YORW

Business Context and Reporting Period

Company: The York Water Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2003
Business Overview: A regulated water utility operating in Pennsylvania. The company provides water services to residential, commercial, and industrial customers. As of May 9, 2003, there were 6,379,318 shares of common stock outstanding.

Key Financial Metrics

Liquidity and Debt:
- Current Assets: $3,568,696
- Current Liabilities: $5,073,836
- Working Capital: Negative $1,505,140 (Current liabilities exceed current assets)
- Short-term Borrowings: $2,639,857 (utilized against $19,000,000 lines of credit)
- Long-term Debt: $32,642,462

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased by $117,877 (13.5%) compared to Q1 2002.
• Revenue Growth: Operating revenues increased by $78,306 (1.7%), driven by an addition of 864 residential customers, partially offset by a slight decline in commercial and industrial customers.
• Expense Increase: Operating expenses rose by $286,454 (11.0%). Primary drivers included higher pension expenses due to lower investment returns, increased health and general insurance premiums, and higher depreciation from increased plant investment.
• Offsetting Factors: Reduced water treatment facility maintenance and lower professional fees partially mitigated the expense increase.
• Interest and Other Income: Allowance for funds used during construction (AFUDC) increased by $27,041 due to capitalized interest on the pipeline to the river project and new standpipe construction.

Guidance, Outlook, and Risks

Rate Developments

The company filed a rate increase request on January 24, 2003, seeking $2,808,000 (13.7% increase). The request remains suspended pending review. Management expects resolution by September or October 2003.

Capital Expenditures and Projects

• Q1 2003 Construction: $1,029,963.
• 2003 Full Year Estimate: Approximately $16,430,000.
• Pipeline to Susquehanna River: Estimated cost of $18 to $20 million. Engineering phase expected completion by May 2003, with construction starting July 2003. Financing will involve debt and stock issues.
• Permitting: Petition to reclassify Lake Redman as a warm water fishery is in final rulemaking; favorable ruling expected August 2003.

Liquidity Outlook

The company anticipates that net cash used in investing and financing activities will equal net cash provided by operating activities for the remainder of 2003. Financing needs will be met through lines of credit, customer advances, stock issuance (dividend reinvestment and employee purchase plans), and a possible debt issue later in the year.

Risks and Contingencies

• Regulatory Risk: Profitability depends on the timeliness of rate relief and approval of rate filings.
• Environmental/Weather Risk: Operations are dependent on rainfall and temperature; drought conditions could impact per capita consumption and revenues.
• Market Risk: Exposure to interest rate fluctuations on variable-rate lines of credit (Prime/LIBOR + 1% to 1.25%).
• Debt Obligations: Mandatory tender dates exist for 1994 bonds (May 2004) and 1995 bonds (June 2005).

Investor Verification Checklist

• Rate Case Status: Verify the timeline and outcome of the suspended 13.7% rate increase request filed in January 2003.
• Working Capital Deficit: Confirm the sustainability of the negative working capital position ($1.5M deficit) and reliance on short-term borrowings.
• Capital Project Costs: Monitor the $18-$20 million pipeline project for cost overruns or permitting delays (specifically the Lake Redman reclassification).
• Expense Trends: Track the trajectory of pension and health insurance costs, which drove the 11% increase in operating expenses.
• Debt Refinancing: Assess the company's strategy for the mandatory tender of 1994 and 1995 bonds in 2004 and 2005.