MSEX

Business Context and Reporting Period

Company: Middlesex Water Company (Middlesex)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1995
Business Overview: Middlesex operates water and wastewater utilities in New Jersey and Delaware. The company includes wholly-owned subsidiaries such as Tidewater Utilities, Inc., Pinelands Water Company, and Pinelands Wastewater Company. As of June 30, 1995, there were 4,071,703 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 3.3% year-to-date (YTD) and 4.5% for the quarter, driven by increased consumption, higher connection fees from Tidewater operations, and the inclusion of Pinelands Water and Wastewater Company revenues.
• Expense Increases: Operation and Maintenance expenses rose 4.2% YTD due to higher costs for chemicals, labor, and insurance, partially offset by lower purchased water costs. Depreciation increased 5.1% YTD reflecting nearly $10.0 million in plant additions since March 1994.
• Net Income: Net income remained relatively flat, decreasing slightly by 0.3% YTD ($2.72M vs $2.73M), despite revenue growth, due to increased operating expenses and interest charges.
• Liquidity Position: Cash and cash equivalents decreased significantly from $3.85 million at year-end 1994 to $1.12 million at June 30, 1995, primarily due to heavy capital expenditures ($5.27 million in utility plant expenditures YTD).
• Debt Structure: Long-term debt increased by $1.2 million due to the issuance of 7% Promissory Notes. The company also retired 1,238 shares of nonredeemable preferred stock.

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). Approximately $3.0 million has been incurred through June 30, 1995. Financing is expected to come from internally-generated cash and existing balances.
• Regulatory Matters: The New Jersey Board of Public Utilities (BPU) approved a Purchased Water Adjustment Clause (PWAC) on July 13, 1995, allowing the recovery of approximately $0.1 million in increased purchased water costs.
• Acquisitions and Contracts:
  • Pinelands Acquisition: Completed the purchase of Pinelands Water and Wastewater Companies (4,400 customers total) in April 1995. Management states these systems will not materially impact revenues initially and require substantial rate increases to achieve profitability.
  • South Amboy Contract: Entered a five-year contract to operate the City of South Amboy's water system (2,800 customers), expected to generate approximately $1.5 million in revenue over five years with minimal earnings impact.
• Risks and Contingencies: No material legal proceedings or defaults on senior securities were reported. The primary operational risk noted is the need for rate adjustments on newly acquired Pinelands systems to attain profitability.

Investor Verification Checklist

• Rate Adjustment Status: Verify the timeline and approval status for the "substantial rate increases" required for the newly acquired Pinelands Water and Wastewater systems to become profitable.
• Liquidity Management: Monitor the cash balance, which dropped to $1.12 million, against the remaining $4.2 million capital expenditure requirement for the 1995 program.
• Debt Servicing: Review the impact of the new 7% Promissory Notes on future interest coverage ratios, given the slight decline in net income.
• Regulatory Approval: Confirm the implementation of the PWAC and its actual impact on offsetting purchased water costs in subsequent quarters.