Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1997, for Philadelphia Suburban Corporation (a holding company for Philadelphia Suburban Water Company, a regulated water utility). The company serves approximately 285,000 customers across 93 municipalities in a 465 square-mile territory north and west of Philadelphia. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 1997 | Q1 1996 |
|---|---|---|
| Earned Revenues | $31,021 | $29,290 |
| Operating Income | $12,014 | $10,579 |
| Net Income | $4,509 | $3,968 |
| Net Income Available to Common Stock | $4,460 | $3,968 |
| Diluted EPS | $0.23 | $0.21 |
| Operating Cash Flow | $7,792 | $9,014 |
| Capital Expenditures | $4,926 | $3,397 |
| Long-Term Debt (excl. current) | $187,791 | $217,518 |
| Cash Balance | $766 | $1,766 |
Liquidity: As of March 31, 1997, the Company and its subsidiary had $3,425 and $1,000 respectively available under short-term lines of credit. The subsidiary also had $19,249 available under a revolving credit agreement.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 5.9% ($1,731) driven primarily by acquisitions of water systems (Bristol, Hatboro, UGS, and three small utilities) contributing $1,417, plus $250 in contingent sale proceeds.
- Expense Trends: Operating expenses remained flat ($13,068 vs. $13,070) due to favorable winter weather reducing main breaks, offset by costs from new acquisitions. Depreciation rose 13.3% ($432) due to new assets and acquisitions.
- Interest Expense: Increased 17.3% ($653) due to higher borrowing levels to finance 1996 acquisitions and capital projects, partially offset by lower interest rates.
- Profitability: Net income available to common stock increased 12.4% ($492). Earnings per share rose 9.5% despite a 5.2% increase in average shares outstanding.
- Debt Structure: Long-term debt (excluding current portion) decreased by $29.7 million. The company issued $10 million in 7.06% First Mortgage Bonds (due 2004) to repay revolving credit and fund construction.
Outlook, Risks, and Management Commentary
- Rate Case: The subsidiary filed an application with the Pennsylvania Public Utility Commission on April 25, 1997, requesting a 13.2% ($17,000) increase in annual revenues. A final determination is anticipated by January 1998.
- Debt Refinancing: The company intends to renew its revolving credit facility (expiring March 1998) and refinance a portion of the balance through the issuance of First Mortgage Bonds.
- Capital Program: $4,926 was spent on capital expenditures in Q1 1997. On April 1, 1997, the company retired $12,000 in First Mortgage Bonds (8.44% Series due 1997) at par.
- Risks: No pending legal proceedings with a reasonable likelihood of material adverse impact were reported. The primary contingency is the pending rate increase application.
Investor Verification Checklist
- Verify the status and expected outcome of the 13.2% rate increase application filed with the Pennsylvania PUC.
- Confirm the renewal terms of the revolving credit agreement expiring in March 1998.
- Review the integration costs and revenue performance of the 1996 acquisitions (Bristol, Hatboro, UGS).
- Monitor the company's ability to refinance the $30.7 million current portion of long-term debt.
- Check for updates on the redemption of preferred stock and the impact on net income available to common shareholders.