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 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 3,146,891 Shares outstanding
as of October 26, 2001
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
Sept. 30, 2001 Dec. 31, 2000
UTILITY PLANT, at original cost $119,504,880 $114,748,545
Less-Reserve for depreciation 19,021,389 18,314,880
100,483,491 96,433,665
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$87,785 in 2001 and $80,985 in 2000 512,614 519,414
CURRENT ASSETS:
Cash and cash equivalents 481,740 -
Receivables, less reserves of
$130,000 in 2001 and 2000 3,261,952 2,854,593
Materials and supplies, at cost 467,384 402,770
Prepaid expenses 315,548 258,236
Deferred income taxes 88,655 88,655
4,615,279 3,604,254
OTHER LONG-TERM ASSETS:
Prepaid pension cost 2,196,852 2,178,423
Deferred debt expense 364,365 394,422
Deferred rate case expense 162,028 46,950
Notes receivable 1,059,586 985,794
Deferred regulatory assets 4,266,631 10,360,708
Other 1,491,547 1,862,977
9,541,009 15,829,274
$115,152,393 $116,386,607
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
Sept. 30, 2001 Dec. 31, 2000
CAPITALIZATION
Common stock, no par value,
authorized 31,000,000 shares,
outstanding 3,146,891 shares
in 2001 and 3,042,733 shares
in 2000 $ 31,274,506 $ 28,899,504
Earnings retained in the business 4,253,019 4,226,051
Treasury stock, 38,000 shares in
2000 - (687,800)
35,527,525 32,437,755
LONG-TERM DEBT
1.0% Pennvest Loan, due 2019 699,827 728,220
6.00% 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
32,699,827 32,728,220
CURRENT LIABILITIES
Short-term borrowings 3,093,000 2,648,946
Current portion of long-term debt 37,782 37,500
Accounts payable 374,966 1,168,824
Dividends payable 595,314 577,914
Accrued taxes 57,176 165,002
Advance water revenues 20,443 21,182
Accrued interest 494,563 678,164
Other accrued expenses 336,870 466,563
5,010,114 5,764,095
DEFERRED CREDITS
Customers' advances for construction 18,082,487 16,746,170
Contributions in aid of construction 10,165,485 10,157,133
Deferred income taxes 10,935,413 15,117,013
Deferred regulatory liabilities 969,349 1,811,825
Deferred employee benefits 1,762,193 1,624,396
41,914,927 45,456,537
$115,152,393 $116,386,607
THE YORK WATER COMPANY
Statements of Income
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
<s> 2001 2000 2001 2000
WATER OPERATING REVENUES <c> <c> <c> <c>
Residential $3,019,749 $2,801,417 $8,572,316 $8,234,420
Commercial and
industrial 1,513,943 1,405,447 4,087,492 3,977,878
Other 576,592 539,506 1,709,308 1,644,015
5,110,284 4,746,370 14,369,116 13,856,313
OPERATING EXPENSES
Operation and
maintenance 1,215,892 1,011,285 3,333,711 3,025,718
Administrative and
general 839,011 811,496 2,762,708 2,534,228
Depreciation and
amortization 291,565 418,429 1,178,580 1,255,286
Taxes other than
income taxes (171,078) 583 218,075 560,723
2,175,390 2,241,793 7,493,074 7,375,955
Operating Income 2,934,894 2,504,577 6,876,042 6,480,358
INTEREST EXPENSE AND
OTHER INCOME
Interest on long-term
debt 689,984 690,079 2,070,003 2,050,074
Interest on interim
bank loans 51,580 29,576 155,928 73,787
Allowance for funds used
during construction (10,022) (9,630) (36,455) (39,106)
Other income, net 122,743 (39,828) 42,845 (119,228)
854,285 670,197 2,232,321 1,965,527
Income before income
taxes 2,080,609 1,834,380 4,643,721 4,514,831
Federal and state
income taxes 716,914 692,611 1,621,137 1,634,887
Net Income $1,363,695 $1,141,769 $3,022,584 $2,879,944
Basic earnings per share $.45 $.38 $.99 $.96
Cash dividends per share $.25 $.25 $.75 $.73
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Nine Months Nine Months
Ended Ended
Sept.30, 2001 Sept.30, 2000
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,022,584 $2,879,944
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 1,178,581 1,255,286
Provision for losses on accounts
receivable 97,500 97,500
Increase in deferred income taxes
(including regulatory assets and
liabilities) 1,070,001 734,488
Changes in assets and liabilities:
Increase in accounts receivable (504,859) (56,774)
Decrease in recoverable income taxes - 5,702
(Increase) decrease in materials
and supplies (64,614) 43,635
Increase in prepaid expenses and
prepaid pension costs (75,741) (259,181)
Decrease in accounts payable,
accrued expenses, other liabilities
and deferred employee benefits (769,093) (139,357)
Decrease in accrued interest and
taxes (291,427) (48,738)
Decrease (increase) in other assets 462,402 (55,880)
Net cash provided by operating
activities 4,125,334 4,456,625
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (5,397,600) (4,412,872)
Customers' advances for construction
and contributions in aid of
construction 1,344,669 1,148,513
Increase in notes receivable (73,792) (169,760)
Net cash used in investing
activities (4,126,723) (3,434,119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (28,111) (28,313)
Net borrowings under line-of-credit
agreements 444,054 596,490
Issuance of 76,930 shares of common
stock 1,796,674 -
Issuance of common stock under
dividend reinvestment plan 520,579 543,178
Issuance of common stock under
employee stock purchase plan 57,749 58,512
Dividends paid (2,307,816) (2,192,373)
Net cash provided by (used in)
financing activities 483,129 (1,022,506)
Net increase in cash and cash
equivalents 481,740 -
Cash and cash equivalents at
beginning of period - -
Cash and cash equivalents at
end of period $ 481,740 $ -0-
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest, net of amounts
capitalized $2,407,349 $2,292,435
Income taxes 608,039 836,813
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 3,022,584
Cash Dividends (2,307,816)
Issuance of 76,930
shares of common stock 1,796,674
Issuance of common stock
under dividend reinvest-
ment plan 520,579
Issuance of common stock
under employee stock
purchase plan 57,749
Retirement of treasury
stock (687,800) 687,800
Balance, September 30, 2001 $31,274,506 $4,253,019 $ -0-
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 2000.
Operating results for the three month and nine month periods
ended September 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 nine months ended September
30, 2001 and 2000 were based on weighted average shares
outstanding of 3,052,918 and 3,003,981, 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 September 30, 2001 Compared
with Three Months Ended September 30, 2000
Water operating revenues for the three months ended September 30,
2001 increased $363,914 or 7.7% compared to the three months
ended September 30, 2000. The increase resulted primarily from
an increase in customers in the residential classification. The
commercial and industrial classifications also showed a net
increase in customers and consumption for third quarter 2001
compared to third quarter 2000. In addition, a portion of the
rate increase of 4.2% approved by the PPUC, effective September
1, 2001, was reflected in the quarterly figures for 2001.
Operating expenses for the third quarter of 2001 decreased
$66,403 or 3.0% compared to the same period in 2000. Public
utility realty taxes were reapportioned by the Commonwealth
during the third quarter of 2001 resulting in a substantial
reduction in taxes compared to third quarter 2000. Another major
factor in the decrease in operating expenses was a lengthening of
the lives of some of our utility plant as a result of our rate
settlement with the PPUC. This caused a reduction in
depreciation expense for the quarter. The reclassification
of 2001 supplemental retirement plan expenses to the other income
category, reduced legal fees and lower health insurance premiums
were other factors in the decrease. These decreases were
partially offset by increased normal pension expenses, increased
main and water treatment equipment maintenance and higher energy
costs.
Interest on short-term bank loans increased $22,004, despite
declines in interest rates, for the three months ended September
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 $4,077,272 and
$1,443,625, respectively.
Other income, net decreased by $162,571 during the third quarter
2001 compared to the third quarter 2000, due to a
reclassification of 2001 supplemental retirement plan expenses
from operating expenses to other expenses. In addition, the
provision for supplemental retirement plan expenses was increased
during the quarter to account for lower than expected returns on
the policies.
Nine Months Ended September 30, 2001 Compared
with Nine Months Ended September 30, 2000
Water operating revenues for the nine months ended September 30,
2001 increased $512,803 or 3.7% compared to the nine months ended
September 30, 2000. The majority of the increase resulted from
residential growth, while the remaining increase was due to an
increase in rates approved by the PPUC.
Operating expenses for the first nine months of 2001 increased
$117,119 or 1.6% 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 liability and worker's compensation premiums, higher
normal pension expenses due to lower returns, increased energy
costs, and Nasdaq fees. These increases were partially offset by
reduced public utility realty taxes, reduced main and service
line maintenance, lower health insurance premiums, lower
depreciation expense due to longer plant lives, and the
reclassification of supplemental retirement plan expenses to
other income and expense.
Interest on long-term debt increased $19,929 through September
2001 compared to September 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 $82,141, despite
declines in interest rates, for the first three quarters 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 $3,607,280 and
$1,214,088, respectively.
Other income, net decreased by $162,073 through the first nine
months of 2001 compared to 2000, due to the reclassification of
2001 supplemental retirement plan expenses from operating
expenses to other expenses. In addition, the provision for these
expenses was increased due to lower than expected returns on the
policies.
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. Effective September 1, 2001, the PPUC
authorized an increase in rates designed to produce approximately
$800,000 in additional annual operating revenues, an increase of
4.2%.
Liquidity and Capital Resources
During the first nine 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 three quarters of 2001, the Company had
$5,397,600 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), employee stock purchase plan,
and stock subscription.
During the first nine months of 2001, net cash provided by
operating and financing activities exceeded net cash used in
investing activities. The Company anticipates that during the
remainder of 2001 net cash used in investing and financing
activities will 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), employee stock purchase
plan, and customers' advances are expected to be used to satisfy
the need for additional cash.
As of September 30, 2001, current liabilities exceeded current
assets by $394,835. Short-term borrowings from lines of credit
as of September 30, 2001 were $3,093,000. 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.
On July 23, 2001, the Company offered to holders of its common
stock non-transferable subscription rights to purchase up to an
aggregate of 120,000 shares of common stock. All shareholders
were granted one subscription right for every 25 shares of common
stock held of record as of June 30, 2001. Each subscription
right entitled the holder to purchase one share at a purchase
price of $23.61 per share. On September 10, 2001, subscription
rights to purchase 76,930 shares were exercised. The net
proceeds, $1,796,674 were used to repay short-term borrowings.
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.
During the final quarter of 2001, the Company expects revenues to
remain strong due to the 4.2% rate increase which was effective
September 1, 2001. Also, Stewartstown Borough, a bulk water
customer, came on line during the third quarter and should help
to strengthen fourth quarter revenues. As far as operating
expenses, the Company expects energy costs and pension expenses
to continue at the same rate as the third quarter. Depreciation
and realty taxes will be lower than the beginning of the year but
we will not benefit from a retroactive credit as we did in the
third quarter. Increased main and service line maintenance costs
associated with the west end of Route 30 construction are
anticipated for the fourth quarter. No major changes in other
expenses are anticipated for the rest of the year.
Item 5. Other Information
On October 31, 2001, Horace Keesey III retired from the Board of
Directors. At the time of his retirement, he was the Chairman of
the Board of Directors.
Mr. William T. Morris, President and CEO of the Company, will be
the new Chairman effective November 1, 2001 in addition to his
current responsibilities.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a Form 8-K on October 3, 2001 indicating the
results of the stock subscription. The subscription raised
additional equity capital of $1,796,674 (net of issuance costs)
by selling 76,930 shares.
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: November 12, 2001
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: November 12, 2001