Middlesex Water Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited consolidated results; dollar amounts are in millions unless otherwise noted.
Financial results
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Operating revenue | $32.669 | $31.285 | $89.032 | $87.424 |
| Operating income | $11.620 | $10.270 | $26.333 | $24.306 |
| Net income | $6.758 | $5.807 | $14.654 | $13.465 |
| Basic / diluted EPS | $0.42 / $0.42 | $0.36 / $0.36 | $0.91 / $0.90 | $0.84 / $0.83 |
| Operating margin | 35.6% | 32.8% | 29.6% | 27.8% |
For the first nine months, operating cash flow was $22.439 million, versus $21.165 million a year earlier. Utility plant expenditures were $15.783 million, up from $14.585 million; the company said operating cash funded all plant expenditures for the period. Cash and equivalents were $5.052 million at September 30, 2014, compared with $4.834 million at year-end 2013.
At September 30, capitalization included $129.170 million of long-term debt, $5.634 million of current maturities, and $30.500 million of short-term notes payable. The company had $60 million of credit lines, with $30.5 million outstanding. Current assets were $28.751 million and current liabilities $56.691 million. Common dividends paid were $0.19 per share for Q3 and $0.57 per share year to date.
Performance changes and drivers
- Q3 revenue rose 4.4% and net income rose 16.4% year over year; nine-month revenue increased 1.8% and net income 8.8%.
- Regulated operations drove most of the improvement: nine-month regulated operating income increased to $24.585 million from $22.699 million. Non-regulated operating income was $1.748 million versus $1.607 million.
- Revenue benefited from approved New Jersey and Delaware rate increases, higher Tidewater demand and connection fees, and Plantations wastewater service. Offsetting factors included lost Sayreville wholesale sales, the Hess refinery shutdown, and unfavorable weather-related demand in Middlesex.
- Nine-month operations and maintenance expense fell $0.741 million, principally from lower employee benefit costs; severe winter weather increased water-main-break and labor costs. Depreciation increased with the higher plant base.
Regulation, outlook, and risks
- New Jersey approved a $4.2 million annual base-rate revenue increase, effective July 20, 2014, below the revised $8.1 million request. An approved distribution system improvement charge may recover qualifying investment, subject to a maximum $3.6 million annual revenue allowance.
- Delaware approved a $0.8 million annual Tidewater rate increase effective August 19, 2014; Tidewater refunded $0.4 million after its final award was below the interim increase.
- Management expected remaining-2014 revenue to benefit from the rate increases, Dover Air Force Base service beginning October 1 (estimated at about $0.6 million annual revenue), and the full-year effect of the Plantations wastewater acquisition. No earnings-per-share or revenue guidance was provided.
- The company estimated 2014 capital spending of $26.6 million and projected approximately $59 million for 2015–2016. It planned to use internal cash, dividend-reinvestment proceeds, available SRF funds, and short-term borrowing as needed.
- In October 2014, Tidewater closed on an approved $15 million loan facility, available through April 2015, to refinance short-term borrowing and support capital spending. Middlesex’s existing short-term borrowings matured in October 2014 and were extendable at its discretion.
- Key disclosed risks include regulatory rate decisions, water supply and quality, weather and customer usage, operating and capital costs, access to capital, customer growth, cybersecurity, and possible unrecoverable preliminary survey and investigation costs. The company reported a performance guaranty related to a Monmouth County facility; it considered payment unlikely and reported a $0.3 million liability.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It said pending litigation was not expected to have a material adverse effect; no legal proceedings were listed in Part II.
Important facts for investors to verify
- Whether the authorized New Jersey and Delaware rate increases and the New Jersey improvement charge deliver the expected revenue and cost recovery.
- Actual customer demand, including weather impacts and continuing effects of the Sayreville contract loss and Hess refinery closure.
- Capital spending execution, financing needs, and refinancing or extension of short-term borrowings.
- Whether employee benefit cost and contribution trends persist, and whether preliminary survey and investigation costs remain recoverable.
- Progress and financial contribution from Dover Air Force Base service, Plantations, and the Monmouth County project guarantee.