Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2001, for Philadelphia Suburban Corporation (PSC), a holding company for regulated water and wastewater utilities serving approximately 2 million people across Pennsylvania, Ohio, Illinois, New Jersey, Maine, and North Carolina. The report includes unaudited consolidated financial statements for the six months and three months ended June 30, 2001, compared to the same periods in 2000.
Key Financial Metrics
| Metric (Six Months Ended June 30) | 2001 ($000s) | 2000 ($000s) |
|---|---|---|
| Operating Revenues | $147,433 | $132,702 |
| Operating Income | $64,020 | $55,667 |
| Net Income | $28,570 | $23,864 |
| Net Income Available to Common Stock | $28,517 | $23,811 |
| Diluted EPS | $0.52 | $0.46 |
| Operating Cash Flow | $32,494 | $36,990 |
| Capital Expenditures | $50,959 | $57,443 |
| Total Debt (Long-term + Current) | $477,126 | $476,662 |
| Cash and Cash Equivalents | $6,876 | $8,049 |
Liquidity: As of June 30, 2001, the company had short-term lines of credit totaling $188,019, with $60,861 available. The company reported a decrease in cash and cash equivalents of $1,173 for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 11.1% ($14,731) year-over-year, driven by rate increases (notably a Pennsylvania settlement), acquisitions, and higher water consumption due to warmer, drier weather.
- Profitability: Net income available to common stock rose 19.8% ($4,706). Diluted earnings per share increased 13.0% to $0.52.
- Expense Trends: Operations and maintenance expenses increased 6.8% due to acquisition costs and higher production/treatment costs. Depreciation rose 17.4% due to new plant assets and rate adjustments. Taxes other than income taxes decreased 5.5% due to reduced Pennsylvania Public Utility Realty Tax and Capital Stock Tax.
- Acquisitions: Twelve acquisitions were completed in the first half of 2001 for a total purchase price of $7,948 ($4,187 cash and stock issuance).
- Regulatory Asset: A $11,465 payment for Competitive Transition Charges (CTC) was made and recorded as a regulatory asset to be recovered over 10 years.
Guidance, Outlook, and Risks
- Dividend Increase: The Board increased the quarterly cash dividend on common stock from $0.155 to $0.1656 per share, effective December 1, 2001.
- Stock Split: A 5-for-4 common stock split (25% stock distribution) was declared for shareholders of record on November 16, 2001, with distribution on December 1, 2001.
- Capital Requirements: Management believes internally generated funds, existing credit facilities, and proceeds from debt/equity issuances will be adequate to meet financing needs for the balance of the year.
- Accounting Changes: The company is evaluating the impact of SFAS No. 142 (Goodwill) and SFAS No. 143 (Asset Retirement Obligations), with adoption expected in 2002 and 2003, respectively. No material impact was noted from the adoption of SFAS No. 133 (Derivatives) in 2001.
- Risks: Forward-looking statements are subject to uncertainties including regulation, abnormal weather, and changes in capital requirements. No pending legal proceedings were reported as material.
Investor Verification Checklist
- Verify the impact of the declared 5-for-4 stock split on share count and per-share metrics in future filings.
- Monitor the recovery timeline of the $11,465 Competitive Transition Charge regulatory asset.
- Assess the sustainability of revenue growth driven by weather-dependent water consumption versus structural rate increases.
- Review the integration and performance of the 12 systems acquired in the first half of 2001.
- Track the company's liquidity position given the $50.9 million in capital expenditures and the reduction in cash balances.