Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 1995, for Philadelphia Suburban Corporation (PSC), a Pennsylvania corporation. PSC operates almost entirely through its subsidiary, Philadelphia Suburban Water Company (PSW), a regulated public utility serving approximately 850,000 persons across 406 square miles in the suburbs west and north of Philadelphia. As of year-end, PSW served 264,865 metered customers.
Key Financial Metrics
Based on the selected quarterly financial data provided in the filing:
- Total Earned Revenues (1995): $117,044,000
- Total Operating Expenses (1995): $51,702,000
- Net Income (1995): $18,400,000 (including $370,000 from discontinued operations)
- Income from Continuing Operations: $18,030,000
- Earnings Per Share (Net Income): $1.53
- Dividends Paid Per Share: $1.14
- Dividend Payout Ratio: Approximately 76% of income from continuing operations.
Note: Specific figures for cash flow, total debt, and liquidity ratios are not explicitly detailed in the provided text, as the full financial statements are incorporated by reference.
Material Changes vs. Prior Period
Comparing 1995 to 1994:
- Revenue Growth: Total earned revenues increased from $108,636,000 in 1994 to $117,044,000 in 1995, an increase of approximately 7.7%.
- Profitability: Net income rose from $15,638,000 in 1994 to $18,400,000 in 1995. Earnings per share increased from $1.35 to $1.53.
- Operating Expenses: Increased from $50,296,000 in 1994 to $51,702,000 in 1995.
- Customer Base: Total metered customers grew from 249,533 in 1994 to 264,865 in 1995, driven by acquisitions.
- Water Sales: Total water sales volume increased from 27,106 million gallons in 1994 to 28,022 million gallons in 1995.
Outlook, Risks, and Management Commentary
Acquisitions and Expansion: PSW completed ten water system acquisitions in the last four years. In 1995 alone, it acquired the Media Borough system and four smaller systems, adding approximately $4.75 million in annual revenue. The company has entered preliminary agreements to acquire six additional systems for approximately $20.6 million, potentially issuing up to $5 million in preferred stock.
Regulatory and Environmental Risks: PSW is subject to strict regulation by the Pennsylvania Public Utility Commission (PUC) and the EPA. Key risks include:
- Water Quality Standards: Ongoing EPA directives regarding Disinfection By-Products (DBP) and potential new Maximum Contaminant Levels (MCLs) for chemicals like radon and arsenic. Management believes current proposed MCLs will not significantly impact capital requirements.
- Drought Restrictions: A drought emergency declared in September 1995 imposed a mandatory ban on nonessential water usage. However, due to the timing (late summer) and adequate storage levels, the impact on revenues was not significant.
- Rate Regulation: While capital costs for regulatory compliance are expected to be recoverable in rates, there may be a lag between financing costs and rate adjustments.
Unusual Items: The 1995 results included $370,000 in income from discontinued operations. Additionally, a legal proceeding regarding a fire in a Newark, New Jersey warehouse involving hazardous substances was settled with a nominal payment.
Investor Verification Checklist
- Verify the full details of the six pending water system acquisitions, including regulatory approval status and financing terms (specifically the $5 million preferred stock issuance).
- Review the full Consolidated Balance Sheets (incorporated by reference) to assess total debt levels and liquidity ratios not explicitly stated in this summary.
- Confirm the timeline for the implementation of new EPA Disinfection By-Products rules and any associated capital expenditure forecasts.
- Monitor the status of the PUC rulemaking regarding main extension costs and the $4,000 per customer investment threshold.
- Check the 1995 Annual Report to Shareholders (Exhibit 13.3) for the complete Management's Discussion and Analysis (MD&A) and detailed cash flow statements.