VALUE
RELIABILITY
SAFETY
QUALITY
RESPONSIBILITY
INTEGRITY
PRUDENCE
TRANSPARENCY
PARTNERSHIPS
SERVICE
PROFESSIONAL
SOLUTIONS
EXCELLENCE
EFFICIENCY
INNOVATIVE
RESPONSIVE
TECHNOLOGY
TEAMWORK
EXPERIENCE
LEADERSHIP
COMMUNICATION
STEWARDSHIP
COMMUNITY
TRADITION
ENERGY
2012 Annual Report
A Trusted Provider
for 115 years
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.
What We Offer:
• Water Production, Treatment and Distribution
• Public/Private Partnerships
• Wastewater Collection and Treatment
• Water and Sewer Line Maintenance (offered through a third party)
• Ownership and Operation of Utilities
• Community Irrigation
• Plant Construction, Operations and Maintenance
• Water and Wastewater Contract Operations
• Utility Billing and Collections
• Turnkey Renewable Energy Services
Operating Revenues
(Millions of Dollars)
102.7
102.1
91.0
91.2
110.4
Financial Highlights
(Millions of Dollars, Except per Share Data)
2012
2011
2010
Operating Revenues
$110.4
$102.1
$102.7
Operation and Maintenance Expenses
Depreciation
08
09
10
11
12
Income and Other Taxes
Net Income
(Millions of Dollars)
14.4
14.3
13.4
12.2
Interest Charges
Net Income
Earnings Applicable to Common Stock
10.0
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Paid per Share
08
09
10
11
12
Utility Plant
Return on Average Common Equity
60.5
10.4
19.2
6.7
14.4
14.2
0.90
0.90
0.74
535.6
8.0%
56.6
55.5
9.7
9.2
18.0
18.2
6.4
13.4
13.2
0.85
0.84
0.73
6.9
14.3
14.1
0.96
0.96
0.72
514.6
483.5
7.6%
9.0%
Earnings and Dividends
($ Per Share)
■ Earnings
■ Dividends
.96
.89
.90
.84
.72
.71
.70
.72
.73
On the Cover: From generation to generation, Middlesex Water has worked
to earn the trust of customers, employees and shareholders, as a quality service
.74
provider, valued employer and sound investment. Driven by a firm set of
values, we strive to deliver quality of life and economic stability and growth
for current and future customers by providing a comprehensive suite of
08
09
10
11
12
sustainable water and wastewater services.
120
90
60
30
15.0
12.0
9.0
6.0
1.00
.90
.80
.70
.60
Dear Shareholder:
Middlesex Water Company observed
of caring and responsibility to the
its 115th year of service to customers
customers and communities we serve
in 2012. In reaching that notable
had been instilled in the company’s
milestone, we reflect on the various
employees. Behind all of the
operational, financial and social
numerous operational and financial
factors that have contributed to the
decisions over the years, has been a
company’s long-standing success.
keen awareness that as a local water
Building Trust –
service provider, we must act with
integrity and support our communities,
Generation after Generation
comply with the strictest of water
It began with a vision in 1897 to
standards and invest in infrastructure
Dennis W. Doll
Chairman, President and
Chief Executive Officer
provide water service to meet the
that will help ensure reliability for years
customers, appropriate returns for
needs of a growing industrial base
to come. It is these actions that have
shareholders and overall high quality
in what is now eastern Middlesex
helped us to earn and maintain the
utility service. This spirit of service
County, New Jersey. Environmental
trust of our many stakeholders. I am
and our underlying technical expertise,
and rate regulation were not yet
gratified that this spirit of service
has positioned Middlesex Water
mainstream concepts in the provision
continues to be alive and well in our
as a valued resource to numerous
of water service. Those disciplines
company to this day. Prudent analysis,
governmental officials, who have
began to evolve in succeeding years
diligent planning and disciplined
a significant vested interest in the
as the population grew and the ability
execution have been integral to the
health, safety and overall well-being
to provide safe, reliable water service
design, construction, operation and
of the populations we serve.
took on increasing operational and
maintenance of thousands of water
Words, such as integrity, service and
financial complexity. From those
and wastewater assets. These qualities
stewardship that you see on the cover
earliest days, and throughout the
have also factored into the design and
of this annual report are generally, in
evolution of our company, a
implementation of rate mechanisms
my opinion, viewed as platitudes by
commitment to quality and a culture
to ensure fair and equitable costs to
the readers of annual reports that are
easy to communicate by leaders, but
are difficult to validate by shareholders.
We share them with you as part of the
theme of this report because in my eight
years with Middlesex Water Company,
I am more convinced than ever that
they truly define this company, and
have for so many years. The employees
of the Middlesex Water family of
companies are honored for the
opportunity to continue to maintain
our legacy as a trusted service provider
for the benefit of our current customers
and those we expect to serve in future
generations. Our efforts throughout
2012 continued to keep a sharp focus
on the complex balance that is inherent
in our ability to adequately meet the
1
CEO Dennis Doll and members of the company’s management team rang the closing
bell at the NASDAQ Stock Market in November in observance of the company’s 115th
Anniversary, 100 continuous years of dividend payments and 40 consecutive years of
dividend increases.
• further ensured the reliability and
business. By 2012, the company was
• integrity of critical utility infrastructure
at the end of the historical rate case
• implemented additional technology
cycle for several of its regulated water
• for greater efficiency and service
and wastewater utilities and as a result,
• quality
was in need of rate relief. Base rate
• facilitated further growth
proceedings were concluded in 2012
Some of these projects included
for Middlesex Water Company,
a $4.2 million investment to clean
Tidewater Utilities and Tidewater
and line water mains in Edison
Environmental Services. The outcomes
Township, NJ, $ 2.3 million in meter
of these proceedings are further
replacements and hydrant and water
detailed later in this report and are
main upgrades throughout our
evidence of the constructive and
system in New Jersey, $4.8 million
collaborative relationships your
to upgrade water and wastewater
management team continues to
infrastructure in our Delaware systems
foster with the company’s economic
and $2.1 million in our enterprise-wide
regulators, for the mutual benefit of
technology platform.
customers and shareholders.
There is a foreseeable need to
continue to make investments in
Opportunities for Growth
capital projects to upgrade, replace
We achieved success in various growth
and construct both water and
initiatives in 2012 as we continue to
“
We achieved timely recovery
of capital investments
made in our New Jersey
and Delaware operations
through rate relief which
helped grow our revenue.”
A. Bruce O’Connor
Vice President and
Chief Financial Officer
needs of customers, shareholders
wastewater utility infrastructure.
identify innovative opportunities for
and employees. Some of those
There is also a practical need to
the benefit of both customers and
efforts and related achievements
periodically solicit timely and
shareholders. Our efforts continued
are highlighted here.
adequate rate recognition from
to be directed at initiatives that
our regulators for certain changes in
complement our existing operations
Prudent Capital Investments
our cost profile to ensure continued
and our skills yet, help differentiate
In 2012 we delivered an enterprise
reliable service, in addition to ensuring
us as a leader in the water and
capital program of more than
we can continue to deliver returns
wastewater industry in both existing
$21 million. Through numerous
for our shareholders that appropriately
and future markets. In that regard,
specific capital projects, we:
reflect the inherent risks in our
in July we began operating the
Super Storm Sandy
In October 2012, crews worked to help keep the
water flowing throughout Super Storm Sandy, the
largest Atlantic hurricane on record. While the event
challenged our standby power supplies and facilities,
due to emergency planning and dedicated employees,
the enterprise experienced no significant disruptions
in service, no accidents or injuries were reported and
water quality remained high.
A post-storm evaluation also
led to the launch of our
DIRECTAlert program, through
which customers can update
their contact information for
notification purposes.
2
water, wastewater and storm water
systems of the Borough of Avalon, NJ.
This 10-year public-private partnership
is a further example of the confidence
municipal officials continue to place
in us to manage services that are
essential to quality of life, as well as
critical to sustaining economic stability
and growth for the benefit of the
residents and businesses both we
and the Borough officials are jointly
committed to serve.
We made significant progress in
the unique public-private partnership
announced last year to produce
electricity from methane gas at the
wastewater treatment plant of the
Village of Ridgewood, New Jersey. In
commitment to live the values inherent
conjunction with a partner, Natural
in the positive words we use to describe
Systems Utilities, we are using
ourselves on the cover of this report,
anaerobic digestion as well as solar
as well as to do good work for all
and ultraviolet light technologies
customers, including industrial clients,
to produce enough electricity to
our short-term contract with Sunoco
completely power the Village’s
Logistics that I described this time last
treatment plant. Electricity generation
year has been extended an additional
is further enhanced by introducing
year through the end of 2013.
food wastes from local sources
We are encouraged by the
commonly known as “fog” (fats,
improvements we see in the housing
oils and grease) into the treatment
market, particularly in Delaware, where
process. In addition to delivering
we are currently working with several
financial benefits for all parties to the
developers to provide water and/or
partnership, this innovative approach
wastewater service to a number of new
results in reducing the overall “carbon
housing and commercial properties.
footprint” thereby, effecting an overall
We completed a multi-year initiative
positive impact on the environment.
in 2012 to integrate several components
Middlesex Water Company and Natural
of our technology platform. The
Systems Utilities are joint owners of the
integration of our mobile workforce
approximately $3.5 million improvements
management application, our
to the Village’s treatment facilities
customer care and billing system
under a 20-year agreement with the
and a work and asset management
Village. The project, currently near
application, has in many respects
completion and full production, has
transformed the way work gets done
begun to produce electricity and is
and results get measured in numerous
expected to be fully operational by
parts of the company. In addition,
the end of the second quarter of 2013.
those applications have now been fully
As further testament to our
integrated with other key business
Progress continues on the installation and integration of various components of the
anaerobic digestion system at the Ridgewood, NJ wastewater treatment plant.
plansmartnj
betterland use
betterlives
Edward A. Clerico, President and COO, Natural
Systems Utilities, LLC, Christopher Rutishauser,
P.E., Village of Ridgewood, NJ and Dennis Doll
accept an Environmental Achievement Award for
the public-private partnership from PlanSmart
NJ, an organization committed to improving
the quality of community life through sound
land use planning.
systems such as accounting, payroll and
our Geographic Information Systems,
resulting in enhanced company-wide
timekeeping, consolidated supply
chain management, inventory control
and improved field crew productivity.
This automation is giving us ever
greater insight into the details of our
operations. We are now able to
capture construction, operations,
maintenance and administrative time
and cost in real time in end-to-end
business processes for improved
analysis and decision-making.
Emerging Stronger Through a Crisis
In 2012, our enterprise stood strong
through Super Storm Sandy, a storm
which tested our emergency operations
and communications plans, facilities
and employees. We thank our
extraordinarily dedicated employees,
many of whom suffered personal
property loss, for their incredible
efforts throughout the storm and its
aftermath, in ensuring the company
was able to continue to provide service.
3
on common stock for the 40th
consecutive year. We were pleased
to commemorate this milestone, as
well as our 100th consecutive year
of dividend payments, with members
of our management team at a
NASDAQ Stock Market Closing
Bell Ceremony in November.
Challenges Ahead
Like any company, there are always
opportunities to improve in virtually
every aspect of the business. Finding
those opportunities and implementing
those improvements is a very rewarding
part of my job and that of our
management team. The need to make
“
Through our mobile work-
force platform our field
crews are able to respond to
customer requests in a more
timely and efficient manner.”
Housing construction continues in the
southern portion of our DE service territory.
Richard M. Risoldi
Vice President and
Chief Operating Officer
further improvements in operational
values inherent in the words on the
and financial performance is even more
cover of this report, with the high
acute since portions of our customer
quality technical and management
base continue to endure economic
skills our employees possess and with
Despite having detailed emergency
hardship. The impact on customer
ongoing diligent efforts to exploit
plans, policies and procedures in place,
rates from our need to continue to
smart opportunities to grow, we
following our post-storm analysis and
invest significant amounts of capital,
will continue to appropriately meet
review, we have further expanded our
combined with lingering uncertainty
the needs of customers, employees
emergency preparedness plans to
around certain future costs including
and shareholders.
anticipate weather events of longer
healthcare, regulatory and others,
Thank you for your continued confidence
duration and severity than had previously
underscores our need to continue to
in Middlesex Water Company.
been contemplated in our plans. In
navigate the ratemaking process in
addition, we continue to expand our
collaboration with our economic
use of various social media platforms
regulators, consumer advocates and
to keep our customers informed.
others. We are encouraged that with
In 2012 we raised the dividend
our steadfast commitment to living the
Dennis W. Doll
Chairman, President and
Chief Executive Officer
In 2012, Tidewater Utilities, Inc. was named the provider of the “Best
Tasting Water in Delaware” by the Delaware Rural Water Association,
the state’s leading association dedicated to providing technical assistance
and specialized training for rural water and wastewater systems.
Middlesex Water Company was recognized by local radio
station, Magic 98.3 for its support of women in the workplace
at the Third Annual Central Jersey Women in Business Awards.
Georgia Simpson, Director IT, accepted the award on behalf
of Middlesex Water Company.
4
VALUE
RELIABILITY
SAFETY
QUALITY
RESPONSIBILITY
INTEGRITY
PRUDENCE
TRANSPARENCY
PARTNERSHIPS
SERVICE
PROFESSIONAL
SOLUTIONS
EXCELLENCE
EFFICIENCY
INNOVATIVE
RESPONSIVE
TECHNOLOGY
TEAMWORK
EXPERIENCE
LEADERSHIP
COMMUNICATION
STEWARDSHIP
COMMUNITY
TRADITION
ENERGY
Form 10-K
For the fiscal year ended
December 31, 2012
A Trusted Provider
for 115 years
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
For the fiscal year ended December 31, 2012
OR
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:3) No (cid:2)
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:3) No (cid:2)
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:2) No (cid:3)
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:2) No (cid:3)
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:2)
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:3) Accelerated filer (cid:2) Non-accelerated filer (cid:3) Smaller reporting company (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:3) No (cid:2)
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2012 was $298,875,149 based on
the closing market price of $18.58 per share.
The number of shares outstanding for each of the registrant's classes of common stock, as of March 5, 2013:
Common Stock, No par Value 15,815,595 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 21, 2013, which
will be filed with the Securities and Exchange Commission within 120 days of the end of our 2012 fiscal year, is incorporated by
reference into Part III.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
Forward-Looking Statements
PAGE
1
PART I
Item 1. Business:
Overview
Financial Information
Water Supplies and Contracts
2
2
2
4
4
5
Employees
Competition
5
Regulation 6
Seasonality
8
Management
9
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Properties
10
14
15
16
16
PART II 17
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Financial Statements and Supplementary Data
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
17
19
19
33
34
62
62
64
64
64
64
64
64
64
65
65
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 customer rates, consumption volumes, service fees, revenues, margins, expenses
and operating results;
statements as to financial projections;
statements as to the expected amount of cash contributions to fund the Company’s retirement benefit plans,
anticipated discount rates and rates of return on plan assets;
statements as to the ability of the Company to pay dividends;
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 the Company’s plans to renew municipal franchises and consents in the territories it serves;
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).
The Company’s 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,
Townships of Edison and Marlboro, the Boroughs of Highland Park and Sayreville and the Old Bridge Municipal
Utilities Authority. The Middlesex System treats, stores and distributes water for residential, commercial,
industrial and fire protection purposes. The Middlesex System also provides water treatment and pumping
services to the Township of East Brunswick under contract. The Middlesex System produced approximately 61%
of our 2012 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 300,000. 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.
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 2012 consolidated operating revenues.
Tidewater System
Tidewater, together with its wholly-owned subsidiary, Southern Shores, provides water services to approximately
37,000 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 a wholly-owned subsidiary of
2
Tidewater that is unregulated as to rates and operates water and wastewater systems under contract for
approximately 4,600 residential customers. White Marsh also owns the office buildings that Tidewater uses as its
central business office campus. The Tidewater System produced approximately 26% of our 2012 consolidated
operating revenues.
Utility Service Affiliates-Perth Amboy
USA-PA operates the City of Perth Amboy, New Jersey’s (Perth Amboy) water and wastewater systems under a
20-year agreement, which expires in 2018. USA-PA serves approximately 11,000 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 2012 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 2012 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 2012 consolidated operating
revenues.
Utility Service Affiliates, Inc.
USA offers residential customers in New Jersey and Delaware water service line and sewer lateral maintenance
programs (LineCare). USA entered into a marketing agreement (the Agreement), expiring in 2021, with
HomeServe USA (HomeServe), a leading provider of home maintenance service programs to service, develop
and grow USA’s LineCare customer base. USA receives a service fee for the billing, cash collection and other
administrative matters associated with HomeServe’s service contracts.
On July 1, 2012, USA began service to the Borough of Avalon, New Jersey (Avalon) under a ten-year operations
and maintenance contract for the Avalon water utility, sewer utility and storm water system. In addition to
performing the day to day operations, USA is responsible for billing, collections, customer service, emergency
responses and management of capital projects funded by Avalon.
USA produced approximately 2% of our 2012 consolidated operating revenues.
TESI System
TESI provides wastewater services to approximately 2,400 residential retail customers in Kent and Sussex
Counties, Delaware. TESI produced approximately 1% of our 2012 consolidated operating revenues.
Twin Lakes System
Twin Lakes provides water services to approximately 110 residential customers in Shohola, Pennsylvania. Twin
Lakes produced less than 1% of our 2012 consolidated operating revenues.
3
Financial Information
Consolidated operating revenues, operating income and net income are as follows:
(Thousands of Dollars)
Years Ended December 31,
Operating Revenues
2012
$ 110,379
2011
$ 102,069
Operating Income
$ 27,647
$ 24,201
Net Income
$ 14,396
$ 13,447
2010
$ 102,735
$ 26,597
$ 14,330
Operating revenues were earned from the following sources:
Years Ended December 31,
2011
2012
2010
Residential
Commercial
Industrial
Fire Protection
Contract Sales
Contract Operations
Other
46.1 % 46.0 % 45.5 %
9.8
8.8
9.5
13.0
11.1
1.7
10.0
9.2
10.1
13.1
10.0
1.6
9.7
8.7
9.7
14.6
9.7
2.1
Total
100.0 % 100.0 % 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 15.8 billion gallons in 2012, obtains water from surface
sources and wells, or groundwater sources. In 2012, 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 1.9 billion gallons in 2012 from 158 wells. In 2012, no new wells
were placed into service and we retired 1 well for the purpose of consolidating production facilities for more cost-
efficient operation. Tidewater will 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 162.6 million
gallons in 2012. 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 111.2 million gallons in 2012.
Bayview System
Water supply to Bayview customers is derived from two wells, which delivered approximately 16.3 million
gallons in 2012.
TESI System
The TESI System is comprised of seven wastewater treatment systems in Kent and Sussex Counties, 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 78.3 million gallons in 2012.
Twin Lakes System
Water supply to Twin Lakes’ customers is derived from two wells, which delivered approximately 23.9 million
gallons in 2012.
Employees
As of December 31, 2012, we had a total of 279 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):
• New Jersey-New Jersey Board of Public Utilities (NJBPU)
• Delaware-Delaware Public Service Commission (DEPSC)
• 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 to the extent such services are
provided.
We are subject to environmental and water quality regulation by the following regulatory agencies (collectively,
the Government Environmental Regulatory Agencies):
• United States Environmental Protection Agency (EPA)
• New Jersey Department of Environmental Protection (NJDEP) with respect to operations in New Jersey
• Delaware Department of Natural Resources and Environmental Control, 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
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 revenue, 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 July 2012, the NJBPU approved an $8.1 million increase in Middlesex’s annual base water rates. A base rate
increase request of $11.3 million was filed in January 2012 seeking recovery of increased costs of operations,
chemicals, fuel, electricity, taxes, labor and benefits, and decreases in industrial and commercial customer
demand patterns, as well as capital investment in utility plant. The new base rates are designed to generate
sufficient revenue to recover these increased costs and offset the lower customer demands, as well as provide a
return on invested capital in rate base of $202.4 million, based on a return on equity of 10.15%. The rate increase
became effective on July 20, 2012.
In November 2012, Middlesex filed a petition with the NJBPU seeking approval of foundational information
(Foundational Filing) that would allow for the implementation of a Distribution System Improvement Charge
(DSIC). A DSIC is a rate-mechanism that allows water utilities to recover investment in capital improvements to
their water distribution system made between base rate proceedings. In February 2013, the Foundational Filing
was approved by the NJBPU, which allows Middlesex to implement a DSIC rate in September 2013 to recover
6
costs for qualifying projects that are placed in service in the six-month post approval period. The DSIC rate is
allowed to increase in three subsequent six month periods for any additional qualifying projects placed in service
during those time periods. The maximum annual revenues allowed to be recovered under the approved
Foundational Filing is $1.4 million.
In September 2012, 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 $0.1
million to purchase untreated water from the New Jersey Water Supply Authority (NJWSA) 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, the NJBPU granted an increase in Middlesex’s annual operating revenues of 13.57%, or $7.8
million. The increase was necessitated by increased costs, as well as to provide a return on invested capital in rate
base of $180.3 million based on a return on equity of 10.30%.
Tidewater Rate Matters
In June 2012, the DEPSC approved a $3.9 million increase in Tidewater’s annual base water rates. A base rate
increase request of $6.9 million was filed in September 2011 seeking recovery of increased costs for operations,
maintenance and taxes, as well as capital investment. Under DEPSC regulations, Tidewater had implemented
interim rates in November 2011, which amounted to approximately $2.5 million on an annual basis. The new final
base rates reflect the remaining $1.4 million and became effective June 19, 2012.
Effective January 1, 2013, Tidewater implemented a DEPSC approved $0.1 million DSIC rate increase.
TESI Rate Matters
In November 2012, TESI filed an application with the DEPSC seeking approval to purchase all of the utility
assets of the 600 customer wastewater system serving the residents of the Plantations development (the
Plantations) in Rehoboth Beach, Delaware. The application also requests the transfer of the wastewater franchise
from the current owner to TESI. In connection with this transaction, TESI also filed an application with DEPSC
seeking an approximate $0.1 million increase in the Plantations’ residents base wastewater rates. The purchase,
and subsequent operation, of the Plantation’s wastewater system is contingent, among other things, upon the
DEPSC’s approval of both applications. We cannot predict whether the DEPSC will ultimately approve or deny
the purchase and base rate increase. A decision by the DEPSC is not expected until the third quarter of 2013.
In June 2012, the DEPSC approved a $0.6 million increase in TESI’s annual base wastewater rates, a portion of
which is to be phased in through 2015. A base rate increase request of $0.8 million was filed in July 2011
seeking recovery of increased operation and maintenance costs, as well as capital investment. Under DEPSC
regulations, TESI had implemented interim rates in September 2011, which amounted to approximately $0.1
million on an annual basis. The new final base rates became effective June 5, 2012.
Pinelands Rate Matters
In August 2012, Pinelands Water and Pinelands Wastewater filed petitions with the NJBPU seeking permission to
increase base rates by approximately $0.2 million and $0.1 million per year, respectively. These requests were
made as a result of capital investments as well as increased operations and maintenance costs for both companies.
We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of the request. A
decision by the NJBPU is not expected until the second quarter of 2013.
Southern Shores Rate Matters
Effective June 1, 2011, the DEPSC approved a multi-year agreement for a phased-in base rate increase for
Southern Shores. This increase was made as a result of capital investment in the upgrade and renovation of
Southern Shores’ primary water treatment facilities, as well as by increased operating costs. Under the terms of
7
the agreement, which expires in 2020, customer rates will increase on January 1st of each year to generate
additional annual revenue of $0.1 million with each increase.
Twin Lakes Rate Matters
The PAPUC approved a $0.1 million, three-year phased-in base rate increase effective March 3, 2012. This
increase was designed to recover capital investment in the upgrade and renovation of the Twin Lakes System, as
well as increased operating costs.
Future Rate Filings
Both Middlesex and Tidewater believe it will be necessary to file for an increase in their base rates in 2013. Once
filed, there can be no assurances that the 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, treatment and disposal.
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 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.
Treatment of well water in our Middlesex System is by chlorination for primary disinfection purposes. In
addition, at certain locations, air stripping is used for removal of volatile organic compounds.
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.
Treatment of well water in our Tidewater System is by chlorination for disinfection purposes and, in some cases,
pH correction and filtration for nitrate and iron removal.
Treatment of well water in the Pinelands, Bayview and Twin Lakes Systems (primary 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, the Federal Surface Water Treatment Rule and the Federal Total Coliform Rule and regulations for
maximum contaminant levels established for various volatile organic compounds.
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.
8
Management
This table lists information concerning our executive management team:
Name
Dennis W. Doll
Age Principal Position(s)
54
President, Chief Executive Officer and Chairman of the Board of
Directors
A. Bruce O’Connor
Richard M. Risoldi
Kenneth J. Quinn
Bernadette M. Sohler
Lorrie B. Ginegaw
Gerard L. Esposito
54 Vice President and Chief Financial Officer
56 Vice President-Operations and Chief Operating Officer
65 Vice President-General Counsel, Secretary and Treasurer
52 Vice President-Corporate Affairs
38 Vice President–Human Resources
61 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 also serves as a volunteer Director on several non-profit Boards including the New Jersey
Utilities Association, the National Association of Water Companies, the Water Research Foundation and Raritan
Bay Medical Center.
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, TESI, USA, and White
Marsh. He is Vice President, Treasurer and a Director of USA-PA, Pinelands Water and Pinelands Wastewater.
He is also Vice President, Treasurer and a Director of Twin Lakes.
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, TESI and White Marsh. He
also serves as Director and President of Pinelands Water, Pinelands Wastewater, USA, USA-PA and Twin Lakes.
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.
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 USA. Prior to joining the Company, Ms.
Sohler held marketing and public relations management positions in the financial services industry. Ms. Sohler
serves as a volunteer director on several non-profit Boards including the National Association of Water
Companies and is the Chair of the New Jersey Utilities Association’s Communications Committee.
Lorrie B. Ginegaw – Ms. Ginegaw joined Tidewater in 2004. In September 2005, Ms. Ginegaw was promoted to
Human Resources Manager. In May 2007, Ms. Ginegaw was promoted to Director of Human Resources for
Middlesex. In March 2012, Ms. Ginegaw was appointed Vice President-Human Resources. Ms. Ginegaw is
responsible for all Human Resources throughout the Company. Prior to joining the Company, Ms. Ginegaw
9
worked in various human resources positions in the healthcare and transportation/logistics industries. She is the
Chair of the New Jersey Utilities Association’s Human Resources Committee and a member of the Middlesex
County Workforce Investment Board.
Gerard L. Esposito – Mr. Esposito joined Tidewater in 1998 as Executive Vice President. He was elected
President of Tidewater and White Marsh in 2003 and elected President of TESI 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, TESI, and White Marsh.
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.
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
10
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 $73.0 million for capital projects through
2015. 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.
We rely on our information technology systems to help manage our operations.
Our information technology systems require periodic modifications, upgrades and or replacement which subject
us to costs and risks including potential disruption of our internal control structure, substantial capital
expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to
implement and operate existing or new systems, and other risks and costs of delays or difficulties in transitioning
to new systems or of integrating new systems into our current systems. In addition, the difficulties with
implementing new technology systems may cause disruptions in our business operations and have an adverse
effect on our business and operations, if not anticipated and appropriately mitigated.
We rely on our computer, information and communications technology systems in connection with the operation
of our business, especially with respect to customer service and billing, accounting and, in some cases, the
monitoring and operation of our facilities. Our computer and communications systems and operations could be
damaged or interrupted by natural disasters, power loss and internet, telecommunications or data network failures
or acts of war or terrorism or similar events or disruptions. Any of these or other events could cause system
interruption, delays and loss of critical data or delay or prevent operations and adversely affect our financial
results.
11
There have been an increasing number of cyber security incidents on companies around the world, which have
caused operational failures or compromised sensitive corporate or customer data. Although we do not believe
that our systems are at a materially greater risk of cyber security incidents than other similar organizations, such
cyber security incidents may result in the loss or compromise of customer, financial or operational data,
disruption of billing, collections or normal field service activities, disruption of electronic monitoring and control
of operational systems and delays in financial reporting and other normal management functions. Possible
impacts associated with a cyber security incident may include remediation costs related to lost, stolen, or
compromised data, repairs to data processing systems, increased cyber security protection costs, adverse effects
on our compliance with regulatory and environmental laws and regulation, including standards for drinking water,
litigation and reputational damage.
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.
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
12
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 Perth Amboy 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 Townships of
Edison and Marlboro, the Boroughs of Highland Park and Sayreville, the Old Bridge Municipal Utilities
Authority, 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.
13
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.
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 the Board of Directors determines is not in the best
interest of the common stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
14
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 55 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 740 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, 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 83 production plants that vary in pumping capacity from 46,000 gallons
per day to 1.0 mgd. Water is transported to our customers through 632 miles of transmission and distribution
mains. Storage facilities include 48 tanks, with an aggregate capacity of 5.5 million gallons. Our Delaware
operations are managed from Tidewater’s offices in Dover, Delaware. The Delaware office property, located on
an eleven-acre parcel owned by White Marsh, consists of two office buildings totaling approximately 17,000
square feet. In addition, Tidewater maintains a field operations center servicing its largest service territory area in
15
Sussex County, Delaware. The operations center is located on a 2.9 acre parcel owned by White Marsh, and
consists of one building totaling approximately 5,300 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 is comprised of seven 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 36.9 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.
MINE SAFETY DISCLOSURES.
Not applicable.
16
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, 2012, there were 1,879 holders of record.
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
$19.59
$19.64
$19.00
$19.60
High
$19.44
$19.19
$19.29
$19.31
Low
$17.48
$18.40
$18.00
$18.04
Low
$16.51
$16.54
$17.77
$17.35
Dividend
$0.1875
$0.1850
$0.1850
$0.1850
Dividend
$0.1850
$0.1825
$0.1825
$0.1825
The Company has paid dividends on its common stock each year since 1912. 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 $1.6 million through the issuance
of 0.1 million shares under the DRP during 2012.
The Company has a stock compensation plan for certain management 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 2012, 5,768 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 100,000. 87,429 shares remain available for future grants under the
Outside Director Stock Compensation Plan.
17
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, 2007. 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*
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
Middlesex Water Company
Dow Jones Wilshire 5000
Peer Group *
* Peer group includes American States Water Company, Artesian Resources Corp., California Water
Service Company, Connecticut Water Service, Inc., SJW Corp., York Water Company and Middlesex.
The peer group has been modified to remove the following entities: Pennichuck Corp. (acquired);
American Water Works, Inc. and Aqua America Inc. (substantial market capitalization). The remaining
peer group members are more representative of similar size regulated water utilities.
Middlesex Water Company
Dow Jones Wilshire 5000
Peer Group
2007
100.00
100.00
100.00
2008
94.60
62.77
100.60
2009
101.41
80.53
96.16
2010
110.07
94.35
104.83
2011
116.44
95.27
106.18
2012
127.02
110.57
124.50
December 31,
18
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
2012
110,379
$
2011
102,069
$
2010
102,735
$
2009
91,243
$
2008
91,038
$
60,458
10,409
11,865
82,732
27,647
857
6,725
7,383
14,396
206
14,190
$
56,634
9,746
11,488
77,868
24,201
2,149
6,376
6,527
13,447
206
13,241
$
55,481
9,244
11,413
76,138
26,597
1,444
6,925
6,786
14,330
207
14,123
$
52,348
8,559
10,175
71,082
20,161
1,726
6,750
5,160
9,977
208
9,769
$
48,929
7,922
10,168
67,019
24,019
1,302
7,057
6,056
12,208
218
11,990
$
$
$
0.90
0.90
$
$
0.85
0.84
$
$
0.96
0.96
$
$
0.73
0.72
$
$
0.90
0.89
15,733
15,995
0.743
561,726
2,273
131,467
$
$
$
$
15,615
15,877
0.733
537,536
2,273
132,167
$
$
$
$
14,654
14,916
0.723
489,185
2,273
133,844
$
$
$
$
13,454
13,716
0.713
458,086
2,273
124,910
$
$
$
$
13,317
13,615
0.703
440,000
2,273
118,217
$
$
$
$
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 (Middlesex) has operated as a water utility in New Jersey since 1897, in Delaware
through our wholly-owned subsidiary, Tidewater Utilities, Inc. (Tidewater), since 1992 and in Pennsylvania
through our wholly-owned subsidiary, Twin Lakes Utilities, Inc. (Twin Lakes), since 2009. We are in the
business of collecting, treating and distributing water for domestic, commercial, municipal, industrial and fire
protection purposes. We also operate two New Jersey municipal water and wastewater systems under contract and
provide regulated wastewater services in New Jersey and Delaware through 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 Utility Service Affiliates, Inc.
(USA), Utility Service Affiliates (Perth Amboy), Inc. (USA-PA) and White Marsh Environmental Services, Inc.
(White Marsh) subsidiaries are not regulated utilities.
19
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 300,000. We also have
an investment in a joint venture, Ridgewood Green RME, LLC, that is constructing, and will own and operate,
facilities to optimize the production of electricity at the Village of Ridgewood, New Jersey wastewater treatment
plant and other municipal facilities (full operation of the facilities is expected to begin in the second quarter of
2013). In partnership with our subsidiary, USA-PA, we operate the water supply system and wastewater system
for the City of Perth Amboy, New Jersey (Perth Amboy). Our Bayview subsidiary provides water services in
Downe Township, New Jersey. Our other New Jersey subsidiaries, Pinelands Water Company (Pinelands Water)
and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), provide water and
wastewater services to residents in Southampton Township, New Jersey.
USA offers residential customers in New Jersey and Delaware water service line and sewer lateral maintenance
programs (LineCare). USA entered into a marketing agreement (the Agreement), expiring in 2021, with
HomeServe USA (HomeServe), a leading provider of home maintenance service programs to service, develop
and grow USA’s LineCare customer base. USA receives a service fee for the billing, cash collection and other
administrative matters associated with HomeServe’s service contracts. On July 1, 2012, USA began service to the
Borough of Avalon, New Jersey (Avalon) under a ten-year operations and maintenance contract for the Avalon
water utility, sewer utility and storm water system. In addition to performing the day to day operations, USA is
responsible for billing, collections, customer service, emergency responses and management of capital projects
funded by Avalon.
Our Delaware subsidiaries, Tidewater and Southern Shores Water Company, LLC (Southern Shores), provide
water services to approximately 37,000 retail customers in New Castle, Kent and Sussex Counties, Delaware.
Tidewater’s subsidiary, White Marsh, services approximately 4,600 customers in Kent and Sussex Counties
through various operations and maintenance contracts.
Our Tidewater Environmental Services, Inc. (TESI) subsidiary provides wastewater services to approximately
2,400 residential retail customers in Kent and Sussex Counties, Delaware. 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 100 retail customers in the
Township of Shohola, Pike County, Pennsylvania.
The majority of our revenue is generated from retail customers in our regulated franchise areas and contract water
services to municipalities adjacent to our regulated franchise 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 Tidewater and are recognized in revenue as
the service is provided.
Recent Developments
Superstorm Sandy - During the last week of October 2012, our businesses, primarily in New Jersey, were
impacted by Superstorm Sandy. The most significant impact was widespread power outages caused by the
storm’s heavy winds and rain. Because all of our critical water and wastewater facilities are equipped with
emergency power generators, we were able to maintain service to our customers during the storm, as well as in its
aftermath. The storm did not have a material adverse impact on our results of operations, financial position or
cash flows. Claims for damages and any associated losses have been submitted to our insurance carriers. We
anticipate that claims which may not be covered by insurance are recoverable through the regulatory rate setting
process.
20
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.
Rates
Middlesex - In July 2012, the New Jersey Board of Public Utilities (NJBPU) approved an $8.1 million increase in
Middlesex’s annual base water rates. A base rate increase request of $11.3 million was filed in January 2012
seeking recovery of increased costs of operations, chemicals, fuel, electricity, taxes, labor and benefits and
decreases in industrial and commercial customer demand patterns, as well as capital investment in utility plant.
The new base rates are designed to generate sufficient revenue to recover these increased costs and offset the
lower customer demands, as well as provide a return on invested capital in rate base of $202.4 million, based on a
return on equity of 10.15%. The rate increase became effective on July 20, 2012.
In November 2012, Middlesex filed a petition with the NJBPU seeking approval of foundational information
(Foundational Filing) that would allow for the implementation of a Distribution System Improvement Charge
(DSIC). A DSIC is a rate-mechanism that allows water utilities to recover investment in capital improvements to
their water distribution system made between base rate proceedings. In February 2013, the Foundational Filing
was approved by the NJBPU, which allows Middlesex to implement a DSIC rate in September 2013 to recover
costs for qualifying projects that are placed in service in the six-month post-approval period. The DSIC rate is
allowed to increase in three subsequent six month periods for any additional qualifying projects placed in service
during those time periods. The maximum annual revenues allowed to be recovered under the approved
Foundational Filing is $1.4 million.
In September 2012, 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 $0.1
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, the NJBPU granted an increase in Middlesex’s annual operating revenues of 13.57%, or $7.8
million. The increase was necessitated by increased costs, as well as to provide a return on invested capital in rate
base of $180.3 million based on a return on equity of 10.30%.
Tidewater – In June 2012, the Delaware Public Service Commission (DEPSC) approved a $3.9 million increase
in Tidewater’s annual base water rates. A base rate increase request of $6.9 million was filed in September 2011
seeking recovery of increased costs for operations, maintenance and taxes, as well as capital investment. Under
DEPSC regulations, Tidewater had implemented interim rates in November 2011, which amounted to
approximately $2.5 million on an annual basis. The new final base rates reflect the remaining $1.4 million and
became effective June 19, 2012.
Effective January 1, 2013, Tidewater implemented a DEPSC approved $0.1 million DSIC rate increase.
TESI – In November 2012, TESI filed an application with the DEPSC seeking approval to purchase all of the
utility assets of the 600 customer wastewater system serving the residents of the Plantations development (the
21
Plantations) in Rehoboth Beach, Delaware. The application also requests the transfer of the wastewater franchise
from the current owner to TESI. In connection with this transaction, TESI also filed an application with DEPSC
seeking an approximate $0.1 million increase in the Plantations’ residents base wastewater rates. The purchase,
and subsequent operation, of the Plantation’s wastewater system is contingent, among other things, upon the
DEPSC’s approval of both applications. We cannot predict whether the DEPSC will ultimately approve or deny
the purchase and base rate increase. A decision by the DEPSC is not expected until the third quarter of 2013.
In June 2012, the DEPSC approved a $0.6 million increase in TESI’s annual base wastewater rates, a portion of
which is to be phased in through 2015. A base rate increase request of $0.8 million was filed in July 2011
seeking recovery of increased operation and maintenance costs, as well as capital investment. Under DEPSC
regulations, TESI had implemented interim rates in September 2011, which amounted to approximately $0.1
million on an annual basis. The new final base rates became effective June 5, 2012.
Pinelands – In August 2012, Pinelands Water and Pinelands Wastewater filed petitions with the NJBPU seeking
permission to increase base rates by approximately $0.2 million and $0.1 million per year, respectively. These
requests were made as a result of capital investments as well as increased operations and maintenance costs for
both companies. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of
the request. A decision by the NJBPU is not expected until the second quarter of 2013.
Southern Shores – Effective June 1, 2011, the DEPSC approved a multi-year agreement for a phased-in base rate
increase for Southern Shores. This increase was made as a result of capital investment in the upgrade and
renovation of Southern Shores’ primary water treatment facilities, as well as by increased operating costs. Under
the terms of the agreement, which expires in 2020, customer rates will increase on January 1st of each year to
generate additional annual revenue of $0.1 million with each increase.
Twin Lakes - The Pennsylvania Public Utilities Commission approved a $0.1 million, three-year phased-in base
rate increase effective March 3, 2012. This increase was designed to recover capital investment in the upgrade
and renovation of the Twin Lakes System, as well as increased operating costs.
Outlook
Revenues for 2013 are expected to be favorably impacted by the full year effect of approved 2012 base rate
increases for Middlesex, Tidewater, TESI, Southern Shores and Twin Lakes. The Pinelands Water and Pinelands
Wastewater base rate increase requests should also contribute to additional revenues in 2013 as well as the
Tidewater DSIC and the Middlesex PWAC and DSIC. Both Middlesex and Tidewater believe it will be necessary
to file for an increase in their base rates in 2013. The rate increases that Pinelands Water, Pinelands Wastewater,
Tidewater and Middlesex filed, or expect to file, have not yet been approved by each company’s respective utility
commission. There can be no assurances that the requested rate increases will be approved in whole or in part or
when the final decisions will be rendered.
Middlesex has received notification from the Borough of Sayreville, New Jersey (Sayreville), one of Middlesex's
wholesale contract customers, that Sayreville will not be renewing its contract for the purchase of water from
Middlesex. In accordance with the terms, this contract will remain in effect through August 12, 2013. Middlesex
is exploring options with Sayreville for its ongoing emergency water supply requirements. Gross operating
revenues from water sales to Sayreville amounted to $1.9 million in 2012. In addition, Hess Corporation (Hess),
Middlesex's largest retail water customer, has announced it intends to cease its oil refining operations at its Port
Reading, New Jersey facility as early as of the end of February 2013. Revenues from Hess amounted to $2.6
million in 2012. Revenue reductions from either of these customers may accelerate the need for Middlesex to file
a base rate increase Petition with the NJBPU.
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. We are unable to
determine when these customers’ water demands may fully return to previous levels, or if a reduced level of
22
demand will continue indefinitely. We were given appropriate recognition for a portion of this decrease in
customer consumption in Middlesex’s March 2010 and July 2012 rate increases.
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.
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 preliminary survey and investigation (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.
Improved performance in 2012 on our investment of retirement plan funds, partially offset by a lower discount
rate, is expected to result in lower employee benefit plan expense and cash contributions in 2013. See Note 7 of
the Notes to Consolidated Financial Statements for further discussion of Employee Benefit Plans.
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.
Operating Results by Segment
The Company has two operating segments, Regulated and Non-Regulated. Our Regulated segment contributed
approximately 89%, 90% and 90% of total revenues, and approximately 93%, 91% and 92% of net income for the
years ended December 31, 2012, 2011 and 2010, 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.
Results of Operations in 2012 Compared to 2011
(Millions of Dollars)
Years ended December 31,
2012
Non-
Regulated
Regulated
Total
Regulated
2011
Non-
Regulated
Total
$97.8
50.1
10.2
11.6
$25.9
0.8
6.6
6.6
$13.5
$12.6 $110.4
60.5
10.4
11.9
$27.6
10.4
0.2
0.3
$1.7
0.1
0.1
0.8
$0.9
0.9
6.7
7.4
$14.4
$91.5
47.8
9.7
11.2
$22.8
1.2
6.3
5.5
$12.2
$10.6 $102.1
56.6
9.8
11.5
$24.2
8.8
0.1
0.3
$1.4
0.9
0.1
1.0
$1.2
2.1
6.4
6.5
$13.4
Revenues
Operations and maintenance
Depreciation
Other taxes
Operating income
Other income, net
Interest expense
Income taxes
Net income
23
Operating Revenues
Operating revenues for the year ended December 31, 2012 increased $8.3 million from the same period in 2011.
This increase was attributable to the following factors:
• Middlesex System revenues increased $2.7 million, primarily due to:
o Sales to general meter service customers increased by $2.1 million, primarily due to the July 2012
base water rate increase; and
o Contract Sales to Municipalities increased by $0.6 million, primarily due to the July 2012 base
water rate;
• Tidewater System revenues increased $3.3 million, primarily due to interim and final rate increases that
went into effect in November 2011 and June 2012, respectively, and increased connection fees;
• USA’s revenues increased $1.5 million, primarily due to revenues earned under contracts to operate the
Avalon water utility, sewer utility and storm water systems and the Sunoco Eagle Point Biological
Wastewater Treatment Facility, both of which commenced in 2012;
• USA-PA’s revenues increased $0.6 million, primarily from scheduled increases in the fixed fees paid
under contract with Perth Amboy;
• Revenues in Southern Shores, TESI and Twin Lakes collectively increased $0.3 million, primarily due to
rate increases that went into effect in 2012; and
• Revenues from all other subsidiaries decreased $0.1 million.
Operation and Maintenance Expense
Operation and maintenance expenses for the year ended December 31, 2012 increased $3.8 million from the same
period in 2011. This increase was related to the following factors:
• Employee benefit expenses increased $2.6 million due to changes in certain postretirement benefit plan
actuarial assumptions, including a lower discount rate and revised plan participant mortality factors, as
well as a lower actual return on assets held in our retirement plan funds;
• Labor costs increased $0.6 million due to higher average labor rates, additional personnel hired for USA’s
new contract operations serving Avalon and the Sunoco Eagle Point Biological Wastewater Treatment
Facility and lower capitalized payroll. These increases were partially offset by a reduction of employee
positions in our Delaware workforce and less overtime expended on emergency repairs;
• Expenditures for start-up activities and billable additional services under USA’s new contract operations
serving Avalon and the Sunoco Eagle Point Biological Wastewater Treatment Facility resulted in a $0.5
million increase; and
• Operation and maintenance expenses for all other categories increased $0.1 million.
Depreciation
Depreciation expense for the year ended December 31, 2012 increased $0.7 million from the same period in 2011
due to a higher level of utility plant in service.
Other Taxes
Other taxes for the year ended December 31, 2012 increased $0.4 million from the same period in 2011, primarily
due to increased revenue related taxes on higher revenues in our Middlesex system.
Other Income, net
Other Income, net for the year ended December 31, 2012 decreased $1.3 million from the same period in 2011,
primarily due to a gain of $0.7 million recognized in the third quarter of 2011 resulting from the sale of USA’s
LineCare contracts to HomeServe and lower Allowance for Funds Used During Construction, resulting from
lower average construction work in progress balances.
24
Interest Charges
Interest charges for the year ended December 31, 2012 increased $0.3 million from the same period in 2011,
primarily due to higher average short and long term debt outstanding in 2012 as compared to 2011.
Income Taxes
Income taxes for the year ended December 31, 2012 increased $0.9 million from the same period in 2011, due to
increased operating income in 2012 as compared to 2011.
Net Income and Earnings Per Share
Net income for the year ended December 31, 2012 increased $0.9 million from the same period in 2011. Basic
and diluted earnings per share increased to $0.90 for the year ended December 31, 2012 as compared to $0.85
and $0.84, respectively for the year ended December 31, 2011.
Results of Operations in 2011 Compared to 2010
(Millions of Dollars)
Years ended December 31,
2011
Non-
Regulated
Regulated
Total
Regulated
2010
Non-
Regulated
Total
$91.5
47.8
9.7
11.2
$22.8
1.2
6.3
5.5
$12.2
$10.6 $102.1
56.6
9.8
11.5
$24.2
8.8
0.1
0.3
$1.4
0.9
0.1
1.0
$1.2
2.1
6.4
6.5
$13.4
$92.0
47.0
9.1
11.1
$24.8
1.1
6.8
6.0
$13.1
$10.7 $102.7
55.5
9.2
11.4
$1.8 $26.6
8.5
0.1
0.3
0.3
0.1
0.8
1.4
6.9
6.8
$1.2 $14.3
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, 2011 decreased $0.6 million from the same period in 2010.
This decrease was primarily related to the following factors:
• Middlesex System revenues decreased $0.3 million, primarily due to the following:
o Lower consumption by our residential and contract customers resulting from cooler temperatures
and higher precipitation during the summer of 2011 as compared to 2010;
o Decreased contract sales due to the ending of a temporary contract to supply water to the City of
Perth Amboy in 2010; offset by
o Increased sales to industrial customers;
• Tidewater System revenues decreased $0.4 million, primarily due to the following:
o Lower consumption attributable to similar unfavorable weather patterns experienced in the
Middlesex System in 2011 as compared to 2010;
o Lower connection fees resulting from a depressed housing market; offset by
o Increased fixed service charges for new customers;
• White Marsh’s revenues decreased $0.2 million primarily due to the expiration of a wastewater operations
contract in August 2011;
25
• With the transfer of USA’s LineCare contracts to HomeServe, USA’s revenues decreased $0.2 million.
USA now earns a service fee for the billing, cash collection and other administrative matters associated
with HomeServe’s service contracts;
• Scheduled increases in the fixed fees paid under contract with Perth Amboy increased USA-PA’s
revenues by $0.4 million; and
• Southern Shores revenues increased $0.1 million due to the implementation of a June 2011 rate increase.
Operation and Maintenance Expense
Operation and maintenance expenses for the year ended December 31, 2011 increased $1.1 million from the same
period in 2010. This increase was primarily related to the following factors:
• Labor costs increased $0.3 million due to annual wage increases and lower capitalized labor;
• Employee healthcare costs and postretirement benefit plan expenses increased $1.1 million;
•
Increased net costs of $0.3 million from the implementation of a company wide information technology
platform;
• Scheduled increases in subcontractor charges of $0.3 million at our USA-PA subsidiary;
•
Increased transportation charges of $0.1 million due to higher average gasoline prices;
• Unfavorable weather resulted in lower consumption which decreased production costs by $0.5 million;
• Decreased water main break costs of $0.6 million, as we experienced less severe, and a lower number of,
main breaks in 2011 as compared to 2010; and
• All other operating and maintenance expense categories increased $0.1 million.
Depreciation
Depreciation expense for the year ended December 31, 2011 increased $0.6 million from the same period in 2010
due to a higher level of utility plant in service.
Other Taxes
Other taxes for the year ended December 31, 2011 increased $0.1 million from the same period in 2010, primarily
due to increased real estate taxes and higher payroll taxes on increased employee wages.
Other Income, net
Other Income, net for the year ended December 31, 2011 increased $0.7 million from the same period in 2010,
primarily due to:
• A gain of $0.7 million as a result of the sale of USA’s LineCare contracts to HomeServe;
• Allowance for Funds Used During Construction was lower in 2011 compared to 2010 ($0.2 million) due
to lower average construction work in progress balances; and
• All additional Other Income increased $0.2 million.
Interest Charges
Interest charges for the year ended December 31, 2011 decreased $0.5 million from the same period in 2010,
primarily due to the following:
• Lower average short term debt outstanding and lower average interest rates in 2011 as compared to 2010;
and
• Lower average interest rates on long term debt outstanding in 2011 as compared to 2010.
Income Taxes
Income taxes for the year ended December 31, 2011 decreased $0.3 million from the same period in 2010,
primarily due to lower pre-tax income.
26
Net Income and Earnings Per Share
Net income for the year ended December 31, 2011 decreased $0.9 million from the same period in 2010. Basic
and diluted earnings per share decreased to $0.85 and $0.84, respectively, for the year ended December 31, 2011
as compared to $0.96 for the year ended December 31, 2010. In addition to the effect of the decrease in net
income, earnings per share also decreased from a higher number of average shares outstanding in 2011 due to the
Company’s public offering of 1.9 million shares of common stock in June 2010.
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 the
Results of Operations section above.
For the year ended December 31, 2012, cash flows from operating activities increased $6.7 million to $29.6
million. Increased earnings, lower receivables and timing of certain income tax payments were the primary
reasons for the increase in cash flow. The $29.6 million of net cash flow from operations enabled us to fund
100% of our utility plant expenditures internally for the period.
For the year ended December 31, 2011, cash flows from operating activities decreased $2.7 million to $22.8
million. As described more fully in the Results of Operations section above, decreased earnings was the primary
reason for the decrease in cash flow. The $22.8 million of net cash flow from operations enabled us to fund
approximately 97% of our utility plant expenditures internally for the period.
Increases in certain operating costs impact our liquidity and capital resources. Pinelands Water and Pinelands
Wastewater both filed for rate increases during the third quarter of 2012. Both Middlesex and Tidewater
anticipate filing for a rate increase in 2013. There can be no assurances however, that the respective Utility
Commissions will approve the pending or anticipated rate increase requests in whole or in part or when the
decisions will be rendered. 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.
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 dividend reinvestment
program (DRP) and offerings to the public.
The table below summarizes our estimated capital expenditures for the years 2013-2015.
Distribution System
Production System
Computer Systems
Other
Total Estimated Capital Expenditures
(Millions)
2013
2014
2015
14.3
5.5
1.7
1.2
22.7
$
11.7
8.8
0.8
0.8
22.1
$
14.7
11.7
1.0
0.8
28.2
$
2013-2015
40.7
$
26.0
3.5
2.8
73.0
$
Our estimated capital expenditures for the items listed above are primarily comprised of the following:
• 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 initiative to clean and cement all unlined mains in the Middlesex System. In
connection with our RENEW Program, we expect to annually spend $4.0 million in 2013, 2014 and 2015.
• Production System-Projects associated with our water production and water treatment plants.
• Computer Systems-Purchase of hardware and software.
27
• 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 2013, we plan on utilizing:
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,
$1.5 million) and Delaware SRF loans (currently, $0.7 million) and, once the loan transaction is complete,
proceeds from the 2013 New Jersey SRF program. SRF programs provide low cost financing for projects
that meet certain water quality and system improvement benchmarks;
• Short-term borrowings, if necessary, through $60.0 million of available lines of credit with several
financial institutions. As of December 31, 2012, we had $28.0 million outstanding against the lines of
credit.
Sources of Liquidity
Short-term Debt. The Company had established lines of credit aggregating $60.0 million throughout 2012. At
December 31, 2012, the outstanding borrowings under these credit lines were $28.0 million at a weighted average
interest rate of 1.40%.
The weighted average daily amounts of borrowings outstanding under the Company’s credit lines and the weighted
average interest rates on those amounts were $25.5 million and $20.7 million at 1.43% and 1.44% for the years ended
December 31, 2012 and 2011, 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 SRF loan program during 2012 and expect to
participate in the 2013 New Jersey SRF program for up $4.0 million, with an expected closing date in May 2013.
In November 2012, Middlesex completed the transaction for the redemption and refinance of $57.5 million of
First Mortgage Bonds (Bonds). The Bonds were originally issued in five separate transactions or series under the
loan program of the New Jersey Economic Development Authority (NJEDA) and were replaced with three new
series of Bonds designated as Series QQ, RR and SS totaling $55.4 million issued through the NJEDA, net of a
$2.2 million issuance premium. The restricted proceeds of the new Bonds were used to redeem $51.5 million of
the original Bonds in December 2012 and $6.0 million of the original Bonds in January 2013. The NJEDA does
not guarantee the debt. The tax-exempt nature of the interest paid to bondholders remains in place. The
transaction was designed to extend the maturity date and reduce the interest cost for the underlying debt. Annual
debt service expenses are expected to decline by approximately $0.9 million.
In May 2012, Middlesex borrowed $3.9 million through the New Jersey Environmental Infrastructure Trust under
the New Jersey SRF loan program and issued Bonds designated as Series OO ($3.0 million) and Series PP ($0.9
million). The interest rate on the Series OO Bonds is zero and the interest rate on the Series PP Bonds ranges
from 2.0% to 5.0% depending on the serial maturity date. The final maturity date for the Bonds is August 1,
2031. Proceeds may only be used for the Middlesex 2012 RENEW Program.
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 may only be used for the Middlesex 2011 RENEW Program.
28
In March 2011, Tidewater closed on a $2.8 million loan with the Delaware SRF program which allows, but does
not obligate, Tidewater to draw against a General Obligation Note for a specific project. The interest rate on any
draw will be set at 3.75% with a final maturity of July 1, 2031 on the amount actually borrowed. As of December
31, 2012, Tidewater has borrowed $2.7 million against this loan and does not anticipate any future borrowings
under this loan.
In March 2011, Southern Shores closed on a $1.6 million loan with the Delaware SRF program, which allows, but
does not obligate, Southern Shores to draw against a General Obligation Note for a specific project. The interest
rate on any draw will be set at 3.75% with a final maturity of November 30, 2030 on the amount actually
borrowed. As of December 31, 2012, Southern Shores has borrowed $1.4 million against this loan and does not
anticipate any future borrowings under this loan.
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 $1.6
million through the issuance of 0.1 million shares under the DRP during 2012.
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, 2012.
Payment Due by Period
(Millions of Dollars)
Less than
1 Year
2-3
Years
4-5
Years
Total
More
than 5
Years
Long-term Debt*
Notes Payable
Interest on Long-term Debt
Purchased Water Contracts
Wastewater Operations
Total
$ 10.9
$ 10.5
$ 140.4 $ 11.1
28.0
5.4
90.3
5.4
36.2
31.9
5.0
$ 326.8 $ 54.9
$ 107.9
28.0 - - -
64.0
14.5
5.5
$ 191.9
10.9
10.9
10.4
$ 42.7
10.0
5.4
11.0
$ 37.3
*Does not include Premium on Long-term Debt
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 2012, the Company contributed $7.6 million to its postretirement
benefit plans and expects to contribute a similar amount in 2013.
29
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 89% 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 may include historical consumption usage, current weather patterns 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, are recorded upon approval of the amount by Perth Amboy. The variable
fees are not a material component of the management contract.
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 all currently active
employees who were hired prior to March 31, 2007. In addition, the Company maintains an unfunded
supplemental plan for its executive officers.
30
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, 2012 and 2011 is as
follows:
Asset Category
Equity Securities
Debt Securities
Cash
Commodities
Total
Pension Plan
2012
60.9%
32.9%
6.0%
0.2%
100.0%
2011
61.6%
31.3%
6.9%
0.2%
100.0%
Other Benefits Plan
2012
40.3%
53.0%
5.9%
0.8%
100.0%
2011
Target
37.0% 60%
38%
57.8%
2%
4.6%
0.6%
0%
100.0%
Range
30-65%
25-70%
0-10%
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, 2012 are as follows:
Pension Plan Other Benefits Plan
Discount Rate
Compensation Increase
Long-term Rate of Return
3.99%
3.00%
7.50%
3.99%
3.00%
7.50%
For the 2012 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 2013 with a decline of 1.0% per year for 2014-2016 and
0.5% per year for 2017-2018, resulting in an annual rate of increase in the per capita cost of covered healthcare
benefits of 5% by year 2018.
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)
$ (9,140) $ (864)
11,662 1,059
Estimated
Increase/
(Decrease)
on PBO
(000s)
Estimated
Increase/
(Decrease)
on Expense
(000s)
$ (8,389) $ (869)
10,997 1,103
9,560 1,450
(7,477) (1,120)
31
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(q) of the Notes to Consolidated Financial Statements for a discussion of recent accounting
pronouncements.
32
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk associated with changes in interest rates and commodity prices. The Company is
subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest
rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company’s interest
rate risk related to existing fixed rate, long-term debt is not material due to the term of the majority of our First
Mortgage Bonds, which have final maturity dates ranging from 2018 to 2047. Over the next twelve months,
approximately $11.1 million of the current portion of 37 existing long-term debt instruments will mature.
Applying a hypothetical change in the rate of interest charged by 10% on those borrowings, would not have a
material effect on our earnings.
Our risks associated with commodity price increases for chemicals, electricity and other commodities are reduced
through contractual arrangements and the ability to recover price increases through rates. Non-performance by
these commodity suppliers could have a material adverse impact on our results of operations, financial position
and cash flows.
We are exposed to credit risk through for both our Regulated and Non-Regulated business segments. Our
Regulated operations serve residential, commercial, industrial and municipal customers while our Non-Regulated
operations engage in business activities with developers, government entities and other customers. Our primary
credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred
due to the non-payment of customer accounts receivable balances. Our credit risk is managed through established
credit and collection policies which are in compliance with applicable regulatory requirements and involve
monitoring of customer exposure and the use of credit risk mitigation measures such as letters of credit or
prepayment arrangements. Our credit portfolio is diversified with no significant customer or industry
concentrations. In addition, our Regulated businesses are generally able to recover all prudently incurred costs
including uncollectible customer accounts receivable expenses and collection costs through rates.
The Company's postretirement benefit plan assets are exposed to the market prices of debt and equity securities.
Changes to the Company's postretirement benefit plan assets’ value can impact the Company's postretirement
benefit plan expense, funded status and future minimum funding requirements. Our risk is reduced through our
ability to recover postretirement benefit plan costs through rates.
33
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, 2012 and 2011, and the
related consolidated statements of income, common stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2012. 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, 2012 and 2011, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2012, 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, 2012,
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 7, 2013 expressed an
unqualified opinion.
Reading, Pennsylvania
March 7, 2013
/s/ ParenteBeard LLC
34
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
UTILITY PLANT:
CURRENT ASSETS:
DEFERRED CHARGES
AND OTHER ASSETS:
Water Production
Transmission and Distribution
General
Construction Work in Progress
TOTAL
Less Accumulated Depreciation
UTILITY PLANT - NET
Cash and Cash Equivalents
Accounts Receivable, net
Unbilled Revenues
Materials and Supplies (at average cost)
Prepayments
TOTAL CURRENT ASSETS
Unamortized Debt Expense
Preliminary Survey and Investigation Charges
Regulatory Assets
Operations Contracts, Developer and Other Receivables
Restricted Cash
Non-utility Assets - Net
Other
TOTAL DEFERRED CHARGES AND OTHER ASSETS
TOTAL ASSETS
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stock, No Par Value
Retained Earnings
TOTAL COMMON EQUITY
Preferred Stock
Long-term Debt
TOTAL CAPITALIZATION
CURRENT
LIABILITIES:
Current Portion of Long-term Debt
Notes Payable
Accounts Payable
Accrued Taxes
Accrued Interest
Unearned Revenues and Advanced Service Fees
Other
TOTAL CURRENT LIABILITIES
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
DEFERRED CREDITS
AND OTHER LIABILITIES: Accumulated Deferred Investment Tax Credits
Customer Advances for Construction
Accumulated Deferred Income Taxes
Employee Benefit Plans
Regulatory Liability - Cost of Utility Plant Removal
Other
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES
December 31,
December 31,
2012
$
129,840
343,074
54,830
7,834
535,578
100,360
435,218
2011
$
127,827
326,629
47,519
12,575
514,550
92,351
422,199
3,025
12,447
5,483
1,403
2,255
24,613
3,606
5,117
72,831
1,692
9,019
9,182
448
101,895
561,726
$
3,106
11,280
4,842
2,023
1,622
22,873
2,611
5,179
67,302
5,300
3,260
8,182
630
92,464
537,536
$
$
143,572
38,060
181,632
3,353
131,467
316,452
$
141,432
35,549
176,981
3,353
132,167
312,501
11,130
27,950
3,808
9,266
955
756
2,067
55,932
21,990
1,068
41,776
54,768
8,811
973
129,386
4,569
24,250
5,706
7,847
1,628
734
1,953
46,687
21,944
1,146
37,022
51,006
8,029
995
120,142
CONTRIBUTIONS IN AID OF CONSTRUCTION
TOTAL CAPITALIZATION AND LIABILITIES
$
59,956
561,726
58,206
537,536
$
See Notes to Consolidated Financial Statements.
35
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Operating Revenues
Operating Expenses:
Operations and Maintenance
Depreciation
Other Taxes
Total Operating Expenses
Operating Income
Other Income (Expense):
Allowance for Funds Used During Construction
Other Income
Other Expense
Total Other Income, net
Interest Charges
Years Ended December 31,
2011
2010
2012
$
110,379
$
102,069
$
102,735
60,458
10,409
11,865
82,732
27,647
484
517
(144)
857
6,725
56,634
9,746
11,488
55,481
9,244
11,413
77,868
76,138
24,201
26,597
821
1,523
(195)
2,149
6,376
970
912
(438)
1,444
6,925
Income before Income Taxes
21,779
19,974
21,116
Income Taxes
Net Income
7,383
6,527
6,786
14,396
13,447
14,330
Preferred Stock Dividend Requirements
206
206
207
Earnings Applicable to Common Stock
$
14,190
$
13,241
$
14,123
Earnings per share of Common Stock:
Basic
Diluted
Average Number of
Common Shares Outstanding :
Basic
Diluted
$
$
0.90
0.90
$
$
0.85
0.84
$
$
0.96
0.96
15,733
15,995
15,615
15,877
14,654
14,916
Cash Dividends Paid per Common Share
$
0.743
$
0.733
$
0.723
See Notes to Consolidated Financial Statements.
36
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization
Provision for Deferred Income Taxes and ITC
Equity Portion of AFUDC
Cash Surrender Value of Life Insurance
Stock Compensation Expense
Changes in Assets and Liabilities:
Accounts Receivable
Unbilled Revenues
Materials & Supplies
Prepayments
Accounts Payable
Accrued Taxes
Accrued Interest
Employee Benefit Plans
Unearned Revenue & Advanced Service Fees
Other Assets and Liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures, Including AFUDC of $175 in 2012, $299 in 2011
and $359 in 2010
Restricted Cash
Investment in Joint Venture
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt
Proceeds from Issuance of Long-term Debt
Net Short-term Bank Borrowings
Deferred Debt Issuance Expense
Premium on Long-term Debt
Restricted Cash
Common Stock Issuance Expense
Repurchase of Preferred Stock
Proceeds from Issuance of Common Stock
Payment of Common Dividends
Payment of Preferred Dividends
Construction Advances and Contributions-Net
Years Ended December 31,
2012
2011
2010
$
14,396
$
13,447
$
14,330
11,232
3,959
(309)
(151)
553
2,441
(641)
620
(633)
(1,898)
1,419
(673)
270
22
(1,035)
29,572
(21,578)
464
(1,200)
(22,314)
(56,725)
60,350
3,700
(1,160)
2,236
(6,223)
-
-
1,587
(11,679)
(206)
781
10,432
2,098
(523)
(92)
394
(28)
(90)
173
(221)
(697)
(905)
30
(1,591)
(130)
539
9,958
630
(611)
104
323
(2,222)
(328)
(578)
(292)
2,055
3,066
(263)
(1,904)
3
1,294
22,836
25,565
(23,562)
3,796
(300)
(20,066)
(4,427)
3,447
7,250
(37)
-
-
(9)
1,504
(11,437)
(206)
1,798
(29,604)
(1,790)
-
(31,394)
(4,314)
13,970
(25,850)
(25)
-
(133)
(11)
29,845
(10,510)
(207)
1,239
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
NET CHANGES IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
(7,339)
(81)
3,106
3,025
$
(2,117)
653
2,453
3,106
$
4,004
(1,825)
4,278
2,453
$
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Utility Plant received as Construction Advances and Contributions
Long-term Debt Deobligation
$
$
1,015
255
$
$
7,393
560
$
2,043
$
-
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest
Interest Capitalized
Income Taxes
See Notes to Consolidated Financial Statements.
37
$
$
$
7,537
175
2,349
$
$
$
6,336
299
4,733
$
$
$
7,155
359
4,617
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
(In thousands)
Common Stock, No Par Value
Shares Authorized -
Shares Outstanding - 2012 - 15,795
2011 - 15,682
40,000
Retained Earnings
TOTAL COMMON EQUITY
Cumulative Preferred Stock, No Par Value:
Shares Authorized -
Shares Outstanding -
134
32
Convertible:
Shares Outstanding, $7.00 Series - 14
Shares Outstanding, $8.00 Series - 7
Nonredeemable:
Shares Outstanding, $7.00 Series - 1
Shares Outstanding, $4.75 Series - 10
TOTAL PREFERRED STOCK
Long-term Debt:
8.05%, Amortizing Secured Note, due December 20, 2021
6.25%, Amortizing Secured Note, due May 19, 2028
6.44%, Amortizing Secured Note, due August 25, 2030
6.46%, Amortizing Secured Note, due September 19, 2031
4.22%, State Revolving Trust Note, due December 31, 2022
3.30% to 3.60%, State Revolving Trust Note, due May 1, 2025
3.49%, State Revolving Trust Note, due January 25, 2027
4.03%, State Revolving Trust Note, due December 1, 2026
4.00% to 5.00%, State Revolving Trust Bond, due August 1, 2021
0.00%, State Revolving Fund Bond, due August 1, 2021
3.64%, State Revolving Trust Note, due July 1, 2028
3.64%, State Revolving Trust Note, due January 1, 2028
3.45%, State Revolving Trust Note, due August 1, 2031
6.59%, Amortizing Secured Note, due April 20, 2029
7.05%, Amortizing Secured Note, due January 20, 2030
5.69%, Amortizing Secured Note, due January 20, 2030
3.75%, State Revolving Trust Note, due July 1, 2031
3.75%, State Revolving Trust Note, due November 30, 2030
First Mortgage Bonds:
5.20%, Series S, due October 1, 2022
5.25%, Series T, due October 1, 2023
5.25%, Series V, due February 1, 2029
5.35%, Series W, due February 1, 2038
0.00%, Series X, due September 1, 2018
4.25% to 4.63%, Series Y, due September 1, 2018
0.00%, Series Z, due September 1, 2019
5.25% to 5.75%, Series AA, due September 1, 2019
0.00%, Series BB, due September 1, 2021
4.00% to 5.00%, Series CC, due September 1, 2021
5.10%, Series DD, due January 1, 2032
0.00%, Series EE, due August 1, 2023
3.00% to 5.50%, Series FF, due August 1, 2024
0.00%, Series GG, due August 1, 2026
4.00% to 5.00%, Series HH, due August 1, 2026
0.00%, Series II, due August 1, 2024
3.40% to 5.00%, Series JJ, due August 1, 2027
0.00%, Series KK, due August 1, 2028
5.00% to 5.50%, Series LL, due August 1, 2028
0.00%, Series MM, due August 1, 2030
3.00% to 4.375%, Series NN, due August 1, 2030
0.00%, Series OO, due August 1, 2031
2.00% to 5.00%, Series PP, due August 1, 2031
5.00%, Series QQ, due October 1, 2023
3.80%, Series RR, due October 1, 2038
4.25%, Series SS, due October 1, 2047
SUBTOTAL LONG-TERM DEBT
Add: Premium on Long Term Debt
Less: Current Portion of Long-term Debt
TOTAL LONG-TERM DEBT
See Notes to Consolidated Financial Statements.
38
December 31,
2012
December 31,
2011
$
143,572
$
141,432
38,060
181,632
$
35,549
176,981
$
1,457
816
1,457
816
80
1,000
3,353
$
80
1,000
3,353
$
$
2,169
6,475
4,947
5,227
506
3,413
602
784
388
320
347
116
397
5,697
4,271
8,761
2,615
1,388
$
2,319
6,895
5,227
5,507
546
3,623
633
825
434
359
364
122
39
6,046
4,521
9,273
2,021
1,404
-
-
-
-
322
355
782
955
1,085
1,275
6,000
4,386
5,755
1,262
1,560
1,060
1,235
1,435
1,570
1,801
1,910
2,860
915
9,915
22,500
23,000
140,361
2,236
(11,130)
131,467
$
12,000
6,500
10,000
23,000
375
410
894
1,080
1,206
1,400
6,000
4,804
6,160
1,352
1,640
1,150
1,560
1,526
1,635
1,901
1,985
-
-
-
-
-
136,736
-
(4,569)
132,167
$
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(In thousands)
Common
Stock
Shares
Common
Stock
Amount
Retained
Earnings
Total
Balance at January 1, 2010
13,519
$
109,366
$
30,265
$
139,631
Net Income
Dividend Reinvestment & Common Stock Purchase
Plan
Restricted Stock Award, Net - Employees
Stock Award - Board Of Directors
Issuance of Common Stock
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock
Common Stock Expenses
Balance at December 31, 2010
Net Income
Dividend Reinvestment & Common Stock Purchase
Plan
Restricted Stock Award, Net - Employees
Stock Award - Board Of Directors
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock
116
14
2
1,915
1,917
299
24
27,928
15,566
$
139,534
82
30
4
1,504
323
71
Balance at December 31, 2011
15,682
$
141,432
Net Income
Dividend Reinvestment & Common Stock Purchase
Plan
Restricted Stock Award, Net - Employees
Stock Award - Board Of Directors
Cash Dividends on Common Stock
Cash Dividends on Preferred Stock
86
21
6
1,587
448
105
Balance at December 31, 2012
15,795
143,572
See Notes to Consolidated Financial Statements.
14,330
14,330
1,917
299
24
27,928
(10,510)
(207)
(133)
173,279
$
(10,510)
(207)
(133)
33,745
$
13,447
13,447
1,504
323
71
(11,437)
(206)
176,981
$
(11,437)
(206)
35,549
$
14,396
14,396
1,587
448
105
(11,679)
(206)
181,632
(11,679)
(206)
38,060
39
MIDDLESEX WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Summary of Significant Accounting Policies and Recent Developments
(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.
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 New Jersey municipal
water, wastewater and storm water systems under contract and provide wastewater services in New Jersey and
Delaware through our subsidiaries. We also have an investment in a joint venture, Ridgewood Green RME, LLC,
that is constructing, and will own and operate facilities, to optimize the production of electricity at the Village of
Ridgewood, New Jersey wastewater treatment plant and other municipal facilities (full operation of the facilities
is expected to begin in the second quarter of 2013). 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. 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) Principles of Consolidation – 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. Other financial investments in which the Company holds a 50% or less voting interest and cannot
exercise control over the operation and policies of the investments are accounted for under the equity method of
accounting. Under the equity method of accounting, the Company records its investment interests in Non Utility
Assets and its percentage share of the earnings or losses of the investees in Other Income (Expense).
(c) 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.
(d) 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
89% 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 Accounting Standards Codification (ASC) 980, Regulated
Operations.
In accordance with ASC 980, Regulated Operations, 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
40
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.
(e) 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.
(f) 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, 2012, there was no event or change in circumstance that would
indicate that the carrying amount of any long-lived asset was not recoverable.
(g) 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, 2012, 2011 and 2010. These
rates have been approved by the NJBPU, DEPSC or PAPUC:
Source of Supply 1.15% - 3.44%
Pumping
2.87% - 5.39%
Water Treatment 1.65% - 7.09%
2.08% - 17.84%
General Plant
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
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.
(h) 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.
(i) 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
41
made and/or contract terms have expired, 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.
(j) 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.
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, 2012, 2011 and 2010 for
Middlesex and Tidewater are as follows:
Middlesex
Tidewater
2012
7.34%
7.91%
2011
7.54%
8.24%
2010
7.54%
8.24%
(k) 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 $0.8 million and $0.6 million at
December 31, 2012 and 2011, respectively. Bad debt expense for the years ended December 31, 2012, 2011 and
2010 was $0.7 million, $0.7 million, $0.6 million, respectively. Receivables not expected to be received in 2013
are included as non-current assets in Operations Contracts, Developer and Other Receivables.
(l) 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.
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.
(m) 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.
(n) 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.
(o) 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.
42
(p) 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.
(q) Recent Accounting Pronouncements
Fair Value Measurements and Disclosures – In May 2011, the Financial Accounting Standards Board (the
FASB) issued Accounting Standards Update (ASU) 2011-04, which amends ASC 820, Fair Value Measurements
and Disclosures (ASC 820), to update guidance related to fair value measurements and disclosures as a step
towards achieving convergence between generally accepted accounting principles and international financial
reporting standards. ASU 2011-04 clarifies intent about application of existing fair value measurements and
disclosures, changes certain requirements for fair value measurements and requires expanded disclosures. ASU
2011-04 was effective for interim and annual periods beginning after December 15, 2011. The Company’s
adoption of ASU 2011-04 resulted in expanded fair value disclosures and did not have any impact on the
Company’s results of operations, cash flows or financial position.
In January 2010, the FASB issued ASU 2010-06, which amends ASC 820, 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. ASU 2010-06 also clarifies existing fair value
disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair
value. Further, ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets
under ASC 715, Compensation – Retirement Benefits to require that disclosures be provided by classes of assets
instead of by major categories of assets. Adoption of ASU 2010-06 had no impact on the Company’s results of
operations, cash flows or financial position.
(r) Recent Developments
Superstorm Sandy - During the last week of October 2012, our businesses, primarily in New Jersey, were
impacted by Superstorm Sandy. The most significant impact was widespread power outages caused by the
storm’s heavy winds and rain. Because all of our critical water and wastewater facilities are equipped with
emergency power generators, we were able to maintain service to our customers during the storm, as well as in its
aftermath. The storm did not have a material adverse impact on our results of operations, financial position or
cash flows. Claims for damages and any associated losses have been submitted to our insurance carriers. We
anticipate that claims which may not be covered by insurance are recoverable through the regulatory rate setting
process.
Borough of Sayreville, New Jersey and Hess Corporation - Middlesex has received notification from the
Borough of Sayreville, New Jersey (Sayreville), one of Middlesex's wholesale contract customers, that Sayreville
will not be renewing its contract for the purchase of water from Middlesex. In accordance with the terms, this
contract will remain in effect through August 12, 2013. Middlesex is exploring options with Sayreville for its
ongoing emergency water supply requirements. Gross operating revenues from water sales to Sayreville
amounted to $1.9 million in 2012. In addition, Hess Corporation (Hess), Middlesex's largest retail water
customer, has announced it intends to cease its oil refining operations at its Port Reading, New Jersey facility as
early as of the end of February 2013. Revenues from Hess amounted to $2.6 million in 2012. Revenue reductions
from either of these customers may accelerate the need for Middlesex to file a base rate increase Petition with the
NJBPU.
Note 2 - Rate and Regulatory Matters
Rate Matters
Middlesex - In July 2012, the NJBPU approved an $8.1 million increase in Middlesex’s annual base water rates.
A base rate increase request of $11.3 million was filed in January 2012 seeking recovery of increased costs of
operations, chemicals, fuel, electricity, taxes, labor and benefits and decreases in industrial and commercial
43
customer demand patterns, as well as capital investment in utility plant. The new base rates are designed to
generate sufficient revenue to recover these increased costs and offset the lower customer demands, as well as
provide a return on invested capital in rate base of $202.4 million, based on a return on equity of 10.15%. The
rate increase became effective on July 20, 2012.
In November 2012, Middlesex filed a petition with the NJBPU seeking approval of foundational information
(Foundational Filing) that would allow for the implementation of a Distribution System Improvement Charge
(DSIC). A DSIC is a rate-mechanism that allows water utilities to recover investment in capital improvements to
their water distribution system made between base rate proceedings. In February 2013, the Foundational Filing
was approved by the NJBPU, which allows Middlesex to implement a DSIC rate in September 2013 to recover
costs for qualifying projects that are placed in service in the six-month post-approval period. The DSIC rate is
allowed to increase in three subsequent six month periods for any additional qualifying projects placed in service
during those time periods. The maximum annual revenues allowed to be recovered under the approved
Foundational Filing is $1.4 million.
In September 2012, 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 $0.1
million to purchase untreated water from the NJWSA 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, the NJBPU granted an increase in Middlesex’s annual operating revenues of 13.57%, or $7.8
million. The increase was necessitated by increased costs, as well as to provide a return on invested capital in rate
base of $180.3 million based on a return on equity of 10.30%.
Tidewater – In June 2012, the DEPSC approved a $3.9 million increase in Tidewater’s annual base water rates.
A base rate increase request of $6.9 million was filed in September 2011 seeking recovery of increased costs for
operations, maintenance and taxes, as well as capital investment. Under DEPSC regulations, Tidewater had
implemented interim rates in November 2011, which amounted to approximately $2.5 million on an annual basis.
The new final base rates reflect the remaining $1.4 million and became effective June 19, 2012.
Effective January 1, 2013, Tidewater implemented a DEPSC approved $0.1 million DSIC rate increase.
TESI – In November 2012, TESI filed an application with the DEPSC seeking approval to purchase all of the
utility assets of the 600 customer wastewater system serving the residents of the Plantations development (the
Plantations) in Rehoboth Beach, Delaware. The application also requests the transfer of the wastewater franchise
from the current owner to TESI. In connection with this transaction, TESI also filed an application with DEPSC
seeking an approximate $0.1 million increase in the Plantations’ residents base wastewater rates. The purchase,
and subsequent operation, of the Plantation’s wastewater system is contingent, among other things, upon the
DEPSC’s approval of both applications. We cannot predict whether the DEPSC will ultimately approve or deny
the purchase and base rate increase. A decision by the DEPSC is not expected until the third quarter of 2013.
In June 2012, the DEPSC approved a $0.6 million increase in TESI’s annual base wastewater rates, a portion of
which is to be phased in through 2015. A base rate increase request of $0.8 million was filed in July 2011
seeking recovery of increased operation and maintenance costs, as well as capital investment. Under DEPSC
regulations, TESI had implemented interim rates in September 2011, which amounted to approximately $0.1
million on an annual basis. The new final base rates became effective June 5, 2012.
Pinelands – In August 2012, Pinelands Water and Pinelands Wastewater filed petitions with the NJBPU seeking
permission to increase base rates by approximately $0.2 million and $0.1 million per year, respectively. These
requests were made as a result of capital investments as well as increased operations and maintenance costs for
both companies. We cannot predict whether the NJBPU will ultimately approve, deny, or reduce the amount of
the request. A decision by the NJBPU is not expected until the second quarter of 2013.
44
Southern Shores – Effective June 1, 2011, the DEPSC approved a multi-year agreement for a phased-in base rate
increase for Southern Shores. This increase was made as a result of capital investment in the upgrade and
renovation of Southern Shores’ primary water treatment facilities, as well as by increased operating costs. Under
the terms of the agreement, which expires in 2020, customer rates will increase on January 1st of each year to
generate additional annual revenue of $0.1 million with each increase.
Twin Lakes - The PAPUC approved a $0.1 million, three-year phased-in base rate increase effective March 3,
2012. This increase was designed to recover capital investment in the upgrade and renovation of the Twin Lakes
System, as well as increased operating costs.
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
Rate Cases, Storm Costs, Tank Painting, and Other
Total
(Thousands of Dollars)
December 31,
2012
2011
$49,735
$53,142
17,151
17,866
1,823
416
$67,302
$72,831
Remaining
Recovery Periods
Various
Various
2-9 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 ASC 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, 2012 and 2011, the Company has approximately $8.8 million and $8.0, 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 $0.6 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.
45
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
2012
$7,420
2011
$6,816
2010
$7,224
(442)
420
(23)
8
$7,383
(620)
305
1
25
$6,527
(826)
336
33
19
$6,786
Income tax expense is comprised of the following:
(Thousands of Dollars)
Years Ended December 31,
2012
2011
2010
Current:
Federal
State
Deferred:
Federal
State
Investment Tax Credits
Total Income Tax Expense
$2,994
430
3,832
206
(79)
$7,383
$3,550
395
2,594
67
(79)
$6,527
$5,584
481
770
30
(79)
$6,786
The statutory review periods for income tax returns for the years prior to 2010 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. The refund noted above
was recorded to the appropriate current and deferred tax accounts and the interest was reported as other income.
In the event that there is 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,
2011
$35,135
(3,737)
6,342
1,146
(718)
$38,168
2012
$39,020
(3,673)
6,523
1,068
(94)
$42,844
46
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 3.0 mgd of treated
water with provisions for additional purchases.
Purchased water costs are shown below:
Years Ended December 31,
(Millions of Dollars)
Purchased Water
Untreated
Treated
Total Costs
2012
$2.4
3.1
$5.5
2011
$2.4
2.7
$5.1
2010
$2.5
2.9
$5.4
Contract Operations - USA-PA operates the City of Perth Amboy, New Jersey’s (Perth Amboy) 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.
Construction –The Company may spend up to $22.7 million in 2013, $22.1 million in 2014 and $28.2 million in
2015 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, 2012 and 2011 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)
2012
$60.0
29.0
25.5
28.0
1.43%
2011
$60.0
24.3
20.7
24.3
1.44%
1.40%
1.33%
47
The maturity dates for the Notes Payable as of December 31, 2012 are all in January 2013 and are extendable at the
discretion of the Company.
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.
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, 2012 is 2.1 million.
For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, the Company raised
approximately $1.6 million, $1.5 million and $1.9 million, respectively, through the issuance of shares under the
DRP.
The Company issues shares under a restricted stock plan for certain management 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).
For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, 5,768 shares, 3,833 shares
and 1,416 shares, respectively, of common stock were granted and issued to the Company’s outside directors
under the Outside Director Stock Compensation Plan and 87,429 shares remain available for future awards. The
maximum number of shares authorized for grant under the Outside Director Stock Compensation Plan is 100,000.
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, 2012, 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, 2012 and 2011, 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 value of twelve shares of the Company's common stock for each share of convertible stock
redeemed. In February 2011, the Company repurchased 93 shares of its $7.00 Series, nonredeemable cumulative
preferred stock at par value for approximately $9 thousand.
48
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 November 2012, Middlesex completed the transaction for the redemption and refinance of $57.5 million of
First Mortgage Bonds (Bonds). The Bonds were originally issued in five separate transactions or series under the
loan program of the New Jersey Economic Development Authority (NJEDA) and were replaced with three new
series of Bonds designated as Series QQ, RR and SS totaling $55.4 million issued through the NJEDA, net of a
$2.2 million issuance premium. The restricted proceeds of the new Bonds were used to redeem $51.5 million of
the original Bonds in December 2012 and $6.0 million of the original Bonds in January 2013.
In May 2012, Middlesex borrowed $3.9 million through the New Jersey Environmental Infrastructure Trust
(NJEIT) under the New Jersey State Revolving Fund (SRF) loan program and issued Bonds designated as Series
OO ($3.0 million) and Series PP ($0.9 million). The interest rate on the Series OO Bonds is zero and the interest
rate on the Series PP Bonds ranges from 2.0% to 5.0% depending on the serial maturity date. The final maturity
date for the Bonds is August 1, 2031. Proceeds may only be used for the Middlesex 2012 RENEW Program,
which is Middlesex’s program to clean and cement unlined mains in the Middlesex system.
In December 2010, Middlesex issued $4.0 million of Bonds through the NJEIT under the New Jersey SRF
program. The Company closed on the Bonds designated as Series MM and NN in December 2010. Proceeds may
only be used for the Middlesex 2011 RENEW Program.
In March 2011, Tidewater closed on a $2.8 million loan with the Delaware SRF program which allowed, but did
not obligate, Tidewater to draw against a General Obligation Note for a specific project. The interest rate on all
draws was set at 3.75% with a final maturity of July 1, 2031. As of December 31, 2012, Tidewater has borrowed
$2.7 million against this loan and does not anticipate any future borrowings under this loan.
In March 2011, Southern Shores closed on a $1.6 million loan with the Delaware SRF program, which allowed,
but did not obligate, Southern Shores to draw against a General Obligation Note for a specific project. The
interest rate on any draw was set at 3.75% with a final maturity of November 30, 2030. As of December 31,
2012, Southern Shores has borrowed $1.4 million against this loan and does not anticipate any future borrowings
under this loan.
First Mortgage Bonds Series QQ through SS are term bonds with single maturity dates subsequent to 2017.
Principal repayments for all series of the Company’s long-term debt extend beyond 2017. The aggregate annual
principal repayment obligations for all long-term debt over the next five years are shown below:
Year
2013
2014
2015
2016
2017
(Millions of Dollars)
Annual Maturities
$11.1
$ 5.2
$ 5.3
$ 5.4
$ 5.5
The weighted average interest rate on all long-term debt at both December 31, 2012 and 2011 was 4.34% and
5.13%, respectively. Except for the Amortizing Secured Notes, all of the Company’s outstanding long-term debt
has been issued through the NJEDA ($61.4 million), the NJEIT program ($31.2 million) and the Delaware SRF
program ($10.2 million).
49
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 MM, NN,
OO and PP proceeds can only be used for the applicable RENEW Programs. All other bond issuance balances in
restricted cash are for debt service requirements.
In 2012 and 2011, the NJEIT deobligated principal payments of $0.3 million and $0.6 million, respectively, on
several series of SRF long-term debt.
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, 2012. 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.
2011
(In Thousands, Except per Share Amounts)
2012
Basic:
Income Shares
Net Income
$14,396
15,733
(206)
Preferred Dividend
Earnings Applicable to Common Stock $14,190
Basic EPS
$ 0.90
Diluted:
Earnings Applicable to Common Stock $14,190
97
$7.00 Series Dividend
$8.00 Series Dividend
56
Adjusted Earnings Applicable to
Common Stock
Diluted EPS
Income
$13,447
(206)
$13,241
$ 0.85
$13,241
97
56
$13, 394
$ 0.84
15,733
166
96
15,615
166
96
$ 14,343
$ 0.90
Shares
15,615
15,615
15,995
15,733
15,877
$14,276
$ 0.96
(207)
$14,123 14,654
$ 0.96
$14,123 14,654
166
96
97
56
2010
Income Shares
$14,330 14,654
14,916
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, accounts receivable, 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 Bonds and SRF Notes is based on quoted market prices for
similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1
measurement and the fair value of notes payable and the Bonds and SRF Notes in the table below are classified as
Level 2 measurements. The carrying amount and fair value of the Company’s bonds were as follows:
(Thousands of Dollars)
At December 31,
2012
Bonds
State Revolving Bonds
Carrying
Amount
$91,938
$ 708
Fair
Value
$93,556
$ 712
2011
Carrying
Amount
$86,577
$ 793
Fair
Value
$87,283
$ 799
50
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 $47.7 million and $49.3 million at December 31, 2012 and
2011, respectively. Customer advances for construction have a carrying amount of $22.0 million and $21.9
million at December 31, 2012 and 2011, 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 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 profit
sharing 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 contribution 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, 2012 and 2011 was $52.4 million and $46.5 million, respectively.
Other Benefits
The Company’s Other Benefits Plan covers substantially all of its current retired employees. Employees hired
after March 31, 2007 are not eligible to participate in this plan. Coverage includes healthcare and life insurance.
Accrued retirement benefit costs are recorded each year.
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 ASC 980,
Regulated Operations. Based on prior regulatory practice, and in accordance with the guidance in ASC 980,
Regulated Operations, the Company records underfunded Pension Plan and Other Benefits Plan obligation costs,
which otherwise would be recognized in Other Comprehensive Income under ASC 715, Compensation –
Retirement Benefits, as a Regulatory Asset, and expects to recover those costs in rates charged to customers.
51
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 2012 and 2011.
December 31,
(Thousands of Dollars)
Pension Plan Other Benefits Plan
2011
2012
2011
2012
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
$56,201
2,198
2,417
3,833
(1,832)
$62,817
$42,138
1,574
2,261
12,047
(1,819)
$56,201
$43,121
1,784
1,868
4,425
(590)
$50,608
$29,605
1,306
1,604
11,121
(515)
$43,121
$32,196
3,879
3,661
(1,832)
$37,904
$29,989
470
3,556
(1,819)
$32,196
$ 15,817
1,241
3,940
(590)
$ 20,408
$ 12,890
177
3,265
(515)
$ 15,817
Funded Status
$(24,913) $(24,005)
$(30,200)
$(27,304)
December 31,
(Thousands of Dollars)
Pension Plan Other Benefits Plan
2011
2012
2011
2012
Amounts Recognized in the Consolidated
Balance Sheets consist of:
Current Liability
Noncurrent Liability
Net Liability Recognized
(303)
(345)
(24,568)
(23,702)
$(24,913) $(24,005)
-
(30,200)
$(30,200)
-
(27,304)
$(27,304)
Years Ended December 31,
(Thousands of Dollars)
Pension Plan Other Benefits Plan
2012
2011
2010
2012
2011
2010
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
$2,198
2,417
(2,458)
-
1,549
10
$3,716
$1,306
1,604
$1,396 $1,784
2,228 1,868
$1,575
2,261
(2,283) (2,020) (1,258) (1,026) (759)
- 135 135 135
506 1,765
10 -
$2,120 $4,294
-
565
10
$2,128
531
-
$2,267
878
-
$2,897
$1,025
1,335
52
Amounts that are expected to be amortized from Regulatory Assets into Net Periodic Benefit Cost in 2013 are as
follows:
(Thousands of Dollars)
Pension
Plan
$1,632
10
Other
Benefits
Plan
$1,976
-
Actuarial Loss
Prior Service Cost
The discount rate and compensation increase rate for determining our postretirement benefit plans’ benefit
obligations and costs as of December 31, 2012, 2011 and 2010, respectively, are as follows:
Pension Plan
2011
2012
2010
Other Benefits Plan
2011
2012
2010
Weighted Average Assumptions:
Expected Return on Plan Assets
Discount Rate for:
Benefit Obligation
Benefit Cost
Compensation Increase for:
Benefit Obligation
Benefit Cost
7.50%
7.50% 7.50% 7.50%
7.50% 7.50%
3.99%
4.37%
4.37%
3.99%
5.48%
5.48% 5.95% 4.37%
4.37%
5.48%
5.48%
5.95%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00% 3.00% 3.00%
3.00%
3.00% 3.00%
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 2012 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 2013 with a decline of 1.0% per year for 2014-2016 and
0.5% per year for 2017-2018, resulting in an annual rate of increase in the per capita cost of covered healthcare
benefits of 5% by year 2018.
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
$ 838
$ 9,560
Decrease
$ (640)
$ (7,477)
The following benefit payments, which reflect expected future service, are expected to be paid:
(Thousands of Dollars)
Year
2013
2014
2015
2016
2017
2018-2022
Totals
Pension Plan
$ 1,949
1,938
1,931
1,951
2,263
12,950
$22,982
53
Other Benefits Plan
$ 827
988
1,158
1,321
1,503
9,969
$15,766
Benefit Plans Assets
The allocation of plan assets at December 31, 2012 and 2011 by asset category is as follows:
Asset Category
Equity Securities
Debt Securities
Cash
Commodities
Total
Other Benefits Plan
Pension Plan
2011
Target
2012
2011
2012
37.0% 60%
40.3%
61.6%
60.9%
38%
57.8%
53.0%
31.3%
32.9%
2%
4.6%
6.0%
5.9%
6.9%
0.2% 0.2% 0.8%
0%
0.6%
100.0%
100.0% 100.0%
100.0%
Range
30-65%
25-70%
0-10%
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 $0.8 million (2.0% of total plan assets) and
$0.7 million (2.3 % of total pension plan assets) at December 31, 2012 and 2011, 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:
• Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or
liabilities in accessible active markets.
• 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.
• Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
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.
54
The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair
value hierarchy as of December 31, 2012 (amounts in thousands):
Common Trust Fund-Large Cap
Mutual Funds:
Mid Cap Growth
Mid Cap Value
Foreign Small Mid Growth
Foreign Large Blend
Pacific Asis/ex-Japan Stock
Diversied Emerging Markets
Preferred Stock Index
Money Market Funds:
Cash and Cash Equivalents
Equity Securities:
Non-Financial Services
Financial Services
Utilities
Consumer Growth
Consumer Staples
Consumer Cyclicals
Industrial Resources
Capital Equipment
Technology
Energy
Corporate Bonds
Mortgage-Backed Securities (1)
Asset-Backed Securities
Agency/US/State/Municipal Debt
Sovereign/Non-US Debt
Commodities
Total Investments
Le ve l 1
$
-
Le ve l 2
$
10,409
Le ve l 3
$
-
Total
$
10,409
703
412
255
710
164
222
82
2,385
293
1,883
1,334
1,778
931
886
224
669
1,324
860
-
-
-
-
88
15,203
$
-
-
-
-
-
-
747
-
-
-
-
-
-
-
-
-
-
3,575
2,570
25
5,312
63
-
22,701
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
703
412
255
710
164
222
82
3,132
293
1,883
1,334
1,778
931
886
224
669
1,324
860
3,575
2,570
25
5,312
63
88
37,904
$
(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.
55
The following table presents Middlesex’s Pension Plan assets measured and recorded at fair value within the fair
value hierarchy as of December 31, 2011 (amounts in thousands):
Common Trust Fund-Large Cap
Mutual Funds:
Mid Cap Growth
Mid Cap Value
Foreign Small Mid Growth
Foreign Large Core
Foreign Large Blend
Diversied Emerging Markets
Preferred Stock Index
Money Market Funds:
Cash and Cash Equivalents
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 (1)
Asset-Backed Securities
Agency/US/State/Municipal Debt
Sovereign/Non-US Debt
Commodities
Total Investments
Le ve l 1
$
-
Le ve l 2
$
7,641
Le ve l 3
$
-
Total
$
7,641
655
356
214
97
586
281
74
1,389
189
1,289
1,629
1,685
956
853
159
651
1,345
1,160
40
-
-
-
129
-
52
13,789
$
-
-
-
-
-
-
-
1,281
-
-
-
-
-
-
-
-
-
-
-
2,324
2,527
27
4,532
75
-
18,407
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
655
356
214
97
586
281
74
2,670
189
1,289
1,629
1,685
956
853
159
651
1,345
1,160
40
2,324
2,527
27
4,661
75
52
32,196
$
(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.
56
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, 2012 (amounts in thousands):
Mutual Funds:
Small Cap Core
Mid 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 and Cash Equivalents
Agency/US/State/Municipal Debt
Commodities
Total Investments
Le ve l 1
Le ve l 2
Le ve l 3
Total
$
97
104
290
446
5,270
902
303
234
292
282
119
-
$
-
-
-
-
-
-
-
-
-
-
-
-
780
170
9,289
$
1,205
9,914
-
11,119
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
97
104
290
446
5,270
902
-
303
234
292
282
119
1,205
10,694
170
20,408
$
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, 2011 (amounts in thousands):
Mutual Funds:
Small Cap Core
Mid 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 and Cash Equivalents
Agency/US/State/Municipal Debt
Commodities
Total Investments
Le ve l 1
Le ve l 2
Le ve l 3
Total
$
90
48
253
288
3,406
398
349
225
279
247
163
107
-
$
-
-
-
-
-
-
-
-
-
-
-
-
424
100
6,377
$
818
8,622
-
9,440
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
90
48
253
288
3,406
398
349
225
279
247
163
107
818
9,046
100
15,817
$
57
Benefit Plans Contributions
For the Pension Plan, Middlesex made total cash contributions of $3.7 million in 2012 and expects a similar level
of funding in 2013.
For the Other Benefits Plan, Middlesex made total cash contributions of $3.9 million in 2012 and expects a
similar level of funding in 2013.
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, 2012, 2011 and 2010.
For those employees hired after March 31, 2007 and still actively employed on December 31, 2012, the Company
approved and will fund discretionary contribution of $0.2 million, which was based on 5.0% of eligible 2012
compensation. For the years ended December 31, 2011 and 2010, the Company made discretionary contributions
of $0.2 million and $0.1 million, respectively, for those qualifying employees.
Stock-Based Compensation
The Company has a stock compensation plan for certain management 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
ASC 718, Compensation – Stock Compensation. 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.
58
The following table presents information on the 2008 Restricted Stock Plan:
Balance, January 1, 2010
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2010
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2011
Granted
Vested
Forfeited
Amortization of Compensation Expense
Balance, December 31, 2012
Shares
(thousands)
Unearned
Compensation
(thousands)
Weighted
Average
Grant Price
93
14
(13)
-
-
94
30
(15)
(1)
-
108
21
(15)
-
-
114
$990
239
-
-
(338)
$891
518
-
(7)
(323)
$1,079
408
-
-
(448)
$1,039
$16.97
$16.97
$19.35
The fair value of vested restricted shares was $0.3 million, $0.2 million and $0.2 million for the years ended
December 31, 2012, 2011, and 2010, respectively.
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.
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.
59
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
Income Taxes:
Regulated
Non – Regulated
Consolidated Interest Charges
Net Income:
Regulated
Non – Regulated
Consolidated Net Income
Capital Expenditures:
Regulated
Non – Regulated
Total Capital Expenditures
Assets:
Regulated
Non – Regulated
Inter-segment Elimination
Consolidated Assets
(Thousands of Dollars)
Years Ended December 31,
2012
2011
2010
$ 98,021
12,851
(493)
$ 110,379
$ 91,729
10,805
(465)
$ 102,069
$ 92,378
10,937
(580)
$ 102,735
$ 25,944
1,703
$ 27,647
$ 22,760
1,441
$ 24,201
$ 24,815
1,782
$ 26,597
$ 10,241
168
$ 10,409
$ 9,601
145
$ 9,746
$ 9,093
151
$ 9,244
$ 1,489
94
(726)
$ 857
$ 1,982
896
(729)
$ 2,149
$ 1,265
313
(134)
$ 1,444
$ 6,725
96
(96)
$ 6,725
$ 6,376
97
(97)
$ 6,376
$ 6,925
134
(134)
$ 6,925
$ 6,579
804
$ 7,383
$ 5,548
979
$ 6,527
$ 6,004
782
$ 6,786
$ 13,500
896
$ 14,396
$ 12,088
1,359
$ 13,447
$ 13,152
1,178
$ 14,330
$ 21,149
429
$ 21,578
$ 23,125
437
$ 23,562
$ 29,344
260
$ 29,604
As of
December 31, 2012
As of
December 31, 2011
$560,165
11,674
(10,113)
$561,726
$539,947
10,325
(12,736)
$537,536
60
Note 9 - Quarterly Operating Results - Unaudited
Operating results for each quarter of 2012 and 2011 are as follows:
2012
1st
2nd
3rd
4th
Total
(Thousands of Dollars, Except per Share Data)
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share
$ 23,546
3,877
1,807
$ 0.11
$ 0.11
$ 27,401
7,210
3,725
$ 0.23
$ 0.23
$ 32,353
10,843
6,138
$ 27,079
5,717
2,726
$ 0.39 $ 0.17
$ 0.39 $ 0.17
$ 110,379
27,647
14,396
$ 0.90
$ 0.90
2011
1st
2nd
3rd
4th
Total
Operating Revenues
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share
$ 23,996
4,768
2,630
$ 0.17
$ 0.17
$ 26,102
6,738
3,625
$ 0.23
$ 0.23
$ 28,671
8,516
5,143
$ 23,300
4,179
2,049
$ 0.33 $ 0.12
$ 0.32 $ 0.12
$ 102,069
24,201
13,447
$ 0.85
$ 0.84
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.
61
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, 2012.
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, 2012. 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, 2012, 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, 2012 as stated in their report which is included herein.
/s/ Dennis W. Doll
Dennis W. Doll
President and
Chief Executive Officer
/s/ A. Bruce O’Connor
A. Bruce O’Connor
Vice President and
Chief Financial Officer
Iselin, New Jersey
March 7, 2013
62
(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, 2012, 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, 2012, 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 cash flows of Middlesex Water Company and our
report dated March 7, 2013 expressed an unqualified opinion.
Reading, Pennsylvania
March 7, 2013
/s/ ParenteBeard LLC
63
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 2013 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 2013 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 2013 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 2013 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 2013 Annual Meeting of Stockholders and is incorporated herein by reference.
64
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, 2012 and 2011.
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2012.
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2012.
Consolidated Statements of Capital Stock and Long-term Debt at December 31, 2012 and 2011.
Consolidated Statements of Common Stockholders’ Equity for each of the three years in the period
ended December 31, 2012.
Notes to Consolidated Financial Statements.
2.
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.
3. Exhibits
See Exhibit listing immediately following the signature page.
65
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
President and Chief Executive Officer
Date:
March 7, 2013
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 7, 2013.
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)
By:
/s/ James F. Cosgrove Jr.
James F. Cosgrove Jr.
Director
By:
/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
By:
John R. Middleton, M.D.
Director
/s/ John R. Middleton, M.D.
By:
/s/ Walter G. Reinhard
Walter G. Reinhard
Director
By:
/s/ Jeffries Shein
Jeffries Shein
Director
66
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.
Previous
Registration
No.
Filing’s
Exhibit
No.
2-55058
2(a)
2-15795
4(a)-4(f)
33-54922
10.4-10.9
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 July 27, 2011, between the
Company and the Old Bridge Municipal Utilities Authority filed as
Exhibit No. 10.4 of 2011 Third Quarter Form 10-Q.
67
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
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.
(t)10.12(a) Copy of 2008 Restricted Stock Plan, filed as Appendix A to the
Company’s Definitive Proxy Statement, dated and filed
April 11, 2008.
(t)10.12(b) 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.
(t)10.13(a) 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.
(t)10.13(b) 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.
(t)10.13(c) 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.
(t)10.13(d) 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.
(t)10.13(e) Change in Control Termination Agreement between Middlesex
Water Company and Lorrie B. Ginegaw, filed as Exhibit 10.13(e)
of the 2011 Form 10-K.
68
Previous
Registration
No.
Filing’s
Exhibit
No.
33-54922
10.23
333-66727
10.24
EXHIBIT INDEX
Exhibit No.
Document Description
(t)10.13(f) 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.
(t)10.13(g) Change in Control Termination Agreement between Middlesex
10.14
10.15
10.16
10.17
10.18
10.19
10.20
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 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.
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.
69
Previous
Registration
No.
Filing’s
Exhibit
No.
Exhibit No.
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
EXHIBIT INDEX
Document Description
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 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.
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.
70
Previous
Registration
No.
Filing’s
Exhibit
No.
333-160757
Exhibit No.
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
EXHIBIT INDEX
Document Description
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 between registrant
and PNC Bank, filed as Exhibit 10.37 of the 2011 Form 10-K.
Uncommitted Line of Credit Letter Agreement and Master
Promissory Note between registrant and Bank of America,
N.A, filed as Exhibit 10.38 of the 2011 Form 10-K.
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 10.39 of the 2011 Form 10-K.
Amended Promissory Note for a committed line of credit
between registrant’s wholly-owned subsidiary Tidewater
Utilities, Inc. and CoBank, ACB., filed as Exhibit 10.40 to the
Company’s September 30, 2011 Quarterly Report on
Form 10-Q.
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.
71
Previous
Registration
No.
Filing’s
Exhibit
No.
EXHIBIT INDEX
Exhibit No.
10.39
10.40
*10.41(1)
*21(1)
*23.1(1)
*31(1)
*31.1(1)
*32(1)
*32.1(1)
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Document Description
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 May 1, 2012 (Series OO), filed as Exhibit 10.43 of
the June 30, 2012 Form 10-Q.
Copy of Loan Agreement by and Between New Jersey
Environmental Infrastructure Trust and Middlesex Water
Company dated as of May 1, 2012 (Series PP), filed as Exhibit
10.44 of the June 30, 2012 Form 10-Q.
Copy of Loan Agreement By and Between the New Jersey
Economic Development Authority and Middlesex Water
Company dated as of November 1, 2012 (Series QQ, RR &
SS).
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.
XBRL Instance Document
XBRL Schema Document
XBRL Calculation Linkbase Document
XBRL Labels Linkbase Document
XBRL Presentation Linkbase Document
XBRL Definition Linkbase Document
(1) These documents were included in 2012 Form 10-K as filed with the Securities and Exchange
Commission and will be provided upon specific request.
72
Board of Directors
James F. Cosgrove, Jr., P.E.3,4,5
Vice President and Principal
Kleinfelder
John C. Cutting, Ph.D.1,4,5
Senior Engineer (retired)
Science Applications International
Dennis W. Doll
Chairman of the Board,
President and Chief Executive Officer
Middlesex Water Company
Steven M. Klein 1,2,4
President and
Chief Operating Officer
Northfield Bancorp, Inc., Northfield Bank
Amy B. Mansue1,2,3
President and Chief Executive Officer
Children’s Specialized Hospital
John R. Middleton, M.D.1,2,3
Engaged in Private Practice
ID Care
Walter G. Reinhard, Esq.3,4
Partner
Norris, McLaughlin & Marcus, P.A.
Jeffries Shein 2,3,5
Managing Partner
JGT Management Co., LLC
1Audit Committee
2Compensation Committee
3Corporate Governance and Nominating Committee
4Pension Committee
5Ad Hoc Pricing Committee
Executive Management Team
Dennis W. Doll
Chairman of the Board,
President and Chief Executive Officer
Gerard L. Esposito
President, Tidewater Utilities, Inc.
Lorrie B. Ginegaw
Vice President – Human Resources
A. Bruce O’Connor
Vice President and Chief Financial Officer
Kenneth J. Quinn
Vice President, General Counsel,
Secretary and Treasurer
Richard M. Risoldi
Vice President – Operations,
Chief Operating Officer
Bernadette M. Sohler
Vice President – Corporate Affairs
Middlesex Water Company
Shareholder Information
Company Headquarters
Middlesex Water Company
1500 Ronson Road
Iselin, NJ 08830
Telephone: 732-634-1500
www.middlesexwater.com
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
Shareholder Account Inquiries
To review the status of your
shareholder account or dividend
payments, transfer shares, report
a change of address or other
related matters, please contact
Registrar and Transfer directly.
Investor Relations Contact
Shareholders, analysts and others
seeking information about Middlesex
Water are invited to contact our
Investor Relations Department at:
Telephone: 732-634-1500
Fax: 732-638-7515
E-mail: Bsohler@middlesexwater.com
Online: www.middlesexwater.com
Copies of our earnings and other
releases, financial publications
including our Annual Report on SEC
Form 10-K as well as 10-Q filings
and dividend announcements are
available without charge upon
request. These documents are also
typically available within minutes
of being filed on the Investor
Relations section of our website
at www.middlesexwater.com
Shareholders wishing to receive
e-mail notification each time a press
release, SEC filing or corporate event
is posted to our website may arrange
to do so by clicking on Investor
Email Alerts on our website home
page at www.middlesexwater.com
and following the prompts.
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 21, 2013,
at 11:00 a.m. at the Company’s
Headquarters, The J. Richard
Tompkins Center, 1500 Ronson Road,
in Iselin, NJ. Shareholders of record
as of March 25, 2013 will be eligible
to receive notice of, and to vote at,
the 2013 Annual Meeting.
Stock Listing
The Company’s common shares
trade on the NASDAQ GS (NASDAQ)
Global Select Market under the
trading symbol MSEX.
Independent Registered
Public Accounting Firm
ParenteBeard LLC
2609 Keiser Blvd.
Reading, PA 19603-0311
Telephone: 800-267-9405
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
from Registrar and Transfer and
may also be accessed at
http://investors.middlesexwater.com.
2013 Dividend Schedule*
Common
Preferred
Record Dates Payment Dates
March 1
February 15
June 3
May 15
August 15
September 3
November 15 December 2
January 14
April 15
July 15
October 15
February 1
May 1
August 1
November 1
*Subject to approval by Board of Directors.
The following table sets forth the high and low sales price of the common stock for the
periods indicated, as reported by NASDAQ, and dividends paid.
2012
2011
High
Low
Dividend
Paid
$19.59
$17.48
$0.1875
19.64
19.00
19.60
18.40
18.00
18.04
$0.1850
$0.1850
$0.1850
Q4
Q3
Q2
Q1
High
Low
$19.44
$16.51
19.19
19.29
19.31
16.54
17.77
17.35
Dividend
Paid
$0.1850
$0.1825
$0.1825
$0.1825
A Provider of Water, Wastewater and
Related Products and Services
1500 Ronson Road
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com