Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1998, for Philadelphia Suburban Corporation (the Registrant), a Pennsylvania corporation and holding company for Philadelphia Suburban Water Company (PSW). PSW is a regulated water utility serving approximately 297,000 customers across 95 municipalities in a 480-square-mile territory north and west of Philadelphia. The filing is unaudited but reflects normal recurring accruals.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Earned Revenues | $34,276 | $31,021 |
| Operating Income | $14,281 | $12,014 |
| Net Income | $5,755 | $4,509 |
| Net Income Available to Common Stock | $5,706 | $4,460 |
| Diluted EPS | $0.21 | $0.17 |
| Operating Cash Flow | $9,809 | $7,792 |
| Long-Term Debt (excl. current) | $243,390 | $232,471 |
| Total Stockholders' Equity | $220,809 | $194,745 |
| Cash Balance (End of Period) | $1,194 | $766 |
Note: All figures in thousands of dollars unless otherwise noted.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 10.5% ($3,255) driven by a 7.3% rate increase granted in October 1997 and the acquisition of the West Chester Area Municipal Authority.
- Profitability: Net income available to common stock rose 27.9% ($1,246). Diluted EPS increased 23.5% to $0.21, despite a 5.0% increase in average shares outstanding due to a February 1998 public offering.
- Acquisitions: The Company spent $22,613 on the acquisition of water systems, primarily the West Chester assets ($22,600), which added approximately $4,500 in annual revenue.
- Capital Structure: The Company issued 1.25 million shares of common stock for net proceeds of $25,840. It also redeemed $4,214 of subsidiary preferred stock and repurchased $2,781 of its own common stock.
- Debt: Long-term debt increased by $10,919 due to new issuances ($10,000 6.14% Series due 2008 and $10,000 5.8% Series due 2003) used to reduce revolving credit facility balances.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes internally generated funds, existing credit facilities, and long-term debt issuance are adequate to meet financing requirements. As of March 31, 1998, the Company had $9,745 available under short-term lines of credit, and PSW had $810 under short-term lines and $31,953 under its revolving credit agreement.
- Future Revenue Streams: A 25-year water sale agreement with Warwick Township (approx. $330 annual revenue) is expected to begin in Q3 1998. An agreement to serve a new development in Bensalem Township (approx. $200 annual revenue) is pending regulatory approval.
- Pending Transactions: The Company is negotiating to acquire Flying Hills Water Company for approximately 42,000 shares of common stock, expected to close within three months.
- Risks: No pending legal proceedings with a reasonable likelihood of material adverse impact were reported. The Company is subject to regulatory approvals for acquisitions and rate changes.
- Accounting Changes: The Company adopted SFAS 130 (Comprehensive Income) effective Jan 1, 1998, with no components of other comprehensive income to report. Adoption of SFAS 131 and SFAS 132 is planned for the 1998 Annual Report.
Investor Verification Checklist
- Verify the integration and revenue realization of the West Chester acquisition ($22.6M cost).
- Confirm the closing timeline and regulatory approval for the Flying Hills Water Company acquisition.
- Monitor the commencement of the Warwick Township water sales agreement in Q3 1998.
- Review the impact of the new Shareholder Rights Plan (20% threshold) adopted in February 1998.
- Assess the sustainability of the 10.5% revenue growth rate given the one-time rate increase and acquisition impact.