub-contractor. This results in a corresponding decrease in operations and maintenance expense.

 

Operation and Maintenance Expense

 

Operation and maintenance expenses for the six months ended June 30, 2019 decreased $1.8 million from the same period in 2018, primarily related to the following factors:

 

·Operation and maintenance expenses in our non-regulated subsidiaries decreased $2.5 million, primarily due to our new Perth Amboy operating contract, effective January 1, 2019, under which USA-PA no longer incurs sub-contractor fees for wastewater services. This results in a corresponding decrease in operating revenues;
·Variable production costs decreased $0.2 million due to lower customer demand;
·Labor costs in our regulated subsidiaries increased $0.3 million due to increased headcount and increased average labor rates;
·Rent costs increased $0.2 million due to the January 2019 commencement of our lease of new corporate administrative office space;
·Health insurance costs increased $0.2 million due to increased premiums and headcount; and
·All other operation and maintenance expense categories increased $0.2 million.

 

Depreciation

 

Depreciation expense for the six months ended June 30, 2019 increased $0.8 million from the same period in 2018 due to a higher level of utility plant in service.

 

Other Taxes

 

Other taxes for the six months ended June 30, 2019 remained consistent with the same period in 2018 primarily due to lower revenue related taxes on lower revenues in our Middlesex system offset by higher payroll taxes.

 

Other Income, net

 

Other Income, net for the six months ended June 30, 2019 decreased $0.2 million from the same period in 2018, primarily due to higher actuarially-determined postretirement benefit plan non-service expense and the sale of wastewater franchise rights by our TESI subsidiary in the second quarter of 2018. This decrease was partially offset by higher Allowance for Funds Used During Construction resulting from a higher level of capital construction projects in progress.

 

Interest Charges

 

Interest charges for the six months ended June 30, 2019 decreased $0.2 million from the same period in 2018 due to lower interest associated with IRS examinations of the Company’s federal income tax returns. This decrease was partially offset by higher average short-term debt outstanding at increased interest rates in 2019 as compared to 2018.

 

23 

Income Taxes

 

Income taxes for the six months ended June 30, 2019 decreased $2.6 million from the same period in 2018, primarily due to the regulatory accounting treatment of tax benefits associated with the adoption of the tangible property regulations, prescribed by the IRS, which was approved in Middlesex’s 2018 base rate case decision, and lower pre-tax income. In addition, Tidewater’s effective income tax rate was decreased in March 2019, reflecting the rate reduction approved by the DEPSC to reflect the lower corporate income tax rate resulting from implementation of the Tax Act. This has resulted in a corresponding decrease in operating revenues.

 

Net Income and Earnings Per Share

 

Net income for the six months ended June 30, 2019 increased $1.5 million as compared with the same period in 2018. Basic earnings per share were $0.89 and $0.80 for the six months ended June 30, 2019 and 2018, respectively. Diluted earnings per share were $0.88 and $0.80 for the six months ended June 30, 2019 and 2018, respectively.

 

Liquidity and Capital Resources

 

Operating Cash Flows

 

Cash flows from operations are largely based on four factors: weather, adequate and timely rate increases, effective cost management and growth. The effect of those factors on net income is discussed in “Results of Operations.”

 

For the six months ended June 30, 2019, cash flows from operating activities decreased $7.6 million to $11.6 million from the same period in 2018. The decrease in cash flows from operating activities primarily resulted from the timing of payments to vendors and increased income tax payments. Utility plant expenditures for the period were primarily funded by financing activities.

 

Investing Cash Flows

 

For the six months ended June 30, 2019, cash flows used in investing activities increased $7.3 million to $35.7 million from the same period in 2018. The increase in cash flows used in investing activities resulted from increased utility plant expenditures.

 

For further discussion on the Company’s future capital expenditures and expected funding sources, see “Capital Expenditures and Commitments” below.

 

Financing Cash Flows

 

For the six months ended June 30, 2019, cash flows from financing activities increased $14.0 million to $22.6 million from the same period in 2018. The majority of the increase in cash flows provided by financing activities is due to the net increase in long-term debt funding and increased proceeds from the issuance of common stock under the Middlesex Water Company Investment Plan (the Investment Plan).

 

Capital Expenditures and Commitments

 

To fund our capital program, we may use internally generated funds, short-term and long-term debt borrowings, proceeds from sales of common stock under the Investment Plan and proceeds from new offerings to the public of our common stock. See below for a more detailed discussion regarding the funding of our capital program.

 

The capital investment program for 2019 is currently estimated to be approximately $116 million. Through June 30, 2019, we have expended $36 million and expect to incur approximately $80 million for capital projects for the remainder of 2019.

 

24 

We currently project that we may expend approximately $204 million for capital projects in 2020 and 2021. The actual amount and timing of capital expenditures is dependent on project scheduling and refinement of engineering estimates for certain capital projects.

To pay for our capital program for the remainder of 2019, we plan on utilizing:

·Internally generated funds;
·Proceeds from the Investment Plan. which includes a 5% discount purchase program for 2019 (see discussion under “Common Stock” in Note 3 - Capitalization);
·Proceeds from the New Jersey and Delaware State Revolving Fund (SRF). SRF programs provide low cost financing for projects that meet certain water quality and system improvement benchmarks (see discussion under “Long-term Debt” in Note 3 - Capitalization);
·Proceeds from the issuance and sale of First Mortgage Bonds through the New Jersey Economic Development Authority (see discussion under “Long-term Debt” in Note 3 - Capitalization);
·If necessary, proceeds from a common stock offering (see discussion under “Common Stock Offering” in Recent Developments above); and
·Short-term borrowings through $100.0 million of active lines of credit with several financial institutions. As of June 30, 2019, there remains $40.6 million of available credit under these lines.

 

Recent Accounting Pronouncements – See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements and guidance.

 

Item 3. Quantitative and Qualitative Disclosures of Market Risk

 

We are exposed to market risk associated with changes in interest rates and commodity prices. The Company is subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company’s interest rate risk related to existing fixed rate, long-term debt is not material due to the term of the majority of our First Mortgage Bonds, which have final maturity dates ranging from 2019 to 2047. Over the next twelve months, approximately $7.4 million of the current portion of existing long-term debt instruments will mature. Applying a hypothetical change in the rate of interest charged by 10% on those borrowings, would not have a material effect on our earnings.

 

Our risks associated with commodity price increases for chemicals, electricity and other commodities are reduced through contractual arrangements and the ability to recover price increases through rates. Non-performance by these commodity suppliers could have a material adverse impact on our results of operations, financial position and cash flows.

 

We are exposed to credit risk for both our Regulated and Non-Regulated business segments. Our Regulated operations serve residential, commercial, industrial and municipal customers while our Non-Regulated operations engage in business activities with developers, government entities and other customers. Our primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the non-payment of customer accounts receivable balances. Our credit risk is managed through established credit and collection policies which are in compliance with applicable regulatory requirements and involve monitoring of customer exposure and the use of credit risk mitigation measures such as letters of credit or prepayment arrangements. Our credit portfolio is diversified with no significant customer or industry concentrations. In addition, our Regulated businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates.

 

The Company's retirement benefit plan assets are exposed to fluctuating market prices of debt and equity securities. Changes to the Company's retirement benefit plan asset values can impact the Company's retirement benefit plan expense, funded status and future minimum funding requirements. Our risk is mitigated by our ability to recover retirement benefit plan costs through rates for regulated utility services charged to our customers.

25 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities and Exchange Act of 1934 (the Exchange Act), an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted by the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure.

 

PART II.  OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

The information about risk factors does not differ materially from those set forth in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

26 

 

Item 6. Exhibits
   
31.1 Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

 

31.2 Section 302 Certification by A. Bruce O’Connor pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

 

32.1 Section 906 Certification by Dennis W. Doll pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.2 Section 906 Certification by A. Bruce O’Connor pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document

 

101.SCH XBRL Schema Document

 

101.CAL XBRL Calculation Linkbase Document

 

101.LAB XBRL Labels Linkbase Document

 

101.PRE XBRL Presentation Linkbase Document

 

101.DEF XBRL Definition Linkbase Document

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  MIDDLESEX WATER COMPANY
     
  By: /s/A. Bruce O’Connor            
    A. Bruce O’Connor
    Senior Vice President, Treasurer and
    Chief Financial Officer
    (Principal Accounting Officer)

 

Date: July 31, 2019

 

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