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
<TABLE> THE YORK WATER COMPANY Statements of Income <CAPTION> (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 </TABLE>
<TABLE> THE YORK WATER COMPANY Statements of Cash Flows <CAPTION> (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 </TABLE>
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