1. Fin 601 – Dr. Garner Group #6 Joel Burger Erik Hudzik Marc Joseph Bernard Klemmer LaKysha Owens Jake Ramage

2. York Water (YORW) Business is the impounding, purifying, and distribution of water Located in York County Pennsylvania Founded in 1816 Serves ~156,000 people 60 % Residential 27% Commercial 13% Other

3. York Water Historical Revenue & Net Income

4. YORW vs. NASDAQ % change Time (in quarters)

5. YORW vs. Competitors % change Time (in quarters)

6. Competition ● As a public utility, they have no true competitors in their territory ● Can be compared to other similar firms

7. Competition

8. Recent Developments ● Began project in 2003 to increase their territory to Conewago and Springfield Townships ● Estimated to cost $22 million ● Financed by: – Tax exempt bonds – Common Stock issuances – Line of Credit ● Has led to large increase in long term debt

9. Recent Developments ● Just finalized deal to buy Spring Grove Borough's water-distribution system for $1.3 million ● Increase customer base by ~1000 ● Plan to have Spring Grove connected to their infrastructure by July

10. Profitability Ratios

11. Valuation

12. Estimating Value of Firm ● Analyze Historical Data – Determine rates of growth for forecast ● Forecast Future Cash Flows ● Determine WACC for Firm ● Compute Net Present Value – Different Scenarios ● Determine Fair Stock Price ● Multiple pricing Methods ● Recommendation

13. Historical Data Assume growth of Revenues to be 4.56% for short term Assume Total Operating Costs to be 55.94% of Revenues Assume Depreciation to be 15.89% of Operating Costs Assume corporate tax rate of 35%

14. Estimating Capital Expenditures and Net Working Capital ● $27 M expenditure expanding with Susquehanna River pipeline project. – Use the average capitol expenditure rate of $6.7 M per year to estimate for valuation (prior to 2003) ● Estimate NWC at 13% of Revenues – Large amount of short term debt, therefore ● NWC = (AR + Inv.) – (AP)

15. Free Cash Flow Forecast Based on all assumed rates for years 2005 through 2010 -2004 estimated from 3Q results -2011 estimated at sustained growth rate

16. Weighted Average Cost of Capital Book Value of Debt $39,787,205 Depends on LIBOR, 1% to 1.25% over…At 4.71%, cost of debt is 7.78% Book Value of Equity $39,056,529

17. Net Present Value of York Water Company

18. Determining Fair Price for YORW Stock Multiple pricing methods: -(P/E Ratio of industry) X (EPS of York) $20.98/$141.4M -Market Price$19.90/$136.8M

19. Recommendation: HOLD ● Valuation was conservative ● Below both market indicators ● “Safe” investment ● Impacts of capital expenditures ● Diversification of Portfolio

20. Questions?