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, 1996
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, 1996.
19,011,390
- ----------
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, December 31,
1996 1995
--------- ---------
(Unaudited) (Audited)
Property, plant and equipment, at cost $545,553 $529,364
Less accumulated depreciation 98,858 92,459
-------- --------
Net property, plant and equipment 446,695 436,905
Current assets
Cash 3,068 2,387
Accounts receivable, net 20,388 22,112
Inventory, materials and supplies 2,034 1,878
Prepayments and other current assets 976 537
-------- --------
Total current assets 26,466 26,914
Regulatory assets 48,655 48,757
Deferred charges and other assets, net 7,101 5,475
-------- --------
$528,917 $518,051
======== ========
Common stockholders' equity $172,114 $156,976
Preferred stock of subsidiary with
mandatory redemption requirements 4,214 5,643
Long-term debt, excluding current portion 174,940 175,395
Commitments -- --
Current liabilities
Current portion of preferred stock of
subsidiary with mandatory redemption
requirements 1,429 1,500
Current portion of long-term debt 16,440 13,590
Loans payable 5,700 6,455
Accounts payable 3,646 9,694
Accrued interest 4,392 3,601
Accrued taxes 3,115 2,158
Other accrued liabilities 13,315 13,222
-------- --------
Total current liabilities 48,037 50,220
Deferred credits and other liabilities
Deferred income taxes and investment credits 72,951 70,980
Customers' advances for construction 23,924 25,880
Other non-current liabilities 9,015 9,762
-------- --------
Total deferred credits and other
liabilities 105,890 106,622
Contributions in aid of construction 23,722 23,195
-------- --------
$528,917 $518,051
======== ========
See notes to consolidated financial statements on page 5 of this report.
-1-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Nine Months Ended
September 30,
------------------
1996 1995
---- ----
Earned revenues $ 90,804 $ 86,894
Costs and expenses
Operating expenses 37,441 37,916
Depreciation 9,773 8,524
Amortization 241 (43)
Taxes other than income taxes 6,391 5,775
-------- --------
53,846 52,172
-------- --------
Operating income 36,958 34,722
Interest and debt expenses 11,368 10,972
Dividends on preferred stock 372 476
Allowance for funds used during
construction (174) (168)
-------- --------
Income from continuing operations
before income taxes 25,392 23,442
Provision for income taxes 10,296 9,736
-------- --------
Income from continuing operations 15,096 13,706
Reversal of reserve for discontinued
operations, net of income tax of $197 365 --
-------- --------
Net income $ 15,461 $ 13,706
======== ========
Net income per share
Continuing operations $ .80 $ .77
Discontinued operations .02 --
-------- --------
Total $ .82 $ .77
======== ========
Average common and common equivalent
shares outstanding during the period 18,855 17,834
======== ========
See notes to consolidated financial statements on page 5 of this report.
-2-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
September 30,
-------------------
1996 1995
---- ----
Earned revenues $ 30,831 $ 32,355
Costs and expenses
Operating expenses 11,757 13,793
Depreciation 3,268 2,949
Amortization 102 (41)
Taxes other than income taxes 2,066 1,928
-------- --------
17,193 18,629
-------- --------
Operating income 13,638 13,726
Interest and debt expenses 3,796 3,872
Dividends on preferred stock 122 154
Allowance for funds used during
construction (92) (79)
-------- --------
Income from continuing operations
before income taxes 9,812 9,779
Provision for income taxes 3,965 4,047
-------- --------
Income from continuing operations 5,847 5,732
Reversal of reserve for discontinued
operations, net of income tax of $197 365 --
-------- --------
Net income $ 6,212 $ 5,732
======== ========
Net income per share
Continuing operations $ .31 $ .32
Discontinued operations .02 --
-------- --------
Total $ .33 $ .32
======== ========
Average common and common equivalent
shares outstanding during the period 19,100 18,033
======== ========
See notes to consolidated financial statements on page 5 of this report.
-3-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
---- ----
Cash flows from operating activities:
Income from continuing operations $ 15,096 $ 13,706
Adjustments to reconcile income from continuing
operations to net cash flows from operating
activities:
Depreciation and amortization 10,015 8,481
Deferred taxes, net of taxes on customers'
advances 1,262 2,277
Net decrease (increase) in receivables, inventory
and prepayments 397 (2,337)
Net decrease in payables, accrued taxes and other
accrued liabilities (3,969) (2,114)
Net increase in accrued interest 791 1,066
Other (551) (1,439)
-------- --------
Net cash flows from operating activities 23,041 19,640
-------- --------
Cash flows from investing activities:
Property, plant and equipment additions,
including allowance for funds used during
construction of $174 and $168 (17,343) (20,337)
Acquisitions of water systems (2,396) (25,788)
Other (373) (19)
-------- --------
Net cash flows used in investing activities (20,112) (46,144)
-------- --------
Cash flows from financing activities:
Customers' advances and contributions in aid of
construction, net of income tax payments 295 1,575
Repayments of customers' advances (1,619) (1,651)
Net proceeds (repayments) of short-term debt (755) 2,465
Proceeds of long-term debt 21,699 46,015
Repayments of long-term debt (20,054) (9,708)
Redemption of preferred stock of
subsidiary (1,500) (2,857)
Proceeds from issuing common stock 10,667 6,546
Repurchases of common stock (47) (411)
Dividends paid (10,943) (10,042)
Other (161) (155)
-------- --------
Net cash flows from (used in) financing activities (2,418) 31,777
-------- --------
Net cash flows from (to) discontinued operations 170 (157)
-------- --------
Net increase in cash 681 5,116
Cash balance beginning of year 2,387 1,243
-------- --------
Cash balance at end of period $ 3,068 $ 6,359
======== ========
See notes to consolidated financial statements on page 5 of this report.
-4-
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, 1996, the consolidated
statements of income for the nine months and quarter ended
September 30, 1996 and 1995, and the consolidated cash flow
statements for the nine months ended September 30, 1996 and
1995 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, 1996, 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, 1995 and the Quarterly Reports on Form 10-Q
for the quarters ended June 30, 1996 and March 31, 1996.
All per share data for all periods presented in the
accompanying financial statements and notes has been restated
to give effect to the July 1996 three-for-two common stock
split effected in the form of a 50% stock distribution.
Certain prior year amounts have been reclassified for
comparative purposes. These reclassifications had no effect on
net income.
Note 2 Acquisitions
During the nine months ended September 30, 1996, PSW has
purchased the water utility and related assets of three water
systems for a combined purchase price of $2,396. These systems
serve customers near or adjacent to PSW's existing service
territory and have combined annual operating revenues of
approximately $130.
In October 1996, PSW purchased the water utility and related
assets of the Hatboro Borough Authority for a purchase price
of $10,500. The system is contiguous to PSW's and has annual
operating revenues of approximately $2,000.
PSW is also a party to preliminary agreements to acquire four
other water systems for a combined purchase price of
approximately $41,000, including, subject to final
negotiations, the issuance of up to $4,000 of the Company's
preferred stock. These systems are adjacent or near to PSW's
service territory. The combined annual revenues of these
systems is approximately $5,000. Final closings are subject to
final agreements by the parties and completion of due
diligence and, in certain cases, may not occur until 1997.
In addition, PSW continues to hold discussions with several
other water systems that are near or adjacent to it's service
territory.
-5-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (continued)
(In thousands of dollars, except per share amounts)
Note 3 Discontinued Operations
The Board of Directors had authorized the sale of
substantially all of the Company's nonregulated businesses and
the last of these businesses were sold in 1993. At the time
the Board of Directors authorized the sale of these
businesses, the Company established reserves, net of related
income tax benefits, for future and contingent costs
associated with the discontinued operations.
As a result of the receipt of contingent sale proceeds from
one of the businesses sold and the passage of time, which
reduced certain potential lease obligations, the Company
determined that, as of September 30, 1996, the reserves, net
of tax, were in excess of current estimates of potential costs
by $365 or $.02 per share and the reserves were reduced
accordingly in the third quarter of 1996. At September 30,
1996, there remains a balance in the reserve for discontinued
operations of $1,958 which is included in other accrued
liabilities.
Note 4 Long-Term Debt
In November 1996, PSW issued $10,000 First Mortgage Bonds
6.83% Series due 2003. The net proceeds of this issue were
used to repay amounts outstanding under PSW's revolving credit
agreement and to fund PSW's ongoing construction and
acquisition programs.
-6-
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 ("PSC" or "the Company"), a Pennsylvania
corporation, is the holding Company of Philadelphia Suburban Water Company
("PSW"), a regulated water utility. PSW provides water to approximately 271,000
customers in 83 municipalities within its 410 square-mile service territory.
PSW's service territory is located north and west of the City of Philadelphia.
Financial Condition
During the first nine months of 1996, the Company made $17,343 of expenditures
related to routine capital improvements and replacements for PSW; acquired the
water utility assets of three small water companies for a combined purchase
price of $2,396; retired $20,054 in long term debt; repaid $1,619 of customer
advances for construction and redeemed $1,500 of Preferred Stock.
During this period, internally generated funds, available working capital, funds
available under the revolving credit facility, and the proceeds from common
stock and long-term debt issues were sufficient to fund the cash requirements
discussed above, and to pay dividends. 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 amounted to approximately
$10,667 during this period.
In April 1996, PSW issued $10,000 of First Mortgage Bonds 6.99% Series due 2006
and retired $10,000 of First Mortgage Bonds at 10.65% Series due 2006. In July
1996, PSW issued $10,000 of First Mortgage Bonds 7.4% Series due 2003. In
November 1996, PSW issued $10,000 of First Mortgage Bonds 6.83% Series due 2003.
These bonds were issued through a Medium Term Note Program. The proceeds from
these issuances were used for the retirement of First Mortgage Bonds, to repay
amounts outstanding under PSW's revolving credit agreement and to fund PSW's
ongoing capital and acquisition programs.
During the third quarter of 1996, the Pennsylvania Public Utility Commission
approved, in principle, the concept, and established procedures for water
utilities, beginning January 1, 1997, to add a surcharge to their bills as a
means to recover the costs associated with distribution system capital
improvements between rate filings. In November 1996, PSW filed a request, in
accordance with these procedures, to add a .46% surcharge to its bills beginning
January 1, 1997. The procedures allow PSW to request adjustments to the
surcharge quarterly, based on additional distribution system improvement.
At September 30, 1996, PSW had $22,895 available under its revolving credit
facility and the Company and PSW had $3,300 and $1,000, respectively, available
under short-term lines of credit.
Management believes that internally generated funds along with the existing
credit facilities, the issuance of long-term debt and 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 are adequate to
meet the Company's financing requirements for the balance of the year and
beyond.
-7-
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)
Results of Operations
Analysis of First Nine Months of 1996 Compared to First Nine Months of 1995
Revenues increased $3,910 or 4.5% primarily due to the 5.3% rate increase
granted PSW in October 1995 and additional water revenues associated with the
acquisition of Media Borough ("Media") and seven smaller water systems purchased
during 1995 and 1996, offset partially by a decrease in customer consumption of
water. The decreased water consumption is attributable to the cool and wet
weather experienced in the third quarter of 1996 which contrasted significantly
from the unusually hot and dry weather experienced in 1995.
Operating expenses decreased by $475 or 1.3% primarily due to reduced treatment
expenses, electric usage and water purchases attributable to reduced production,
lower maintenance and administrative expenses and decreased employee health and
welfare expenses. These decreases were partially offset by the additional
operating costs associated with the acquisitions made since 1995.
Depreciation increased by $1,249 or 14.7% reflecting the impact of the
additional utility plant acquired or placed in service in the past year.
Depreciation was approximately 2.4% and 2.3% of average utility plant in service
in the first nine months of 1996 and 1995.
Amortization was a charge of $241 compared to a credit of $43 for the first nine
months of 1995. The change is due to the amortization of costs associated with
the 1995 rate request filing and additional debt issuance costs which includes
the premiums paid on the early retirements of debt since 1995.
Taxes other than income taxes increased by $616 or 10.7% primarily due to
increases in the Pennsylvania Capital Stock Tax and Pennsylvania Public Utility
Realty Tax Assessment resulting from an increase in the base on which these
taxes are computed.
Interest expense increased by $396 or 3.6% due to an increase in the average
borrowings outstanding, partially offset by lower interest rates. The increase
in borrowings were used to fund the Company's ongoing capital projects and
acquisitions.
Dividends on preferred stock decreased $104 or 21.8% due to the reduced number
of preferred stock shares outstanding during 1996.
The Company's effective income tax rate was 40.5% in 1996 and 41.5% in 1995. The
decrease in the effective tax rate from prior years is primarily due to a change
in the amount of nondeductible expense.
Income from continuing operations increased by $1,390 primarily due to increased
revenues, partially offset by increased depreciation, interest expense and taxes
other than income taxes. Net income was $15,461 for the first nine months of
1996 and was higher than income from continuing operations as a result of the
reversal of $365 of reserves for the discontinued operations. On a per share
basis, net income increased $0.05 or 6.5% reflecting the improvement in net
income, offset by a 5.7% increase in the average number of shares outstanding.
The increased number of shares outstanding reflects additional shares sold since
the third quarter of 1995 through the Customer Stock Purchase Plan and the
Dividend Reinvestment and Optional Stock Purchase Plans.
-8-
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)
Analysis of Third Quarter of 1996 Compared to Third Quarter of 1995
Revenues for the quarter decreased by $1,524 or 4.7% compared to 1995 primarily
due to a decline in water sales, offset partially by the 5.3% rate increase
granted PSW in October 1995. The decrease in water sales is attributable to the
cool and wet weather experienced in 1996, which contrasted significantly from
the unusually hot and dry weather experienced in 1995.
Operating expenses for the quarter decreased by $2,036 or 14.8% primarily due to
reduced production costs and expenses associated with the decline in water sales
and lower maintenance and administrative expenses. The balance of the reduction
in operating expenses relates to lower employee benefit costs due to lower
medical insurance premiums and lower pension expense.
Depreciation increased by $319 or 10.8% reflecting the impact of the additional
utility plant acquired or placed in service since the third quarter of 1995.
Depreciation was approximately 2.4% of average utility plant in service in both
the third quarter of 1996 and 1995 respectively.
Amortization was a charge of $102 compared to a credit of $41 in 1995. The
change is due to the amortization of costs associated with the 1995 rate request
filing and additional debt issuance costs including the premiums paid on the
early retirements of debt since 1995.
Taxes other than income taxes increased by $138 or 7.2% as a result of increases
in the Pennsylvania Capital Stock Tax associated with increased equity.
Interest and debt expense decreased $76 or 2.0% primarily due to lower interest
rates partially offset by increased borrowing levels. The increase in borrowings
were used to fund the Company's ongoing capital projects and acquisitions.
Dividends on preferred stock decreased $32 or 20.8% due to the reduced number of
preferred stock shares outstanding for the quarter.
The Company's effective income tax rate was 40.5% in 1996 and 41.5% in 1995. The
decrease in the effective tax rate from prior years is primarily due to a change
in the amount of nondeductible expense.
Income from continuing operations for the quarter increased by $115 or 2% due to
decreased operating expenses, offset partially by lower water revenues. Income
from continuing operations on a per share basis for the quarter was $.31, a
decrease of $.01 per share or 3.1% from 1995 due to a higher number of average
shares outstanding. During the quarter, the Company reversed $365 or $.02 per
share, after taxes, of reserves it had established for discontinued operations.
The increased number of shares outstanding reflects additional shares sold since
the third quarter of 1995 through the Customer Stock Purchase Plan and the
Dividend Reinvestment and Optional Stock Purchase Plans.
-9-
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, 1995, which is included by a
reference herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Report on Form 8-K
None
-10-
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 12, 1996
PHILADELPHIA SUBURBAN CORPORATION
Registrant
Nicholas DeBenedictis
--------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
--------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
-11-
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ------------------------------------ --------
27 Financial Data Schedule 13
-12-
UT
9-MOS
SEP-30-1996
SEP-30-1996
PRO-FORMA
446,618
77
26,466
7,101
48,655
528,917
6,119
118,133
47,862
172,114
4,214
0
174,940
0
5,700
0
16,440
1,429
0
0
154,080
528,917
90,804
10,296
53,846
64,142
26,662
0
26,662
11,194
15,461
372
15,461
10,943
14,287
23,041
.82
.82
