Business Context and Reporting Period
Company: The York Water Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Business Overview: A regulated water utility operating in Pennsylvania. The company provides water services to residential, commercial, and industrial customers. As of October 26, 2001, there were 3,146,891 shares of common stock outstanding.
Key Financial Metrics (Nine Months Ended Sept 30, 2001)
- Revenue: Total water operating revenues were $14,369,116.
- Net Income: $3,022,584 (Basic EPS: $0.99).
- Operating Income: $6,876,042.
- Cash Flow: Net cash provided by operating activities was $4,125,334. Net cash used in investing activities was $4,126,723.
- Debt: Total long-term debt was $32,699,827. Short-term borrowings were $3,093,000.
- Liquidity: Current assets totaled $4,615,279 against current liabilities of $5,010,114, resulting in a working capital deficit of $394,835. Cash and cash equivalents at period end were $481,740.
- Dividends: Cash dividends per share were $0.75 for the nine-month period.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 3.7% ($512,803) compared to the nine months ended September 30, 2000. This was driven by residential customer growth and a 4.2% rate increase approved by the Pennsylvania Public Utility Commission (PPUC) effective September 1, 2001.
- Expense Trends: Operating expenses increased 1.6% ($117,119). Increases were due to higher maintenance, energy costs, and pension expenses. These were partially offset by reduced realty taxes and lower depreciation due to extended utility plant lives.
- Interest Expense: Interest on short-term loans increased significantly ($82,141) due to higher average daily short-term debt outstanding ($3.6M in 2001 vs. $1.2M in 2000), despite lower interest rates.
- Accounting Reclassifications: Significant reclassifications of deferred income tax and regulatory assets/liabilities occurred. Additionally, supplemental retirement plan expenses were reclassified from operating expenses to other income/expense, impacting the presentation of operating margins.
Outlook, Risks, and Management Commentary
- Rate Developments: The company expects strong fourth-quarter revenues due to the September 1 rate increase and the addition of a new bulk water customer (Stewartstown Borough).
- Capital Projects: Construction expenditures for the first nine months were $5,397,600. A major future project involves a new water source pipeline from the Susquehanna River to Lake Redman, estimated at $18–$20 million, with major expenditures expected after 2002.
- Liquidity Strategy: The company anticipates that net cash used in investing and financing will equal net cash provided by operating activities for the remainder of 2001. It relies on lines of credit ($19M aggregate), stock issuances, and customer advances to fund needs.
- Risks: Profitability depends on regulatory rate relief, rainfall, temperature, and industrial demand. The loss of a large industrial customer in late 2000 reduced industrial volume, though the company does not anticipate further material changes in usage levels.
- Corporate Changes: Horace Keesey III retired as Chairman of the Board on October 31, 2001; William T. Morris (President/CEO) assumed the role of Chairman.
Investor Verification Checklist
- Verify the impact of the 4.2% rate increase on full-year 2001 revenue recognition.
- Confirm the status of the vacated industrial customer sites and potential for re-occupation to stabilize industrial revenues.
- Monitor the funding strategy for the $18–$20 million Susquehanna River pipeline project scheduled for post-2002.
- Review the sustainability of the working capital deficit ($394,835) and reliance on short-term borrowings ($3.1M).
- Assess the long-term impact of the reclassification of deferred tax and regulatory assets on future financial reporting.