WTRG

Business Context and Reporting Period

Company: Philadelphia Suburban Corporation (PSC), a holding company for regulated water and wastewater utilities serving approximately 2 million people across six states. The filing references "Essential Utilities, Inc." in metadata, but the document text identifies the registrant as Philadelphia Suburban Corporation.

Reporting Period: Quarterly Report (Form 10-Q) for the quarter and nine months ended September 30, 2001.

Operations: Primary subsidiaries include Philadelphia Suburban Water Company (PSW) and Consumers Water Company (CWC). The company also provides services through operating contracts with municipal authorities.

Key Financial Metrics

Liquidity: As of September 30, 2001, the company had $190,019 in short-term lines of credit with $56,894 available. Cash and cash equivalents decreased to $1,135 from $4,575 at year-end 2000.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 13.3% ($27,334) for the nine months ended September 30, 2001. Drivers included rate increases (notably from an April 2000 Pennsylvania settlement), higher water consumption due to warmer/drier weather, and acquisitions.
• Profitability: Net income available to common stock rose 18.5% ($7,446). Diluted EPS increased 11.5% to $0.87.
• Expenses: Operations and maintenance expenses increased 9.9% due to acquisition costs, higher production expenses, and wage increases. Depreciation rose 18.4% due to new plant assets and acquisitions.
• Debt Structure: Long-term debt increased significantly as the company issued $19,817 in new long-term debt and $12,000 in tax-exempt bonds to reduce short-term borrowings and fund capital projects.
• Acquisitions: Completed 16 acquisitions/growth ventures with a total purchase price of $8,070 (partially funded by issuing 195,368 shares of common stock).

Guidance, Outlook, and Risks

• Dividend Increase: The quarterly cash dividend on common stock was increased from $0.155 to $0.1656 per share (pre-split basis) effective December 1, 2001.
• Stock Split: A 5-for-4 common stock split (25% distribution) was declared for shareholders of record on November 16, 2001, with distribution on December 1, 2001.
• Rate Cases: Pennsylvania subsidiaries filed for a 13.4% ($28,000) revenue increase, pending a decision expected by August 2002. Other subsidiaries realized $2,985 in revenue from rate increases in the first nine months.
• Regulatory Asset: A $11,465 payment for Competitive Transition Charges (CTC) was recorded as a regulatory asset, recoverable over 10 years.
• Risks and Contingencies:
  • Security: Increased security measures post-September 11, 2001, are expected to be fully recoverable in rates with no material financial impact.
  • Drought: A drought warning was declared in Pennsylvania in November 2001. Management believes water supplies are adequate and the impact on revenues will not be significant due to seasonal usage patterns.
  • 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.

Investor Verification Checklist

• Verify the impact of the pending 13.4% rate increase request in Pennsylvania on future cash flows.
• Confirm the integration costs and revenue synergies from the 16 acquisitions completed in the first nine months of 2001.
• Monitor the company's liquidity position given the decline in cash equivalents to $1.1 million and high capital expenditure requirements ($86.4 million YTD).
• Assess the potential financial impact of adopting SFAS No. 142 (Goodwill impairment testing) and SFAS No. 143 (Asset Retirement Obligations) in upcoming periods.
• Review the effectiveness of drought mitigation strategies if the drought warning in Pennsylvania extends into the high-usage summer season.