SEC Company Response from YORK WATER CO (YORW) (CIK 0000108985) (YORW) — Sep 9, 2009
YORK WATER CO (YORW) (CIK 0000108985)
Date: Sept. 9, 2009 · CIK: 0000108985 · Accession: 0000108985-09-000076
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-34245
Referenced dates: August 17, 2009
Letter
VIA EDGAR AND EMAIL Securities and Exchange Commission Filed March 18, 2009 Form 10-Q for the Fiscal Quarters Ended March 31, 2009 and June 30, 2009 Filed May 8, 2009 and August 7, 2009 File No. 001-34245
Dear Mr. Owings,
This letter is being submitted in response to the comments given by the staff of the Division of Corporation Finance as set forth in your letter to Mr. Jeffrey R. Hines, President and Chief Executive Officer of The York Water Company (the “Company”), dated August 17, 2009, with respect to the above-referenced filings.
For your convenience, we have set forth each comment in italicized typeface and included each response below the relevant comment and have provided marked language to show proposed changes to current disclosure.
Form 10-K for the Fiscal Year Ended December 31, 2008
General
1.
You indicate on the cover page of your Form 10-K and Forms 10-Q that your Commission file number is 0-690. However, we note that the Commission file number related to these filings is 001-34245. Please use Commission file number 001-34245 when filing your periodic reports.
The Company has authorized us to inform you that, beginning with the third quarter 2009 Form 10-Q, the Company will use 001-34245 as the Commission file number when filing its periodic reports.
2.
On your corporate web site, please include a hyperlink directly to the section 16 forms filed by section 16 reporting persons. Currently, the link that you provide is to the list of all of your SEC filings. Please refer to Final Rule: Mandated Electronic Filing and Website Posting for Forms 3, 4 and 5, Release No. 33-8230 (May 7, 2003).
The Company has authorized us to inform you that an additional link directly to its Section 16 filings is now provided on the Company’s website under “Investor Relations, Insider Filings.”
3.
In future filings please provide in your Form 10-K the disclosure required under Item 101(e)(4) of Regulation S-K regarding the availability of your filed reports on your website. Please confirm your understanding in this regard.
Please note that the following disclosure was contained at the end of the “Shareholder Information” section of the 2008 Annual Report to Shareholders, which was filed as Exhibit 13 to the 2008 Form 10-K and expressly incorporated into the Business section:
“The Annual Report as well as reports filed with the SEC and other information about the Company can be found on the Company's website at: www.yorkwater.com.”
The Company has authorized us to inform you that it will revise this language in future filings to more closely track the wording of Item 101(e)(4) of Regulation S-K.
Item 1. Business, page 2
4.
Since the Pennsylvania Public Utility Commission regulates some of your operations, please discuss if any material portion of your business is subject to renegotiation of profit at the election of the Pennsylvania Public Utility Commission or another governmental entity. Please refer to Item 101(c)(ix) of Regulation S-K.
The Company has authorized us to inform you that no part of its business is subject to renegotiation of profit at the election of the Pennsylvania Public Utility Commission or another governmental entity.
5.
We note your statement in the second risk factor on page five that you may face competition from other water suppliers. Please discuss the competitive conditions in your business including, where material, the identity of the particular markets in which you compete, an estimate of the number of competitors and your competitive position, if known or reasonably available to you. Please discuss the principal methods of competition and any positive and negative factors pertaining to your competitive position, to the extent that they exist. Please refer to Item 101(c)(x) of Regulation S-K.
In response to the staff’s comment, please see the proposed disclosure under the caption “Competition” set forth on Exhibit A hereto, which is substantially the language that the Company proposes to add to the “Business” section of its 2009 Form 10-K.
6.
Please discuss the material effects that compliance with federal, state and local provisions, regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon your capital expenditures, earnings and competitive position. Also, please disclose any material estimated capital expenditures for environmental control facilities that you expect to make during the current fiscal year and next fiscal year. Please see Item 101(c)(xii) of Regulation S-K.
In response to the staff’s comment, please see the proposed disclosure under the caption “Water Quality and Environmental Regulation” set forth on Exhibit A hereto, which is substantially the language that the Company proposes to add to the “Business” section of its 2009 Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results..., page 9
7.
Please expand your discussion, which begins on page 8 of your 2008 Annual Report to Shareholders, to elaborate on known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. In doing so, provide additional information about the quality and variability of your earnings and cash flows so that investors can ascertain the likelihood of the extent past performance is indicative of future performance. In addition, please discuss in reasonable detail:
·
economic or industry-wide factors relevant to your company, and
·
material opportunities, challenges and risks in short and long term and the actions you are taking to address them.
For example, we note that your total debt load, long-term plus short-term debt, has trended upwards over the past couple of years. As a result, your interest expense has also increased during that time. Please discuss how this increased debt load and interest expense will affect, if at all, your operations and ability to obtain additional financing. Also, we note that your accounts receivable has trended upwards over the past few years. Please discuss the underlying causes for this upward trend. We note that your deferred regulatory assets went from $7,709,000 as of December 31, 2007 to $15,972,000 as of December 31, 2008. Please discuss the underlying causes for this change. Finally, we note your unfunded pension obligations has increased substantially over the past year. Please discuss how you intend to address this issue and how it may affect your operations and liquidity. Please see Item 303 of Regulation S-K and SEC Release No. 33-8350.
In response to the staff’s comments, please see the proposed revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section set forth on Exhibit B, which is substantially the language that the Company proposes to add in its 2009 Annual Report to Shareholders.
In addition, the Company has authorized us to inform you of the following:
The Company has not discussed the upward trend in its accounts receivable balances in past filings as it is simply the result of increased revenues – as revenues have increased over the years, so has the Company’s accounts receivable balances. This has generally been due to consistent increases in the number of customers served and the rate increases that have historically occurred every two to three years. Uncollectible receivables have not materially impacted the level of accounts receivable reported on the financial statements.
Deferred regulatory assets increased from $7,709,000 as of December 31, 2007 to $15,972,000 as of December 31, 2008 primarily due to an increase in the unfunded pension obligation ($5,441,000), and additionally due to recording the unrealized interest rate swap losses ($2,037,000) as a regulatory asset. Both of these items are described in Note 1 to the financial statements in the Company’s 2008 Annual Report to Shareholders under the caption “Regulatory Assets and Liabilities”.
The unfunded pension obligation rose significantly in 2008 mainly due to the underperformance of the assets in the pension portfolios. In addition, the obligation increased due to the fact that the discount rate used to calculate the present value of the obligation dropped by 50 basis points. The increase in the unfunded pension liability had no impact on the company’s results of operations in 2008 due to the deferral in regulatory assets. Please see the pension discussion in “Critical Accounting Estimates” for the accounting treatment. The Company is required to expense only the amount of cash contributions to the plans. As the unfunded pension obligation rises, the minimum required pension contribution may also rise, which would result in increased expense on the Company’s books. The Company would then have to request that additional contributions be reflected in rates in its next rate filing.
The Company plans to address the increase in unfunded pension obligations and the resulting regulatory asset through increased contributions to the pension plans and close monitoring of the investments in the pension plans. As the market recovers from the recession, the Company and its investment advisors will attempt to allocate the pension assets so that they are in the best position possible to take advantage of the recovery. Over time, the increased contributions to the plans and improved market conditions should erode the regulatory asset and reduce the unfunded pension liability. The company anticipates that any increase in pension contributions made to the plans will be recovered in rates.
The unrealized losses on the interest rate swap have been deferred as a regulatory asset because, based on historical practice, the company believes it will be probable to recover these costs as a component of interest expense, in its future rate filings. The company has been permitted to recover swap settlement costs in the past. Please see the “Interest Rate Swap Agreement” section of Note 1 to the Company’s financial statements included in the 2008 Annual Report to Shareholders.
If the Company determines that the effect of the unfunded pension obligation or unrealized losses on the interest rate swap are expected to have a material effect on the Company’s liquidity or operations, then appropriate disclosure will be included in the MD&A in the Company’s future filings.
8.
We note from your financial statements that you routinely do not maintain any cash on hand. Please discuss in your Liquidity and Capital Resources section, which begins on page 12 of your 2008 Annual Report to Shareholders, how this policy affects, if at all, your operations and your liquidity.
In response to the staff’s comment, please see the proposed revisions to the “Liquidity and Capital Resources” section set forth on Exhibit B, which is substantially the language that the Company proposes to add in its 2009 Annual Report to Shareholders.
9.
We note your statement on page 12 of your 2008 Annual Report to Shareholders that you intend to fund your construction and acquisition expenditures, in part, through customer advances and contributions. Please briefly discuss what you mean by “customer advances and contributions” and how significant you believe this source of funding will be to payment of your overall construction and acquisition expenditures or advise where this information is located in your disclosure and provide a cross-reference your disclosure.
In response to the staff’s comment, please see the proposed revisions to the “Liquidity and Capital Resources” section set forth on Exhibit B, which is substantially the language that the Company proposes to add in its 2009 Annual Report to Shareholders.
Contractual Obligations, page 16
10.
We note your statement in footnote (b) to your Contractual Obligations table, which is found on page 16 of your 2008 Annual Report to Shareholders, that your Interest on Long-Term Debt disclosure excludes interest on the $12,000 variable rate debt because you cannot reasonably estimate the payments on this interest. Please discuss why you are unable to reasonably estimate the payments.
The Company has authorized us to inform you that it is unable to reasonably estimate the interest payments on the $12,000,000 variable rate debt because the interest rate is reset on a weekly basis by the remarketing agent at the lowest rate of interest that, in the judgment of the remarketing agent, would cause the bonds underlying the variable rate debt to have a market value equal to the principal amount thereof ($12,000,000), plus accrued interest (if any), taking into account prevailing market conditions as of the date of determination. The Company intends to revise this footnote in its future filings to provide substantially the explanation provided in the previous sentence.
Item 9A. Controls and Procedures, page 12
(a) Evaluation of Disclosure Controls and Procedures, page 12
11.
We note your statement in your Form 10-K for the fiscal year ended December 31, 2008 and your Form 10-Q for the periods ended March 31, 2009 and June 30, 2009 state that “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…” Please confirm for the periods ended December 31, 2008, March 31, 2009 and June 30, 2009 that your disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that your principal executive officer and principal financial officer concluded that your disclosure controls and procedures are effective, rather than functioning effectively, at that reasonable assurance level. Please include similar disclosure in future filings. In the alternative, please remove the reference to the level of assurance of your disclosure controls and procedures and state that your disclosure controls and procedures are effective. Please refer to Section II.F.4 of Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, SEC Release No. 33-8238.
The Company has authorized us to inform you that for the periods ended December 31, 2008, March 31, 2009 and June 30, 2009, its disclosure controls and procedures were designed to provide reasonable assurance of achieving its objectives and that its principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. In its future periodic filings, beginning with its third quarter 2009 Form 10-Q, the Company will remove the reference to the level of assurance of its disclosure controls and procedures and state that its disclosure controls and procedures are effective (if that is the case).
Exhibits, page 19
Exhibit 10 Material Contracts
12.
Please file complete copies of material agreements, including all exhibits, schedules and attachments. See Item 601(b)(10) of Regulation S-K. For example, we note that Exhibit A was omitted from Exhibit 10.11. We also note similar issues with Exhibits 10.12, 10.14 and 10.17. While 601(b)(2
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CORRESP
1
filename1.htm
corresp090909.htm
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Tel: 215.963.5000
Fax: 215.963.5001
www.morganlewis.com
Brian C. Miner
(215) 963-5430
bminer@morganlewis.com
September 9, 2009
VIA EDGAR AND EMAIL
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn: H. Christopher Owings, Assistant Director
Re:
The York Water Company
Form 10-K for Fiscal Year Ended December 31, 2008
Filed March 11, 2009
Definitive Proxy Statement on Schedule 14A
Filed March 18, 2009
Form 10-Q for the Fiscal Quarters Ended March 31, 2009 and June 30, 2009
Filed May 8, 2009 and August 7, 2009
File No. 001-34245
Dear Mr. Owings,
This letter is being submitted in response to the comments given by the staff of the Division of Corporation Finance as set forth in your letter to Mr. Jeffrey R. Hines, President and Chief Executive Officer of The York Water Company (the “Company”), dated August 17, 2009, with respect to the above-referenced filings.
For your convenience, we have set forth each comment in italicized typeface and included each response below the relevant comment and have provided marked language to show proposed changes to current disclosure.
Form 10-K for the Fiscal Year Ended December 31, 2008
General
1.
You indicate on the cover page of your Form 10-K and Forms 10-Q that your Commission file number is 0-690. However, we note that the Commission file number related to these filings is 001-34245. Please use Commission file number 001-34245 when filing your periodic reports.
The Company has authorized us to inform you that, beginning with the third quarter 2009 Form 10-Q, the Company will use 001-34245 as the Commission file number when filing its periodic reports.
2.
On your corporate web site, please include a hyperlink directly to the section 16 forms filed by section 16 reporting persons. Currently, the link that you provide is to the list of all of your SEC filings. Please refer to Final Rule: Mandated Electronic Filing and Website Posting for Forms 3, 4 and
5, Release No. 33-8230 (May 7, 2003).
The Company has authorized us to inform you that an additional link directly to its Section 16 filings is now provided on the Company’s website under “Investor Relations, Insider Filings.”
3.
In future filings please provide in your Form 10-K the disclosure required under Item 101(e)(4) of Regulation S-K regarding the availability of your filed reports on your website. Please confirm your understanding in this regard.
Please note that the following disclosure was contained at the end of the “Shareholder Information” section of the 2008 Annual Report to Shareholders, which was filed as Exhibit 13 to the 2008 Form 10-K and expressly incorporated into the Business section:
“The Annual Report as well as reports filed with the SEC and other information about the Company can be found on the Company's website at: www.yorkwater.com.”
The Company has authorized us to inform you that it will revise this language in future filings to more closely track the wording of Item 101(e)(4) of Regulation S-K.
Item 1. Business, page 2
4.
Since the Pennsylvania Public Utility Commission regulates some of your operations, please discuss if any material portion of your business is subject to renegotiation of profit at the election of the Pennsylvania Public Utility Commission or another governmental entity. Please refer to Item 101(c)(ix) of Regulation S-K.
The Company has authorized us to inform you that no part of its business is subject to renegotiation of profit at the election of the Pennsylvania Public Utility Commission or another governmental entity.
5.
We note your statement in the second risk factor on page five that you may face competition from other water suppliers. Please discuss the competitive conditions in your business including, where material, the identity of the particular markets in which you compete, an estimate of the number of competitors and your competitive
position, if known or reasonably available to you. Please discuss the principal methods of competition and any positive and negative factors pertaining to your competitive position, to the extent that they exist. Please refer to Item 101(c)(x) of Regulation S-K.
In response to the staff’s comment, please see the proposed disclosure under the caption “Competition” set forth on Exhibit A hereto, which is substantially the language that the Company proposes to add to the “Business” section of its 2009 Form
10-K.
6.
Please discuss the material effects that compliance with federal, state and local provisions, regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon your capital expenditures, earnings and competitive position. Also, please disclose any material
estimated capital expenditures for environmental control facilities that you expect to make during the current fiscal year and next fiscal year. Please see Item 101(c)(xii) of Regulation S-K.
In response to the staff’s comment, please see the proposed disclosure under the caption “Water Quality and Environmental Regulation” set forth on Exhibit A hereto, which is substantially the language that the Company proposes to add to the “Business”
section of its 2009 Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results..., page 9
7.
Please expand your discussion, which begins on page 8 of your 2008 Annual Report to Shareholders, to elaborate on known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. In
doing so, provide additional information about the quality and variability of your earnings and cash flows so that investors can ascertain the likelihood of the extent past performance is indicative of future performance. In addition, please discuss in reasonable detail:
·
economic or industry-wide factors relevant to your company, and
·
material opportunities, challenges and risks in short and long term and the actions you are taking to address them.
For example, we note that your total debt load, long-term plus short-term debt, has trended upwards over the past couple of years. As a result, your interest expense has also increased during that time. Please discuss how this increased debt load and interest expense will affect, if at all, your operations
and ability to obtain additional financing. Also, we note that your accounts receivable has trended upwards over the past few years. Please discuss the underlying causes for this upward trend. We note that your deferred regulatory assets went from $7,709,000 as of December 31, 2007 to $15,972,000 as of December 31, 2008. Please discuss the underlying causes for this change. Finally, we note your unfunded pension obligations has increased substantially over
the past year. Please discuss how you intend to address this issue and how it may affect your operations and liquidity. Please see Item 303 of Regulation S-K and SEC Release No. 33-8350.
In response to the staff’s comments, please see the proposed revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section set forth on Exhibit B, which is substantially the language that the Company proposes
to add in its 2009 Annual Report to Shareholders.
In addition, the Company has authorized us to inform you of the following:
The Company has not discussed the upward trend in its accounts receivable balances in past filings as it is simply the result of increased revenues – as revenues have increased over the years, so has the Company’s accounts receivable balances. This has generally been due to consistent increases in the number of customers served
and the rate increases that have historically occurred every two to three years. Uncollectible receivables have not materially impacted the level of accounts receivable reported on the financial statements.
Deferred regulatory assets increased from $7,709,000 as of December 31, 2007 to $15,972,000 as of December 31, 2008 primarily due to an increase in the unfunded pension obligation ($5,441,000), and additionally due to recording the unrealized interest rate swap losses ($2,037,000) as a regulatory asset. Both of these items are described
in Note 1 to the financial statements in the Company’s 2008 Annual Report to Shareholders under the caption “Regulatory Assets and Liabilities”.
The unfunded pension obligation rose significantly in 2008 mainly due to the underperformance of the assets in the pension portfolios. In addition, the obligation increased due to the fact that the discount rate used to calculate the present value of the obligation dropped by 50 basis points. The increase in the unfunded
pension liability had no impact on the company’s results of operations in 2008 due to the deferral in regulatory assets. Please see the pension discussion in “Critical Accounting Estimates” for the accounting treatment. The Company is required to expense only the amount of cash contributions to the plans. As the unfunded pension obligation rises, the minimum required pension contribution may also rise, which would result in increased expense on the Company’s
books. The Company would then have to request that additional contributions be reflected in rates in its next rate filing.
The Company plans to address the increase in unfunded pension obligations and the resulting regulatory asset through increased contributions to the pension plans and close monitoring of the investments in the pension plans. As the market recovers from the recession, the Company and its investment advisors will attempt to allocate
the pension assets so that they are in the best position possible to take advantage of the recovery. Over time, the increased contributions to the plans and improved market conditions should erode the regulatory asset and reduce the unfunded pension liability. The company anticipates that any increase in pension contributions made to the plans will be recovered in rates.
The unrealized losses on the interest rate swap have been deferred as a regulatory asset because, based on historical practice, the company believes it will be probable to recover these costs as a component of interest expense, in its future rate filings. The company has been permitted to recover swap settlement costs in the past. Please
see the “Interest Rate Swap Agreement” section of Note 1 to the Company’s financial statements included in the 2008 Annual Report to Shareholders.
If the Company determines that the effect of the unfunded pension obligation or unrealized losses on the interest rate swap are expected to have a material effect on the Company’s liquidity or operations, then appropriate disclosure will be included in the MD&A in the Company’s future filings.
8.
We note from your financial statements that you routinely do not maintain any cash on hand. Please discuss in your Liquidity and Capital Resources section, which begins on page 12 of your 2008 Annual Report to Shareholders, how this policy affects, if at all, your operations and your liquidity.
In response to the staff’s comment, please see the proposed revisions to the “Liquidity and Capital Resources” section set forth on Exhibit B, which is substantially the language that the Company proposes to add in its 2009 Annual Report to Shareholders.
9.
We note your statement on page 12 of your 2008 Annual Report to Shareholders that you intend to fund your construction and acquisition expenditures, in part, through customer advances and contributions. Please briefly discuss what you mean by “customer advances and contributions” and how significant you believe
this source of funding will be to payment of your overall construction and acquisition expenditures or advise where this information is located in your disclosure and provide a cross-reference your disclosure.
In response to the staff’s comment, please see the proposed revisions to the “Liquidity and Capital Resources” section set forth on Exhibit B, which is substantially the language that the Company proposes to add in its 2009 Annual Report to Shareholders.
Contractual Obligations, page 16
10.
We note your statement in footnote (b) to your Contractual Obligations table, which is found on page 16 of your 2008 Annual Report to Shareholders, that your Interest on Long-Term Debt disclosure excludes interest on the $12,000 variable rate debt because you cannot reasonably estimate the payments on this interest. Please
discuss why you are unable to reasonably estimate the payments.
The Company has authorized us to inform you that it is unable to reasonably estimate the interest payments on the $12,000,000 variable rate debt because the interest rate is reset on a weekly basis by the remarketing agent at the lowest rate of interest that, in the judgment of the remarketing agent, would cause the bonds underlying the variable
rate debt to have a market value equal to the principal amount thereof ($12,000,000), plus accrued interest (if any), taking into account prevailing market conditions as of the date of determination. The Company intends to revise this footnote in its future filings to provide substantially the explanation provided in the previous sentence.
Item 9A. Controls and Procedures, page 12
(a) Evaluation of Disclosure Controls and Procedures, page 12
11.
We note your statement in your Form 10-K for the fiscal year ended December 31, 2008 and your Form 10-Q for the periods ended March 31, 2009 and June 30, 2009 state that “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…” Please confirm for the periods ended December 31, 2008, March 31, 2009 and June 30, 2009 that your disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that your principal executive officer and principal financial officer concluded that your disclosure controls and procedures are effective,
rather than functioning effectively, at that reasonable assurance level. Please include similar disclosure in future filings. In the alternative, please remove the reference to the level of assurance of your disclosure controls and procedures and state that your disclosure controls and procedures are effective. Please refer to Section II.F.4 of Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports,
SEC Release No. 33-8238.
The Company has authorized us to inform you that for the periods ended December 31, 2008, March 31, 2009 and June 30, 2009, its disclosure controls and procedures were designed to provide reasonable assurance of achieving its objectives and that its principal executive officer and principal financial officer concluded that its disclosure controls
and procedures were effective. In its future periodic filings, beginning with its third quarter 2009 Form 10-Q, the Company will remove the reference to the level of assurance of its disclosure controls and procedures and state that its disclosure controls and procedures are effective (if that is the case).
Exhibits, page 19
Exhibit 10 Material Contracts
12.
Please file complete copies of material agreements, including all exhibits, schedules and attachments. See Item 601(b)(10) of Regulation S-K. For example, we note that Exhibit A was omitted from Exhibit 10.11. We also note similar issues with Exhibits 10.12, 10.14 and 10.17. While 601(b)(2