SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1997 Commission File No. 0-690 THE YORK WATER COMPANY (Exact name of Registrant as specified in its Charter) PENNSYLVANIA 23-1242500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 130 East Market Street, York, Pennsylvania 17401 (Address of principal executive offices) (Zip Code) Registrant's telephone number including Area Code 717-845-3601 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, No par value 2,915,547 Shares outstanding as of June 30, 1997 THE YORK WATER COMPANY PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets (Unaudited) As Of As of June 30,1997 Dec. 31, 1996 UTILITY PLANT, at original cost $94,697,153 $93,492,775 Less-Reserve for depreciation 13,778,346 13,158,637 80,918,807 80,334,138 OTHER PHYSICAL PROPERTY: Less-Reserve for depreciation of $62,740 in 1997 and $60,326 in 1996 496,624 421,145 CURRENT ASSETS: Cash and Cash Equivalents 19,591 694,491 Receivables, less reserves of $90,000 in 1997 and in 1996 2,562,357 2,523,510 Recoverable income taxes - 159,203 Materials and supplies, at cost 315,452 302,821 Prepaid expenses 274,311 221,402 Deferred income taxes 61,377 61,377 3,233,088 3,962,804 OTHER LONG-TERM ASSETS: Prepaid pension cost 1,755,310 1,680,286 Deferred debt expense 457,106 474,049 Deferred rate case expense 99,847 142,385 Notes receivable 940,527 990,448 Deferred regulatory assets 7,834,938 7,827,988 Other 981,140 903,191 12,068,868 12,018,347 $96,717,387 $96,736,434 THE YORK WATER COMPANY Balance Sheets (Unaudited) As Of As Of June 30,1997 Dec. 31, 1996 CAPITALIZATION Common stock, no par value, authorized 6,000,000 shares in 1997 and 4,800,000 shares in 1996, outstanding 2,915,547 shares in 1997 and 2,900,524 shares in 1996 $26,055,424 $25,775,639 Earnings retained in the business 2,472,319 2,227,118 28,527,743 28,002,757 LONG-TERM DEBT 5.0% Ind. Dev. Auth. Rev. Refund Bonds, due 2010 4,300,000 4,300,000 10.05% Senior Notes, Series C, due 2020 6,500,000 6,500,000 10.17% Senior Notes, Series A, due 2019 6,000,000 6,000,000 9.6% Senior Notes, Series B,due 2019 5,000,000 5,000,000 8.43% Senior Notes,Series D,due 2022 7,500,000 7,500,000 4.75% Ind. Dev. Auth. Rev. Refunding Bonds, due 2009 2,700,000 2,700,000 32,000,000 32,000,000 CURRENT LIABILITIES Short-term borrowings - 1,237,000 Accounts payable 295,376 376,469 Dividends payable 533,018 531,977 Accrued taxes 330,083 117,668 Advance water revenues 181,679 164,256 Accrued interest 675,761 675,761 Other accrued expenses 373,170 391,483 2,389,087 3,494,614 DEFERRED CREDITS Customers' advances for construction16,117,757 15,471,245 Contributions in aid of construction 5,606,920 5,606,358 Deferred income taxes 9,587,808 9,744,675 Deferred regulatory liabilities 1,528,582 1,528,582 Deferred employee benefits 959,490 888,203 33,800,557 33,239,063 $96,717,387 $96,736,434 THE YORK WATER COMPANY Statements of Income (Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 WATER OPERATING REVENUES Residential $2,457,077 $2,278,826 $4,808,675 $4,481,399 Commercial and industrial 1,278,722 1,220,073 2,531,590 2,371,469 Other 424,306 373,397 826,716 693,827 4,160,105 3,872,296 8,166,981 7,546,695 OPERATING EXPENSES Operation and maintenance 972,281 837,233 1,768,291 1,621,256 Administrative and general 822,707 742,924 1,524,991 1,512,564 1,794,988 1,580,157 3,293,282 3,133,820 Depreciation 388,085 281,627 776,169 685,227 Taxes other than income taxes 252,580 234,888 515,877 492,893 Federal and state income taxes 317,755 312,945 719,851 583,413 2,753,408 2,409,617 5,305,179 4,895,353 Operating Income 1,406,697 1,462,679 2,861,802 2,651,342 INTEREST EXPENSE AND OTHER EXPENSE/(INCOME) Interest on long-term debt 679,737 679,737 1,359,475 1,359,475 Interest on short- term debt 9,161 75,831 25,512 151,206 Allowance for funds used during construction (6,277) (22,926) (9,502) (58,040) Other income, net (62,029) (16,540) (65,987) (65,550) 620,592 716,102 1,309,498 1,387,091 Net Income $ 786,105 $ 746,577 $1,552,304 $1,264,251 Earnings Per Share $.27 $.29 $.53 $.49 Cash Dividends Per Share $.23 $.23 $.45 $.45 THE YORK WATER COMPANY Statements of Cash Flows (Unaudited) (Unaudited) Six Months Six Months Ended Ended June 30, 1997 June 30, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,552,304 $1,264,251 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 776,169 685,227 Provision for losses on accounts receivable 45,000 45,000 (Decrease) increase in deferred income taxes (including regulatory assets and liabilities) (163,817) 282,494 Changes in assets and liabilities: Increase in accounts receivable (83,847) (45,918) Decrease (increase) in recoverable income taxes 159,203 (47,465) (Increase) decrease in materials and supplies (12,631) 28,473 Increase in prepaid expenses and prepaid pension costs (127,933) (214,453) (Decrease) increase in accounts payable, accrued expenses, other liabilities and deferred employee benefits (9,655) 136,723 Increase (decrease) in accrued interest and taxes 212,415 (15,913) Decrease (increase) in other assets 14,851 (154,531) Net cash provided by operating activities 2,362,059 1,963,888 CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (1,469,636) (2,011,361) Customers' advances for construction and contributions in aid of construction 647,074 156,610 Net cash used in investing activities (822,562) (1,854,751) CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under line-of-credit agreements (1,237,000) 720,000 Issuance of common stock under dividend reinvestment plan 240,462 201,762 Issuance of common stock under employee stock purchase plan 39,323 38,704 Dividends paid (1,307,103) (1,148,932) Decrease in notes receivable 49,921 79,329 Net cash used in financing activities (2,214,397) (109,137) Net decrease in cash and cash equivalents (674,900) - Cash and cash equivalents at beginning of period 694,491 - Cash and cash equivalents at end of period $ 19,591 $ - Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $1,378,194 $1,479,499 Income taxes 546,217 449,837 THE YORK WATER COMPANY Notes to Interim Financial Statements 1. Interim Financial Information The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report to Shareholders for the year ended 1996. 2. Earnings Per Share Earnings per share for the six months ended June 30, 1997 and 1996 were based on weighted average shares outstanding of 2,910,164 and 2,558,912, respectively. 3. On May 5, 1997, the Company's shareholders approved amendments to the existing Articles of Incorporation. The approved amendments (i) increased the authorized capital stock of the Company from 1,200,000 shares of common stock, par value $10.00 to 6,500,000 shares. (6,000,000 shares of common stock, without par value, and 500,000 shares of Series Preferred Stock, without par value); (ii) eliminate the concept of par value of the capital stock; and (iii) delete certain provisions relating to dividends and shares in distribution and common stock in order to allow for the possible future issuance of Series Preferred Stock. 4. On May 5, 1997, the Company's 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 stockholders' equity. All per share amounts in this report have been restated to reflect the effect of the stock split. THE YORK WATER COMPANY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended June 30, 1997 Compared with Three Months Ended June 30, 1996 Water operating revenues for the three months ended June 30, 1997 increased $287,809 or 7.4% compared to the three months ended June 30, 1996. The increase resulted primarily from an increase in rates of 6.0% approved by the Pennsylvania Public Utility Commission (PPUC) effective September 5, 1996. Consumption was up in the residential, commercial and public sectors, while industrial consumption declined. Operating expenses, exclusive of depreciation and taxes, for the three months ended June 30, 1997 increased $214,831 or 13.6%. Increases in maintenance and repairs which include parking lot maintenance, maintenance of mains, services and hydrants, technical support for the mapping system, and increased electric expense contributed to the increase. A decline in meter maintenance partially offset the increase. In the administrative and general area, additional legal fees associated with the stock split and the amendments to the dividend reinvestment and employee stock purchase plans were incurred. The Company portion of 401k expenses also rose in 1997 due to the participation of union employees and a higher Company match, as a result of a plan amendment, for general and administrative employees. Expenses for 1996 were abnormally low due to a one-time credit for general liability and workers compensation insurance. These increases were partially offset by lower collection and office supply expenses. Depreciation expense for the three months ended June 30, 1997 increased $106,458 or 37.8% compared to 1996 as a result of increased depreciable plant. Interest on short-term debt for the three months ended June 30, 1997 declined $66,670 when compared to the same period in 1996. The decline was due to a decrease in the average short-term debt outstanding from approximately $4,300,000 in 1996 to approximately $448,000 in 1997. Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996 Net income for the six months ended June 30, 1997 was $1,552,304, an increase of $288,053 (22.8%) compared to the six months ended June 30, 1996. Water operating revenues for the six months ended June 30, 1997 increased $620,286 (8.2%) compared to the six months ended June 30, 1996. The increase resulted primarily from an increase in rates of 6.0% approved by the PPUC effective September 5, 1996. Consumption was up in both the residential and public sectors, despite an overall decline. Operating expenses, exclusive of depreciation and taxes, for the six months ended June 30, 1997 increased $159,462 or 5.1%. Increases in electric, maintenance of mains, services and hydrants, maintenance of structures (parking lot), and maintenance of filter plant equipment were the primary causes for the increase. In addition, legal fees associated with the stock split were incurred and the Company portion of 401k expenses was higher in 1997 due to the participation of union employees, and a higher Company match, as a result of a plan amendment, for general and administrative employees. Expenses for 1996 were abnormally low due to a one-time credit for general liability and workers compensation insurance. The unfavorable variances were partially offset by lower pumping equipment maintenance, meter reading expenses and office supply expenses. Depreciation expense for the six months ended June 30, 1997 increased $90,942 or 13.2% compared to 1996 as a result of increased depreciable plant. Federal and state income taxes for the six months ended June 30, 1997 increased $136,438 or 23.4% compared to the six months ended June 30, 1996 principally as a result of an increase in taxable net income. Interest on short-term debt for the six months ended June 30, 1997 declined $125,694 when compared to the same period in 1996. The decline was due to a decrease in the average short-term debt outstanding from approximately $4,300,000 in 1996 to approximately $690,000 in 1997. Allowance for funds used during construction was $48,538 lower during the six months ended June 30, 1997 when compared to the six months ended June 30, 1996. In 1996, interest was capitalized on two large main extensions, as well as the Loganville standpipe, the basin covers, Glen Rock Borough, and the new downtown office building. No such large projects occurred during the first six months of 1997. Rate Developments Within the last several years the Company has filed written applications for rate increases with the PPUC and has been granted rate relief as a result of such requests. The most recent formal rate request was filed by the Company on May 9, 1996 seeking a $1,534,393 increase in annual revenues. Effective September 5, 1996, the PPUC authorized an increase in rates designed to produce approximately $960,000 in additional annual revenues, an increase of approximately 6.0%. Liquidity and Capital Resources During the first half of 1997, the per capita volume of water sold did not significantly change compared to the first half of 1996. The Company does not anticipate any change in the level of water usage which would have a material impact on future results of operations. During the six months ended June 30, 1997, the Company incurred $1,469,636 of construction expenditures. The Company financed such expenditures primarily through internally generated funds, customers' advances, short-term borrowings, and proceeds from the issuance of common stock under its dividend reinvestment plan (stock issued in lieu of cash dividends) and employee stock purchase plan. During the first half of 1997, net cash used in investing and financing activities exceeded net cash provided by operating activities. The Company anticipates that during the remainder of 1997 net cash used in investing and financing activities will again exceed net cash provided by operating activities. Borrowings against the Company's lines of credit, proceeds from the issuance of common stock under its dividend reinvestment plan (stock issued in lieu of cash dividends) and employee stock purchase plan, and customers' advances are used to satisfy the need for additional cash. As of June 30, 1997, current assets exceeded current liabilities by $844,001. As of June 30, 1997, there were no short-term borrowings from lines of credit. The Company maintains lines of credit aggregating $15,000,000. 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. On May 5, 1997, the Company's shareholders approved amendments to the existing Articles of Incorporation. The approved amendments (i) increased the authorized capital stock of the Company from 1,200,000 shares of common stock, par value $10.00 to 6,500,000 shares. (6,000,000 shares of common stock, without par value, and 500,000 shares of Series Preferred Stock, without par value); (ii) eliminate the concept of par value of the capital stock; and (iii) delete certain provisions relating to dividends and shares in distribution and common stock in order to allow for the possible future issuance of Series Preferred Stock. On May 5, 1997, the Company's 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 stockholders' equity. All per share amounts in this report have been restated to reflect the effect of the stock split. Certain statements contained herein and elsewhere in this Form 10-Q which are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward- looking statements address activities or events which the Company expects will or may occur in the future. The Company cautions that a number of important factors could cause the actual results to differ materially from those expressed in any forward-looking statements made on behalf of the Company. Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS 128 establishes standards for computing and presenting earnings per share. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. This statement is not expected to have a material impact on the Company's financial statements. In February 1997, FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" (SFAS 129). SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS 129 is effective for financial statements issued for periods ending after December 15, 1997. This statement is not expected to have a material impact on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements establish standards for reporting and display of comprehensive income and its components and for reporting information about business segments and products in financial statements, and are effective for years beginning after December 15, 1997 Adoption of these statements is not expected to have a material effect on the Company's financial statements. In January 1997, the Securities and Exchange Commission amended regulations and forms, including regulations S-X and S-K, to clarify and expand existing disclosure requirements about accounting policies for certain derivative instruments, and to add new disclosure requirements about the risk of loss from changes in market rates or prices which are inherent in derivatives. Adoption by the Company of the disclosure requirements relating to risk of loss, which requirements are effective for fiscal years ending after June 15, 1998, are not expected to have a material effect on the Company's financial statements. THE YORK WATER COMPANY Part II - Other Information Item 4. Results of Votes of Security Holders The Annual Meeting of the Shareholders of The York Water Company was convened May 5, 1997 at the office of the Company, 130 East Market Street, in the City of York, Pennsylvania, at 1:00 P.M. for the purpose of taking action upon the following proposals: (1) To elect three (3) Directors to three-year terms of office. The actions taken by the Shareholders concerning the election of Directors are as follows: Frank Motter George Hay Kain, III Michael W. Gang For election 575,447.297 576,452.012 572,270.523 Shares withheld 4,777.333 3,691.532 6,306.139 The following Directors' terms of office continued after the Annual Meeting. Irvin S. Naylor Paul W. Ware William T. Morris John L. Finlayson Horace Keesey III Chloe R. Eichelberger (2) To appoint KPMG Peat Marwick LLP as independent accountants to audit the books and accounts of the Company for the year 1997. The actions taken by the Shareholders concerning the appointment of KPMG Peat Marwick LLP as independent accountants are as follows: For Approval 571,997.566 Against Approval 3,043.780 Abstaining From Voting 3,358.950 (3) To amend and restate the Articles of Incorporation of the Company. For Approval 511,475.611 Against Approval 29,494.025 Abstaining From Voting 6,914.660 THE YORK WATER COMPANY Item 6. Exhibits and Reports on Form 8-K The Company filed a report on Form 8-K on May 5, 1997, which included a statement regarding the four-for-one stock split, the increase in authorized capital, and the elimination of par value of the capital stock. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE YORK WATER COMPANY William T. Morris Principal Executive Officer Date: August 11, 1997 Jeffrey S. Osman Principal Financial and Accounting Officer Date: August 11, 1997