PHILADELPHIA SUBURBAN CORP
10-K, 1995-03-15
WATER SUPPLY
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<PAGE> 1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

               ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 1994            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
                                                       --------------

 Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange on
     Title of each class                           which registered
     -------------------                        -------------------------
 Common stock, par value $.50 per share       New York Stock Exchange, Inc.
                                            Philadelphia Stock Exchange Inc.

 Securities registered pursuant to Section
 12(g) of the Act:  None

 Indicate  by check  mark  whether  the  registrant  (1) has 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
 filing requirements for the past 90 days.

 Yes    x      No
     ------       ------

 State the aggregate market value of the voting stock held by non-affiliates of
 the registrant as of March 1, 1995.        $176,943,928

     For purposes of determining this amount only, registrant has defined
     affiliates as including (a) the executive officers named in Part I of this
     10-K report, (b) all directors of registrant, and (c) each shareholder that
     has informed registrant by March 1, 1995, that it has sole or shared voting
     power of 5% or more of the outstanding common stock of registrant.

 Indicate the number of shares outstanding of each of the registrant's classes
 of common stock as of March 1, 1995.   11,758,514

 Documents incorporated by reference

     (1) Portions of registrant's 1994 Annual Report to shareholders have been
     incorporated by reference into Parts I and II of this Form 10-K Report.

     (2) Portions of the Proxy Statement, relative to the May 18, 1995 annual
     meeting of shareholders of registrant, to be filed within 120 days after
     the end of the fiscal year covered by this Form 10-K Report, have been
     incorporated by reference into Part III of this Form 10-K Report.

<PAGE> 2


                                   PART I
                                   ------

 Item 1.  Business
          --------

    Philadelphia   Suburban   Corporation   ("PSC"  or  the   "Registrant"),   a
 Pennsylvania  corporation,  was  incorporated  in 1968.  The business of PSC is
 conducted  almost entirely through its subsidiary  Philadelphia  Suburban Water
 Company  ("PSW"),  a  regulated  public  utility.  PSC also  owns a small  data
 processing  service  operation,   Utility  &  Municipal   Services,   Inc.  The
 information  appearing  in  "Management's  Discussion  and  Analysis"  from the
 portions of PSC's 1994 Annual Report to  shareholders  filed as Exhibit 13.2 to
 this Form 10-K Report is incorporated by reference herein.

    In 1990, the Board of Directors  authorized  the sale of Mentor  Information
 Systems,  Inc.,  Digital Systems,  Inc.,  American  Tele/Response  Group, Inc.,
 Stoner Associates,  Inc., and its subsidiary Kesler  Engineering,  Inc.; and in
 1991,  the  Board  of  Directors   authorized  the  sale  of  PSC  Engineers  &
 Consultants, Inc. During 1991, all the businesses were sold except for American
 Tele/Response Group, Inc. and Kesler Engineering,  Inc., which were sold in the
 first  quarter of 1993.  The  results of  operations  of these  businesses  are
 accounted for as discontinued  operations.  Unless otherwise indicated, as used
 herein the  "Company"  includes the  continuing  operations of both PSC and its
 consolidated subsidiaries. The sales of the non-water service subsidiaries were
 authorized in order to allow the Company to  concentrate  its activities on its
 core water utility operations.

    Consistent  with  that  decision,   PSW  has  completed  five  water  system
 acquisitions  in the last three  years.  In December  1994,  PSW  acquired  the
 franchise  rights and the water  utility  assets of two  privately  owned water
 companies  for a total of $612,000  in cash.  These  water  supply  systems are
 located  adjacent to PSW's  existing  service  territory  and had combined 1994
 revenues of approximately $120,000 prior to the acquisitions. In December 1993,
 PSW acquired the water utility  assets and  franchise  rights of the Borough of
 Malvern for  $1,323,000  in cash.  In December  1992,  PSW  acquired  the water
 utility  assets  of the  West  Whiteland  Township  and  the  Uwchlan  Township
 Municipal  Authority  water systems for  $9,128,000 in cash and the issuance of
 $1,777,000 in debt. Combined, the latter three systems added 41 square miles of
 service territory adjacent to PSW's existing service territory and had revenues
 of approximately $2,480,000 in 1994.

    Further,  PSW submitted a proposal to purchase the water  utility  assets of
 Media Borough ("Media") for approximately $24,500,000.  In November 1994, Media
 disclosed  that it has  selected  PSW's  proposal  and has  since  enacted  the
 necessary ordinance authorizing the transaction.  The Media water system covers
 a 23 square mile  service  area  contiguous  to PSW's  service  territory.  The
 transaction,  which is subject to final  negotiations  and the  approval of the
 Pennsylvania  Public Utility Commission ("PUC"), is expected to be completed in
 the late spring or early summer of 1995.

    PSW has also  entered  into  preliminary  agreements  to  acquire  six water
 systems  for a  combined  purchase  price of  approximately  $7,300,000.  These
 systems cover  approximately  40 square miles and are adjacent or near to PSW's
 service territory.  In addition, PSW continues to hold discussions with several
 other water systems that are near or adjacent to it's service territory.

<PAGE> 3


Item 1, Continued

                    Philadelphia Suburban Water Company
                    -----------------------------------


    General. PSW is an operating public utility company, which supplies water to
 approximately 249,533 residential, commercial, industrial and public customers.
 PSW's  contiguous   service   territory  is  approximately  382  square  miles,
 comprising a large  portion of the suburban  area west and north of the City of
 Philadelphia.  This  territory  is  primarily  residential  in  nature  and  is
 completely metered, except for fire hydrant service.

    Based on the 1990  census,  PSW  estimates  that the total number of persons
 currently  served is approximately  800,000.  Excluding the customers that were
 added at the time of  acquisitions in the last three years,  customer  accounts
 have grown at an average rate of approximately .6% per annum for the last three
 years.

    Operating  revenues  during the twelve  months ended  December 31, 1994 were
 derived approximately as follows:

              65.1% from residential customers
              21.5% from commercial customers
               4.9% from industrial customers
               1.2% from public customers
               6.6% from fire protection services
                .7% from sales to other water utilities and
                     miscellaneous customers
             -----
             100.0%
             =====


<PAGE> 4


Item 1, Continued

    Selected  operating  statistics.  Set forth below is a table showing certain
 selected operating statistics for PSW for the past three years.

 Revenues from water sales (000's omitted)       1994      1993      1992
                                                 ----      ----      ----
       Residential                             $69,545   $66,183   $58,738
       Commercial                               23,020    19,970    18,755
       Industrial                                5,175     4,568     4,387
       Public                                    1,257     1,027     1,003
       Fire protection                           7,054     5,912     5,330
       Other                                       848     1,095     1,057
       Tax Surcharge                               (97)      706     2,281
                                              --------   -------   -------
            Total                             $106,802   $99,461   $91,551
                                              ========   =======   =======

 Water sales (million gallons)

       Residential                              16,577    16,729    16,034
       Commercial                                7,804     7,441     7,146
       Industrial                                2,085     1,985     1,947
       Public                                      324       294       277
       Fire protection - metered                    55        60        56
       Other                                       261       401       383
                                              --------   -------   -------
            Total                               27,106    26,910    25,843
                                              ========   =======   =======
 System delivery by source
 (million gallons)

       Surface (including Upper Merion
         reservoir)                             25,386    24,635    24,230
       Wells                                     5,037     5,466     4,642
       Purchased                                 2,356     2,446     2,392
                                              --------   -------   -------
            Total                               32,779    32,547    31,264
                                              ========   =======   =======
 Number of metered customers
 (end of year)

       Residential                             234,624   232,684   230,740
       Commercial                               10,777    10,7      10,547
       Industrial                                  833       832       837
       Public                                      688       696       671
       Fire protection                           2,596     2,248     1,980
       Other                                        15        15        13
                                              --------   -------   -------
       Total                                   249,533   247,195   244,788
                                              ========   =======   =======
 Average consumption per
   customer in gallons                         109,001   110,368   108,258
                                              ========   =======   =======

<PAGE> 5


Item 1, Continued

   Water supplies and usage.  PSW derives its principal supply of water from the
 Schuylkill  River,  five rural streams which are  tributaries of the Schuylkill
 and  Delaware  Rivers,  and the Upper  Merion  Reservoir,  a former  quarry now
 impounding  groundwater.  All of these are either  within or  adjacent to PSW's
 service  territory.  PSW acquired the right to remove water from these sources,
 and in connection  with such rights,  PSW has secured the necessary  regulatory
 approvals.  PSW has constructed  five impounding  reservoirs and four treatment
 and pumping  facilities to provide  storage and  purification  of these surface
 water supplies.

   The Pennsylvania Department of Environmental Resources ("DER") has regulatory
 power with  respect to sources of supply and the  construction,  operation  and
 safety practices for certain dams and other water containment  structures under
 the  Pennsylvania Dam Safety and  Encroachments  Act of 1979. PSW's dams are in
 compliance with these requirements in all material respects.

   PSW's  surface   supplies  are   supplemented  by  40  wells.  PSW  also  has
 interconnections  with:  the  Chester  Water  Authority,  which  permits PSW to
 withdraw up to 6.2 million gallons per day ("mgd");  the Bucks County Water and
 Sewer  Authority,  which  provides  for a supply of up to 7.0 mgd; and the West
 Chester Area  Municipal  Authority,  which provides up to a maximum of 1.0 mgd.
 Agreements  regarding  the first two  interconnections  require PSW to purchase
 certain minimum  amounts of water.  PSW believes it possesses all the necessary
 permits to obtain its supply of water from the sources indicated above.

   The minimum safe yield of all sources of supply described above, based on low
 stream flows of record with respect to surface supplies, is as follows:

   Surface supplies                        90.5 mgd
   Upper Merion Reservoir                   7.2
   Wells                                   17.7
   Purchased supplies                       8.1
                                          -----
     Total                                123.5 mgd
                                          =====

   During  periods  of  normal  precipitation,  the safe  yield is more than the
 minimum  shown above.  Under  normal  operating  conditions,  PSW can deliver a
 maximum of 139 mgd to its  distribution  system for short periods of time.  The
 average  daily  sendout  for 1994,  1993 and 1992 was 89.8,  89.1 and 85.4 mgd,
 respectively.

   The maximum  demand ever placed upon PSW's  facilities for one month occurred
 during  June 1988,  when  sendout  averaged  101.4 mgd.  The peak day of record
 occurred during July 1993 when water use reached 118.8 mgd.

   Actual water usage (as measured by the water meters installed at each service
 location)  is less than the  amount of water  delivered  into the system due to
 leaks,  PSW's  operational  use of water,  fire hydrant usage and other similar
 uses.  Water  consumption per customer is affected by local weather  conditions
 during the year. In general,  during the late spring and summer, an increase in
 rainfall reduces water consumption,  while a decrease in rainfall increases it.
 Also, an increase in the average  temperature  generally  causes an increase in
 water consumption.

   Energy  supplies.  PSW does all of its pumping using electric power purchased
 from PECO Energy Company. Energy supplies have been sufficient to meet customer
 demand.

<PAGE> 6


Item 1, Continued

   Water shortages.  The Delaware River Basin, which is the drainage area of the
 Delaware River from New York State to Delaware,  periodically experiences water
 shortages  during the summer  months.  To the extent that the reservoirs in the
 upper part of the Basin are affected by a lack of  precipitation,  the Delaware
 River Basin  Commission  (the "DRBC") may impose either  voluntary or mandatory
 water use restrictions on portions or all of the Basin.

   PSW's raw water supplies have generally been adequate to meet customer demand
 for the past five years principally because of its five impounding  reservoirs.
 However, since PSW's service territory is within the Basin, PSW's customers may
 be required to comply with DRBC water use restrictions,  even if PSW's supplies
 are  adequate,  if the  availability  of  water  in the  entire  DRBC  area  is
 inadequate.

   During  1988 and the two  preceding  years,  the lower  regions  of the Basin
 experienced  hot, dry weather  conditions  while the upper regions of the Basin
 enjoyed  normal or above normal  precipitation.  During all three years PSW had
 sufficient  quantities of raw water available and no drought  restrictions were
 imposed by the DRBC.  However,  in the summer of 1988, with the record breaking
 heat and the  resulting  high  water  demand  created by lawn  sprinkling,  PSW
 imposed  restrictions  banning  nonessential  water  uses in order to  maintain
 adequate  storage  levels of treated  water and to reduce  peak  demands in the
 distribution system. No water use restrictions were imposed by PSW in the years
 subsequent to 1988. The addition of the 15 mgd Pickering  Creek treatment plant
 in 1991 and improvements to the distribution system in the past five years have
 reduced the possibility of PSW issuing water use restrictions in the future due
 to demands on its system.

   Regulation by the Pennsylvania Public Utility  Commission.  PSW is subject to
 regulation by the PUC which has  jurisdiction  with respect to rates,  service,
 accounting procedures, issuance of securities, acquisitions and other matters.

   Under  applicable  Pennsylvania  statutes,  PSW has rights  granted under its
 Articles of  Incorporation  and by certificates of public  convenience from the
 PUC  authorizing  it to conduct its present  operations  in the manner in which
 such  operations are now conducted and in the territory in which it now renders
 service,  to exercise the right of eminent  domain and to maintain its mains in
 the  streets  and  highways  of  such  territory.  Such  rights  are  generally
 nonexclusive,  although  it has been the  practice of the PUC to allow only one
 water company to actually provide service to a given area. Consequently, PSW is
 subject to competition only with respect to potential  customers located on the
 fringe  of areas  that it  presently  serves  who also may have  access  to the
 service of another water supplier.

   In  1992,   the  PUC  issued  a  policy   statement   which,   under  certain
 circumstances,  required  utilities to extend service to new customers  without
 the  benefit of a customer  advance  for  construction.  As a result of various
 problems and  uncertainties  associated with the  implementation of this policy
 statement,  the PUC initiated a rulemaking procedure in December 1993, intended
 to facilitate the development of practical  standards by which the broad policy
 statement can be applied.  The Company believes that when  instituted,  the new
 standards will reflect the position that the cost of service  extensions should
 be justified by  anticipated  revenues  from the extension or should be paid by
 the service applicant.


<PAGE> 7


Item 1, Continued

   Water Quality & Environmental  Issues.  PSW is subject to regulation of water
 quality by the U.S.  Environmental  Protection Agency ("EPA") under the Federal
 Safe  Drinking  Water Act (the "SDWA") and by the  Pennsylvania  Department  of
 Environmental Resources ("DER") under the Pennsylvania Safe Drinking Water Act.
 The SDWA  provides for the  establishment  of uniform  minimum  national  water
 quality  standards,  as well as  governmental  authority to specify the type of
 treatment  process to be used for public  drinking  water.  PSW is presently in
 compliance with all standards and treatment requirements promulgated to date.

   The EPA has an ongoing  directive to issue additional  regulations  under the
 SDWA.  The directive  was  clarified in 1986 when Congress  amended the SDWA to
 require, among other revisions,  disinfection of all drinking water, additional
 maximum contaminant level ("MCL") specifications, and filtration of all surface
 water supplies.  PSW has already  installed the necessary  equipment to provide
 for the  disinfection  of the  drinking  water  throughout  the  system  and is
 monitoring  for the  additional  specified  contaminants.  PSW's  surface water
 supplies are filtered.

   In addition,  the 1986 SDWA Amendments require the EPA to promulgate MCLs for
 many chemicals not previously  regulated.  EPA has to date promulgated MCLs for
 numerous additional  contaminants and is required to mandate further MCLs every
 three  years.  Promulgation  of  additional  MCLs by the EPA in the  future may
 require PSW to change some of its treatment techniques,  however, PSW meets all
 existing MCL  requirements  and believes that the currently  proposed MCLs will
 not  have  a  significant  impact  on its  capital  requirements  or  operating
 expenses.  In 1991, the EPA proposed  regulations  pertaining to  radionuclides
 (including radon). Recently, the Congress extended a one year moratorium to two
 years on radon regulations.  Depending upon the final MCLs permitted,  PSW will
 likely be  required  to take  remedial  action at  certain  of its  groundwater
 facilities.   The  remediation   options  presently  under  evaluation  include
 dilution,  treatment,  or replacement  of the supply with other  groundwater or
 surface water supplies.  Based on the MCL initially proposed, it is anticipated
 that the capital costs of compliance  will range from $2.5 to $3.5 million over
 the next 10  years.  PSW may,  in the  future,  have to  change  its  method of
 treating  drinking  water at  certain of its  sources  of supply if  additional
 regulations become effective.

   In 1991, EPA promulgated final regulations for lead and copper (the "Lead and
 Copper  Rule").  Under the Lead and Copper  Rule,  large  water  utilities  are
 required to conduct  corrosion  control studies and to sample certain high-risk
 customer  homes to  determine  the extent of treatment  techniques  that may be
 required. PSW conducted the two required rounds of sampling in 1992 and did not
 exceed the EPA action  levels for either  lead or copper.  Additional  sampling
 will be required in the future.  PSW has developed a corrosion  control program
 for its  surface  sources of supply and does not  foresee  the need to make any
 major additional  treatment changes or capital  expenditures as a result of the
 Lead and Copper Rule.

   On January 1, 1993, new federal regulations ("Phase II") became effective for
 certain volatile  organics,  herbicides,  pesticides and inorganic  parameters.
 Although  PSW  will not be  required  by the DER to  monitor  for most of these
 parameters until 1995, PSW has already done substantial monitoring.  In the few
 cases where Phase II  contaminants  were  detected,  concentrations  were below
 MCLs. Future monitoring will be required, but no major treatment  modifications
 are anticipated as a result of these regulations.

<PAGE> 8


Item 1, Continued

   PSW is also subject to other environmental  statutes  administered by the EPA
 and  DER.   These  include  the  Federal  Clean  Water  Act  and  the  Resource
 Conservation and Recovery Act ("RCRA").  Under the Federal Clean Water Act, the
 Company must obtain National Pollutant  Discharge  Elimination System ("NPDES")
 permits for discharges  from its treatment  stations.  PSW currently  maintains
 three NPDES permits relating to its surface water treatment  plants,  which are
 subject  to renewal  every five  years.  During  the past five  years,  PSW has
 installed the required waste water treatment facilities and presently meets all
 NPDES  requirements.  Although  management  recognizes  that permit renewal may
 become more difficult if more stringent  guidelines are imposed, no significant
 obstacles to permit renewal are presently foreseen.

   Under RCRA, PSW is subject to specific regulations  regarding the solid waste
 generated  from  the  water  treatment  process.  The  DER  promulgated  "Final
 Rulemaking" for solid waste  (Residual Waste  Management) in July 1992. PSW has
 retained an  engineering  consultant to assist with the  extensive  monitoring,
 record keeping and reporting  required under these  regulations.  A preliminary
 application  for  permitting  has been filed,  and formal  permitting  of these
 facilities   should  be  completed  by  1996  in  accordance   with  regulatory
 requirements.

   Where  PSW is  required  to make  certain  capital  investments  in  order to
 maintain its compliance with any of the various regulations discussed above, it
 is management's belief that all such expenditures would be fully recoverable in
 PSW's water rates. However, the capital costs, under current law, would have to
 be financed prior to their inclusion in PSW's rate structure, and the resulting
 rate increases would not necessarily be timely.

                     Utility & Municipal Services, Inc.
                     ----------------------------------

   Utility & Municipal Services,  Inc. ("UMS") provides data processing services
 to several water  utilities  including PSW, and to several  municipal water and
 sewer  systems.  The  services  provided to the  utilities  and  municipalities
 include billing services and the processing of financial reports.

                             Employee Relations
                             ------------------

   As of December 31, 1994, the Registrant  employed a total of 525 persons,  of
 which 513 are employees of PSW. Hourly  employees of PSW are represented by the
 International  Brotherhood  of Firemen and Oilers,  Local No. 473. The contract
 with the  union was  renewed  on  December  1,  1994 for a  three-year  period.
 Management considers its employee relations to be satisfactory.

 Item 2.  Properties.
          -----------

   The  Registrant  believes  that the  facilities  used in the operation of its
 various   businesses   are  generally  in  excellent   condition  in  terms  of
 suitability, adequacy and utilization.



<PAGE> 9


Item 2, Continued

   The  property  of  PSW  consists  of  a  waterworks  system  devoted  to  the
 collection,  storage,  treatment  and  distribution  of  water  in its  service
 territory.  Management  considers  that its  properties  are maintained in good
 operating condition and in accordance with current standards of good waterworks
 practice.  The following  table  summarizes the principal  physical  properties
 owned by PSW:

                 No. of                          Square Feet
 Location      Buildings  Description            Floor Area
 --------      ---------  -----------            ---------- 

 Pennsylvania     5       Office & warehouse         151,185
 Pennsylvania    14       Pumping stations and
                          treatment buildings        155,116
 Pennsylvania    22       Well stations            App.   600 ea.
 Pennsylvania    18       Well stations            App.   150 ea.
 Pennsylvania    38       Booster stations         App. 1,100 ea.


   In addition, PSW also owns 45 storage facilities for treated water throughout
 its service  territory  with a combined  capacity of 139.1 million  gallons and
 five  surface  water  impounding  reservoirs.   The  water  utility  also  owns
 approximately  2,991 miles of transmission and distribution  mains, has 249,533
 active metered services and 11,030 fire hydrants.

   PSW's properties  referred to herein,  with certain minor exceptions which do
 not materially  interfere with their use, are owned and are subject to the lien
 of an Indenture of Mortgage  dated as of January 1, 1941, as  supplemented.  In
 the case of  properties  acquired  through the exercise of the power of eminent
 domain and certain properties acquired through purchase,  it has title only for
 water supply purposes.

   The Registrant's  corporate offices and the facilities of UMS are leased from
 PSW and located in Bryn Mawr, Pennsylvania.


 Item 3.  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.
As previously  reported,  there are two proceedings which arose from a fire in a
warehouse in Newark, New Jersey, where hazardous substances were alleged to have
been stored.  PSW was involved or  potentially  involved  because it was alleged
that,  out of more than 2,000  drums of material  at the  warehouse,  one of the
drums had originated  from PSW. One of these  proceedings has been dismissed and
the other is in  settlement  discussions  and is not expected to have a material
adverse impact on the Registrant.

 Item 4.  Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

   No matters  were  submitted to a vote of security  holders  during the fourth
 quarter of 1994.

   Information  with  respect  to  the  executive  officers  of the  Company  is
 contained in Item 10 hereof and is hereby incorporated by reference herein.


<PAGE> 10


                                  PART II
                                  -------

 Item 5.  Market for the Registrant's Common Stock and Related Security
          Holder Matters
          -------------------------------------------------------------

   The Company's  common stock is traded on the New York Stock  Exchange and the
 Philadelphia  Stock  Exchange.  As of March 1, 1995,  there were  approximately
 11,260 holders of record of the Company's common stock.

   The  following  selected  quarterly  financial  data  of  the  Company  is in
 thousands of dollars, except for per share amounts:

<TABLE>
<CAPTION>

                                     First    Second    Third   Fourth    Total
                                    Quarter   Quarter  Quarter  Quarter    Year
                                    -------   -------  -------  -------   -----
                                                         1994
<S>                                   <C>    <C>       <C>      <C>     <C>
Earned revenues ...................   24,849  $26,730  $28,849  $28,208 $108,636
Operating expenses ................   12,056   12,001   12,511   13,728   50,296
Net income ........................    2,949    4,035    4,897    3,757   15,638
Net income per share ..............      .26      .35      .42      .32     1.35
Dividend paid per share ...........      .27      .27      .28      .28     1.10
Price range of common stock
  - high ..........................    19.63    18.50    19.38    18.75    19.63
  - low ...........................    17.38    17.13    17.50    17.25    17.13

                                                         1993

Earned revenues ...................  $22,726  $25,048  $27,948  $25,522 $101,244
Operating expenses ................   10,733   11,205   12,078   11,973   45,989
Net income ........................    2,587    3,604    4,257    3,387   13,835
Net income per share ..............      .26      .33      .38      .30     1.27
Dividend paid per share ...........      .26      .27      .27      .27     1.07
Price range of common stock
  - high ..........................    18.25    18.38    20.75    20.13    20.75
  - low ...........................    15.63    17.25    18.13    17.75    15.63
</TABLE>

   Following  is a recent  history  of income  from  continuing  operations  and
 dividends of the Company:

                                         Income per
                                         share from
                       Cash dividend     continuing           Payout
                         per share       operations            ratio
                       -------------     ----------           ------

   1990                  $1.00             $1.27                79%
   1991                   1.00              1.29                78
   1992                   1.04              1.23                85
   1993                   1.07              1.27                84
   1994                   1.10              1.35                81

   Dividends  have  averaged   approximately   81%  of  income  from  continuing
 operations  during this period.  In May 1994, the annual dividend  increased by
 3.7% to $1.12 beginning with the September 1994 dividend.



<PAGE> 11


Item 6.  Selected Financial Data
         -----------------------

  The  information  appearing  in the  section  captioned  "Summary  of Selected
 Financial  Data" from the  portions  of the  Company's  1994  Annual  Report to
 shareholders  filed as Exhibit 13.2 to this Form 10-K Report is incorporated by
 reference herein.

 Item 7.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations
          ----------------------------------------------------------------

  The information  appearing in the section captioned  "Management's  Discussion
 and  Analysis"  from the  portions  of the  Company's  1994  Annual  Report  to
 shareholders  filed as Exhibit 13.2 to this Form 10-K Report is incorporated by
 reference herein.

 Item 8.  Financial Statements and Supplementary Data
          -------------------------------------------

  Information appearing under the captions "Consolidated  Statements of Income",
 "Consolidated  Balance Sheets",  "Consolidated Cash Flow Statements" and "Notes
 to Consolidated  Financial  Statements" from the portions of the Company's 1994
 Annual Report to shareholders filed as Exhibit 13.2 to this Form 10-K Report is
 incorporated  by  reference  herein.  Also,  the  information  appearing in the
 section  captioned  "Reports on Financial  Statements" from the portions of the
 Company's 1994 Annual Report to shareholders filed as Exhibit 13.2 to this Form
 10-K Report is incorporated by reference herein.

 Item 9.  Disagreements on Accounting and Financial Disclosure
          ----------------------------------------------------

  None.

                                  PART III
                                  --------

 Item 10.  Directors and Executive Officers of the Registrant
           --------------------------------------------------

 Directors of the Registrant
 ---------------------------

  The  information  appearing in the section  captioned  "Information  Regarding
 Nominees and  Directors" of the Proxy  Statement  relating to the May 18, 1995,
 annual  meeting of  shareholders  of the  Company,  to be filed within 120 days
 after  the  end of the  fiscal  year  covered  by this  Form  10-K  Report,  is
 incorporated by reference herein.

 Executive Officers of the Registrant
 ------------------------------------

     The  following  table and the notes  thereto  set  forth  information  with
 respect to the executive  officers of the  Registrant,  including  their names,
 ages,  positions with the Registrant  and business  experience  during the last
 five years:
                                     Position with the Registrant
       Name                Age         and date of election (1)
       ----                ---       ----------------------------
 Nicholas DeBenedictis     49     President and Chairman (May 1993 to
                                  present); President and Chief Executive
                                  Officer (July 1992 to May 1993);
                                  Chairman and Chief Executive Officer,
                                  Philadelphia Suburban Water Company
                                  (July 1992 to Present); President,
                                  Philadelphia Suburban Water Company
                                  (February 1995 to present) (2)

<PAGE> 12


Item 10, Continued


 Robert A. Luksa          60     Vice Chairman, Philadelphia Suburban
                                 Water Company (February 1995 to
                                 present); President, Philadelphia
                                 Suburban Water Company (October 1986 to
                                 February 1995) (3)

 Richard R. Riegler       48     Senior Vice President - Operations,
                                 Philadelphia Suburban Water Company
                                 (April 1989 to present) (4)

 Roy H. Stahl             42     Senior Vice President and General
                                 Counsel (April 1991 to present) (5)

 Michael P. Graham        46     Senior Vice President - Finance and
                                 Treasurer (March 1993 to present) (6)
 -------------------------

 (1) In addition to the capacities indicated, the individuals named in the above
 table hold other offices or directorships  with subsidiaries of the Registrant.
 Officers serve at the discretion of the Board of Directors.

 (2)   Mr. DeBenedictis was Secretary of the Pennsylvania Department of
 Environmental Resources from 1983 to 1986.  From December 1986 to April 1989,
 he was President of the Greater Philadelphia Chamber of Commerce.  Mr.
 DeBenedictis was Senior Vice President for Corporate and Public Affairs of
 Philadelphia Electric Company from April 1989 to June 1992.

 (3) Mr. Luksa was  Executive  Vice  President of PSW from April 1982 to October
 1986 and from 1971 to April 1982 he was Vice  President  and Chief  Engineer of
 this subsidiary.

 (4) Mr. Riegler was Chief Engineer of Philadelphia  Suburban Water Company from
 1982 to 1984. He then served as Vice  President and Chief Engineer from 1984 to
 1986 and Vice President of Operations from 1986 to 1989.

 (5) From January 1984 to August 1985,  Mr. Stahl was  Corporate  Counsel,  from
 August 1985 to May 1988 he was Vice  President -  Administration  and Corporate
 Counsel  of the  Registrant,  and  from  May  1988 to  April  1991 he was  Vice
 President and General Counsel of the Registrant.

 (6) Mr. Graham was Controller of the Company from 1984 to September 1990, and
 from September 1990 to May 1991 he was Chief Financial Officer and Treasurer.
 From May 1991 to March 1993, Mr. Graham was Vice President - Finance and
 Treasurer.

 Item 11.  Management Remuneration
           -----------------------

   The  information  appearing  in  the  sections  captioned   "Compensation  of
 Directors and Executive  Officers" of the Proxy  Statement  relating to the May
 18, 1995, annual meeting of shareholders of the Company, to be filed within 120
 days after the end of the fiscal year covered by this Form 10-K Report, is
  incorporated by reference herein.

<PAGE> 13


Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

   The  information  appearing in the sections  captioned  "Ownership  of Common
 Stock" of the Proxy Statement  relating to the May 18, 1995,  annual meeting of
 shareholders  of the Company,  to be filed within 120 days after the end of the
 fiscal year  covered by this Form 10-K  Report,  is  incorporated  by reference
 herein.

 Item 13.  Certain Relationships and Related Transactions
           ----------------------------------------------

   The information  appearing in the sections captioned "Other  Remuneration and
 Certain  Transactions"  of the Proxy  Statement  relating to the May 18,  1995,
 annual  meeting of  shareholders  of the  Company,  to be filed within 120 days
 after  the  end of the  fiscal  year  covered  by this  Form  10-K  Report,  is
 incorporated by reference herein.

                                  PART IV
                                  -------

 Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
           ---------------------------------------------------------------

 Financial Statements.  The following is a list of the consolidated financial
 statements of the Company and its subsidiaries and supplementary data
 incorporated by reference in Item 8 hereof:

   Management's Report

   Independent Auditors' Report

   Consolidated Balance Sheets - December 31, 1994 and 1993

   Consolidated Statements of Income - 1994, 1993 and 1992

   Consolidated Statements of Cash Flow -  1994, 1993, and 1992

   Notes to Consolidated Financial Statements

 Financial  Statement   Schedules.   The  financial  statement   schedules,   or
 supplemental  schedules,  filed as part of this annual  report on Form 10-K are
 omitted  because  they are not  applicable  or not  required,  or  because  the
 required  information is included in the consolidated  financial  statements or
 notes thereto.

 Reports on Form 8-K. The Company filed no report on Form 8-K during the quarter
 ended December 31, 1994.

 Exhibits, Including Those Incorporated by Reference. The following is a list of
 exhibits  filed as part of this annual report on Form 10-K.  Where so indicated
 by  footnote,   exhibits  which  were  previously  filed  are  incorporated  by
 reference.  For exhibits incorporated by reference, the location of the exhibit
 in the previous  filing is indicated in  parenthesis.  The page numbers  listed
 refer to page  number  where such  exhibits  are located  using the  sequential
 numbering system specified by Rules 0-3 and 403.



<PAGE> 14


                               EXHIBIT INDEX


 Exhibit No.                                                        Page No.
- - ------------                                                        --------
    3.1    Amended and Restated Articles of Incorporation, as          -
            amended (1) (Exhibit 3.1)

    3.2    By-Laws, as amended (1) (Exhibit 3.2)                       -
 
    4.1    Indenture of Mortgage dated as of January 1, 1941           -
            between Philadelphia Suburban Water Company and
            The Pennsylvania Company for Insurance on Lives
            and Granting Annuities(now First Pennsylvania
            Bank, N.A.), as Trustee, with supplements
            thereto through the Twentieth Supplemental
            Indenture dated as of August 1, 1983 (2)
            (Exhibits 4.1 through 4.16)

    4.2    Revolving Credit Agreement between Philadelphia Suburban    - 
            Water Company and Mellon Bank (East) National Associ-
            ation dated as of February 16, 1990  (3) (Exhibit 4.3)

    4.3    First Amendment to Revolving Credit Agreement between       -
            Philadelphia Suburban Water Company and Mellon Bank
            N.A. dated as of September 1, 1992 (1) (Exhibit 4.3)

    4.4    Preferred Stock Agreement between Philadelphia Suburban     -
            Water Company and Provident Life and Accident Insurance
            Company dated as of January 1, 1991  (3) (Exhibit 4.4)

    4.5    Indenture dated as of July 1, 1988 between Philadelphia     -
            Suburban Corporation and the Philadelphia National
            Bank, as Trustee. (4) (Exhibit 4)

    4.6    Form of Rights Agreement, dated as of February 19, 1988,    -
            between Philadelphia Suburban Corporation and
            Mellon Bank (East) National Association, as amended
            by Amendment No. 1. (5) (Exhibit 1)

    4.7    Agreement to furnish copies of other long-term debt         -
            instruments (1) (Exhibit 4.7)

    4.8    Twenty-first Supplemental Indenture dated as of August 1,   -
            1985  (6) (Exhibit 4.2)

    4.9    Twenty-second Supplemental Indenture dated as of April 1,   -
            1986  (7) (Exhibit 4.3)

    4.10   Twenty-third Supplemental Indenture dated as of April 1,    -
            1987  (8) (Exhibit 4.4)

    4.11   Twenty-fourth Supplemental Indenture dated as of June 1,    -
            1988  (9) (Exhibit 4.5)

    4.12   Twenty-fifth Supplemental Indenture dated as of             -
            January 1, 1990  (10) (Exhibit 4.6)

<PAGE> 15


                          EXHIBIT INDEX, Continued
 Exhibit No.                                                        Page No.
- - ------------                                                        --------

   4.13    Twenty-sixth Supplemental Indenture dated as of November    -
            1, 1991  (11) (Exhibit 4.12)

   4.14    Twenty-seventh Supplemental Indenture dated as of June 1,   -
            1992 (1) (Exhibit 4.14)

   4.15    Twenty-eighth Supplemental Indenture dated as of April      -
            1, 1993 (12) (Exhibit 4.15)

   4.16    Revolving Credit Agreement between Philadelphia             -
            Suburban Water Company and Mellon Bank, N.A., PNC Bank
            National Association, First Fidelity Bank, N.A.
            and Meridian Bank, N.A. dated as of March 17, 1994
            (12) (Exhibit 4.16)

   10.1    1982 Stock Option Plan, as amended and restated effective   -
            May 21, 1992* (1) (Exhibit 10.1)

   10.2    1988 Stock Option Plan, as amended and restated effective   -
            May 21, 1992* (1) (Exhibit 10.2)

   10.3    Executive Incentive Award Plan, as amended March 21,        -
            1989 and February 6, 1990*  (10) (Exhibit 10.3)

   10.4    Excess Benefit Plan for Salaried Employees,                 -
            effective December 1, 1989* (10) (Exhibit 10.4)

   10.5    Supplemental Executive Retirement Plan, effective           -
            December 1, 1989*  (10) (Exhibit 10.5)

   10.6    Supplemental Executive Retirement Plan, effective March     -
            15, 1992* (1) (Exhibit 10.6)

   10.7    1993 Incentive Compensation Plan* (1) (Exhibit 10.7)        -

   10.8    Employment letter agreement with Mr. Nicholas               -
            DeBenedictis* (1) (Exhibit 10.8)

   10.9    1994 Incentive Compensation Program* (12) (Exhibit 10.9)    -

   10.10   1994 Equity Compensation Plan* (12) (Exhibit 10.10)         -

   10.11   1995 Incentive Compensation Plan*                          20

   13.1    Selected portions of Annual Report to                       -
            shareholders for the year ended December 31,
            1993 incorporated by reference in Annual Report
            on Form 10-K for the year ended December 31,
            1993 (12) (Exhibit 13)

   13.2    Selected portions of Annual Report to                      26
            shareholders for the year ended December 31,
            1994 incorporated by reference in Annual Report
            on Form 10-K for the year ended December 31,
            1994


<PAGE> 16


                          EXHIBIT INDEX, Continued
 Exhibit No.                                                        Page No.
- - ------------                                                        --------

   22.     Subsidiaries of Philadelphia Suburban Corporation          64

   24.     Consent of Independent Auditors                            65

   25.     Power of Attorney (set forth as a part of this report)     18

   27.     Financial Data Schedule                                    66

  
<PAGE> 17


                                 - Notes -

                    Documents Incorporated by Reference


  (1)   Filed as an Exhibit to Annual Report on Form 10-K for the year ended
        December 31, 1992

  (2)   Indenture  of  Mortgage  dated as of  January  1, 1941 with  supplements
        thereto through the Twentieth  Supplemental Indenture dated as of August
        1, 1983 were filed as an  Exhibit to Annual  Report on Form 10-K for the
        year ended December 31, 1983.

  (3)   Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1990.

  (4)   Filed as Exhibit 4 to the Registration  Statement on Form S-3 filed with
        the Securities and Exchange Commission on June 14, 1988.

  (5)   Filed as Exhibit 1 to the Registration  Statement on Form 8-A filed with
        the Securities and Exchange Commission on March 1, 1988, with respect to
        the New York Stock  Exchange,  and on November 9, 1988,  with respect to
        the Philadelphia Stock Exchange.

  (6)   Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1985.

  (7)   Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1986.

  (8)   Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1987.

  (9)   Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1988.

  (10)  Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1989.

  (11)  Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1991.

  (12)  Filed as an  Exhibit  to Annual  Report on Form 10-K for the year  ended
        December 31, 1993.

 * Indicates management contract or compensatory plan or arrangement.



<PAGE> 18


                                 SIGNATURES
                                 ----------


   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
 Exchange Act of 1934,  the  Registrant has duly caused this report to be signed
 on its behalf by the undersigned, thereunto duly authorized.

                        PHILADELPHIA SUBURBAN CORPORATION


                             By  Nicholas DeBenedictis
                                 ---------------------
                                 Nicholas DeBenedictis
                                 President and
                                 Chairman



 Date:  March 13, 1995

   Pursuant to the requirements of the Securities and Exchange Act of 1934, this
 report  has been  signed  below  by the  following  persons  on  behalf  of the
 Registrant and in the capacities and on the dates indicated.

   Each  person in so signing  also makes,  constitutes  and  appoints  Nicholas
 DeBenedictis,  President  and Chairman of  Philadelphia  Suburban  Corporation,
 Michael  P.  Graham,   Senior  Vice   President  -  Finance  and  Treasurer  of
 Philadelphia Suburban Corporation, and each of them, his or her true and lawful
 attorneys-in-fact,  in his or her name, place and stead to execute and cause to
 be filed with the Securities and Exchange  Commission any and all amendments to
 this report.



<PAGE> 19





     John H. Austin, Jr.                 Claudio Elia
- - -------------------------------      ---------------------------------
  John H. Austin, Jr.                  Claudio Elia
   Director                             Director


     John W. Boyer, Jr.                  Michael P. Graham
- - -------------------------------      ---------------------------------
  John W. Boyer, Jr.                   Michael P. Graham
   Director                             Senior Vice President - Finance and
                                        Treasurer (principal financial and
                                        accounting officer)


     Mary C. Carroll                     Joseph C. Ladd
- - -------------------------------      ---------------------------------
  Mary C. Carroll                      Joseph C. Ladd
   Director                             Director


     Nicholas DeBenedictis               John F. McCaughan
- - -------------------------------      ---------------------------------
  Nicholas DeBenedictis                John F. McCaughan
   President and Chairman               Director
   (principal executive
   officer) and Director


     G. Fred DiBona, Jr.
- - -------------------------------      ---------------------------------
  G. Fred DiBona, Jr.                  Harvey J. Wilson
   Director                             Director



<PAGE> 20
                                               EXHIBIT 10.11

             PHILADELPHIA SUBURBAN CORPORATION
            PHILADELPHIA SUBURBAN WATER COMPANY
              1995 INCENTIVE COMPENSATION PLAN
              --------------------------------


BACKGROUND
- - ----------


 --  During the first quarter of 1989, the Company and its
     compensation consultant conducted a feasibility study
     to determine whether the Company should implement an
     incentive compensation plan. The study was prompted by
     the positive experience of other investor-owned water
     companies and PSC's experience with incentive
     compensation.

 --  The study included interviews with PSWC and PSC
     executives and an analysis of competitive compensation
     levels. Based on the results, the compensation
     consultant recommended that the Company's objectives
     and competitive practice supported the adoption of an
     annual incentive plan.

 --  The program has two components - a Management Incentive
     Plan and an Employee Recognition Plan.

 --  The Plan is designed to provide an appropriate
     incentive to the officers and managers of the Company
     in the form of proprietary interest in the Company. The
     1995 Management Incentive Plan will cover all officers
     and managers of Philadelphia Suburban Corporation, and
     its subsidiaries, except Utility & Municipal Services,
     Inc., which is covered by a separate incentive bonus
     arrangement based on the profitability of that
     subsidiary.
<PAGE> 21

MANAGEMENT INCENTIVE PLAN
- - -------------------------

 --  Performance Measures
     --   Annual incentive bonus awards are calculated by
          multiplying an individual's Target Bonus by a
          Company Rating factor based on the Company's
          performance and an Individual Rating factor based
          on the individual employee's performance.

          The benefit of having a plan tied to the Company's
          income performance to shareholders is appropriate
          as the participants' assume some of the same risks
          and rewards as the shareholders. Ratepayers,
          however, also benefit as improvements in
          performance is accomplished by controlling costs,
          improving efficiencies, and customer service. For
          these reasons, rate requests should be reduced and
          less frequent, which directly benefits the
          ratepayer and the shareholder.

     --   The Company's actual after-tax net income from
          continuing operations relative to the annual
          budget will be the primary measure for the
          Company's performance. Each year a "Target Net
          Income" level will be established. For purposes of
          the Plan, the Target Net Income may differ from
          the budgeted net income level. For 1995, the
          Target Net Income will exclude the impact of
          adverse PUC or court rulings on FAS 106, the
          effect of any unbudgeted extraordinary gains or
          losses, changes in accounting principles, changes
          in tax rates and any gains or losses related to
          the discontinued operations.

     --   Based on a review of historic performance, the
          minimum or threshold level of performance is set
          at 90 percent of the Target Net Income. That is,
          no bonus awards will be made if actual net income
          is less than 90 percent of the Target Net Income
          for the year. No additional bonus will be earned
          for results exceeding 110 percent of the Target
          Net Income.

     --   Each individual's performance and achievement of
          his or her objectives will also be evaluated and
          factored into the bonus calculation.
<PAGE> 22

 --  Participation
     --   Participation in the Plan will be determined each
          year. Each participant will be assigned a "Target
          Bonus Percentage" ranging from 5 to 40 percent of
          salary depending on duties and responsibilities.

     --   Actual bonuses may range from 0, if the Company's
          financial results fall below threshold or the
          participant's performance rating is below
          expectations, (i.e. performance measure points
          totaling less than 70 points) to 187.5 percent if
          performance -- both company and individual -- is
          rated at the maximum.

     --   Exhibit 1 shows the recommended participants and
          the Target Bonus Percentages for the current year.


 --  Company Performance
     --   Company performance will be measured on the following
          schedule:
                              Percent of          Company
                              1995 Plan           Rating
                              ----------          -------

          Threshold..............  90%              50%
                                   92               65
                                   95               80
                                   96               85
                                   97               90
                                   98               94
                                   99               97
          Plan................... 100              100
                                  105              110
                                 >110              125


     --   Exhibit 2 shows the recommended Company
          Performance Schedule for the current year.

     --   Regardless of the Company rating resulting from
          this Schedule, the Executive Development and
          Compensation and Employee Benefits Committee
          retains the authority to determine the final
          Company Rating for purposes of
          this Plan.
<PAGE> 23

 --  Individual Performance
     --   Individual performance will be measured on the
          following scale:

          Performance Measure                  Individual
               Points                            Rating
          -------------------                  ----------   
               0 - 69                               0%
                 70                                70%
                 80                                80%
                 90                                90%
                100                               100%
                110                               110%
                120                               120%
                130                               130%

 --  In addition, up to 20 additional points may be awarded
     to a participant at the discretion of the Chief
     Executive Officer.

 --  Estimated Cost
     --   Exhibit 3 shows the estimated cost of the 1995
          plan year assuming a 100 percent Company Rating
          and all individuals receive a 100 percent
          Individual Rating.


Sample Calculations
- - -------------------

  -- Example 1
          Salary                   $70,000
          Target Bonus              10 percent ($7,000)
          Company Rating           100 percent
          Individual Rating         90 percent

          Calculation:
                      Company      Individual
     Target Bonus  x  Rating   x     Rating    = Bonus Earned
     ------------     -------      ----------    ------------

       $7,000      x   100%    x        90%    =    $6,300
                                                    ======

  -- Example 2
     --   Using the same salary and target bonus, but
          assuming Company performance was less than 90
          percent of Target Net Income, there would be no
          bonus earned.

          Calculation:
       $7,000     x     0     x     90%     =     0

  -- Example 3
     --   Similarly, if individual Performance is rated
          Below Expectations, no bonus would be earned
          regardless of the Company Rating.

          Calculation:
       $7,000     x     100%   x     0      =     0

<PAGE> 24


EMPLOYEE RECOGNITION PLAN
- - -------------------------

 --  In addition to the Management Incentive Plan, Company
     maintains an Individual Recognition Plan to reward
     employees not eligible for the management plan for
     superior performance or a special action or project
     that positively impacts the financial results or image
     of the Company.

 --  Awards will be made from an annual pool, not to exceed
     $65,000 (which represents approximately .8% of the base
     payroll for the non-union employees who do not
     participate in the Management Incentive Plan),
     established at the beginning of the year. Unused funds
     would not be carried over to the next year.

 --  Awards will be made throughout the year and through the
     first quarter of the following year with payment as
     close to the timing of the event being rewarded as
     possible.

 --  Department Heads may nominate individuals in their unit
     to the applicable Vice President and document the
     reasons for the recommendations. The applicable Vice
     President will review the nominations and forward their
     recommendations to the Chief Executive Officer.

 --  The  Chief Executive Officer will determine the
     individuals to actually receive a bonus and the
     amount.

<PAGE> 25


                                                                  EXHIBIT 1
                                                                  ---------
             PHILADELPHIA SUBURBAN CORPORATION
             ---------------------------------

               Recommended 1995 Participants
               -----------------------------


                                                  TARGET BONUS
NAME                TITLE                          PERCENTAGE
- - ----                -----                         -----------
OFFICERS
- - --------

N. DeBenedictis     Chief Executive Officer            40%
M. Graham           Sr. V.P. Finance and Treasurer     25
R. Riegler          Sr. V.P. Operations                25
R. Stahl            Sr. V.P. Law & Administration      25
M. Coulter          V.P. Production                    20
H. Coleman          V.P. Customer Service              20
R. Hugus            V.P. Corporate Development         25
W. McIntyre         V.P. Maintenance & Construction    15
D. Smeltzer         V.P. Rates/Regulatory Affairs      15
L. Chain            Controller                         15

MANAGERS
- - --------

P. Mycek            Corporate Secretary                 5
Y. Snyder           Mgr., Finance and Budget            5
L. Doyle            Mgr. Meter Operations               5
J. Delzingaro       AMR Project Manger                  5
G. Harmon           Mgr., Customer Service              5
R. Griffin          Mgr., Rates & Revenues              5
D. Mahoney          Mgr., Drafting/Records              5
A. Fernandes        Mgr., Eng. Design/Construction      5
S. Draper           Mgr., MIS                           5
S. Broussard        Mgr., Human Resources               5
R. Rubin            Assist.Controller                   5
G. Smith            Mgr., Facilities                    5
D. Bruce            Mgr., Transportation                5
R. Dollfus          Mgr., Great Valley Division        10
C. Hertz            Mgr., Laboratory Tech. Services    10
J. Grantland        Mgr., Distribution                 10
J. Dennin           Mgr., Eastern Division             10
D. Gorbey           Mgr., Southern & Western Division  10
R. Germon           Mgr., Mech./Elect.                 10
P. Luitweiler       Mgr., Res./Env. Affairs/Grndwater  10
J. Ritter           Mgr., Treatment/Quality Control    10
T. Kiely            Chief Engineer                     10
T. Yohe             Sr. Mgr., Water Quality Group      10
R. Robinson         Sr. Mgr., Special Services         10
M. Kropilak         Corporate Counsel                  10
R. Linneman         Sr. Mgr., Information Services     10
C. Franklin         Sr. Mgr., Corp. & Public Affairs   10
M. Broderick        Financial Information System Spec. 10
D. Donatoni         Sr. Mgr., Marketing & Corp. Devel. 10
R. Cocco            Sr. Mgr., Admin. Support Services  10

UMS
- - ---

R. Harlan           Mgr., IS Customer Service           5
W. Barrett          Mgr., IS Technical Services         5




<PAGE> 26



                                                          EXHIBIT 13.2

               SELECTED PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 1994

             PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF INCOME
             (In thousands of dollars, except per share amounts)
                Years ended December 31, 1994, 1993 and 1992

<TABLE>
<CAPTION>
                                                              1994          1993        1992
                                                              ----          ----        ----
<S>                                                         <C>          <C>          <C>
Earned revenues                                             $ 108,636    $ 101,244    $  93,307

Costs and expenses:
   Operating expenses                                          50,296       45,989       43,024
   Depreciation                                                10,468        9,927        8,646
   Amortization                                                  (138)       1,008          800
   Taxes other than income taxes                                7,165        6,890        6,500
                                                            ---------    ---------    ---------
                                                               67,791       63,814       58,970

Operating income from continuing
   operations                                                  40,845       37,430       34,337
Interest and debt expenses                                     12,896       13,108       15,068
Dividends on preferred stock                                      866          866          866
Allowance for funds used during
   construction                                                  (126)        (805)        (258)
                                                            ---------    ---------    ---------
Income from continuing operations
   before income taxes                                         27,209       24,261       18,661
Provision for income taxes                                     11,571       10,426        8,035
                                                            ---------    ---------    ---------
Income from continuing operations                              15,638       13,835       10,626

Loss on disposition of discontinued operations, including
   provision in 1992 of $2,120 for operating losses since
   the measurement dates, net of
   income tax benefits of $2,950                                 --           --         (5,500)
Extraordinary charge from early
   retirement of debt, net of
   income tax benefits of $429                                   --           --           (834)
                                                            ---------    ---------    ---------
Net Income                                                  $  15,638    $  13,835    $   4,292
                                                            =========    =========    =========

Net income (loss) per share
   Continuing operations                                    $    1.35    $    1.27    $    1.23
   Discontinued operations                                       --           --           (.63)
   Extraordinary charge                                          --           --           (.10)
                                                            ---------    ---------    ---------
     Total                                                  $    1.35    $    1.27    $     .50
                                                            =========    =========    =========
Average common and common equivalent
    shares outstanding during the period                       11,564       10,858        8,635
                                                            =========    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 27


             PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                          (In thousands of dollars)

                         December 31, 1994 and 1993
<TABLE>
<CAPTION>

               Assets                                    1994        1993
               ------                                    ----        ----
<S>                                                   <C>          <C>
Property, plant and equipment, at cost                $ 462,500    $ 433,302
    Less accumulated depreciation                        76,791       67,072
                                                      ---------    ---------
    Net property, plant and equipment                   385,709      366,230
                                                      ---------    ---------
Current assets:
   Cash                                                    (636)        (868)
   Accounts receivable, net                              19,303       18,131
   Inventory, materials and supplies                      1,696        1,721
   Prepayments and other current assets                     594          532
                                                      ---------    ---------
   Total current assets                                  20,957       19,516
                                                      ---------    ---------
Regulatory assets                                        48,334       51,229
Deferred charges and other assets, net                    3,183        2,704
                                                      ---------    ---------
                                                      $ 458,183    $ 439,679
                                                      =========    =========

   Liabilities and Stockholders' Equity
   ------------------------------------
Common stockholders' equity:
   Common stock at par value net of $3,239 and
    $1,257 of Treasury shares in 1994 and 1993        $   2,740    $   4,526
   Capital in excess of par value                       102,564       95,918
   Retained earnings                                     38,491       35,490
                                                      ---------    ---------
   Total common stockholders' equity                    143,795      135,934
                                                      ---------    ---------
Preferred stock of subsidiary with mandatory
    redemption requirements                               7,143       10,000
Long-term debt, excluding current portion               152,195      145,292
Commitments                                                --           --
Current liabilities:
   Current portion of preferred stock of subsidiary
     with mandatory redemption requirements               2,857         --
   Current portion of long-term debt                        887        4,884
   Loans payable                                          4,050          819
   Accounts payable                                       5,626        3,381
   Accrued interest                                       3,346        3,439
   Other accrued liabilities                              9,912        9,269
   Net reserves related to discontinued operations        2,701        2,578
                                                      ---------    ---------
   Total current liabilities                             29,379       24,370
                                                      ---------    ---------
Deferred credits and other liabilities:
   Deferred income taxes and investment tax credits      67,721       69,137
   Customers' advances for construction                  24,713       24,379
   Other                                                 11,028        8,926
                                                      ---------    ---------
   Total deferred credits and other liabilities         103,462      102,442
                                                      ---------    ---------
Contributions in aid of construction                     22,209       21,641
                                                      ---------    ---------
                                                      $ 458,183    $ 439,679
                                                      =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 28


             PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED CASH FLOW STATEMENTS
                          (In thousands of dollars)
                Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>


                                                                  1994       1993        1992
                                                                  ----       ----        ----
<S>                                                            <C>         <C>         <C>
Cash flows from operating activities:
   Income from continuing operations                           $ 15,638    $ 13,835    $ 10,626
   Adjustments to reconcile income from continuing
     operations to net cash flows from operating activities:
    Depreciation and amortization                                10,330      10,935       9,446
    Deferred taxes, net of taxes on
       customers' advances                                        2,693       3,061         399
    Net decrease (increase) in receivables,
       inventory and prepayments                                 (1,209)     (1,438)      1,584
    Net increase in payables and other
       accrued liabilities                                        1,614       1,245       2,019
    Net decrease in accrued
      interest                                                      (93)       (158)       (927)
    Other                                                           134        (540)       (509)
                                                                -------     -------     -------
Net cash flows from operating activities                         29,107      26,940      22,638
                                                                -------     -------     -------
Cash flows from investing activities:
   Property, plant and equipment additions,
     including allowance for funds used during
     construction of $126, $805 and $258                        (27,379)    (27,958)    (21,719)
   Acquisitions of water systems                                   (612)     (1,323)     (9,128)
   Sale of businesses and related assets                           --         1,665         976
   Other                                                            (10)        (40)        190
                                                                -------     -------     -------
Net cash flows from investing activities                        (28,001)    (27,656)    (29,681)
                                                                -------     -------     -------
Cash flows from financing activities:
   Customers' advances and contributions
     in aid of construction, net of
     income tax payments                                          3,149       2,483       3,248
   Repayments of customers' advances                             (2,219)     (2,904)     (2,398)
   Net proceeds (repayments) of short-
     term debt                                                    3,231        (140)        799
   Proceeds from long-term debt                                   7,722      21,839      24,174
   Repayments of long-term debt including
     premium on early retirement                                 (4,884)    (34,559)    (38,008)
   Proceeds from issuing common stock                             6,916      27,749      25,950
   Repurchase of common stock                                    (2,230)       (992)        (26)
   Dividends paid                                               (12,637)    (11,629)     (8,866)
   Other                                                            (45)       (104)       --
                                                                -------     -------     -------
Net cash flows from financing activities                           (997)      1,743       4,873
                                                                -------     -------     -------
Net cash flows from discontinued
   operations                                                       123      (1,183)     (1,537)
                                                                -------     -------     -------
Net increase (decrease) in cash                                     232        (156)     (3,707)
Cash balance (deficit) beginning of year                           (868)       (712)      2,995
                                                                -------     -------     -------
Cash deficit end of year                                       $   (636)   $   (868)   $   (712)
                                                               ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 29
     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

         Notes to Consolidated Financial Statements
    (In thousands of dollars, except per share amounts)


Summary of Significant Accounting Policies
- - ------------------------------------------

Consolidation
- - -------------

   The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which
are wholly-owned. The business of Philadelphia Suburban
Corporation ("PSC" or the "Company") is conducted almost
entirely through its subsidiary, Philadelphia Suburban Water
Company ("PSW"), a regulated public utility. All material
intercompany accounts and transactions have been eliminated.

Recognition of Revenues
- - -----------------------
   Utility revenues include amounts billed to customers on a
cycle basis and unbilled amounts based on estimated usage
from the latest billing to the end of the accounting period.

   Non-utility revenues are recognized when services are
performed.

Property, Plant and Equipment and Depreciation
- - ----------------------------------------------
   Property, plant and equipment consist primarily of
utility plant. The cost of additions includes contracted
cost, direct labor and fringe benefits, materials, overheads
and, for certain utility plant, allowance for funds used
during construction. Utility plant acquired is recorded at
estimated original cost when first devoted to utility
service and the applicable depreciation is recorded to
accumulated depreciation. The difference between the
estimated original cost, less applicable depreciation, and
the purchase price is recorded as an acquisition adjustment
within utility plant. At December 31, 1994, utility plant
includes a credit acquisition adjustment of $8,486 which is
being amortized over 20 years. Consistent with the June 1994
rate settlement, $822 was amortized into income during 1994,
including $338 of amortization related to 1993.

   Utility expenditures for maintenance and repairs,
including minor renewals and betterments, are charged to
operating expenses in accordance with the Uniform System of
Accounts prescribed by the Pennsylvania Public Utility
Commission ("PUC"). The cost of new units of property and
betterment are capitalized. When units of utility property
are replaced, retired or abandoned, the recorded value
thereof is credited to the asset account and such value,
together with the net cost of removal, is charged to
accumulated depreciation.

   The straight-line remaining life method is used to
compute depreciation on utility plant. The straight-line
method is used with respect to transportation and mechanical
equipment and non-utility plant and equipment.



<PAGE> 30
     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


Allowance for Funds Used During Construction
- - --------------------------------------------
   The allowance for funds used during construction
("AFUDC") represents the estimated cost of funds used to
finance the construction of utility plant. AFUDC is applied
to construction projects requiring more than one month to
complete. No AFUDC is applied to projects funded by customer
advances for construction or contributions in aid of
construction. AFUDC includes the net cost of borrowed funds
and a rate of return on other funds when used, and is
recovered through water rates as the utility plant is
depreciated. There was no AFUDC related to equity funds in
1994. The amount of AFUDC related to equity funds was $338
and $147 in 1993 and 1992 respectively.

Deferred Charges and Other Assets
- - ---------------------------------
   Deferred bond and preferred stock issuance expenses are
amortized by the straight-line method over the life of the
related issues.

   Call premiums related to the early redemption of
long-term debt of the utility, along with the unamortized
balance of the related issuance expense, are deferred and
amortized over the life of the long-term debt used to fund
the redemption.

   Expenses associated with filing for rate increases are
deferred and amortized over the estimated period the rates
will be in effect, approximately one year.

   Other costs, for which the Company has received or
expects to receive prospective rate recovery, are deferred
and amortized over the period of rate recovery.

Income Taxes
- - ------------
   Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires a change from
the deferred method of accounting for income taxes of
Accounting Principles Board Opinion ("APB") 11 to the asset
and liability method of accounting for income taxes. The
asset and liability method requires the recognition of
deferred tax liabilities and assets for the expected future
tax consequences attributable to differences between
financial statement carrying amounts of existing assets and
liabilities and their tax carrying values.

   Deferred taxes were not previously provided under APB 11
for those temporary differences for which the tax effects
were flowed through to the ratepayer. The cumulative effect
of the change in accounting for income taxes resulted in a
significant increase in deferred tax liabilities for PSW.
However, it did not have a material effect on net income
since the increase in deferred taxes related to temporary
differences flowed through to the ratepayer was offset by
increases to a regulatory asset and utility plant.


<PAGE> 31

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)

Customers' Advances for Construction
- - ------------------------------------
   Advances are received from customers, real estate
developers and builders, principally for construction of
water main extensions, and are refundable as operating
revenues related to the new main are earned or as new
customers are connected to the main after the completion of
construction. After all refunds are made, any remaining
balance is transferred to contributions in aid of
construction.

Contributions in Aid of Construction
- - ------------------------------------
   Contributions in aid of construction include direct
contributions and the portion of customers' advances for
construction that become non-refundable.

Inventories, Materials and Supplies
- - -----------------------------------
   Inventories are stated at average cost, not in excess of
market value.

Acquisitions
- - ------------
   In December 1994, PSW acquired the franchise rights and
the water utility assets of two privately-owned water
companies for a total of $612 in cash. These water supply
systems are located adjacent to PSW's existing service
territory. The combined annual revenues from these systems
prior to the acquisitions approximated $120.

   In December 1993, PSW acquired the franchise rights and
the water utility assets of the Borough of Malvern for
$1,323 in cash. This water supply system is located in a one
square mile area surrounded by PSW's existing service
territory. Revenues included in the consolidated financial
statements related to the acquired water supply system
amounted to approximately $290 in 1994.

   In December 1992, PSW acquired the franchise rights and
the water utility assets of the West Whiteland Township and
the Uwchlan Township Municipal Authority water systems for
$9,128 in cash and issuance of a 9% installment note for
$1,777. These water supply systems are located in a 40
square mile area contiguous to PSW's service territory.
Revenues included in the consolidated financial statements
related to the acquired water supply systems amounted to
approximately $2,193 and $2,052 in 1994 and 1993,
respectively. Assets acquired in each of the aforementioned
transactions consist primarily of utility plant in service.

   PSW submitted a proposal to purchase the water utility
assets of Media Borough ("Media") for approximately $24,500.
In November 1994, Media announced that it had selected PSW's
proposal, and has since enacted the necessary ordinance
authorizing the transaction. The Media water system covers
over 23 square miles contiguous to PSW's service territory.
Annual revenues from this system approximate $5,000. The
transaction, which is subject to final negotiations and PUC
approval, is expected to be completed in the late spring or
early summer of 1995.

<PAGE> 32

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)

   PSW has also entered into preliminary agreements to
acquire six small water systems for a combined purchase
price of approximately $7,300, including, subject to final
negotiations, the issuance of up to $5,000 of the Company's
preferred stock. These systems cover approximately 40 square
miles adjacent or near to PSW's service territory. The
combined annual revenues of these systems approximate
$1,000. In addition, PSW continues to hold discussions with
several other water systems that are near or adjacent to
it's service territory.

Discontinued Operations
- - -----------------------
   The Board of Directors authorized the sale of
substantially all of the Company's non-regulated businesses.
The decision to sell Mentor Information Systems, Inc.,
Digital Systems, Inc., Stoner Associates, Inc., Kesler
Engineering, Inc. and American Tele/Response Group, Inc.
occurred in September 1990 and the decision to sell PSC
Engineers and Consultants, Inc. occurred in March 1991 (the
measurement dates). During 1991, all these businesses were
sold except for American Tele/Response Group, Inc. and
Kesler Engineering, Inc., which were sold in the first
quarter of 1993. The sale of the two companies in 1993 had
no impact on the results of operations in 1993. As a result
of deterioration in the operating results and backlog of
future work at the remaining businesses for sale during
1992, and a substantial reduction in the estimated net
proceeds from the ultimate disposition of the businesses, a
charge of $5,500 was taken in 1992 to reflect the Company's
revised estimate of the ultimate loss on the disposition of
these businesses.

   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 sheet net of related
income tax benefits, include administrative and legal
services, contingent legal and lease obligations and certain
employee costs. The notes to the consolidated financial
statements relate to continuing operations, except where
otherwise indicated.

   Financial information on the discontinued operations for
the periods prior to their sale is as follows:

                                          Years Ended December 31,
                                          ------------------------
                                            1993            1992
                                            ----            ----
Revenues                                  $  654          $10,693
Operating expenses                         1,783           13,163
                                          ------          -------
Operating loss before income taxes        (1,129)          (2,470)
Income tax benefits                         (378)            (771)
                                          ------          -------
Operating loss                              (751)          (1,699)
Provision for loss on disposal               751           (3,801)
                                          ------          -------
Loss from discontinued operations         $   -           $(5,500)
                                          ======          =======



<PAGE> 33

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   The last of these companies was sold in 1993 and, as
such, operating results are not comparable for the years
presented.

   Operating expenses of the discontinued operations reflect
allocated interest charges of $271 in 1992, and other costs
of $773 and $228, which were specifically associated with
these operations in 1993 and 1992, respectively. During
1994, $162 of payments associated with discontinued
operations were charged to the reserve. In addition,
proceeds of $285 were received during 1994, from the sale of
land that was previously owned by one of the businesses
sold. The proceeds approximated the original cost of the
land, which was included in the reserve. The effective tax
rates of the discontinued operations differ from statutory
rates primarily because of the nondeductibility of goodwill
amortization in computing the taxable loss.

Income Taxes
- - ------------
   As noted in the Summary of Significant Accounting
Policies footnote, the Company adopted SFAS 109 as of
January 1, 1993. Adoption of this standard resulted in a net
increase in deferred tax liabilities as of January 1, 1993
of $47,399 which reflects deferred taxes that had previously
not been recorded by PSW. Offsetting the net increase in
deferred tax liabilities is a regulatory asset of $46,480
and an increase in utility plant of $919. The regulatory
asset represents the expected recovery through future water
rates of the reversal of deferred taxes and investment tax
credits. The increase in utility plant reflects the interest
component of AFUDC that was previously accounted for net of
tax. Consequently, there is no cumulative effect of this
change in the Consolidated Statement of Income for the year
ended December 31, 1993. Prior year financial statements
have not been restated.

   Total income tax expense is allocated as follows:

                                         Years Ended December 31,
                                         ------------------------
                                            1994           1993
                                            ----           ----
Income from continuing operations         $11,571        $10,426
Common stockholders' equity related
  to stock option activity which
  reduces taxable income                      (25)           (65)
                                          -------        -------
                                          $11,546        $10,361
                                          =======        ======= 



<PAGE> 34

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   Income tax expense attributable to income from continuing
operations consists of:
                                             Years Ended December 31,
                                         --------------------------------     
                                           1994        1993        1992
                                           ----        ----        ----
Current:
  Federal                                $  6,670    $  4,538    $  5,273
  State                                     2,685       2,879       2,401
                                         --------    --------    --------
                                            9,355       7,417       7,674
                                         --------    --------    --------
Deferred:
  Federal                                   2,303       3,377         500
  State                                       (87)       (368)       (139)
                                         --------    --------    --------
                                            2,216       3,009         361
                                         --------    --------    --------
Total tax expense                        $ 11,571    $ 10,426    $  8,035
                                         ========    ========    ========

   The significant components of deferred income tax expense
are as follows:
                                              Years Ended December 31,
                                          --------------------------------     
                                           1994        1993        1992
                                           ----        ----        ----
Excess of tax over financial
  statement depreciation                  $ 2,791     $ 2,112     $ 2,009
 Amortization of deferred investment
  tax credits                                (151)       (152)       (151)
Current year investment tax credits
  deferred                                     75          93         133
Differences in basis of fixed
  assets due to variations in tax and
  book accounting methods that reverse
  through depreciation                        902         889         466
Customers' advances for construction,
  net                                        (657)       (934)       (678)
Effect of change in tax accounting
  method                                       --         --         (866)
Adjustment to deferred tax assets and
  liabilities for enacted changes in
  tax rates                                (4,220)      2,120         --
Adjustment to recognize future rate
  recovery                                  4,220      (2,116)        --
Other, net                                   (744)        997        (552)
                                          -------    --------     -------
Total deferred income tax expense         $ 2,216     $ 3,009     $   361
                                          =======     =======     =======


   The statutory Federal tax rate increased to 35% in 1993.
The Pennsylvania Corporate Net Income Tax rate decreased to
11.99% in 1994, 10.99% in 1995, 10.75% in 1996, and 9.99% in
1997 and thereafter.



<PAGE> 35

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   The reasons for the differences between amounts computed
by applying the statutory Federal income tax rate to income
before Federal tax and the actual Federal tax expense are as
follows:
                                              Years Ended December 31,
                                          --------------------------------     
                                           1994        1993        1992
                                           ----        ----        ----

Computed Federal tax expense at
  statutory rate                          $ 8,614     $ 7,613     $ 5,576
Increase (decrease) in tax expense
  for items to be
  recovered in future rates:
    Depreciation expense                      154         151         126
    Losses on asset disposals                 (10)       (49)        (67)
Amortization of deferred investment
  tax credits                                (151)       (153)       (151)
Preferred stock dividend                      303         303         294
Adjustment to deferred tax assets and
  liabilities for enacted changes
  in tax rates                             (4,220)      2,120        --
Adjustment to recognize future rate
  recovery                                  4,220      (2,116)       --
Other, net                                     63          46          (5)
                                          -------     -------     -------
Actual Federal tax expense                $ 8,973     $ 7,915     $ 5,773
                                          =======     =======     ======= 

   The tax effects of temporary differences between book and
tax accounting that give rise to the deferred tax assets and
deferred tax liabilities are as follows:
                                                          December 31,
                                                      -------------------
                                                        1994        1993
                                                        ----        ----
  Deferred tax assets:
  Customers' advances for construction                $ 9,507     $ 8,851
  Costs expensed for book not deducted
    for tax, principally accrued expenses
    and bad debt reserves                               1,217         845
  Other                                                   363         386
                                                      -------     -------
  Total gross deferred tax assets                      11,087      10,082
  Less valuation allowance                               --          --
                                                      -------     -------
Net deferred tax assets                                11,087      10,082
                                                      -------     -------
Deferred tax liabilities:
  Utility Plant, principally due to
    depreciation and differences in the basis
    of fixed assets due to variation in tax 
    and book accounting                                56,360      54,269
  Deferred taxes associated with the gross-up
    of revenues necessary to recover, in rates,
    the effect of temporary differences                17,722      19,864
  Deferred investment tax credit                        4,424       4,500
  Other                                                   302         586
                                                      -------     -------
Total gross deferred tax liabilities                   78,808      79,219
                                                      -------     -------
Net deferred tax liability                            $67,721     $69,137
                                                      =======     =======
<PAGE> 36

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   The Company made income tax payments, which include
amounts related to discontinued operations, of $8,818,
$7,786 and $5,134 in 1994, 1993 and 1992, respectively. The
Company's Federal income tax returns for all years through
1991 have been closed.

Accounts Receivable
- - -------------------
                                                          December 31,
                                                      -------------------
                                                        1994        1993
                                                        ----        ----
Billed water revenue                                  $ 8,267     $ 7,299
Unbilled water revenue                                 11,014      10,531
Non-utility revenue                                       222         501
                                                      -------     -------
                                                       19,503      18,331
Less allowance for doubtful accounts                      200         200
                                                      -------     -------
Net accounts receivable                               $19,303     $18,131
                                                      =======     =======

   All of the Company's customers are located in
southeastern Pennsylvania. No single customer accounted for
more than five percent of the Company's sales in 1994 or
1993 and no account receivable from any customer exceeded
five percent of the Company's total stockholders' equity.

Property, Plant and Equipment
- - -----------------------------
                                                          December 31,
                                                      -------------------
                                                        1994        1993
                                                        ----        ----
   Utility plant and equipment                       $455,926    $428,737
   Utility construction work in progress                4,301       2,307
   Non-utility plant and equipment                      2,273       2,258
                                                     --------    --------
   Total property, plant and equipment               $462,500    $433,302
                                                     ========    ========

   Depreciation is computed based on estimated useful lives
of 5 to 110 years for utility plant and 3 to 10 years for
both utility transportation and mechanical equipment, and
all non-utility plant and equipment.

Regulatory Asset
- - ----------------
   A regulatory asset was established in 1993 in recognition
of the expected recovery through future water rates of the
additional liabilities associated with the adoption of
Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106") and SFAS 109 "Accounting for
Income Taxes". The components of the regulatory asset are as
follows:
                                                          December 31,
                                                      -------------------
                                                        1994        1993
                                                        ----        ----
   Income Taxes                                       $45,952     $49,533
   Postretirement Benefits other than Pensions          2,382       1,696 
                                                      -------     -------
                                                      $48,334     $51,229
                                                      =======     =======






<PAGE> 37

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


Commitments
- - -----------

   PSW maintains agreements with the Chester Water Authority
and the Bucks County Water and Sewer Authority for the
purchase of water in order to supplement its water supply,
particularly during periods of peak demand. The agreements
stipulate purchases of minimum quantities of water to the
year 2017. The estimated annual commitments related to such
purchases total approximately $2,637 through 1999. PSW
purchased approximately $3,322, $2,922 and $2,649 of water
under these agreements during the years ended December 31,
1994, 1993 and 1992, respectively.

   PSW leases motor vehicles and other equipment under
operating leases which are non-cancelable and expire on
various dates through 1999. During the next five years,
$1,559 of future minimum lease payments are due: $662 in
1995, $417 in 1996, $294 in 1997, $155 in 1998 and $31 in
1999. Rent expense was $979, $1,134 and $1,019 for the years
ended December 31, 1994, 1993 and 1992, respectively.

<PAGE> 38

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


Long-term Debt and Loans Payable
- - --------------------------------
                                                   December 31,
                                               -------------------
                                                   1994     1993
                                                   ----     ----

First Mortgage Bonds secured by utility plant:
    4.550% Series,  due 1994  (a)              $     -   $  4,000
    5.500% Series,  due 1996  (a)                 4,000     4,000
    7.875% Series,  due 1997  (a)                 5,000     5,000
    8.440% Series,  due 1997  (c)                12,000    12,000
    8.400% Series,  due 2002  (b)                 4,600     5,050
    5.950% Series,  due 2002  (b)                 3,200     3,600
   13.000% Series,  due 2005  (b)                 8,000     8,000
   10.650% Series,  due 2006  (b)                10,000    10,000
    9.890% Series,  due 2008  (c)                 5,000     5,000
    7.150% Series,  due 2008  (b)                22,000    22,000
    9.120% Series,  due 2010  (c)                20,000    20,000
    6.500% Series,  due 2010  (b)                 3,200     3,200
    9.170% Series,  due 2011  (c)                 5,000     5,000
    9.930% Series,  due 2013  (c)                 5,000     5,000
    9.970% Series,  due 2018  (c)                 5,000     5,000
    9.170% Series,  due 2021  (b)                 8,000     8,000
    9.290% Series,  due 2026  (c)                12,000    12,000
                                               --------  --------
Total First Mortgage Bonds                      132,000   136,850
Note payable to bank under revolving
  credit agreement, due March 1998               19,370        -
Note payable to bank under revolving
  credit agreement, due February 1994                -     11,580
Installment note payable, 9%, due in
  equal annual payments through December
  2013                                            1,712     1,746
                                               --------  --------
                                                153,082   150,176
Current portion of long-term debt                   887     4,884
                                               --------  --------
Long-term debt, excluding current
  portion                                      $152,195  $145,292
                                               ========  ========
Proforma weighted cost of long-term
  debt at December 31,                              8.5%      8.4%
                                               ========  ========   

(a) Provisions of PSW's trust indenture and supplements
thereto relating to these First Mortgage Bonds require
sinking fund payments amounting to 1/2 of 1% of the maximum
aggregate principal amount of these bonds outstanding. These
sinking fund payments may be deferred until final maturity
by certification to the Trustee of the net amount of
available permanent additions to utility plant. All prior
sinking fund requirements have been deferred by such
certification and it is expected that they will be deferred
in the same manner until these bonds mature.

(b) The supplemental trust indentures relating to these
First Mortgage Bonds require annual sinking fund payments.

(c) The supplemental trust indentures relating to these
First Mortgage Bonds require no annual sinking fund
payments.



<PAGE> 39

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)

   The supplemental indentures with respect to certain
issues of the First Mortgage Bonds restrict the ability of
PSW to declare dividends, in cash or property, or repurchase
or otherwise acquire PSW's stock. As of December 31, 1994,
approximately $67,000 of retained earnings were free of
these restrictions. Certain supplemental indentures also
prohibit PSW from making loans to or purchasing the stock of
the Company.

   Excluding amounts due under PSW's revolving credit
agreement, the Company's sinking fund payments and debt
maturities for the next five years are as follows:

                           1995     1996      1997     1998     1999
                           ----     ----      ----     ----     ----
Sinking fund payments   $   850   $ 1,650   $ 2,650   $4,650   $4,650
Maturities                   37     4,040    17,044       48       52
                        -------   -------   -------   ------   ------
Total                   $   887   $ 5,690   $19,694   $4,698   $4,702
                        =======   =======   =======   ======   ======

   In April 1993, PSW issued $22,000 First Mortgage Bonds
7.15% Series due 2008. Proceeds from this issue were used to
fund the 1993 retirement of the First Mortgage Bonds noted
below and to repay amounts outstanding under PSW's revolving
credit agreement.

   In May 1993, PSW retired $4,400 First Mortgage Bonds
10.125% Series due 1995 and $3,150 First Mortgage Bonds 9.2%
Series due 2001 at premiums of .447% or $20 and 3.07% or
$97, respectively. In August 1993, PSW retired $10,000 First
Mortgage Bonds 12.45% Series due 2003 at a premium of 5.12%
or $512. The unamortized bond issuance expenses related to
the 1993 retirements were $28. The premiums paid on the
early retirement of debt, along with the related unamortized
bond issuance expense, were capitalized and are being
amortized, in accordance with the Uniform System of Accounts
prescribed by the PUC, over the life of the long-term debt
used to fund the redemption.

   In February 1994, PSW entered into a new $30,000
revolving credit agreement due March 1998 with four banks.
Interest under this facility is based, at PSW's option, on
the prime rate, an adjusted federal funds rate, an adjusted
certificate of deposit rate corresponding to the interest
period selected, an adjusted Euro-Rate corresponding to the
interest period selected or at rates offered by the banks.
This agreement restricts the total amount of short-term
borrowings of PSW. A commitment fee of 1/8 of 1% is charged
on the unused portion of the loan.

   The $22,000 revolving credit facility which expired in
February 1994 was repaid with proceeds from the new
revolving credit facility. The terms of this facility and
the interest rate selection were substantially the same as
the new facility. At December 31, 1993, $11,580 borrowed
under this revolving credit agreement was classified as
long-term debt because funds from the new facility were used
to repay amounts outstanding. The combined average cost of
borrowing under both revolving credit facilities was 4.8%
and 4.0%, and the average borrowing was $19,136 and $11,723,
during 1994 and 1993, respectively.



<PAGE> 40

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   At December 31, 1994 and 1993, the Company and PSW had
combined short-term lines of credit of $10,000 and $4,000,
respectively. Funds borrowed under these lines are
classified as loans payable and are used to provide working
capital. The average borrowing under the lines was $880 and
$393 during 1994 and 1993, respectively. The maximum amount
outstanding at the end of any one month was $4,050 in 1994
and $819 in 1993. Interest under the lines is based at the
Company's option, depending on the line, on the prime rate,
an adjusted Euro-Rate, an adjusted federal funds rate or at
rates offered by the banks. The average cost of borrowings
under all lines during 1994 and 1993 was 6.3% and 4.4%,
respectively.

   During 1992, the Company retired $25,000 of the 10.125%
Debentures due 1998 at a premium of 4.27%. The premium, plus
the write-off of the associated bond issuance expense, net
of income tax benefits, have been classified as an
extraordinary charge in the Company's Consolidated
Statements of Income.

   The total amount of interest paid on all borrowings, net
of amounts capitalized, was $13,729, $13,327 and $16,876 in
1994, 1993 and 1992, respectively.

Fair Value of Financial Instruments
- - -----------------------------------

   The carrying amount of current assets and liabilities
that are considered financial instruments approximates their
fair value as of the dates presented. The carrying amounts
and estimated fair values of the Company's long-term
financial liabilities as of December 31, 1994 are as
follows:

                                                                    Estimated
                                                         Carrying      fair
                                                          amount       value
                                                        ---------  -----------

Long-term debt                                          $153,082    $162,033
Preferred stock of subsidiary
   with mandatory redemption requirements                 10,000      10,054

   The fair value of long-term debt and preferred stock has
been determined by discounting their future cash flows using
current market interest or dividend rates for similar
financial instruments of the same duration. The Company's
customers' advances for construction and related tax
deposits have carrying values of $24,713 and $6,764,
respectively at December 31, 1994. Their relative fair
values cannot be accurately estimated since future refund
payments depend on several variables, including new customer
connections, customer consumption levels and future rate
increases. Portions of these non-interest bearing
instruments are payable annually through 2016, and amounts
not paid by the contract expiration dates become
non-refundable. The fair value of these amounts would,
however, be less than their carrying value due to the
non-interest bearing feature.



<PAGE> 41

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


Preferred Stock of Subsidiary with Mandatory Redemption Requirements
- - --------------------------------------------------------------------

   PSW is authorized to issue up to 1,000,000 shares of
preferred stock, with stated par value, in one or more
series. In 1991, PSW issued 100,000 shares of 8.66% Series 1
Cumulative Preferred Stock, at par value of $100 per share
in a private placement. Dividends on this issue are payable
quarterly and are cumulative. PSW may not pay dividends on
its common stock unless provision has been made for payment
of the preferred dividends. As of December 31, 1994, all
preferred dividends have been provided for. These shares are
subject to mandatory annual redemption equal to the par
value of 14,285 shares plus accrued dividends starting in
1995. In addition, PSW has the right to call 14,285 shares
per year starting in 1995, up to a maximum of 15,000 shares
over the life of the issue, at par, and the balance
beginning in 1998 at a specified price above par.

   In December 1994, PSW provided notice to the holder of
the preferred stock of its intention to call 14,285 shares
at par value in January 1995 in addition to the mandatory
redemption of 14,285 shares required by the share purchase
agreement and, therefore, $2,857 has been classified as the
current portion of preferred stock as of December 31, 1994.

Net Income per Share and Equity per Common Share
- - ------------------------------------------------

   Net income per share is based on the weighted average number of common
and dilutive common equivalent shares outstanding during the year.  Common
equivalent shares arise from stock options.

   Equity per common share was $12.27 and $11.89 at December
31, 1994 and 1993, respectively. These amounts were computed
by dividing common stockholders' equity by the number of shares 
of common stock outstanding at the end of each year.

Common Stockholders' Equity
- - ---------------------------

   At December 31, 1994, the Company had 20,000,000 shares
of common stock authorized; par value $.50. Shares
outstanding at December 31, 1994, 1993 and 1992 were
11,717,990, 11,429,968 and 9,831,824, respectively. Treasury
shares held at December 31, 1994, 1993 and 1992 were
240,737, 135,472 and 83,837, respectively.



<PAGE> 42

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   At December 31, 1994, the Company had 1,770,819 shares of
authorized but unissued Series Preferred Stock, $1.00 par
value.
<TABLE>
<CAPTION>

                                                                 Capital in
                                     Common       Treasury        excess of      Retained
                                     stock         stock          par value      earnings        Total
                                     ------       --------       ----------      --------        -----
<S>                                <C>           <C>              <C>           <C>            <C>           
Balance at December 31, 1991       $   4,058      $   (239)       $43,944       $  37,858      $  85,621
Net income                              --            --             --             4,292          4,292
Dividends                               --            --             --            (8,866)        (8,866)
Sale of stock                            869          --           24,322            --           25,191
Repurchase of stock                     --             (26)          --              --              (26)
Exercise of stock options                 31          --              728            --              759
                                   ---------     ---------        -------       ---------       --------
Balance at December 31, 1992           4,958          (265)        68,994          33,284        106,971
                                   ---------     ---------        -------       ---------       --------
Net income                              --            --             --            13,835         13,835
Dividends                               --            --             --           (11,629)       (11,629)
Sale of stock                            759          --           25,111            --           25,870
Repurchase of stock                     --            (992)          --              --             (992)
Exercise of stock options                 66          --            1,813            --            1,879
                                   ---------     ---------        -------       ---------       --------
Balance at December 31, 1993           5,783        (1,257)        95,918          35,490        135,934
                                   ---------     ---------        -------       ---------       --------
Net income                              --            --             --            15,638         15,638
Dividends                               --            --             --           (12,637)       (12,637)
Sale of stock                            175           248          6,022            --            6,445
Repurchase of stock                     --          (2,230)          --              --           (2,230)
Executive Incentive Award Plan             5          --              174            --              179
Exercise of stock options                 16          --              450            --              466
                                   ---------     ---------        -------       ---------       --------
Balance at December 31, 1994       $   5,979     $  (3,239)     $      10       $  38,491      $ 143,795
                                   =========     =========      =========       =========      =========
</TABLE>

      In April 1993, the Company issued 1,100,000 shares of
its common stock through a public offering, resulting in
proceeds of $18,331, net of expenses. The proceeds of the
offering and the stock programs described below were used by
the Company to fund $29,000 of equity investments in PSW
during 1993.

      The Company has a Customer Stock Purchase Program for
PSW's customers, and a Dividend Reinvestment and Optional
Stock Purchase Program for existing shareholders. Reinvested
dividends can be used to purchase shares of common stock at
a five percent discount from the current market value under
the Dividend Reinvestment Program. Under these programs,
350,818, 417,501 and 1,737,461 shares of common stock were
sold providing the Company with $6,191, $7,539 and $25,191
of additional capital, after expenses, during 1994, 1993 and
1992, respectively.



<PAGE> 43

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


      In August 1993, the Board of Directors approved a
resolution authorizing the Company to purchase, from time to
time, up to 250,000 shares of its common stock in the open
market or through privately negotiated transactions. The
number of shares purchased by the Company, if any, is
limited to the number of shares sold under its Employee
Stock Option Plans, Customer Stock Purchase Program,
Dividend Reinvestment Program or Optional Stock Purchase
Program. The purchase of shares has been authorized in order
to offset the dilutive effect on earnings per share of
issuances of additional shares under these programs. Funding
for any stock purchases is not expected to have a material
impact on the Company's financial position. During 1994 and
1993, 118,867 and 51,635 shares have been purchased at a net
cost of $2,230 and $992, respectively.

Shareholder Rights Plan
- - -----------------------
      The Company has a Shareholder Rights Plan designed to
protect the Company's shareholders in the event of an
unsolicited unfair offer to acquire the Company. Each
outstanding common share is entitled to one Right which is
evidenced by the common share certificate. In the event that
any person acquires 25% or more of the outstanding common
shares or commences a tender or exchange offer which, if
consummated, would result in a person or corporation owning
at least 30% of the outstanding common shares of the
Company, the Rights will begin to trade independently from
the common shares and, if certain circumstances occur,
including the acquisition by a person of 25% or more of the
outstanding common shares, each Right would then entitle its
holder to purchase a number of common shares of the Company
at a substantial discount. If the Company is involved in a
merger or other business combination at any time after the
Rights become exercisable, the Rights will entitle the
holder to acquire a certain number of shares of common stock
of the acquiring company at a substantial discount. The
Rights are redeemable by the Company at a redemption price
of $.02 per Right at any time before the Rights become
exercisable. The Rights will expire on March 1, 1998, unless
previously redeemed.

Employee Stock and Incentive Plans
- - ----------------------------------
       In May 1994, the 1994 Equity Compensation Plan ("1994
Plan") was approved by the shareholders to replace the 1988
Stock Option Plan ("1988 Plan"). Under the 1994 Plan the
Company may grant qualified and non-qualified stock options
to officers, key employees and consultants. Officers and key
employees may also be granted dividend equivalents and
restricted stock. The 1994 Plan authorizes up to 450,000
shares of common stock for issuance under the plan, with the
maximum number of restricted stock grants limited to 25,000
shares. The 1988 Plan provided only for the issuance of
qualified and non-qualified stock options. Awards under
these plans are made by the Board of Directors ("Board")or a
committee of the Board.



<PAGE> 44

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


       Options under both the 1994 and 1988 plans, as well
as an earlier 1982 Stock Option Plan for which 32,416
options are still outstanding, were issued at the market
price of the stock on the day of the grant. Options are
exercisable in installments ranging from 20% to 33% annually
starting one year from the date of the grant and expire 10
years from the date of the grant.

   The following table summarizes stock option transactions
for the three plans:
                                             Years Ended December 31,
                                         -------------------------------
                                           1994        1993        1992
                                           ----        ----        ----
       Options granted                   115,500     128,000     130,000
       Options terminated                 (7,000)    (95,100)     (2,500)
       Options exercised                 (32,469)   (136,800)    (61,550)
                                         -------    --------     -------
       Net change                         76,031    (103,900)     65,950
                                         =======    ========     =======
       Balance of shares under option    460,331     384,300     488,200
                                         =======    ========     =======

   Options exercised during 1994 ranged in price from $12.88
per share to $17.13 per share. The shares under option at
December 31, 1994 are exercisable at prices ranging from
$12.88 to $17.94 per share. At December 31, 1994, 156,891
shares were exercisable, and 324,500 options under the 1994
Plan were available for grant.

       Dividend equivalents provide the grantee with an
amount equal to the dividends paid on a share of common
stock over a specified period of time, not to exceed four
years, multiplied by the number of dividend equivalents
awarded. Payments of these awards are deferred until the
completion of certain objectives during a performance period
established by the Board at the time of grant. A performance
period is generally four years but may be adjusted by the
Board to as long as eight years or as short as two years
depending on the success in completing the objectives.
Dividend equivalents are "compensatory" and as such, are
charged to operating expense over the performance period.
The effect of changes to the performance period are accrued
when known or projected. During the year, the Board granted
43,500 dividend equivalents and $77 of costs associated with
these awards were charged to operating expense.

       Restricted stock awards provide the grantee with the
rights of a shareholder, including the right to receive
dividends and to vote such shares, but not the right to sell
or otherwise transfer the shares during the restriction
period. The value of restricted stock awards, which are
"compensatory", is equal to the fair market value of the
stock on the date of the grant less payments made by the
grantee and this amount is amortized ratably over the
restriction period. During the year, 10,000 shares of
restricted stock were granted with restriction periods of 1
to 3 years. During the year, the restrictions on a 1989
award of 10,000 shares under a prior plan lapsed and the
shares were released to the grantee.


<PAGE> 45

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


Pension Plans and Other Postretirement Benefits
- - -----------------------------------------------

   The Company has defined benefit pension plans which cover
the majority of full-time employees. Retirement benefits
under the plans are generally based on the employee's total
years of service and compensation during the last five years
of employment. The Company's policy is to fund these plans
annually at a level which is deductible for income tax
purposes and which provides assets sufficient to meet its
pension obligations. As a result of certain limitations
imposed by the Internal Revenue Code with respect to
payments under qualified plans, the Company, in 1989,
adopted a non-qualified Excess Benefit Plan for Salaried
Employees in order to prevent certain employees from being
penalized by these limitations. The Company also has a
non-qualified Supplemental Executive Retirement Plan for two
employees. The net pension costs and obligations of the
qualified and non-qualified plans are included in the tables
which follow.

   The Company's pension expense includes the following
components:

                                                  Years Ended December  31,
                                                ----------------------------
                                                  1994      1993       1992
                                                  ----      ----       ----
       Benefits earned during the year          $1,183     $1,062     $  897
       Interest cost on projected benefit
         obligation                              3,161      3,026      2,758
       Actual return on plan assets              1,218     (4,989)    (2,571)
       Net amortization and deferral            (4,679)     1,643       (764)
       Capitalized costs                           (74)       (69)        -
       Rate-regulated adjustment                  (386)      (375)      (320)
                                               -------     ------     ------
       Net pension cost                         $  423     $  298     $   -
                                                ======     ======     ======

   The rate-regulated adjustment set forth above is required
in order to reflect pension expense for PSW in accordance
with the method used in establishing the current water
rates.



<PAGE> 46

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)

   The assets and obligations of the plans are as follows:

                                                          December 31,
                                                   -----------------------      
                                                       1994         1993
                                                       ----         ----
       Accumulated benefit obligation:
         Vested                                     $ 30,786      $ 32,869
         Nonvested                                     1,702         1,892
                                                    --------      --------
         Total                                      $ 32,488      $ 34,761
                                                    ========      ========
       Projected benefit obligation                 $ 38,704      $ 43,551
       Plan assets at fair value,
         primarily equity and fixed
         income commingled funds                      38,941        41,744
                                                    --------      --------
       Plan assets in excess of (less than)
         projected benefit obligation                    237        (1,807)
       Unrecognized net loss (gain) from
         past experience different from
         that assumed and effects of
         changes in assumptions                       (2,583)          948
       Unrecognized prior service cost                 1,510           533
       Rate-regulated adjustment                          59          (328)
       Unrecognized net obligation                       630           718
                                                    --------      --------
       Prepaid (accrued) pension costs included
         in other current assets                    $   (147)     $     64
                                                    ========      ========

       The accumulated benefit obligation represents the
actuarial present value of benefits based on historical
compensation and historical years of service. The projected
benefit obligation represents the actuarial present value of
benefits based on future projected compensation levels and
historical years of service. The unrecognized net obligation
is being amortized over 15 years starting January 1986 and
the unrecognized prior service cost is being amortized over
14 years starting January 1990.

   The accumulated and projected benefit obligations were
calculated using the projected unit credit method, and
reflect the following assumptions: discount rates of 8.5%
for 1994, 7.00% for 1993 and 8.00% for 1992; increase in
future compensation levels of 5.5% for 1994 and 1993, and
6.5% for 1992; and long-term rate of return on assets of 9%
for 1994, and 10% for 1993 and 1992.

   In addition to providing pension benefits, PSW offers
certain Postretirement Benefits other than Pensions
("PBOPs") to employees retiring with at least 15 years of
service. These PBOPs include continuation of medical and
prescription drug benefits for all eligible retirees and a
life insurance policy for eligible union retirees.



<PAGE> 47

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)

   In January 1993, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other
Than Pensions". Under SFAS 106, the cost of PBOPs is
recognized on an accrual basis as employees perform services
for the Company. Prior to 1993, the costs for these benefits
were recognized on a cash, or "pay-as-you-go" basis.

   The difference between the PBOP costs computed under the
requirements of SFAS 106 and the pay-as-you-go costs during
the period from the adoption of SFAS 106 in January 1993 to
June 1994 was deferred. During this period, $2,456 of PBOP
costs, including $760 during 1994, were deferred as a
regulatory asset in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation". The rate increase that was
effective in June 1994 included recovery of the current PBOP
costs computed under SFAS 106 as well as an amortization of
the PBOP costs previously deferred.


                                     Years Ended December  31,
                                     -------------------------
                                           1994      1993
                                           ----      ----
Benefits earned during the period        $  359    $  325
Interest cost                             1,077     1,192
Amortization of APBO                        743       743
Amortization of regulatory asset             74        -
                                         ------    ------ 
Gross PBOP cost                           2,253     2,260
Capitalized costs                           (45)        -
Adjustment to recognize future rate
 recovery                                  (760)   (1,696)
                                         ------    ------ 
Net PBOP cost                            $1,448    $  564
                                         ======    ======

   As of January 1, 1994, the Company's Accumulated
Postretirement Benefit Obligation ("APBO") related to SFAS
106 was approximately $15,580. The APBO is calculated
utilizing the following assumptions: discount rate of 8.5%;
medical inflation rates of 12%, reducing to 5% in 1994 for
those employees not eligible by December 31, 1993, and to
4.5% by 2002 for all others; and no return on plan assets.
The effect of a 1% increase in the assumed medical inflation
rates would be to increase the APBO and the 1994 PBOP costs
by $893 and $182, respectively.

   The Company has not begun funding its SFAS 106 liability
but expects to do so in the second quarter of 1995.

Water Rates
- - -----------

   PSW was permitted by the PUC to increase its base rates
by 9.05% and 7.4% effective June 17, 1994 and June 1, 1993,
respectively. These increases were calculated to provide
additional annual revenues of approximately $9,050 and
$6,750, respectively. As a part of the 1994 base rate
increase, PSW agreed not to file for a new base rate
increase prior to April 1, 1995, absent extraordinary
circumstances.


<PAGE> 48

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

   Notes to Consolidated Financial Statements (continued)
    (In thousands of dollars, except per share amounts)


   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
Pennsylvania tax rate decreases. In the period from August
1991 through June 1993, PSW was permitted to add a bill
surcharge in order to recover costs associated with
Pennsylvania tax rate increases. The credit decreased
revenues in 1994 by $97, while the surcharge increased
revenues in 1993 and 1992 by $706 and $2,281, respectively.



<PAGE> 49

                    MANAGEMENT'S REPORT
                    -------------------

   The consolidated financial statements and related
information for the years ended December 31, 1994, 1993 and
1992 were prepared by management in accordance with
generally accepted accounting principles and include manage-
ment's best estimates and judgments, as required. Financial
information included in other sections of this annual report
is consistent with that in the consolidated financial
statements.

   The Company has an internal accounting control structure
designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly authorized
and recorded in accordance with established policies and
procedures. The internal control structure is supported by
the selection and training of qualified personnel, the
delegation of management authority and responsibility and
dissemination of policies and procedures.

   The Company's independent auditors, KPMG Peat Marwick
LLP, provide an independent review of management's reporting
of results of operations and financial condition. KPMG has
audited the financial statements by conducting tests as they
deemed appropriate and their report follows.

   The Board of Directors through the Audit Committee
selects the Company's independent auditors and reviews the
scope and results of their audits. The Audit Committee also
reviews the adequacy of the Company's internal control
structure and other significant matters. The Audit Committee
is composed of three outside Directors who meet periodically
with management and the independent auditors. The Audit
Committee held two meetings in 1994.





Nicholas DeBenedictis                       Michael P. Graham
     Chairman &                      Senior Vice President - Finance
     President                                 & Treasurer

<PAGE> 50


                INDEPENDENT AUDITORS' REPORT


The Stockholders and Board of Directors
Philadelphia Suburban Corporation:

   We have audited the accompanying consolidated balance
sheets of Philadelphia Suburban Corporation and subsidiaries
as of December 31, 1994 and 1993, and the related
consolidated statements of income, and cash flows for each
of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.

   We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Philadelphia Suburban Corporation
and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994,
in conformity with generally accepted accounting principles.

   As discussed in the notes to the consolidated financial statements, the
Company adopted in 1993 the provisions of Financial Accounting Standards Board
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions".


                                                KPMG PEAT MARWICK LLP

Philadelphia, Pennsylvania
February 7, 1995

<PAGE> 51

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF
       FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       ---------------------------------------------
    (in thousands of dollars, except per share amounts)

General Information
- - -------------------
     Philadelphia Suburban Corporation ("PSC" or the
"Company") 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.). The service bureau operations are
not significant to the financial results of the Company and,
therefore, are not discussed separately.

     In the first quarter of 1993, the Company completed the
sale of the last of the five non-regulated businesses that
the Board of Directors had previously authorized in late
1990 and early 1991. The results of operations of these
businesses during the period they were owned by the Company
are accounted for as discontinued operations. Unless
otherwise noted, this discussion is limited to the
continuing operations of the Company.

Results of Operations
- - ---------------------

   Following are selected five-year financial statistics for
the Company:
<TABLE>
<CAPTION>


Years ended December 31,                     1994        1993       1992       1991      1990
- - -------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>        <C>        <C>
Earned revenues                            $108,636   $101,244     $93,307    $88,648    $82,267
- - -------------------------------------------------------------------------------------------------
Income from continuing operations
  before income taxes                       $27,209    $24,261     $18,661    $17,260    $15,569
- - -------------------------------------------------------------------------------------------------
Operating Statistics
Earned revenues                               100.0%     100.0%      100.0%     100.0%     100.0%
Costs and expenses:
  Operating expenses                           46.3       45.4        46.1       48.1       51.2
  Depreciation and amortization                 9.5       10.8        10.1        9.3        9.6
  Taxes other than income taxes                 6.6        6.8         7.0        6.9        5.5
  Interest and debt expenses*                  12.7       13.8        17.1       17.5       17.4
  Allowance for funds used during
    construction                               (0.1)      (0.8)       (0.3)      (1.3)      (2.6)
- - -------------------------------------------------------------------------------------------------
Total costs and expenses                       75.0       76.0        80.0       80.5       81.1
- - -------------------------------------------------------------------------------------------------
Income from continuing operations
  before income taxes                          25.0%      24.0%       20.0%      19.5%      18.9%
=================================================================================================
Effective tax rates                            42.5%      43.0%       43.1%      41.0%      37.5%
=================================================================================================
Income from continuing operations
  as a percentage of average common
  stockholders' equity                         11.2%      11.4%       11.0%      11.9%      11.4%
=================================================================================================
</TABLE>

*Includes dividends on preferred stock of subsidiary with mandatory redemption
requirements.

<PAGE> 52

   Following are selected five-year operating and sales
statistics for PSW:
<TABLE>
<CAPTION>

Years ended December 31,                  1994      1993       1992       1991      1990
- - ------------------------------------------------------------------------------------------
<S>                       <C>         <C>        <C>        <C>        <C>        <C>
Daily sendout
(Million gallons          Maximum        110.4      120.7      101.3      109.5      103.4
 per day)                 Average         89.8       89.1       85.4       87.2       88.4
==========================================================================================
Metered                   Residential  234,624    232,684    230,740     223,635   222,660
customers                 Commercial    10,777     10,720     10,547       9,800     9,763
                          Industrial       833        832        837         820       831
                          Other          3,299      2,959      2,664       2,361     2,206
- - ------------------------------------------------------------------------------------------
                          Total        249,533    247,195    244,788     236,616   235,460
==========================================================================================
Consumption
per customer
in gallons                Average      109,001    110,368    108,258     110,978   110,281
==========================================================================================

Revenues from             Residential $ 69,483    $66,656    $60,239     $58,053   $53,702
water sales               Commercial    22,998     20,112     19,235      18,031    16,712
                          Industrial     5,170      4,601      4,500       4,126     4,083
                          Other          9,151      8,092      7,577       6,856     6,205
- - ------------------------------------------------------------------------------------------
                          Total       $106,802    $99,461    $91,551     $87,066   $80,702
==========================================================================================
</TABLE>

   Income from continuing operations of the Company has
grown at an annual compound rate of approximately 11% during
the five-year period ended December 31, 1994. During this
same period, revenues and total expenses, other than income
taxes, have grown at compound rates of 7.4% and 5.9%,
respectively.

Earned Revenues
- - ---------------

   Water revenues have accounted for approximately 98% of
the Company's earned revenues from continuing operations
during the five-year period covered above. The balance of
the revenue from continuing operations is primarily
associated with data processing services that have remained
relatively constant.

   The growth in water revenues over the past five years is
primarily a result of increases in rates and, to a lesser
extent, an increase in customer base. Revenues also
increased in the past two years as a result of acquisitions
of local water systems, which provided water revenues of
approximately $2,480 and $2,052 in 1994 and 1993,
respectively. Excluding the customers that were added at the
time of these acquisitions, the customer base increased at a
five-year annual compound rate of .6%. This increase
represents normal expansion within PSW's 382 square mile
service territory. Water rates have increased by 32% since
1990, reflecting an annual compound growth rate of 5.6% over
the five-year period.

   Rates charged by PSW for water service are subject to the
approval of the Pennsylvania Public Utility Commission
("PUC"). PSW continuously reviews the necessity of filing
applications with the PUC for increases in rates charged for
water service. Among the factors considered by management in
determining the need to apply for increased rates are: the
amount of utility plant additions and replacements made
since the previous rate decision; changes in the cost of
capital and the capital structure of PSW; and increases in
operating expenses (including wages, fringe benefits,
electric and chemical expenses), depreciation and taxes
experienced since the previous rate decision. Based on these
assessments, PSW will periodically file a request with the
PUC to increase its rates. Typically, the PUC will suspend
the rate request for up to nine months during which time
hearings on the merits of the request are held. During these
hearings, the views of PSW as well as the PUC staff, the
Consumer Advocate and other interested parties are presented
and evaluated.
<PAGE> 53

   The return allowed on PSW's common equity is a major
factor in the determination of rates and is also evaluated
before applying for a rate increase. The 1991 rate increase,
in which a 12% return on common equity was allowed, was the
most recent decision in which the PUC specified a return on
common equity for PSW. The rate increases that were
effective since 1991 resulted from settlements, with PUC
approval, between the Company and the opposing parties and,
as such, no determination of the rate of return on common
equity was made by the PUC.

  Over the past 10 years, PSW had applied for, and received
the following base rate increases from the PUC:
- - ----------------------------------------------------------------------------

                                   Rate         Rate    Return on  Return on
                                 increase     increase   equity     equity
Date filed     Effective date    requested    allowed   requested   allowed
- - ----------------------------------------------------------------------------

July 1985      April 1986         16.9%        9.2%      16.0%       15.0%
October 1987   July 1988          12.2%        7.8%      14.5%       13.7%
April 1989     December 1989      13.2%        9.0%      14.1%       12.7%
March 1990     September 1990      9.7%        4.3%      13.5%     Settled
January 1991   October 1991       13.1%        7.7%      13.2%       12.0%
November 1992  June 1993          17.6%        7.4%      12.9%     Settled
December 1993  June 1994          14.0%        9.1%      11.9%     Settled

   In addition to the base rate increases noted above, the
PUC has adjusted rates by means of a surcharge or credit to
reflect changes in the tax laws, which were not reflected in
the base rates approved by the PUC. These adjustments are
eliminated when the tax changes are reflected in base rates.
In July 1994, rates decreased by .19% due to a reduction in
Pennsylvania taxes. The effect of this adjustment was to
reduce revenues by $97 in 1994. During the period from
August 1991 to May 1993, various surcharges were in effect
which increased revenues by $706 in 1993 and $2,281 in 1992.
Because the Pennsylvania legislature has enacted additional
tax decreases for 1995, it is expected that rates will
decrease by an additional .14% in March 1995.

    "Sendout" represents the quantity of treated water
delivered to the distribution system and is used by
management as an indicator of customer demand. Consumption
per customer is the sendout that was used by metered
customers and is based on the actual bills rendered during
the year adjusted for the estimated unbilled customer usage.
Over the past five years, an average of approximately 82.1%
of the sendout was consumed by metered customers. The
majority of the balance was used through unmetered
fixed-rate fire hydrants, lost through leaks in water mains
or used by PSW in its operations. PSW's ratio of metered
customer use to total sendout is consistent with industry
statistics. The percentage of water consumed by metered
customers was 82.5% in 1994, 83.3% in 1993 and 82.2% in
1992. Variations over the last three years are believed to
be associated with the number of main breaks experienced,
which is generally affected by the severity of the winter
weather. Management believes that PSW's leak detection and
water main rehabilitation programs, and an increase in the
number of newer and more accurate meters have contributed to
an overall improvement in this percentage.


<PAGE> 54

   Water consumption tends to be impacted by weather
conditions, particularly during the late spring and summer
months when nonessential and recreational use of water is at
its highest. Consequently, a higher proportion of annual
operating revenues is realized in the second and third
quarters. Except for 1992, the average annual consumption
per customer over the past five years was relatively
constant. The spring and summer of 1992 were characterized
by cooler weather with frequent rains and consumption
declined slightly. It is difficult to establish an exact
correlation between the weather and water consumption, since
conservation and even day-to-day variations in weather
patterns can have an effect. Conservation efforts and
mandated water use restrictions in response to drought
conditions in years prior to 1990 have also had an effect on
water consumption.

Operating Expenses
- - ------------------

   Operating expenses for 1994, 1993 and 1992, totalled
$50,296, $45,989 and $43,024, respectively. All elements of
cost are subject to the effects of inflation, as well as the
effects of changes in water consumption and the degree of
treatment required due to variations in the quality of the
raw water. The principal elements of operating costs are
labor, electricity, chemicals and maintenance expenses.
Electricity and chemical expenses vary in relationship to
water consumption and raw water quality. Maintenance
expenses are sensitive to extreme cold weather, which can
cause water mains to rupture.

   The Company's operating expenses increased in 1994 over
1993 by 9.4% primarily due to increased wages and employee
benefits and additional expenses associated with the harsh
winter conditions of 1994. The increase in employee benefits
is primarily the result of the recognition of $895 of
additional costs for postretirement benefits other than
pensions computed under SFAS 106 that were recognized in
conjunction with the June 1994 rate increase. The severe
weather conditions in January and February 1994 caused
significant maintenance problems, including an abnormally
high number of water main breaks, and required additional
treatment costs as raw water quality deteriorated during
these months. The increase in operating expenses in 1993
over 1992 of 6.9% was primarily due to increased wages and
employee benefit costs; operating expenses associated with
the December 1992 acquisitions and the cost to process and
distribute the increased volume of water sold.

   Corporate costs related to continuing operations were
less than 1% of the Company's operating expenses in 1994 and
1993 and were 2% in 1992. Such expenses include those
unallocated general and administrative expenses associated
with maintaining a publicly-held company.

Depreciation and Amortization
- - -----------------------------

   Depreciation expense was $10,468, $9,927 and $8,646 in
1994, 1993 and 1992, respectively, and has increased
principally as a result of the significant capital
expenditures made to expand and improve the water utility
facilities. Depreciation expense was approximately 2.3% of
the average utility plant in service for all years.
Amortization was a credit of $138 in 1994 as compared to
charges of $1,008 and $800 in 1993 and 1992, respectively.
The change in amortization in 1994 is due to the
amortization of the acquisition adjustment associated with
the December 1992 purchases of two water systems, which has
been recognized retroactive to the acquisition date in
conjunction with the June 1994 rate settlement. The increase
in amortization in 1993 over 1992 was due to the frequency
of rate request filings and a decrease in the time frame
over which those costs are amortized.

<PAGE> 55

Taxes Other than Income Taxes
- - -----------------------------

   Taxes other than income taxes increased by 4% in 1994 and
by 6% in 1993 over the previous year. The majority of the
increase in both years was associated with increases in the
bases on which the Pennsylvania Public Utility Realty Tax
(PURTA) and the Capital Stock Tax are calculated. The
increase in taxable base for the PURTA is due to the
increases to utility plant over the past two years,
including the December 1992 and 1993 acquisitions. The
increase in the Capital Stock Tax is due to the common
equity raised over the past three years.

Interest and Debt Expenses
- - --------------------------

   Interest and debt expense was $12,896, $13,108 and
$15,068 in 1994, 1993 and 1992, respectively, and has
decreased due to reductions in the average debt outstanding
and the refinancing of certain First Mortgage Bonds at PSW
with lower-cost debt. The Company was able to reduce its
average outstanding debt in 1994 and 1993 with the proceeds
it received from the issuance of common stock; the sale of
its discontinued operations and by improved operating cash
flows.

Allowance for Funds Used During Construction
- - --------------------------------------------

   The allowance for funds used during construction
("AFUDC") was $126, $805 and $258 in 1994, 1993 and 1992,
respectively, and has varied over the years as a result of
changes in the average balance of utility plant construction
work in progress ("CWIP"), to which AFUDC is applied, and to
changes in the AFUDC rate.

   The average balance of CWIP to which AFUDC is applied was
$2,820, $8,379 and $3,197 in 1994, 1993 and 1992,
respectively. The variances in these average balances are
primarily due to an $11,500 treatment plant placed in
service in November 1993. AFUDC was no longer applied to
this project after it was placed in service, but was applied
to an ever-increasing base during the period it was under
construction.

    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
balance in CWIP is less than the borrowing level under this
facility. The average cost of capital (i.e., the weighted
costs 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. As a result, the average AFUDC rate decreased in
1994 to 4.6% from 9.1% in 1993 and 8.1% in 1992.

Income Taxes
- - ------------

   The Company's effective income tax rate was 42.5% in 1994
as compared to 43.0% in 1993 and 43.1% in 1992. The decline
in the effective tax rate in 1994 was primarily due to a .3%
reduction in the Pennsylvania Corporate Net Income Tax rate.
The effective tax rate declined in 1993, despite a 1%
increase in the statutory federal tax rate, due to a
reduction of operating expenses at the parent company which
are not deductible for state income taxes.



<PAGE> 56

Discontinued Operations
- - -----------------------

   As a result of deterioration in the operating results and
backlog of future work at the discontinued operations during
1992, and a substantial reduction in the estimated net
proceeds from the ultimate disposition of the businesses, a
charge of $5,500 was taken in 1992 to reflect the Company's
revised estimate of the ultimate loss on the disposition of
these businesses. The charge in 1992 along with a similar
charge in 1991 was based on estimates, which considered the
facts and circumstances known at the time the charges were
taken, including projections of operating results through
the expected disposition dates and estimates of the net
proceeds from the dispositions. The net proceeds from the
disposition of the two businesses sold in the first quarter
of 1993, and the operating losses during the period they
were owned by the Company were within the estimated reserves
established in 1992 and the Company does not foresee the
need for any further charges to income related to the
discontinued operations. The balance of the reserves for
discontinued operations of $2,701 at December 31, 1994
consists primarily of reserves for future and contingent
costs including potential lease, legal and insurance costs
associated with these businesses.

Summary
- - -------

   Operating income from continuing operations in 1994, 1993
and 1992 was $40,845, $37,430 and $34,337, respectively, and
income from continuing operations was $15,638, $13,835 and
$10,626, respectively, for the same periods. Net income was
equal to income from continuing operations in 1994 and 1993
and was $6,334 less in 1992 due to a $5,500 charge related
to the discontinued operations and a $834 extraordinary
charge for early retirement of debt. On a per share basis,
income from continuing operations in 1994, 1993 and 1992 was
$1.35, $1.27 and $1.23, respectively. The increases in the
per share income from continuing operations in 1994 and 1993
over the previous year were due to the aforementioned
improvements in profits offset in part by a 6.5% and 25.7%
increase in the average number of shares outstanding during
1994 and 1993, respectively.

   Although the Company has experienced increased income
from continuing operations in the recent past, continued
adequate rate increases reflecting increased operating costs
and new capital investments are important to the future
realization of improved profitability. This, in turn, will
provide the level of internal funds necessary to expand and
improve the utility plant.

Fourth Quarter Results
- - ----------------------

   Income from continuing operations for the fourth quarter
of 1994 increased by $370 to $3,757 primarily as a result of
a $2,686 increase in revenues. The increase in revenues is a
result of the 9.05% rate increase which took effect in June
1994. The increase in revenues was partially offset by
higher operating expenses, interest and debt expenses,
income taxes, depreciation and taxes other than income
taxes. Operating expense increases are attributable to wage
increases, insurance costs and employee benefits, including
the additional SFAS 106 costs of $410. Depreciation
increased due to utility plant additions made since the
fourth quarter of 1993. Taxes other than income taxes
increased primarily because of the increase in the base on
which the PURTA and Capital Stock Tax are computed. Interest
increased in the fourth quarter primarily as a result of
higher interest rates, particularly for borrowings under the
revolving credit facility.



<PAGE> 57

Effects of Inflation
- - --------------------

   The effects of inflation on the Company during the past
several years have not been significant. As a regulated
enterprise, PSW's rates are established to provide recovery
of costs and a return on its investment. Recovery of the
effects of inflation through higher water rates is dependent
upon receiving adequate and timely rate increases. However,
rate increases are not retroactive and often lag increases
in costs caused by inflation. During periods of moderate to
low inflation, as has been experienced for the past several
years, the effects of inflation on PSW's operating results
are not significant.

Regulatory Asset
- - ----------------

   During 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106")
and Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). These standards
require PSW to compute its income tax expense and its
postretirement benefit costs other than pensions ("PBOP") in
a manner which has differed from the computations used by
the PUC to establish PSW's rates. A regulatory asset was
established during 1993 to defer the incremental costs
related to the adoption of the new standards and to
recognize their expected recovery through future water
rates. The use of regulatory accounts is permitted by
Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation"
("SFAS 71"), which recognizes that the economic effects of
regulations on a utility can sometimes require accounting
which is different from that applied to enterprises in
general, in order for the financial statements to be
presented fairly.

    The rate increase which was effective in June 1994
included recovery of PBOP cost computed under SFAS 106 as
well as an amortization of PBOP costs recorded as a
regulatory asset. Deferral of PBOP costs to the regulatory
asset ceased with the implementation of these rates. Certain
decisions by the PUC on the rate recovery of PBOP costs that
were deferred as a regulatory asset by other utilities have
been appealed by the Consumer Advocate and the outcome of
these cases could have an impact on the ability of PSW to
recover its deferred PBOP costs. Based on its assessment of
these cases, management believes that PSW's regulatory asset
related to PBOP costs will be recoverable in future rates.

   Income tax expense recognized in the rate making process
has generally been limited to current tax expense plus
deferred Federal taxes as they related to certain
depreciable assets. The PUC has generally not recognized
deferred income tax expenses related to any state tax or on
other differences between book and taxable income. As a
result, tax expense for rate making purposes has been
reduced resulting in effective tax rates which have been
lower than they would have been had financial accounting
standards been used in establishing rates. Management
believes that the PUC will continue to follow its practice
of allowing rate recovery of current taxes and, accordingly,
recovery of the additional taxes included in the regulatory
asset will occur as the temporary differences reverse.



<PAGE> 58

Financial Condition
- - -------------------

Cash Flow and Capital Expenditures
- - ----------------------------------

   Net operating cash flow, dividends and capital
expenditures, including allowances for funds used during
construction, for the five years ended December 31, 1994 are
as follows:
- - ----------------------------------------------------------------------
                   Net operating                       Capital
                     cash flow        Dividends      expenditures
- - ----------------------------------------------------------------------
       1990       $ 16,897           $ 7,641          $ 30,774
       1991         19,121             7,859            22,335
       1992         22,638             8,866            21,719
       1993         26,940            11,629            27,958
       1994         29,107            12,637            27,379
- - ----------------------------------------------------------------------
                  $114,703           $48,632          $130,165
======================================================================

   Of the $130,165 in capital expenditures made in the past
five years, $129,874 results from PSW's construction
program. Included in PSW construction expenditures are:
$27,100 for the construction of two surface water treatment
plants; $17,075 for new water mains; $26,420 for the
rehabilitation of existing water mains and $20,390 for water
meters. During this five year period, PSW received $14,103
of advances and contributions in aid of construction to
finance new water mains. In addition to its capital program,
PSW has made sinking fund contributions aggregating $5,550,
replaced $41,015 of debt and has refunded $11,480 of
customer advances for construction over the past five years.
PSW has also expended $11,063 related to the acquisition of
five water systems since December 1992.

   Since net operating cash flow to PSW plus advances and
contributions in aid of construction have not been
sufficient to fully fund its cash requirements, PSW issued
approximately $48,777 of long-term debt during the past five
years, $10,000 of preferred stock in 1991 and received
$29,000 of equity investments from the Company during 1993.

   The Company funded its investment in PSW with the
proceeds from the sale of common stock and the sale of its
discontinued operations. In April 1993, the Company sold
1,100,000 shares of common stock in a public offering for
net proceeds of $18,331. The Company has also sold 2,997,668
shares of common stock for net proceeds of $45,194 since
1990 through three programs that allow existing shareholders
and customers of PSW to purchase shares of common stock
directly from the Company. The following table provides the
net proceeds to the Company and the shares issued under
these programs:


<PAGE> 59

- - ----------------------------------------------------------------------------
                    Customer                       Optional
                     Stock          Dividend        Stock
                    Purchase      Reinvestment     Purchase
                    Program         Program        Program         Total
- - ----------------------------------------------------------------------------

Net proceeds:

   1990            $ 2,431         $  435         $   90          $ 2,956
   1991              2,651            494            172            3,317
   1992             24,185            742            264           25,191
   1993              5,465          1,491            583            7,539
   1994              3,541          2,047            603            6,191
- - ----------------------------------------------------------------------------
                   $38,273         $5,209         $1,712          $45,194
============================================================================

Shares issued:

   1990            205,600         36,114          7,155          248,869
   1991            193,775         37,247         11,997          243,019
   1992          1,669,159         51,143         17,159        1,737,461
   1993            298,940         86,704         31,857          417,501
   1994            200,690        117,020         33,108          350,818
- - ----------------------------------------------------------------------------
                 2,568,164        328,228        101,276        2,997,668
============================================================================

   Proceeds from the customer stock purchase program
increased dramatically in 1992 and, in order to better match
future equity additions with the need for additional
capital, the Company amended this program in 1993 to
eliminate the 5% discount it previously offered to customers
and limited future stock sales under this program to
approximately 100,000 shares in each of the three
subscription periods during the year. The dividend
reinvestment program ("DRP") continues to offer a 5%
discount on the purchase of Company Stock with reinvested
dividends. As of the December 1994 dividend payment, holders
of 16% of the common shares outstanding participated in the
DRP.

   PSW's 1995 capital program, exclusive of the costs of new
mains financed by advances and contributions in aid of
construction, is estimated to be $27,500, which is expected
to be financed, along with $850 of sinking fund obligations
and $2,857 of preferred stock redemptions through
internally-generated funds, the revolving credit facility,
equity investments from the Company, and issuance of new
long-term debt. PSW has also entered into an agreement to
acquire the water utility assets of Media Borough for
approximately $24,500. PSW has also entered into preliminary
agreements to acquire six other water systems for a combined
purchase price of approximately $7,300, including, subject
to final negotiations, the issuance of up to $5,000 of the
Company's preferred stock. In addition, PSW continues to
hold discussions with several other water systems that are
near or adjacent to PSW's service territories. The cash
needed for these acquisitions would be funded initially with
short-term debt with subsequent repayment from the proceeds
of long-term debt or equity.



<PAGE> 60

   Future utility construction in the period 1996 through
1999, including recurring programs, such as the ongoing
replacement of water meters, the rehabilitation of water
mains and additional transmission mains to meet customer
demands, exclusive of the costs of new mains financed by
advances and contributions in aid of construction, is
estimated to require aggregate expenditures of approximately
$110,000. The Company anticipates that approximately 50% of
these expenditures will require external financing. The
estimates discussed above do not include any amounts for
possible future acquisitions of water systems or the
financing necessary to support them.

   PSW's ability to finance its future construction programs
as well as its acquisition activities depends on its ability
to attract the necessary external financing and maintain or
increase internally-generated funds. Rate orders permitting
compensatory rates of return on invested capital and timely
rate adjustments will be required to allow PSW to achieve an
adequate level of earnings to enable it to attract capital,
maintain satisfactory debt coverage ratios and maintain it's
financial position at a level sufficient to secure
attractively priced capital.

   Operating cash flow from PSW, along with external
financings, will enable the Company to pursue its capital
expenditure programs, pay dividends and supply the working
capital required by the Company in 1995. Management believes
that with the improvement in the Company's capitalization
ratios over the past three years, it will be able to obtain
the external financing that it will need.

Capitalization
- - --------------

   The following table summarizes PSC's capitalization
during the past five years:

December 31,                          1994    1993    1992    1991   1990
- - ---------------------------------------------------------------------------
Long-term debt*                       49.9%   50.7%   58.1%   64.4%   68.6%
Preferred stock
   with mandatory redemption*          3.3     3.4     3.6     3.7     -
Common stockholders' equity           46.8    45.9    38.3    31.9    31.4
- - ---------------------------------------------------------------------------
                                     100.0%  100.0%  100.0%  100.0%  100.0%
===========================================================================
*Includes current portion.

   The changes in the capitalization ratios result from the
issuance of common stock over the past five years, preferred
stock in 1991, the retirement of parent company debt in 1992
and 1991 and the issuance of debt by PSW to finance its
capital program.



<PAGE> 61

Dividends on Common Stock
- - -------------------------

   Following is a recent history of income from continuing
operations and dividends of the Company:

                                 Income per
                                 share from
           Cash dividend         continuing           Payout
             per share           operations           ratio
- - -------------------------------------------------------------
1990          $ 1.00               $ 1.27              79%
1991            1.00                 1.29              78
1992            1.04                 1.23              85
1993            1.07                 1.27              84
1994            1.10                 1.35              81

   Dividends have averaged approximately 81% of income from
continuing operations during this period. In May 1994, the
annual dividend increased by 3.7% to $1.12 beginning with
the September 1994 dividend.

<PAGE> 62

     PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Selected Quarterly Financial Data (Unaudited)
- - ---------------------------------------------
(In thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                             Total
                                    First    Second     Third    Fourth       Year
                                   -------------------------------------------------
                                                         1994
                                   -------------------------------------------------
<S>                                <C>       <C>       <C>       <C>        <C>
Earned revenues                    $24,849   $26,730   $28,849   $28,208    $108,636
Operating expenses                  12,056    12,001    12,511    13,728      50,296
Net income                           2,949     4,035     4,897     3,757      15,638
Net income per share                   .26       .35       .42       .32        1.35
Dividend paid per share                .27       .27       .28       .28        1.10
Price range of common stock
   - high                            19.63     18.50     19.38     18.75       19.63
   - low                             17.38     17.13     17.50     17.25       17.13

</TABLE>

<TABLE>
<CAPTION>
                                   -------------------------------------------------
                                                         1993
                                   -------------------------------------------------
<S>                                <C>       <C>       <C>       <C>        <C>

Earned revenues                    $22,726   $25,048   $27,948   $25,522    $101,244
Operating expenses                  10,733    11,205    12,078    11,973      45,989
Net income                           2,587     3,604     4,257     3,387      13,835
Net income per share                   .26       .33       .38       .30        1.27
Dividend paid per share                .26       .27       .27       .27        1.07
Price range of common stock
  - high                             18.25     18.38     20.75     20.13       20.75
  - low                              15.63     17.25     18.13     17.75       15.63
                                  ---------------------------------------------------

</TABLE>


High and low prices of the Company's common stock are as
traded on the New York Stock Exchange.

<PAGE> 63

     Philadelphia Suburban Corporation and Subsidiaries
 
Summary of Selected Financial Data
                           
(in thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Years ended December 31,                1994       1993       1992        1991       1990
- - -----------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>         <C>         <C>
PER COMMON SHARE:
 Income from continuing operations (a)  $1.35      $1.27      $1.23       $1.29      $1.27 
 Net income                              1.35       1.27       0.50        0.62       0.53 
 Cash dividends                          1.10       1.07       1.04        1.00       1.00 
 Return on average shareholders'
  equity (b)                               11%        11%        11%         12%        11%
 Book value at year end                $12.27     $11.89     $10.88      $10.66     $10.95 
 Market value at year end               18.13      18.38      16.00       15.75      12.13
- - -----------------------------------------------------------------------------------------------------
INCOME STATEMENT HIGHLIGHTS:
 Earned revenues (b)                 $108,636   $101,244     $93,307    $88,648    $82,267 
 Depreciation and amortization (b)     10,330     10,935       9,446      8,253      7,900
 Interest and debt expenses (b) (c)    13,636     13,169      15,676     14,377     12,174 
 Income before income taxes (b)        27,209     24,261      18,661     17,260     15,569 
 Provision for income taxes (b)        11,571     10,426       8,035      7,081      5,833 
 Income from continuing
  operations (a)                       15,638     13,835      10,626     10,179      9,736 
 Net income                            15,638     13,835       4,292      4,889      4,089
- - -----------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS:
 Total assets                        $458,183   $439,679    $365,949   $350,560   $352,037 
 Property, plant and equipment,
  net (b)                             385,709    366,230     345,610    320,974    306,702 
 Common stockholders' equity          143,795    135,934     106,971     85,621     85,456 
 Preferred stock with mandatory
  redemption (d)                       10,000     10,000      10,000     10,000          -    
 Long-term debt (d)                   153,082    150,176     162,089    172,626    186,755 
 Total debt                           157,132    150,995     163,048    172,786    187,755
- - -----------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION:
 Net cash flows from operating
  activities (b)                      $29,107    $26,940     $22,638    $19,121    $16,897
 Capital additions (b) (e)             27,379     27,958      21,719     22,335     30,774 
 Dividends on common stock             12,637     11,629       8,866      7,859      7,641 
 Number of metered water customers    249,533    247,195     244,788    236,616    235,460 
 Number of shareholders of common
  stock                                11,243     10,811       9,863      6,408      6,373 
 Common shares outstanding (000)       11,718     11,430       9,832      8,034      7,804 
 Employees (full-time) (b)                525        523        526         526        523 
- - -----------------------------------------------------------------------------------------------------
</TABLE>
(a) 1992 operating results are before extraordinary charge of $834 or $0.10 per
    share.
(b) Continuing operations only.
(c) Includes dividend on preferred stock and is net of allowance for funds
    used during construction.
(d) Includes current portion.
(e) Excludes payments for acquired water systems of $612 in 1994, $1,323 in
    1993 and $9,128 in 1992.


<PAGE> 64

                                                                   Exhibit 22
                                                                   -----------
                                                                   (unaudited)

             PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES



 The following table lists all of the subsidiaries of the
 Company at December 31, 1994:
                               Philadelphia Suburban Water Company (Pa.)
                               Utility & Municipal Services, Inc. (Pa.)
                               PSC Services, Inc. (Del.)












<PAGE> 65


                                                                     Exhibit 24
                                                                     ----------





                      CONSENT OF INDEPENDENT AUDITORS
                      -------------------------------



 The Board of Directors
 Philadelphia Suburban Corporation



 We consent to incorporation by reference in the
 Registration Statements on Form S-8 (1994 Equity
 Compensation Plan No. 033-53689), (1994 Employee Stock
 Purchase Plan No. 033-52557), (1988 Stock Option
 No.33-27032), (1982 Stock Option Plan No.2-81757); on Form
 S-3D (Dividend Reinvestment and Optional Stock Purchase
 Plan) (No. 33-54943); and on Form S-3 (Customer Stock
 Purchase Plan) (No. 33- 54941) of Philadelphia Suburban
 Corporation of our report dated February 7, 1995, related
 to the consolidated balance sheets of Philadelphia Suburban
 Corporation and subsidiaries as of December 31, 1994 and
 1993 and the related consolidated statements of income and
 cash flows for each of the years in the three-year period
 ended December 31, 1994, which report is incorporated by
 reference in the December 31, 1994 Annual Report on Form
 10-K of Philadelphia Suburban Corporation.




                                                       KPMG PEAT MARWICK LLP









 Philadelphia, Pennsylvania
 March 13, 1995


<TABLE> <S> <C>

<ARTICLE> UT
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1994
<PERIOD-END>                               DEC-31-1994
<BOOK-VALUE>                                 PRO-FORMA
<TOTAL-NET-UTILITY-PLANT>                      385,610
<OTHER-PROPERTY-AND-INVEST>                         99
<TOTAL-CURRENT-ASSETS>                          20,957
<TOTAL-DEFERRED-CHARGES>                         3,183
<OTHER-ASSETS>                                  48,334
<TOTAL-ASSETS>                                 458,183
<COMMON>                                         2,740
<CAPITAL-SURPLUS-PAID-IN>                      102,564
<RETAINED-EARNINGS>                             38,491
<TOTAL-COMMON-STOCKHOLDERS-EQ>                 143,795
                            7,143
                                          0
<LONG-TERM-DEBT-NET>                           152,195
<SHORT-TERM-NOTES>                                   0
<LONG-TERM-NOTES-PAYABLE>                        4,050
<COMMERCIAL-PAPER-OBLIGATIONS>                       0
<LONG-TERM-DEBT-CURRENT-PORT>                      887
                        2,857
<CAPITAL-LEASE-OBLIGATIONS>                          0
<LEASES-CURRENT>                                     0
<OTHER-ITEMS-CAPITAL-AND-LIAB>                 147,256
<TOT-CAPITALIZATION-AND-LIAB>                  458,183
<GROSS-OPERATING-REVENUE>                      108,636
<INCOME-TAX-EXPENSE>                            11,571
<OTHER-OPERATING-EXPENSES>                      67,791
<TOTAL-OPERATING-EXPENSES>                      79,362
<OPERATING-INCOME-LOSS>                         29,274
<OTHER-INCOME-NET>                                   0
<INCOME-BEFORE-INTEREST-EXPEN>                  29,274
<TOTAL-INTEREST-EXPENSE>                        12,770
<NET-INCOME>                                    15,638
                        866
<EARNINGS-AVAILABLE-FOR-COMM>                   15,638
<COMMON-STOCK-DIVIDENDS>                        12,637
<TOTAL-INTEREST-ON-BONDS>                       11,710
<CASH-FLOW-OPERATIONS>                          29,107
<EPS-PRIMARY>                                     1.35
<EPS-DILUTED>                                     1.35
        


</TABLE>


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