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, 1999 Commission File No. 0-690
THE YORK WATER COMPANY
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1242500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 East Market Street, York, Pennsylvania 17401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including Area Code 717-845-3601
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, No par value 3,003,486 Shares outstanding
as of June 30, 1999
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
June 30, 1999 Dec. 31, 1998
UTILITY PLANT, at original cost $104,682,348 $102,088,220
Less-Reserve for depreciation 16,327,184 15,687,003
88,355,164 86,401,217
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$73,089 in 1999 and $70,457 in 1998 506,020 495,267
CURRENT ASSETS:
Cash and cash equivalents 120,154 257,706
Receivables, less reserves of
$120,000 in 1999 and in 1998 2,608,634 2,481,799
Recoverable income taxes 71,608 -
Materials and supplies, at cost 353,622 361,400
Prepaid expenses 263,933 174,888
Deferred income taxes 81,836 81,836
3,499,787 3,357,629
OTHER LONG-TERM ASSETS:
Prepaid pension cost 1,873,574 1,826,514
Deferred debt expense 409,218 406,277
Deferred rate case expense 78,770 4,820
Notes receivable 776,048 813,075
Deferred regulatory assets 8,054,383 7,959,948
Other 1,310,757 1,214,344
12,502,750 12,224,978
$104,863,721 $102,479,091
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
June 30, 1999 Dec. 31, 1998
CAPITALIZATION
Common stock, no par value,
authorized 31,000,000 shares in
1999 and 6,000,000 shares in 1998,
outstanding 3,003,486 shares in
1999 and 2,979,722 shares in 1998 $ 27,700,732 $ 27,292,726
Earnings retained in the business 3,115,066 3,087,710
30,815,798 30,380,436
LONG-TERM DEBT
5.0% Industrial Development
Authority Revenue Refunding Bonds,
Series 1995, due 2010 4,300,000 4,300,000
10.05% Senior Notes, Series C,
due 2020 6,500,000 6,500,000
10.17% Senior Notes, Series A,
due 2019 6,000,000 6,000,000
9.6% Senior Notes, Series B,
due 2019 5,000,000 5,000,000
8.43% Senior Notes, Series D,
due 2022 7,500,000 7,500,000
4.40% Industrial Development
Authority Revenue Refunding Bonds,
Series 1994, due 2009 2,700,000 2,700,000
32,000,000 32,000,000
CURRENT LIABILITIES
Short-term borrowings 509,000 -
Accounts payable 479,849 290,179
Dividends payable 523,820 506,415
Accrued taxes 46,599 347,244
Advance water revenues 220,353 216,478
Accrued interest 674,974 675,761
Other accrued expenses 375,895 338,431
2,830,490 2,374,508
DEFERRED CREDITS
Customers' advances for construction 17,458,068 16,689,050
Contributions in aid of construction 7,018,563 7,080,610
Deferred income taxes 11,369,691 10,967,235
Deferred regulatory liabilities 1,827,868 1,681,584
Deferred employee benefits 1,543,243 1,305,668
39,217,433 37,724,147
$104,863,721 $102,479,091
<PAGE>
THE YORK WATER COMPANY
Statements of Income
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
WATER OPERATING REVENUES
Residential $2,590,360 $2,480,183 $5,050,632 $4,828,708
Commercial and
industrial 1,335,046 1,327,641 2,560,233 2,555,202
Other 478,064 451,453 951,322 892,935
4,403,470 4,259,277 8,562,187 8,276,845
OPERATING EXPENSES
Operation and
maintenance 1,024,540 1,048,226 1,908,303 1,941,053
Administrative and
general 930,665 752,673 1,778,975 1,479,433
Depreciation 413,286 409,145 826,572 818,289
Taxes other than
income taxes 267,807 259,423 534,578 531,110
2,636,298 2,469,467 5,048,428 4,769,885
Operating Income 1,767,172 1,789,810 3,513,759 3,506,960
INTEREST EXPENSE AND
OTHER EXPENSE/(INCOME)
Interest on long-term
debt 678,949 679,737 1,358,687 1,359,475
Interest on short-term
debt 3,902 7,231 4,688 22,555
Allowance for funds used
during construction (16,621) (25,641) (29,882) (52,147)
Other income, net (61,352) (26,091) (80,425) (34,814)
604,878 635,236 1,253,068 1,295,069
Income before income
taxes 1,162,294 1,154,574 2,260,691 2,211,891
Federal and state
income taxes 431,167 395,567 830,005 753,679
Net Income $ 731,127 $ 759,007 $1,430,686 $1,458,212
Basic Earnings Per Share $0.25 $0.25 $0.48 $0.49
Cash Dividends Per Share $0.23 $0.23 $0.47 $0.46
<PAGE>
THE YORK WATER COMPANY
Statements of Cash Flows
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,430,686 $1,458,212
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 826,572 818,289
Provision for losses on
accounts receivable 58,500 51,000
Increase in deferred income taxes
(including regulatory assets and
liabilities) 454,305 338,163
Changes in assets and liabilities:
Increase in accounts receivable (185,335) (79,857)
(Increase) decrease in recoverable
income taxes (71,608) 397,141
Decrease in materials and supplies 7,778 23,522
Increase in prepaid expenses and
prepaid pension costs (136,105) (135,185)
Increase in accounts payable,
accrued expenses, other liabilities
and deferred employee benefits 485,989 106,828
Decrease in accrued interest
and taxes (301,432) (9,280)
Increase in other assets (53,539) (53,065)
Net cash provided by operating
activities 2,515,811 2,915,768
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (2,911,037) (2,368,371)
Customers' advances for construction
and contributions in aid of
construction 706,971 1,336,167
Decrease in notes receivable 37,027 53,907
Net cash used in investing
activities (2,167,039) (978,297)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line-of-credit agreements 509,000 (343,000)
Issuance of common stock under
dividend reinvestment plan 369,893 375,355
Issuance of common stock under
employee stock purchase plan 38,113 39,582
Dividends paid (1,403,330) (1,352,281)
Net cash used in financing
activities (486,324) (1,280,344)
Net (decrease) increase in cash
and cash equivalents (137,552) 657,127
Cash and cash equivalents at
beginning of period 257,706 -
Cash and cash equivalents at
end of period $ 120,154 $ 657,127
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized $1,332,768 $1,328,746
Income taxes 588,903 417,298
<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 1998.
Operating results for the three month and six month
periods ended June 30, 1999, are not necessarily indicative of
the results that may be expected for the year ending December 31,
1999.
2. Basic Earnings Per Share
Basic earnings per share for the six months ended June
30, 1999 and 1998 were based on weighted average shares
outstanding of 2,994,730 and 2,948,130, 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 June 30, 1999 Compared
with Three Months Ended June 30, 1998
Net income for the three months ended June 30, 1999 was $731,127,
a decrease of $27,880 or 3.7% compared to the three months ended
June 30, 1998.
Water operating revenues for the three months ended June 30, 1999
increased $144,193 or 3.4% compared to the three months ended
June 30, 1998. Consumption was up by 2.4% overall with the
largest increase occurring in the residential area.
Operating expenses for the three months ended June 30, 1999
increased $166,831 or 6.8% compared to the three months ended
June 30, 1998. Deferred compensation, retirement costs, legal
fees related to union negotiations, stock transfer fees, year
2000 system maintenance and reduced premium credits for package
and workers compensation insurance were the primary reasons for
the increase. Declines in electric costs, water analysis fees,
filter plant maintenance, rate case expense, and service line
maintenance partially offset the increase.
Federal and state income taxes for the three months ended June
30, 1999 increased $35,600 or 9.0% when compared to the same
period in 1998 primarily as a result of an increase in taxable
net income. The effective tax rates for the quarters ended June
30, 1999 and 1998 were 37.1% and 34.3%, respectively.
Six Months Ended June 30, 1999 Compared
with Six Months Ended June 30, 1998
Net income for the six months ended June 30, 1999 was $1,430,686,
a decrease of $27,526 or 1.9% compared to the six months ended
June 30, 1998.
Water operating revenues for the six months ended June 30, 1999
increased $285,342 or 3.4% compared to six months ended June 30,
1998. Residential consumption increased 2.7%, while net
commercial and industrial consumption declined slightly (.1%).
Other revenues including public consumption and fire service
revenues increased in 1999 compared to 1998.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Operating expenses for the six months ended June 30, 1999
increased $278,543 or 5.8% compared to the six months ended June
30, 1998. Deferred compensation, retirement costs, expenses
related to the printing of our first water quality report, legal
fees related to strategic planning, shareholder rights, and union
negotiations, year 2000 system maintenance, and reduced premium
credits for package and workers compensation insurance were the
primary reasons for the increase. Declines in electric costs,
filter plant maintenance, rate case expense, and service line and
hydrant maintenance expenses partially offset the increase.
Interest on interim bank loans decreased $17,867 or 79.2% through
June 30, 1999 compared to June 30, 1998 due to a decrease in
short-term debt outstanding in 1999. The average short-term debt
outstanding in 1999 and 1998 was $143,149 and $641,972,
respectively.
Allowance for funds used during construction for the first six
months of 1999 decreased $22,265 when compared to the same period
in 1998 due mainly to the completion of the Southern York County
main extension and the Hametown Booster Station.
Federal and state income taxes for the six months ended June 30,
1999 increased $76,326 or 10.1% when compared to the same period
in 1998 primarily as a result of an increase in taxable income.
The effective tax rates for the first half of 1999 and 1998 were
36.7% and 34.1%, respectively.
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 April 22,
1999 seeking a $1,535,946 or 8.8% increase in annual revenues.
The PPUC is currently examining the potential rate increase.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
During the first six months of 1999, the per capita volume of
water sold did not significantly change compared to the first six
months of 1998. The Company does not anticipate any change in
the level of water usage, other than the unknown effects of the
drought, which could have a material impact on future results of
operations.
During the first half of 1999, the Company had $2,911,037 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 half of 1999, net cash used in investing and
financing activities exceeded net cash provided by operating
activities. The Company anticipates that during the remainder of
1999 net cash used in investing and financing activities will
again 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 June 30, 1999, current assets exceeded current liabilities
by $669,297. Short-term borrowings from lines of credit as of
June 30, 1999 were $509,000. The Company maintains lines of
credit aggregating $17,000,000. 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.
Year 2000
This statement constitutes a year 2000 readiness disclosure by
The York Water Company, under the Year 2000 Information and
Readiness Disclosure Act.
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 year 2000
compliance issues: Accounting, communications and embedded
technology.
As far as accounting, the Company is replacing all of its current
software. The software upgrade is approximately 80% complete and
is expected to be completely installed by the end of third
quarter 1999. This will allow for testing and adjustments to be
made through the remainder of 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.
The Company's embedded technology review has been completed and
all necessary changes have been made. Only slight modifications
were required.
As of June 30, 1999, the Company incurred costs of approximately
$98,000, and estimates total costs of year 2000 remediation
efforts to reach $110,000.
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 generators by the year 2000.
Drought Emergency
On July 20, 1999, Pennsylvania Governor Tom Ridge signed a
proclamation declaring a drought emergency in the Company's
service territory, and calling on the Company's customers to
conserve water. The Company is not able to determine the effect
on the Company's financial position, results of operation or
liquidity. Through the date of this filing, the effects of the
drought have not had a material impact on water usage.
THE YORK WATER COMPANY
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 3, 1999 at the office of the Company, 130 East
Market Street, 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:
Paul W. Ware John L. Finlayson Chloe R. Eichelberger
For election2,253,398.695 2,251,282.695 2,251,599.695
Shares withheld 6,992.000 9,107.000 8,791.000
The following Directors' terms of office continued after the
Annual Meeting.
Frank Motter Irvin S. Naylor
George Hay Kain, III William T. Morris
Michael W. Gang Horace Keesey III
(2) To amend the Amended and Restated Articles of
Incorporation of the Company to increase the number of authorized
shares of capital stock from 6,000,000 to 31,000,000.
For Approval 1,945,056.695
Against Approval 222,735.000
Abstaining From Voting 27,381.000
(3) To appoint KPMG LLP as independent accountants to
audit the financial statements of the Company for the year 1999.
The actions taken by the Shareholders concerning the appointment
of KPMG LLP as independent accountants are as follows:
For Approval 2,252,456.545
Against Approval 1,281.150
Abstaining From Voting 6,649.000
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
William T. Morris
Principal Executive Officer
Date: August 13, 1999
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: August 13, 1999
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