Business Context and Reporting Period
Company: Philadelphia Suburban Corporation (PSC), operating primarily through its regulated utility subsidiary, Philadelphia Suburban Water Company (PSW). A small data processing subsidiary, Utility & Municipal Services, Inc. (UMS), is also owned.
Reporting Period: Fiscal year ended December 31, 1994.
Operations: PSW serves approximately 249,533 customers across 382 square miles in the suburbs west and north of Philadelphia. The company has divested non-water service businesses to focus on core utility operations and has actively pursued acquisitions to expand its service territory.
Key Financial Metrics
Revenue and Profit (1994):
- Total Earned Revenues: $108,636,000
- Operating Expenses: $50,296,000
- Net Income: $15,638,000
- Net Income Per Share: $1.35
Dividends:
- Dividends Paid Per Share: $1.10
- Payout Ratio: 81% of income from continuing operations
Market Data (as of March 1, 1995):
- Shares Outstanding: 11,758,514
- Market Value of Voting Stock (Non-Affiliates): $176,943,928
- Stock Price Range (1994): High $19.63, Low $17.13
Debt and Liquidity: The filing text does not provide specific consolidated debt balances or liquidity ratios (e.g., current ratio, cash on hand) as the detailed financial statements are incorporated by reference. However, the company maintains a revolving credit agreement and has issued debt to finance acquisitions.
Material Changes vs. Prior Period
Revenue Growth: Total earned revenues increased from $101,244,000 in 1993 to $108,636,000 in 1994, a year-over-year increase of approximately 7.3%.
Profitability: Net income rose from $13,835,000 in 1993 to $15,638,000 in 1994. Net income per share increased from $1.27 to $1.35.
Operating Expenses: Expenses increased from $45,989,000 in 1993 to $50,296,000 in 1994, reflecting operational growth and acquisition integration.
Acquisitions:
- 1994: Acquired two privately owned water companies for $612,000 cash (approx. $120,000 prior revenue).
- 1993: Acquired Borough of Malvern assets for $1,323,000 cash.
- 1992: Acquired West Whiteland and Uwchlan Township systems for $9,128,000 cash and $1,777,000 debt.
Water Sales Volume: Total water sales increased slightly from 26,910 million gallons in 1993 to 27,106 million gallons in 1994.
Outlook, Risks, and Contingencies
Future Acquisitions:
- Media Borough: Selected as the buyer for Media Borough water assets (approx. $24.5 million). Transaction expected to close in late spring/early summer 1995, subject to PUC approval.
- Preliminary Agreements: Entered into agreements to acquire six additional water systems for approx. $7.3 million.
Regulatory and Environmental Risks:
- Water Quality: Subject to EPA and Pennsylvania DER regulations. Potential future costs for radionuclide (radon) remediation estimated between $2.5 million and $3.5 million over 10 years.
- Lead and Copper: Currently compliant; no major capital expenditures anticipated.
- Water Shortages: Located in the Delaware River Basin; subject to potential mandatory restrictions during droughts, though reservoirs have historically mitigated this risk.
Legal Proceedings: No pending proceedings with a reasonable likelihood of material adverse impact. A prior hazardous substance claim regarding a Newark warehouse fire is in settlement discussions and is not expected to be material.
Investor Verification Checklist
- Verify the final closing terms and regulatory approval status of the $24.5 million Media Borough acquisition.
- Review the detailed Consolidated Balance Sheets (incorporated by reference) to assess total debt load and liquidity position.
- Monitor the timeline and cost impact of potential EPA radon remediation requirements.
- Confirm the integration progress and revenue contribution of the 1992, 1993, and 1994 acquisitions.
- Assess the impact of the 1994 dividend increase on future cash flow and payout sustainability.