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 September 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 3,030,480 Shares outstanding as of September 30, 2000 THE YORK WATER COMPANY PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets (Unaudited) As Of As of Sept. 30, 2000 Dec. 31, 1999 UTILITY PLANT, at original cost $113,064,178 $108,804,699 Less-Reserve for depreciation 18,201,035 17,079,631 94,863,143 91,725,068 OTHER PHYSICAL PROPERTY: Less-Reserve for depreciation of $79,669 in 2000 and $75,721 in 1999 511,865 515,813 CURRENT ASSETS: Receivables, less reserves of $130,000 in 2000 and $120,000 in 1999 2,712,534 2,753,260 Recoverable income taxes - 5,702 Materials and supplies, at cost 346,805 390,440 Prepaid expenses 333,882 225,106 Deferred income taxes 88,655 81,836 3,481,876 3,456,344 OTHER LONG-TERM ASSETS: Prepaid pension cost 2,128,288 1,977,883 Deferred debt expense 399,672 396,190 Deferred rate case expense 62,048 105,688 Notes receivable 953,554 783,794 Deferred regulatory assets 8,406,179 8,296,669 Other 1,462,158 1,342,661 13,411,899 12,902,885 $112,268,783 $108,600,110 THE YORK WATER COMPANY Balance Sheets (Unaudited) As Of As Of Sept. 30, 2000 Dec. 31, 1999 CAPITALIZATION Common stock, no par value, authorized 31,000,000 shares, outstanding 3,030,480 shares in 2000 and 2,989,091 shares in 1999 $ 28,700,887 $ 28,099,197 Earnings retained in the business 4,105,828 3,418,257 Treasury stock, 38,000 shares in 2000 and 1999 (687,800) (687,800) 32,118,915 30,829,654 LONG-TERM DEBT 1.0% Pennvest Loan, due 2019 737,630 765,943 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 32,737,630 32,765,943 CURRENT LIABILITIES Short-term borrowings 2,027,608 1,431,118 Current portion of long-term debt 37,406 34,057 Accounts payable 540,955 600,993 Dividends payable 568,981 534,889 Accrued taxes 164,843 31,458 Advance water revenues 17,534 18,173 Accrued interest 494,564 676,687 Other accrued expenses 348,600 396,771 4,200,491 3,724,146 DEFERRED CREDITS Customers' advances for construction 18,195,312 17,054,497 Contributions in aid of construction 8,666,543 8,658,845 Deferred income taxes 13,032,340 12,109,748 Deferred regulatory liabilities 1,751,672 1,823,447 Deferred employee benefits 1,565,880 1,633,830 43,211,747 41,280,367 $112,268,783 $108,600,110 THE YORK WATER COMPANY Statements of Income
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended Sept. 30 Sept. 30 2000 1999 2000 1999 WATER OPERATING REVENUES Residential $2,801,417 $2,649,564 $8,234,420 $7,700,196 Commercial and industrial 1,405,447 1,494,749 3,977,878 4,054,982 Other 539,506 474,468 1,644,015 1,425,790 4,746,370 4,618,781 13,856,313 13,180,968 OPERATING EXPENSES Operation and maintenance 1,011,285 1,136,752 3,025,718 3,045,055 Administrative and general 811,496 810,259 2,534,228 2,589,234 Depreciation and amortization 418,429 413,287 1,255,286 1,239,859 Taxes other than income taxes 583 231,127 560,723 765,705 2,241,793 2,591,425 7,375,955 7,639,853 Operating Income 2,504,577 2,027,356 6,480,358 5,541,115 INTEREST EXPENSE AND OTHER INCOME Interest on long-term debt 690,079 677,376 2,050,074 2,036,063 Interest on interim bank loans 29,576 8,105 73,787 12,793 Allowance for funds used during construction (9,630) (33,939) (39,106) (63,821) Other income, net (39,828) (89,424) (119,228) (169,849) 670,197 562,118 1,965,527 1,815,186 Income before income taxes 1,834,380 1,465,238 4,514,831 3,725,929 Federal and state income taxes 692,611 552,199 1,634,887 1,382,204 Net Income $1,141,769 $ 913,039 $2,879,944 $2,343,725 Basic earnings per share $.38 $.30 $.96 $.78 Cash dividends per share $.25 $.24 $.73 $.71
THE YORK WATER COMPANY Statements of Cash Flows
(Unaudited) (Unaudited) Nine Months Nine Months Ended Ended Sept.30, 2000 Sept.30, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,879,944 $2,343,725 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 1,255,286 1,239,859 Provision for losses on accounts receivable 97,500 87,750 Increase in deferred income taxes (including regulatory assets and liabilities) 734,488 705,146 Changes in assets and liabilities: Increase in accounts receivable (56,774) (234,743) Decrease (increase) in recoverable income taxes 5,702 (14,393) Decrease (increase) in materials and supplies 43,635 (33,584) Increase in prepaid expenses and prepaid pension costs (259,181) (96,007) (Decrease) increase in accounts payable, accrued expenses, other liabilities and deferred employee benefits (139,357) 476,334 (Decrease) in accrued interest and taxes (48,738) (515,428) Increase in other assets (55,880) (177,034) Net cash provided by operating activities 4,456,625 3,781,625 CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (4,412,872) (4,991,662) Customers' advances for construction and contributions in aid of construction 1,148,513 1,388,779 (Increase) decrease in notes receivable (169,760) 38,603 Net cash used in investing activities (3,434,119) (3,564,280) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (28,313) - Net borrowings under line-of-credit agreements 596,490 1,027,000 Issuance of common stock under dividend reinvestment plan 543,178 549,320 Issuance of common stock under employee stock purchase plan 58,512 57,777 Dividends paid (2,192,373) (2,109,148) Net cash used in financing activities (1,022,506) (475,051) Net decrease in cash and cash equivalents - (257,706) Cash and cash equivalents at beginning of period - 257,706 Cash and cash equivalents at end of period $ -0- $ -0- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $2,292,435 $2,177,208 Income taxes 836,813 881,413
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 - 2,879,944 - Cash Dividends - (2,192,373) - Issuance of common stock under dividend reinvest- ment plan 543,178 - - Issuance of common stock under employee stock purchase plan 58,512 - - Balance, September 30, 2000 $28,700,887 $4,105,828 $(687,800) 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 nine month periods ended September 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 nine months ended September 30, 2000 and 1999 were based on weighted average shares outstanding of 3,003,981 and 2,997,524, 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 September 30, 2000 Compared with Three Months Ended September 30, 1999 Net income for the three months ended September 30, 2000 was $1,141,769, an increase of $228,730 (25.1%) compared to the three months ended September 30, 1999. Water operating revenues for the third quarter of 2000 increased $127,589 or 2.8% compared to third quarter 1999. The increase resulted from a 5.3% rate increase approved by the Pennsylvania Public Utility Commission (PPUC) effective October 1, 1999. High amounts of rainfall during the third quarter have reduced customers outdoor water usage. Overall consumption was down 7.7% for third quarter 2000 compared to third quarter 1999. Operating expenses for the third quarter of 2000 decreased $349,632 or 13.5% compared to the same period in 1999. The main reason for the decline was the public utility realty tax refund for 1998, 1999 and 2000 tax overpayments. A decrease in the tax base and tax rates retroactive to January 1, 1998 resulted in the refund. In addition, reduced deferred compensation expenses, pension expenses, hydrant maintenance and Y2K expenses added to the favorable variance. These reductions were partially offset by increased health insurance costs, rate case expenses, and capital stock tax. Interest on interim bank loans increased $21,471 during the third quarter 2000 compared to third quarter 1999. The average short-term debt outstanding in 2000 and 1999 was $1,443,625 and $507,972, respectively. Allowance for funds used during construction decreased $24,309. Three large projects (Railroad/New Freedom, Chlorination System and Windsor 3) were open during third quarter 1999, while only one large project (Cape Horn) was open during third quarter 2000. Other income, net decreased by $49,596 for the third quarter of 2000 compared to the third quarter of 1999 due to the recognition of less interest on the Windsor 2 water district note. Federal and state income taxes for the quarter ended September 30, 2000 were $140,412 or 25.4% higher than the period ended September 30, 1999 due to an increase in taxable income. Nine Months Ended September 30, 2000 Compared with Nine Months Ended September 30, 1999 Net income for the nine months ended September 30, 2000 was $2,879,944, an increase of $536,219 or 22.9% compared to the nine months ended September 30, 1999. RESULTS OF OPERATIONS Water operating revenues for the nine months ended September 30, 2000 increased $675,345 or 5.1% compared to the nine months ended September 30, 1999 due to the rate increase effective October 1, 1999. High amounts of rainfall during the year 2000 have reduced customers outdoor water usage. Overall consumption fell by 3.4% during the period. Operating expenses for the year-to-date period ended September 30, 2000 decreased $263,898 or 3.5% compared to the same period in 1999. The primary reasons for the decrease were reduced public utility realty taxes due to a change in tax base and lower deferred compensation costs. In addition, pension expenses, Y2K costs, and hydrant maintenance costs decreased in 2000 compared to 1999. Increases in maintenance of mains and service lines due to Route 30 relocation, general insurance, health insurance, and rate case expenses partially offset the decrease. Interest on interim bank loans increased $60,994 during the first nine months of 2000 compared to the first nine months of 1999 due to an increase in short-term debt outstanding in 2000. The average short-term debt outstanding in 2000 and 1999 was $1,214,089 and $253,059, respectively. Allowance for funds used during construction for the year-to-date period ended September 30, 2000 decreased $24,715 when compared to the same period in 1999 due to smaller projects being worked on in 2000. Other income, net decreased by $50,621 for the first three quarters of 2000 compared to 1999 due to the recognition of less interest income on the Mt. Zion and Windsor 2 water district notes. Federal and state income taxes rose by $252,683 or 18.3% due to an increase in taxable income. The effective tax rate for the first nine months of 2000 and 1999 was 36.2% and 37.1%, respectively. The Company currently projects that earnings during the fourth quarter 2000 will match the levels recorded during the fourth quarter of 1999, and year-end earnings will continue to exceed the levels recorded for the year 1999. 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 be filed in 2001. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 2000, the per capita volume of water sold did not significantly change compared to the first nine 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 nine months ended September 30, 2000, the Company had $4,412,872 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 nine months 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 September 30, 2000, current liabilities exceeded current assets by $718,615. Short-term borrowings from lines of credit as of September 30, 2000 were $2,027,608. 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K The Company filed an 8-K report on November 8, 2000 stating that an application has been filed to list its common stock on the Nasdaq National Market. 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/ William T. Morris Principal Executive Officer Date: November 9, 2000 /s/ Jeffrey S. Osman Principal Financial and Accounting Officer Date: November 9, 2000 - 11 -