SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 0-690 THE YORK WATER COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1242500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 130 EAST MARKET STREET, YORK, PENNSYLVANIA 17405 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 845-3601 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the Common Stock, no par value, held by nonaffiliates of the registrant (based on the bid price of such stock) on February 11, 1999 was $56,242,253. As of February 11, 1999 there were 2,979,722 shares of Common Stock, no par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1998 Annual Report to Shareholders are incorporated by reference into Part II. Portions of the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders are incorporated by reference into Part III. PART I Item 1. Business. FORWARD-LOOKING STATEMENTS This annual report on Form 10-K contains certain forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements made with respect to the results of operations and businesses of the Company. Words such as "may," "should," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. These forward- looking statements are based upon management's current plans, expectations, estimates and assumptions and are subject to a number of risks and uncertainties that could significantly affect current plans, anticipated actions and the Company's financial condition and results of operations. Factors that may cause actual results to differ materially from those discussed in such forward- looking statements include, among others, the following possibilities: (i) weather conditions, particularly the amount of rainfall; (ii) the level of commercial and industrial business activity within the Company's service territory; (iii) construction of new housing within the Company's service territory; (iv) governmental regulations affecting the Company's rates and service obligations; (v) general economic and business conditions which are less favorable than expected; and (vi) the Company's year 2000 issues plan. The Company does not intend to update these cautionary statements. (a) General development of business. The Company is a corporation duly organized under the laws of the Commonwealth of Pennsylvania in 1816. (b) Financial information about industry segments. The Company operates in only one segment, the impounding, purification and distribution of water. (c) Narrative description of business. The business of the Company is to impound, purify and distribute water. The Company operates entirely within its franchised territory located in York County, Pennsylvania. The Company is regulated by the Pennsylvania Public Utility Commission (PPUC) in the areas of billing, payment procedures, dispute processing, terminations, service territory, and rate setting. The Company must obtain PPUC approval before changing any of the aforementioned procedures. Water service is supplied through the Company's own distribution system to the City of York, the Boroughs of North York, West York, Manchester, Mount Wolf, New Salem, Hallam, Jacobus, Loganville, Yorkana, Seven Valleys, East Prospect, Jefferson, Glen Rock, New Freedom, Railroad, Shrewsbury, Spring Grove and portions of the Townships of Manchester, East Manchester, West Manchester, North Codorus, Shrewsbury, North Hopewell, Hopewell, Springettsbury, Spring Garden, Conewago, Newberry, Springfield, York, Hellam, Windsor, Lower Windsor, Codorus and Jackson. The Company obtains its water supply from the south branch and east branch of the Codorus Creek which drains an area of approximately 117 square miles. The Company's present average daily consumption is 19,488,000 gallons, and its present safe daily yield is 29,900,000 gallons. The Company's service territory has an estimated population of 142,000. Territory expansion during 1998 included: the completion of developer-financed water main to Southern York County, finalization of an agreement to sell bulk water to New Freedom Borough, preparation of plans for construction of water mains to Railroad Borough, and commencement of the approval process to add Conewago Township to our service territory. Industry of the Company's service territory is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance, textile products, air conditioning, barbells, etc. In the area served by the Company under the supervision of the PPUC there are no competitors. An internal evaluation of adding an additional source of supply was conducted during 1998. Available options were analyzed and turned over to an external source for further analysis and costing. A prior study indicated that no new source of supply would be required before the year 2020. The Company expects that one new tank site may be needed, but no new booster stations will be required within the next five years. The Company's business is somewhat dependent on weather conditions, particularly the amount of rainfall; however, minimum customer charges are in place so the Company is able to cover fixed costs of operations. New requirements under the Safe Drinking Water Act caused the Company to incur $22,752 and $44,520 in 1997 and 1998, respectively, for water analysis fees. Additional costs of $16,286 to provide an annual drinking water quality report required in 1999 by the Safe Drinking Water Act were incurred. The Company's business does not require large amounts of working capital and is not dependent upon any single customer or a very few customers. Operating revenue is derived from the following sources and in the following percentages: residential, 58%; commercial and industrial, 31%; other, 11%. The Company presently has 89 employees. During the last five years ended in 1998, the Company has maintained an increasing growth in number of customers and distribution facilities as shown by the following chart: 1998 1997 1996 1995 1994 Average daily consumption (gallons per day) 19,488,000 19,405,000 18,593,000 19,657,000 19,660,000 Miles of mains at year end 671 655 641 622 597 Distribution mains installed (ft.) 85,431 77,274 78,619 84,515 91,087 Number of customers 47,173 46,458 45,800 44,879 43,830 Population served 142,000 140,700 143,000 140,000 136,000 During 1998, the per capita volume of water sold did not significantly change compared to 1997. The Company does not anticipate any change in the level of water usage which would have a material impact on future results of operations. Item 2. Properties. The accounting and executive offices of the Company are located in two two-story brick and masonry buildings, containing approximately 21,861 square feet of floor space, at 124 and 130 East Market Street, York, Pennsylvania. The Company has two impounding dams located in York and Springfield Townships adjoining the Borough of Jacobus to the south. The lower dam is constructed of compacted earth with a concrete core wall and is 660 feet long and 50 feet high and creates a reservoir covering approximately 220 acres containing about 1,150,000,000 gallons of water. About 800 acres surrounding the reservoir are planted with more than 1,200,000 evergreen trees to protect the area both from pollution and also from soil erosion which might otherwise fill the reservoir with silt. The upper dam is constructed of compacted earth and is 1,000 feet long and 50 feet high and creates a reservoir covering approximately 290 acres containing about 1,600,000,000 gallons of water. About 600 acres surrounding the reservoir are planted with grass to protect the area both from pollution and also from soil erosion which might otherwise fill the reservoir with silt. The Company's main pumping station is located in Spring Garden Township on the south branch of the Codorus Creek about 1,500 feet upstream from its confluence with the west branch of the Codorus Creek and about four miles downstream from the Company's lower impounding dam. The pumping station presently houses pumping equipment consisting of three electrically driven centrifugal pumps and two diesel-engine driven centrifugal pumps with a combined pumping capacity of 75,000,000 gallons per day. From here, raw water is pumped approximately two miles to the filtration plant through pipes located on a right-of-way owned by the Company. The Company's filtration plant is located in Spring Garden Township about one-half mile south of the City of York. Water at this plant is filtered through 12 dual media filters having a stated capacity of 31,000,000 gallons per day and being capable of filtering 46,500,000 gallons per day for short periods if necessary. Based on an average daily consumption in 1998 of 19,488,000 gallons, the pumping and filtering facilities are adequate to meet present and anticipated demands. Clear water reservoirs of the Company which are located in Spring Garden Township adjacent to the filtration plant are capable of storing up to 32,000,000 gallons of water, and there are standpipes located throughout the Company's service area capable of storing another 18,740,000 gallons of clear water. The Company's distribution center and material and supplies warehouse are located at 1801 Mt. Rose Avenue, Springettsbury Township. There are two one-story concrete block buildings having 26,680 square feet of area. The distribution system of the Company has approximately 671 miles of main water lines. All of the Company's properties listed above are held in fee by the Company. There are no encumbrances. In addition, the Company has entered into a "Joint Use and Park Management Agreement" dated December 29, 1976, with the County of York, Pennsylvania, whereby the Company has licensed its present reservoir lands and waters, comprised of approximately 1,175 acres and including two lakes, to the County of York for fifty (50) years for county park purposes. York County has, in return, agreed not to erect a dam upstream on the east branch of the Codorus Creek and to waive flood damages to the County's Spring Valley Tract of park lands if, as planned, the Company builds a third dam around the year 2020. The Company and its customers are thereby assured of a future reservoir site at reasonable expense. Year 2000 This statement constitutes a year 2000 readiness disclosure by The York Water Company, under the Year 2000 Information and Readiness Disclosure Act. The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (year 2000) approaches. The "year 2000" issue is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company has done an inventory of programs and has developed a plan, including a timetable, for solving and testing year 2000 issues. The Company has identified three areas that do have year 2000 compliance issues: Accounting, communications and embedded technology. As far as accounting, the Company will be replacing all of its current software. The software upgrade is approximately 50% complete and is expected to be completely installed by the end of second quarter 1999. This will allow for testing and adjustments to be made through the remainder of 1999. Current software will be used in the event something unanticipated occurs with the software upgrade. The Company's electronic communications review has been completed and all necessary changes have been made. Only slight modifications were required. In the area of embedded technology, the Company is working with the manufacturers of all our time-sensitive equipment to make sure the date field in the software has been located and updated to accept a four-digit date. The Company has identified filter plant control units, PC's, burglar alarms, and the check encoder as some of the items to be addressed for year 2000 problems. The Company expects to solve problems and test solutions in this area by the end of March 1999. As of December 1998, the Company incurred costs of approximately $37,000, and estimates total costs of year 2000 remediation efforts to reach $80,000. While the Company anticipates that critical vendors and suppliers will be year 2000 compliant, contingency plans will be put in place so that water service to customers will not be interrupted. In one of our most critical areas, energy, the Company already has emergency power generators installed as backups at most locations. Those locations which currently have no emergency backup, will have alternate energy sources by the year 2000. Item 3. Legal Proceedings. There are no material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters. The information set forth under the caption "Security Market and Dividends" of the 1998 Annual Report to Shareholders is incorporated herein by reference. Item 6. Selected Financial Data. The information set forth under the caption "Highlights of Our 183rd Year" of the 1998 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 1998 Annual Report to Shareholders is incorporated herein by reference. "Safe Harbor" Statements under the U. S. Private Securities Litigation Reform Act of 1995: Some statements in the 1998 Annual Report are forwardlooking and actual results may differ materially from those stated. In addition to the factors discussed, among the other factors that may affect actual results are water demand and supply, the effect of economic conditions, interest-rate movements, and technological difficulties and changes in governmental regulations, including those of the Pennsylvania Public Utilities Commission. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company's 4.75% Industrial Development Authority Revenue Refunding Bonds Series 1994 have mandatory tender dates of May 15, 1999 and May 15, 2004. The 5% Series 1995 bonds have mandatory tender dates of June 1, 2000 and June 1, 2005. The Company is required to purchase any unremarketed 1994 and 1995 bonds, despite the rate. Item 8. Financial Statements and Supplementary Data. The following financial statements set forth in the 1998 Annual Report to Shareholders are incorporated herein by reference: Balance Sheets as of December 31, 1998 and 1997 Page 10 Statements of Income for Years Ended December 31, 1998, 1997 and 1996 Page 11 Statements of Shareholders' Investment for Years Ended December 31, 1998, 1997 and 1996 Page 11 Statements of Cash Flows for Years Ended December 31, 1998, 1997 and 1996 Page 12 Notes to Financial Statements Page 13 Independent Auditors' Report Page 19 Except for the above financial data and the information specified under Items 5, 6 and 7 of this report, the 1998 Annual Report to Shareholders is not deemed to be filed as part of this report. Selected quarterly financial data are not presented because the Company does not meet the tests set forth in Item 302 (a)(5) of Regulation S-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There were no changes in or disagreements with accountants on accounting and financial disclosure. PART III Item 10. Directors and Executive Officers of the Registrant. The information set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 1999 Annual Meeting of Shareholders to be held May 3, 1999 is incorporated herein by reference. Item 11. Executive Compensation. The information set forth under the caption "Compensation of Directors and Executive Officers" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 1999 Annual Meeting of Shareholders to be held May 3, 1999 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information set forth under the caption "Voting Securities and Principal Holders Thereof" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 1999 Annual Meeting of Shareholders to be held May 3, 1999 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" of the Proxy Statement issued pursuant to Regulation 14A for the Company's 1999 Annual Meeting of Shareholders to be held May 3, 1999 is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Certain documents filed as a part of the Form 10-K. The financial statements set forth under Item 8 of this Form 10-K. Schedule Schedule Page Number Description Number II Valuation and Qualifying Accounts 8 The report of the Company's independent auditors with respect to the financial statement schedule appears on page 7. All other financial statements and schedules not listed have been omitted since the required information is included in the financial statements or the notes thereto, or is not applicable or required. The exhibits are set forth in the Index to Exhibits shown on pages 10, 11 and 12. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of The York Water Company: Under date of February 12, 1999, we reported on the balance sheets of The York Water Company as of December 31, 1998 and 1997, and the related statements of income, shareholders' investment, and cash flows for each of the years in the three-year period ended December 31, 1998, as contained in the 1998 annual report to shareholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1998. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule as listed in Item 14(a). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Harrisburg, Pennsylvania February 12, 1999 THE YORK WATER COMPANY SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 Additions Charged to Balance at Costs Balance beginning and Recov- Deduc- at End of Year Expenses eries tions of Year FOR THE YEAR ENDED DECEMBER 31, 1998: Reserve for uncollectible accounts $110,000 $103,957 $7,115 $101,072 $120,000 FOR THE YEAR ENDED DECEMBER 31, 1997: Reserve for uncollectible accounts $90,000 $97,923 $5,043 $82,966 $110,000 FOR THE YEAR ENDED DECEMBER 31, 1996: Reserve for uncollectible accounts $90,000 $73,201 $ - $73,201 $ 90,000 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE YORK WATER COMPANY (Registrant) Dated: March 26, 1999 By:/s/ William T. Morris William T. Morris, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William T. Morris By: /s/ Jeffrey S. Osman William T. Morris Jeffrey S. Osman (Principal Executive and (Principal Accounting Officer) Financial Officer and Director) Dated: March 26, 1999 Dated: March 26, 1999 Directors: Date By: /s/ Irvin S. Naylor (Chairman) By: /s/ Horace Keesey III March 26, 1999 Horace Keesey III By: /s/ Chloe Eichelberger By: /s/ Paul W. Ware March 26, 1999 Paul W. Ware By: /s/ John L. Finlayson March 26, 1999 John L. Finlayson By: /s/ Frank Motter By: /s/ George Hay Kain, III March 26, 1999 George Hay Kain, III By: /s/ Michael W. Gang March 26, 1999 Michael W. Gang INDEX TO EXHIBITS Page Number of Exhibit Exhibit Incorporation Number Description By Reference 3 Amended and Restated Articles of Incorporation Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.1 to Amendment No. 1 to Form S-3 dated June 12, 1997 (File No. 33-81246). 3.1 By-Laws Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as Exhibit 4.2 to Form S-3 dated July 1, 1996 (File No. 333-7307). 4.1 Optional Dividend Reinvestment Plan Incorporated herein by reference. Filed previously with the Securities and Exchange Commission as the Prospectus included in Amendment No. 1 to Form S-3 dated June 12, 1997 (File No. 33-81246). 4.6 Note Agreement Relative Incorporated herein by to the $6,000,000 10.17% reference. Filed Senior Notes, Series A previously with the and $5,000,000 9.60% Securities and Exchange Senior Notes, Series B Commission as Exhibit dated January 2, 1989 4.5 to the Company's 1989 Form 10-K. 4.8 Note Agreement Relative Incorporated herein by to the $6,500,000 10.05% reference. Filed previously Senior Notes, Series C with the Securities and dated August 15, 1990 Exchange Commission as Exhibit 4.6 to the Company's 1990 Form 10-K. 4.11 Note Agreement Relative Incorporated herein by to the $7,500,000 8.43% reference. Filed previously Senior Notes, Series D with the Securities and dated December 15, 1992 Exchange Commission as Exhibit 4.7 to the Company's 1992 Form 10-K. 4.12 Fourth Supplemental Incorporated herein by Acquisition, Financing reference. Filed previously and Sale Agreement with the Securities and Relative to the Exchange Commission as $2,700,000 4.75% Water Exhibit 4.8 to the Company's Facilities Revenue Quarterly Report Form 10-Q Refunding Bonds dated for the quarter ended June February 1, 1994 30, 1994. 4.13 Fifth Supplemental Incorporated herein by Acquisition, Financing reference. Filed previously and Sale Agreement with the Securities and Relative to the Exchange Commission as $4,300,000 5% Water Exhibit 4.9 to the Company's Facilities Revenue Quarterly Report Form 10-Q Refunding Bonds dated for the quarter ended October 1, 1995 September 30, 1995. 10.1 Articles of Agreement Incorporated herein by Between The York Water reference. Filed previously Company and Springetts- with the Securities and bury Township Relative to Exchange Commission as an Extension of Water Mains Exhibit to the Company's dated April 17, 1985 1989 Form 10-K. 10.2 Articles of Agreement Incorporated herein by Between The York Water reference. Filed previously Company and Windsor with the Securities and Township Relative to Exchange Commission as an Extension of Water Mains Exhibit to the Company's dated February 9, 1989 1989 Form 10-K. 10.3 Articles of Agreement Incorporated herein by Between The York Water reference. Filed previously Company and Windsor with the Securities and Township, Yorkana Exchange Commission as an Borough, Modern Trash Exhibit to the Company's Removal of York, Inc. 1989 Form 10-K. and Lower Windsor Town- ship Relative to Extension of Water Mains dated July 18, 1989 10.4 Articles of Agreement Incorporated herein by Between The York Water reference. Filed previously Company and North Codorus with the Securities and Township Relative to Exchange Commission as Extension of Water Mains Exhibit 10.4 to the Company's dated September 20, 1989 1990 Form 10-K. 10.5 Articles of Agreement Incorporated herein by Between The York Water reference. Filed previously Company and York Township with the Securities and Relative to Extension of Exchange Commission as Water Mains dated Exhibit 10.5 to the Company's December 29, 1989 1990 Form 10-K. 11 Common Shares Used in Page 13 Computing Earnings Per Share 13 1998 Annual Report to Page 14 Shareholders 23 Consent of Independent Page 15 Auditors 27 Financial Data Schedule Page 16 EXHIBIT 11 THE YORK WATER COMPANY COMMON SHARES USED IN COMPUTING EARNINGS PER SHARE 1998 1997 1996 1995 1994 Common shares outstanding, beginning of the year 2,934,782 2,900,524 2,549,496 2,518,736 2,487,268 Weighted average shares issued in connection with 1996 stock subscription - - 66,432 - - Weighted average shares issued in connection with the Employee Stock Purchase Plan 1,565 1,569 1,744 1,720 1,624 Weighted average shares issued in connection with the Optional Dividend Reinvestment Plan 14,938 10,376 9,892 9,924 10,480 2,951,285 2,912,469 2,627,564 2,530,380 2,499,372 All share data has been restated to reflect the June 1997 four-for-one stock split. EXHIBIT 13 THE YORK WATER COMPANY 1998 ANNUAL REPORT TO SHAREHOLDERS The York Water Company's 1998 Annual Report to Shareholders is attached hereto. EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of The York Water Company: We consent to incorporation by reference in the registration statements No. 2-80547 on Form S-3, No. 33-81246 on Form S-3 as amended, and No. 33-26180 on Form S-8, as amended, of The York Water Company of our report dated February 12, 1999, relating to the balance sheets of The York Water Company as of December 31, 1998 and 1997, and the related statements of income, shareholders' investment, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 annual report to shareholders and is incorporated by reference in the annual report on Form 10-K of The York Water Company. We also consent to incorporation by reference in the registration statements No. 2-80547 on Form S-3, No. 33-81246 on Form S-3, as amended, and No. 33-26180 on Form S-8, as amended, of The York Water Company of our report dated February 12, 1999 relating to the financial statement schedule as listed in Item 14(a) of the Company's December 31, 1998 annual report on Form 10-K, which report appears in such annual report on Form 10-K. KPMG LLP Harrisburg, Pennsylvania March 26, 1999