<PAGE>
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, 1994
Commission File Number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Pennsylvania 23-1702594
-------------- -------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
---------------------------------------------- -------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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, 1994.
11,374,928
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
-------- --------
(Unaudited) (Audited)
<S> <C> <C>
Property, plant and equipment, at cost $436,150 $433,302
Less accumulated depreciation 69,672 67,072
-------- --------
Net property, plant and equipment 366,478 366,230
Current assets
Cash (565) (868)
Accounts receivable, net 18,604 18,131
Inventory, materials and supplies 1,890 1,721
Prepayments and other current assets 372 532
-------- --------
Total current assets 20,301 19,516
Regulatory assets 51,757 51,229
Deferred charges and other assets, net 2,585 2,704
-------- --------
$441,121 $439,679
======== ========
Common stockholders' equity $134,688 $135,934
Preferred stock of subsidiary with
mandatory redemption 10,000 10,000
Long-term debt, excluding current portion 154,162 145,292
Commitments -- --
Current liabilities
Current portion of long-term debt 884 4,884
Loans payable - 819
Accounts payable 815 3,381
Accrued interest 3,797 3,439
Other accrued liabilities 10,897 9,269
Net reserves related to
discontinued operations 2,413 2,578
-------- --------
Total current liabilities 18,806 24,370
Deferred credits and other liabilities
Deferred income taxes and investment credits 69,689 69,137
Customers' advances for construction 23,219 24,379
Other noncurrent liabilities 8,916 8,926
-------- --------
Total deferred credits and other
liabilities 101,824 102,442
Contributions in aid of construction 21,641 21,641
-------- --------
$441,121 $439,679
======== ========
</TABLE>
See notes to consolidated financial statements on page 4 of this report.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Earned revenues $ 24,849 $ 22,726
Costs and expenses
Operating expenses 11,833 10,733
Depreciation 2,573 2,411
Amortization 92 115
Taxes other than income taxes 1,902 1,773
-------- --------
16,400 15,032
Operating income from continuing
operations 8,449 7,694
Interest and debt expenses 3,165 3,328
Dividends on preferred stock 216 216
Allowance for funds used during
construction (19) (222)
-------- --------
Income from continuing operations before
income taxes 5,087 4,372
Provision for income taxes 2,138 1,785
-------- --------
Income from continuing operations 2,949 2,587
Loss on disposal of discontinued
operations -- --
-------- --------
Net income $ 2,949 $ 2,587
======== ========
Net income per share
Continuing operations $ .26 $ .26
Discontinued Operations -- --
-------- --------
Total $ .26 $ .26
======== ========
Average common and common equivalent
shares outstanding during the period 11,469 9,950
======== ========
</TABLE>
See notes to consolidated financial statements on page 4 of this report.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 2,949 $ 2,587
Adjustments to reconcile income
from continuing operations to net
cash flows from operating activities:
Depreciation and amortization 2,665 2,526
Deferred taxes, net of taxes on
customers' advances 161 223
Net decrease (increase) in receivables,
inventory and prepayments (481) 48
Net decrease in payables and
other accrued liabilities (973) (813)
Net increase (decrease) in accrued interest 358 (260)
Other (138) (122)
-------- --------
Net cash flows from operating activities 4,541 4,189
-------- --------
Cash flows from investing activities:
Property, plant and equipment additions,
including allowance for funds used during
construction of $19 and $222 (2,641) (4,041)
Sale of subsidiaries and related assets -- 871
Other 28 (15)
-------- --------
Net cash flows from investing activities (2,613) (3,185)
-------- --------
Cash flows from financing activities:
Customers' advances and contributions in aid of
construction, net of income tax payments 295 156
Repayments of customers' advances (1,455) (1,487)
Net proceeds (repayments) of short-term debt (819) (730)
Proceeds of long-term debt 8,839 6,018
Repayments of long-term debt (4,000) (4,500)
Proceeds from issuing common stock 654 830
Repurchase of common stock (1,771) --
Dividends paid (3,078) (2,562)
Other (125) (4)
-------- --------
Net cash flows from financing activities (1,460) (2,279)
-------- --------
Net cash flows from discontinued operations (165) (181)
-------- --------
Net increase (decrease) in cash 303 (1,456)
Cash deficit beginning of year (868) (712)
-------- --------
Cash deficit at end of period $ (565) $ (2,168)
======== ========
</TABLE>
See notes to consolidated financial statements on page 4 of this report.
<PAGE>
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, 1994, the consolidated
statements of income for the three months ended March 31, 1994
and 1993, and the consolidated cash flow statements for the
three months ended March 31, 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 March 31,
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.
Note 2 Water Rates
In May 1994, PSW reached an agreement with the parties (the
Office of Consumer Advocate, the Pennsylvania Public Utility
Commission Office of Trial Staff, and the Office of Small
Business Advocate) actively participating in litigating the
rate application it filed in December 1993. This settlement is
designed to increase annual water revenues by $9,050 or
approximately 9%. As a part of this settlement agreement, PSW
has agreed not to file for a new general rate increase prior to
April 1, 1995, absent extraordinary circumstances. Subject to
the outcome of the Office of Consumer Advocate's court
challenge on the propriety of rate recovery of Statement of
Financial Accounting Standards No. 106, "Accounting for Post-
retirement Benefits Other than Pensions" ("SFAS 106") costs
in other utility rate decisions, the settlement agreement
provides for the recovery of costs associated with the
implementation of SFAS 106, including an 18.5 year
amortization of those costs deferred since the adoption of
SFAS 106 which were recorded as a regulatory asset. This
settlement is subject to review and approval by the
Pennsylvania Public Utility Commission ("PUC"). If approved by
the PUC, PSW anticipates that the increase would be effective
sometime in June 1994, rather than September 2, 1994 which
would have been the likely effective date if the rate request
was fully litigated.
Note 3 Postemployment Benefits
In January 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the
Company to accrue the expected cost of providing postemployment
benefits during the years that employees render services to the
Company. Since, the Company has experienced minimal post-
employment medical costs and the Company had already
established adequate reserves for other costs which are
accruable under SFAS 112 the implementation of SFAS 112 has had
no impact on the results of operations or financial position of
the Company.
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
Note 4 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 sheets net of related
income tax benefits, include administrative, legal and tax
services, contingent legal and lease obligations and certain
employee costs. During the quarter, $165 of payments specifically
associated with discontinued operations were charged
to this reserve.
<PAGE>
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 quarter, the Company had $2,641 of capital expenditures
related to routine capital improvements and replacements for PSW and
repaid $1,455 of customer advances for construction. The Company also
repurchased 93,400 shares of its common stock at a net cost of $1,771
during the quarter.
During the first quarter of 1994, 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.
At March 31, 1994, the Company and PSW had $3,000 and $1,000
available, respectively under short-term lines of credit and PSW had
$9,550 of unused credit under its revolving credit agreement.
Traditionally, PSW has financed its ongoing construction program and
other financial requirements separately from the Company. 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 be required to allow PSW to achieve
an adequate level of earnings necessary to attract capital, to maintain
satisfactory debt coverage ratios and to provide shareholders an adequate
return on their investment. Management believes that internally
generated funds along with existing credit facilities are adequate to
meet the Company's financing requirements through the balance of the year
and beyond. Further, management believes that with the improvement in
the Company's capitalization ratios over the past two years, it will be
able to obtain the external financing that it expects to need.
<PAGE>
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 Quarter of 1994 Compared to First Quarter of 1993
Revenues for the quarter increased $2,123 or 9.3% primarily due to
a 7.4% rate increase granted PSW on June 1, 1993, and a slight increase
in customer consumption of water, partially offset by a reduction in the
state tax surcharge rate that PSW was allowed to add to its bills prior
to the June 1, 1993 rate increase.
Operating expenses increased by $1,100 or 10.2% primarily as a
result of higher costs associated with the extreme cold weather
experienced during January and February of 1994. The weather conditions
created significant maintenance problems, including an abnormally high
number of water main breaks, and required additional treatment costs as
raw water quality deteriorated due to salt and other chemicals used to
melt the ice and snow on roadways. The additional costs associated with
the weather were approximately $800. The balance of the increased
operating expense is due to increases in wages and electric rates.
Depreciation increased by $162 or 6.7% reflecting the impact of
utility plant placed in service since the first quarter of 1993.
Depreciation was approximately 2.3% of average utility plant in service
in both the first quarter of 1994 and 1993.
Taxes other than income taxes increased by $129 or 7.3% due to
higher Pennsylvania Capital Stock Tax resulting from an increase in
common stockholders' equity, and due to increased payroll taxes related
to the increased labor expenses.
Interest expense declined by $163 or 4.9% reflecting a reduction by
the Company in the average outstanding debt with proceeds it received
from the sale of common stock since the first quarter of 1993.
Allowance for funds used during construction ("AFUDC") decreased
primarily due to an $8,000 decrease in the balance of construction work
in progress ("CWIP"). 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. In addition, the AFUDC rate has
also declined as the Company is required to use a rate equal to the
average costs of borrowings under its revolving credit facility while the
CWIP balance is less than the borrowing level under this facility.
The average cost of capital (i.e. the weighted cost of long-term debt,
preferred stock and common equity) is used as the AFUDC rate for the
amount the CWIP balance exceeds the balance of the revolving credit
facility. In prior periods the average cost of capital was used as the
AFUDC rate.
<PAGE>
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)
The Company's effective income tax rate was 42.0% in 1994 and 40.8%
in 1993. The increase in the effective tax rate is due primarily to the
impact of the Omnibus Budget Reconciliation Act of 1993. Enacted during
the third quarter of 1993, the Act raised the statutory federal tax rate
from 34% to 35%.
Net income for the quarter increased by $362 or 14.0% primarily as
a result of increased revenues partially offset by higher operating
expenses. Earnings per share, however, were equal to 1993 since the
increase in net income was offset by a higher 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 an additional 428,032 shares sold since the first quarter of 1993
through the Customer Stock Purchase Plan and the Dividend Reinvestment
and Optional Stock Purchase Plan, partially offset by 145,035 shares
repurchased by the Company since the first quarter of 1993.
<PAGE>
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 incorporated
by a reference herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
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 12, 1994
PHILADELPHIA SUBURBAN CORPORATION
------------------------------------
Registrant
Nicholas DeBenedictis
------------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
------------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
