York Water - 10-K annual report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

(Title of Class)

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.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Company's 2004 Annual Meeting of Shareholders are incorporated by reference into Part III.

PART I

The Company is a corporation duly organized under the laws of the Commonwealth of Pennsylvania in 1816.

The business of the Company is to impound, purify and distribute water. The Company operates entirely within its franchised territory located in York County, Pennsylvania. The Company is regulated by the Pennsylvania Public Utility Commission, or PPUC, in the areas of billing, payment procedures, dispute processing, terminations, service territory, and rate setting. The Company must obtain PPUC approval before changing any of the aforementioned procedures. Water service is supplied through the Company's own distribution system to the City of York, the Boroughs of North York, West York, Manchester, Mount Wolf, New Salem, Hallam, Jacobus, Loganville, Yorkana, Seven Valleys, East Prospect, Jefferson, Glen Rock, New Freedom, Railroad, and portions of the Townships of Manchester, East Manchester, West Manchester, North Codorus, Shrewsbury, North Hopewell, Hopewell, Springettsbury, Spring Garden, Conewago, Springfield, York, Hellam, Windsor, Lower Windsor, Dover and Jackson. The Company obtains its water supply from the south branch and east branch of the Codorus Creek, which drains an area of approximately 117 square miles. The Company has two reservoirs, Lake Williams and Lake Redman, which together hold up to 2.75 billion gallons of water. The Company's present average daily consumption is 17,498,000 gallons, and its present safe daily yield is 23,000,000 gallons.

The Company's service territory has an estimated population of 156,000. Territory expansion during 2003 included: the commencement of main extensions for two new water districts in Conewago and Springfield Townships. The main extensions are expected to be completed in 2004. Industry within the Company's service territory is diversified, manufacturing such items as furniture, electrical machinery, food products, paper, ordnance, textile products, air conditioning equipment and weight training equipment. Within the area served by the Company, there are no competitors.

As an update to the Susquehanna River pipeline project, the Company received approval from the Environmental Protection Agency and the Department of Environmental Protection (DEP) to reclassify Lake Redman from a cold-water fishery to a warm water fishery. The Company is now awaiting DEP approval of a discharge permit, a GP-4 intake permit, and the amended construction permit to build the outfall at Lake Redman.

The Groundbreaking Ceremony for the project was held on August 21, 2003. Construction on both the pumping station and the pipeline began in mid-September. As of the end of January, approximately 24,500 feet, or 31%, of the pipeline has been completed. The pumping station is slightly behind schedule but is not expected to delay the project. The project is expected to be completed by November 2004 at an estimated cost of $22 million. Susquehanna River pipeline construction expenditures and other capital expenditures are expected to be funded through tax-exempt bond issues and a follow-on common stock offering.

The Company's business is somewhat dependent on weather conditions, particularly the amount of rainfall; however, minimum customer charges are in place, and the Company expects to cover its fixed costs of operations under all likely weather conditions.

The Company's business does not require large amounts of working capital and is not dependent on any single customer or a very few customers. Operating revenue is derived from the following sources and in the following percentages: residential, 60%; commercial and industrial, 27%; other, 13%. The Company presently has 92 employees.

During the last five years ended in 2003, the Company has maintained an increasing growth in number of customers and distribution facilities as shown by the following chart:

During 2003, the per capita volume of water sold declined approximately 3.5%. Some of the decline resulted from continued conservation efforts on the part of our customers following the drought emergency during nine months of 2002. The remainder was due to an extremely wet year. 2003 was the second wettest year in history. Water consumption started to increase during the fourth quarter of 2003 and we anticipate a slow return to historical consumption levels.

The accounting and executive offices of the Company are located in two two-story brick and masonry buildings, containing a total of approximately 21,861 square feet, at 124 and 130 East Market Street, York, Pennsylvania.

The Company has two impounding dams located in York and Springfield Townships adjoining the Borough of Jacobus to the south. The lower dam is constructed of compacted earth with a concrete core wall and is 660 feet long and 50 feet high and creates a reservoir covering approximately 220 acres containing about 1,150,000,000 gallons of water. About 800 acres surrounding the reservoir are planted with more than 1,200,000 evergreen trees, which the Company believes will protect the area both from pollution and also from soil erosion, which might otherwise fill the reservoir with silt. The upper dam, Lake Redman, is constructed of compacted earth and is 1,000 feet long and 50 feet high and creates a reservoir covering approximately 290 acres containing about 1,600,000,000 gallons of water. About 600 acres surrounding the reservoir are planted with grass, which the Company believes will p rotect the area both from pollution and also from soil erosion, which might otherwise fill the reservoir with silt.

 

The Company's main pumping station is located in Spring Garden Township on the south branch of the Codorus Creek about 1,500 feet upstream from its confluence with the west branch of the Codorus Creek and about four miles downstream from the Company's lower impounding dam. The pumping station presently houses pumping equipment consisting of three electrically driven centrifugal pumps and two diesel-engine driven centrifugal pumps with a combined pumping capacity of 75,000,000 gallons per day. From here, raw water is pumped approximately two miles to the filtration plant through pipes located on a right-of-way owned by the Company.

The Company's filtration plant is located in Spring Garden Township about one-half mile south of the City of York. Water at this plant is filtered through 12 dual media filters having a stated capacity of 31,000,000 gallons per day and being capable of filtering 46,500,000 gallons per day for short periods if necessary. Based on an average daily consumption in 2003 of 17,498,000 gallons, the Company believes the pumping and filtering facilities are adequate to meet present and anticipated demands.

Clear water reservoirs of the Company, which are located in Spring Garden Township adjacent to the filtration plant, are capable of storing up to 32,000,000 gallons of water, and there are standpipes located throughout the Company's service area capable of storing another 20,890,000 gallons of clear water.

The Company's distribution center and material and supplies warehouse are located at 1801 Mt. Rose Avenue, Springettsbury Township. There are three one-story concrete block buildings aggregating 30,680 square feet of area.

The distribution system of the Company has approximately 746 miles of main water lines. In 2004, the Company plans to construct an addition to the southern repump booster station and construct new booster stations in York Township and at the Susquehanna River.

All of the Company's properties described above are held in fee by the Company. There are no material encumbrances on such properties.

In addition, the Company has entered into a "Joint Use and Park Management Agreement" dated December 29, 1976, with the County of York, Pennsylvania, whereby the Company has licensed its present reservoir lands and waters, comprised of approximately 1,175 acres and including two lakes, to the County of York for fifty (50) years for county park purposes.

There are no material legal proceedings involving the Company.

No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report.

PART II

The information set forth under the caption "Market for Common Stock and Dividends" on page 4 of the 2003 Annual Report to Shareholders is incorporated herein by reference.

The Company did not purchase any shares of its common stock during the fourth quarter of 2003.

The information set forth under the caption "Highlights of Our 188th Year" of the 2003 Annual Report to Shareholders is incorporated herein by reference.

The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2003 Annual Report to Shareholders is incorporated herein by reference.

This annual report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements made with respect to the results of operations and businesses of the Company. Words such as "may," "should," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include certain information relating to the Company's business strategy, including the markets in which it operates, the services it provides, its plans for construction, its expansion of its service territories, the Company's pipeline project to the Susquehanna River, water usage by its customers and its plans to invest in new technologies. These forward-looking statements are based upon management's current plans, expectations, estimates a nd assumptions and are subject to a number of risks and uncertainties that could significantly affect current plans, anticipated actions and the Company's financial condition and results of operations. Factors that may cause actual results to differ materially from those discussed in such forward-looking statements include, among others, the following possibilities: (i) weather conditions, particularly the amount of rainfall; (ii) the level of commercial and industrial business activity within the Company's service territory; (iii) construction of new housing within the Company's service territory; (iv) governmental regulations affecting the Company's rates and service obligations;(v) obtaining permits for expansion projects; and (vi) general economic and business conditions, including interest rates, which are less favorable than expected. The Company does not intend to update these cautionary statements.

The Company's liquidity as well as its mix and relative cost of capital resources will change in 2004 due to a switch from short-term financing to long-term financing. The Company plans to have two long-term tax-free debt issues and one follow-on stock offering, which will replace short-term debt used to finance the construction of the pipeline from the Susquehanna River to Lake Redman.

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. The Company does not use securitization of receivables or unconsolidated entities. The Company does not engage in trading or risk management activities, has no lease obligations, and does not have material transactions involving related parties.

The Company does not use derivative financial instruments for speculative trading purposes. The Company's operations are exposed to market risks primarily as a result of changes in interest rates. This exposure to these market risks relates to the Company's debt obligations under its lines of credit. Loans granted under these lines bear interest based upon the LIBOR rate plus 1 to 1.25 percent. The Company has not entered into financial instruments such as interest rate swaps or interest rate lock agreements.

The Company's 4.40% Industrial Development Authority Revenue Refunding Bonds Series 1994 have a mandatory tender date of May 15, 2004. The Company intends to remarket this debt issue at interest rates in effect on May 15, 2004. The 6% Series 1995 bonds have a mandatory tender date of June 1, 2005. The Company is required to purchase any unremarketed 1994 and 1995 bonds, despite the rate.

The following financial statements set forth in the 2003 Annual Report to Shareholders are incorporated herein by reference:

Except for the above financial data and the information specified under Items 5, 6 and 7 of this report, the 2003 Annual Report to Shareholders is not deemed to be filed as part of this report.

Stambaugh Ness, PC was previously the principal accountants for The York Water Company. On November 17, 2003 that firm's appointment as principal accountants was terminated and Beard Miller Company LLP was engaged as principal accountants. The decision to change accountants and the selection of the new accountants was made by the Audit Committee of the Registrant's Board of Directors following Stambaugh Ness' decision not to stand for re-election in 2004.

In connection with the audits of the two fiscal years ended December 31, 2002 and the subsequent interim period through November 17, 2003, there were no disagreements with Stambaugh Ness, PC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.

The audit reports of Stambaugh Ness, PC on the financial statements of The York Water Company as of and for the years ended December 31, 2002 and 2001, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

There were no disagreements with accountants on accounting and financial disclosure.

During the years ended December 31, 2002 and 2001 and the subsequent interim periods through November 17, 2003, neither the registrant nor anyone on its behalf consulted Beard Miller Company LLP on any matters of reportable events listed in Item 304 (a)(2)(i) and (ii).

The Company's management, with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, evaluated the Company's disclosure controls and procedures as of the end of the period covered by this annual report. Based upon this evaluation, the Company's President and Chief Executive Officer along with the Chief Financial Officer concluded that the Company's disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of th e controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal year or subsequent to 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART III

The information set forth under the captions "Voting Securities and Principal Holders Thereof" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 2004 Annual Meeting of Shareholders to be held May 3, 2004 is incorporated herein by reference.

The information set forth under the caption "Compensation of Directors and Executive Officers" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 2004 Annual Meeting of Shareholders to be held May 3, 2004 is incorporated herein by reference.

The information set forth under the caption "Voting Securities and Principal Holders Thereof" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 2004 Annual Meeting of Shareholders to be held May 3, 2004 is incorporated herein by reference.

The Company had no transactions with management and others, no business relationships regarding directors or nominees, no indebtedness of management, and no transactions with promoters required to be disclosed under Item 404 of the regulations.

The information set forth under the caption, "Shareholder Approval of Appointment of Independent Public Accountants" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 2004 Annual Meeting of Shareholders to be held May 3, 2004 is incorporated herein by reference.

PART IV

The financial statements set forth under Item 8 of this Form 10-K.

The report of the Company's independent auditors with respect to the financial statement schedule appears on page 9.

All other financial statements and schedules not listed have been omitted since the required information is included in the financial statements or the notes thereto, or is not applicable or required.

The Company filed various Form 8-K's during the fourth quarter of 2003.

On October 9, 2003, the Company filed an 8-K reporting that its certified public accountant, Stambaugh Ness, PC, would not be standing for re-appointment following the 2003 audit.

On November 10, 2003, the Company filed an 8-K announcing third quarter and nine months earnings for 2003.

On November 17, 2003, the Company announced its seventh consecutive annual dividend increase.

On November 19, 2003, the Company filed an 8-K announcing changes in its certifying accountant.

On February 24, 2004, the Company filed an 8-K announcing fourth quarter and annual earnings for 2003.

Independent Auditor’s Report

To the Shareholders and Board of Directors

The York Water Company

York, Pennsylvania

The audit referred to in our report dated February 6, 2004 relating to the financial statements of The York Water Company as of and for the year ended December 31, 2003 incorporated in Item 8 of the Form 10-K by reference to the annual report to shareholders for the year ended December 31, 2003 included the audit of the financial statement schedule listed in Item 15(a) (2). This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based upon our audit. The financial statement schedule of The York Water Company for the years ended December 31, 2002 and 2001 was audited by other auditors, which report dated March 4, 2003, expressed an unqualified opinion on that schedule.

In our opinion, the 2003 financial statement schedule presents fairly, in all material respects, the information set forth therein.

York, Pennsylvania

February 6, 2004

THE YORK WATER COMPANY

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2003

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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