York Water Co
Annual Report 2019

Plain-text annual report

T h e Y o r k W a t e r C o m p a n y 2019 Annual Report America’s Oldest Y o rk ’s f i r s t ’ Investing in Our Community for Years 204 Above: The York Water Company recently installed new cement-lined, ductile iron water main pipes and reinforced water infrastructure at Pershing Avenue and Princess Street in the City of York. Below: Lake Williams in William H. Kain Park provides the community with a safe and reliable water supply, and is also a great recreational resource through a unique, public-private partnership between The York Water Company and York County. T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n nu a l Re p o r t York’s First Water Mains In 2019, The York Water Company Continued to Invest in Our Community’s Infrastructure - to ensure a safe, adequate, and reliable source of water for our customers. A transition in the leadership of our company also took place this year. Change is inevitable and necessary - and we are committed to providing responsible upgrades and expansions to ensure quality of product and service to our community and our customers, just like we have for the past 204 years. The recent discovery of a wooden pipe from 1816, found below George Street during a construction project, is representative of The York Water Company’s long-standing historical roots in York. During their prime, these logs provided York City with a plentiful supply of water for drinking and fire services. Over the years, our water mains changed and transitioned to more durable and safer materials. After discovering the wooden pipe that was installed in the Company’s inaugural year, we reflected on an important fact: The York Water Company was here first. Our investment then, as it is today, sustains the communities we serve. Through periods of transition, our roots remain firm – And Our Mission Does Not Change. P a g e 1 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l Re p or t Jeffrey R. Hines, P.E. President and Chief Executive Officer March 1, 2008- March 1, 2020 J T Hand President and Chief Executive Officer March 1, 2020- Present Dear Shareholders, Welcome to the Annual Report for America’s Oldest Public Company! As I begin my retirement and write this Annual Report to Shareholders for my twelfth and final year, I wanted to introduce you to the 22nd President of America’s oldest public company: JT Hand. JT has been the Chief Operating Officer of our company for the past 12 years. Prior to that, JT had a long and distinguished career with the U.S. Army Corps of Engineers. JT’s professional life has been focused on infrastructure, public health, and organizational efficiency, which are key attributes necessary to lead a public water supplier. I wish JT and our team of over 100 highly dedicated professionals continued success in making this company the most efficient, well-run, and customer- focused water utility in the nation. I am pleased to report that 2019 continued our unsurpassed record of 204 years of service to our community. Increased Dividends and Shareholder Value: An American Record! Our net income increased by 7.7% to $14.4 million in 2019. Earnings per share increased 6.7% to $1.11. Operating revenues increased 6.5% to $51.6 million in 2019. 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 23rd consecutive year we have raised our dividend and the 204th 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, 2019, 618,004 shares remain available for repurchase. 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. P a g e 2 Operating Revenues (millions) $ 58 $ 53 $ 48 $ 43 $ 38 $ 33 $ 28 $ 23 $ 18 2015 2016 2017 2018 2019 Net Income (millions) $ 14.0 $ 13.0 $ 12.0 $ 11.0 $ 10.0 $ 9.0 $ 8.0 $ 7.0 $ 6.0 $ 5.0 2015 2016 2017 2018 2019 Water & Wastewater Customers 72,000 70,000 68,000 66,000 64,000 62,000 60,000 58,000 56,000 54,000 2015 2016 2017 2018 2019 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Continued Growth, Acquisitions, and Expansion The number of customers we served at the end of 2019 grew to 71,411 water and wastewater customers. This was an increase of 1,148 new customers, or about 1.6% customer growth in 2019. The Company is now authorized to serve in 48 municipalities in Adams and York Counties, and our population served grew in 2019 to over 200,000 people. In September 2019, The York Water Company acquired the Jacobus Borough Sewer System. 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 five 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, water customers, on average, actually saw an $0.80 per month decrease in their water bills for the first year. Water Still Costs About One Cent per Gallon: Delivered right where you need it, when you need it! Our customer complaint rate and water rates remain among the lowest of the regulated utilities 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 204-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, 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. P a g e 3 Earnings Per Share $ 1.20 $ 1.10 $ 1.00 $ 0.90 $ 0.80 $ 0.70 $ 0.60 $ 0.50 2015 2016 2017 2018 2019 Common Stock Dividends (per share) $ 0.70 $ 0.65 $ 0.60 $ 0.55 $ 0.50 $ 0.45 $ 0.40 2015 2016 2017 2018 2019 Customers/Employee 700 650 600 550 500 450 400 1979 1989 1999 2019 Natl Goal York Water York Water 2019 National Goal T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Average Annual Cost for Water (Residential) 4,000 gals/month In 2016, the American Water Works Association recommended that all water systems should have a goal of eliminating lead service lines. Since 2017, York Water has replaced all of the over 1,600 known company-owned lead service lines. Through a unique approval by the Pennsylvania Public Utility Commission, the Company is also committed to replacing all customer-owned lead services, currently at no cost to the customer, with a goal of the complete elimination of all lead service lines from our community. Lake Williams Dam Improvement Projects In 2019, we drained Lake Williams and installed a 48” valve on the outlet pipe. This is one part of a multi-year project which will include replacement of the spillway and armoring of the dam. One of our objectives during these projects is to minimize disruption to our water supplies and to maximize recreational access to the lake. This transition in leadership from Jeff Hines to JT Hand will continue our commitment to investing in our community. Dedicated and Experienced Employees York Water’s talented employees have an average of 14 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 204 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 and customer-focused water utility in the nation. Jeff Hines, President and Chief Executive Officer, retires after 30 years of service As mentioned previously, Jeff retired on March 1, 2020, after 12 years as CEO and 30 years with the Company. Jeff started in 1990 as Engineering Manager and worked his way up to President in 2008. Over the past 12 years, Jeff has presided over 48 dividend declarations, 203 board and committee meetings, numerous rate proceedings, debt and equity offerings, and 12 annual meetings of shareholders. Jeff has mentioned that his greatest honor has been to serve this company over the past 30 years, and perhaps his greatest achievement has been to lead America’s oldest public company with a team of over 100 dedicated employees, with no major accidents, while providing an uninterrupted supply of water for drinking, domestic use, and fire protection for our community. The Company will continue to benefit from Jeff’s experience as he will remain active on the Board of Directors. At The York Water Company, we not only invest in infrastructure; we also invest in people like Assistant Superintendent Jeff Green. P a g e 4 $ 800 $ 700 $ 600 $ 500 $ 400 $ 300 York Water Average PA Regulated Water Main Breaks Per 100 Miles of Pipe 30 25 20 15 10 5 0 York Water (5-Year Average) National Average Justified Complaint Rate Per 1000 Customers 0.20 0.15 0.10 0.05 0.00 York Water Other Major Pennsylvania Water Utilities Efficiency Compared to Other Publicly Traded Water Utilities in America 30% 20% 10% York Water Est. Avg. of Other Water Utilities Note: Efficiency ratio as measured by net income as a percent of revenue. The Lake Williams Dam was built in 1912 and expanded in 1954, increasing the storage capacity from 600 million gallons to 800 million gallons. In 2019, we completed upgrades at Lake Williams Dam. The next phase of upgrades will take place on the Lake Williams spillway. This multi-year /multi-million-dollar investment in our infrastructure aligns with our standards of efficiency and sustainability. P a g e 5 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Highlights of Our 204th Year (In thousands of dollars, except per share amounts) Summary of Operations For The Year 2019 2018 2017 2016 2015 Operating revenues .......................... $ 51,578 $ 48,437 $ 48,589 $ 47,584 $ 47,089 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 27,792 Operating income............................. 23,786 Interest expense................................ 4,758 Gain on sale of land.......................... - 25,920 22,517 5,280 - 24,896 23,414 23,693 24,170 4,484 5,037 23,294 23,795 4,976 - 36 - Other income (expenses), net ............ (2,386) (1,370) (1,692) (1,914) (1,590) Income before income taxes .............. 16,642 Income taxes .................................... 2,240 15,867 2,491 17,517 17,255 4,543 5,409 17,229 4,740 Net income ...................................... $ 14,402 $ 13,376 $ 12,974 $ 11,846 $ 12,489 Per Share of Common Stock Book value ....................................... $ 10.31 $ 9.75 $ 9.28 $ 8.87 $ 8.51 Earnings per share: Basic ........................................... 1.11 1.04 1.01 Diluted........................................ 1.11 1.04 1.01 0.92 0.92 0.97 0.97 Weighted average number of shares outstanding during the year: Basic ........................................... 12,964,080 12,903,568 12,849,123 12,845,955 12,831,687 Diluted........................................ 12,966,292 12,903,836 12,849,171 12,845,973 12,831,687 Cash dividends declared per share .... 0.7001 0.6731 0.6472 0 .6267 0 .6040 Utility Plant Original cost, net of acquisition adjustments ......... $ 398,065 $ 377,676 $ 362,533 $ 339,745 $ 325,691 Construction expenditures ................ 18,425 16,882 24,602 13,158 13,844 Other Total assets ...................................... $ 363,529 $ 345,140 $ 332,030 $ 320,494 $ 310,533 Long-term debt including current portion........................................... 101,035 93,358 90,142 84,653 84,562 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. P a g e 6 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t 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, 2019 numbered approximately 1,998. 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 4, 2020 1:00 p.m.-Virtual Annual Meeting In response to COVID-19, we are working through the logistics of holding our Annual Meeting virtually to ensure the health and safety of our shareholders. Details on how to access the Virtual Annual Meeting will be provided in advance of Monday, May 4, 2020. P a g e 7 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Supplemental Information (Unaudited) (In thousands of dollars, except per share amounts) Year Ended December 31 Selected Financial Data Income 2019 2018 2017 Operating Revenues .............................................................................................. $51,578 Operating Expenses .............................................................................................. $27,792 Operating Income .................................................................................................. Interest Expense ..................................................................................................... Net Income ............................................................................................................. Percent Change in Net Income Compared to Prior Year ................................ Common Stock Dividends ................................................................................... Dividend Payout Ratio ......................................................................................... $23,786 $4,758 $14,402 7.7% $9,083 63.1% $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% Weighted Average Common Shares Outstanding, Basic ............................... 12,964,080 12,903,568 12,849,123 Basic & Diluted Earnings Per Weighted Average Common Share ............... $1.11 $1.04 $1.01 Number of Common Shares Outstanding ........................................................ 13,014,898 12,943,536 12,872,742 ROE on Year End Common Equity .................................................................... Common Stock Dividends Per Share ................................................................. Net Cash Flows From Operating Activities ...................................................... 10.7% $0.7001 $18,881 Balance Sheet Common Stockholders’ Equity ........................................................................... $134,185 Long-Term Debt Including Current Maturities................................................ $101,035 Total Capitalization ............................................................................................... $235,220 Percent Common Stockholders’ Equity ............................................................. Percent Long-Term Debt ...................................................................................... 57% 43% 10.6% $0.6731 $18,372 $126,195 $93,358 $219,553 57% 43% 10.9% $0.6472 $20,111 $119,405 $90,142 $209,547 57% 43% Net Utility Plant..................................................................................................... $313,224 $299,157 $288,787 Operating Data Revenue Class Residential .............................................................................................................. Commercial and Industrial .................................................................................. Other ........................................................................................................................ Total Operating Revenues ................................................................................... $33,409 $14,441 $3,728 $51,578 $31,281 $13,578 $3,578 $48,437 $31,257 $13,729 $3,603 $48,589 Construction Expenditures .......................................................................... $18,425 $16,882 $24,602 Other Operating Data Number of Customers .......................................................................................... Number of Employees .......................................................................................... Common Shareholders ......................................................................................... Book Value Per Common Share .......................................................................... Market Value at Year End .................................................................................... Market Value to Book Value ............................................................................... P/E Ratio ................................................................................................................ 71,411 106 1,998 $10.31 $46.11 447% 41.5 70,263 109 1,999 $9.75 $32.06 329% 30.8 69,604 102 2,011 $9.28 $33.90 365% 33.6 P a g e 8 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Supplemental Information (Unaudited) (In thousands of dollars, except per share amounts) 2016 2015 2014 2013 2012 2011 2010 2009 $47,584 $23,414 $24,170 $5,037 $11,846 -5.1% $8,051 68.0% $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 $39,005 $18,735 $37,043 $19,065 $20,538 $5,260 $9,084 1.7% $6,708 73.8% $20,270 $17,978 $4,894 $8,929 18.9% $6,506 72.9% $4,896 $7,512 16.8% $6,050 80.5% 12,845,955 12,831,687 12,879,912 12,928,040 12,847,160 12,734,420 12,626,660 11,695,155 $0.92 $0.97 $0.89 $0.75 $0.72 $0.71 $0.71 $0.64 12,852,295 12,812,377 12,830,521 12,979,281 12,918,633 12,791,671 12,692,054 12,558,724 10.4% $0.6267 $19,365 11.5% $0.6040 $20,710 11.0% $0.5788 $18,766 9.3% $0.5580 $18,438 9.3% $0.5391 $16,422 9.5% $0.5266 $17,474 9.8% $0.5150 $14,755 8.6% $0.5060 $15,801 $114,061 $109,070 $84,653 $84,562 $198,714 $193,632 57% 43% 56% 44% $104,563 $82,312 $186,875 56% 44% $103,511 $82,741 $99,825 $82,684 $95,265 $82,621 $91,257 $82,672 $86,922 $75,662 $186,252 $182,509 $177,886 $173,929 $162,584 56% 44% 55% 45% 54% 46% 52% 48% 53% 47% $270,907 $261,420 $253,194 $244,237 $239,539 $232,277 $227,677 $221,475 $30,218 $13,760 $3,606 $47,584 $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 $13,158 $13,844 $14,139 $9,852 $11,543 $9,472 $10,541 $12,535 67,052 103 2,052 $8.87 $38.20 431% 41.5 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 63,779 62,738 62,505 62,186 104 2,023 $7.98 $20.93 262% 27.9 105 1,786 $7.73 $17.57 227% 24.4 106 1,658 $7.45 $17.64 237% 24.8 111 1,649 $7.19 $17.29 240% 24.4 111 1,516 $6.92 $14.51 210% 22.7 P a g e 9 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Directors, Officers, & Key Employees Board of Directors James H. Cawley (1) (3) Age 74 Director Since 2016 Cynthia A. Dotzel (1) Age 65 Director Since 2019 Michael W. Gang, Esq. (1) Age 69 Director Since 1996 Joseph T. Hand Age 57 Director Since 2020 Jeffrey R. Hines, P.E. (1) Age 58 Director Since 2008 George W. Hodges (1) Age 69 Chairman Director Since 2000 George Hay Kain, III (3) Age 71 Director Since 1986 Jody L. Keller (4) Age 66 Director Since 2015 Erin C. McGlaughlin (2) (4) Age 46 Director Since 2016 Robert P. Newcomer (1) (2) (4) Age 71 Director Since 2013 Steven R. Rasmussen, CPA (2) (3) Age 47 Director Since 2011 Ernest J. Waters (1) (2) (3) Age 70 Director Since 2007 Directors Emeriti Josephine S. Appell Chloe 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 P a g e 1 0 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t During the Fall of 2018, Lake Williams was drained for infrastructure upgrades, including lining the outlet pipe and installing new sluice gates. The first phase of upgrades at Lake Williams was completed in 2019, and the Lake is full once again. Even when Lake Williams was empty, not one customer went without water service. P a g e 1 1 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Directors, Officers, & Key Employees Officers & Key Employees Vernon L. Bracey Age 58 Vice President- Customer Service Natalee Colón, SHRM-CP Age 32 Vice President- Human Resources Joseph T. Hand Age 57 President and Chief Executive Officer Mark J. Hardman Age 47 Vice President-Technology Matthew E. Poff, CPA Age 48 Chief Financial Officer and Treasurer Mark S. Snyder, P.E. Age 49 Vice President-Engineering Martin L. Strine Age 59 Operations Manager Mark A. Wheeler Age 52 Chief Operating Officer and Secretary Molly E. Norton Age 27 Investor Relations and Communications Administrator P a g e 1 2 T h e Y o r k W a t e r C o m p a n y 2 0 1 9 A n n u a l R e p o r t Chartered Territory Distribution and Supply System Our Filter Plant purifies and distributes 20 million gallons of “that good York Water” to our customers 24 hours a day, 365 days a year, with no interruptions. The York Water Company 130 East Market Street York, Pennsylvania 17401 717-845-3601 www.yorkwater.com 

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