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, 2001 Commission File No. 0-690
THE YORK WATER COMPANY
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1242500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 East Market Street, York, Pennsylvania 17401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including Area Code 717-845-3601
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to 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 the latest practicable date.
Common stock, No par value 3,060,805 Shares outstanding
as of July 19, 2001
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
June 30, 2001 Dec. 31, 2000
UTILITY PLANT, at original cost $118,506,446 $114,748,545
Less-Reserve for depreciation 18,952,213 18,314,880
99,554,233 96,433,665
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$86,178 in 2001 and $80,985 in 2000 514,221 519,414
CURRENT ASSETS:
Receivables, less reserves of $130,000
in 2001 and 2000 2,789,450 2,854,593
Recoverable income taxes 148,449 -
Materials and supplies, at cost 441,789 402,770
Prepaid expenses 291,637 258,236
Deferred income taxes 88,655 88,655
3,759,980 3,604,254
OTHER LONG-TERM ASSETS:
Prepaid pension cost 2,190,709 2,178,423
Deferred debt expense 374,384 394,422
Deferred rate case expense 103,617 46,950
Notes receivable 1,074,743 985,794
Deferred regulatory assets 3,700,760 10,360,708
Other 1,456,198 1,862,977
8,900,410 15,829,274
$112,728,845 $116,386,607
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
June 30, 2001 Dec. 31, 2000
CAPITALIZATION
Common stock, no par value,
authorized 31,000,000 shares,
outstanding 3,060,805 shares in
2001 and 3,042,733 shares in 2000 $ 29,279,405 $ 28,899,504
Earnings retained in the business 4,361,171 4,226,051
Treasury stock, 38,000 shares in
2001 and 2000 (687,800) (687,800)
32,952,776 32,437,755
LONG-TERM DEBT
1.0% Pennvest Loan, due 2019 709,308 728,220
6.0% Industrial Development
Authority Revenue Refunding Bonds,
Series 1995, due 2010 4,300,000 4,300,000
10.05% Senior Notes, Series C,
due 2020 6,500,000 6,500,000
10.17% Senior Notes, Series A,
due 2019 6,000,000 6,000,000
9.6% Senior Notes, Series B,
due 2019 5,000,000 5,000,000
8.43% Senior Notes, Series D,
due 2022 7,500,000 7,500,000
4.40% Industrial Development
Authority Revenue Refunding Bonds,
Series 1994, due 2009 2,700,000 2,700,000
32,709,308 32,728,220
CURRENT LIABILITIES
Short-term borrowings 4,339,761 2,648,946
Current portion of long-term debt 37,688 37,500
Accounts payable 731,019 1,168,824
Dividends payable 583,271 577,914
Accrued taxes 20,213 165,002
Advance water revenues 21,040 21,182
Accrued interest 678,164 678,164
Other accrued expenses 381,336 466,563
6,792,492 5,764,095
DEFERRED CREDITS
Customers' advances for construction 17,595,497 16,746,170
Contributions in aid of construction 10,157,565 10,157,133
Deferred income taxes 9,937,042 15,117,013
Deferred regulatory liabilities 974,081 1,811,825
Deferred employee benefits 1,610,084 1,624,396
40,274,269 45,456,537
$112,728,845 $116,386,607
THE YORK WATER COMPANY
Statements of Income
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
WATER OPERATING REVENUES
Residential $2,852,024 $2,769,250 $5,552,567 $5,433,003
Commercial and
industrial 1,337,836 1,309,827 2,573,549 2,572,431
Other 573,522 529,691 1,132,716 1,104,509
4,763,382 4,608,768 9,258,832 9,109,943
OPERATING EXPENSES
Operation and
maintenance 1,128,927 1,057,319 2,117,819 2,014,433
Administrative and
general 996,516 836,204 1,923,697 1,722,732
Depreciation 445,326 418,428 887,015 836,857
Taxes other than
income taxes 188,853 224,381 389,153 560,140
2,759,622 2,536,332 5,317,684 5,134,162
Operating Income 2,003,759 2,072,436 3,941,147 3,975,781
INTEREST EXPENSE AND
OTHER EXPENSE/(INCOME)
Interest on long-term
debt 689,977 682,935 1,380,019 1,359,995
Interest on short-term
debt 53,172 21,891 104,348 44,211
Allowance for funds used
during construction (17,826) (9,273) (26,433) (29,476)
Other income, net (71,430) (43,700) (79,898) (79,400)
653,893 651,853 1,378,036 1,295,330
Income before income
taxes 1,349,866 1,420,583 2,563,111 2,680,451
Federal and state
income taxes 493,178 485,691 904,223 942,276
Net Income $ 856,689 $ 934,892 $1,658,889 $1,738,175
Basic Earnings Per Share $0.28 $0.31 $0.54 $0.58
Cash Dividends Per Share $0.25 $0.24 $0.50 $0.48
THE YORK WATER COMPANY
Statements of Shareholders' Investment
Earnings
Retained
Common in the Treasury
Stock Business Stock
Balance, December 31, 2000 $28,899,504 $4,226,051 $(687,800)
Net Income - 1,658,889 -
Cash Dividends - (1,523,769) -
Issuance of common
stock under dividend
reinvestment plan 340,445 - -
Issuance of common
stock under employee
stock purchase plan 39,456 - -
Balance, June 30, 2001 $29,279,405 $4,361,171 $(687,800)
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
June 30, 2001 June 30, 2000
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,658,889 $1,738,175
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 887,015 836,857
Provision for losses on
accounts receivable 65,000 65,000
Increase in deferred income taxes
(including regulatory assets and
liabilities) 642,233 519,289
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable 143 (17,036)
Increase in recoverable income taxes (148,449) (65,752)
(Increase) decrease in materials and
supplies (39,019) 10,210
Increase in prepaid expenses and
prepaid pension costs (45,687) (275,478)
Decrease in accounts payable,
accrued expenses, other liabilities
and deferred employee benefits (532,129) (288,927)
(Decrease) increase in accrued
interest and taxes (144,789) 8,536
Decrease (increase) in other assets 449,867 (57,975)
Net cash provided by operating
activities 2,793,074 2,472,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (4,082,107) (2,195,583)
Customers' advances for construction
and contributions in aid of
construction 849,759 973,762
Increase in notes receivable (88,949) (196,283)
Net cash used in investing
activities (3,321,297) (1,418,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt (18,724) (18,709)
Net borrowings under line-of-credit
agreements 1,690,815 4,762
Issuance of common stock under
dividend reinvestment plan 340,445 358,125
Issuance of common stock under
employee stock purchase plan 39,456 39,110
Dividends paid (1,523,769) (1,438,083)
Net cash provided by (used in)
financing activities 528,223 (1,054,795)
Net decrease in cash and cash
equivalents - -
Cash and cash equivalents at
beginning of period - -
Cash and cash equivalents at
end of period $ - $ -
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized $1,456,087 $1,366,540
Income taxes 554,142 556,727
THE YORK WATER COMPANY
Notes to Interim Financial Statements
1. Interim Financial Information
The interim financial statements are unaudited but, in the
opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair presentation of results for
such periods. These financial statements should be read in
conjunction with the financial statements and notes thereto
contained in the Company's Annual Report to Shareholders for the
year ended December 31, 2000.
Operating results for the three month and six month periods
ended June 30, 2001, are not necessarily indicative of the
results that may be expected for the year ending December 31,
2001.
2. Basic Earnings Per Share
Basic earnings per share for the six months ended June 30,
2001 and 2000 were based on weighted average shares outstanding
of 3,048,434 and 3,006,687, respectively.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Over the past several months management has been evaluating the
classification of deferred income tax assets and liabilities and
the related deferred regulatory assets and liabilities. Several
components of these accounts have been reclassified which
resulted in significant changes when compared to prior financial
reporting periods. These reclassifications have not affected
current year income tax expense or net income.
Results of Operations
Three Months Ended June 30, 2001 Compared
with Three Months Ended June 30, 2000
Water operating revenues for the three months ended June 30, 2001
increased $154,614 or 3.4% compared to the three months ended
June 30, 2000. The increase resulted primarily from an increase
in customers in the residential classification. The commercial
and industrial classifications also showed an increase in
customers and consumption for the second quarter of 2001 compared
to the second quarter 2000, but to a lesser extent.
Operating expenses for the second quarter of 2001 increased
$223,290 or 8.8% compared to the same period in 2000. A
significant increase in pension expenses, increased main and
water treatment facility maintenance, and higher worker's
compensation and liability insurance costs were the primary
reasons for the increase. These increases were partially offset
by reduced public utility realty taxes due to a lower tax base
and rate.
Interest on short-term bank loans increased $31,281 for the three
months ended June 2001 compared to the same period in 2000 due to
an increase in short-term debt outstanding in 2001. The average
daily short-term debt outstanding in 2001 and 2000 was $3,665,216
and $1,097,262, respectively.
Other income, net increased by $27,730 during the second quarter
2001 compared to second quarter 2000, due to increased interest
income on water district notes driven by an increase in
customers.
Six Months Ended June 30, 2001 Compared
with Six Months Ended June 30, 2000
Water operating revenues for the six months ended June 30, 2001
increased $148,889 or 1.6% compared to the six months ended June
30, 2000. Most of the increase resulted from residential growth,
however each class showed a net increase in customers.
Operating expenses for the first six months of 2001 increased
$183,522 or 3.6% compared to the same period in 2000. The main
reasons for the increase were higher maintenance costs associated
with water pumping and treatment equipment and facilities,
increased depreciation due to additional plant investment,
increased liability and worker's compensation insurance premiums,
higher pension expenses, and Nasdaq fees. These increases were
partially offset by reduced public utility realty taxes, and
reduced main and service line maintenance due to the completion
of the highway relocation project in 2000.
Interest on long-term debt increased $20,024 through June 2001
compared to June 2000 due to the remarketing of the 5% Industrial
Development Bonds in July 2000 at a rate of 6%.
Interest on short-term bank loans increased $60,137 for the first
half of 2001 compared to the same period in 2000 due to an
increase in short-term debt outstanding in 2001. The average
daily short-term debt outstanding in 2001 and 2000 was $3,386,781
and $1,098,059, respectively.
Federal and state income taxes for the period ended June 30, 2001
were $38,053 or 4.0% lower than the period ended June 30, 2000
due to lower taxable income. The effective tax rate was 35.3%
for the period.
Rate Developments
Within the last several years the Company has filed written
applications for rate increases with the PPUC and has been
granted rate relief as a result of such requests. The most
recent request was filed on March 20, 2001 seeking a $2,039,790
or 11.1% rate increase. The active parties have reached an
agreement of $800,000 pending approval of the Administrative Law
Judge and the PPUC. Increased rates will become effective
following these approvals.
Liquidity and Capital Resources
During the first six months of 2001, the per capita volume of
water sold declined in the industrial class primarily due to the
loss of a large industrial customer who closed its operation in
December 2000. The per capita volume of water sold did not
change significantly in the other customer classifications. This
closing will reduce industrial revenues for the remainder of the
year unless the vacated industrial sites are re-occupied with
large operations. The Company does not anticipate any further
change in the level of water usage which would have a material
impact on future results of operations.
During the first half of 2001, the Company had $4,082,107 of
construction expenditures. The Company financed such
expenditures through internally generated funds, customers'
advances, short-term borrowings, and proceeds from the issuance
of common stock under its dividend reinvestment plan (stock
issued in lieu of cash dividends) and employee stock purchase
plan.
During the first half of 2001, net cash provided by operating
activities equaled net cash used in investing and financing
activities. The Company anticipates that during the remainder of
2001 net cash used in investing and financing activities will
again equal net cash provided by operating activities.
Borrowings against the Company's lines of credit, proceeds from
the issuance of common stock under its dividend reinvestment plan
(stock issued in lieu of cash dividends) and employee stock
purchase plan, customers' advances, and a stock subscription are
expected to be used to satisfy the need for additional cash.
As of June 30, 2001, current liabilities exceeded current assets
by $3,032,512. Short-term borrowings from lines of credit as of
June 30, 2001 were $4,339,761. The Company maintains lines of
credit aggregating $19,000,000. Loans granted under these lines
of credit bear interest based on the prime or Libor rates plus
basis points, as defined. The Company is not required to
maintain compensating balances on its lines of credit.
During the next quarter, the Company will be extending to its
shareholders of record on June 30, 2001, the right to subscribe
for an aggregate of 120,000 shares of Common Stock. Shareholders
may purchase, at the price of $23.61 per share, one additional
share for each twenty-five shares held of record. The proceeds
of the stock subscription, approximately $2.8 million if all
shares are purchased, will be used to repay short-term
borrowings. Subscription rights expire on September 10, 2001.
Over the past several years, the Company and an outside
consultant have been evaluating the source of supply. Studies
indicate that a new source will be needed by 2006. Available
options have been analyzed, and the Company has decided on a
pipeline from the Susquehanna River to Lake Redman. This
alternative had the lowest cost, provided expandability, and was
the best for the environment. The Company plans to build an
intake and a pump station on its land at Long Level in Lower
Windsor Township, York County. The water would then be pumped 13
miles through a 30 inch diameter pipe and released into Lake
Redman. The cost of this project is estimated at $18 to $20
million. Funds will be raised through a combination of debt and
equity issues. While the permitting process will begin in 2001,
major expenditures are not expected until after 2002.
Forward Looking Information
Certain statements contained herein and elsewhere in this Form
10-Q which are not historical facts are forward-looking
statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements address activities or events which the
Company expects will or may occur in the future. The Company
cautions that a number of important factors could cause the
actual results to differ materially from those expressed in any
forward-looking statements made on behalf of the Company.
The Company is subject to various federal and state regulations
concerning water quality and environmental standards. In
addition, the water industry is generally dependent on the
adequacy of approved rates to allow for a fair rate of return on
the investment in utility plant. The Company's profitability
also depends on the timeliness of rate relief and numerous
factors over which it has little or no control, such as the
quantity of rainfall, temperature, industrial demand, financing
costs, energy rates, and environmental and water quality
regulations.
The Company filed a settlement of its pending rate case with the
PPUC. This settlement, which is joined in by all active parties,
provides for an increase in annual revenues of $800,000. The
settlement must be approved by the presiding Administrative Law
Judge Wayne Weismandel and the PPUC before increased rates become
effective. The settlement should be finalized over the next few
months. The Company also anticipates a new bulk water customer,
Stewartstown Borough Authority, will come on line during the
remainder of 2001. As far as operating expenses, the Company
expects energy costs to rise, pension expenses to continue as in
the first half of the year, and public utility realty taxes to
decrease substantially as the Commonwealth reappportions the tax
amongst the various utilities. The useful lives of some of the
Company's utility plant are expected to be extended as a result
of the rate settlement, thereby reducing depreciation expense for
2001 and subsequent years. The Company will continue to keep
operating costs at the lowest possible level.
THE YORK WATER COMPANY
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of The York Water Company
was convened May 7, 2001 at the Filter Plant of the Company,
Grantley Road Extended, in the County of York, Pennsylvania, at
1:00 P.M. for the purpose of taking action upon the following
proposals:
(1) To elect three (3) Directors to three-year terms of
office.
The actions taken by the Shareholders concerning the election of
Directors are as follows:
Irvin S. Naylor William T. Morris Horace Keesey III
For election 2,436,330 2,437,387 2,437,387
Shares withheld 45,364 44,307 44,307
The following Directors' terms of office continued after the
Annual Meeting.
Thomas C. Norris George W. Hodges
John L. Finlayson George Hay Kain, III
Chloe R. Eichelberger Michael W. Gang
(2) To appoint Stambaugh Ness, PC as independent
accountants to audit the financial statements of the Company for
the year 2001.
The actions taken by the Shareholders concerning the appointment
of Stambaugh Ness, PC independent accountants are as follows:
For Approval 2,449,409
Against Approval 2,419
Abstaining From Voting 29,865
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on August 2, 2001 reporting its
filing for a settlement of its pending rate case with the
Pennsylvania Public Utility Commission. The settlement, joined
in by all active parties, provides for an increase in annual
revenues of $800,000. The settlement must be approved by the
presiding Administrative Law Judge and the PPUC before it can
become effective.
THE YORK WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE YORK WATER COMPANY
William T. Morris
Principal Executive Officer
Date: August 10, 2001
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: August 10, 2001