Business Context and Reporting Period
Company: The York Water Company (York Water Co.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2005
Business Overview: A regulated utility impounding, purifying, and distributing water to approximately 54,828 customers across 34 municipalities in York County, Pennsylvania. The company is regulated by the Pennsylvania Public Utility Commission (PPUC).
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2005 | 9 Months Ended Sep 30, 2004 | 3 Months Ended Sep 30, 2005 | 3 Months Ended Sep 30, 2004 |
|---|---|---|---|---|
| Water Operating Revenues | $20,135,848 | $16,430,455 | $7,207,240 | $5,569,128 |
| Operating Income | $9,658,457 | $7,128,337 | $3,634,952 | $2,409,302 |
| Net Income | $4,443,303 | $3,865,841 | $1,735,105 | $1,238,870 |
| Basic EPS | $0.64 | $0.59 | $0.25 | $0.18 |
| Operating Cash Flow | $6,465,662 | $6,748,673 | N/A | N/A |
| Investing Cash Flow | ($12,584,409) | ($20,800,620) | N/A | N/A |
| Financing Cash Flow | $5,954,512 | $14,051,947 | N/A | N/A |
| Total Assets (Sep 30, 2005) | $167,968,140 | $156,066,449 (Dec 31, 2004) | N/A | N/A |
| Long-Term Debt (Sep 30, 2005) | $39,844,887 | $35,574,416 (Dec 31, 2004) | N/A | N/A |
| Short-Term Borrowings (Sep 30, 2005) | $4,997,231 | $0 (Dec 31, 2004) | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Water operating revenues increased 22.6% year-over-year for the nine-month period. This was driven primarily by a 15.9% rate increase effective November 9, 2004, and an increase in the customer base due to the Spring Grove acquisition and organic growth.
- Profitability: Net income rose 14.9% for the nine months ended September 30, 2005. Operating income increased 35.5% for the quarter and 35.5% for the nine-month period.
- Expense Increases: Operating expenses increased 12.6% year-over-year (nine months), attributed to higher depreciation (Susquehanna River Pipeline), increased wages, pension expenses, and chemical costs.
- Acquisitions: On July 6, 2005, the company acquired Spring Grove Water Company and Spring Grove Borough water systems for approximately $2.0 million, adding roughly 1,000 customers.
- Capital Expenditures: Utility plant additions totaled $10.6 million for the nine months ended September 30, 2005, compared to $21.6 million in the prior year period. The decrease reflects the completion of major phases of the Susquehanna River Pipeline Project.
Outlook, Risks, and Management Commentary
- Liquidity Position: Current liabilities exceeded current assets by $17.2 million as of September 30, 2005. This is primarily due to the classification of $12 million in PEDFA Exempt Facilities Revenue Bonds as current liabilities because they can be tendered at any time. The company maintains $30.5 million in lines of credit, with $5.0 million utilized.
- Capital Commitments: As of September 30, 2005, the company had remaining commitments of approximately $0.3 million for the Susquehanna River Pipeline, $0.3 million for enterprise software, and $3.0 million for a new meter reading system.
- Rate Developments: The company plans to file its next rate increase request in April 2006. Future revenue recovery is dependent on PPUC approval.
- Market Risk: The company utilizes an interest rate swap to fix the rate on its $12 million variable-rate PEDFA Series B bonds at 3.16%. Exposure to interest rate changes remains primarily through lines of credit (LIBOR + 0.70% to 1.25%).
- Internal Controls: Management reported that material weaknesses in treasury and billing functions identified previously have been eliminated through interim measures and testing, though the new enterprise software billing implementation is delayed until Q1 2006.
Investor Verification Checklist
- Rate Case Timing: Verify the status and expected outcome of the rate increase application planned for April 2006, as future profitability depends on regulatory approval.
- Debt Classification: Confirm the company's ability to remarket the $12 million PEDFA bonds if tendered, given their classification as current liabilities.
- Capital Project Completion: Monitor the completion of the automated meter reading system and enterprise software implementation, noting the delay in the billing module to Q1 2006.
- Acquisition Integration: Assess the financial impact and integration progress of the Spring Grove Water Company acquisition.
- Weather Sensitivity: Review rainfall and temperature data for the service territory, as water consumption and revenue are partially weather-dependent.