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 March 31, 1996
Commission File Number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610)-527-8000
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 1996.
12,362,710
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PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 31, December 31,
1996 1995
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(Unaudited) (Audited)
Property, plant and equipment, at cost $531,853 $529,364
Less accumulated depreciation 94,801 92,459
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Net property, plant and equipment 437,052 436,905
Current assets
Cash 1,766 2,387
Accounts receivable, net 20,564 22,112
Inventory, materials and supplies 1,977 1,878
Prepayments and other current assets 379 537
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Total current assets 24,686 26,914
Regulatory assets 48,723 48,757
Deferred charges and other assets, net 5,947 5,475
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$516,408 $518,051
======= =======
Common stockholders' equity $160,864 $156,976
Preferred stock of subsidiary with
mandatory redemption requirements 4,214 5,643
Long-term debt, excluding current portion 172,985 175,395
Commitments - -
Current liabilities
Current portion of preferred stock of
subsidiary with mandatory redemption
requirements 1,429 1,500
Current portion of long-term debt 14,440 13,590
Loans payable 5,285 6,455
Accounts payable 6,682 9,694
Accrued interest 4,402 3,601
Other accrued liabilities 17,709 15,380
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Total current liabilities 49,947 50,220
Deferred credits and other liabilities
Deferred income taxes and investment credits 71,592 70,980
Customers' advances for construction 24,539 25,880
Other non-current liabilities 9,068 9,762
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Total deferred credits and other
liabilities 105,199 106,622
Contributions in aid of construction 23,199 23,195
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$516,408 $518,051
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See notes to consolidated financial statements on page 4 of this report.
-1-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
Earned revenues $29,290 $25,712
Costs and expenses
Operating expenses 13,070 11,766
Depreciation 3,255 2,770
Amortization 69 (17)
Taxes other than income taxes 2,317 1,973
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18,711 16,492
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Operating income 10,579 9,220
Interest and debt expenses 3,783 3,396
Dividends on preferred stock 127 167
Allowance for funds used during
construction (32) (40)
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Income before income taxes 6,701 5,697
Provision for income taxes 2,733 2,382
------ ------
Net income $ 3,968 $ 3,315
====== ======
Net income per share $ .32 $ .28
====== ======
Average common and common equivalent
shares outstanding during the period 12,376 11,781
====== ======
See notes to consolidated financial statements on page 4 of this report.
-2-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1996 1995
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Cash flows from operating activities:
Net income $ 3,968 $ 3,315
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 3,324 2,753
Deferred taxes, net of taxes on
customers' advances (54) 140
Net decrease in receivables,
inventory and prepayments 1,696 2,485
Net decrease in payables and
other accrued liabilities (643) (2,337)
Net increase in accrued interest 802 455
Other (79) 368
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Net cash flows from operating activities 9,014 7,179
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Cash flows from investing activities:
Property, plant and equipment additions,
including allowance for funds used during
construction of $32 and $40 (3,397) (4,612)
Acquisitions of water systems (74) --
Other (90) (11)
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Net cash flows used in investing activities (3,561) (4,623)
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Cash flows from financing activities:
Customers' advances and contributions in aid of
construction, net of income tax payments 45 409
Repayments of customers' advances (1,382) (1,398)
Net proceeds (repayments) of short-term debt (1,170) 1,595
Proceeds of long-term debt 7,474 1,908
Repayments of long-term debt (9,150) --
Redemption of preferred stock of subsidiary (1,500) (2,857)
Proceeds from issuing common stock 3,461 692
Repurchase of common stock (3) (5)
Dividends paid (3,538) (3,283)
Other (311) (150)
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Net cash flows used in financing activities (6,074) (3,089)
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Net decrease in cash (621) (533)
Cash balance beginning of year 2,387 1,243
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Cash balance at end of period $ 1,766 $ 710
======= =======
See notes to consolidated financial statements on page 4 of this report.
-3-
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 March 31, 1996, the consolidated
statements of income for the three months ended March 31, 1996
and 1995, and the consolidated statements of cash flow for the
three months ended March 31, 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 March
31, 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.
Certain prior year amounts have been reclassified for
comparative purposes. These reclassifications had no effect on
net income.
Note 2 Restricted Cash
In August 1995, PSW issued $22,000 First Mortgage Bonds as
security for an equal amount of bonds issued by the Delaware
County Industrial Development Authority. The proceeds from
these bonds are restricted to funding the costs of certain
capital projects. As of March 31, 1996, the Trustee for this
issue held $433 in an interest bearing account pending
completion of the remainder of the projects financed with this
issue. The amount held by the Trustee is included in the
balance sheet as cash.
Note 3 Long-Term Debt
In January 1996, PSW retired $5,000 First Mortgage Bonds
7.875% Series due 1997 at a premium of .331% or $17 and $4,150
First Mortgage Bonds 8.40% Series due 2002, at a premium of
2.1% or $87. In April 1996, PSW retired $10,000 First Mortgage
Bonds 10.65% series due 2006, at a premium of 5.04% or $504.
The premiums paid on the early retirement of debt are
capitalized and amortized in accordance with the Uniform
System of Accounts presented by the Pennsylvania Public
Utility Commission over the life of the long-term debt used to
fund the redemption. The effect of these transactions on the
-4-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
Company's Sinking Fund payments for the next five years was to
reduce the payments by $450 annually in 1996 and $1,450
annually from 1997 to 2001.
In April 1996, PSW issued $10,000 First Mortgage Bonds 6.99%
Series due 2006. The net proceeds of this issue were used to
repay amounts outstanding under PSW's revolving credit
agreement and fund PSW's ongoing construction program.
-5-
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
265,000 customers in 81 municipalities within its 406 square-mile service
territory. PSW's service territory is located north and west of the City of
Philadelphia.
Financial Condition
During the quarter, the Company made $3,397 of capital expenditures
related to routine capital improvements and replacements, redeemed $1,500 of
preferred stock, retired $9,150 in First Mortgage Bonds, and repaid $1,382 of
customer advances for construction.
During the first quarter of 1996, internally generated funds, available
working capital and funds available under the revolving credit agreement were
used to fund the cash requirements discussed above, and to pay dividends.
At March 31, 1996, the Company and PSW had $3,715 and $1,000 available,
respectively under short-term lines of credit and PSW had $17,250 available
under its revolving credit agreement. In April 1996, as described in Note 3 to
the Consolidated Financial Statements, PSW issued $10,000 in First Mortgage
Bonds and used the proceeds to repay amounts outstanding under PSW's revolving
credit agreement and fund PSW's ongoing construction program.
Results of Operations
Analysis of First Quarter of 1996 Compared to First Quarter of 1995
Revenues for the quarter increased $3,578 or 13.9% primarily due to a
5.3% rate increase granted PSW in October 1995 and the acquisitions of Media
Borough (Media) and four small water utilities.
Operating expenses increased by $1,304 or 11.1% primarily as a result
of the effects of the severe winter weather experienced in 1996. The effects of
the severe winter weather caused maintenance problems, including a higher than
average number of water main breaks, and additional treatment cost as raw water
quality deteriorated with the snow melt. The increase in maintenance and
production costs were partially offset by lower employee benefit expenses and a
reduction in purchased water.
-6-
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)
Depreciation expense increased by $485 or 17.5% over the prior year due
to utility plant placed in service since the first quarter of 1995. Depreciation
expense was approximately 2.4% and 2.3% of average utility plant in service in
the first quarter of 1996 and 1995, respectively.
Amortization was a charge of $69 compared to a credit of $17 in the
first quarter of 1995. The change is largely due to the absence in 1996 of $68
of negative goodwill amortization associated with the December 1992 acquisitions
of two water systems that was recognized in the first quarter of 1995 in
conjunction with the June 1994 rate settlement and to the amortization of costs
associated with the October 1995 rate settlement.
Taxes other than income taxes increased by $344 or 17.4% primarily due
to an increase in the base on which the Pennsylvania Capital Stock Tax is
calculated and increased state regulatory taxes.
Interest expense increased by $387 or 11.4% due to increased borrowing
levels since the first quarter of 1995, partially offset by lower interest
expense on the revolving credit facility.
Allowance for funds used during construction ("AFUDC") decreased by $8
primarily due to the decrease in the balance of Construction Work in Progress
("CWIP"). The majority of the decrease in CWIP is associated with a $4,600
operations center which was placed in service in the fourth quarter of 1995.
The Company's effective income tax rate was 40.8% in the first quarter
of 1996 and 41.8% in 1995. The decrease in the effective tax rate is primarily
due to a 1% reduction in the Pennsylvania Corporate Net Income tax rate.
Net income for the quarter increased by $653 or 19.7% primarily as a
result of increased revenues, partially offset by increased operating expenses,
interest expense, depreciation and amortization. On a per share basis, earnings
increased $.04 or 14.3% reflecting the improvement in net income, offset by a
5.1% increase in the average number of shares outstanding. The increased number
of shares outstanding reflects additional shares sold since the first quarter of
1995 through the Customer Stock Purchase Plan and the Dividend Reinvestment and
Optional Stock Purchase Plan.
-7-
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
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27 Financial Data Schedule
(b) Report on Form 8-K
None
-8-
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.
May 14, 1996
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
Registrant
Nicholas DeBenedictis
---------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
---------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
-9-
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- --------------------------------------- --------
27 Financial Data Schedule 11
-10-
UT
3-MOS
DEC-31-1996
MAR-31-1996
PRO-FORMA
436,975
77
24,686
5,947
48,723
516,408
2,765
114,324
43,775
160,864
4,214
0
172,985
0
5,285
0
14,440
1,429
0
0
157,191
516,408
29,290
2,733
18,711
21,444
7,846
0
7,846
3,751
3,968
127
3,968
3,538
14,845
9,014
.32
.32
