Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 1998, for Philadelphia Suburban Corporation (PSC), a Pennsylvania corporation. The company operates primarily through its subsidiary, Philadelphia Suburban Water Company (PSW), a regulated public utility serving approximately 300,000 customers across 481 square miles in the suburbs of Philadelphia. The filing notes that while a merger with Consumers Water Company was approved by shareholders in November 1998, the transaction closed on March 10, 1999; therefore, the financial data presented excludes the impact of this merger.
Key Financial Metrics
Based on the selected quarterly financial data provided in Item 5:
- Total Operating Revenues (1998): $150,977,000
- Operations and Maintenance Expenses: $58,174,000
- Net Income Available to Common Stock: $28,624,000
- Basic Net Income Per Share: $1.04
- Diluted Net Income Per Share: $1.03
- Dividends Paid Per Share: $0.6650 (Annualized rate increased to $0.68 per share in September 1998)
- Dividend Payout Ratio: 64% of income from continuing operations
Note: Specific figures for total debt, cash flow, and liquidity ratios are incorporated by reference from the 1998 Annual Report to Shareholders (Exhibit 13.6) and are not explicitly detailed in the provided text.
Material Changes vs. Prior Period
Comparing 1998 to 1997:
- Revenue Growth: Operating revenues increased from $136,171,000 in 1997 to $150,977,000 in 1998, a growth of approximately 10.9%.
- Profitability: Net income available to common stock rose from $22,993,000 in 1997 to $28,624,000 in 1998.
- Per Share Earnings: Basic earnings per share increased from $0.89 to $1.04.
- Customer Base: The number of metered customers grew from 287,516 in 1997 to 299,850 in 1998. Excluding acquisitions, organic growth averaged 1.1% annually over the last three years; including acquisitions, the compound annual growth rate was 4.3%.
- Acquisitions: In 1998, PSW acquired four water systems (West Chester Area Municipal Authority, Brandywine Hospital, Flying Hills Water Company, and Greenhills Corporate Center) for a total purchase price of $24,498,000 in cash and 42,000 shares of common stock. These systems contributed $4,627,000 in revenue during the period owned.
Outlook, Risks, and Management Commentary
- Merger with Consumers Water Company: The merger, completed March 10, 1999, will expand the company's footprint to include approximately 226,000 additional customers in Pennsylvania, Ohio, Illinois, New Jersey, and Maine. The transaction was accounted for as a pooling-of-interests.
- Year 2000 Compliance: The company estimates it has spent approximately $3,200,000 to date on Year 2000 remediation, with an additional $1,500,000 expected. Management believes critical water treatment and distribution systems are not significantly affected, though financial and office systems required remediation. Risks remain regarding third-party suppliers, particularly electric power providers.
- Regulatory Environment: PSW is subject to regulation by the Pennsylvania Public Utility Commission (PUC) regarding rates and service. The company utilizes a Distribution System Improvement Charge (DSIC) to recover costs for non-revenue producing capital expenditures. The company is in compliance with EPA and DEP water quality standards, including the Lead and Copper Rule and Disinfection By-Products rules.
- Water Supply: The company maintains adequate water supplies through surface water, wells, and purchased water. While drought warnings were issued in 1997 and 1998, they were lifted without significant impact on revenues.
Investor Verification Checklist
- Verify the full consolidated financial statements (Balance Sheet, Cash Flow) in the 1998 Annual Report to Shareholders (Exhibit 13.6) to assess debt levels and liquidity, as these are not detailed in the 10-K text.
- Confirm the integration progress and financial impact of the Consumers Water Company merger in subsequent filings (1999 10-Q/10-K).
- Monitor the status of Year 2000 compliance for critical third-party vendors, specifically the electric power supplier.
- Review future rate cases filed with the Pennsylvania PUC to understand the timing of cost recovery for capital investments.
- Track the dividend payout ratio trend, which decreased to 64% in 1998 from 70% in 1997, to assess capital allocation strategy.