MSEX

Business Context and Reporting Period

Company: Middlesex Water Company (Middlesex)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1995
Business Overview: Middlesex operates water and wastewater utilities in New Jersey and Delaware. The company is the parent of Tidewater Utilities, Inc., Pinelands Water Company, Pinelands Wastewater Company, and Utility Service Affiliates, Inc. As of September 30, 1995, 4,111,826 shares of common stock were outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 5.8% for the nine months ended September 30, 1995, compared to the same period in 1994. This was driven by increased consumption, connection fees from Tidewater operations, and the inclusion of revenues from the newly acquired Pinelands Water and Wastewater Companies.
• Expense Increases: Operation and maintenance expenses rose 4.6% year-to-date due to higher purchased power costs, chemicals, and labor. Depreciation increased 6.1% due to system expansion and acquisitions.
• Profitability: Net income increased to $4.64 million from $4.35 million in the prior year period. Earnings per share rose to $1.11 from $1.05.
• Cash Flow: Net cash provided by operating activities remained relatively flat at $6.07 million compared to $6.09 million in the prior year. However, cash used in investing activities more than doubled to $8.03 million, primarily due to utility plant expenditures of $6.79 million.
• Liquidity: Cash and cash equivalents decreased significantly from $3.85 million at year-end 1994 to $0.88 million at September 30, 1995, reflecting heavy capital investment.

Guidance, Outlook, and Management Commentary

• Capital Program: The 1995 consolidated capital program is estimated at $7.2 million ($5.0 million for routine additions, $2.2 million for special projects). As of September 30, $5.6 million in capital expenditures had been incurred.
• Financing: The company plans to finance the capital program using internally generated cash, existing cash balances, and proceeds from Tidewater's long-term financing. Tidewater received approval for a $3.5 million bank loan and drew $2.5 million in October 1995.
• Acquisitions and Contracts:
  • Pinelands Acquisition: Completed in April 1995, acquiring water and wastewater systems in Burlington County, NJ. Management states these will not have a material impact on revenues initially and require substantial rate increases to attain profitability.
  • South Amboy Contract: A five-year contract to operate the City of South Amboy's water system is expected to generate approximately $1.5 million in revenue over the first five years with minimal impact on earnings.
• Regulatory: The New Jersey Board of Public Utilities approved a Purchased Water Adjustment Clause (PWAC) rate modification in July 1995, resulting in a rate decrease that will not materially affect revenues.
• Risks/Contingencies: No material legal proceedings were reported. The primary risk noted is the need for rate increases on the newly acquired Pinelands systems to achieve profitability.

Investor Verification Checklist

• Pinelands Profitability: Verify the timeline and magnitude of rate increases required for the Pinelands Water and Wastewater systems to become profitable.
• Liquidity Position: Monitor the low cash balance ($881,867) relative to the remaining 1995 capital expenditure requirements and the timing of the Tidewater loan drawdowns.
• Debt Service: Confirm the interest rate and repayment schedule for the new $2.5 million Tidewater loan and the $1.2 million in promissory notes issued in 1995.
• Regulatory Approvals: Track the status of any future rate cases or regulatory filings related to the Pinelands acquisition and the South Amboy contract.