Business Context and Reporting Period
Company: The York Water Company (Pennsylvania)
Filing Type: Form 10-Q (Unaudited Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 2003
Business Overview: A regulated water utility providing water service in York, Pennsylvania. The company operates under rate regulation by the Pennsylvania Public Utility Commission (PPUC).
Key Financial Metrics
Income Statement Highlights (Nine Months Ended Sept 30, 2003)
- Net Income: $3,301,402 (Increase of $389,478 or 13.4% vs. prior year)
- Water Operating Revenues: Increased $759,606 (5.1% vs. prior year)
- Operating Expenses: Increased $264,212 (3.1% vs. prior year)
- Effective Tax Rate: 34.8% for Q3 2003 (vs. 36.9% in Q3 2002)
Balance Sheet Highlights (As of Sept 30, 2003)
- Total Assets: $123,944,268
- Total Liabilities: $85,517,111 (Sum of Current Liabilities $7,842,435, Long-Term Debt $32,623,142, and Deferred Credits $44,871,734)
- Shareholders' Equity: $38,606,957
- Long-Term Debt: $32,623,142 (Includes various Senior Notes and IDA Bonds)
- Short-Term Borrowings: $4,391,506
- Working Capital: Negative $3,394,201 (Current Liabilities exceed Current Assets)
Cash Flow and Liquidity
- Construction Expenditures (YTD): $5,916,499
- Lines of Credit: $26,500,000 total capacity; $4,392,000 utilized as of Sept 30, 2003.
- Cash Flow Status: Net cash used in investing and financing activities equaled net cash provided by operating activities for the first nine months.
Material Changes vs. Prior Period
- Revenue Growth: Driven by an 8.5% rate increase approved by the PPUC effective June 26, 2003, and an addition of 863 customers.
- Expense Increases: Higher depreciation, insurance premiums, and contractual fees ($261,000 total) were offset by reduced maintenance and realty taxes ($186,000).
- Other Income: Decreased by $137,022 due to a $158,000 increase in supplemental retirement expenses caused by a lower discount rate used in pension calculations.
- Regulatory Assets: $260,910 in pension expenses were classified as regulatory assets following the rate case approval.
Guidance, Outlook, and Risks
Capital Projects and Financing
Susquehanna River Project: Construction began in mid-September 2003. Estimated cost is $22 million with completion expected in one year. Funding is planned via:
- $7.3 million tax-exempt bond issue (Q1 2004)
- $7.5 million secondary common stock offering (Q2 2004)
- $12 million tax-exempt bond issue (Q4 2004)
Rate Outlook: The company plans to file its next rate increase request in the second quarter of 2004.
Risks and Contingencies
- Regulatory Approval: Project progress depends on EPA approval to reclassify Lake Redman from a cold water to a warm water fishery.
- Interest Rate Risk: Exposure to market risks via variable rate lines of credit (Prime or LIBOR + 1% to 1.25%). No derivatives are used.
- Debt Refunding: Mandatory tender dates exist for 4.40% Series 1994 bonds (May 15, 2004) and 6.0% Series 1995 bonds (June 1, 2005).
- Auditor Change: The company's certified public accountant, Stambaugh Ness, PC, will not stand for re-appointment following the 2003 audit.
Investor Verification Checklist
- Verify the status of the EPA reclassification for Lake Redman, which is a prerequisite for the Susquehanna River project discharge permit.
- Monitor the success of the planned $7.5 million secondary stock offering and $19.3 million in bond issuances scheduled for 2004.
- Review the impact of the new auditor appointment on future financial reporting and audit fees.
- Assess the company's ability to manage negative working capital while funding significant capital expenditures.
- Track the timing and magnitude of the next rate case filing expected in Q2 2004.