10-Q 1 march0310q.txt 1ST QUARTER 2003 10Q 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 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