<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 June 30, 1995
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, 1995.
11,950,854
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<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 30, December 31,
1995 1994
----------- ------------
(Unaudited) (Audited)
Property, plant and equipment, at cost $498,339 $462,500
Less accumulated depreciation 81,680 76,791
-------- --------
Net property, plant and equipment 416,659 385,709
Current assets
Cash (944) (636)
Accounts receivable, net 19,564 19,303
Inventory, materials and supplies 1,815 1,696
Prepayments and other current assets 2,256 594
-------- --------
Total current assets 22,691 20,957
Regulatory assets 48,451 48,334
Deferred charges and other assets, net 4,090 3,183
-------- --------
$491,891 $458,183
======== ========
Common stockholders' equity $149,259 $143,795
Preferred stock of subsidiary with
mandatory redemption requirements 5,714 7,143
Long-term debt, excluding current portion 174,735 152,195
Commitments - -
Current liabilities
Current portion of preferred stock of
subsidiary with mandatory redemption
requirements 1,429 2,857
Current portion of long-term debt 8,887 887
Loans payable 5,675 4,050
Accounts payable 2,654 5,626
Accrued interest 3,660 3,346
Other accrued liabilities 10,162 9,912
Net reserves related to
discontinued operations 2,559 2,701
-------- --------
Total current liabilities 35,026 29,379
Deferred credits and other liabilities
Deferred income taxes and investment credits 69,082 67,721
Customers' advances for construction 24,201 24,713
Other non-current liabilities 11,561 11,028
-------- --------
Total deferred credits and other
liabilities 104,844 103,462
Contributions in aid of construction 22,313 22,209
-------- --------
$491,891 $458,183
======== ========
See notes to consolidated financial statements on page 5 of this report.
-1-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
[CAPTION]
Six Months Ended
June 30,
------------------------
1995 1994
------- -------
[S] [C] [C]
Earned revenues $54,539 $51,579
Costs and expenses
Operating expenses 24,123 24,057
Depreciation 5,575 5,165
Amortization (2) (159)
Taxes other than income taxes 3,847 3,630
------ ------
33,543 32,693
------ ------
Operating income 20,996 18,886
Interest and debt expenses 7,100 6,394
Dividends on preferred stock 322 433
Allowance for funds used during
construction (89) (43)
------ ------
Income before income taxes 13,663 12,102
Provision for income taxes 5,689 5,118
------ ------
Net income $ 7,974 $ 6,984
====== ======
Net income per share $ .67 $ .61
====== ======
Average common and common equivalent
shares outstanding during the period 11,831 11,467
====== ======
See notes to consolidated financial statements on page 5 of this report.
-2-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
[CAPTION]
Three Months Ended
June 30,
----------------------
1995 1994
---- ----
[S] [C] [C]
Earned revenues $28,827 $26,730
Costs and expenses
Operating expenses 12,357 12,001
Depreciation 2,805 2,592
Amortization 15 (28)
Taxes other than income taxes 1,874 1,728
------ ------
17,051 16,293
------ ------
Operating income 11,776 10,437
Interest and debt expenses 3,704 3,229
Dividends on preferred stock 155 217
Allowance for funds used during
construction (49) (24)
------ ------
Income before income taxes 7,966 7,015
Provision for income taxes 3,307 2,980
------ ------
Net income $ 4,659 $ 4,035
====== ======
Net income per share $ .39 $ .35
====== ======
Average common and common equivalent
shares outstanding during the period 11,865 11,461
====== ======
See notes to consolidated financial statements on page 5 of this report.
-3-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
Six Months Ended
June 30,
-----------------------
1995 1994
---- ----
Cash flows from operating activities
Net income $ 7,974 $ 6,984
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 5,573 5,006
Deferred taxes, net of taxes on customers'
advances 1,059 1,085
Net increase in receivables, inventory
and prepayments (1,260) (3,270)
Net decrease in payables and other
accrued liabilities (2,795) (1,886)
Net increase (decrease) in accrued interest 313 (41)
Other 105 (226)
------- -------
Net cash flows from operating activities 10,969 7,652
------- -------
Cash flows from investing activities
Property, plant and equipment additions,
including allowance for funds used during
construction of $89 and $43 (11,276) (8,539)
Acquisition of water system (25,711) -
Other (42) 22
------- -------
Net cash flows from investing activities (37,029) (8,517)
------- -------
Cash flows from financing activities
Customers' advances and contributions in aid of
construction, net of income tax payments 1,156 926
Repayments of customers' advances (1,564) (1,587)
Net proceeds (repayments) of short-term debt 1,625 (749)
Proceeds of long-term debt 31,044 12,464
Repayments of long-term debt (850) (4,850)
Redemption of preferred stock of
subsidiary (2,857) -
Proceeds from issuing common stock 4,072 3,364
Repurchases of common stock (5) (2,020)
Dividends paid (6,577) (6,151)
Other (150) (142)
------- -------
Net cash flows from financing activities 25,894 1,255
------- -------
Net cash flows to discontinued operations (142) (209)
------- -------
Net increase (decrease) in cash (308) 181
Cash deficit beginning of year (636) (868)
------- -------
Cash deficit at end of period $ (944) $ (687)
======= =======
See notes to consolidated financial statements on page 5 of this report.
-4-
<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 June 30, 1995, the consolidated
statements of income for the six months and quarter ended June
30, 1995 and 1994, and the consolidated cash flow statements
for the six months ended June 30, 1995 and 1994 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, 1995, 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, 1994 and the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
Note 2 Water Rates
Philadelphia Suburban Water Company (PSW) filed an application
with the Pennsylvania Public Utility Commission ("PUC") on
April 28, 1995 requesting a $14,000 or 12.1% increase in
annual revenues. This application is currently pending before
the PUC and a final determination is anticipated by January
1996.
In addition to its base rates, PSW has utilized a surcharge or
credit on its bills to reflect certain changes in Pennsylvania
State taxes until such time as the tax changes are
incorporated into base rates. In July 1994, PSW was required
to initiate a revenue credit of .19% in order to provide its
customers with the savings associated with State income tax
rate decreases. Effective April 10, 1995, PSW revised the
credit to .40% ($441 of annual revenues) and effective July
31, 1995, PSW revised the credit to 1.04% ($1,036 of annual
revenues). Revisions to the revenue credit in 1995 reflect the
savings associated with further decreases in State taxes,
particularly a reduction in the income tax rate.
-5-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (continued)
(In thousands of dollars, except per share amounts)
Note 3 Acquisitions
In May 1995, PSW purchased the water utility and related
assets of Media Borough ("Media"). The Media system, for which
PSW paid $25,711 in cash and the assumption of $1,100 in
liabilities, covers a 23 square mile service area contiguous
to PSW's service territory. Annual revenue from this system
approximates $4,500. The assets acquired, net of liabilities
assumed, is presently recorded in Property, Plant and
Equipment and Accounts Receivable pending final allocation to
the appropriate accounts.
Note 4 Long-Term Debt
In May 1995, PSW issued $15,000 First Mortgage Bonds 7.72%
Series due 2025, and in June 1995, PSW issued $10,000 First
Mortgage Bonds 6.82% Series due 2005. Both of these issuances
were made through the $100,000 Medium Term Note program that
was established in March 1995. In addition, in May 1995 the
revolving credit facility was temporarily increased from
$30,000 to $40,000 until the end of August 1995. The proceeds
from these issuances and the revolving credit facility were
used to fund the Media acquisition, the retirement of the
First Mortgage Bond noted below and PSW's ongoing capital
program.
During the second quarter, PSW called $8,000 of First Mortgage
Bonds, 13% Series due 2005, for retirement in August 1995 and
as of June 30, 1995, such amounts have been reclassified as
current portion of long-term debt. The premium on the early
retirement of 6.1% or $488 will be deferred and amortized in
accordance with the Uniform System of Accounts prescribed by
the PUC, over the life of the First Mortgage Bonds issued
during the second quarter of 1995.
The effect of these transactions on the Company's sinking fund
payments for the next five years is to reduce the total
payments by $800 in each year from 1995 through 2000.
-6-
<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 non-regulated 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 first half of 1995, the Company acquired the water utility
assets of the Borough of Media ("Media") for $25,711 in cash, and made $11,276
of expenditures related to routine capital improvements and replacements for
PSW, repaid $1,564 of customer advances for construction and redeemed $2,857 of
Preferred Stock.
During the first six months, internally generated funds, available
working capital, funds available under the revolving credit facility, and funds
obtained from the proceeds of common stock and long-term debt 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 Plan amounted to approximately
$4,072. Effective with the September 1, 1995 payment, the Company has increased
the quarterly dividend on common stock from $.28 per share to $.29 per share.
In May 1995, PSW temporarily increased its revolving credit facility
from $30,000 to $40,000 until the end of August 1995. At June 30, 1995, PSW had
$14,240 available under its revolving credit facility and the Company and PSW
had $3,325 and $1,000 respectively, available under short-term lines of credit.
During the second quarter of 1995, PSW issued $15,000 First Mortgage
Bonds 7.72% Series due 2025 and $10,000 First Mortgage Bonds 6.82% Series due
2005. The proceeds from these issuances were used to acquire Media's water
utility assets, to fund the ongoing capital projects of PSW and will be used to
fund the early retirement of $8,000 First Mortgage Bonds
13% Series due 2005 in August 1995.
Traditionally, PSW has financed its ongoing construction program and
other financial requirements separately from PSC. 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 continue
to be required to allow PSW to achieve a level of earnings necessary to attract
capital, to maintain satisfactory debt coverage ratios and to provide
shareholders an adequate return on their investment.
-7-
<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)
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 Plan are adequate to meet the Company's financing
requirements for the balance of the year and beyond.
Results of Operations
Analysis of First Six Months of 1995 Compared to First Six Months of 1994
Revenues increased $3,115 or 6.1% primarily due to the 9.05% rate
increase granted PSW in June 1994 and additional water revenues associated with
the Media water system, offset partially by a decrease in customer consumption
of water.
Operating expenses increased by $66 due to higher employee benefit
expenses, expenses associated with the recently acquired Media water system and
increased wages, offset partially by a reduction in maintenance and production
costs. Employee benefit expenses increased as a result of the recognition of
$751 of increased costs for Postretirement Benefits Other than Pensions computed
under Statement of Financial Accounting Standards No. 106 in conjunction with
the June 1994 rate increase. The decrease in maintenance and production costs
were a result of the effects of the milder winter weather experienced in 1995.
The effects of the severe winter weather in 1994 caused significant maintenance
and production cost increases estimated at $800 over normal winter costs.
Depreciation increased by $410 or 7.9% reflecting the impact of utility
plant placed in service since June 1994. Depreciation was approximately 2.3% of
average utility plant in service in both the first half of 1995 and 1994.
Amortization was a credit of $2 compared to a credit of $159 in the
first six months of 1994, a change of $157. The change is primarily due to $148
of additional negative goodwill amortization associated with the December 1992
acquisitions of two water systems that was recognized in 1994 in conjunction
with the June 1994 rate settlement.
Taxes other than income taxes increased by $217 or 6.0% primarily due
to increases in the Pennsylvania Capital Stock Tax associated with increased
equity, a higher Pennsylvania Public Utility Realty Tax Assessment resulting
from the Media acquisition and due to increased state regulatory taxes.
-8-
<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)
Dividends on preferred stock decreased by $111 or 25.6% as a result of
the redemption of 28,570 preferred shares in January 1995.
Interest expense increased by $706 or 11% reflecting higher interest
rates on borrowings under the Company's credit facilities and due to an increase
in the average amount of debt outstanding.
Allowance for funds used during construction ("AFUDC") increased by $46
primarily due to a higher AFUDC rate. The AFUDC rate increased in connection
with the higher interest rate on the revolving credit facility.
The Company's effective income tax rate was 41.6% in 1995 and 42.3% in
1994. The decrease in the effective tax rate is due primarily to a 1% reduction
in the Pennsylvania Corporate Net Income tax rate, partially offset by a change
in the expenses that are not tax deductible.
Net income increased $990 or 14.2% primarily due to increased revenues,
partially offset by higher interest expenses, depreciation, amortization and
taxes other than income. On a per share basis, earnings increased $.06 or 9.8%
reflecting the improvement in net income offset by a 3.2% increase in the
average number of shares outstanding. The increased number of shares outstanding
reflects shares sold since the second quarter of 1994 through the Customer Stock
Purchase Plan and the Dividend Reinvestment and Optional Stock Purchase Plan.
Analysis of Second Quarter of 1995 Compared to Second Quarter of 1994
Revenues for the quarter increased $2,097 or 7.8% primarily due to the
rate increase granted PSW in June 1994 and revenues associated with the Media
water system acquired in May 1995, partially offset by a decrease in customers'
consumption of water.
Operating expenses increased $356 or 3.0% primarily as a result of the
$332 of the additional costs for Postretirement Benefits Other than Pensions
computed under Statement of Financial Accounting Standards No. 106 recognized in
conjunction with the June 17, 1994 rate increase. Operating expenses were also
affected by increased wages and the operating expenses associated with the Media
water system.
Depreciation increased by $213 or 8.2% reflecting the impact of utility
plant placed in service since the second quarter of 1994. Depreciation was
approximately 2.3% of average utility plant in service in both the second
quarter of 1995 and 1994, respectively.
-9-
<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)
Amortization was a charge of $15 as compared to a credit of $28 in 1994
due to $63 of additional negative amortization associated with the June 1994
rate settlement related to the acquisition of two water systems in 1994.
Taxes other than income taxes increased $146 or 8.4% as a result of
increases in the Pennsylvania Capital Stock Tax associated with increased
equity, a higher Pennsylvania Public Utility Realty Tax Assessment resulting
from the Media acquisition and due to increased state regulatory taxes.
Interest expense increased $475 or 14.70% reflecting higher interest
rates on the short-term credit facilities and an increased level of borrowings.
The increase in borrowings were used to fund the Media acquisition and ongoing
capital projects.
Dividends on preferred stock decreased $62 or 28.6% due to the reduced
number of preferred stock shares outstanding for the quarter.
Allowance for funds used during construction ("AFUDC") increased by $25
primarily due to a higher AFUDC rate. The AFUDC rate increased due to higher
interest rates on the revolving credit facility in 1995 as compared to the
second quarter of 1994.
The Company's effective income tax rate was 41.5% in 1995 and 42.5% in
1994. 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 $624 or 15.5% principally due
to increased water revenues, partially offset by higher interest and operating
expenses. Earnings per share, however, increased only $.04 per share or 11.4%
due to the higher number of average shares outstanding.
-10-
<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, 1994, 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 18, 1995 at the
headquarters of the Company, 762 Lancaster Avenue, Bryn Mawr,
Pennsylvania, pursuant to the Notice sent on or about March
31, 1995 to all shareholders of record at the close of
business on March 17, 1995. At that meeting, the following
nominees were elected as directors of the Company for terms
expiring in 1998 and received the votes set forth after their
names below:
Name of
Nominee For Withheld
------- --- --------
Mary C. Carroll 9,769,511 128,274
Claudio Elia 9,770,120 127,665
Joseph C. Ladd 9,763,081 134,704
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 W. Boyer,
Jr.; Nicholas DeBenedictis; G. Fred DiBona; John H. Austin;
John F. McCaughan; and Harvey J. Wilson.
-11-
<PAGE>
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. Adoption of Amendment 1994-1 to the 1994 Equity
Compensation Plan
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
9,073,233 625,499 199,053 0
b. A Shareholder Proposal to Elect All Directors Annually
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
2,164,123 5,987,869 292,060 29,811
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
20 Financial Data Schedule
(b) Report on Form 8-K
None
-12-
<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.
August 9, 1995
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
Registrant
Nicholas DeBenedictis
---------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
---------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
-13-
<PAGE>
EXHIBIT 27
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
(In thousands, except per share amounts)
Item Item
Number Description Amount
------ ----------- ------
1 Total Net Utility Plant $416,574
2 Other Property and Investments 85
3 Total Current Assets 22,691
4 Total Deferred Charges 4,090
5 Balancing Amount for Total Assets 48,451
6 Total Assets 491,891
7 Common Stock 2,992
8 Capital Surplus, Paid In 106,379
9 Retained Earnings 39,888
10 Total Common Stockholders Equity 149,259
11 Preferred Stock Subject to Mandatory
Redemption 5,714
12 Preferred Stock Not Subject to Mandatory
Redemption -
13 Long Term Debt, Net 174,735
14 Short Term Notes -
15 Notes Payable 5,675
16 Commercial Paper -
17 Long-term Debt - Current Portion 8,887
18 Preferred Stock - Current Portion 1,429
19 Obligations Under Capital Leases -
20 Obligations Under Capital Leases -
Current Portion -
21 Balancing Amount for Capitalization and
Liabilities 146,192
22 Total Capitalization and Liabilities 491,891
23 Gross Operating Revenue 54,539
24 Federal and State Income Taxes Expense 5,689
25 Other Operating Expenses 33,543
26 Total Operating Expenses 39,232
27 Operating Income (loss) 15,307
28 Other Income (loss), net -
29 Income Before Interest Charges 15,307
30 Total Interest Charges 7,011
31 Net Income 7,974
32 Preferred Stock Dividends 322
33 Earnings Available for Common Stock 7,974
34 Common Stock Dividends 6,577
35 Total Annual Interest Charges on all Bonds 13,488
36 Cash Flow from Operations 10,969
37 Earnings Per Share - Primary .67
38 Earnings Per Share - Fully Diluted .67
-14-
