<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, 1997
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, 1997.
19,350,292
- ----------
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-----------------------------
(Unaudited) (Audited)
<S> <C> <C>
Property, plant and equipment, at cost $ 618,423 $ 612,812
Less accumulated depreciation 113,678 109,874
-----------------------------
Net property, plant and equipment 504,745 502,938
Current assets:
Cash 766 1,518
Accounts receivable, net 21,192 21,914
Inventory, materials and supplies 1,998 1,943
Prepayments and other current assets 436 660
-----------------------------
Total current assets 24,392 26,035
Regulatory assets 48,456 48,491
Deferred charges and other assets, net 6,276 5,480
-----------------------------
$ 583,869 $ 582,944
=============================
Stockholders' equity:
6.05% Series B cumulative preferred stock $ 3,220 $ 3,220
Common stock at $.50 par value, authorized 40,000,000 shares,
outstanding 19,350,292 and 19,198,579 in 1997 and 1996 9,816 9,731
Capital in excess of par value 124,348 121,439
Retained earnings 49,840 49,272
Treasury stock, 282,848 and 262,230 shares in 1997 and 1996 (4,063) (3,647)
-----------------------------
Total stockholders' equity 183,161 180,015
-----------------------------
Preferred stock of subsidiary with mandatory
redemption requirements 2,786 4,214
Long-term debt, excluding current portion 187,791 217,518
Commitments - -
Current liabilities:
Current portion of long-term debt and preferred stock of subsidiary 44,624 13,873
Loans payable 5,575 5,560
Accounts payable 5,183 9,659
Accrued interest 4,778 3,660
Accrued taxes 4,835 3,363
Other accrued liabilities 9,074 8,924
-----------------------------
Total current liabilities 74,069 45,039
-----------------------------
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 76,928 75,949
Customers' advances for construction 22,373 23,524
Other 12,629 12,826
-----------------------------
Total deferred credits and other liabilities 111,930 112,299
-----------------------------
Contributions in aid of construction 24,132 23,859
-----------------------------
$ 583,869 $ 582,944
=============================
</TABLE>
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)
Three Months Ended
March 31,
----------------------
1997 1996
----------------------
Earned revenues $ 31,021 $ 29,290
Costs and expenses
Operating expenses 13,068 13,070
Depreciation 3,687 3,255
Amortization 10 69
Taxes other than income taxes 2,242 2,317
----------------------
19,007 18,711
----------------------
Operating income 12,014 10,579
Interest expense 4,436 3,783
Dividends on preferred stock of subsidiary 96 127
Allowance for funds used during construction (90) (32)
----------------------
Income before income taxes 7,572 6,701
Provision for income taxes 3,063 2,733
----------------------
Net income 4,509 3,968
Dividends on preferred stock 49 --
----------------------
Net income available to common stock $ 4,460 $ 3,968
======================
Net income per common share $ 0.23 $ 0.21
======================
Average common and common equivalent
shares outstanding during the period 19,521 18,564
======================
See notes to consolidated financial statements on page 5 of this report.
2
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,509 $ 3,968
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 3,697 3,324
Deferred taxes, net of taxes on customers' advances 532 (54)
Net decrease in receivables, inventory and prepayments 884 1,696
Net increase (decrease) in payables, accrued interest and
other accrued liabilities (1,478) 159
Other (352) (79)
---------------------------
Net cash flows from operating activities 7,792 9,014
---------------------------
Cash flows from investing activities:
Property, plant and equipment additions, including allowance
for funds used during construction of $90 and $32 (4,926) (3,397)
Acquisitions of water systems (435) (74)
Other (80) (90)
---------------------------
Net cash flows used in investing activities (5,441) (3,561)
---------------------------
Cash flows from financing activities:
Customers' advances and contributions in aid of
construction, net of income tax payments 20 45
Repayments of customers' advances (1,219) (1,382)
Net proceeds (repayments) of short-term debt 15 (1,170)
Proceeds from long-term debt 9,930 7,474
Repayments of long-term debt (8,976) (9,150)
Redemption of preferred stock of subsidiary (1,428) (1,500)
Proceeds from issuing common stock 3,147 3,461
Repurchase of common stock (569) (3)
Dividends paid on preferred stock (49) -
Dividends paid on common stock (3,892) (3,538)
Other (82) (311)
---------------------------
Net cash flows used in financing activities (3,103) (6,074)
---------------------------
Net decrease in cash (752) (621)
Cash balance beginning of year 1,518 2,387
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Cash balance at end of period $ 766 $ 1,766
============================
</TABLE>
See notes to consolidated financial statements on page 5 of this report.
3
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------------------
(Unaudited) (Audited)
<S> <C> <C>
Stockholders' equity:
6.05% Series B cumulative preferred stock $ 3,220 $ 3,220
Common stock, $.50 par value 9,816 9,731
Capital in excess of par value 124,348 121,439
Retained earnings 49,840 49,272
Treasury stock (4,063) (3,647)
---------------------------
Total stockholders' equity 183,161 180,015
---------------------------
Preferred stock of subsidiary with mandatory
redemption requirements 4,215 5,643
Current portion of preferred stock of subsidiary 1,429 1,429
---------------------------
2,786 4,214
---------------------------
Long-term debt:
First Mortgage Bonds secured by utility plant:
8.44% Series, due 1997 12,000 12,000
5.95% Series, due 2002* 2,400 2,400
6.83% Series, due 2003 10,000 10,000
7.47% Series, due 2003 10,000 10,000
7.06% Series, due 2004 10,000 -
6.82% Series, due 2005 10,000 10,000
6.99% Series, due 2006 10,000 10,000
9.89% Series, due 2008 5,000 5,000
7.15% Series, due 2008* 22,000 22,000
9.12% Series, due 2010 20,000 20,000
6.50% Series, due 2010* 3,200 3,200
9.17% Series, due 2011 5,000 5,000
9.93% Series, due 2013 5,000 5,000
6.89% Series, due 2015 12,000 12,000
9.97% Series, due 2018 5,000 5,000
9.17% Series, due 2021* 8,000 8,000
6.35% Series, due 2025 22,000 22,000
7.72% Series, due 2025 15,000 15,000
9.29% Series, due 2026 12,000 12,000
---------------------------
Total First Mortgage Bonds 198,600 188,600
Note payable to bank under revolving credit agreement, due March 1998 30,751 39,727
Installment note payable, 90%, due in equal annual payments through 2013 1,635 1,635
---------------------------
230,986 229,962
Current portion of long-term debt 43,195 12,444
---------------------------
Long-term debt, excluding current portion 187,791 217,518
---------------------------
Total capitalization $ 373,738 $ 401,747
===========================
</TABLE>
*Trust indentures relating to these First Mortgage Bonds require annual sinking
fund payments.
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 and statement of
capitalization of Philadelphia Suburban Corporation at March
31, 1997, the consolidated statements of income for the three
months ended March 31, 1997 and 1996, and the consolidated
statements of cash flow for the three months ended March 31,
1997 and 1996 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, 1997, 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, 1996.
Note 2 Water Rates
Philadelphia Suburban Water Company ("PSW") filed an
application with the Pennsylvania Public Utility Commission
("PUC") on April 25, 1997, requesting a $17,000 or 13.2%
increase in annual revenues. This application is currently
pending before the PUC and a final determination is
anticipated by January 1998.
Note 3 Long-Term Debt
In March 1997, PSW issued $10,000 First Mortgage Bonds 7.06%
Series due 2004. 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
<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 ("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 285,000
customers in 93 municipalities within its 465 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 $4,926 of capital expenditures related to
routine capital improvements and replacements, redeemed $1,428 of preferred
stock, and repaid $1,219 of customer advances for construction. On April 1, the
Company retired $12,000 in First Mortgage Bonds, 8.44% Series due 1997, at par.
During the first quarter of 1997, internally generated funds, available working
capital and funds available under the revolving credit agreement and the
proceeds from issuance of common stock and a long-term debit issue were used to
fund the cash requirements discussed above, and to pay dividends.
At March 31, 1997, the Company and PSW had $3,425 and $1,000 available,
respectively under short-term lines of credit and PSW had $19,249 available
under its revolving credit agreement. In March, as described in Note 3 to the
Consolidated Financial Statements for the quarter ended March 31, 1997, 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. The current portion of long-term debt includes $30,751
borrowed under a revolving credit agreement that expires in March 1998. The
Company intends to renew this facility and refinance a portion of this balance
through the issuance of First Mortgage Bonds.
Results of Operations
Analysis of First Quarter of 1997 Compared to First Quarter of 1996
Revenues for the quarter increased $1,731 or 5.9% primarily as a result of the
acquisitions of the water systems of Bristol Borough Water and Sewer Authority
(Bristol), Hatboro Borough Water Authority (Hatboro), and Utility Group Services
Corporation (UGS) and three small water utilities which increased revenues by
$1,417. Revenues also included $250 of contingent sale proceeds from a
subsidiary the Company sold in 1991.
Operating expenses decreased by $2 from the prior year. Operating expenses
decreased because of the contrast from 1996 winter weather conditions that
resulted in a lower than average number of main breaks and reduced maintenance
expenses. This reduction in operating expenses was partially offset by the
additional operating expenses of the water systems acquired during 1996.
Depreciation expense increased by $432 or 13.3% over the prior year primarily
due to property, plant and equipment placed in service since the first quarter
of 1996, including the 1996 acquisitions. Depreciation expense was approximately
2.40% and 2.45% of average property plant and equipment in the first quarter of
1997 and 1996, respectively.
Amortization decreased $59 due to the completion of the amortization on the 1995
rate case and other expenses in the fourth quarter of 1996, offset in part by
the amortization of additional debt issuance costs.
6
<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)
Taxes other than income taxes decreased by $75 or 3.2% primarily due to a
reduction in payroll taxes, due to reduced overtime, and a reduction in
regulatory assessments.
Interest expense increased by $653 or 17.3% due to increased borrowing levels
since the first quarter of 1996, partially offset by lower interest rates. The
increased borrowing level was used to finance the 1996 acquisitions and other
capital projects.
Allowance for funds used during construction increased by $58 primarily due to
an increase in the average balance of utility plant construction work in
progress.
The Company's effective income tax rate was 40.5% in the first quarter of 1997
and 40.8% in 1996.
Net income available to common stock for the quarter increased by $492 or 12.4%
primarily as a result of increased revenues and decreases in amortizations and
other taxes partially offset by increased interest expense and depreciation. On
a per share basis, earnings increased $.02 or 9.5% reflecting the improvement in
net income, offset by a 5.2% increase in the average number of shares
outstanding. The increased number of shares outstanding is due to the additional
shares sold since the first quarter of 1996 through the Customer Stock Purchase
Plan and the Dividend Reinvestment and Optional Stock Purchase Plan.
7
<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, 1996, 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
<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 13, 1997
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
Registrant
Nicholas DeBenedictis
---------------------------------
Nicholas DeBenedictis
Chairman and President
Michael P. Graham
---------------------------------
Michael P. Graham
Senior Vice President - Finance
and Treasurer
9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------------------- --------
27 Financial Data Schedule 11
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of capitalization at March 31,
1997, and the consolidated statements of income and cash flow for the three
months ended March 31, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> $504,671
<OTHER-PROPERTY-AND-INVEST> 74
<TOTAL-CURRENT-ASSETS> 24,392
<TOTAL-DEFERRED-CHARGES> 6,276
<OTHER-ASSETS> 48,456
<TOTAL-ASSETS> 583,869
<COMMON> 5,753
<CAPITAL-SURPLUS-PAID-IN> 124,348
<RETAINED-EARNINGS> 49,840
<TOTAL-COMMON-STOCKHOLDERS-EQ> 179,941
2,786
3,220
<LONG-TERM-DEBT-NET> 187,791
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 5,575
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 43,195
1,429
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 159,932
<TOT-CAPITALIZATION-AND-LIAB> 583,869
<GROSS-OPERATING-REVENUE> 31,021
<INCOME-TAX-EXPENSE> 3,063
<OTHER-OPERATING-EXPENSES> 19,007
<TOTAL-OPERATING-EXPENSES> 22,070
<OPERATING-INCOME-LOSS> 8,951
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 8,951
<TOTAL-INTEREST-EXPENSE> 4,442
<NET-INCOME> 4,509
49
<EARNINGS-AVAILABLE-FOR-COMM> 4,460
<COMMON-STOCK-DIVIDENDS> 3,892
<TOTAL-INTEREST-ON-BONDS> 15,456
<CASH-FLOW-OPERATIONS> 7,792
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
