Business Context and Reporting Period
This Form 10-Q covers the quarterly and six-month periods ended June 30, 1997, for Philadelphia Suburban Corporation (PSC), a holding company for Philadelphia Suburban Water Company (PSW). PSW is a regulated utility serving approximately 286,000 customers across 93 municipalities in a 465-square-mile territory north and west of Philadelphia. The financial statements are unaudited but reflect normal recurring accruals.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1997 | Six Months Ended June 30, 1996 |
|---|---|---|
| Earned Revenues | $64,336 | $59,973 |
| Operating Income | $26,340 | $23,320 |
| Net Income | $10,334 | $9,249 |
| Net Income Available to Common Stock | $10,238 | $9,249 |
| Diluted EPS | $0.52 | $0.49 |
| Operating Cash Flow | $11,336 | $10,112 |
| Capital Expenditures | $12,666 | $10,373 |
| Long-Term Debt (Excl. Current) | $195,391 | $217,518 |
| Cash Balance (End of Period) | $1,012 | $1,356 |
Liquidity: As of June 30, 1997, the Company had $635 available under short-term lines of credit, and PSW had $1,000 available under short-term lines and $3,032 under its revolving credit agreement.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 7.3% ($4,363) year-over-year, driven primarily by $2,856 in water revenues from 1996 acquisitions and $460 from the Distribution System Improvement Charge (DSIC).
- Expense Increases: Operating expenses rose 2.6% ($679) due to acquisitions, partially offset by reduced maintenance costs from a mild winter and capitalized labor. Depreciation increased 12.2% ($791) due to new utility plant assets.
- Interest Expense: Interest expense increased 18.3% ($1,388) reflecting higher borrowing levels to finance acquisitions and capital projects, partially offset by lower interest rates.
- Profitability: Net income available to common stock increased 10.7% ($989). Earnings per share rose 6.1% to $0.52, despite a 4.5% increase in average shares outstanding.
- Debt Reduction: The Company retired $12,400 in long-term debt and redeemed $1,428 of subsidiary preferred stock during the first half of 1997.
Guidance, Outlook, and Management Commentary
- Dividend Increase: Effective September 1, 1997, the quarterly dividend on common stock was increased from $0.2025 to $0.2125 per share.
- Capital Programs: In July 1997, PSW established a new two-year $150 million medium-term note program to replace an expired facility. The Company also increased short-term lines of credit by $6 million to support working capital.
- Share Repurchase: The Board authorized the repurchase of up to 500,000 shares of common stock to mitigate dilution from stock purchase and option plans. $1,599 was spent on repurchases in the first half of 1997.
- Accounting Changes: The Company plans to adopt SFAS 128 (Earnings Per Share), SFAS 130 (Comprehensive Income), and SFAS 131 (Segment Reporting) effective January 1, 1998. Management does not expect these to materially affect financial results.
- Risks: No pending legal proceedings were identified that present a reasonable likelihood of a material adverse impact.
Investor Verification Checklist
- Verify the impact of the 1996 acquisitions on future revenue stability and operating cost structures.
- Confirm the terms and interest rates of the new $150 million medium-term note program established in July 1997.
- Monitor the execution of the authorized 500,000-share buyback program and its effect on earnings per share.
- Review the renewal status of the revolving credit agreement expiring in March 1998, which holds a significant portion of current debt.
- Assess the sustainability of the dividend increase given the rising interest expense and capital expenditure requirements.