SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 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 2,968,394 Shares outstanding
as of September 30, 1998
<PAGE>
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
Sept.30,1998 Dec. 31, 1997
UTILITY PLANT, at original cost $100,740,044 $97,487,926
Less-Reserve for depreciation 15,465,957 14,332,890
85,274,087 83,155,036
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$68,970 in 1998 and $65,193 in 1997 496,754 498,859
CURRENT ASSETS:
Cash and cash equivalents 801,034 -
Receivables, less reserves of
$110,000 in 1998 and $110,000
in 1997 2,648,623 2,540,075
Recoverable income taxes 123,708 547,182
Materials and supplies, at cost 321,926 337,837
Prepaid expenses 239,847 190,314
Deferred income taxes 75,017 75,017
4,210,155 3,690,425
OTHER LONG-TERM ASSETS:
Prepaid pension cost 1,802,984 1,732,394
Deferred debt expense 414,749 440,163
Deferred rate case expense - 57,055
Notes receivable 882,431 913,934
Deferred regulatory assets 7,545,850 7,287,799
Other 1,188,124 1,078,409
11,834,138 11,509,754
$101,815,134 $98,854,074
<PAGE>
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
Sept.30,1998 Dec. 31, 1997
CAPITALIZATION
Common stock, no par value,
authorized 6,000,000 shares in
1998 and in 1997, outstanding
2,968,394 shares in 1998 and
2,934,782 shares in 1997 $27,083,057 $26,453,873
Earnings retained in the business 3,074,684 2,696,913
30,157,741 29,150,786
LONG-TERM DEBT
5.0% Industrial Development Authority
Refunding Bonds, Series 1995, due
2010 4,300,000 4,300,000
10.05% Senior Notes, Series C,
due 2020 6,500,000 6,500,000
10.17% Senior Notes, Series A,
due 2019 6,000,000 6,000,000
9.6% Senior Notes, Series B,due 2019 5,000,000 5,000,000
8.43% Senior Notes,Series D,due 2022 7,500,000 7,500,000
4.75% Industrial Development
Authority Revenue Refunding Bonds,
Series 1994, due 2009 2,700,000 2,700,000
32,000,000 32,000,000
CURRENT LIABILITIES
Short-term borrowings 500,000 843,000
Accounts payable 240,648 551,402
Dividends payable 501,035 488,483
Accrued taxes 119,725 115,073
Advance water revenues 213,998 182,118
Accrued interest 483,774 675,761
Other accrued expenses 423,191 345,939
2,482,371 3,201,776
DEFERRED CREDITS
Customers' advances for construction 17,846,539 16,219,638
Contributions in aid of construction 5,944,300 5,861,487
Deferred income taxes 10,425,561 9,807,788
Deferred regulatory liabilities 1,706,942 1,572,985
Deferred employee benefits 1,251,680 1,039,614
37,175,022 34,501,512
101,815,134 98,854,074
<PAGE>
<TABLE> THE YORK WATER COMPANY
Statements of Income
<CAPTION> (Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
<S> 1998 1997 1998 1997
WATER OPERATING REVENUES <C> <C> <C> <C>
Residential $2,699,361 $2,718,675 $7,528,069 $7,527,350
Commercial and
industrial 1,459,238 1,442,767 4,014,440 3,974,357
Other 454,237 451,465 1,347,172 1,278,181
4,612,836 4,612,907 12,889,681 12,779,888
OPERATING EXPENSES
Operation and
maintenance 986,421 1,066,201 2,927,474 2,834,492
Administrative and
general 858,476 822,852 2,337,909 2,347,843
1,844,897 1,889,053 5,265,383 5,182,335
Depreciation 409,144 388,085 1,227,433 1,164,254
Taxes other than
income taxes 289,931 263,168 821,041 779,045
Federal and state
income taxes 500,261 524,469 1,253,940 1,244,320
3,044,233 3,064,775 8,567,797 8,369,954
Operating Income 1,568,603 1,548,132 4,321,884 4,409,934
INTEREST EXPENSE AND
OTHER EXPENSE/(INCOME)
Interest on long-term
debt 679,738 679,738 2,039,213 2,039,213
Interest on short-term
debt 7,177 2,158 29,732 27,670
Allowance for funds used
during construction (15,327) (12,140) (67,474) (21,642)
Other income, net (69,575) (73,132) (104,389) (139,119)
602,013 596,624 1,897,082 1,906,122
Net Income $ 966,590 $ 951,508 $2,424,802 $2,503,812
Basic Earnings Per Share $.33 $.33 $.82 $.86
Cash Dividends Per Share $.24 $.23 $.70 $.68
/TABLE
<PAGE>
<TABLE> THE YORK WATER COMPANY
Statements of Cash Flows
<CAPTION> (Unaudited) (Unaudited)
Nine Months Nine Months
Ended Ended
Sept.30, 1998 Sept.30, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,424,802 $2,503,812
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 1,227,433 1,164,254
Provision for losses on accounts
receivable 76,500 73,500
Increase (decrease) in deferred
income taxes (including regulatory
assets and liabilities) 493,679 (101,477)
Changes in assets and liabilities:
Increase in accounts receivable (185,048) (217,398)
Decrease in recoverable income taxes 423,474 159,203
Decrease in materials and supplies 15,911 2,363
Increase in prepaid expenses and
prepaid pension costs (120,123) (171,380)
Increase (decrease) in accounts
payable, accrued expenses, other
liabilities and deferred employee
benefits 22,996 (71,023)
(Decrease) increase in accrued
interest and taxes (187,335) 58,348
Decrease in other assets 84,667 112,176
Net cash provided by operating
activities 4,276,956 3,512,378
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (3,456,292) (2,727,389)
Customers' advances for construction
and contributions in aid of
construction 1,709,714 1,013,485
Net cash used in investing
activities (1,746,578) (1,713,904)
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line-of-credit
agreements (343,000) (898,000)
Issuance of common stock under
dividend reinvestment plan 569,006 413,205
Issuance of common stock under
employee stock purchase plan 60,178 59,125
Dividends paid (2,047,031) (1,977,672)
Decrease in notes receivable 31,503 43,374
Net cash used in financing
activities (1,729,344) (2,359,968)
Net increase (decrease) in cash and
cash equivalents 801,034 (561,494)
Cash and cash equivalents at beginning
of period - 694,491
Cash and cash equivalents at end
of period $801,034 $ 132,997
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest, net of amounts capitalized $2,188,142 $2,241,957
Income taxes 765,075 1,029,567
/TABLE
<PAGE>
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 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
1997.
Operating results for the three month and nine month periods
ended September 30, 1998, are not necessarily indicative of
the results that may be expected for the year ending
December 31, 1998.
2. Basic Earnings Per Share
Basic earnings per share for the nine months ended September
30, 1998 and 1997 were based on weighted average shares
outstanding of 2,951,146 and 2,912,372, respectively.
<PAGE>
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Months Ended September 30, 1998 Compared
with Three Months Ended September 30, 1997
Net income for the three months ended September 30, 1998 was
$966,590, an increase of $15,082 (1.6%) compared to the three
months ended September 30, 1997.
Water operating revenues for the three months ended September 30,
1998 were consistent with the three months ended September 30,
1997.
Operating expenses, exclusive of depreciation and taxes, for the
three months ended September 30, 1998 decreased $44,156 or 2.3%
compared to the three months ended September 30, 1997. Reduced
expenses for maintenance of purification structures and mains
were the primary reasons for the decrease. Higher expenses for
pumping equipment maintenance, deferred compensation,
professional services, and pensions partially offset the
decrease.
Depreciation expense for the three months ended September 30,
1998 increased $21,059 or 5.4% compared to the three months ended
September 30, 1997 due to increased plant investment.
Increased realty taxes caused the 10.1% increase in taxes other
than income taxes.
Federal and state income taxes for the three months ended
September 30, 1998 decreased $24,208 or 4.6% compared to the
three months ended September 30, 1997 principally as a result of
a decrease in taxable net income. The effective tax rates for
the quarters ended September 30, 1998 and 1997 were 34.1% and
35.5%, respectively.
Nine Months Ended September 30, 1998 Compared
with Nine Months Ended September 30, 1997
Net income for the nine months ended September 30, 1998 was
$2,424,802, a decrease of $79,010 (3.2%) compared to the nine
months ended September 30, 1997.
Water operating revenues for the nine months ended September 30,
1998 increased $109,793 (.9%) compared to the nine months ended
September 30, 1997. Consumption was higher in the commercial and
industrial sectors, while declining slightly in the residential
sector.
Operating expenses, exclusive of depreciation and taxes, for the
nine months ended September 30, 1998 increased $83,048 or 1.6%
compared to the nine months ended September 30, 1997. The main
causes of the increase were higher pension expense, additional
deferred compensation liability, and higher pumping equipment
maintenance costs. Expenses for water analysis required by the
Safe Drinking Water Act and computer system maintenance for the
year 2000 added to the increase. Workers compensation and
package commercial insurance credits, reduced legal fees, lower
postage, lower meter reading expenses, and lower purification
structure maintenance substantially reduced the increase.
Depreciation expense for the nine months ended September 30, 1998
increased $63,179 or 5.4% compared to the nine months ended
September 30, 1997 due to increased plant investment.
Increased realty taxes and capital stock taxes caused the 5.4%
increase in taxes other than income taxes.
Allowance for funds used during construction for the first nine
months of 1998 increased $45,832 when compared to the same period
in 1997. The increase was due to two main projects, the Southern
York County main extension and the Hametown Booster Station.
Year 2000
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The "year 2000" issue is pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate
erroneous data or cause a system to fail.
The Company has done an inventory of programs and has developed a
plan, including a timetable, for solving and testing year 2000
issues.
The Company has identified three areas that do have 2000
compliance issues: Accounting, communications and embedded
technology.
As far as accounting, the Company will be replacing all of its
current software. The software upgrade is approximately 50%
complete and is expected to be completely installed by the end of
1998. This will allow for testing and adjustments to be made
throughout 1999. Current software will be used in the event
something unanticipated occurs with the software upgrade.
The Company's electronic communications review has been completed
and all necessary changes have been made. Only slight
modifications were required.
In the area of embedded technology, the Company is working with
the manufacturers of all our time sensitive equipment to make
sure the date field in the software has been located and updated
to accept a four-digit date. The Company has identified filter
plant control units, PC's, burglar alarms, and the check encoder
as some of the items to be addressed for year 2000 problems. The
Company expects to solve problems and test solutions in this area
by the end of March 1999.
As of September 1998, the Company incurred costs of approximately
$27,000, and estimates total costs of year 2000 remediation
efforts to reach $80,000.
While the Company anticipates that critical vendors and suppliers
will be year 2000 compliant, contingency plans will be put in
place so that water service to customers will not be interrupted.
In one of our most critical areas, energy, the Company already
has emergency power generators installed as backups at most
locations. Those locations which currently have no emergency
backup, will have alternate energy sources by the year 2000.
Rate Developments
Within the last several years the Company has filed written
applications for rate increases with the PPUC and has been
granted rate relief as a result of such requests. The most
recent formal rate request was filed by the Company on May 9,
1996 seeking a 9.6% increase in annual revenues. Effective
September 5, 1996, the PPUC authorized an increase in rates
designed to produce approximately $960,000 in additional annual
revenues, an increase of approximately 6.0%. The Company does
not expect to file for another rate increase until after 1998.
Liquidity and Capital Resources
During the first nine months of 1998, the per capita volume of
water sold did not significantly change compared to the first
nine months of 1997. The Company does not anticipate any change
in the level of water usage which would have a material impact on
future results of operations.
During the nine months ended September 30, 1998, the Company had
$3,456,292 of construction expenditures. The Company financed
such expenditures through internally generated funds, customers'
advances, short-term borrowings, and proceeds from the issuance
of common stock under its dividend reinvestment plan (stock
issued in lieu of cash dividends) and employee stock purchase
plan.
During the first nine months of 1998, net cash provided by
operating activities exceeded net cash used in investing and
financing activities. The Company anticipates that during the
remainder of 1998 net cash used in investing and financing
activities will exceed net cash provided by operating activities.
Borrowings against the Company's lines of credit, proceeds from
the issuance of common stock under its dividend reinvestment plan
(stock issued in lieu of cash dividends) and employee stock
purchase plan, and customers' advances are expected to be used to
satisfy the need for additional cash.
As of September 30, 1998, current assets exceeded current
liabilities by $1,727,784. Short-term borrowings from lines of
credit as of September 30, 1998 were $500,000. The Company
maintains lines of credit aggregating $20,000,000. Loans granted
under these lines of credit bear interest based on the prime or
Libor rates plus basis points, as defined. The Company is not
required to maintain compensating balances on its lines of
credit.
Certain statements contained herein and elsewhere in this Form
10-Q which are not historical facts are forward-looking
statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-
looking statements address activities or events which the Company
expects will or may occur in the future. The Company cautions
that a number of important factors could cause the actual results
to differ materially from those expressed in any forward-looking
statements made on behalf of the Company.
Recently Issued Accounting Standards
In January 1997, the Securities and Exchange Commission amended
regulations and forms, including regulations S-X and S-K, to
clarify and expand existing disclosure requirements about
accounting policies for certain derivative instruments, and to
add new disclosure requirements about the risk of loss from
changes in market rates or prices which are inherent in
derivatives. Adoption by the Company of the disclosure
requirements relating to risk of loss, which requirements are
effective for fiscal years ending after June 15, 1998, did not
have a material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," and No. 131, "Disclosure about
Segments of an Enterprise and Related Information." These
statements establish standards for reporting and display of
comprehensive income and its components and for reporting
information about business segments and products in financial
statements, and are effective for years beginning after December
15, 1997. Adoption of these statements did not have a material
effect on the Company's financial statements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS 132) which
amends the disclosure requirements of Statements No. 87,
"Employers' Accounting for Pensions" (SFAS 87), No. 88,
"Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" (SFAS
88), and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions (SFAS 106). The statement is
effective for fiscal years beginning after December 15, 1997.
Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity
as of June 30, 1998.
In June 1998, the FASB issued Statement of Financial Position No.
133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). The statement establishes accounting and
reporting standards for derivative instruments and is effective
for fiscal years beginning after June 15, 1999. Adoption of this
statement is not expected to have a material effect on the
Company's financial position, results of operations, or
liquidity.
<PAGE>
THE YORK WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE YORK WATER COMPANY
/s/ William T. Morris
William T. Morris
Principal Executive Officer
Date: November 13, 1998
/s/ Jeffrey S. Osman
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: November 13, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000108985
<NAME> YORK WATER CO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 85274087
<OTHER-PROPERTY-AND-INVEST> 496754
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</TABLE>
