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, 1999
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 10, 2000 was $50,067,274.
As of February 10, 2000 there were 2,989,091 shares of Common
Stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 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. Forward-looking statements include certain
information relating to the Company's business
strategy, including the markets in which it operates,
the services it provides, its plans for construction,
its expansion of its service territories, water usage
by its customers and its plans to invest in new
technologies. 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; and (v) general economic and
business conditions which are less favorable than
expected. 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, and
portions of the Townships of Manchester, East Manchester, West
Manchester, North Codorus, Shrewsbury, North Hopewell, Hopewell,
Springettsbury, Spring Garden, Conewago, Springfield, York,
Hellam, Windsor, Lower Windsor, Dover 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
20,928,000 gallons, and its present safe daily yield is
29,900,000 gallons.
The Company's service territory has an estimated population of
144,000. Territory expansion during 1999 included: the
completion of water mains and appurtenances to serve Railroad
Borough, completion of interconnection with New Freedom Borough,
finalization of Conewago Township as a water district, and
completion of main to Conewago Township. 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
regulation 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, and the Company will be able to
cover fixed costs of operations.
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 1999, the Company has
maintained an increasing growth in number of customers and
distribution facilities as shown by the following chart:
1999 1998 1997 1996 1995
Average daily
consumption
(gallons
per day) 20,928,000 19,488,000 19,405,000 18,593,000 19,657,000
Miles of
mains
at year end 696 671 655 641 622
Additional
distribution
mains
installed
(ft.) 130,262 85,431 77,274 78,619 84,515
Number of
customers 48,144 47,173 46,458 45,800 44,879
Population
served 144,000 142,000 140,700 143,000 140,000
During 1999, the per capita volume of water sold did not
significantly change compared to 1998. 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 which the Company believes will 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 which the
Company believes will 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 1999 of
20,928,000 gallons, the Company believes 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 18,460,000 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 696
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 "year 2000" issue has had no impact on the Company's
operations. The Company incurred costs of year 2000 remediation
of approximately $135,600. The Company will continue to monitor
this issue but does not expect it to have a significant impact on
the Company's operations.
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 "Market for Common Stock
and Dividends" of the 1999 Annual Report to Shareholders is
incorporated herein by reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Highlights of Our
184th Year" of the 1999 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 1999 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 1999
Annual Report are forward-looking 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 does not use derivative financial instruments for
speculative trading purposes. The Company's operations are
exposed to market risks primarily as a result of changes in
interest rates and foreign currency exchange rates. This
exposure to these market risks relates to the Company's debt
obligations under its lines of credit. Loans granted under these
lines bear interest based upon the prime or LIBOR rate plus basis
points. The Company has not entered into financial instruments
such as interest rate swaps or interest rate lock agreements.
The Company's 4.40% Industrial Development Authority Revenue
Refunding Bonds Series 1994 have a mandatory tender date of 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 1999 Annual
Report to Shareholders are incorporated herein by reference:
Balance Sheets as of December 31, 1999 and 1998 Page 12
Statements of Income for Years Ended December 31,
1999, 1998 and 1997 Page 13
Statements of Shareholders' Investment for Years
Ended December 31, 1999, 1998 and 1997 Page 13
Statements of Cash Flows for Years Ended
December 31, 1999, 1998 and 1997 Page 14
Notes to Financial Statements Page 15
Independent Auditors' Report Page 21
Except for the above financial data and the information specified
under Items 5, 6 and 7 of this report, the 1999 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 2000 Annual Meeting of Shareholders to be
held May 1, 2000 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 2000 Annual Meeting
of Shareholders to be held May 1, 2000 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 2000 Annual Meeting
of Shareholders to be held May 1, 2000 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
2000 Annual Meeting of Shareholders to be held May 1, 2000 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
The York Water Company:
Under date of February 25, 2000, we reported on the balance
sheets of The York Water Company as of December 31, 1999 and
1998, and the related statements of income, shareholders'
investment, and cash flows for each of the years in the
three-year period ended December 31, 1999, as contained in the
1999 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 1999. 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
Baltimore, Maryland
February 25, 2000
<PAGE>
THE YORK WATER COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
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,
1999:
Reserve for
uncollectible
accounts $120,000 $ 87,795 $12,992 $100,787 $120,000
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
<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 27, 2000 By: /s/ W. 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/ W. T. Morris By: /s/ Jeffrey S. Osman
William T. Morris Jeffrey S. Osman
(Principal Executive and (Principal Accounting
Financial Officer and Officer)
Director)
Dated: March 27, 2000 Dated: March 27, 2000
Directors: Date
By: /s/
Irvin S. Naylor
(Chairman)
By: /s/ Horace Keesey III 3/27/00
Horace Keesey III
By: /s/ Chloe R. Eichelberger 3/27/00
Chloe Eichelberger
By: /s/ Paul W. Ware 3/27/00
Paul W. Ware
By: /s/ John L. Finlayson 3/27/00
John L. Finlayson
By: /s/
Frank Motter
By: /s/ George Hay Kain, III 3/27/00
George Hay Kain, III
By: /s/ Michael W. Gang 3/27/00
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 previously
Senior Notes, Series A with the Securities and
and $5,000,000 9.60% Exchange Commission as Exhibit
Senior Notes, Series B 4.5 to the Company's 1989
dated January 2, 1989 Form 10-K.
<PAGE>
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 Exhibit
$2,700,000 4.75% Water 4.8 to the Company's Quarterly
Facilities Revenue Report Form 10-Q for the
Refunding Bonds dated quarter ended June 30, 1994.
February 1, 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 Exhibit
$4,300,000 5% Water 4.9 to the Company's Quarterly
Facilities Revenue Report Form 10-Q for the
Refunding Bonds dated quarter ended September 30,
October 1, 1995 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 Exchange Commission as Exhibit
to Extension of Water 10.1 to the Company's 1989
Mains dated April 17, Form 10-K.
1985
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 Exhibit
Extension of Water Mains 10.2 to the Company's 1989
dated February 9, 1989 Form 10-K.
<PAGE>
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 Exhibit
Borough, Modern Trash 10.3 to the Company's 1989
Removal of York, Inc. and Form 10-K.
Lower Windsor Township
Relative to Extension of
Water Mains dated July 18,
1989
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 Exhibit
Extension of Water Mains 10.4 to the Company's 1990
dated September 20, 1989 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 Exhibit
Water Mains dated 10.5 to the Company's 1990
December 29, 1989 Form 10-K.
11 Common Shares Used in Page 13
Computing Earnings Per
Share
13 1999 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
1999 1998 1997 1996 1995
Common shares
outstanding,
beginning of
the year 2,979,722 2,934,782 2,900,524 2,549,496 2,518,736
Weighted average
shares issued in
connection with
1996 stock
subscription - - - 66,432 -
Weighted average
shares repurchased
in 1999 (7,392) - - - -
Weighted average
shares issued in
connection with the
Employee Stock
Purchase Plan 1,701 1,565 1,569 1,744 1,720
Weighted average
shares issued in
connection with
the Optional
Dividend Rein-
vestment Plan 16,236 14,938 10,376 9,892 9,924
2,990,267 2,951,285 2,912,469 2,627,564 2,530,380
All share data has been restated to reflect the June 1997
four-for-one stock split.
<PAGE>
EXHIBIT 13
THE YORK WATER COMPANY
1999 ANNUAL REPORT TO SHAREHOLDERS
The York Water Company's 1999 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 25, 2000, relating to
the balance sheets of The York Water Company as of December 31,
1999 and 1998, and the related statements of income,
shareholders' investment, and cash flows for each of the years in
the three-year period ended December 31, 1999, which report
appears in the December 31, 1999 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 25, 2000 relating to
the financial statement schedule as listed in Item 14(a) of the
Company's December 31, 1999 annual report on Form 10-K, which
report appears in such annual report on Form 10-K.
KPMG LLP
Baltimore, Maryland
March 28, 2000
The York Water Company
Highlights of Our 184th Year
<TABLE>
<CAPTION>
Summary of Operations
For the Year 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Water operating revenue $17,511,251 $17,137,029 $16,996,706 $15,721,462 $15,449,296
Operating expenses 10,255,553 9,721,428 9,678,694 9,223,227 9,119,832
Operating income 7,255,698 7,415,601 7,318,012 6,498,235 6,329,464
Interest expense 2,643,579 2,673,614 2,707,310 2,893,123 2,738,846
Gain on sale of land - - - 134,117 -
Other income, net 252,058 158,329 150,588 279,231 141,536
Income taxes 1,710,104 1,764,927 1,641,229 1,258,704 1,419,907
Net income $ 3,154,073 3,135,389 3,120,061 2,759,756 2,312,247
Per Share of Common Stock
Book value $10.31 $10.20 $9.93 $9.65 $8.54
Net income 1.05 1.06 1.07 1.05 .92
Dividends* .945 .93 .91 .90 .90
Number of shares outstanding
at year-end 2,989,091 2,979,722 2,934,782 2,900,524 2,549,496
Utility Plant
Original cost $108,804,699 $102,088,220 $97,487,926 $93,492,775 $88,710,279
Construction expenditures 7,050,376 4,989,967 4,500,517 4,936,816 5,256,959
Other
Total assets $108,600,110 $102,479,091 $98,854,074 $96,736,434 $90,459,706
Long-term debt 32,765,943 32,000,000 32,000,000 32,000,000 32,000,000
*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.
</TABLE>
<PAGE>
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, and
portions of the Townships of Manchester, East Manchester, West
Manchester, North Codorus, Shrewsbury, North Hopewell, Hopewell,
Springettsbury, Spring Garden, Conewago, Springfield, York,
Hellam, Windsor, Lower Windsor, Dover and Jackson. The Company's
service territory has an estimated population of 144,000.
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 20,928,000 gallons, and its present safe daily yield is
29,900,000 gallons.
In the area served by the Company, under the regulation of
the PPUC, there are no competitors. During the five years ended
in 1999, the Company has maintained an increasing growth in
number of customers and distribution facilities as shown by the
following chart:
<PAGE>
1999 1998 1997 1996 1995
Average
daily
consumption
(gallons per
day) 20,928,000 19,488,000 19,405,000 18,593,000 19,657,000
Miles of
mains at
year-end 696 671 655 641 622
Additional
distribution
mains installed
(ft.) 130,262 85,431 77,274 78,619 84,515
Number of
customers 48,144 47,173 46,458 45,800 44,879
Population
served 144,000 142,000 140,700 143,000 140,000
Operating revenue in 1999 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:
<PAGE>
1999 1998
HIGH LOW DIVIDEND* HIGH LOW DIVIDEND*
1st Quarter $19.50 $17.75 $.235 $22.60 $18.50 $.230
2nd Quarter 17.75 16.00 .235 21.75 19.13 .230
3rd Quarter 18.75 16.75 .235 19.00 17.37 .235
4th Quarter 18.75 16.50 .240 20.00 18.37 .235
* 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, 1999 were 1,364.
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 1999.
Requests Should Be Made To:
JEFFREY S. OSMAN - VICE PRESIDENT-FINANCE
THE YORK WATER COMPANY or visit our web page at:
Box 15089, YORK, PA 17405 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. Forward-looking
statements include certain information relating to the Company's
business strategy, including the markets in which it operates,
the services it provides, its plans for construction, its
expansion of its service territories, water usage by its
customers and its plans to invest in new technologies. 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; and (v) general economic
and business conditions which are less favorable than expected.
The Company does not intend to update these cautionary
statements.
Results of Operations
1999 Compared with 1998
Water operating revenues for 1999 increased $374,222 or 2.2%
over 1998. The increase resulted primarily from an increase in
rates of 5.3% approved by the PPUC effective October 1, 1999.
Consumption for 1999 decreased .6% for residential customers and
.3% for commercial and industrial customers due in large part to
a significant drought which caused restrictions to be placed on
water use in the service area.
Operating expenses for 1999 increased $534,125 or 5.5%
compared to 1998. Increased realty taxes, deferred compensation
accruals, chemical expenses related to a new chlorination system,
main, pump and meter maintenance, year 2000 system costs, workers
compensation and health insurance were the primary reasons for
the increase. Lower electric costs due to the electric choice
program, reduced filter plant, hydrant, and service line
maintenance, lower bad debts, rate case amortization, capital
stock tax, and pension expenses partially offset the increase.
In addition, the Company began to amortize acquisition
adjustments in 1999, thereby reducing net expenses.
Allowance for funds used during construction for 1999
increased $21,011 or 25.6% when compared to 1998. The increase
was due to interest capitalized on several large main extensions
including Railroad, Windsor and Conewago Township. The Company's
average plant investment under construction rose from $2,400,000
in 1998 to $2,500,000 in 1999.
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 for 1998 increased $42,734 or .4%.
Increased depreciation expense, pension expense, deferred
compensation costs, and year 2000 system maintenance costs caused
the increase. The increase was partially offset by
lower workers' compensation premiums, lower maintenance costs
associated with structures and mains, reduced health insurance
costs to the Company, and lower meter reading costs.
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.
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.
Rate Developments
Within the last several years the Company has filed written
applications for rate increases with the PPUC and has been
granted rate relief as a result of such requests. The most
recent formal rate request was filed by the Company on April 22,
1999, seeking a 10.3% increase in rates. Effective October 1,
1999, the PPUC authorized an increase in rates designed to
produce approximately $651,000 in additional annual operating
revenues, an increase of 5.3%.
Liquidity and Capital Resources
During 1999, the per capita volume of water sold did not
significantly change compared to 1998. 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 1999, the Company had $7,050,376 of construction
expenditures. The Company financed such expenditures through
internally generated funds, customers' advances, short-term
borrowings, a Pennvest loan 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 2000 and
2001 of approximately $5,232,000 and $5,570,000, 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.
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 2000 and 2001 construction projects.
During 1999, net cash used in investing and financing
activities exceeded net cash provided by operating activities.
The Company anticipates that during 2000 net cash used in
investing and financing activities will again exceed net cash
provided by operating activities. Borrowings against the
Company's lines of credit, proceeds from the issuance of common
stock under its dividend reinvestment plan (stock issued in lieu
of cash dividends) and employee stock purchase plan, and
customers' advances will be used to satisfy the need for
additional cash.
As of December 31, 1999, current liabilities exceeded current
assets by $470,102. As of December 31, 1998, current assets
exceeded current liabilities by $983,121. Short-term borrowings
from lines of credit as of December 31, 1999 and 1998 were
$1,431,118 and $0, respectively. The Company maintains lines of
credit aggregating $16,000,000. 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 1999, the Company's dividend payout ratios relative
to net income and cash provided by operating activities were
89.5% and 51.4%, respectively. The Company believes that these
payout ratios are appropriate.
Shareholders' investment as a percent of total capitalization
was 48.5% as of December 31, 1999 compared with 48.7% as of
December 31, 1998.
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
Disclosure Act.
The "year 2000" issue has had no impact on the Company's
operations. The Company incurred costs of year 2000 remediation
of approximately $135,600. The Company will continue to monitor
this issue but does not expect it to have a significant impact on
the Company's operations.
<PAGE>
The York Water Company
Balance Sheets
December 31
Assets 1999 1998
UTILITY PLANT, at original cost. . . $108,804,699 $102,088,220
Less-Reserve for depreciation. . . . 17,079,631 15,687,003
91,725,068 86,401,217
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$75,721 in 1999 and $70,457 in
1998 . . . . . 515,813 495,267
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . - 257,706
Receivables, less reserves of
$120,000 in 1999 and 1998 . . . . . . . 2,753,260 2,481,799
Recoverable income taxes . . . . . . . . 5,702 -
Materials and supplies, at cost . . . . 390,440 361,400
Prepaid expenses . . . . . . . . . . . . 225,106 174,888
Deferred income taxes (Note 3) . . . . . 81,836 81,836
3,456,344 3,357,629
OTHER LONG-TERM ASSETS:
Prepaid pension cost (Note 6). . . . . . 1,977,883 1,826,514
Deferred debt expense . . . . . . . . . 396,190 406,277
Deferred rate case expense . . . . . . . 105,688 4,820
Notes receivable (Note 7). . . . . . . . 783,794 813,075
Deferred regulatory assets (Note 1). . . 8,296,669 7,959,948
Other. . . . . . . . . . . . . . . . . . 1,342,661 1,214,344
12,902,885 12,224,978
$108,600,110 $102,479,091
Capitalization and Liabilities
CAPITALIZATION:
Common stock, no par value, authorized
6,000,000 shares, outstanding
2,989,091 shares in 1999 and
2,979,722 shares in 1998 (Note 5). $ 28,099,197 $ 27,292,726
Earnings retained in the business. . 3,418,257 3,087,710
Treasury stock, 38,000 and 0 shares
in 1999 and 1998 . . . . (687,800) -
30,829,654 30,380,436
Long-term debt (Note 4). . . . . . . 32,765,943 32,000,000
63,595,597 62,380,436
CURRENT LIABILITIES:
Short-term borrowings (Note 4) . . . 1,431,118 -
Current portion of long-term debt. . . . 34,057 -
Accounts payable.. . . . . . . . . . . . 600,993 290,179
Dividends payable. . . . . . . . . . . . 534,889 506,415
Accrued taxes. . . . . . . . . . . . . . 31,458 347,244
Advance water revenues . . . . . . . . . 220,473 216,478
Accrued interest . . . . . . . . . . . . 676,687 675,761
Other accrued expenses . . . . . . . . . 396,771 338,431
3,926,446 2,374,508
DEFERRED CREDITS:
Customers' advances for construction
(Note 7). . . . . . . . 16,852,197 16,689,050
Contributions in aid of construction . . 8,658,845 7,080,610
Deferred income taxes (Note 3) . . . . .12,109,748 10,967,235
Deferred regulatory liabilities (Note 1) 1,823,447 1,681,584
Deferred employee benefits . . . . . . . 1,633,830 1,305,668
41,078,067 37,724,147
$108,600,110 $102,479,091
The accompanying notes are an integral part of these statements.
<PAGE>
The York Water Company
Statements of Income
Year Ended December 31
1999 1998 1997
WATER OPERATING REVENUES:
Residential. . . . . . . . . .$10,198,707 $10,015,871 $9,975,226
Commercial and industrial. . . 5,368,833 5,303,237 5,293,730
Other. . . . . . . . . . . . . 1,943,711 1,817,921 1,727,750
17,511,251 17,137,029 16,996,706
OPERATING EXPENSES:
Operation and maintenance. . . 4,130,342 3,930,387 3,826,546
Administrative and general . . 3,283,359 3,115,287 3,244,384
Depreciation and amortization. 1,618,357 1,636,578 1,552,338
Taxes other than income taxes. 1,223,495 1,039,176 1,055,426
10,255,553 9,721,428 9,678,694
Operating income. . . . 7,255,698 7,415,601 7,318,012
INTEREST EXPENSE AND OTHER INCOME:
Interest on long-term debt
(Note 4). . . . . . . . . 2,715,505 2,718,950 2,718,950
Interest on short-term debt
(Note 4) . . . . . . . . 31,026 36,605 35,589
Allowance for funds used
during construction . . . . (102,952) (81,941) (47,229)
Other income, net. . . . . . . (252,058) (158,329) (150,588)
2,391,521 2,515,285 2,556,722
Income before income taxes. 4,864,177 4,900,316 4,761,290
Federal and state income taxes
(Note 3). . . . . . . 1,710,104 1,764,927 1,641,229
Net income. . . . . . . $3,154,073 $3,135,389 $3,120,061
BASIC EARNINGS PER SHARE
(Note 5). . . . . . . . . . $1.05 $1.06 $1.07
Statements of Shareholders' Investment
Earnings
Retained
Common In The Treasury
Stock Business Stock
Balance, January 1, 1997 . . .$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 ($.93 per
share). . . . . . . . . . - (2,744,592) -
Issuance of common stock
under dividend reinvestment
plan. . . . . . 759,823 - -
Issuance of common stock
under employee stock
purchase plan. . . . . 79,030 - -
Balance, December 31, 1998 . . 27,292,726 3,087,710 -
Net income . . . . . . . . . - 3,154,073 -
Cash dividends ($.945 per
share). . . . . . . . . . . - (2,823,526) -
Issuance of common stock
under dividend reinvestment
plan. . . . . . 728,166 - -
Issuance of common stock
under employee stock
purchase plan. . . . . 78,305 - -
Repurchase of 38,000 shares
of common stock. . . . - - (687,800)
Balance, December 31, 1999 . .$28,099,197 $3,418,257 $(687,800)
The accompanying notes are an integral part of these statements.
<PAGE>
The York Water Company
Statements of Cash Flows
Year Ended December 31
1999 1998 1997
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income . . . . . . . . . .$3,154,073 $3,135,389 $3,120,061
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization. 1,618,357 1,636,578 1,552,338
Provision for losses on
accounts receivable. . . . . 87,795 103,957 97,923
Increase in deferred income
taxes (including regulatory
assets and liabilities) . . . . 947,655 589,078 634,065
Changes in assets and
liabilities:
Increase in accounts
receivable. . . . . . . . . .(359,256) (45,681) (114,488)
(Increase) decrease in
recoverable income taxes . . (5,702) 547,182 (387,979)
Increase in materials and
supplies . . . . . . . . (29,040) (23,563) (35,016)
Increase in prepaid expenses
and prepaid pension costs . .(201,587) (78,694) (21,020)
Increase in accounts payable,
accrued expenses, other
liabilities and deferred
employee benefits . . . . . 729,785 49,615 255,168
(Decrease) increase in accrued
interest and taxes. . . . . (314,860) 232,171 (2,595)
(Increase) decrease in other
assets. . . . . . . . (131,476) 60,986 (6,435)
Net Cash Provided by
Operating Activities . . 5,495,744 6,207,018 5,092,022
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of temporary
investments . . . . . . . . .(3,281,000)(12,555,000) (5,878,000)
Maturities of temporary
investments . . . . . . . . . 3,281,000 12,555,000 5,878,000
Construction expenditures . .(7,050,376) (4,989,967) (4,500,517)
Customers' advances for
construction and
contributions in aid of
construction . . . . . . . . 1,741,382 1,688,535 1,003,522
Net Cash Used in Investing
Activities . . . . (5,308,994) (3,301,432) (3,496,995)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt . 800,000 - -
Net borrowings (repayments)
under line-of-credit
agreements. . . . . 1,431,118 (843,000) (394,000)
Repurchase of 38,000 shares of
common stock. . . . . (687,800) - -
Issuance of common stock under
dividend reinvestment plan. . 728,166 759,823 596,552
Issuance of common stock under
employee stock purchase plan. 78,305 79,030 81,682
Dividends paid . . . . . . . .(2,823,526) (2,744,592) (2,650,266)
Decrease in notes receivable . 29,281 100,859 76,514
Net Cash Used in Financing
Activities . . . . (444,456) (2,647,880) (2,289,518)
Net (decrease) increase in cash
and cash equivalents . . . . (257,706) 257,706 (694,491)
Cash and cash equivalents at
beginning of year 257,706 - 694,491
Cash and cash equivalents at
end of year . . . . . . $ - $ 257,706 $ -
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized . . . . . . . . $2,636,394 $2,668,298 $2,712,436
Income taxes . . . . . . . . . 940,540 935,689 1,492,592
The accompanying notes are an integral part of these statements.
<PAGE>
The York Water Company
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 Company is subject to the provisions of Statement of
Financial Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation, and, therefore, certain
of the accounting principles followed may differ from enterprises
in general to reflect the economic effect of rate actions of
regulators.
The following summarizes the significant accounting policies
employed by The York Water Company.
Property, Plant and Equipment and Depreciation
Property, plant and equipment consists of utility plant. The
cost of additions includes contracted cost, direct labor and
fringe benefits, materials, overheads and, for certain utility
plant, allowance for funds used during construction. Water
systems acquired are recorded at estimated original cost of
utility plant when first devoted to utility service and the
applicable depreciation is recorded to accumulated depreciation.
The difference between the estimated original cost less
applicable accumulated depreciation, and the purchase price is
recorded as an acquisition adjustment within utility plant. At
December 31, 1999 and 1998, utility plant includes a credit
acquisition adjustment of $1,515,139 and $1,633,643,
respectively, which beginning in 1999, is being amortized over
the remaining life of the respective assets. Amortization
amounted to $34,788 in 1999.
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 value, is charged to the reserve for depreciation. Gains
or losses from abnormal retirements are reflected in income
currently.
The Company charges to maintenance expense the cost of
repairs and replacements and renewals of minor items 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.
The straight-line remaining life method is used to compute
depreciation on utility plant cost, exclusive of land and land
rights. The effective rate of depreciation was 2.02% in 1999,
2.10% in 1998 and 2.09% in 1997 on average utility plant, net
of customers' advances and contributions. Larger depreciation
provisions are deducted for tax purposes.
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.
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 rate-making 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 or in rates. 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.
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
1999, 1998, and 1997.
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 1999 (5.3%). The new rates became effective October 1,
1999 and are designed to produce approximately $651,000 in
additional annual operating revenues.
3. Income Taxes
The provisions for income taxes consist of:
1999 1998 1997
Federal current.. $ 674,116 $ 790,645 $ 838,367
State current.... 215,860 191,738 168,797
Federal deferred. 805,778 728,140 626,113
State deferred... 51,373 91,608 84,284
Federal investment
tax credit, net
of current
utilization... (37,023) (37,204) (76,332)
Total income
taxes......... $1,710,104 $1,764,927 $1,641,229
A reconciliation of the statutory Federal tax provision (34%)
to the total provision follows:
1999 1998 1997
Statutory
Federal tax
provision..... $1,653,820 $1,666,107 $1,618,839
Tax-exempt
interest...... (73,715) (39,084) (39,968)
Effect of
depreciation
flowed through.. (46,021) (44,933) (32,921)
Effect of cost of
removal flowed
through......... (23,163) (18,759) (19,835)
Amortization of
investment tax
credit.......... (38,325) (38,185) (37,765)
Tank painting
expenses........ - - (37,308)
State income
taxes, net of
Federal benefit. 176,374 187,008 167,033
Debt issuance
expenses........ 10,356 10,356 -
Other, net....... 50,778 42,417 23,154
Total income
taxes........... $1,710,104 $1,764,927 $1,641,229
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, 1999 and 1998 are summarized in
the following table:
1999 1998
Deferred tax assets:
Allowance for doubtful accounts $ 81,836 $ 81,836
Deferred compensation 812,984 648,423
Customers' advances and
contributions 4,191,539 4,282,918
Alternative minimum tax credit
carryforward 1,149,394 1,153,627
Other 33,012 30,462
Total gross deferred tax assets 6,268,765 6,197,266
Less valuation allowance - -
Total deferred tax assets 6,268,765 6,197,266
Deferred tax liabilities:
Accelerated depreciation 16,619,999 15,472,932
Investment tax credit 377,046 388,821
Pension income 1,074,904 1,013,700
Other, net 224,728 207,212
Total deferred tax liabilities 18,296,677 17,082,665
Net deferred tax liability $12,027,912 $10,885,399
Reflected on balance sheets as:
Current deferred tax asset $ 81,836 $ 81,836
Noncurrent deferred tax
liability (12,109,748) (10,967,235)
Net deferred tax liability $(12,027,912) $(10,885,399
No valuation allowance is required for deferred tax assets as
of December 31, 1999 and 1998. 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.
4. Borrowings
Long-term debt as of December 31, 1999 and 1998 is summarized
in the following table:
1999 1998
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
4.40% 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
1% Pennvest Note, due 2019 765,943 -
$32,765,943 $32,000,000
During 1999, the Company borrowed $800,000 under a 1%
Pennvest note. Proceeds of this loan were used to fund certain
capital projects. Principal payments on this loan will be
$34,057 in 2000, $37,406 in 2001, $37,787 in 2002, $38,172 in
2003, and $38,543 in 2004. The 4.4% Industrial Development
Authority Revenue Refunding Bonds Series 1994 has a mandatory
tender date of 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, 1999, none of the earnings retained in the business
are restricted under these provisions.
The Company maintains lines of credit aggregating
$16,000,000. Loans granted under these lines as of December 31,
1999 bear interest based on the prime or LIBOR rate plus basis
points, as defined. There were $1,431,118 of short-term
borrowings as of December 31, 1999 and none as of December 31,
1998. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1999 was 7.25%. All of
the lines of credit are payable upon demand. The Company is not
required to maintain compensating balances on its lines of
credit.
5. Common Stock and Earnings Per Share
Earnings per share are based upon the weighted average number
of shares outstanding of 2,990,267 in 1999; 2,951,285 in 1998;
and 2,912,469 in 1997. 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
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 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. 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, 1999, 48,775 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, 1999, 424,949 shares of the 480,000 shares
authorized have been issued.
On October 22, 1999, the Company purchased 38,000 shares of
its common stock in a private transaction. The Company plans to
use the 38,000 common shares to provide additional shares for
distribution to shareholders through the Company's optional
dividend reinvestment plan.
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 $17.50 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, 1999 and 1998. The measurement of assets and obligations of
the plans is as of December 31, 1999 and 1998.
1999 1998
Pension benefit
obligations
beginning of year $11,166,995 $ 8,916,175
Service cost 369,469 319,765
Interest cost 659,340 627,227
Increase due to
actuarial (gain) loss (911,524) 1,654,679
Benefit payments (380,769) (350,851)
Pension benefit
obligation end of year $10,903,511 $11,166,995
Fair value of plan
assets beginning of
year $14,515,247 $12,512,833
Actual return on plan
assets 1,352,775 2,353,265
Benefits paid (380,769) (350,851)
Fair value of plan
assets end of year $15,487,253 $14,515,247
Funded status $ 4,583,742 $ 3,348,252
Unrecognized
transition asset (448,333) (654,333)
Unrecognized net
prior service cost 220,568 247,285
Unrecognized net gain (2,378,094) (1,114,690)
Prepaid pension cost
as of December 31,
1999 and 1998 $ 1,977,883 $ 1,826,514
Net periodic pension income for 1999, 1998 and 1997 included the
following components:
1999 1998 1997
Service cost-benefits
earned during the
year $ 369,469 $ 319,765 $ 256,840
Interest cost on
projected benefit
obligation 659,340 627,227 551,189
Expected return
on plan assets (1,000,896) (861,829) (768,314)
Amortization of
transition asset (206,000) (206,000) (206,000)
Amortization of
prior service cost 26,717 26,717 26,717
Early retirement
incentive - - 87,460
Net periodic
pension income $(151,370) $(94,120) $ (52,108)
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
7.0% in 1999, 6.0% in 1998 and 6.5% in 1997. The rate of
increase in future compensation levels was 5%. The expected
long-term rate of return on assets was 7%.
The York Water Company
Notes to Financial Statements
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 $51,519 in 1999, $51,446 in 1998 and $52,526 in 1997.
7. Notes Receivable and Customers' Advances for Construction
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 by
enacted ordinance 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 $198,590 in
1999, $96,199 in 1998 and $98,382 in 1997 on these notes.
Included in the accompanying balance sheets at December 31,
1999 and 1998 were the following amounts related to these
projects.
1999 1998
Notes receivable,
including interest $ 595,143 $ 618,528
Customers' advances
for construction 2,398,504 2,419,446
The Company has other notes receivable totaling $188,652 and
$194,547 at December 31, 1999 and 1998, respectively.
The Company has other customers' advances for construction
totaling $14,453,693 and $14,269,604 at December 31, 1999 and
1998, respectively.
8. Capital Commitments
The Company plans to finance ongoing capital 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, results of
operations and cash flows.
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 $32,765,943 at December 31, 1999 and
$32,000,000 at December 31, 1998, had an estimated fair value of
approximately $35,000,000 in 1999 and $41,000,000 in 1998. The
weighted average rates used to calculate the carrying value were
based on the 30-year Treasury Bond yield. The 1999 and 1998
rates were 7.78% and 6.21%, respectively.
The Company's customers' advances for construction and notes
receivable have carrying values at December 31, 1999 of
$16,852,197 and $783,794, respectively. The relative fair values
of these amounts cannot be accurately estimated since the timing
of future payment streams is dependent upon several factors,
including new customer connections, customer consumption levels
and future rate increases.
11. 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.
<PAGE>
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, 1999 and 1998, and the related
statements of income, shareholders' investment, and cash flows
for each of the years in the three-year period ended December 31,
1999. 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, 1999 and 1998, and
the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Baltimore, Maryland
February 25, 2000
<PAGE>
Directors, Officers and Key Employees
Irvin S. Naylor*
Chairman of the Board
Vice Chairman of Board
Cor-Box, Incorporated
William T. Morris, P.E.*
President and Chief Executive Officer
The York Water Company
Horace Keesey III *
Vice Chairman of the Board
Consultant
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(212) 936-5100
www.amstock.com
George Hay Kain, III
Attorney at Law
Frank Motter*
President
Motter Printing Press Co.
Chloe R. Eichelberger
President/Chief Executive Officer
Chloe Eichelberger Textiles, Inc.
Paul W. Ware*
Chairman-Retired
Penn Fuel Gas, Inc.
John L. Finlayson**
Vice President-Finance and Administration
Susquehanna Pfaltzgraff Co.
Michael W. Gang**
Partner
Morgan, Lewis & Bockius LLP
Directors Emeriti
Robert E. Skold
Josephine S. Appell
*Members of the Executive Committee
**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
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