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