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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, 2003 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 6,379,318 Shares outstanding
as of May 9, 2003
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
March 31, 2003 Dec. 31, 2002
UTILITY PLANT, at original cost $ 128,078,817 $ 127,117,248
Less-Reserve for depreciation 21,329,174 20,899,987
106,749,643 106,217,261
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of $96,097
in 2003 and $95,820 in 2002 509,785 508,297
CURRENT ASSETS:
Receivables, less reserves of $130,000
in 2003 and 2002 2,650,391 2,838,501
Recoverable income taxes 41,640 -
Materials and supplies, at cost 490,502 480,573
Prepaid expenses 297,508 293,874
Deferred income taxes 88,655 88,655
Total Current Assets 3,568,696 3,701,603
OTHER LONG-TERM ASSETS:
Prepaid pension cost 2,036,609 2,184,108
Deferred debt expense 304,250 314,269
Deferred rate case expense 145,707 92,852
Notes receivable 822,188 835,153
Deferred regulatory assets 2,503,263 2,556,709
Other 2,045,912 1,998,135
7,857,929 7,981,226
$118,686,053 $118,408,387
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
March 31, 2003 Dec. 31, 2002
CAPITALIZATION
Common stock, no par value, authorized
31,000,000 shares, outstanding 6,379,318
shares in 2003 and 6,364,803 shares in 2002 $ 32,555,170 $ 32,331,176
Earnings retained in the business 4,783,854 4,885,532
37,339,024 37,216,708
LONG-TERM DEBT
1.0% Pennvest Loan, due 2019 642,462 652,087
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
32,642,462 32,652,087
CURRENT LIABILITIES
Short-term borrowings 2,639,857 2,737,976
Current portion of long-term debt 38,353 38,257
Accounts payable 547,852 738,723
Dividends payable 655,375 653,082
Accrued taxes 100,515 28,736
Advance water revenues 27,140 28,030
Accrued interest 494,564 678,164
Other accrued expenses 570,180 591,311
Total Current Liabilities 5,073,836 5,494,279
DEFERRED CREDITS
Customers' advances for construction 18,027,461 17,684,840
Contributions in aid of construction 12,190,501 12,193,101
Deferred income taxes 10,720,724 10,488,787
Deferred regulatory liabilities 937,918 942,119
Deferred employee benefits 1,754,127 1,736,466
43,630,731 43,045,313
$118,686,053 $118,408,387
THE YORK WATER COMPANY
Statements of Income
Unaudited) (Unaudited)
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
WATER OPERATING REVENUES
Residential $2,878,634 $2,767,610
Commercial and industrial 1,240,473 1,292,277
Other 638,833 619,747
4,757,940 4,679,634
OPERATING EXPENSES
Operation and maintenance 1,102,026 1,029,814
Administrative and general 1,137,678 976,701
Depreciation and amortization 444,668 415,873
Taxes other than income taxes 206,773 182,303
2,891,145 2,604,691
Operating Income 1,866,795 2,074,943
INTEREST EXPENSE AND OTHER INCOME
Interest on long-term debt 689,843 689,938
Interest on short-term debt 16,465 15,279
Allowance for funds used during
Construction (50,892) (23,851)
Other expense, net 83,831 73,330
739,247 754,696
Income before income taxes 1,127,548 1,320,247
Federal and state income taxes 369,978 444,800
Net Income $ 757,570 $ 875,447
Basic Earnings Per Share $0.12 $0.14
Cash Dividends Per Share $0.14 $0.13
THE YORK WATER COMPANY
Statements of Shareholders' Investment
Earnings
Retained
Common in the
Stock Business
Balance, December 31, 2002 $32,331,176 $4,885,532
Net Income 757,570
Dividends (859,248)
Issuance of common stock under
dividend reinvestment plan 203,525
Issuance of common stock under
employee stock purchase plan 20,469
Balance, March 31, 2003 $32,555,170 $4,783,854
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 757,570 $ 875,447
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 444,668 415,873
Provision for losses on accounts receivable 32,500 32,500
Increase in deferred income taxes (including
regulatory assets and liabilities) 281,182 267,468
Changes in assets and liabilities:
Decrease in accounts receivable 155,610 175,865
Increase in recoverable income taxes (41,640)
Increase in materials and supplies (9,929) (20,443)
Decrease (increase) in prepaid expenses
and prepaid pension costs 143,865 (34,337)
(Decrease) increase in accounts payable, accrued
expenses, other liabilities and deferred employee
benefits (192,938) 232,825
Decrease in accrued interest and taxes (111,821) (303,145)
Increase in other assets (39,188) (287,118)
Net cash provided by operating activities 1,419,879 1,354,935
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (1,029,963) (1,264,237)
Customers' advances for construction and
contributions in aid of construction 340,021 419,612
Decrease (increase) in notes receivable 12,965 (161,608)
Net cash used in investing activities (676,977) (1,006,233)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt (9,529) (9,434)
Net (repayments) borrowings under
Line-of-credit agreements (98,119) 185,318
Issuance of common stock under dividend
reinvestment plan 203,525 182,432
Issuance of common stock under employee stock
purchase plan 20,469 15,661
Dividends (859,248) (820,126)
Net cash used in financing activities (742,902) (446,149)
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 $ 841,324 $ 863,178
Income taxes 85,417 324,660
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, 2002.
Operating results for the three month period ended March 31, 2003, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
2. Basic Earnings Per Share
Basic earnings per share for the three months ended March 31, 2003 and 2002
were based on weighted average shares outstanding of 6,367,309 and
6,311,248, respectively.
Since there are no common stock equivalents, there is no required
calculation for diluted earnings per share.
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, 2003 Compared
with Three Months Ended March 31, 2002
Net income for the first three months of 2003 was $757,570, a decrease of
$117,877 or 13.5%, compared to the same period of 2002.
Water operating revenues for the three months ended March 31, 2003 increased
$78,306 or 1.7%, compared to the three months ended March 31, 2002. The
increase resulted from an increase of 864 residential customers since the first
quarter of 2002. The number of commercial and industrial customers declined
slightly for the same period.
Operating expenses for the first three months of 2003 increased $286,454, or
11.0%, compared to the first quarter of 2002. Higher pension expenses due to
lower returns, higher health and general insurance premiums, higher depreciation
expense due to increased plant investment, and timing differences in the
occurrence of expenses were the main reasons for the increase. Reduced water
treatment facility maintenance and reduced professional fees partially offset
the increase.
Allowance for funds used during construction for 2003 increased $27,041 when
compared to 2002. Capitalized interest on the costs associated with the
pipeline to the river project and new standpipe construction account for the
increase.
Other expense, net increased by $10,501 due to reduced interest income on water
district notes partially offset by lower supplemental retirement expenses.
Federal and state income taxes decreased $74,822, or 16.8%, due to a decrease in
taxable income. The effective tax rate was 32.8% in 2003 and 33.7% in 2002.
Rate Developments
Within the last several years, the Company has filed applications for rate
increases with the PPUC and has been granted rate relief as a result of such
requests. The most recent rate request was filed by the Company on January 24,
2003, seeking an increase of $2,808,000, or 13.7% increase in rates. The
request remains suspended pending further review by the various parties to the
case.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
During the first quarter of 2003, the per capita volume of water sold for
residential and industrial use declined compared to first quarter 2002. The
Company anticipates a very slow increase in per capita consumption compared to
last year, if there is no drought.
During the first quarter of 2003, the Company had $1,029,963 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 $16,430,000 for the year
2003, and will finance these expenditures in much the same manner as the first
quarter of 2003. A debt issue is possible later in the year for additional
financing needs.
During the first three months of 2003, net cash used in investing and financing
activities equaled net cash provided by operating activities. The Company
anticipates that during the remainder of 2003 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 possible
debt issue are expected to be used to satisfy the need for additional cash.
As of March 31, 2003, current liabilities exceeded current assets by $1,505,140.
Short-term borrowings from lines of credit as of March 31, 2003 were $2,639,857.
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 1.25%. All lines of credit are unsecured and payable upon demand. The
Company is not required to maintain compensating balances on its lines of
credit.
The permitting process for the Company's pipeline to the Susquehanna River
continued through the first quarter of 2003. The Company's petition to
reclassify Lake Redman as a warm water fishery is in the final rulemaking stage.
The Company expects a favorable final ruling in August 2003 and a discharge
permit soon after that. This rulemaking affects only the discharge of water
from the Susquehanna River into Lake Redman. The allocation permitting process
remains with the Federal Energy Regulatory Commission for its approval. The
Company has also applied for construction permits and intends to begin
construction in July 2003.
The engineering phase for the design of the intake, the pump station, and the
first mile of pipeline is expected to be completed by May 2003. The entire
project cost is estimated at $18 to $20 million and will be financed through a
combination of debt and stock issues.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Off-Balance Sheet Transactions
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.
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 there is no drought. As far as expenses, health and general
insurance costs are expected to exceed prior year, as are pension expenses.
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
2003. The Company expects resolution of its current rate filing by September
or October 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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
THE YORK WATER COMPANY
Item 3. Quantitative and Qualitative Disclosures About Market Risk (Continued)
to the Company's debt obligations under its lines of credit. Loans granted
under these lines bear interest based upon the prime or 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 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.
Item 4. Controls and Procedures
The Company's President and Chief Executive Officer along with the Company's
Chief Financial Officer evaluated the Company's disclosure controls and
procedures within 90 days of the filing date of this quarterly report. Based
upon this evaluation, the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in ensuring that material
information required to be disclosed is included in the reports that it files
with the Securities and Exchange Commission.
There were no significant changes in the Company's internal controls or, to the
knowledge of the management of the Company, in other factors that could
significantly affect these controls subsequent to the evaluation date.
THE YORK WATER COMPANY
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
On March 10, 2003, the Company filed a Form 8-K announcing 2002 Earnings.
THE YORK WATER COMPANY
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Jeffrey S. Osman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The York
Water Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: ___05/12/03___________ /s/ Jeffrey S. Osman
Jeffrey S. Osman
President and CEO
THE YORK WATER COMPANY
SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Kathleen M. Miller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The York
Water Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: _____05/12/03_______ /s/ Kathleen M. Miller
Kathleen M. Miller
Chief Financial Officer
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/ Jeffrey S. Osman
Jeffrey S. Osman
Principal Executive Officer
Date: May 12, 2003
/s/ Kathleen M. Miller
Kathleen M. Miller
Principal Financial and
Accounting Officer
Date: May 12, 2003
EXHIBIT INDEX
Exhibit No. Name
99.01 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.02 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
EXHIBIT 99.01
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 March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Jeffrey S. Osman,
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 12 (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 Executive Officer
Date: May 12, 2003
EXHIBIT 99.02
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 March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Kathleen M. Miller,
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 12 (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/ Kathleen M. Miller
Kathleen M. Miller
Chief Financial Officer
Date: May 12, 2003