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UNITED STATES 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, 2002 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 Identification No.)
incorporation or organization)
762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010-3489
- ------------------------------------------------ ---------------
(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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Section 12(b)-2 of the Securities Exchange Act of 1934).
Yes x No .
--- ---
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 28, 2002. $1,162,063,479
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 June 28, 2002, that it has
sole or shared voting power of 5% or more of the outstanding common
stock of registrant.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 3, 2003.
68,034,808
Documents incorporated by reference
(1) Portions of registrant's 2002 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 15, 2003
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Certain statements in this Annual Report on Form 10-K ("10-K"), or
incorporated by reference in this 10-K, 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," "future," "potential" or the
negative of such terms or similar expressions. Forward-looking statements in
this 10-K, or incorporated by reference in this 10-K, 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 dividend payment projections;
o opportunities for future acquisitions and success of pending
acquisitions;
o the capacity of our water supplies and facilities;
o the development of new services and technologies by us or our
competitors;
o the availability of qualified personnel;
o general economic conditions;
o acquisition-related costs and synergies; and
o the forward-looking statements contained under the heading
"Forward-Looking Statements" in the section entitled "Management's
Discussion and Analysis" from the portion of our 2002 Annual Report
to Shareholders incorporated by reference herein and made a part
hereof.
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 and policies, including
environmental and public utility regulations and policies;
o changes in environmental conditions, including those that result in
water use restrictions;
o abnormal weather conditions;
o changes in capital requirements;
o changes in our credit rating;
2
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;
o increasing difficulties in obtaining insurance and increased cost of
insurance;
o cost overruns relating to improvements or the expansion of our
operations; and
o civil disturbance or terroristic threats or acts.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. You should read this 10-K and the documents that we
incorporate by reference in this 10-K 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 10-K. 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.
3
PART I
------
Item 1. Business
The Company
- -----------
Philadelphia Suburban Corporation (referred to as "we" or "us") is the
holding company for regulated utilities providing water or wastewater services
to approximately 2 million people in Pennsylvania, Ohio, Illinois, New Jersey,
Maine and North Carolina. Our two primary subsidiaries are Pennsylvania Suburban
Water Company, a regulated public utility that provides water or wastewater
services to approximately 1.3 million residents in the suburban areas north and
west of the City of Philadelphia and in 18 other counties in Pennsylvania, and
Consumers Water Company, a holding company for several regulated public utility
companies that provide water or wastewater service to approximately 700,000
residents in various communities in Ohio, Illinois, New Jersey and Maine. Other
of our smaller subsidiaries provide water or wastewater services in parts of
Pennsylvania, North Carolina and Ohio. Some of our subsidiaries provide
wastewater services to a population of approximately 40,000 people in
Pennsylvania, Illinois, New Jersey and North Carolina. In addition, we provide
water and wastewater service to approximately 45,000 people through operating
and maintenance contracts with municipal authorities and other parties close to
our operating companies' service territories. We are the largest U.S.-based
investor-owned water utility based on number of customers.
The following table indicates by state our number of customers served
and operating revenues for the year ended December 31, 2002:
Number
Operating of
Revenues Customers
(000's) Served
---------------------------
Pennsylvania $ 225,080 410,752
Ohio 38,848 86,535
Illinois 29,420 64,385
New Jersey 16,743 39,393
Maine 8,969 16,913
North Carolina 2,968 8,808
---------------------------
$ 322,028 626,786
===========================
4
Item 1, Continued
The following table indicates by customer class our number of customers
served and operating revenues for the year ended December 31, 2002:
Number
Operating of
Revenues Customers
Customer class (000's) Served
- -------------- ---------------------------
Residential water $ 197,190 535,506
Commercial water 55,962 30,355
Industrial water 17,221 1,423
Other water 36,255 16,466
Wastewater 8,210 21,724
Operating contracts and other 7,190 21,312
---------------------------
$ 322,028 626,786
===========================
Our customer base is diversified among residential, commercial,
industrial and wastewater customers. Residential customers make up the largest
component of our customer base, with these customers representing approximately
two-thirds of our total water revenues. Substantially all of our water customers
are metered, which allows us to measure and bill for 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 extended period of dry weather increases
consumption, while above average rainfall decreases water consumption. Also, an
increase in the average temperature generally causes an increase in water
consumption. On occasion, abnormally dry weather in our service areas can result
in governmental authorities declaring drought warnings and water use
restrictions in the affected areas, which could reduce water consumption. See
"Water Supplies and Water Facilities" for a discussion of water use restrictions
that may impact water consumption during abnormally dry weather. The geographic
diversity of our customer base reduces our exposure to extreme or unusual
weather conditions in any one area of our service territory.
The growth in revenues over the past three years is a result of
increases in the customer base and in water rates. Excluding customers added
through acquisitions and other growth ventures, during the three-year period of
2000 through 2002, our customer base grew at an annual compound rate of 0.9%.
Including acquisitions and other growth ventures, our customer base increased at
an annual compound rate of 4.0% during this period. The customer growth rate in
2002 was 4.0%. Our business combination with Consumers Water Company in 1999 has
enabled us to grow through acquisitions in the areas where Consumers operates,
while continuing to grow through acquisitions in southeastern Pennsylvania.
Subsequently, we entered another new state, North Carolina, in 2000.
5
Item 1, Continued
Available Information
- ---------------------
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission ("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.
Our internet website address is http://www.suburbanwater.com. We make
available free of charge through our internet website's Investor Relations page
all of our filings with the SEC, including our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and other
information. These reports and information are available as soon as reasonably
practicable after such material is electronically filed or furnished to the SEC.
Acquisitions and Water Sale Agreements
- --------------------------------------
With more than 50,000 community water systems in the U.S. (84% 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, such
as the New York City water system that serves approximately 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 8,700 public water systems of widely varying
size, with the majority of the population being served by government-owned water
systems.
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 ("EPA") 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. The EPA survey also indicated that there are
approximately 3,500 wastewater facilities in operation or planned in the six
states where we operate.
Because of the fragmented nature of the water and wastewater utility
industries, we believe that there are many potential water and wastewater system
acquisition candidates throughout the United States. We believe the factors
driving consolidation of these systems are:
o the benefits of economies of scale;
o increasingly stringent environmental regulations;
o the need for capital investment; and
o the need for technological and managerial expertise.
We are actively exploring other opportunities to expand our utility
operations through acquisitions or otherwise. As of December 31, 2002, exclusive
of the Consumers Water Company merger, we had completed 92 acquisitions or other
growth ventures during the past five years. These transactions have added, as of
December 31, 2002, approximately 75,400 customers to our customer base during
this five-year period.
6
Item 1, Continued
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 and wastewater systems of all sizes that 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 perspective sellers, performing analyses and
investigations of acquisition candidates, making preliminary acquisition
proposals and negotiating the terms of potential acquisitions.
Water Supplies and Water Facilities
- -----------------------------------
Our water utility operations obtain their water supplies from surface
water sources such as reservoirs, lakes, ponds, rivers and streams, in addition
to obtaining water from wells and purchasing water from other water suppliers.
Less than 10% of our water sales are purchased from other suppliers. It is our
policy to obtain and maintain the permits necessary to obtain the water we
distribute. Our supplies are sufficient for anticipated daily demand and normal
peak demand under normal weather conditions. Our supplies by service area are as
follows:
o Suburban Philadelphia - The principal supply of water is surface water from
eight rural streams, two rivers (Schuylkill River and Delaware River), and
the Upper Merion Reservoir, a former quarry now impounding groundwater.
Wells and interconnections with adjacent municipal authorities supplement
these surface supplies.
o Pennsylvania (other than suburban Philadelphia) - The Roaring Creek
Division draws its water from a man-made lake within a 12,000 acre
watershed and two wells also located in the watershed. The Susquehanna
Division obtains its water supply from wells. The Shenango Division draws
its water from the Shenango River. The Waymart Division's water supply is
obtained from wells.
o Ohio - Water supply is obtained for customers in Lake County from Lake
Erie. Customers in Mahoning County obtain their water from man-made lakes
and the Ashtabula division is supplied by purchased water. Water supply is
obtained for customers in Stark and Summit Counties from wells. In Trumbull
County, customers are served through an interconnection from our
Pennsylvania division.
o Illinois - Water supply is obtained for customers in Kankakee County from
the Kankakee River and satellite wells, while customers in Vermilion County
are supplied from Lake Vermilion. In Will, Lee, Boone, Lake and Knox
counties, our customers are served from wells.
o New Jersey - Water supply in our three non-contiguous divisions is obtained
principally from wells and is supplemented with purchased water in two
divisions.
o Maine - Eleven non-contiguous water systems obtain their water supply as
follows: five systems use groundwater, five systems use surface water and
one system purchases water from a neighboring municipal district.
o North Carolina - Water supply in 166 non-contiguous divisions is obtained
principally from wells, with 5 divisions purchasing water from neighboring
municipalities.
We believe that the capacities of our sources of supply, and our water
treatment, pumping and distribution facilities are generally sufficient to meet
the present requirements of our customers. We make system improvements and
additions to capacity in response to changing regulatory standards, changing
patterns of consumption and increased demand from a growing number of customers.
7
Item 1, Continued
The various state public utility commissions have recognized the operating and
capital costs associated with these improvements in setting water rates.
On occasion, drought warnings and water use restrictions are issued by
governmental authorities for portions of our service territories in response to
extended periods of dry weather conditions. The timing and duration of the
warnings and restrictions can have an impact on our water revenues and net
income. In general, water consumption in the summer months is affected by
drought warnings and restrictions to a higher degree because nonessential and
recreational use of water is at its highest during the summer months. At other
times of the year, warnings and restrictions generally have less of an effect on
water consumption.
In November 2001, a drought warning was declared in nine counties in
Pennsylvania, including one of the five counties we serve in southeastern
Pennsylvania. A drought warning calls for a 10 to 15 percent voluntary reduction
of water use, particularly non-essential uses of water. In February 2002, a
drought emergency was declared in 24 counties in Pennsylvania, including all
five of the counties we serve in southeastern Pennsylvania. A drought emergency
imposes a ban on nonessential water use. In June and July 2002, drought
restrictions were relaxed in three of the five counties we serve in southeastern
Pennsylvania where approximately 275,000 of our customers are located, moving
from drought emergency mandatory restrictions to a drought warning voluntary
restrictions. However, by early September 2002, the Commonwealth of Pennsylvania
had reinstated the drought emergency in the three counties where restrictions
had been relaxed because of hot, dry weather in August. In November and December
2002, the Commonwealth of Pennsylvania removed the drought restrictions in the
counties we serve in Pennsylvania. Water use restrictions were also imposed and
relaxed at various times during 2002 in our service territories in New Jersey.
Economic 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 regulate 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 affiliates and customers,
business combinations with other utility systems, loans and the sales 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 provide that the tariffs of our utility operations reflect, to the extent
practicable, the timely recovery of increases in costs of operations, capital,
taxes, energy, materials and compliance with environmental regulations. We are
subject to regulation by the following state regulatory commissions:
State Regulatory Commission
----- ---------------------
Pennsylvania Pennsylvania Public Utility Commission
Ohio The Public Utilities Commission of Ohio
Illinois Illinois Commerce Commission
New Jersey New Jersey Board of Public Utilities
Maine Maine Public Utilities Commission
North Carolina North Carolina Utilities Commission
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 Utilities Commission of Ohio. Currently, two
of the six regulated divisions in Ohio are operating under such rate ordinances.
8
Item 1, Continued
The Pennsylvania Public Utility Commission ("PAPUC") permits
Pennsylvania water utilities to add an infrastructure replacement surcharge,
known as the Distribution System Improvement Charge ("DSIC"), to their water
bills. The revenues earned from the surcharge offsets the additional
depreciation and capital costs associated with certain capital expenditures
related to replacing and rehabilitating distribution systems. In general, the
capital expenditures are associated with projects that are non-revenue
producing, non-expense reducing replacements and distribution system
improvements. Prior to the DSIC, 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. The DSIC is intended to eliminate or reduce regulatory
lag that often acted as a disincentive to water utilities in rehabilitating
their distribution systems. The DSIC is adjusted quarterly based on additional
qualified capital expenditures made in the previous quarter. The DSIC may never
exceed 5% of the base rates in effect. The DSIC is reset to zero when new base
rates that reflect the costs of those additions become effective. The PAPUC also
limits use of the DSIC to periods when a company's return on equity is less than
a benchmark the PAPUC establishes each quarter.
In 2001, the Illinois Commerce Commission issued regulations
implementing an infrastructure surcharge mechanism known as a Qualifying
Infrastructure Plant Surcharge ("QIPS") for use by Illinois water and wastewater
utilities. QIPS is similar to DSIC, however, it is established annually and
prospectively based on anticipated qualifying capital expenditures, and it
includes a broader range of qualifying capital expenditures, including certain
wastewater capital expenditures. Our Illinois operating subsidiary received
approval to add a QIPS to its bills in three of its operating divisions
beginning January 1, 2002. In February 2003, infrastructure surcharge
replacement legislation was introduced in the State of Ohio. We are currently
working to establish similar mechanisms in the other states in which we operate.
In general, we believe that Philadelphia Suburban Corporation and its
subsidiaries have valid authority, free from unduly burdensome restrictions, to
enable us to carry on our business as presently conducted in the franchised or
contracted areas 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
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 to be paid upon such an acquisition by the municipal
government 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 he 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.
9
Item 1, Continued
In December 2002, as a result of the settlement of a condemnation
action, our Ohio operating subsidiary sold to Ashtabula County, Ohio its water
utility assets in the unincorporated areas of Ashtabula County and the area
within the Village of Geneva on the Lake for approximately $12,118,000, which
was in excess of the book value for these assets. The sale resulted in the
recognition in the fourth quarter of 2002 of a gain on the sale of these assets,
net of expenses, of $5,676,000 or an after-tax gain of $3,690,000 (or $0.05 per
share). We continue to operate this water system for Ashtabula County under a
one-year operating contract that began upon the closing of the sale that should
provide over $300,000 in operating revenues in 2003. The water utility assets
sold represent less than 1% of our total assets, and the total number of
customers included in the water system sold represents less than 1% of our total
customer base. In addition to the operating contract revenues, the interest
savings associated with paying off debt with the sale's proceeds will offset the
loss of this water system's normal contribution to income.
As part of the Ashtabula County condemnation, the adjacent City of
Geneva in Ashtabula County, Ohio, passed an ordinance seeking authorization to
condemn the assets of our Ohio operating subsidiary that are located in Geneva.
The issue was submitted to a referendum in 2000, whereby voters affirmed the
ordinance by a margin of 16 votes. The City engaged a consulting firm to assist
it in valuing the assets that may be condemned. In December 2002, the City of
Geneva filed a condemnation action. We believe that our Ohio operating
subsidiary will be entitled to fair market value for its assets, which we
believe will be in excess of the book value for these assets and may approximate
the multiple to book value of other recent industry business combinations. The
total number of customers included in the Geneva system represents approximately
0.4% of our total customer base. Despite these events in Ashtabula, Ohio, our
strategy continues to be to acquire additional water and wastewater systems,
maintain our existing systems, and to actively oppose unilateral efforts by
municipal governments to acquire any of our operations.
Environmental Regulation
- ------------------------
The provision of water and wastewater services is governed primarily by
the federal Safe Drinking Water Act, the Clean Water Act and related state laws,
and state and federal regulations issued under these laws by the Environmental
Protection Agency and state environmental regulatory agencies. These laws and
regulations establish criteria and standards for drinking water and for
discharges into the waters of the United States. The states may have the right
to establish criteria and standards that are stricter than those established by
the Environmental Protection Agency. In addition, we are subject to federal and
state laws and other regulations relating to residual waste disposal, dam safety
and other operations of our subsidiaries.
In addition to the capital expenditures and operating costs currently
anticipated, changes in environmental regulations, enforcement policies and
practices or related matters may result in additional capital expenditures and
operating costs. Capital expenditures and operating costs required as a result
of water quality standards and environmental requirements have been generally
recognized by state public utility commissions as appropriate for inclusion in
establishing rates.
Safe Drinking Water Act - The Safe Drinking Water Act establishes criteria and
procedures for the Environmental Protection Agency to develop national quality
standards for drinking water. Regulations issued pursuant to the Safe Drinking
Water Act set standards on the amount of certain microbial and chemical
contaminants and radionuclides allowable in drinking water. The 1996 Amendments
to the Safe Drinking Water Act require the Environmental Protection Agency to
10
Item 1, Continued
analyze both the benefits and the costs of compliance when considering new or
stricter water quality standards. The 1996 amendments to the Safe Drinking Water
Act also prescribe testing for certain additional substances and propose
establishing future rules that may change standards for water treatment. Current
requirements under the Safe Drinking Water Act are not expected to have a
material impact on our operations or financial condition as we have already made
investments to meet existing water quality standards. We may, in the future, be
required to change our method of treating drinking water at certain sources of
supply if additional regulations become effective. The cost of maintaining
compliance with new rulemakings is expected to be recoverable in water rates and
is not expected to have a material impact on our results from operations or
financial condition.
The EPA may issue a final rule for radon in the future, although the
EPA has postponed the issuance of these rules in the past. If a rule is issued,
limits for radon would probably become effective 4 or 5 years later. We
anticipate this rule may establish a radon level that would require treatment at
a small number of our wells. The capital costs to comply with the anticipated
limit are expected to total less than $1 million or less than 1% of our typical
annual capital expenditures. If the states in which we operate elect not to
implement general radon reduction programs (Multi-Media Mitigation), then a
lower limit for radon may apply and a larger number of wells would be affected.
We expect that states will adopt Multi-Media Mitigation programs. Whether or not
states adopt these programs, we expect that future costs associated with radon
treatment will be recoverable in water rates.
The Safe Drinking Water Act provides for the regulation of
radionuclides other than radon, such as radium and uranium. In December 2000,
the EPA issued a final rule regulating certain radionuclides other than radon.
The rule will become effective in December 2003 and no significant impact on our
operations or financial condition is anticipated from the new rulemaking. As a
result of revised testing procedures under the new regulation, additional
treatment or alternate sources of water supply may be required for a small
number of groundwater sources in one of our divisions. We believe the costs for
additional treatment or alternate sources of water supply will be recoverable in
water rates.
In order to eliminate or inactivate microbial organisms, the Surface
Water Treatment Rule and the Interim Enhanced Surface Water Treatment Rule were
issued by the EPA to improve disinfection or filtration. The EPA developed the
Disinfectants-Disinfection By-products Rule to reduce consumers' exposure to
disinfectants and by-products of the disinfection process. In 1998, the EPA
issued new rules on disinfection and on surface water treatment. All affected
water systems are in compliance with these rulemakings as of the date that this
report is filed, including the additional provisions that became effective in
January 2002. Groundwater and smaller surface water systems have until December
2003 to comply with the rules on disinfection and on surface water treatment. We
have developed a new groundwater source to replace a small, unfiltered surface
water system, and in the future may be required to install filtration for a
surface water supply. Certain small groundwater systems could be reclassified as
being influenced by surface water. This may require additional treatment or the
development of replacement sources of supply over time, and is not expected to
exceed $5 million. It is expected that these capital expenditures would be
recoverable in water rates and would represent a small portion of our typical
annual capital expenditures.
We conduct water quality monitoring for a variety of regulated and
unregulated contaminants. In the course of this monitoring, contaminants may be
identified that may prompt us to take a water supply source out of service or
add treatment at the water supply source. Where a source of contamination can be
identified, we pursue recovery of the associated costs from responsible parties.
In April 2000, the gasoline additive Methyl tert-Butyl Ether ("MtBE") was
11
Item 1, Continued
discovered in our New Jersey operating subsidiary production well at levels
exceeding the New Jersey drinking water standard. The well was immediately taken
out of service and alternate water supplies were obtained. The alternate
supplies include existing wells and an interconnection with an adjacent utility,
and are an interim measure until a permanent, long-term solution could be
implemented. The New Jersey Department of Environmental Protection identified
the source of the MtBE as a nearby gasoline station. The company responsible for
the contamination has reimbursed us for a substantial portion of the expenses
incurred to-date. We continue to pursue developing a long-term replacement
supply and based on various studies we believe an alternate water system will be
needed. The company responsible for the contamination believes the original well
can be cleaned and rehabilitated. As a result of these differences, we have
taken legal action seeking reimbursement for the costs associated with obtaining
an alternate water system. We expect to recover these costs.
In January 2001, the EPA issued a final rule for arsenic that lowers
the limit to a more stringent level effective by 2006, with a provision for
further time extensions for small systems. Currently, two small well systems
slightly exceed the new arsenic levels and will require additional treatment.
The cost of maintaining compliance with new rulemakings is expected to be
recoverable in water rates and is not expected to have a material impact on our
results from operations or financial condition.
Clean Water Act - The Clean Water Act regulates discharges from drinking water
and wastewater treatment facilities into lakes, rivers, streams, and
groundwater. We operate numerous water and wastewater facilities in a number of
states. It is our policy to obtain and maintain all required permits and
approvals for the discharge from these water and wastewater facilities, and to
comply with all conditions of those permits and other regulatory requirements.
We maintain a program to monitor our facilities for compliance with permitting,
monitoring and reporting for wastewater discharges. From time to time,
violations may occur which may result in fines. However, such violations or
fines are not expected to have a material impact on our results of operations or
financial condition. Additional capital expenditures and operating costs in
connection with the management and disposal of discharges from our water and
wastewater facilities may be required in the future, particularly if changes are
made in the requirements of the applicable Federal or state laws. We believe
that these capital expenditures would be recoverable in our rates.
Residual and Solid Waste Disposal - The handling and disposal of residuals and
solids from water and wastewater treatment facilities are governed by state and
federal laws and regulations. Water treatment residuals and solids are a
combination of the chemicals used in the treatment process and the silt and
other materials removed from the raw water. Most of our water treatment
residuals and solids are disposed of in company-owned, dedicated landfills, or
by land application by a licensed contractor. A small portion of our water
treatment residuals and solids are disposed of in state-approved landfills owned
by others or in a liquid form into municipal sewer systems. Wastewater residuals
and solids result from the treatment of wastewater, and these "sludges" are
disposed of in approved landfills, transferred to larger wastewater treatment
facilities or applied to farmland. It is our policy to obtain and maintain all
required permits for our water and wastewater treatment facilities and our
dedicated landfills, and to comply with all conditions of those permits and
other regulatory requirements. We maintain a program to monitor our facilities
for compliance with permitting. Additional capital expenditures and operating
costs in connection with the management and disposal of residuals and solids
from our water and wastewater facilities may be required in the future,
particularly if changes are made in the requirements of the applicable Federal
or state laws. We believe that these capital expenditures would be recoverable
in our rates.
12
Item 1, Continued
Dam Safety - Our subsidiaries own seventeen major dams that are subject to the
requirements of the Federal and state regulations related to dam safety. All
major dams undergo an annual engineering inspection. We believe that all
seventeen dams are structurally sound and well-maintained.
In Pennsylvania, the Department of Environmental Protection has
recently adopted the use of a new formula for determining the magnitude of the
Probable Maximum Flood. We are studying our dams to determine what improvements
may be needed to our dams as a result of this new calculation. As a result of
the initial results of the studies, we have identified three dams that could
require capital improvements of approximately $7 million in aggregate. We
believe that these capital expenditures that could be required by the new
formulas would be recoverable in our rates. In Ohio, the Department of
Environmental Resources has adopted the use of the new formula. We are studying
our dams in Ohio to determine the required improvements. Based on the
preliminary results, we believe that capital expenditures of approximately $3.6
million in aggregate will be required on three dams in Ohio over the next four
years.
Employee Relations
- ------------------
As of December 31, 2002, we employed a total of 971 full-time employees.
Our subsidiaries are parties to 11 agreements with labor unions covering 454
employees. One of the agreements expired December 2001, two agreements expired
in October 2002, and the balance of the agreements are due to expire between
March 2003 and August 2004. The expired agreements cover 45 employees and the
employees covered by these agreements continue to work under the expired
agreements. Negotiations with the unions representing these employees are
ongoing and we expect to reach new agreements.
Risk Factors
- ------------
Our business requires significant capital expenditures and the rates we charge
our customers are subject to regulation. If we are unable to obtain government
approval of our requests for rate increases, or if approved rate increases are
untimely or inadequate to cover our investments, our profitability may suffer.
The water utility business is capital intensive. On an annual basis, we
spend significant sums for additions to or replacement of property, plant and
equipment. Our ability to maintain and meet our financial objectives is
dependent upon the rates we charge our customers. These rates are subject to
approval by the public utility commissions of the states in which we operate. We
file rate increase requests, from time to time, to recover our investments in
utility plant and expenses. Once a rate increase petition is filed with a public
utility commission, the ensuing administrative and hearing process may be
lengthy and costly. The timing of our rate increase requests are therefore
partially dependent upon the estimated cost of the administrative process in
relation to the investments and expenses that we hope to recover through the
rate increase to the extent approved. We can provide no assurances that any
future rate increase request will be approved by the appropriate state public
utility commission; and, if approved, we cannot guarantee that these rate
increases will be granted in a timely or sufficient manner to cover the
investments and expenses for which we initially sought the rate increase.
13
Item 1, Continued
Our operating costs could be significantly increased in order to comply with new
or stricter regulatory standards imposed by federal and state environmental
agencies.
Our water and wastewater services are governed by various federal and
state environmental protection and health and safety laws and regulations,
including the federal Safe Drinking Water Act, the Clean Water Act and similar
state laws, and state and federal regulations issued under these laws by the
United States Environmental Protection Agency and state environmental regulatory
agencies. These laws and regulations establish, among other things, criteria and
standards for drinking water and for discharges into the waters of the United
States and states. Pursuant to these laws, we are required to obtain various
environmental permits from environmental regulatory agencies for our operations.
We cannot assure you that we have been or will be at all times in total
compliance with these laws, regulations and permits. If we violate or fail to
comply with these laws, regulations or permits, we could be fined or otherwise
sanctioned by regulators. Environmental laws and regulations are complex and
change frequently. These laws, and the enforcement thereof, have tended to
become more stringent over time. While we have budgeted for future capital and
operating expenditures to maintain compliance with them and our permits, it is
possible that new or stricter standards could be imposed that will raise our
operating costs. Although these costs may be recovered in the form of higher
rates, there can be no assurance that the various state public utility
commissions that govern our business would approve rate increases to enable us
to recover such costs. In summary, we cannot assure you that our costs of
complying with, or discharging liability under, current and future environmental
and health and safety laws will not adversely affect our business, results of
operations or financial condition.
Our business is subject to seasonal fluctuations, which could affect demand for
our water service and our revenues.
Demand for our water during the warmer months is generally greater than
during cooler months due primarily to additional requirements for water in
connection with irrigation systems, swimming pools, cooling systems and other
outside water use. Throughout the year, and particularly during typically warmer
months, demand will vary with temperature and rainfall levels. In the event that
temperatures during the typically warmer months are cooler than normal, or if
there is more rainfall than normal, the demand for our water may decrease and
adversely affect our revenues.
Drought conditions may impact our ability to serve our current and future
customers, and may impact our customers' use of our water, which may adversely
affect our financial condition and results of operations.
We depend on an adequate water supply to meet the present and future
demands of our customers. Drought conditions could interfere with our sources of
water supply and could adversely affect our ability to supply water in
sufficient quantities to our existing and future customers. An interruption in
our water supply could have a material adverse effect on our financial condition
and results of operations. Moreover, governmental restrictions on water usage
during drought conditions may result in a decreased demand for our water, even
if our water reserves are sufficient to serve our customers during these drought
conditions, which may adversely affect our revenues and earnings.
14
Item 1, Continued
An important element of our growth strategy is the acquisition of water and
wastewater systems. Any future acquisitions we decide to undertake may involve
risks.
An important element of our growth strategy is the acquisition and
integration of water and wastewater systems in order to broaden our current, and
move into new, service areas. We will not be able to acquire other businesses if
we cannot identify suitable acquisition opportunities or reach mutually
agreeable terms with acquisition candidates. It is our intent, when practical,
to integrate any businesses we acquire with our existing operations. The
negotiation of potential acquisitions as well as the integration of acquired
businesses could require us to incur significant costs and cause diversion of
our management's time and resources. Future acquisitions by us could result in:
o dilutive issuances of our equity securities;
o incurrence of debt and contingent liabilities;
o fluctuations in quarterly results; and
o other acquisition-related expenses.
Some or all of these items could have a material adverse effect on our
business and our ability to finance our business. The businesses we acquire in
the future may not achieve sales and profitability that justify our investment
and any difficulties we encounter in the integration process could interfere
with our operations and reduce our operating margins. In addition, as
consolidation becomes more prevalent in the water and wastewater industries, the
prices for suitable acquisition candidates may increase to unacceptable levels
and limit our ability to grow through acquisitions.
Contamination to our water supply may result in disruption in our services and
litigation which could adversely affect our business, operating results and
financial condition.
Our water supplies are subject to contamination, including
contamination from the development of naturally-occurring compounds, chemicals
in groundwater systems, pollution resulting from man-made sources and possible
terrorist attacks. In the event that our water supply is contaminated, we may
have to interrupt the use of that water supply until we are able to substitute
the flow of water from an uncontaminated water source. In addition, we may incur
significant costs in order to treat the contaminated source through expansion of
our current treatment facilities, or development of new treatment methods. If we
are unable to substitute water supply from an uncontaminated water source, or to
adequately treat the contaminated water source in a cost-effective manner, there
may be an adverse effect on our revenues, operating results and financial
condition. The costs we incur to decontaminate a water source or an underground
water system could be significant and could adversely affect our business,
operating results and financial condition and may be recoverable in rates. We
could also be held liable for consequences arising out of human exposure to
hazardous substances in our water supplies or other environmental damage. For
example, private plaintiffs have the right to bring personal injury or other
toxic tort claims arising from the presence of hazardous substances in our
drinking water supplies. Our insurance policies may not be sufficient to cover
the costs of these claims.
In addition to the potential pollution of our water supply as described
above, in the wake of the September 11, 2001 terrorist attacks and the ensuing
threats to the nation's health and security, we have taken steps to increase
security measures at our facilities and heighten employee awareness of threats
to our water supply. We have also tightened our security measures regarding the
delivery and handling of certain chemicals used in our business. We have and
will continue to bear increased costs for security precautions to protect our
facilities, operations and supplies. These costs may be significant. We are
currently not aware of any specific threats to our facilities, operations or
supplies; however, it is possible that we would not be in a position to control
the outcome of terrorist events should they occur.
15
Item 1, Continued
We depend significantly on the services of the members of our senior management
team, and the departure of any of those persons could cause our operating
results to suffer.
Our success depends significantly on the continued individual and
collective contributions of our senior management team. The loss of the services
of any member of our senior management or the inability to hire and retain
experienced management personnel could harm our operating results.
16
Item 2. Properties.
Our properties consist of transmission and distribution mains and
conduits, water and wastewater treatment plants, pumping facilities, wells,
tanks, meters, supply lines, dams, reservoirs, buildings, vehicles, land,
easements, rights and other facilities and equipment used for the operation of
our systems, including the collection, treatment, storage and distribution of
water. Substantially all of our properties are owned by our subsidiaries and are
subject to liens of mortgage or indentures. These liens secure bonds, notes and
other evidences of long-term indebtedness of our subsidiaries. For certain
properties that we acquired through the exercise of the power of eminent domain
and certain other properties we purchased, we hold title for water supply
purposes only. We own, operate and maintain approximately 7,590 miles of
transmission and distribution mains, 19 water treatment plants and 18 wastewater
treatment plants. Some properties are leased under long-term leases. The
following table indicates our net utility plant as of December 31, 2002 by
state:
Net Property,
Plant and
Equipment
(000's)
----------------
Pennsylvania $1,067,934
Ohio 153,906
Illinois 134,413
New Jersey 87,258
Maine 37,022
North Carolina 13,637
Inter-company eliminations and other (3,329)
----------------
$1,490,841
================
We believe that our properties are maintained in good condition and in
accordance with current standards of good waterworks industry practice. We
believe that the facilities used in the operation of our business are in good
condition in terms of suitability, adequacy and utilization.
Our corporate offices are leased from Pennsylvania Suburban Water
Company and located in Bryn Mawr, Pennsylvania.
Item 3. Legal Proceedings
There are various legal proceedings in which we are involved. Although
the results of legal proceedings cannot be predicted with certainty, there are
no pending legal proceedings to which we or any of our subsidiaries is a party
or to which any of our properties is the subject that are expected to have a
material effect on our financial position, results of operations or cash flows.
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 2002.
Executive Officers of the Registrant
Information with respect to our executive officers is contained in Item
10 hereof and is hereby incorporated by reference herein.
17
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Our common stock is traded on the New York Stock Exchange and the
Philadelphia Stock Exchange. As of March 3, 2003, there were approximately
21,600 holders of record of our common stock.
The following table shows the high and low intraday sales 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:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------
2002
- ---------------------------------------------------------------------------------------------------------------
Dividend paid per common share $0.1325 $0.1325 $0.1325 $0.1400 $0.5375
Price range of common stock
- high 24.61 25.00 20.30 21.87 25.00
- low 21.10 18.49 16.02 19.30 16.02
2001
- ---------------------------------------------------------------------------------------------------------------
Dividend paid per common share $ 0.124 $ 0.124 $ 0.124 $0.1325 $0.5045
Price range of common stock
- high 19.39 20.40 23.28 24.64 24.64
- low 15.65 16.60 18.66 20.80 15.65
We have paid common dividends consecutively for 58 years. Effective
December 1, 2002, our Board of Directors authorized an increase of 5.7% in the
dividend rate over the amount Philadelphia Suburban Corporation has historically
paid. As a result of this authorization, beginning with the dividend payment in
December 2002, the annual dividend rate increased to $0.56 per share. 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. During the past five years, after restatement for the Consumers
Water Company pooling, our common dividends paid have averaged 61.3% of net
income.
Item 6. Selected Financial Data
The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of our 2002 Annual Report to Shareholders
filed as Exhibit 13.10 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 our 2002 Annual Report to
Shareholders filed as Exhibit 13.10 to this Form 10-K Report is incorporated by
reference herein.
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business,
including changes in interest rates and equity prices. The exposure to changes
in interest rates is a result of financings through the issuance of fixed-rate,
long-term debt. Such exposure is typically related to financings between utility
rate increases, since generally our rate increases include a revenue level to
allow recovery of our current cost of capital. Interest rate risk is managed
through the use of a combination of long-term debt, which is at fixed interest
rates and short-term debt, which is at floating interest rates. As of December
31, 2002, the debt maturities by period, in thousands of dollars, and the
weighted average interest rate for fixed-rate, long-term debt are as follows:
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
- --------------------------------------------------------------------------------------------------------------------
Long-term
debt (fixed rate) $34,265 $40,423 $41,447 $17,072 $15,953 $468,015 $617,175 $660,436
Weighted average
interest rate 6.81% 6.27% 7.12% 6.96% 6.56% 6.51% 6.56%
From time to time, we make investments in marketable equity securities.
As a result, we are exposed to the risk of changes in equity prices for the
"available-for-sale" marketable equity securities. As of December 31, 2002, our
carrying value of marketable equity securities was $1,336,000, which reflects
the market value of such securities. The market risks that we are exposed to are
consistent with the risks that we were exposed to in the prior year.
Item 8. Financial Statements and Supplementary Data
Information appearing under the captions "Consolidated Statements of
Income and Comprehensive Income", "Consolidated Balance Sheets", "Consolidated
Cash Flow Statements" "Consolidated Statements of Capitalization" and "Notes to
Consolidated Financial Statements" from the portions of our 2002 Annual Report
to Shareholders filed as Exhibit 13.10 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 our 2002 Annual Report to
Shareholders filed as Exhibit 13.10 to this Form 10-K Report is incorporated by
reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
19
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 our May 15,
2003, annual meeting of shareholders, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.
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 57 President and Chairman (May 1993 to present); President and Chief Executive
Officer (July 1992 to May 1993); Chairman and Chief Executive Officer,
Pennsylvania Suburban Water Company (July 1992 to present); President,
Philadelphia Suburban Water Company (February 1995 to January 1999) (2)
Morrison Coulter 66 President, Pennsylvania Suburban Water Company - Philadelphia Suburban Division
(December 2001 to present); President, Philadelphia Suburban Water Company
(January 1999 to December 2001); Senior Vice President - Production,
Philadelphia Suburban Water Company (February 1996 to January 1999); Vice
President - Production, Philadelphia Suburban Water Company (April 1989
to February 1996) (3)
Richard R. Riegler 56 Senior Vice President - Engineering and Environmental Affairs (January 1999 to
present); Senior Vice President - Operations, Philadelphia Suburban Water
Company (April 1989 to January 1999) (4)
Roy H. Stahl 50 Executive Vice President and General Counsel (May 2000 to present); Secretary
(June 2001 to present); Senior Vice President and General Counsel (April 1991
to May 2000) (5)
David P. Smeltzer 44 Senior Vice President - Finance and Chief Financial Officer (December 1999 to
present); Vice President - Finance and Chief Financial Officer (May 1999 to
December 1999); Vice President - Rates and Regulatory Relations, Philadelphia
Suburban Water Company (March 1991 to May 1999) (6)
(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the
Registrant. Officers serve at the discretion of the Board of Directors.
(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April
1989, he was President of the Greater Philadelphia Chamber of Commerce. Mr.
DeBenedictis was Senior Vice President for Corporate and Public Affairs of
Philadelphia Electric Company from April 1989 to June 1992.
20
Item 10, Continued
(3) 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. Mr.
Coulter has advised us of his intention to retire in 2003.
(4) Mr. Riegler was Chief Engineer of Philadelphia Suburban Water Company from
1982 to 1984. He then served as Vice President and Chief Engineer from 1984
to 1986 and Vice President of Operations from 1986 to 1989.
(5) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and
Corporate Counsel of the Registrant, and from May 1988 to April 1991 he was
Vice President and General Counsel of the Registrant.
(6) Mr. Smeltzer was Vice President - Controller of Philadelphia Suburban Water
Company from March, 1986 to March 1991.
Item 11. Executive Compensation
The information appearing in the sections captioned "Executive
Compensation" of the Proxy Statement relating to our May 15, 2003, annual
meeting of shareholders, to be filed within 120 days after the end of the fiscal
year covered by this Form 10-K Report, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the sections captioned "Ownership of
Common Stock" and "Securities Authorized for Issuance under Equity Compensation
Plans" of the Proxy Statement relating to our May 15, 2003, annual meeting of
shareholders, to be filed within 120 days after the end of the fiscal year
covered by this Form 10-K Report, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing in the sections captioned "Certain
Relationships and Related Transactions" of the Proxy Statement relating to our
May 15, 2003, annual meeting of shareholders, to be filed within 120 days after
the end of the fiscal year covered by this Form 10-K Report, is incorporated
herein by reference.
Item 14. Controls and Procedures
Under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer (our principal executive officer and
principal financial officer), we have evaluated the effectiveness of the design
and operation of our disclosure controls and procedures within 90 days of the
filing date of this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation.
21
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements. The following is a list of our consolidated financial
statements and its subsidiaries and supplementary data incorporated by reference
in Item 8 hereof:
Report of Management
Independent Accountants' Report of PricewaterhouseCoopers LLP - 2002
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Income and Comprehensive Income - 2002,
2001 and 2000
Consolidated Cash Flow Statements - 2002, 2001, and 2000
Consolidated Statements of Capitalization - December 31, 2002 and 2001
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.
- --------------------
Current Report on Form 8-K filed on December 20, 2002, responding to Item 5,
Other Events. (Related to the Company's press release of December 19, 2002
announcing the sale of a portion of the water operations of the Registrant's
subsidiary, Consumers Ohio Water Company, to Ashtabula County).
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 parentheses. The page numbers listed refer to
page numbers where such exhibits are located using the sequential numbering
system specified by Rules 0-3 and 403.
22
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
3.1 Amended and Restated Articles of Incorporation, as -
amended (1) (Exhibit 3.1)
3.2 By-Laws, as amended (14) (Exhibit 3.2) -
3.3 Amendment to Amended and Restated Articles of -
Incorporation, as amended, to increase the number
of authorized shares to 41,770,819 and to
provide that 40,000,000 of such shares be
shares of Common Stock (14) (Exhibit 3.3)
3.4 Amendment to Amended and Restated Articles of -
Incorporation, as amended, designating the
Series B Preferred Stock (14) (Exhibit 3.4)
3.5 Amendment to Section 3.03 and addition of Section 3.17 -
to Bylaws (16) (Exhibits 1 and 2)
3.6 Amendment to Amended and Restated Articles of -
Incorporation, designating the terms of the Series A
Junior Participating Preferred Shares (18) (Exhibit 3.6)
3.7 Amendment to Amended and Restated Articles of Incorporation, -
to increase the number of authorized shares to 101,770,819
and to provide that 100,000,000 of such shares be shares of
Common Stock (20) (Annex E)
3.8 Amendment to Section 3.03 of the Bylaws (23) (Exhibit 3.8) -
3.9 Amendment to Section 5.05(a) to the Amended and restated Articles -
of Incorporation (24) (Annex A)
3.10 Amendments to Sections 2.01(a), 2.02 and 3.08(b) of the Bylaws (25) (Exhibit 3.10) -
3.11 Restated Articles of Incorporation (as of May 17, 2001) (27) -
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 Agreement to furnish copies of other long-term debt -
instruments (1) (Exhibit 4.7)
4.3 Twenty-first Supplemental Indenture dated as of August 1, -
1985 (3) (Exhibit 4.2)
4.4 Twenty-second Supplemental Indenture dated as of April 1, -
1986 (4) (Exhibit 4.3)
4.5 Twenty-third Supplemental Indenture dated as of April 1, -
1987 (5) (Exhibit 4.4)
4.6 Twenty-fourth Supplemental Indenture dated as of June 1, -
1988 (6) (Exhibit 4.5)
4.7 Twenty-fifth Supplemental Indenture dated as of -
January 1, 1990 (7) (Exhibit 4.6)
4.8 Twenty-sixth Supplemental Indenture dated as of November -
1, 1991 (8) (Exhibit 4.12)
23
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
4.9 Twenty-seventh Supplemental Indenture dated as of June 1, -
1992 (1) (Exhibit 4.14)
4.10 Twenty-eighth Supplemental Indenture dated as of April 1, -
1993 (9) (Exhibit 4.15)
4.11 Twenty-ninth Supplemental Indenture dated as of March 30, -
1995 (11) (Exhibit 4.17)
4.12 Thirtieth Supplemental Indenture dated as of August 15, -
1995 (12) (Exhibit 4.18)
4.13 Thirty-first Supplemental Indenture dated as of July 1, -
1997 (15) (Exhibit 4.22)
4.14 Rights Agreement, dated as of March 1, 1998 between Philadelphia -
Suburban Corporation and BankBoston, N.A., as Rights Agent (21)
(Exhibit 4.25)
4.15 Thirty-second Supplement Indenture, dated as of October 1, 1999 (22) -
(Exhibit 4.26)
4.16 Thirty-third Supplemental Indenture, dated as of November 15, 1999. -
(23) (Exhibit 4.27)
4.17 Revolving Credit Agreement between Philadelphia Suburban Water -
Company and PNC Bank National Association, First Union National
Bank, N.A., Mellon Bank, N.A. dated as of December 22, 1999.
(23) (Exhibit 4.27)
4.18 First Amendment to Revolving Credit Agreement dated as of November 28, -
2000, between Philadelphia Suburban Water Company and PNC Bank,
National Association, First Union National Bank, N.A., Mellon Bank,
N.A. dated as of December 22, 1999. (25) (Exhibit 4.19)
4.19 Second Amendment to Revolving Credit Agreement dated as of December 18, -
2001, between Philadelphia Suburban Water Company (and its successor
Pennsylvania Suburban Water Company) and PNC Bank, National
Association, Citizens Bank of Pennsylvania, First Union National Bank,
N.A., Fleet National Bank dated as of December 22, 1999. (27) (4.20)
4.20 Thirty-fourth Supplemental Indenture, dated as of October 15, 2001. (27) (4.21) -
4.21 Thirty-fifth Supplemental Indenture, dated as of January 1, 2002. (27) (4.22) -
4.22 Thirty-sixth Supplemental Indenture, dated as of June 1, 2002. (29) (4.23) -
4.23 Thirty-seventh Supplemental Indenture, dated as of December 15, 2002. 34
4.24 Credit Agreement dated as of October 25, 2002, between Philadelphia
Suburban Corporation and PNC Bank, National Association. 76
4.25 Third Amendment to Revolving Credit Agreement dated as of December 16, 143
2002, between Philadelphia Suburban Water Company (and its successor
Pennsylvania Suburban Water Company) and PNC Bank, National
Association, Citizens Bank of Pennsylvania, Fleet National Bank
dated as of December 22, 1999.
4.26 Fourth Amendment to Revolving Credit Agreement dated as of December 24, 149
2002, between Philadelphia Suburban Water Company (and its successor
Pennsylvania Suburban Water Company) and PNC Bank, National
Association, Citizens Bank of Pennsylvania, Fleet National Bank,
National City Bank dated as of December 22, 1999.
24
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
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 Excess Benefit Plan for Salaried Employees, effective -
December 1, 1989* (7) (Exhibit 10.4)
10.4 Supplemental Executive Retirement Plan, effective -
December 1, 1989* (7) (Exhibit 10.5)
10.5 Supplemental Executive Retirement Plan, effective March -
15, 1992* (1) (Exhibit 10.6)
10.6 Employment letter agreement with Mr. Nicholas -
DeBenedictis* (1) (Exhibit 10.8)
10.7 1994 Equity Compensation Plan, as amended by Amendment -
1994-1* (13) (Exhibit 10.10)
10.8 Placement Agency Agreement between Philadelphia -
Suburban Water Company and PaineWebber Incorporated
dated as of March 30, 1995 (11) (Exhibit 10.12)
10.9 Bond Purchase Agreement among the Delaware County -
Industrial Development Authority, Philadelphia
Suburban Water Company and Legg Mason Wood Walker,
Incorporated dated August 24, 1995 (12) (Exhibit 10.13)
10.10 Construction and Financing Agreement between the -
Delaware County Industrial Development Authority and
Philadelphia Suburban Water Company dated as of August
15, 1995 (12) (Exhibit 10.14)
10.11 Amendment 1994-2 to 1994 Equity Compensation -
Plan, as amended* (14) (Exhibit 10.16)
10.12 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Nicholas
DeBenedictis, dated as of January 1, 1997* (14) (Exhibit 10.18)
10.13 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Roy H.
Stahl, dated as of January 1, 1997* (14) (Exhibit 10.19)
10.14 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Richard R.
Riegler, dated as of January 1, 1997* (14) (Exhibit 10.21)
10.15 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Morrison
Coulter, dated as of January 1, 1997* (14) (Exhibit 10.22)
10.16 Philadelphia Suburban Corporation Amended and -
Restated Executive Deferral Plan* (14) (Exhibit 10.23)
10.17 Philadelphia Suburban Corporation Deferred -
Compensation Plan Master Trust Agreement
with PNC Bank, National Association, dated
as of December 31, 1996* (14) (Exhibit 10.24)
25
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
10.18 First Amendment to Supplemental Executive Retirement -
Plan* (14) (Exhibit 10.25)
10.19 Placement Agency Agreement between Philadelphia -
Suburban Water Company and A.G. Edwards and Sons,
Inc., Janney Montgomery Scott Inc., HSBC Securities,
Inc., and PaineWebber Incorporated (15) (Exhibit 10.26)
10.20 Philadelphia Suburban Corporation Director Deferral Plan* (21) -
(Exhibit 10.28)
10.21 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Nicholas DeBenedictis,
dated as of January 1, 1997* (21) (Exhibit 10.29)
10.22 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Roy H. Stahl, dated as of
January 1, 1997* (21) (Exhibit 10.30)
10.23 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Richard R. Riegler, dated
as of January 1, 1997* (21) (Exhibit 10.32)
10.24 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Morrison Coulter, dated
as of January 1, 1997* (21) (Exhibit 10.33)
10.25 1999 Annual Cash Incentive Compensation Plan* (21) -
(Exhibit 10.34)
10.26 The Philadelphia Suburban Corporation 1994 Equity -
Compensation Plan (as Amended and Restated
Effective March 3, 1998)* (19) (Exhibit A)
10.27 Amendment 1998-1 to The Philadelphia Suburban -
Corporation 1994 Equity Compensation Plan*
(20) (Annex F)
10.28 Bond Purchase Agreement among the Delaware County -
Industrial Development Authority, Philadelphia
Suburban Water Company and Commerce Capital
Markets dated September 29, 1999 (22) (Exhibit 10.37)
10.29 Construction and Financing Agreement between the Delaware -
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of October 1, 1999
(22) (Exhibit 10.38)
10.30 2000 Annual Cash Incentive Compensation Plan * (23) (Exhibit 10.39) -
10.31 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and
David P. Smeltzer dated December 1,1999. (23) (Exhibit 10.40)
10.32 Placement Agency Agreement between Philadelphia Suburban -
Water Company and Merrill Lynch & Co., PaineWebber
Incorporated, A.G. Edwards & Sons, Inc., First Union
Securities, Inc., PNC Capital Markets, Inc. and Janney
Montgomery Scott, Inc., dated as of November 15, 1999
(23) (Exhibit 10.41)
26
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
10.33 Amendment 2000-1 to 1994 Equity Compensation Plan* (24) (Exhibit 10.33) -
10.34 2001 Annual Cash Incentive Compensation Plan* (26) (Exhibit 10.34) -
10.35 Bond Purchase Agreement among the Delaware County -
Industrial Development Authority, Philadelphia
Suburban Water Company and The GMS Group, L.L.C.,
dated October 23, 2001 (27) (10.35)
10.36 Construction and Financing Agreement between the Delaware -
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of October 15, 2001 (27) (10.36)
10.37 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Nicholas DeBenedictis,
dated August 7, 2001* (27) (10.37)
10.38 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Roy H. Stahl,
dated August 7, 2001* (27) (10.38)
10.39 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Richard R. Riegler,
dated August 7, 2001* (27) (10.39)
10.40 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and David P. Smeltzer,
dated August 7, 2001* (27) (10.40)
10.41 2002 Annual Cash Incentive Compensation Plan* (28) (Exhibit 10.41) -
10.42 Bond Purchase Agreement among the Bucks County Industrial
Development Authority, Pennsylvania Suburban Water Company
and Janney Montgomery Scott LLC, dated May 21, 2002
(29) (Exhibit 10.42) -
10.43 Construction and Financing Agreement between the Bucks County
Industrial Development Authority and Pennsylvania Suburban
Water Company dated as of June 1, 2002 (29) (Exhibit 10.42) -
10.44 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Pennsylvania Suburban Water Company,
and The GMS Group, L.L.C., dated December 19, 2002 155
10.45 Construction and Financing Agreement between the Delaware County
Industrial Development Authority and Pennsylvania Suburban
Water Company dated as of December 15, 2002 188
10.46 2003 Annual Cash Incentive Compensation Plan* 215
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 (9) (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 (10) (Exhibit 13.2)
13.3 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 1995 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1995 (13) (Exhibit 13.3)
27
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
13.4 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 1996 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1996 (14) (Exhibit 13.4)
13.5 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 1997 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1997 (18) (Exhibit 13.5)
13.6 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 1998 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1998 (21) (Exhibit 13.6)
13.7 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 1999 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1999 (23) (Exhibit 13.7)
13.8 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 2000 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 2000 (25) (Exhibit 13.8)
13.9 Selected portions of Annual Report to Shareholders -
for the year ended December 31, 2001 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 2001 (27) (Exhibit 13.8)
13.10 Selected portions of Annual Report to Shareholders 222
for the year ended December 31, 2002 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 2002
21. Subsidiaries of Philadelphia Suburban Corporation 271
23.1 Consent of Independent Accountants - PricewaterhouseCoopers LLP 272
24. Power of Attorney (set forth as a part of this report) 30
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted 273
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted 274
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
28
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, 1985.
(4) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1986.
(5) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1987.
(6) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988.
(7) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989.
(8) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991.
(9) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1993.
(10) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1994.
(11) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
(12) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
(13) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1995.
(14) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1996.
(15) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
(16) Filed as an Exhibit to Form 8-K filed August 7, 1997.
(17) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed on March
17, 1998.
(18) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1997.
(19) Filed as Exhibit A to definitive Proxy Statement dated April 7, 1998.
(20) Filed as an Annex to Registration Statement on Form S-4 filed on September
11, 1998.
(21) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1998.
(22) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
(23) Filed as Exhibit to Annual Report on Form 10-K for the year ended December
31, 1999.
(24) Filed as Annex A to definitive Proxy Statement dated April 10, 2000.
(25) Filed as Exhibit to Annual Report on Form 10-K for the year ended December
31, 2000.
(26) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001.
(27) Filed as Exhibit to Annual Report on Form 10-K for the year ended December
31, 2001.
(28) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.
(29) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002.
* Indicates management contract or compensatory plan or arrangement.
29
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 26, 2003
30
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, David
P. Smeltzer, Senior Vice President - Finance and Chief Financial Officer 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.
/s/ Nicholas DeBenedictis /s/ David P. Smeltzer
- ---------------------------------- ----------------------------------------
Nicholas DeBenedictis David P. Smeltzer
President and Chairman Senior Vice President - Finance and
(principal executive officer) Chief Financial Officer
and Director
/s/ Mary C. Carroll /s/ G. Fred DiBona, Jr.
- ---------------------------------- ----------------------------------------
Mary C. Carroll G. Fred DiBona, Jr.
Director Director
/s/ Richard H. Glanton /s/ Alan Hirsig
- ---------------------------------- ----------------------------------------
Richard H. Glanton Alan Hirsig
Director Director
/s/ John F. McCaughan /s/ John E. Menario
- ---------------------------------- ----------------------------------------
John F. McCaughan John E. Menario
Director Director
/s/ Richard L. Smoot
- ----------------------------------
Richard L. Smoot
Director
31
CERTIFICATIONS
I, Nicholas DeBenedictis, Chairman, President and Chief Executive Officer of
Philadelphia Suburban Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Philadelphia Suburban
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 26, 2003
/s/ Nicholas DeBenedictis
-----------------------------------------------
Nicholas DeBenedictis
Chairman, President and Chief Executive Officer
32
I, David P. Smeltzer, Senior Vice President - Finance and Chief Financial
Officer of Philadelphia Suburban Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Philadelphia Suburban
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 26, 2003
/s/ David P. Smeltzer
---------------------------------------------
David P. Smeltzer
Senior Vice President - Finance and Chief
Financial Officer
33