Business Context and Reporting Period
Company: Middlesex Water Company (Middlesex)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2005
Business Overview: Middlesex operates as a regulated water utility in New Jersey and Delaware, providing water and wastewater services to residential, commercial, and industrial customers. The company also operates non-regulated contract services for municipal and private systems.
Key Financial Metrics
| Metric (Six Months Ended June 30) | 2005 | 2004 |
|---|---|---|
| Operating Revenues | $35,173,654 | $33,645,646 |
| Operating Income | $5,868,401 | $5,330,006 |
| Net Income | $3,325,830 | $2,923,971 |
| Earnings Per Share (Basic) | $0.28 | $0.26 |
| Earnings Per Share (Diluted) | $0.28 | $0.26 |
| Cash Flow from Operations | $4,615,306 | $4,814,501 |
| Capital Expenditures | $11,592,836 | $9,035,216 |
| Total Assets | $304,204,603 | $299,129,098 |
| Long-term Debt | $115,376,100 | $115,280,649 |
| Short-term Borrowings | $14,000,000 | $11,000,000 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 4.5% ($1.5 million) for the six months ended June 30, 2005. This was driven by a 9.1% customer growth in Delaware and base rate increases in New Jersey granted in May 2004.
- Profitability: Net income rose 13.7% to $3.3 million. Basic and diluted EPS increased from $0.26 to $0.28, despite an increase in the average number of shares outstanding.
- Expense Increases: Operating expenses increased 3.5% ($1.0 million). Key drivers included higher payroll and benefits (pension and post-retirement costs increased by ~$0.3 million) and corporate governance fees. Depreciation expense rose 9.8% due to a higher level of utility plant in service.
- Segment Performance: Regulated segment revenues increased to $31.1 million, while non-regulated revenues declined to $4.1 million due to the completion of original meter services contracts in late 2004.
- Cash Flow: Net cash provided by operating activities decreased slightly by $0.2 million to $4.6 million, primarily due to the timing of vendor payments and retirement plan contributions.
Guidance, Outlook, and Risks
- Rate Filings: Middlesex filed for a 13.1% base rate increase with the New Jersey Board of Public Utilities (BPU) in May 2005 to recover $19.2 million in capital investments and operating costs. A decision is expected in Q1 2006. Pinelands subsidiaries plan to file for rate increases in August 2005.
- Capital Program: The 2005 capital program is estimated at $23.2 million, including $11.2 million for Delaware system additions and $3.4 million for a new raw water line in New Jersey. Future capital expenditures for 2006-2007 are projected at $45.9 million.
- Liquidity: The company maintains $40.0 million in lines of credit, with $14.0 million outstanding as of June 30, 2005. Tidewater secured approval for up to $16.0 million in long-term debt financing, including a $2.0 million Delaware SRF loan closed in July 2005.
- Risks: Key risks include weather variations affecting water consumption, regulatory delays in rate approvals, and the ability to control operating expenses. The company also faces potential exposure from a pending arbitration regarding a 1998 lawsuit, with a maximum exposure of $0.3 million.
Investor Verification Checklist
- Verify the outcome and timing of the 13.1% rate increase request filed with the New Jersey BPU.
- Monitor the completion of the $14.0 million CoBank mortgage-type loan financing for Tidewater.
- Track the impact of the new regulated wastewater operation (TESI) in Delaware on near-term expenses versus revenues.
- Review the status of the arbitration regarding the 1998 water line/electric cable lawsuit.
- Assess the sustainability of customer growth in Delaware given reported construction delays by developers.