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 March 31, 2002 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 3,161,657 Shares outstanding
as of May 6, 2002
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
Mar. 31, 2002 Dec. 31, 2001
UTILITY PLANT, at original cost $122,336,838 $121,109,335
Less-Reserve for depreciation 19,798,728 19,356,553
102,538,110 101,752,782
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$90,999 in 2002
and $89,392 in 2001 511,769 511,007
CURRENT ASSETS:
Cash and cash equivalents - 97,447
Receivables, less reserves of
$130,000 in 2002 and 2001 2,786,635 2,995,000
Materials and supplies, at cost 470,220 449,777
Prepaid expenses 263,585 229,248
Deferred income taxes 88,655 88,655
3,609,095 3,860,127
OTHER LONG-TERM ASSETS:
Prepaid pension cost 2,202,995 2,202,995
Deferred debt expense 344,326 354,346
Deferred rate case expense 122,436 144,042
Notes receivable 1,283,524 1,121,916
Deferred regulatory assets 2,419,599 1,886,658
Other 1,898,637 1,517,619
8,271,517 7,227,576
$114,930,491 $113,351,492
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
Mar. 31, 2002 Dec. 31, 2001
CAPITALIZATION
Common stock, no par value,
authorized 31,000,000 shares, out-
standing 3,161,657 shares in 2002
and 3,154,332 shares in 2001 $ 31,671,287 $ 31,473,194
Earnings retained in the business 4,473,601 4,418,280
36,144,888 35,891,474
LONG-TERM DEBT
1.0% Pennvest Loan, due 2019 680,815 690,343
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
32,680,815 32,690,343
CURRENT LIABILITIES
Short-term borrowings 2,185,318 2,000,000
Current portion of long-term debt 37,971 37,877
Accounts payable 673,149 478,423
Dividends payable 627,557 623,498
Accrued taxes 408,128 527,674
Advance water revenues 28,200 25,037
Accrued interest 494,564 678,163
Other accrued expenses 451,246 470,545
4,906,133 4,841,217
DEFERRED CREDITS
Customers' advances for construction 18,116,439 17,777,685
Contributions in aid of construction 10,865,001 10,784,143
Deferred income taxes 9,325,421 8,519,594
Deferred regulatory liabilities 964,912 970,330
Deferred employee benefits 1,926,882 1,876,706
41,198,655 39,928,458
$114,930,491 $113,351,492
THE YORK WATER COMPANY
Statements of Income
(Unaudited) (Unaudited)
Three Months Three Months
Ended Ended
Mar. 31, 2002 Mar. 31, 2001
WATER OPERATING REVENUES
Residential $2,767,610 $2,700,543
Commercial and industrial 1,292,277 1,235,713
Other 619,747 559,194
4,679,634 4,495,450
OPERATING EXPENSES
Operation and maintenance 1,029,814 988,892
Administrative and general 976,701 913,443
Depreciation and amortization 415,873 441,689
Taxes other than income taxes 182,303 200,300
2,604,691 2,544,324
Operating income 2,074,943 1,951,126
INTEREST EXPENSE AND OTHER INCOME
Interest on long-term debt 689,938 690,042
Interest on interim bank loans 15,279 51,176
Allowance for funds used during
construction (23,851) (8,607)
Other expense, net 73,330 5,270
754,696 737,881
Income before income taxes 1,320,247 1,213,245
Federal and state income taxes 444,800 411,045
Net income $ 875,447 $ 802,200
Basic Earnings Per Share $0.28 $0.26
Cash Dividends Per Share $0.26 $0.25
THE YORK WATER COMPANY
Statements of Shareholders' Investment
Earnings
Retained
Common in the
Stock Business
Balance, December 31, 2001 $31,473,194 $4,418,280
Net Income 875,447
Cash Dividends (820,126)
Issuance of common stock under
dividend reinvestment plan 182,432
Issuance of common stock under
employee stock purchase plan 15,661
Balance, March 31, 2002 $31,671,287 $4,473,601
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Three Months Three Months
Ended Ended
Mar. 31, 2002 Mar. 31, 2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 875,447 $ 802,200
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 415,873 441,689
Provision for losses on accounts
receivable 32,500 32,500
Increase in deferred income taxes
(including regulatory assets and
liabilities) 267,468 188,897
Changes in assets and liabilities:
Decrease in accounts receivable 175,865 283,116
Increase in materials and supplies (20,443) (30,376)
Increase in prepaid expenses and
prepaid pension costs (34,337) (15,241)
Increase (decrease) in accounts
payable, accrued expenses, other
liabilities and deferred employee
benefits 232,825 (408,979)
(Decrease) increase in accrued
interest and taxes (303,145) 48,689
(Increase) decrease in other
assets (287,118) 429,433
Net cash provided by operating
activities 1,354,935 1,771,928
CASH FLOWS FROM INVESTING
ACTIVITIES:
Construction expenditures (1,264,237) (1,841,352)
Customers' advances for
construction and contributions
in aid of construction 419,612 325,408
Increase in notes receivable (161,608) (99,939)
Net cash used in investing
activities (1,006,233) (1,615,883)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (9,434) (9,330)
Net borrowings under line-of-credit
agreements 185,318 430,320
Issuance of common stock under
dividend reinvestment plan 182,432 164,178
Issuance of common stock under
employee stock purchase plan 15,661 19,470
Dividends paid (820,126) (760,683)
Net cash used in financing
activities (446,149) (156,045)
Net decrease in cash and cash
equivalents (97,447) -
Cash and cash equivalents at
beginning of period 97,447 -
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 $ 863,178 $ 916,565
Income taxes 324,660 53,897
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, 2001.
Operating results for the three months ended March 31, 2002
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.
2. Basic Earnings Per Share
Basic earnings per share for the three months ended March 31,
2002 and 2001 were based on weighted average shares outstanding
of 3,155,624 and 3,044,387, respectively.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Months Ended March 31, 2002 Compared
with Three Months Ended March 31, 2001
Net income for the first three months of 2002 was $875,447, an
increase of $73,247, or 9.1%, compared to the same period of
2001.
Water operating revenues for the three months ended March 31,
2002 increased $184,184, or 4.1%, compared to the three months
ended March 31, 2001. The increase resulted primarily from the
4.2% rate increase approved by the PPUC, effective September 1,
2001. In addition, there were 871 more customers in the first
quarter of 2002 compared to the first quarter of 2001.
Operating expenses for the first three months of 2002 increased
$60,367, or 2.4%, compared to the first quarter of 2001. Higher
pension expenses due to lower returns, higher health and general
insurance premiums, and higher power costs due to a new supplier
were the main reasons for the increase. Reduced Nasdaq fees,
lower depreciation expense due to longer asset lives, and an
Educational Improvement Tax Credit partially offset the
increases.
Interest on interim bank loans decreased $35,897, or 70.1%,
during the first three months of 2002 compared to the same period
in 2001 due to lower interest rates and a reduction in short-term
debt outstanding. The average daily short-term debt outstanding
in 2002 and 2001 was $2,011,787 and $3,108,346, respectively.
Allowance for funds used during construction for 2002 increased
$15,244 when compared to 2001. Capitalized interest on the costs
associated with the pipeline to the river project accounts for
the increase.
Other income and expense, net increased by $68,060 due to
increased contributions, partially offset by the Educational
Improvement Tax Credit (in operating expenses), and increased
supplemental retirement expenses.
Federal and state income taxes increased $33,755, or 8.2% due to
an increase in taxable income. The effective tax rate was 33.7%
in 2002 and 33.9% in 2001.
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%. The Company plans to file its next rate increase request
in January 2003.
Liquidity and Capital Resources
The Company is not aware of demands, events or uncertainties that
will result in a decrease of liquidity or in a material change in
the mix and relative cost of capital resources.
The Company does not use off-balance sheet arrangements such as
securitization of receivables or unconsolidated entities. The
Company has no lease obligations, does not engage in trading or
risk management activities, and does not have material
transactions involving related parties.
During the first quarter of 2002, the per capita volume of water
sold did not change significantly compared to first quarter 2001.
The Company does not anticipate any change in the level of water
usage, with the exception of the drought emergency discussed
below, which would have a material impact on future results of
operations.
During the first quarter of 2002, the Company had $1,264,237 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. The Company anticipates construction expenditures of
approximately $6,518,500 for the year 2002, and will finance
these expenditures in the same manner as the first quarter of
2002.
During the first three months of 2002, net cash used in investing
and financing activities exceeded net cash provided by operating
activities. The Company anticipates that during the remainder of
2002 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) and employee stock purchase
plan, and customers' advances are expected to be used to satisfy
the need for additional cash.
As of March 31, 2002, current liabilities exceeded current assets
by $1,297,038. Short-term borrowings from lines of credit as of
March 31, 2002 were $2,185,318. 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
1 to 1.5%. The Company is not required to maintain compensating
balances on its lines of credit.
On April 11, 2002, the PPUC approved the Company's previously
announced two-for-one common stock split. On May 20, 2002,
shareholders of record as of May 10, 2002 will receive one
additional share for each share held as of the record date.
The permitting process for the Company's pipeline to the
Susquehanna River continued during the first quarter of 2002. A
problem developed with one of the permits due to the
classification of the Company's Lakes as Cold Water Fishes.
The Company believes, and there is evidence to suggest, that the
Lakes were misclassified. As a result, on April 16, 2002, the
Company filed a petition with the Environmental Quality Board to
designate the Lakes and the East Branch of the Codorus Creek as
Warm Water Fishes. The results of the petition should be known
within a couple of months.
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 quantity
of rainfall, temperature, industrial demand, financing costs,
energy rates, and environmental and water quality regulations.
In the coming quarters, the Company expects revenues to remain
above prior year as long as the drought situation doesn't worsen.
As far as expenses, interest rates are expected to stay low in
the near future, health and general insurance costs will continue
to exceed prior year, and payroll expenses will increase. Other
expenses are projected to be fairly consistent with first quarter
and prior year. No major refunds or expenses are expected in the
coming quarters of 2002. The Company plans to file for a rate
increase in January 2003.
Drought
On February 12, 2002, the Governor issued a drought emergency
which continued to be effective through the remainder of the
first quarter. The emergency placed mandatory water use
restrictions on the Company's service territory. Thus far
there has not been a significant impact on operating revenues,
but if the drought continues into historically higher water use
periods, it could have a material impact on revenue and income in
the coming quarters.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on February 21, 2002 announcing that
its Board of Directors had unanimously approved a two-for-one
split of the Company's common stock.
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: May 13, 2002
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: May 13, 2002