Business Context and Reporting Period
Company: The York Water Company
Reporting Period: Fiscal year ended December 31, 2003
Business Overview: A regulated public utility organized in Pennsylvania in 1816, providing water impoundment, purification, and distribution exclusively within York County, Pennsylvania. The company serves an estimated population of 156,000 across 51,916 customers with no competitors in its territory.
Regulatory Environment: Regulated by the Pennsylvania Public Utility Commission (PPUC) regarding rates, billing, and service territory.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and debt figures are incorporated by reference from the 2003 Annual Report to Shareholders and are not explicitly detailed in the provided text.
- Revenue Mix: Residential (60%), Commercial and Industrial (27%), Other (13%).
- Market Capitalization: Aggregate market value of nonaffiliate common stock was $115,383,585 as of June 30, 2003.
- Shares Outstanding: 6,419,230 shares as of March 12, 2004.
- Dividends: The company announced its seventh consecutive annual dividend increase on November 17, 2003.
- Allowance for Doubtful Accounts: The reserve for uncollectible accounts remained stable at $130,000 at year-end 2003.
Material Changes and Operational Highlights
- Water Consumption: Per capita volume sold declined approximately 3.5% in 2003. This was attributed to continued customer conservation efforts following the 2002 drought and an extremely wet year (the second wettest in history).
- Customer Growth: The number of customers increased to 51,916 in 2003, up from 51,023 in 2002.
- Infrastructure Expansion: Main extensions commenced in Conewago and Springfield Townships, with completion expected in 2004.
- Accounting Change: The company terminated its relationship with Stambaugh Ness, PC, and engaged Beard Miller Company LLP as principal accountants in November 2003. No disagreements regarding accounting principles were reported.
Outlook, Risks, and Capital Projects
Susquehanna River Pipeline Project
A major capital project to build a pipeline from the Susquehanna River to Lake Redman is underway. Groundbreaking occurred in August 2003. As of January 2004, 31% of the pipeline was complete. The project is estimated to cost $22 million and is expected to be finished by November 2004.
Financing Strategy
The company plans to fund the pipeline and other capital expenditures through tax-exempt bond issues and a follow-on common stock offering. This strategy involves switching from short-term financing to long-term financing in 2004.
Risks and Contingencies
- Weather Dependency: Operations are somewhat dependent on rainfall, though minimum customer charges are designed to cover fixed costs under all likely conditions.
- Regulatory Approvals: The pipeline project awaits specific permits from the Department of Environmental Protection (DEP), including discharge and intake permits.
- Interest Rate Risk: The company is exposed to market risks via variable interest rates on lines of credit (LIBOR + 1% to 1.25%). It does not use derivative instruments for hedging.
- Debt Refunding: Mandatory tender dates exist for 1994 bonds (May 2004) and 1995 bonds (June 2005), requiring remarketing or repurchase.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the 2003 Annual Report to Shareholders, as they are incorporated by reference in this filing.
- Confirm the status of the DEP discharge and intake permits required for the Susquehanna River pipeline project.
- Monitor the execution of the planned follow-on common stock offering and tax-exempt bond issues to fund the $22 million capital project.
- Review the terms of the 1994 and 1995 bond remarketing to assess potential interest rate impacts on future debt service.
- Assess the impact of the 3.5% decline in per capita water consumption on future rate-setting requests to the PPUC.