SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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 3,014,570 Shares outstanding
as of September 30, 1999
<PAGE>
THE YORK WATER COMPANY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
(Unaudited)
As Of As of
Sept.30,1999 Dec. 31, 1998
UTILITY PLANT, at original cost $106,574,353 $102,088,220
Less-Reserve for depreciation 16,745,540 15,687,003
89,828,813 86,401,217
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$74,405 in 1999 and $70,457 in 1998 753,889 495,267
CURRENT ASSETS:
Cash and cash equivalents - 257,706
Receivables, less reserves of
$120,000 in 1999 and in 1998 2,628,792 2,481,799
Recoverable income taxes 14,393 -
Materials and supplies, at cost 394,984 361,400
Prepaid expenses 200,305 174,888
Deferred income taxes 81,836 81,836
3,320,310 3,357,629
OTHER LONG-TERM ASSETS:
Prepaid pension cost 1,897,104 1,826,514
Deferred debt expense 400,502 406,277
Deferred rate case expense 120,339 4,820
Notes receivable 774,472 813,075
Deferred regulatory assets 8,186,189 7,959,948
Other 1,347,219 1,214,344
12,725,825 12,224,978
$106,628,837 $102,479,091
<PAGE>
THE YORK WATER COMPANY
Balance Sheets
(Unaudited)
As Of As Of
Sept.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 3,014,570 shares in
1999 and 2,979,722 shares in 1998 $ 27,899,823 $ 27,292,726
Earnings retained in the business 3,322,287 3,087,710
31,222,110 30,380,436
LONG-TERM DEBT
5.00% 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 1,027,000 -
Accounts payable 423,859 290,179
Dividends payable 525,188 506,415
Accrued taxes 26,953 347,244
Advance water revenues 228,200 216,478
Accrued interest 480,624 675,761
Other accrued expenses 352,662 338,431
3,064,486 2,374,508
DEFERRED CREDITS
Customers' advances for construction 18,066,350 16,689,050
Contributions in aid of construction 7,092,089 7,080,610
Deferred income taxes 11,705,756 10,967,235
Deferred regulatory liabilities 1,874,450 1,681,584
Deferred employee benefits 1,603,596 1,305,668
40,342,241 37,724,147
$106,628,837 $102,479,091
<TABLE> THE YORK WATER COMPANY
Statements of Income
<CAPTION> (Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
<S> 1999 1998 1999 1998
WATER OPERATING REVENUES <C> <C> <C> <C>
Residential $2,649,564 $2,699,361 $7,700,196 $7,528,069
Commercial and
industrial 1,494,749 1,459,238 4,054,982 4,014,440
Other 474,468 454,237 1,425,790 1,347,172
4,618,781 4,612,836 13,180,968 12,889,681
OPERATING EXPENSES
Operation and
maintenance 1,136,752 986,421 3,045,055 2,927,474
Administrative and
general 810,259 858,476 2,589,234 2,337,909
Depreciation 413,287 409,144 1,239,859 1,227,433
Taxes other than
income taxes 231,127 289,931 765,705 821,041
2,591,425 2,543,972 7,639,853 7,313,857
Operating Income 2,027,356 2,068,864 5,541,115 5,575,824
INTEREST EXPENSE AND
OTHER INCOME
Interest on long-term
debt 677,376 679,738 2,036,063 2,039,213
Interest on interim
bank loans 8,105 7,177 12,793 29,732
Allowance for funds used
during construction (33,939) (15,327) (63,821) (67,474)
Other income, net (89,424) (69,575) (169,849) (104,389)
562,118 602,013 1,815,186 1,897,082
Income before income
taxes 1,465,238 1,466,851 3,725,929 3,678,742
Federal and state
income taxes 552,199 500,261 1,382,204 1,253,940
Net Income $ 913,039 $ 966,590 $2,343,725 $2,424,802
Basic earnings per share $.30 $.33 $.78 $.82
Cash dividends per share $.24 $.24 $.71 $.70
</TABLE>
<TABLE> THE YORK WATER COMPANY
Statements of Cash Flows
<CAPTION> (Unaudited) (Unaudited)
Nine Months Nine Months
Ended Ended
Sept.30, 1999 Sept.30, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,343,725 $2,424,802
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 1,239,859 1,227,433
Provision for losses on accounts
receivable 87,750 76,500
Increase in deferred
income taxes (including regulatory
assets and liabilities) 705,146 493,679
Changes in assets and liabilities:
Increase in accounts receivable (234,743) (185,048)
(Increase) decrease in recoverable
income taxes (14,393) 423,474
(Increase) decrease in materials
and supplies (33,584) 15,911
Increase in prepaid expenses and
prepaid pension costs (96,007) (120,123)
Increase in accounts payable,
accrued expenses, other
liabilities and deferred
employee benefits 476,334 22,996
(Decrease) in accrued interest
and taxes (515,428) (187,335)
(Increase) decrease in other assets (177,034) 84,667
Net cash provided by operating
activities 3,781,625 4,276,956
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (4,991,662) (3,456,292)
Customers' advances for construction
and contributions in aid of
construction 1,388,779 1,709,714
Decrease in notes receivable 38,603 31,503
Net cash used in investing
activities (3,564,280) (1,715,075)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line-of-credit agreements 1,027,000 (343,000)
Issuance of common stock under
dividend reinvestment plan 549,320 569,006
Issuance of common stock under
employee stock purchase plan 57,777 60,178
Dividends paid (2,109,148) (2,047,031)
Net cash used in financing
activities (475,051) (1,760,847)
Net (decrease) increase in cash and
cash equivalents (257,706) 801,034
Cash and cash equivalents at beginning
of period 257,706 -
Cash and cash equivalents at end
of period $ -0- $ 801,034
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest, net of amounts
capitalized $2,177,208 $2,188,142
Income taxes 881,413 765,075
</TABLE>
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 nine month periods
ended September 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 nine months ended September
30, 1999 and 1998 were based on weighted average shares
outstanding of 2,997,524 and 2,951,146, respectively.
<PAGE>
THE YORK WATER COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Months Ended September 30, 1999 Compared
with Three Months Ended September 30, 1998
Net income for the three months ended September 30, 1999 was
$913,039, a decrease of $53,551 (5.5%) compared to the three
months ended September 30, 1998.
Water operating revenues for the three months ended September 30,
1999 were consistent with the three months ended September 30,
1998. Commercial consumption rose for the three-month period
while residential and industrial consumption declined.
Operating expenses for the three months ended September 30, 1999
increased $47,453 or 1.9% compared to the three months ended
September 30, 1998. Increased main maintenance, chemical
expenses due to the new hypochlorination system, year 2000 system
maintenance, deferred compensation, and purification equipment
maintenance were the primary reasons for the increase. Reduced
pumping equipment maintenance, electric costs, rate case expense,
capital stock tax and realty taxes partially offset the increase.
Allowance for funds used during construction for the three months
ended September 30, 1999 increased $18,612 when compared to the
same period in 1998 due to the Railroad/New Freedom and Windsor
main extensions which are larger than average.
A loss recorded in 1998 on the sale of land previously occupied
by the York New Salem standpipe caused other income, net to be
higher for the three months ended September 30, 1999 than the
three months ended September 30, 1998.
Federal and state income taxes for the three months ended
September 30, 1999 increased $51,938 or 10.4% 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 September 30, 1999 and 1998 were 37.7% and 34.1%,
respectively.
Nine Months Ended September 30, 1999 Compared
with Nine Months Ended September 30, 1998
Net income for the nine months ended September 30, 1999 was
$2,343,725, a decrease of $81,077 or 3.3% compared to the nine
months ended September 30, 1998.
Water operating revenues for the nine months ended September 30,
1999 increased $291,287 or 2.3% compared to the nine months ended
September 30, 1998. Consumption was up by .9% overall.
Operating expenses for the nine months ended September 30, 1999
increased $325,996 or 4.5% compared to the nine months ended
September 30, 1998. Deferred compensation, maintenance of mains,
legal fees related to strategic planning, shareholder rights, and
union negotiations, year 2000 system maintenance, reduced premium
credits for insurance, increased chemical expenses due to the new
hypochlorination system, and expenses related to the printing of
the water quality report were the primary reasons for the
increase. Declines in electric costs, filter plant maintenance,
rate case expense, capital stock and realty taxes partially
offset the increase.
Interest on interim bank loans decreased $16,939 or 57.0% through
September 30, 1999 compared to September 30, 1998 due to a
decrease in short-term debt outstanding in 1999. The average
short-term debt outstanding in 1999 and 1998 was $253,059 and
$596,220, respectively.
Other income net increased by $65,460 or 62.7% through September
30, 1999 compared to September 30, 1998 due to a 1998 loss on the
sale of land in York New Salem, a decline in donations, and
increased interest income on water district notes receivable.
Federal and state income taxes for the nine months ended
September 30, 1999 increased $128,264 or 10.2% 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 year-to-date
periods ended September 30, 1999 and 1998 were 37.1% 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 an 8.8% increase in annual revenues. Effective
October 1, 1999, the PPUC authorized an increase in rates
designed to produce approximately $651,000 in additional annual
revenues.
Liquidity and Capital Resources
During the first nine months of 1999, the per capita volume of
water sold did not significantly change compared to the first
nine months of 1998, despite the drought. The Company does not
anticipate any change in the level of water usage which would
have a material impact on future results of operations.
During the nine months ended September 30, 1999, the Company had
$4,991,662 of construction expenditures. The Company financed
such expenditures through internally generated funds, customers'
advances, short-term borrowings, and proceeds from the issuance
of common stock under its dividend reinvestment plan (stock
issued in lieu of cash dividends) and employee stock purchase
plan.
During the first nine months of 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, a Pennvest loan, and customers' advances are
expected to be used to satisfy the need for additional cash.
As of September 30, 1999, current assets exceeded current
liabilities by $255,824. Short-term borrowings from lines of
credit as of September 30, 1999 were $1,027,000. 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 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 completely installed and is
currently being tested and customized. Modifications are
expected to be completed by the end of November 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 September 30, 1999, the Company incurred costs of
approximately $126,000, and estimates total costs of year 2000
remediation efforts to reach $140,000.
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 all
locations.
Drought Emergency
On October 8, 1999, Pennsylvania Governor Tom Ridge lifted the
drought emergency. The drought emergency had some impact on
September revenues, but did not materially affect the Company's
financial position. Any further drought impact should be negated
by the rate increase.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K on October 28, 1999
regarding the repurchase of 38,000 shares of its common stock in
a private transaction.
<PAGE>
THE YORK WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE YORK WATER COMPANY
/s/ William T. Morris
William T. Morris
Principal Executive Officer
Date: November 12, 1999
/s/ Jeffrey S. Osman
Jeffrey S. Osman
Principal Financial and
Accounting Officer
Date: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000108985
<NAME> YORK WATER CO
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 89828813
<OTHER-PROPERTY-AND-INVEST> 753889
<TOTAL-CURRENT-ASSETS> 3320310
<TOTAL-DEFERRED-CHARGES> 8707030
<OTHER-ASSETS> 4018795
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<COMMON> 27899823
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<RETAINED-EARNINGS> 3322287
<TOTAL-COMMON-STOCKHOLDERS-EQ> 31222110
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<LONG-TERM-DEBT-NET> 32000000
<SHORT-TERM-NOTES> 1027000
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<EPS-BASIC> .78
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</TABLE>
