<PAGE>
Filed Pursuant to Rule 424(b)(4)
and Rule 462(b)(3)
Registration No. 333-42982 and
Registration No. 333-45582
1,150,000 Shares
Philadelphia Suburban Corporation
Common Stock
---------------------
We are selling 1,150,000 shares of our common stock. Our common stock is
listed on the New York Stock Exchange and the Philadelphia Stock Exchange under
the symbol "PSC." The last reported sale price of our common stock on the New
York Stock Exchange on September 11, 2000 was $23.625 per share.
---------------------
<TABLE>
<CAPTION>
Per Share Total
----------- --------------
<S> <C> <C>
Public offering price ........................................... $ 23.50 $27,025,000
Underwriting discount ........................................... $ 0.93 $ 1,069,500
Proceeds, before expenses, to Philadelphia Suburban Corporation . $ 22.57 $25,955,500
</TABLE>
The underwriters named in this prospectus may purchase up to an additional
172,500 shares of common stock from us under certain circumstances. The
underwriters expect to deliver the shares to purchasers on or about September
15, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
---------------------
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Janney Montgomery Scott LLC
Prospectus dated September 11, 2000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TABLE OF CONTENTS
Page
-----
Prospectus Summary ................................... 1
Forward-Looking Statements ........................... 4
The Water and Wastewater Utility Industries .......... 5
Philadelphia Suburban Corporation .................... 5
Capital Requirements and Funding ..................... 11
Where You Can Find More Information .................. 12
Use of Proceeds ...................................... 13
Price Range of Common Stock and Dividends ............ 13
Description of Capital Stock ......................... 14
Underwriting ......................................... 17
Legal Matters ........................................ 18
Experts .............................................. 18
-----------------------------
Unless the context otherwise requires, references in this prospectus to
"we," "us" and "our" refer to Philadelphia Suburban Corporation and its direct
and indirect subsidiaries. In addition, references to Philadelphia Suburban
Water refer to our subsidiary, Philadelphia Suburban Water Company, and its
subsidiaries, and references to Consumers Water refer to our subsidiary,
Consumers Water Company, and its subsidiaries.
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
[CONSUMERS WATER SERVICE TERRITORY MAP OMITTED]
[PHILADELPHIA SUBURBAN WATER SERVICE TERRITORY MAP OMITTED]
TERRITORY MAP - A Graphic depicting the northeast quarter of the United States,
with the five states in which we have operations shown in a different shade than
the other states. The locations of our service territories in these five states
are represented by dots on the map and our corporate headquarters and primary
service territory is represented by a star. There are circles around the dots
closest to Chicago, Cleveland/Youngstown, and Philadelphia, where most of our
operations are concentrated. There is an arrow pointing from the star to an
enlarged map of the area around the City of Philadelphia showing the location of
Philadelphia Suburban Water Company's service territory. In the lower right hand
quarter of the page is a table setting forth the number of our customers in each
of the five state as of June 30, 2000, as set forth below. In the middle of the
page is a legend explaining that the star indicates the location of our
corporate headquarters and the Philadelphia Suburban Water Company service
territory and that the dots represent the Consumers Water Company service
territories. At the bottom of the page is a legend explaining that the shaded
area in the enlarged map around the City of Philadelphia indicates the
Philadelphia Suburban Water Company service territory.
================================
CUSTOMERS BY STATE as of 6/30/00
PENNSYLVANIA 369,401
OHIO 80,045
ILLINOIS 62,846
NEW JERSEY 34,486
MAINE 17,144
TOTAL 563,922
<PAGE>
PROSPECTUS SUMMARY
This summary highlights material information contained elsewhere in this
prospectus. Before making an investment decision, you should read this entire
prospectus as well as the documents incorporated by reference. Unless otherwise
indicated, the information in this prospectus assumes that the underwriters'
over-allotment option is not exercised.
Philadelphia Suburban Corporation
Our business............. A holding company for regulated utilities
providing water or wastewater services. Among the
largest investor-owned water utilities in the U.S.
based on the number of customers.
Our service territory.... Parts of Pennsylvania, Ohio, Illinois, New Jersey
and Maine.
Population of our service
territory............... Approximately 2.0 million.
Philadelphia Suburban
Water.................... One of our subsidiaries and a regulated public
utility providing water or wastewater services to
about 1.1 million residents in the suburban areas
west and north of the City of Philadelphia.
Consumers Water.......... One of our subsidiaries and a holding company for
several regulated public utilities providing water
or wastewater services to about 850,000 residents in
various communities in Pennsylvania, Ohio, Illinois,
New Jersey and Maine.
Customers as of
June 30, 2000 .......... Approximately 564,000 (including approximately 9,000
customers associated with operating and maintenance
contracts).
Our address and telephone
number.................. Philadelphia Suburban Corporation, 762 W.
Lancaster Avenue, Bryn Mawr, Pennsylvania
19010-3489, and 610-527-8000.
The Offering
Common stock offered (1).. 1,150,000 shares.
Common stock to be
outstanding after this
offering (2) ............ 42,213,853 shares.
Indicated annual
dividend rate............ Effective with the December 1, 2000 dividend, $.775
per share.
Cash dividends
paid since............... 1944.
Listing.................. New York Stock Exchange and Philadelphia Stock
Exchange (Symbol: PSC).
Use of proceeds.......... The net proceeds of this offering will be used to
reduce Philadelphia Suburban Water's short-term
debt. See "Use of Proceeds."
-------------
(1) Purchasers of offered shares will also receive preferred stock purchase
rights. See "Description of Capital Stock -- Common Stock -- Shareholder
Rights Plan."
(2) The outstanding share information is based upon the shares of common stock
outstanding as of June 30, 2000. This information excludes options to
purchase 1,574,450 shares of common stock outstanding as of June 30, 2000
under our stock option plans. In addition, on August 1, 2000, our board of
directors approved a 5-for-4 common stock split that will be effected in
the form of a 25% stock dividend payable on December 1, 2000 to holders of
record on November 15, 2000. The share and per share data contained in
this prospectus have not been restated to give effect to this stock split.
1
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share and operating data)
The following table sets forth certain summary consolidated financial data
derived from our audited consolidated financial statements for the years ended
December 31, 1999, 1998 and 1997 and from our unaudited interim consolidated
financial statements for the six months ended June 30, 2000 and 1999. The
unaudited interim financial statements include, in the opinion of our
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for the interim periods presented. Interim results are not
necessarily indicative of the results that may be expected for any other
interim period or for a full year.
On March 10, 1999, we completed a merger with Consumers Water. The merger
has been accounted for as a pooling-of-interests. Accordingly, our historical
consolidated financial statements and notes thereto included in the documents
that we incorporate by reference in this prospectus, and from which certain of
the financial data presented below has been derived, were restated to include
the accounts and results of Consumers Water as if the merger had been completed
as of the beginning of the earliest period presented. You should read this
summary consolidated financial data together with our historical consolidated
financial statements and the notes thereto in the documents that we incorporate
by reference in this prospectus.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------------------------
2000 1999
----------------- -----------------
(unaudited)
<S> <C> <C>
Income Statement Data:
Operating revenues ................................. $133,004 $ 124,762
Operating income ................................... 55,969(1) 47,096(2)
Income from continuing operations, exclusive of
certain non-recurring items (3) ................... 22,841(4) 20,945(5)
Net income (loss) available to common stock:
Continuing operations (3) ......................... $ 23,811(7) $ 12,349(8)
Discontinued operations ........................... -- --
---------- ---------
Total ........................................... $ 23,811(7) $ 12,349(8)
======== =========
Per Common Share Data: (10)
Diluted income per common share:
Income from continuing operations, exclusive
of certain non-recurring items .................. $ 0.56(4) $ 0.51(5)
Income from continuing operations ................. 0.58(7) 0.30(8)
Net income ........................................ 0.58(7) 0.30(8)
Cash dividends paid per common share (11) .......... 0.36 0.34
Book value per share of common stock ............... 9.11 8.58
Average common shares outstanding (diluted) ......... 41,337 41,266
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
---------------- ----------------- ------------
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ................................. $ 257,326 $ 250,771 $ 235,852
Operating income ................................... 101,045(2) 99,238 89,959
Income from continuing operations, exclusive of
certain non-recurring items (3) ................... 44,871(5) 40,917(6) 35,015
Net income (loss) available to common stock:
Continuing operations (3) ......................... $ 36,275(8) $ 44,820(9) $ 35,015
Discontinued operations ........................... -- -- (2,737)
--------- -------- ---------
Total ........................................... $ 36,275(8) $ 44,820(9) $ 32,278
========= ======== =========
Per Common Share Data: (10)
Diluted income per common share:
Income from continuing operations, exclusive
of certain non-recurring items .................. $ 1.09(5) $ 1.00(6) $ 0.90
Income from continuing operations ................. 0.88(8) 1.10(9) 0.90
Net income ........................................ 0.88(8) 1.10(9) 0.83
Cash dividends paid per common share (11) .......... 0.70 0.67 0.62
Book value per share of common stock ............... 8.89 8.53 7.70
Average common shares outstanding (diluted) ......... 41,305 40,854 39,018
</TABLE>
<TABLE>
<CAPTION>
June 30,
----------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Total assets ....................................... $1,331,800 $1,186,139
Property, plant & equipment, net ................... 1,177,066 1,046,390
Capitalization:
Long-term debt, including current portion ......... $ 473,808 $ 404,416
Preferred stock with mandatory redemption,
including current portion ....................... -- --
Stockholders' equity .............................. 378,371 354,864
---------- ----------
Total capitalization ............................... $ 852,179 $ 759,280
========== ==========
Operating Data:
Number of metered customers ........................ 554,845 530,135
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Total assets ....................................... $1,280,805 $ 1,156,733 $ 1,083,162
Property, plant & equipment, net ................... 1,135,364 1,016,194 952,626
Capitalization:
Long-term debt, including current portion ......... $ 425,946 $ 377,355 $ 407,526
Preferred stock with mandatory redemption,
including current portion ....................... -- -- 4,214
Stockholders' equity .............................. 368,901 353,088 306,816
---------- ----------- -----------
Total capitalization ............................... $ 794,847 $ 730,443 $ 718,556
========== =========== ===========
Operating Data:
Number of metered customers ........................ 548,937 525,959 519,160
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------------
Actual As Adjusted (12)
------------------------ -------------------------
Amount Percent Amount Percent
------------ --------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Capitalization:
Long-term debt (13) ......................... $ 473,808 55.6% $ 473,808 54.0%
Preferred stock ............................. 1,760 0.2% 1,760 0.2%
Common stockholders' equity ................. 376,611 44.2% 402,407 45.8%
--------- ----- --------- -----
Total capitalization (13) ..................... $ 852,179 100.0% $ 877,975 100.0%
========= ===== ========= =====
Short-term debt:
Revolving credit debt of Philadelphia Subur-
ban Water ................................. $ 50,000 $ 24,204
Loans payable to banks under short-term lines
of credit ................................. 44,926 44,926
--------- ---------
Total short-term debt ......................... $ 94,926 $ 69,130
========= =========
</TABLE>
-------------
(1) Includes a recovery of $396 of restructuring costs resulting from the
April 2000 rate settlement with the Pennsylvania Public Utility
Commission. These costs were charged off in the first quarter of 1999 in
connection with the Consumers Water merger.
(2) Includes a charge for restructuring costs in connection with the Consumers
Water merger of $3,787.
(3) After provision for dividends on our preferred stock.
(4) Non-recurring items each resulting from the April 2000 rate settlement
represent a recovery of $396 of restructuring costs, a recovery of $663 of
merger transaction costs and the related regulatory asset amortization of
$89. These items are without tax effect and represent $0.02 per share.
These costs were charged off in the first quarter of 1999 in connection
with the Consumers Water merger.
(5) Non-recurring items represent a charge of $6,334 ($6,134 after-tax or
$0.15 per share) for the Consumers Water merger transaction costs and a
charge for related restructuring costs of $3,787 ($2,462 after-tax or
$0.06 per share).
(6) Non-recurring item represents a gain of $6,680 ($3,903 after-tax or $0.10
per share) on the sale of Consumers Water's New Hampshire operations
pursuant to the state's condemnation statute.
(7) Results include the net recovery described in footnote (4) above.
(8) Results include the net charges described in footnote (5) above.
(9) Results include the net gain described in footnote (6) above.
(10) The share and per share data contained in this table have not been
restated to give effect to the 5-for-4 common stock split that will be
effected in the form of a 25% stock dividend payable on December 1, 2000
to holders of record on November 15, 2000.
(11) Represents our historical dividends paid per common share. At our August
1, 2000 board meeting, our board of directors approved an increase in our
quarterly cash dividend from $0.18 per share to $.19375 per share
effective with our December 1, 2000 payment.
(12) Adjusted to reflect the net proceeds from the sale of 1,150,000 shares of
common stock to be issued in this offering and the application of these
net proceeds to repay the short-term debt of Philadelphia Suburban Water.
See "Use of Proceeds."
(13) Includes current portion of long-term debt of $16,473.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus, or incorporated by reference in
this prospectus, are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 made based upon, among other things, our current assumptions,
expectations and beliefs concerning future developments and their potential
effect on us. These forward-looking statements involve risks, uncertainties and
other factors, many of which are outside our control, that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. In some cases you can identify forward-looking
statements where statements are preceded by, followed by or include the words
"believes," "expects," "anticipates," "plans" or similar expressions.
Forward-looking statements in this prospectus, or incorporated by reference in
this prospectus, include, but are not limited to, statements regarding:
o projected capital expenditures and related funding requirements;
o developments and trends in the water and wastewater utility industries;
o opportunities for future acquisitions;
o the development of new services and technologies by us or our
competitors;
o the availability of qualified personnel;
o general economic conditions; and
o merger-related costs and synergies.
Because forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including but
not limited to:
o changes in general economic, business and financial market conditions;
o changes in government regulations, including environmental regulations;
o abnormal weather conditions;
o changes in capital requirements;
o our ability to integrate businesses, technologies or services which we
may acquire;
o our ability to manage the expansion of our business;
o the extent to which we are able to develop and market new and improved
services;
o the effect of the loss of major customers;
o our ability to retain the services of key personnel and to hire
qualified personnel as we expand;
o unanticipated capital requirements; and
o cost overruns relating to improvements or the expansion of our
operations.
<PAGE>
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. You should read this prospectus and the documents
that we incorporate by reference in this prospectus completely and with the
understanding that our actual future results may be materially different from
what we expect. These forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus. Except for our ongoing
obligations to disclose material information under the federal securities laws,
we are not obligated to update these forward-looking statements, even though
our situation may change in the future. We qualify all of our forward-looking
statements by these cautionary statements.
4
<PAGE>
THE WATER AND WASTEWATER UTILITY INDUSTRIES
With more than 50,000 community water systems in the U.S. (85% of which
serve less than 3,300 customers), the water industry is the most fragmented of
the major utility industries (telephone, natural gas, electric and water). The
nation's water systems range in size from large municipally-owned systems, like
the New York City water system that serves about 9 million people, to small
systems, where a few customers share a common well. In the states where we
operate, we believe there are over 6,400 public water systems of widely varying
size.
The water industry is the most capital intensive of the utilities, with
more capital invested per dollar of revenue than any other utility. Customers
and regulators expect companies in the water industry, both municipally-owned
and investor-owned, to provide reliable water service at affordable prices
while meeting stringent federal and state water quality standards. Continued
capital investment is necessary to (1) repair and replace aging water
distribution infrastructure, (2) expand existing systems in response to
community growth and development, and (3) invest in new treatment plants and
technology to meet water quality standards. In its First Report to Congress in
January 1997, the U.S. Environmental Protection Agency estimated that the
nation's water systems must invest a minimum of $138.4 billion through 2014 to
meet the requirements of the Safe Drinking Water Act of 1974, as amended.
Advancing technology and the increasingly stringent drinking water regulations
have transformed the drinking water industry into one that now demands a level
of technological expertise that was previously not required. The costs
associated with meeting more stringent water quality standards, coupled with
the costs of replacing aging infrastructure, have caused many small, and some
large, water utilities to sell their systems to larger, better capitalized
water utilities that can afford the costs of making the necessary investments
in their systems and have the requisite economies of scale.
Although not as fragmented as the water industry, the wastewater industry
in the U.S. also presents opportunities for consolidation. According to the
U.S. Environmental Protection Agency's most recent survey of publicly-owned
wastewater treatment facilities in 1996, there are approximately 16,000 such
facilities in the nation serving approximately 72% of the U.S. population. The
vast majority of wastewater facilities are government-owned rather than
privately-owned. That survey also indicates that there are about 2,900 such
facilities in operation or planned in the five states where we operate. The
U.S. Environmental Protection Agency estimates that about $140 billion will
need to be invested in wastewater systems over the next 20 years to meet
environmental standards.
PHILADELPHIA SUBURBAN CORPORATION
General
We are a holding company for regulated utilities providing water or
wastewater services to approximately 2 million people in Pennsylvania, Ohio,
Illinois, New Jersey and Maine. Our two primary subsidiaries are Philadelphia
Suburban Water, a regulated public utility that provides water or wastewater
services to about 1.1 million residents in the suburban areas west and north of
the City of Philadelphia, and Consumers Water, a holding company for several
regulated public utility companies that provide water or wastewater services to
about 850,000 residents in various communities in Pennsylvania, Ohio, Illinois,
New Jersey and Maine. We are among the largest investor-owned water utilities
in the U.S. based on the number of customers. In addition, we provide water
service to approximately 25,000 people through operating and maintenance
contracts with municipal authorities and other parties close to our operating
companies' service territories. Subsidiaries of Philadelphia Suburban Water and
Consumers Water provide primarily residential wastewater services to
approximately 28,000 people in Pennsylvania, Illinois and New Jersey. For the
six months ended June 30, 2000, the operating revenues associated with
wastewater services were approximately 2% of our consolidated operating
revenues. Our ratio of customers to employees as of June 30, 2000 is 597 to 1,
which is one of the best ratios, from an efficiency perspective, in the water
utility industry.
Our customer base is primarily residential, with these customers
representing approximately two-thirds of our total water revenues.
Substantially all of our customers are metered, which allows us to measure and
bill our customers' water consumption. Water consumption per customer is
affected by local weather conditions during the year, especially during the
late spring and early summer. In general, during these seasons, an
5
<PAGE>
extended period of dry weather increases water consumption, while above average
rainfall decreases water consumption. Also, an increase in the average
temperature generally causes an increase in water consumption. As was the case
in Pennsylvania and New Jersey in the summer of 1999, abnormally dry weather in
our service areas can sometimes result in the governmental authorities
declaring drought warnings and water use restrictions in the affected areas. If
these types of actions are taken, water consumption and water revenues may be
reduced. While parts of Pennsylvania, particularly those dependent on
groundwater, experienced water shortages during the 1999 drought, our water
supplies remained adequate. When the drought restrictions were lifted, water
revenues returned to normal levels.
The merger with Consumers Water in 1999, with its operations in western
Pennsylvania, Ohio, Illinois, New Jersey and Maine, has allowed us to diversify
our exposure to regional weather conditions. In 1999, above average water
consumption during the summer in Ohio and Illinois offset the effect of the
drought declarations and water use restrictions in Pennsylvania and New Jersey.
More importantly, Consumers Water has over 25 locations within those five
states from which we can pursue our growth strategy. Including acquisitions,
Philadelphia Suburban Water's customer base increased at an annual compound
rate of 3.9% during the three-year period of 1997 through 1999. Including
acquisitions, Consumers Water's consolidated customer growth rate during this
period was 1.5%.
Our largest shareholder is Vivendi S.A. and certain of its subsidiaries.
Vivendi S.A. is a company headquartered in Paris with worldwide interests in
various businesses, including the water industry primarily through its
subsidiary, Vivendi Water S.A. Vivendi S.A. and these subsidiaries owned
approximately 18% of our outstanding common stock as of June 30, 2000. A recent
letter from Vivendi Water S.A. to our chairman reaffirmed Vivendi S.A.'s
intention to hold our shares for investment, which is consistent with the
disclosure set forth in Vivendi S.A.'s Amendment No. 20 to its Schedule 13D,
filed with the SEC in August 2000. Although Vivendi S.A. indicated in this
filing that it would review its investment position in us periodically,
including possibly selling its shares, it also indicated in this filing that it
may seek to acquire (either directly or through a subsidiary) additional shares
of our common stock from time to time that would result in Vivendi S.A and its
subsidiaries holding up to 19.99% of our shares. For more information with
respect to Vivendi S.A.'s ownership of our common stock, we refer you to
Amendment No. 20 to Vivendi S.A.'s Schedule 13D. At its August 1, 2000 meeting,
our board of directors, on the recommendation of our corporate governance
committee: acknowledged the resignation of Michel Avenas, President of Vivendi
North America, from our board; increased the size of the board from 11 to 12
directors; expanded the class of directors with terms expiring at our 2001
annual meeting (the class of directors that Mr. Avenas was in) from 3 to 4; and
appointed Mr. Richard Heckmann, Chairman of Vivendi Water S.A., and Mr. Andrew
Seidel, President and Chief Operating Officer of Vivendi Water S.A. to our
board in the class of directors with terms expiring at our 2001 annual meeting.
We have had various discussions with representatives of Vivendi S.A.'s
subsidiaries, Vivendi Water S.A. and United States Filter Corporation,
exploring possible joint activities or alliances in such areas as water
treatment devices, bottled water, contract operations of water and wastewater
systems, laboratory testing and joint materials purchasing. Although we intend
to continue these discussions and explore any other potential areas of
cooperation, we currently have no formal agreements with Vivendi S.A., United
States Filter Corporation or any of their affiliates in any of these areas and
there can be no assurance that any agreements in these areas or other areas
will be ultimately reached.
Recent Financial Results (First Six Months of 2000 Compared to First Six Months
of 1999)
Operating revenues in the first half of 2000 increased by $8,242,000 or
6.6% primarily due to increased water rates, particularly as a result of the
April 2000 Pennsylvania rate settlement, the additional water revenues
associated with acquisitions and additional revenues from the distribution
system improvement charge in Pennsylvania. Increased revenues from acquisitions
came primarily from the Bensalem water system which we acquired in December
1999.
Costs and expenses in the first half of 2000 decreased by $631,000 or
0.8%. The decrease was primarily due to a restructuring charge of $3,787,000
recorded in the first quarter of 1999 for severance and costs associated with
the closing of the Consumers Water corporate office, offset in part by
increased operations and
6
<PAGE>
maintenance expenses and depreciation. Operations and maintenance expenses in
the first half of 2000 increased by $2,350,000 or 5.0% primarily due to higher
maintenance expenses and additional operating costs associated with the
Bensalem acquisition. Offsetting these increases, in part, was a reduction in
general corporate expenses, related to the closing of Consumers Water's
corporate office following the merger, and lower water production costs in
Pennsylvania and Ohio associated with the lower water consumption resulting
from the relatively cool, wet weather experienced in May and June of 2000.
Depreciation increased by $889,000 or 5.9% due to capital expenditures made to
expand and improve water utility facilities, and as a result of acquisitions of
water systems, offset partially by the effect of a change in depreciation
rates.
Net income available to common stock for the first half of 2000 increased
as a result of the change in operating revenues and expenses described above
and the following factors. In the first quarter of 1999, we recorded a charge
of $6,334,000 for transaction costs associated with the Consumers Water merger
consummated in March 1999. This charge represented the fees for investment
bankers, attorneys, accountants and other administrative charges incurred in
connection with the merger. In the second quarter of 2000, a recovery of
$663,000 was recognized for a portion of the merger transaction costs allocable
to our Pennsylvania operations. Interest expense for the first six months of
2000 increased $3,224,000 primarily due to increased borrowings to finance
capital projects and acquisitions and, to a lesser extent, increased interest
rates on borrowings. In the first quarter of 2000, we recorded gains on the
sale of marketable securities of $1,061,000. We did not sell any marketable
securities in 1999 or during the second quarter of 2000.
Accordingly, earnings per share for the first half of 2000 were $0.58
versus $0.30 for the first half of 1999. Earnings per share (without the merger
related restructuring and transaction costs incurred in the first quarter of
1999 and the second quarter of 2000 recovery of a portion of these merger costs
described above) were $0.56 for the first half of 2000 versus $0.51 for the
first half of 1999.
Acquisition Strategy
We are actively exploring opportunities to expand our utility operations
through acquisitions or otherwise. As of June 30, 2000, we had completed 56
acquisitions or other growth ventures during the past five years. Exclusive of
the Consumers Water merger in March 1999, these transactions have added
approximately 49,000 customers to our customer base during this five-year
period. The largest of these transactions was the acquisition of the water
utility assets of Bensalem Township in December 1999, which added 14,945
customers.
We have made several acquisitions so far in 2000. In Pennsylvania,
Philadelphia Suburban Water acquired a wastewater system serving approximately
750 residents, a water system serving approximately 1,000 residents and a water
system serving approximately 500 residents. Philadelphia Suburban Water has
also entered into an agreement to acquire a water system in Pennsylvania
serving approximately 200 residents. In Ohio, one of Consumers Water's
subsidiaries has purchased a water system serving approximately 2,600 residents
and a water system serving approximately 4,200 residents. In Illinois, one of
Consumers Water's subsidiaries has entered into an agreement to purchase a
water and wastewater system serving approximately 400 residents. In New Jersey,
one of Consumers Water's subsidiaries was awarded a contract to provide meter
reading, billing and cash remittance services over a three-year period for a
water system serving approximately 30,000 residents. Lastly, we recently
entered into an agreement to acquire a water system serving approximately 1,500
residents in North Carolina through a newly formed subsidiary in North
Carolina.
Because of the fragmented nature of the water and wastewater utility
industries, we believe that there are many potential water system acquisition
candidates throughout the U.S. We believe the factors driving consolidation of
these water systems are:
o the benefits of economies of scale, including the development of
technological expertise that would not be feasible in a smaller
organization;
o increasingly stringent environmental regulations; and
o the need for major capital investment.
We believe that acquisitions will continue to be an important source of
growth for us. We intend to continue to pursue acquisitions of
municipally-owned and investor-owned water systems of all sizes that
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provide services in areas adjacent to our existing service territories or in
new service areas. We engage in continuing activities with respect to potential
acquisitions, including calling on prospective sellers, performing analyses and
investigations of acquisition candidates, making preliminary acquisition
proposals and negotiating the terms of potential acquisitions.
We believe that any municipally-owned water and wastewater systems that we
would acquire would be purchased with cash, while any investor-owned water and
wastewater systems that we would acquire would be purchased with cash, shares
of our common stock, shares of our preferred stock or a combination of each. We
expect to generate the cash needed for acquisitions initially with the proceeds
from the issuance of short-term debt, with subsequent repayment from earnings,
the proceeds from the issuance of long-term debt and the proceeds from equity
sold through our dividend reinvestment plan and our equity offerings. We have
filed a registration statement with the SEC to issue up to an additional
2,000,000 shares of common stock and up to an additional 500,000 shares of
preferred stock in connection with the acquisition of other water and
wastewater systems. If we issue any of these shares in connection with an
acquisition, subject to the requirements of Rule 145 under the Securities Act
of 1933 and any contractual restrictions, these shares may be immediately
resold following the completion of any acquisition.
We are not currently a party to any definitive agreement or binding letter
of intent with respect to a material acquisition. We cannot assure you that in
the future we will be able to continue to identify and acquire any business or
water or wastewater system on acceptable terms or that such acquisitions will
be accretive to earnings.
Employee Relations
As of June 30, 2000, we employed a total of 945 full-time employees. Our
subsidiaries are parties to agreements with labor unions covering 491
employees. These agreements are due to expire between October 2001 and August
2004. We consider our employee relations to be good.
Rates and Regulation
Our water and wastewater utility operations are subject to regulation by
their respective state regulatory commissions, which have broad administrative
power and authority to set rates and charges, determine franchise areas and
conditions of service and authorize the issuance of securities. The regulatory
commissions also establish uniform systems of accounts and approve the terms of
contracts with both affiliates and customers. In addition, the regulatory
commissions have the authority to approve acquisitions of other utility
systems, loans and the purchase or sale of property. The profitability of our
utility operations is influenced to a great extent by the timeliness and
adequacy of rate allowances in the various states in which we operate.
Accordingly, we maintain a rate case management capability to ensure that the
rates of the utility operations reflect, to the extent practicable, current
costs of operations, capital, taxes, energy, materials and compliance with
environmental regulations. Rates for some divisions of our Ohio water utility
can be fixed by negotiated agreements with the municipalities that are served
by those divisions, in lieu of regulatory approval from the Public Utility
Commission of Ohio. Currently, two of our four regulated divisions in Ohio are
operating under these negotiated agreements.
In 1996, the Pennsylvania Public Utility Commission approved the
distribution system improvement charge. The distribution system improvement
charge is a mechanism that allows Pennsylvania water utilities to add a
surcharge to their water bills without the need for a fully-litigated rate
proceeding. This surcharge is designed to recover, on a current basis, the
additional depreciation and capital costs associated with certain non-revenue
producing, non-expense reducing capital expenditures related to replacing and
rehabilitating distribution systems. Prior to the distribution system
improvement charge, water utilities absorbed all of the depreciation and
capital costs of these projects between base rate increases without the benefit
of additional revenues. The gap between the time that a capital project is
completed and the recovery of its costs in base rates is known as regulatory
lag. Regulatory lag often acted as a disincentive to water utilities in
rehabilitating their distribution systems. The distribution system improvement
charge is intended to eliminate or reduce regulatory lag. The Pennsylvania
distribution system improvement charge is adjusted quarterly based on
additional qualified capital expenditures made in the previous quarter. The
Pennsylvania distribution system
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improvement charge is capped at 5% of base rates. Once a utility's distribution
system improvement charge reaches this level, further rate increases would
require a formal rate proceeding with the Pennsylvania Public Utility
Commission, which would address all costs and expenses of the company. The
distribution system improvement charge is reset to zero when new base rates
that reflect the costs of those additions become effective. The Pennsylvania
Public Utility Commission also limits use of the distribution system
improvement charge to periods when a company's return on equity is less than a
benchmark it establishes each quarter.
We are currently working to establish distribution system improvement
charge mechanisms in the other states in which we operate. In May 1999, the
Illinois legislature passed a bill to establish a distribution system
improvement charge mechanism in Illinois. The Illinois Commerce Commission is
analyzing the mechanism currently and considering approval of a distribution
system improvement charge for use by Illinois water utilities, beginning in
2001. The New Jersey Board of Public Utilities has established a task force to
review the merits of a distribution system improvement charge mechanism in New
Jersey.
On April 27, 2000, the Pennsylvania Public Utility Commission approved a
rate settlement reached between our Pennsylvania utility subsidiaries and the
parties actively litigating our joint rate application filed in October 1999.
The settlement was designed to increase annual revenue by $17,000,000 or 9.4%
above the level in effect at the time of the filing. The rates in effect at the
time of the filing included $7,347,000 in distribution system improvement
charges ranging from 0.33% to 5%. Consequently, the settlement resulted in a
total base rate increase of $24,347,000 or 13.5% above the rates in effect
before the distribution system improvement charges were applied. As a part of
the settlement, the distribution system improvement charges were reset to zero
and we agreed not to file a base rate increase request prior to April 29, 2001,
absent extraordinary circumstances. The settlement agreement also provides for
the recovery of up to $5,295,000 of the $10,121,000 ($8,596,000 after-tax) in
merger costs that were charged off in the first quarter of 1999 in connection
with the Consumers Water merger. The $5,295,000 represents the merger costs
allocable to our Pennsylvania operations. In the second quarter of 2000, a
regulatory asset of $1,059,000 was established to reflect that portion of the
$5,295,000 to be recovered before our next Pennsylvania rate filing is expected
to become effective. The establishment of the $1,059,000 regulatory asset
resulted in a recovery of $396,000 of restructuring costs and $663,000 of
merger transaction costs as reported in our financial results for the first
half of 2000. The remainder of the $5,295,000 has not yet been recognized and
its recoverability is presently being evaluated. In the April 2000 rate
settlement, the Pennsylvania Public Utility Commission recognized all four of
our Pennsylvania operating water utilities as one entity for rate-making
purposes. Accordingly, we plan to merge these four utilities into one company.
In March 2000, an operating division of Consumers Water's Illinois
operating subsidiary was awarded an aggregate annual revenue increase of
approximately $400,000. In April 2000, a rate increase was negotiated by an
operating division of Consumers Water's subsidiary in Ohio with the local
governmental authority resulting in an aggregate annual revenue increase of
$140,000 in each of the following three years. In addition, in 2000, rate
applications were filed by seven operating divisions of Consumers Water's
subsidiaries in Illinois, Maine and New Jersey. The total additional annual
revenue requested is $6,662,000 and decisions are anticipated by late 2000 or
in the first quarter of 2001.
Environmental Regulation
The primary federal and state laws affecting the provision of water and
wastewater services are the Clean Water Act, the Safe Drinking Water Act and
the regulations issued under these laws by the U.S. Environmental Protection
Agency and state environmental regulatory agencies, as well as federal and
state laws affecting dam safety. These laws and regulations establish criteria
and standards for drinking water and for discharges into the waters of the U.S.
The states have the right to establish criteria and standards that are more
strict than those established by the U.S. Environmental Protection Agency. In
some of the states where our subsidiaries operate they have done so. Other
federal and state environmental laws and regulations in addition to the Clean
Water Act, the Safe Drinking Water Act and the dam safety regulations affect
the operations of our subsidiaries.
The Safe Drinking Water Act establishes criteria and procedures for the
U.S. Environmental Protection Agency to develop minimum national quality
standards for drinking water. Regulations issued pursuant to the
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Safe Drinking Water Act set standards on the amount of certain inorganic and
organic chemical contaminants, microbials and radionuclides allowable in
drinking water. Current requirements under the Safe Drinking Water Act are not
expected to have a material effect on our operations or financial condition. We
may, in the future, have to change our method of treating drinking water at
certain sources of supply if additional regulations become effective.
The Clean Water Act regulates the discharge of liquid effluents from
drinking water and wastewater treatment facilities into lakes, rivers, streams
and subsurface or sanitary sewers. The Resource Conservation and Recovery Act
regulates the handling and disposal of residuals and solids from drinking water
and wastewater treatment facilities.
Our subsidiaries own seventeen major dams that are subject to the
requirements of federal and state regulations related to dam safety. All major
dams undergo an engineering inspection annually. We believe that all seventeen
dams are structurally sound and well-maintained.
In addition to the capital expenditures and costs currently anticipated,
changes in environmental regulations, enforcement policies and practices or
related matters may result in additional capital expenditures and costs.
Capital expenditures and costs incurred as a result of efforts to meet water
quality standards and environmental requirements generally have been recognized
by state public utility commissions as appropriate plant additions in
establishing rates.
Rights to Conduct our Business
In general, we believe that we have valid rights, free from unduly
burdensome restrictions, to enable us to carry on our business as presently
conducted in the territories we now serve. The rights to provide water or
wastewater service to a particular franchised service territory are generally
non-exclusive, although the applicable regulatory commissions usually allow
only one utility to provide service to a given area. In some instances, another
water utility, usually government-owned, already provides service to a separate
area within the same political subdivision served by one of our subsidiaries.
In the states where our subsidiaries operate, it is possible that portions of
our subsidiaries' operations could be acquired by municipal governments by one
or more of the following methods:
o eminent domain;
o the right of purchase given or reserved by a municipality or political
subdivision when the original franchise was granted; and
o the right of purchase given or reserved under the law of the state in
which the subsidiary was incorporated or from which it received its
permit.
The price paid by a municipal government for an acquisition is usually
determined in accordance with applicable law governing the taking of lands and
other property under eminent domain. In other instances, the price may be
negotiated, fixed by appraisers selected by the parties or computed in
accordance with a formula prescribed in the law of the state or in the
particular franchise or charter. Generally, our strategy is to acquire
additional water and wastewater systems, maintain our existing systems, and
actively oppose efforts by municipal governments to acquire any of our
operations, particularly for less than the fair market value of our operations
or where the municipal government seeks to acquire more than it is entitled to
under the applicable law or agreement.
There are two matters in Ohio that involve the attempted acquisition or
condemnation of certain assets of Consumers Ohio Water Company, a subsidiary of
Consumers Water.
In Ashtabula County, Consumers Ohio Water Company provides water service
to several municipalities and to areas of the county that are located outside
of these municipalities. Ashtabula County is seeking to purchase certain assets
of Consumers Ohio Water Company that are located outside of these
municipalities. The parties are currently litigating the question of whether
Ashtabula County's right to purchase includes all of the assets located outside
of these municipalities or only those assets that are not essential for
providing service to these municipalities. The county claims that it is
entitled to purchase all the assets and will allow
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Consumers Ohio Water Company to use certain pipelines needed to convey water to
the municipalities. Consumers Ohio Water Company's position is that the county
may only purchase assets not involved in providing service to the
municipalities. It is not certain that the county will proceed with an
acquisition if all the assets cannot be purchased. If the county does proceed
to acquire all or some of these assets, we believe that Consumers Ohio Water
Company will be entitled to fair value for these assets, which, in any event,
will exceed the book value for these assets.
The City of Geneva, a municipality in Ashtabula County, Ohio, has passed
an ordinance seeking to condemn the assets of Consumers Ohio Water Company that
are located in Geneva. The issue is being submitted to a referendum in the fall
of 2000, whereby voters will determine whether the city should proceed with
this action. If the city does proceed to condemn these assets, we believe that
Consumers Ohio Water Company will be entitled to fair value for these assets,
which, in any event, will exceed the book value for these assets.
The total number of customers included in the Ashtabula and Geneva systems
discussed above represent only 1.4% of our total customer base.
CAPITAL REQUIREMENTS AND FUNDING
2000 Capital Program
During the first half of 2000, we had $57,443,000 of capital expenditures,
repaid $2,935,000 of long-term debt and repaid $1,764,000 of customer advances
for construction. Our planned 2000 capital program, exclusive of the costs of
new mains financed by advances and contributions in aid of construction, is
estimated to be approximately $110.6 million, of which approximately $34.3
million is for distribution system improvement charge qualified projects. We
expect to continue to finance our 2000 capital program, along with
approximately $12.2 million of sinking fund obligations and debt maturities,
through internally-generated funds, our revolving credit facilities, proceeds
from this offering, the issuance of new long-term debt and proceeds from our
dividend reinvestment plan.
2001 Capital Program
Our planned 2001 capital program, exclusive of the costs of new mains
financed by advances and contributions in aid of construction, is estimated to
be approximately $110.5 million, of which $45.8 million is for distribution
system improvement charge qualified projects. Philadelphia Suburban Water and
Consumers Water's Pennsylvania subsidiaries have increased their capital
spending for infrastructure rehabilitation in response to the availability of
the distribution system improvement charge. Should the distribution system
improvement charge in Pennsylvania be discontinued (which is not anticipated),
for any reason, Philadelphia Suburban Water and the Consumers Water
subsidiaries in Pennsylvania would likely reduce their capital programs
significantly. Our 2001 capital program, along with approximately $3.8 million
of sinking fund obligations and debt maturities is expected to be financed
through internally-generated funds, the revolving credit facilities, the
issuance of new long-term debt and proceeds from our dividend reinvestment
plan.
Water Main Replacement
In our water utility systems, we maintain approximately 6,800 miles of
water mains to transmit and distribute water to our customers. On average, the
water mains are 47 years old and are made of cast iron (64%), ductile iron
(26%) and other materials (10%). We maintain a program to replace or
rehabilitate these mains through a cost-effective infrastructure rehabilitation
program.
Anticipated Construction
Future utility construction in the period 2002 through 2004, including
recurring programs, such as the ongoing replacement of water meters, the
rehabilitation of water mains and additional transmission mains and expanded
and new treatment facilities to meet customer demands is estimated to require
aggregate expenditures of approximately $360 million. This $360 million is
exclusive of the costs of new mains
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financed by advances and contributions in aid of construction. We anticipate
that less than one-half of these expenditures will require external financing,
including the issuance of long-term debt, the issuance of common stock through
our dividend reinvestment plan and possible future public equity offerings. We
expect to refinance approximately $87.6 million of debt maturities during this
period, as they become due, with new issues of long-term debt. The estimates
discussed above do not include any amounts for possible future acquisitions of
water systems or the financing necessary to support such acquisitions.
The ability to finance our future construction programs, as well as our
acquisition activities, depends on our 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 by our operating subsidiaries to achieve an
adequate level of earnings to enable them to secure the capital they will need
and to maintain satisfactory debt coverage ratios.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. You may also obtain our SEC filings from the SEC's website at
http://www.sec.gov/.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. Statements made in this prospectus as to the
contents of any contract, agreement or other documents are not necessarily
complete, and, in each instance, we refer you to a copy of such document filed
as an exhibit to the registration statement, of which this prospectus is a
part, or otherwise filed with the SEC. The information incorporated by
reference is considered to be part of this prospectus. When we file information
with the SEC in the future, that information will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all of the
shares of common stock that we have registered are sold:
o Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999 including portions of our definitive Proxy Statement for the 2000
Annual Meeting of Shareholders incorporated therein by reference;
o Our Quarterly Reports on Form 10-Q for the periods ended March 31, 2000
and June 30, 2000;
o Our Current Report on Form 8-K filed on April 27, 2000 reporting under
Item 5 the settlement of our Pennsylvania rate case;
o Our Current Report on Form 8-K filed on July 27, 2000 reporting under
Item 5 our earnings for the quarter ended June 30, 2000;
o The description of our common stock contained in our registration under
Section 12 of the Securities Exchange Act of 1934, including any amendment
or report updating such description; and
o The description of our shareholder rights plan contained in our Form 8-A
Registration Statement filed on March 17, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
Philadelphia Suburban Corporation
Attention: Patricia M. Mycek, Secretary
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Telephone: 610-527-8000
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You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. Our
website is located at www.suburbanwater.com. Information on this website,
however, is not part of this prospectus. We are not, and the underwriters are
not, making an offer to sell these securities in any state where the offer or
sale is not permitted. You should not assume that the information provided in
this prospectus or incorporated by reference in this prospectus is accurate as
of any date other than the date on the front of this prospectus or the date of
those documents. Our business, financial condition, results of operations and
prospects may have changed since those dates.
USE OF PROCEEDS
The net proceeds from the sale of the shares will be approximately $25.8
million ($29.7 million if the underwriters' over-allotment option is exercised
in full). We expect to make a capital contribution of these proceeds to
Philadelphia Suburban Water (if the underwriters' over-allotment option is
exercised in full, we expect to make a capital contribution of $27.3 million to
Philadelphia Suburban Water and the balance will be used by us for general
corporate purposes). We expect that Philadelphia Suburban Water will use the
proceeds contributed by us to reduce outstanding debt under its revolving
credit agreement incurred for capital expenditures and for acquisitions of
water systems. As of June 30, 2000, the principal amount outstanding under
Philadelphia Suburban Water's revolving credit agreement was $50 million.
Interest on outstanding balances under this revolving credit agreement is
based, at Philadelphia Suburban Water's option, on the prime rate, an adjusted
federal funds rate, an adjusted London Interbank Offered Rate corresponding to
the interest period selected, an adjusted Euro-Rate corresponding to the
interest period selected or at rates offered by the banks. As of June 30, 2000,
the weighted average interest rate on the principal amount outstanding under
this revolving credit agreement was 6.77%.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The following table shows the high and low sale prices for our common
stock as reported on the New York Stock Exchange composite transactions
reporting system and the cash dividends paid per share for the periods
indicated. Our common stock is listed on the New York and Philadelphia Stock
Exchanges and is traded under the symbol "PSC".
<TABLE>
<CAPTION>
Quarterly
Cash
Dividends
High Low Paid
------------ ------------ -------------
<S> <C> <C> <C>
1998
First Quarter ...................................... $ 25.75 $ 19.56 $ 0.1625
Second Quarter ..................................... 22.56 18.88 0.1625
Third Quarter ...................................... 28.19 20.50 0.17
Fourth Quarter ..................................... 30.06 23.00 0.17
1999
First Quarter ...................................... $ 29.75 $ 19.75 $ 0.17
Second Quarter ..................................... 25.75 21.31 0.17
Third Quarter ...................................... 25.31 21.13 0.18
Fourth Quarter ..................................... 24.19 20.19 0.18
2000
First Quarter ...................................... $ 22.00 $ 16.50 $ 0.18
Second Quarter ..................................... 24.94 18.13 0.18
Third Quarter (through September 11, 2000) ......... 24.31 20.00 0.18
</TABLE>
At our August 1, 2000 board meeting, our board of directors approved a
7.64% increase in our quarterly cash dividend from $0.18 per share to $0.19375
per share, with this increase to be effective for our cash dividend payment
payable on December 1, 2000 to shareholders of record on November 15, 2000. On
an
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annualized basis, this represents an increase in the annual dividend rate from
$0.72 per share to $0.775 per share effective with the December 1, 2000
dividend. The increase in the December 1, 2000 dividend is the 10th increase in
our dividend that the board has approved in the past 9 years. Our board of
directors also approved a 5-for-4 common stock split that will be effected in
the form of a 25% stock dividend payable on December 1, 2000 to shareholders of
record on November 15, 2000. The share and per share data contained in this
prospectus have not been restated to give effect to this stock split.
We or our predecessor companies have paid dividends each year since 1944.
We presently intend to pay quarterly cash dividends in the future on March 1,
June 1, September 1 and December 1, subject to our earnings and financial
condition, regulatory requirements and such other factors as our board of
directors may deem relevant. See "Description of Capital Stock -- Common Stock
-- Dividend Rights and Limitations" for a description of certain limitations on
our ability to pay cash dividends.
On September 11, 2000 the last reported sale price of our common stock on
the New York Stock Exchange was $23.625 per share. As of June 30, 2000, there
were approximately 20,560 holders of record of our common stock.
We offer the holders of record of less than 30,000 shares of our common
stock the opportunity to reinvest part or all of the dividend payments on their
shares of common stock through purchases of original issue common stock without
payment of any brokerage commission or service charge through our dividend
reinvestment and direct stock purchase plan. The purchase price for original
issue shares of common stock purchased through the reinvestment of dividends is
95% of the average of the high and low prices of common stock as reported on
the New York Stock Exchange composite transactions reporting system for each of
the five trading days immediately preceding the dividend payment date. This
plan also permits shareholders and investors to invest up to $30,000 annually
in our common stock in the open market through our transfer agent. At June 30,
2000, holders of 18.1% of the shares of our common stock outstanding
participated in the dividend reinvestment portion of this plan.
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock sets forth material terms
and provisions of our common stock. You should read our current amended and
restated articles of incorporation for more detailed terms of our common stock.
As of June 30, 2000, our authorized capital stock was 101,770,819 shares.
Those shares consisted of:
o 100,000,000 shares of our common stock, par value $0.50 per share, of
which 41,063,853 shares were outstanding; and
o 1,770,819 shares of preferred stock, par value $1.00 per share, of which
17,600 shares of Series B Preferred Stock were issued and outstanding.
Common Stock
Voting Rights
Holders of our common stock are entitled to one vote for each share held
by them at all meetings of the shareholders and are not entitled to cumulate
their votes for the election of directors.
Dividend Rights and Limitations
Holders of common stock may receive dividends when declared by our board
of directors. Because we are a holding company, the funds we use to pay any
dividends on our common stock are derived predominantly from the dividends that
we receive from our subsidiaries, Philadelphia Suburban Water and Consumers
Water, and the dividends they receive from their subsidiaries. Therefore, our
ability to pay dividends to holders of our common stock depends upon our
subsidiaries' earnings, financial condition and ability to pay dividends. We
own 100% of the outstanding common stock of Philadelphia Suburban Water and
Consumers Water. Consumers Water owns 100% of the voting stock of four water
companies and at least 96% of the voting stock of three water companies. Most
of our subsidiaries are subject to regulation by state utility
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commissions and the amounts of their earnings and dividends are affected by the
manner in which they are regulated. In addition, they are subject to
restrictions on the payment of dividends contained in their various debt
agreements. Under our most restrictive debt agreements, the amount available
for payment of dividends to us as of June 30, 2000 was approximately $154
million of Philadelphia Suburban Water's retained earnings and $62 million of
Consumers Water's retained earnings. Payment of dividends on our common stock
is also subject to the preferential rights of the holders of preferred stock to
receive full cumulative dividends, both past and current.
Liquidation Rights
In the event that we liquidate, dissolve or wind-up, the holders of our
common stock are entitled to share ratably in all of the assets that remain
after we pay our liabilities. This right is subject, however, to the prior
distribution rights of any outstanding preferred stock.
Shareholder Rights Plan
Holders of our common stock own, and the holders of the shares of common
stock issued in this offering will receive, one right to purchase Series A
Junior Participating Preferred Stock for each outstanding share of common
stock. These rights are issued pursuant to a shareholders rights plan. Upon the
occurrence of certain events, each right would entitle the holder to purchase
from us one one-thousandth of a share of Series A Junior Participating
Preferred Stock at an exercise price of $90 per one-thousandth of a share,
subject to adjustment. The rights are exercisable in certain circumstances if a
person or group acquires 20% or more of our common stock or if the holder of
20% or more of our common stock engages in certain transactions with us. In
that case, each right would be exercisable by each holder, other than the
acquiring person, to purchase shares of our common stock at a substantial
discount from the market price. In addition, if, after the date that a person
has become the holder of 20% or more of our common stock, any person or group
merges with us or engages in certain other transactions with us, each right
entitles the holder, other than the acquirer, to purchase common stock of the
surviving corporation at a substantial discount from the market price. These
rights are subject to redemption by us in certain circumstances. These rights
have no voting or dividend rights and, until exercisable, cannot trade
separately from our common stock and have no dilutive effect on our earnings.
This plan expires on March 1, 2008.
Preferred Stock
Our board of directors has the authority to divide the preferred stock
into one or more series and to fix and determine relative rights and
preferences of the shares of each series.
Series B Preferred Stock
As of June 30, 2000, the only series of preferred stock outstanding was
our Series B Preferred Stock, of which there were 17,600 shares outstanding.
Holders of our Series B Preferred Stock are entitled to receive cumulative
quarterly dividends equal to $1.5125 per share or at a rate equal to 6.05% per
year. In the event that we liquidate, dissolve or wind-up, holders of Series B
Preferred Stock are entitled to receive $100 per share plus an amount equal to
any accrued but unpaid cumulative dividends together with any interest that has
accrued on those dividends. Our Series B Preferred Stock ranks senior to our
Series A Junior Participating Preferred Stock, if issued, and our common stock
with respect to the right to receive dividends and the right to the
distribution of our assets upon liquidation.
The Series B Preferred Stock is not convertible into any other class or
series of our capital stock. We have the right to redeem, in whole or in part,
up to 6,440 shares of Series B Preferred Stock each year beginning on December
1, 2001 at a price equal to $100 per share plus any accrued and unpaid
dividends together with any interest that has accrued on those dividends
through the date of redemption. The Series B Preferred Stock is not subject to
or entitled to the benefit of a sinking fund.
So long as any shares of our Series B Preferred Stock are outstanding, we
may not adopt any amendment to our articles of incorporation that would
adversely affect, in any material respect, the rights or preferences of the
Series B Preferred Stock without the affirmative vote of the holders of a
majority of the Series B Preferred Stock.
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State Law Anti-Takeover Provisions
Pennsylvania State Law Provisions
We are subject to various anti-takeover provisions of the Pennsylvania
Business Corporation Law of 1988, as amended. Generally, these provisions are
triggered if any person or group acquires, or discloses an intent to acquire,
20% or more of a corporation's voting power, unless the acquisition is under a
registered firm commitment underwriting or, in certain cases, approved by the
board of directors. These provisions:
o provide the other shareholders of the corporation with certain rights
against the acquiring group or person;
o prohibit the corporation from engaging in a broad range of business
combinations with the acquiring group or person; and
o restrict the voting and other rights of the acquiring person or group.
In addition, as permitted by Pennsylvania law, an amendment to our
articles of incorporation or other corporate action that is approved by
shareholders may provide mandatory special treatment for specified groups of
nonconsenting shareholders of the same class. For example, an amendment to our
articles of incorporation or other corporate action may provide that shares of
common stock held by designated shareholders of record must be cashed out at a
price determined by the corporation, subject to applicable dissenters' rights.
Articles of Incorporation and Bylaw Provisions
Certain provisions of our articles of incorporation and bylaws may have
the effect of discouraging unilateral tender offers or other attempts to take
over and acquire our business. These provisions might discourage some
potentially interested purchaser from attempting a unilateral takeover bid for
us on terms which some shareholders might favor. Our articles of incorporation
require that certain fundamental transactions must be approved by the holders
of 75% of the outstanding shares of our capital stock entitled to vote on the
matter unless at least 50% of the members of the board of directors has
approved the transaction, in which case the required shareholder approval will
be the minimum approval required by applicable law. The fundamental
transactions that are subject to this provision are those transactions that
require approval by shareholders under applicable law or the articles of
incorporation. These transactions include certain amendments of our articles of
incorporation or bylaws, certain sales or other dispositions of our assets,
certain issuances of our capital stock, or certain transactions involving our
merger, consolidation, division, reorganization, dissolution, liquidation or
winding up. Our articles of incorporation and bylaws provide that:
o a special meeting of shareholders may only be called by the chairman, the
president, the board of directors or shareholders entitled to cast a
majority of the votes which all shareholders are entitled to cast at the
particular meeting;
o nominations for election of directors may be made by any shareholder
entitled to vote for election of directors if the name of the nominee and
certain information relating to the nominee is filed with our corporate
secretary not less than 14 days nor more than 50 days before any meeting
of shareholders to elect directors; and
o certain advance notice procedures must be met for shareholder proposals
to be made at annual meetings of shareholders. These advance notice
procedures generally require a notice to be delivered not less than 90
days nor more than 120 days before the anniversary date of the immediately
preceding annual meeting of shareholders.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Fleet National
Bank.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement between
us and the underwriters, the underwriters have agreed severally to purchase
from us the following number of shares of common stock at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus.
Number of
Underwriter Shares
----------- ------
A.G. Edwards & Sons, Inc. ........... 431,250
PaineWebber Incorporated ............ 431,250
Janney Montgomery Scott LLC ......... 287,500
---------
Total ............................... 1,150,000
=========
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
certain conditions precedent, and that the underwriters are obligated to take
and pay for all of the shares of common stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus and to certain dealers at such price less a concession
not in excess of $0.55 per share. The underwriters may allow, and such dealers
may re-allow, a concession not in excess of $0.10 per share to certain other
dealers. After the offering, the public offering price and other selling terms
may be changed by the underwriters.
We have granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase up to 172,500 additional shares
of common stock at the public offering price, less the underwriting discount
set forth on the cover page of this prospectus, solely to cover
over-allotments. To the extent that the underwriters exercise this option, the
underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such underwriter's name in the preceding table bears to the total
number of shares in such table, and we will be obligated, pursuant to the
option, to sell such shares to the underwriters.
We and Vivendi Water S.A., which beneficially owns approximately 16% of
our common stock, have agreed not to sell or otherwise dispose of any shares of
our common stock for a period of 90 days after the date of this prospectus
without the prior written consent of A.G. Edwards & Sons, Inc. A.G. Edwards &
Sons, Inc. may, in its sole discretion, allow us or Vivendi Water S.A. to
dispose of common stock or other securities prior to the expiration of such
90-day period. Except as discussed above, there are, however, no agreements
between A.G. Edwards & Sons, Inc. and us or Vivendi Water S.A. that would allow
us or Vivendi Water S.A. to do so as of the date of this prospectus. There are
some exceptions to our restrictions to sell common stock, including the
issuance of our common stock in connection with our employee benefit plans, our
shareholder rights plan and our dividend reinvestment and direct stock purchase
plan and up to 600,000 shares of our common stock that may be issued as
consideration for acquisitions of businesses pursuant to our shelf registration
statement discussed earlier.
The following table summarizes the underwriting discount that we will pay
to the underwriters in this offering. These amounts assume both no exercise and
full exercise of the underwriters' option to purchase additional shares of
common stock.
No Full
Exercise Exercise
-------------- --------------
Per Share ......... $ 0.93 $ 0.93
Total ............. $1,069,500 $1,229,925
We expect to incur expenses of approximately $160,000 in connection with
this offering. We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
17
<PAGE>
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the common stock. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize,
maintain or otherwise affect the price of the common stock.
In connection with the offering, the underwriters may make short sales of
our shares of common stock and may purchase our shares on the open market to
cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase
in the offering. "Covered" short sales are made in an amount not greater than
the over-allotment option described above. The underwriters may close out any
covered short position by either exercising the over-allotment option or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
The underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase common stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the common stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares of common stock
as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases or such purchases could prevent or
retard a decline in the price of the security. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither we nor the underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
the underwriters make any representation that the underwriters will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
The underwriters are three of the six placement agents under Philadelphia
Suburban Water's medium term note program. In addition, the underwriters have
engaged in transactions with and performed various financial advisory,
investment banking, brokerage and other services for us and our subsidiaries in
the past and may do so from time to time in the future.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, and for
the underwriters by Winthrop, Stimson, Putnam & Roberts, New York, New York.
EXPERTS
The consolidated financial statements of Philadelphia Suburban Corporation
and subsidiaries as of December 31, 1999 and 1998, and for each of the years in
the three-year period ended December 31, 1999, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, also incorporated by
reference herein and in the registration statement, and upon authority of said
firm as experts in accounting and auditing.
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1,150,000 Shares
Philadelphia Suburban Corporation
Common Stock
----------------
PROSPECTUS
----------------
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Janney Montgomery Scott LLC
September 11, 2000
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