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 June 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 June 30, 1996.
18,837,369
- -----------
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 30, December 31,
1996 1995
----------- ---------
(Unaudited) (Audited)
Property, plant and equipment, at cost $541,183 $529,364
Less accumulated depreciation 98,236 92,459
------- -------
Net property, plant and equipment 442,947 436,905
Current assets
Cash 1,356 2,387
Accounts receivable, net 21,619 22,112
Inventory, materials and supplies 1,931 1,878
Prepayments and other current assets 2,045 537
------- -------
Total current assets 26,951 26,914
Regulatory assets 48,689 48,757
Deferred charges and other assets, net 6,665 5,475
------- -------
$525,252 $518,051
======= =======
Common stockholders' equity $166,921 $156,976
Preferred stock of subsidiary with
mandatory redemption requirements 4,214 5,643
Long-term debt, excluding current portion 192,720 175,395
Commitments - -
Current liabilities
Current portion of preferred stock of
subsidiary with mandatory redemption
requirements 1,429 1,500
Current portion of long-term debt 4,440 13,590
Loans payable 3,130 6,455
Accounts payable 5,400 9,694
Accrued interest 3,591 3,601
Other accrued liabilities 14,240 15,380
------- -------
Total current liabilities 32,230 50,220
Deferred credits and other liabilities
Deferred income taxes and investment credits 72,244 70,980
Customers' advances for construction 24,513 25,880
Other non-current liabilities 9,205 9,762
------- -------
Total deferred credits and other
liabilities 105,962 106,622
Contributions in aid of construction 23,205 23,195
------- -------
$525,252 $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)
Six Months Ended
June 30,
----------------
1996 1995
---- ----
Earned revenues $59,973 $54,539
Costs and expenses
Operating expenses 25,684 24,123
Depreciation 6,505 5,575
Amortization 139 (2)
Taxes other than income taxes 4,325 3,847
------ ------
36,653 33,543
------ ------
Operating income 23,320 20,996
Interest and debt expenses 7,572 7,100
Dividends on preferred stock 250 322
Allowance for funds used during
construction (82) (89)
------ ------
Income before income taxes 15,580 13,663
Provision for income taxes 6,331 5,689
------ ------
Net income $ 9,249 $ 7,974
====== ======
Net income per share $ .49 $ .45
====== ======
Average common and common equivalent
shares outstanding during the period 18,730 17,747
====== ======
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
June 30,
------------------------------
1996 1995
---- ----
Earned revenues $30,683 $28,827
Costs and expenses
Operating expenses 12,614 12,357
Depreciation 3,250 2,805
Amortization 70 15
Taxes other than income taxes 2,008 1,874
------ ------
17,942 17,051
------ ------
Operating income 12,741 11,776
Interest and debt expenses 3,789 3,704
Dividends on preferred stock 123 155
Allowance for funds used during
construction (50) (49)
------ ------
Income before income taxes 8,879 7,966
Provision for income taxes 3,598 3,307
------ ------
Net income $ 5,281 $ 4,659
====== ======
Net income per share $ .28 $ .26
====== ======
Average common and common equivalent
shares outstanding during the period 18,854 17,798
====== ======
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)
Six Months Ended
June 30,
----------------------------
1996 1995
--------- --------
Cash flows from operating activities:
Net income $ 9,249 $ 7,974
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 6,644 5,573
Deferred taxes, net of taxes on customers'
advances 607 1,059
Net increase in receivables, inventory
and prepayments (1,858) (1,260)
Net decrease in payables and other
accrued liabilities (4,519) (3,062)
Net increase (decrease) in accrued interest (9) 313
Other (2) 105
------ ------
Net cash flows from operating activities 10,112 10,702
------ ------
Cash flows from investing activities:
Property, plant and equipment additions,
including allowance for funds used during
construction of $82 and $89 (10,373) (11,276)
Acquisitions of water systems (2,377) (25,711)
Other (240) (42)
------ ------
Net cash flows used in investing activities (12,990) (37,029)
------ ------
Cash flows from financing activities:
Customers' advances and contributions in aid of
construction, net of income tax payments 93 1,156
Repayments of customers' advances (1,442) (1,564)
Net proceeds (repayments) of short-term debt (3,325) 1,625
Proceeds of long-term debt 27,540 31,044
Repayments of long-term debt (20,054) (850)
Redemption of preferred stock of
subsidiary (1,500) (2,857)
Proceeds from issuing common stock 7,827 4,072
Repurchases of common stock (4) (5)
Dividends paid (7,127) (6,577)
Other (161) (150)
------ ------
Net cash flows from financing activities 1,847 25,894
------ ------
Net decrease in cash (1,031) (433)
Cash balance beginning of year 2,387 1,243
------ ------
Cash balance at end of period $ 1,356 $ 810
====== ======
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 June 30, 1996, the consolidated
statements of income for the six months and quarter ended June
30, 1996 and 1995, and the consolidated cash flow statements
for the six months ended June 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 June 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 Report on Form 10-Q
for the quarter ended March 31, 1996.
Certain prior year amounts have been reclassified for
comparative purposes. These reclassifications had no effect on
net income.
Note 2 Common Stock Split
On May 16, 1996, the Company's Board of Directors declared a
three-for-two common stock split effected in the form of a 50%
stock distribution, to shareholders of record on June 18,
1996. The new shares were distributed on July 10, 1996. The
Company's par value of $.50 per share remained unchanged and
$3,140 was transferred, in July 1996, from Capital in Excess
of Par Value to Common Stock to record the transaction. All
per share data for all periods presented in the accompanying
financial statements and notes has been restated to give
effect to the stock split.
In addition, the Company's Shareholders approved an increase
in the number of shares of common stock authorized from
20,000,000 shares to 40,000,000 shares.
Note 3 Acquisitions
Since December 31, 1995, PSW has purchased the water utility
and related assets of three water systems for a combined
purchase price of $2,377. These systems serve customers near
PSW's existing service territory and have combined annual
operating revenues of approximate $130.
PSW is also a party to preliminary agreements to acquire five
other water systems for a combined purchase price of
approximately $52,000, 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 $7,000. Final closings are subject to
completion of due diligence and are likely to extend, in
certain cases, into 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 4 Long-Term Debt
In April 1996, PSW retired $10,000 First Mortgage Bonds 10.65%
Series due 2006, at a premium of 5.04% or $504. The premium
was capitalized and is being amortized, in accordance with the
Uniform Systems of Accounts prescribed by the Pennsylvania
Public Utility Commission, over the life of the long-term debt
used to fund the redemption.
In April 1996, PSW issued $10,000 First Mortgage Bonds 6.99%
Series due 2006. In July 1996, PSW issued $10,000 First
Mortgage Bonds 7.4% Series due 2003. The proceeds of these
issues were used to repay amounts outstanding under PSW's
revolving credit agreement, to fund the debt retirement noted
above and to fund PSW's ongoing construction program. The
effects of these transactions on the Company's Sinking Fund
payments for the next five years was to reduce the payments by
$1,450 annually from 1997 to 2001.
Note 5 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 June 30, 1996, the Trustee for this
issue held $451 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.
-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
266,000 customers in 82 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 half of 1996, the Company acquired the water utility
assets of three small water companies for a combined purchase price of $2,377;
made $10,373 of expenditures related to routine capital improvements and
replacements for PSW; retired $20,054 in long term debt; repaid $1,442 of
customer advances for construction and redeemed $1,500 of Preferred Stock.
During the first six months, 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 $7,827. Effective with the September 1, 1996 payment,
the Company has increased the quarterly dividend on common stock from $.193 per
share to $.2025 per share.
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.
These bonds were issued through the 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 program.
At June 30, 1996, PSW had $7,115 available under its revolving credit
facility and the Company and PSW had $5,870 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 Six Months of 1996 Compared to First Six Months of 1995
Revenues increased $5,434 or 10.0% 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 four smaller water systems
purchased during 1995, offset partially by a decrease in the customer
consumption of water. The decreased water consumption is attributable to the
wetter and cooler weather experienced in the second quarter of 1996 as compared
to 1995.
Operating expenses increased by $1,561 or 6.5% primarily due to an
increase in treatment expenses resulting from lower raw water quality; higher
electric rates and usage; to the increased sendout in the first quarter and to
additional maintenance expenses caused by the severe winter weather. Included in
the year-to-date expenses were a full six months of production and maintenance
costs to operate the Media system. These increased operating costs were
partially offset by lower employee benefit expenses, and a reduction in
purchased water.
Depreciation increased by $930 or 17.0% reflecting the impact of
utility plant placed in service, including the assets from acquisitions, in the
past year. Depreciation was approximately 2.41% and 2.35% of average utility
plant in service in the first half of 1996 and 1995, respectively.
Amortization was a charge of $139 compared to a credit of $2 in the
first half of 1995. The increase is due to the amortization of additional debt
issuance costs and amortization of premiums on early retirement of debt since
1995.
Taxes other than income taxes increased by $478 or 12.4% primarily due
to increases in the Pennsylvania Capital Stock Tax associated with increased
equity, a higher Public Utility Real Estate Tax assessment, resulting from the
Media acquisition, and increased employment taxes.
-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)
Interest expense increased by $472 or 6.6% reflecting an increase in
the average amount of borrowings outstanding. The increase in borrowings were
used to fund the Media acquisition and ongoing capital projects.
Allowance for funds used during construction decreased by $7 primarily
due to the decrease in the balance of Construction Work in Progress ("CWIP")to
which AFUDC is applied. 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 AFUDC rate decreased due to a lower average cost of borrowings under
the Company's revolving credit facility in the first half of 1996 compared to
1995.
The Company's effective income tax rate was 40.6% in the first half of
1996 and 41.6% in 1995. The decrease in the effective tax rate is primarily due
to a reduction in the Pennsylvania Corporate Net Income tax rate.
Net income increased by $1,275 or 16% 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
$0.04 or 8.9% reflecting the improvement in net income, offset by a 5.5%
increase in the average number of shares outstanding. The increased number of
shares outstanding reflects additional shares sold since the first half of 1995
through the Customer Stock Purchase Plan and the Dividend Reinvestment and
Optional Stock Purchase Plan.
Analysis of Second Quarter of 1996 Compared to Second Quarter of 1995
Revenues for the quarter increased $1,856 or 6.4% primarily due to the
5.3% rate increase granted PSW in October 1995 and the acquisition of water
systems, particularly the May 1995 acquisition of the Media system, offset
partially by a decrease in the customer consumption of water. The decreased
water consumption is attributable to the wetter and cooler weather experienced
in the second quarter of 1996 as compared to 1995.
Operating expenses increased $257 or 2.1% primarily as a result of
additional production and maintenance expense related to the Media system and
additional treatment costs due to lower raw water quality. The increase in
maintenance and production costs were partially offset by lower employee benefit
costs, including reduced pension costs and lower medical insurance premium
costs.
Depreciation increased by $445 or 15.9% reflecting the impact of
utility plant placed in service since the second quarter of 1995. Depreciation
was approximately 2.41% and 2.35% of average utility plant in service in the
second quarter of 1996 and 1995, respectively.
-9-
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 was $55 higher than the second quarter of 1995 due to the
amortization of additional debt issuance costs and amortization of premiums on
early retirements of debt since 1995.
Taxes other than income taxes increased $134 or 7.2% as a result of
increases in the Pennsylvania Capital Stock Tax associated with increased equity
and a higher Pennsylvania Public Utility Realty Tax Assessment resulting from
the Media acquisition.
Interest expense increased $85 or 2.3% reflecting an increased level of
borrowings. The increase was partially offset by lower interest rates.
Dividends on preferred stock decreased $32 or 20.6% 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 is primarily due to a reduction in
the Pennsylvania Corporate Net Income tax rate.
Net income for the quarter increased by $622 or 13.4% principally due
to increased water revenues. Earnings per share, however, increased only $.02
per share or 7.7% due to the higher number of average shares outstanding.
Recent Events
The cooler, wetter weather experienced in the second quarter continued
into July and August of this year causing a decline in water consumption as
compared to the same period of 1995 in which we had higher than normal levels of
sendout. Water consumption tends to be impacted by weather conditions,
particularly during the summer months when nonessential and recreational use of
water is at its highest. As a result of the reduced water consumption, revenues
to date in the third quarter are less than would be expected if normal weather
conditions prevailed.
-10-
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 4. Results of Vote of Security Holders
The Annual Meeting of Shareholders of Philadelphia Suburban
Corporation (the "Company") was held on May 16, 1996 at the
headquarters of the Company, 762 Lancaster Avenue, Bryn Mawr,
Pennsylvania, pursuant to the Notice sent on or about April 1,
1996 to all shareholders of record at the close of business on
March 18, 1996. At that meeting, the following nominees were
elected as directors of the Company for terms expiring in 1999
and received the votes set forth after their names below:
Name of
Nominee For Withheld
------- --- --------
John W. Boyer, Jr. 10,147,367 139,570
Nicholas DeBenedictis 10,162,924 124,013
G. Fred DiBona, Jr. 10,126,446 160,491
Since the Board of Directors is divided into three classes
with one class elected each year to hold office for a
three-year term, the term of office for the following
directors continued after the Annual Meeting: John H. Austin;
Mary C. Carroll; Joseph C. Ladd; Richard H. Glanton, Esq.;
John F. McCaughan; and Harvey J. Wilson.
-11-
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Part II. Other Information (continued)
Item 4., Continued
In addition to the election of directors, the following
proposals were presented at the Annual Meeting and received
the votes set forth below:
a. Approval of adoption by the Board of Directors of
Amendment 1994-2 to the 1994 Equity Compensation Plan
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
9,261,722 768,712 256,503 0
b. Approval of an amendment to the Company's Amended and
Restricted Articles of Incorporation to increase the
number of shares of the Company's Common Stock for
issuance from 20,000,000 to 40,000,000.
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
9,384,556 754,982 147,399 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Report on Form 8-K
Current report on Form 8-K filed May 16, 1996
responding to Item 5, Other Events (related to the
Company's announcement of a 3-for-2 stock split in
the form of a stock distribution and an increase to
the quarterly dividend effective September 1, 1996).
Current report on Form 8-K filed June 12, 1996
responding to Item 5, Other Events (related to the
Company's announcement that its primary subsidiary,
Philadelphia Suburban Water Company, had received a
letter of intent to begin negotiations to purchase
the assets of the Bristol Borough Water Authority).
Current report on Form 8-K filed July 3, 1996
responding to Item 5, Other Events (related to the
receipt by the Company's primary subsidiary,
Philadelphia Suburban Water Company, of a letter of
intent from the Horsham Water Authority to negotiate
the acquisition of the water system assets of the
Authority).
-12-
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.
August 13, 1996
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
Registrant
Nicholas DeBenedictis
--------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
-------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
-13-
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- -------------------------- --------
27 Financial Data Schedule 15
-14-
UT
6-MOS
JUN-30-1996
JUN-30-1996
PRO-FORMA
442,947
76
26,951
6,665
48,689
525,252
2,924
118,530
45,467
166,921
4,214
0
192,720
0
3,130
0
4,440
1,429
0
0
152,398
525,252
59,973
6,331
36,653
42,984
16,989
0
16,989
7,490
9,249
250
9,249
7,127
13,540
10,112
.49
.49
