The York Water Company
Highlights of Our 185th Year
Summary of Operations For the Year
2000 1999 1998 1997 1996
Water operating revenue$18,481,163 $17,511,251$17,137,029 $16,996,706 $15,721,462
Operating expenses 10,008,624 10,255,553 9,721,428 9,678,694 9,223,227
Operating income 8,472,539 7,255,698 7,415,601 7,318,012 6,498,235
Interest expense 2,797,705 2,643,579 2,673,614 2,707,310 2,893,123
Gain on sale of land - - - - 134,117
Other income, net 166,003 252,058 158,329 150,588 279,231
Income taxes 2,083,050 1,710,104 1,764,927 1,641,229 1,258,704
Net income $ 3,757,787 $ 3,154,073 $3,135,389 $3,120,061 $2,759,756
Per Share of Common Stock
Book value $10.66 $10.31 $10.20 $9.93 $9.65
Net income 1.25 1.05 1.06 1.07 1.05
Dividends<F1> .98 .945 .93 .91 .90
Number of shares outstanding
at year-end 3,042,733 2,989,091 2,979,722 2,934,782 2,900,524
Utility Plant
Original cost $114,748,545 $108,804,699$102,088,220 $97,487,926 $93,492,775
Construction expenditures6,413,721 7,050,376 4,989,967 4,500,517 4,936,816
Other
Total assets $116,386,607 $108,600,110$102,479,091 $98,854,074 $96,736,434
Long-term debt 32,728,220 32,765,943 32,000,000 32,000,000 32,000,000
<F1>Cash dividends per share reflect dividends declared on shares
outstanding at each dividend date.
All per share data has been restated to reflect the June 1997
four-for-one stock split.
For Management's Discussion and Analysis of Financial
Condition and Results of Operations, Please Refer to Page 3.
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 146,000.
Industry of the area served is diversified, manufacturing such
items as fixtures and furniture, electrical machinery, food
products, paper, ordnance, textile products, air conditioning,
barbells, etc. The Company's present average daily consumption
is 19,541,520 gallons, and its present safe daily yield is
23,000,000 gallons.
In the area served by the Company, under the regulation of
the PPUC, there are no competitors. During the five years ended
in 2000, the Company has maintained an increasing growth in
number of customers and distribution facilities as shown by the
following chart:
2000 1999 1998 1997 1996
Average
daily
consumption
(gallons per
day) 19,541,520 20,928,000 19,488,000 19,405,000 18,593,000
Miles of
mains at
year-end 703 696 671 655 641
Additional
distribution
mains installed
(ft.) 67,072 130,262 85,431 77,274 78,619
Number of
customers 49,195 48,144 47,173 46,458 45,800
Population
served 146,000 144,000 142,000 140,700 143,000
Operating revenue in 2000 is derived from the following sources
and in the following percentages:
Residential 59%; Commercial and Industrial, 29%; Other, 12%.
Market for Common Stock and Dividends
The common stock of The York Water Company was traded
over-the-counter for 2000 and 1999. 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:
1999 1998
HIGH LOW DIVIDEND<F1> HIGH LOW DIVIDEND<F1>
1st Quarter $17.13 $13.50 $.240 $19.50 $17.75 $.235
2nd Quarter 14.75 13.75 .240 17.75 16.00 .235
3rd Quarter 16.38 14.25 .250 18.75 16.75 .235
4th Quarter 18.50 15.00 .250 18.75 16.50 .240
<F1> Cash dividends per share reflect dividends declared on
shares actually outstanding at each dividend date.
(Refer to Note 4 to the Financial Statements for a description
of the restriction on the declaration and payment of cash
dividends.)
Prices are bid prices quoted from local newspapers.
Shareholders of record as of December 31, 2000 were 1,307.
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 2000.
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
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
2000 Compared with 1999
Net income for 2000 was $3,757,787, an increase of $603,714
or 19.1% compared to 1999.
Water operating revenues for 2000 increased $969,912 or 5.5%
compared to 1999. The increase resulted from a 5.3% rate
increase approved by the Pennsylvania Public Utility Commission
(PPUC) effective October 1, 1999. Consumption for 2000 increased
1.1% for residential customers and decreased 7.5% for commercial
and industrial customers combined.
Operating expenses for 2000 decreased $246,929 or 2.4%
compared to 1999. The decrease was primarily due to reduced
public utility realty taxes and deferred compensation costs. In
addition, pension expenses, year 2000 system costs, legal fees,
capital stock tax and hydrant maintenance costs decreased in 2000
compared to 1999. Increased main and service line maintenance
due to highway relocation, increased insurance premiums, rate
case amortization, and depreciation due to increased plant
investment partially offset the decrease in operating expenses.
Interest on long-term debt increased $24,397 in 2000
compared to 1999 due to the remarketing of the Series 1995 5%
Industrial Development Bonds at 6%. Short-term interest also rose
by $82,683 in 2000 compared to 1999 due to increased interest
rates and an increase in short-term debt outstanding. The
average short-term debt outstanding in 2000 and 1999 was
$1,415,595 and $463,530, respectively.
Allowance for funds used during construction for 2000
decreased $47,046 or 45.7% when compared to 1999. Interest was
charged to large main extension projects in 1999 such as
Railroad, Windsor, and Conewago Township, while 2000 projects
were of smaller magnitude.
Federal and state income taxes rose by $372,946 or 21.8% due
to an increase in taxable income. The effective tax rates for
2000 and 1999 were 35.7% and 35.2%, respectively.
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, worker's
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.
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%. The Company plans to file an
application for rate increase in 2001.
Liquidity and Capital Resources
During 2000, the per capita volume of water sold did not
significantly change compared to 1999. 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 2000, the Company had $6,413,721 of construction
expenditures. The Company financed such expenditures through
internally generated funds, customers' advances, short-term
borrowings, and proceeds from the issuance of common stock under
its dividend reinvestment plan (stock issued in lieu of cash
dividends) and employee stock purchase plan.
The Company anticipates construction expenditures for 2001
and 2002 of approximately $6,612,400 and $5,531,000,
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 2001 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 2000, net cash used in investing and financing
activities equaled net cash provided by operating activities.
The Company anticipates that during 2001 net cash used in
investing and financing activities will again equal 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, 2000, current liabilities exceeded
current assets by $2,159,841. As of December 31, 1999, current
liabilities exceeded current assets by $267,802. Short-term
borrowings from lines of credit as of December 31, 2000 and
1999 were $2,648,946 and $1,431,118, 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 2000, the Company's dividend payout ratios relative
to net income and cash provided by operating activities were
78.5% and 46.1%, respectively. The Company believes that these
payout ratios are appropriate.
Shareholders' investment as a percent of total
capitalization was 49.8% as of December 31, 2000 compared with
48.5% as of December 31, 1999.
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.
Over the past several years, the Company and an outside
consultant have been evaluating the source of supply. Studies
indicate that a new source will be needed by 2006. Available
options have been analyzed, and the Company has decided on a
pipeline from the Susquehanna River to Lake Redman. This
alternative had the lowest cost, provided expandability, and was
the best for the environment. The Company plans to build an
intake and a pump station on its land at Long Level in Lower
Windsor Township, York County. The water would then be pumped 13
miles through a 30 inch diameter pipe and released into Lake
Redman. The cost of this project is estimated at $18 to $20
million. Funds will be raised through a combination of debt and
equity issues. While the permitting process will begin in 2001,
major expenditures are not expected until after 2002.
The York Water Company
Balance Sheets
December 31
Assets 2000 1999
UTILITY PLANT, at original cost $114,748,545 $108,804,699
Less-Reserve for depreciation 18,314,880 17,079,631
96,433,665 91,725,068
OTHER PHYSICAL PROPERTY:
Less-Reserve for depreciation of
$80,985 in 2000 and $75,721 in
1999 . . . . . 519,414 515,813
CURRENT ASSETS:
Cash and cash equivalents - -
Receivables, less reserves of
$130,000 in 2000 and $120,000 in
1999. . . . . . 2,854,593 2,753,260
Recoverable income taxes - 5,702
Materials and supplies, at cost 402,770 390,440
Prepaid expenses 258,236 225,106
Deferred income taxes (Note 3) 88,655 81,836
3,604,254 3,456,344
OTHER LONG-TERM ASSETS:
Prepaid pension cost (Note 6) 2,178,423 1,977,883
Deferred debt expense 394,422 396,190
Deferred rate case expense 46,950 105,688
Notes receivable (Note 7) 985,794 783,794
Deferred regulatory assets (Note 1) 10,360,708 8,296,669
Other. . . . . . . . . . . . . . . . 1,862,977 1,342,661
15,829,274 12,902,885
$116,386,607 $108,600,110
Capitalization and Liabilities
CAPITALIZATION:
Common stock, no par value, authorized
31,000,000 shares, outstanding
3,042,733 shares in 2000 and
2,989,091 shares in 1999 (Note 5) $28,899,504 $ 28,099,197
Earnings retained in the business 4,226,051 3,418,257
Treasury stock, 38,000 shares in
2000 and 1999 (687,800) (687,800)
32,437,755 30,829,654
Long-term debt (Note 4) 32,728,220 32,765,943
65,165,975 63,595,597
CURRENT LIABILITIES:
Short-term borrowings (Note 4) 2,648,946 1,431,118
Current portion of long-term debt 37,500 34,057
Accounts payable 1,168,824 600,993
Dividends payable 577,914 534,889
Accrued taxes 165,002 31,458
Advance water revenues 21,182 18,173
Accrued interest 678,164 676,687
Other accrued expenses 466,563 396,771
5,764,095 3,724,146
DEFERRED CREDITS:
Customers' advances for construction
(Note 7) 16,746,170 17,054,497
Contributions in aid of construction 10,157,133 8,658,845
Deferred income taxes (Note 3) 15,117,013 12,109,748
Deferred regulatory liabilities
(Note 1) 1,811,825 1,823,447
Deferred employee benefits 1,624,396 1,633,830
45,456,537 41,280,367
$116,386,607 $108,600,110
The accompanying notes are an integral part of these statements.
The York Water Company
Statements of Income
Year Ended December 31
2000 1999 1998
WATER OPERATING REVENUES:
Residential $10,979,596 $10,198,707 $10,015,871
Commercial and industrial 5,301,362 5,368,833 5,303,237
Other 2,200,205 1,943,711 1,817,921
18,481,163 17,511,251 17,137,029
OPERATING EXPENSES:
Operation and maintenance 4,217,504 4,130,342 3,930,387
Administrative and general 3,386,889 3,283,359 3,115,287
Depreciation and amortization 1,673,715 1,618,357 1,636,578
Taxes other than income taxes 730,516 1,223,495 1,039,176
10,008,624 10,255,553 9,721,428
Operating income 8,472,539 7,255,698 7,415,601
INTEREST EXPENSE AND OTHER INCOME:
Interest on long-term debt
(Note 4) 2,739,902 2,715,505 2,718,950
Interest on short-term debt
(Note 4) . . . . . . . . 113,709 31,026 36,605
Allowance for funds used
during construction (55,906) (102,952) (81,941)
Other income, net (166,003) (252,058) (158,329)
2,631,702 2,391,521 2,515,285
Income before income taxes 5,840,837 4,864,177 4,900,316
Federal and state income taxes
(Note 3) 2,083,050 1,710,104 1,764,927
Net income $ 3,757,787 $ 3,154,073 $ 3,135,389
BASIC EARNINGS PER SHARE
(Note 5). . . . . . . . . . $1.25 $1.05 $1.06
Statements of Shareholders' Investment
Earnings
Retained
Common In The Treasury
Stock Business Stock
Balance, January 1, 1998 $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 ($.945 per
share) . . . . . . . . . - (2,823,526) -
Issuance of common stock
under dividend reinvestment
plan 728,166 - -
Issuance of common stock
under employee stock
purchase plan 78,305 - -
Repurchase of 38,000 shares
of common stock - - (687,800)
Balance, December 31, 1999 28,099,197 3,418,257 (687,800)
Net income - 3,757,787 -
Cash dividends ($.98 per
share). . . . . . . . . . - (2,949,993) -
Issuance of common stock
under dividend reinvestment
plan 722,609 - -
Issuance of common stock
under employee stock
purchase plan 77,698 - -
Balance, December 31, 2000 $28,899,504 $4,226,051 $(687,800)
The accompanying notes are an integral part of these statements.
The York Water Company
Statements of Cash Flows
Year Ended December 31
2000 1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $3,757,787 $3,154,073 $3,135,389
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,673,715 1,618,357 1,636,578
Provision for losses on
accounts receivable. . . . . 85,357 87,795 103,957
Increase in deferred income
taxes (including regulatory
assets and liabilities) . . . 924,785 947,655 589,078
Changes in assets and
liabilities:
Increase in accounts
receivable (186,690) (359,256) (45,681)
Decrease (increase) in
recoverable income taxes 5,702 (5,702) 547,182
Increase in materials and
supplies . . . . . . . . (12,330) (29,040) (23,563)
Increase in prepaid expenses
and prepaid pension costs (233,670) (201,587) (78,694)
Increase in accounts payable,
accrued expenses, other
liabilities and deferred
employee benefits 677,666 729,785 49,615
Increase (decrease) in accrued
interest and taxes 135,021 (314,860) 232,171
(Increase) decrease in other
assets (432,002) (131,476) 60,986
Net Cash Provided by
Operating Activities 6,395,341 5,495,744 6,207,018
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of temporary
investments. . . . . . . . (249,046) (3,281,000)(12,555,000)
Maturities of temporary
investments 249,046 3,281,000 12,555,000
Construction expenditures (6,413,721) (7,050,376) (4,989,967)
Customers' advances for
construction and
contributions in aid of
construction 1,189,961 1,741,382 1,688,535
(Increase) decrease in notes
receivable. . . . . . . (202,000) 29,281 100,859
Net Cash Used in Investing
Activities (5,425,760) (5,279,713) (3,200,573)
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Repayments) proceeds of
long-term debt. . . . . . . (37,723) 800,000 -
Net borrowings (repayments)
under line-of-credit
agreements 1,217,828 1,431,118 (843,000)
Repurchase of 38,000 shares
of common stock. . . . . - (687,800) -
Issuance of common stock under
dividend reinvestment plan 722,609 728,166 759,823
Issuance of common stock under
employee stock purchase plan 77,698 78,305 79,030
Dividends paid (2,949,993) (2,823,526) (2,744,592)
Net Cash Used in Financing
Activities (969,581) (473,737) (2,748,739)
Net (decrease) increase in cash
and cash equivalents - (257,706) 257,706
Cash and cash equivalents at
beginning of year - 257,706 -
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 $2,783,830 $2,636,394 $2,668,298
Income taxes 1,076,981 940,540 935,689
The accompanying notes are an integral part of these statements.
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, 2000 and 1999, utility plant includes a credit
acquisition adjustment of $1,481,554 and $1,515,139,
respectively, which is being amortized over the remaining life of
the respective assets. Amortization amounted to $33,585 in 2000
and $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 1.96% in 2000,
2.02% in 1999, and 2.10% in 1998 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 2000, 1999, and 1998.
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. The next application to
increase rates will be filed in 2001.
3. Income Taxes
The provisions for income taxes consist of:
2000 1999 1998
Federal current.. $ 926,825 $ 674,116 $ 790,645
State current.... 297,378 215,860 191,738
Federal deferred. 811,966 805,778 728,140
State deferred... 83,563 51,373 91,608
Federal investment
tax credit, net
of current
utilization... (36,682) (37,023) (37,204)
Total income
taxes......... $2,083,050 $1,710,104 $1,764,927
A reconciliation of the statutory Federal tax provision
(34%) to the total provision follows:
2000 1999 1998
Statutory
Federal tax
provision..... $1,985,885 $1,653,820 $1,666,107
Tax-exempt
interest...... (47,524) (73,715) (39,084)
Effect of
depreciation
flowed through.. (65,061) (46,021) (44,933)
Effect of cost of
removal flowed
through......... (27,990) (23,163) (18,759)
Amortization of
investment tax
credit.......... (38,118) (38,325) (38,185)
State income
taxes, net of
Federal benefit. 251,441 176,374 187,008
Debt issuance
expenses........ (31,956) 10,356 10,356
Other, net....... 56,373 50,778 42,417
Total income
taxes........... $2,083,050 $1,710,104 $1,764,927
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, 2000 and 1999 are summarized in
the following table:
2000 1999
Deferred tax assets:
Allowance for doubtful accounts $ 88,655 $ 81,836
Deferred compensation 823,044 812,984
Customers' advances and
contributions 3,091,319 4,191,539
Alternative minimum tax credit
carryforward 1,135,705 1,149,394
Other 29,592 33,012
Total gross deferred tax assets 5,168,315 6,268,765
Less valuation allowance - -
Total deferred tax assets 5,168,315 6,268,765
Deferred tax liabilities:
Accelerated depreciation 18,419,468 16,619,999
Investment tax credit 365,445 377,046
Pension income 1,156,555 1,074,904
Other, net 255,205 224,728
Total deferred tax liabilities 20,196,673 18,296,677
Net deferred tax liability $15,028,358 $12,027,912
Reflected on balance sheets as:
Current deferred tax asset $ (88,655) $ (81,836)
Noncurrent deferred tax
liability 15,117,013 12,109,748
Net deferred tax liability $ 15,028,358 $ 12,027,912
No valuation allowance is required for deferred tax assets
as of December 31, 2000 and 1999. 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, 2000 and 1999 is
summarized in the following table:
2000 1999
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 Develop-
ment Authority Revenue
Refunding Bonds,
Series 1994, due 2009 2,700,000 2,700,000
5% Industrial Develop-
ment Authority Revenue
Refunding Bonds,
Series 1995, due 2010 - 4,300,000
1% Pennvest Note, due 2019 728,220 765,943
6% Industrial Development
Authority Revenue
Refunding Bonds, Series
1995, due 2010 4,300,000 -
$32,728,220 $32,765,943
During 2000, the Company issued $4,300,000 of 6% Industrial
Development Authority Revenue Refunding Bonds, Series 1995.
Proceeds of these bonds were used to redeem the outstanding
amount of the 5% Industrial Development Authority Revenue
Refunding Bonds, Series 1995. These bonds have a mandatory
tender date of June 1, 2005. The Company is required to purchase
any unremarketed bonds.
During 1999, the Company issued $2,700,000 of 4.40%
Industrial Development Authority Revenue Refunding Bonds, Series
1994. Proceeds of these bonds were used to redeem the
outstanding amount of the 4.75% Industrial Development Authority
Revenue Refunding Bonds, Series 1994. These bonds have a
mandatory tender date of May 15, 2004. The Company is required
to purchase any unremarketed bonds.
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
$37,500 in 2001, $37,876 in 2002, $38,257 in 2003, $38,641 in
2004, and $39,029 in 2005. 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, 2000, 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,
2000 bear interest based on the prime or LIBOR rate plus basis
points, as defined. There were $2,648,946 of short-term
borrowings as of December 31, 2000 and $1,431,118 as of December
31, 1999. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 2000 was 7.47%. 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 3,010,675 in 2000; 2,990,267 in
1999; and 2,951,285 in 1998. The Company does not have dilutive
securities.
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, 2000, 54,116 shares have been issued under the plan.
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, 2000, 473,250 shares of the 480,000 shares
authorized have been issued. The Company has filed a Securities
Certificate for an additional 480,000 shares to be authorized
under this plan.
On October 22, 1999, the Company purchased 38,000 shares of
its common stock in a private transaction.
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 1.5% 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, 2000 and 1999. The measurement of assets and obligations of
the plans is as of December 31, 2000 and 1999.
2000 1999
Pension benefit obligations
beginning of year $10,903,511 $11,166,995
Service cost 332,258 369,469
Interest cost 752,667 659,340
Increase (decrease) due
to actuarial loss (gain) 513,657 (911,524)
Benefit payments (508,288) (380,769)
Pension benefit
obligation end of year $11,993,805 $10,903,511
Fair value of plan assets
beginning of year $15,487,253 $14,515,247
Actual return on plan assets 27,410 1,352,775
Benefits paid (508,288) (380,769)
Fair value of plan assets
end of year $15,006,375 $15,487,253
Funded status $ 3,012,570 $ 4,583,742
Unrecognized transition asset (242,333) (448,333)
Unrecognized net prior
service cost 267,740 220,568
Unrecognized net gain (859,554) (2,378,094)
Prepaid pension cost as of
December 31, 2000 and 1999 $ 2,178,423 $ 1,977,883
Net periodic pension income for 2000, 1999 and 1998 included the
following components:
2000 1999 1998
Service cost-benefits
earned during the
year $ 332,258 $ 369,469 $ 319,765
Interest cost on
projected benefit
obligation 752,667 659,340 627,227
Expected return
on plan assets (1,064,600) (1,000,896) (861,829)
Amortization of
transition asset (206,000) (206,000) (206,000)
Amortization of
prior service cost 31,017 26,717 26,717
Amortization of
accumulated gain (45,882) - -
Net periodic
pension income $(200,540) $(151,370) $ (94,120)
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
6.75% in 2000, 7.0% in 1999 and 6.0% in 1998. The rate of
increase in future compensation levels was 5%. The expected
long-term rate of return on assets was 7%.
The Company has a savings plan pursuant to the provisions of
section 401(k) of the Internal Revenue Code. The plan provides
for elective employee contributions of up to 15% of compensation
and Company matching contributions of 50% of the participant's
contribution, up to a maximum annual Company contribution of
$1,000 for each employee. Contributions to the plan amounted to
$58,952 in 2000, $51,519 in 1999, and $51,446 in 1998.
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 $122,828 in
2000, $198,590 in 1999 and $96,199 in 1998 on these notes.
Included in the accompanying balance sheets at December 31,
2000 and 1999 were the following amounts related to these
projects.
2000 1999
Notes receivable,
including interest $ 804,307 $ 595,143
Customers' advances
for construction 2,775,234 2,398,504
The Company has other notes receivable totaling $181,487 and
$188,652 at December 31, 2000 and 1999, respectively.
The Company has other customers' advances for construction
totaling $13,970,936 and $14,655,993 at December 31, 2000 and
1999, 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. As additional funds
are needed for the pipeline to the river, various debt and equity
financing will be used.
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 $32,728,220 at December 31, 2000 and
$32,765,943 at December 31, 1999, had an estimated fair value of
approximately $39,000,000 in 2000 and $35,000,000 in 1999. The
weighted average rates used to calculate the carrying value were
based on the 30-year Treasury Bond yield. The 2000 and 1999
rates were 6.55% and 7.78%, respectively.
The Company's customers' advances for construction and notes
receivable have carrying values at December 31, 2000 of
$16,746,170 and $985,794, 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.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of The York Water
Company:
We have audited the accompanying balance sheet of The York Water
Company as of December 31, 2000, and the related statements of
income, shareholders' investment, and cash flows for the year
then ended. 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 audit. The
financial statements of The York Water Company as of December 31,
1999 and for the two years then ended were audited by other
auditors whose report dated February 25, 2000, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. 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 the significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2000 financial statements referred to above
present fairly, in all material respects, the financial position
of The York Water Company as of December 31, 2000, and the
results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted
in the United States of America.
Stambaugh Ness, PC
York, Pennsylvania
February 28, 2001
Directors, Officers and Key Employees
Horace Keesey III *
Chairman of the Board
Consultant
William T. Morris, P.E.*
President and Chief Executive Officer
The York Water Company
Irvin S. Naylor*
Vice Chairman of the Board
Vice Chairman of Board
Cor-Box, Incorporated
George Hay Kain, III
Attorney at Law
Chloe R. Eichelberger
President/Chief Executive Officer
Chloe Eichelberger Textiles, Inc.
John L. Finlayson*
Vice President-Finance and Administration
Susquehanna Pfaltzgraff Co.
Michael W. Gang*
Partner
Morgan, Lewis & Bockius LLP
Thomas C. Norris
Chairman-Retired
P. H. Glatfelter Company
George W. Hodges
Office of the President
The Wolf Organization, Inc.
Directors Emeriti
Robert E. Skold
Josephine S. Appell
Frank Motter
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(212) 936-5100
www.amstock.com
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
Stock Exchange Listing
The Company's common shares trade on the Nasdaq National Market.
The trading symbol is "YORW."
YORW
NASDAQ
LISTED
*Members of the Executive Committee