Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our future revenue, future plans, objectives, expectations and events, assumptions and estimates. Forward-looking statements can be identified by use of the words or phrases “will,” “will likely result,” “are expected to,” “will continue,” “estimate,” “project,” “potential,” “believe,” “plan,” “anticipate,” “expect,” “intend,” or similar expressions and variations of such words. Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets related to our business.
The forward-looking statements contained in this report are not guarantees of future performance and involve assumptions and certain risks and uncertainties which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Important factors which may affect these actual outcomes and results include, without limitation:
● tourism and weather conditions in the areas we serve;
● the economic, political and social conditions of each country in which we conduct or plan to conduct business;
● our relationships with the government entities and other customers we serve;
● regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman;
● our ability to successfully enter new markets; and
● other factors, including those “Risk Factors” set forth under Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our 2025 Annual Report on Form 10-K.
The forward-looking statements in this Quarterly Report speak as of its date. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained in this Quarterly Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based, except as may be required by law.
References herein to “we,” “our,” “ours” and “us” refer to Consolidated Water Co. Ltd. and its subsidiaries.
Critical Accounting Policies and Estimates
Our critical accounting policies relate to (i) the valuations of our goodwill, intangible assets and long-lived assets; and (ii) revenue recognition on our construction and manufacturing contracts.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Our actual results could differ significantly from such estimates and assumptions.
The application of our critical accounting policies involves estimates or assumptions that constitute “critical accounting estimates” for us because:
● the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
● the impact of the estimates and assumptions on financial condition and results of operations is material.
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Goodwill and Intangible Assets
Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business as of the date of acquisition. Goodwill and intangible assets recorded as a result of a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. We evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year. Management identifies our reporting units for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, REC, and the manufacturing segment (i.e., Aerex), and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.
For 2025, we elected to assess qualitative factors to determine whether it was necessary to perform quantitative goodwill impairment testing for our reporting units. We assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant information. Based upon this qualitative assessment, we determined that it is more likely than not that the fair values of our reporting units exceeded their carrying values as of December 31, 2025.
In July 2021, a major customer communicated to Aerex that its purchases of a specialized product from Aerex in 2022 and subsequent years would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in prior years. As a result, our updated sales estimate for this customer based on this new information was substantially below the sales we anticipated to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers were adversely impacted by negative economic conditions (caused in part by the COVID-19 pandemic). These negative economic conditions also increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and adversely affected the overall financial condition of Aerex’s current and prospective customers. Accordingly, in light of this new information from Aerex’s major customer, and the on-going weak economic conditions that we believed would continue through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing segment’s goodwill by this amount for the three months ended June 30, 2021.
Long-lived Assets
We review the carrying amounts of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and fair value.
Construction and Manufacturing Contract Revenue Recognition
We design, construct, and sell desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas, and the British Virgin Islands. We design, construct, and sell wastewater, water reuse, and water production infrastructure in the United States through PERC and Kalaeloa Desalco. Aerex is a custom and specialty manufacturer in
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the United States of water-related systems and products applicable to commercial, municipal and industrial water production and treatment.
We recognize revenue for our construction and our specialized/custom manufacturing contracts (and some of our design contracts) over time under the input method using costs incurred (which represents work performed) to date relative to the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations, as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials, subcontractor costs and other expenses. We follow this method since we can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, we record revenue and recognize profit or loss as work on the contract progresses. We estimate total costs to be incurred and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and update these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs. Due to the extended time it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. We recognize the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.
The cost estimates we prepare in connection with our construction and manufacturing contracts are subject to inherent uncertainties. Because we base our contract prices on our estimation of future construction and manufacturing costs, the profitability of our construction and manufacturing contracts is highly dependent on our ability to estimate these costs accurately, as almost all of our construction and manufacturing contracts are fixed-price contracts. The cost of materials, labor and subcontractors could increase significantly after we sign a construction or manufacturing contract, which could cause the gross profit for a contract to decline from our previous estimates, adversely affecting our recognition of revenue and gross profit for the contract. Construction or manufacturing contract costs that significantly exceed our initial estimates could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 1. “Financial Statements” of this Quarterly Report and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2025 (“2025 Form 10-K”) and the information set forth under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2025 Form 10-K.
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Consolidated Results
Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $3,777,429 ($0.23 per share on a fully diluted basis), as compared to net income of $4,791,029 ($0.30 per share on a fully diluted basis) for 2025. Our net losses from discontinued operations for 2026 and 2025 were ($43,042) and ($133,081), respectively. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for a discussion of our discontinued operations.
The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 relates only to our continuing operations.
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $3,820,471 ($0.24 per share on a fully diluted basis), as compared to net income from continuing operations of $4,924,110 ($0.31 per share on a fully diluted basis) for 2025.
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Revenue for 2026 decreased to $29,973,700 from $33,715,385 in 2025 as a result of revenue decreases in the manufacturing and retail segments, which were partially offset by revenue increases in the bulk and services segments. Gross profit for 2026 was $10,916,013 (36% of total revenue) as compared to $12,306,287 (37% of total revenue) for 2025. For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.
General and administrative (“G&A”) expenses on a consolidated basis decreased to $7,419,068 for 2026 as compared to $7,723,959 for 2025. An increase in employee costs of approximately $211,000 from 2025 to 2026 was more than offset by a decrease in professional fees and reductions in various other expenses.
Other income, net, remained relatively consistent at $739,566 for 2026 as compared to $688,891 for 2025.
Results by Segment
Retail Segment:
The retail segment generated $3,955,540 in income from operations for 2026 as compared to $4,946,443 for 2025.
Revenue generated by retail water operations decreased to $8,577,058 in 2026 from $9,411,342 in 2025 due to a 10.2% decrease in the volume of water sold. The decrease in the volume of water sold in 2026 as compared to 2025 is attributable to significantly greater rainfall on Grand Cayman in 2026, as 2025 rainfall was well below historical norms.
As a result of the revenue decrease, retail segment gross profit decreased in both total dollars and as a percentage of revenue to $4,934,901 (58% of retail revenue) for 2026 as compared to $5,705,279 (61% of retail revenue) for 2025.
Retail G&A expenses increased to $902,607 for 2026 compared to $788,812 for 2025 primarily as a result of incremental employee costs of just over $74,000.
Bulk Segment:
The bulk segment contributed $2,604,560 and $2,481,546 to our income from operations for 2026 and 2025, respectively.
Bulk segment revenue was $8,744,769 and $8,411,716 for 2026 and 2025, respectively. The slight increase in revenue for 2026 is attributable principally to revenue earned by CW-Bahamas on the contract for its new plant on Cat Island.
Gross profit for our bulk segment was relatively consistent at $3,008,783 (34% of bulk revenue) for 2026 and $2,827,627 (34% of bulk revenue) for 2025.
Bulk segment G&A expenses also remained relatively consistent at $404,223 for 2026 as compared to $346,081 for 2025.
OC-Cayman’s agreements with the WAC for their North Sound and North Side Water Works plants expire on July 1, 2026. We believe we will receive an extension of these agreements for sufficient time to allow the WAC to complete a formal tender process for the granting of new long-term agreements for these plants.
S ervices Segment:
The services segment generated $1,057,741 in income from operations for 2026 as compared to a loss from operations of ($180,488) for 2025.
Services segment revenue increased to $11,251,344 for 2026 from $10,078,268 for 2025. Construction revenue remained relatively consistent at $2,101,137 for 2026 as compared to $2,218,230 for 2025. Revenue generated under operations and maintenance (“O&M”) contracts increased to $8,888,458 in 2026 as compared to $7,725,298 in 2025. One of PERC’s significant O&M contracts expired at the end of March 2026. However, prior to this contract’s expiration the customer contracted for certain additional construction work and maintenance services that were completed in 2026. These additional services amounted to $494,332 of the increase in O&M revenue from 2025 to 2026. We recognized approximately $2,540,432 and $1,035,547 in revenue and gross profit, respectively, under this contract in 2026 and approximately $1,032,060 and $213,597 in revenue and gross profit, respectively, under this contract in 2025. The
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remainder of the increase in O&M revenue was attributable to a new contract obtained by PERC for a municipal customer in California. Design and consulting revenue increased to $261,749 for 2026 from $134,740 for 2025.
Gross profit for the services segment increased to $2,824,188 (25% of services revenue) in 2026 from $2,016,391 (20% of services revenue) in 2025 due to the increase in O&M revenue.
G&A expenses for the services segment decreased to $1,785,996 for 2026 as compared to $2,195,338 for 2025 primarily due to a decrease in the provision for credit losses.
In June 2023, we (through our subsidiary Kalaeloa Desalco) executed a contract with the Honolulu Board of Water Supply (“BWS”) to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii, and since that time we have been engaged in the design and development phase for construction of the plant. We have achieved major project milestones under this phase of the project, (i) including successful pilot plant testing, (ii) receipt of confirmation from BWS that we are able to produce water that is a “reasonable match” to the quality of BWS’s current water supply and that we are able to produce water that causes “no detrimental impact” to the BWS water system or their customers’ assets, and (iii) completion of the plant design.
We are required to obtain federal, state, regional and local permits, licenses and other government approvals as a condition to commencing and completing construction and initiating operations. The permitting process for a project of this scale and complexity is inherently iterative and subject to review by multiple regulatory authorities, public comment procedures and, in certain instances, interagency coordination. During the year ended December 31, 2025, and continuing through the time of the filing of this Quarterly Report on Form 10-Q, we and BWS have experienced delays in obtaining certain required permits and related governmental approvals. These delays have resulted in a corresponding deferral of certain project milestones and a delay in the commencement of plant construction.
Pursuant to the terms of the contract, we are entitled to extensions of time for performance should delays arise from the failure to obtain required permits or other governmental approvals, provided that we have satisfied certain contractually specified conditions, including the exercise of all reasonable efforts to obtain such permits or other governmental approvals. We believe that we have complied in all material respects with the contractual prerequisites necessary to obtain relief in respect of such delays. BWS has granted change orders to Kalaeloa Desalco to reflect the impact of delays in the project schedule. However, Kalaeloa Desalco may require additional change orders from BWS for pending governmental approvals to further extend the completion date of the plant construction and until such formal change orders, amendments or written confirmations are executed, there can be no assurance as to the timing, scope or terms of any such extensions, or if such extensions will be granted at all.
The ultimate duration and economic burden of the permitting process remain subject to factors outside of our control, including the workload and resource constraints of applicable regulatory authorities, the timing and outcome of required public processes, the resolution of technical comments or requests for supplemental information and the potential for administrative or judicial challenges. To the extent that Kalaeloa Desalco does not receive the anticipated extensions of time, or if the extensions granted are insufficient to accommodate the full period of delay, Kalaeloa Desalco could be exposed to contractual remedies available to the BWS, which may include the assessment of liquidated damages, the withholding of milestone payments, or termination of the contract.
At the time of the filing of this Quarterly Report on Form 10-Q, Kalaeloa Desalco is continuing to advance the permitting process, respond to regulatory inquiries and coordinate with the BWS to mitigate project schedule impacts. Kalaeloa Desalco also is evaluating potential adjustments to sequencing and procurement activities designed to reduce the effect of the delays on the overall project economics. Although we do not currently expect the permitting delays to result in a material adverse effect on our consolidated financial position, the deferral of construction activities has shifted anticipated revenue recognition and associated cash flows related to the Hawaii desalination plant project into future periods. We will continue to assess the impact of these developments on our estimates of total project costs, timing of performance obligations and variable consideration, and will update our disclosures as appropriate in future periodic or current reports.
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Manufacturing Segment:
The manufacturing segment incurred a loss from operations of ($337,767) in 2026 as compared to generating $1,092,912 in income from operations in 2025.
Manufacturing revenue decreased to $1,400,529 for 2026, as compared to $5,814,059 for 2025. The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of new purchase orders and, to a lesser extent, the timing of the receipt and the commencement of work on these new orders. We believe, based on current projections, that manufacturing revenue for the full 2026 fiscal year will be less than the manufacturing revenue generated for the 2025 fiscal year.
Manufacturing gross profit decreased to $148,141 (11% of manufacturing revenue) for 2026 as compared to $1,756,990 (30% of manufacturing revenue) for 2025 due to the decrease in revenue.
G&A expenses for the manufacturing segment decreased to $485,908 for 2026 as compared to $664,078 for 2025 due primarily to a decrease in the provision for credit losses.
Corporate Segment:
Corporate G&A expenses remained relatively consistent at $3,840,334 for 2026 as compared to $3,729,650 for 2025.
FINANCIAL CONDITION
The significant changes in the components of our condensed consolidated balance sheet as of March 31, 2026 as compared to December 31, 2025 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.
Accounts receivable increased by approximately $3.5 million primarily due to the $3.2 million increase in CW-Bahamas’ accounts receivable.
Contract assets decreased by approximately $2.0 million primarily due to a $1.1 million decrease in Aerex’s contract assets arising from reduced production activity and an $870,000 decrease in PERC’s contract assets.
Property, plant and equipment, net, increased by approximately $1.6 million primarily due to a transfer from construction in progress upon the completion of one of the CW-Bahamas’ Cat Island plants.
Construction in progress decreased by approximately $1.6 million, primarily due to the transfer for the Cat Island plant.
Contract liabilities increased by $1.3 million due to an $874,000 increase in PERC and a $567,000 increase in the Kalaeloa Desalco construction project.
LIQUIDITY AND CAPITAL RESOURCES
Certain transfers from our bank accounts in The Bahamas to our bank accounts in other countries require the approval of the Central Bank of The Bahamas.
The Cayman Islands does not have a tax treaty with the United States. Consequently, should we be required or elect to transfer any profits generated by our U.S. subsidiaries to our parent company in the Cayman Islands, we will be required to pay a withholding tax of 30% on the amount of any such funds transferred.
Liquidity Position
Our projected liquidity requirements for the balance of 2026 include capital expenditures for our existing operations of approximately $8.6 million. We paid approximately $2.3 million for dividends in April 2026. Our liquidity requirements may also include future quarterly dividends, if such dividends are declared by our Board.
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As of March 31, 2026, we had cash and cash equivalents of $126.3 million and working capital of $144.3 million.
With the exception of the liquidity matter relating to CW-Bahamas that is discussed in the paragraphs that follow, we are not presently aware of anything that would lead us to believe that we will not have sufficient liquidity to meet our needs.
CW-Bahamas Liquidity
CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $23.9 million and $20.7 million as of March 31, 2026 and December 31, 2025, respectively. Approximately 75% and 71% of the accounts receivable balances were delinquent as of those dates, respectively. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.
From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we hold discussions and meetings with representatives of the WSC and the government of The Bahamas. All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full. Based upon this payment history, we have not provided for a material allowance for credit losses for CW-Bahamas’ accounts receivable from the WSC as of March 31, 2026, or prior periods.
We continue to be in frequent contact with officials of The Bahamas government, who continue to express their intention to significantly reduce CW-Bahamas’ delinquent accounts receivable balances. However, we are unable to determine when or if such reduction will occur.
In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa3. Moody’s has maintained these ratings through the date of its most current report issued in April 2025. Based upon our review of this Moody’s correspondence, we continue to believe that no material allowance for credit losses is required for CW-Bahamas’ accounts receivable from the WSC.
If CW-Bahamas is unable to collect a sufficient portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) we may be required to significantly increase our allowance for credit losses for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.
Discussion of Cash Flows for the Three Months Ended March 31, 2026
Our cash and cash equivalents increased to $126,331,873 as of March 31, 2026 from $123,788,390 as of December 31, 2025.
Cash Flows from Operating Activities
Net cash provided by our operating activities was $6,543,681. This net cash reflects the net income generated for the three months ended March 31, 2026 of $3,933,564 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year; and (ii) changes in the other components of working capital. Significant adjustments included depreciation and amortization of $1,754,705, an increase in accounts receivable of $3,453,459, a decrease in prepaid expenses and other assets of $1,564,843, a decrease in contract assets of $1,996,967, and an increase in contract liabilities of $1,346,535.
Cash Flows from Investing Activities
Net cash used in our investing activities was $1,682,253 primarily for additions to property, plant and equipment and construction in progress.
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Cash Flows from Financing Activities
Net cash used by our financing activities was $2,311,849, almost all of which related to the payment of dividends.
Material Commitments, Expenditures and Contingencies
Cayman Water Retail License
We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island: Seven Mile Beach and West Bay. For the three months ended March 31, 2026 and 2025, we generated approximately 29% and 28%, respectively, of our consolidated revenue and 45% and 46%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.
The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the license expired on January 31, 2018. From that date until February 18, 2025, we continued to operate under the terms of the 1990 license, treating such terms as operative notwithstanding the expiration of the express extension. We continued to pay a royalty of 7.5% of the revenue we collect as required under the 1990 license.
In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”) and in April 2017 passed supplemental legislation which transferred responsibility for economic regulation of the water utility sector and the negotiations with us for a new retail license to OfReg.
Under the new regulatory legislation passed in October 2016, Cayman Water was required to first be granted a concession by the government before obtaining a new (or renewing the old) retail operations license. On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted. Negotiations between Cayman Water and OfReg for the new license remain on-going.
We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that they seek to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license. We are presently unable to determine what impact the resolution of our retail license negotiations will have on our consolidated financial condition, results of operations, or cash flows but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail operations and could require us to record impairment losses to reduce the carrying values of our retail segment assets. Such impairment losses could have a material adverse impact on our consolidated financial condition and results of operations .
CW-Bahamas Supply Guarantees
Our contracts to supply water to the WSC from our Blue Hills and Windsor plants require us to guarantee delivery of a minimum quantity of water per week. If the WSC requires the water and we do not meet this minimum, we are required to pay the WSC for the difference between the minimum and actual gallons delivered at a per gallon rate equal to the price per gallon that the WSC is currently paying us under the contract. The Blue Hills contract expires in 2032 and requires us to deliver 63.0 million gallons of water each week. The Windsor contract expires in 2033 and requires us to deliver 16.8 million gallons of water each week. We have been in compliance with the performance guarantees under these contracts for all periods since the inception of the contracts.
Adoption of New Accounting Standards
None.
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Effect of Newly Issued but not yet Effective Accounting Standards
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires public companies to disclose, in the notes to financial statements, specific information about certain costs and expenses at each interim and annual reporting period. The amended ASU is effective on a prospective basis for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the impact of this guidance on our financial statements.
Dividends
● On January 30, 2026, we paid a dividend of $0.14 to shareholders of record on January 2, 2026.
● On April 30, 2026, we paid a dividend of $0.14 to shareholders of record on April 1, 2026.
We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985. Our payment of any future cash dividends will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors deems relevant in determining the amount and timing of such dividends.
Dividend Reinvestment and Common Stock Purchase Plan
This plan is available to our shareholders, who may reinvest all or a portion of their common stock dividends into shares of common stock at prevailing market prices and may also invest optional cash payments to purchase additional shares at prevailing market prices as part of this plan.
Impact of Inflation
Under the terms of our bulk water sales agreements in The Cayman Islands, The Bahamas and the British Virgin Islands, our water rates are automatically adjusted for inflation on an annual basis. Therefore, the impact of inflation on our gross profit from these revenue sources, measured in consistent dollars, historically has not been material. However, while we have received annual inflation adjustments for the rates we charge under our bulk water agreements, we have not applied to increase the water rates for Cayman Water since January 2018 (despite the inflation that has occurred since that date) due to the delayed resolution of our negotiations with OfReg for a new retail license. While we believe that we are entitled to apply to OfReg for future rate adjustments under the terms of the February 18, 2025 concession agreement with the Cayman Islands government, the denial by OfReg of such application or approval of an increase that is less than the increase in our costs could adversely affect the profitability of our retail segment. Furthermore, our manufacturing segment has in the past been adversely impacted by significant increases in raw material costs and our manufacturing and services segments could suffer similar adverse impacts in the future.
While our operations and maintenance contracts are generally adjusted for inflation on an annual basis, such adjustment for many of these contracts is capped at 3% annually.
Kalaeloa Desalco has signed a contract with the Honolulu Board of Water Supply pursuant to which it presently expects to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii. Approximately 80% of the approximate $148 million price for the construction of this plant is subject to adjustment based upon changes in inflation indices from September 29, 2022 (the date that was 120 days after the original proposal was submitted) until the date that the notice to proceed with construction is issued by the client.
Increases in fuel and energy costs and other items could create additional credit risks for us, as our customers’ ability to pay our invoices could be adversely affected by such increases.
In periods of high inflation, our consolidated results of operations and cash flows could be materially adversely affected.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk from December 31, 2025 to the end of the period covered by this report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.