YORW

Business Context and Reporting Period

Company: The York Water Company
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1995
Business Overview: The Company is a regulated public utility organized under Pennsylvania law, operating exclusively within York County. Its primary business is the impounding, purification, and distribution of water to a service territory with an estimated population of 140,000. The Company operates as a monopoly within its franchised territory, regulated by the Pennsylvania Public Utility Commission (PPUC). Revenue sources are diversified, with 58% derived from residential customers, 34% from commercial and industrial customers, and 8% from other sources.

Key Financial Metrics (Year Ended Dec 31, 1995)

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 4.7% ($693,589) compared to 1994, primarily driven by a 3.7% rate increase approved by the PPUC effective September 23, 1994.
• Net Income Decline: Despite revenue growth, net income decreased 5.4% ($132,431) to $2.31 million. This was caused by increased operating expenses (maintenance and depreciation) and a 34.5% increase in income taxes due to higher taxable income and a reduction in deferred tax assets.
• Consumption Trends: Average daily consumption remained flat at 19.38 million gallons. Industrial and commercial consumption dropped 4.5%, offsetting the addition of over 1,000 new customers.
• Debt Refinancing: The Company issued $4.3 million in 5% Industrial Revenue Refunding Bonds in late 1995 to replace higher-interest 6.25% bonds, resulting in an estimated annual interest savings of $54,000.
• Liquidity Position: Short-term borrowings increased significantly from $1.3 million to $4.2 million to fund construction expenditures. Current liabilities exceeded current assets by $3.99 million, a common practice for the Company to finance construction via lines of credit before issuing long-term debt.

Guidance, Outlook, and Management Commentary

• Rate Outlook: Management is evaluating the possibility of filing for a modest rate increase to address flat revenues and rising expenses. A formal application is anticipated in the future to cover capital expenditures for 1996-1997.
• Capital Expenditures: Planned construction expenditures are approximately $5.46 million for 1996 and $3.66 million for 1997. Funding sources include internally generated funds, short-term borrowings, customer advances, and stock issuance plans.
• Operational Projects: Key 1995 activities included acquiring the Nashville and East Prospect Borough distribution systems and installing a new standpipe. Planned 1996 activities include acquiring the Jefferson Borough system and finalizing a bulk water sale to Glen Rock Borough.
• Dividend Policy: The Company issued its 500th consecutive dividend in 1995. The dividend payout ratio relative to net income was 98.4%, which management deems appropriate.
• Risks and Contingencies: The Company faces inflation risks regarding facility replacement costs. Future revenue recovery is dependent on PPUC approval. There are no material legal proceedings pending.

Investor Verification Checklist

• Rate Case Status: Verify the timeline and likelihood of approval for the anticipated rate increase filing to offset rising operational costs.
• Debt Maturity Profile: Review the maturity schedule for the $32 million in long-term debt, noting mandatory tender dates for the 1994 and 1995 refunding bonds.
• Short-Term Debt Usage: Monitor the level of short-term borrowings ($4.16 million) to ensure they are converted to long-term financing as planned to maintain liquidity ratios.
• Industrial Consumption: Track the trend in industrial and commercial water usage, which declined 4.5% in 1995, to assess revenue stability.
• Dividend Sustainability: Confirm that the high dividend payout ratio (98.4% of net income) remains sustainable given the capital expenditure requirements for 1996-1997.