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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 ------------------------------------------------------ (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 March 31, 1996. 12,362,710 - -------------- PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars) March 31, December 31, 1996 1995 ----------- ------------ (Unaudited) (Audited) Property, plant and equipment, at cost $531,853 $529,364 Less accumulated depreciation 94,801 92,459 ------- ------- 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 ------- ------- Total current assets 24,686 26,914 Regulatory assets 48,723 48,757 Deferred charges and other assets, net 5,947 5,475 ------- ------- $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 ------- ------- 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 ------- ------- Total deferred credits and other liabilities 105,199 106,622 Contributions in aid of construction 23,199 23,195 ------- ------- $516,408 $518,051 ======= ======= 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 ------ ------ 18,711 16,492 ------ ------ 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) ------ ------ 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) See notes to consolidated financial statements on page 4 of this report. -3-
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- 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 ------- ------- Net cash flows from operating activities 9,014 7,179 ------- ------- 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) ------- ------- Net cash flows used in investing activities (3,561) (4,623) ------- ------- 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) ------- ------- Net cash flows used in financing activities (6,074) (3,089) ------- ------- Net decrease in cash (621) (533) Cash balance beginning of year 2,387 1,243 ------- ------- Cash balance at end of period $ 1,766 $ 710 ======= ======= 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 ----------- ----------- 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-