Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 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 | Six Months Ended June 30, 1994 | Six Months Ended June 30, 1993 |
|---|---|---|
| Earned Revenues | $51,579 | $47,774 |
| Operating Income | $18,886 | $17,222 |
| Net Income | $6,984 | $6,191 |
| Diluted EPS | $0.61 | $0.59 |
| Operating Cash Flow | $7,652 | $6,957 |
| Long-Term Debt | $156,962 | $145,292 |
| Cash Position | ($687) Deficit | ($868) Deficit |
Note: All figures in thousands of dollars except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 8.0% ($3,805) driven by a 7.4% rate increase effective June 1993, a new rate increase effective June 17, 1994, and slightly higher water consumption.
- Operating Expenses: Expenses rose 9.7% ($2,119). Approximately $800 (38% of the increase) was attributed to extreme cold weather in early 1994, causing water main breaks and higher treatment costs.
- Interest Expense: Decreased 6.1% ($418) due to lower average outstanding debt and reduced interest rates.
- Amortization: Decreased significantly due to the recognition of negative goodwill amortization associated with 1992 acquisitions.
- Capital Expenditures: Investing cash outflows were $8,539, primarily for routine capital improvements.
Guidance, Outlook, and Risks
- Rate Settlement: The Pennsylvania Public Utility Commission approved a rate settlement in June 1994 increasing annual water revenues by approximately $9,050 (9.05%). The company agreed not to file for new general rate increases prior to April 1, 1995.
- Dividend Increase: The quarterly dividend on common stock was increased from $0.27 to $0.28 per share, effective September 1, 1994.
- Financing Strategy: Management intends to issue long-term debt within three months to refinance amounts due under revolving credit agreements. Credit lines were increased in August 1994.
- Regulatory Risk: A Pennsylvania Commonwealth Court decision regarding the retroactive ratemaking of Postretirement Benefits Other than Pensions (PBOP) costs is under review by the Pennsylvania Supreme Court. Management believes the company's specific circumstances (timely rate requests) distinguish it from the case cited in the court decision and does not consider its regulatory asset impaired.
- Discontinued Operations: Reserves of $2,369 remain for future and contingent costs associated with discontinued operations.
Investor Verification Checklist
- Verify the impact of the June 1994 rate settlement on future cash flows and the $2,456 regulatory asset related to SFAS 106.
- Monitor the outcome of the Pennsylvania Supreme Court review regarding PBOP cost recovery and potential retroactive ratemaking challenges.
- Confirm the successful issuance of long-term debt to refinance short-term credit facilities as planned.
- Assess the sustainability of operating expense levels given the weather-related anomalies in the first half of 1994.
- Review the cash deficit position and reliance on credit facilities for working capital.