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UNITED STATES
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, 2004 
Commission file number 06-690



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)
   
   

(717) 845-3601
(Registrant's telephone number, including area code)


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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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
6,873,823 Shares outstanding
as of November 8, 2004


 
     
 
THE YORK WATER COMPANY
  
   
PART I - FINANCIAL INFORMATION
  
           
Item 1. Financial Statements
          
           
Balance Sheets
  
           
   
(Unaudited)
      
   
As of
  
As of
 
   
Sept. 30, 2004
  
Dec. 31, 2003
  
               
ASSETS
              
Utility Plant, at original cost
 
$
161,111,442
  
$
139,695,088
  
Plant acquisition adjustments
    
(1,355,608
)
  
(1,380,797
)
Reserve for depreciation
   
(24,003,673
)
  
(22,512,047
)
     
135,752,161
   
115,802,244
 
Other Physical Property:
              
Less-Reserve for depreciation of $116,259 in 2004
             
and $104,571 in 2003
   
675,958
   
664,982
 
               
Current Assets:
              
Receivables, less reserves of $130,000 in 2004 and 2003
   
3,222,885
   
3,163,285
 
Recoverable income taxes
    
132,674
   
-
 
Materials and supplies, at cost
   
775,994
   
592,376
 
Prepaid expenses
   
504,653
   
262,980
 
Deferred income taxes
   
88,655
   
88,655
 
Total Current Assets
    
4,724,861
   
4,107,296
 
               
Other Long-Term Assets:
              
Prepaid pension cost
   
1,014,349
   
1,836,228
 
Deferred debt expense
   
301,926
   
294,612
 
Deferred rate case expense
   
252,155
   
143,390
 
Notes receivable
   
814,425
   
658,878
 
Deferred regulatory assets
   
3,058,042
   
1,847,406
 
Other
   
2,234,912
   
2,153,422
 
     
7,675,809
   
6,933,936
 
               
               
Total Assets
  
$
148,828,789
  
$
127,508,458
  
               
               
The accompanying notes are an integral part of these statements.
              

 
 
  Page 2  
 
THE YORK WATER COMPANY
  
           
Balance Sheets
  
   
   
(Unaudited)
      
   
As of
  
As of
 
   
Sept. 30, 2004
  
Dec. 31, 2003
  
           
CAPITALIZATION AND LIABILITIES
              
CAPITALIZATION:
              
Common stock, no par value, authorized 31,000,000 shares,
  
$
40,771,214
  
$
33,234,985
  
issued and outstanding 6,873,823 shares in 2004
              
and 6,419,230 shares in 2003
             
Preferred stock, authorized 500,000 shares, no shares issued
    
-
   
-
 
Earnings retained in the business
   
6,829,374
   
5,821,544
 
     
47,600,588
   
39,056,529
 
               
Long-Term Debt:
              
1.0% Pennvest Loan, due 2019
    
623,142
   
652,086
 
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
 
3.6% Industrial Development Authority Revenue
              
Refunding Bonds, Series 1994, due 2009
    
2,700,000
   
2,700,000
 
4.05% Pennsylvania Economic Development Financing Authority
              
Exempt Facilities Revenue Bonds, Series A, due 2016
    
2,350,000
   
-
 
5.0% Pennsylvania Economic Development Financing Authority
              
Exempt Facilities Revenue Bonds, Series A, due 2016
    
4,950,000
   
-
 
Total long-term debt
    
39,923,142
   
32,652,086
 
Less current maturities
    
(4,338,932
)
  
(2,738,641
)
Long-term portion
    
35,584,210
   
29,913,445
 
               
COMMITMENTS AND CONTINGENT LIABILITIES
              
               
CURRENT LIABILITIES:
              
Short-term borrowings
    
7,443,566
   
7,153,119
 
Current portion of long-term debt
   
4,338,932
   
2,738,641
 
Accounts payable
    
3,165,266
   
1,743,094
 
Dividends payable
   
783,687
   
718,540
 
Accrued taxes
   
100,484
   
361,936
 
Advance water revenues
   
40,824
   
26,435
 
Accrued interest
   
486,464
   
678,164
 
Deferred regulatory liabilities
   
88,655
   
88,655
 
Other accrued expenses
   
546,877
   
538,662
 
Total Current Liabilities
    
16,994,755
   
14,047,246
 
               
DEFERRED CREDITS:
              
Customers' advances for construction
   
20,217,841
   
18,445,063
 
Contributions in aid of construction
   
12,843,798
   
12,776,288
 
Deferred income taxes
   
11,745,216
   
9,412,313
 
Deferred investment tax credits
   
1,131,965
   
1,165,892
 
Deferred regulatory liabilities
   
809,376
   
830,523
 
Deferred employee benefits
   
1,901,040
   
1,861,159
 
     
48,649,236
   
44,491,238
 
Total Capitalization and Liabilities
  
$
148,828,789
  
$
127,508,458
  
               
The accompanying notes are an integral part of these statements.
              


 
  Page 3  
 
THE YORK WATER COMPANY
  
                   
Statements of Income
  
                   
                   
   
(Unaudited)
  
(Unaudited)
  
   
Three Months
 
Nine Months
 
   
Ended September 30
  
Ended September 30
  
   
2004
  
2003
  
2004
  
2003
  
                   
WATER OPERATING REVENUES:
                          
Residential
 
$
3,390,530
  
$
3,386,555
  
$
10,036,483
  
$
9,298,003
  
Commercial and industrial
   
1,725,473
   
1,963,734
   
5,044,115
   
5,022,406
 
Other
   
453,125
   
435,777
   
1,349,857
   
1,271,271
 
     
5,569,128
   
5,786,066
   
16,430,455
   
15,591,680
 
                           
OPERATING EXPENSES:
                          
Operation and maintenance
   
1,294,513
   
1,204,448
   
3,717,409
   
3,487,498
 
Administrative and general
   
1,170,481
   
1,065,592
   
3,476,241
   
3,193,642
 
Depreciation and amortization
   
473,935
   
444,668
   
1,421,805
   
1,334,004
 
Taxes other than income taxes
   
220,897
   
215,324
   
686,663
   
639,618
 
     
3,159,826
   
2,930,032
   
9,302,118
   
8,654,762
 
                           
Operating income
    
2,409,302
   
2,856,034
   
7,128,337
   
6,936,918
 
                           
OTHER INCOME (EXPENSES):
                          
Interest on long-term debt
   
(769,968
)
  
(689,795
)
  
(2,226,696
)
  
(2,069,457
)
Interest on short-term debt
   
(43,253
)
  
(22,285
)
  
(117,241
)
  
(56,425
)
Allowance for funds used during construction
   
396,584
   
92,266
   
839,654
   
205,499
 
Gain on sale of land
    
-
   
-
   
743,195
   
-
 
Other (expense) income, net
   
(38,569
)
  
55,662
   
(276,980
)
  
76
 
     
(455,206
)
  
(564,152
)
  
(1,038,068
)
  
(1,920,307
)
                           
Income before income taxes
    
1,954,096
   
2,291,882
   
6,090,269
   
5,016,611
 
                           
Federal and state income taxes
   
715,226
   
797,671
   
2,224,428
   
1,715,209
 
                           
Net income
  
$
1,238,870
  
$
1,494,211
  
$
3,865,841
  
$
3,301,402
  
                           
Basic Earnings Per Share
 
$
0.18
  
$
0.24
  
$
0.59
  
$
0.52
  
                           
Cash Dividends Per Share
  
$
0.145
  
$
0.130
  
$
0.435
  
$
0.400
  
                           
                           
The accompanying notes are an integral part of these statements.
                  
 
 
  Page 4  

THE YORK WATER COMPANY
  
           
Statements of Shareholders' Investment
  
As of September 30, 2004
  
(Unaudited)
  
           
       
Earnings
  
       
Retained
  
   
Common
  
In The
  
   
Stock
  
Business
  
           
Balance, December 31, 2003
 
$
33,234,985
  
$
5,821,544
  
               
Net income
         
3,865,841
 
               
Dividends
         
(2,858,011
)
               
Issuance of 415,000 shares of common stock
    
6,836,185
       
               
Issuance of common stock under dividend reinvestment plan
    
635,757
       
               
Issuance of common stock under employee stock purchase plan
    
64,287
   
 
  
               
Balance, September 30, 2004
  
$
40,771,214
  
$
6,829,374
  
               
               
The accompanying notes are an integral part of these statements.
              

 
  Page 5  

THE YORK WATER COMPANY
  
           
Statements of Cash Flows
  
           
   
(Unaudited)
  
(Unaudited)
  
   
Nine Months
 
Nine Months
 
   
Ended
  
Ended
  
   
Sept. 30, 2004
  
Sept. 30, 2003
  
           
CASH FLOWS FROM OPERATING ACTIVITIES:
              
Net income
 
$
3,865,841
  
$
3,301,402
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Gain on sale of land
    
(743,195
)
  
-
 
Depreciation and amortization
   
1,421,805
   
1,334,004
 
Provision for losses on accounts receivable
   
97,500
   
97,500
 
Increase in deferred income taxes (including regulatory
              
assets and liabilities)
    
1,067,193
   
633,240
 
Changes in assets and liabilities:
              
Increase in accounts receivable
   
(157,100
)
  
(619,583
)
Increase in recoverable income taxes
    
(132,674
)
  
-
 
Increase in materials and supplies
   
(183,618
)
  
(150,676
)
Decrease in prepaid expenses and prepaid pension costs
    
580,206
   
71,522
 
Increase in accounts payable, accrued expenses,
              
other liabilities and deferred employee benefits
   
1,663,201
   
378,703
 
(Decrease) increase in accrued interest and taxes
    
(453,152
)
  
160,692
 
Increase in other assets
   
(33,079
)
  
(205,089
)
Net cash provided by operating activities
   
6,992,928
   
5,001,715
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
              
Construction expenditures
    
(21,774,558
)
  
(5,715,907
)
Proceeds from sale of land
    
792,021
   
-
 
Customers' advances for construction and
              
contributions in aid of construction
    
1,840,288
   
820,146
 
(Increase) decrease in notes receivable
    
(155,547
)
  
172,990
 
Net cash used in investing activities
    
(19,297,796
)
  
(4,722,771
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
              
Borrowings of long-term debt
   
7,300,000
   
-
 
Repayments of long-term debt
   
(28,944
)
  
(28,657
)
Net borrowings under line-of-credit agreements
   
290,447
   
1,653,530
 
Issuance of 415,000 shares of common stock
    
6,836,185
   
-
 
Issuance of common stock under dividend reinvestment plan
   
635,757
   
610,895
 
Issuance of common stock under employee stock purchase plan
   
64,287
   
61,388
 
Dividends paid
    
(2,792,864
)
  
(2,576,100
)
Net cash provided by (used in) financing activities
    
12,304,868
   
(278,944
)
               
Net change 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
 
$
1,700,619
  
$
2,103,797
  
Income taxes
   
917,009
   
379,529
 
               
Supplemental schedule of non cash investing and financing activities:
              
accounts payable includes $1,027,067 in 2004 and $200,592 in 2003 for the construction of utility plant.
    
               
The accompanying notes are an integral part of these statements.
              
 
 
  Page 6  
 
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, 2003.
 
Operating results for the three month and nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
 
2.
Basic Earnings Per Share
 
 
Basic earnings per share for the three months ended September 30, 2004 and 2003 were based on weighted average shares outstanding of 6,769,626 and 6,364,948, respectively.
 
Basic earnings per share for the nine months ended September 30, 2004 and 2003 were based on weighted average shares outstanding of 6,542,154 and 6,379,879, respectively.
 
Since the Company has no common stock equivalents outstanding, there is no required calculation for diluted earnings per share.
 
3.
Reclassification
 
 
Certain 2003 amounts have been reclassified to conform to the 2004 presentation. Such reclassifications had no effect on net income.
 
4.
Capital Commitments
 
 
The Company has capital commitments with regard to its Susquehanna River Pipeline Project to the pipe supplier, subcontractor, and engineer on the project. Of the total committed of approximately $20.7 million, $3.8 million remains to be incurred as of September 30, 2004.
 
5.
Pensions

 
Components of Net Periodic Pension Cost
      
   
Three Months Ended
 Sept. 30
  
Nine Months Ended
 Sept. 30
   
2004
  
2003
  
2004
  
2003
                 
 
Service Cost
$ 125,881
$ 95,594
$ 377,641
$ 286,784
 
Interest Cost
247,291
220,301
741,871
660,903
 
Expected return on plan assets
(228,957)
(208,210)
(686,873)
(624,634)
 
Amortization of loss
32,568
31,980
97,708
95,942
 
Amortization of prior service cost
97,176
7,834
291,532
23,502
 
Increase in deferred regulatory assets
(187,445)
(86,970)
(614,307)
(260,910)
 
Net periodic pension expense
$ 86,514
$ 60,529
$ 207,572
$ 181,587
 

  
  Page 7  
 
THE YORK WATER COMPANY


Notes to Interim Financial Statements (continued)

5.
Pensions (continued)
 
 
Employer Contributions
 
 
The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $327,000 to its pension plans in 2004. As of September 30, 2004, no contributions have been made. The Company presently anticipates contributing at least $242,116 to fund its pension plans in December 2004.

6.
Common Stock Offering
 
 
On July 21, 2004, the Company closed an underwritten public offering of 415,000 shares of its common stock. Janney Montgomery Scott LLC was the sole underwriter in the offering. The Company received net proceeds in the offering, after deducting offering expenses and underwriter’s discounts and commissions, of approximately $6.8 million. The net proceeds were used to repay a portion of the Company’s short-term indebtedness under its revolving credit facilities primarily incurred to finance the Susquehanna River Pipeline Project.


  
  Page 8  
 
THE YORK WATER COMPANY


Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
Forward-looking Statements

Certain statements contained herein and elsewhere in this Form 10-Q which are not historical facts are forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements address among other things: various federal and state regulations concerning water quality and environmental standards; the adequacy of approved rates to allow for a fair rate of return on the investment in utility plant; the timeliness of rate relief; quantity of rainfall and temperature; industrial demand; financing costs; energy rates; consummation of capital markets transactions to finance capital expenditure projects; and environmental and water quality regulations, as well as information contained elsewhere in this repo rt preceded by, followed by, or including the words "believes," "expects," "anticipates," "plans," or similar expressions.

The statements are based on a number of assumptions concerning future events, many of which are outside the Company's control. 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 undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

General Information

The business of The York Water Company is to impound, purify and distribute water. The Company operates entirely within its franchised territory located in York County, Pennsylvania, and is subject to regulation by the Pennsylvania Public Utility Commission, or PPUC. Water service is supplied through the Company’s own distribution system. The Company’s service territory has an estimated population of 156,000.

Results of Operations

Three Months Ended September 30, 2004 Compared
With Three Months Ended September 30, 2003

Net income for the third quarter of 2004 was $1,238,870, a decrease of $255,341, or 17.1%, from net income of $1,494,211 for the same period of 2003. Lower operating revenues and higher operating expenses were the primary contributing factors.

Water operating revenues for the three months ended September 30, 2004 decreased $216,938, or 3.7%, from $5,786,066 for the three months ended September 30, 2003 to $5,569,128 for the corresponding 2004 period. Increases in our revenues are generally dependent on our ability to obtain rate increases from regulatory authorities and increasing our volumes of water sold through increased consumption and increases in the number of customers served. The average number of customers served in the third quarter of 2004 increased as compared to the same period in 2003 by 1,158, from 51,540 to 52,698 customers. Despite this increase in customers, the total per capita volume of water sold in the third quarter of 2004 decreased slightly compared to the corresponding 2003 period due to heavy rainfall and reduced consumption in our service territory.

Operating expenses for the third quarter of 2004 increased $229,794, or 7.8%, from $2,930,032 for the third quarter of 2003 to $3,159,826 for the corresponding 2004 period. Higher depreciation expense of approximately $29,000 due to increased plant investment, higher health and general insurance premiums of approximately $43,000, higher wage expenses and directors fees of approximately $67,000, permitting expenses of approximately $21,000, and distribution facilities maintenance expenses (in part related to security) of approximately $59,000 were the principal reasons for the increase. Reduced filter plant maintenance of approximately $20,000 and rate case expense of approximately $14,000 partially offset the increase.


  
  Page 9  
 
THE YORK WATER COMPANY


Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
Results of Operations (continued)

Interest expense on long-term debt for the third quarter of 2004 was $80,173, or 11.6%, higher than the same period in 2003 due to an increase in amounts outstanding. The Company issued $7,300,000 in tax-exempt bonds in April 2004.

Interest expense on short-term debt for the third quarter of 2004 was $20,968, or 94.1%, higher than the same period in 2003 due to an increase in short-term borrowings. The average short-term debt outstanding was $6,825,919 for the third quarter of 2004 and $3,823,724 for the third quarter of 2003. Most of the 2004 short-term debt outstanding was incurred to fund the Susquehanna River Pipeline Project.

Allowance for funds used during construction increased $304,318 from $92,266 in the third quarter of 2003 to $396,584 in the 2004 period. An increased allowance on the costs associated with the Susquehanna River Pipeline Project of approximately $294,000 accounted for the majority of the increase.

Other expense, net increased by $94,231 in the third quarter of 2004 as compared to the same period of 2003 primarily due to a decrease in interest income on water district notes of approximately $20,000, increased charitable contributions of approximately $27,000 and increased supplemental retirement expenses of approximately $33,000.

Federal and state income taxes decreased by $82,445, or 10.3%, due to a decrease in pre-tax income. The effective tax rate was 36.6% in the third quarter of 2004 and 34.8% in the third quarter of 2003.

Nine Months Ended September 30, 2004 Compared
With Nine Months Ended September 30, 2003

Net income for the first three quarters of 2004 was $3,865,841, an increase of $564,439 or 17.1%, compared to net income of $3,301,402 for the same period of 2003. Increased water revenues and an after-tax gain on the sale of land were the primary contributing factors.

Water operating revenues for the first three quarters of 2004 increased $838,775 or 5.4%, from $15,591,680 for the nine months ended September 30, 2003 to $16,430,455 for the corresponding 2004 period. An 8.5% rate increase effective June 26, 2003 accounted for approximately $851,000 in increased water operating revenues in 2004. The average number of customers served in the first nine months of 2004 increased as compared to the same period in 2003 by 1,055, from 51,306 to 52,361 customers. This increase in customers, along with increased usage by our existing customers resulted in increased consumption in the first three quarters of 2004 as compared to the corresponding 2003 period. During the first nine months of 2004, the total per capita volume of water sold increased 1.7% compared to the first nine months o f 2003. Significant rainfall in the 2004 period prevented further revenue increases. As of the end of the third quarter of 2004, we had 49.5 inches of rain which is well above our average of 31.6 inches at this point. As a result, consumption did not reach expected levels. During the fourth quarter we should see some of the benefit of our recently approved rate increase which should lead to stronger revenues.

Operating expenses for the first three quarters of 2004 increased $647,356, or 7.5%, from $8,654,762 for the first nine months of 2003 to $9,302,118 for the corresponding 2004 period. Higher depreciation expense of approximately $88,000 due to increased plant investment, higher health and general insurance premiums of approximately $97,000, higher wage expenses and directors fees of approximately $176,000, permitting expenses of approximately $32,000, increased distribution facilities maintenance expenses (in part related to security) of approximately $124,000, increased contractual accounting services of approximately $38,000, higher pension expense of approximately $26,000 and higher capital stock and payroll taxes of approximately $55,000 were the principal reasons for the increase. Reduced filter plant maint enance expenses of approximately $16,000 and lower legal and other professional services expense of approximately $27,000 partially offset the increase.
 
 
  
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THE YORK WATER COMPANY


Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
Results of Operations (continued)

Interest expense on long-term debt for the first three quarters of 2004 was $157,239, or 7.6%, higher than the same period in 2003 due to an increase in amounts outstanding. The Company issued $7,300,000 in tax-exempt bonds in April 2004.

Interest expense on short-term debt for the first three quarters of 2004 was $60,816, or 107.8%, higher than the same period in 2003 due to an increase in short-term borrowings. The average short-term debt outstanding was $6,864,817 for the first nine months of 2004 and $3,213,395 for the nine months of 2003. Most of the 2004 short-term debt outstanding was incurred to fund the Susquehanna River Pipeline Project.

Allowance for funds used during construction increased $634,155 from $205,499 in the first nine months of 2003 to $839,654 in the 2004 period. An increased allowance on the costs associated with the Susquehanna River Pipeline Project of approximately $578,000 accounted for the majority of the increase.

A gain of $743,195 was recorded in the first quarter of 2004 for the sale of land. No other significant land sales or other unusual events are planned at this time. As a result, additional earnings such as these should not be expected in future periods.

Other expense, net increased by $277,056 in the first three quarters of 2004 as compared to the same period of 2003 primarily due to a termination settlement of approximately $144,000, increased charitable contributions of approximately $55,000 and higher supplemental retirement expenses of approximately $35,000.

Federal and state income taxes increased by $509,219, or 29.7%, due to an increase in pre-tax income. The effective tax rate was 36.5% in the first nine months of 2004 and 34.2% in the first nine months of 2003.

Rate Developments

From time to time the Company files applications for rate increases with the PPUC and is granted rate relief as a result of such requests. The most recent rate request was filed by the Company on April 28, 2004 seeking an increase of $4,869,970, which would represent a 22.1% increase in rates. On September 30, 2004, the PPUC authorized an increase in rates designed to produce approximately $3,500,000 in additional annual operating revenues, an increase of 15.9%. The effective date of the rate increase is the date upon which the Susquehanna River Pipeline is operational. The pipeline is expected to be operational in early November 2004.

Liquidity and Capital Resources

As of September 30, 2004, current liabilities exceeded current assets by $12,269,894. The excess was due to increased payables and short-term borrowings primarily related to the Susquehanna River Pipeline Project and the classification of the Company’s $4.3 million 6.0% Industrial Development Authority Revenue Refunding Bonds from long-term to short-term. Short-term borrowings from lines of credit as of September 30, 2004 were $7,443,566. The Company maintains lines of credit aggregating $26,500,000. Loans granted under these lines of credit bear interest at LIBOR plus .875 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.

 
  
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THE YORK WATER COMPANY


Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
Liquidity and Capital Resources (continued)

During the first nine months of 2004, net cash used in investing and provided by financing activities equaled net cash provided by operating activities due to the use of the cash management facility. The Company anticipates that during the remainder of 2004, the same situation will occur. 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), or DRIP, and employee stock purchase plan, or ESPP, customer advances, and proceeds from an additional issuance of tax-exempt debt will be used to satisfy cash requirements during the remainder of 2004.

During the first quarter of 2004, the Company sold a parcel of land which provided cash of $792,021. This unusual event is not likely to recur in the foreseeable future and can not be relied upon for future liquidity.

During the first three quarters of 2004, the Company incurred $21,596,014 of construction expenditures. Approximately $15,500,000, or 72%, of the expenditures were for the Susquehanna River Pipeline Project. The Company financed such expenditures through internally generated funds, customers’ advances, short-term borrowings, proceeds from the issuance of common stock under its DRIP and ESPP, a tax-exempt bond issuance, and an underwritten common stock offering. The Company anticipates construction expenditures for the remainder of 2004 to be approximately $7,000,000. The Company plans to finance fourth quarter expenditures in much the same way as the first nine months, excluding the stock offering and supplemented by an additional tax-exempt bond offering.

On April 1, 2004 the Pennsylvania Economic Development Financing Authority, or the PEDFA, issued $7,300,000 aggregate principal amount of Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds, Series A of 2004 for the benefit of the Company. The PEDFA then loaned the proceeds of the offering to the Company pursuant to a loan agreement. The loan agreement provides for a $4,950,000 loan bearing interest at 5.00% and a $2,350,000 loan bearing interest at 4.05%. The bonds and the related loans will mature on April 1, 2016. The loan agreement contains various covenants and restrictions. We believe that we are currently in compliance with all of these restrictions. The bonds were issued as part of the financing plan for the Susquehanna River Pipeline Project. The proceeds, net of issuan ce costs, were used to pay down short-term borrowings related to the Project.

The Company's 4.40% Industrial Development Authority Revenue Refunding Bonds, Series 1994, had a mandatory tender date of May 15, 2004. The bonds were remarketed and the interest rate redetermined to 3.60% on May 17, 2004. Under the terms of the bonds, existing bond holders were permitted to retain their bonds at the 3.60% interest rate. All bonds not retained by current bond holders were remarketed. The newly issued bonds will mature on May 15, 2009.

The Company's 6.0% Industrial Development Authority Revenue Refunding Bonds, Series 1995, have a mandatory tender date of June 1, 2005. The bonds will be remarketed and the interest rate redetermined in 2005. The Company will be required to repurchase any unremarketed bonds. As a result of this mandatory tender, this $4.3 million was reclassified as current maturities.

On July 21, 2004, the Company closed an underwritten public offering of 415,000 shares of its common stock. Janney Montgomery Scott LLC was the sole underwriter in the offering. The Company received net proceeds in the offering, after deducting offering expenses and underwriter’s discounts and commissions, of approximately $6.8 million. The net proceeds were used to repay a portion of the Company’s short-term indebtedness under its revolving credit facilities primarily incurred to finance the Susquehanna River Pipeline Project.

The Company is currently planning a $12 million tax-exempt bond issuance in the fourth quarter of 2004 to complete the financing of the Susquehanna River Pipeline Project.
 

  
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THE YORK WATER COMPANY


Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
 
Liquidity and Capital Resources (continued)

The Company, like all other businesses, is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity. The cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows. The ability of the Company to recover this increased investment in facilities is dependent upon future revenue increases, which are subject to approval by the PPUC. The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which the rate increase was sought.

Susquehanna River Pipeline Project Update

As of the end of the third quarter, the intake, pumping station wet well, 15-mile pipeline and outfall are all complete. The Company is currently working on the pump house building and installing the pumps and motors. The pipeline is expected to be operational in early November and the entire project is expected to be completed by the end of December 2004 at an estimated cost of $23 million.

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.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

The Company does not use derivative financial instruments. 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 prime rate or LIBOR plus .875 to 1.25 percent. The Company has not entered into financial instruments such as interest rate swaps or interest rate lock agreements.

Item 4.
Controls and Procedures

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 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 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 we ll designed and operated, cannot provide absolute assurance that the objectives of the 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 quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

  
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THE YORK WATER COMPANY


Part II - Other Information

Item 6.
Exhibits
 
The following exhibits are attached to this report
 
31.1
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1
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.
32.2
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   

 
 
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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
 
 		  
 		  
 
Date: November 8, 2004 By:   /s/ Jeffrey S. Osman
  Jeffrey S. Osman 
 
Principal Executive Officer 
 
     
 
 
 		  
 		  
 
Date: November 8, 2004 By:   /s/ Kathleen M. Miller
  Kathleen M. Miller 
 
Principal Financial and
Accounting Officer 
 
 
 
 
 
 

 

 
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