Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1994, for Philadelphia Suburban Corporation (Registrant), a holding company operating a regulated water utility (Philadelphia Suburban Water Company) and a non-regulated data processing service bureau. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 1994 | Q1 1993 |
|---|---|---|
| Earned Revenues | $24,849 | $22,726 |
| Operating Income | $8,449 | $7,694 |
| Net Income | $2,949 | $2,587 |
| Net Income Per Share | $0.26 | $0.26 |
| Operating Cash Flow | $4,541 | $4,189 |
| Long-Term Debt | $154,162 | $145,292 |
| Cash Position | ($565) Deficit | ($868) Deficit |
Note: All figures in thousands of dollars except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 9.3% ($2,123) driven by a 7.4% rate increase effective June 1993 and higher water consumption, partially offset by a reduction in state tax surcharges.
- Operating Expenses: Expenses rose 10.2% ($1,100). Approximately $800 of this increase was attributed to extreme cold weather in January and February 1994, which caused water main breaks and increased treatment costs due to road salt contamination.
- Interest Expense: Declined 4.9% ($163) due to a reduction in average outstanding debt following common stock sales in 1993.
- Capital Expenditures: Investing cash outflows for property, plant, and equipment were $2,641, down from $4,041 in the prior year, reflecting the completion of a major filtration plant in late 1993.
- Share Count: Average shares outstanding increased significantly (from 9,950 to 11,469) due to a public offering in April 1993 and stock purchase plans, offsetting the 14% increase in net income and keeping EPS flat at $0.26.
Outlook, Risks, and Management Commentary
- Rate Settlement: In May 1994, the water utility subsidiary reached a settlement on a rate application filed in December 1993. This agreement is expected to increase annual water revenues by approximately 9% ($9,050). The increase is anticipated to be effective in June 1994, subject to Pennsylvania Public Utility Commission approval.
- Liquidity: Management states that internally generated funds and existing credit facilities ($3,000 available to the Company and $9,550 to the subsidiary) are sufficient to meet financing requirements and fund capital improvements through the balance of the year.
- Regulatory Risks: The rate settlement includes recovery of costs related to SFAS 106 (Post-retirement Benefits), subject to a court challenge by the Office of Consumer Advocate regarding the propriety of rate recovery.
- Accounting Changes: The Company adopted SFAS 112 (Postemployment Benefits) in January 1994; however, management reports no material impact on results of operations due to minimal costs and adequate existing reserves.
- Legal Proceedings: No pending legal proceedings are expected to have a material adverse impact.
Investor Verification Checklist
- Confirm the effective date and final approval of the 9% water rate increase by the Pennsylvania Public Utility Commission.
- Verify the status of the Office of Consumer Advocate's court challenge regarding SFAS 106 cost recovery.
- Monitor the impact of weather-related maintenance costs on future operating expense trends.
- Review the utilization of the $9,550 revolving credit facility available to the water utility subsidiary.
- Assess the dilution impact of future stock issuances under the Dividend Reinvestment and Optional Stock Purchase Plan.