The York Water Company

In the fourth quarter of 2007, operating revenues increased $443,000, or 6.0%, versus Q4 2006, net income increased $43,000, or 2.6%, and EPS was unchanged at 15 cents per share. For full-year 2007, operating revenues grew 9.7% to $31.4 million and earnings increased 5.3% to $6.4 million, while EPS was down 1 cent versus 2006 due mainly to dilution from the December 2006 stock offering. Management said 2008 customer growth should be around 5%, with about 2% organic growth and 3% from the West Manheim acquisition, and it expects the efficiency ratio to continue improving. On financing, the company projected about $18 million in additional long-term debt, plus $12 million it expects to refinance, and a fourth-quarter equity offering in the neighborhood of $13 million; it also expects a rate-case filing by the end of April or May, with approved rates potentially effective by the fourth quarter of 2008.

Jeffery Hines said 2007 was an excellent year despite housing-market uncertainty and emphasized continued momentum from customer growth, territory expansion, and municipal acquisitions. He highlighted the appeal of the service area to commuters from the Baltimore/DC corridor, the benefit of stable residential revenue, and the company’s plan to expand service territory and capacity in 2008. His tone was upbeat and confident, but he also acknowledged that 2007 growth in customer additions was below the 5-year average because of the slowdown in residential construction and drought-related conservation.

Kathleen Miller addressed depreciation and said 2008 and 2009 should be a little lower than 2007 because the company started depreciating its new computer systems in 2007 and changed depreciation timing on current-year additions. She also confirmed the rate-case timing remains at the end of April or could slip to the end of May. On the capital structure, management said the December 31, 2007 debt-equity ratio was 51.2% debt and 48.8% equity, and it expects the equity ratio to be greater than 50% by the end of 2008 as financing activities are completed.

Analysts focused on three main issues: the step-up in depreciation, the timing of the planned rate filing, and the status of the Susquehanna River Basin Commission approval for the out-of-basin transfer tied to Adams County growth. Management said the depreciation increase was largely driven by new computer systems and a change in depreciation methods, that the rate case should be filed at the end of April or May, and that the commission delay is part of a difficult but standard process complicated by broader Chesapeake Bay-related issues. Hines said the company is not on the commission’s docket for the next meeting and that the next meeting is in June.