Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1996, for Philadelphia Suburban Corporation (PSC), a holding company for Philadelphia Suburban Water Company (PSW). PSW is a regulated utility serving approximately 266,000 customers across 82 municipalities in a 410-square-mile territory north and west of Philadelphia. The financial statements are unaudited but reflect all normal recurring accruals.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1996 | Six Months Ended June 30, 1995 |
|---|---|---|
| Earned Revenues | $59,973 | $54,539 |
| Operating Income | $23,320 | $20,996 |
| Net Income | $9,249 | $7,974 |
| Net Income Per Share | $0.49 | $0.45 |
| Operating Cash Flow | $10,112 | $10,702 |
| Long-Term Debt | $192,720 | $175,395 |
| Cash Balance | $1,356 | $2,387 |
Note: All figures in thousands of dollars except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 10.0% year-over-year, driven by a 5.3% rate increase granted in October 1995 and acquisitions (including Media Borough), partially offset by lower water consumption due to wetter, cooler weather.
- Profitability: Net income rose 16.0% to $9.249 million. Operating expenses increased 6.5% due to higher treatment costs, electric rates, and maintenance expenses from severe winter weather.
- Debt Restructuring: The company retired $10 million of 10.65% bonds and issued $10 million of 6.99% bonds in April 1996, and another $10 million of 7.4% bonds in July 1996, reducing future sinking fund payments by $1.45 million annually.
- Acquisitions: Three water systems were acquired for $2.377 million. Preliminary agreements exist to acquire five additional systems for approximately $52 million.
- Stock Split: A 3-for-2 common stock split was effected in July 1996; all per-share data in this report has been restated to reflect this.
Outlook, Risks, and Management Commentary
- Dividend Increase: The quarterly dividend on common stock was increased from $0.193 to $0.2025 per share, effective September 1, 1996.
- Liquidity: Management believes internally generated funds, credit facilities ($7.115 million available under revolving credit), and equity issuances are adequate to meet financing needs. Proceeds from common stock issuance totaled $7.827 million in the first half of 1996.
- Weather Risk: Cooler, wetter weather in Q2 continued into Q3, reducing water consumption and revenues compared to normal summer levels. Management notes that water consumption is highly sensitive to weather conditions.
- Future Acquisitions: Final closings on five pending acquisitions are subject to due diligence and may extend into 1997.
Investor Verification Checklist
- Verify the impact of the 3-for-2 stock split on share count and per-share metrics in subsequent filings.
- Monitor the status of the five pending water system acquisitions totaling ~$52 million and their expected closing dates.
- Assess the sustainability of revenue growth given the weather-related decline in water consumption noted for Q3.
- Review the effectiveness of the debt refinancing in reducing interest costs and sinking fund obligations.
- Confirm the availability of funds under the revolving credit facility and short-term lines of credit as reported ($7.115 million and $6.870 million respectively).