Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1996, for Philadelphia Suburban Corporation (PSC), a holding company for Philadelphia Suburban Water Company (PSW). PSW is a regulated utility serving approximately 265,000 customers across 81 municipalities in a 406-square-mile territory north and west of Philadelphia. The financial statements are unaudited but reflect all normal recurring accruals.
Key Financial Metrics
| Metric | Q1 1996 | Q1 1995 |
|---|---|---|
| Earned Revenues | $29,290 | $25,712 |
| Operating Income | $10,579 | $9,220 |
| Net Income | $3,968 | $3,315 |
| Net Income Per Share | $0.32 | $0.28 |
| Operating Cash Flow | $9,014 | $7,179 |
| Long-Term Debt (excl. current) | $172,985 | $175,395 |
| Cash and Equivalents | $1,766 | $2,387 |
Note: All figures in thousands of dollars except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 13.9% ($3,578) driven by a 5.3% rate increase granted in October 1995 and the acquisition of Media Borough and four small utilities.
- Operating Expenses: Increased 11.1% ($1,304) primarily due to severe winter weather in 1996, which caused higher maintenance costs (water main breaks) and treatment costs due to deteriorating raw water quality.
- Depreciation: Rose 17.5% ($485) due to new utility plant placed in service since Q1 1995.
- Net Income: Increased 19.7% ($653) despite higher operating and interest expenses, aided by revenue growth and a lower effective tax rate (40.8% vs. 41.8%).
- Debt Management: The company retired $9,150 in First Mortgage Bonds in Q1 1996 and issued $10,000 in new bonds in April 1996 to refinance revolving credit and fund construction.
Outlook, Risks, and Management Commentary
- Liquidity: As of March 31, 1996, the Company and PSW had $3,715 and $1,000 available under short-term lines of credit, respectively. PSW had $17,250 available under its revolving credit agreement.
- Capital Expenditures: The company spent $3,397 on capital improvements in Q1 1996. Proceeds from April 1996 bond issuances are designated for ongoing construction programs.
- Legal Proceedings: No pending legal proceedings are expected to have a material adverse impact.
- Unusual Items: Amortization shifted from a credit of $17 in 1995 to a charge of $69 in 1996 due to the absence of negative goodwill amortization recognized in the prior year.
Investor Verification Checklist
- Verify the sustainability of the 5.3% rate increase granted in October 1995 and its impact on future revenue stability.
- Confirm the extent of capital expenditures required to address infrastructure issues highlighted by the severe winter weather (water main breaks).
- Review the terms of the $10,000 First Mortgage Bonds issued in April 1996 (6.99% Series due 2006) and the resulting interest rate environment.
- Monitor the utilization of the $17,250 revolving credit facility and the company's ability to service its debt load given the recent refinancing activities.
- Assess the impact of the 1% reduction in the Pennsylvania Corporate Net Income tax rate on future effective tax rates.