Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 1995, for Philadelphia Suburban Corporation (also referred to as Essential Utilities, Inc. in metadata). The company operates primarily as a regulated water utility (Philadelphia Suburban Water Company) and a non-regulated data processing service bureau. The financial statements are unaudited but reflect normal recurring accruals.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 1995 | Nine Months Ended Sep 30, 1994 | Three Months Ended Sep 30, 1995 |
|---|---|---|---|
| Earned Revenues | $86,894 | $80,428 | $32,355 |
| Operating Income | $34,722 | $30,799 | $13,726 |
| Net Income | $13,706 | $11,881 | $5,732 |
| Net Income Per Share | $1.15 | $1.03 | $0.48 |
| Operating Cash Flow | $21,519 | $19,522 | N/A |
| Long-Term Debt | $189,975 | $152,195 | N/A |
| Cash Balance | $6,359 | ($636) | N/A |
Note: All figures in thousands of dollars except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 8.0% for the nine-month period and 12.2% for the quarter. Drivers included a 9.05% rate increase implemented in June 1994, the acquisition of the Media Borough water system, and higher water sales due to hot, dry weather in Q3 1995.
- Profitability: Net income rose 15.4% year-to-date and 17.1% for the quarter. This was driven by revenue growth, partially offset by higher operating expenses (wages, benefits, and Media-related costs) and increased interest expenses.
- Acquisitions: The company acquired the Media Borough water utility in May 1995 and two smaller systems during the quarter for a combined cash price of approximately $25.8 million.
- Debt Structure: Long-term debt increased significantly due to the issuance of $22 million in First Mortgage Bonds (6.35% Series) in August 1995 and $25 million in bonds in Q2. The company also redeemed $8 million of higher-interest bonds (13% Series) and $2.857 million of preferred stock.
- Liquidity: Cash position improved from a deficit of $636,000 at year-end 1994 to a positive balance of $6,359,000, supported by operating cash flows and new debt/equity issuances.
Guidance, Outlook, and Risks
- Rate Settlement: In October 1995, the Pennsylvania Public Utility Commission approved a rate settlement effective October 27, 1995, designed to increase annual water revenues by approximately $6.15 million (5.3%). The company agreed not to file for new general rate increases before April 26, 1996.
- Capital Projects: Proceeds from the August 1995 bond issuance are restricted to specific capital projects expected to be completed by Q3 1996. As of September 30, $5.4 million of these proceeds were held in a trust account.
- Financing Outlook: Management believes internally generated funds, existing credit facilities, and potential equity/debt issuances are adequate to meet financing requirements for the remainder of the year and beyond.
- Regulatory and Environmental Risks: A drought emergency order was issued in September 1995 but was later eased to a "drought watch" due to above-average rainfall. Management does not expect significant revenue impact from these restrictions, noting that water supplies remain adequate.
- Legal Proceedings: No pending legal proceedings are expected to have a material adverse impact.
Investor Verification Checklist
- Verify the impact of the October 1995 rate settlement on full-year 1995 and 1996 revenue projections.
- Confirm the integration status and revenue contribution of the Media Borough acquisition.
- Monitor the drawdown of the $5.4 million restricted bond proceeds and the completion timeline for associated capital projects.
- Review the company's ability to maintain debt coverage ratios given the increased interest expense from new borrowings.
- Assess the sustainability of operating expense growth, particularly regarding employee benefits and wages.