2010 Annual Report
A Provider of Water, Wastewater and
Related Products and Ser vices
P.O. Box 1500
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com
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BUILDING ON A FRAMEWORK OF
SERVICE RELIABILITY
TO OUR
SHAREHOLDERS
2010 was a year of continued change and progress in a number of areas.
In the realm of leadership and corporate governance, your Board of Directors
continued to develop and implement a Board succession plan that provides
for continuity in the independence and objectivity of Board Members.
The departures of long-time Directors, John Mulkerin and Annette Catino,
created openings for two new Directors. We will miss the advice and counsel
of John and Annette, two outstanding professionals whose business expertise
has served you and your Company well for so many years. Following the
decisions by John and Annette to step down, we were pleased to recruit two
exceptional candidates in Amy Mansue and James Cosgrove, Jr. P.E. Amy
and Jim bring a wealth of technical, management and governance experience
to the Company and have quickly confirmed their value to your Board in their
relatively short tenure.
A Legacy of Leadership
Of great significance in the succession planning process was the decision
by J. Richard Tompkins, your Chairman since May 1990, to retire as Chairman
in May 2010. Coincident with that decision, the Board appointed me to
that role in May 2010. Rich Tompkins has navigated the Company through
numerous challenges and opportunities over three decades in his roles as
President and Chairman. His operational and management insights have
been a valuable resource to me personally, and he will be greatly missed
by me and the rest of the Board, as he will not be standing for re-election
to the Board at the 2011 Annual Meeting of Shareholders. Rich’s knowledge
of utility operations, finance and ratemaking and corporate governance has
been a cornerstone of Middlesex Water Company’s success for so many
years and has laid the foundation to position us to meet future challenges.
His leadership and dedication to the Company and to the industry has set
the bar higher for all of us.
Financial and Operational Achievements
As we look back on our performance during 2010, we see a year that
stands in stark contrast to 2009. Unusually hot dry weather, combined with
more favorable economic conditions experienced by our large commercial
and industrial customers, contributed to overall 2010 earnings that exceeded
projections. Also contributing to favorable earnings was a $7.8 million base
rate increase awarded by our regulators in March 2010 for the Middlesex
System in New Jersey. Our financial objectives were achieved as we simultaneously
Dennis W. Doll
Chairman, President and Chief Executive Officer
44%
Net income in 2010
rose to $14.3 million,
a 44% increase over 2009.
Net Income
(Millions of Dollars)
14.3
12.2
11.8
10.0
10.0
06
07
08
09
10
15.0
12.0
9.0
6.0
3.0
SHAREHOLDER
INFORMATION
Company Headquarters
Middlesex Water Company
1500 Ronson Road
Iselin, NJ 08830
Telephone: 732-634-1500
www.middlesexwater.com
Shareholders
As of December 31, 2010, there were
1,950 registered shareholders.
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Shareholder Services
Registrar and Transfer Company is the transfer agent
for Middlesex Water Company and can answer
questions concerning your account, dividend payments,
lost certificates, transfer of stock, change of address
and other related matters.
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Telephone: 800-368-5948
Fax: 908-497-2318
Website: www.rtco.com
E-mail: info@rtco.com
Investor Relations Contact
Bernadette M. Sohler
Vice President - Corporate Affairs
Telephone: 732-634-1500
E-mail: bsohler@middlesexwater.com
Independent Auditors
ParenteBeard LLC
2609 Keiser Blvd.
P.O. Box 311
Reading, PA 19603-0311
Telephone: 800-267-9405
Mortgage Trustee
U.S. Bank National Association
21 South Street, 3rd Floor
Morristown, NJ 07960
Annual Meeting
The Annual Meeting of Shareholders of Middlesex Water
Company will be held on Tuesday, May 24, 2011,
at 11:00 a.m. at the Company’s Headquarters,
1500 Ronson Road, Iselin, NJ. The record date for
the Annual Meeting was March 31, 2011.
Stock Listing
The Company’s common shares trade on the NASDAQ
Global Select Market under the trading symbol MSEX.
High
$19.31
17.16
18.70
18.00
High
$17.91
15.89
15.29
17.71
Low
$16.77
15.48
14.74
16.16
Low
$14.74
13.62
12.61
11.64
Dividends Paid
$0.1825
0.1800
0.1800
0.1800
Dividends Paid
$0.1800
0.1775
0.1775
0.1775
Quarterly Financial Information
Quarterly financial results are announced by press releases
that are available at www.middlesexwater.com in the
“Investor Relations” section. The Company’s quarterly reports
on Form 10-Q are also available at www.middlesexwater.com
Dividend Reinvestment and Common Stock
Purchase Plan
The Company offers a Dividend Reinvestment Plan and
Common Stock Purchase Plan which provides new and
existing shareholders of its common stock with a convenient
way to build ownership in the Company through the purchase
of common shares from the Company and the reinvestment
of their cash dividends. The Prospectus and enrollment
form are available at www.middlesexwater.com in the
“Investor Relations” section.
2011 Dividend Schedule*
Common
Preferred
Record Dates Payment Dates
February 15
May 16
August 15
November 15
March 1
June 1
September 1
December 1
January 14
April 15
July 15
October 14
February 1
May 2
August 1
November 1
*Subject to approval by Board of Directors.
delivered a capital program that included several major projects. These and
other important initiatives are necessary to appropriately balance near-term
requirements with our ability to ensure the long-term sustainability of safe,
reliable service, while also further positioning the Company for profitable
growth. Important capital projects that were either completed in 2010, or
that are in progress, are set forth later in this Report. Several of the more
prominent projects to improve service quality include an award-winning major
pipeline replacement; conversion to a safer, more environmentally-friendly
100
Operating Revenues
(Millions of Dollars)
102.7
alternative for primary disinfection in the water treatment process and
implementation of technology that is necessary to assist in meeting the
continued and future needs of our customers. Furthermore, these important
projects were endorsed by our regulators in awarding an appropriate return
on these investments in March 2010. We financed these and other investments
through a combination of low-cost debt and a successful common equity
offering in June 2010. Along with these initiatives, we demonstrated our
leadership by making a difference in the communities we serve through
volunteerism, public education and other forms of community outreach.
90
80
70
91.0
91.2
86.1
81.1
06
07
08
09
10
Meeting Customer Needs
We are encouraged by the positive signs we see in the economy as
we continue to add customers each month at a relatively healthy pace in
our Delaware operation. Our Delaware utility had been experiencing a
double-digit rate of growth in customers until national economic conditions
negatively impacted new housing starts in the last several years. The impact
to the developer community and the banks that provide their financing has
resulted in smaller-scale projects in recent years. We are now receiving more
inquiries for providing water and wastewater service to larger projects as
the developer community is slowly recovering while home mortgage rates
remain relatively low.
Our employees worked hard throughout the past year to deliver the results
discussed in further detail throughout this Report. They effectively navigated the
operational and financial challenges associated with a difficult 2009/2010
winter, the customer demands of one of the hottest, driest summers on record,
the logistical challenges of delivering a complex capital program and the
financial and regulatory challenges in achieving timely and adequate recovery
of our investments. We are grateful for their continued support in serving our
customers and we are grateful for your continued support of all of these efforts.
Dennis W. Doll, Chairman, President and Chief Executive Officer
13%
For the first time,
operating revenues surpassed
$100 million,
climbing 13% over 2009.
Earnings and Dividends
(Per Share)
■ Earnings
■ Dividends
.96
.87
.89
.82
.69
.70
.68
.72
.71
.72
06
07
08
09
10
Middlesex Water Company 1
.90
.80
.70
.60
2010 OPERATING
HIGHLIGHTS
Building A Safer Workplace
Ensuring the safety of our employees
and the surrounding community and
managing environmental risk was a
primary consideration in changing the
water treatment process at one of our
largest plants in New Jersey from chlorine
gas to liquid sodium hypochlorite. More
than 12.4 billion gallons of water are
purified annually utilizing this new alternative.
Sodium hypochlorite is equally effective as
chlorine gas in the disinfection process,
but can be more easily stored and transported,
offering a smarter, safer and more
environmentally friendly solution.
Building Effective Partnerships
In August, Delaware Governor Jack Markell and other state and local officials visited our
subsidiary, Tidewater Environmental Services, Inc. (TESI) wastewater treatment and collection
facility in Milton, Delaware to tour the newly upgraded plant and recognize the
Town of Milton and TESI for developing
a sustainable wastewater solution
for town residents and businesses.
TESI acquired the 50-year old
facility from Milton in 2007 and
invested over $700,000 to maintain
compliance with federal and state
regulatory standards. In remarks
delivered at the facility dedication,
the Governor recognized the public/
private partnership stating, “the
collaboration has helped protect our
environment and quality of life, while also
contributing to economic development.”
2 2010 Annual Report
Building Critical Infrastructure
In a project that set a new
engineering world record and
exemplified unparalleled teamwork,
Middlesex Water worked with
consulting engineering firms and
other contractors to replace a
century old water main beneath
the Raritan River in New Jersey.
Installed in 1904, the cast iron
pipeline had served customers
well but due to age and the
corrosiveness and unstable nature
of the soils in adjacent marshlands,
required more frequent costly
repairs. The complex project
involved installation of 5,365 ft. of 24 inch diameter fusible polyvinyl chloride pipe under the river
using precise horizontal directional drilling technology. Constructed in just five months, the project
entailed assembling multiple sections of pipe and fusing them together as the pipe was being pulled
as one continuous length beneath the riverbed at depths of up to 60 feet below the surface of the water.
This effort has been chronicled as the longest fusable PVC pullback of 24-inch or greater diameter
pipe completed to-date in the world and was recently named New Installation Project of the Year
by Trenchless Technology magazine.
Building Shareholder Value
In June 2010, $27.8 million was raised from
a successful equity offering of 1.9 million
shares of common stock, whose net proceeds
reduced the balance of outstanding short-term
borrowings which were incurred to fund our
capital program. Despite current economic
conditions, the offering was fully subscribed
and many new shareholders were introduced to
the Company. Investment in Middlesex Water Company has
provided an attractive dividend yield and in 2010, the Company marked both its
38th year of consecutive annual dividend increases and its 99th year of paying quarterly dividends.
Middlesex Water Company 3
Building Operational
Transparency
This year, we reached a significant milestone in our
business and information technology platform integration
with the implementation of Geographic Information
Systems and implementation of an Enterprise Resource
Planning (ERP) system that integrates our new general
ledger, procurement, fixed asset inventory and customer
information systems. This ERP platform is transforming
the way we do business by automating the many
business processes that drive company operations,
providing more timely, accurate and meaningful data
for decision making, enabling information sharing
across geographic barriers and offering detailed insight
into where dollars are spent and how well service is
delivered to our customers. We credit our employee ERP
project teams for their tireless dedication, commitment
and teamwork in bringing these projects to fruition.
Building Sustainable
Wastewater Solutions
Effective wastewater treatment is essential to the
quality of life and desirability of a community.
Our plans to build a 1.45 million gallon per day
regional wastewater treatment and disposal facility
in Sussex County, Delaware will eliminate the need
to build separate, individual septic systems to
support proposed residential development.
Utilizing membrane bio-reactor technology,
clear and clean effluent will be returned to the
ground using spray irrigation and eco-friendly
and efficient rapid infiltration basin technology.
The quality of the treated effluent is expected to not only meet
stringent regulatory standards, but be more protective of water quality
in the environmentally sensitive, southern Delaware Inland Bay area
than conventional methods.
4 2010 Annual Report
Building Awareness
Outreach and education play an integral role in
informing the public about the value of water and
the need to preserve our resources for future
generations. This past year, Middlesex Water
Company collaborated with first year design
students at Middlesex County College in
New Jersey to produce a 24-page activity book
which provides children with information about
the water cycle, treatment processes and wise
water use. Company representatives use the
educational tool in presentations to local schools.
Building Stronger Communities
Philanthropic and socially responsible initiatives have long been a part of our corporate
culture. In 2010, employees were engaged in numerous efforts including service
on local non-profit boards, food drives, volunteer
activities and fundraising efforts whose focus
aligned with our business mission. In one effort
launched by the New Jersey Utilities Association,
“United to Feed Those in Need,” Middlesex Water,
along with other utilities, sponsored
a food drive to help restock
New Jersey food banks.
In Delaware, employees of
our subsidiary Tidewater
Utilities, Inc., responded to
local needs by raising funds
for breast cancer awareness.
Middlesex Water Company 5
A COMPREHENSIVE
SUITE OF SOLUTIONS
Middlesex Water Company offers the technical expertise and resources to respond to the changing
needs of customers, property owners, developers and municipalities. We have built a reputation
for delivering operationally sound and sustainable water and wastewater solutions and have the
end-to-end capabilities to deliver a wide range of services. A partial listing of our services includes:
• Water Production, Treatment and Distribution
• Public/Private Partnerships
• Wastewater Collection and Treatment
• Water and Wastewater Contract Operations
• Ownership and Operation of Utilities
• Water and Sewer Line Maintenance
• Plant Design and Build Upgrades
• Utility Billing and Collections
• Plant Operations and Maintenance
• Community Irrigation
• Engineering and Construction
Company Profile
Middlesex Water Company was incorporated as a water utility company in 1897 and owns and operates
regulated water utility and wastewater systems in New Jersey, Delaware and Pennsylvania. The Company
also operates water and wastewater systems under contract on behalf of municipal and private clients in
New Jersey and Delaware. The Company’s common stock trades on the NASDAQ Global Select Market
under the symbol MSEX.
Financial Highlights
(Millions of Dollars, Except per Share Data)
Operating Revenues
Operation and Maintenance Expenses
Depreciation
Income and Other Taxes
Interest Charges
Net Income
Earnings Applicable to Common Stock
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Paid per Share
Utility Plant
Return on Average Common Equity
6 2010 Annual Report
2 010
$102.7
55.5
9.2
18.2
6.9
14.3
14.1
0.96
0.96
0.72
483.5
9.0%
2009
$91.2
52.3
8.5
15.4
6.7
10.0
9.8
0.73
0.72
0.71
453.6
7.1%
2008
$91.0
48.9
7.9
16.2
7.1
12.2
12.0
0.90
0.89
0.70
430.1
8.6%
Water Production,
Treatment and
Distribution
Wastewater
Collection and
Treatment
Contract
Operations
System Design
Plant Operations
Utility Billing
and
Construction
and
Maintenance
and
Collections
Middlesex Water Company 7
BOARD OF
DIRECTORS
James F. Cosgrove, Jr., P.E. (B, F)
John C. Cutting (A, B*, E*, F)
Principal
Senior Engineer (retired)
Dennis W. Doll
Chairman of the Board,
Steven M. Klein (A*+, C, E)
Executive Vice President and
Omni Environmental LLC (2010)
Science Applications International
President and Chief Executive Officer
Chief Financial Officer
Corporation (1997)
Middlesex Water Company (2006)
Northfield Bancorp, Inc. (2009)
Amy B. Mansue (A, C)
John R. Middleton, M.D. (A, C, D)
Walter G. Reinhard, Esq. (B, D*, E)
President and
Former Chair of the Department of
Partner
Jeffries Shein (C+, D, E, F)
Managing Partner,
Chief Executive Officer
Medicine and former Chief Medical Officer
Norris, McLaughlin & Marcus, P.A. (2002)
JGT Management Co., LLC (1990)
Children’s Specialized Hospital (2010)
of Raritan Bay Medical Center
Engaged in Private Practice,
Infectious Diseases (1999)
Date represents year Director joined the MSEX Board.
A Member of the Audit Committee
B Member of the Capital Improvement Committee
C Member of the Compensation Committee
D Member of the Corporate Governance and
Nominating Committee
E Member of the Pension Committee
F Member of the Ad Hoc Pricing Committee
*Committee Chair
+Audit Committee Financial Expert
Executive Management Team
Dennis W. Doll
Chairman of the Board,
President and Chief Executive Officer (2004)
Gerard L. Esposito
President, Tidewater Utilities, Inc. (1998)
James P. Garrett
Vice President – Human Resources (2003)
A. Bruce O’Connor
Vice President and Chief Financial Officer (1990)
Kenneth J. Quinn
Vice President, General Counsel,
Secretary and Treasurer (2002)
Richard M. Risoldi
Vice President – Operations, Chief Operating Officer (1989)
Bernadette M. Sohler
Vice President – Corporate Affairs (1994)
Date represents year Executive joined MSEX.
J. Richard Tompkins (B, D, E, F*)
Former Chairman of the Board and
President
Middlesex Water Company (1981)
8 2010 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
FORM 10-K
(cid:59)
(cid:133)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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.)
1500 Ronson Road, Iselin NJ 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: Name of each exchange on which registered:
Common Stock, No Par Value
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:133) No (cid:59)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:133) No (cid:59)
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 (cid:59) No (cid:133)
Indicate by check mark whether the registrant has submitted and posted on their 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 for such
shorter period that the registrants were required to submit and post such files).
Yes (cid:133) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company.
Large accelerated filer (cid:133) Accelerated filer (cid:59) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:133) No (cid:59)
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2010 was $245,798,155 based on
the closing market price of $15.85 per share.
The number of shares outstanding for each of the registrant's classes of common stock, as of March 4, 2011:
Common Stock, No par Value 15,586,657 shares outstanding
Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant’s Annual Meeting of Stockholders to be held on May 24, 2011, which
will be filed with the Securities and Exchange Commission within 120 days of the end of our 2010 fiscal year, is incorporated by
reference into Part III.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
PAGE
1
Forward-Looking Statements
PART I
Item 1.
Business:
Overview
Financial Information
Water Supplies and Contracts
Employees
Competition
Regulation
Seasonality
Management
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Removed and Reserved
PART II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Item 6.
Item 7.
Selected Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on
Item 9.
Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and
Item 14.
PART IV
Item 15.
Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
2
2
2
4
4
5
5
6
8
8
9
13
13
14
14
15
15
17
17
29
30
56
56
58
58
58
58
58
58
58
59
59
60
61
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual 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. Middlesex Water Company (the “Company”) intends that these statements be covered by the
safe harbors created under those laws. These statements include, but are not limited to:
-
-
-
-
-
-
-
-
-
-
-
-
-
statements as to expected financial condition, performance, prospects and earnings of the Company;
statements regarding strategic plans for growth;
statements regarding the amount and timing of rate increases and other regulatory matters, including the
recovery of certain costs recorded as regulatory assets;
statements as to the Company’s expected liquidity needs during the upcoming fiscal year and beyond and
statements as to the sources and availability of funds to meet its liquidity needs;
statements as to expected rates, consumption volumes, service fees, revenues, margins, expenses and operating
results;
statements as to the Company’s compliance with environmental laws and regulations and estimations of the
materiality of any related costs;
statements as to the safety and reliability of the Company’s equipment, facilities and operations;
statements as to financial projections;
statements as to the ability of the Company to pay dividends;
statements as to the Company’s plans to renew municipal franchises and consents in the territories it serves;
expectations as to the amount of cash contributions to fund the Company’s retirement benefit plans, including
statements as to anticipated discount rates and rates of return on plan assets;
statements as to trends; and
statements regarding the availability and quality of our water supply.
These forward-looking statements are subject to risks, uncertainties and other 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:
the effects of general economic conditions;
increases in competition in the markets served by the Company;
the ability of the Company to control operating expenses and to achieve efficiencies in its operations;
the availability of adequate supplies of water;
actions taken by government regulators, including decisions on rate increase requests;
new or additional water quality standards;
-
-
-
-
-
-
- weather variations and other natural phenomena;
-
the existence of financially attractive acquisition candidates and the risks involved in pursuing those
acquisitions;
acts of war or terrorism;
significant changes in the pace of housing development in Delaware;
the availability and cost of capital resources;
the ability to translate Preliminary Survey & Investigation charges into viable projects; and
other factors discussed elsewhere in this annual 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 prospectus or to
reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
For an additional discussion of factors that may affect the Company’s business and results of operations, see Item 1A -
Risk Factors.
Item 1.
Business.
Overview
PART I
Middlesex Water Company (“Middlesex”) was incorporated as a water utility company in 1897 and owns and operates
regulated water utility and wastewater systems in New Jersey, Delaware and Pennsylvania. Middlesex also operates water
and wastewater systems under contract on behalf of municipal and private clients in New Jersey and Delaware.
The terms “the Company,” “we,” “our,” and “us” refer to Middlesex Water Company and its subsidiaries, including
Tidewater Utilities, Inc. (“Tidewater”) and Tidewater’s wholly-owned subsidiaries, Southern Shores Water Company,
LLC (“Southern Shores”) and White Marsh Environmental Systems, Inc. (“White Marsh”). The Company’s other
subsidiaries are 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”), Tidewater Environmental Services, Inc. (“TESI”) and Twin Lakes Utilities, Inc. (“Twin
Lakes”).
Middlesex principal executive offices are located at 1500 Ronson Road, Iselin, New Jersey 08830. Our telephone number
is (732) 634-1500. Our internet website address is http://www.middlesexwater.com. We make available, free of charge
through our internet website, reports and amendments filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, after such material is electronically filed with or furnished to the United States
Securities and Exchange Commission (the SEC).
Middlesex System
The Middlesex System in New Jersey provides water services to approximately 60,000 retail customers, primarily in
eastern Middlesex County, New Jersey and provides water under wholesale contracts to the City of Rahway, Township of
Edison, the Boroughs of Highland Park and Sayreville and both the Old Bridge and the Marlboro Township Municipal
Utilities Authorities. The Middlesex System treats, stores and distributes water for residential, commercial, industrial and
fire prevention purposes. The Middlesex System also provides water treatment and pumping services to the Township of
East Brunswick under contract. The Middlesex System produced approximately 64% of our 2010 consolidated operating
revenues.
The Middlesex System’s retail customers are located in an area of approximately 55 square miles in Woodbridge
Township, the City of South Amboy, the Boroughs of Metuchen and Carteret, portions of the Township of Edison and the
Borough of South Plainfield in Middlesex County and, to a minor extent, a portion of the Township of Clark in Union
County. Retail customers include a mix of residential customers, large industrial concerns and commercial and light
industrial facilities. These customers are located in generally well-developed areas of central New Jersey.
The contract customers of the Middlesex System comprise an area of approximately 146 square miles with a population of
approximately 303,000. Contract sales to Edison, Sayreville, Old Bridge, Marlboro and Rahway are supplemental to the
existing water systems of these customers. The Middlesex System provides treated surface water under long-term
agreements to East Brunswick, Marlboro, Old Bridge and Sayreville consistent with a plan approved by the New Jersey
Department of Environmental Protection.
Middlesex provides water service to approximately 300 customers in Cumberland County, New Jersey. This system is
referred to as Bayview and is not physically interconnected with the Middlesex System. Bayview produced less than 1%
of our 2010 consolidated operating revenues.
2
Tidewater System
Tidewater, together with its wholly-owned subsidiary, Southern Shores, provides water services to approximately 34,000
retail customers for domestic, commercial and fire protection purposes in over 300 separate community water systems in
New Castle, Kent and Sussex Counties, Delaware. White Marsh is an additional wholly-owned subsidiary that is
unregulated as to rates and operates water and wastewater systems under contract for approximately 6,000 residential
customers. White Marsh also owns the office buildings that Tidewater uses as its central business office campus. The
Tidewater System produced approximately 25% of our 2010 consolidated operating revenues.
Utility Service Affiliates-Perth Amboy
USA-PA operates the City of Perth Amboy, New Jersey’s water and wastewater systems under a 20-year agreement,
which expires in 2018. USA-PA serves approximately 10,500 homes and businesses, most of which are served by both
the water and wastewater systems. The agreement was effected under New Jersey’s Water Supply Public-Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act. Under the agreement, USA-PA receives
fixed fees, and may receive variable fees, based on customer revenue growth. Fixed fee revenues increase over the term
of the 20-year contract based upon a schedule of rates. USA-PA produced approximately 9% of our 2010 consolidated
operating revenues.
In connection with the agreement with Perth Amboy, USA-PA entered into a 20-year subcontract with a wastewater
operating company for the operation and maintenance of the Perth Amboy wastewater collection system. The subcontract
provides for the sharing of certain fixed and variable fees and operating expenses.
Pinelands System
Pinelands Water provides water services to approximately 2,500 residential customers in Burlington County, New Jersey.
Pinelands Water produced less than 1% of our 2010 consolidated operating revenues. Pinelands Water is not physically
interconnected with the Middlesex System.
Pinelands Wastewater provides wastewater services to approximately 2,500 residential customers. Under contract, it also
services one municipal wastewater system in Burlington County, New Jersey with approximately 200 residential
customers. Pinelands Wastewater produced approximately 1% of our 2010 consolidated operating revenues.
Utility Service Affiliates, Inc.
USA provides residential customers in New Jersey and Delaware a water service line and sewer lateral maintenance
program called LineCareSM and LineCare+SM, respectively. These are maintenance programs that cover, up to a specified
limit, all parts, material and labor required to repair or replace specific elements of the customer’s water service line,
customer shut-off valve and/or sewer lateral, in the event of a failure. The Company’s responsibility for maintenance
costs under the programs is subject to annual limits. USA produced less than 1% of our 2010 consolidated operating
revenues.
TESI System
TESI provides wastewater services to approximately 1,900 residential retail customers in Delaware. TESI produced less
than 1% of our 2010 consolidated operating revenues.
Twin Lakes System
Twin Lakes, acquired in November 2009, provides water services to approximately 120 residential customers in Shohola,
Pennsylvania. Twin Lakes produced less than 1% of our 2010 consolidated operating revenues.
3
Financial Information
Consolidated operating revenues, operating income and net income are as follows:
(Thousands of Dollars)
Years Ended December 31,
2010
$102,735
$ 26,597
$ 14,330
2009
$91,243
$20,161
$ 9,977
2008
$91,038
$24,019
$12,208
Operating Revenues
Operating Income
Net Income
Operating revenues were earned from the following sources:
Years Ended December 31,
2009
2010
2008
Residential
Commercial
Industrial
Fire Protection
Contract Sales
Contract Operations
Other
Total
45.5 %
9.7
8.7
9.7
14.6
9.7
2.1
100.0 %
44.9 %
9.4
9.0
10.5
13.1
10.9
2.2
100.0 %
45.1 %
9.6
9.3
10.4
13.1
10.5
2.0
100.0 %
Water Supplies and Contracts
Our New Jersey, Delaware and Pennsylvania water supply systems are physically separate and are not interconnected. In
New Jersey, the Pinelands System and Bayview System are not interconnected with the Middlesex System or each other.
We believe that we have adequate sources of water supply to meet the current service requirements of our present
customers in New Jersey, Delaware and Pennsylvania.
Middlesex System
Our Middlesex System, which produced approximately 16.8 billion gallons in 2010, obtains water from surface sources
and wells, or groundwater sources. In 2010, surface sources of water provided approximately 74% of the Middlesex
System’s water supply, groundwater sources provided approximately 19% from 31 wells and the balance was purchased
from a non-affiliated water utility. Middlesex System’s distribution storage facilities are used to supply water to customers
at times of peak demand, outages and emergencies.
The principal source of surface water for the Middlesex System is the Delaware & Raritan Canal, which is owned by the
State of New Jersey and operated as a water resource by the New Jersey Water Supply Authority. Middlesex is under
contract with the New Jersey Water Supply Authority, which expires November 30, 2023. The contract provides for
average purchases of 27 million gallons per day (mgd) of untreated water from the Delaware & Raritan Canal, augmented
by the Round Valley/Spruce Run Reservoir System. Surface water is pumped to, and treated at the Middlesex Carl J.
Olsen (CJO) Water Treatment Plant. Middlesex also has an agreement with a non-affiliated regulated water utility for the
purchase of treated water. This agreement provides for minimum purchase of 3.0 mgd of treated water with provisions for
additional purchases.
4
Tidewater System
Our Tidewater System produced approximately 2.1 billion gallons in 2010 from 162 wells. In 2010, 3 new wells were
placed into service and we retired 1 well for the purpose of consolidating production facilities for more cost-efficient
operation. Tidewater expects to continue to submit applications to Delaware regulatory authorities for the approval of
additional wells as growth, demand and water quality warrant. The Tidewater System does not have a central treatment
facility but has several regional, as well as several smaller independent, treatment plants. Several of its water systems in
New Castle, Kent and Sussex Counties, Delaware have interconnected transmission systems.
Pinelands System
Water supply to our Pinelands System is derived from four wells which produced approximately 185.3 million gallons in
2010. The pumping capacity of the four wells is 2.2 million gallons per day.
Pinelands Wastewater System
The Pinelands Wastewater System discharges into the South Branch of the Rancocas Creek through a tertiary treatment
plant that provides clarification, sedimentation, filtration and disinfection. The total capacity of the plant is 0.5 mgd, and
the system treated approximately 107.6 million gallons in 2010.
Bayview System
Water supply to Bayview customers is derived from two wells, which delivered approximately 9.4 million gallons in
2010.
TESI System
The TESI System owns and operates six wastewater treatment systems in Southern Delaware. The treatment plants
provide clarification, sedimentation, and disinfection. The combined total treatment capacity of the plants is 0.6 mgd. The
TESI System treated approximately 79.5 million gallons in 2010.
Twin Lakes System
Water supply to Twin Lakes’ customers is derived from two wells, which delivered approximately 23.8 million gallons in
2010.
Employees
As of December 31, 2010, we had a total of 292 employees. No employees are represented by a union. We believe our
employee relations are good. Wages and benefits are reviewed annually and are considered competitive within both the
industry and the regions where we operate.
Competition
Our business in our franchised service area is substantially free from direct competition with other public utilities,
municipalities and other entities. However, our ability to provide contract water supply and wastewater services and
operations and maintenance services is subject to competition from other public utilities, municipalities and other entities.
Although Tidewater has been granted an exclusive franchise for each of its existing community water systems, its ability
to expand service areas can be affected by the Delaware Public Service Commission awarding franchises to other
regulated water utilities with whom we compete for such franchises and for projects.
5
Regulation
Our rates charged to customers for water and wastewater services, the quality of the services we provide and certain other
matters are regulated by the following state utility commissions (collectively, the Utility Commissions):
(cid:120) New Jersey-New Jersey Board of Public Utilities (NJBPU)
(cid:120) Delaware-Delaware Public Service Commission (DEPSC)
(cid:120)
Pennsylvania-Pennsylvania Public Utilities Commission (PAPUC)
Our USA, USA-PA and White Marsh subsidiaries are not regulated public utilities. However they are subject to
environmental regulation with respect to water and wastewater effluent quality.
We are subject to environmental and water quality regulation by the following regulatory agencies (collectively, the
Government Environmental Regulatory Agencies):
(cid:120) United States Environmental Protection Agency (EPA)
(cid:120) New Jersey Department of Environmental Protection (NJDEP) with respect to operations in New Jersey
(cid:120) Delaware Department of Natural Resources and Environmental Control (DEDNREC), the Delaware Department
of Health and Social Services-Division of Public Health (DEDPH), and the Delaware River Basin Commission
(DRBC) with respect to operations in Delaware
Pennsylvania Department of Environmental Protection (PADEP) with respect to operations in Pennsylvania
(cid:120)
In addition, our issuances of equity securities are subject to the prior approval of the NJBPU and require registration with
the SEC. Our issuances of long-term debt securities are subject to the prior approval of the appropriate Utility
Commissions.
Regulation of Rates and Services
For ratemaking purposes, we account separately for operations in New Jersey, Delaware and Pennsylvania to facilitate
independent ratemaking by the applicable Utility Commissions.
In determining our rates, the respective Utility Commissions consider the income, expenses, rate base of property used
and useful in providing service to the public and a fair rate of return on investments within their separate jurisdictions.
Rate determinations by the respective Utility Commissions do not guarantee particular rates of return to us for our New
Jersey, Delaware and Pennsylvania operations. Thus, we may not achieve the rates of return permitted by the Utility
Commissions. In addition, there can be no assurance that any future rate increases will be granted or, if granted, that they
will be in the amounts requested.
Middlesex Rate Matters
In January 2011, Middlesex filed an application with the NJBPU seeking permission to establish a Purchased Water
Adjustment Clause (PWAC) and implement a tariff rate sufficient to recover increased costs of $0.4 million to purchase
untreated water from the New Jersey Water Supply Authority and treated water from a non-affiliated regulated water
utility. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the request.
In March 2010, a settlement was reached with respect to Middlesex’s application with the NJBPU seeking permission to
increase its base water rates. The NJBPU granted an increase in annual operating revenues of 13.57%, or $7.8 million.
The base water rate increase request was made to seek recovery of increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial customer demand patterns, as well as capital
investment. The new base water rates are designed to recover these increased costs, as well as provide a return on
invested capital in rate base of $180.3 million based on a return on equity of 10.30%.
6
Tidewater Rate Matters
A Distribution System Improvement Charge (DSIC) is a DEPSC approved rate-mechanism that allows water utilities to
recover investment in non-revenue producing capital improvements to the water system between base rate proceedings.
The following summarizes Tidewater’s approved DSIC rates from January 1, 2010 through January 1, 2011:
Date
% Increase (Decrease)
Cumulative %
January 1, 2010
1.11%
1.11%
July 1, 2010
(0.04)%
1.07%
January 1, 2011
0.27%
1.34%
Future Rate Filings
Middlesex and several of its subsidiaries are expected to file for rate increases in 2011. There can be no assurances
however, that the respective Utility Commissions will approve the anticipated rate increase requests in whole or in part.
In addition, the timing of approval of these rate requests is presently not known.
Water and Wastewater Quality and Environmental Regulations
Government Environmental Regulatory Agencies regulate our operations in New Jersey, Delaware and Pennsylvania with
respect to water supply, treatment and distribution systems and the quality of the water. They also regulate our operations
with respect to wastewater collection and treatment.
Regulations relating to water quality require us to perform tests to ensure our water meets state and federal quality
requirements. In addition, Government Environmental Regulatory Agencies continuously review current regulations
governing the limits of certain organic compounds found in the water as byproducts of the treatment process. We
participate in industry-related research to identify the various types of technology that might reduce the level of organic,
inorganic and synthetic compounds found in the water. The cost to water companies of complying with the proposed
water quality standards depends in part on the limits set in the regulations and on the method selected to treat the water to
the required standards. We regularly test our water to determine compliance with existing government environmental
regulatory agencies’ primary water quality standards.
Well water treatment in our Middlesex System is by chlorination for disinfection purposes. In addition, at certain
locations, air stripping is used for removal of volatile organics removal.
Surface water treatment in our Middlesex System is by conventional treatment; coagulation, sedimentation and filtration.
The treatment process includes pH adjustment, chlorination for disinfection, and corrosion control for the distribution
system.
Well water treatment in our Tidewater System is by chlorination for disinfection purposes and, in some cases, pH
correction and filtration for nitrate and iron removal.
Well water treatment in the Pinelands, Bayview and Twin Lakes Systems (disinfection only) is performed at individual
well sites.
The NJDEP, DEDPH and PADEP monitor our activities and review the results of water quality tests that are performed
for adherence to applicable regulations. Other applicable regulations include the Federal Lead and Copper Rule,
maximum contaminant levels established for various volatile organic compounds, the Federal Surface Water Treatment
Rule and the Federal Total Coliform Rule.
7
Seasonality
Customer demand for our water during the warmer months is generally greater than other times of the year due primarily
to additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and other
outside water use. Throughout the year, and particularly during typically warmer months, demand may vary with
temperature and rainfall timing and overall levels. In the event that temperatures during the typically warmer months are
cooler than normal, or if there is more rainfall than normal, the customer demand for our water may decrease and
therefore, adversely affect our revenues.
Management
This table lists information concerning our executive management team:
Name
Dennis W. Doll
A. Bruce O’Connor
Richard M. Risoldi
Kenneth J. Quinn
James P. Garrett
Bernadette M. Sohler
Gerard L. Esposito
Age Principal Position(s)
52 President, Chief Executive Officer and Chairman of the Board of Directors
52 Vice President and Chief Financial Officer
54 Vice President-Operations and Chief Operating Officer
63 Vice President-General Counsel, Secretary and Treasurer
64 Vice President–Human Resources
50 Vice President-Corporate Affairs
59 President, Tidewater Utilities, Inc.
Dennis W. Doll – Mr. Doll joined the Company in November 2004 as Executive Vice President. He was elected President
and Chief Executive Officer and became a Director of Middlesex effective January 1, 2006. In May 2010, he was elected
Chairman of the Board of Directors of Middlesex. He is also Chairman for all subsidiaries of Middlesex. Prior to joining
the Company, Mr. Doll had been employed in the regulated water utility business since 1985. Mr. Doll is Chairman of the
Board of Directors of the New Jersey Utilities Association and is a Director of the National Association of Water
Companies and the Water Research Foundation.
A. Bruce O’Connor – Mr. O’Connor, a Certified Public Accountant, joined the Company in 1990 and was elected Vice
President and Chief Financial Officer in 1996. He is responsible for financial reporting, customer service, rate cases, cash
management and financings. He is Treasurer and a Director of Tidewater Utilities, Inc., Tidewater Environmental
Services, Inc., Utility Service Affiliates, Inc., and White Marsh Environmental Systems, Inc. He is Vice President,
Treasurer and a Director of Utility Service Affiliates (Perth Amboy) Inc., Pinelands Water Company and Pinelands
Wastewater Company. He is also Vice President and Chief Financial Officer of Twin Lakes Utilities, Inc.
Richard M. Risoldi – Mr. Risoldi joined the Company in 1989 as Director of Production, responsible for the operation and
maintenance of the Company’s treatment and pumping facilities. He was appointed Assistant Vice President of
Operations in 2003. He was elected Vice President-Subsidiary Operations in May 2004, responsible for regulated and
unregulated subsidiary operations and business development. In January 2010, he became Vice President – Operations
and Chief Operating Officer. He is a Director of Tidewater Utilities, Inc., Tidewater Environmental Services, Inc., White
Marsh Environmental Systems Inc and Utility Service Affiliates (Perth Amboy) Inc. He also serves as Director and
President of Pinelands Water Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. and Twin Lakes
Utilities, Inc.
Kenneth J. Quinn – Mr. Quinn joined the Company in 2002 as General Counsel and was elected Assistant Secretary in
2003. In 2004, Mr. Quinn was elected Vice President, Secretary and Treasurer for Middlesex and Secretary and Assistant
Treasurer for all subsidiaries of Middlesex. Prior to joining the Company he had been employed in private law practice as
well as by two major banking institutions located in New Jersey. He is a member of the New Jersey State Bar Association
and its Public Utility Law Section.
8
James P. Garrett – Mr. Garrett, a licensed attorney, joined the Company in 2003 as Assistant Vice President–Human
Resources. In May 2004, he was elected Vice President- Human Resources and is responsible for all human resources and
information technology throughout the Company. Prior to his hire, Mr. Garrett was employed by a national retail chain as
Director of Organizational Development.
Bernadette M. Sohler – Ms. Sohler joined the Company in 1994 and was named Director of Communications in 2003 and
promoted to Vice President-Corporate Affairs in March 2007 with responsibilities for corporate, investor and employee
communications, media and government relations, marketing, community affairs and corporate philanthropic activities.
She also serves as Vice President of Utility Service Affiliates, Inc. Prior to joining the Company, Ms. Sohler held
marketing and public relations management positions in the financial services industry.
Gerard L. Esposito – Mr. Esposito joined Tidewater Utilities, Inc. in 1998 as Executive Vice President. He was elected
President of Tidewater and White Marsh Environmental Systems, Inc. in 2003 and elected President of Tidewater
Environmental Services, Inc. in January 2005. Prior to joining the Company he worked in various executive positions for
Delaware environmental protection and water quality governmental agencies. He is a Director of Tidewater Utilities, Inc.,
Tidewater Environmental Services, Inc., and White Marsh Environmental Systems, Inc.
ITEM 1A. RISK FACTORS.
Our revenue and earnings depend on the rates we charge our customers. We cannot raise utility rates in our
regulated businesses without filing a petition with the appropriate Utility Commissions. If these agencies modify,
delay, or deny our petition, our revenues will not increase and our earnings will decline unless we are able to
reduce costs.
The NJBPU regulates our public utility companies in New Jersey with respect to rates and charges for service,
classification of accounts, awards of new service territory, acquisitions, financings and other matters. That means, for
example, that we cannot raise the utility rates we charge to our customers without first filing a petition with the NJBPU
and going through a lengthy administrative process. In much the same way, the DEPSC and the PAPUC regulate our
public utility companies in Delaware and Pennsylvania, respectively. We cannot give assurance of when we will request
approval for any such matter, nor can we predict whether these Utility Commissions will approve, deny or reduce the
amount of such requests.
Certain costs of doing business are not completely within our control. The failure to obtain any rate increase would
prevent us from increasing our revenues and, unless we are able to reduce costs, would result in reduced earnings.
General economic conditions may materially and adversely affect our financial condition and results of operations.
Recent economic conditions have negatively impacted our customers’ water usage demands, particularly the level of
water usage demand by our commercial and industrial customers in our Middlesex System. We are unable to determine
when these customers’ water demands may return to previous levels, or if the decline in demand will continue
indefinitely. If water demand by our commercial and industrial customers in our Middlesex System does not return to
previous levels, our financial condition and results of operations could be negatively impacted.
Recent economic conditions have also impacted the volume and pace of residential construction in our Delaware markets
and in other states where developer-projects are in various stages of completion. The timing and extent of recovery of our
engineering and other preliminary survey and investigation (PS&I) charges either from the construction of a project that
yields customers or from reimbursements from a developer is dependent upon the timing and extent to which such
projects may or may not be further developed or from our ability to collect amounts contractually owed to us.
If it is
determined that recovery is unlikely, the applicable PS&I costs will be charged against income in the period of
determination.
9
We are subject to environmental laws and regulations, including water quality and wastewater effluent quality
regulations, as well as other state and local regulations. Compliance with those laws and regulations requires us to
incur costs and we are subject to fines or other sanctions for non-compliance
Government Environmental Regulatory Agencies regulate our operations in New Jersey, Delaware and Pennsylvania with
respect to water supply, treatment and distribution systems and the quality of water. Government Environmental
Regulatory Agencies’ regulations relating to water quality require us to perform expanded types of testing to ensure that
our water meets state and federal water quality requirements. We are subject to EPA regulations under the Federal Safe
Drinking Water Act, which include the Lead and Copper Rule, the maximum contaminant levels established for various
volatile organic compounds, the Federal Surface Water Treatment Rule and the Total Coliform Rule. There are also
similar NJDEP regulations for our New Jersey water systems. The NJDEP, DEDPH and PADEP monitor our activities
and review the results of water quality tests that we perform for adherence to applicable regulations. In addition,
Government Environmental Regulatory Agencies are continually reviewing regulations governing the limits of certain
organic compounds found in the water as byproducts of treatment.
We are also subject to regulations related to fire protection services in New Jersey and Delaware. In New Jersey there is
no state-wide fire protection regulatory agency. However, New Jersey regulations exist as to the size of piping required
regarding the provision of fire protection services. In Delaware, fire protection is regulated statewide by the Office of
State Fire Marshal.
The cost of compliance with the water and wastewater effluent quality standards depends in part on the limits set in the
regulations and on the method selected to implement them. If new or more restrictive standards are imposed, the cost of
compliance could be very high and have an adverse impact on our revenues and results of operations if we cannot recover
those costs through our rates that we charge our customers. The cost of compliance with fire protection requirements
could also be high and make us less profitable if we cannot recover those costs through our rates charged to our
customers.
In addition, if we fail to comply with environmental or other laws and regulations to which our business is subject, we
could be fined or subject to other sanctions, which could adversely impact our business or results of operations.
We depend upon our ability to raise money in the capital markets to finance some of the costs of complying with
laws and regulations, including environmental laws and regulations or to pay for some of the costs of
improvements to or the expansion of our utility system assets. Our regulated utility companies cannot issue debt or
equity securities without regulatory approval.
We require financing to fund the ongoing capital program for the improvement of our utility system assets and for planned
expansion of those systems. We expect to spend approximately $66.0 million for capital projects through 2013. We must
obtain regulatory approval to sell debt or equity securities to raise money for these projects. If sufficient capital is not
available or the cost of capital is too high, or if the regulatory authorities deny a petition of ours to sell debt or equity
securities, we may not be able to meet the costs of complying with environmental laws and regulations or the costs of
improving and expanding our utility system assets to the level we believe necessary. This might result in the imposition
of fines or restrictions on our operations and may curtail our ability to improve upon and expand our utility system assets.
Weather conditions and overuse of underground aquifers may interfere with our sources of water, demand for
water services and our ability to supply water to customers.
Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water.
Unexpected conditions may interfere with our water supply sources. Drought and overuse of underground aquifers may
limit the availability of ground and/or surface water. Freezing weather may also contribute to water transmission
interruptions caused by pipe and/or main breakage. Any interruption in our water supply could cause a reduction in our
revenue and profitability. These factors might adversely affect our ability to supply water in sufficient quantities to our
customers. Governmental drought restrictions might result in decreased use of water services and can adversely affect our
revenue and earnings.
10
Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues.
Demand for our water during the warmer months is generally greater than during cooler months due primarily to
additional consumption of water in connection with irrigation systems, swimming pools, cooling systems and other
outside water use. Throughout the year, and particularly during typically warmer months, demand may vary with
temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal,
or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.
Our water sources may become contaminated by naturally-occurring or man-made compounds and events. This
may cause disruption in services and impose costs to restore the water to required levels of quality.
Our sources of water may become contaminated by naturally-occurring or man-made compounds and events. In the event
that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to install
treatment equipment or substitute the flow of water from an uncontaminated water source through our transmission and
distribution systems. We may also incur significant costs in treating the contaminated water through the use of our current
treatment facilities, or development of new treatment methods. Our inability to substitute water supply from an
uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner may reduce
our revenues and make us less profitable.
We face competition from other water and wastewater utilities and service providers which might hinder our
growth and reduce our profitability.
We face risks of competition from other utilities authorized by federal, state or local agencies. Once a state utility
regulator grants a franchise to a utility to serve a specific territory, that utility effectively has an exclusive right to service
that territory. Although a new franchise offers some protection against competitors, the pursuit of franchises is
competitive, especially in Delaware, where new franchises may be awarded to utilities based upon competitive
negotiation. Competing utilities have challenged, and may in the future challenge, our applications for new franchises.
Also, third parties entering into long-term agreements to operate municipal systems might adversely affect us and our
long-term agreements to supply water on a contract basis to municipalities, which could adversely affect our operating
results.
We have a long-term contractual obligation for water and wastewater system operation and maintenance under
which we may incur costs in excess of payments received.
USA-PA operates and maintains the water and wastewater systems of the City of Perth Amboy, New Jersey under a 20-
year contract expiring in 2018. This contract does not protect us against incurring costs in excess of revenues we earn
pursuant to the contract. There can be no absolute assurance that we will not experience losses resulting from this
contract. Losses under this contract, or our failure or inability to perform, may have a material adverse effect on our
financial condition and results of operations.
An important element of our growth strategy is the acquisition of water and wastewater assets, operations,
contracts or companies. Any pending or future acquisitions we decide to undertake may involve risks.
The acquisition and/or operation of water and wastewater systems is an important element in our growth strategy. This
strategy depends on identifying suitable opportunities and reaching mutually agreeable terms with acquisition candidates
or contract partners. These negotiations, as well as the integration of acquired businesses, could require us to incur
significant costs and cause diversion of our management’s time and resources. Further, acquisitions may result in dilution
of our equity securities, incurrence of debt and contingent liabilities, fluctuations in quarterly results and other related
expenses. In addition, the assets, operations, contracts or companies we acquire may not achieve the sales and profitability
expected.
The current concentration of our business in central New Jersey and Delaware makes us susceptible to any adverse
development in local regulatory, economic, demographic, competitive and weather conditions.
Our New Jersey water and wastewater businesses provide services to customers who are located primarily in eastern
Middlesex County, New Jersey. Water service is provided under wholesale contracts to the Township of Edison, the
11
Boroughs of Highland Park and Sayreville, both the Old Bridge and the Marlboro Township Municipal Utilities
Authorities, and the City of Rahway in Union County, New Jersey. We also provide water and wastewater services to
customers in the State of Delaware. Our revenues and operating results are therefore subject to local regulatory,
economic, demographic, competitive and weather conditions in a relatively concentrated geographic area. A change in
any of these conditions could make it more costly or difficult for us to conduct our business. In addition, any such change
would have a disproportionate effect on us, compared to water utility companies that do not have such a geographic
concentration.
The necessity for ongoing security has and may continue to result in increased operating costs.
Because of the continuing threats to the health and security of the United States of America, we employ procedures to
review and modify, as necessary, security measures at our facilities. We provide ongoing training and communications to
our employees about threats to our water supply and to their personal safety. Our security measures include protocols
regarding delivery and handling of certain chemicals used in our business. We are at risk for terrorist attacks and have
incurred, and will continue to incur, costs for security measures to protect our facilities, operations and supplies from such
risks.
Our ability to achieve growth in our market area is dependent on the residential building market. Housing starts
impact our rate of growth and therefore, may not meet our expectations.
We expect our revenues to increase from customer growth for our regulated water and wastewater operations as a result of
anticipated construction and sale of new housing units. Although the residential building market in Delaware has
experienced growth in recent years, this growth has slowed due to current economic conditions. If housing starts decline
further, or do not increase as we have projected, as a result of economic conditions or otherwise, the timing and extent of
our revenue growth may not meet our expectations, our deferred project costs may not produce revenue-generating
projects in the timeframes anticipated and our financial results could be negatively impacted.
There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they
will be in amounts similar to past dividends.
We have paid dividends on our common stock each year since 1912 and have increased the amount of dividends paid each
year since 1973. Our earnings, financial condition, capital requirements, applicable regulations and other factors,
including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on common stock
and the amount of those dividends. There can be no assurance that we will continue to pay dividends in the future or, if
dividends are paid, that they will be in amounts similar to past dividends.
If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain
other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and
financial condition could be adversely affected.
Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future
performance. Our performance is affected by many factors, some of which are beyond our control. We believe that our
cash generated from operations, and, if necessary, borrowings under our existing credit facilities will be sufficient to
enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be
required to refinance our obligations or sell additional equity, which may be on terms that are not as favorable to us.
No assurance can be given that any refinancing or sale or equity will be possible when needed or that we will be able to
negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust indentures and
loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could
result in an acceleration of our indebtedness.
We depend significantly on the services of the members of our senior management team, and the departure of any
of those persons could cause our operating results to suffer.
Our success depends significantly on the continued individual and collective contributions of our senior management
team. If we lose the services of any member of our senior management or are unable to hire and retain experienced
management personnel, our operating results could be negatively impacted.
12
We are subject to anti-takeover measures that may be used by existing management to discourage, delay or
prevent changes of control that might benefit non-management shareholders.
Subsection 10A of the New Jersey Business Corporation Act, known as the New Jersey Shareholders Protection Act,
applies to us. The Shareholders Protection Act deters merger proposals, tender offers or other attempts to effect changes in
control that are not approved by our Board of Directors. In addition, we have a classified Board of Directors, which means
only one-third of the Directors are elected each year. A classified Board can make it harder for an acquirer to gain control
by voting its candidates onto the Board of Directors and may also deter merger proposals and tender offers. Our Board of
Directors also has the ability, subject to obtaining NJBPU approval, to issue one or more series of preferred stock having
such number of shares, designation, preferences, voting rights, limitations and other rights as the Board of Directors may
fix. This could be used by the Board of Directors to discourage, delay or prevent an acquisition that might benefit non-
management shareholders.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Utility Plant
The water utility plant in our systems consist of source of supply, pumping, water treatment, transmission and distribution,
general facilities and all appurtenances, including all connecting pipes.
The wastewater utility plant in our systems consist of pumping, treatment, collection mains, general facilities and all
appurtenances, including all connecting pipes.
Middlesex System
The Middlesex System’s principal source of surface supply is the Delaware & Raritan Canal owned by the State of New
Jersey and operated as a water resource by the New Jersey Water Supply Authority.
Water is withdrawn from the Delaware & Raritan Canal at New Brunswick, New Jersey through our intake and pumping
station, located on state-owned land bordering the canal. Water is transported through two raw water pipelines for
treatment and distribution at our CJO Water Treatment Plant in Edison, New Jersey.
The CJO Water Treatment Plant includes chemical storage and chemical feed equipment, two dual rapid mixing basins,
four upflow clarifiers which are also called superpulsators, four underground reinforced chlorine contact tanks, twelve
rapid filters containing gravel, sand and anthracite for water treatment and a steel washwater tank. The CJO Water
Treatment Plant also includes a computerized Supervisory Control and Data Acquisitions system to monitor and control
the CJO Water Treatment Plant and the water supply and distribution system in the Middlesex System. There is an on-site
State certified laboratory capable of performing bacteriological, chemical, process control and advanced instrumental
chemical sampling and analysis. The firm design capacity of the CJO Water Treatment Plant is 45 mgd (60 mgd
maximum capacity). The five electric motor-driven, vertical turbine pumps presently installed have an aggregate capacity
of 85 mgd.
In addition, there is a 15 mgd auxiliary pumping station located at the CJO Water Treatment Plant location. It has a
dedicated substation and emergency power supply provided by a diesel-driven generator. It pumps from the 10 million
gallon distribution storage reservoir directly into the distribution system.
The transmission and distribution system is comprised of 739 miles of mains and includes 23,200 feet of 48-inch
reinforced concrete transmission main connecting the CJO Water Treatment Plant to our distribution pipe network and
related storage facilities. Also included is a 58,600 foot transmission main and a 38,800 foot transmission main,
13
augmented with a long-term, non-exclusive agreement with the East Brunswick system to transport water to several of our
contract customers.
The Middlesex System’s storage facilities consist of a 10 million gallon reservoir at the CJO Water Treatment Plant, 5
million gallon and 2 million gallon reservoirs in Edison (Grandview), a 5 million gallon reservoir in Carteret (Eborn) and
a 2 million gallon reservoir at the Park Avenue Well Field.
In New Jersey, we own the properties on which the Middlesex System’s 31 wells are located, the properties on which our
storage tanks are located as well as the property where the CJO Water Treatment Plant is located. We also own our
headquarters complex located at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000 square foot office building
and an adjacent 16,500 square foot maintenance facility.
Tidewater System
The Tidewater System is comprised of 86 production plants that vary in pumping capacity from 26,000 gallons per day to
2.0 mgd. Water is transported to our customers through 613 miles of transmission and distribution mains. Storage
facilities include 46 tanks, with an aggregate capacity of 6.0 million gallons. Our Delaware operations are managed from
Tidewater’s offices in Dover, Delaware. The Delaware office property, located on eleven-acre lot owned by White Marsh,
consists of two office buildings totaling approximately 17,000 square feet.
Pinelands System
Pinelands Water owns well site and storage properties in Southampton Township, New Jersey. The Pinelands Water
storage facility is a 1.2 million gallon standpipe. Water is transported to our customers through 18 miles of transmission
and distribution mains.
Pinelands Wastewater System
Pinelands Wastewater owns a 12 acre site on which its 0.5 million gallons per day capacity tertiary treatment plant and
connecting pipes are located. Its wastewater collection system is comprised of approximately 24 miles of sewer lines.
Bayview System
Bayview owns two well sites, which are located in Downe Township, Cumberland County, New Jersey. Water is
transported to its customers through our 4.2 mile distribution system.
TESI System
The TESI System owns and operates six wastewater treatment systems in Southern Delaware. The treatment plants
provide clarification, sedimentation, and disinfection. The combined total capacity of the plants is 0.6 mgd. TESI’s
wastewater collection system is comprised of approximately 30 miles of sewer lines.
Twin Lakes System
Twin Lakes owns two well sites, which are located in the Township of Shohola, Pike County, Pennsylvania. Water is
transported to our customers through 3.7 miles of distribution mains.
USA-PA, USA and White Marsh
Our non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own utility plant property.
ITEM 3. LEGAL PROCEEDINGS.
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.
ITEM 4. REMOVED AND RESERVED.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company’s common stock is traded on the NASDAQ Stock Market, LLC, under the symbol MSEX. The following
table shows the range of high and low share prices per share for the common stock and the dividend paid to shareholders
in such quarter. As of December 31, 2010, there were 1,950 holders of record.
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
$19.31
$17.16
$18.70
$18.00
High
$17.91
$15.89
$15.29
$17.71
Low
$16.77
$15.48
$14.74
$16.16
Low
$14.74
$13.62
$12.61
$11.64
Dividend
$0.1825
$0.1800
$0.1800
$0.1800
Dividend
$0.1800
$0.1775
$0.1775
$0.1775
The Company has paid dividends on its common stock each year since 1912. Although it is the present intention of the
Board of Directors of the Company to continue to pay regular quarterly cash dividends on its common stock, the payment
of future dividends is contingent upon the future earnings of the Company, its financial condition and other factors
deemed relevant by the Board of Directors at its discretion.
If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members
to the Board of Directors in addition to Directors elected by holders of the common stock. In the event dividends on the
preferred stock are in arrears, no dividends may be declared or paid on the common stock of the Company.
In June 2010, the Company sold and issued 1.9 million shares of common stock in a public offering that was priced at
$15.21 per share. The net proceeds of approximately $27.8 million were used to repay certain of the Company’s short-
term debt outstanding.
The Company periodically issues shares of common stock in connection with its Dividend Reinvestment and Common
Stock Purchase Plan (the DRP). The Company raised approximately $1.9 million through the issuance of 0.1 million
shares under the Plan during 2010.
The Company has a stock compensation plan for its employees (the 2008 Restricted Stock Plan). The Company maintains
an escrow account for 0.1 million awarded shares of the Company's common stock for the 2008 Restricted Stock Plan.
Such stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment
within five years of the award other than as a result of retirement, death, disability or change in control. The maximum
number of shares authorized for grant under the 2008 Restricted Stock Plan is 0.3 million shares and 0.2 million shares
remain available for future awards under the 2008 Restricted Stock Plan.
The Company has a stock compensation plan for its outside directors (the Outside Director Stock Compensation Plan). In
2010, 1,416 shares of common stock were granted and issued to the Company’s outside directors under the Outside
Director Stock Compensation Plan. The maximum number of shares authorized for grant under the Outside Director Stock
Compensation Plan is 0.1 million and 97,030 shares remain available for future grants under the Outside Director Stock
Compensation Plan.
15
Set forth below is a line graph comparing the yearly change in the cumulative total return (which includes reinvestment of
dividends) of a $100 investment for the Company’s common stock, a peer group of investor-owned water utilities, and the
Dow Jones Wilshire 5000 Stock Index for the period of five years commencing December 31, 2005. The Dow Jones
Wilshire 5000 Stock Index measures the performance of all U.S. headquartered equity securities with readily available
price data.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Middlesex Water Company, The Dow Jones Wilshire 5000 Index and a Peer Group
*$100 invested on 12/31/05 in stock or index-including reinvestment of dividends.
** Peer group includes American States Water Company, American Water Works, Inc., Aqua America Inc.,
Artesian Resources Corp., California Water Service Company, Connecticut Water Service, Inc., Pennichuck
Corp., SJW Corp., York Water Company and Middlesex.
Middlesex Water Company
Dow Jones Wilshire 5000
Peer Group
December 31,
2005
100.00
100.00
100.00
2006
112.00
115.80
100.40
2007
116.50
122.30
96.70
2008
110.20
76.70
94.70
2009
118.10
98.50
94.30
2010
128.20
115.40
112.20
16
ITEM 6. SELECTED FINANCIAL DATA.
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands Except per Share Data)
Operating Revenues
Operating Expenses:
Operations and Maintenance
Depreciation
Other Taxes
Total Operating Expenses
Operating Income
Other Income, Net
Interest Charges
Income Taxes
Net Income
Preferred Stock Dividend
Earnings Applicable to Common Stock
Earnings per Share:
Basic
Diluted
Average Shares Outstanding:
Basic
Diluted
Dividends Declared and Paid
Total Assets
Convertible Preferred Stock
Long-term Debt
2010
102,735
$
2009
91,243
$
2008
91,038
$
2007
86,114
$
2006
81,061
$
55,481
9,244
11,413
76,138
26,597
1,444
6,925
6,786
14,330
207
14,123
0.96
0.96
14,654
14,916
0.723
489,185
2,273
133,844
$
$
$
$
$
$
$
52,348
8,559
10,175
71,082
20,161
1,726
6,750
5,160
9,977
208
9,769
0.73
0.72
13,454
13,716
0.713
458,086
2,273
124,910
$
$
$
$
$
$
$
48,929
7,922
10,168
67,019
24,019
1,302
7,057
6,056
12,208
218
11,990
0.90
0.89
13,317
13,615
0.703
440,000
2,273
118,217
$
$
$
$
$
$
$
46,240
7,539
9,664
63,443
22,671
1,527
6,619
5,736
11,843
248
11,595
0.88
0.87
13,203
13,534
0.693
392,675
2,856
131,615
$
$
$
$
$
$
$
43,345
7,060
9,338
59,743
21,318
774
7,012
5,041
10,039
248
9,791
0.83
0.82
11,844
12,175
0.683
370,267
2,856
130,706
$
$
$
$
$
$
$
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following discussion of the Company’s historical results of operations and financial condition should be read in
conjunction with the Company’s consolidated financial statements and related notes.
Management’s Overview
Operations
Middlesex Water Company has operated as a water utility in New Jersey since 1897, in Delaware through our wholly-
owned subsidiary, Tidewater, since 1992 and in Pennsylvania through our wholly-owned subsidiary, 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 a New Jersey municipal water and wastewater system under contract and
provide wastewater services in New Jersey and Delaware through our subsidiaries. We are regulated as to rates charged
to customers for water and wastewater services, as to the quality of water service we provide and as to certain other
matters in New Jersey, Delaware and Pennsylvania. Only our USA, USA-PA and White Marsh subsidiaries are not
regulated utilities.
17
Our New Jersey water utility system (the Middlesex System) provides water services to approximately 60,000 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 303,000. In partnership with our subsidiary,
USA-PA, we operate the water supply system and wastewater system for the City of Perth Amboy, New Jersey. Our
Bayview subsidiary provides water services in Downe Township, New Jersey. Our other New Jersey subsidiaries,
Pinelands Water and Pinelands Wastewater, provide water and wastewater services to residents in Southampton
Township, New Jersey.
USA provides residential customers in New Jersey and Delaware a water service line and sewer lateral maintenance
programs called LineCareSM and LineCare+SM, respectively.
Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services to approximately 34,000 retail
customers in New Castle, Kent and Sussex Counties, Delaware. Tidewater’s subsidiary, White Marsh, services an
additional 6,000 customers in Kent and Sussex Counties through various operations and maintenance contracts.
Our TESI subsidiary provides wastewater services to approximately 1,900 residential retail customers. We expect the
growth of our regulated wastewater operations in Delaware will eventually become a more significant component of our
operations.
Our Pennsylvania subsidiary, Twin Lakes, provides water services to approximately 120 retail customers in the Township
of Shohola, Pike County, Pennsylvania.
The majority of our revenue is generated from retail and contract water services to customers in our service areas. We
record water service revenue as such service is rendered and include estimates for amounts unbilled at the end of the
period for services provided after the last billing cycle. Fixed service charges are billed in advance by our subsidiary,
Tidewater, and are recognized in revenue as the service is provided.
Strategy
Our strategy is focused on four key areas:
Serve as a trusted and continually-improving provider of safe, reliable and cost-effective water, wastewater and
related services;
Provide a comprehensive suite of water and wastewater solutions in the continually-developing Delaware market
that results in profitable growth;
Pursue profitable growth in our core states of New Jersey and Delaware, as well as additional states; and
Invest in products, services and other viable opportunities that complement our core competencies.
(cid:135)
(cid:135)
(cid:135)
(cid:135)
Rates
Middlesex - In January 2011, Middlesex filed an application with the NJBPU seeking permission to establish a PWAC
and implement a tariff rate sufficient to recover increased costs of $0.4 million to purchase untreated water from the New
Jersey Water Supply Authority and treated water from a non-affiliated regulated water utility. We cannot predict whether
the NJBPU will ultimately approve, deny, or reduce the amount of the request.
In March 2010, a settlement was reached with respect to Middlesex’s application with the NJBPU seeking permission to
increase its base water rates. The NJBPU granted an increase in annual operating revenues of 13.57%, or $7.8 million.
The base water rate increase request was made to seek recovery of increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial customer demand patterns, as well as capital
investment. The new base water rates are designed to recover these increased costs, as well as a return on invested capital
in rate base of $180.3 million based on a return on equity of 10.30%.
18
Tidewater – A DSIC is a DEPSC approved rate-mechanism that allows water utilities to recover investment in non-
revenue producing capital improvements to the water system between base rate proceedings. The following summarizes
Tidewater’s approved DSIC rates from January 1, 2010 through January 1, 2011:
Date
% Increase (Decrease)
Cumulative %
January 1, 2010
1.11%
1.11%
July 1, 2010
(0.04)%
1.07%
January 1, 2011
0.27%
1.34%
Outlook
Rate relief and favorable weather patterns bolstered our consolidated revenues in 2010. Even though revenues for 2011
should be favorably impacted by the full year effect of the March 2010 Middlesex rate increase, the Tidewater DSIC and
the anticipated Middlesex PWAC, there can be no assurance that the higher level of customer water consumption
experienced during the extended hot, dry period throughout our service territories in 2010 will continue in 2011. Severe
winter weather in early 2011 has negatively impacted our operation and maintenance costs for main breaks and snow
removal, particularly in New Jersey. These weather patterns may continue, which could further increase costs.
Ongoing economic conditions continue to negatively impact our customers’ water consumption, particularly the level of
water usage by our commercial and industrial customers in our Middlesex system. In the second half of 2010, we began
to see an increase in usage by our commercial and industrial customers. However, we are unable to determine when these
customers’ water demands may fully return to previous levels, or if a reduced level of demand will continue indefinitely.
We were given appropriate recognition of this decrease in demand in Middlesex’s March 2010 rate increase.
As discussed above, revenues and earnings are influenced by weather. Changes in usage patterns, as well as increases in
capital expenditures and operating costs, are the primary factors in determining the need for rate increase requests. We
continue to implement plans to streamline operations and reduce operating costs.
Middlesex and several of its subsidiaries are expected to file for rate increases in 2011. There can be no assurances
however, that the respective Utility Commissions will approve the anticipated rate increase requests in whole or in part.
In addition, the timing of approval of these rate requests is presently not known.
As a result of ongoing challenging economic conditions impacting the pace of new residential home construction, there
may be an increase in the amount of PS&I costs that will not be currently recoverable in rates. If it is determined that
recovery is unlikely, the applicable PS&I costs will be charged against income in the period of determination.
The return on assets held in our retirement benefit plans during 2010 resulted in an increase in the amount available to
fund current and future obligations. We expect this will help mitigate retirement plan benefit expenses and retirement
plan cash contributions in 2011.
Operating Results by Segment
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. These factors are evident in the discussions below
which compare our results of operations from prior years.
The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed
approximately 90%, 88% and 89% of total revenues, and approximately 92%, 87% and 90% of net income for the years
ended December 31, 2010, 2009 and 2008, respectively. The discussion of the Company’s results of operations is on a
consolidated basis, and includes significant factors by subsidiary. The segments in the tables included below are
comprised of the following companies: Regulated- Middlesex, Tidewater, Pinelands, Southern Shores, TESI and Twin
Lakes; Non-Regulated- USA, USA-PA, and White Marsh.
19
Results of Operations in 2010 Compared to 2009
(Millions of Dollars)
Years ended December 31,
2010
Non-
Regulated
Regulated
$92.0
47.0
9.1
11.1
$24.8
1.1
6.8
6.0
$13.1
$10.7
8.5
0.1
0.3
$1.8
0.3
0.1
0.8
$1.2
Total
$102.7
55.5
9.2
11.4
$26.6
1.4
6.9
6.8
$14.3
Regulated
$80.6
44.2
8.4
9.9
$18.1
1.4
6.5
4.3
$8.7
2009
Non-
Regulated
$10.6
8.1
0.1
0.3
$2.1
0.3
0.2
0.9
$1.3
Total
$91.2
52.3
8.5
10.2
$20.2
1.7
6.7
5.2
$10.0
Revenues
Operations and maintenance
Depreciation
Other taxes
Operating income
Other income, net
Interest expense
Income taxes
Net income
Operating Revenues
Operating revenues for the year ended December 31, 2010 increased $11.5 million from the same period in 2009. This
increase was primarily related to the following factors:
(cid:120) Revenues in our Middlesex System increased $8.5 million, primarily as a result of the following:
o Contract Sales to Municipalities increased by $2.6 million due to higher customer demand for water and
the March 2010 rate increase;
o Sales to General Metered Service (GMS) Customers increased by $4.0 million from the implementation
of the March 2010 base water rate increase ($3.2 million) and increased customer demand for water ($0.8
million). The increased demand primarily resulted from hot, dry weather in the summer months and an
increase in demand by our commercial and industrial customers in the 3rd and 4th quarters of 2010, which
mitigated decreased demand through the six months ended June 30, 2010. In 2009 and through the 2nd
quarter of 2010, water consumption by our commercial and industrial customer class was below the
historical average;
o Facilities Charges increased by $2.0 million from the March 2010 rate increase; and
o All other revenue categories decreased $0.1 million.
(cid:120) Revenues in our Tidewater System increased $2.7 million primarily from the following:
o Higher demand by our GMS customers ($1.5 million);
o Increased base water rates that went into effect during 2009 ($0.4 million);
o A contract to temporarily provide water to Dover Air Force Base in Delaware ($0.4 million);
o New customer growth increased connection fees and facilities charges ($0.5 million); and
o All other revenue categories decreased $0.1 million.
(cid:120) Additional services provided by White Marsh under non-regulated contracts increased revenues by $0.2 million.
(cid:120) All other subsidiaries’ revenues collectively increased $0.1 million.
20
Operation and Maintenance Expense
Operation and maintenance expenses for the year ended December 31, 2010 increased $3.2 million from the same period
in 2009. This increase was primarily related to the following factors:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Increased material and supply and outside contractor costs of $0.8 million due to water main breaks in our
Middlesex and Tidewater Systems;
Increased purchased water costs of $0.5 million in our Middlesex and Tidewater Systems, primarily from the
aforementioned increased customer demand;
Increased net costs of $0.5 million from the implementation of a Company-wide information technology platform;
Increased labor costs of $0.9 million related to higher average labor rates and increased overtime related to higher
water production and increased main breaks in our Middlesex and Tidewater Systems.
Increased employee benefit costs of $0.2 million primarily related to higher life insurance expenses resulting from
market fluctuations in the cash surrender value of life insurance policies; and
(cid:120) All other operation and maintenance expense categories collectively increased $0.3 million.
Depreciation
Depreciation expense for the year ended December 31, 2010 increased $0.7 million from the same period in 2009 due to a
higher level of utility plant in service.
Other Taxes
Other taxes for the year ended December 31, 2010 increased $1.2 million from the same period in 2009, primarily due to
increased gross receipts and franchise taxes on higher taxable revenues in our Middlesex System.
Other Income, net
Other Income, net for the year ended December 31, 2010 decreased $0.3 million from the same period in 2009, primarily
related to the following factors:
(cid:120) Decreased Other Income of $0.2 million, primarily related to the sale of a non-operating asset in the third quarter
(cid:120)
of 2009;
Increased Other Expenses of $0.2 million for certain costs related to potential projects at our Delaware
subsidiaries; and
(cid:120) All additional Other Income, net categories increased $0.1 million.
Interest Charges
Interest charges for the year ended December 31, 2010 increased $0.2 million from the same period in 2009, primarily
from replacing variable-rate, short-term loans under our lines of credit with longer-term, fixed rate borrowings at higher
interest rates.
Income Taxes
Income taxes for the year ended December 31, 2010 increased $1.6 million from the same period in 2009, as a result of
higher taxable income in 2010 as compared to 2009.
21
Net Income and Earnings Per Share
Favorable results for the year ended December 31, 2010 increased net income by $4.3 million when compared to the same
period in 2009. Basic and diluted earnings per share increased to $0.96 for the year ended December 31, 2010 as
compared to $0.73 and $0.72, respectively, for the year ended December 31, 2009. The increase in earnings per share for
the year ended December 31, 2010 as compared to the same period in 2009 was tempered by an increase in the average
number of common shares outstanding after the Company’s public offering of 1.9 million shares of common stock in June
2010.
Results of Operations in 2009 Compared to 2008
(Millions of Dollars)
Years ended December 31,
2009
Non-
Regulated
Total
Regulated
$10.6
8.1
0.1
0.3
$2.1
0.3
0.2
0.9
$1.3
$91.2
52.3
8.5
10.2
$20.2
1.7
6.7
5.2
$10.0
$81.1
41.2
7.8
10.0
$22.1
0.9
7.0
5.0
$11.0
2008
Non-
Regulated
$9.9
7.7
0.1
0.2
$1.9
0.4
0.1
1.0
$1.2
Total
$91.0
48.9
7.9
10.2
$24.0
1.3
7.1
6.0
$12.2
Regulated
$80.6
44.2
8.4
9.9
$18.1
1.4
6.5
4.3
$8.7
Revenues
Operations and maintenance
Depreciation
Other taxes
Operating income
Other income, net
Interest expense
Income taxes
Net income
Operating Revenues
Operating revenues for the year ended December 31, 2009 increased $0.2 million from the same period in 2008. This
increase was primarily related to the following factors:
(cid:120) Revenues in our Middlesex System decreased $1.6 million, primarily as a result of lower water consumption
across our residential, commercial and industrial customer classes. We experienced a $1.9 million decline in water
use by our GMS customers compared to the same period in 2008. This lower water consumption was attributable
to unfavorable weather as compared to prior years as well as decreased demand by our large commercial and
industrial customers. Increased revenues of $0.4 million from the PWAC implemented on July 1, 2009, offset
some of the consumption revenue decline. All other factors affecting Middlesex system revenues accounted for a
$0.1 million decrease in revenues.
(cid:120) Revenues in our Tidewater system increased $1.4 million. Revenue of $1.6 million from increased rates helped to
mitigate consumption revenue decreases of $0.8 million, largely attributable to those same weather and usage
patterns described above. New customer growth and other fees added $0.4 million of revenue. All other factors
affecting Tidewater system revenues accounted for a $0.2 million increase in revenues.
(cid:120) USA-PA’s fees for managing the Perth Amboy water and wastewater systems were $0.5 million higher than the
same period in 2008, due mostly to higher pass-through charges and scheduled management fee increases.
(cid:120) All other operations accounted for a decrease of $0.1 million in revenues.
22
Operation and Maintenance Expense
Operation and maintenance expenses for the year ended December 31, 2009 increased $3.4 million from the same period
in 2008. This increase was primarily related to the following factors:
(cid:120) Labor costs at our regulated entities increased $0.9 million in 2009 as compared to 2008, primarily due to
increases in wages and resources necessary to meet certain additional needs as well as increased overtime incurred
in connection with a higher incidence of water main breaks and system maintenance in our Middlesex system.
(cid:120) Chemical and residuals disposal expenses increased by $0.8 million in 2009 as compared to 2008. Although
unfavorable weather patterns and economic conditions resulted in a decline in water production in our New Jersey
and Delaware systems, costs for chemicals and residuals disposal increased due to a combination of unit cost
disposal rate increases and lower quality of untreated water, as influenced by abnormally high rainfall during
2009.
Purchased water costs in our Middlesex system increased $0.5 million in 2009 as compared to 2008, primarily
due to the full year’s effect of our suppliers’ rate increases that went into effect in the fourth quarter of 2008.
(cid:120) Employee retirement benefit plan expenses increased $0.4 million, primarily resulting from increased qualified
employee retirement benefit plan expenses of $1.2 million, largely attributable to the investment performance of
the benefit plans’ assets, offset by a decrease of $0.8 million in life insurance program expenses due to market
fluctuations in the cash surrender value of life insurance policies.
(cid:120)
(cid:120) Uncollectible accounts expense increased $0.4 million in 2009 as compared to 2008, resulting from current
economic conditions.
(cid:120) Operating costs for USA-PA increased $0.3 million, which are recovered under the pass-through mechanism in
the contract.
(cid:120) All other operating and maintenance expense categories increased $0.1 million in 2009 as compared to 2008.
Depreciation
Depreciation expense for the year ended December 31, 2009 increased $0.6 million from the same period in 2008 due to a
higher level of utility plant in service.
Other Taxes
Other taxes remained consistent with 2008, generally reflecting decreased taxes on lower taxable gross revenues offset by
increased payroll and real estate taxes.
Other Income, net
Other Income, net for the year ended December 31, 2009 increased $0.4 million from the same period in 2008, primarily
due to increased Allowance for Funds Used During Construction from higher capitalized interest resulting from our
ongoing capital program.
Interest Expense
Interest expense for the year ended December 31, 2009 decreased $0.4 million from the same period in 2008. This
decrease was primarily related to the following factors:
(cid:120)
Interest expense on long term debt decreased $0.5 million in 2009 as compared to 2008, primarily resulting from
lower average long-term debt outstanding in 2009.
(cid:120) Other interest expense increased $0.1 million in 2009 as compared to 2008, primarily due to increased interest
costs from higher average short-term debt outstanding in 2009 ($40.0 million) as compared to 2008 ($16.4
million) offset by decreased interest costs from lower average short term debt interest rates in 2009 (1.73%) as
compared to 2008 (3.69%).
23
Income Taxes
Income taxes for the year ended December 31, 2009 decreased $0.8 million as compared to 2008, primarily resulting from
decreased operating income in 2009 as compared to 2008.
Net Income and Earnings Per Share
Net income for the year ended December 31, 2009 decreased $2.2 million from the same period in 2008. Basic earnings
per share decreased to $0.73 in 2009 as compared to $0.90 in 2008. Diluted earnings per share decreased to $0.72 in 2009
as compared to $0.89 in 2008.
Liquidity and Capital Resources
Cash flows from operations are largely based on four factors: weather, adequate and timely rate increases, effective cost
management and customer growth. The effect of those factors on net income is discussed in results of operations.
For the year ended December 31, 2010, cash flows from operating activities increased $7.1 million to $25.6 million. As
described more fully in the Results of Operations section above, increased earnings was the primary reason for the
increase in cash flow. The $25.6 million of net cash flow from operations enabled us to fund approximately 86% of our
utility plant expenditures internally for the period.
For the year ended December 31, 2009, cash flows from operating activities decreased $0.9 million to $18.5 million. As
described more fully in the Results of Operations section above, lower earnings was the primary reason for the decrease in
cash flow. The $18.5 million of net cash flow from operations enabled us to fund approximately 92% of our utility plant
expenditures internally for the period, with the remainder funded by bank lines of credit and other loan commitments.
Increases in certain operating costs impact our liquidity and capital resources. During 2010, we received rate relief for
Middlesex and Tidewater. We continually monitor the need for timely rate filing to minimize the lag between the time we
experience increased operating and capital costs and the time we receive appropriate rate relief. Middlesex and several of
its subsidiaries are expected to file for rate increases in 2011. There can be no assurances however, that the respective
Utility Commissions will approve the anticipated rate increase requests in whole or in part. In addition, the timing of
approval of these rate requests is not known.
Capital Expenditures and Commitments
To fund our capital program, we use internally generated funds, short term and long term debt borrowings, and when
market conditions are favorable, proceeds from sales of common stock under our DRP and offerings to the public.
The table below summarizes our estimated capital expenditures for the years 2011-2013.
Distribution System
Production System
Computer Systems
Other
Total Estimated Capital Expenditures
(Millions)
2011
2012
2013
$
$
$
5.31
2.5
7.2
5.1
9.22
0.21
5.4
4.0
1.1
0.81
$
$
$
2011-2013
3.83
$
7.02
5.3
5.3
0.66
$
8.21
0.11
4.0
9.0
1.52
24
Our estimated capital expenditures for the items listed above are primarily comprised of the following:
(cid:120) Distribution System-Projects associated with installation and relocation of water mains and service lines,
construction of water storage tanks, installation and replacement of hydrants and meters and our RENEW
Program, which is our program to clean and cement unlined mains in the Middlesex system. In connection with
our RENEW Program, we expect to spend $5.0 million, $4.0 million and $4.0 million for 2011, 2012 and 2013,
respectively.
Production System-Projects associated with our water production and water treatment plants, including
construction of a water treatment plant in our Middlesex system expected to be completed in 2014.
(cid:120)
(cid:120) Computer Systems-Purchase of hardware and software as well as expected costs to complete implementation of
our enterprise resource planning system.
(cid:120) Other-Purchase of vehicles and other transportation equipment, tools, furniture, laboratory equipment, security
requirements and other general infrastructure needs.
The actual amount and timing of capital expenditures is dependent on customer growth, residential new home
construction and sales and project scheduling.
To pay for our capital program in 2011, we plan on utilizing:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Internally generated funds
Proceeds from the sale of common stock through the DRP
Funds available and held in trust under existing New Jersey State Revolving Fund (SRF) loans (currently, $5.7
million) and Delaware SRF loans (currently, $1.1 million) and, if available, proceeds from 2011 Delaware and
New Jersey SRF programs. The SRF programs provide low cost financing for projects that meet certain water
quality and system improvement benchmarks.
Short-term borrowings, if necessary, through $58.0 million of available lines of credit with several financial
institutions. As of December 31, 2010, we had $17.0 million outstanding against the lines of credit.
Sources of Liquidity
Short-term Debt. The Company had established lines of credit aggregating $58.0 million as of December 31, 2010. At
December 31, 2010, the outstanding borrowings under these credit lines were $17.0 million at a weighted average interest
rate of 1.53%.
The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted average
interest rates on those amounts were $26.4 million and $40.0 million at 1.58% and 1.73% for the years ended December 31,
2010 and 2009, respectively.
Long-term Debt. Subject to regulatory approval, the Company periodically finances capital projects under 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. We participated in the New Jersey and Delaware SRF loan programs during 2010 and expect to participate in the
2011 New Jersey and Delaware SRF programs for up $4.0 million and $4.5 million, respectively.
25
In February 2010, Tidewater closed on a $1.1 million loan with the Delaware SRF. This loan allows, but does not
obligate, Tidewater to draw down against a General Obligation Note for a specific project no later than July 31, 2011. The
interest rate on any draw-down will be set at 3.45% with a final maturity of August 1, 2031 on the amount actually
borrowed. In December 2010, Tidewater borrowed approximately $17 thousand under this loan.
In March 2009, Tidewater closed on a $22.0 million DEPSC approved loan. In 2009, Tidewater borrowed $12.0 million
under this loan. In March 2010, Tidewater borrowed the remaining $10.0 million at a rate of 5.69% with a final maturity
in January 2030.
In December 2010, Middlesex issued $4.0 million of first mortgage bonds through the New Jersey Environmental
Infrastructure Trust under the New Jersey SRF program. The Company closed on the first mortgage bonds designated as
Series MM and NN in December 2010. Proceeds from the Series MM and NN bonds are included in Restricted Cash and
will be used for Middlesex’s 2011 RENEW Program.
Substantially all of the Utility Plant of the Company is subject to the lien of its mortgage, which includes debt service and
capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions.
Common Stock. In June 2010, the Company sold and issued 1.9 million shares of common stock in a public offering that
was priced at $15.21 per share. The net proceeds of approximately $27.8 million were used to repay certain of the
Company’s short-term debt outstanding.
The Company periodically issues shares of common stock in connection with its DRP. The Company raised $1.9 million
through the issuance of 0.1 million shares under the DRP during 2010.
Contractual Obligations
In the course of normal business activities, the Company enters into a variety of contractual obligations and commercial
commitments. Some of these items result in direct obligations on the Company’s balance sheet while others are
commitments, some firm and some based on uncertainties, which are disclosed in the Company’s other underlying
consolidated financial statements.
The table below presents our known contractual obligations for the periods specified as of December 31, 2010.
Payment Due by Period
(Millions of Dollars)
Less than
1 Year
Total
2-3 Years 4-5 Years
More than
5 Years
Long-term Debt
Notes Payable
Interest on Long-term Debt
Purchased Water Contracts
Wastewater Operations
Total
$ 138.3 $ 4.4 $ 9.2 $ 9.5 $ 115.2
-
17.0 17.0
-
-
63.6
95.1 6.7 12.8 12.0
19.9
45.8 5.2 10.4 10.3
39.1 4.4 9.2 9.8
15.7
$ 41.6 $ 214.4
$ 335.3
$ 37.7
$ 41.6
The table above does not reflect any anticipated cash payments for postretirement benefit plan obligations. The effect on
the timing and amount of these payments resulting from potential changes in actuarial assumptions and returns on plan
assets cannot be estimated. In 2010, the Company contributed $6.3 million to its postretirement benefit plans and expects
to contribute approximately $5.5 million in 2011.
26
Critical Accounting Policies and Estimates
The application of accounting policies and standards often requires the use of estimates, assumptions and judgments. The
Company regularly evaluates these estimates, assumptions and judgments, including those related to the calculation of
pension and postretirement benefits, unbilled revenues, and the recoverability of certain assets, including regulatory
assets. The Company bases its estimates, assumptions and judgments on historical experience and current operating
environment. Changes in any of the variables that are used for the Company’s estimates, assumptions and judgments may
lead to significantly different financial statement results.
Our critical accounting policies are set forth below.
Regulatory Accounting
We maintain our books and records in accordance with accounting principles generally accepted in the United States of
America. Middlesex and certain of its subsidiaries, which account for approximately 90% of Operating Revenues and
98% of Total Assets, are subject to regulation in the states in which they operate. Those companies are required to
maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from other
authoritative accounting pronouncements. In those instances, the Company follows the guidance in the Financial
Accounting Standards Board Accounting Standards Codification Topic 980 Regulated Operations (Regulatory
Accounting).
In accordance with Regulatory Accounting, costs and obligations are deferred if it is probable that these items will be
recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be
amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will
require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items
that are recorded will be treated differently by the regulators in the future.
Revenues
Revenues from metered customers include amounts billed on a cycle basis and unbilled amounts estimated from the last
meter reading date to the end of the accounting period. The estimated unbilled amounts are determined by utilizing factors
which include historical consumption usage and current climate and economic conditions. Differences between estimated
revenues and actual billings are recorded in a subsequent period.
Revenues from unmetered customers are billed at a fixed tariff rate in advance at the beginning of each service period and
are recognized in revenue ratably over the service period.
Revenues from the Perth Amboy management contract are comprised of fixed and variable fees. Fixed fees, which have
been set for the life of the contract, are billed monthly and recorded as earned. Variable fees, which are based on billings
and other factors and are not material, are recorded upon approval of the amount by Perth Amboy.
Postretirement Benefit Plans
The costs for providing postretirement benefits are dependent upon numerous factors, including actual plan experience
and assumptions of future experience. Future postretirement benefit plan obligations and expense will depend on future
investment performance, changes in future discount rates and various other demographic factors related to the population
participating in the Company’s postretirement benefit plans, all of which can change significantly in future years.
We maintain a noncontributory defined benefit pension plan (Pension Plan) which covers substantially all employees who
were hired prior to March 31, 2007. In addition, the Company maintains an unfunded supplemental plan for its executive
officers.
27
The Company has a postretirement benefit plan other than pensions (Other Benefits Plan) for substantially all of its retired
employees. Employees hired after March 31, 2007 are not eligible to participate in the Other Benefits Plan. Coverage
includes healthcare and life insurance.
The allocation by asset category of postretirement benefit plan assets at December 31, 2010 and 2009 is as follows:
Asset Category
Equity Securities
Debt Securities
Cash
Commodities
Total
Pension Plan
2010
64.0%
31.7%
4.0%
0.3% 0.3%
100.0%
2009
59.2%
36.4%
4.1%
100.0%
Other Benefits Plan
2009
2010
42.3%
53.8%
3.1%
Range
Target
40.4% 60% 30-65%
49.5% 38% 25-70%
0-10%
9.0% 2%
0.8% 1.1% 0% 0%
100.0%
100.0%
The discount rate, compensation increase rate and long-term rate of return utilized for determining our postretirement
benefit plans’ future obligations as of December 31, 2010 are as follows:
Discount Rate
Compensation Increase
Long-term Rate of Return
Pension Plan Other Benefits Plan
5.48%
3.00%
7.50%
5.48%
3.00%
7.50%
For the 2010 valuation, costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of increase in the
per capita cost of covered healthcare benefits in 2011 with a decline of 1.0% per year for 2012-2014 and 0.5% per year for
2015-2016, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 5% by year 2016.
The following is a sensitivity analysis for certain actuarial assumptions used in determining projected benefit obligations
(PBO) and expenses for our postretirement benefit plans:
Pension Plan
Actuarial Assumptions
Discount Rate 1% Increase
Discount Rate 1% Decrease
Other Benefits Plan
Actuarial Assumptions
Discount Rate 1% Increase
Discount Rate 1% Decrease
Healthcare Cost Trend Rate 1% Increase
Healthcare Cost Trend Rate 1% Decrease
Estimated
Increase/
(Decrease)
on PBO
(000s)
Estimated
Increase/
(Decrease)
on Expense
(000s)
$ (5,391) $ (521)
633
6,717
Estimated
Increase/
(Decrease)
on PBO
(000s)
Estimated
Increase/
(Decrease)
on Expense
(000s)
$ (4,221) $ (426)
531
5,348
4,553
696
(3,669) (548)
28
The discount rates used at our December 31 measurement date for determining future postretirement benefit plans’
obligations and costs are determined based on market rates for long-term, high-quality corporate bonds specific to our
Pension Plan and Other Benefits Plan’s asset allocation. The expected long-term rate of return for Pension Plan and Other
Benefits Plan assets is determined based on historical returns and our asset allocation.
Recent Accounting Standards
See Note 1(n) of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT 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 First Mortgage
Bonds, which have final maturity dates ranging from 2018 to 2038. Over the next twelve months, approximately $4.4
million of the current portion of 30 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.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Middlesex Water Company
We have audited the accompanying consolidated balance sheets and consolidated statements of capital stock and long-
term debt of Middlesex Water Company (the “Company”) as of December 31, 2010 and 2009, and the related
consolidated statements of income, common stockholders’ equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Middlesex Water Company as of December 31, 2010 and 2009, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Middlesex Water Company’s internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 9, 2011 expressed an unqualified opinion.
Reading, Pennsylvania
March 9, 2011
/s/ ParenteBeard LLC
30
(cid:48)(cid:44)(cid:39)(cid:39)(cid:47)(cid:40)(cid:54)(cid:40)(cid:59)(cid:3)(cid:58)(cid:36)(cid:55)(cid:40)(cid:53)(cid:3)(cid:38)(cid:50)(cid:48)(cid:51)(cid:36)(cid:49)(cid:60)
(cid:38)(cid:50)(cid:49)(cid:54)(cid:50)(cid:47)(cid:44)(cid:39)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:3)(cid:37)(cid:36)(cid:47)(cid:36)(cid:49)(cid:38)(cid:40)(cid:3)(cid:54)(cid:43)(cid:40)(cid:40)(cid:55)(cid:54)
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(cid:36)(cid:54)(cid:54)(cid:40)(cid:55)(cid:54)
(cid:56)(cid:55)(cid:44)(cid:47)(cid:44)(cid:55)(cid:60)(cid:3)(cid:51)(cid:47)(cid:36)(cid:49)(cid:55)(cid:29)
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(cid:39)(cid:40)(cid:41)(cid:40)(cid:53)(cid:53)(cid:40)(cid:39)(cid:3)(cid:38)(cid:43)(cid:36)(cid:53)(cid:42)(cid:40)(cid:54)
(cid:36)(cid:49)(cid:39)(cid:3)(cid:50)(cid:55)(cid:43)(cid:40)(cid:53)(cid:3)(cid:36)(cid:54)(cid:54)(cid:40)(cid:55)(cid:54)(cid:29)
(cid:58)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)
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(cid:38)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:3)(cid:76)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)
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(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:53)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)
(cid:56)(cid:81)(cid:69)(cid:76)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)
(cid:48)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:68)(cid:87)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:12)
(cid:51)(cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)(cid:38)(cid:56)(cid:53)(cid:53)(cid:40)(cid:49)(cid:55)(cid:3)(cid:36)(cid:54)(cid:54)(cid:40)(cid:55)(cid:54)
(cid:56)(cid:81)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)
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(cid:26)(cid:15)(cid:22)(cid:25)(cid:28)
(cid:20)(cid:24)(cid:23)
(cid:27)(cid:27)(cid:15)(cid:21)(cid:25)(cid:21)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:22)(cid:15)(cid:26)(cid:20)(cid:19)
(cid:23)(cid:21)(cid:15)(cid:27)(cid:24)(cid:19)
(cid:23)(cid:15)(cid:22)(cid:23)(cid:27)
(cid:24)(cid:15)(cid:25)(cid:27)(cid:25)
(cid:20)(cid:15)(cid:27)(cid:25)(cid:20)
(cid:27)(cid:25)(cid:20)
(cid:20)(cid:15)(cid:22)(cid:24)(cid:21)
(cid:25)(cid:19)(cid:15)(cid:25)(cid:25)(cid:27)
(cid:21)(cid:19)(cid:15)(cid:27)(cid:19)(cid:25)
(cid:20)(cid:15)(cid:22)(cid:19)(cid:22)
(cid:21)(cid:26)(cid:15)(cid:26)(cid:27)(cid:27)
(cid:21)(cid:24)(cid:15)(cid:26)(cid:21)(cid:22)
(cid:25)(cid:15)(cid:26)(cid:22)(cid:27)
(cid:21)(cid:26)(cid:24)
(cid:27)(cid:21)(cid:15)(cid:25)(cid:22)(cid:22)
(cid:38)(cid:50)(cid:49)(cid:55)(cid:53)(cid:44)(cid:37)(cid:56)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)(cid:3)(cid:44)(cid:49)(cid:3)(cid:36)(cid:44)(cid:39)(cid:3)(cid:50)(cid:41)(cid:3)(cid:38)(cid:50)(cid:49)(cid:54)(cid:55)(cid:53)(cid:56)(cid:38)(cid:55)(cid:44)(cid:50)(cid:49)
(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)(cid:38)(cid:36)(cid:51)(cid:44)(cid:55)(cid:36)(cid:47)(cid:44)(cid:61)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:47)(cid:44)(cid:36)(cid:37)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:23)(cid:28)(cid:15)(cid:25)(cid:28)(cid:27)
(cid:23)(cid:27)(cid:28)(cid:15)(cid:20)(cid:27)(cid:24)
(cid:23)(cid:25)(cid:15)(cid:27)(cid:26)(cid:20)
(cid:23)(cid:24)(cid:27)(cid:15)(cid:19)(cid:27)(cid:25)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
(cid:22)(cid:20)
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:29)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:68)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)
(cid:39)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:55)(cid:68)(cid:91)(cid:72)(cid:86)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:12)(cid:29)
(cid:36)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:56)(cid:86)(cid:72)(cid:71)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)
(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:55)(cid:68)(cid:91)(cid:72)(cid:86)
(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:55)(cid:68)(cid:91)(cid:72)(cid:86)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
(cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
Years Ended December 31,
(cid:21)(cid:19)(cid:19)(cid:28)
2010
(cid:21)(cid:19)(cid:19)(cid:27)
$
102,735
(cid:7)(cid:3)(cid:3)
(cid:28)(cid:20)(cid:15)(cid:21)(cid:23)(cid:22)
(cid:7)(cid:3)(cid:3)
(cid:28)(cid:20)(cid:15)(cid:19)(cid:22)(cid:27)
(cid:3)
(cid:3)
55,481
9,244
11,413
76,138
26,597
970
912
(438)
1,444
6,925
21,116
6,786
14,330
207
(cid:24)(cid:21)(cid:15)(cid:22)(cid:23)(cid:27)
(cid:27)(cid:15)(cid:24)(cid:24)(cid:28)
(cid:20)(cid:19)(cid:15)(cid:20)(cid:26)(cid:24)
(cid:23)(cid:27)(cid:15)(cid:28)(cid:21)(cid:28)
(cid:26)(cid:15)(cid:28)(cid:21)(cid:21)
(cid:20)(cid:19)(cid:15)(cid:20)(cid:25)(cid:27)
(cid:26)(cid:20)(cid:15)(cid:19)(cid:27)(cid:21)
(cid:25)(cid:26)(cid:15)(cid:19)(cid:20)(cid:28)
(cid:21)(cid:19)(cid:15)(cid:20)(cid:25)(cid:20)
(cid:21)(cid:23)(cid:15)(cid:19)(cid:20)(cid:28)
(cid:20)(cid:15)(cid:19)(cid:19)(cid:20)
(cid:20)(cid:15)(cid:19)(cid:20)(cid:20)
(cid:11)(cid:21)(cid:27)(cid:25)(cid:12)
(cid:20)(cid:15)(cid:26)(cid:21)(cid:25)
(cid:25)(cid:15)(cid:26)(cid:24)(cid:19)
(cid:25)(cid:25)(cid:26)
(cid:28)(cid:19)(cid:25)
(cid:11)(cid:21)(cid:26)(cid:20)(cid:12)
(cid:20)(cid:15)(cid:22)(cid:19)(cid:21)
(cid:26)(cid:15)(cid:19)(cid:24)(cid:26)
(cid:20)(cid:24)(cid:15)(cid:20)(cid:22)(cid:26)
(cid:20)(cid:27)(cid:15)(cid:21)(cid:25)(cid:23)
(cid:24)(cid:15)(cid:20)(cid:25)(cid:19)
(cid:28)(cid:15)(cid:28)(cid:26)(cid:26)
(cid:21)(cid:19)(cid:27)
(cid:3)
(cid:25)(cid:15)(cid:19)(cid:24)(cid:25)
(cid:20)(cid:21)(cid:15)(cid:21)(cid:19)(cid:27)
(cid:21)(cid:20)(cid:27)
(cid:3)
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)
$
14,123
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:28)(cid:15)(cid:26)(cid:25)(cid:28)
(cid:7)(cid:3)(cid:3)
(cid:20)(cid:20)(cid:15)(cid:28)(cid:28)(cid:19)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:29)
(cid:37)(cid:68)(cid:86)(cid:76)(cid:70)
(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)
(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)
(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:29)
(cid:37)(cid:68)(cid:86)(cid:76)(cid:70)
(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)
$
$
0.96
0.96
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:19)(cid:17)(cid:26)(cid:22)
(cid:19)(cid:17)(cid:26)(cid:21)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:19)(cid:17)(cid:28)(cid:19)
(cid:19)(cid:17)(cid:27)(cid:28)
14,654
14,916
(cid:20)(cid:22)(cid:15)(cid:23)(cid:24)(cid:23)
(cid:20)(cid:22)(cid:15)(cid:26)(cid:20)(cid:25)
(cid:20)(cid:22)(cid:15)(cid:22)(cid:20)(cid:26)
(cid:20)(cid:22)(cid:15)(cid:25)(cid:20)(cid:24)
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:51)(cid:68)(cid:76)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)
$
0.723
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:19)(cid:17)(cid:26)(cid:20)(cid:22)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:19)(cid:17)(cid:26)(cid:19)(cid:22)
(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
(cid:22)(cid:21)
(cid:48)(cid:44)(cid:39)(cid:39)(cid:47)(cid:40)(cid:54)(cid:40)(cid:59)(cid:3)(cid:58)(cid:36)(cid:55)(cid:40)(cid:53)(cid:3)(cid:38)(cid:50)(cid:48)(cid:51)(cid:36)(cid:49)(cid:60)
(cid:38)(cid:50)(cid:49)(cid:54)(cid:50)(cid:47)(cid:44)(cid:39)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)(cid:38)(cid:36)(cid:54)(cid:43)(cid:3)(cid:41)(cid:47)(cid:50)(cid:58)(cid:54)
(cid:11)(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
(cid:38)(cid:36)(cid:54)(cid:43)(cid:3)(cid:41)(cid:47)(cid:50)(cid:58)(cid:54)(cid:3)(cid:41)(cid:53)(cid:50)(cid:48)(cid:3)(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:49)(cid:42)(cid:3)(cid:36)(cid:38)(cid:55)(cid:44)(cid:57)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)(cid:29)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:72)(cid:3)(cid:49)(cid:72)(cid:87)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:51)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:29)
(cid:39)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:51)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:55)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:44)(cid:55)(cid:38)
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(cid:21)
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(cid:22)(cid:25)(cid:24)
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(cid:11)(cid:20)(cid:12)
(cid:20)(cid:22)(cid:26)(cid:15)(cid:27)(cid:19)(cid:22)
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(cid:20)(cid:23)(cid:15)(cid:22)(cid:22)(cid:19)
(cid:20)(cid:15)(cid:28)(cid:20)(cid:26)
(cid:21)(cid:28)(cid:28)
(cid:21)(cid:23)
(cid:21)(cid:26)(cid:15)(cid:28)(cid:21)(cid:27)
(cid:11)(cid:20)(cid:19)(cid:15)(cid:24)(cid:20)(cid:19)(cid:12)
(cid:11)(cid:21)(cid:19)(cid:26)(cid:12)
(cid:11)(cid:20)(cid:22)(cid:22)(cid:12)
(cid:20)(cid:26)(cid:22)(cid:15)(cid:21)(cid:26)(cid:28)
(cid:7)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
(cid:22)(cid:24)
MIDDLESEX WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) Organization - Middlesex Water Company (Middlesex) is the parent company and sole shareholder of Tidewater
Utilities, Inc. (Tidewater), Tidewater Environmental Services, Inc. (TESI), Pinelands Water Company (Pinelands Water)
and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc.
(USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and 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.
Middlesex Water Company has operated as a water utility in New Jersey since 1897, in Delaware, through our wholly-
owned subsidiary, Tidewater, since 1992 and in Pennsylvania, through our wholly-owned subsidiary, Twin Lakes, since
2009. We are in the business of collecting, treating, distributing and selling water for domestic, commercial, municipal,
industrial and fire protection purposes. We also operate a New Jersey municipal water and wastewater system under
contract and provide wastewater services in New Jersey and Delaware through our subsidiaries. Our rates charged to
customers for water and wastewater services, the quality of services we provide and certain other matters are regulated in
New Jersey, Delaware and Pennsylvania by the New Jersey Board of Public Utilities (NJBPU), Delaware Public Service
Commission (DEPSC) and Pennsylvania Public Utilities Commission (PAPUC), respectively. Only our USA, USA-PA
and White Marsh subsidiaries are not regulated utilities.
Certain reclassifications have been made to the prior year financial statements to conform with current period
presentation.
(b) System of Accounts – Middlesex, Pinelands Water and Pinelands Wastewater maintain their accounts in accordance
with the Uniform System of Accounts prescribed by the NJBPU. Tidewater, TESI and Southern Shores maintain their
accounts in accordance with DEPSC requirements. Twin Lakes maintains its accounts in accordance with PAPUC
requirements.
(c) Utility Plant – Utility Plant is stated at original cost as defined for regulatory purposes. Property accounts are charged
with the cost of betterments and major replacements of property. Cost includes direct material, labor and indirect charges
for pension benefits and payroll taxes. The cost of labor, materials, supervision and other expenses incurred in making
repairs and minor replacements and in maintaining the properties is charged to the appropriate expense accounts. At
December 31, 2010, there was no event or change in circumstance that would indicate that the carrying amount of any
long-lived asset was not recoverable.
(d) Depreciation – Depreciation is computed by each regulated member of the Company utilizing a rate approved by the
applicable regulatory authority. The Accumulated Provision for Depreciation is charged with the cost of property retired,
less salvage. The following table sets forth the range of depreciation rates for the major utility plant categories used to
calculate depreciation for the years ended December 31, 2010, 2009 and 2008. These rates have been approved by the
NJBPU, DEPSC or PAPUC:
Source of Supply
Pumping
Water Treatment
General Plant
1.15% - 3.44%
2.87% - 5.39%
1.65% - 7.09%
2.08% - 17.84%
Transmission and Distribution (T&D):
1.10% - 3.13%
T&D – Mains
2.12% - 3.16%
T&D – Services
1.61% - 4.63%
T&D – Other
36
Non-regulated fixed assets consist primarily of office buildings, furniture and fixtures, and transportation equipment.
These assets are recorded at original cost and depreciation is calculated based on the estimated useful lives, ranging from
3 to 40 years.
(e) Preliminary Survey and Investigation (PS&I) Costs – In the design of water and wastewater systems that the
Company ultimately intends to construct, own and operate certain expenditures are incurred to advance those project
activities. These PS&I costs are recorded as deferred charges on the balance sheet because these costs are expected to be
recovered through future rates charged to customers as the underlying projects are placed into service as utility plant. If it
is subsequently determined that costs for a project recorded as PS&I are not recoverable through rates charged to our
customers, the applicable PS&I costs are recorded as a charge to the income statement at that time.
(f) Customers’ Advances for Construction (CAC) – Water utility plant and/or cash advances are contributed to the
Company by customers, real estate developers and builders in order to extend water service to their properties. These
contributions are recorded as CAC. Refunds on these advances are made by the Company in accordance with agreements
with the contributing party and are based on either additional operating revenues related to the utility plant or as new
customers are connected to and take service from the utility plant. After all refunds are made, any remaining balance is
transferred to Contributions in Aid of Construction.
Contributions in Aid of Construction (CIAC) – CIAC include direct non-refundable contributions of water utility plant
and/or cash and the portion of CAC that becomes non-refundable.
CAC and CIAC are not depreciated in accordance with regulatory requirements. In addition, these amounts reduce the
investment base for purposes of setting rates.
(g) Allowance for Funds Used During Construction (AFUDC) - Middlesex and its regulated subsidiaries capitalize
AFUDC, which represents the cost of financing projects during construction. AFUDC is added to the construction costs of
individual projects exceeding specific cost and construction period thresholds established for each company and then
depreciated along with the rest of the utility plant’s costs over its estimated useful life. For the years ended December 31,
2010, 2009 and 2008, approximately $1.0 million, $1.0 million and $0.7 million, respectively of AFUDC was added to the
cost of construction projects. AFUDC is calculated using each company’s weighted cost of debt and equity as approved
in their most recent respective regulatory rate order. The AFUDC rates for the years ended December 31, 2010, 2009 and
2008 for Middlesex and Tidewater are as follows:
For The Year Ended December 31,
2009
2010
2008
Middlesex
Tidewater
7.54%
8.24%
7.65%
8.24%
7.65%
8.33%
(h) Accounts Receivable – We record bad debt expense based on historical write-offs combined with an evaluation of
current conditions. The allowance for doubtful accounts was $0.5 million and $0.4 million at December 31, 2010 and
December 31, 2009, respectively. Bad debt expense for the years ended December 31, 2010, 2009 and 2008 was $0.6
million, $0.6 million and $0.2 million, respectively. Receivables not expected to be received in 2011 are included as non-
current assets in Operations and Developer Contracts Receivable.
(i) Revenues - General metered customer’s bills for regulated water service are typically comprised of two components; a
fixed service charge and a volumetric or consumption charge. Revenues from general metered service water customers,
except Tidewater fixed service charges, include amounts billed in arrears on a cycle basis and unbilled amounts estimated
from the last meter reading date to the end of the accounting period. The estimated unbilled amounts are determined by
utilizing factors which include historical consumption usage and current climate and economic conditions. Actual billings
may differ from our estimates. Tidewater customers are billed in advance for their fixed service charge and these revenues
are recognized as the service is provided to the customer.
37
Southern Shores is an unmetered system. Customers are billed a fixed service charge in advance at the beginning of each
month and revenues are recognized as earned.
Revenues from the City of Perth Amboy management contract are comprised of fixed and variable fees. Fixed fees, which
have been set for the life of the contract, are billed monthly and recorded as earned. Variable fees, which are not
significant, are recorded upon approval of the amount by the City of Perth Amboy.
USA bills customers in advance on a quarterly or annual basis for its LineCareSM service line maintenance program.
USA’s advance billings are deferred and are recognized as earned.
(j) Deferred Charges and Other Assets - Unamortized Debt Expense is amortized over the lives of the related issues.
Restricted Cash represents proceeds from loans entered into through state financing programs and is held in trusts. The
proceeds are restricted for specific capital expenditures and debt service requirements.
(k) Income Taxes - Middlesex files a consolidated federal income tax return for the Company and income taxes are
allocated based on the separate return method. Investment tax credits have been deferred and are amortized over the
estimated useful life of the related property. For more information on income taxes, see Note 3 – Income Taxes.
(l) Statements of Cash Flows - For purposes of reporting cash flows, the Company considers all highly liquid
investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents
represent bank balances and money market funds with investments maturing in less than 90 days.
(m) Use of Estimates - Conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
(n) Recent Accounting Pronouncements
Topic 820, Fair Value Measurements and Disclosures - In January 2010, the Financial Accounting Standards Board (the
FASB) issued Accounting Standards Update (ASU) 2010-06, which amends Accounting Standards Codification (ASC)
820, Fair Value Measurements and Disclosures, to add new requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs
and valuation techniques used to measure fair value. Further, the ASU amends guidance on employers’ disclosures about
postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by
major categories of assets. However, unlike the proposed ASU, the final ASU does not require entities to provide
sensitivity disclosures. The FASB will consider whether to require sensitivity disclosures jointly with the International
Accounting Standards Board as part of a new convergence project on fair value measurement and disclosures. Adoption
of ASU 2010-06 had no impact on the Company’s results of operations, cash flows or financial position.
(o) Regulatory Accounting - We maintain our books and records in accordance with accounting principles generally
accepted in the United States of America. Middlesex and certain of its subsidiaries, which account for 90% of Operating
Revenues and 98% of Total Assets, are subject to regulation in the state in which they operate. Those companies are
required to maintain their accounts in accordance with regulatory authorities’ rules and guidelines, which may differ from
other authoritative accounting pronouncements. In those instances, the Company follows the guidance provided in FASB
ASC Topic 980 Regulated Operations (Regulatory Accounting).
In accordance with Regulatory Accounting, costs and obligations are deferred if it is probable that these items will be
recognized for rate-making purposes in future rates. Accordingly, we have recorded costs and obligations, which will be
amortized over various future periods. Any change in the assessment of the probability of rate-making treatment will
require us to change the accounting treatment of the deferred item. We have no reason to believe any of the deferred items
that are recorded will be treated differently by the regulators in the future. For additional information, see Note 2 – Rate
and Regulatory Matters.
38
(p) Postretirement Benefit Plans - We maintain a noncontributory defined benefit pension plan (Pension Plan) which
covers substantially all active employees who were hired prior to March 31, 2007. In addition, the Company maintains an
unfunded supplemental plan for its executive officers. The Company has a postretirement benefit plan other than pensions
(Other Benefits Plan) for substantially all of its retired employees. Employees hired after March 31, 2007 are not eligible
to participate in this plan. Coverage includes healthcare and life insurance.
The Company’s costs for providing postretirement benefits are dependent upon numerous factors, including actual plan
experience and assumptions of future experience. Postretirement benefit plan obligations and expense are determined
based on investment performance, discount rates and various other demographic factors related to the population
participating in the Company’s postretirement benefit plans, all of which can change significantly in future years. For
more information on the Company’s Postretirement Benefit Plans, see Note 7 – Employee Benefit Plans.
Note 2 - Rate and Regulatory Matters
Rate Matters
In March 2010, a settlement was reached with respect to Middlesex’s application with the NJBPU seeking permission to
increase its base water rates. The NJBPU granted an increase in annual operating revenues of 13.57%, or $7.8 million.
The base water rate increase request was made to seek recovery of increased costs of operations, chemicals and fuel,
electricity, taxes, labor and benefits, decreases in industrial and commercial customer demand patterns, as well as capital
investment. The new base water rates are designed to recover these increased costs, as well as a return on invested capital
in rate base of $180.3 million based on a return on equity of 10.30%.
In September 2009, the DEPSC approved an overall 14.95% or $3.0 million increase in Tidewater’s base rates. This rate
increase approval is based on a 10.0% return on equity.
A Distribution System Improvement Charge (DSIC) is a DEPSC approved rate-mechanism that allows water utilities to
recover investment in non-revenue producing capital improvements to the water system between base rate proceedings.
The following table summarizes Tidewater’s DSIC for 2008-2010:
Period
January 2008-June 2008
July 2008 - December 2008
January 2009 - March 2009
DSIC %
1.62%
2.94%
5.25%
Period
DSIC %
April 2009 - December 2009
January 2010 - June 2010
July 2010 - December 2010
-
1.11%
1.07%
In December 2010, Tidewater received approval from the DEPSC to increase their DSIC from 1.07% to 1.34% effective
January 1, 2011.
In July 2009, Middlesex implemented a NJBPU approved Purchased Water Adjustment Clause (PWAC) tariff rate in
order to recover increased costs of $1.0 million to purchase untreated water from the New Jersey Water Supply Authority
(NJWSA) and treated water from a non-affiliated regulated water utility. The PWAC rate reset to zero as part of the
March 2010 Middlesex base rate increase.
In January 2011, Middlesex filed an application with the NJBPU seeking
permission to re-establish a PWAC and implement a tariff rate sufficient to recover increased costs of $0.4 million to
purchase treated water from a non-affiliated regulated water utility. We cannot predict whether the NJBPU will ultimately
approve, deny, or reduce the amount of the request.
In accordance with the tariff established for Southern Shores, an annual rate increase of 3% was implemented in January
2009. Under the terms of a contract with Southern Shores Homeowners Association, the increase cannot exceed the lesser
of the regional Consumer Price Index or 3%.
In December 2008, Pinelands Water and Pinelands Wastewater implemented NJBPU approved base rate increases of
5.53% and 18.30%, respectively. These increases represent a total base rate increase of approximately $0.2 million for
Pinelands to offset increased costs associated with the operation and maintenance of their systems.
39
Regulatory Matters
We have recorded certain costs as regulatory assets because we expect full recovery of, or are currently recovering, these
costs in the rates we charge customers. These deferred costs have been excluded from rate base and, therefore, we are not
earning a return on the unamortized balances. These items are detailed as follows:
Regulatory Assets
Postretirement Benefits
Income Taxes
Tank Painting
Rate Cases and Other
Total
(Thousands of Dollars)
December 31,
2010
$25,786
12,551
136
298
$38,771
2009
$21,167
11,356
168
390
$33,081
Remaining
Recovery Periods
Various
Various
4-9 years
Up to 2 years
Postretirement benefits include pension and other postretirement benefits that have been recorded on the Consolidated
Balance Sheet in accordance with the guidance provided in Topic 715, Compensation – Retirement Benefits. These
amounts represent obligations in excess of current funding, which the Company believes will be fully recovered in rates
set by the regulatory authorities.
The recovery period for income taxes is dependent upon when the temporary differences between the tax and book
treatment of various items reverse.
The Company uses composite depreciation rates for its regulated utility assets, which is currently an acceptable method
under generally accepted accounting principles and is widely used in the utility industry. Historically, under the composite
depreciation method, the anticipated costs of removing assets upon retirement are provided for over the life of those assets
as a component of depreciation expense. The Company recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. As of December 31, 2010 and 2009, the Company has
approximately $7.4 million and $6.7 million, respectively, of expected costs of removal recovered currently in rates in
excess of actual costs incurred. These amounts are recorded as regulatory liabilities.
The Company is recovering in current rates acquisition premiums totaling $0.7 million over the remaining lives of the
underlying Utility Plant. These deferred costs have been included in rate base as utility plant and a return is being earned
on the unamortized balances during the recovery periods. The Company expects to recover training costs of
approximately $0.7 million associated with implementation of a new information technology system in future rates.
These costs are included in General Utility Plant.
Note 3 - Income Taxes
Income tax expense differs from the amount computed by applying the statutory rate on book income subject to tax for the
following reasons:
(Thousands of Dollars)
Years Ended December 31,
Income Tax at Statutory Rate
Tax Effect of:
Utility Plant Related
State Income Taxes – Net
Employee Benefits
Other
Total Income Tax Expense
2010
$7,224
2009
$5,147
2008
$6,253
(826)
336
33
19
$6,786
(247)
339
(86)
7
$5,160
40
(725)
309
202
17
$6,056
Income tax expense is comprised of the following:
(Thousands of Dollars)
Years Ended December 31,
2010
2009
2008
Current:
Federal
State
Deferred:
Federal
State
Investment Tax Credits
Total Income Tax Expense
$5,584
481
770
30
(79)
$6,786
$(208)
35
$4,651
392
4,933
479
(79)
$5,160
1,018
74
(79)
$6,056
The statutory review periods for income tax returns for the years prior to 2009 have been closed. An examination by the
Internal Revenue Service of Middlesex’s Federal income tax returns for 2007 and 2008 was completed during 2010 and
resulted in a net refund, including interest, of less than $0.1 million. An examination by the Internal Revenue Service of
the Federal income tax returns for 2005 and 2006 was completed during 2008. The examination resulted in a net refund,
including interest of approximately $0.1 million. The refunds noted above were recorded to the appropriate current and
deferred tax accounts and the interest was reported as other income.
In the event that there are interest and penalties
associated with income tax adjustments in future examinations, these amounts will be reported under interest expense and
other expense, respectively. There are no unrecognized tax benefits resulting from prior period tax positions. The
Company is not aware of any uncertain tax positions that could result in a future tax liability.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and
liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax
liability are as follows:
Utility Plant Related
Customer Advances
Employee Benefits
Investment Tax Credits (ITC)
Other
Total Deferred Tax Liability and ITC
(Thousands of Dollars)
December 31,
2010
$32,010
(3,840)
1,912
1,225
(391)
$30,916
2009
$31,942
(3,914)
217
1,303
(457)
$29,091
Note 4 - Commitments and Contingent Liabilities
Water Supply - Middlesex has an agreement with the NJWSA for the purchase of untreated water through November 30,
2023, which provides for an average purchase of 27 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, 2016, provides for the minimum purchase of 3 mgd of treated water with
provisions for additional purchases.
41
Purchased water costs are shown below:
Years Ended December 31,
(Millions of Dollars)
Purchased Water
Untreated
Treated
Total Costs
2010
$2.5
2.9
$5.4
2009
$2.4
2.6
$5.0
2008
$2.4
2.1
$4.5
Contract Operations - USA-PA operates the City of Perth Amboy, NJ’s water and wastewater systems under a 20-year
agreement, which expires in 2018. In connection with the agreement with Perth Amboy, USA-PA entered into a 20-year
subcontract with a wastewater operating company for the operation and maintenance of the Perth Amboy wastewater
collection system. The subcontract provides for the sharing of certain fixed and variable fees and operating expenses.
In connection with the agreement with Perth Amboy, Middlesex agreed to guarantee debt service payments on bonds
issued by Perth Amboy. Those bonds have been refinanced by Perth Amboy and Middlesex is no longer a guarantor of
any Perth Amboy debt.
Construction –The Company may spend up to $22.9 million in 2011, $18.0 million in 2012 and $25.1 million in 2013 on
its construction program. The actual amount and timing of capital expenditures is dependent on customer growth,
residential new home construction and sales and project scheduling. There is no assurance that projected customer growth
and residential new home construction and sales will occur.
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.
Note 5 – Short-term Borrowings
Information regarding the Company’s short-term borrowings for the years ended December 31, 2010 and 2009 is
summarized below:
Established Lines at Year-End
Maximum Amount Outstanding
Average Outstanding
Notes Payable at Year-End
Weighted Average Interest Rate
Weighted Average Interest Rate at Year-End
(Millions of Dollars)
2010
2009
$58.0
45.9
26.4
17.0
1.58%
1.53%
$53.0
44.2
40.0
42.9
1.73%
1.53%
The maturity dates for the Notes Payable as of December 31, 2010 are all in January 2011.
Interest rates for short-term borrowings are below the prime rate with no requirement for compensating balances.
Note 6 - Capitalization
All the transactions discussed below related to the issuance of securities were approved by either the NJBPU or DEPSC,
except where otherwise noted.
42
Common Stock
In June 2010, the Company sold and issued 1.9 million shares of common stock in a public offering that was priced at
$15.21 per share. The net proceeds of approximately $27.8 million were used to repay certain of the Company’s short-
term debt outstanding.
The number of shares authorized under the Dividend Reinvestment and Common Stock Purchase Plan (DRP) is 2.3
million shares. The cumulative number of shares issued under the DRP at December 31, 2010, is 1.9 million.
The Company issues shares under a restricted stock plan for employees, which is described in Note 7 – Employee Benefit
Plans.
The Company maintains a stock plan for its outside directors (the Outside Director Stock Compensation Plan). In 2010,
1,416 shares of common stock were granted and issued to the Company’s outside directors under the Outside Director
Stock Compensation Plan and 97,030 shares remain available for future awards. The maximum number of shares
authorized for grant under the Outside Director Stock Compensation Plan is 0.1 million.
In the event dividends on the preferred stock are in arrears, no dividends may be declared or paid on the
common stock of the Company. At December 31, 2010, no preferred stock dividends were in arrears.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders, as a class, are entitled to elect two members
to the Board of Directors in addition to Directors elected by holders of the common stock. At December 31, 2010 and
2009, there were less than 0.1 million shares of preferred stock authorized and outstanding and there were no dividends in
arrears.
The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend
date for all outstanding shares of preferred stock have been paid or set aside for payment. All such preferred dividends
have been paid. In addition, if Middlesex were to liquidate, holders of preferred stock would be paid back the stated value
of their preferred shares before any distributions could be made to common stockholders.
The conversion feature of the no par $7.00 Series Cumulative and Convertible Preferred Stock allows the security holders
to exchange one convertible preferred share for twelve shares of the Company's common stock. In addition, the Company
may redeem up to 10% of the outstanding convertible stock in any calendar year at a price equal to the fair market value
of twelve shares of the Company's common stock for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Series Cumulative and Convertible Preferred Stock allows the security holders
to exchange one convertible preferred share for 13.714 shares of the Company's common stock. The preferred shares are
convertible into common stock at the election of the security holder or Middlesex.
Long-term Debt
In December 2010, Middlesex issued $4.0 million of first mortgage bonds through the New Jersey Environmental
Infrastructure Trust (NJEIT) under the New Jersey State Revolving Fund (SRF) program. Middlesex closed on the first
mortgage bonds designated as Series MM and NN in December 2010. Proceeds from the Series MM and NN bonds are
included in Restricted Cash and may only be used for Middlesex’s RENEW Program, which is our program to clean and
cement unlined mains in the Middlesex system.
In February 2010, Tidewater closed on a $1.1 million loan with the Delaware SRF. This loan allows, but does not
obligate, Tidewater to draw down against a General Obligation Note for a specific project no later than July 31, 2011. The
interest rate on any draw-down will be set at 3.45% with a final maturity of August 1, 2031 on the amount actually
borrowed. In December 2010, the Company borrowed $16.7 thousand under this loan.
43
In March 2009, Tidewater closed on a $22.0 million DEPSC approved loan and immediately borrowed $7.0 million at a
rate of 6.59% with a final maturity in April 2029. In June 2009, Tidewater borrowed $5.0 million at a rate of 7.05% with a
final maturity in January 2030. In March 2010, Tidewater borrowed the remaining $10.0 million at a rate of 5.69% with a
final maturity in January 2030.
In November 2008, Middlesex issued $3.5 million of first mortgage bonds through the NJEIT under the New Jersey SRF
program. Middlesex closed on the first mortgage bonds designated as Series KK and LL in November 2008. Funds may
only be used for Middlesex’s RENEW Program.
First Mortgage Bonds Series S through W and Series DD are term bonds with single maturity dates subsequent to 2015.
Principal repayments for all series of the Company’s long-term debt extend beyond 2015. The aggregate annual principal
repayment obligations for all long-term debt over the next five years are shown below:
Year
2011
2012
2013
2014
2015
(Millions of Dollars)
Annual Maturities
$4.4
$4.6
$4.6
$4.7
$4.8
The weighted average interest rate on all long-term debt at December 31, 2010 and 2009 was 5.13% and 5.16%,
respectively. Except for the Amortizing Secured Notes, all of the Company’s outstanding long-term debt has been issued
through the New Jersey Economic Development Authority ($57.5 million), the NJEIT program ($32.5 million) and the
Delaware SRF program ($6.3 million).
Restricted cash includes proceeds from various New Jersey SRF loans. These funds are held in trusts and restricted for
specific capital expenditures and debt service requirements. As discussed above, Series KK, LL, MM and NN proceeds
can only be used for the applicable RENEW Program. All other bond issuance balances in restricted cash are for debt
service requirements.
Substantially all of the Utility Plant of the Company is subject to the lien of its mortgage, which includes debt service and
capital ratio covenants. The Company is in compliance with all of its mortgage covenants and restrictions.
Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share (EPS) for the three years ended December
31, 2010. Basic EPS is 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 $8.00 Series.
(In Thousands, Except per Share Amounts)
Basic:
Net Income
Preferred Dividend
Earnings Applicable to Common Stock
Basic EPS
Diluted:
Earnings Applicable to Common Stock
$7.00 Series Dividend
$8.00 Series Dividend
Adjusted Earnings Applicable to
Common Stock
Diluted EPS
2010
Income
$14,330
(207)
$14,123
$ 0.96
$14,123
97
56
$14,276
$ 0.96
Shares
14,654
14,654
14,654
166
96
14,916
44
2009
2008
Income
$9,977
(208)
$9,769
$ 0.73
$9,769
97
56
$9,922
$ 0.72
Shares
13,454
13,454
13,454
166
96
13,716
Income
$12,208
(218)
$11,990
$ 0.90
$11,990
97
66
$12,153
$ 0.89
Shares
13,317
13,317
13,317
167
131
13,615
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 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 the Company’s long-term debt relating to First Mortgage and SRF bonds is based on quoted market prices for
similar issues. The carrying amount and fair value of the Company’s bonds were as follows:
(Thousands of Dollars)
2010
Carrying
Amount
$89,037
$ 919
At December 31,
2009
Fair
Value
$85,405
$ 937
Carrying
Amount
$87,230
$ 1,061
Fair
Value
$84,429
$ 1,091
First Mortgage Bonds
State Revolving Bonds
For other long-term debt for which there was no quoted market price, it was not practicable to estimate their fair value.
The carrying amount of these instruments was $48.3 million and $40.3 million at December 31, 2010 and 2009,
respectively. Customer advances for construction have a carrying amount of $21.3 million and $20.8 million at December
31, 2010 and 2009, 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 7 - Employee Benefit Plans
Pension Benefits
The Company’s Pension Plan covers substantially all active employees hired prior to March 31, 2007. Employees hired
after March 31, 2007 are not eligible to participate in this plan, but can participate in a defined contribution plan that
provides an annual contribution at the discretion of the Company, based upon a percentage of the participants’
compensation. In order to be eligible for contribution, the eligible employee must be employed by the Company on
December 31st of the year to which the award relates. In addition, the Company maintains an unfunded supplemental plan
for its executive officers. The Accumulated Benefit Obligation for the Company’s Pension Plan at December 31, 2010
and 2009 was $33.8 million and $30.8 million, respectively.
Other Benefits
The Company’s Other Benefits Plan covers substantially all of its retired employees. Employees hired after March 31,
2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance. Accrued retirement
benefit costs are recorded each year.
The Company has recognized a deferred regulatory asset relating to the difference between the accrued retirement benefit
costs and actual cash paid for plan premiums in years prior to 1998. Included in the regulatory asset is a transition
obligation from adopting Statement of Financial Accounting Standard No.106, “Employers’ Accounting for
Postretirement Benefits Other than Pensions,” on January 1, 1993. In addition to the recognition of annual accrued
retirement benefit costs in rates, Middlesex is also recovering the transition obligation over 15 years. The regulatory asset
related to this transition obligation at December 31, 2010 and 2009 was $0.2 million and $0.3 million, respectively.
Regulatory Treatment of Over/Underfunded Retirement Obligations
Because the Company is subject to regulation in the states in which it operates, it is required to maintain its accounts in
accordance with the regulatory authority’s rules and guidelines, which may differ from other authoritative accounting
pronouncements. In those instances, the Company follows the guidance of FASB ASC Topic 980 Regulated Operations.
Based on prior regulatory practice, and in accordance with the guidance in Topic 980, the Company records underfunded
Pension Plan and Other Benefits Plan obligations, which otherwise would be recognized as Other Comprehensive Income
under Topic 715, Compensation – Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates
charged to customers.
45
The Company uses a December 31 measurement date for all of its employee benefit plans. The table below sets forth
information relating to the Company’s Pension Plan and Other Benefits Plan for 2010 and 2009.
December 31,
Change in Projected Benefit Obligation:
Beginning Balance
Service Cost
Interest Cost
Actuarial Loss
Benefits Paid
Ending Balance
Change in Fair Value of Plan Assets:
Beginning Balance
Actual Return on Plan Assets
Employer Contributions
Benefits Paid
Ending Balance
(Thousands of Dollars)
Pension Plan Other Benefits Plan
2010
2009
2010
2009
$38,311
1,396
2,228
2,022
(1,819)
$42,138
$34,352
1,372
2,101
2,217
(1,731)
$38,311
$22,736
1,025
1,335
5,032
(523)
$29,605
$18,771
891
1,086
2,508
(520)
$22,736
$25,298
3,054
3,456
(1,819)
$29,989
$ 20,036
4,110
2,883
(1,731)
$ 25,298
$ 9,680
910
2,823
(523)
$ 12,890
$
$
7,239
1,066
1,895
(520)
9,680
Funded Status
$(12,149)
$(13,013)
$(16,715)
$(13,056)
Amounts Recognized in the Consolidated
Balance Sheets consist of:
Current Liability
Noncurrent Liability
Net Liability Recognized
(302)
(11,847)
$(12,149)
(346)
(12,667)
$(13,013)
-
(16,715)
$(16,715)
-
(13,056)
$(13,056)
Pension Plan Other Benefits Plan
2010
2009
2008
2010
2009
2008
Years Ended December 31,
(Thousands of Dollars)
Components of Net Periodic Benefit Cost
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of Net Transition Obligation
Amortization of Net Actuarial Loss
Amortization of Prior Service Cost
Net Periodic Benefit Cost
$1,396
2,228
(2,020)
-
506
10
$2,120
$1,372
2,101
(1,602)
-
615
10
$2,496
$1,248
1,950
(1,938)
-
-
10
$1,270
$1,025
1,335
(759)
135
531
-
$2,267
$ 891
1,086
(595)
135
493
-
$2,010
$ 775
1,010
(581)
135
287
-
$1,626
46
Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2011 are as follows:
Actuarial Loss
Prior Service Cost
Transition Obligation
(Thousands of Dollars)
Pension
Plan
$565
10
-
Other
Benefits
Plan
$836
-
135
The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit obligations and
costs as of December 31, 2010, 2009 and 2008, respectively, are as follows:
Pension Plan
2009
2010
2008
Other Benefits Plan
2010
2009
2008
Weighted Average Assumptions:
Expected Return on Plan Assets
Discount Rate for:
Benefit Obligation
Benefit Cost
Compensation Increase for:
Benefit Obligation
Benefit Cost
7.50%
8.00%
8.00%
7.50%
7.50%
7.50%
5.48%
5.95%
5.95%
6.17%
6.17% 5.48%
6.59% 5.95%
5.95%
6.12%
6.12%
6.59%
3.00%
3.00%
3.50%
3.50%
3.50% 3.00%
3.50% 3.00%
3.50%
3.50%
3.50%
3.50%
The compensation increase assumption for the Other Benefits Plan is attributable to life insurance provided to qualifying
employees upon their retirement. The insurance coverage will be determined based on the employee’s base compensation
as of their retirement date.
For the 2010 valuation, costs and obligations for our Other Benefits Plan assumed a 9.0% annual rate of increase in the
per capita cost of covered healthcare benefits in 2011 with a decline of 1.0% per year for 2012-2014 and 0.5% per year for
2015-2016, resulting in an annual rate of increase in the per capita cost of covered healthcare benefits of 5% by year 2016.
A one-percentage point change in assumed healthcare cost trend rates would have the following effects on the Other
Benefits Plan:
Effect on Current Year’s Service and Interest Cost
Effect on Projected Benefit Obligation
(Thousands of Dollars)
1 Percentage Point
Increase
$ 461
$ 4,553
Decrease
$ (360)
$ (3,669)
47
The following benefit payments, which reflect expected future service, are expected to be paid:
Year
2011
2012
2013
2014
2015
2016-2020
Totals
(Thousands of Dollars)
Pension Plan
$ 1,784
1,794
1,859
1,864
1,856
10,858
$20,015
Other Benefits Plan
$ 690
811
933
1,066
1,185
7,791
$12,476
Benefit Plans Assets
The allocation of plan assets at December 31, 2010 and 2009 by asset category is as follows:
Asset Category
Equity Securities
Debt Securities
Cash
Commodities
Total
Pension Plan
2009
59.2%
Other Benefits Plan
2010
2009
2010
42.3%
64.0%
53.8%
31.7% 36.4%
4.0% 4.1%
3.1%
0.3% 0.3% 0.8%
100.0%
100.0%
40.4%
49.5%
9.0%
1.1%
100.0%
100.0%
Target
Range
60% 30-65%
38% 25-70%
2%
0-10%
0% 0%
Two outside investment firms each manage a portion of the Pension Plan asset portfolio. One of those investment firms
also manages the Other Benefits Plan asset portfolio. Quarterly meetings are held between the Company’s Pension
Committee of the Board of Directors and the investment managers to review their performance and asset allocation. If the
actual asset allocation is outside the targeted range, the Pension Committee reviews current market conditions and advice
provided by the investment managers to determine the appropriateness of rebalancing the portfolio.
The objective of the Company is to maximize the long-term return on retirement plan assets, relative to a reasonable level
of risk, maintain a diversified investment portfolio and maintain compliance with the Employee Retirement Income
Security Act of 1974. The expected long-term rate of return is based on the various asset categories in which plan assets
are invested and the current expectations and historical performance for these categories.
Equity securities include Middlesex common stock in the amounts of $0.7 million (2.4% of total plan assets) and $0.7
million (2.7 % of total pension plan assets) at December 31, 2010 and 2009, respectively.
Fair Value Measurements
Accounting guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are described as follows:
(cid:120) Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or
liabilities in accessible active markets.
(cid:120) Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities. If the asset or liability has a specified contractual term, the Level 2 input must be observable for
substantially the full term of the asset or liability.
(cid:120) Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
48
Certain investments in cash and cash equivalents, equity securities, and commodities are valued based on quoted market
prices in active markets and are classified as Level 1 investments. Certain investments in cash and cash equivalents,
equity securities and fixed income securities are valued using prices received from pricing vendors that utilize observable
inputs and are therefore classified as Level 2 investments.
The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value
hierarchy as of December 31, 2010 (amounts in thousands):
Common Trust Fund-Large Cap
Mutual Funds:
Mid Cap Growth
Mid Cap Value
Foreign Small Mid Growth
Foreign Large Blend
Foreign Large Core
Foreign Large Growth
Diversified Emerging Markets
Preferred Stock Index
Money Market Funds:
Cash
Equity Securities:
Non-Financial Services
Financial Services
Utilities
Consumer Growth
Consumer Staples
Consumer Cyclicals
Industrial Resources
Capital Equipment
Technology
Energy
Other
Corporate Bonds
Mortgage-Backed Securities
Asset-Backed Securities
(1)
Agency/US/State/Municipal Debt
Sovereign/Non-US Debt
Commodities
(1)
Total Investments
Level 1
Level 2
$
-
$
6,844
$
Level 3
-
Total
$
6,844
717
374
255
599
114
207
398
80
553
209
976
1,555
1,447
937
998
498
729
1,188
1,033
25
-
-
-
129
-
95
13,116
$
$
-
-
-
-
-
-
-
-
643
-
-
-
-
-
-
-
-
-
-
-
2,915
2,323
93
3,864
191
-
16,873
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
717
374
255
599
114
207
398
80
1,196
209
976
1,555
1,447
937
998
498
729
1,188
1,033
25
2,915
2,323
93
3,993
191
95
29,989
$
(1) Mortgage-backed securities represent AAA rated securities and substantially all of the asset-
backed securities are highly-rated (Standard & Poor’s rating of AA+), secured primarily by credit
card, auto loan, and home equity receivables.
49
The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair value
hierarchy as of December 31, 2009 (amounts in thousands):
Common Trust Fund-Large Cap
Mutual Funds:
Mid Cap Growth
Mid Cap Value
Foreign Small Mid Growth
Foreign Large Blend
Foreign Large Core
Foreign Large Growth
Diversified Emerging Markets
Money Market Funds:
Cash
Equity Securities:
Financial Services
Utilities
Consumer Staples
Consumer Cyclicals
Healthcare
Industrial Resources
Technology
Energy
Corporate Bonds
Mortgage-Backed Securities (1)
Asset-Backed Securities (1)
Agency/US/State/Municipal Debt
Sovereign/Non-US Debt
Commodities
Total Investments
Level 1
$
-
Level 2
$
4,467
Level 3
$
-
Total
$
4,467
509
237
191
450
122
308
280
435
1,026
1,259
1,015
1,209
733
773
1,594
809
-
-
-
-
-
85
11,035
$
-
-
-
-
-
-
-
598
-
-
-
-
-
-
-
-
509
237
191
450
122
308
280
1,033
-
-
-
-
-
-
-
-
4,129
1,915
91
2,855
208
-
14,263
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
1,026
1,259
1,015
1,209
733
773
1,594
809
4,129
1,915
91
2,855
208
85
25,298
$
(1) Mortgage-backed securities represent AAA rated securities and substantially all of the asset-backed
securities are highly-rated (Standard & Poor’s rating of AA+), secured primarily by credit card, auto
loan, and home equity receivables.
50
The following table presents Middlesex’s Other Benefits Plan assets measured and recorded at
fair value within the fair value hierarchy as of December 31, 2010 (amounts in thousands):
Mutual Funds:
Small Cap Core
Mid Cap Growth
Mid Cap Value
Large Cap Core
Large Cap Growth
Large Cap Value
Foreign Small Mid Growth
Foreign Large Core
Foreign Large Growth
Diversified Emerging Markets
Preferred Stock Index
Money Market Funds:
Cash
Agency/US/State/Municipal Debt
Commodities
Total Investments
Level 1
Level 2
Level 3
Total
$
95
277
259
3,002
365
298
246
276
306
217
116
$
-
-
-
-
-
-
-
-
-
-
-
-
765
99
6,321
$
399
6,170
-
6,569
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
95
277
259
3,002
365
298
246
276
306
217
116
399
6,935
99
12,890
$
The following table presents Middlesex’s Other Benefits Plan assets measured and recorded at
fair value within the fair value hierarchy as of December 31, 2009 (amounts in thousands):
Mutual Funds:
Small Cap Core
Mid Cap Growth
Mid Cap Value
Large Cap Core
Large Cap Growth
Foreign Small Mid Growth
Foreign Large Core
Foreign Large Growth
Diversified Emerging Markets
Money Market Funds:
Cash
Agency/US/State/Municipal Debt
Commodities
Total Investments
Level 1
Level 2
Level 3
Total
$
76
227
109
2,121
616
230
160
240
135
-
$
-
-
-
-
-
-
-
-
-
-
101
4,015
$
873
4,792
-
5,665
$
-
$
-
-
-
-
-
-
-
-
-
-
-
$
-
$
76
227
109
2,121
616
230
160
240
135
873
4,792
101
9,680
$
51
Benefit Plans Contributions
For the Pension Plan, Middlesex made total cash contributions of $3.5 million in 2010 and expects to make cash
contributions of approximately $2.7 million in 2011.
For the Other Benefits Plan, Middlesex made total cash contributions of $2.8 million in 2010 and expects to make
contributions of approximately $2.8 million in 2011.
401(k) Plan
The Company has a 401(k) defined contribution plan, which covers substantially all employees with more than 1,000
hours of service. Under the terms of the Plan, the Company matches 100% of a participant’s contributions, which do not
exceed 1% of a participant’s compensation, plus 50% of a participant’s contributions exceeding 1%, but not more than
6%. The Company’s matching contributions were $0.5 million for each of the years ended December 31, 2010, 2009 and
2008.
For those employees hired after March 31, 2007 and still employed on December 31, 2010, the Company approved and
will fund discretionary contribution of $0.2 million, which was based on 5.0% of eligible 2010 compensation. For the
years ended December 31, 2009 and 2008, the Company made discretionary contributions of $0.1 million, respectively,
for those employees hired after March 31, 2007.
Stock-Based Compensation
The Company has a stock compensation plan for its employees (the 2008 Restricted Stock Plan). The Company maintains
an escrow account for 0.1 million shares of the Company's common stock for the 2008 Restricted Stock Plan. Such stock
is subject to an agreement requiring forfeiture by the employee in the event of termination of employment within five
years of the award other than as a result of retirement, death, disability or change in control. The maximum number of
shares authorized for grant under the 2008 Restricted Stock Plan is 0.3 million shares, for which 0.2 million remain as
unissued shares.
The Company recognizes compensation expense at fair value for the restricted stock awards in accordance with
FASB ASC Topic 715, Compensation – Retirement Benefits. Compensation expense is determined by the market value
of the stock on the date of the award and is being amortized over a five-year period.
52
The following table presents information on the 2008 Restricted Stock Plan:
Balance, January 1, 2008
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2008
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2009
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2010
Shares
(thousands)
Unearned
Compensation
(thousands)
Weighted
Average
Grant Price
71
22
(12)
-
-
81
30
(17)
(1)
-
93
14
(13)
-
-
94
$861
377
-
(5)
(305)
$928
448
-
(6)
(380)
$990
239
-
-
(338)
$891
$17.30
$15.11
$16.97
The fair value of vested restricted shares was $0.2 million for each of the years ended December 31, 2010, 2009 and
December 31, 2008.
Note 8 – 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 the states of New Jersey,
Delaware and Pennsylvania with respect to utility service 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.
53
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.
Operations by Segments:
Revenues:
Regulated
Non – Regulated
Inter-segment Elimination
Consolidated Revenues
Operating Income:
Regulated
Non – Regulated
Consolidated Operating Income
Depreciation:
Regulated
Non – Regulated
Consolidated Depreciation
Other Income, Net:
Regulated
Non – Regulated
Inter-segment Elimination
Consolidated Other Income, Net
Interest Expense:
Regulated
Non – Regulated
Inter-segment Elimination
Consolidated Interest Charges
Net Income:
Regulated
Non – Regulated
Consolidated Net Income
Capital Expenditures:
Regulated
Non – Regulated
Total Capital Expenditures
(Thousands of Dollars)
Years Ended December 31,
2010
2009
2008
$ 92,378
10,937
(580)
$ 102,735
$ 80,910
10,857
(524)
$ 91,243
$ 81,118
10,327
(407)
$ 91,038
$ 24,815
1,782
$ 26,597
$ 18,117
2,044
$ 20,161
$ 22,132
1,887
$ 24,019
$ 9,093
151
$ 9,244
$ 8,401
158
$ 8,559
$ 7,798
124
$ 7,922
$ 1,265
313
(134)
$ 1,444
$ 1,565
337
(176)
$ 1,726
$ 1,077
387
(162)
$ 1,302
$ 6,925
134
(134)
$ 6,925
$ 6,733
193
(176)
$ 6,750
$ 6,981
238
(162)
$ 7,057
$ 13,152
1,178
$ 14,330
$ 8,652
1,325
$ 9,977
$ 10,976
1,232
$ 12,208
$ 29,344
260
$ 29,604
$ 20,104
24
$ 20,128
$ 29,095
1,241
$ 30,336
54
Assets:
Regulated
Non – Regulated
Inter-segment Elimination
Consolidated Assets
As of
December 31,
2010
As of
December 31,
2009
$486,918
8,116
(5,849)
$489,185
$451,734
11,022
(4,670)
$458,086
Note 9 - Quarterly Operating Results - Unaudited
Operating results for each quarter of 2010 and 2009 are as follows:
2010
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share
(Thousands of Dollars, Except per Share Data)
1st
2nd
3rd
4th
Total
$21,645
3,288
1,560
$ 0.11
$ 0.11
$26,538
7,894
4,424
$ 0.31
$ 0.31
$29,585
10,021
5,736
$ 0.37
$ 0.37
$24,967
5,394
2,610
$ 0.17
$ 0.17
$102,735
26,597
14,330
$ 0.96
$ 0.96
2009
1st
2nd
3rd
4th
Total
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share
$20,583
3,002
1,361
$ 0.10
$ 0.10
$23,083
5,547
2,846
$ 0.21
$ 0.21
$25,498
7,324
4,027
$ 0.30
$ 0.29
$22,079
4,288
1,743
$ 0.12
$ 0.12
$91,243
20,161
9,977
$ 0.73
$ 0.72
The information above, in the opinion of the Company, includes all adjustments consisting only of normal recurring
accruals necessary for a fair presentation of such amounts. The business of the Company is subject to seasonal fluctuation
with the peak period usually occurring during the summer months. The quarterly earnings per share amounts above may
differ from previous filings due to the effects of rounding.
55
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(1) 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.
As required by Rule 13a-15 under 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 for the quarter ended December 31, 2010. Based upon that evaluation the Company’s
Chief Executive Officer and the Company’s Chief Financial Officer concluded:
(a) Disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) No changes in internal control over financial reporting occurred during our most recent fiscal quarter that has
materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Accordingly, management believes the consolidated financial statements included in this report fairly present in all
material respects our financial condition, results of operations and cash flows for the periods presented.
(2) Management’s Report on Internal Control Over Financial Reporting
The management of Middlesex Water Company (Middlesex or the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13A-15(f) and 15d-15(f).
Middlesex’s internal control system was designed to provide reasonable assurance to the Company’s management and
Board of Directors of adequate preparation and fair presentation of the published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to the adequacy of financial statement
preparation and presentation. Middlesex’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on our assessment, we believe that as of December 31, 2010, the Company’s internal control over
financial reporting is operating as designed and is effective based on those criteria.
Middlesex’s independent registered public accounting firm has audited the effectiveness of our internal control over
financial reporting as of December 31, 2010 as stated in their report which is included herein.
/s/ Dennis W. Doll
Dennis W. Doll
Chairman of the Board,
President and Chief
Executive Officer
/s/ A. Bruce O’Connor
A. Bruce O’Connor
Vice President and Chief
Financial Officer
Iselin, New Jersey
March 9, 2011
56
(3) Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Middlesex Water Company
We have audited Middlesex Water Company’s (the “Company”) internal control over financial reporting as of December
31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Middlesex Water Company's management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. An entity’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with
authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Middlesex Water Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets and consolidated statements of capital stock and long-term debt and the related
consolidated statements of income, common stockholders’ equity and comprehensive income, and cash flows of
Middlesex Water Company and our report dated March 9, 2011 expressed an unqualified opinion.
Reading, Pennsylvania
March 9, 2011
/s/ ParenteBeard LLC
57
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information with respect to Directors of Middlesex Water Company is included in Middlesex Water Company’s Proxy
Statement for the 2011 Annual Meeting of Stockholders and is incorporated herein by reference.
Information regarding the Executive Officers of Middlesex Water Company is included under Item 1. in Part I of this
Annual Report.
ITEM 11. EXECUTIVE COMPENSATION.
This Information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the
2011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the
2011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the
2011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
This information for Middlesex Water Company is included in Middlesex Water Company’s Proxy Statement for the
2011 Annual Meeting of Stockholders and is incorporated herein by reference.
58
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
1.
The following Financial Statements and Supplementary Data are included in Part II- Item 8. of this
Annual Report:
PART IV
Consolidated Balance Sheets at December 31, 2010 and 2009.
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2010.
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2010.
Consolidated Statements of Capital Stock and Long-term Debt at December 31, 2010 and 2009.
Consolidated Statements of Common Stockholders’ Equity and Comprehensive Income for
each of the three years in the period ended December 31, 2010.
Notes to Consolidated Financial Statements.
Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions under which they are required or
because the required information is shown in the financial statements or notes thereto.
Exhibits
See Exhibit listing immediately following the signature page.
2.
3.
59
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MIDDLESEX WATER COMPANY
By:
/s/ Dennis W. Doll
Dennis W. Doll
Chairman of the Board, President, Chief Executive Officer and Director
Date:
March 9, 2011
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following
persons, on behalf of the registrant and in the capacities indicated on March 9, 2011.
By:
By:
By:
By:
/s/ A. Bruce O’Connor
A. Bruce O’Connor
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ Dennis W. Doll
Dennis W. Doll
Chairman of the Board, President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ James F. Cosgrove Jr.
James F. Cosgrove Jr.
Director
/s/ John C. Cutting
John C. Cutting
Director
/s/ Steven M. Klein
By:
Steven M. Klein
Director
By:
Amy B. Mansue
/s/ Amy B. Mansue
Director
/s/ John R. Middleton, M.D.
By:
John R. Middleton, M.D.
Director
By:
/s/ Walter G. Reinhard
Walter G. Reinhard
Director
By:
/s/ Jeffries Shein
Jeffries Shein
Director
By:
/s/ J. Richard Tompkins
J. Richard Tompkins
Director
60
EXHIBIT INDEX
Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have heretofore been filed with
the Commission and are incorporated herein by reference to the documents indicated in the previous filing columns
following the description of such exhibits. Exhibits designated with a dagger (t) are management contracts or
compensatory plans.
Exhibit No.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
10.1
10.2
10.3
10.4
Document Description
Certificate of Amendment to the Restated Certificate of Incorporation, filed
with the State of New Jersey on June 19, 1997, included as Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed April 30, 2010.
Certificate of Amendment to the Restated Certificate of Incorporation, filed
with the State of New Jersey on May 27, 1998, filed as Exhibit 3.1 to the
Company’s Annual Report on Form 10-K for the year ended December 31,
1998.
Certificate of Correction of Middlesex Water Company filed with the State
of New Jersey on April 30, 1999, filed as Exhibit 3.3 of 2003 Form 10-
K/A-2.
Certificate of Amendment to the Restated Certificate of Incorporation
Middlesex Water Company, filed with the State of New Jersey on February
17, 2000, filed as Exhibit 3.4 of 2003 Form 10-K/A-2.
Certificate of Amendment to the Restated Certificate of Incorporation
Middlesex Water Company, filed with the State of New Jersey on June 5,
2002, filed as Exhibit 3.5 of 2003 Form 10-K/A-2.
Certificate of Amendment to the Restated Certificate of Incorporation, filed
with the State of New Jersey on June 10, 1998, filed as Exhibit 3.1 to the
Company’s Annual Report on Form 10-K for the year ended December 31,
1998.
Bylaws of the Company, as amended, filed as Exhibit 4.1 of 2010 Second
Quarter Form 10-Q.
Form of Common Stock Certificate.
Copy of Purchased Water Agreement between the Company and
Elizabethtown Water Company, filed as Exhibit 10 of 2006 First Quarter
Form 10-Q.
Copy of Mortgage, dated April 1, 1927, between the Company and Union
County Trust Company, as Trustee, as supplemented by Supplemental
Indentures, dated as of October 1, 1939 and April 1, 1949.
Copy of Supplemental Indenture, dated as of July 1, 1964 and June 15,
1991, between the Company and Union County Trust Company, as Trustee.
Copy of Supply Agreement, dated as of November 17, 1986, between the
Company and the Old Bridge Municipal Utilities Authority.
Previous
Registration
No.
Filing’s
Exhibit
No.
2-55058
2(a)
2-15795
4(a)-4(f)
33-54922
10.4-10.9
33-31476
10.12
61
Previous
Registration
No.
33-31476
Filing’s
Exhibit
No.
10.13
33-31476
10.17
33-54922
10.24
EXHIBIT INDEX
Exhibit No.
10.5
10.6
10.7
10.8
10.9
10.10
(t)10.11
(t)10.12(a)
(t)10.12(b)
(t)10.13(a)
(t)10.13(b)
(t)10.13(c)
(t)10.13(d)
(t)10.13(e)
Document Description
Copy of Supply Agreement, dated as of July 14, 1987, between the
Company and the Marlboro Township Municipal Utilities Authority, as
amended.
Copy of Supply Agreement, dated as of February 11, 1988, with
modifications dated February 25, 1992, and April 20, 1994, between the
Company and the Borough of Sayreville filed as Exhibit No. 10.11 of
1994 First Quarter Form 10-Q.
Copy of Water Purchase Contract, dated as of
September 25, 2003, between the Company and the New Jersey Water
Supply Authority, filed as Exhibit No. 10.7 of 2003 Form 10-K.
Copy of Treating and Pumping Agreement, dated April 9, 1984,
between the Company and the Township of East Brunswick.
Copy of Supply Agreement, dated June 4, 1990, between the Company
and Edison Township.
Copy of amended Supply Agreement, between the Company and the
Borough of Highland Park, filed as Exhibit No. 10.1 of 2006 First
Quarter Form 10-Q.
Copy of Supplemental Executive Retirement Plan, filed as Exhibit
10.13 of 1999 Third Quarter Form 10-Q.
Copy of 2008 Restricted Stock Plan, filed as Appendix A to the
Company’s Definitive Proxy Statement, dated and filed
April 11, 2008.
Copy of 2008 Outside Director Stock Compensation Stock Plan, filed as
Appendix B to the Company’s Definitive Proxy Statement, dated and
filed April 11, 2008.
Change in Control Termination Agreement between Middlesex Water
Company and Dennis W. Doll), filed as Exhibit 10.13(a) of the 2008
Form 10-K.
Change in Control Termination Agreement between Middlesex Water
Company and A. Bruce O’Connor), filed as Exhibit 10.13(b) of the
2008 Form 10-K.
Change in Control Termination Agreement between Middlesex Water
Company and Richard M. Risoldi), filed as Exhibit 10.13(d) of the 2008
Form 10-K.
Change in Control Termination Agreement between Middlesex Water
Company and Kenneth J. Quinn), filed as Exhibit 10.13(e) of the 2008
Form 10-K.
Change in Control Termination Agreement between Middlesex Water
Company and James P. Garrett), filed as Exhibit 10.13(f) of the 2008
Form 10-K.
62
EXHIBIT INDEX
Document Description
Previous
Registration
No.
Filing’s
Exhibit
No.
33-54922
10.23
Exhibit No.
(t)10.13(f)
(t)10.13(g)
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Change in Control Termination Agreement between Tidewater Utilities,
Inc. and Gerard L. Esposito), filed as Exhibit 10.13(g) of the 2008 Form
10-K.
Change in Control Termination Agreement between Middlesex Water
Company and Bernadette M. Sohler), filed as Exhibit 10.13(h) of the
2008 Form 10-K.
Copy of Transmission Agreement, dated October 16, 1992, between
the Company and the Township of East Brunswick.
Copy of Supplemental Indentures, dated September 1, 1993, (Series
S & T) and January 1, 1994, (Series V), between the Company and
United Counties Trust Company, as Trustee, filed as Exhibit No.
10.22 of 1993 Form 10-K.
Copy of Trust Indentures, dated September 1, 1993, (Series S & T)
and January 1, 1994, (Series V), between the New Jersey Economic
Development Authority and First Fidelity Bank (Series S & T), as
Trustee, and Midlantic National Bank (Series V), as Trustee, filed as
Exhibit No. 10.23 of 1993 Form 10-K.
Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as
Trustee. Copy of Loan Agreement dated November 1, 1998
between the New Jersey Environmental Infrastructure Trust and
Middlesex Water Company (Series X), filed as Exhibit No. 10.22 of
the 1998 Third Quarter Form 10-Q.
Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as
Trustee. Copy of Loan Agreement dated November 1, 1998
between the State of New Jersey Environmental Infrastructure Trust
and Middlesex Water Company (Series Y), filed as Exhibit No.
10.23 of the 1998 Third Quarter Form 10-Q.
Copy of Operation, Maintenance and Management Services
Agreement dated January 1, 1999 between the Company City of
Perth Amboy, Middlesex County Improvement Authority and Utility
Service Affiliates, Inc.
Copy of Supplemental Indenture dated October 15, 1999 between
Middlesex Water Company and First Union National Bank, as
Trustee and copy of Loan Agreement dated November 1, 1999
between the State of New Jersey and Middlesex Water Company
(Series Z), filed as Exhibit No. 10.25 of the 1999 Form 10-K.
333-66727
10.24
63
Exhibit No.
10.21
10.22
10.23
10.24
10.25
10.26
10.27
EXHIBIT INDEX
Document Description
Previous
Registration
No.
Filing’s
Exhibit
No.
Copy of Supplemental Indenture dated October 15, 1999 between
Middlesex Water Company and First Union National Bank, as
Trustee and copy of Loan Agreement dated November 1, 1999
between the New Jersey Environmental Infrastructure Trust and
Middlesex Water Company (Series AA), filed as Exhibit No. 10.26
of the 1999 Form 10-K.
Copy of Supplemental Indenture dated October 15, 2001 between
Middlesex Water Company and First Union National Bank, as
Trustee and copy of Loan Agreement dated November 1, 2001
between the State of New Jersey and Middlesex Water Company
(Series BB). Filed as Exhibit No. 10.22 of the 2001 Form 10-K.
Copy of Supplemental Indenture dated October 15, 2001 between
Middlesex Water Company and First Union National Bank, as
Trustee and copy of Loan Agreement dated November 1, 2001
between the New Jersey Environmental Infrastructure Trust and
Middlesex Water Company (Series CC). Filed as Exhibit No. 10.22
of the 2001 Form 10-K.
Copy of Supplemental Indenture dated January 15, 2002 between
Middlesex Water Company and First Union National Bank, as
Trustee and copy of Loan Agreement dated January 1, 2002 between
the New Jersey Economic Development Authority and Middlesex
Water Company (Series DD), filed as Exhibit No. 10.24 of the 2001
Form 10-K.
Copy of Supplemental Indenture dated March 1, 1998 between
Middlesex Water Company and First Union National Bank, as
Trustee. Copy of Trust Indenture dated March 1, 1998 between the
New Jersey Economic Development Authority and PNC Bank,
National Association, as Trustee (Series W), filed as Exhibit No.
10.21 of the 1998 Third Quarter Form 10-Q.
Copy of Supplemental Indenture dated October 15, 2004 between
Middlesex Water Company and Wachovia Bank, as Trustee and
copy of Loan Agreement dated November 1, 2004 between the State
of New Jersey and Middlesex Water Company (Series EE), filed as
Exhibit No. 10.26 of the 2004 Form 10-K.
Copy of Supplemental Indenture dated October 15, 2004 between
Middlesex Water Company and Wachovia Bank, as Trustee and
copy of Loan Agreement dated November 1, 2004 between the New
Jersey Environmental Infrastructure Trust and Middlesex Water
Company (Series FF), filed as Exhibit No. 10.27 of the 2004 Form
10-K.
64
Previous
Registration
No.
Filing’s
Exhibit
No.
333-160757
EXHIBIT INDEX
Exhibit No.
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Document Description
Copy of Promissory Notes and Amendment to Combination Water
Utility Real Estate Mortgage and Security Agreement, by Tidewater
Utilities, Inc., Dated March 19, 2009, filed as Exhibit No. 10.28 of
the 2009 First Quarter Form 10-Q.
Copy of Supply Agreement, between the Company and the City of
Rahway, filed as Exhibit No. 10.2 of 2006 First Quarter Form 10-Q.
Copy of Supplemental Indenture dated October 15, 2006 between
Middlesex Water Company and U.S. Bank National Association, as
Trustee and copy of Loan Agreement dated November 1, 2006
between the State of New Jersey and Middlesex Water Company
(Series GG), filed as Exhibit No. 10.30 of the 2006 Form 10-K.
Copy of Supplemental Indenture dated October 15, 2006 between
Middlesex Water Company and U.S. Bank National Association, as
Trustee and copy of Loan Agreement dated November 1, 2006
between the New Jersey Environmental Infrastructure Trust and
Middlesex Water Company (Series HH), filed as Exhibit No. 10.31
of the 2006 Form 10-K.
Copy of Loan Agreement By and Between New Jersey
Environmental Infrastructure Trust and Middlesex Water Company
dated as of November 1, 2007 (Series II), filed as Exhibit No. 10.32
of the 2007 Form 10-K.
Copy of Loan Agreement By and Between The State of New Jersey,
Acting By and Through The New Jersey Department of
Environmental Protection, and Middlesex Water Company dated as
of November 1, 2007 (Series JJ), filed as Exhibit 10.33 of the 2007
Form 10-K.
Copy of Loan Agreement By and Between New Jersey
Environmental Infrastructure Trust and Middlesex Water Company
dated as of November 1, 2008 (Series KK), filed as Exhibit 10.34 of
the 2008 Form 10-K.
Copy of Loan Agreement By and Between The State of New Jersey,
Acting By and Through The New Jersey Department of
Environmental Protection, and Middlesex Water Company dated as
of November 1, 2008 (Series LL) ), filed as Exhibit 10.35 of the
2008 Form 10-K.
Registration Statement, Form S-3, under Securities Act of 1933 filed
July 23, 2009, relating to the Dividend
Reinvestment and Common Stock Purchase Plan.
Amended and Restated Line of Credit Note and PNC Bank, filed as
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
April 30, 2010
65
EXHIBIT INDEX
Document Description
Previous
Registration
No.
Filing’s
Exhibit
No.
Uncommitted Line of Credit Letter Agreement and Master
Promissory Note between registrant and Bank of America, N.A.,
filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed April 30, 2010.
Uncommitted Line of Credit Letter Agreement between registrant’s
wholly-owned subsidiary Utility Services Affiliates (Perth Amboy)
Inc. and Bank of America, N.A., filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed April 30, 2010.
Promissory Note for a committed line of credit between registrant’s
wholly-owned subsidiary Tidewater Utilities, Inc. and CoBank,
ACB., filed as Exhibit 10.4 to the Company’s Current Report on
Form 8-K filed April 30, 2010.
Copy of Loan Agreement By and Between The state of New Jersey,
Acting By and Through The New Jersey Department of
Environmental Protection and Middlesex Water Company, dated as
of December 1, 2010 (Series MM), filed as Exhibit 10.41 of the
2010 Form 10-K.
Copy of Loan Agreement By and Between New Jersey
Environmental Infrastructure Trust and Middlesex Water Company
dated as of December 1, 2010 (Series NN), filed as Exhibit 10.42 of
the 2010 Form 10-K.
Middlesex Water Company Subsidiaries.
Consent of Independent Registered Public Accounting Firm,
ParenteBeard LLC.
Section 302 Certification by Dennis W. Doll pursuant to Rules 13a-
14 and 15d-14 of the Securities Exchange Act of 1934.
Section 302 Certification by A. Bruce O’Connor pursuant to Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934.
Section 906 Certification by Dennis W. Doll pursuant to 18
U.S.C.§1350.
Section 906 Certification by A. Bruce O’Connor pursuant to 18
U.S.C.§1350.
Exhibit No.
10.38
10.39
10.40
*10.41(1)
*10.42(1)
*21(1)
*23.1(1)
*31(1)
*31.1(1)
*32(1)
*32.1(1)
(1) – These documents were included in the 2010 Form 10-K as filed with the Securities and Exchange Commission
and will be provided upon specific request.
66
TO OUR
SHAREHOLDERS
2010 was a year of continued change and progress in a number of areas.
In the realm of leadership and corporate governance, your Board of Directors
continued to develop and implement a Board succession plan that provides
for continuity in the independence and objectivity of Board Members.
The departures of long-time Directors, John Mulkerin and Annette Catino,
created openings for two new Directors. We will miss the advice and counsel
of John and Annette, two outstanding professionals whose business expertise
has served you and your Company well for so many years. Following the
decisions by John and Annette to step down, we were pleased to recruit two
exceptional candidates in Amy Mansue and James Cosgrove, Jr. P.E. Amy
and Jim bring a wealth of technical, management and governance experience
to the Company and have quickly confirmed their value to your Board in their
relatively short tenure.
A Legacy of Leadership
Of great significance in the succession planning process was the decision
by J. Richard Tompkins, your Chairman since May 1990, to retire as Chairman
in May 2010. Coincident with that decision, the Board appointed me to
that role in May 2010. Rich Tompkins has navigated the Company through
numerous challenges and opportunities over three decades in his roles as
President and Chairman. His operational and management insights have
been a valuable resource to me personally, and he will be greatly missed
by me and the rest of the Board, as he will not be standing for re-election
to the Board at the 2011 Annual Meeting of Shareholders. Rich’s knowledge
of utility operations, finance and ratemaking and corporate governance has
been a cornerstone of Middlesex Water Company’s success for so many
years and has laid the foundation to position us to meet future challenges.
His leadership and dedication to the Company and to the industry has set
the bar higher for all of us.
Financial and Operational Achievements
As we look back on our performance during 2010, we see a year that
stands in stark contrast to 2009. Unusually hot dry weather, combined with
more favorable economic conditions experienced by our large commercial
and industrial customers, contributed to overall 2010 earnings that exceeded
projections. Also contributing to favorable earnings was a $7.8 million base
rate increase awarded by our regulators in March 2010 for the Middlesex
System in New Jersey. Our financial objectives were achieved as we simultaneously
Dennis W. Doll
Chairman, President and Chief Executive Officer
44%
Net income in 2010
rose to $14.3 million,
a 44% increase over 2009.
Net Income
(Millions of Dollars)
14.3
12.2
11.8
10.0
10.0
06
07
08
09
10
15.0
12.0
9.0
6.0
3.0
SHAREHOLDER
INFORMATION
Company Headquarters
Middlesex Water Company
1500 Ronson Road
Iselin, NJ 08830
Telephone: 732-634-1500
www.middlesexwater.com
Shareholders
As of December 31, 2010, there were
1,950 registered shareholders.
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Shareholder Services
Registrar and Transfer Company is the transfer agent
for Middlesex Water Company and can answer
questions concerning your account, dividend payments,
lost certificates, transfer of stock, change of address
and other related matters.
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Telephone: 800-368-5948
Fax: 908-497-2318
Website: www.rtco.com
E-mail: info@rtco.com
Investor Relations Contact
Bernadette M. Sohler
Vice President - Corporate Affairs
Telephone: 732-634-1500
E-mail: bsohler@middlesexwater.com
Independent Auditors
ParenteBeard LLC
2609 Keiser Blvd.
P.O. Box 311
Reading, PA 19603-0311
Telephone: 800-267-9405
Mortgage Trustee
U.S. Bank National Association
21 South Street, 3rd Floor
Morristown, NJ 07960
Annual Meeting
The Annual Meeting of Shareholders of Middlesex Water
Company will be held on Tuesday, May 24, 2011,
at 11:00 a.m. at the Company’s Headquarters,
1500 Ronson Road, Iselin, NJ. The record date for
the Annual Meeting was March 31, 2011.
Stock Listing
The Company’s common shares trade on the NASDAQ
Global Select Market under the trading symbol MSEX.
High
$19.31
17.16
18.70
18.00
High
$17.91
15.89
15.29
17.71
Low
$16.77
15.48
14.74
16.16
Low
$14.74
13.62
12.61
11.64
Dividends Paid
$0.1825
0.1800
0.1800
0.1800
Dividends Paid
$0.1800
0.1775
0.1775
0.1775
Quarterly Financial Information
Quarterly financial results are announced by press releases
that are available at www.middlesexwater.com in the
“Investor Relations” section. The Company’s quarterly reports
on Form 10-Q are also available at www.middlesexwater.com
Dividend Reinvestment and Common Stock
Purchase Plan
The Company offers a Dividend Reinvestment Plan and
Common Stock Purchase Plan which provides new and
existing shareholders of its common stock with a convenient
way to build ownership in the Company through the purchase
of common shares from the Company and the reinvestment
of their cash dividends. The Prospectus and enrollment
form are available at www.middlesexwater.com in the
“Investor Relations” section.
2011 Dividend Schedule*
Common
Preferred
Record Dates Payment Dates
February 15
May 16
August 15
November 15
March 1
June 1
September 1
December 1
January 14
April 15
July 15
October 14
February 1
May 2
August 1
November 1
*Subject to approval by Board of Directors.
2010 Annual Report
A Provider of Water, Wastewater and
Related Products and Ser vices
P.O. Box 1500
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com
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