Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended September 30, 1994, for Philadelphia Suburban Corporation (Registrant). The company operates primarily as a regulated water utility (Philadelphia Suburban Water Company) and a non-regulated data processing service bureau. The financial statements are unaudited but reflect normal recurring accruals.
Key Financial Metrics
| Metric (Nine Months Ended Sept 30, 1994) | Value ($ in thousands) |
|---|---|
| Earned Revenues | $80,428 |
| Operating Income | $30,799 |
| Net Income | $11,881 |
| Net Income Per Share | $1.03 |
| Operating Cash Flow | $19,522 |
| Capital Expenditures | ($17,023) |
| Long-Term Debt (Excl. Current) | $152,267 |
| Current Liabilities | $20,526 |
| Cash Position | ($271) Deficit |
Third Quarter (Three Months) Highlights: Revenues were $28,849; Net Income was $4,897; Net Income Per Share was $0.42.
Material Changes vs. Prior Period
- Revenue Growth: Nine-month revenues increased 6.2% ($4,706) compared to 1993, driven by rate increases of 7.4% (June 1993) and 9.05% (June 1994) and slightly higher water consumption.
- Operating Expenses: Increased 7.5% ($2,552). Approximately $800 (31% of the increase) was attributed to extreme cold weather in winter 1994 causing water main breaks and treatment costs. The remainder was due to wage increases and Postretirement Benefits Other than Pensions (SFAS No. 106).
- Profitability: Net income rose 13.7% ($1,433) to $11,881. Earnings per share increased 6.2% to $1.03, though diluted by a 7.2% increase in average shares outstanding.
- Interest Expense: Decreased 6.1% ($627) due to lower interest rates and reduced average debt balances following common stock issuances.
- Amortization: Decreased significantly ($942) due to the recognition of negative goodwill amortization associated with prior acquisitions in the June 1994 rate settlement.
Outlook, Risks, and Management Commentary
- Acquisitions: The company is pursuing the acquisition of the Media Borough water system (approx. $24,600 cost, 13,000 customers), with a decision expected soon and closing likely in Spring 1995. Preliminary agreements exist for five smaller systems ($7,400 combined cost). Funding is expected via long-term debt.
- Liquidity and Financing: Management states that internally generated funds, working capital, and credit facilities are sufficient for current needs. Short-term credit lines were increased from $3,000 to $9,000. The company intends to issue long-term debt within six months to refinance revolving credit agreements.
- Regulatory Environment: Future earnings and capital attraction depend on continued rate increases and regulatory support to maintain debt coverage ratios.
- Discontinued Operations: Net reserves related to discontinued operations totaled $2,750. Proceeds of $285 were received from the sale of land owned by a sold business.
- Legal Proceedings: No pending legal proceedings are expected to have a material adverse impact.
Investor Verification Checklist
- Verify the final approval and closing timeline for the Media Borough water system acquisition.
- Confirm the successful issuance of long-term debt within the next six months to refinance short-term credit facilities.
- Monitor the impact of weather-related maintenance costs on future operating expense variances.
- Review the status of rate cases required to maintain debt coverage ratios and shareholder returns.
- Assess the cash deficit position ($271 thousand) and reliance on credit lines for liquidity.