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, 2001
Business Overview: Middlesex operates regulated water and wastewater utilities in New Jersey and Delaware, alongside non-regulated contract services for system operation and maintenance. The company recently acquired Southern Shores Water Company, LLC, and Bayview Water Company to expand its Delaware footprint.
Key Financial Metrics
| Metric | 3 Months Ended Sept 30, 2001 |
9 Months Ended Sept 30, 2001 |
12 Months Ended Sept 30, 2001 |
|---|---|---|---|
| Operating Revenues | $16,065,400 | $43,963,030 | $57,014,243 |
| Operating Income | $3,531,876 | $8,411,344 | $11,075,567 |
| Net Income | $2,373,516 | $5,175,245 | $6,668,265 |
| Earnings Per Share (Basic) | $0.46 | $0.98 | $1.27 |
| Cash Flow from Operations | N/A | $7,121,836 | $10,212,181 |
| Capital Expenditures | N/A | $8,854,026 | $12,561,298 |
| Total Debt (Long-term + Current) | $82,123,742 | $82,123,742 | $82,123,742 |
| Cash and Equivalents | $2,610,081 | $2,610,081 | $2,610,081 |
Note: Operating margins for the nine months ended Sept 30, 2001, were approximately 19.1% ($8.4M / $44.0M). Liquidity is supported by $28.0 million in available lines of credit, with $11.7 million outstanding as of Sept 30, 2001.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 11.7% ($1.7M) for the quarter and 6.1% ($2.5M) for the nine months compared to 2000. Growth was driven by approved base rate increases in New Jersey and Delaware and higher consumption volumes.
- Profitability: Net income surged 54.4% for the quarter and 35.8% for the nine months. Earnings per share (Basic) rose from $0.29 to $0.46 for the quarter and from $0.72 to $0.98 for the nine months.
- Expense Increases: Operating expenses rose 7.2% for the quarter and 4.1% for the nine months. Depreciation increased 8.0% (quarter) and 8.5% (nine months) due to plant improvements and higher composite depreciation rates in Delaware. Federal income taxes increased significantly (37.0% for the quarter) reflecting higher taxable income.
- One-Time Items: Other income for the nine-month period included a one-time gain on the sale of excess land by a Southern Delaware utility in which Middlesex holds a 23% equity interest.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Earnings Guidance: Management projects 2001 full-year earnings between $1.22 and $1.26 per basic share.
- Rate Relief: While recent rate increases have improved earnings, the Delaware utility is currently earning less than half of its approved 9.14% rate of return. Management is evaluating the timing for additional rate relief requests in Delaware.
- Capital Program: The 2001 capital program is estimated at $12.0 million, focusing on Delaware system additions ($6.6M) and New Jersey upgrades ($4.6M). Financing includes State Revolving Fund (SRF) loans, short-term debt, and internal funds.
- Stock Split: A petition was filed on November 13, 2001, for a three-for-two stock split of common stock.
Risks and Contingencies
- Legal Proceedings: A claim has been filed in Delaware regarding personal injury and property damage allegedly caused by inadequate water quality. The company believes its insurance coverage is sufficient for all claims except potential punitive damages.
- Divestiture Failure: Negotiations to sell the Delaware water utility operation to Artesian Resources Corporation were terminated without an agreement.
- Regulatory: The company is subject to rate and service regulations by New Jersey and Delaware authorities. Future earnings depend on the approval of rate cases and the ability to recover costs.
Investor Verification Checklist
- Rate Case Status: Verify the timeline and outcome of the pending rate increase filing for the Fortescue/Bayview system (expected Nov 30, 2001) and potential future filings for Delaware.
- Debt Refinancing: Monitor the BPU decision on the petition to redeem the $6.0 million Series R bonds and issue new bonds, which impacts interest expense.
- Legal Exposure: Track the status of the Delaware water quality litigation to assess potential uninsured punitive damage exposure.
- Capital Expenditure Execution: Confirm that the $12.0 million capital program is on track, particularly the $6.6 million allocated to Delaware systems.
- Stock Split Approval: Confirm the regulatory approval and execution date for the proposed three-for-two stock split.