Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended September 30, 1999, for Philadelphia Suburban Corporation (PSC), a holding company for regulated water utilities. The reporting period includes the results of a merger with Consumers Water Company (CWC) completed on March 10, 1999, accounted for as a pooling-of-interests. The Company serves approximately 533,000 customers across Pennsylvania, Ohio, Illinois, New Jersey, and Maine.
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 1999) | Value ($ in thousands) |
|---|---|
| Operating Revenues | $194,091 |
| Operating Income | $78,147 |
| Net Income | $26,785 |
| Net Income Available to Common Stock | $26,681 |
| Diluted EPS | $0.65 |
| Net Cash from Operating Activities | $46,752 |
| Capital Expenditures | $67,723 |
| Total Debt (Long-term + Current) | $444,951 |
| Cash and Cash Equivalents | $6,454 |
Material Changes vs. Prior Period
- Revenue: Operating revenues increased 2.9% to $194.1 million, driven by acquisitions, rate increases, and the Distribution System Improvement Charge (DSIC), partially offset by drought-related consumption declines in Q3.
- Profitability: Net income decreased 26.3% to $26.8 million. This decline was primarily due to $6.3 million in merger transaction costs and $3.8 million in restructuring costs recorded in Q1, as well as the absence of a $6.7 million gain on the sale of New Hampshire operations recorded in 1998.
- Operating Expenses: Operations and maintenance expenses decreased 1.7% due to the sale of New Hampshire operations and reduced electric costs, offset by higher wages and maintenance at PSW.
- Debt: Total debt increased to $445.0 million. The Company issued $50 million in First Mortgage Bonds during the period to fund capital projects and refinance short-term debt.
- Cash Flow: Net cash from operating activities decreased 10.4% to $46.8 million. Investing activities used $74.0 million, primarily for property additions and acquisitions.
Outlook, Risks, and Management Commentary
- Rate Cases: PSW filed a request for a $28 million (15.5%) revenue increase with the Pennsylvania Public Utility Commission (PAPUC), with a decision expected by July 2000. Other subsidiaries have pending or settled rate cases.
- Acquisitions: The Company is actively pursuing growth, with agreements to acquire systems in Bensalem Township (PA) and Bradley (IL) expected to close by year-end 1999.
- Capital Projects: Construction of the $35 million Shenango water treatment plant is ongoing, with completion anticipated in Q1 2000. $27.4 million has been expended to date.
- Drought Impact: Mandatory water usage bans in Pennsylvania and New Jersey during Q3 reduced consumption and revenues. Restrictions were lifted in late September, and revenues are expected to normalize.
- Year 2000 (Y2K): The Company estimates total Y2K remediation costs at $8 million, substantially incurred. Critical water treatment systems are deemed compliant, though risks remain regarding third-party suppliers.
- Dividends: The quarterly common stock dividend was increased from $0.17 to $0.18 per share effective September 1, 1999.
Investor Verification Checklist
- Verify the final outcome and timing of the $28 million rate increase application filed by PSW with the PAPUC.
- Confirm the closing dates and final costs for the pending acquisitions in Bensalem Township and Bradley, Illinois.
- Monitor the completion status and cost overruns of the Shenango water treatment plant project.
- Assess the impact of the Y2K contingency plans on operations, specifically regarding third-party electric power suppliers.
- Review the Company's ability to refinance the $33.4 million current portion of long-term debt maturing in 2000.