The York Water Company 10Q 06-30-06
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 June
30, 2006
|
Commission
file number 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)
|
|
|
(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.
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer ¨
|
Accelerated
Filer x
|
Non-accelerated
Filer ¨
|
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
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
|
6,954,726
Shares outstanding
as
of August 9, 2006
|
THE
YORK WATER COMPANY
|
|
|
|
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
(In
thousands of dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
As
of
|
|
As
of
|
|
|
|
June
30, 2006
|
|
Dec.
31, 2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
UTILITY
PLANT, at original cost
|
|
$
|
191,549
|
|
$
|
182,868
|
|
Plant
acquisition adjustments
|
|
|
(1,096
|
)
|
|
(1,112
|
)
|
Accumulated
depreciation
|
|
|
(28,254
|
)
|
|
(26,982
|
)
|
Net
utility plant
|
|
|
162,199
|
|
|
154,774
|
|
|
|
|
|
|
|
|
|
OTHER
PHYSICAL PROPERTY:
|
|
|
|
|
|
|
|
Less
accumulated depreciation of $133 in 2006
|
|
|
|
|
|
|
|
and
$129 in 2005
|
|
|
522
|
|
|
527
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Receivables,
less reserves of $163 in 2006 and $135 in 2005
|
|
|
3,141
|
|
|
2,866
|
|
Unbilled
revenues
|
|
|
1,235
|
|
|
916
|
|
Recoverable
income taxes
|
|
|
148
|
|
|
59
|
|
Materials
and supplies, at cost
|
|
|
769
|
|
|
843
|
|
Prepaid
expenses
|
|
|
505
|
|
|
348
|
|
Deferred
income taxes
|
|
|
113
|
|
|
92
|
|
Total
current assets
|
|
|
5,911
|
|
|
5,124
|
|
|
|
|
|
|
|
|
|
OTHER
LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
Deferred
debt expense
|
|
|
724
|
|
|
761
|
|
Notes
receivable
|
|
|
2,087
|
|
|
2,196
|
|
Deferred
regulatory assets
|
|
|
6,385
|
|
|
5,747
|
|
Other
|
|
|
3,545
|
|
|
3,167
|
|
Total
long-term assets
|
|
|
12,741
|
|
|
11,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
181,373
|
|
$
|
172,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
|
|
|
|
|
|
THE
YORK WATER COMPANY
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
(In
thousands of dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
As
of
|
|
As
of
|
|
|
|
June
30, 2006
|
|
Dec.
31, 2005
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY AND LIABILITIES
|
|
|
|
|
|
COMMON
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
Common
stock, no par value, authorized 31,000,000 shares,
|
|
$
|
42,551
|
|
$
|
42,015
|
|
issued
and outstanding 6,954,726 shares in 2006
|
|
|
|
|
|
|
|
and
6,933,330 shares in 2005
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
9,026
|
|
|
8,633
|
|
Accumulated
other comprehensive income (loss)
|
|
|
167
|
|
|
(233
|
)
|
Total
common stockholders' equity
|
|
|
51,744
|
|
|
50,415
|
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK, authorized 500,000 shares, no shares issued
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT, excluding current portion
|
|
|
39,815
|
|
|
39,835
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
10,419
|
|
|
7,292
|
|
Current
portion of long-term debt
|
|
|
12,040
|
|
|
12,039
|
|
Accounts
payable
|
|
|
4,144
|
|
|
2,641
|
|
Dividends
payable
|
|
|
924
|
|
|
927
|
|
Accrued
taxes
|
|
|
78
|
|
|
89
|
|
Accrued
interest
|
|
|
790
|
|
|
786
|
|
Deferred
regulatory liabilities
|
|
|
113
|
|
|
92
|
|
Other
accrued expenses
|
|
|
743
|
|
|
784
|
|
Total
current liabilities
|
|
|
29,251
|
|
|
24,650
|
|
|
|
|
|
|
|
|
|
DEFERRED
CREDITS:
|
|
|
|
|
|
|
|
Customers'
advances for construction
|
|
|
25,571
|
|
|
23,704
|
|
Contributions
in aid of construction
|
|
|
15,278
|
|
|
14,995
|
|
Deferred
income taxes
|
|
|
13,392
|
|
|
12,339
|
|
Deferred
investment tax credits
|
|
|
1,063
|
|
|
1,082
|
|
Deferred
regulatory liabilities
|
|
|
763
|
|
|
779
|
|
Deferred
employee benefits
|
|
|
4,293
|
|
|
3,885
|
|
Other
deferred credits
|
|
|
203
|
|
|
612
|
|
Total
deferred credits
|
|
|
60,563
|
|
|
57,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity and Liabilities
|
|
$
|
181,373
|
|
$
|
172,296
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
|
|
|
|
|
|
THE
YORK WATER COMPANY
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
(In
thousands of dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
Three
Months
|
|
Six
Months
|
|
|
|
Ended
June 30
|
|
Ended
June 30
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
WATER
OPERATING REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
4,409
|
|
$
|
4,188
|
|
$
|
8,539
|
|
$
|
8,082
|
|
Commercial
and industrial
|
|
|
2,055
|
|
|
2,004
|
|
|
4,003
|
|
|
3,833
|
|
Other
|
|
|
552
|
|
|
502
|
|
|
1,088
|
|
|
1,013
|
|
|
|
|
7,016
|
|
|
6,694
|
|
|
13,630
|
|
|
12,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation
and maintenance
|
|
|
1,446
|
|
|
1,323
|
|
|
2,842
|
|
|
2,547
|
|
Administrative
and general
|
|
|
1,482
|
|
|
1,358
|
|
|
2,868
|
|
|
2,706
|
|
Depreciation
and amortization
|
|
|
635
|
|
|
588
|
|
|
1,269
|
|
|
1,177
|
|
Taxes
other than income taxes
|
|
|
254
|
|
|
233
|
|
|
547
|
|
|
475
|
|
|
|
|
3,817
|
|
|
3,502
|
|
|
7,526
|
|
|
6,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3,199
|
|
|
3,192
|
|
|
6,104
|
|
|
6,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on long-term debt
|
|
|
(859
|
)
|
|
(883
|
)
|
|
(1,712
|
)
|
|
(1,759
|
)
|
Interest
on short-term debt
|
|
|
(149
|
)
|
|
(8
|
)
|
|
(269
|
)
|
|
(9
|
)
|
Allowance
for funds used during construction
|
|
|
41
|
|
|
22
|
|
|
91
|
|
|
62
|
|
Other
income (expenses), net
|
|
|
(1
|
)
|
|
9
|
|
|
(30
|
)
|
|
(44
|
)
|
|
|
|
(968
|
)
|
|
(860
|
)
|
|
(1,920
|
)
|
|
(1,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
2,231
|
|
|
2,332
|
|
|
4,184
|
|
|
4,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
and state income taxes
|
|
|
765
|
|
|
854
|
|
|
1,459
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,466
|
|
$
|
1,478
|
|
$
|
2,725
|
|
$
|
2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.39
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared Per Share
|
|
$
|
0.168
|
|
$
|
0.156
|
|
$
|
0.336
|
|
$
|
0.312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
YORK WATER COMPANY
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Common Stockholders' Equity and Comprehensive
Income
|
(In
thousands of dollars, except per share
amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Stock
|
|
Earnings
|
|
Income
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
$
|
42,015
|
|
$
|
8,633
|
|
$
|
(233
|
)
|
$
|
50,415
|
|
Net
income
|
|
|
-
|
|
|
2,725
|
|
|
-
|
|
|
2,725
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on interest rate swap, net
|
|
|
-
|
|
|
-
|
|
|
400
|
|
|
400
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
3,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
($.336 per share)
|
|
|
-
|
|
|
(2,332
|
)
|
|
-
|
|
|
(2,332
|
)
|
Issuance
of common stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend
reinvestment plan
|
|
|
480
|
|
|
-
|
|
|
-
|
|
|
480
|
|
Issuance
of common stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan
|
|
|
56
|
|
|
-
|
|
|
-
|
|
|
56
|
|
Balance,
June 30, 2006
|
|
$
|
42,551
|
|
$
|
9,026
|
|
$
|
167
|
|
$
|
51,744
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Stock
|
|
Earnings
|
|
Income
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
$
|
41,014
|
|
$
|
7,192
|
|
$
|
(169
|
)
|
$
|
48,037
|
|
Net
income
|
|
|
-
|
|
|
2,708
|
|
|
-
|
|
|
2,708
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swap, net
|
|
|
-
|
|
|
-
|
|
|
(341
|
)
|
|
(341
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
2,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
($.312 per share)
|
|
|
-
|
|
|
(2,151
|
)
|
|
-
|
|
|
(2,151
|
)
|
Issuance
of common stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend
reinvestment plan
|
|
|
447
|
|
|
-
|
|
|
-
|
|
|
447
|
|
Issuance
of common stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan
|
|
|
47
|
|
|
-
|
|
|
-
|
|
|
47
|
|
Balance,
June 30, 2005
|
|
$
|
41,508
|
|
$
|
7,749
|
|
$
|
(510
|
)
|
$
|
48,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
YORK WATER COMPANY
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
(In
thousands of dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
Six
Months
|
|
Six
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,725
|
|
$
|
2,708
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,269
|
|
|
1,177
|
|
Amortization
of deferred income
|
|
|
(63
|
)
|
|
(63
|
)
|
Equity
portion of AFUDC
|
|
|
(40
|
)
|
|
(27
|
)
|
Unrealized
gain on swap transaction
|
|
|
(5
|
)
|
|
-
|
|
Provision
for losses on accounts receivable
|
|
|
74
|
|
|
65
|
|
Increase
in deferred income taxes
|
|
|
523
|
|
|
246
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
in accounts receivable, unbilled revenues and recoverable income
taxes
|
|
|
(757
|
)
|
|
(219
|
)
|
(Increase)
decrease in materials and supplies
|
|
|
74
|
|
|
(51
|
)
|
(Increase)
decrease in prepaid expenses and prepaid pension costs
|
|
|
(554
|
)
|
|
162
|
|
Increase
(decrease) in accounts payable, accrued expenses,
regulatory
|
|
|
|
|
|
|
|
and
other liabilities, and deferred employee benefits and
credits
|
|
|
(245
|
)
|
|
123
|
|
Decrease
in accrued interest and taxes
|
|
|
(7
|
)
|
|
(206
|
)
|
(Increase)
decrease in regulatory and other assets
|
|
|
(288
|
)
|
|
19
|
|
Net
cash provided by operating activities
|
|
|
2,706
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Utility
plant additions, including allowance for funds used during
construction
|
|
|
|
|
|
|
|
of
$51 in 2006 and $35 in 2005
|
|
|
(6,340
|
)
|
|
(6,588
|
)
|
(Increase)
decrease in notes receivable
|
|
|
109
|
|
|
(6
|
)
|
Net
cash used in investing activities
|
|
|
(6,231
|
)
|
|
(6,594
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Customers'
advances for construction and contributions in aid of
construction
|
|
|
3,138
|
|
|
3,260
|
|
Repayments
of customer advances
|
|
|
(925
|
)
|
|
(561
|
)
|
Debt
issuance costs
|
|
|
-
|
|
|
(35
|
)
|
Repayments
of long-term debt
|
|
|
(19
|
)
|
|
(20
|
)
|
Borrowings
under line-of-credit agreements
|
|
|
10,013
|
|
|
4,113
|
|
Repayments
under line-of-credit agreements
|
|
|
(6,886
|
)
|
|
(2,613
|
)
|
Issuance
of common stock under dividend reinvestment plan
|
|
|
480
|
|
|
447
|
|
Issuance
of common stock under employee stock purchase plan
|
|
|
56
|
|
|
47
|
|
Dividends
paid
|
|
|
(2,332
|
)
|
|
(2,142
|
)
|
Net
cash provided by financing activities
|
|
|
3,525
|
|
|
2,496
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
-
|
|
|
(164
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
164
|
|
Cash
and cash equivalents at end of period
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest,
net of amounts capitalized
|
|
$
|
1,916
|
|
$
|
1,711
|
|
Income
taxes
|
|
|
1,039
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non cash investing and financing activities:
|
|
|
|
|
|
|
|
Accounts
payable includes $2,346 in 2006 and $558 in 2005 for the construction
of
utility plant.
|
|
|
|
|
|
|
|
Accounts
payable and other deferred credits includes $271 in 2006 for the
acquisition of water systems.
|
|
|
|
|
|
|
|
The
change in notes receivable includes ($5) in 2005 offset by like
amounts of
customer advances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
|
|
|
|
|
|
THE
YORK WATER COMPANY
Notes
to Interim Financial Statements
(In
thousands of dollars, except per share amounts)
1.
|
Basis
of Presentation
|
|
The
interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all adjustments, consisting of only
normal
recurring accruals, necessary for a fair presentation of results
for such
periods. Because the consolidated financial statements cover an interim
period, they do not include all disclosures and notes normally provided
in
annual financial statements, and therefore, should be read in conjunction
with the consolidated financial statements and notes thereto contained
in
the Company's Annual Report to Shareholders for the year ended December
31, 2005.
Operating
results for the three and six month periods ended June 30, 2006 are
not
necessarily indicative of the results that may be expected for the
year
ending December 31, 2006.
|
2.
|
Basic
Earnings Per Share
|
|
Basic
earnings per share for the three months ended June 30, 2006 and 2005
were
based on weighted average shares outstanding of 6,943,837 and 6,900,569,
respectively.
Basic
earnings per share for the six months ended June 30, 2006 and 2005
were
based on weighted average shares outstanding of 6,939,491 and 6,894,989,
respectively.
Since
the Company has no common stock equivalents outstanding, there is
no
required calculation for diluted earnings per share.
|
3.
|
Reclassification
|
|
Certain
2005 amounts have been reclassified to conform to the 2006 presentation.
Such reclassifications had no effect on net income.
|
4.
|
Capital
Commitments
|
|
As
of June 30, 2006 the Company had committed a total of $4.2 million
for a
new meter reading system to be completed in early 2007. As of the
end of
the quarter, $0.9 million remained to be incurred.
The
Company announced the acquisition of the Abbottstown Borough Water
System
during the first quarter of 2006 at a purchase price of approximately
$0.9
million. Settlement on this acquisition is expected to take place
between
September and December 2006.
|
|
Components
of Net Periodic Pension Cost
|
|
|
|
|
|
Three
Months Ended
June
30
|
|
Six
Months Ended
June
30
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Service
Cost
|
$
171
|
|
$
146
|
|
$
342
|
|
$
293
|
|
Interest
Cost
|
264
|
|
255
|
|
529
|
|
509
|
|
Expected
return on plan assets
|
(249)
|
|
(240)
|
|
(497)
|
|
(480)
|
|
Amortization
of loss
|
57
|
|
37
|
|
113
|
|
74
|
|
Amortization
of prior service cost
|
67
|
|
69
|
|
134
|
|
139
|
|
Rate-regulated
adjustment
|
(198)
|
|
(155)
|
|
(396)
|
|
(310)
|
|
Net
periodic pension expense
|
$
112
|
|
$
112
|
|
$
225
|
|
$
225
|
|
Employer
Contributions
|
|
The
Company previously disclosed in its financial statements for the
year
ended December 31, 2005 that it expected to contribute $450 to its
pension
plans in 2006. As of June 30, 2006, no contributions had been made.
The
company expects to make the $450 contribution in the fourth quarter
of
2006.
|
6.
|
Interest
Rate Swap Agreement
|
|
The
Company utilizes an interest rate swap agreement to convert its
variable-rate debt to a fixed rate (cash flow hedge). The effective
portion of the gain or loss on a derivative designated and qualifying
as a
cash flow hedging instrument is initially reported as a component
of other
comprehensive income and subsequently reclassified into earnings
in the
same period or periods during which the hedged transaction affects
earnings. The cumulative ineffective portion of the gain or loss
on the
derivative instrument, if any, is recognized currently in earnings.
As of
June 30, 2006, there was no cumulative ineffectiveness on the Company’s
interest rate swap.
|
7.
|
Other
Comprehensive Income
|
|
|
Three
Months Ended
June
30
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Net
Income
|
$
1,466
|
|
$
1,478
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on interest rate swap,
|
|
|
|
|
|
|
|
net
of $110 income tax in 2006,
|
|
|
|
|
|
|
|
and
($275) income tax in 2005
|
161
|
|
(404)
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for
|
|
|
|
|
|
|
|
amounts
recognized in income,
|
|
|
|
|
|
|
|
net
of $3 income tax in 2006,
|
|
|
|
|
|
|
|
and
$16 income tax in 2005
|
3
|
|
25
|
|
|
|
164
|
|
(379)
|
|
|
Comprehensive
income
|
$
1,630
|
|
$
1,099
|
|
|
|
Six
Months Ended
June
30
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Net
Income
|
$
2,725
|
|
$
2,708
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on interest rate swap,
|
|
|
|
|
|
|
|
net
of $266 income tax in 2006,
|
|
|
|
|
|
|
|
and
($269) income tax in 2005
|
389
|
|
(394)
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for
|
|
|
|
|
|
|
|
amounts
recognized in income,
|
|
|
|
|
|
|
|
net
of $8 income tax in 2006,
|
|
|
|
|
|
|
|
and
$36 income tax in 2005
|
11
|
|
53
|
|
|
|
400
|
|
(341)
|
|
|
Comprehensive
income
|
$
3,125
|
|
$
2,367
|
|
8.
|
Stock
Split
|
|
On
May 1, 2006, the Company announced that its Board of Directors
had
approved a 3 for 2 stock split. The stock split was approved by
the
Pennsylvania Public Utility Commission on August 1, 2006 and is
expected
to occur during the third quarter of 2006. The record date for
the stock
split will be determined by the Board of Directors at its August
28, 2006
meeting. Shareholders of record as of the determined record date will
receive three additional shares of common stock for every two shares
owned
as of the record date. The June 30, 2006 financial statements have
not
been restated for the stock
split.
|
|
|
As
of
June
30, 2006
|
|
As
of
Dec.
31, 2005
|
|
|
3.6%
Industrial Development Authority Revenue
|
|
|
|
|
|
|
Refunding
Bonds, Series 1994, due 2009
|
$2,700
|
|
$2,700
|
|
|
3.75%
Industrial Development Authority Revenue
|
|
|
|
|
|
|
Refunding
Bonds, Series 1995, due 2010
|
4,300
|
|
4,300
|
|
|
4.05%
Pennsylvania Economic Development Financing Authority
|
|
|
|
|
|
|
Exempt
Facilities Revenue Bonds, Series A, due 2016
|
2,350
|
|
2,350
|
|
|
5.0%
Pennsylvania Economic Development Financing Authority
|
|
|
|
|
|
|
Exempt
Facilities Revenue Bonds, Series A, due 2016
|
4,950
|
|
4,950
|
|
|
10.17%
Senior Notes, Series A, due 2019
|
6,000
|
|
6,000
|
|
|
9.6%
Senior Notes, Series B, due 2019
|
5,000
|
|
5,000
|
|
|
1.0%
Pennvest Loan, due 2019
|
555
|
|
574
|
|
|
10.05%
Senior Notes, Series C, due 2020
|
6,500
|
|
6,500
|
|
|
8.43%
Senior Notes, Series D, due 2022
|
7,500
|
|
7,500
|
|
|
Variable
Rate Pennsylvania Economic Development Financing
|
|
|
|
|
|
|
Authority
Exempt Facilities Revenue Bonds, Series B, due 2029
|
12,000
|
|
12,000
|
|
|
|
Total
long-term debt
|
51,855
|
|
51,874
|
|
|
|
Less
current maturities
|
(12,040)
|
|
(12,039)
|
|
|
|
Long-term
portion
|
$39,815
|
|
$39,835
|
|
Item
2.
|
Management's
Discussion and Analysis of
Financial
Condition and Results of Operations
(In
thousands of dollars, except per share amounts)
|
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 report 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 Company is to impound, purify and distribute water. The Company
operates entirely within its franchised territory, which covers 34
municipalities within York County, Pennsylvania. The Company is regulated by
the
Pennsylvania Public Utility Commission, or PPUC, in the areas of billing,
payment procedures, dispute processing, terminations, service territory, and
rate setting. The Company must obtain PPUC approval before changing any of
the
aforementioned procedures. Water service is supplied through the Company's
own
distribution system. The Company obtains its water supply from the south branch
and east branch of the Codorus Creek, which drains an area of approximately
117
square miles. The Company has two reservoirs, Lake Williams and Lake Redman,
which together hold up to approximately 2.23 billion gallons of water. The
Company has a 15-mile pipeline from the Susquehanna River to Lake Redman which
provides access to an additional supply of 12 million gallons of water per
day.
As of June 30, 2006, the Company's average daily availability was approximately
35 million gallons, and consumption was approximately 18.2 million gallons
daily.
The
Company's service territory had an estimated population of 165,000 as of June
30, 2006. Industry within the Company's service territory is diversified,
manufacturing such items as fixtures and furniture, electrical machinery, food
products, paper, ordnance units, textile products, air conditioning systems,
barbells and motorcycles.
The
Company's business is somewhat dependent on weather conditions, particularly
the
amount of rainfall; however, minimum customer charges are in place, and the
Company expects to cover its fixed costs of operations under all likely weather
conditions.
The
Company’s business does not require large amounts of working capital and is not
dependent on any single customer or a very few customers for a material portion
of its business. Increases in revenues are generally dependent on our ability
to
obtain rate increases from regulatory authorities in a timely manner and in
an
adequate amount, and increasing volumes of water sold through increased
consumption and increases in the number of customers served.
Three
Months Ended June 30, 2006 Compared
With
Three Months Ended June 30, 2005
Net
income for the second quarter of 2006 was $1,466, a decrease of $12, or 0.8%,
from net income of $1,478 for the same period of 2005. Increased operating
expenses and higher short-term interest expenses were the primary contributing
factors. The increase in expenses was partially offset by increased water
operating revenues.
Water
operating revenues for the three months ended June 30, 2006 increased $322,
or
4.8%, from $6,694 for the three months ended June 30, 2005 to $7,016 for the
corresponding 2006 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 second
quarter of 2006 increased as compared to the same period in 2005 by 2,438
customers, from 53,843 to 56,281 customers due to growth in our service
territory and our acquisition of Spring Grove Water Company on July 6, 2005.
Despite this increase in customers, the total per capita volume of water sold
in
the second quarter of 2006 decreased compared to the corresponding 2005 period
due to reduced consumption in our service territory.
Operating
expenses for the second quarter of 2006 increased $315, or 9.0%, from $3,502
for
the second quarter of 2005 to $3,817 for the corresponding 2006 period. Higher
salaries due to higher wages and additional employees of approximately $120,
increased contractual services for system implementation, internal controls
and
painting expense aggregating approximately $74, higher depreciation expense
of
approximately $47 due to increased plant investment and increased power costs
due to higher rates and additional facilities of approximately $31 were the
principal reasons for the increase. Higher transportation expenses due to
additional vehicles and increased gas prices, higher 401k contributions and
increased pension costs aggregating approximately $48 also contributed to the
increase. The increase was partially offset by reduced hydrant expense primarily
due to capitalization of approximately $58.
Interest
expense on long-term debt for the second quarter of 2006 was $24 lower than
the
same period in 2005 primarily due to the remarketing of the Company's 6.0%
Industrial Development Authority Revenue Refunding Bonds, Series 1995, and
the
interest rate being redetermined to 3.75% on June 1, 2005.
Interest
expense on short-term debt for the second quarter of 2006 was $141 higher than
the same period in 2005 due to an increase in short-term borrowings. The average
short-term debt outstanding was $10,063 for the second quarter of 2006 and
$650
for the second quarter of 2005.
Allowance
for funds used during construction increased $19, from $22 in the second quarter
of 2005 to $41 in the 2006 period, due to an increase in construction
expenditures which were eligible for interest.
Other
expenses, net increased by $10 in 2006 as compared to 2005 primarily due to
increased non-operating property maintenance expenses.
Federal
and state income taxes decreased by $89, or 10.4%, due to the qualified domestic
production deduction and lower taxable income. The Company’s effective tax rate
was 34.3% in the second quarter of 2006 and 36.6% in the second quarter of
2005.
Six
Months Ended June 30, 2006 Compared
With
Six
Months Ended June 30, 2005
Net
income for the first half of 2006 was $2,725, an increase of $17, or 0.6%,
from
net income of $2,708 for the same period of 2005. Higher water operating
revenues partially offset by increased operating expenses and higher short-term
interest expenses were the primary contributing factors.
Water
operating revenues for the six months ended June 30, 2006 increased $702, or
5.4%, from $12,928 for the six months ended June 30, 2005 to $13,630 for the
corresponding 2006 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 first
half of 2006 increased as compared to the same period in 2005 by 2,477
customers, from 53,603 to 56,080 customers due to growth in our service
territory and the Spring Grove acquisition. Despite this increase in customers,
the total per capita volume of water sold in the first half of 2006 decreased
compared to the corresponding 2005 period due to reduced consumption in our
service territory.
Operating
expenses for the first half of 2006 increased $621, or 9.0%, from $6,905 for
the
first half of 2005 to $7,526 for the corresponding 2006 period. Higher salaries
due to wage increases and additional employees of approximately $214, higher
depreciation expense of $92 due to increased plant investment, increased
distribution system maintenance of approximately $84, increased contractual
services for system implementation, internal controls and painting expense
aggregating approximately $78, higher transportation expenses due to additional
vehicles and increased gas prices of approximately $76 and increased power
costs
due to higher rates and additional facilities of approximately $46 were the
principal reasons for the increase. Higher chemical costs, customer billing
expenses, 401k company contributions, capital stock, payroll and realty taxes
aggregating approximately $158 also contributed to the increase. The increase
was partially offset by reduced hydrant expense primarily due to capitalization
of approximately $53, lower rate case expenses, reduced bank charges and higher
indirect costs capitalized aggregating $102.
Interest
expense on long-term debt for the first half of 2006 was $47 lower than the
same
period in 2005 primarily due to the remarketing of the Company’s 6.0% Industrial
Development Authority Revenue Refunding Bonds, Series 1995, and the interest
rate being redetermined to 3.75% on June 1, 2005.
Interest
expense on short-term debt for the first half of 2006 was $260 higher than
the
same period in 2005 due to an increase in short-term borrowings. The average
short-term debt outstanding was $9,331 for the first half of 2006 and $380
for
the first half of 2005.
Allowance
for funds used during construction increased $29, from $62 as of June 2005
to
$91 as of June 2006, due to an increase in construction expenditures which
were
eligible for interest.
Other
expenses, net decreased by $14 in 2006 as compared to 2005 primarily due to
decreased contributions and lower supplemental retirement expenses aggregating
$64. The decrease was partially offset by higher non-operating property
maintenance expenses and increased government relations fees.
Federal
and state income taxes decreased by $106, or 6.8%, due to the qualified domestic
production deduction and lower taxable income. The Company’s effective tax rate
was 34.9% in the first half of 2006 and 36.6% in the first half of 2005.
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 27, 2006, and sought an increase of $4.5
million, which represents a 16.0% increase in rates. The request is currently
under review. Any rate increase approved by the PPUC will be effective not
later
than January 26, 2007. There can be no assurance that the PPUC will grant the
Company’s rate increase in the amount requested, if at all.
Acquisitions
On
February 2, 2006, the Company announced an agreement to acquire the water system
of Abbottstown Borough which serves approximately 400 customers in Adams County,
Pennsylvania. Following the acquisition, the Company will serve the customers
of
the Borough by using York Water’s fully filtered and treated water supply. This
treated supply will be provided through a main which is being constructed by
the
Company to interconnect with the Borough’s existing distribution facilities. The
interconnection is expected to be completed by October 1, 2006. The estimated
acquisition cost of $0.9 million will be funded through internally generated
funds and short-term borrowings.
To
date,
the Company has obtained the required Pennsylvania Department of Transportation
permit and stream crossing and construction permits from the Pennsylvania
Department of Environmental Protection. The PPUC approved the acquisition on
July 20, 2006, and construction has commenced on the water main, the booster
station and the standpipe.
Liquidity
and Capital Resources
As
of
June 30, 2006, current liabilities exceeded current assets by $23,340. The
excess was primarily due to the classification of the $12.0 million aggregate
principal amount of PEDFA Exempt Facilities Revenue Bonds, Series B of 2004
as
current because the bondholders can tender their bonds at any time. The Company
believes the bonds would be successfully remarketed if tendered. In addition,
the Company had $10,419 in short-term borrowings under its lines of credit
as of
June 30, 2006. The short-term borrowings were incurred to fund operations,
acquisitions and construction expenditures. The Company maintains lines of
credit aggregating $20,500. Loans granted under these lines of credit bear
interest at LIBOR plus 0.70 to
0.875%. The weighted average interest rate on short-term borrowings at June
30,
2006 was 5.89%. The lines of credit are unsecured and payable upon demand.
The
Company is not required to maintain compensating balances on its lines of
credit.
During
the first six months of 2006, net cash provided by operations and financing
activities equaled net cash used in investing activities. The Company
anticipates that this will continue to be the case during the remainder of
2006.
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 depending on market conditions, proceeds from potential long-term
debt and common stock issues will be used to satisfy the need for additional
cash.
During
the first six months of 2006, the Company incurred $8,726 of construction
expenditures. Approximately $2,690, or 31%, of the expenditures were for the
automated meter reading system and the enterprise software system. An additional
$1,642 or 19% were for the main extension to Abbottstown and the construction
and painting of various standpipes. The remaining expenditures were for routine
distribution system 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 DRIP and ESPP. The Company
anticipates construction expenditures for the remainder of 2006 of approximately
$9,300, primarily for projects relating to the Company’s transmission and
distribution systems, the aforementioned continuing projects and certain
construction expenses related to the Abbottstown acquisition. The Company plans
to finance these future expenditures using internally-generated funds,
short-term borrowings, customer advances, proceeds from the issuance of common
stock under the DRIP and ESPP, and depending on market conditions, proceeds
from
potential long-term debt and stock issuances.
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.
Drought
On
April
11, 2006 the Pennsylvania Department of Environmental Protection issued a
drought watch for all 67 counties in Pennsylvania. The drought watch calls
for a
voluntary reduction in water use of 5 percent. Lower rainfall than normal has
not affected the Company’s source of supply, but conservation efforts on the
part of customers may have reduced consumption. On June 29, 2006, the drought
watch was lifted from York County, which includes our entire service
territory.
Critical
Accounting Estimates
The
methods, estimates and judgments we use in applying our accounting policies
have
a significant impact on the results we report in our financial statements.
Our
accounting policies require us to make subjective judgments because of the
need
to make estimates of matters that are inherently uncertain. Our most critical
accounting estimates include: regulatory assets and liabilities, the
determination of the remaining life of our assets, revenue recognition and
the
discount rate used in our pension plan calculations. There has been no
significant change in our accounting estimates or the method of estimation
during the quarter ended June 30, 2006.
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, with the exception of the
interest rate swap agreement previously mentioned, does not use derivative
financial instruments for speculative trading purposes, has no lease obligations
and does not have material transactions involving related parties.
Impact
of Recent Accounting Pronouncements
In
September 2005, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same
Counterparty.” An entity may sell inventory to another entity from which it also
purchases inventory to be sold in the same line of business. The inventory
purchase and sales transactions may be pursuant to a single arrangement or
separate arrangements, and the inventory purchased or sold may be in the form
of
raw materials, work-in-process (WIP), or finished goods. The consensus related
to two issues regarding APB Opinion No. 29, “Accounting for Nonmonetary
Transactions.” This consensus is effective for new arrangements entered into, or
modifications or renegotiations of existing arrangements, beginning in the
first
interim or annual reporting period beginning after March 15, 2006. This
consensus had no impact on the Company’s financial position or the results of
operations.
In
February 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 155, “Accounting for Certain Hybrid
Financial Instruments - An Amendment of FASB Statements No. 133 and 140.” SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative, clarifies which interest-only strips
and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
for derivatives, clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives, and amends Statement 140 to
eliminate the prohibition on a qualifying special-purpose entity from holding
derivatives. This statement is effective for all financial instruments acquired
or issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. The Company is currently evaluating this standard for
consideration in future financings.
In
March
2006, The FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets,” to simplify accounting for separately recognized servicing assets and
servicing liabilities. SFAS No. 156 amends SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.”
Additionally, SFAS No. 156 permits, but does not require, an entity to choose
either the amortization method or the fair value measurement method for
measuring each class of separately recognized servicing assets and servicing
liabilities. SFAS No. 156 applies to all separately recognized servicing assets
and liabilities acquired or issued after the beginning of an entity’s fiscal
year that begins after September 15, 2006. The Company is currently evaluating
this standard for its effects on future financial position and results of
operations.
In
June
2006, the EITF reached consensus on Issue 05-1, “Accounting for the Conversion
of an Instrument that Became Convertible upon the Issuer’s Exercise of a Call
Option.” This consensus requires an assessment of the substance of a conversion
right at issuance as to whether it is considered reasonably possible that the
conversion right will become exercisable absent the issuer’s call. If so, the
conversion upon call is accounted for as a conversion with no gain or loss,
if
not, then the conversion is accounted for as an extinguishment with a gain
or
loss. This consensus is not expected to have an impact on the Company’s
financial position or results of operations.
In
June
2006, the EITF reached consensus on Issue 06-02, “Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement No. 43.” The task
force determined that an employee’s right to a compensated absence under a
sabbatical leave (or other similar benefit arrangement) that requires a service
period and does not increase its benefit with additional years of service,
accumulates pursuant to paragraph 6(b) of SFAS No. 43, “Accounting for
Compensated Absences,” for arrangements in which the individual continues to be
a compensated employee and is not required to perform duties for the entity
during the absence. As a result, the estimated cost of the sabbatical must
be
accrued over the service period. This consensus had no impact on the Company’s
financial position or results of operations.
Also
in
June 2006, the EITF reached consensus on Issue 06-03, “Disclosure Requirements
for Taxes Assessed by a Governmental Authority on Revenue-Producing
Transaction.” The consensus determined that sales, use, value added or excise
taxes could be presented gross as revenues and costs or net depending upon
a
company’s policy. If presented gross, the amount included in revenues and costs
must be disclosed. This consensus had no impact on the Company’s financial
position or results of operation.
In
July,
the FASB issued FASB Staff Position (FSP) No. FAS 13-2, “Accounting for a Change
or Projected Change in the Timing of Cash Flows Relating to Income Taxes
Generated by a Leveraged Lease Transaction,” to provide guidance to a lessor in
a transaction classified as a leveraged lease in accordance with SFAS No. 13,
“Accounting for Leases.” FSP No. FAS 13-2 amends SFAS No. 13 to require a lessor
to recalculate a leveraged lease to reflect a change or projected change in
the
timing of the realization of tax benefits generated by that lease. This FSP
will
apply to fiscal years beginning after December 15, 2006 and is not expected
to
have an impact on the Company’s financial position or results of
operations.
In
July,
the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in
Income Taxes.” FIN No. 48 prescribes (a) a consistent recognition threshold and
(b) a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return,
and
provides guidance on derecognition, classification, interest and penalties,
accounting, disclosure and transition. The company is currently reviewing its
tax positions to determine if they meet the recognition and measurement test
of
FIN No. 48. This interpretation is effective for fiscal years beginning after
December 15, 2006.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
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 with the exception of an
interest rate swap agreement, described below, does not use derivative financial
instruments for speculative trading purposes, has no lease obligations, and
does
not have material transactions involving related parties.
The
Company's operations are exposed to market risks primarily as a result of
changes in interest rates. This exposure to market risks relates to the
Company's debt obligations under its lines of credit. The Company has lines
of
credit for up to $20.5 million with two banks, under which there were borrowings
of $10.4 million outstanding as of June 30, 2006. Loans granted under these
lines bear interest based upon LIBOR plus 0.70 to 0.875 percent. The weighted
average interest rate on short-term borrowings outstanding at June 30, 2006
was
5.89%. Based on the Company’s current level of borrowings, a 25-basis point
increase in LIBOR would cause additional short-term interest expense of
approximately $26 on an annual basis. Other than lines of credit, the Company
has long-term fixed rate debt obligations and a variable-rate long-term debt
obligation, the Pennsylvania Economic Development Financing Authority, or the
PEDFA, Series B issue.
In
December 2004, the PEDFA issued $12.0 million aggregate principal amount of
PEDFA Exempt Facilities Revenue Bonds, Series B. The PEDFA then loaned the
proceeds to the Company pursuant to a variable interest rate loan agreement
with
a maturity date of October 1, 2029. The interest rate on the loan as of June
30,
2006 was 4.05%. In connection with the loan agreement, the Company entered
into
an interest rate swap transaction that results in the Company’s floating rate
obligation becoming substantially a fixed rate obligation. The purpose of the
interest rate swap is to manage the Company’s exposure to fluctuations in the
interest rate. See the “Liquidity and Capital Resources” section of
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of our 2005 Annual Report to Shareholders.
The
$12.0
million PEDFA Series B bonds can be tendered at any time. When the bonds are
tendered they are subject to an annual remarketing agreement. As additional
security, the Company also has a Standby Bond Purchase Agreement (also known
as
a liquidity facility) whereby bonds which can not be remarketed are purchased
by
a financial institution. The Standby Bond Purchase Agreement is also renewed
annually. As a result, the $12.0 million obligation was classified as current
maturities of long-term debt. The Company believes the bonds would be
successfully remarketed if tendered.
Item
4.
|
Controls
and Procedures
|
(a)
|
Evaluation
of Disclosure 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 effectiveness
of 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 Chief Financial Officer
concluded that the Company's disclosure controls and procedures as of the end
of
the period covered by this report 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 (i)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and (ii) accumulated and communicated to the
Company’s management, including the President and Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
(b)
|
Change
in Internal Control over Financial
Reporting
|
No
change
in the Company’s internal control over financial reporting occurred during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial
reporting.
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, 2006 at the William T. Morris Employee Center, 396 Hess
Farm Road,
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:
|
|
|
Votes
for Each Nominee
|
|
Votes
Withheld for Each Nominee
|
|
|
George
Hay Kain, III
|
5,498,123.19
|
votes
|
|
80,946.34
|
votes
|
|
|
George
W. Hodges
|
5,536,719.41
|
votes
|
|
41,350.13
|
votes
|
|
|
Michael
W. Gang
|
5,508,614.41
|
votes
|
|
69,455.13
|
votes
|
|
|
The
following Directors’ terms of office continued after the Annual
Meeting:
|
|
|
John
L. Finlayson
|
Irvin
S. Naylor
|
|
|
Chloé
R. Eichelberger
|
William
T. Morris
|
|
|
Thomas
C. Norris
|
Jeffrey
S. Osman
|
|
|
(2)
|
To
appoint Beard Miller Company LLP as independent public accountants
to
audit the financial statements of the Company for the year
2006.
|
|
The
actions taken by the Shareholders concerning the appointment of
Beard
Miller Company LLP independent accountants are as
follows:
|
|
|
For
Approval
|
5,489,212.21
|
Shares
|
|
|
Against
Approval
|
52,082.16
|
Shares
|
|
|
Abstaining
From Voting
|
36,772.16
|
Shares
|
|
Item
6.
|
Exhibits
|
The
following Part 1 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.
|
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: August
9, 2006 |
By: |
/s/ Jeffrey
S. Osman |
|
Jeffrey S. Osman |
|
Principal
Executive Officer
|
|
|
|
|
|
|
|
|
Date: August
9, 2006 |
By: |
/s/ Kathleen
M. Miller |
|
Kathleen M. Miller |
|
Principal
Financial and Accounting
Officer
|