The York Water Company 2013 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2013. The York Water Company is a regulated water and wastewater utility serving 39 municipalities in York County and eight municipalities in Adams County, Pennsylvania. It supplied approximately 19.1 million gallons of water per day to an estimated population of 190,000 at year-end and served 64,118 customers. The company operated two wastewater systems by the filing date, including a system acquired in February 2014.
Financial performance and position
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Operating revenues | $42.383 million | $41.447 million | +2.3% |
| Operating income | $20.761 million | $20.573 million | +0.9% |
| Net income | $9.654 million | $9.303 million | +3.8% |
| Basic earnings per share | $0.75 | $0.72 | +4.2% |
| Cash flow from operations | $18.438 million | $16.422 million | +12.3% |
| Capital expenditures | $9.852 million | $11.543 million | -14.6% |
| Total assets | $282.529 million | $282.490 million | Approximately flat |
| Long-term debt, including current portion | $84.928 million | $84.975 million | Approximately flat |
- Operating margin was approximately 49.0%, compared with approximately 49.6% in 2012. Net margin was approximately 22.8%, compared with approximately 22.4%.
- Cash and cash equivalents were $7.565 million at year-end, up from $4.012 million. The company had $29 million of unsecured credit lines and no outstanding borrowings under those lines.
- Debt represented 45.1% of total capitalization, compared with 46.0% in 2012. Standard & Poor’s affirmed an A- rating with a stable outlook.
- Shareholders’ equity was $103.511 million, up from $99.825 million. Book value per share was $7.98.
- Annual dividends declared were $0.5580 per share. The quarterly dividend increased 3.5% to $0.1431 per share in the fourth quarter, marking the seventeenth consecutive annual increase.
Fourth-quarter information
The filing’s unaudited fourth-quarter data shows operating revenues of $10.665 million, operating income of $5.320 million, net income of $2.638 million and basic earnings per share of $0.21. Fourth-quarter 2012 revenue was $10.401 million, operating income was $5.313 million, net income was $2.398 million and basic earnings per share was $0.18.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by the distribution system improvement charge, additional wastewater revenue and customer growth from acquisitions. The DSIC contributed $1.445 million in 2013 versus $583 thousand in 2012.
- Average water customers increased by 598 to 63,774, primarily through acquisitions, while year-end total customers increased to 64,118.
- Water usage per customer declined 1.5%, reflecting above-average rainfall and customer conservation, partially offsetting revenue growth.
- Operating expenses increased 3.6% to $21.622 million, primarily from higher depreciation, power, health insurance, wastewater system and payment-processing costs.
- Other expense improved by $387 thousand, mainly because of lower employee retirement expense following an increase in the discount rate.
- Operating cash flow improved by $2.016 million, primarily from higher revenue, increased depreciation and lower income tax payments.
- The company repurchased and retired 94,414 shares during 2013 while issuing shares through its dividend reinvestment, direct stock purchase and employee purchase plans.
Guidance, outlook, risks and unusual items
- Management expects 2014 revenue to increase because of new base rates effective February 28, 2014 and additional water and wastewater customers from announced acquisitions. The filing does not provide formal earnings guidance.
- The PPUC authorized approximately $4.972 million of additional annual water revenue and $28 thousand of additional annual wastewater revenue effective February 28, 2014. The DSIC reset to zero when the new base rates became effective.
- Planned construction and acquisition expenditures are approximately $12.5 million in 2014 and $16.9 million in 2015, excluding potential acquisitions. Funding is expected to come primarily from cash and internally generated funds, supplemented by credit lines, equity issuance and customer contributions.
- The company expects depreciation to increase in 2014 and other operating expenses to rise moderately. It also expects the effective tax rate to decrease as a result of IRS tangible-property regulations, although the filing does not quantify the effect.
- The two major reservoirs require spillway-capacity improvements. Armoring of one dam is expected to begin between 2016 and 2017, with an estimated cost of approximately $5 million per dam.
- The company has a $12 million variable-rate debt issue supported by a letter of credit expiring May 6, 2015 and hedged with an interest-rate swap. If the bonds cannot be remarketed, the company could be required to purchase them. The filing reports no indication of such an event at the report date.
- A tank containing a small amount of mercury discovered during cleaning in 2011 remained out of service pending DEP approval. Testing indicated compliance with drinking-water standards; cumulative costs were $186 thousand through year-end 2013, with no costs incurred in 2013.
- Key risks include regulatory delays or inadequate rate relief, weather and drought conditions, declining water consumption, environmental and water-quality requirements, capital-market access, interest rates, pension funding, cybersecurity, dam integrity and acquisition integration.
- The company reported no material legal proceedings, no unresolved SEC staff comments and effective internal control over financial reporting. The independent auditor issued unqualified opinions.
Important facts for investors to verify
- Confirm the timing and realized revenue impact of the February 2014 rate increase and the DSIC reset.
- Monitor customer growth, per-customer consumption and weather trends because revenue remains dependent on water usage.
- Review financing plans for the projected 2014–2015 capital program and any refinancing of callable debt.
- Track the May 2015 letter-of-credit renewal and the remarketing status of the $12 million variable-rate bonds.
- Assess whether dam spillway work, water-quality requirements or the mercury-affected tank could require costs beyond current estimates.
- Evaluate pension contributions, regulatory-asset recovery and the effect of IRS tax regulations on future cash taxes and earnings.
- Review the financial impact and regulatory approvals associated with the announced wastewater and water-system acquisitions.