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, 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 6,336,218 Shares outstanding
as of August 2, 2002
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
June 30, 2002 Dec. 31, 2001
UTILITY PLANT, at original cost $123,868,844 $121,109,335
Less-Reserve for depreciation 20,119,326 19,356,553
103,749,518 101,752,782
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$92,606 in 2002 and $89,392 in 2001 510,163 511,007
CURRENT ASSETS:
Cash and cash equivalents - 97,447
Receivables, less reserves of $130,000
in 2002 and 2001 2,938,301 2,995,000
Recoverable income taxes 45,326 -
Materials and supplies, at cost 472,025 449,777
Prepaid expenses 304,171 229,248
Deferred income taxes 88,655 88,655
3,848,478 3,860,127
OTHER LONG-TERM ASSETS:
Prepaid pension cost 2,314,609 2,202,995
Deferred debt expense 334,307 354,346
Deferred rate case expense 101,630 144,042
Notes receivable 882,786 1,121,916
Deferred regulatory assets 2,443,770 1,886,658
Other 1,930,856 1,517,619
8,007,958 7,227,576
$116,116,117 $113,351,492
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
June 30, 2002 Dec. 31, 2001
CAPITALIZATION
Common stock, no par value,
authorized 31,000,000 shares,
outstanding 6,336,218 shares in
2002 and 6,308,664 shares in 2001 $ 31,894,035 $ 31,473,194
Earnings retained in the business 4,572,504 4,418,280
36,466,539 35,891,474
LONG-TERM DEBT
1.0% Pennvest Loan, due 2019 671,263 690,343
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
32,671,263 32,690,343
CURRENT LIABILITIES
Short-term borrowings 2,490,392 2,000,000
Current portion of long-term debt 38,066 37,877
Accounts payable 1,204,652 478,423
Dividends payable 625,729 623,498
Accrued taxes 20,051 527,674
Advance water revenues 25,293 25,037
Accrued interest 678,164 678,163
Other accrued expenses 431,542 470,545
5,513,889 4,841,217
DEFERRED CREDITS
Customers' advances for construction 17,937,744 17,777,685
Contributions in aid of construction 11,038,201 10,784,143
Deferred income taxes 9,714,606 8,519,594
Deferred regulatory liabilities 953,679 970,330
Deferred employee benefits 1,820,196 1,876,706
41,464,426 39,928,458
$116,116,117 $113,351,492
THE YORK WATER COMPANY
Statements of Income
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
WATER OPERATING REVENUES
Residential $2,884,107 $2,852,024 $5,651,717 $5,552,567
Commercial and
industrial 1,370,445 1,337,836 2,662,722 2,573,549
Other 621,753 573,522 1,241,500 1,132,716
4,876,305 4,763,382 9,555,939 9,258,832
OPERATING EXPENSES
Operation and
maintenance 1,160,122 1,128,927 2,189,936 2,117,819
Administrative and
general 1,130,658 966,031 2,107,359 1,879,474
Depreciation 415,874 445,326 831,747 887,015
Taxes other than
income taxes 187,456 188,853 369,759 389,153
2,894,110 2,729,137 5,498,801 5,273,461
Operating Income 1,982,195 2,034,245 4,057,138 3,985,371
INTEREST EXPENSE AND
OTHER INCOME
Interest on long-term
debt 689,914 689,977 1,379,852 1,380,019
Interest on short-term
debt 16,026 53,172 31,305 104,348
Allowance for funds used
during construction (31,193) (17,826) (55,044) (26,433)
Other income, net (157,325) (40,945) (83,995) (35,675)
517,422 684,378 1,272,118 1,422,259
Income before income
taxes 1,464,773 1,349,867 2,785,020 2,563,112
Federal and state
income taxes 543,839 493,178 988,639 904,223
Net Income $ 920,934 $ 856,689 $1,796,381 $1,658,889
Basic Earnings Per Share $0.15 $0.14 $0.28 $0.27
Cash Dividends Per Share $0.13 $0.13 $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 - 1,796,381
Cash Dividends - (1,642,157)
Issuance of common stock under
dividend reinvestment plan 388,240 -
Issuance of common stock under
employee stock purchase plan 32,601 -
Balance, June 30, 2002 $31,894,035 $4,572,504
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
June 30, 2002 June 30, 2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,796,381 $1,658,889
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 831,747 887,015
Provision for losses on
accounts receivable 65,000 65,000
Increase in deferred income taxes
(including regulatory assets and
liabilities) 621,249 642,233
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (8,301) 143
Increase in recoverable income taxes (45,326) (148,449)
Increase in materials and supplies (22,248) (39,019)
Increase in prepaid expenses and
prepaid pension costs (186,537) (45,687)
Increase (decrease) in accounts
payable, accrued expenses, other
liabilities and deferred employee
benefits 633,203 (532,129)
Decrease in accrued interest and
taxes (507,622) (144,789)
(Increase) decrease in other assets (260,350) 449,867
Net cash provided by operating
activities 2,917,196 2,793,074
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (2,918,075) (4,082,107)
Customers' advances for construction
and contributions in aid of
construction 414,117 849,759
Decrease (increase) in notes receivable 239,130 (88,949)
Net cash used in investing
activities (2,264,828) (3,321,297)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt (18,891) (18,724)
Net borrowings under line-of-credit
agreements 490,392 1,690,815
Issuance of common stock under
dividend reinvestment plan 388,240 340,445
Issuance of common stock under
employee stock purchase plan 32,601 39,456
Dividends paid (1,642,157) (1,523,769)
Net cash (used in) provided by
financing activities (749,815) 528,223
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 $1,354,325 $1,456,087
Income taxes 872,037 554,142
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 month and six month periods
ended June 30, 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 six months ended June 30,
2002 and 2001 were based on weighted average shares outstanding
of 6,317,385 and 6,096,868, respectively.
3. As previously mentioned, the Company had a two-for-one stock
split this quarter. On May 20, 2002, shareholders of record as
of May 10, 2002, received one additional share of common stock
for each share held as of the record date. The transaction had
no effect on total stockholders' equity. All shares outstanding
and per share amounts in this report have been restated to
reflect the effect of the stock split.
4. During the second quarter, the Company offset notes
receivable in the amount of $388,078 against the related advances
for construction based on its determination that the principal
recoverable from note holders was less than the recorded amount,
and the fact that advances are not fully refundable to the extent
that payments are not received on the notes.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Months Ended June 30, 2002 Compared
with Three Months Ended June 30, 2001
Net income for the second quarter of 2002 was $920,934, an
increase of $64,245, or 7.5%, compared to the same period of
2001.
Water operating revenues for the three months ended June 30, 2002
increased $112,923, or 2.4%, compared to the three months ended
June 30, 2001. The increase resulted primarily from the 4.2%
rate increase approved by the PPUC, effective September 1, 2001.
Drought conditions lessened the impact of the rate increase and
an increase in customers during the second quarter 2002 compared
to second quarter 2001.
Operating expenses for the second quarter of 2002 increased
$164,973, or 6.0%, compared to the second quarter of 2001.
Higher pension expenses due to lower returns, higher health
insurance premiums, shareholder relations expenses, and higher
power costs due to a new supplier were the main reasons for the
increase. Lower depreciation expense due to longer asset lives,
and reduced distribution system maintenance costs partially
offset the increase.
Interest on short-term bank loans decreased $37,146, or 69.9%,
during the second quarter 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
for the second quarter 2002 and 2001 was $2,355,536 and
$3,665,216, respectively.
Allowance for funds used during construction for the second
quarter 2002 increased $13,367, or 75.0%, when compared to second
quarter 2001. Capitalized interest on the costs associated with
the pipeline to the river project accounts for the increase.
Other income, net increased by $116,380 during the second quarter
2002 compared to second quarter 2001, due to a decrease in
supplemental retirement expenses caused by an increase in the
discount rate used in the present value calculations.
Federal and state income taxes increased $50,661, or 10.3%, due
to an increase in taxable income. The effective tax rate was
37.1% for second quarter 2002 compared with 36.5% for second
quarter 2001.
Six Months Ended June 30, 2002 Compared
with Six Months Ended June 30, 2001
Net income for the first half of 2002 was $1,796,381, an increase
of $137,492, or 8.3%, compared to the first half of 2001.
Water operating revenues for the year-to-date period ended June
30, 2002 increased $297,107, or 3.2%, compared to the same period
in 2001. The increase resulted primarily from the 4.2% rate
increase approved by the PPUC, effective September 1, 2001.
Drought conditions reduced the impact of the rate increase and
the growth in customers in all classifications.
Operating expenses for the first six months of 2002 increased
$225,340, or 4.3%, compared to the first six months of 2001.
Higher pension expense due to lower returns, higher health
insurance premiums, and higher power costs due to a new supplier
were the main reasons for the increase. Reduced depreciation and
an Educational Improvement Tax Credit partially offset the
increase.
Interest on short-term bank loans decreased $73,043, or 70.0%,
during the first half 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 $2,184,611 and $3,386,781, respectively.
Allowance for funds used during construction for 2002 increased
$28,611 when compared to 2001. Capitalized interest on the costs
associated with the pipeline to the river project accounts for
the increase.
Other income, net increased by $48,320 in 2002 due to a decrease
in supplemental retirement expenses caused by an increase in the
discount rate used in the present value calculations. This
increase was partially offset by increased contributions (some
offset by the Educational Improvement Tax Credit mentioned in
operating expenses).
Federal and state income taxes increased $84,416, or 9.3%, due to
an increase in taxable income. The effective tax rate was 35.5%
and 35.3% as of June 30, 2002 and June 30, 2001, respectively.
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 half of 2002, the per capita volume of water
sold decreased approximately 5.0% compared to the first half of
2001. The Company does not anticipate a further change in the
level of water usage unless the drought worsens, which could have
a material impact on future results of operations.
During the first half of 2002, the Company had $2,918,075 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 half of 2002.
During the first six 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
continue to exceed 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 June 30, 2002, current liabilities exceeded current assets
by $1,665,411. Short-term borrowings from lines of credit as of
June 30, 2002 were $2,490,392. 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 received 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 second quarter of 2002. A
problem developed with one of the permits during the first
quarter 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. While waiting for the results of this
petition, the Company solicited bids from engineering firms and
has selected a firm to assist with the design work for the
project. As of this date, we have not received the results of
our petition.
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, depreciation and realty taxes will exceed
prior year but will remain consistent with the first half of
2002, and supplemental retirement expenses will be lower than
prior year. Other expenses are projected to be fairly consistent
with first half 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 second quarter. The
emergency placed mandatory water use restrictions on the
Company's service territory. Thus far the drought has reduced
operating revenues some and if the emergency continues into
historically higher water use periods, it could have a material
impact on revenue and income in the coming quarters.
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 6, 2002 at the office of the Company, 130 East
Market Street, in the City 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:
John L. Finlayson Chloe R. Eichelberger Thomas C. Norris
For
election 2,447,267 2,448,439 2,491,996
Shares
withheld 45,589 44,417 41,717
The following Directors' terms of office continued after the
Annual Meeting.
George W. Hodges Irvin S. Naylor
George Hay Kain, III William T. Morris
Michael W. Gang Jeffrey S. Osman
(2) To appoint Stambaugh Ness, PC as independent
accountants to audit the financial statements of the Company for
the year 2002.
The actions taken by the Shareholders concerning the appointment
of Stambaugh Ness, PC independent accountants are as follows:
For Approval 2,482,265
Against Approval 5,786
Abstaining From Voting 4,705
Item 6. Exhibits and Reports on Form 8-K
The Company filed no Form 8-K's during the quarter covered by
this report.
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
/s/William T. Morris
William T. Morris
Principal Executive Officer
Date: August 12, 2002
/s/Jeffrey S. Osman
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: August 12, 2002
- 13 -
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The York Water
Company on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof
(the "Report"), I, William T. Morris, Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a)); and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
THE YORK WATER COMPANY
/s/William T. Morris
William T. Morris
Chief Executive Officer
Date: August 12, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The York Water
Company on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Jeffrey S. Osman, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a)); and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
THE YORK WATER COMPANY
/s/Jeffrey S. Osman
Jeffrey S. Osman
Chief Financial Officer
Date: August 12, 2002