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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, 1997 Commission File
number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
762 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 1998. $526,051,571
For purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Part I of
this 10-K report, (b) all directors of registrant, and (c) each
shareholder that has informed registrant by March 2, 1998, 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 2, 1998. 27,500,608
Documents incorporated by reference
(1) Portions of registrant's 1997 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 21, 1998
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.
PART I
Item 1. Business
Philadelphia Suburban Corporation ("PSC" or the "Registrant"), a
Pennsylvania corporation, was incorporated in 1968. The information appearing in
"Management's Discussion and Analysis" from the portions of PSC's 1997 Annual
Report to Shareholders filed as Exhibit 13.5 to this Form 10-K Report is
incorporated by reference herein.
The business of PSC is conducted almost entirely through its subsidiary
Philadelphia Suburban Water Company ("PSW"), a regulated public utility. PSW
supplies water to approximately 288,000 residential, commercial, industrial and
public customers. PSW's service territory covers 464 square miles, comprising a
large portion of the suburban area west and north of the City of Philadelphia.
This territory is primarily residential in nature and is completely metered for
water service, except for fire hydrant service. In addition, PSW provides water
service to approximately 6,400 customers through an operating and maintenance
contract with the Horsham Township Authority which is contiguous to its service
territory. Based on the 1990 census, PSW estimates that the total number of
persons currently served is approximately 950,000. Excluding the customers that
were added at the time of acquisitions in the last three years, customer
accounts have grown at an average rate of approximately 1.0% per annum for the
last three years. Including acquisitions, the customer base increased at an
annual compound growth rate of 4.9% over the last three years.
Operating revenues during the twelve months ended December 31, 1997 were
derived approximately as follows:
66.8% from residential customers
21.1% from commercial customers
3.9% from industrial customers
1.1% from public customers
6.3% from fire protection services
0.8% from sales to other water utilities and
miscellaneous customers
------
100.0%
======
During 1997, PSW made the following acquisitions and obtained related
service territory rights: in January, the water utility assets of Cherry Water
Company; in September, the water utility assets of Perkiomen Township Authority;
and in September, both the water and wastewater utility assets of the Peddler's
View Utility Company. The systems acquired in 1997 incorporate two square miles
of service area near PSW's existing territory. The total purchase price for the
three water systems and wastewater system acquired in 1997 was $1,226,000. The
annual revenues from these systems approximate $300,000, and revenues included
in the consolidated financial statements during the period owned by PSW were
$175,000.
Since December 1992, PSW has acquired 21 local water systems and two
small wastewater utilities. During 1996, PSW made the following acquisitions and
obtained related service territory rights: in October, the water utility assets
of Hatboro Borough Authority; in November, Utility Group Services Corporation
("UGS") which owned three water utilities and a wastewater utility; in December,
the water utility assets of Bristol Borough Water and Sewer Authority; and at
various times during 1996 the water utility assets of three smaller water
systems. In May 1995, PSW purchased the water utility assets of Media Borough
and, at various times during 1995, PSW acquired four smaller water systems.
During various times in 1994, 1993, and 1992 PSW acquired the water utility
assets of five water systems. Combined, the 18 water systems and one wastewater
system acquired since December 1992 and prior to 1997 added 134 square miles of
service territory near or adjacent to PSW's service territory and had revenues
of approximately $14,571,000 in 1997.
In addition, in January 1998, PSW purchased the water utility assets of
West Chester Area Municipal Authority ("West Chester") for $22,400,000 in cash,
subject to minor adjustment related to the final value of current assets
transferred and recent capital expenditures. The West Chester service territory
covers 16 square miles and is contiguous to PSW's territory. The annual revenues
2
Item 1, Continued
of the West Chester system is approximately $4,500,000. PSW has also entered
into a letter of intent to acquire the Flying Hills Water Company ("Flying
Hills") in a purchase transaction for approximately 43,000 shares of the
Company's Common Stock. This transaction, which is subject to final negotiation
and the approval of the Pennsylvania Public Utility Commission, is expected to
be completed in the first quarter of 1998. The Flying Hills system covers a one
square mile area in Berks County near Reading, Pennsylvania and is within 16
miles of the existing PSW system. The annual revenues of the Flying Hills system
is approximately $200,000.
Selected operating statistics. Set forth below is a table showing certain
selected operating statistics for PSW for the past three years.
1997 1996 1995
--------- --------- -------
Revenues from water sales (000's omitted)
Residential $ 87,783 $ 79,056 $ 78,082
Commercial 27,807 26,504 24,473
Industrial 5,126 4,823 4,533
Public 1,496 1,373 1,252
Fire protection 8,323 8,140 7,421
Other 995 438 617
Tax Surcharge (credit) -- (1) (505)
Distribution System Improvement Charge 1,104 -- --
--------- --------- -------
Total $ 132,634 $ 120,333 115,873
========= ========= =======
Water sales (million gallons)
Residential 19,142 17,228 17,610
Commercial 8,819 8,236 7,983
Industrial 2,302 1,768 1,919
Public 396 354 335
Fire protection - metered 73 84 51
Other 750 25 124
--------- --------- -------
Total 31,482 27,695 28,022
========= ========= =======
System delivery by source (million gallons)
Surface (including Upper Merion
reservoir) 29,470 27,278 26,904
Wells 6,378 5,136 4,830
Purchased 2,023 2,055 2,077
--------- --------- -------
Total 37,871 34,469 33,811
========= ========= =======
Number of metered customers (end of year)*
Residential 268,550 265,746 248,500
Commercial 13,512 13,422 12,019
Industrial 708 716 554
Public 823 797 775
Fire protection 3,911 3,449 3,006
Other 12 11 11
--------- --------- -------
Total 287,516 284,141 264,865
========= ========= =======
Average consumption per
customer in gallons 110,143 103,206 109,084
========= ========= =======
* Excludes customers served under operating and maintenance contracts.
3
Item 1, Continued
Water supplies and usage. PSW's principal supply of water is surface
water from the Schuylkill River, Delaware River, seven rural streams which are
tributaries of the Schuylkill and Delaware Rivers, and the Upper Merion
Reservoir, a former quarry now impounding groundwater. All of these are either
within or adjacent to PSW's service territory. PSW holds the appropriate water
rights and regulatory approvals to use these sources. PSW has five impounding
reservoirs and has six treatment and pumping facilities to provide storage and
treatment of these surface water supplies.
The Pennsylvania Department of Environmental Protection ("DEP") has
regulatory power with respect to sources of supply and the construction,
operation and safety practices for certain dams and other water containment
structures under the Pennsylvania Dam Safety and Encroachments Act. PSW's dams
are in compliance with these requirements in all material respects.
PSW's surface supplies are supplemented by 61 wells. PSW also has
interconnections with: the Chester Water Authority, which provides for a maximum
supply of up to 6.4 million gallons per day ("mgd"); and the Bucks County Water
and Sewer Authority, which provides for a supply of up to 7.0 mgd. Agreements
regarding these interconnections require PSW to purchase certain minimum amounts
of water.
PSW believes it possesses all the necessary permits to obtain its
supply of water from all of the sources described above. The minimum safe yield
of all sources of supply described above, based on low stream flows of record
with respect to surface supplies, is as follows:
Surface supplies 104.8 mgd
Upper Merion Reservoir 7.2
Wells 22.8
Purchased supplies 8.2
-----
Total 143.0 mgd
=====
During periods of normal precipitation, the water available is more
than the minimum shown above. Under normal operating conditions, PSW can deliver
a maximum of 167.0 mgd to its distribution system for short periods of time. The
average daily sendout for 1997, 1996 and 1995 was 103.8, 94.2 and 92.6 mgd,
respectively.
The maximum demand ever placed upon PSW's facilities for one month
occurred during July 1997, when sendout averaged 120.62 mgd. The peak day of
record occurred during July 1997 when water use reached 142.5 mgd.
Actual water usage (as measured by the water meters installed at each
service location) is less than the amount of water delivered into the system due
to leaks, PSW's operational use of water, fire hydrant usage and other similar
uses. Water consumption per customer is affected by local weather conditions
during the year. In general, during the late spring and summer, an increase in
rainfall reduces water consumption, while extended periods of dry weather
increases consumption. Also, an increase in the average temperature generally
causes an increase in water consumption.
Energy supplies. PSW does all of its pumping using electric power and
energy supplies have been sufficient to meet PSW's customer demand. In December
1996, the Governor of Pennsylvania signed into law the Electricity Generation
Customer Choice and Competition Act ("Electric Act") which provides for the
restructuring of the electric utility industry in Pennsylvania. The Electric Act
requires the unbundling of electric services into separate generation,
transmission and distribution services with open competition for generation. PSW
believes that the Electric Act will have little or no impact on its ability to
purchase the electric power it requires to operate its business.
4
Item 1, Continued
Adequacy of water supplies. The Delaware River Basin, which is the
drainage area of the Delaware River from New York State to Delaware,
periodically experiences water shortages, particularly during the summer months.
To the extent that the reservoirs in the upper part of the Basin are affected by
a lack of precipitation, the Delaware River Basin Commission (the "DRBC") may
impose either voluntary or mandatory water use restrictions on portions or all
of the Basin. The Commonwealth of Pennsylvania (the "Commonwealth") also has the
authority to impose similar restrictions on a county-by-county basis.
PSW's raw water supplies have been adequate to meet customer demand for
the past five years principally because of its five impounding reservoirs.
However, PSW's customers may be required to comply with the Commonwealth and
DRBC water use restrictions, even if PSW's supplies are adequate.
In October 1997, the DRBC issued a drought warning for the Delaware
River Basin which includes PSW's service territory. The DRBC lifted the drought
warning in January 1998. Under a drought warning, the DRBC asks for voluntary
restrictions on water use, particularly non-essential uses of water. In
September 1995, the Governor of the Commonwealth declared a drought emergency in
the counties served by PSW. The drought emergency imposed a mandatory ban on all
nonessential water usage by PSW's customers. The drought emergency was lifted by
the end of 1995. Because these actions were issued at the end of the summer
months, when nonessential and recreational use of water has traditionally
declined, the restrictions did not have a significant impact on PSW revenues.
Throughout the drought warning and drought emergency described above, PSW
maintained adequate storage levels of treated water and had sufficient
quantities of raw water. No other drought restrictions were imposed by the
Commonwealth or DRBC in the preceding five years.
Regulation by the Pennsylvania Public Utility Commission. PSW is
subject to regulation by the Pennsylvania Public Utility Commission ("PUC")
which has jurisdiction with respect to rates, service, accounting procedures,
issuance of securities, acquisitions and other matters.
Under applicable Pennsylvania statutes, PSW has rights granted under
its Articles of Incorporation and by certificates of public convenience from the
PUC authorizing it to conduct its present operations in the manner in which such
operations are now conducted and in the territory in which it now renders
service, to exercise the right of eminent domain and to maintain its mains in
the streets and highways of such territory. Such rights are generally
nonexclusive, although it has been the practice of the PUC to allow only one
water company to actually provide service to a given area. Consequently, PSW has
been subject to competition only with respect to potential customers who also
may have access to the service of another water supplier, wells, or where other
water service opportunities exist (including non-utility companies with riparian
rights or access to an adequate supply from a neighboring facility).
In 1993, the PUC initiated a rulemaking procedure intended to
facilitate the development of practical standards by which water mains should be
extended to "bona fide service applicants", typically existing homes or
businesses in need of a reliable public water supply. In December 1995, the PUC
issued a final rulemaking, reflecting the position that the primary costs of
such extensions should be supported by anticipated revenues and borne by the
utility. Generally, construction costs beyond those supported by anticipated
revenues must be borne by the applicant. The formula used to determine a
utility's investment requires that revenues from the bona fide service applicant
offset the interest, depreciation and incremental operating expense associated
with the investment. Under the rule, PSW is required to invest $4,000 per bona
fide service applicant in a main extension prior to requiring any customer
contribution.
In 1996, the PUC approved a mechanism, the Distribution System
Improvement Charge ("DSIC"), which allows Pennsylvania water utilities to add a
surcharge to their water bills to offset the additional depreciation and capital
costs associated with certain non-revenue producing, non-expense reducing
capital expenditures related to replacing and rehabilitating distribution
systems. The DSIC mechanism is intended to eliminate many of the disincentives
faced by water utilities in rehabilitating their distribution systems. These
disincentives, often referred to as regulatory lag, are due to the rate making
process which, prior to the establishment of the DSIC mechanism, required water
utilities to absorb all of the depreciation and capital costs of these projects
between base rate increases without the benefit of additional revenues. The DSIC
may be adjusted quarterly based on additional qualified capital expenditures
made in the previous quarter, but 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.
5
Item 1, Continued
Water Quality & Environmental Issues. PSW is subject to regulation of
water quality by the U.S. Environmental Protection Agency ("EPA") under the
Federal Safe Drinking Water Act (the "SDWA") and by the Pennsylvania Department
of Environmental Protection ("DEP") under the Pennsylvania Safe Drinking Water
Act. The SDWA provides for the establishment of minimum water quality standards,
as well as governmental authority to specify the type of treatment process to be
used for public drinking water. PSW is presently in compliance with all current
standards and treatment requirements promulgated to date.
The EPA has an ongoing directive to issue additional regulations under
the SDWA. The directive was clarified in 1986 when Congress amended the SDWA to
require, among other revisions, disinfection of all drinking water, additional
maximum contaminant level ("MCL") specifications, and filtration of all surface
water supplies. PSW has already installed the necessary equipment to provide for
the disinfection of the drinking water throughout the system and is monitoring
for the additional specified contaminants. All PSW's surface water supplies are
filtered.
On August 6, 1996, the President signed into law the reauthorization of
the SDWA. The new Act places a greater emphasis on the cost/benefit of
regulating additional substances by requiring definitive research on the impact
of such regulations. The reauthorized SDWA focuses regulations on contaminants
known to be of public health concern based on occurrence, health risks and cost
benefit considerations. The new Act eliminated the previous requirement of the
1986 SDWA Amendments that had required the EPA to promulgate MCL's for many
chemicals not previously regulated and mandated further MCL's every three years.
The new Act also specifies that the EPA shall study radon, arsenic and sulfates
and propose respective rulemakings in 1999, 2000 and 2001 if these chemicals are
deemed to be a threat to public health. The reauthorized SDWA is not expected to
have a material impact on PSW's operations or financial condition. PSW may, in
the future, have to change its method of treating drinking water at certain of
its sources of supply if additional regulations become effective.
In 1991, EPA promulgated final regulations for lead and copper (the
"Lead and Copper Rule"). Under the Lead and Copper Rule, large water utilities
are required to conduct corrosion control studies and to sample certain
high-risk customer homes to determine the extent of treatment techniques that
may be required. PSW conducted the two required rounds of sampling in 1992 and
again in 1997. The results of both studies did not exceed the EPA action levels
for either lead or copper. Additional sampling will be required in the future.
PSW has developed a corrosion control program for its surface sources of supply
and does not foresee the need to make any major additional treatment changes or
capital expenditures as a result of the Lead and Copper Rule.
On January 1, 1993, federal regulations ("Phase II") became effective
for certain volatile organics, herbicides, pesticides and inorganic parameters.
All required Phase II monitoring was completed in 1995. In the few cases where
Phase II contaminants were detected, concentrations were below MCL's. Future
monitoring will be required, but no major treatment modifications are
anticipated as a result of these regulations.
In May 1996, the EPA issued the first rule of a three-rule package
addressing Disinfection By-Products ("DBP") and monitoring of disease-causing
micro-organisms. DBP's are chemicals formed during the drinking water treatment
process. The first rule is an Information Collection Rule ("ICR") designed to
collect data to be used in developing further rules. As required, PSW began
sampling under the requirements of the ICR in July 1997 and expects to complete
the ICR phase in December 1998. Studies by the EPA on the data collected may
result in new treatment standards and processes.
PSW is also subject to other environmental statutes administered by the
EPA and DEP. These include the Federal Clean Water Act ("FCWA") and the Resource
Conservation and Recovery Act ("RCRA"). Under the FCWA, the Company must obtain
National Pollutant Discharge Elimination System ("NPDES") permits for discharges
from its water treatment stations. PSW currently maintains five NPDES permits
relating to its water treatment plants, which are subject to renewal every five
years. PSW presently meets all NPDES requirements. Although management
recognizes that permit renewal may become more difficult if more stringent
guidelines are imposed, no significant obstacles to permit renewal are presently
foreseen.
6
Item 1, Continued
Under RCRA, PSW is subject to specific regulations regarding the solid
waste generated from the water treatment process. The DEP promulgated a "Final
Rulemaking" for solid waste (Residual Waste Management) in July 1992. PSW has
retained engineering consultants to assist with the extensive monitoring, record
keeping and reporting required under these regulations. A preliminary
application for permitting has been filed, and formal permitting by DEP of PSW's
three residual waste disposal sites is expected to be issued in 1998 in
accordance with regulatory requirements.
In 1996, PSW acquired the Little Washington Wastewater Company ("LWW"),
a 317 customer wastewater system and in 1997, LWW acquired the wastewater system
of Peddler's View Utility Company, which serves 196 customers. Both systems are
located within the service territory of PSW, are subject to regulation by the
EPA and DEP, and are subject to environmental statutes, including FCWA and RCRA.
Both systems currently maintain permits for their wastewater treatment stations
in accordance with FCWA and are presently in compliance with all standards and
treatment requirements promulgated to date.
Where PSW is required to make certain capital investments in order to
maintain its compliance with any of the various regulations discussed above, it
is management's belief that all such expenditures would be fully recoverable in
PSW's rates. However, under current law, such capital investments would have to
be financed prior to their inclusion in PSW's rate structure, and the resulting
rate increases would not necessarily be timely.
Employee Relations
As of December 31, 1997, the Registrant employed a total of 531
persons. Hourly employees of PSW are represented by the International
Brotherhood of Firemen and Oilers, Local No. 473. The contract with the union
was renewed on December 1, 1997 for a four-year period. Management considers its
employee relations to be good.
Item 2. Properties.
The Registrant believes that the facilities used in the operation of
its business are in good condition in terms of suitability, adequacy and
utilization.
The property of PSW consists of a waterworks system devoted to the
collection, storage, treatment and distribution of water in its service
territory. Management considers that its properties are maintained in good
operating condition and in accordance with current standards of good waterworks
practice. The following table summarizes the principal physical properties owned
by PSW:
No. of Square Feet
Location Buildings Description Floor Area
- -------- --------- ----------- ----------
Pennsylvania 6 Office & Warehouse 174,185
Pennsylvania 17 Pumping stations and
treatment buildings 180,000
Pennsylvania 23 Well stations App. 600 ea.
Pennsylvania 38 Well stations App. 150 ea.
Pennsylvania 49 Booster stations App. 1,100 ea.
In addition, PSW also owns 68 storage facilities for treated water
throughout its service territory with a combined capacity of 160.81 million
gallons and five surface water impounding reservoirs. The water utility also
owns approximately 3,469 miles of transmission and distribution mains, has
287,516 active metered services and 13,519 fire hydrants.
7
Item 2, Continued
PSW's properties referred to herein, with certain minor exceptions
which do not materially interfere with their use, are owned by PSW and are
subject to the lien of an Indenture of Mortgage dated as of January 1, 1941, as
supplemented. In the case of properties acquired through the exercise of the
power of eminent domain and certain properties acquired through purchase, it has
title only for water supply purposes.
The Registrant's corporate offices are leased from PSW and located in
Bryn Mawr, Pennsylvania.
Item 3. Legal Proceedings
There are various legal proceedings in which the Company is involved.
Although the results of legal proceedings cannot be predicted with certainty,
there are no pending legal proceedings to which the Registrant or any of its
subsidiaries is a party or to which any of their properties is the subject that
present a reasonable likelihood of a material adverse impact on the Registrant.
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 1997.
Information with respect to the executive officers of the Company is
contained in Item 10 hereof and is hereby incorporated by reference herein.
8
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's common stock is traded on the New York Stock Exchange and
the Philadelphia Stock Exchange. As of March 2, 1998, there were approximately
14,170 holders of record of the Company's common stock.
The following selected quarterly financial data of the Company is in
thousands of dollars, except for per share amounts:
Total
1997 First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------------
Earned revenues $ 31,021 $ 33,315 $ 36,754 $ 35,081 $ 136,171
Operating expenses 13,068 13,295 14,466 15,070 55,899
Net income available to common
stock 4,460 5,778 7,323 5,432 22,993
Basic net income per common share 0.17 0.23 0.28 0.21 0.89
Diluted net income per common share 0.17 0.22 0.28 0.21 0.88
Dividend paid per common share 0.152 0.152 0.159 0.159 0.622
Price range of common stock
- high 15.47 15.10 18.00 22.18 22.18
- low 11.72 11.44 14.07 15.10 11.44
1996
- ------------------------------------------------------------------------------------------------------------------------------
Earned revenues $ 29,290 30,683 $ 30,831 $ 31,699 $ 122,503
Operating expenses 13,070 12,614 11,757 14,174 51,615
Income, continuing operations 3,968 5,281 5,847 4,661 19,757
Basic income per share, continuing
operations 0.16 0.21 0.24 0.18 0.79
Diluted income per share, continuing
operations 0.16 0.21 0.23 0.18 0.78
Income, discontinued operations -- -- 365 600 965
Basic and diluted income per share,
discontinued operations -- -- 0.02 0.02 0.04
Net income available to common
stock 3,968 5,281 6,212 5,261 20,722
Basic net income per common share 0.16 0.21 0.26 0.20 0.83
Diluted net income per common share 0.16 0.21 0.25 0.20 0.82
Dividend paid per common share 0.145 0.145 0.152 0.152 0.594
Price range of common stock
- high 11.57 12.57 12.94 14.91 14.91
- low 10.26 11.25 11.63 12.38 10.26
All per share data as presented has been adjusted for the 1997 common
stock split effected in the form of a stock distribution. High and low prices of
the Company's common stock are as reported on the New York Stock Exchange
Composite Tape.
9
Item 5, Continued
Following is a recent history, adjusted for the 1997 4-for-3 common stock split
in the form of a stock distribution, of income from continuing operations and
common dividends of the Company:
- --------------------------------------------------------------------------------
Basic
income per
share from Dividend
Cash dividend continuing payout
per common share operations ratio
- --------------------------------------------------------------------------------
1993 $0.54 $0.64 84%
1994 0.55 0.68 81%
1995 0.57 0.75 76%
1996 0.59 0.79 75%
1997 0.62 0.89 70%
- --------------------------------------------------------------------------------
Dividends have averaged approximately 77% of income from continuing
operations during this period. During 1997, the Board of Directors increased the
dividend rate by 7%. As a result, beginning with the dividend payable in March
1998, the annual dividend rate increased to $.65 per share.
Item 6. Selected Financial Data
The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of the Company's 1997 Annual Report to
Shareholders filed as Exhibit 13.5 to this Form 10-K Report is incorporated by
reference herein.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information appearing in the section captioned "Management's
Discussion and Analysis" from the portions of the Company's 1997 Annual Report
to Shareholders filed as Exhibit 13.5 to this Form 10-K Report is incorporated
by reference herein.
Item 8. Financial Statements and Supplementary Data
Information appearing under the captions "Consolidated Statements of
Income", "Consolidated Balance Sheets", "Consolidated Cash Flow Statements"
"Consolidated Statements of Capitalization" and "Notes to Consolidated Financial
Statements" from the portions of the Company's 1997 Annual Report to
Shareholders filed as Exhibit 13.5 to this Form 10-K Report is incorporated by
reference herein. Also, the information appearing in the section captioned
"Reports on Financial Statements" from the portions of the Company's 1997 Annual
Report to Shareholders filed as Exhibit 13.5 to this Form 10-K Report is
incorporated by reference herein.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
10
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
The information appearing in the section captioned "Information
Regarding Nominees and Directors" of the Proxy Statement relating to the May 21,
1998, annual meeting of shareholders of the Company, to be filed within 120 days
after the end of the fiscal year covered by this Form 10-K Report, is
incorporated 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 52 President and Chairman (May 1993 to
present); President and Chief Executive
Officer (July 1992 to May 1993); Chairman
and Chief Executive Officer, Philadelphia
Suburban Water Company (July 1992 to
Present); President, Philadelphia
Suburban Water Company (February 1995 to
present) (2)
Richard R. Riegler 51 Senior Vice President - Operations,
Philadelphia Suburban Water Company
(April 1989 to present) (3)
Roy H. Stahl 45 Senior Vice President and General Counsel
(April 1991 to present) (4)
Michael P. Graham 49 Senior Vice President - Finance and
Treasurer (March 1993 to present) (5)
Morrison Coulter 61 Senior Vice President - Production,
Philadelphia Suburban Water Company
(February 1996 to present); Vice
President - Production, Philadelphia
Suburban Water Company (April 1989 to
February 1996) (6)
(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the
Registrant. Officers serve at the discretion of the Board of Directors.
(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April
1989, he was President of the Greater Philadelphia Chamber of Commerce. Mr.
DeBenedictis was Senior Vice President for Corporate and Public Affairs of
Philadelphia Electric Company from April 1989 to June 1992.
(3) Mr. Riegler was Chief Engineer of Philadelphia Suburban Water Company from
1982 to 1984. He then served as Vice President and Chief Engineer from 1984
to 1986 and Vice President of Operations from 1986 to 1989.
(4) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and
Corporate Counsel of the Registrant, and from May 1988 to April 1991 he was
Vice President and General Counsel of the Registrant.
11
Item 10, Continued
(5) Mr. Graham was Controller of the Company from 1984 to September 1990, and
from September 1990 to May 1991 he was Chief Financial Officer and
Treasurer. From May 1991 to March 1993, Mr. Graham was Vice President -
Finance and Treasurer.
(6) Mr. Coulter was Superintendent of Pumping Facilities from 1971 to 1982.
From 1982 to 1987 he served as Manager - Electrical/Mechanical Department
and from 1987 to 1989 he was Assistant Vice President - Production.
Item 11. Executive Compensation
The information appearing in the sections captioned "Executive
Compensation" of the Proxy Statement relating to the May 21, 1998, annual
meeting of shareholders of the Company, to be filed within 120 days after the
end of the fiscal year covered by this Form 10-K Report, is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the sections captioned "Ownership of
Common Stock" of the Proxy Statement relating to the May 21, 1998, annual
meeting of shareholders of the Company, to be filed within 120 days after the
end of the fiscal year covered by this Form 10-K Report, is incorporated 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 the
May 21 1998, annual meeting of shareholders of the Company, to be filed within
120 days after the end of the fiscal year covered by this Form 10-K Report, is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements. The following is a list of the consolidated financial
statements of the Company and its subsidiaries and supplementary data
incorporated by reference in Item 8 hereof:
Management's Report
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - 1997, 1996 and 1995
Consolidated Statements of Cash Flow - 1997, 1996, and 1995
Consolidated Statements of Capitalization - December 31, 1997 and 1996
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 3, 1997, responding to Item 5,
Other Events. (Related to the Company's announcement of a dividend increase and
the Company's plans for a four-for-three stock split in the form of a stock
distribution to all shareholders of record on December 15, 1997).
Current Report on Form 8-K filed January 29, 1998, responding to Item 5, Other
Events. (Related to the filing of the Company's audited consolidated balance
sheets and statements of capitalization as of December 31, 1997 and 1996, its
consolidated statements of income and cash flow for each of the years in the
three-year period ended December 31, 1997, its Management's Discussion and
Analysis of
12
Item 14, Continued
Financial Condition and Results of Operations related to its fiscal year ended
December 31, 1997, and its Summary of Selected Financial Data for each of the
years in the five-year period ended December 31, 1997.)
Current Report on Form 8-K filed February 6, 1998, responding to Item 5, Other
Events. (Related to the Company's Board of Directors adopting a new Shareholder
Rights Plan (the "New Plan") on February 3, 1998 that was effective March 1,
1998. The New Plan, which expires March 1, 2008, is substantially the same as
the former Shareholder Rights Plan that expired on March 1, 1998 except that the
beneficial ownership threshold that would trigger the exercisability of the
rights issued to purchase Company Common Stock was reduced from 25% of the
outstanding Common Stock to 20% of the outstanding Common Stock.)
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.
13
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 (17) (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 (17)
(Exhibit 3.3) --
3.4 Amendment to Amended and Restated Articles of
Incorporation, as amended, designating the Series B
Preferred Stock (17) (Exhibit 3.4) --
3.5 Amendment to Section 3.03 and addition of Section 3.17
to Bylaws (19) (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 21
4.1 Indenture of Mortgage dated as of January 1, 1941
between Philadelphia Suburban Water Company and The
Pennsylvania Company for Insurance on Lives and Granting
Annuities(now First Pennsylvania Bank, N.A.), as
Trustee, with supplements thereto through the Twentieth
Supplemental Indenture dated as of August 1, 1983 (2)
(Exhibits 4.1 through 4.16) --
4.2 Revolving Credit Agreement between Philadelphia Suburban
Water Company and Mellon Bank (East) National
Association dated as of February 16, 1990 (3) (Exhibit
4.3) --
4.3 First Amendment to Revolving Credit Agreement between
Philadelphia Suburban Water Company and Mellon Bank N.A.
dated as of September 1, 1992 (1) (Exhibit 4.3) --
4.4 Preferred Stock Agreement between Philadelphia Suburban
Water Company and Provident Life and Accident Insurance
Company dated as of January 1, 1991 (3) (Exhibit 4.4) --
4.5 Indenture dated as of July 1, 1988 between Philadelphia
Suburban Corporation and the Philadelphia National Bank,
as Trustee. (4) (Exhibit 4) --
4.6 Form of Rights Agreement, dated as of February 19, 1988,
between Philadelphia Suburban Corporation and Mellon
Bank (East) National Association, as amended by
Amendment No. 1. (5) (Exhibit 1) --
4.7 Agreement to furnish copies of other long-term debt
instruments (1) (Exhibit 4.7) --
4.8 Twenty-first Supplemental Indenture dated as of August
1, 1985 (6) (Exhibit 4.2) --
4.9 Twenty-second Supplemental Indenture dated as of April
1, 1986 (7) (Exhibit 4.3) --
14
EXHIBIT INDEX, Continued
Exhibit No. Page No.
- ----------- --------
4.10 Twenty-third Supplemental Indenture dated as of April 1,
1987 (8) (Exhibit 4.4) --
4.11 Twenty-fourth Supplemental Indenture dated as of June 1,
1988 (9) (Exhibit 4.5) --
4.12 Twenty-fifth Supplemental Indenture dated as of January
1, 1990 (10)(Exhibit 4.6) --
4.13 Twenty-sixth Supplemental Indenture dated as of November
1, 1991 (11) (Exhibit 4.12) --
4.14 Twenty-seventh Supplemental Indenture dated as of June
1, 1992 (1) (Exhibit 4.14) --
4.15 Twenty-eighth Supplemental Indenture dated as of April
1, 1993 (12) (Exhibit 4.15) --
4.16 Revolving Credit Agreement between Philadelphia Suburban
Water Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A. and
CoreStates Bank, N.A. dated as of March 17, 1994 (12)
(Exhibit 4.16) --
4.17 Twenty-Ninth Supplemental Indenture dated as of March
30, 1995 (14) (Exhibit 4.17) --
4.18 Thirtieth Supplemental Indenture dated as of August 15,
1995 (15) (Exhibit 4.18) --
4.19 First Amendment to Revolving Credit Agreement dated as
of May 22, 1995, between hiladelphia Suburban Water
Company and Mellon Bank, N.A., PNC Bank National
Association, First Fidelity National Bank, N.A.,
Meridian Bank, N.A. dated as of March 17, 1994 (17)
(Exhibit 4.19) --
4.20 Second Amendment to Revolving Credit Agreement dated as
of July 21, 1995, between Philadelphia Suburban Water
Company and Mellon Bank, N.A., PNC Bank National
Association, First Fidelity National Bank, N.A.,
Meridian Bank, N.A. dated as of March 17, 1994 (17)
(Exhibit 4.20) --
4.21 Third Amendment to Revolving Credit Agreement dated as
of December 20, 1996, between hiladelphia Suburban Water
Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A., CoreStates
Bank, N.A. dated as of March 17, 1994 (17) (Exhibit
4.21) --
4.22 Thirty-First Supplemental Indenture dated as of July 1,
1997 (18) (Exhibit 4.22) --
4.23 Fourth Amendment to Revolving Credit Agreement dated as
of January 15, 1998, between Philadelphia Suburban
Water Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A., and
CoreStates Bank, N.A. dated as of March 17, 1994 26
4.24 Rights Agreement, dated as of March 1, 1998 between
Philadelphia Suburban Corporation and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (20)
(Exhibit 1) --
15
EXHIBIT INDEX, Continued
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 Executive Incentive Award Plan, as amended March 21,
1989 and February 6, 1990* (10) (Exhibit 10.3) --
10.4 Excess Benefit Plan for Salaried Employees, effective
December 1, 1989* (10) (Exhibit 10.4) --
10.5 Supplemental Executive Retirement Plan, effective
December 1, 1989* (10) (Exhibit 10.5) --
10.6 Supplemental Executive Retirement Plan, effective March
15, 1992* (1) (Exhibit 10.6) --
10.7 1993 Incentive Compensation Plan* (1) (Exhibit 10.7) --
10.8 Employment letter agreement with Mr. Nicholas
DeBenedictis* (1) (Exhibit 10.8) --
10.9 1994 Incentive Compensation Program* (12) (Exhibit 10.9) --
10.10 1994 Equity Compensation Plan, as amended by Amendment
1994-1* (16) (Exhibit 10.10) --
10.11 1995 Incentive Compensation Plan* (13) (Exhibit 10.11) --
10.12 Placement Agency Agreement between Philadelphia
Suburban Water Company and PaineWebber Incorporated
dated as of March 30, 1995 (14) (Exhibit 10.12) --
10.13 Bond Purchase Agreement among the Delaware County
Industrial Development Authority, Philadelphia Suburban
Water Company and Legg Mason Wood Walker, Incorporated
dated August 24, 1995 (15) (Exhibit 10.13) --
10.14 Construction and Financing Agreement between the
Delaware County Industrial Development Authority and
Philadelphia Suburban Water Company dated as of August
15, 1995 (15) (Exhibit 10.14) --
10.15 1996 Annual Cash Incentive Compensation Plan* (16)
(Exhibit 13.4) --
10.16 Amendment 1994-2 to 1994 Equity Compensation Plan, as
amended* (17) (Exhibit 10.16) --
10.17 1997 Annual Cash Incentive Compensation Plan* (17)
(Exhibit 10.17) --
10.18 Agreement among Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Nicholas
DeBenedictis, dated as of January 1, 1997* (17) (Exhibit
10.18) --
10.19 Agreement among Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Roy H. Stahl,
dated as of January 1, 1997* (17) (Exhibit 10.19) --
10.20 Agreement among Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Michael P.
Graham, dated as of January 1, 1997* (17) (Exhibit
10.20) --
16
EXHIBIT INDEX, Continued
Exhibit No. Page No.
- ----------- --------
10.21 Agreement among Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Richard R.
Riegler, dated as of January 1, 1997* (17) (Exhibit
10.21) --
10.22 Agreement among Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Morrison
Coulter, dated as of January 1, 1997* (17) (Exhibit
10.22) --
10.23 Philadelphia Suburban Corporation Amended and Restated
Executive Deferral Plan* (17) (Exhibit 10.23) --
10.24 Philadelphia Suburban Corporation Deferred
Compensation Plan Master Trust Agreement with PNC Bank,
National Association, dated as of December 31, 1996*
(17) (Exhibit 10.24) --
10.25 First Amendment to Supplemental Executive Retirement
Plan* (17) (Exhibit 10.25) --
10.26 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 (18) (Exhibit 10.26)
10.27 1998 Annual Cash Incentive Compensation Plan* 41
13.1 Selected portions of Annual Report to Shareholders for
the year ended December 31, 1993 incorporated by
reference in Annual Report on Form 10-K for the year
ended December 31, 1993 (12) (Exhibit 13.1) --
13.2 Selected portions of Annual Report to Shareholders for
the year ended December 31, 1994 incorporated by
reference in Annual Report on Form 10-K for the year
ended December 31, 1994 (13) (Exhibit 13.2) --
13.3 Selected portions of Annual Report to Shareholders for
the year ended December 31, 1995 incorporated by
reference in Annual Report on Form 10-K for the year
ended December 31, 1995 (16) (Exhibit 13.3) --
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 --
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 46
21. Subsidiaries of Philadelphia Suburban Corporation 84
23. Consent of Independent Auditors 85
24. Power of Attorney (set forth as a part of this report) 19
27. Financial Data Schedule 86
17
- Notes -
Documents Incorporated by Reference
(1) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1992.
(2) Indenture of Mortgage dated as of January 1, 1941 with supplements
thereto through the Twentieth Supplemental Indenture dated as of
August 1, 1983 were filed as an Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1983.
(3) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1990.
(4) Filed as Exhibit 4 to the Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on June 14, 1988.
(5) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on March 1, 1988, with
respect to the New York Stock Exchange, and on November 9, 1988, with
respect to the Philadelphia Stock Exchange.
(6) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1985.
(7) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1986.
(8) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1987.
(9) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988.
(10) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989.
(11) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991.
(12) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1993.
(13) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1994.
(14) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
(15) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
(16) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1995.
(17) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1996.
(18) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
(19) Filed as an Exhibit to Form 8-K filed August 7, 1997.
(20) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed on
March 17, 1998.
* Indicates management contract or compensatory plan or arrangement.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHILADELPHIA SUBURBAN CORPORATION
By Nicholas DeBenedictis
-----------------------------
Nicholas DeBenedictis
President and Chairman
Date: March 20, 1998
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Nicholas
DeBenedictis, President and Chairman of Philadelphia Suburban Corporation,
Michael P. Graham, Senior Vice President - Finance and Treasurer of Philadelphia
Suburban Corporation, and each of them, his or her true and lawful
attorneys-in-fact, in his or her name, place and stead to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report.
19
John H. Austin, Jr. John W. Boyer, Jr.
- ----------------------------- ------------------------------
John H. Austin, Jr. John W. Boyer, Jr.
Director Director
Mary C. Carroll Nicholas DeBenedictis
- ----------------------------- ------------------------------
Mary C. Carroll Nicholas DeBenedictis
Director President and Chairman
(principal executive officer)
and Director
G. Fred DiBona, Jr. Richard H. Glanton
- ----------------------------- ------------------------------
G. Fred DiBona, Jr. Richard H. Glanton
Director Director
Michael P. Graham
- ----------------------------- ------------------------------
Michael P. Graham Alan Hirsig
Senior Vice President-Finance and Director
Treasurer (principal financial and
accounting officer)
John F. McCaughan Richard L. Smoot
- ----------------------------- ------------------------------
John F. McCaughan Richard L. Smoot
Director Director
- -----------------------------
Harvey J. Wilson
Director
20