<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File
number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (610)-527-8000
----------------
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, 1996. $231,749,555
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, 1996, 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, 1996. 12,238,871
Documents incorporated by reference
(1) Portions of registrant's 1995 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 16, 1996
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>
PART I
Item 1. Business
--------
Philadelphia Suburban Corporation ("PSC" or the "Registrant"), a
Pennsylvania corporation, was incorporated in 1968. The information appearing in
"Management's Discussion and Analysis" from the portions of PSC's 1995 Annual
Report to shareholders filed as Exhibit 13.3 to this Form 10-K Report is
incorporated by reference herein.
The business of PSC is conducted almost entirely through its subsidiary
Philadelphia Suburban Water Company ("PSW"), a regulated public utility. PSW
supplies water to 264,865 residential, commercial, industrial and public
customers. PSW's contiguous service territory is approximately 406 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
850,000. 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, 1995 were
derived approximately as follows:
67.1% from residential customers
20.6% from commercial customers
4.3% from industrial customers
1.1% from public customers
6.4% from fire protection services
.5% from sales to other water utilities and
miscellaneous customers
------
100.0%
======
PSW has completed ten water system acquisitions in the last four years.
In May 1995, PSW purchased the franchise rights and the water utility assets of
Media Borough ("Media"). The Media system covers a 23 square mile service area
contiguous to PSW's service territory. In addition, PSW purchased the franchise
rights and the water utility assets of four smaller water systems in 1995 that
cover a combined service territory of four square miles. The annual revenues
from these systems approximate $4,750,000, and related revenues included in the
consolidated financial statements were $2,820,000 for 1995.
In December 1994, PSW acquired the franchise rights and the water
utility assets of two privately owned water companies. In December 1993, PSW
acquired the water utility assets and franchise rights of the Borough of
Malvern. In December 1992, PSW acquired the water utility assets of the West
Whiteland Township and the Uwchlan Township Municipal Authority water systems.
Combined, the five systems acquired before 1995 added 43 square miles of service
territory adjacent to PSW's existing service territory and had revenues of
approximately $2,731,000 in 1995.
PSW has also entered into preliminary agreements to acquire six
additional water systems for a combined purchase price of approximately
$20,600,000, including, subject to final negotiations, the issuance of up to
$5,000,000 of the Company's preferred stock. These systems are adjacent or near
to PSW's service territory. The combined annual revenues of these systems are
approximately $2,900,000. In addition, PSW continues to hold discussions with
several other water systems that are near or adjacent to its service territory.
2
<PAGE>
Item 1, Continued
Selected operating statistics. Set forth below is a table showing certain
selected operating statistics for PSW for the past three years.
<TABLE>
<CAPTION>
Revenues from water sales (000's omitted) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Residential $ 78,082 $ 69,545 $ 66,183
Commercial 24,016 23,020 19,970
Industrial 4,990 5,175 4,568
Public 1,252 1,257 1,027
Fire protection 7,421 7,054 5,912
Other 617 848 1,095
Tax Surcharge (credit) (505) (97) 706
--------- --------- --------
Total $115,873 $106,802 $ 99,461
======== ======== ========
Water sales (million gallons)
Residential 17,610 16,577 16,729
Commercial 7,983 7,804 7,441
Industrial 1,919 2,085 1,985
Public 335 324 294
Fire protection - metered 51 55 60
Other 124 261 401
-------- -------- --------
Total 28,022 27,106 26,910
======== ======== ========
System delivery by source
(million gallons)
Surface (including Upper Merion
reservoir) 26,904 25,386 24,635
Wells 4,830 5,037 5,466
Purchased 2,077 2,356 2,446
-------- -------- --------
Total 33,811 32,779 32,547
======== ======== ========
Number of metered customers
(end of year)
Residential 248,500 234,624 232,684
Commercial 11,725 10,777 10,720
Industrial 848 833 832
Public 775 688 696
Fire protection 3,006 2,596 2,248
Other 11 15 15
-------- -------- --------
Total 264,865 249,533 247,195
======== ======== ========
Average consumption per
customer in gallons 109,084 109,001 110,368
======== ======== ========
</TABLE>
3
<PAGE>
Item 1, Continued
Water supplies and usage. PSW derives its principal supply of water from
the Schuylkill River, seven 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 five impounding reservoirs and has five treatment and pumping
facilities to provide storage and treatment of these surface water supplies.
The Pennsylvania Department of Environmental Protection ("DEP") 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 38 wells. PSW also has
interconnections with: the Chester Water Authority, which permits PSW to
withdraw up to 6.4 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 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 93.8 mgd
Upper Merion Reservoir 7.2
Wells 15.4
Purchased supplies 8.2
-----
Total 124.6 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 144 mgd to its distribution system for short periods of time. The
average daily sendout for 1995, 1994 and 1993 was 92.6, 89.8 and 89.1 mgd,
respectively.
The maximum demand ever placed upon PSW's facilities for one month
occurred during August 1995, when sendout averaged 109.3 mgd. The peak day of
record occurred during July 1995 when water use reached 121.8 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.
4
<PAGE>
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. The
Commonwealth of Pennsylvania (the "Commonwealth") also has the authority to
impose similar restrictions on a county-by-county basis.
PSW's raw water supplies have been adequate to meet customer demand for
the past five years principally because of its five impounding reservoirs.
However, PSW's customers may be required to comply with the Commonwealth and
DRBC water use restrictions, even if PSW's supplies are adequate.
In September 1995, the Governor of the Commonwealth declared a drought
emergency in the counties served by PSW. The drought emergency imposed a
mandatory ban on all nonessential water usage by PSW's customers. Because the
order was issued toward the end of the summer months, when nonessential and
recreational use of water has traditionally declined, the restriction did not
have a significant impact on PSW revenues. The drought emergency was lifted by
the end of 1995. Throughout the drought emergency, PSW maintained adequate
storage levels of treated water and had sufficient quantities of raw water. No
other drought restrictions were imposed by the Commonwealth or DRBC in the last
three years.
Regulation by the Pennsylvania Public Utility Commission. PSW is subject
to regulation by the Pennsylvania Public Utility Commission ("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, or where other water service opportunities exist
(including non-utility Companies with riparian rights or access to an adequate
supply from a neighboring facility).
In 1993, the PUC initiated a rulemaking procedure intended to facilitate
the development of practical standards by which water mains should be extended
to "bona fide service applicants", typically existing homes or businesses in
need of a reliable public water supply. In December 1995, the PUC issued a final
rulemaking, reflecting the position that the primary costs of such extensions
should be justified by anticipated revenues. Generally, construction costs
beyond those justified by anticipated revenues must be borne by the applicant.
Under the proposal, PSW is required to invest approximately $4,000 per customer
in a main extension prior to requiring any customer contribution. The Commission
selected this threshold because revenues from an average customer offset the
interest, depreciation and incremental operating expense associated with the
investment.
5
<PAGE>
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 Protection ("DEP") under the Pennsylvania Safe Drinking Water
Act. The SDWA provides for the establishment of minimum 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
believes that the currently proposed MCLs will not have a significant impact
on its capital requirements or operating expenses. A bill amending and
reauthorizing the SDWA has been passed by the United States Senate and is
pending in the United States House of Representatives. If the bill passed by
the Senate becomes law, it would direct the EPA to establish standards based
upon occurrence and health risks and establishes a schedule for many standards
which were proposed previously. The SWDA reauthorization package includes
specific provisions for radon, arsenic and sulfates. The reauthorization of
SWDA is not expected to have a material impact on PSW's operations or
financial condition. 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.
All required Phase II monitoring was completed in 1995. 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.
6
<PAGE>
Item 1, Continued
The EPA is expected to issue, in 1996, the first rule of a three rule
package addressing Disinfection By-Products ("DBP"). DBP's are chemicals
formed during the drinking water treatment process. The first rule is an
Information Collection Rule designed to collect data to be used in developing
the other two rulemakings.
PSW is also subject to other environmental statutes administered by the
EPA and DEP. 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 five
NPDES permits relating to its 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 DEP promulgated a "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 in 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.
Employee Relations
------------------
As of December 31, 1995, the Registrant employed a total of 535 persons.
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
business is generally in excellent condition in terms of suitability, adequacy
and utilization.
7
<PAGE>
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:
<TABLE>
<CAPTION>
No. of Square Feet
Location Buildings Description Floor Area
- -------- --------- ----------- -----------
<S> <C> <C> <C>
Pennsylvania 6 Office & warehouse 174,185
Pennsylvania 16 Pumping stations and
treatment buildings 169,200
Pennsylvania 22 Well stations App. 600 ea.
Pennsylvania 16 Well stations App. 150 ea.
Pennsylvania 42 Booster stations App. 1,100 ea.
</TABLE>
In addition, PSW also owns 52 storage facilities for treated water
throughout its service territory with a combined capacity of 147.0 million
gallons and five surface water impounding reservoirs. The water utility also
owns approximately 3,180 miles of transmission and distribution mains, has
264,865 active metered services and 12,150 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 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 were 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 has been settled with PSW paying a nominal amount.
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 1995.
Information with respect to the executive officers of the Company is
contained in Item 10 hereof and is hereby incorporated by reference herein.
8
<PAGE>
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, 1996, there were
approximately 12,265 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
------ ------- ------- ------- -----
1995
<S> <C> <C> <C> <C> <C>
Earned revenues $25,712 $28,827 $32,355 $30,150 $117,044
Operating expenses 11,766 12,357 13,793 13,786 51,702
Income, continuing operations 3,315 4,659 5,732 4,324 18,030
Income per share, continuing
operations .28 .39 .48 .35 1.50
Income, discontinued operations -- -- -- 370 370
Income per share, discontinued
operations -- -- -- .03 .03
Net income 3,315 4,659 5,732 4,694 18,400
Net income per share .28 .39 .48 .38 1.53
Dividend paid per share .28 .28 .29 .29 1.14
Price range of common stock
- high 18.25 18.75 18.63 21.50 21.50
- low 17.38 17.63 17.63 18.00 17.38
1994
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>
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
------------- ---------- ------
1991 $1.00 $1.29 78%
1992 1.04 1.23 85
1993 1.07 1.27 84
1994 1.10 1.35 81
1995 1.14 1.50 76
9
<PAGE>
Item 5, Continued
Dividends have averaged approximately 81% of income from continuing
operations during this period. In August 1995, the annual dividend increased by
3.6% to $1.16 beginning with the September 1995 dividend.
Item 6. Selected Financial Data
-----------------------
The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of the Company's 1995 Annual Report to
shareholders filed as Exhibit 13.3 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 1995 Annual Report
to shareholders filed as Exhibit 13.3 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
1995 Annual Report to shareholders filed as Exhibit 13.3 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 1995 Annual Report to shareholders filed as Exhibit 13.3 to this Form
10-K Report is incorporated by reference herein.
Item 9. Disagreements on Accounting and Financial Disclosure
----------------------------------------------------
None.
10
<PAGE>
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 16,
1996, 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 50 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)
Richard R. Riegler 49 Senior Vice President - Operations,
Philadelphia Suburban Water Company
(April 1989 to present) (3)
Roy H. Stahl 43 Senior Vice President and General
Counsel (April 1991 to present) (4)
Michael P. Graham 47 Senior Vice President - Finance and
Treasurer (March 1993 to present) (5)
Morrison Coulter 59 Senior Vice President - Production,
Philadelphia Suburban Water Company
(February 1996 to present); Vice
President - Production, Philadelphia
Suburban Water Company (April 1989 to
February 1996) (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.
11
<PAGE>
Item 10, Continued
(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. 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.
(4) 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.
(5) 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.
(6) Mr. Coulter was Superintendent of Pumping Facilities from 1971 to 1982. From
1982 to 1987 he served as Manager - Electrical/Mechanical Department and from
1987 to 1989 he was Assistant Vice President - Production.
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 16,
1996, 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 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 16, 1996, 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 16, 1996,
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.
12
<PAGE>
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, 1995 and 1994
Consolidated Statements of Income - 1995, 1994 and 1993
Consolidated Statements of Cash Flow - 1995, 1994, and 1993
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, 1995.
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.
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
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 Association
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)
</TABLE>
14
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
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)
4.17 Twenty-Ninth Supplemental Indenture dated as of March 30, --
1995 (14) (Exhibit 4.17)
4.18 Thirtieth Supplemental Indenture dated as of August 15, --
1995 (15) (Exhibit 4.18)
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, as amended by Amendment 20
1994-1*
10.11 1995 Incentive Compensation Plan* (13) (Exhibit 10.11) --
10.12 Placement Agency Agreement between Philadelphia --
Suburban Water Company and PaineWebber Incorporated
dated as of March 30, 1995 (14) (Exhibit 10.12)
</TABLE>
15
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
10.13 Bond Purchase Agreement among the Delaware County --
Industrial Development Authority, Philadelphia
Suburban Water Company and Legg Mason Wood Walker,
Incorporated dated August 24, 1995 (15) (Exhibit 10.13)
10.14 Construction and Financing Agreement between the --
Delaware County Industrial Development Authority and
Philadelphia Suburban Water Company dated as of August
15, 1995 (15) (Exhibit 10.14)
10.15 1996 Annual Cash Incentive Compensation Plan* 32
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 13.1)
13.2 Selected portions of Annual Report to 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 (13) (Exhibit 13.2)
13.3 Selected portions of Annual Report to shareholders 37
for the year ended December 31, 1995 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1995
21. Subsidiaries of Philadelphia Suburban Corporation 72
23. Consent of Independent Auditors 73
24. Power of Attorney (set forth as a part of this report) 18
27. Financial Data Schedule 74
</TABLE>
16
<PAGE>
- 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.
(13) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1994.
(14) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
(15) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
* Indicates management contract or compensatory plan or arrangement.
17
<PAGE>
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 /s/ Nicholas DeBenedictis
--------------------------------------
Nicholas DeBenedictis
President and Chairman
Date: March 25, 1996
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.
18
<PAGE>
John H. Austin, Jr. John W. Boyer, Jr.
- ----------------------------- ---------------------------------------
John H. Austin, Jr. John W. Boyer, Jr.
Director Director
Mary C. Carroll Nicholas DeBenedictis
- ----------------------------- ---------------------------------------
Mary C. Carroll Nicholas DeBenedictis
Director President and Chairman
(principal executive
officer) and Director
G. Fred DiBona, Jr. Claudio Elia
- ----------------------------- ---------------------------------------
G. Fred DiBona, Jr. Claudio Elia
Director Director
Richard H. Glanton Michael P. Graham
- ----------------------------- ---------------------------------------
Richard H. Glanton Michael P. Graham
Director Senior Vice President-Finance and
Treasurer (principal financial and
accounting officer)
Joseph C. Ladd John F. McCaughan
- ----------------------------- ---------------------------------------
Joseph C. Ladd John F. McCaughan
Director Director
Harvey J. Wilson
- -----------------------------
Harvey J. Wilson
Director
19
<PAGE>
EXHIBIT 10.10
PHILADELPHIA SUBURBAN CORPORATION
1994 EQUITY COMPENSATION PLAN
1. Purpose
The purpose of this plan (the "Plan") is to provide an incentive, in
the form of a proprietary interest in Philadelphia Suburban Corporation (the
"Corporation"), to officers, other key employees and Non-employee Directors, as
defined below, of the Corporation and its subsidiaries and key consultants who
are in a position to contribute materially to the successful operation of the
business of the Corporation, to increase their interest in the Corporation's
welfare, and to provide a means through which the Corporation can attract and
retain officers, other key employees and Non-employee Directors and key
consultants of significant abilities.
2. Administration
This Plan shall be administered by a Committee (the "Committee") of the
Board of Directors of the Corporation. The Committee shall consist of three or
more of those members of the Board of Directors who are not eligible, and for at
least one year prior to their appointment were not eligible, to receive
discretionary grants under the Plan or any other plan of the Corporation or any
of its affiliates entitling the participants therein to acquire stock, stock
options, stock appreciation rights or dividend equivalents of the Corporation or
any of its affiliates; provided, however, that such members shall be eligible
for stock grants pursuant to the provisions of Section 7(f).
From time to time the Committee or the Board of Directors may make
grants, subject to the terms of the Plan, with respect to such number of shares
of Common Stock of the Corporation as the Committee or the Board of Directors,
each acting in its sole discretion, may determine. All references to the
Committee hereunder shall also mean the Board of Directors when acting pursuant
to its authority to make grants under the Plan. Non-employee Directors, as
defined below, may only receive stock grants pursuant to the provisions of
Section 7(f).
Subject to the provisions of the Plan, the Committee shall be
authorized to interpret the Plan and the grants made under the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan, to
determine the terms and provisions of the agreement related to grants described
in Section 9 hereof, and to make all other determinations, including factual
determinations, necessary or advisable for the administration of the Plan. The
Committee may correct any defect, supply any omission and reconcile any
inconsistency in the Plan or in any option or grant in the manner and to the
extent it shall be deemed desirable to carry it into effect. The determinations
of the Committee in the administration of the Plan, as described herein, shall
be final and conclusive. The Committee may adopt such rules and regulations as
it deems necessary for governing its affairs.
-1-
<PAGE>
3. Grants
Pursuant to the terms of the Plan, the Committee shall have the
authority to grant stock options to officers and other key employees and key
consultants and restricted stock and dividend equivalents to officers and other
key employees; provided, however, that Non-employee Directors, as defined below,
may receive stock grants in accordance with Section 7(f) (hereinafter
collectively referred to as the "Grants"). All Grants shall be subject to the
terms and conditions set forth herein and to those other terms and conditions
consistent with this Plan as the Committee deems appropriate and as are
specified in writing by the Committee in the agreement described in Section 9 of
the Plan (the "Agreement"). Grants under a particular Section of the Plan need
not be uniform as among the grantees and Grants under two or more Sections of
the Plan may be combined in one instrument.
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 15, the maximum aggregate
number of shares of the Common Stock of the Corporation that may be issued or
transferred under the Plan shall be 450,000 shares. The maximum number of shares
of Common Stock that may be issued or transferred under the Plan subject to
restricted stock grants is 25,000 shares of Common Stock. Shares deliverable
under the Plan may be authorized and unissued shares or treasury shares, as the
Committee may from time to time determine. Shares of Common Stock related to the
unexercised or undistributed portion of any terminated, expired or forfeited
Grant for which no material benefit was received by a grantee also may be made
available for distribution in connection with future Grants under the Plan.
5. Eligibility
Only officers, key employees, members of the Board of Directors who are
not employed in any capacity by the Corporation (hereinafter referred to as
'Non-employee Directors') and key consultants of the Corporation and its
subsidiaries shall be eligible for Grants under the Plan; provided, however,
that Grants to Non-employee Directors shall be made only in accordance with
Section 7(f). The term "subsidiaries" shall mean any corporation in an unbroken
chain of corporations beginning with the Corporation, if at the time of the
Grant, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
6. Granting of Options
The Committee may, from time to time, grant stock options to eligible
officers and other key employees and shall designate options at the time of
grant as either "incentive stock options" intended to qualify as such under
section 422 of the Internal Revenue Code of 1986, as from time to time amended
or any successor statute of similar purpose (the "Code"), or "nonqualified stock
-2-
<PAGE>
options", which options are not intended to so qualify. The Committee may, from
time to time, grant nonqualified stock options to key consultants. Except as
hereinafter provided, options granted pursuant to the Plan shall be subject to
the following terms and conditions:
(a) Price
The purchase price per share of stock deliverable upon the exercise of
each option shall be not less than 100% of the fair market value of the
Corporation's Common Stock on the date the option is granted. The fair market
value shall be the mean of the high and low sale prices of the Corporation's
Common Stock on the New York Stock Exchange composite tape or other recognized
market source, as determined by the Committee, on the date the option is
granted, or if there is no sale on such date, then the mean of such high and low
sale prices on the last previous day on which a sale is reported. In any event,
in case of the grant of an incentive stock option, the fair market value shall
be determined in a manner consistent with section 422 of the Code.
Shares may be purchased only by delivering a notice of exercise to the
Committee with accompanying payment of the purchase price therefor in full. Such
notice may instruct the Corporation to deliver shares of Common Stock due upon
the exercise of the option to any registered broker or dealer in lieu of
delivery to the grantee. Such instructions must designate the account into which
the shares are to be deposited. The grantee may tender this notice of exercise,
which has been properly executed by the grantee, and the aforementioned delivery
instructions to any broker or dealer. With the consent of the Committee, payment
of the purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Corporation (including without limitation
shares of Common Stock acquired pursuant to the option then being exercised) at
the fair market value of such shares determined as of the last trading day prior
to the date on which the option is exercised, in the same manner set forth in
the above paragraph.
(b) Terms of Options
The term during which each incentive stock option may be exercised
shall be determined by the Committee, but in no event shall an incentive stock
option be exercisable in whole or in part more than 10 years from the date it is
granted and in no event shall a nonqualified stock option be exercisable in
whole or in part more than 10 years and one day from the date it is granted. All
rights to purchase pursuant to an option shall, unless sooner terminated, expire
at the date designated by the Committee.
The Committee shall determine the date on which each option shall
become exercisable and may provide that an option shall become exercisable in
installments. The shares comprising each installment may be purchased in whole
or in part at any time after such installment becomes exercisable. The Committee
may, in its sole discretion, accelerate the time at which any option may be
exercised in whole or in part. Notwithstanding any determinations by the
Committee regarding the exercise period of any option, all outstanding options
shall become immediately exercisable upon a Change of Control of the Corporation
(as defined herein).
-3-
<PAGE>
(c) Termination of Employment
Upon the termination of a grantee's employment for any reason (except
as a result of retirement, disability or death), the options held by such
grantee shall terminate. Notwithstanding the fact that, in all cases, a
grantee's employment shall be deemed to have terminated upon the sale of a
subsidiary of the Corporation that employs such grantee, the Committee, in its
sole discretion, may extend the period during which any option held by such a
grantee may be exercised after such sale to the earliest of (i) a date which is
not more than three years from the date of the sale of the subsidiary, (ii) the
date of the grantee's termination of employment with the subsidiary (or
successor employer) following such sale for reasons other than retirement,
disability or death, (iii) the date which is one year from the date of the
grantee's termination of employment with the subsidiary on account of the
grantee's total disability (as defined in section 22(e)(3) of the Code), or
three months from the date of such termination if on account of retirement or a
disability other than a total disability, or (iv) the expiration of the original
term of the option as established at the time of grant. The Committee, in its
sole discretion, may similarly extend the period of exercise of any option held
by a grantee employed by the Corporation whose employment with the Corporation
is terminated in connection with the sale of a subsidiary of the Corporation.
Upon termination of a grantee's employment as a result of retirement,
disability or death, the period during which the options may be exercised shall
not exceed: (i) one year from the date of such termination of employment in the
case of death and (ii) two years from the date of such termination in the case
of permanent and total disability (within the meaning of section 22(e)(3) of the
Code) or retirement; and (iii) three months from the date of such termination of
employment in the case of other disability; provided, however, that in no event
shall the period extend beyond the expiration of the option term.
Subject to the foregoing, in the event of death, such options may be
exercised by a grantee's legal representative or beneficiary, but only to the
extent that installments had accrued as of the date of death. Notwithstanding
the foregoing, the Committee, in its sole discretion, may determine that
installments that have not accrued as of the date of the grantee's death,
termination of employment on account of permanent and total disability (within
the meaning of section 22(e)(3) of the Code) or other termination of employment
may also be exercised by a grantee, or in the case of death, a grantee's legal
representative or beneficiary. Transfer from the Corporation to a subsidiary,
from a subsidiary to the Corporation, or from one subsidiary to another, shall
not be deemed to be a termination of employment. All references in this Section
6(c) to the termination of a grantee's employment shall include the termination
of a consultant's relationship with the Corporation or any subsidiary.
(d) Limits on Incentive Stock Options
Each Grant of an incentive stock option shall provide that it (i) is
not transferable by the grantee otherwise than by will or the laws of descent
and distribution or, if permitted under Rule 16b-3 of the Securities Exchange
Act of 1934 (the "Exchange Act") and if permitted in any specific case by the
Committee in its sole discretion, pursuant to a qualified domestic relations
-4-
<PAGE>
order as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the rules thereunder, and (ii) is
exercisable, during the grantee's lifetime, only by the grantee and that the
aggregate fair market value of the Common Stock on the date of the Grant with
respect to which incentive stock options are exercisable for the first time by a
grantee during any calendar year under the Plan and under any other stock option
plan of the Corporation shall not exceed the limitation set forth in section
422(d) of the Code. An incentive stock option shall not be granted to any
grantee who, at the time of grant, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Corporation or
subsidiary of the Corporation, unless the exercise price of the incentive stock
option is no less than 110% of the fair market value per share on the date of
grant and the term of the incentive stock option is not more than five years.
Unless a grantee could otherwise transfer Common Stock issued pursuant to an
incentive stock option granted hereunder without incurring liability under
section 16(b) of the Exchange Act, at least six months must elapse from the date
of acquisition of an incentive stock option to the date of disposition of the
Common Stock issued upon exercise of such option.
7. Restricted Stock Grants
The Committee may issue or transfer shares of Common Stock of the
Corporation to an eligible officer or other key employee subject to the maximum
number of shares of Common Stock reserved for issuance in connection with
restricted stock grants described in Section 4 of the Plan. The following
provisions are applicable to restricted stock grants:
(a) General Requirements. Shares of Common Stock of the Corporation
issued pursuant to restricted stock grants may be issued for consideration or
for no consideration. Subject to any other restrictions by the Committee as
provided pursuant to Section 7(e), restrictions on the transfer of shares of
Common Stock set forth in Section 7(c) shall lapse on such date or dates as the
Committee may approve until the restrictions have lapsed on 100% of the shares;
provided, however, that upon a Change of Control of the Corporation, all
restrictions on the transfer of the shares which have not, prior to such date,
been forfeited shall immediately lapse. The period of years during which the
restricted stock grant will remain subject to restrictions will be designated in
the Agreement (the "Restriction Period"). Prior to the lapse of the Restriction
Period the shares of Common Stock granted to any grantee shall be held by the
Corporation.
(b) Number of Shares. The Committee shall grant to each grantee a
number of shares of Common Stock of the Corporation determined in its sole
discretion.
(c) Requirement of Employment. If the grantee's employment terminates
during the Restriction Period, the restricted stock grant terminates as to all
shares covered by the Grant as to which restrictions on transfer have not
lapsed, and those shares of Common Stock must be immediately returned to the
Corporation. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems equitable.
-5-
<PAGE>
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock to which such Restriction Period
applies except to a Successor Grantee (as defined in Section 10 of the Plan).
Each certificate for a share issued or transferred under a restricted stock
grant shall contain a legend giving appropriate notice of the restrictions in
the Grant. The grantee shall be entitled to have the legend removed from the
stock certificate or certificates covering any of the shares subject to
restrictions when all restrictions on such shares have lapsed.
(e) Lapse of Restrictions. All restrictions imposed under the
restricted stock grant shall lapse upon the expiration of the applicable
Restriction Period; provided, however, that upon a Change of Control of the
Corporation, all restrictions on the transfer of shares which have not, prior to
such date, been forfeited shall immediately lapse. In addition, the Committee
may determine as to any or all restricted stock grants, that all the
restrictions shall lapse, without regard to any Restriction Period, under such
circumstances as it deems equitable.
(f) Stock grants to Non-employee Directors. Effective January 1, 1995,
as of the first day of the month following the Corporation's annual meeting of
shareholders, each Non-employee Director shall receive a grant of 200 shares of
Common Stock. Such shares shall not be sold for 6 months following the date of
grant. No other restrictions shall apply to such shares. Notwithstanding any
other provision of the Plan, this Section 7(f) may not be amended more than once
every 12 months, except for amendments necessary to conform the Plan to changes
of the provisions of, or the regulations relating to, the Code.
8. Dividend Equivalents
The Committee may grant dividend equivalents to eligible officers and
other key employees either alone or in conjunction with all or part of any
option granted under the Plan. A dividend equivalent shall be equal to the
dividend payable on a share of Common Stock of the Corporation. The amount of
dividend equivalents for any grantee (the "Dividend Equivalent Amount") is
determined by multiplying the number of dividend equivalents subject to the
Grant by the per-share cash dividend, or the per-share fair market value (as
determined by the Committee) of any dividend in other than cash, paid by the
Corporation on each record date for the payment of a dividend during the
period described in Section 8(a).
(a) Amount of Dividend Equivalent Credited
The Corporation shall credit to an account for each grantee maintained
by the Corporation in its books and records on each record date, from the date
of grant until the earlier of the date of (i) the end of the applicable
accumulation period designated by the Committee at the time of grant, (ii) the
date of the termination of employment for any reason (including retirement),
other than total disability (as defined in section 22(e)(3) of the Code) or
death of the grantee, or as otherwise determined by the Committee, in its sole
discretion, at the time of a grantee's termination of employment or (iii) the
-6-
<PAGE>
end of a period of four years from the date of grant, that portion of the
Dividend Equivalent Amount for each such grantee attributable to each record
date. The Corporation shall maintain in its books and records separate
accounts which identify each grantee's Dividend Equivalent Amount. Except as
set forth in Section 8(e) below, no interest shall be credited to any such
account.
(b) Payment of Credited Dividend Equivalents
The Committee, at the time of grant, shall designate the percentage of
each grantee's Dividend Equivalent Amount that shall be paid to the grantee at
the end of an applicable performance period (the "Performance Period") of four
years from the date of grant (the Committee, in its sole discretion, shall
retain the right to designate a longer or shorter Performance Period at the time
of grant); provided, however, that such Performance Period shall be:
(i) reduced by one year for each calendar year during the
applicable Performance Period ending after the date of grant in which
the measurable performance criteria established by the Committee at the
time of grant for the applicable Performance Period exceeds the targets
for such criteria established by the Committee at the time of grant.
(ii) increased by one year for each calendar year during the
applicable Performance Period ending after the date of grant in which
the measurable performance criteria established by the Committee at the
time of grant for the applicable Performance Period is less than the
targets for such criteria established by the Committee at the time of
grant.
(iii) In no event shall the Performance Period be reduced to
less than two years or increased to more than eight years from the date
of grant.
(iv) In the event that the applicable Performance Period is
shorter than the period described in Section 8(a), a grantee shall
receive the payment of the amount credited to his account at the end of
the applicable Performance Period and any portion of the Dividend
Equivalent Amount not yet so credited to his account shall be paid on
the Corporation's normal dividend payment dates until the grantee's
Dividend Equivalent Amount for the period described in Section 8(a) is
fully paid to the grantee.
(c) Timing of Payment of Dividend Equivalents
Except as otherwise determined by the Committee in the event of a
grantee's termination from employment prior to the end of the applicable
Performance Period, no payments of the Dividend Equivalent Amount shall be made
until the end of the applicable Performance Period and no payments shall be made
to any grantee whose employment by the Corporation or a subsidiary terminates
prior to the end of the applicable Performance Period for any reason other than
retirement under the Corporation's or a subsidiary's retirement plan, death or
total disability (as defined in section 22(e)(3) of the Code). Subject to
Section 8(b)(iv), as soon as practicable after the end of such Performance
-7-
<PAGE>
Period, unless a grantee shall have made an election under Section 8(f) to
defer receipt of any portion of such amount, a grantee shall receive 100% of
the Dividend Equivalent Amount payable to him. Notwithstanding the foregoing,
upon a Change of Control of the Corporation, any Dividend Equivalent Amount or
portion thereof, which has not, prior to such date, been paid to the grantee
or forfeited shall immediately become payable to the grantee without regard to
whether the applicable Performance Period has ended.
(d) Form of Payment. The Committee shall have the sole discretion to
determine whether the Corporation's obligation in respect of the payment of a
Dividend Equivalent Amount shall be paid solely in credits to be applied toward
payment of the option price under then exercisable options, solely in cash or
partly in such credits and partly in cash.
(e) Interest on Dividend Equivalents. From a date which is 45 days
after the end of the applicable Performance Period until the date that the
Dividend Equivalent Amount payable to the grantee is paid to such grantee, the
account maintained by the Corporation in its books and records with respect to
such dividend equivalents shall be credited with interest at a market rate
determined by the Committee.
(f) Deferral of Dividend Equivalents. A grantee shall have the right to
defer receipt of any Dividend Equivalent Amount payments if he shall elect to do
so on or prior to December 31 of the year preceding the beginning of the last
full year of the applicable Performance Period (or such other time as the
Committee shall determine is appropriate to make such deferral effective under
the applicable requirements of federal tax laws). The terms and conditions of
any such deferral (including the period of time thereof and any earnings on the
deferral) shall be subject to approval by the Committee and all deferrals shall
be made on a form provided a grantee for this purpose.
9. Agreement with Grantees
Each grantee who receives a Grant under the Plan shall enter into an
agreement with the Corporation which shall contain such provisions, consistent
with the provisions of the Plan, as may be established from time to time by the
Committee.
10. Transferability of Grants
Only a grantee or his or her authorized legal representative may
exercise rights under a Grant. Such persons may not transfer those rights except
by will or by the laws of descent and distribution or, if permitted under Rule
16b-3 of the Exchange Act and if permitted in any specific case by the Committee
in their sole discretion, pursuant to a qualified domestic relations order as
defined under the Code or Title I of ERISA or the rules thereunder. When a
grantee dies, the personal representative or other person entitled to succeed to
the rights of the grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Corporation of his or
her right to receive the Grant under the grantee's will or under the applicable
laws of descent and distribution.
-8-
<PAGE>
11. Funding of the Plan
This Plan shall be unfunded. The Corporation shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. Subject to Section
8(e), in no event shall interest be paid or accrued on any Grant, including
unpaid installments of Grants.
12. Rights of Grantees
Nothing in this Plan shall entitle any grantee or other person to any
claim or right to receive a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any grantee any rights to be
retained in the employ of the Corporation, to be retained as a consultant by the
Corporation or to be retained as a Non-employee Director by the Corporation.
13. Withholding of Taxes
The Corporation shall have the right to deduct from all Grants paid in
cash any federal, state or local taxes required by law to be withheld with
respect to such cash awards. The grantee or other person receiving such shares
shall be required to pay to the Corporation the amount of any such taxes which
the Corporation is required to withhold with respect to such Grants. With
respect to Grants of restricted stock or nonqualified stock options, the
Corporation shall have the right to require that the grantee make such
provision, or furnish the Corporation such authorization as may be necessary or
desirable so that the Corporation may satisfy its obligation, under applicable
income tax laws, to withhold for income or other taxes due upon or incident to
such restricted stock or the exercise of such nonqualified stock options.
The Committee may adopt such rules, forms and procedures as it
considers necessary or desirable to implement such withholding procedures, which
rules, forms and procedures shall be binding upon all grantees, and which shall
be applied uniformly to all grantees similarly situated.
14. Listing and Registration
Each Grant shall be subject to the requirement that, if at any time the
Committee shall determine in its discretion that the listing, registration or
qualification of the Grant or the shares subject to the Grant upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, such Grant or the issue or purchase of
shares thereunder, no such Grant may be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
-9-
<PAGE>
15. Adjustment of and Changes in Common Stock of the Corporation
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of the Corporation, the Committee
shall make such adjustment as it deems appropriate in the number and kind of
shares authorized by the Plan, in the number and kind of shares covered by
Grants made under the Plan, in the purchase prices of outstanding options or the
terms and conditions applicable to dividend equivalents.
16. Rights of Grantees
Neither the grantee nor any personal representative shall be, or have
any of the rights and privileges of, a shareholder of the Corporation in respect
of any shares related to any Grant or purchasable upon the exercise of any
option, in whole or in part, unless and until certificates for such shares have
been issued. Notwithstanding the foregoing, a grantee who receives a grant of
restricted stock shall have all rights of a shareholder, except as set forth in
Section 7(d), during the Restriction Period, including the right to vote and
receive dividends.
17. Change of Control of the Corporation
As used herein, a "Change of Control" shall be deemed to have taken
place if (i) any Person (including any individual, firm, corporation,
partnership or other entity except the Corporation or any employee benefit plan
of the Corporation or of any Affiliate or Associate, both as defined in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, any Person or entity organized, appointed or established by
the Corporation for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
beneficial owner in the aggregate of 20% or more of the Common Stock of the
Corporation then outstanding or (ii) during any twenty-four month period,
individuals who at the beginning of such period constituted the Board of
Directors cease for any reason to constitute a majority thereof, unless the
election, or the nomination for election by the Corporation's shareholders, of
at least seventy-five percent of the directors who were not directors at the
beginning of such period was approved by a vote of at least seventy-five percent
of the directors in office at the time of such election or nomination who were
directors at the beginning of such period. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have taken place under clause (i) of
the immediately preceding sentence if (a) such Person becomes the beneficial
owner in the aggregate of 20% or more of the Common Stock of the Corporation
then outstanding as a result of an inadvertent acquisition by such Person if
such Person, as soon as practicable, divests itself of a sufficient amount of
its Common Stock so that it no longer owns 20% or more of the Common Stock then
outstanding, as determined by the Board of Directors of the Corporation, or (ii)
the shares of Common Stock required to be counted in order to meet the 20%
minimum threshold described under such clause (i) include any of the shares
-10-
<PAGE>
described in subsections (i) through (vi) of section 2543(b) of the
Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S.A.ss.2543(b)) as in
effect on the date of adoption of the Plan.
18. Amendment and Termination
(a) The Plan may be amended by the Board of Directors of the
Corporation as it shall deem advisable to ensure such qualification and conform
to any change in the law or regulations applicable thereto, including such new
regulations as may be enacted pertaining to the tax treatment of incentive stock
options to be granted under this Plan, or in any other respect that the Board
may deem to be in the best interest of the Corporation; provided, however, that
the Board may not, without the authorization and approval of the shareholders of
this Corporation (i) materially increase the benefits accruing to participants
under the Plan, (ii) increase the number of shares which may be issued under the
Plan, except pursuant to Section 15 hereof, or (iii) materially modify the
requirements as to eligibility for participation in the Plan.
The Board of Directors shall not amend the Plan if the amendment would
cause the Plan or any Grant, or the exercise of any right under the Plan to fail
to comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, or if such amendment would cause the Plan or the Grant or
exercise of an incentive stock option under the Plan to fail to comply with the
requirements of section 422 of the Code including, without limitation, a
reduction of the option price set forth in Section 6(a) or an extension of the
period during which an incentive stock option may be exercised as set forth in
Section 6(b).
(b) The Board of Directors of the Corporation may, in its discretion,
terminate, or fix a date for the termination of, the Plan. Unless previously
terminated, the Plan shall terminate on May 19, 2004 and no Grants shall be made
under the Plan after such date.
(c) A termination or amendment of the Plan that occurs after a Grant is
made shall not result in the termination or amendment of the Grant unless the
grantee consents or unless the Committee acts under Section 19. The termination
of the Plan shall not impair the power and authority of the Committee with
respect to an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended under this Section 18 or may be
amended by agreement of the Corporation and the grantee consistent with the
Plan.
19. Compliance with Law
The Plan, the exercise of Grants and the obligations of the Corporation
to issue or transfer shares of Common Stock under Grants shall be subject to all
applicable laws, including any applicable federal or Pennsylvania state law, and
to approvals by a governmental or regulatory agency as may be required. With
respect to persons subject to section 16 of the Exchange Act, it is the intent
of the Corporation that the Plan and all transactions under the Plan comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
-11-
<PAGE>
Act. The Committee may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the withholding of
taxes on payments to grantees. The Committee may, in its sole discretion,
agree to limit its authority under this Section.
20. Effective Date of the Plan
The Plan shall be effective as of April 1, 1994, subject to the
approval by a majority of the Corporation's shareholders within twelve months of
such effective date. No Grant shall be made pursuant to the Plan on or after the
tenth anniversary of the date of shareholder approval, but Grants made prior to
such tenth anniversary may extend beyond that date.
12
<PAGE>
EXHIBIT 10.15
PHILADELPHIA SUBURBAN CORPORATION
PHILADELPHIA SUBURBAN WATER COMPANY
1996 ANNUAL CASH INCENTIVE COMPENSATION PLAN
BACKGROUND
o 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.
o 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 "Plan). The Company has had a cash incentive
compensation plan in place since 1990 and management and the Board of
Directors feel it has had a positive effect on the Company's
operations, aiding employees, shareholders (higher earnings) and
customers (better service and controlling expenses).
o The Plan has two components - a Management Incentive Program
and an Employee Recognition Program.
o The Plan is designed to provide an appropriate incentive to the
officers and managers of the Company. The 1996 Management Incentive
Program 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.
MANAGEMENT INCENTIVE PROGRAM
o 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 approach of having a plan tied to the Company's income
performance is appropriate as the participants' assume some of
the same risks and rewards as the shareholders who are
investing in the Company and making its capital construction
program possible. Customers also benefit from the Company's
employees' objectives being met as improvements in performance
are accomplished by controlling costs, improving efficiencies
and enhancing customer service. For these reasons, future rate
relief should be lessened and less frequent, which directly
benefits all customers.
-- 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 1996, 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. Performance objectives for each participant are
established at the beginning of the year and are primarily
directed toward controlling costs, improving efficiencies and
productivity and enhancing customer service. Each objective
has specific performance measures that are used to determine
the level of achievement for each objective.
1
<PAGE>
o Participation
-- Participation in the Management Incentive Program will be
determined each year. Each participant will be assigned a
"Target Bonus Percentage" ranging from 5 to 50 percent of
salary depending on duties and responsibilities.
-- Actual bonuses may range from 0, if the Company's
financial results fall below the minimum threshold or
the participant does not make sufficient progress
toward achieving his or her objectives (i.e.
performance measure points totaling less than 75
points), to 187.5 percent if performance -- both
Company and individual -- is rated at the maximum.
o Company Performance
-- Company performance will be measured on the following
schedule:
<TABLE>
<CAPTION>
Percent of Company
1996 Plan Rating
---------- --------
<S> <C> <C>
Threshold.............. 90% 0%
90 50
92 65
95 80
96 85
97 90
98 94
99 97
Plan................... 100 100
105 110
110 125
</TABLE>
-- The actual Company Rating should be calculated by
interpolation between the points shown in the table above.
2
<PAGE>
-- Regardless of the Company rating resulting from this Schedule,
the Executive Compensation and Employee Benefits Committee
retains the authority to determine the final Company Rating
for purposes of this Plan.
o Individual Performance
-- Individual performance will be measured on the
following scale:
Performance Measure Individual
Points Rating
------------------- ----------
0 - 74 0%
75 70%
80 80%
90 90%
100 100%
110 110%
120 120%
125+ 125%
-- In addition, up to 25 additional points may be awarded
to a participant at the discretion of the Chief
Executive Officer.
Sample Calculations
o 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
======
3
<PAGE>
o 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
o Example 3
-- Similarly, if individual Performance is rated below 75 points,
no bonus would be earned regardless of the Company Rating.
Calculation:
$7,000 x 100% x 0 = 0
EMPLOYEE RECOGNITION PROGRAM
o In addition to the Management Incentive Program, the Company maintains
an Individual Recognition Program to reward employees not eligible for
the management bonus plan for superior performance or a special action,
or heroic deed, or project that positively impacts the performance or
image of the Company.
o Awards will be made from an annual pool, not to exceed $75,000 (which
represents approximately less than 1% of the base payroll for the
non-union employees who do not participate in the Management
Incentive Program), established at the beginning of the year. Unused
funds will not be carried over to the next year. If financial
performance warrants, management may increase this pool by up to 50%.
o 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.
4
<PAGE>
o 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.
o The Chief Executive Officer will determine the individuals
to actually receive a bonus and the amount.
5
<PAGE>
EXHIBIT 13.3
SELECTED PORTION OF ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earned revenues $ 117,044 $ 108,636 $ 101,244
Costs and expenses:
Operating expenses 51,702 50,296 45,989
Depreciation 11,572 10,468 9,927
Amortization (15) (138) 1,008
Taxes other than income taxes 7,676 7,165 6,890
--------- --------- ---------
70,935 67,791 63,814
Operating income 46,109 40,845 37,430
Interest and debt expenses 14,852 12,896 13,108
Dividends on preferred stock 631 866 866
Allowance for funds used during
construction (305) (126) (805)
--------- --------- ---------
Income from continuing operations
before income taxes 30,931 27,209 24,261
Provision for income taxes 12,901 11,571 10,426
--------- --------- ---------
Income from continuing operations 18,030 15,638 13,835
Reversal of reserve for discontinued
operations, net of income tax of $200 370 -- --
--------- --------- ---------
Net Income $ 18,400 $ 15,638 $ 13,835
========= ========= =========
Net income per share
Continuing operations $ 1.50 $ 1.35 $ 1.27
Discontinued operations .03 -- --
--------- --------- ---------
Total $ 1.53 $ 1.35 $ 1.27
========= ========= =========
Average common and common equivalent
shares outstanding during the period 12,016 11,564 10,858
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Property, plant and equipment, at cost $529,364 $462,500
Less accumulated depreciation 92,459 76,791
-------- --------
Net property, plant and equipment 436,905 385,709
-------- --------
Current assets:
Cash 2,387 1,243
Accounts receivable, net 22,112 19,303
Inventory, materials and supplies 1,878 1,696
Prepayments and other current assets 537 594
-------- --------
Total current assets 26,914 22,836
-------- --------
Regulatory assets 48,757 48,334
Deferred charges and other assets, net 5,475 3,183
-------- --------
$518,051 $460,062
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Common stockholders' equity:
Common stock at par value net of $3,580 and
$3,239 of Treasury shares in 1995 and 1994 $ 2,644 $ 2,740
Capital in excess of par value 110,987 102,564
Retained earnings 43,345 38,491
-------- --------
Total common stockholders' equity 156,976 143,795
-------- --------
Preferred stock of subsidiary with mandatory
redemption requirements 5,643 7,143
Long-term debt, excluding current portion 175,395 152,195
Commitments -- --
Current liabilities:
Current portion of preferred stock of subsidiary
with mandatory redemption requirements 1,500 2,857
Current portion of long-term debt 13,590 887
Loans payable 6,455 4,050
Accounts payable 9,694 7,505
Accrued interest 3,601 3,346
Other accrued liabilities 13,227 9,912
Net reserves related to discontinued operations 2,153 2,701
-------- --------
Total current liabilities 50,220 31,258
-------- --------
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 70,980 67,721
Customers' advances for construction 25,880 24,713
Other 9,762 11,028
-------- --------
Total deferred credits and other liabilities 106,622 103,462
-------- --------
Contributions in aid of construction 23,195 22,209
-------- --------
$518,051 $460,062
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(In thousands of dollars)
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 18,030 $ 15,638 $ 13,835
Adjustments to reconcile income from
continuing operations to net cash
flows from operating activities:
Depreciation and amortization 11,557 10,330 10,935
Deferred taxes, net of taxes on
customers' advances 2,573 2,693 3,061
Net increase in receivables,
inventory and prepayments (2,037) (1,209) (1,438)
Net increase in payables and other
accrued liabilities 4,349 2,237 1,354
Net increase (decrease) in accrued
interest 255 (93) (158)
Other (1,773) 134 (540)
-------- -------- --------
Net cash flows from operating activities 32,954 29,730 27,049
-------- -------- --------
Cash flows from investing activities:
Property, plant and equipment additions,
including allowance for funds used during
construction of $305, $126 and $805 (33,182) (27,379) (27,958)
Acquisitions of water systems (26,351) (612) (1,323)
Sale of businesses and related assets -- -- 1,665
Other (91) (10) (40)
-------- -------- --------
Net cash flows from investing activities (59,624) (28,001) (27,656)
-------- -------- --------
Cash flows from financing activities:
Customers' advances and contributions
in aid of construction, net of
income tax payments 1,600 3,149 2,483
Repayments of customers' advances (2,104) (2,219) (2,904)
Net proceeds (repayments) of short-
term debt 2,405 3,231 (140)
Proceeds from long-term debt 57,906 7,722 21,839
Repayments of long-term debt including
premium on early retirement (23,585) (4,884) (34,559)
Redemption of preferred stock of
subsidiary (2,857) -- --
Proceeds from issuing common stock 9,060 6,916 27,749
Repurchase of common stock (733) (2,230) (992)
Dividends paid (13,546) (12,637) (11,629)
Other (154) (45) (104)
-------- -------- --------
Net cash flows from financing activities 27,992 (997) 1,743
-------- -------- --------
Net cash flows from discontinued
operations (178) 123 (1,183)
-------- -------- --------
Net increase (decrease) in cash 1,144 855 (47)
Cash balance beginning of year 1,243 388 435
-------- -------- --------
Cash balance end of year $ 2,387 $ 1,243 $ 388
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Summary of Significant Accounting Policies
- ------------------------------------------
Nature of Operations
- --------------------
The business of Philadelphia Suburban Corporation (the Company) is
conducted through its subsidiary Philadelphia Suburban Water Company ("PSW").
PSW is a regulated public utility which supplies water to approximately
265,000 customers. The customers are residential, commercial and industrial in
nature, and no single customer accounted for more than five percent of PSW's
sales. The service territory of PSW covers a 406 square mile area located west
and north of the City of Philadelphia. PSW is subject to regulation by the
Pennsylvania Public Utility Commission ("PUC") which has jurisdiction with
respect to rates, service, accounting procedures, issuance of securities,
acquisitions and other matters.
Consolidation
- -------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. 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,
1995, utility plant includes a credit acquisition adjustment of $8,147 which
is being amortized over 20 years. Consistent with PSW's recent rate
settlements, $529 was amortized during 1995 and $822 was amortized 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 PUC. The cost of new units of
property and betterments 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.
-3-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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.
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 1995 and 1994. The amount of AFUDC related
to equity funds was $338 in 1993.
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,
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 PSW has received or expects to receive
prospective rate recovery, are deferred and amortized over the period of rate
recovery.
Income Taxes
- ------------
The Company accounts for certain income and expense items in
different time periods for financial reporting than for tax reporting
purposes. Deferred income taxes are provided on the temporary differences
between the tax bases of the assets and liabilities and the amounts at which
they are carried in the financial statements. These deferred income taxes are
based on the enacted tax rates expected to be in effect when such temporary
differences are projected to reverse.
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.
-4-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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.
Use of Estimates in Preparation of Consolidated Financial Statements
- --------------------------------------------------------------------
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified for comparative
purposes. These reclassifications had no effect on net income.
Acquisitions
- ------------
In May 1995, PSW purchased the franchise rights and the water utility
assets of Media Borough ("Media"). The Media system covers a 23 square mile
service area contiguous to PSW's service territory. In addition, PSW purchased
the franchise rights and the water utility assets of four smaller water
systems in 1995 that cover a combined service territory of four square miles.
PSW paid $26,351 for the water systems acquired in 1995. These systems serve
customers within or contiguous to the boundaries of PSW's existing service
territory. The annual revenues from these systems approximate $4,750, and
related revenues included in the consolidated financial statements were $2,820
for 1995.
In December 1994, PSW acquired the franchise rights and the water
utility assets of two privately-owned water companies. In December 1993, PSW
acquired the franchise rights and the water utility assets of the Borough of
Malvern. These water supply systems cover a service territory of three square
miles and are located adjacent to PSW's existing service territory. Revenues
included in the consolidated financial statements related to the water supply
systems acquired in 1994 and 1993 amounted to approximately $400 and $290 in
1995 and 1994, respectively.
PSW has also entered into preliminary agreements to acquire six
additional water systems for a combined purchase price of approximately
$20,600, including, subject to final negotiations, the issuance of up to
$5,000 of the Company's preferred stock. These systems are adjacent or near to
PSW's service territory. The combined annual revenues of these systems are
approximately $2,900. In addition, PSW continues to hold discussions with
several other water systems that are near or adjacent to it's service
territory.
-5-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Income Taxes
- ------------
Total income tax expense is allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $12,901 $11,571 $10,426
Common stockholders' equity related
to stock option activity which
reduces taxable income (44) (25) (65)
Discontinued operations 200 -- --
------- ------- -------
$13,057 $11,546 $10,361
======= ======= =======
</TABLE>
Income tax expense attributable to income from continuing operations
consists of:
Years Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
Current:
Federal $7,688 $ 6,670 $ 4,538
State 2,514 2,685 2,879
------- ------- -------
10,202 9,355 7,417
------- ------- -------
Deferred:
Federal 2,565 2,303 3,377
State 134 (87) (368)
------- ------- -------
2,699 2,216 3,009
------- ------- -------
Total tax expense $12,901 $11,571 $10,426
======= ======= =======
-6-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
The significant components of deferred income tax expense are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Excess of tax over financial
statement depreciation $ 2,323 $ 2,791 $ 2,112
Amortization of deferred investment
tax credits (151) (151) (152)
Current year investment tax credits
deferred 90 75 93
Differences in basis of fixed
assets due to variations in tax and
book accounting methods that reverse
through depreciation 819 902 889
Customers' advances for construction,
net (443) (657) (934)
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 61 (744) 997
------- ------- -------
Total deferred income tax expense $ 2,699 $ 2,216 $ 3,009
======= ======= =======
</TABLE>
The statutory Federal tax rate is 35% for all years presented. The
Pennsylvania Corporate Net Income Tax rate decreased to 11.99% in 1994, and
9.99% in 1995.
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:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed Federal tax expense at
statutory rate $ 9,899 $ 8,614 $ 7,613
Increase (decrease) in tax expense for
items to be recovered in future rates:
Depreciation expense 132 154 151
Losses on asset disposals (35) (10) (49)
Amortization of deferred investment
tax credits (151) (151) (153)
Preferred stock dividend 221 303 303
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 187 63 46
-------- -------- --------
Actual Federal tax expense $ 10,253 $ 8,973 $ 7,915
======== ======== ========
</TABLE>
-7-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Customers' advances for construction $ 9,950 $ 9,507
Costs expensed for book not deducted
for tax, principally accrued expenses
and bad debt reserves 1,502 1,217
Other 363 363
------- -------
Total gross deferred tax assets 11,815 11,087
Less valuation allowance -- --
------- -------
Net deferred tax assets 11,815 11,087
------- -------
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 59,722 56,360
Deferred taxes associated with the gross-up
of revenues necessary to recover, in rates,
the effect of temporary differences 17,980 17,722
Deferred investment tax credit 4,363 4,424
Other 730 302
------- -------
Total gross deferred tax liabilities 82,795 78,808
------- -------
Net deferred tax liability $70,980 $67,721
======= =======
</TABLE>
-8-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
The Company made income tax payments, which include amounts related
to discontinued operations, of $9,730, $8,818 and $7,786 in 1995, 1994 and
1993, respectively. The Company's Federal income tax returns for all years
through 1992 have been closed.
Accounts Receivable
- -------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Billed water revenue $ 9,594 $ 8,267
Unbilled water revenue 12,450 11,014
Non-utility revenue 368 222
------ ------
22,412 19,503
Less allowance for doubtful accounts 300 200
------ ------
Net accounts receivable $22,112 $19,303
====== ======
</TABLE>
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 1995 or 1994 and no account receivable from any customer
exceeded five percent of the Company's total stockholders' equity.
Property, Plant and Equipment
- -----------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Utility plant and equipment $524,445 $455,926
Utility construction work in progress 2,645 4,301
Non-utility plant and equipment 2,274 2,273
-------- --------
Total property, plant and equipment $529,364 $462,500
======== ========
</TABLE>
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
- ----------------
The regulatory asset represents costs which have been prudently incurred and
are expected to be fully recovered in future rates. The two components of this
asset are deferred income taxes and postretirement benefits other than
pensions. Items giving rise to deferred state income taxes, as well as a
portion of deferred Federal income taxes related to certain differences
between tax and book depreciation expense, are recognized in the rate setting
process on a cash or flow through basis and will be recovered as they reverse.
The portion of the asset related to postretirement benefits other than
pensions represents costs that were deferred during the period that the
accrual method of accounting for these benefits was adopted in January 1993
and the recognition of the accrual method in the Company's rates in June 1994.
Amortization of the amount deferred for postretirement benefits other than
pensions began in June 1994 and is currently being recovered in rates.
-9-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Income taxes $46,510 $45,952
Postretirement Benefits other than Pensions 2,247 2,382
------- -------
$48,757 $48,334
======= =======
</TABLE>
Commitments
- -----------
PSW maintains agreements with the Chester Water Authority and the
Bucks County Water and Sewer Authority for the purchase of water 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
$2,688 through 2000. PSW purchased approximately $2,839, $3,322 and $2,922 of
water under these agreements during the years ended December 31, 1995, 1994
and 1993, respectively.
PSW leases motor vehicles and other equipment under operating leases
which are noncancelable and expire on various dates through 1999. During the
next five years, $1,124 of future minimum lease payments are due: $493 in
1996, $366 in 1997, $225 in 1998 and $40 in 1999. In May 1995, PSW entered
into a 50 year operating lease, with certain renewal provisions for parcels of
land on which its Media treatment plant and other facilities are situated and
adjacent parcels that are used for watershed protection. The lease is
noncancelable and expires in 2045. The lease is subject to an adjustment every
five years based on changes in the Consumer Price Index. During each of the
next five years, $292 of lease payments for land are due. Rent expense was
$1,067, $979 and $1,134 for the years ended December 31, 1995, 1994 and 1993,
respectively.
-10-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Long-term Debt and Loans Payable
- --------------------------------
December 31,
---------------------------
1995 1994
---- ----
First Mortgage Bonds secured by utility plant:
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) 4,150 4,600
5.950% Series, due 2002 (b) 2,800 3,200
6.820% Series, due 2005 (c) 10,000 -
13.000% Series, due 2005 (b) - 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
6.890% Series, due 2015 (c) 12,000 -
9.970% Series, due 2018 (c) 5,000 5,000
9.170% Series, due 2021 (b) 8,000 8,000
6.350% Series, due 2025 (c) 22,000 -
7.720% Series, due 2025 (c) 15,000 -
9.290% Series, due 2026 (c) 12,000 12,000
-------- --------
Total First Mortgage Bonds 182,150 132,000
Note payable to bank under revolving
credit agreement, due March 1998 5,160 19,370
Installment note payable, 9%, due in
equal annual payments through December
2013 1,675 1,712
-------- --------
188,985 153,082
Current portion of long-term debt 13,590 887
-------- --------
Long-term debt, excluding current
portion $175,395 $152,195
======== ========
Proforma weighted cost of long-term
debt at December 31, 8.0% 8.5%
======= =======
(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.
-11-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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, 1995, approximately $83,000 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:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sinking fund payments $ 440 $ 1,444 $3,448 $3,452 $3,457
Maturities 13,150 12,000 - - -
------- ------- ------- ------ ------
Total $13,590 $13,444 $3,448 $3,452 $3,457
======= ======= ======= ====== ======
</TABLE>
In March 1995, PSW established a two-year $100,000 medium-term note
program providing for the issuance of long-term debt with maturities ranging
between one and 30 years at fixed rates of interest, as determined at the time
of issuance. The notes issued under this program are secured by the
Twenty-ninth Supplement to the trust indenture relating to PSW's First
Mortgage Bonds. Issuances through this program were as follows: $15,000 in May
1995, 7.72% Series due 2025; $10,000 in June 1995, 6.82% Series due 2005; and
$12,000 in December 1995, 6.89% Series due 2015. The proceeds from these
issuances were used to fund the Media acquisition, the retirement of the First
Mortgage Bonds noted below and PSW's ongoing capital program.
In August 1995, PSW issued $22,000 First Mortgage Bonds 6.35% Series
due 2025 as security for an equal amount of bonds issued by the Delaware
County Industrial Development Authority. The proceeds from these bonds are
restricted to funding the costs of certain capital projects. As of December
31, 1995, the Trustee for this issue held $1.8 million in an interest bearing
account pending completion of the remainder of the projects financed with this
issue. The amount held by the Trustee is included in the balance sheet as
cash. It is expected that these projects will be completed by the third
quarter of 1996, however funds may be drawn from the trust prior to that time
as expenditures are made on these projects.
In August 1995, PSW retired $8,000 of First Mortgage Bonds, 13%
Series due 2005, at a premium of 6.1% or $488. In December 1995, PSW called
for early retirement in January 1996 $5,000 of First Mortgage Bonds, 7.875%
Series, at a premium of .331% or $17 and $4,150 of First Mortgage Bonds, 8.4%
Series, at a premium of 2.1% or $87. The unamortized bond issuance expenses
related to these retirements were $35. The premiums paid on the early
retirement of debt, along with the related unamortized bond issuance expense,
are capitalized and 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.
-12-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
In February 1994, PSW entered into a $30,000 revolving credit
agreement due March 1998 with four banks. The agreement was amended to
temporarily increase the available borrowings under this facility by $10,000
during the period May 1995 to August 1995 as interim financing for the Media
acquisition. 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 average cost of borrowing under this facility was 6.42% and 4.8%,
and the average borrowing was $22,755 and $19,136, during 1995 and 1994,
respectively. The maximum amount outstanding at the end of any one month was
$36,800 in 1995 and $24,100 in 1994.
At December 31, 1995 and 1994, the Company and PSW had combined
short-term lines of credit of $10,000. Funds borrowed under these lines are
classified as loans payable and are used to provide working capital. The
average borrowing under the lines was $5,720 and $880 during 1995 and 1994,
respectively. The maximum amount outstanding at the end of any one month was
$8,615 in 1995 and $4,050 in 1994. 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 1995 and 1994 was 6.8%
and 6.3%, respectively.
The total amount of interest paid on all borrowings, net of amounts
capitalized, was $14,923, $13,729 and $13,327 in 1995, 1994 and 1993,
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, 1995 are as follows:
Estimated
Carrying fair
amount value
-------- ---------
Long-term debt $188,985 $210,634
Preferred stock of subsidiary
with mandatory redemption requirements 7,143 7,446
-13-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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 $25,880 and $7,051, respectively at December
31, 1995. 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 2017
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.
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, 1995, 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. 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 1995, PSW provided notice to the holder of the preferred
stock of its intention to call 15,000 shares at par in January 1996 as
required by the share purchase agreement and, therefore, $1,500 has been
classified as the current portion of preferred stock as of December 31, 1995.
In January 1995, PSW called 14,285 shares at par value in addition to the
mandatory redemption of 14,285 shares required by the share purchase
agreement.
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 $12.88 and $12.27 at December 31, 1995
and 1994, 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, 1995, the Company had 20,000,000 shares of common
stock authorized; par value $.50. Shares outstanding at December 31, 1995,
1994 and 1993 were 12,188,748, 11,717,990 and 11,429,968, respectively.
Treasury shares held at December 31, 1995, 1994 and 1993 were 259,125, 240,737
and 135,472, respectively.
-14-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
At December 31, 1995, 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> <C>
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)
Equity Compensation Plan 5 -- 174 -- 179
Exercise of stock options 16 -- 450 -- 466
--------- --------- --------- --------- ---------
Balance at December 31, 1994 5,979 (3,239) 102,564 38,491 143,795
--------- --------- --------- --------- ---------
Net income -- -- -- 18,400 18,400
Dividends -- -- -- (13,546) (13,546)
Sale of stock 217 392 7,621 -- 8,230
Repurchase of stock -- (733) -- -- (733)
Equity Compensation Plan 1 -- 31 -- 32
Exercise of stock options 27 -- 771 -- 798
--------- --------- --------- --------- ---------
Balance at December 31, 1995 $ 6,224 $ (3,580) $ 110,987 $ 43,345 $ 156,976
========= ========= ========= ========= =========
</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, 434,034, 350,818 and
417,501 shares of common stock were sold providing the Company with $7,846,
$6,191 and $7,539 of additional capital, after expenses, during 1995, 1994 and
1993, respectively.
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 and stock
purchase plans, Customer Stock Purchase Program and Dividend Reinvestment
Program and Optional Stock Purchase Program.
-15-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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 1995, 1994 and
1993, 39,456, 118,867 and 51,635 shares have been purchased at a net cost of
$733, $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 as amended, 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. Restricted stock may also be granted to non-employee members
of the Board of Directors. 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.
Options under both the 1994 and 1988 plans, as well as an earlier 1982
Stock Option Plan for which 18,000 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.
-16-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
The following table summarizes stock option transactions for the three
plans:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Options granted 120,500 115,500 128,000
Options terminated - (7,000) (95,100)
Options exercised (53,312) (32,469) (136,800)
------- ------- -------
Net change 67,188 76,031 (103,900)
======= ======= =======
Balance of shares under option 527,519 460,331 384,300
======= ======= =======
</TABLE>
Options exercised during 1995 ranged in price from $12.88 per share to
$17.94 per share. The shares under option at December 31, 1995 are exercisable
at prices ranging from $12.94 to $17.94 per share. At December 31, 1995,
208,285 shares were exercisable, and 202,200 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
Company's 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. The Board granted 45,500 and 43,500 dividend
equivalents in 1995 and 1994, respectively, and costs associated with these
awards were $197 in 1995 and $77 in 1994.
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. During 1995, 1,800 shares of restricted stock were granted
with a restriction period of six months and during 1994, 10,000 shares of
restricted stock were granted with restriction periods of one to three years.
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.
Pension Plans and Other Postretirement Benefits
- -----------------------------------------------
The Company has defined benefit pension plans which cover its
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
-17-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Benefits earned during the year $ 905 $ 1,183 $ 1,062
Interest cost on projected benefit
obligation 3,304 3,161 3,026
Actual return on plan assets (9,256) 1,218 (4,989)
Net amortization and deferral 6,029 (4,679) 1,643
Capitalized costs (133) (74) (69)
Rate-regulated adjustment (311) (386) (375)
------- ------- -------
Net pension cost $ 538 $ 423 $ 298
======= ======= =======
</TABLE>
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.
The assets and obligations of the plans are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 38,096 $ 30,786
Non-vested 2,312 1,702
-------- --------
Total $ 40,408 $ 32,488
======== ========
Projected benefit obligation $ 50,585 $ 38,704
Plan assets at fair value,
primarily equity and fixed
income commingled funds 46,698 38,941
-------- --------
Plan assets in excess of (less than)
projected benefit obligation (3,887) 237
Unrecognized net loss (gain) from
past experience different from
that assumed and effects of
changes in assumptions 1,151 (2,583)
Unrecognized prior service cost 1,465 1,510
Rate-regulated adjustment 388 59
Unrecognized net obligation 541 630
-------- --------
Accrued pension costs included
in other current liabilities $ (342) $ (147)
======== ========
</TABLE>
-18-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
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 7% for 1995, 8.5% for 1994 and 7% for 1993; increase in
future compensation levels of 5.5% for all years presented; and long-term rate
of return on assets of 9% for 1995 and 1994, and 10% for 1993.
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.
The Company's costs for postretirement benefits other than pensions
include the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Benefits earned during the year $ 208 $ 359 $ 325
Interest cost 994 1,077 1,192
Return on plan assets (101) -- --
Net amortization and deferral 655 743 743
Amortization of regulatory asset 136 74 --
------- ------- -------
Gross PBOP cost 1,892 2,253 2,260
Capitalized costs (94) (45) --
Adjustment to recognize future rate
recovery -- (760) (1,696)
------- ------- -------
Net PBOP cost $ 1,798 $ 1,448 $ 564
======= ======= =======
</TABLE>
The assets and liabilities of the plans for postretirement benefits
other than pensions are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 8,011 $ 5,837
Fully eligible active employees 4,075 3,766
Other employees 2,699 2,706
-------- --------
Total APBO 14,785 12,309
Fair value of plan assets 2,267 --
-------- --------
APBO in excess of plan assets 12,518 12,309
Unrecognized net transition obligation (12,638) (13,381)
Unrecognized net gain 2,367 4,349
-------- --------
Accrued PBOP cost included in other liabilities $ 2,247 $ 3,277
======== ========
</TABLE>
-19-
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
The APBO is calculated utilizing the following assumptions: discount
rate of 7%; medical inflation rates of 5% for those employees not eligible by
December 31, 1993, and 11%, reducing to 4.5% by 2002 for all others; a 9%
return on plan assets in 1995, and, in 1994, 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 1995 PBOP costs by $1,100 and $82, respectively.
The Company has begun to fund its liability for postretirement
benefits other than pensions and has deposited $2,425 in various trust
accounts during the year.
Water Rates
- -----------
PSW was permitted by the PUC to increase its base rates by 5.3%,
9.05% and 7.4% effective October 27, 1995, June 17, 1994 and June 1, 1993,
respectively. These increases were calculated to provide additional annual
revenues of approximately $6,150, $9,050 and $6,750, respectively. As a part
of the 1995 base rate increase, PSW agreed not to file for a new base rate
increase prior to April 26, 1996, absent extraordinary circumstances.
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 October 1995, the
existing credit of 1.04% was eliminated with the adoption of new base rates.
PSW was required to initiate a revenue credit in 1994 in order to provide its
customers with the savings associated with Pennsylvania tax rate decreases. In
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 1995 and 1994 by $504 and $97, respectively, while the surcharge increased
revenues in 1993 $706.
Discontinued Operations
- -----------------------
The Board of Directors had authorized the sale of substantially all
of the Company's non-regulated businesses by the end of the first quarter of
1991 and, in the first quarter of 1993, the last of these businesses was sold.
At the time the Board of Directors authorized the sale of these businesses,
the Company established reserves for: projected operating losses of these
businesses subsequent to their sale authorizations; estimated losses on the
sale transactions; and certain future costs, including administrative and
legal services related to the sales, contingent legal and lease obligations
and certain employee costs. These reserves were recorded on the balance sheet
net of related income tax benefits. During 1995 and 1994, $178 and $162 of
payments associated with discontinued operations were charged to the reserve.
As a result of the receipt of contingent sale proceeds from two of
the businesses sold, the passage of time, which reduced certain lease
contingencies, and the most recent assessment of asserted and unasserted legal
claims related to these businesses, the Company determined that, as of
December 31, 1995, the net reserves were in excess of current estimates of
potential costs by $370 or $.03 per share and the reserves were reduced
accordingly.
-20-
<PAGE>
MANAGEMENT'S REPORT
The consolidated financial statements and related information for the
years ended December 31, 1995, 1994 and 1993 were prepared by management in
accordance with generally accepted accounting principles and include
management'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 four outside Directors who meet periodically with management
and the independent auditors. The Audit Committee held two meetings in 1995.
Nicholas DeBenedictis Michael P. Graham
Chairman & Senior Vice President - Finance
President & Treasurer
21
<PAGE>
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, 1995 and
1994, and the related consolidated statements of income, and cash flows for
each of the years in the three-year period ended December 31, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the four-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
February 6, 1996
22
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Selected Quarterly Financial Data (Unaudited)
- ---------------------------------------------
<TABLE>
<CAPTION>
Total
First Second Third Fourth Year
-----------------------------------------------------------------
1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earned revenues $25,712 $28,827 $32,355 $30,150 $117,044
Operating expenses 11,766 12,357 13,793 13,786 51,702
Income, continuing operations 3,315 4,659 5,732 4,324 18,030
Income per share, continuing
operations .28 .39 .48 .35 1.50
Income, discontinued operations - - - 370 370
Income per share, discontinued
operations - - - .03 .03
Net income 3,315 4,659 5,732 4,694 18,400
Net income per share .28 .39 .48 .38 1.53
Dividend paid per share .28 .28 .29 .29 1.14
Price range of common stock
- high 18.25 18.75 18.63 21.50 21.50
- low 17.38 17.63 17.63 18.00 17.38
-----------------------------------------------------------------
1994
-----------------------------------------------------------------
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>
High and low prices of the Company's common stock are as traded on the New
York Stock Exchange.
-23-
<PAGE>
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"), a
Pennsylvania corporation, is the holding Company of Philadelphia Suburban
Water Company ("PSW"), a regulated water utility. PSW provides water to
approximately 265,000 customers in 81 municipalities within its 406 square
mile service territory. PSW's service territory is located north and west of
the City of Philadelphia.
Results of Operations
- ---------------------
Following are selected five-year financial statistics for the
Company:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earned revenues $117,044 $108,636 $101,244 $93,307 $88,648
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $30,931 $27,209 $24,261 $18,661 $17,260
- ----------------------------------------------------------------------------------------------------------------------
Operating Statistics
Earned revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses 44.2 46.3 45.4 46.1 48.1
Depreciation and amortization 9.9 9.5 10.8 10.1 9.3
Taxes other than income taxes 6.6 6.6 6.8 7.0 6.9
Interest and debt expenses* 13.2 12.7 13.8 17.1 17.5
Allowance for funds used during
construction (0.3) (0.1) (0.8) (0.3) (1.3)
- ----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 73.6 75.0 76.0 80.0 80.5
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 26.4% 25.0% 24.0% 20.0% 19.5%
======================================================================================================================
Effective tax rates 41.7% 42.5% 43.0% 43.1% 41.0%
======================================================================================================================
Income from continuing operations
as a percentage of average common
stockholders' equity 12.0% 11.2% 11.4% 11.0% 11.9%
======================================================================================================================
</TABLE>
*Includes dividends on preferred stock of PSW with mandatory redemption
requirements.
1
<PAGE>
Following are selected five-year operating and sales statistics for PSW:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daily sendout
(Million gallons Maximum 121.8 110.4 120.7 101.3 109.5
per day) Average 92.6 89.8 89.1 85.4 87.2
=============================================================================================
Metered Residential 248,500 234,624 232,684 230,740 223,635
customers Commercial 11,725 10,777 10,720 10,547 9,800
Industrial 848 833 832 837 820
Other 3,792 3,299 2,959 2,664 2,361
---------------------------------------------------------------------------------------------
Total 264,865 249,533 247,195 244,788 236,616
=============================================================================================
Consumption
per customer
in gallons Average 109,084 109,001 110,368 108,258 110,978
=============================================================================================
Revenues from Residential $ 77,744 $ 69,483 $66,656 $60,239 $58,053
water sales Commercial 23,911 22,998 20,112 19,235 18,031
Industrial 4,969 5,170 4,601 4,500 4,126
Other 9,249 9,151 8,092 7,577 6,856
---------------------------------------------------------------------------------------------
Total $115,873 $106,802 $99,461 $91,551 $87,066
=============================================================================================
</TABLE>
Income from continuing operations of the Company has grown at an
annual compound rate of approximately 13.1% during the five-year period ended
December 31, 1995. During this same period, revenues and total expenses, other
than income taxes, have grown at compound rates of 7.3% and 5.2%,
respectively.
Earned Revenues
- ---------------
The growth in revenues over the past five years is a result of
increases in water rates and an increase in customer base. The number of
customers increased in the past three years primarily as a result of
acquisitions of local water systems, which provided water revenues of
approximately $5,550, $2,480 and $2,052 in 1995, 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 .7%. This
increase represents normal growth in the number of households and businesses
within PSW's 406 square mile service territory. Water rates have increased by
32.9% since 1991, reflecting an annual compound growth rate of 5.9% 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. In the five years presented above, rates were increased 5.3%, 9.1%,
7.4% and 7.7% in 1995, 1994, 1993 and 1991, respectively.
2
<PAGE>
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.
In addition to increases in base rates, 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. During 1995 and
1994, rates were reduced by various credits as a result of reductions in
Pennsylvania's taxes. These credits resulted in revenue reductions of $504 in
1995 and $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. The rate increase that became effective in October 1995 reflected the
tax rates that are currently in effect and the rate credit of 1.04%, which was
in effect just prior to the rate increase, was eliminated.
"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 82.6% 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 82.9% in 1995, 82.5% in 1994 and 83.3% in 1993. 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.
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. The
average annual consumption per customer has varied slightly over the past five
years and it appears that weather patterns are the primary reason for these
variations. The summer of 1995 was hotter and dryer than the previous year and
consumption increased resulting in increased revenues and net income during
the third quarter. In late September, the Governor of Pennsylvania issued a
drought emergency order which mandated certain restrictions on water use.
Because the order was issued toward the end of the summer months, when
nonessential and recreational use of water has traditionally declined, the
restrictions did not have a significant impact on consumption. The drought
emergency was declared over in November and all restrictions were lifted by
year end 1995. 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,
construction codes which require the use of low flow plumbing fixtures as well
as mandated water use restrictions in response to drought conditions have also
had an effect on water consumption.
3
<PAGE>
Operating Expenses
- ------------------
Operating expenses for 1995, 1994 and 1993, totalled $51,702, $50,296
and $45,989, 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.
Operating expenses increased in 1995 over 1994 by 2.8% reflecting
additional expenses associated with the acquisition of other water systems
completed during the year, increased wages and employee benefit costs and the
increased sendout, offset by a decline in maintenance expense. Expenses
related to the operations of the water systems acquired in 1995 were $1,445.
Wage increases reflect normal merit increases, while employee benefit costs
increased primarily as a result of $411 of additional costs for postretirement
benefits other than pensions computed under SFAS 106, which were recognized
commencing in June 1994 in conjunction with the rate settlement that became
effective at that time. Maintenance expenses declined compared to 1994 due to
the less severe winter.
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 was primarily the result 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.
For the past three years, corporate costs were less than 1% of the
Company's operating expenses. Such expenses include those unallocated general
and administrative expenses associated with maintaining a publicly-held
company.
Depreciation and Amortization
- -----------------------------
Depreciation expense was $11,572, $10,468 and $9,927 in 1995, 1994 and
1993, respectively, and has increased principally as a result of the
significant capital expenditures made to expand and improve the water utility
facilities and to acquire water systems. Depreciation expense was
approximately 2.4% of the average utility plant in service for all years.
Amortization was a credit of $15 in 1995 as compared to a credit of $138 in
1994 and a charge of $1,008 in 1993. The change in amortization in 1995 is
primarily due to a reduction in the amortization of acquisition adjustments
offset by a decline in the amortization of rate case costs. 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 was
recognized retroactive to the acquisition date in conjunction with the June
1994 rate settlement.
4
<PAGE>
Taxes Other than Income Taxes
- -----------------------------
Taxes other than income taxes increased by 7% in 1995 and by 4% in
1994 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 increases associated with
acquisitions completed in the last two years. The increase in the Capital
Stock Tax is due to the increases in the Company's common equity over the past
three years.
Interest and Debt Expenses
- --------------------------
Interest and debt expense was $14,852, $12,896 and $13,108 in 1995,
1994 and 1993, respectively, and has increased in 1995 primarily as a result
of higher levels of borrowing. The level of debt increased in order to finance
acquisitions and other capital expenditures made in 1995. Interest and debt
expense decreased in 1994 from 1993 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 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 $305,
$126 and $805 in 1995, 1994 and 1993, 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 $4,848,
$2,820 and $8,379 in 1995, 1994 and 1993, respectively. The increase in 1995
in the average balance of CWIP is due to a $4,600 operations center that was
placed in service in December 1995 and the decrease in 1994 from 1993 is due
to an $11,500 treatment plant that was placed in service in November 1993.
AFUDC is no longer applied to projects after they are placed in service, but
is applied to an ever-increasing base during the period they are under
construction.
The AFUDC rate has also varied due to changes in the interest rate on
PSW's revolving credit facility. The average AFUDC rate was 6.3%, 4.6% and
9.1% in 1995, 1994 and 1993, respectively.
Income Taxes
- ------------
The Company's effective income tax rate was 41.7% in 1995 as compared
to 42.5% in 1994 and 43.0% in 1993. The decline in the effective tax rate in
1995 and 1994 is primarily due to reductions in the Pennsylvania Corporate Net
Income Tax rate of 2% in 1995 and .3% in 1994.
Discontinued Operations
- -----------------------
In the first quarter of 1993, the Company completed the sale of the
last of the five nonregulated businesses that the Board of Directors had
previously authorized in 1990 and 1991. The results of operations of these
businesses during the period they were owned by the Company are accounted for
as discontinued operations.
5
<PAGE>
In the fourth quarter of 1995 the Company reversed $370, net of
related taxes, of the reserves it had established in prior years for its
discontinued operations. The reversal was made as a result of the receipt of
contingent sales proceeds from two of the businesses that were sold; the
passage of time, which reduced certain potential lease obligations; and the
most recent assessment of asserted and unasserted legal claims related to
these businesses. The balance of the reserves for discontinued operations of
$2,153 at December 31, 1995 consists primarily of reserves for future and
contingent costs including potential lease, legal and insurance costs
associated with these businesses.
Summary
- -------
Operating income in 1995, 1994 and 1993 was $46,109, $40,845 and
$37,430, respectively, and income from continuing operations was $18,030,
$15,638 and $13,835, respectively, for the same periods. Net income was
$18,400 in 1995 and was higher than income from continuing operations as a
result of the reversal of $370 of reserves for the discontinued operations.
Net income was equal to income from continuing operations in 1994 and 1993. On
a per share basis, income from continuing operations in 1995, 1994 and 1993
was $1.50, $1.35 and $1.27, respectively. The increases in the per share
income in 1995 and 1994 over the previous years were due to the aforementioned
improvements in profits offset in part by a 3.9% and 6.5% increase in the
average number of shares outstanding during 1995 and 1994, respectively.
Although the Company has experienced increased income 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 PSW's utility plant.
Fourth Quarter Results
- ----------------------
Income from continuing operations for the fourth quarter of 1995
increased by $567 to $4,324 primarily as a result of a $1,942 increase in
revenues. The increase in revenues was a result of the acquisitions made
during the past two years and the 5.3% rate increase which took effect October
27, 1995. 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 were primarily
attributable to the acquisitions made during the year. Depreciation increased
due to utility plant additions made since the fourth quarter of 1994. 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 borrowing levels.
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.
6
<PAGE>
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.
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, 1995 are as follows:
-----------------------------------------------------------
Net operating Capital
cash flow Dividends expenditures
-----------------------------------------------------------
1991 $ 18,055 $ 7,859 $ 22,335
1992 23,928 8,866 21,719
1993 27,049 11,629 27,958
1994 29,730 12,637 27,379
1995 32,954 13,546 33,182
-----------------------------------------------------------
$131,716 $ 54,537 $132,573
===========================================================
Included in capital expenditures are: $21,208 for the construction of
two surface water treatment plants; $7,728 for the modernization of existing
treatment plants; $11,902 for new water mains; $20,850 for the rehabilitation
of existing water mains; $20,253 for water meters and $4,614 for the
construction of a divisional operations center. During this five year period,
PSW received $13,115 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 $5,352, retired $48,950 of debt and
$2,857 of preferred stock, and has refunded $11,457 of customer advances for
construction. PSW has also expended $37,414 related to the acquisition of 10
water systems since December 1992.
7
<PAGE>
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 $107,777 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 3,182,833 shares of
common stock for net proceeds of $50,084 since 1991 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:
- --------------------------------------------------------------------------
Customer Optional
Stock Dividend Stock
Purchase Reinvestment Purchase
Program Program Program Total
- --------------------------------------------------------------------------
Net proceeds:
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
1995 4,680 2,324 842 7,846
- --------------------------------------------------------------------------
$40,522 $ 7,098 $ 2,464 $50,084
==========================================================================
Shares issued:
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
1995 255,455 132,910 45,669 434,034
- --------------------------------------------------------------------------
2,618,019 425,024 139,790 3,182,833
==========================================================================
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 1995 dividend payment,
holders of 18% of the common shares outstanding participated in the DRP.
8
<PAGE>
PSW's 1996 capital program, exclusive of the costs of new mains
financed by advances and contributions in aid of construction, is estimated to
be $29,800, which is expected to be financed, along with $13,150 of debt
maturities, $440 of sinking fund obligations and $1,500 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 preliminary agreements to acquire six other water
systems for a combined purchase price of approximately $20,600, 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 primarily from the proceeds of
long-term debt.
Future utility construction in the period 1997 through 2000,
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 $115,000. 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 secure the capital it will need and to maintain
satisfactory debt coverage ratios.
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 1996. Management
believes that with continued regulatory support, 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:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-term debt* 53.5% 49.9% 50.7% 58.1% 64.4%
Preferred stock
with mandatory redemption* 2.0 3.3 3.4 3.6 3.7
Common stockholders' equity 44.5 46.8 45.9 38.3 31.9
- ---------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
=========================================================================================================
</TABLE>
*includes current portion.
The changes in the capitalization ratios result from the issuance of
common stock over the past five years, the retirement of parent company debt
in 1992 and the issuance of debt by PSW to finance its acquisitions and
capital program.
9
<PAGE>
Impact of Recent Accounting Pronouncements
- ------------------------------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" ("SFAS 121"). SFAS 121 requires that the Company's long-lived assets,
which consist primarily of Utility Plant in Service, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. SFAS 121 also requires
that rate-regulated enterprises recognize an impairment for the amount of
costs excluded when the PUC excludes all or part of a cost from the
enterprise's rate base. The Company intends to adopt this standard as required
in 1996. The implementation of SFAS 121 is not expected to have an impact on
the results of operations or financial position of the Company, since PSW's
rates are designed to provide a recovery of its depreciation expense and cost
of capital associated with its utility plant. The PUC has not excluded any of
PSW's utility plant from rate base.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
which encourages the fair value based method of accounting for stock options
and similar equity instruments granted to employees. This method requires that
the fair value of equity instruments granted to employees be recorded as
compensation expense. However, SFAS 123 allows for the continued use of the
intrinsic value based method, which in most cases, does not result in a charge
to earnings. The Company does not expect to change its method of accounting
for stock options. However, the Company will adopt the disclosure requirements
of SFAS 123 when required in 1996.
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
-------------------------------------------------------------
1991 $ 1.00 $ 1.29 78%
1992 1.04 1.23 85
1993 1.07 1.27 84
1994 1.10 1.35 81
1995 1.14 1.50 76
Dividends have averaged approximately 81% of income from continuing
operations during this period. In 1995, the annual dividend increased by 3.6%
to $1.16 beginning with the September 1995 dividend.
10
<PAGE>
<TABLE>
<CAPTION>
Summary of Selected Financial Data Philadelphia Suburban Corporation and Subsidiaries
(in thousands of dollars, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Income from continuing operations (a) $1.50 $1.35 $1.27 $1.23 $1.29
Net income 1.53 1.35 1.27 0.50 0.62
Cash dividends 1.14 1.10 1.07 1.04 1.00
Return on average shareholders equity (b) 12% 11% 11% 11% 12%
Book value at year end $12.88 $12.27 $11.89 $10.88 $10.66
Market value at year end 20.75 18.13 18.38 16.00 15.75
- ----------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT HIGHLIGHTS:
Earned revenues (b) $117,044 $108,636 $101,244 $93,307 $88,648
Depreciation and amortization (b) 11,557 10,330 10,935 9,446 8,253
Interest and debt expenses (b) (c) 15,178 13,636 13,169 15,676 14,377
Income before income taxes (b) 30,931 27,209 24,261 18,661 17,260
Provision for income taxes (b) 12,901 11,571 10,426 8,035 7,081
Income from continuing operations (a) 18,030 15,638 13,835 10,626 10,179
Net income 18,400 15,638 13,835 4,292 4,889
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS:
Total assets $518,051 $460,062 $440,935 $367,096 $350,560
Property, plant and equipment, net (b) 436,905 385,709 366,230 345,610 320,974
Common stockholders equity 156,976 143,795 135,934 106,971 85,621
Preferred stock with mandatory redemption (d) 7,143 10,000 10,000 10,000 10,000
Long-term debt (d) 188,985 153,082 150,176 162,089 172,626
Total debt 195,440 157,132 150,995 163,048 172,786
- ----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION:
Net cash flows from operating activities (b) $32,954 $29,730 $27,049 $23,785 $18,198
Capital additions (b) (e) 33,182 27,379 27,958 21,719 22,335
Dividends on common stock 13,546 12,637 11,629 8,866 7,859
Number of metered water customers 264,865 249,533 247,195 244,788 236,616
Number of shareholders of common stock 12,209 11,243 10,811 9,863 6,408
Common shares outstanding (000) 12,189 11,718 11,430 9,832 8,034
Employees (full-time) (b) 535 525 523 526 526
- ----------------------------------------------------------------------------------------------------------------------------
</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 $26,351 in 1995, $612 in
1994, $1,323 in 1993 and $9,128 in 1992.
<PAGE>
Exhibit 21
------------
(unaudited)
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
The following table lists all of the subsidiaries of the Company at December 31,
1995:
Philadelphia Suburban Water Company (Pa.)
Utility & Municipal Services, Inc. (Pa.)
PSC Services, Inc. (Del.)
<PAGE>
Exhibit 23
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 Plan No.33-27032), (1982
Stock Option Plan No. 2-81757); on Form S-3 (Dividend Reinvestment and
Optional Stock Purchase Plan No. 33-64281); and on Form S-3 (Customer Stock
Purchase Plan No. 33-64301) of Philadelphia Suburban Corporation of our
report dated February 6, 1996, related to the consolidated balance sheets of
Philadelphia Suburban Corporation and subsidiaries as of December 31, 1995 and
1994 and the related consolidated statements of income and cash flows for each
of the years in the three-year period ended December 31, 1995, which report is
incorporated by reference in the December 31, 1995 Annual Report on Form 10-K
of Philadelphia Suburban Corporation.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets at December 31, 1995, and the consolidated
statements of income and cash flow for the year ended December 31, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 436,825
<OTHER-PROPERTY-AND-INVEST> 80
<TOTAL-CURRENT-ASSETS> 26,914
<TOTAL-DEFERRED-CHARGES> 5,475
<OTHER-ASSETS> 48,757
<TOTAL-ASSETS> 518,051
<COMMON> 2,644
<CAPITAL-SURPLUS-PAID-IN> 110,987
<RETAINED-EARNINGS> 43,345
<TOTAL-COMMON-STOCKHOLDERS-EQ> 156,976
5,643
0
<LONG-TERM-DEBT-NET> 175,395
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 6,455
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 13,590
1,500
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 158,492
<TOT-CAPITALIZATION-AND-LIAB> 518,051
<GROSS-OPERATING-REVENUE> 117,044
<INCOME-TAX-EXPENSE> 12,901
<OTHER-OPERATING-EXPENSES> 70,935
<TOTAL-OPERATING-EXPENSES> 83,836
<OPERATING-INCOME-LOSS> 33,208
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 33,208
<TOTAL-INTEREST-EXPENSE> 14,547
<NET-INCOME> 18,400
631
<EARNINGS-AVAILABLE-FOR-COMM> 18,400
<COMMON-STOCK-DIVIDENDS> 13,546
<TOTAL-INTEREST-ON-BONDS> 14,672
<CASH-FLOW-OPERATIONS> 32,954
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
