SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994
Commission File Number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
______________________________________________ ______________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 527-8000
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ___X___ No______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of September 30, 1994.
11,636,012
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, December 31,
1994 1993
______________ _____________
(Unaudited) (Audited)
Property, plant and equipment, at cost $450,143 $433,302
Less accumulated depreciation 74,512 67,072
_______ _______
Net property, plant and equipment 375,631 366,230
Current assets
Cash (271) (868)
Accounts receivable, net 19,795 18,131
Inventory, materials and supplies 1,646 1,721
Prepayments and other current assets 1,247 532
_______ _______
Total current assets 22,417 19,516
Regulatory assets 49,660 51,229
Deferred charges and other assets, net 2,872 2,704
_______ _______
$450,580 $439,679
======= =======
Common stockholders' equity $141,865 $135,934
Preferred stock of subsidiary with
mandatory redemption, including current
portion of $1,429 10,000 10,000
Long-term debt, excluding current portion 152,267 145,292
Commitments - -
Current liabilities
Current portion of long-term debt 884 4,884
Loans payable 1,490 819
Accounts payable 1,424 3,381
Accrued interest 3,869 3,439
Other accrued liabilities 10,109 9,269
Net reserves related to
discontinued operations 2,750 2,578
_______ _______
Total current liabilities 20,526 24,370
Deferred credits and other liabilities
Deferred income taxes and investment
credits 68,918 69,137
Customers' advances for construction 24,735 24,379
Other noncurrent liabilities 10,497 8,926
_______ _______
Total deferred credits and other
liabilities 104,150 102,442
Contributions in aid of construction 21,772 21,641
_______ _______
$450,580 $439,679
======= =======
See notes to consolidated financial statements on page 5 of this report.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Nine Months Ended
September 30,
----------------------
1994 1993
------ ------
Earned revenues $80,428 $75,722
Costs and expenses
Operating expenses 36,568 34,016
Depreciation 7,793 7,469
Amortization (150) 792
Taxes other than income taxes 5,418 5,077
______ ______
49,629 47,354
______ ______
Operating income 30,799 28,368
Interest and debt expenses 9,633 10,260
Dividends on preferred stock 649 649
Allowance for funds used during
construction (80) (777)
______ ______
Income before income taxes 20,597 18,236
Provision for income taxes 8,716 7,788
______ ______
Net income $11,881 $10,448
====== ======
Net income per share $ 1.03 $ .97
====== ======
Average common and common equivalent
shares outstanding during the period 11,522 10,748
====== ======
See notes to consolidated financial statements on page 5 of this report.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
September 30,
----------------------
1994 1993
------ ------
Earned revenues $28,849 $27,948
Costs and expenses
Operating expenses 12,511 12,078
Depreciation 2,628 2,568
Amortization 9 509
Taxes other than income taxes 1,788 1,647
------ ------
16,936 16,802
------ ------
Operating income 11,913 11,146
Interest and debt expenses 3,239 3,448
Dividends on preferred stock 216 216
Allowance for funds used during
construction (37) (271)
------ ------
Income before income taxes 8,495 7,753
Provision for income taxes 3,598 3,496
------ ------
Net income $ 4,897 $ 4,257
====== ======
Net income per share $ .42 $ .38
====== ======
Average common and common equivalent
shares outstanding during the period 11,620 11,339
====== ======
See notes to consolidated financial statements on page 5 of this report.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
Nine Months Ended
September 30,
----------------------
1994 1993
------ ------
Cash flows from operating activities
Net income $11,881 $10,448
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 7,643 8,261
Deferred taxes, net of taxes on customers'
advances 2,582 2,094
Net increase in receivables, inventory
and prepayments (2,303) (3,170)
Net decrease in payables and other
accrued liabilities (837) (1,245)
Net increase in accrued interest 430 257
Other 126 (311)
------- -------
Net cash flows from operating activities 19,522 16,334
------- -------
Cash flows from investing activities
Property, plant and equipment additions,
including allowance for funds used during
construction of $80 and $777 (17,023) (18,818)
Sale of subsidiaries and related assets - 871
Other 66 (6)
------- -------
Net cash flows from investing activities (16,957) (17,953)
------- -------
Cash flows from financing activities
Customers' advances and contributions in aid of
construction, net of income tax payments 2,273 1,772
Repayments of customers' advances (1,785) (2,512)
Net borrowings (repayments) of short-term debt 671 (959)
Proceeds of long-term debt 7,758 21,194
Repayments of long-term debt (4,850) (33,480)
Proceeds from issuing common stock 5,311 25,506
Repurchases of common stock (2,056) (59)
Dividends paid (9,379) (8,569)
Other (145) (101)
------- -------
Net cash flows from financing activities (2,202) 2,792
------- -------
Net cash flows of discontinued operations 234 (732)
------- -------
Net increase in cash 597 441
Cash deficit beginning of year (868) (712)
------- -------
Cash deficit at end of period $ (271) $ (271)
====== ======
See notes to consolidated financial statements on page 5 of this report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
Note 1 BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Philadelphia
Suburban Corporation at September 30, 1994, the consolidated
statements of income for the nine months and quarter ended
September 30, 1994 and 1993, and the consolidated cash flow
statements for the nine months ended September 30, 1994 and
1993 are unaudited, but reflect all adjustments, consisting of
only normal recurring accruals, which are, in the opinion of
management, necessary to present fairly the consolidated
financial position at September 30, 1994, the consolidated
results of operations, and the consolidated cash flow for the
periods presented. Because they cover interim periods, the
statements and related notes to the financial statements do not
include all disclosures and notes normally provided in annual
financial statements and, therefore, should be read in
conjunction with the Annual Report on Form 10-K for the year
ended December 31, 1993 and the Quarterly Reports on Form 10-Q
for the quarters ended June 30, 1994 and March 31, 1994.
Note 2 ACQUISITIONS
As was disclosed in the Company's Annual Report, Philadelphia
Suburban Water Company (PSW) submitted a proposal in November
1993 to purchase the water utility assets of Media Borough.
Subsequently, the municipality requested clarification and
resubmittal of the proposals from the competing bidders.
Recently the municipality disclosed that PSW's proposal
contained the highest bid. The final decision from the
municipality as to the sale of its water system is expected in
the near future. The sale is also subject to the approval of
the Pennsylvania Public Utility Commission. Closing on the
transaction is not likely to occur before the spring of 1995,
should the municipality approve the sale to PSW. The Media
system, for which PSW offered to pay $24,600 in cash, serves
approximately 13,000 customers in a 23 square-mile service area
contiguous to PSW's service territory. Annual revenues from
this system approximate $4,500.
Since the second quarter PSW has also entered into preliminary
agreements to acquire five small water systems for a combined
purchase price of approximately $7,400. These systems serve 4,145
customers in service territories that cover approximately 33
square-miles and that are adjacent or near to PSW's service
territory. Operating revenues of these systems were $1,000 in 1993.
In addition, PSW continues to hold discussions with several other
water systems that are near or adjacent to PSW's service
territory. If PSW is successful in acquiring these systems, the
acquisitions would be funded primarily through the issuance of
long-term debt.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (continued)
(In thousands of dollars, except per share amounts)
Note 3 DISCONTINUED OPERATIONS
Net reserves related to discontinued operations consist
primarily of reserves for future and contingent costs
associated with the discontinued operations. These costs,
which are recorded on the balance sheet net of related income
tax benefits, include administrative, legal and tax services,
contingent legal and lease obligations and certain employee
costs. During the quarter, $21 of payments associated with
discontinued operations were charged to this reserve. In
addition, proceeds of $285 were received during the quarter
from the sale of land that was owned by one of the businesses
sold. The proceeds approximated the original cost of the land
which was included in the reserve.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
Philadelphia Suburban Corporation (the Company or PSC) is composed
of two businesses, a regulated water utility (Philadelphia Suburban Water
Company or PSW), and a nonregulated data processing service bureau
(Utility & Municipal Services, Inc. or UMS). The operations of UMS are
not significant to the financial results of the Company and, therefore,
are not discussed separately. Corporate expenses include administrative
expenses of a general nature.
FINANCIAL CONDITION
During the first nine months of 1994, the Company made $17,023 of
capital expenditures related to routine capital improvements and
replacements for PSW and repaid $1,785 of customer advances for
construction.
During the first nine months, internally generated funds, available
working capital and funds available under the revolving credit agreement,
were sufficient to fund the cash requirements discussed above, and to pay
dividends. In addition, proceeds from the issuance of common stock,
primarily through the Company's Customer Stock Purchase Plan and the
Dividend Reinvestment and Optional Stock Purchase Plan, net of
repurchases of common stock amounted to approximately $3,255.
During the quarter, the Company increased its short-term lines of
credit from $3,000 to $9,000. At September 30, 1994, the Company and PSW
had $8,240 and $270 respectively, available under short-term lines of
credit and PSW had $10,595 available under its revolving credit
agreement.
Traditionally, PSW has financed its ongoing construction program and
other financial requirements separately from PSC. PSW's ability to
finance its future construction program and pay dividends to the Company
depends on its ability to attract the necessary external financing and to
maintain or increase internally generated funds. Rate increases and
regulatory support will continue to be required to allow PSW to achieve
a level of earnings necessary to attract capital, to maintain
satisfactory debt coverage ratios and to provide shareholders an adequate
return on their investment.
Historically, PSW refinances amounts due under its revolving credit
agreement and its lines of credit through the issuance of long-term debt
and intends to issue long-term debt within the next six months.
Management believes that, with the improvement in the Company's and PSW's
capitalization ratios over the past two years, it will be able to
successfully issue long-term debt and obtain other external financing
that it may need. Further, management believes that internally generated
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
funds along with existing credit facilities and the issuance of long-term
debt are adequate to meet the Company's financing requirements through
the balance of the year and beyond.
RESULTS OF OPERATIIONS
ANALYSIS OF FIRST NINE MONTHS OF 1994 COMPARED TO FIRST NINE MONTHS OF
1993
Revenues increased $4,706 or 6.2% primarily due to rate increases of
7.4% and 9.05% granted PSW in June 1993 and June 1994, respectively, and
to a slight increase in customer consumption of water.
Operating expenses increased by $2,552 or 7.5% primarily as a result
of higher costs resulting from both the extreme cold weather experienced
during the winter months of 1994 and the recognition of the costs of
Postretirement Benefits Other than Pensions computed under Statement of
Financial Accounting Standards No. 106 which, as a result of the June
rate increase, are now being currently recovered in rates. The weather
conditions caused significant maintenance problems, including an
abnormally high number of water main breaks, and required additional
treatment costs as raw water quality deteriorated during these months.
The additional costs associated with the weather were approximately $800
or 31% of the total increase in operating expenses. The balance of the
increase in operating expenses was due to increases in wages, other
employee benefit costs, electric rates, and cost of water purchased.
Depreciation increased by $324 or 4.3% reflecting the impact of
utility plant placed in service since last year. Depreciation was
approximately 2.3% of average utility plant in service in both the first
nine months of 1994 and 1993.
Amortization decreased $942 primarily due to $575 of amortization of
the negative goodwill associated with the December 1992 acquisitions of
two water systems which has been recognized in conjunction with the June
1994 rate settlement.
Taxes other than income taxes increased by $341 or 6.7% primarily
due to increases in the bases on which the Pennsylvania Capital Stock Tax
and the Pennsylvania Public Utility Realty Tax Assessment ("PURTA") are
calculated and due to increased payroll taxes associated with wage
increases.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Interest expense decreased by $627 or 6.1% reflecting a reduction in
the overall interest rates on debt outstanding and a decline in the
average outstanding debt as a result of the proceeds the Company received
from the sale of common stock since early 1993.
Allowance for funds used during construction ("AFUDC") decreased
$697 primarily due to a $9,400 decrease in the balance of construction
work in progress ("CWIP") on which AFUDC is applied. The majority of the
decrease in CWIP is associated with an $11,500 filtration plant, which
was completed and placed in service in the fourth quarter of 1993.
The Company's effective income tax rate was 42.3% in 1994 and 42.7%
in 1993. The decrease in the effective tax rate is due primarily to the
reductions in losses at PSC for which no state income tax deductions are
permitted.
Net income increased $1,433 or 13.7% primarily due to increased
revenues, partially offset by higher operating expenses. On a per share
basis, earnings increased $.06 or 6.2% reflecting the effect of a 7.2%
increase in the average number of shares outstanding. The increased
number of shares outstanding was primarily due to the 1.1 million shares
issued in a public offering in April 1993 and the additional 393,205
shares issued through the Company's stock purchase plans it maintains for
customers and existing shareholders since the third quarter of 1993,
partially offset by 157,805 shares repurchased by the Company since the
third quarter of 1993.
ANALYSIS OF THIRD QUARTER OF 1994 COMPARED TO THIRD QUARTER OF 1993
Revenues for the quarter increased $901 or 3.2% primarily due to the
rate increase of 9.05% granted PSW in June 1994, offset by a decrease in
the customers' consumption of water. The decreased water consumption is
believed to be attributable to the relatively wet, cool weather
experienced during July and August of 1994, as compared to the hot, dry
weather experienced during the same period of 1993.
Operating expenses increased $433 or 3.6% primarily due to the
recognition of the costs of Postretirement Benefits Other than Pensions
that are associated with the rate increase of June 1994 and to increased
wages and other employee benefit expenses.
Depreciation increased $60 or 2.3% reflecting the impact of utility
plant placed in service since the third quarter of 1993. Depreciation
was approximately 2.3% of average utility plant in service in the third
quarter of 1994 and 1993, respectively.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Amortization decreased $500 primarily due to $164 of amortization of
the negative goodwill associated with the aforementioned December 1992
acquisition of two water systems and a reduction in amortization
associated with prior year rate cases and other expenses that are fully
amortized.
Taxes other than income taxes increased $141 or 8.6% due to higher
Pennsylvania Capital Stock Tax resulting from an increase in common
stockholders' equity, and an increase in the PURTA due to an increase in
the utility plant in service.
Interest expense decreased $209 or 6.1% reflecting a reduction in
the overall interest rates on debt outstanding, partially offset by an
increase in the average borrowings outstanding during the quarter.
Allowance for funds used during construction decreased $234 due to
the decrease in CWIP as a result of the $11,500 filtration plant being
completed and placed in service in the fourth quarter of 1993.
The Company's effective income tax rate was 42.4% in 1994 and 45.1%
in 1993. The decrease in the effective tax rate is due to the additional
taxes accrued in the third quarter of 1993 associated with the Omnibus
Budget Reconciliation Act of 1993. Enacted during the third quarter of
1993, the Act raised the Federal corporate rate from 34% to 35%
retroactive to January 1, 1993. During the third quarter of 1993,
additional tax was accrued, which was related to the first half of 1993.
Net income for the quarter increased by $640 or 15% principally due
to increased water revenues, partially offset by higher operating
expenses. Earnings per share, however, increased only $.04 per share or
10.5% due to the higher number of average shares outstanding.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Registrant
or any of its subsidiaries is a party or to which any of their
properties is the subject that present a reasonable likelihood
of a material adverse impact on the Registrant. Reference is
made to Item 3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, which is included by
reference herein.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule Exhibit 27
(b) Report on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be executed on its behalf
by the undersigned thereunto duly authorized.
November 10, 1994
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
Registrant
Nicholas DeBenedictis
---------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
---------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
UT
1,000
9-MOS
DEC-31-1994
SEP-30-1994
PER-BOOK
375,525
106
22,417
2,872
49,660
450,580
2,684
101,189
37,992
141,865
8,571
0
152,267
0
1,490
0
884
1,429
0
0
144,074
450,580
80,428
8,716
49,629
58,345
22,083
0
22,083
9,553
11,881
649
11,881
9,379
11,710
19,522
1.03
1.03
