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, 1999
Business Overview: Middlesex operates regulated water and wastewater systems in New Jersey and Delaware, alongside non-regulated contract services for municipal systems. A significant operational change occurred on January 1, 1999, with the commencement of contract operations for the City of Perth Amboy, New Jersey.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 1999 | Nine Months Ended Sept 30, 1999 | Twelve Months Ended Sept 30, 1999 |
|---|---|---|---|
| Operating Revenues | $15,392,145 | $40,884,826 | $51,508,352 |
| Operating Income | $3,615,443 | $8,542,303 | $10,498,223 |
| Net Income | $2,780,559 | $6,845,789 | $8,182,184 |
| Earnings Per Share (Basic) | $0.55 | $1.34 | $1.64 |
| Operating Cash Flow (9 Months) | $5,495,779 | ||
| Capital Expenditures (9 Months) | $15,394,729 | ||
| Total Capitalization | $152,687,774 (as of Sept 30, 1999) | ||
| Long-Term Debt | $77,899,303 (as of Sept 30, 1999) | ||
| Cash and Equivalents | $4,475,657 (as of Sept 30, 1999) |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 27.5% for the quarter and 26% for the nine-month period compared to 1998. The primary driver was $5.2 million in new contract revenues from the Perth Amboy operations. Additional growth came from an 11.5% rate increase in New Jersey (effective May 1999) and customer growth in Delaware.
- Expense Increases: Operating expenses rose 29.5% for the quarter and 28.1% for the nine-month period. This was largely due to $4.8 million in contract expenses for Perth Amboy, increased personnel costs, and higher depreciation following the July 1999 completion of the Carl J. Olsen Water Treatment Plant (CJO Plant) upgrades.
- Profitability: Net income increased 18.4% for the quarter and 32% for the nine-month period. Basic EPS rose from $0.52 to $0.55 (quarter) and $1.14 to $1.34 (nine months).
- Other Income: Fluctuated due to the Allowance for Funds Used During Construction (AFUDC). AFUDC ceased for the quarter once the CJO Plant was placed in service but remained elevated for the nine-month period due to prior capital expenditures.
Guidance, Outlook, and Risks
- Regulatory Matters: Subsidiaries Tidewater Utilities and Public Water Supply filed a petition with the Delaware Public Service Commission (PSC) for a 38.3% base rate increase ($1.7 million) to cover capital improvements. An interim increase of 14.8% was requested effective November 1999, with a final decision expected in Q2 2000.
- Capital Program: The 1999 capital program is estimated at $24.1 million, including $15.0 million for the CJO Plant and $2.0 million for the RENEW Program (lining unlined mains). A new $4.5 million, 20-year loan was closed in November 1999 to fund 2000-2001 projects.
- Liquidity: The company maintains $28.0 million in available lines of credit, with $1.0 million outstanding as of September 30, 1999. Cash and cash equivalents decreased to $4.5 million due to significant capital expenditures.
- Year 2000 (Y2K) Readiness: The company reports 100% response from critical vendors and has tested its financial and billing systems as compliant. Contingency plans are in place, with projected implementation costs under $0.1 million.
- Market Risk: Interest rate risk is managed primarily through fixed-rate long-term debt. The company states that a hypothetical 10% change in interest rates on maturing debt would not have a material effect on earnings.
Investor Verification Checklist
- Delaware Rate Case Outcome: Verify the final approval and magnitude of the requested 38.3% rate increase by the Delaware PSC, as this impacts future revenue streams.
- Perth Amboy Contract Stability: Confirm the long-term viability and profitability of the new contract operations in Perth Amboy, which drove significant revenue and expense growth.
- Capital Expenditure Execution: Monitor the completion of the CJO Plant upgrades and the RENEW Program to ensure projected cost savings and operational efficiencies are realized.
- Debt Service Coverage: Review the impact of the new $4.5 million loan and existing debt maturities on future cash flows and liquidity.
- Y2K Contingency Costs: Track actual costs incurred for Y2K compliance to ensure they remain within the projected $0.1 million budget.