SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 17405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 845-3601
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Common Stock, no par value,
held by nonaffiliates of the registrant (based on the bid price
of such stock) on February 11, 1999 was $56,242,253.
As of February 11, 1999 there were 2,979,722 shares of Common
Stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders are
incorporated by reference into Part II.
Portions of the Proxy Statement for the Company's 1999 Annual
Meeting of Shareholders are incorporated by reference into Part
III.
<PAGE>
PART I
Item 1. Business.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-
looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including
statements made with respect to the results of operations
and businesses of the Company. Words such as "may,"
"should," "believe," "anticipate," "estimate," "expect,"
"intend," "plan" and similar expressions are intended to
identify forward-looking statements. These forward-
looking statements are based upon management's current
plans, expectations, estimates and assumptions and are
subject to a number of risks and uncertainties that could
significantly affect current plans, anticipated actions
and the Company's financial condition and results of
operations. Factors that may cause actual results to
differ materially from those discussed in such forward-
looking statements include, among others, the following
possibilities: (i) weather conditions, particularly the
amount of rainfall; (ii) the level of commercial and
industrial business activity within the Company's service
territory; (iii) construction of new housing within the
Company's service territory; (iv) governmental
regulations affecting the Company's rates and service
obligations; (v) general economic and business conditions
which are less favorable than expected; and (vi) the
Company's year 2000 issues plan. The Company does not
intend to update these cautionary statements.
(a) General development of business.
The Company is a corporation duly organized under the laws of the
Commonwealth of Pennsylvania in 1816.
(b) Financial information about industry segments.
The Company operates in only one segment, the impounding,
purification and distribution of water.
(c) Narrative description of business.
The business of the Company is to impound, purify and distribute
water. The Company operates entirely within its franchised
territory located in York County, Pennsylvania. The Company is
regulated by the Pennsylvania Public Utility Commission (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 to the City of York, the
Boroughs of North York, West York, Manchester, Mount Wolf, New
Salem, Hallam, Jacobus, Loganville, Yorkana, Seven Valleys, East
Prospect, Jefferson, Glen Rock, New Freedom, Railroad,
Shrewsbury, Spring Grove and portions of the Townships of
Manchester, East Manchester, West Manchester, North Codorus,
Shrewsbury, North Hopewell, Hopewell, Springettsbury, Spring
Garden, Conewago, Newberry, Springfield, York, Hellam, Windsor,
Lower Windsor, Codorus and Jackson. 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's present average daily consumption is 19,488,000
gallons, and its present safe daily yield is 29,900,000 gallons.
The Company's service territory has an estimated population of
142,000. Territory expansion during 1998 included: the
completion of developer-financed water main to Southern York
County, finalization of an agreement to sell bulk water to New
Freedom Borough, preparation of plans for construction of water
mains to Railroad Borough, and commencement of the approval
process to add Conewago Township to our service territory.
Industry of the Company's service territory is diversified,
manufacturing such items as fixtures and furniture, electrical
machinery, food products, paper, ordnance, textile products, air
conditioning, barbells, etc. In the area served by the Company
under the supervision of the PPUC there are no competitors.
An internal evaluation of adding an additional source of supply
was conducted during 1998. Available options were analyzed and
turned over to an external source for further analysis and
costing. A prior study indicated that no new source of supply
would be required before the year 2020. The Company expects that
one new tank site may be needed, but no new booster stations will
be required within the next five years.
The Company's business is somewhat dependent on weather
conditions, particularly the amount of rainfall; however, minimum
customer charges are in place so the Company is able to cover
fixed costs of operations.
New requirements under the Safe Drinking Water Act caused the
Company to incur $22,752 and $44,520 in 1997 and 1998,
respectively, for water analysis fees. Additional costs of
$16,286 to provide an annual drinking water quality report
required in 1999 by the Safe Drinking Water Act were incurred.
The Company's business does not require large amounts of working
capital and is not dependent upon any single customer or a very
few customers. Operating revenue is derived from the following
sources and in the following percentages: residential, 58%;
commercial and industrial, 31%; other, 11%. The Company
presently has 89 employees.
During the last five years ended in 1998, the Company has
maintained an increasing growth in number of customers and
distribution facilities as shown by the following chart:
1998 1997 1996 1995 1994
Average daily
consumption
(gallons
per day) 19,488,000 19,405,000 18,593,000 19,657,000 19,660,000
Miles of mains
at year end 671 655 641 622 597
Distribution
mains
installed
(ft.) 85,431 77,274 78,619 84,515 91,087
Number of
customers 47,173 46,458 45,800 44,879 43,830
Population
served 142,000 140,700 143,000 140,000 136,000
During 1998, the per capita volume of water sold did not
significantly change compared to 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.
Item 2. Properties.
The accounting and executive offices of the Company are located
in two two-story brick and masonry buildings, containing
approximately 21,861 square feet of floor space, at 124 and 130
East Market Street, York, Pennsylvania.
The Company has two impounding dams located in York and
Springfield Townships adjoining the Borough of Jacobus to the
south. The lower dam is constructed of compacted earth with a
concrete core wall and is 660 feet long and 50 feet high and
creates a reservoir covering approximately 220 acres containing
about 1,150,000,000 gallons of water. About 800 acres
surrounding the reservoir are planted with more than 1,200,000
evergreen trees to protect the area both from pollution and also
from soil erosion which might otherwise fill the reservoir with
silt. The upper dam is constructed of compacted earth and is
1,000 feet long and 50 feet high and creates a reservoir covering
approximately 290 acres containing about 1,600,000,000 gallons of
water. About 600 acres surrounding the reservoir are planted
with grass to protect the area both from pollution and also from
soil erosion which might otherwise fill the reservoir with silt.
The Company's main pumping station is located in Spring Garden
Township on the south branch of the Codorus Creek about 1,500
feet upstream from its confluence with the west branch of the
Codorus Creek and about four miles downstream from the Company's
lower impounding dam. The pumping station presently houses
pumping equipment consisting of three electrically driven
centrifugal pumps and two diesel-engine driven centrifugal pumps
with a combined pumping capacity of 75,000,000 gallons per day.
From here, raw water is pumped approximately two miles to the
filtration plant through pipes located on a right-of-way owned by
the Company.
The Company's filtration plant is located in Spring Garden
Township about one-half mile south of the City of York. Water at
this plant is filtered through 12 dual media filters having a
stated capacity of 31,000,000 gallons per day and being capable
of filtering 46,500,000 gallons per day for short periods if
necessary. Based on an average daily consumption in 1998 of
19,488,000 gallons, the pumping and filtering facilities are
adequate to meet present and anticipated demands.
Clear water reservoirs of the Company which are located in Spring
Garden Township adjacent to the filtration plant are capable of
storing up to 32,000,000 gallons of water, and there are
standpipes located throughout the Company's service area capable
of storing another 18,740,000 gallons of clear water.
The Company's distribution center and material and supplies
warehouse are located at 1801 Mt. Rose Avenue, Springettsbury
Township. There are two one-story concrete block buildings
having 26,680 square feet of area.
The distribution system of the Company has approximately 671
miles of main water lines.
All of the Company's properties listed above are held in fee by
the Company. There are no encumbrances.
In addition, the Company has entered into a "Joint Use and Park
Management Agreement" dated December 29, 1976, with the County of
York, Pennsylvania, whereby the Company has licensed its present
reservoir lands and waters, comprised of approximately 1,175
acres and including two lakes, to the County of York for fifty
(50) years for county park purposes.
York County has, in return, agreed not to erect a dam upstream on
the east branch of the Codorus Creek and to waive flood damages
to the County's Spring Valley Tract of park lands if, as planned,
the Company builds a third dam around the year 2020. The Company
and its customers are thereby assured of a future reservoir site
at reasonable expense.
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 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 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
second 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.
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 December 1998, the Company incurred costs of approximately
$37,000, 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.
Item 3. Legal Proceedings.
There are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.
The information set forth under the caption "Security Market and
Dividends" of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Highlights of Our
183rd Year" of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
"Safe Harbor" Statements under the U. S. Private Securities
Litigation Reform Act of 1995: Some statements in the 1998
Annual Report are forwardlooking and actual results may differ
materially from those stated. In addition to the factors
discussed, among the other factors that may affect actual results
are water demand and supply, the effect of economic conditions,
interest-rate movements, and technological difficulties and
changes in governmental regulations, including those of the
Pennsylvania Public Utilities Commission. Investors are also
directed to consider other risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange
Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The Company's 4.75% Industrial Development Authority Revenue
Refunding Bonds Series 1994 have mandatory tender dates of May
15, 1999 and May 15, 2004. The 5% Series 1995 bonds have
mandatory tender dates of June 1, 2000 and June 1, 2005. The
Company is required to purchase any unremarketed 1994 and 1995
bonds, despite the rate.
Item 8. Financial Statements and Supplementary Data.
The following financial statements set forth in the 1998 Annual
Report to Shareholders are incorporated herein by reference:
Balance Sheets as of December 31, 1998
and 1997 Page 10
Statements of Income for Years Ended December 31,
1998, 1997 and 1996 Page 11
Statements of Shareholders' Investment for Years
Ended December 31, 1998, 1997 and 1996 Page 11
Statements of Cash Flows for Years Ended
December 31, 1998, 1997 and 1996 Page 12
Notes to Financial Statements Page 13
Independent Auditors' Report Page 19
Except for the above financial data and the information specified
under Items 5, 6 and 7 of this report, the 1998 Annual Report to
Shareholders is not deemed to be filed as part of this report.
Selected quarterly financial data are not presented because the
Company does not meet the tests set forth in Item 302 (a)(5) of
Regulation S-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement issued pursuant to Regulation
14A for the Company's 1999 Annual Meeting of Shareholders to be
held May 3, 1999 is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth under the caption "Compensation of
Directors and Executive Officers" of the Proxy Statement issued
pursuant to Regulation 14A for the Company's 1999 Annual Meeting
of Shareholders to be held May 3, 1999 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information set forth under the caption "Voting Securities
and Principal Holders Thereof" of the Proxy Statement issued
pursuant to Regulation 14A for the Company's 1999 Annual Meeting
of Shareholders to be held May 3, 1999 is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Compensation
Committee Interlocks and Insider Participation" of the Proxy
Statement issued pursuant to Regulation 14A for the Company's
1999 Annual Meeting of Shareholders to be held May 3, 1999 is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) Certain documents filed as a part of the Form 10-K.
The financial statements set forth under Item 8 of this Form
10-K.
Schedule Schedule Page
Number Description Number
II Valuation and Qualifying Accounts 8
The report of the Company's independent auditors with respect to
the financial statement schedule appears on page 7.
All other financial statements and schedules not listed have been
omitted since the required information is included in the
financial statements or the notes thereto, or is not applicable
or required.
The exhibits are set forth in the Index to Exhibits shown on
pages 10, 11 and 12.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of The York Water
Company:
Under date of February 12, 1999, we reported on the balance
sheets of The York Water Company as of December 31, 1998 and
1997, and the related statements of income, shareholders'
investment, and cash flows for each of the years in the
three-year period ended December 31, 1998, as contained in the
1998 annual report to shareholders. These financial statements
and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1998. In connection with
our audits of the aforementioned financial statements, we also
audited the related financial statement schedule as listed in
Item 14(a). This financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Harrisburg, Pennsylvania
February 12, 1999
<PAGE>
THE YORK WATER COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
Additions Charged to
Balance
at Costs Balance
beginning and Recov- Deduc- at End
of Year Expenses eries tions of Year
FOR THE YEAR
ENDED
DECEMBER 31,
1998:
Reserve for
uncollectible
accounts $110,000 $103,957 $7,115 $101,072 $120,000
FOR THE YEAR
ENDED
DECEMBER 31,
1997:
Reserve for
uncollectible
accounts $90,000 $97,923 $5,043 $82,966 $110,000
FOR THE YEAR
ENDED
DECEMBER 31,
1996:
Reserve for
uncollectible
accounts $90,000 $73,201 $ - $73,201 $ 90,000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
Dated: March 26, 1999 By:/s/ William T. Morris
William T. Morris, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ William T. Morris By: /s/ Jeffrey S. Osman
William T. Morris Jeffrey S. Osman
(Principal Executive and (Principal Accounting Officer)
Financial Officer and Director)
Dated: March 26, 1999 Dated: March 26, 1999
Directors: Date
By: /s/
Irvin S. Naylor
(Chairman)
By: /s/ Horace Keesey III March 26, 1999
Horace Keesey III
By: /s/
Chloe Eichelberger
By: /s/ Paul W. Ware March 26, 1999
Paul W. Ware
By: /s/ John L. Finlayson March 26, 1999
John L. Finlayson
By: /s/
Frank Motter
By: /s/ George Hay Kain, III March 26, 1999
George Hay Kain, III
By: /s/ Michael W. Gang March 26, 1999
Michael W. Gang
<PAGE>
INDEX TO EXHIBITS
Page Number of
Exhibit Exhibit Incorporation
Number Description By Reference
3 Amended and Restated
Articles of Incorporation Incorporated herein
by reference. Filed
previously with the
Securities and
Exchange Commission
as Exhibit 4.1 to
Amendment No. 1 to
Form S-3 dated June
12, 1997 (File No.
33-81246).
3.1 By-Laws Incorporated herein
by reference. Filed
previously with the
Securities and
Exchange Commission
as Exhibit 4.2 to
Form S-3 dated July
1, 1996 (File No.
333-7307).
4.1 Optional Dividend
Reinvestment Plan Incorporated herein
by reference. Filed
previously with the
Securities and
Exchange Commission
as the Prospectus
included in
Amendment No. 1 to
Form S-3 dated June
12, 1997 (File No.
33-81246).
4.6 Note Agreement Relative Incorporated herein by
to the $6,000,000 10.17% reference. Filed
Senior Notes, Series A previously with the
and $5,000,000 9.60% Securities and Exchange
Senior Notes, Series B Commission as Exhibit
dated January 2, 1989 4.5 to the Company's
1989 Form 10-K.
4.8 Note Agreement Relative Incorporated herein by
to the $6,500,000 10.05% reference. Filed previously
Senior Notes, Series C with the Securities and
dated August 15, 1990 Exchange Commission as
Exhibit 4.6 to the Company's
1990 Form 10-K.
4.11 Note Agreement Relative Incorporated herein by
to the $7,500,000 8.43% reference. Filed previously
Senior Notes, Series D with the Securities and
dated December 15, 1992 Exchange Commission as
Exhibit 4.7 to the Company's
1992 Form 10-K.
4.12 Fourth Supplemental Incorporated herein by
Acquisition, Financing reference. Filed previously
and Sale Agreement with the Securities and
Relative to the Exchange Commission as
$2,700,000 4.75% Water Exhibit 4.8 to the Company's
Facilities Revenue Quarterly Report Form 10-Q
Refunding Bonds dated for the quarter ended June
February 1, 1994 30, 1994.
4.13 Fifth Supplemental Incorporated herein by
Acquisition, Financing reference. Filed previously
and Sale Agreement with the Securities and
Relative to the Exchange Commission as
$4,300,000 5% Water Exhibit 4.9 to the Company's
Facilities Revenue Quarterly Report Form 10-Q
Refunding Bonds dated for the quarter ended
October 1, 1995 September 30, 1995.
10.1 Articles of Agreement Incorporated herein by
Between The York Water reference. Filed previously
Company and Springetts- with the Securities and
bury Township Relative to Exchange Commission as an
Extension of Water Mains Exhibit to the Company's
dated April 17, 1985 1989 Form 10-K.
10.2 Articles of Agreement Incorporated herein by
Between The York Water reference. Filed previously
Company and Windsor with the Securities and
Township Relative to Exchange Commission as an
Extension of Water Mains Exhibit to the Company's
dated February 9, 1989 1989 Form 10-K.
10.3 Articles of Agreement Incorporated herein by
Between The York Water reference. Filed previously
Company and Windsor with the Securities and
Township, Yorkana Exchange Commission as an
Borough, Modern Trash Exhibit to the Company's
Removal of York, Inc. 1989 Form 10-K.
and Lower Windsor Town-
ship Relative to
Extension of Water Mains
dated July 18, 1989
<PAGE>
10.4 Articles of Agreement Incorporated herein by
Between The York Water reference. Filed previously
Company and North Codorus with the Securities and
Township Relative to Exchange Commission as
Extension of Water Mains Exhibit 10.4 to the Company's
dated September 20, 1989 1990 Form 10-K.
10.5 Articles of Agreement Incorporated herein by
Between The York Water reference. Filed previously
Company and York Township with the Securities and
Relative to Extension of Exchange Commission as
Water Mains dated Exhibit 10.5 to the Company's
December 29, 1989 1990 Form 10-K.
11 Common Shares Used in Page 13
Computing Earnings Per
Share
13 1998 Annual Report to Page 14
Shareholders
23 Consent of Independent Page 15
Auditors
27 Financial Data Schedule Page 16
<PAGE>
EXHIBIT 11
THE YORK WATER COMPANY
COMMON SHARES USED IN
COMPUTING EARNINGS
PER SHARE
1998 1997 1996 1995 1994
Common shares
outstanding,
beginning of
the year 2,934,782 2,900,524 2,549,496 2,518,736 2,487,268
Weighted average
shares issued in
connection with 1996
stock subscription - - 66,432 - -
Weighted average
shares issued in
connection with the
Employee Stock
Purchase Plan 1,565 1,569 1,744 1,720 1,624
Weighted average
shares issued in
connection with the
Optional Dividend
Reinvestment
Plan 14,938 10,376 9,892 9,924 10,480
2,951,285 2,912,469 2,627,564 2,530,380 2,499,372
All share data has been restated to reflect the June 1997
four-for-one stock split.
<PAGE>
EXHIBIT 13
THE YORK WATER COMPANY
1998 ANNUAL REPORT TO SHAREHOLDERS
The York Water Company's 1998 Annual Report to Shareholders is
attached hereto.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of The York Water
Company:
We consent to incorporation by reference in the registration
statements No. 2-80547 on Form S-3, No. 33-81246 on Form S-3 as
amended, and No. 33-26180 on Form S-8, as amended, of The York
Water Company of our report dated February 12, 1999, relating to
the balance sheets of The York Water Company as of December 31,
1998 and 1997, and the related statements of income,
shareholders' investment, and cash flows for each of the years in
the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report to shareholders
and is incorporated by reference in the annual report on Form
10-K of The York Water Company.
We also consent to incorporation by reference in the registration
statements No. 2-80547 on Form S-3, No. 33-81246 on Form S-3, as
amended, and No. 33-26180 on Form S-8, as amended, of The York
Water Company of our report dated February 12, 1999 relating to
the financial statement schedule as listed in Item 14(a) of the
Company's December 31, 1998 annual report on Form 10-K, which
report appears in such annual report on Form 10-K.
KPMG LLP
Harrisburg, Pennsylvania
March 26, 1999
The York Water Company
Highlights of Our 183rd Year
<TABLE>
<CAPTION>
Summary of Operations For
The Year 1998 1997 1996
<S> <C> <C> <C>
Water operating revenue $17,137,029 $16,996,706 $15,721,462
Operating expenses 9,721,428 9,678,694 9,223,227
Income taxes 1,764,927 1,641,229 1,258,704
Operating income 5,650,674 5,676,783 5,239,531
Interest expense 2,673,614 2,707,310 2,893,123
Gain on sale of land - - 134,117
Other income, net 158,329 150,588 279,231
Net income 3,135,389 3,120,061 2,759,756
Summary of Operations For
The Year 1995 1994
<S> <C> <C>
Water operating revenue $15,449,296 $14,755,707
Operating expenses 9,119,832 8,881,499
Income taxes 1,419,907 1,055,448
Operating income 4,909,557 4,818,760
Interest expense 2,738,846 2,720,535
Gain on sale of land - 215,417
Other income, net 141,536 131,036
Net income 2,312,247 2,444,678
Per Share of Common Stock 1998 1997 1996
Book value $10.20 $9.93 $9.65
Net income 1.06 1.07 1.05
Dividends <F1> .93 .91 .90
Number of shares outstanding
at year-end 2,979,722 2,934,782 2,900,524
Per Share of Common Stock 1996 1994
Book value $8.54 $8.44
Net income .92 .98
Dividends <F1> .90 .90
Number of shares outstanding
at year-end 2,549,496 2,518,736
Utility Plant 1998 1997 1996
Original cost $102,088,220 $97,487,926 $93,492,775
Construction expenditures 4,989,967 4,500,517 4,936,816
Utility Plant 1995 1994
Original cost $88,710,279 $83,642,650
Construction expenditures 5,256,959 6,629,903
Other 1998 1997 1996
Total assets $102,479,091 $98,854,074 $96,736,434
Long-term debt 32,000,000 32,000,000 32,000,000
Other 1995 1994
Total assets $90,459,706 $86,967,330
Long-term debt 32,000,000 32,000,000
</TABLE>
<F1> Cash dividends per share reflect dividends declared on
shares outstanding at each dividend date.
All per share data has been restated to reflect the June 1997
four-for-one stock split.
For Management's Discussion and Analysis of Financial Condition
and Results of Operations, Please Refer to Page 3.
<PAGE>
Directors, Officers and Key Employees
Irvin S. Naylor<F1>
Chairman of the Board
Vice Chairman of Board
Cor-Box, Incorporated
William T. Morris, P.E.<F1>
President and
Chief Executive Officer
The York Water Company
Horace Keesey III<F1>
Vice Chairman of the Board
Consultant
George Hay Kain, III
Attorney at Law
Frank Motter<F1>
President
Motter Printing Press Co.
Chloe R. Eichelberger
President/Chief Executive
Officer
Chloe Eichelberger Textiles,
Inc.
Paul W. Ware<F1>
Chairman-Retired
Penn Fuel Gas, Inc.
John L. Finlayson<F2>
Vice President-Finance and
Administration
Susquehanna Pfaltzgraff Co.
<PAGE>
Michael W. Gang<F2>
Partner
Morgan, Lewis & Bockius LLP
Directors Emeriti
Robert E. Skold
Josephine S. Appell
<F1>Members of the
Executive Committee
<F2>Alternate Members of
the Executive Committee
Staff
William T. Morris, P.E.
President and
Chief Executive Officer
Jeffrey S. Osman
Vice President-Finance
Secretary-Treasurer
Duane R. Close
Vice President-Operations
Jeffrey R. Hines, P.E.
Vice President-Engineering
Bruce C. McIntosh
Vice President-
Human Resources
Lois L. Shultz
Customer Service Manager
Assistant Secretary/
Assistant Treasurer
<PAGE>
To Our Shareholders:
Activities in 1998 are a continuation of previous years -
interesting, busy and productive. Each year when I look back,
I'm always impressed with the projects and services that our
talented staff and employees bring to successful conclusions.
Operating revenue for 1998 of $17,137,029 was a slight increase
over 1997. Net income also increased slightly to a record high
of $3,135,389. 1998 activities included: installation of a one
million gallon standpipe at Shrewsbury; a final agreement to
purchase the Railroad Borough water system; an agreement to sell
bulk water to New Freedom Borough; the negotiation and
acquisition of an $800,000 one percent PENNVEST loan for the
Railroad and New Freedom Boroughs work; and numerous routine
projects such as leak detection and water quality testing.
An-going project since 1997 has been the review and preparation
for the year 2000 problem. Currently, close to 85% of required
changes have been made. Remaining work is to be completed before
June 30, 1999. Additionally, we have developed comprehensive
contingency plans so that we can supply "That good York water"
regardless of what happens to others on January 1, 2000.
In December 1998, we passed a major milestone. The original cost
value of our utility plant now exceeds $102,000,000 compared to
just ten years ago when the original cost value was approximately
$51,000,000. It took 172 years in our history to reach
$51,000,000, but only ten years to add the next $51,000,000.
Another milestone was the in-house development of our web site
(www.yorkwater.com), which includes information on our water
quality, rates and tariff rules, basic facts about service area
and an e-mail service for customer comments and questions.
On January 25, 1999 your Board of Directors adopted a Shareholder
Rights Plan. Although there has been no indication of an
unsolicited offer, the Board of Directors felt this was necessary
to ensure fair treatment of shareholders. You should have
received detailed information on this Plan.
The Company's 1999 planned activities include: expansion into
Conewago Township pending a lawsuit settlement against the
township; expansion into Windsor Township; a modification to our
raw water and finished water disinfection; the redemption of our
4.75 percent Revenue Bonds; and a request to the PaPUC for
increased base rates.
In 1998 we did have a moment of sadness. Our long-term Director,
Past President, Past Chairman and friend, William H. Kain, passed
away August 4, 1998. Bill's efforts and hard work were an
important contribution to the long-term success of our Company.
His sage counsel and ready wit are missed.
Many thanks are due our management and employees who have made
our Company a leader in the industry. With their help, we will
continue to overcome all obstacles, exceed all expectations and
to serve "That good York water" at reasonable rates and in
adequate quantities for many years to come.
Respectfully submitted,
William T. Morris, P.E.
President and Chief Executive Officer
The York Water Company
Description of Business
The business of The York Water Company is to impound, purify
and distribute water. The Company operates entirely within its
franchised territory located in York County, Pennsylvania, and is
subject to regulation by the Pennsylvania Public Utility
Commission (PPUC). Water service is supplied through the
Company's own distribution system to the City of York, the
Boroughs of North York, West York, Manchester, Mount Wolf, New
Salem, Hallam, Jacobus, Loganville, Yorkana, Seven Valleys, East
Prospect, Jefferson, Glen Rock, New Freedom, Railroad,
Shrewsbury, Spring Grove and portions of the Townships of
Manchester, East Manchester, West Manchester, North Codorus,
Shrewsbury, North Hopewell, Hopewell, Springettsbury, Spring
Garden, Conewago, Newberry, Springfield, York, Hellam, Windsor,
Lower Windsor, Codorus and Jackson. The Company's service
territory has an estimated population of 142,000. Industry of the
area served is diversified, manufacturing such items as fixtures
and furniture, electrical machinery, food products, paper,
ordnance, textile products, air conditioning, barbells, etc. The
Company's present average daily consumption is 19,488,000
gallons, and its present safe daily yield is 29,900,000 gallons.
In the area served by the Company, under the supervision of
the PPUC, there are no competitors. During the five years ended
in 1998, the Company has maintained an increasing growth in
number of customers and distribution facilities as shown by the
following chart:
<TABLE>
<CAPTION> 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average daily
consumption
(gallons
per day) 19,488,000 19,405,000 18,593,000 19,657,000 19,660,000
Miles of mains
at year-end 671 655 641 622 597
Distribution
mains installed
(ft.) 85,431 77,274 78,619 84,515 91,087
Number of
customers 47,173 46,458 45,800 44,879 43,830
Population
served 142,000 140,700 143,000 140,000 136,000
</TABLE>
Operating revenue in 1998 is derived from the following sources
and in the following percentages: Residential 58%; Commercial
and Industrial, 31%; Other, 11%.
Market for Common Stock and Dividends
The common stock of The York Water Company is traded over-the-
counter. Over-the-counter quotations reflect inter-dealer prices
without retail mark-ups, markdown or commissions and may not
necessarily represent actual transactions.
Quarterly price ranges and cash dividends per share for the last
two years follow (All per share data has been restated to reflect
the June 1997 four-for-one stock split):
<TABLE>
<CAPTION> 1998 1997
HIGH LOW DIVIDEND<F1> HIGH LOW DIVIDEND<F1>
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $22.60 $18.50 $.230 $17.38 $16.81 $.225
2nd Quarter 21.75 19.13 .230 21.69 17.31 .225
3rd Quarter 19.00 17.37 .235 23.50 21.00 .230
4th Quarter 20.00 18.37 .235 23.00 19.25 .230
</TABLE>
<F1> Cash dividends per share reflect dividends declared on
shares actually outstanding at each dividend date.
(Refer to Note 4 to the Financial Statements for a description of
the restriction on the declaration and payment of cash
dividends.)
Prices are bid prices quoted from local newspapers.
Shareholders of record as of December 31, 1998 were 1,325.
THE COMPANY WILL PROVIDE TO SHAREHOLDERS OF RECORD, AND/OR
BENEFICIAL OWNERS, UPON WRITTEN REQUEST, WITHOUT CHARGE, A COPY
OF FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR 1998.
Requests Should Be Made To:
LOIS L. SHULTZ - ASSISTANT SECRETARY
THE YORK WATER COMPANY
BOX 15089, YORK, PA 17405
or visit our web page at:
www.yorkwater.com<PAGE>
The York Water Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Annual Report contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements made with respect to the
results of operations and businesses of the Company. Words such
as "may," "should," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended
to identify forward-looking statements. These forward-looking
statements are based upon management's current plans,
expectations, estimates and assumptions and are subject to a
number of risks and uncertainties that could significantly affect
current plans, anticipated actions and the Company's financial
condition and results of operations. Factors that may cause
actual results to differ materially from those discussed in such
forward-looking statements include, among others, the following
possibilities: (i) weather conditions, particularly the amount
of rainfall; (ii) the level of commercial and industrial business
activity within the Company's service territory; (iii)
construction of new housing within the Company's service
territory; (iv) governmental regulation affecting the Company's
rates and service obligations; (v) general economic and business
conditions which are less favorable than expected; and (vi) the
Company's year 2000 issues plan. The Company does not intend to
update these cautionary statements.
Results of Operations
1998 Compared with 1997
Water operating revenues for 1998 increased $140,323 or .8%
over 1997. Residential consumption increased .7%, and commercial
and industrial consumption increased .2% when compared to 1997.
Operating expenses, exclusive of depreciation and taxes, for
1998 decreased $25,256 or .4%. Lower workers' compensation
premiums, lower maintenance costs associated with structures and
mains, reduced health insurance costs to the company, and lower
meter reading costs were the main reasons for the decrease. The
decrease was partially offset by increased pension expense,
deferred compensation costs, and year 2000 system maintenance
costs.
Depreciation expense for 1998 increased $84,240 or 5.4% from
1997 to 1998 due to increased plant investment.
Federal and state income taxes for 1998 increased $123,698 or
7.5% when compared to 1997 principally as a result of an increase
in taxable income.
Allowance for funds used during construction for 1998
increased $34,712 or 73.5% when compared to 1997. The increase
was due to an increase in the Company's plant investment, under
construction from an average of $1,900,000 in 1997 to $2,400,000
in 1998. The Southern York County main project was the primary
reason for the increased plant investment.
1997 Compared with 1996
Water operating revenues for 1997 increased $1,275,244 or
8.1% over 1996. The increase resulted primarily from an increase
in rates of 6.0% approved by the Pennsylvania Public Utility
Commission (PPUC) effective September 5, 1996. Consumption for
1997 increased 4.5% for residential customers and decreased .8%
for commercial and industrial customers compared to 1996.
Operating expenses, exclusive of depreciation and taxes, for
1997 increased $218,674 or 3.2%. Maintenance costs associated
with structures, equipment, and service lines, increased Company
match expenses for the 401k program, and higher power costs were
the main causes of the increase. Lower workers' compensation
premiums and decreased meter reading expenses partially offset
the increase.
Depreciation expense for 1997 increased $181,885 or 13.3%
from 1996 to 1997 due to increased plant investment.
Federal and state income taxes for 1997 increased $382,525 or
30.4% when compared to 1996 principally as a result of an
increase in taxable income.
Interest on short-term debt for 1997 decreased $250,733 when
compared to 1996, due to a decrease in short-term debt
outstanding during 1997. The average short-term debt outstanding
in 1997 and 1996 was $479,452 and $3,628,378, respectively.
Allowance for funds used during construction for 1997
decreased $64,920 or 57.9% when compared to 1996. The decrease
was due to a decrease in the Company's plant investment under
construction from an average of $3,900,000 in 1996 to $1,900,000
in 1997.
During 1996, the Company had a gain on sale of one parcel of
land of $134,117 ($79,674 after tax). No such transaction
occurred in 1997.
Other income, net for 1997 decreased $128,643 or 46.1% when
compared to 1996. Other income in 1996 contained additional
income on water district notes resulting from additional
customers, and interest on stock subscription funds, whereas 1997
other income contained less interest on water district notes and
no interest on stock subscription funds. In addition, donations
were higher in 1997 than in 1996.
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
operating revenues, an increase of 6.0%. The Company plans to
file an application for a rate increase in 1999.
Liquidity and Capital Resources
During 1998, the per capita volume of water sold did not
significantly change compared to 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 1998, the Company had $4,989,967 of construction
expenditures. The Company financed such expenditures through
internally generated funds, customers' advances, short-term
borrowings, and proceeds from the issuance of common stock under
its dividend reinvestment plan (stock issued in lieu of cash
dividends), and employee stock purchase plan.
The Company anticipates construction expenditures for 1999
and 2000 of approximately $4,974,000 and $8,270,000,
respectively. The Company plans to finance such expenditures
with internally generated funds, customers' advances, short-term
borrowings, 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 a Pennvest loan.
The Company anticipates that it will submit an application in
the future with the PPUC proposing increases in rates to provide
a fair rate of return on the capital expenditures associated with
its 1998 and 1999 construction projects.
During 1998, net cash provided by operating activities
exceeded cash used in investing and financing activities. The
Company anticipates that during 1999 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 used to satisfy the need for additional cash.
As of December 31, 1998, current assets exceeded current
liabilities by $983,121. As of December 31, 1997, current assets
exceeded current liabilities by $488,649. Short-term borrowings
from lines of credit as of December 31, 1998 and 1997 were $0 and
$843,000, respectively. 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.
During 1998, the Company's dividend payout ratios relative to
net income and cash provided by operating activities were 87.5%
and 44.2%, respectively. The Company believes that these payout
ratios are appropriate.
Shareholders' investment as a percent of total capitalization
was 48.7% as of December 31, 1998 compared with 47.7% as of
December 31, 1997.
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.
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 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 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
second 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.
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 June 1999.
As of December 1998, the Company incurred costs of
approximately $37,000, 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.
Impact of Recent Accounting Pronouncements
During the year, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", No. 131,
"Disclosures About Segments of an Enterprise and Related
Information", No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", and No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Adoption of
these statements did not have a material effect on the Company's
financial position, results of operations, or liquidity.
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.
<PAGE>
Balance Sheets
December 31
Assets 1998 1997
UTILITY PLANT, at original cost $102,088,220 $97,487,926
Less-Reserve for depreciation 15,687,003 14,332,890
86,401,217 83,155,036
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$70,457 in 1998 and $65,193 in 1997 495,267 498,859
CURRENT ASSETS:
Cash and Cash Equivalents 257,706 -
Receivables, less reserves of
$120,000 in 1998 and $110,000 in 1997 2,481,799 2,540,075
Recoverable income taxes - 547,182
Materials and supplies, at cost 361,400 337,837
Prepaid expenses 174,888 190,314
Deferred income taxes (Note 3) 81,836 75,017
3,357,629 3,690,425
OTHER LONG-TERM ASSETS:
Prepaid pension cost (Note 6) 1,826,514 1,732,394
Deferred debt expense 406,277 440,163
Deferred rate case expense 4,820 57,055
Notes receivable (Note 7) 813,075 913,934
Deferred regulatory assets (Note 1) 7,959,948 7,287,799
Other 1,214,344 1,078,409
12,224,978 11,509,754
$102,479,091 $98,854,074
Capitalization and Liabilities
CAPITALIZATION:
Common stock, no par value,
authorized 6,000,000 shares,
outstanding 2,979,722 shares in 1998
and 2,934,782 shares in 1997
(Note 5) $ 27,292,726 $26,453,873
Earnings retained in the business. 3,087,710 2,696,913
30,380,436 29,150,786
Long-term debt (Note 4) 32,000,000 32,000,000
62,380,436 61,150,786
CURRENT LIABILITIES:
Short-term borrowings (Note 4) . . . . - 843,000
Accounts payable.. . . . . . . . . . . 290,179 551,402
Dividends payable. . . . . . . . . . . 506,415 488,483
Accrued taxes. . . . . . . . . . . . . 347,244 115,073
Advance water revenues . . . . . . . . 216,478 182,118
Accrued interest . . . . . . . . . . . 675,761 675,761
Other accrued expenses . . . . . . . . 338,431 345,939
2,374,508 3,201,776
DEFERRED CREDITS:
Customers' advances for construction
(Note 7). . . . . . . . . . . . . . . 16,689,050 16,219,638
Contributions in aid of construction . 7,080,610 5,861,487
Deferred income taxes (Note 3) . . . . 10,967,235 9,807,788
Deferred regulatory liabilities
(Note 1). . . . . . . . . . . . . . . 1,681,584 1,572,985
Deferred employee benefits . . . . . . 1,305,668 1,039,614
37,724,147 34,501,512
$102,479,091 $98,854,074
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>Statements of Income
Year Ended December 31
<S> 1998 1997 1996
WATER OPERATING REVENUES: <C> <C> <C>
Residential $10,015,871 $ 9,975,226 $ 9,273,216
Commercial and industrial 5,303,237 5,293,730 4,925,781
Other 1,817,921 1,727,750 1,522,465
17,137,029 16,996,706 15,721,462
OPERATING EXPENSES:
Operation and maintenance 3,930,387 3,826,546 3,616,765
Administrative and general 3,115,287 3,244,384 3,235,491
7,045,674 7,070,930 6,852,256
Depreciation 1,636,578 1,552,338 1,370,453
Taxes other than income
taxes 1,039,176 1,055,426 1,000,518
Federal and state income
taxes (Note 3) 1,764,927 1,641,229 1,258,704
11,486,355 11,319,923 10,481,931
Operating income 5,650,674 5,676,783 5,239,531
INTEREST EXPENSE AND OTHER INCOME:
Interest on long-term
debt (Note 4) 2,718,950 2,718,950 2,718,950
Interest on short-term
debt (Note 4) 36,605 35,589 286,322
Allowance for funds used
during construction (81,941) (47,229) (112,149)
Gain on sale of land - - (134,117)
Other income, net (158,329) (150,588) (279,231)
2,515,285 2,556,722 2,479,775
Net income $ 3,135,389 $ 3,120,061 $ 2,759,756
Earnings per share
(Note 5) $1.06 $1.07 $1.05
Statements of Shareholders' Investment
Earnings
Retained
Common In The
Stock Business
Balance, January 1, 1996 $19,927,785 $1,843,982
Net income - 2,759,756
Cash dividends ($.90 per share) - (2,376,620)
Issuance of common stock under
dividend reinvestment plan 436,433 -
Issuance of common stock under
employee stock purchase plan 79,502 -
Issuance of 319,924 shares of
common stock (Note 5) 5,331,919 -
Balance, December 31, 1996 25,775,639 2,227,118
Net income - 3,120,061
Cash dividends ($.91 per share) - (2,650,266)
Issuance of common stock under
dividend reinvestment plan 596,552 -
Issuance of common stock under
employee stock purchase plan 81,682 -
Balance, December 31, 1997 26,453,873 2,696,913
Net income - 3,135,389
Cash dividends ($.93 per share) - (2,744,592)
Issuance of common stock under
dividend reinvestment plan 759,823 -
Issuance of common stock under
employee stock purchase plan 79,030 -
Balance, December 31, 1998 $27,292,726 $3,087,710
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended December 31
<S> 1998 1997 1996
CASH FLOWS FROM OPERATING
ACTIVITIES: <C> <C> <C>
Net income . . . .. . . . $3,135,389 $3,120,061 $ 2,759,756
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Gain on sale of land . . - - (134,117)
Depreciation . . . . . .. 1,636,578 1,552,338 1,370,453
Provision for losses on
accounts receivable. . 109,500 97,923 73,201
Increase in deferred income
taxes (including regulatory
assets and liabilities). 589,078 634,065 552,557
Changes in assets and
liabilities:
Increase in accounts
receivable. . . . . . . (51,224) (114,488) (153,582)
Decrease (increase) in
recoverable income taxes 547,182 (387,979) (63,080)
Increase in materials and
supplies . . . . . (23,563) (35,016) (3,184)
Increase in prepaid
expenses and prepaid
pension costs . . . . . (78,694) (21,020) (256,058)
Increase in accounts
payable, accrued expenses,
other liabilities and
deferred employee benefits 49,615 255,168 245,921
Increase (decrease) in
accrued interest and taxes 232,171 (2,595) 61,335
Decrease (increase) in
other assets. . . . . 60,986 (6,435) (142,980)
Net Cash Provided by
Operating Activities . 6,207,018 5,092,022 4,310,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of temporary
investments. . . . . (12,555,000) (5,878,000) (101,000)
Maturities of temporary
investments. . . . . . 12,555,000 5,878,000 101,000
Proceeds from the sale of
land . . . . . . . . - - 191,700
Costs incurred related to
the sale of land . . - - (57,583)
Construction expenditures. (4,989,967) (4,500,517) (4,936,816)
Customers' advances for
construction and
contributions in aid of
construction. . . . . 1,688,535 1,003,522 587,064
Net Cash Used in
Investing Activities . (3,301,432) (3,496,995) (4,215,635)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line-
of-credit agreements . . (843,000) (394,000) (2,927,000)
Issuance of 319,924 shares
of common stock . . - - 5,331,919
Issuance of common stock
under dividend
reinvestment plan . . .. 759,823 596,552 436,433
Issuance of common stock
under employee stock
purchase plan . . . . .. 79,030 81,682 79,502
Dividends paid . .. . . . (2,744,592) (2,650,266) (2,376,620)
Decrease in notes
receivable . . . . . . . 100,859 76,514 55,670
Net Cash (Used in)
Provided by Financing
Activities. . . . . .. (2,647,880) (2,289,518) 599,904
Net increase (decrease)
in cash and cash
equivalents . . . . . . 257,706 (694,491) 694,491
Cash and cash equivalents
at beginning of year - 694,491 -
Cash and cash equivalents
at end of year . . . $ 257,706 $ - $ 694,491
Supplemental disclosures
of cash flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized . . . . $2,668,298 $2,712,436 $2,934,054
Income taxes .. . . . . 935,689 1,492,592 874,388
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Notes to Financial Statements
l. Accounting Policies
The business of The York Water Company is to impound, purify
and distribute water. The Company operates entirely within its
franchised territory located in York County, Pennsylvania, and is
subject to regulation by the PPUC.
The following summarizes the significant accounting policies
employed by The York Water Company.
Depreciation, Amortization, Maintenance and Repairs-
The straight-line remaining life method is used to compute
depreciation on utility plant cost. The effective rate of
depreciation was 2.10% in 1998, 2.09% in 1997 and 1.99% in 1996
on average utility plant, net of customers' advances and
contributions. Larger depreciation provisions are deducted for
tax purposes.
During the second quarter of 1996, the Company revised its
estimates of remaining useful lives of the utility plant based on
an external engineering study. The effect of applying these new
lives was to reduce 1996 depreciation expense by approximately
$283,000, increase 1996 operating income and 1996 net income by
approximately $187,000 and 1996 net income per share by
approximately $.07.
Annual provisions for depreciation of transportation and
mechanical equipment included in utility plant are computed on a
straight-line basis over the estimated service lives. Such
provisions are charged to clearing accounts and apportioned
therefrom to operating expenses and other accounts in accordance
with the Uniform System of Accounts as prescribed by the PPUC.
The Company charges to maintenance expense the cost of
repairs and replacements and renewals of less than units of
property. Maintenance of transportation equipment is charged to
clearing accounts and apportioned therefrom in a manner similar
to depreciation. The cost of replacements, renewals and
betterments of units of property is capitalized to the utility
plant accounts.
Upon normal retirement of depreciable property, the estimated
or actual cost of the asset is credited to the utility plant
account, and such amounts, together with the cost of removal less
salvage, is charged to the reserve for depreciation. Gains or
losses from abnormal retirements are reflected in income
currently.
Deferred Charges-
Deferred debt expense is amortized on a straight-line basis
over the term of the related debt.
Deferred rate case expense is amortized over two years as
specified by the PPUC for ratemaking purposes.
Revenues-
Revenues include amounts billed to customers on a cycle basis
and unbilled amounts based on estimated usage from the latest
meter reading to the end of the accounting period.
Customers' Advances for Construction-
Advances are received from customers for construction of
utility plant and are refundable as operating revenues are earned
and any notes receivable have been paid after the completion of
construction (see also Note 7). After all refunds to which the
customer is entitled are made, any remaining balance is
transferred to contributions in aid of construction.
Contributions in Aid of Construction-
Contributions in aid of construction include direct
contributions and the portion of customers' advances for
construction which become nonrefundable. Transfers to other
accounts may not be made without approval of the PPUC.
Income Taxes and Deferred Regulatory Assets and Liabilities-
Certain income and expense items are accounted for in
different time periods for financial reporting than for income
tax reporting purposes.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company is also required to recognize deferred regulatory
assets and liabilities for the effect on revenues expected to be
realized as the tax effects of temporary differences previously
flowed through to customers reverse.
Investment tax credits have been deferred and are being
amortized to income over the average estimated service lives of
the related assets.
Notes Receivable-
Notes receivable are recorded at cost, less the related
allowance for impaired notes receivable. Management, considering
current information and events regarding the borrowers' ability
to repay their obligations, considers a note to be impaired when
it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount
of the impairment is measured based on the present value of
expected future cash flows discounted at the note's effective
interest rate.
Pension Plans-
The Company has defined benefit pension plans covering
substantially all of its employees. The benefits are based on
years of service and the employee's compensation before
retirement.
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of-
The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," on January 1, 1996. This
Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact
on the Company's financial position, results of operations, or
liquidity.
Allowance for Funds Used During Construction-
Allowance for funds used during construction (AFUDC)
represents the cost of funds used for construction purposes
during the period of construction. These costs are reflected as
non-cash income during the construction period and as an addition
to the cost of plant constructed. The AFUDC rate was 10.04% for
1998, 1997, and 1996.
Statements of Cash Flows-
For the purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents except
for those instruments earmarked to fund construction expenditures
or repay long-term debt.
Use of Estimates in the Preparation of Financial Statements-
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Rate Increases
The Company has increased rates as approved by the PPUC in
September 1996 (6.0%).<PAGE>
Notes to Financial Statements (Continued)
3. Income Taxes
The provisions for income taxes consist of:
1998 1997 1996
Federal current.. $ 790,645 $ 838,367 $ 570,390
State current.... 191,738 168,797 111,026
Federal deferred. 728,140 626,113 523,452
State deferred... 91,608 84,284 50,834
Federal investment
tax credit, net
of current
utilization..... (37,204) (76,332) 3,002
Total income
taxes........... $1,764,927 $1,641,229 $1,258,704
A reconciliation of the statutory Federal tax provision
(34%) to the total provision follows:
1998 1997 1996
Statutory
Federal tax
provision....... $1,666,107 $1,618,839 $1,360,298
Reversal of
taxes related to
rate cases...... 17,760 29,012 (33,961)
Tax-exempt
interest........ (39,084) (39,968) (53,421)
Effect of
depreciation
flowed through.. (44,933) (32,921) (54,906)
Effect of cost of
removal flowed
through......... (18,759) (19,835) (19,603)
Amortization of
investment tax
credit.......... (38,185) (37,765) (38,495)
Tank painting
expenses........ - (37,308) -
State income
taxes, net of
Federal benefit. 187,008 167,033 106,828
Debt issuance
expenses........ 10,356 - -
Other, net....... 24,657 (5,858) (8,036)
Total income
taxes........... $1,764,927 $1,641,229 $1,258,704
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 1998 and 1997 are summarized in
the following table:
1998 1997
Deferred tax assets:
Allowance for doubtful
accounts $ 81,836 $ 75,017
Deferred compensation 648,423 521,228
Customers' advances
and contributions 4,282,918 4,444,641
Alternative minimum tax
credit carryforward 1,153,627 1,007,001
Other 30,462 30,504
Total gross deferred tax
assets 6,197,266 6,078,391
Less valuation
allowance - -
Total deferred tax assets 6,197,266 6,078,391
Deferred tax liabilities:
Accelerated depreciation 15,680,144 14,457,391
Investment tax credit 388,821 400,652
Pension income 1,013,700 953,119
Total deferred tax
liabilities 17,082,665 15,811,162
Net deferred tax
liability $10,885,399 $ 9,732,771
Reflected on balance
sheets as:
Current deferred
tax asset $ 81,836 $ 75,017
Noncurrent deferred
tax liability (10,967,235) (9,807,788)
Net deferred tax
liability $(10,885,399)$(9,732,771)
No valuation allowance is required for deferred tax assets as
of December 31, 1998 and 1997. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income
and the current regulatory environment, management believes it is
more likely than not the Company will realize the benefits of
these deductible differences.
During 1996, the Company recorded a gain on sale of land of
$134,117. Federal and state income taxes relative to the gain
amounted to $54,443.
4. Borrowings
Long-term debt as of December 31, 1998 and 1997 is summarized
in the following table:
1998 1997
10.17% Senior Notes,
Series A, due 2019.............. $ 6,000,000 $ 6,000,000
9.60% Senior Notes,
Series B, due 2019.............. 5,000,000 5,000,000
10.05% Senior Notes,
Series C, due 2020.............. 6,500,000 6,500,000
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
5% Industrial Development
Authority Revenue Refunding
Bonds, Series 1995, due 2010..... 4,300,000 4,300,000
$32,000,000 $32,000,000
The Company maintains lines of credit aggregating $20,000,000.
Loans granted under these lines as of December 31, 1998 bear
interest based on the prime or LIBOR rate plus basis points, as
defined. There were no short-term borrowings as of December 31,
1998 and $843,000 of short-term borrowings as of December 31,
1997. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1997 was 7.41%. All of
the lines of credit expire within one year, and all are payable
upon demand. The Company is not required to maintain
compensating balances on its lines of credit.
The 4.75% Industrial Development Authority Revenue
Refunding Bonds Series 1994 have mandatory tender dates of May
15, 1999 and May 15, 2004. The 5% Industrial Development
Authority Revenue Refunding Bonds Series 1995 have mandatory
tender dates of June 1, 2000 and June 1, 2005. The Company is
required to purchase any unremarketed 1994 and 1995 bonds.
The terms of the debt agreements limit in some cases the
Company's ability to prepay its borrowings and include certain
restrictions with respect to declaration and payment of cash
dividends and acquisition of the Company's stock. Under the
terms of the most restrictive agreements, cumulative payments for
dividends and acquisition of stock since December 31, 1982 may
not exceed $1,500,000 plus net income since that date. As of
December 31, 1998, none of the earnings retained in the business
are restricted under these provisions.
5. Common Stock and Earnings Per Share
Earnings per share are based upon the weighted average
number of shares outstanding of 2,951,285 in 1998; 2,912,469 in
1997; and 2,627,564 in 1996. The Company does not have dilutive
securities.
During 1997, amendments to the existing Articles of
Incorporation were approved. The amendments (i) increased the
authorized capital stock of the Company from 1,200,000 shares of
common stock, par value $10.00 to 6,500,000 shares (6,000,000
shares of common stock, without par value, and 500,000 shares of
Series Preferred Stock, without par value); (ii) eliminated the
concept of par value of the capital stock; and (iii) deleted
certain provisions relating to dividends on common stock in order
to allow for possible future issuance of Series Preferred Stock.
Also, during 1997, the Board of Directors declared a
four-for-one stock split for shareholders of record on June 2,
1997, in conjunction with the increase in authorized shares. The
stock was distributed on June 10, 1997. Shareholders of record
received three additional shares of common stock for each share
owned. The transaction had no effect on total shareholders'
equity, but caused a restatement of all per share amounts
included in this annual report for periods prior to the split.
The Board of Directors also approved an increase in the number of
authorized shares for both the Employee Stock Purchase Plan and
the Dividend Reinvestment Program by a factor of four to reflect
the stock split.
Under the employee stock purchase plan, all full-time
employees who have been employed at least six consecutive months
may purchase shares of the Company's common stock through payroll
deductions limited to 10% of gross compensation. The purchase
price is 95% of the fair market value (as defined). As of
December 31, 1998, 44,156 shares have been issued under the plan.
During 1997, the Company's Board of Directors approved an
increase in the number of authorized shares of common stock under
the plan to 90,000 shares.
Under the optional dividend reinvestment plan, holders of
the Company's common stock may purchase additional shares. The
purchase price is 95% of the fair market value (as defined). As
of December 31, 1998, 382,198 shares of the 480,000 shares
authorized have been issued.
On August 8, 1996, the Company offered to holders of its
common stock non-transferable subscription rights to purchase
common stock. On September 16, 1996, subscription rights to
purchase 319,924 shares (restated to reflect the June 1997
four-for-one stock split) were exercised.
6. Employee Benefit Plans
The Company maintains two defined benefit pension plans
covering substantially all of its employees. The benefits are
based upon years of service times the sum of $16.50 plus 1 1/2% of
final average monthly earnings in excess of $400. The Company's
funding policy is to contribute annually the maximum amount
permitted by the Employee Retirement Income Security Act of 1974,
as amended.
The following table sets forth the plans' funded status and
amounts recognized in the Company's balance sheets as of December
31, 1998 and 1997. The measurement of assets and obligations of
the plans is as of December 31, 1998 and 1997.
1998 1997
Pension benefit obligations
beginning of year $ 8,916,175 $ 7,805,600
Service cost 319,765 256,840
Interest cost 627,227 551,189
Increase due to actuarial
loss 1,654,679 633,770
Benefit payments (350,851) (331,224)
Pension benefit obligation
end of year $11,166,995 $ 8,916,175
Fair value of plan assets
beginning of year $12,512,833 $11,163,660
Actual return on plan
assets 2,353,265 1,680,397
Benefits paid (350,851) (331,224)
Fair value of plan assets
end of year $14,515,247 $12,512,833
Funded status $ 3,348,252 $ 3,596,658
Unrecognized transition
asset (654,333) (860,333)
Unrecognized net prior
service cost 247,285 274,002
Unrecognized net gain (1,114,690) (1,277,933)
Prepaid pension cost as of
December 31, 1998 and 1997 $ 1,826,514 $1,732,394
Net periodic pension income for 1998, 1997 and 1996 included the
following components:
1998 1997 1996
Service cost-benefits
earned during the
year $ 319,765 $ 256,840 $ 247,100
Interest cost on
projected benefit
obligation 627,227 551,189 500,970
Expected return on
plan assets (861,829) (768,314) (711,457)
Amortization of
transition asset (206,000) (206,000) (206,000)
Amortization of
prior service cost 26,717 26,717 19,339
One-time charge for
early retirement
window - 87,460 -
Net periodic pension
income $ (94,120) $ (52,108) (150,048)
Included in net periodic pension income for 1997 is a one-
time charge for an early retirement incentive of $87,460.
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
6.0% in 1998 and 6.5% in 1997. The rate of increase in future
compensation levels was 4%. The expected long-term rate of
return on assets was 7%.
The Company has a savings plan pursuant to the provisions of
section 401(k) of the Internal Revenue Code. The plan provides
for elective employee contributions of up to 15% of compensation
and Company matching contributions of 50% of the participant's
contribution, up to a maximum annual Company contribution of $500
for the union represented employees and $1,000 for the general
and administrative employees. Contributions to the plan amounted
to $51,446 in 1998, $52,526 in 1997 and $28,210 in 1996.
7. Notes Receivable
The Company has entered into agreements with municipalities to
extend water service into newly-formed water districts. The
Company loaned funds to the municipalities to cover the costs
related to the projects. The municipalities concurrently
advanced these funds to the Company in the form of customers'
advances for construction. The municipalities are required to
charge application fees and water revenue surcharges (fees) to
customers connected to the system which are remitted to the
Company. The principal and the related customer advance are
reduced periodically as operating revenues are earned by the
Company from customers connected to the system and refunds of
advances are made. There is no due date for the notes nor
expiration date for the advances.
The Company has recorded interest income of $96,199 in 1998,
$98,382 in 1997 and $152,979 in 1996 on these notes.
Included in the accompanying balance sheets at December 31,
1998 and 1997 were the following amounts related to these
projects.
1998 1997
Notes receivable, including
interest $ 618,528 $ 714,025
Customers' advances for
construction 2,419,446 2,433,568
The Company has other notes receivable totaling $194,547 and
$199,909 in 1998 and 1997, respectively.
The Company has other customers' advances for construction
totaling $14,269,604 and $13,786,070 in 1998 and 1997,
respectively.
8. Capital Commitments
The estimated funds needed for the Company's construction
program for 1999 are $4,974,000. The Company plans to finance
such expenditures with 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.
9. Commitments and Contingent Liabilities
The Company is involved in certain legal and administrative
proceedings before various courts and governmental agencies
concerning rates and other matters. The Company expects that the
ultimate disposition of these proceedings will not have a
material effect on the Company's financial position or results of
operations.
10. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been
determined based on available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Company might realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value.
The carrying amount of current assets and liabilities that
are considered financial instruments approximates their fair
value as of the dates presented. The Company's long-term debt,
with a carrying value of $32,000,000 at December 31, 1998 and
1997, had an estimated fair value of approximately $41,000,000 in
1998 and $37,800,000 in 1997. The weighted average rates used to
calculate the carrying value were based on the 30-year Treasury
Bond yield. The 1998 and 1997 rates were 6.21% and 7.01%,
respectively.
The Company's customers' advances for construction and notes
receivable have carrying values at December 31, 1998 of
$16,689,050 and $813,075, respectively. The carrying values at
December 31, 1997 were $16,219,638 for customers' advances for
construction and $913,934 for notes receivable. The relative
fair values of these amounts cannot be accurately estimated since
future payment streams are dependent upon several factors,
including new customer connections, customer consumption levels
and future rate increases.
11. Subsequent Events - Shareholder Rights Plan
On January 25, 1999, the Company's Board of Directors
approved a Shareholder Rights Plan designed to protect the
Company's shareholders in the event of an unsolicited, unfair
offer to acquire the Company. Each outstanding common share is
entitled to one Right which is evidenced by the common share
certificate. In the event any person acquires 15% or more of the
outstanding common shares or commences a tender or exchange offer
which, if consummated, would result in a person owning 15% or
more of the outstanding common shares, the Rights will begin to
trade independently from the common shares, and would entitle the
holder to purchase a number of common shares having approximately
twice the value of the exercise price of the Rights. If the
Company is involved in a merger or other business combination at
any time after the Rights become exercisable, the Rights will
entitle the holder to acquire a number of shares of the acquiring
company having approximately twice the value of the exercise
price of the Rights. The Rights are redeemable by the Company at
a redemption price of $0.01 per Right at any time before the
Rights become exercisable. The Rights will expire on January 24,
2009, unless previously redeemed.
Independent Auditors' Report
To the Shareholders and Board of Directors of The York Water
Company:
We have audited the accompanying balance sheets of The York
Water Company as of December 31, 1998 and 1997, and the related
statements of income, shareholders' investment, and cash flows
for each of the years in the three-year period ended December 31,
1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of The York Water Company as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Harrisburg, PA
February 12, 1999
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<NAME> YORK WATER CO
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