10-Q 1 0001.txt 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, 2000 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 3,017,159 Shares outstanding as of June 30, 2000 THE YORK WATER COMPANY PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets (Unaudited) As of As of June 30, 2000 Dec. 31, 1999 UTILITY PLANT, at original cost $110,892,999 $108,804,699 Less-Reserve for depreciation 17,812,476 17,079,631 93,080,523 91,725,068 OTHER PHYSICAL PROPERTY: Less-Reserve for depreciation of $78,353 in 2000 and $75,721 in 1999 513,181 515,813 CURRENT ASSETS: Receivables, less reserves of $130,000 in 2000 and $120,000 in 1999 2,705,296 2,753,260 Recoverable income taxes 71,454 5,702 Materials and supplies, at cost 380,230 390,440 Prepaid expenses 400,314 225,106 Deferred income taxes 88,655 81,836 3,645,949 3,456,344 OTHER LONG-TERM ASSETS: Prepaid pension cost 2,078,153 1,977,883 Deferred debt expense 409,568 396,190 Deferred rate case expense 75,492 105,688 Notes receivable 980,077 783,794 Deferred regulatory assets 8,324,002 8,296,669 Other 1,423,357 1,342,661 13,290,649 12,902,885 $110,530,302 $108,600,110 THE YORK WATER COMPANY Balance Sheets (Unaudited) As Of As Of June 30, 2000 Dec. 31, 1999 CAPITALIZATION Common stock, no par value, authorized 31,000,000 shares, outstanding 3,017,159 shares in 2000 and 2,989,091 shares in 1999 $ 28,496,432 $ 28,099,197 Earnings retained in the business 3,718,349 3,418,257 Treasury stock, 38,000 shares in 2000 and 1999 (687,800) (687,800) 31,526,981 30,829,654 LONG-TERM DEBT 1.0% Pennvest Loan, due 2019 747,234 765,943 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 32,747,234 32,765,943 CURRENT LIABILITIES Short-term borrowings 1,435,880 1,431,118 Current portion of long-term debt 37,324 34,057 Accounts payable 379,702 600,993 Dividends payable 542,111 534,889 Accrued taxes 38,517 31,458 Advance water revenues 25,328 18,173 Accrued interest 678,164 676,687 Other accrued expenses 362,803 396,771 3,499,829 3,724,146 DEFERRED CREDITS Customers' advances for construction 18,028,259 17,054,497 Contributions in aid of construction 8,658,845 8,658,845 Deferred income taxes 12,712,603 12,109,748 Deferred regulatory liabilities 1,774,033 1,823,447 Deferred employee benefits 1,582,518 1,633,830 42,756,258 41,280,367 $110,530,302 $108,600,110 THE YORK WATER COMPANY Statements of Income (Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 WATER OPERATING REVENUES Residential $2,769,250 $2,590,360 $5,433,003 $5,050,632 Commercial and industrial 1,309,827 1,335,046 2,572,431 2,560,233 Other 529,691 478,064 1,104,509 951,322 4,608,768 4,403,470 9,109,943 8,562,187 OPERATING EXPENSES Operation and maintenance 1,057,319 1,024,540 2,014,433 1,908,303 Administrative and general 836,204 930,665 1,722,732 1,778,975 Depreciation 418,428 413,286 836,857 826,572 Taxes other than income taxes 224,381 267,807 560,140 534,578 2,536,332 2,636,298 5,134,162 5,048,428 Operating Income 2,072,436 1,767,172 3,975,781 3,513,759 INTEREST EXPENSE AND OTHER EXPENSE/(INCOME) Interest on long-term debt 682,935 678,949 1,359,995 1,358,687 Interest on short-term debt 21,891 3,902 44,211 4,688 Allowance for funds used during construction (9,273) (16,621) (29,476) (29,882) Other income, net (43,700) (61,352) (79,400) (80,425) 651,853 604,878 1,295,330 1,253,068 Income before income taxes 1,420,583 1,162,294 2,680,451 2,260,691 Federal and state income taxes 485,691 431,167 942,276 830,005 Net Income $ 934,892 $ 731,127 $1,738,175 $1,430,686 Basic Earnings Per Share $0.31 $0.25 $0.58 $0.48 Cash Dividends Per Share $0.24 $0.23 $0.48 $0.47 THE YORK WATER COMPANY Statements of Shareholders' Investment Earnings Retained Common in the Treasury Stock Business Stock Balance, December 31, 1999 $28,099,197 $3,418,257 $(687,800) Net Income - 1,738,175 - Cash Dividends - (1,438,083) - Issuance of common stock under dividend reinvestment plan 358,125 - - Issuance of common stock under employee stock purchase plan 39,110 - - Balance, June 30, 2000 $28,496,432 $3,718,349 $(687,800) THE YORK WATER COMPANY Statements of Cash Flows (Unaudited) (Unaudited) Six Months Six Months Ended Ended June 30, 2000 June 30, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,738,175 $1,430,686 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 836,857 826,572 Provision for losses on accounts receivable 65,000 58,500 Increase in deferred income taxes (including regulatory assets and liabilities) 519,289 454,305 Changes in assets and liabilities: Increase in accounts receivable (17,036) (185,335) Increase in recoverable income taxes (65,752) (71,608) Decrease in materials and supplies 10,210 7,778 Increase in prepaid expenses and prepaid pension costs (275,478) (136,105) (Decrease) increase in accounts payable, accrued expenses, other liabilities and deferred employee benefits (288,927) 485,989 Increase (decrease) in accrued interest and taxes 8,536 (301,432) Increase in other assets (57,975) (53,539) Net cash provided by operating activities 2,472,899 2,515,811 CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (2,195,583) (2,911,037) Customers' advances for construction and contributions in aid of construction 973,762 706,971 (Increase) decrease in notes receivable (196,283) 37,027 Net cash used in investing activities (1,418,104) (2,167,039) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long term debt (18,709) - Net borrowings under line-of-credit agreements 4,762 509,000 Issuance of common stock under dividend reinvestment plan 358,125 369,893 Issuance of common stock under employee stock purchase plan 39,110 38,113 Dividends paid (1,438,083) (1,403,330) Net cash used in financing activities (1,054,795) (486,324) Net decrease in cash and cash equivalents - (137,552) Cash and cash equivalents at beginning of period - 257,706 Cash and cash equivalents at end of period $ - $ 120,154 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $1,366,540 $1,332,768 Income taxes 556,727 588,903 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 1999. Operating results for the three month and six month periods ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 2. Basic Earnings Per Share Basic earnings per share for the six months ended June 30, 2000 and 1999 were based on weighted average shares outstanding of 3,006,687 and 2,994,730, respectively. THE YORK WATER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended June 30, 2000 Compared with Three Months Ended June 30, 1999 Water operating revenues for the three months ended June 30, 2000 increased $205,298 or 4.7% compared to the three months ended June 30, 1999. The increase resulted from a 5.3% rate increase approved by the Pennsylvania Public Utility Commission (PPUC) effective October 1, 1999. Overall consumption was down 5.7% for second quarter 2000 compared to second quarter 1999. Operating expenses for the second quarter of 2000 decreased $99,966 or 3.8% compared to the same period in 1999. Reduced deferred compensation expenses, pension plan fees, and capital stock tax caused most of the decrease. These reductions were partially offset by increased main and service line maintenance due to highway relocation, increased power, rate case, and chemical expenses. Interest on interim bank loans increased $17,989 during the second quarter 2000 compared to second quarter 1999 due to an increase in short-term debt outstanding in 2000. The average short-term debt outstanding in 2000 and 1999 was $1,097,262 and $236,648, respectively. Other income, net decreased by $17,652 for the second quarter of 2000 compared to the second quarter of 1999 due to the recognition of less interest on the Mt. Zion water district note. Federal and state income taxes for the quarter ended June 30, 2000 were $54,524 or 12.6% higher than the period ended June 30, 1999 due to an increase in taxable income. Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999 Water operating revenues for the six months ended June 30, 2000 increased $547,756 or 6.4% compared to the six months ended June 30, 1999. The increase resulted primarily from a 5.3% rate increase approved by the PPUC effective October 1, 1999. Overall consumption was down 1.0% for the year-to-date period. Residential consumption was up slightly, while commercial and industrial consumption were down. Public consumption, shown as other, increased in 2000 when compared to 1999. Operating expenses for the first six months of 2000 increased $85,734 or 1.7% compared to the same period in 1999. Increased main and service line maintenance primarily due to highway relocation was the largest factor in the increase. In addition, realty taxes, power, chemicals and rate case expenses increased in 2000 compared to 1999. These increases were partially offset by declines in deferred compensation, Y2K expenses, legal fees and pension costs. Interest on interim bank loans increased $39,523 during the first half 2000 compared to first half 1999 due to an increase in short-term debt outstanding in 2000. The average short-term debt outstanding in 2000 and 1999 was $1,098,059 and $143,149, respectively. Federal and state income taxes for the year-to-date period ended June 30, 2000 were $112,271 or 13.5% higher than the period ended June 30, 1999 due to an increase in taxable income. 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 in April 1999. Effective October 1, 1999, the PPUC authorized an increase in rates designed to produce approximately $651,000 in additional annual operating revenues, an increase of 5.3%. The next application to increase rates will most likely be filed in 2001. LIQUIDITY AND CAPITAL RESOURCES During the first six months of 2000, the per capita volume of water sold did not significantly change compared to the first six months of 1999. The Company does not anticipate any change in the level of water usage which would have a material impact on future results of operations. During the first half of 2000, the Company had $2,195,583 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 2000, net cash provided by operating activities equaled net cash used in investing and financing activities. The Company anticipates that during the remainder of 2000 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) and employee stock purchase plan, and customers' advances are expected to be used to satisfy the need for additional cash. As of June 30, 2000, current assets exceeded current liabilities by $146,120. Short-term borrowings from lines of credit as of June 30, 2000 were $1,435,880. The Company maintains lines of credit aggregating $16,000,000. 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. 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. YEAR 2000 This statement constitutes a year 2000 readiness disclosure by The York Water Company, under the Year 2000 Information and Disclosure Act. The "year 2000" issue had no impact on the Company's operations. The Company incurred costs of year 2000 remediation of approximately $142,100. The Company will continue to monitor this issue, but does not expect it to have a significant impact on the Company's operations. 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 1, 2000 at the office of the Company, 130 East Market Street, in the City 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: Frank Motter George Hay Kain, III Michael W. Gang For election 2,327,767.770 2,330,819.770 2,331,375.770 Shares withheld 49,763.000 46,711.000 46,155.000 The following Directors' terms of office continued after the Annual Meeting. Irvin S. Naylor Paul W. Ware William T. Morris John L. Finleyson Horace Keesey III Chloe R. Eichelberger (2) To amend the Amended and Restated Articles of Incorporation of the Company. For Approval 2,320,888.770 Against Approval 44,507.000 Abstaining From Voting 12,134.000 (3) To appoint Stambaugh Ness, P.C. as independent accountants to audit the financial statements of the Company for the year 2000. The actions taken by the Shareholders concerning the appointment of Stambaugh Ness, P.C. independent accountants are as follows: For Approval 2,353,059.770 Against Approval 5,251.000 Abstaining From Voting 19,221.000 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 11, 2000 Jeffrey S. Osman Principal Financial and Accounting Officer Date: August 11, 2000