SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1998 Commission File Number 1-6659 PHILADELPHIA SUBURBAN CORPORATION --------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1702594 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (610)-527-8000 -------------- Indicate by check mark whether the registrant (1) 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 such filing requirements for the past 90 days. Yes X No --------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 1998. 27,560,713 - ----------
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except per share amounts) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ------------------------------ Assets (Unaudited) (Audited) <S> <C> <C> Property, plant and equipment, at cost $703,758 $ 656,011 Less accumulated depreciation 128,058 121,528 ------------------------------ Net property, plant and equipment 575,700 534,483 Current assets: Cash 1,192 680 Accounts receivable, net 26,254 23,534 Inventory, materials and supplies 1,947 1,847 Prepayments and other current assets 1,221 1,002 ------------------------------ Total current assets 30,614 27,063 Regulatory assets 51,135 51,203 Deferred charges and other assets, net 5,427 5,723 ------------------------------ $662,876 $ 618,472 ============================== Liabilities and Stockholders' Equity Stockholders' equity: 6.05% Series B cumulative preferred stock $ 3,220 $ 3,220 Common stock at $.50 par value, authorized 40,000,000 shares, outstanding 27,560,713 and 26,210,654 in 1998 and 1997 14,043 13,294 Capital in excess of par value 157,206 128,065 Retained earnings 60,357 56,136 Treasury stock, 525,392 and 376,510 shares in 1998 and 1997 (9,265) (5,970) ------------------------------ Total stockholders' equity 225,561 194,745 ------------------------------ Long-term debt, excluding current portion 254,443 232,471 Commitments - - Current liabilities: Current portion of long-term debt and preferred stock of subsidiary 2,448 6,662 Loans payable 5,720 10,400 Accounts payable 6,641 10,259 Accrued interest 4,531 3,978 Accrued taxes 3,144 3,643 Other accrued liabilities 9,415 9,755 ------------------------------ Total current liabilities 31,899 44,697 ------------------------------ Deferred credits and other liabilities: Deferred income taxes and investment tax credits 85,547 83,129 Customers' advances for construction 26,332 25,810 Other 13,109 12,764 ------------------------------ Total deferred credits and other liabilities 124,988 121,703 ------------------------------ Contributions in aid of construction 25,985 24,856 ------------------------------ $662,876 $ 618,472 ============================== </TABLE> See notes to consolidated financial statements on page 6 of this report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (UNAUDITED) <TABLE> <CAPTION> Six Months Ended June 30, ------------------------- 1998 1997 ------------------------- <S> <C> <C> Earned revenues $71,617 $64,336 Costs and expenses Operating expenses 27,688 26,363 Depreciation 7,323 7,296 Amortization 414 13 Taxes other than income taxes 4,801 4,324 --------------------------- 40,226 37,996 --------------------------- Operating income 31,391 26,340 Interest expense 9,424 8,960 Dividends on preferred stock of subsidiary 15 188 Allowance for funds used during construction (372) (193) --------------------------- Income before income taxes 22,324 17,385 Provision for income taxes 9,085 7,051 --------------------------- Net income 13,239 10,334 Dividends on preferred stock 98 96 --------------------------- Net income available to common stock $13,141 $10,238 =========================== Basic net income per common share $ 0.48 $ 0.40 =========================== Diluted net income per common share $ 0.48 $ 0.39 =========================== Average common shares outstanding during the period: Basic 27,168 25,729 =========================== Diluted 27,604 26,079 =========================== </TABLE> See notes to consolidated financial statements on page 6 of this report. 2
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (UNAUDITED) <TABLE> <CAPTION> Three Months Ended June 30, -------------------------- 1998 1997 -------------------------- <S> <C> <C> Earned revenues $37,341 $33,315 Costs and expenses Operating expenses 14,020 13,295 Depreciation 3,720 3,609 Amortization 208 3 Taxes other than income taxes 2,283 2,082 -------------------------- 20,231 18,989 -------------------------- Operating income 17,110 14,326 Interest expense 4,729 4,524 Dividends on preferred stock of subsidiary - 91 Allowance for funds used during construction (257) (103) -------------------------- Income before income taxes 12,638 9,814 Provision for income taxes 5,154 3,988 -------------------------- Net income 7,484 5,826 Dividends on preferred stock 49 48 -------------------------- Net income available to common stock $7,435 $5,778 ========================== Basic net income per common share $ 0.27 $ 0.23 ========================== Diluted net income per common share $ 0.27 $ 0.22 ========================== Average common shares outstanding during the period: Basic 27,466 25,813 ========================== Diluted 27,868 26,137 ========================== </TABLE> See notes to consolidated financial statements on page 6 of this report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands of dollars) (UNAUDITED) <TABLE> <CAPTION> Six Months Ended June 30, ------------------------------ 1998 1997 ------------------------------ <S> <C> <C> Cash flows from operating activities: Net income $ 13,239 $ 10,334 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 7,737 7,309 Deferred taxes, net of taxes on customers' advances 1,946 1,829 Net increase in receivables, inventory and prepayments (2,856) (1,051) Net decrease in payables, accrued interest and other accrued liabilities (3,215) (6,576) Other (301) (509) ------------------------------ Net cash flows from operating activities 16,550 11,336 ------------------------------ Cash flows from investing activities: Property, plant and equipment additions, including allowance for funds used during construction of $372 and $193 (21,624) (12,666) Acquisitions of water systems (23,914) (435) Other 131 (236) ------------------------------ Net cash flows used in investing activities (45,407) (13,337) ------------------------------ Cash flows from financing activities: Customers' advances and contributions in aid of construction 941 527 Repayments of customers' advances (1,084) (1,244) Net proceeds (repayments) of short-term debt (4,680) 2,805 Proceeds from long-term debt 24,158 17,142 Repayments of long-term debt (2,400) (12,400) Redemption of preferred stock of subsidiary (4,214) (1,428) Proceeds from issuing common stock 29,046 5,680 Repurchase of common stock (3,333) (1,599) Dividends paid on preferred stock (98) (96) Dividends paid on common stock (8,920) (7,810) Other (47) (82) ------------------------------ Net cash flows from financing activities 29,369 1,495 ------------------------------ Net increase (decrease) in cash 512 (506) Cash balance beginning of year 680 1,518 ------------------------------ Cash balance at end of period $ 1,192 $ 1,012 ============================== </TABLE> See Acquisitions and Water Sale Agreements footnote for description of non-cash investing and financing activities. See notes to consolidated financial statements on page 6 of this report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION (In thousands of dollars, except per share amounts) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ------------------------------- (Unaudited) (Audited) <S> <C> <C> Stockholders' equity: 6.05% Series B cumulative preferred stock $ 3,220 $ 3,220 Common stock, $.50 par value 14,043 13,294 Capital in excess of par value 157,206 128,065 Retained earnings 60,357 56,136 Treasury stock (9,265) (5,970) ------------------------------- Total stockholders' equity 225,561 194,745 ------------------------------- Preferred stock of subsidiary with mandatory redemption requirements - 4,214 Current portion of preferred stock of subsidiary - 4,214 ------------------------------- - - ------------------------------- Long-term debt: First Mortgage Bonds secured by utility plant: 5.95% Series, due 2002* 1,600 2,000 6.30% Series, due 2002 10,000 10,000 5.80% Series, due 2003 10,000 - 6.83% Series, due 2003 10,000 10,000 7.47% Series, due 2003 10,000 10,000 7.06% Series, due 2004 10,000 10,000 6.82% Series, due 2005 10,000 10,000 6.99% Series, due 2006 10,000 10,000 6.75% Series, due 2007 10,000 10,000 6.14% Series, due 2008 10,000 - 9.89% Series, due 2008 5,000 5,000 7.15% Series, due 2008* 20,000 22,000 9.12% Series, due 2010 20,000 20,000 6.50% Series, due 2010* 3,200 3,200 9.17% Series, due 2011 5,000 5,000 9.93% Series, due 2013 5,000 5,000 6.89% Series, due 2015 12,000 12,000 9.97% Series, due 2018 5,000 5,000 9.17% Series, due 2021* 8,000 8,000 6.35% Series, due 2025 22,000 22,000 7.72% Series, due 2025 15,000 15,000 9.29% Series, due 2026 12,000 12,000 ------------------------------- Total First Mortgage Bonds 223,800 206,200 Note payable to bank under revolving credit agreement, due January 2000 31,500 27,128 Installment note payable, 9%, due in equal annual payments through 2013 1,591 1,591 ------------------------------- 256,891 234,919 Current portion of long-term debt 2,448 2,448 ------------------------------- Long-term debt, excluding current portion 254,443 232,471 ------------------------------- Total capitalization $ 480,004 $ 427,216 =============================== </TABLE> *Trust indentures relating to these First Mortgage Bonds require annual sinking fund payments. See notes to consolidated financial statements on page 6 of this report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of dollars, except per share amounts) Note 1 Basis of Presentation The accompanying consolidated balance sheet and statement of capitalization of Philadelphia Suburban Corporation ("PSC" or "the Company") at June 30, 1998, the consolidated statements of income for the six months and quarter ended June 30, 1998 and 1997, and the consolidated statements of cash flow for the six months ended June 30, 1998 and 1997 are unaudited, but reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary to present fairly the consolidated financial position at June 30, 1998, the consolidated results of operations, and the consolidated cash flow for the periods presented. Because they cover interim periods, the statements and related notes to the consolidated financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 1997 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. Note 2 Merger with Consumers Water Company On June 27, 1998, the Company entered into a definitive merger agreement with Consumers Water Company ("Consumers") for approximately 13.2 million shares of PSC common stock (valued at approximately $275 million as of June 27, 1998). The merger, which is subject to several conditions, including the completion of due diligence, the approval of the shareholders of both companies and the various state regulatory agencies, is anticipated to close before the end of the year. Under the terms of the merger agreement, Consumers' common shareholders will receive 1.459 shares of the Company's common stock for each Consumers' common stock and Consumers' preferred shareholders will receive 5.756 shares of the Company's common stock for each preferred share, subject to certain adjustments as provided in the merger agreement. After the merger, Consumers will be a wholly-owned subsidiary of the Company. The merger will be accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16. Consumers is based in Portland, Maine and serves approximately 223,000 customers in service territories covering parts of Ohio, Illinois, Pennsylvania, New Jersey and Maine. The revenues of Consumers for the six months ended June 30, 1998 were $45,942, excluding revenues from its former New Hampshire operations. As of June 30, 1998, Consumers' total assets were $436,494. Note 3 Acquisitions and Water Sale Agreements In January 1998, Philadelphia Suburban Water Company ("PSW") purchased the water utility assets of West Chester Area Municipal Authority ("West Chester") for $23,804 in cash. The West Chester service territory covers 16 square miles and is contiguous to PSW's territory. The annual revenues of the West Chester system approximate $4,500. Revenues related to West Chester were $1,174 for the second quarter and $1,996 since the date of acquisition. In March 1998, PSW entered into a 25-year water sale agreement with Warwick Township Water and Sewer Authority for the sale of water to supplement its water supply. Warwick Township is located in Bucks County and is near PSW's existing service territory. The agreement stipulates sales of a minimum quantity of 460,000 gallons of water per day to the year 2023. The water sales associated with this agreement are expected to begin in the third quarter of 1998, upon completion of a water main connection from Warwick Township to PSW's service territory. The annual revenues resulting from this water sale agreement are expected to approximate $330.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In thousands of dollars, except per share amounts) In April 1998, PSW acquired the water system assets of the Brandywine Hospital complex for $110 in cash and assumed approximately $110 in liabilities. This water supply system is located adjacent to PSW's service territory in Caln Township, Chester County. The annual revenues of this system are expected to approximate $100. In April 1998, PSW entered into an agreement with Bensalem Township, Bucks County for PSW to provide water service to a new development covering a one square mile area in the Township. The service territory is located adjacent to PSW's existing service territory near a major interstate highway interchange in suburban Philadelphia. The revenue from this service territory, once developed, is anticipated to approximate $200 annually. In June 1998, PSW acquired the Flying Hills Water Company ("Flying Hills") in a purchase transaction for 42,000 shares of the Company's Common Stock. The Flying Hills system covers a one square mile service territory in Cumru Township, Berks County near Reading, Pennsylvania and is 16 miles from the nearest edge of PSW's system. The annual revenues of this system approximate $200. The Company continues to actively explore other opportunities to expand its water utility operations through acquisitions or otherwise. Note 4 Water Rates PSW is permitted by the Pennsylvania Public Utility Commission ("PUC") to add a Distribution System Improvement Charge ("DSIC") to its water bills reflecting the capital costs and depreciation related to certain distribution system improvement projects completed and placed into service between base rate filings. Effective July 1, 1998, the DSIC is set at 0.67% of base water rates after having been reset to zero since PSW's last rate case settlement on October 23, 1997. PSW uses a surcharge or credit on its bills to reflect certain changes in Pennsylvania State taxes until such time as the tax changes are incorporated into base rates. Effective May 18, 1998, PSW was required to initiate a revenue credit of .11% ($110 on an annual basis) of base water rates in order to provide its customers with the savings associated with a decrease in the Pennsylvania Capital Stock Tax rate, which the Company was permitted to recover in the last rate settlement.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands of dollars, except per share amounts) Philadelphia Suburban Corporation ("PSC" or "the Company"), a Pennsylvania corporation, is the holding Company of Philadelphia Suburban Water Company ("PSW"), a regulated water utility. PSW provides water to approximately 298,700 customers in 96 municipalities within its 481 square-mile service territory. PSW's service territory is located north and west of the City of Philadelphia. In addition, PSW provides water service to approximately 6,600 customers through an operating and maintenance contract with a municipal authority contiguous to its service territory. Financial Condition During the first half of 1998, the Company acquired the water utility assets of West Chester Area Municipal Authority ("West Chester") for $23,804 in cash, made $21,624 of capital expenditures in PSW's service territory related to routine capital improvements and replacements, redeemed $4,214 of Preferred Stock of subsidiary, repurchased $3,333 of its common stock and, repaid $1,084 of customer advances for construction. During the first half, proceeds from the issuance of common stock, the proceeds from two long-term debt issues, internally generated funds, available working capital, funds available under the revolving credit agreement and lines of credit were used to fund the cash requirements discussed above, and to pay dividends. In January 1998, PSW issued First Mortgage Bonds of $10,000 6.14% Series due 2008 and $10,000 5.8% Series due 2003 through its medium-term note program. Proceeds from these issues were used to reduce the balance of PSW's revolving credit facility. In February 1998, the Company issued 1.25 million shares of common stock in a public offering for net proceeds of $25,840. The proceeds of this offering were used to make a $19,000 equity contribution in PSW and to repay short-term debt of the Company. PSW used the $19,000 equity contribution from the Company to repay amounts outstanding under its revolving credit facility. Effective with the September 1, 1998 payment, the Company has increased the quarterly dividend on common stock from $.1625 per share to $.17 per share. At June 30, 1998, the Company and PSW had $9,280 and $1,000 available, respectively under short-term lines of credit and PSW had $18,500 available under its $50,000 revolving credit agreement. In connection with the merger agreement that the Company has entered into with Consumers, the Company will issue approximately 13.2 million shares of common stock when the merger is completed. The merger is anticipated to close before the end of 1998. Management believes that internally generated funds along with existing credit facilities and its ability to issue additional long-term debt are adequate to meet the Company's financing requirements for the balance of the year and beyond.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (In thousands of dollars, except per share amounts) Results of Operations Analysis of First Six Months of 1998 Compared to First Six Months of 1997 Revenues increased $7,281 or 11.3% as a result of the 7.3% rate increase granted PSW in October 1997, the West Chester and other acquisitions and normal customer growth in PSW's service territory. Operating expenses increased by $1,325 or 5.0% due to additional operating costs associated with the West Chester acquisition, increased wages and administrative expenses, offset in part by continuing cost containment efforts and the effects of a mild winter, which resulted in a lower number of main breaks that reduced maintenance expenses. Depreciation increased by $27 or .4% reflecting increased utility plant placed in service since the second quarter of 1997. Depreciation was approximately 2.48% and 2.44% of average utility plant in service in the first half of 1998 and 1997 respectively. Amortization increased $401 primarily due to the amortization of the costs associated with PSW's 1997 rate filing. Taxes other than income taxes increased by $477 or 11.0% as a result of an increase in the base on which the Pennsylvania Public Utility Realty Tax ("PURTA"), Capital Stock Tax and local real estate taxes are calculated. The increase in the taxable base for the PURTA and local real estate taxes is due to the acquisitions, primarily West Chester, and capital expenditures completed in the last year. The increase in the Capital Stock Tax is due to the increase in the Company's common equity. Interest expense increased $464 or 5.2% due to increased borrowings, partially offset by lower interest rates. The increased borrowings since the second quarter of 1997 were used to finance acquisitions, primarily West Chester, and PSW's ongoing capital projects. Dividends on preferred stock of subsidiary decreased $173 due to the redemption of the remaining shares with a par value of $4,214 in January 1998. Allowance for funds used during construction increased by $179 primarily due to an increase in the average balance of utility plant construction work in progress. The Company's effective income tax rate was 40.7% in the first half of 1998 and 40.6% in 1997. Net income available to common stock increased by $2,903 or 28.4% primarily as a result of the factors described above. On a diluted per share basis, earnings increased $.09 or 23.1% reflecting the improvement in net income, partially offset by a 5.8% increase in the average number of shares outstanding. The increased number of average common shares outstanding during the period is primarily a result of the 1.25 million share stock offering in February 1998, the additional shares sold in 1997 through the Customer Stock Purchase Plan, and the Dividend Reinvestment and Optional Stock Purchase Plan.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (In thousands of dollars, except per share amounts) Analysis of Second Quarter of 1998 Compared to Second Quarter of 1997 Revenues for the quarter increased $4,026 or 12.1% as a result of the 7.3% rate increase granted PSW in October 1997, the West Chester and other acquisitions and normal customer growth in PSW's service territory. Operating expenses increased by $725 or 5.5% primarily due to the West Chester acquisition, increased wage and administrative expenses and the timing of plant maintenance costs. Depreciation increased by $111 or 3.1% reflecting the impact of utility plant placed in service since the second quarter of 1997. Depreciation was approximately 2.48% and 2.44% of average utility plant in service in the second quarter of 1998 and 1997, respectively. Amortization increased $205 primarily due to the amortization of the costs associated with PSW's 1997 rate filing. Taxes other than income taxes increased $201 or 9.7% as a result of an increase in PURTA, Capital Stock Tax and real estate taxes. The increased taxes are due to a higher bases on which taxes are calculated. The West Chester and other acquisitions and capital expenditures completed in the last year increased PURTA and real estate taxes. The Capital Stock Tax increased due to the Company's higher common equity. Interest expense increased by $205 or 4.5% due to increased borrowings, partially offset by lower interest rates. The increased borrowings since the second quarter of 1997 were used to finance acquisitions, primarily West Chester, and other PSW's ongoing capital projects. Dividends on preferred stock of subsidiary decreased $91 due to the redemption of the remaining shares with a par value of $4,214 in January 1998. Allowance for funds used during construction increased by $154 primarily due to an increase in the average balance of utility plant construction work in progress. The Company's effective income tax rate was 40.8% in 1998 and 40.6% in 1997. Net income available to common stock for the quarter increased by $1,657 or 28.7% principally due to the aforementioned factors. Earnings per share on a diluted basis increased $.05 or 22.7% reflecting the improvement in net income, partially offset by a 6.6% increase in the average number of shares outstanding. Year 2000 --------- Except for its customer information system, the Company's management information systems are year 2000 compliant in all material respects. The Company is currently installing a new customer information system which, in addition to being year 2000 compliant, will offer additional functionality and will be scalable to meet future customer growth. The installation of the new customer information system will be completed in the first quarter of 1999 and the cost of this system, including installation and conversion from the existing system, is currently estimated at approximately $3,140. Impact of Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has adopted this statement effective January 1, 1998 and has no components of other comprehensive income to report.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (In thousands of dollars, except per share amounts) In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosure about products and services, geographic areas and major customers. The Company will adopt the disclosure prescribed by SFAS 131 in its 1998 Annual Report as required. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises employers' disclosures about pension and other postretirement benefit plans but does not change the measurement or recognition of costs associated with those plans. It standardizes the disclosure requirements, eliminates unnecessary disclosures and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. SFAS 132 supersedes the disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company plans to adopt this statement in its 1998 Annual Report as required. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Company intends to adopt this statement in its 1999 Annual Report as required. The adoption of SOP 98-1 will not have a material impact on the Company's results from operations or financial condition. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company plans to adopt this statement in 2000 as required. As of June 30, 1998, the Company had no derivative instruments or hedging activities that upon the adoption of SFAS 133 will have an impact on the Company's results from operations or financial condition.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES Part II. Other Information Item 1. Legal Proceedings There are no pending legal proceedings to which the Registrant or any of its subsidiaries is a party or to which any of their properties is the subject that present a reasonable likelihood of a material adverse impact on the Registrant. Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997, which is included by a reference herein. Item 4. Results of Vote of Security Holders The Annual Meeting of Shareholders of Philadelphia Suburban Corporation (the "Company") was held on May 21, 1998 at the headquarters of the Company, 762 Lancaster Avenue, Bryn Mawr, Pennsylvania, pursuant to the Notice sent on or about April 7, 1998 to all shareholders of record at the close of business on March 23, 1998. At that meeting, the following nominees were elected as directors of the Company for terms expiring in the year 2001 and received the votes set forth after their names below: Name of Nominee For Withheld --------------- --- -------- Mary C. Carroll 21,294,970 1,957,836 Richard H. Glanton, Esq. 20,780,701 2,469,105 Richard L. Smoot 21,300,879 1,948,927 Since the Board of Directors is divided into three classes with one class elected each year to hold office for a three-year term, the term of office for the following directors continued after the Annual Meeting: John H. Austin, Jr.; John W. Boyer, Jr.; Nicholas DeBenedictis; G. Fred DiBona, Jr.; Alan R. Hirsig; John F. McCaughan; and Harvey J. Wilson. In addition to the election of directors, the following proposal was presented at the Annual Meeting and received the votes set forth below: Adoption of the Philadelphia Suburban Corporation 1994 Equity Compensation Plan, as amended and restated effective March 3, 1998. Broker For Against Abstentions Non-Votes --- ------- ----------- --------- 20,734,235 2,075,468 440,103 0 Item 5. Other Information The Company has entered into an Amended and Restated Merger Agreement and Plan of Merger by and among the Company, Consumers Acquisition Company and Consumers Water Company dated as of August 5, 1998. The Company has filed a copy of the Agreement as an Exhibit to this Form 10-Q.
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 10.28 Amended and Restated Agreement and Plan of Merger by and among Philadelphia Suburban Corporation, Consumers Acquisition Company and Consumers Water Company dated as of August 5, 1998 27 Financial Data Schedule (b) Report on Form 8-K Current report on Form 8-K filed June 30, 1998 responding to Item 5, Other Events. (related to the Company's announcement of the proposed merger with Consumers Water Company.) 14
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be executed on its behalf by the undersigned thereunto duly authorized. August 12, 1998 PHILADELPHIA SUBURBAN CORPORATION --------------------------------- Registrant Nicholas DeBenedictis --------------------------------- Nicholas DeBenedictis Chairman and President Michael P. Graham --------------------------------- Michael P. Graham Senior Vice President - Finance and Treasurer
EXHIBIT INDEX Exhibit No. Description Page No. 10.28 Amended and Restated Agreement and Plan of Merger by and among Philadelphia Suburban Corporation, Consumers Acquistiion Company and Consumers Water Company dated as of August 5, 1998 16 27 Financial Data Schedule 94