York Water Co
Annual Report 2018

Plain-text annual report

2018 Annual Report Sustaining Our Community’s Future for 203 Years Above: Lake Williams spillway under construction in 1911. Below: A foreman poses at the 48” diameter outlet valve during construction in 1911. In 1912, York Water Built Its First Reservoir, Lake Williams. This first large dam in York County increased our community’s water supply from 8 million gallons per day to 14 million gallons per day to serve a growing manufacturing town. The construction of this Crucial Infrastructure helped to make this a “drought-proof” community. Over the past 106 years, the dam has been well-maintained and inspected, and is now in the process of getting some additions for its Second Century of Service! Jeffrey R. Hines, P.E. President and Chief Executive Officer Dear Shareholders, Welcome to the Annual Report for America’s Oldest Public Company! I am pleased to report that 2018 continued our unsurpassed record of 203 years of service to our community. Dividends and Shareholder Value: An American Record! Our net income increased by 3.1% to $13.4 million in 2018. Earnings per share increased 3.0% to $1.04. • Net income and earnings per share (EPS) were $13.4 million, and $1.04, respectively, compared to $13.0 million and $1.01 in 2017; • In 2018, the Board of Directors approved a 4% increase in the quarterly dividend to an annualized rate of $0.69 per share; • The Company’s long-term performance is strong with three-year average annual total shareholder return at 14.2% and three-year average annual return on equity of 10.6%. The Company is making significant investments to build and improve its communities’ infrastructure. Over the past three years, the Company has invested nearly $55 million in infrastructure improvements, including system improvements and infrastructure to ensure a safe, adequate, and reliable supply of drinking water and to maintain proper handling and disposal of wastewater for all customers. In line with our objective to maintain regular dividend increases, we raised the quarterly dividend rate by 4.0% during the year. This is the 22nd consecutive year we have raised our dividend and the 203rd consecutive year of dividend payments. We believe this to be the longest consecutive dividend record in America. In 2013, we initiated a share repurchase program to add value to our shareholders. The Board of Directors authorized us to repurchase up to 1,200,000 shares of the Company’s common stock from time to time. No shares were repurchased this year. As of December 31, 2018, 618,004 shares remain available for repurchase. Water & Wastewater Customers We are only including a summary of our financial results in this annual report. Please refer to our annual SEC 10K Report, which was delivered with this report, or can be downloaded from the investor relations section of our website at www.yorkwater.com for a more detailed review of our financial performance. Continued Growth, Acquisitions, and Expansion The number of customers we served at the end of 2018 grew to 70,263 water and wastewater customers. This was an increase of 659 new customers or about 1% customer growth in 2018. The Company is now authorized to serve in 48 municipalities in Adams and York Counties and our population served grew in 2018 to approximately 199,000 people. Rate Case Increases and Tax Act Reductions On May 30, 2018, York Water sought an annual increase in water rates of $6.4 million and an annual increase in wastewater rates of $289,000. This was the first rate increase for our customers in 5 years. Effective March 1, 2019, the Pennsylvania Public Utility Commission (PPUC) authorized an increase in water rates designed to produce approximately $3.4 million in additional annual revenues and an increase in wastewater rates designed to produce approximately $289,000 in additional annual revenues. It is expected that the approved rates will add about $1.00 per month, or a 2.5% increase, for the average residential water customer. However, due to the reduction in taxes from the 2017 Tax Act the water customers will, on average, actually see an $0.80 decrease in the water bills for the next year. Water Still Costs About One Cent per Gallon: Delivered right where you need it, when you need it! Even after our latest rates go into effect on March 1, 2019, our typical customer will receive 1,000 gallons of “that good York water” for about $6.56. Our customer complaint rate and water rates remain among the lowest in the state while still providing world-class service to our customers. In addition to great customer service, these measurements help us to maintain a productive relationship with our regulators, which is paramount to running a successful company. Increasing Efficiency While Maintaining Personal Contact Although we are a 203-year-old company, we continue to make technological advances to assist our customers while still providing that personal touch. When you call our office, one of our locally-based and friendly customer service representatives will answer the phone and assist you. We continue to expand our initiatives in online applications and scheduling, paperless billing, and electronic bill pay. We also continue to deploy a state-of-the-art radio frequency drive-by and fixed meter reading system. Of course, our historic office in downtown York remains open for walk-in or phone-in customer support. System Improvements for a Sustainable Future We continue to replace almost 1% of our existing water pipe each year. This equates to over 50,000 feet of pipe replacement per year, or almost 10 miles! This reduces main breaks, water leakage, potential property damage, and reduces costs. York Water continues to work with local governments and other utilities to coordinate water main replacements prior to road resurfacing projects. This saves our customers money and provides the motoring public with a new road and equally new utilities below. In 2016, the American Water Works Association recommended that all water systems should have a goal of eliminating lead service lines. In 2017-2018, York Water replaced all 1,660 known company-owned lead service lines and continues to inventory and replace all company and customer-owned service lines as they are discovered. Through a unique partnership with the Pennsylvania Public Utility Commission, the Company continues to replace all customer-owned lead service lines, at little or no cost to the customer, over the following years with a goal of the complete elimination of all lead service lines from our community. Lake Redman Pumping Station Complete We have completed construction of an additional 20-million-gallon- per-day pumping station at our Lake Redman reservoir. This station and a 3.5 mile transmission main to our Filter Plant will provide redundant capacity in the event of a contamination event, power outage, or flooding. Dedicated and Experienced Employees York Water’s talented employees have an average of 13 years at the Company, which is indicative of the rewarding environment and collaborative corporate culture of The York Water Company. A Company that continues to thrive, grow, and improve service to its customers for 203 years can only be possible due to the dedication, loyalty, and hard work of its employees. We thank all of the York Water family for their commitment to make this Company the most efficient water utility in the nation. John Strine, VP of Operations Retires after 43 years John Strine has worked for York Water for 43 years and worked his way up through the ranks to Vice President of Operations. In a utility, experience matters, and John has been instrumental in carrying forward the culture and competence of our community-based company to newer employees. We thank him for a job well done! 90th Anniversary of our Downtown Headquarters! In 1929, the Company moved a block west on Market Street and constructed a beautiful, water-themed headquarters building. Ninety years later, the building still serves its original purpose and provides a welcome respite to thousands of customers and visitors each year as they pass through to pay their water bills or just stop in to see the magnificent ceiling. We invite all of our shareholders to stop in during business hours; we’d love to give you a tour! In 1929, York Water’s new headquarters was completed. In 2019, the building has been superbly maintained and is still open to the public during normal business hours. Highlights of Our 203rd Year (In thousands of dollars, except per share amounts) Summary of Operations For the Year 2018 2017 2016 2015 2014 Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,437 $ 48,589 $ 47,584 $ 47,089 $ 45,900 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 25,920 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,517 Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,280 Gain on sale of land . . . . . . . . . . . . . . . . . . . . . . . . . . - Other income (expenses), net . . . . . . . . . . . . (1,370) Income before income taxes . . . . . . . . . . . . . . 15,867 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,491 24,896 23,693 4,484 - (1,692) 17,517 4,543 23,414 24,170 5,037 36 (1,914) 17,255 5,409 23,294 23,795 4,976 - 22,593 23,307 4,996 316 (1,590) (2,266) 17,229 4,740 16,361 4,877 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,376 $ 12,974 $ 11,846 $ 12,489 $ 11,484 Per Share of Common Stock Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.75 $ 9.28 $ 8.87 $ 8.51 $ 8.15 Earnings per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.04 1.04 1.01 1.01 0.92 0.92 0.97 0.97 0.89 0.89 Weighted average number of shares outstanding during the year: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,903,568 12,849,123 12,845,955 12,831,687 12,879,912 Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,903,836 12,849,171 12,845,973 12,831,687 12,879,912 Cash dividends declared per share . . . . 0.6731 0.6472 0.6267 0.6040 0.5788 Utility Plant Original cost, net of acquisition adjustments . . . . . . . . . $ 377,676 $ 362,533 $ 339,745 $ 325,691 $ 313,003 Construction expenditures . . . . . . . . . . . . . . . . 16,882 24,602 13,158 13,844 14,139 Other Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 345,140 $ 332,030 $ 320,494 $ 310,533 $ 300,708 Long-term debt including current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,358 90,142 84,653 84,562 82,312 For Management’s Discussion and Analysis of Financial Condition and Results of Operations, please refer to Item 7 in the Company’s Annual Report on Form 10-K. Shareholder Information Market Information The common stock of The York Water Company is traded on the NASDAQ Global Select Market under the symbol YORW. Shareholders of record (excluding individual participants in securities positions listings) as of December 31, 2018 numbered approximately 1,999. Financial Reports and Investor Relations The Company makes available free of charge, on or through its website (www.yorkwater.com), its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission, or SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information about SEC registrants, including the Company. Shareholders may request, without charge, copies of the Company’s financial reports. Such requests, as well as other investor relations inquiries, should be addressed to: Molly E. Norton Investor Relations and Communications Administrator The York Water Company 130 East Market Street York, PA 17401 (717) 718-2942 (800) 750-5561 mollyn@yorkwater.com Stock Exchange Listing The Company’s common shares trade on the NASDAQ Global Select Market. The trading symbol is YORW. Independent Auditors Baker Tilly Virchow Krause LLP Suite 200 221 West Philadelphia Street York, PA 17401 Transfer Agent & Registrar Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, NY 11717 (844) 317-3311 (toll free) Internet: http://shareholder.broadridge.com/YORW Annual Meeting Information Monday, May 6, 2019 1:00 p.m. – Lunch 12:00 p.m. (reservation required) Appell Center for the Performing Arts 50 North George Street York, PA 17401 Supplemental Information (Unaudited) (In thousands of dollars, except per share amounts) Year Ended December 31 Selected Financial Data Income 2018 2017 2016 Operating Revenues.............................................................................................. Operating Expenses .............................................................................................. Operating Income.................................................................................................. Interest Expense..................................................................................................... Net Income ............................................................................................................. Percent Change in Net Income Compared to Prior Year ................................ Common Stock Dividends ................................................................................... Dividend Payout Ratio ......................................................................................... $48,437 $25,920 $22,517 $5,280 $13,376 3.1% $8,690 65.0% $48,589 $24,896 $23,693 $4,484 $12,974 9.5% $8,318 64.1% $47,584 $23,414 $24,170 $5,037 $11,846 -5.1% $8,051 68.0% Weighted Average Common Shares Outstanding, Basic ................................ 12,903,568 12,849,123 12,845,955 Basic & Diluted Earnings Per Weighted Average Common Share................ $1.04 $1.01 $0.92 Number of Common Shares Outstanding......................................................... 12,943,536 12,872,742 12,852,295 ROE on Year End Common Equity .................................................................... Common Stock Dividends Per Share ................................................................. Net Cash Flows From Operating Activities ...................................................... 10.6% $0.6731 $18,372 Balance Sheet Common Stockholders’ Equity ........................................................................... $126,195 Long-Term Debt Including Current Maturities ................................................ $93,358 Total Capitalization ............................................................................................... $219,553 Percent Common Stockholders’ Equity ............................................................. Percent Long-Term Debt ...................................................................................... 57% 43% 10.9% $0.6472 $20,111 $119,405 $90,142 $209,547 57% 43% 10.4% $0.6267 $19,365 $114,061 $84,653 $198,714 57% 43% Net Utility Plant .................................................................................................... $299,157 $288,787 $270,907 Operating Data Revenue Class Residential .............................................................................................................. Commercial and Industrial.................................................................................. Other........................................................................................................................ Total Operating Revenues.................................................................................... $31,281 $13,578 $3,578 $48,437 $31,257 $13,729 $3,603 $48,589 $30,218 $13,760 $3,606 $47,584 Construction Expenditures .......................................................................... $16,882 $24,602 $13,158 Other Operating Data Number of Customers .......................................................................................... 70,263 Number of Employees.......................................................................................... Common Shareholders ......................................................................................... Book Value Per Common Share .......................................................................... Market Value at Year End .................................................................................... Market Value to Book Value ................................................................................ P/E Ratio ................................................................................................................ 109 1,999 $9.75 $32.06 329% 30.8 69,604 102 2,011 $9.28 $33.90 365% 33.6 67,052 103 2,052 $8.87 $38.20 431% 41.5 Supplemental Information (Unaudited) (In thousands of dollars, except per share amounts) 2015 2014 2013 2012 2011 2010 2009 2008 $47,089 $23,294 $23,795 $4,976 $12,489 8.8% $7,743 62.0% $45,900 $22,593 $23,307 $4,996 $11,484 19.0% $7,443 64.8% $42,383 $21,217 $21,166 $5,267 $9,654 3.8% $7,214 74.7% $41,447 $20,331 $21,116 $5,249 $9,303 2.4% $6,929 74.5% $40,629 $20,091 $20,538 $5,260 $9,084 1.7% $6,708 73.8% $39,005 $18,735 $20,270 $4,894 $8,929 18.9% $6,506 72.9% $37,043 $19,065 $17,978 $4,896 $7,512 16.8% $6,050 80.5% $32,838 $17,879 $14,959 $4,219 $6,431 0.3% $5,526 85.9% 12,831,687 12,879,912 12,928,040 12,847,160 12,734,420 12,626,660 11,695,155 11,298,215 $0.97 $0.89 $0.75 $0.72 $0.71 $0.71 $0.64 $0.57 12,812,377 12,830,521 12,979,281 12,918,633 12,791,671 12,692,054 12,558,724 11,367,248 11.5% $0.6040 $20,710 $109,070 $84,562 $193,632 56% 44% 11.0% $0.5788 $18,766 $104,563 $82,312 $186,875 56% 44% 9.3% $0.5580 $18,438 $103,511 $82,741 $186,252 56% 44% 9.3% $0.5391 $16,422 9.5% $0.5266 $17,474 9.8% $0.5150 $14,755 8.6% $0.5060 $15,801 9.2% $0.4890 $11,527 $99,825 $82,684 $182,509 55% 45% $95,265 $82,621 $177,886 54% 46% $91,257 $82,672 $173,929 52% 48% $86,922 $75,662 $162,584 53% 47% $69,766 $84,340 $154,106 45% 55% $261,420 $253,194 $244,237 $239,539 $232,277 $227,677 $221,475 $210,820 $29,761 $13,822 $3,506 $47,089 $29,165 $13,267 $3,468 $45,900 $26,873 $12,299 $3,211 $42,383 $26,192 $12,114 $3,141 $41,447 $25,750 $11,820 $3,059 $40,629 $24,550 $11,440 $3,015 $39,005 $23,368 $10,734 $2,941 $37,043 $20,634 $9,671 $2,533 $32,838 $13,844 $14,139 $9,852 $11,543 $9,472 $10,541 $12,535 $24,438 66,087 107 2,007 $8.51 $24.94 293% 25.7 65,102 107 2,002 $8.15 $23.21 285% 26.1 64,118 104 2,023 $7.98 $20.93 262% 27.9 63,779 105 1,786 $7.73 $17.57 227% 24.4 62,738 106 1,658 $7.45 $17.64 237% 24.8 62,505 111 1,649 $7.19 $17.29 240% 24.4 62,186 111 1,516 $6.92 $14.51 210% 22.7 61,527 110 1,485 $6.14 $12.10 197% 21.2 Directors, Officers, & Key Employees Board of Directors James H. Cawley (1) (3) Age 73 Director Since 2016 Cynthia A. Dotzel Age 64 Director Since 2019 Michael W. Gang, Esq. (1) Age 68 Director Since 1996 Jeffrey R. Hines, P.E. (1) Age 57 Director Since 2008 George W. Hodges (1) Age 68 Chairman Director Since 2000 George Hay Kain, III (4) Age 70 Director Since 1986 Jody L. Keller (4) Age 65 Director Since 2015 Erin C. McGlaughlin (2) (3) Age 45 Director Since 2016 Robert P. Newcomer (1) (2) (4) Age 70 Director Since 2013 Steven R. Rasmussen, CPA (2) (3) Age 46 Director Since 2011 Ernest J. Waters (1) (2) (4) Age 69 Director Since 2007 Directors Emeriti Josephine S. Appell Chloé R. Eichelberger John L. Finlayson William T. Morris Irvin S. Naylor Thomas C. Norris Jeffrey S. Osman Key (1) Executive Committee (2) Audit Committee (3) Nomination and Corporate Governance Committee (4) Compensation Committee In 2018, construction began on several projects at Lake Williams. The first project is the installation of a valve on the 48” outlet pipe passing through the dam (shown in these pictures). Lake Williams was drained down for this portion of the work. When this work is completed in 2019, the lake will be allowed to refill and then the spillway will be replaced with new concrete, and then a roller compacted concrete armoring project will take place on the downstream face of the dam. These projects will allow the reservoir and dam to continue to provide valuable service to the community and our growing customer base for the next 100 years. Directors, Officers, & Key Employees Officers & Key Employees Vernon L. Bracey Age 57 Vice President- Customer Service Natalee Colón, SHRM-CP Age 31 Vice President- Human Resources Joseph T. Hand Age 56 Chief Operating Officer Mark J. Hardman Age 46 Vice President-Technology Jeffrey R. Hines, P.E. Age 57 President and Chief Executive Officer Matthew E. Poff, CPA Age 47 Chief Financial Officer and Treasurer Mark S. Snyder, P.E. Age 48 Vice President-Engineering Martin L. Strine Age 58 Operations Manager Molly E. Norton Investor Relations and Communications Administrator Chartered Territory Distribution and Supply System In 2018, a community-wide iniative occurred to assist with transportation of fish and other aquatic life from Lake Williams prior to lowering the lake for construction at the dam. The York Water Company 130 East Market Street York, Pennsylvania 17401 717-845-3601 www.yorkwater.com 

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