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<SEC-DOCUMENT>0000950116-01-501121.txt : 20020410
<SEC-HEADER>0000950116-01-501121.hdr.sgml : 20020410
ACCESSION NUMBER:		0000950116-01-501121
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011113

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PHILADELPHIA SUBURBAN CORP
		CENTRAL INDEX KEY:			0000078128
		STANDARD INDUSTRIAL CLASSIFICATION:	WATER SUPPLY [4941]
		IRS NUMBER:				231702594
		STATE OF INCORPORATION:			PA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-06659
		FILM NUMBER:		1784746

	BUSINESS ADDRESS:	
		STREET 1:		762 LANCASTER AVE
		CITY:			BRYN MAWR
		STATE:			PA
		ZIP:			19010
		BUSINESS PHONE:		2155278000

	MAIL ADDRESS:	
		STREET 1:		762 LANCASTER AVE
		CITY:			BRYN MAWR
		STATE:			PA
		ZIP:			19010
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>tenq.txt
<DESCRIPTION>10-Q
<TEXT>
<PAGE>

                UNITED STATES 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 September 30, 2001

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 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
                                                          ---------------------


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 October 26, 2001   54,562,186
                                       ----------


<PAGE>


               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
               (In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
                                                                               September 30,      December 31,
                                                                                    2001             2000
                                                                               -------------------------------
                                    Assets                                                (Unaudited)
<S>                                                                                <C>                 <C>
Property, plant and equipment, at cost                                          $ 1,630,194      $ 1,536,162
Less accumulated depreciation                                                       305,141          284,735
                                                                               ------------------------------
    Net property, plant and equipment                                             1,325,053        1,251,427
                                                                               ------------------------------
Current assets:
    Cash and cash equivalents                                                         1,135            4,575
    Accounts receivable and unbilled revenues, net                                   60,586           51,223
    Inventory, materials and supplies                                                 4,821            4,352
    Prepayments and other current assets                                              4,317            7,054
                                                                               ------------------------------
    Total current assets                                                             70,859           67,204
                                                                               ------------------------------

Regulatory assets                                                                    78,128           67,757
Deferred charges and other assets, net                                               21,937           24,148
Funds restricted for construction activity                                           13,635            3,474
                                                                               ------------------------------
                                                                                $ 1,509,612      $ 1,414,010
                                                                               ==============================
                   Liabilities and Stockholders' Equity
Stockholders' equity:
    6.05% Series B cumulative preferred stock                                       $ 1,760          $ 1,760
    Common stock at $.50 par value, authorized 100,000,000 shares,
         issued 55,403,310 and 54,520,300 in 2001 and 2000                           27,702           27,260
    Capital in excess of par value                                                  304,260          291,013
    Retained earnings                                                               137,379          123,911
    Minority interest                                                                   795            2,823
    Treasury stock, 888,428 and 844,376 shares in 2001 and 2000                     (16,415)         (15,346)
    Accumulated other comprehensive income                                              726              926
                                                                               ------------------------------
    Total stockholders' equity                                                      456,207          432,347
                                                                               ------------------------------

Long-term debt, excluding current portion                                           513,636          468,769
Commitments                                                                               -                -
Current liabilities:
    Current portion of long-term debt                                                 3,891            3,943
    Loans payable                                                                   101,751          100,994
    Accounts payable                                                                 13,285           20,635
    Accrued interest                                                                  8,843           10,199
    Accrued taxes                                                                    27,820           15,815
    Dividends payable                                                                 9,143                -
    Other accrued liabilities                                                        18,692           21,597
                                                                               ------------------------------
    Total current liabilities                                                       183,425          173,183
                                                                               ------------------------------

Deferred credits and other liabilities:
    Deferred income taxes and investment tax credits                                159,158          151,718
    Customers' advances for construction                                             59,778           58,718
    Other                                                                            11,298            9,109
                                                                               ------------------------------
    Total deferred credits and other liabilities                                    230,234          219,545
                                                                               ------------------------------

Contributions in aid of construction                                                126,110          120,166
                                                                               ------------------------------
                                                                                $ 1,509,612      $ 1,414,010
                                                                               ==============================
</TABLE>

See notes to consolidated financial statements on page 6 of this report.

                                       1
<PAGE>

               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                    (In thousands, except per share amounts)

                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                   Nine Months Ended
                                                                     September 30,
                                                              ---------------------------
                                                                  2001          2000
                                                              ---------------------------
<S>                                                             <C>            <C>
Operating revenues                                                $ 232,159    $ 204,825

Costs and expenses:
  Operations and maintenance                                         81,642       74,315
  Depreciation                                                       28,361       23,956
  Amortization                                                        1,642        1,175
  Taxes other than income taxes                                      15,488       17,039
  Recovery of restructuring costs                                         -       (1,136)
                                                              ---------------------------
                                                                    127,133      115,349
                                                              ---------------------------

Operating income                                                    105,026       89,476

Other expense (income):
  Interest expense, net                                              30,027       30,127
  Allowance for funds used during construction                         (865)      (2,260)
  Gain on sale of other assets                                       (3,097)      (2,576)
  Minority interest                                                       -           76
  Recovery of merger transaction costs                                    -       (2,905)
                                                              ---------------------------
Income before income taxes                                           78,961       67,014
Provision for income taxes                                           31,085       26,584
                                                              ---------------------------
Net income                                                           47,876       40,430
Dividends on preferred stock                                             80           80
                                                              ---------------------------
Net income available to common stock                               $ 47,796     $ 40,350
                                                              ===========================

Net income                                                         $ 47,876     $ 40,430
Other comprehensive loss, net of tax                                   (200)        (390)
                                                              ---------------------------
Comprehensive income                                               $ 47,676     $ 40,040
                                                              ===========================
Net income per common share:
  Basic                                                              $ 0.88       $ 0.79
                                                              ===========================
  Diluted                                                            $ 0.87       $ 0.78
                                                              ===========================
Average common shares outstanding during the period:
  Basic                                                              54,188       51,351
                                                              ===========================
  Diluted                                                            54,847       51,840
                                                              ===========================

</TABLE>

See notes to consolidated financial statements on page 6 of this report.

                                       2

<PAGE>
               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                    (In thousands, except per share amounts)

                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                              Three Months Ended
                                                                                 September 30,
                                                                          ----------------------------
                                                                              2001          2000
                                                                          ----------------------------
<S>                                                                          <C>            <C>
Operating revenues                                                             $ 84,726      $ 72,123

Costs and expenses:
  Operations and maintenance                                                     28,994        25,037
  Depreciation                                                                    9,679         8,040
  Amortization                                                                      497           517
  Taxes other than income taxes                                                   4,550         5,460
  Recovery of restructuring costs                                                     -          (740)
                                                                          ----------------------------
                                                                                 43,720        38,314
                                                                          ----------------------------

Operating income                                                                 41,006        33,809

Other expense (income):
  Interest expense, net                                                           9,861        10,282
  Allowance for funds used during construction                                     (353)         (541)
  Gain on sale of other assets                                                     (188)       (1,213)
  Minority interest                                                                   -            30
  Recovery of merger transaction costs                                                -        (2,242)
                                                                          ----------------------------
Income before income taxes                                                       31,686        27,493
Provision for income taxes                                                       12,380        10,927
                                                                          ----------------------------
Net income                                                                       19,306        16,566
Dividends on preferred stock                                                         27            27
                                                                          ----------------------------
Net income available to common stock                                           $ 19,279      $ 16,539
                                                                          ============================

Net income                                                                     $ 19,306      $ 16,566
Other comprehensive income (loss), net of tax                                      (212)          120
                                                                          ----------------------------
Comprehensive income                                                           $ 19,094      $ 16,686
                                                                          ============================
Net income per common share:
  Basic                                                                          $ 0.35        $ 0.32
                                                                          ============================
  Diluted                                                                        $ 0.35        $ 0.32
                                                                          ============================
Average common shares outstanding during the period:
  Basic                                                                          54,402        51,647
                                                                          ============================
  Diluted                                                                        55,075        52,189
                                                                          ============================
</TABLE>



See notes to consolidated financial statements on page 6 of this report.

                                       3
<PAGE>

               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
               (In thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>


                                                                                           September 30,     December 31,
                                                                                               2001              2000
                                                                                        ----------------------------------
                                                                                                   (Unaudited)
<S>                                                                                       <C>                <C>
Stockholders' equity:
     6.05% Series B cumulative preferred stock                                               $   1,760          $   1,760
     Common stock, $.50 par value                                                               27,702             27,260
     Capital in excess of par value                                                            304,260            291,013
     Retained earnings                                                                         137,379            123,911
     Minority interest                                                                             795              2,823
     Treasury stock                                                                            (16,415)           (15,346)
     Accumulated other comprehensive income                                                        726                926
                                                                                        ----------------------------------
Total stockholders' equity                                                                     456,207            432,347
                                                                                        ----------------------------------
Long-term debt:
First Mortgage Bonds secured by utility plant:
                  Interest Rate Range
                     0.00% to  2.49%                                                             8,378              4,368
                     2.50% to  4.99%                                                             8,762              6,712
                     5.00% to  5.49%                                                            36,919              6,667
                     5.50% to  5.99%                                                            31,060             31,060
                     6.00% to  6.49%                                                           160,525            145,570
                     6.50% to  6.99%                                                            55,200             55,200
                     7.00% to  7.49%                                                            60,000             62,007
                     7.50% to  7.99%                                                            23,000             23,000
                     8.00% to  8.49%                                                            17,603             16,621
                     8.50% to  8.99%                                                             9,000             10,460
                     9.00% to  9.49%                                                            53,615             53,615
                     9.50% to  9.99%                                                            46,031             49,831
                    10.00% to 10.50%                                                             6,000              6,167
                                                                                        ----------------------------------
Total First Mortgage Bonds                                                                     516,093            471,278
Installment note payable, 9%, due in equal annual payments through 2013                          1,434              1,434
                                                                                        ----------------------------------
                                                                                               517,527            472,712
Current portion of long-term debt                                                                3,891              3,943
                                                                                        ----------------------------------
Long-term debt, excluding current portion                                                      513,636            468,769
                                                                                        ----------------------------------
Total capitalization                                                                       $   969,843        $   901,116
                                                                                        ==================================

</TABLE>

See notes to consolidated financial statements on page 6 of this report.


                                       4
<PAGE>

               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                            (In thousands of dollars)

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                           Nine Months Ended
                                                                                                September 30,
                                                                                     ------------------------------
                                                                                          2001           2000
                                                                                     ------------------------------
<S>                                                                                      <C>             <C>
Cash flows from operating activities:
   Net income                                                                           $  47,876      $  40,430
   Adjustments to reconcile net income to net
      cash flows from operating activities:
      Depreciation and amortization                                                        30,003         25,131
      Deferred income taxes                                                                 7,788          6,247
      Gain on sale of other assets                                                         (3,097)        (2,576)
      Net increase in receivables, inventory and prepayments                               (7,030)        (6,971)
      Net decrease in payables, accrued interest, accrued taxes
         and other accrued liabilities                                                        (11)        (7,830)
      Payment of Competitive Transition Charge                                            (11,465)             -
      Other                                                                                 2,628         (4,951)
                                                                                     ----------------------------
Net cash flows from operating activities                                                   66,692         49,480
                                                                                     ----------------------------
Cash flows from investing activities:
   Property, plant and equipment additions, including allowance
     for funds used during construction of $865 and $2,260                                (86,431)       (81,651)
   Net increase in funds restricted for construction activity                             (10,161)             -
   Net proceeds from the sale (purchases) of other assets                                   3,971          3,131
   Acquisitions of water and wastewater systems                                            (4,309)        (2,506)
   Other                                                                                       54         (3,426)
                                                                                     ----------------------------
Net cash flows used in investing activities                                               (96,876)       (84,452)
                                                                                     ----------------------------
Cash flows from financing activities:
   Customers' advances and contributions in aid of construction                             2,476          4,937
   Repayments of customers' advances                                                       (3,064)        (2,691)
   Net proceeds (repayments) of short-term debt                                            31,842        (22,519)
   Proceeds from long-term debt                                                            19,817         49,321
   Repayments of long-term debt                                                            (7,691)        (3,936)
   Proceeds from issuing common stock                                                      10,283         34,454
   Repurchase of common stock                                                              (1,575)        (3,543)
   Dividends paid on preferred stock                                                          (80)           (80)
   Dividends paid on common stock                                                         (25,186)       (22,161)
   Other                                                                                      (78)           174
                                                                                     ----------------------------
Net cash flows from financing activities                                                   26,744         33,956
                                                                                     ----------------------------

Net decrease in cash and cash equivalents                                                  (3,440)        (1,016)
Cash and cash equivalents at beginning of period                                            4,575          4,658
                                                                                     ----------------------------
Cash and cash equivalents at end of period                                               $  1,135       $  3,642
                                                                                     ============================

</TABLE>

See Acquisitions footnote for description of non-cash investing activities.

See notes to consolidated financial statements on page 6 of this report.


                                       5


<PAGE>


               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In thousands of dollars, except per share amounts)
                                   (UNAUDITED)

Note 1    Basis of Presentation
          ---------------------

          The accompanying consolidated balance sheet and statement of
          capitalization of Philadelphia Suburban Corporation ("PSC") at
          September 30, 2001, the consolidated statements of income and
          comprehensive income for the nine months and quarter ended September
          30, 2001 and 2000, and the consolidated statements of cash flow for
          the nine months ended September 30, 2001 and 2000, 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, 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 financial statements do not include all disclosures and notes
          normally provided in annual financial statements and, therefore,
          should be read in conjunction with the PSC Annual Report on Form 10-K
          for the year ended December 31, 2000 and the Quarterly Reports on Form
          10-Q for the quarters ended June 30, 2001 and March 31, 2001. The
          results of operations for interim periods may not be indicative of the
          results that may be expected for the entire year. Certain prior year
          amounts have been reclassified to conform with current year's
          presentation.

Note 2    Stockholders' Equity
          --------------------

          On August 7, 2001, PSC's Board of Directors declared a 5-for-4 common
          stock split effected in the form of a 25% stock distribution for
          shareholders of record on November 16, 2001. The new shares will be
          distributed on December 1, 2001. PSC's par value of $.50 per share
          will not change as a result of the common stock distribution, and as a
          result, on the distribution date an amount will be transferred from
          Capital in Excess of Par Value to Common Stock to record the common
          stock split. The share and per share data contained in this Quarterly
          Report on Form 10-Q have not been restated to give effect to this
          stock distribution.

          PSC reports other comprehensive income in accordance with Statement of
          Financial Accounting Standards No. 130, "Reporting Comprehensive
          Income." The following table summarizes the activity of accumulated
          other comprehensive income:
<TABLE>
<CAPTION>

                                                                                   2001        2000
                                                                              -------------------------
<S>                                                                             <C>           <C>
          Balance at January 1,                                                   $  926       $ 2,020
            Unrealized gains (losses) on sales of marketable securities:
              Unrealized holding gain (loss) arising during the period,
                net of tax of $54 in 2001 and $100 in 2000                           (98)          186
              Less: reclassification adjustment for gains included in
                net income, net of tax of $54 in 2001 and $409 in 2000              (102)         (576)
                                                                              -------------------------
              Other comprehensive income (loss), net of tax                         (200)         (390)
                                                                              -------------------------
          Balance at September 30,                                                $  726       $ 1,630
                                                                              =========================
</TABLE>


                                       6
<PAGE>

               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (In thousands of dollars, except per share amounts) (continued)
                                   (UNAUDITED)


Note 3    Long-term Debt and Loans Payable
          --------------------------------

          In September 2001, our Ohio operating subsidiary issued $12,000 of
          tax-exempt bonds due in 2031 at a rate of 5.00%. During the first nine
          months of 2001, operating subsidiaries also issued $7,814 of long-term
          debt at varying rates of interest ranging from 0% to 3.24% and due at
          various times through 2031. The proceeds of these issues were used to
          reduce a portion of the balance of short-term debt. At September 30,
          2001, the Trustees for three financing issues held $13,635 pending
          completion of the projects financed with the issues and are reported
          in the consolidated balance sheet as funds restricted for construction
          activity. In October 2001, Philadelphia Suburban Water Company ("PSW")
          issued a First Mortgage Bond of $15,000 6.21% Series due 2011. In
          November 2001, PSW issued $30,000 in First Mortgage Bonds 5.35% Series
          due 2031 as security for an equal amount of Bonds issued by the
          Delaware County Industrial Development Authority. The proceeds from
          the bonds issued in November 2001 are restricted to funding the costs
          of certain capital projects. As of the closing, project costs of
          $16,374 were already incurred and accordingly the Trustee transferred
          such amounts to PSW. The remainder of the proceeds are being held by
          the Trustee pending completion of the projects financed with this
          issue. As a result of the October and November issuances, $31,374 of
          the balance of loans payable has been classified as long-term debt as
          of September 30, 2001.

Note 4    Net Income per Common Share
          ---------------------------

          Basic net income per common share is based on the weighted average
          number of common shares outstanding. Diluted net income per common
          share is based on the weighted average number of common shares
          outstanding and potentially dilutive shares. The dilutive effect of
          employee stock options is included in the computation of Diluted net
          income per common share. The following table summarizes the shares, in
          thousands, used in computing Basic and Diluted net income per common
          share:
<TABLE>
<CAPTION>

                                                           Nine Months Ended         Three Months Ended
                                                              September 30,             September 30,
                                                      --------------------------- ---------------------------
                                                          2001           2000         2001           2000
                                                      --------------------------- ---------------------------
<S>                                                     <C>                <C>         <C>           <C>
Average common shares outstanding during
   the period for Basic computation                        54,188         51,351       54,402         51,647
Dilutive effect of employee stock options                     659            489          673            542
                                                      --------------------------- ---------------------------
Average common shares outstanding during
   the period for Diluted computation                      54,847         51,840       55,075         52,189
                                                      =========================== ===========================
</TABLE>

Note 5    Acquisitions
          -------------

          During the first nine months of 2001, sixteen acquisitions or growth
          ventures were completed in the various states in which the company
          operates. The total purchase price of $8,070 for the systems acquired
          consisted of $4,309 in cash and the issuance of 195,368 shares of
          PSC's common stock.


                                       7

<PAGE>
               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (In thousands of dollars, except per share amounts) (continued)
                                   (UNAUDITED)


Note 6    Water Rates
          -----------

          PSC's Pennsylvania water utility subsidiaries filed an application
          with the Pennsylvania Public Utilities Commission on November 9, 2001
          requesting a $28,000 or 13.4% increase in annual revenues. The
          application is currently pending before the PAPUC and a final
          determination is anticipated by August 2002. During the first nine
          months of 2001, Consumers Water Company ("CWC") operating subsidiaries
          were allowed rate increases designed to increase revenues by $4,799 on
          an annual basis, representing nine rate decisions in various states.
          Revenues from these rate increases realized in the first nine months
          of 2001 were approximately $2,985.

Note 7    Regulatory assets
          -----------------

          The Pennsylvania Electricity Generation Customer Choice and
          Competition Act ("the Act") permitted electric distribution utilities
          to recover their stranded costs in the form of a Competitive
          Transition Charge ("CTC"). Consistent with the provisions of the Act,
          during the first quarter of 2001 Philadelphia Suburban Water Company
          negotiated and closed on the full pay off of its allocable share of
          CTC charges from its electric distribution company, PECO Energy
          Company. The $11,465 payment has been recorded as a regulatory asset
          and is expected to be recovered in future water rates over 10 years.

Note 8    Recent accounting pronouncements
          --------------------------------

          In June 1998, the Financial Accounting Standards Board ("FASB") issued
          Statement of Financial Accounting Standards ("SFAS") No. 133,
          "Accounting for Derivative Instruments and Hedging Activities," and in
          June 1999 amended this standard by issuing SFAS No. 137, "Accounting
          for Derivative Instruments and Hedging Activities - Deferral of the
          Effective Date of FASB Statement No. 133." In September 2000, the FASB
          issued SFAS No. 138, "Accounting for Certain Derivative Instruments
          and Certain Hedging Activities," an amendment to SFAS No. 133. SFAS
          No. 138 establishes accounting and reporting standards for derivative
          instruments and for hedging activities and 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. SFAS No. 137 changed the timing of the implementation of SFAS
          No. 133. The adoption of these statements on January 1, 2001 did not
          have a material impact on our results of operations or financial
          condition. As of September 30, 2001, we had no derivative instruments
          or hedging activities.

          In June 2001, the FASB approved SFAS No. 141, "Business Combinations,"
          and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
          requires that the purchase method of accounting be used for all
          business combinations initiated after June 30, 2001. SFAS No. 142
          changes the accounting for goodwill from an amortization method to an
          impairment-only approach. We intend to adopt SFAS No. 142 on or before
          January 1, 2002 as required, and this statement applies to all
          goodwill and other intangible assets recorded on our balance sheet at
          that date, regardless of when those assets were originally recorded.
          We are currently evaluating the provisions of this statement and have
          not yet determined the effect of adoption on our results of operations
          or financial position.


                                       8
<PAGE>

               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (In thousands of dollars, except per share amounts) (continued)
                                   (UNAUDITED)

          In July 2001, the FASB approved SFAS No. 143, "Accounting for Asset
          Retirement Obligations." SFAS No. 143 requires that the fair value of
          a liability for an asset retirement obligation be recognized in the
          period in which it is incurred. When the liability is initially
          recognized, the carrying amount of the related long-lived asset is
          increased by the same amount. Over time, the liability is accreted to
          its present value each period, and the capitalized cost is depreciated
          over the useful life of the related asset. Upon settlement of the
          liability, we may settle the obligation for its recorded amount, or an
          alternative amount, thereby incurring a gain or loss upon settlement.
          We intend to adopt this statement as required in 2003. We are
          currently evaluating the provisions of this statement and have not yet
          determined the effect of adoption on our results of operations or
          financial position.

          In August 2001, the FASB approved SFAS No. 144, "Accounting for the
          Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces
          SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
          for Long-Lived Assets to be Disposed Of." We intend to adopt SFAS No.
          144 on or before January 1, 2002 as required. We do not expect that
          the adoption of SFAS No. 144 will have an impact on our results of
          operations or financial position.
















                                       9

<PAGE>


               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)


                           Forward-looking Statements
                           --------------------------

This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contains, in addition to
historical information, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements address, among other things: our use of cash; projected capital
expenditures; liquidity; possible acquisitions and other growth ventures; as
well as information contained elsewhere in this report where statements are
preceded by, followed by or include the words "believes," "expects,"
"anticipates," "plans" or similar expressions. These statements are based on a
number of assumptions concerning future events, and are subject to a number of
uncertainties and other factors, many of which are outside our control. Actual
results may differ materially from such statements for a number of reasons,
including the effects of regulation, abnormal weather, changes in capital
requirements and funding, and acquisitions. We undertake no obligation to update
or revise forward-looking statements, whether as a result of new information,
future events or otherwise.


                               General Information
                               -------------------

Philadelphia Suburban Corporation ("we" or "us"), a Pennsylvania corporation, 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 Philadelphia
Suburban Water Company ("PSW"), a regulated public utility that provides water
or wastewater services to about 1.1 million residents in the suburban areas
north and west of the City of Philadelphia, and Consumers Water Company ("CWC"),
a holding company for several regulated public utility companies that provide
water or wastewater service to about 850,000 residents in various communities in
five states. Other subsidiaries provide water and wastewater services in parts
of Pennsylvania, North Carolina and Ohio. We are among the largest
investor-owned water utilities in the United States based on the number of
customers. In addition, we provide water and wastewater service to approximately
35,000 people through operating and maintenance contracts with municipal
authorities and other parties close to our operating companies' service
territories. Some of our subsidiaries provide wastewater collection, treatment,
and disposal services (primarily residential) to approximately 40,000 people in
Pennsylvania, Illinois, New Jersey and North Carolina.


                               Financial Condition
                               -------------------

During the first nine months of 2001, we had $86,431 of capital expenditures,
acquired water and wastewater systems for $4,309, repaid $2,928 of customer
advances for construction and made sinking fund contributions and other loan
repayments of $7,691. The capital expenditures were related to new water mains
and customer service lines, the rehabilitation of existing water mains, hydrants
and customer service lines, in addition to treatment plant, well and booster
improvements.

During the first nine months of 2001, the proceeds from the issuance of
long-term debt, proceeds from the issuance of common stock, internally generated
funds, available working capital and funds available under our revolving credit
agreement and other credit facilities were used to fund the cash requirements
discussed above and to pay dividends. In September 2001, our Ohio operating
subsidiary issued $12,000 of tax-exempt bonds due in 2031 at a rate of 5.00%.
During the nine months, operating subsidiaries also issued $9,672 of long-term
debt at varying rates of interest ranging from 0% to 3.24% and due at various
times through 2031. The proceeds of these issues were used to reduce a portion
of the balance of short-term debt at each of the respective operating
subsidiaries. Effective with the December 1, 2001 payment, PSC has increased the
quarterly cash dividend on common stock from $.155 per share to $.1656 per share
on a pre-split basis.


                                       10
<PAGE>

               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)


At September 30, 2001, we had short-term lines of credit of $190,019, of which
$56,894, was available.

The Pennsylvania Electricity Generation Customer Choice and Competition Act
("the Act") permitted electric distribution utilities to recover their stranded
costs in the form of a Competitive Transition Charge ("CTC"). Consistent with
the provisions of the Act, during the first quarter of 2001 Philadelphia
Suburban Water Company negotiated and closed on the full pay off of its
allocable share of CTC charges from its electric distribution company, PECO
Energy Company. The $11,465 payment has been recorded as a regulatory asset and
is expected to be recovered in future water rates over 10 years.

Management believes that internally generated funds along with existing credit
facilities and the proceeds from the issuance of long-term debt and common stock
will be adequate to meet our financing requirements for the balance of the year
and beyond.













                                       11
<PAGE>

               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 Nine Months of 2001 Compared to First Nine Months of 2000
   ---------------------------------------------------------------------------

Revenues for the first nine months of 2001 increased $27,334 or 13.3% primarily
due to increased water rates, particularly as a result of the April 2000
Pennsylvania rate settlement, an increase in water consumption and additional
water and wastewater revenues associated with acquisitions. The increase in
water consumption is associated with the relatively warmer, drier weather
experienced in the second and third quarters of 2001 as compared to 2000 in
Pennsylvania, New Jersey and Ohio. The additional revenues associated with
acquisitions are a result of the larger customer base.

Operations and maintenance expenses increased by $7,327 or 9.9% due to the
additional operating costs associated with acquisitions, increased water
production expenses associated with the higher water consumption, increased wage
and benefit costs, and increased insurance expense, offset partially by reduced
maintenance costs. The reduction in maintenance costs are a result of the
relatively mild winter weather experienced in 2001 as compared to 2000.

Depreciation expense increased $4,405 or 18.4% reflecting the utility plant
placed in service since the third quarter of 2000, including the assets acquired
through system acquisitions.

Amortization increased $467 primarily due to the amortization of the costs
associated with, and other costs being recovered in, various rate filings.

Taxes other than income taxes decreased by $1,551 or 9.1% due to a reduction in
state and local taxes and a decrease in the Pennsylvania Capital Stock Tax. The
decrease in state and local taxes is a result of a reduction in the current year
tax assessment and a reduction in the tax assessment for a prior year period
resulting in a refund being received in 2001. The Pennsylvania Capital Stock Tax
decreased due to a reduction in the tax rate.

The recovery of restructuring costs of $1,136 in the first nine months of 2000
resulted from the April 2000 rate settlement. These costs were charged off in
1999 when the CWC merger was completed.

Interest expense decreased by $100 or 0.3% primarily due to decreased interest
rates on short-term borrowings, offset partially by increased borrowings to
finance on-going capital projects.

Allowance for funds used during construction decreased by $1,395 primarily due
to a decrease in the average balance of utility plant construction work in
progress and a decrease in the AFUDC rate which is based on short-term interest
rates. The decrease in the average balance of utility plant construction work in
progress resulted from the completion of the construction of a $35,000 water
treatment plant at one of the operating subsidiaries. Construction commenced on
this facility in December 1997 and was completed in the third quarter of 2000.

Gain on sale of other assets was $3,097 in the first nine months of 2001 and
$2,576 in the same period of 2000. The change is a result of an increase in
gains recognized on land sales of $1,427, offset partially by a decrease in
gains of marketable securities of $906.


                                       12

<PAGE>

               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)


The recovery of merger transaction costs of $2,905 in the first nine months of
2000 resulted from the April 2000 rate settlement. These costs were charged off
in 1999 when the CWC merger was completed.

Our effective income tax rate was 39.4% in the first nine months of 2001 and
39.7% in the first nine months of 2000. The change is due to a difference
between tax deductible expenses and book expenses.

Net income available to common stock for the first nine months of 2001 increased
by $7,446 or 18.5%, in comparison to 2000 primarily as a result of the factors
described above. On a diluted per share basis, earnings increased $.09 or 11.5%
reflecting the change in net income and a 5.8% increase in the average number of
common shares outstanding. The increase in the number of shares outstanding is
primarily a result of the 1,653,125 share stock offering in September 2000,
additional shares sold or issued through the dividend investment plan, employee
stock and incentive plan, and shares issued in connection with acquisitions.

                              Results of Operations
                              ---------------------

       Analysis of Third Quarter of 2001 Compared to Third Quarter of 2000
       -------------------------------------------------------------------

Revenues for the quarter increased $12,603 or 17.5% primarily as a result of an
increase in water consumption, the increased water rates granted to the
operating subsidiaries, and additional water and wastewater revenues associated
with acquisitions. The increase in water consumption is associated with the
relatively warmer, drier weather experienced in the third quarter of 2001 as
compared to 2000. The 2000 weather patterns were generally cooler and wetter
than normal in Pennsylvania and Ohio. The increased water rates are primarily
associated with the rate increases granted in Illinois, New Jersey and Ohio. The
additional water and wastewater revenues associated with acquisitions are a
result of the larger customer base.

Operations and maintenance expenses increased by $3,957 or 15.8% primarily due
to the additional operating costs associated with acquisitions, increased water
production expenses associated with the higher water consumption, higher
insurance expense, increased wage and benefit costs, and higher bad debt
expense. Bad debt expense increased as a result of account collection slowing,
believed to be due to a change in general economic conditions in portions of our
service territories.

Depreciation expense increased $1,639 or 20.4% reflecting the utility plant
placed in service since the third quarter of 2000, including the assets acquired
through system acquisitions.

Amortization decreased $20 or 3.9% primarily due to the completion of the
amortization of the costs associated with, and other costs being recovered in,
various rate filings.

Taxes other than income taxes decreased by $910 or 16.7% due to a reduction in
state and local taxes and a decrease in the Pennsylvania Capital Stock Tax. The
decrease in state and local taxes is a result of a reduction in the tax
assessment for a prior year period resulting in a refund being received in the
third quarter of 2001 and a reduction in the current year tax assessment. The
Pennsylvania Capital Stock Tax decreased due to a reduction in the tax rate.

The recovery of restructuring costs of $740 in the third quarter of 2000
resulted from the April 2000 rate settlement. These costs were charged off in
1999 when the CWC merger was completed.


                                       13

<PAGE>

               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)


Interest expense decreased by $421 or 4.1% primarily due to decreased interest
rates on borrowings, offset partially by additional borrowings to finance
on-going capital projects.

Allowance for funds used during construction ("AFUDC") decreased by $188
primarily due to a decrease in the average balance of utility plant construction
work in progress and a decrease in the AFUDC rate which is based on short-term
interest rates. The decrease in the average balance of utility plant
construction work in progress resulted from the completion of the construction
of a $35,000 water treatment plant at one of the operating subsidiaries in the
third quarter of 2000.

Gain on sale of other assets was $188 in the third quarter of 2001 and $1,213 in
the third quarter of 2000. The change is a result of a decrease in the gains
recognized on land sales of $1,125, offset partially by an increase in gains of
marketable securities of $100.

The recovery of merger transaction costs of $2,242 in the third quarter of 2000
resulted from the April 2000 rate settlement. These costs were charged off in
1999 when the CWC merger was completed.

Our effective income tax rate was 39.1% in the third quarter of 2001 and 39.7%
in the third quarter of 2000. The change is due to a difference between tax
deductible expenses and book expenses.

Net income available to common stock for the third quarter of 2001 increased by
$2,740 or 16.6%, in comparison to 2000 primarily as a result of the factors
described above. On a diluted per share basis, earnings increased $.03 or 9.4%
reflecting the change in net income and a 5.5% increase in the average number of
common shares outstanding. The increase in the number of shares outstanding is
primarily a result of the additional shares sold or issued through the dividend
reinvestment plan, employee stock and incentive plan, shares issued in
connection with the stock acquisitions, and the 1,653,125 share stock offering
in September 2000.

                                  Recent Events
                                  -------------

Security - In light of recent concerns regarding security in the wake of the
September 11, 2001 terrorist attacks, PSC has increased security measures at its
facilities. These increased security measures were not made in response to any
specific threat. PSC and its operating subsidiaries are in contact with federal,
state and local authorities and industry trade associations regarding current
information on possible threats and security measures for water utility
operations. The cost of the increased security measures is expected to be fully
recoverable in water rates and is not expected to have a material impact on our
results from operations or financial condition.

Water supplies - Our utility customers are located in six states and as of
September 30, 2001, 57% were located in Southeastern Pennsylvania. In November
2001, the Governor of the Commonwealth of Pennsylvania declared a drought
warning for nine counties in Pennsylvania, including one of the five counties we
serve, and a drought watch for ten counties, including three of the other
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, and a drought watch calls for a five percent voluntary reduction
of water use. Our water supplies remain adequate at this time. Because the
drought warning declaration was issued in the fall, when nonessential and
recreational uses of water are traditionally already low, this action is not
expected to have a significant impact on water revenues.



                                       14
<PAGE>

               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)


                   Impact of Recent Accounting Pronouncements
                   ------------------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and in June 1999 amended this standard by
issuing SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." In
September 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," an amendment to SFAS No. 133. SFAS
No. 138 establishes accounting and reporting standards for derivative
instruments and for hedging activities and 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. SFAS No. 137 changed the
timing of the implementation of SFAS No. 133. The adoption of these statements
on January 1, 2001 did not have a material impact on our results of operations
or financial condition. As of September 30, 2001, we had no derivative
instruments or hedging activities.

In June 2001, the FASB approved SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. We intend to adopt SFAS No.
142 on or before January 1, 2002 as required, and this statement applies to all
goodwill and other intangible assets recorded on our balance sheet at that date,
regardless of when those assets were originally recorded. We are currently
evaluating the provisions of this statement and have not yet determined the
effect of adoption on our results of operations or financial position.

In July 2001, the FASB approved SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred.
When the liability is initially recognized, the carrying amount of the related
long-lived asset is increased by the same amount. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, we may settle the obligation for its recorded amount, or an
alternative amount, thereby incurring a gain or loss upon settlement. We intend
to adopt this statement as required in 2003. We are currently evaluating the
provisions of this statement and have not yet determined the effect of adoption
on our results of operations or financial position.

In August 2001, the FASB approved SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." We intend to adopt SFAS No. 144 on or before January 1, 2002 as
required. We do not expect that the adoption of SFAS No. 144 will have an impact
on our results of operations or financial position.





                                       15
<PAGE>


               PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES


                           Part II. Other Information
                           --------------------------


Item 1.   Legal Proceedings
          -----------------

          There are no pending legal proceedings to which we or any of our
          subsidiaries is a party or to which any of their properties is the
          subject that are expected to have a material effect on our financial
          position, results of operations or cash flows. Reference is made to
          Item 3 of our Annual Report on Form 10-K for the year ended December
          31, 2000, which is hereby incorporated by reference.



Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

          (a)    Exhibits

                 None

          (b)    Reports on Form 8-K

                 None

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. There have been
          no significant changes in our exposure to market risks since December
          31, 2000.




                                       16

<PAGE>


                                    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.


November 13, 2001

                                           PHILADELPHIA SUBURBAN CORPORATION
                                           ---------------------------------
                                                        Registrant



                                           /s/     Nicholas DeBenedictis
                                           -------------------------------------
                                                   Nicholas DeBenedictis
                                                   Chairman and President


                                           /s/       David P. Smeltzer
                                           -------------------------------------
                                                     David P. Smeltzer
                                                Senior Vice President - Finance
                                                  and Chief Financial Officer







                                       17

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