1、Focus OnEfficiency Accommodates Growth&Continues Community CommitmentPresident and CEOs LetterDear Shareholders.2FinancialsHighlights of Our 193rd Year.5Shareholder Information.6Managements Discussionand Analysis.7Managements Report on InternalControl Over Financial Reporting.18Report of Independent
2、 RegisteredPublic Accounting Firm on InternalControl Over Financial Reporting.19Report of Independent RegisteredPublic Accounting Firm.20Balance Sheets.21Statements of Income.22Statements of CommonStockholders Equityand Comprehensive Income.23Statements of Cash Flows.24Notes to Financial Statements.
3、25Additional InformationSupplemental Information.44Directors.46Officers and Key Employees.47Transfer Agent and Registrar.47Stock Exchange Listing.47Independent Auditors.47Table of ContentsCover:York WatersLake Williams providesa sparkling reminderof the value of a pure andabundant water supply.This
4、Page:In 2008,nearly30,000 feet of water mainwere replaced.Some ofthese pipes were over 130years old!The Companyhas some of the lowestoperating costs,water loss,and main breaks in theindustry because of ouractive main replacementand relining program.1The York Water Company2 0 0 8 A n n u a l R e p o
5、r tBy focusing onoperational&infrastructureEfficiencyduring the past year,The York Water Companyhas been able to grow and meet the needs of an expandedcustomer base and also continue our commitment to thegreaterCommunity.The Planning and Preparedness thatwas discussed in last years Annual Report pro
6、vided a solidfoundation for The York Water Company to readily meet theeconomic challenges of 2008 and beyond.The completion of the Sediment Recycling Facility,expandeduse of hybrid vehicles,electric curtailment savings with ourelectricity provider,and RF meter reading are just a few of thesignifican
7、t energy savings and efficiency measuresimplemented duringthe year by The York Water Company.Additionally,the Companys water main replacement program continued during 2008 at a rate wellahead of national averages.As a result,The York Water Company had considerably fewer MainBreaks and a much lower p
8、ercent Water Loss than the National Average and conversely aconsiderably lower customer complaint rate than all other Pennsylvania Utilities.Customer Growthincreased in 2008 due to additional water system acquisitions includingWest Manheim Township the largest in York Water History.Financial Growthi
9、ncludedrecord operating revenues,operating income and net income levels despite the general economicdownturn,weak housing market,and higher than normal rainfalls.This dual focus onEfficiency&Growthhas positioned The York Water Company tomeet customer and shareholder expectations and continue our193
10、year tradition ofcommitment to the Communitieswe serve.The York Water Company is well situatedto handle any challenges that may occur over the next few years and to provide“That goodYork water”for an ever expanding customer base and future generations.Focus OnEfficiency Accommodates Growth&Continues
11、 Community CommitmentThe York Water Company2 0 0 8 A n n u a l R e p o r t2The York Water Company2 0 0 8 A n n u a l R e p o r tDear Shareholders,I am pleased to report that despite a very challengingyear of economic uncertainty,The York WaterCompany continued its 193 year tradition of recordperform
12、ance and service.Record Financial PerformanceWe again achieved record operating revenues,operating income andnet income.Operating revenues grew by 4.5%to$32.8 million in 2008.Operatingincome increased 4.1%to$14.7 million.Our net income increased by0.3%to$6.4 million in 2008.Earnings per share remain
13、ed at$0.57.York Waters operating revenue growth was offset by a reduction in ourcustomers per capita consumption,which we attribute to 2008 being the13th wettest year in the past 100 years of Company rainfall record keeping.We also attribute a slight reduction in consumption due to the economy.Conti
14、nued Growth and ExpansionThe number of customers served grew by 4.5%during 2008 to 61,527.Thepercent of customer growth in 2008 remained strong in a weak housingmarket due partially to organic growth but mostly due to two acquisitionsin 2008.The Company is now authorized to serve in 46 municipalitie
15、s inAdams andYork Counties.Population served grew 2.8%in 2008 to 175,800.York Water continues to work with elements of the Federal BaseRealignment and Closure(BRAC)Commission as Aberdeen ProvingGrounds in Maryland expands and draws thousands of additionalhomeowners into the area.Largest Acquisition
16、in Company HistoryOn December 5,2008,we began serving customers as part of our WestManheim Township acquisition.This acquisition added approximately 1,800customers,andisthelargestinourhistory.Inadditiontothe1,800customerswe currently serve,West Manheim is a high growth area along the Marylandborder
17、that continues to see an influx of new homeowners from theBaltimore-Washington,D.C.corridor.On November 24,2008,the Company completed the acquisition of theAsbury Point Water Company,serving approximately 250 customers inEast Manchester Township,York County.Jeffrey R.Hines,P.E.President andChief Exe
18、cutive Officer$17$21$25$29$3320042005200620072008Operating Revenues(millions)20042005200620072008Customer Growth(%)024650,00054,00058,00062,00020042005200620072008Customers20042005200620072008Net Income(millions)$3.4$4.5$5.6$6.7The York Water Company2 0 0 8 A n n u a l R e p o r t3Dividends and Shar
19、eholder ValueIn line with our objective to maintain regular dividend increases,we raised thequarterlydividendrateby4.1%duringtheyear.Thisisthetwelfthconsecutiveyearwe have raised our dividend and the 193rd consecutive year of dividend payments.Although our financial position remains strong,our share
20、holders experienced adecrease in shareholder value during 2008.The market price of our commonstock decreased$3.40 per share to$12.10,or a 21.9%decrease.This decrease,together with a 2.9%dividend increase to$0.489 per share paid during the yearbrought the total decrease in shareholder value to 19.0%.
21、Implementation of a Direct Stock Purchase PlanIn 2008 the Company initiated a Direct Stock Purchase Plan that allows for thepurchase of up to$40,000 per year directly from the Company at market pricewithout any fees.Dividends can then be reinvested automatically at a5%discount,again withno fees.Inte
22、rested and review the prospectus for additional informationand to participate in the program.Customer and Regulatory RelationsOn October 9,2008 the Pennsylvania Public Utility Commission approved a$5.95 million per year increase in revenue.Although increasing rates tocustomers is always painful,it i
23、s necessary due to increasing expenses and thecost of capital required to replace critical infrastructure.York Water continues tomaintain the lowest customer complaint rate in the state and York Waters ratesremain among the lowest in the state.Photo:Completion of new,highcapacity 42 million gallon p
24、erday plate settlers will insure thatYork Water can grow with thesurrounding region.4 4Dedicated and Experienced EmployeesA Company that continues to thrive and grow for 193 years can only bepossible due to the dedication,loyalty,and hard work of its talentedemployees.We thank all of the York Water
25、family for their commitment tomake this Company among the most efficient water utilities in the nation.OutlookWe continue our efforts to grow our business and serve our communities.We monitor our operating region for opportunities to acquire newfranchise territories so that we may provide our rich h
26、istory,experience,and know how to communities that realize the importance of a highquality,drought-resistant supply of water for domestic,commercial,industrial,and fire protection uses.We will continue to anticipate ourcommunities growth so that wherever and whenever“That good Yorkwater”is needed,it
27、 will be available in plentiful supply.RetirementsIn 2008,Irv Naylorretired from the Board after 48 yearsof service.Irv will continue to serve the Company as aDirector Emeritus.In addition to numerous other positions,Irv served as Chairman andVice Chairman during his tenurewith the Company.Although
28、his leadership and counsel willbe greatly missed,Irv left an enduring mark on the Companysculture and growth strategy that will serve us well into theforeseeable future.Also,in 2008,Jeff Osmanretired as President and CEOafter 25 years of service with the Company.During his tenureas President and CEO
29、,Jeff helped transform the Companyinto its preeminent position in the community and itsleadership position in the national water industry.While Jeffwill no longer be involved in day-to-day operations,werefortunate that we will continue to benefit from his experienceas he continues to serve on our Bo
30、ard of Directors.In 2008,Duane Closeretired as Vice President ofOperations after 31 years of service with the Company.Duanes expertise was instrumental in insuring that YorkWaters customers continue to pay the lowest rate for waterand have the lowest customer complaint rate in Pennsylvania.Duanes fo
31、resight also insured that an abundant and puresupply of“that good York water”will be available for thecontinued growth of the Company for many decades.Photos Above:Commitment to Community(Left)York Water is honored to supportnon-profit organizations in itsservice area.Martin MemorialLibrary is one o
32、f many superborganizations that define andshape a community.Commitment to Growth(Center)Completion of the 42 million gallonper day plate settlers will increasethe regions water supply by 40%.This allows York Water to providedrinking water and fire protectionto all of the communities we serve.Commitm
33、ent to Customers(Right)An active water main replacementprogram reduces O&M expenses,reduces customer complaints,andincreases the amount of wateravailable for our customers.The York Water Company2 0 0 8 A n n u a l R e p o r t5Highlights of Our 193rd Year(In thousands of dollars,except per share amou
34、nts)Summary of OperationsFor the Year20082007200620052004Water operating revenue.$32,838$31,433$28,658$26,805$22,504Operating expenses.18,09417,26915,75414,01712,595Operating income.14,74414,16412,90412,7889,909Interest expense.4,1123,9163,7273,4232,132Gain on sale of land.743Other income(expenses),
35、net.(573)(142)110(149)(168)Income before income taxes.10,05910,1069,2879,2168,352Income taxes.3,6283,6923,1963,3833,051Net income.$6,431$6,414$6,091$5,833$5,301Per Share of Common StockBook value.$6.14$5.97$5.84$4.85$4.65Basic earnings per share.57.57.58.56.53Dividends.489.475.454.424.394Weighted av
36、erage number of sharesoutstanding during the year.11,298,21511,225,82210,475,17310,359,3749,937,836Utility PlantOriginalcost,netof acquisitionadj.$245,249$222,354$202,020$181,756$163,701Construction expenditures*.24,43818,15420,67815,56225,689OtherTotal assets.$240,442$210,969$196,064$172,296$156,06
37、6Long-term debtincluding current maturities.86,35370,50562,33551,87451,913*Expenditures have been changed from accrual basis to cash basis for all years presented.For Managements Discussion and Analysis of Financial Condition and Results of Operations,please refer to page 7.The York Water Company2 0
38、 0 8 A n n u a l R e p o r t6Market for Common Stock and DividendsThe common stock of The York Water Company is traded on the NASDAQ Global Select Market(Symbol“YORW”).Quarterly price ranges and cash dividends per share for the last two years follow:20082007HighLowDividend*HighLowDividend*1st Quarte
39、r$16.28$14.19$0.121$18.15$16.12$0.1182ndQuarter16.5014.510.12118.5516.600.1183rd Quarter15.006.230.12118.4016.700.1184th Quarter13.3110.250.12617.3015.450.121Shareholders of record(excluding individual participants in securities positions listings)as of December 31,2008 numberedapproximately 1,485.D
40、ividend PolicyDividends on the Companys common stock are declared by the Board of Directors and are normally paid in January,April,July and October.Dividends are paid based on shares outstanding as of the stated record date,which is ordinarily the lastday of the calendar month immediately preceding
41、the dividend payment.The dividend paid on the Companys common stock on January 15,2009 was the 552nd consecutive dividend paid by theCompany.The Company has paid consecutive dividends for its entire history,since 1816.The policy of our Board of Directorsis currently to pay cash dividends on a quarte
42、rly basis.The dividend rate has been increased annually for twelve consecutiveyears.The Companys Board of Directors declared dividend number 553 in the amount of$0.126 per share at its January 2009meeting.The dividend is payable on April 15,2009 to shareholders of record as of February 27,2009.Futur
43、e cash dividendswill be dependent upon the Companys earnings,financial condition,capital demands and other factors and will bedetermined by the Companys Board of Directors.See Note 4 to the Companys financial statements included herein forrestrictions on dividend payments.Financial Reports and Inves
44、tor RelationsShareholders may request,without charge,copies of the Companys financial reports,including Annual Reports,andForms 8-K,10-K and 10-Q filed with the Securities and Exchange Commission(SEC).Such requests,as well as otherinvestor relations inquiries,should be addressed to:YORW on the Inter
45、netThe Annual Report as well as reports filed with the SEC and other information about the Company can be found on theCompanys website at:(717)845-3601(800)750-The York Water CompanyP.O.Box 15089,York,PA17405-7089Kathleen M.Miller Chief Financial OfficerShareholder Information*Cash dividends per sha
46、re reflect dividends declared at each dividend date.*Cash dividends per share reflect dividends declared at each dividend date.Prices listed in the above table are sales prices as listed on the NASDAQ Global Select Market.Forward-looking StatementsThis Annual Report contains certain matters which ar
47、e not historical facts,but which are forward-looking statements.Words such as“may,”“should,”“believe,”“anticipate,”“estimate,”“expect,”“intend,”“plan”and similar expressions areintended to identify forward-looking statements.The Company intends these forward-looking statements to qualify for safehar
48、bor from liability established by the Private Securities Litigation Reform Act of 1995.These forward-looking statementsinclude certain information relating to the Companys business strategy;statements including,but not limited to:expected profitability and results of operations;goals,priorities and
49、plans for,and cost of,growth and expansion;strategic initiatives;availability of water supply;water usage by customers;andability to pay dividends on common stock and the rate of those dividends.The forward-looking statements in this Annual Report reflect what the Company currently anticipates will
50、happen.Whatactually happens could differ materially from what it currently anticipates will happen.The Company does not intend tomake any public announcement when forward-looking statements in this Annual Report are no longer accurate,whether asa result of new information,what actually happens in th
51、e future or for any other reason.Important matters that may affectwhat will actually happen include,but are not limited to:changes in weather,including drought conditions;levels of rate relief granted;the level of commercial and industrial business activity within the Companys service territory;cons
52、truction of new housing within the Companys service territory and increases in population;changes in government policies or regulations;the ability to obtain permits for expansion projects;material changes in demand from customers,including the impact of conservation efforts which may impact the dem
53、andof customers for water;changes in economic and business conditions,including interest rates,which are less favorable than expected;the ability to obtain financing;andother matters set forth in Item 1A,“Risk Factors,”of the Companys Annual Report on Form 10-K for the year endedDecember 31,2008.7Th
54、e York Water Company2 0 0 8 A n n u a l R e p o r tManagements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)OverviewThe Company is the oldest investor-owned water utility in the United States and is duly organized under the laws of
55、the Commonwealth of Pennsylvania.The Company has operated continuously since 1816.The business of the Company isto impound,purify to meet or exceed safe drinking water standards and distribute water.The Company operates within itsfranchised territory,which covers 39 municipalities within York County
56、,Pennsylvania and seven municipalities withinAdams County,Pennsylvania.The Company is regulated by the Pennsylvania Public Utility Commission,or PPUC,in theareas of billing,payment procedures,dispute processing,terminations,service territory,debt and equity financing and ratesetting.The Company must
57、 obtain PPUC approval before changing any practices associated with the aforementioned areas.Water service is supplied through the Companys own distribution system.The Company obtains its water supply from boththe South Branch and East Branch of the Codorus Creek,which together have an average daily
58、 flow of 73.0 million gallonsper day.This combined watershed area is approximately 117 square miles.The Company has two reservoirs,Lake Williamsand Lake Redman,which together hold up to approximately 2.2 billion gallons of water.The Company has a 15-mile pipelinefrom the Susquehanna River to Lake Re
59、dman which provides access to an additional supply of 12.0 million gallons ofuntreated water per day.As of December 31,2008,the Companys average daily availability was 35.0 million gallons,anddaily consumption was approximately 18.3 million gallons.The Companys service territory had an estimated pop
60、ulation of176,000 as of December 31,2008.Industry within the Companys service territory is diversified,manufacturing such items asfixtures and furniture,electrical machinery,food products,paper,ordnance units,textile products,air conditioning systems,barbells and motorcycles.The Companys business is
61、 somewhat dependent on weather conditions,particularly the amount of rainfall.The Company hasminimum customer charges in place which are intended to cover fixed costs of operations under all likely weather conditions;however,increased rainfall and a sluggish economy have combined to reduce per capit
62、a consumption by commercial,industrialand residential customers by approximately 4.1%as of December 31,2008 compared to December 31,2007.The Companys business does not require large amounts of working capital and is not dependent on any single customeror a very few customers.In 2008,operating revenu
63、e was derived from the following sources and in the following percentages:residential,63%;commercial and industrial,29%;and other,8%,which is primarily from the provision for fire service.Increases in revenues are generally dependent on the Companys ability to obtain rate increases from regulatory a
64、uthoritiesin a timely manner and in adequate amounts and to increase volumes of water sold through increased consumption andincreases in the number of customers served.During the five-year period ended December 31,2008,the Company has maintained an increasing growth in number ofcustomers and distrib
65、ution facilities as demonstrated by the following chart:8The York Water Company2 0 0 8 A n n u a l R e p o r t20082007200620052004Average daily consumption(gallons per day)18,298,00019,058,00018,769,00018,657,00018,116,000Miles of mains at year-end884845817786752Additional distribution mainsinstalle
66、d/acquired(ft.)206,140147,803159,330212,702114,658Number of customers at year-end61,52758,89057,57855,73153,134Population served at year-end176,000171,000166,000161,000158,000Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts
67、)Performance MeasuresCompany management uses financial measures including operating revenues,net income,earnings per share and return onequity to evaluate its financial performance.Additional statistical measures including number of customers,customer complaintrate,annual customer rates and the effi
68、ciency ratio are used to evaluate performance quality.These measures are calculated ona regular basis and compared with historical information,budget and the other publicly-traded water companies.The efficiency ratio,which is calculated as net income divided by revenues,is used by management to eval
69、uate its abilitytokeepexpensesinline.Overthefivepreviousyears,ourratioaveraged21.7%.In2008,theratiofellto19.6%.Oneofthereasonsfor the decline was reduced per capita water usage by our customers which caused revenues to decline,but not expenses.Another reason for the decline in our efficiency ratio w
70、as increased expenses,some of which had not yet been included in ratescharged to customers.Our supplemental retirement expenses were substantially higher in 2008 due to some changes made tocomply with new regulations.These expenses are not and can not be included in rates charged to customers.Effect
71、iveOctober 9,2008,the PPUC authorized an increase in rates which will allow some of the increased expenses such as labor andpower to be recovered.Management continues to look for ways to decrease expenses and increase efficiency as well as to file forrate increases promptly when needed.Results of Op
72、erations2008 Compared with 2007Net income for 2008 was$6,431,an increase of$17,or 0.3%,from net income of$6,414 for 2007.The primary contributingfactors to the increase in net income were higher water operating revenues partially offset by increased operating andsupplemental retirement expenses.Wate
73、r operating revenues for the year increased$1,405,or 4.5%,from$31,433 for 2007 to$32,838 for 2008.The primaryreasons for the increase in revenues were a rate increase effective October 9,2008,an increased distribution surcharge throughthe first three quarters and growth in the customer base.The aver
74、age number of customers served in 2008 increased ascompared to 2007 by 993 customers,from 58,490 to 59,483 customers due to growth in the Companys service territory.Thetotal number of customers added during the year was approximately 2,600 with approximately 250 of those customers addedin November d
75、ue to the Asbury Pointe acquisition and approximately 1,800 customers added in December due to the WestManheim acquisition.Despite this increase in customers,the total per capita volume of water sold in 2008 decreasedcompared to 2007 by approximately 4.1%.Reduced consumption is attributed to a slugg
76、ish economy and increased rainfall.The Company expects revenues to continue to increase as a result of the new customers acquired at the end of 2008,and thefull years impact of the rate increase granted in October 2008.Drought warnings or restrictions as well as regulatory actionscould impact result
77、s.Operating expenses for the year increased$825,or 4.8%,from$17,269 for 2007 to$18,094 for 2008.Higher depreciationexpense of approximately$395 due to increased plant investment,increased health insurance costs of approximately$136,higher banking fees of approximately$103 related to lockbox processi
78、ng and credit enhancement,increased pension expenseof approximately$96 and higher salaries of approximately$87 due to wage increases were the principal reasons for theincrease.Higher power costs,legal fees,realty taxes,transportation costs,director fees and other expenses aggregatingapproximately$35
79、3 also added to the increase.The increase in expenses was partially offset by lower software supportexpenses of approximately$209,reduced chemical expenses of approximately$89 and lower shareholder costs ofapproximately$47.Depreciation expenses are expected to continue to rise due to the level of pl
80、ant investment in 2008.9The York Water Company2 0 0 8 A n n u a l R e p o r tManagements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)Pension expenses are expected to increase by approximately$300,and other operating expenses are e
81、xpected to increase at amoderate rate as costs to serve additional customers and to extend our distribution system continue to rise.Interest expense on long-term debt for 2008 increased$450,or 11.0%,from$4,095 for 2007 to$4,545 for 2008.The primaryreasons for the increase were an increase in the amo
82、unt of long-term debt outstanding and increased borrowings under theCompanys committed line of credit to fund operations and construction.The increased long-term debt outstanding is due tonew debt issued on October 15,2008 in the aggregate principal amount of$15,000.Borrowings under our committed li
83、ne ofcredit averaged$10,130 in 2008 and$3,105 in 2007.Interest expense on short-term debt for 2008 was$165 higher than 2007 due to an increase in short-term borrowingspartially offset by a reduction in rates.The average short-term debt outstanding was$5,997 for 2008 and$793 for 2007.Theaverage inter
84、est rate on short-term debt was 3.61%for 2008 compared to 5.96%for 2007.Allowance for funds used during construction increased$419,from$228 in 2007 to$647 in 2008,due to an increased volumeof construction expenditures.Eligible 2008 construction expenditures included an investment in a large water tr
85、eatmentreplacement and expansion project and a main extension to West Manheim Township.The 2009 allowance is expected to belower than 2008 due to a planned lower volume of eligible construction.Other expenses,net for 2008 increased by$431 as compared to 2007 due primarily to higher supplemental reti
86、rement expensesofapproximately$479.TheadditionalexpenseresultedfromchangestotheplanstomakethemcompliantwithInternalRevenueCode Section 409A offset by a reduction in the discount rate used in recording the present value of the benefits.The increase inexpenses was also partially offset by higher inter
87、est income in 2008 of approximately$53 on water district notes receivable.Interest income on water district notes receivable in the first nine months of 2007 included a negative adjustment(expense)dueto the recalculation of a note.Decreased charitable contributions of approximately$25 also reduced o
88、ther expenses.Federal and state income taxes for 2008 decreased by$64,or 1.7%,compared to 2007 primarily due to a decrease in taxableincome.The Companys effective tax rate was 36.1%in 2008 and 36.5%in 2007.2007 Compared with 2006Net income for 2007 was$6,414,an increase of$323,or 5.3%,from net incom
89、e of$6,091 for 2006.On a per share basis,earnings were down by$0.01 for the year reflecting the increase in net income offset by a 7.2%increase in the average numberof common shares outstanding.The increase in the number of shares outstanding was primarily a result of the 739,750additional shares is
90、sued by the Company in a public offering in December 2006.The primary contributing factors to theincrease in net income were higher water operating revenues partially offset by increased operating expenses.Water operating revenues for the year increased$2,775,or 9.7%,from$28,658 for 2006 to$31,433 f
91、or 2007.The primary reasonfor the increase in revenues was a 9.2%rate increase effective September 15,2006.The average number of customers served in2007increasedascomparedto2006by1,793customers,from56,697to58,490customers,duetogrowthintheCompanysserviceterritory and theAbbottstown Borough water syst
92、em acquisition on January 5,2007.Despite this increase in customers,the totalper capita volume of water sold in 2007 decreased compared to 2006 by approximately 1.2%due to reduced consumption in ourservice territory.The Companys service territory was on drought watch,which calls for a voluntary redu
93、ction in water useof 5%,during the months of August and October through December 2007.This had a small negative impact on revenues.10The York Water Company2 0 0 8 A n n u a l R e p o r tResults of Operations(continued)Managements Discussion&Analysis of Financial Condition&Results of Operations(In th
94、ousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t11Operating expenses for the year increased$1,515,or 9.6%,from$15,754 for 2006 to$17,269 for 2007.Higher depreciationexpense of approximately$705 due to increased plant investment,higher salaries of appr
95、oximately$647 due to increased ratesand additional employees and increased pension expense of approximately$248 were the principal reasons for the increase.Higher electric costs,increased maintenance at the filter plant and higher chemical expense aggregating approximately$260 alsoadded to the incre
96、ase.The increase was partially offset by lower internal control compliance costs,reduced realty and capitalstock taxes and increased capitalized overhead aggregating approximately$468.Interest expense on long-term debt increased$545,or 15.4%,from$3,550 for 2006 to$4,095 for 2007,due primarily to ani
97、ncrease in the average amount of long-term debt outstanding.The Company issued tax-exempt debt through the York CountyIndustrial DevelopmentAuthority,orYCIDA,in the amount of$10,500 in October 2006.The proceeds of the bond issuance wereused to pay down a portion of the Companys short-term borrowings
98、.Increased borrowings under the Companys committedline of credit to fund operations and construction added to the increase.Interest expense on short-term debt for 2007 was$566 lower than 2006 due to a decrease in short-term borrowings used tofund operations and construction expenditures.The average
99、short-term debt outstanding in 2007 and 2006 was$793 and$10,453,respectively.Allowance for funds used during construction decreased$210,from$438 for 2006 to$228 for 2007,due to a decrease inconstruction expenditures that were eligible for interest.Construction in 2006 included expenditures for large
100、 projects such asthe main extension to Abbottstown and the enterprise software system.Other expenses,net increased by$252 in 2007 as compared to 2006 primarily due to reduced interest income on water districtnotes receivable because of a reduction in the note balance.Increased charitable contributio
101、ns,many eligible for tax credits,added to the increase.Federal and state income taxes increased by$496,or 15.5%,primarily due to higher taxable income.The Companys effectivetax rate was 36.5%in 2007 and 34.4%in 2006.Rate DevelopmentsFrom time to time the Company files applications for rate increases
102、 with the PPUC and is granted rate relief as a result ofsuch requests.The most recent rate request was filed by the Company on May 16,2008,and sought an increase of$7,086,which would have represented a 19.6%increase in rates.Effective October 9,2008,the PPUC authorized an increase in ratesdesigned t
103、o produce approximately$5,950 in additional annual revenues.The Company does not expect to file a base rateincrease request in 2009.AcquisitionsOn January 5,2007,the Company closed the acquisition of the water system of Abbottstown Borough whichserved approximately 400 customers in Adams County,Penn
104、sylvania.The purchase price of approximately$900 was lessthan the depreciated original cost of these assets.The Company has recorded a negative acquisition adjustment ofapproximately$131 and is amortizing this credit over the remaining life of the acquired assets.The purchase was fundedthrough inter
105、nally-generated funds and short-term borrowings.The Company began serving the customers ofAbbottstown Borough in January 2007.Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p
106、o r t12Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)On May 16,2007,the Company announced that it had entered into an agreement to acquire the water system of West ManheimTownship in York County,Pennsylvania.This acquisi
107、tion resulted in the addition of 1,800 customers at a purchase price ofapproximately$2,075.The Company began serving the customers of West Manheim Township in December 2008 through aninterconnection with its current distribution system.Closing on this acquisition took place in January 2009.On Novemb
108、er 24,2008 the Company completed the acquisition of the water facilities of Asbury Pointe Water Company inYork County,Pennsylvania.The Company acquired and is usingAsbury Pointes distribution system through an interconnectionwith its current distribution system.This acquisition resulted in the addit
109、ion of approximately 250 customers at a purchase priceofapproximately$242,whichislessthanthedepreciatedoriginalcostoftheassets.TheCompanyrecordedanegativeacquisitionadjustment of approximately$207 and will amortize it over the remaining life of the underlying assets.Liquidity and Capital ResourcesDu
110、ring 2008,the Company invested$24,438 in construction expenditures for routine items as well as a new emergencydiesel generator for the main pumping station,additional booster stations,various replacements of aging infrastructure,distribution center renovations,a standpipe and main extension for exp
111、ansion into West Manheim Township and a watertreatment replacement and expansion project.In addition to construction projects,we invested approximately$259 for theacquisition of the Asbury Pointe water system.The Company was able to fund operating activities and constructionexpenditures using intern
112、ally-generated funds,borrowings against the Companys lines of credit,proceeds from along-term debt issue,proceeds from the issuance of common stock under its dividend reinvestment and direct stockpurchase and sale plan and employee stock purchase plan,or ESPP,customer advances and the distribution s
113、urcharge(DSIC)allowed by the PPUC.The distribution surcharge allows the Company to add a charge to customers bills forqualified replacement costs of certain infrastructure without submitting a rate filing.The Company anticipates construction and acquisition expenditures for 2009 and 2010 of approxim
114、ately$19,594 and$24,345,respectively.In addition to routine transmission and distribution projects,a portion of the anticipated 2009 and2010 expenditures will be for additional standpipes,further upgrades to water treatment facilities,reinforcement ofone of our dams,the West Manheim acquisition and
115、various replacements of aging infrastructure.We intend to useinternally-generated funds for at least half of our anticipated 2009 and 2010 construction and fund the remainder throughline of credit borrowings,customer advances and contributions,proceeds from stock issuances through internal plans orp
116、ublic offerings,the DSIC and possible long-term debt offerings.The condition of the stock market and the availability ofcredit will play a major role in how funds will be raised in 2009.Internally-generated FundsThe amount of internally-generated funds available for operations and construction depen
117、ds on our ability to obtaintimely and adequate rate relief,our customers water usage,weather conditions,customer growth and controlledexpenses.In 2008,we generated$11,527 internally as compared to$10,040 in 2007 and$7,116 in 2006.A successfulrate increase request,the addition of approximately 2,600
118、customers and increased depreciation and deferred incometaxes which are non-cash expenses helped to increase cash flow from operating activities during 2008.In addition tointernally-generated funds,we used our bank lines of credit to help fund operations and construction.Acquisitions(continued)The Y
119、ork Water Company2 0 0 8 A n n u a l R e p o r t13Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)Credit LinesAs of December 31,2008,the Company maintained unsecured lines of credit aggregating$24,500 with two banks.In Jan
120、uary 2009,we increased our unsecured lines of credit to$28,000 with the same two banks.One line of credit includesa$4,000 portion which is payable upon demand and carries an interest rate of 4.00%or LIBOR plus 0.70%,whichever isgreater,and a$13,000 committed portion with a revolving 2-year maturity(
121、currently May 2010)which carries an interestrate of LIBOR plus 0.70%.The Company had$9,098 in outstanding borrowings under the committed portion and noon-demand borrowings under this line of credit as of December 31,2008.The second line of credit,in the amountof$11,000,is a committed line of credit
122、which matures in May 2010 and carries an interest rate of LIBOR plus 1.50%.This line of credit also has a compensating balance requirement of$500.The Company had$6,000 in outstandingborrowings under this line of credit as of December 31,2008.The weighted average interest rate on line of creditborrow
123、ings as of December 31,2008 was 2.32%compared to 5.62%as of December 31,2007.Long-term DebtOn May 7,2008,the Pennsylvania Economic Development Financing Authority(PEDFA)issued$12,000 aggregateprincipal amount of PEDFA Exempt Facilities Revenue Refunding Bonds,Series A of 2008(York Water Company Proj
124、ect)(the“Series A Bonds”)for our benefit pursuant to the terms of a trust indenture,dated as of May 1,2008,between thePEDFA and Manufacturers and Traders Trust Company,as trustee.The PEDFA then loaned the proceeds of the offering ofthe Series A Bonds to us pursuant to a loan agreement,dated as of Ma
125、y 1,2008,between us and the PEDFA.The loanagreement provides for a$12,000 loan with a maturity date of October 1,2029.Amounts outstanding under the loanagreement are our direct general obligations.The proceeds of the loan were used to redeem the PEDFA Exempt FacilitiesRevenue Bonds,Series B of 2004(
126、the“2004 Series B Bonds”).Borrowings under the loan agreement bear interest at a variable rate as determined by PNC Capital Markets,asremarketing agent,on a periodic basis elected by us.We have currently elected that the interest rate be determined on aweekly basis.The remarketing agent determines t
127、he interest rate based on then current market conditions in order todetermine the lowest interest rate which would cause the Series A Bonds to have a market value equal to the principalamount thereof plus accrued interest thereon.The variable interest rate under the loan agreement averaged 2.22%in 2
128、008.As of December 31,2008,the interest rate was 1.28%.The holders of the$12,000 variable rate PEDFA Series A Bonds may tender their bonds at any time.When thebonds are tendered,they are subject to an annual remarketing agreement,pursuant to which a remarketingagent attempts to remarket the tendered
129、 bonds pursuant to the terms of the Indenture.In order to keep variableinterest rates down and to enhance the marketability of the Series A Bonds,the Company entered into a Reimbursement,Credit and Security Agreement with PNC Bank,National Association(”the bank”)dated as of May 1,2008.This agreement
130、 provides for a three-year direct pay letter of credit issued by the bank to the trustee for the Series ABonds.The bank is responsible for providing the trustee with funds for the timely payment of the principal and interest onthe Series A Bonds and for the purchase price of the Series A Bonds that
131、have been tendered or deemed tendered forpurchase and have not been remarketed.The Companys responsibility is to reimburse the bank the same day as regularinterest payments are made,and within fourteen months for the purchase price of tendered bonds that have notbeen remarketed.The reimbursement per
132、iod for the principal is immediate at maturity,upon default by the Company,or if the Bank does not renew the Letter of Credit.The Letter of Credit is a three-year agreement with a one-year extensionevaluated annually.14Long-term Debt(continued)In connection with the issuance of the PEDFA 2004 Series
133、 B Bonds,the Company entered into an interest rate swapagreement with a counterparty,in the notional principal amount of$12,000.Interest rate swap agreements derive theirvalue from underlying interest rates.These transactions involve both credit and market risk.The notional amounts areamounts on whi
134、ch calculations,payments and the value of the derivative are based.Notional amounts do not representdirect credit exposure.Direct credit exposure is limited to the net difference between the calculated amounts to be receivedand paid,if any.Such difference,which represents the fair value of the swap,
135、is reflected on the Companys balance sheet.See Note 10 for additional information regarding the fair value of the swap.Our interest rate swap agreement provides that we pay the counterparty a fixed interest rate of 3.16%on the notionalamount of$12,000.In exchange,the counterparty pays us a floating
136、interest rate(based on 59%of the U.S.Dollarone-month LIBOR rate)on the notional amount.The floating interest rate paid to us is intended,over the term of the swap,to approximate the variable interest rate on the loan agreement and the interest rate paid to bondholders,therebymanaging our exposure to
137、 fluctuations in prevailing interest rates.We elected to retain the swap agreement for the PEDFASeries A Bonds of 2008.The swap agreement expires on October 1,2029.As discussed in Note 1 to the accompanying financial statements,the Company had recorded the interest rate swap as acash flow hedge in a
138、ccordance with SFAS No.133,“Accounting for Derivative Instruments and Hedging Activities.”As ofOctober 1,2008,Company management determined that it was probable that the unrealized gain or loss value of the swapwould be recovered in rates as the gains or losses are realized in interest expense.As a
139、result,the Company began to useregulatory accounting rather than hedge accounting.The Company is exposed to credit-related losses in the event of nonperformance by the counterparty.The Companycontrols the credit risk of its financial contracts through credit approvals,limits and monitoring procedure
140、s,and does notexpect the counterparty to default on its obligations.On October 15,2008,the PEDFA issued$15,000 aggregate principal amount of PEDFA Exempt Facilities RevenueRefunding Bonds,Series B of 2008(The York Water Company Project)(the“2008 Series B Bonds”)for our benefit pursuantto the terms o
141、f a trust indenture,dated as of October 1,2008,between the PEDFA and Manufacturers and Traders TrustCompany,as trustee.The PEDFA then loaned the proceeds of the offering of the 2008 Series B Bonds to us pursuant to aloan agreement,dated as of October 1,2008,between the Company and the PEDFA.The loan
142、 agreement provides for a$15,000 loan bearing interest at a rate of 6.00%with a maturity date of November 1,2038.Amounts outstanding under theloan agreement are the Companys direct general obligations.The proceeds of the loan,net of issuance costs,were used topay down a portion of the Companys short
143、-term borrowings and committed line of credit borrowings incurred for capitalimprovements,replacements and equipment for the Companys water system.The 2008 Series B Bonds are subject toredemption at the direction of the Company,in whole or in part at any time on or after November 1,2013.In addition,
144、other special redemption requirements may apply as defined in the loan agreement.Our loan agreements contain various covenants and restrictions.We believe we are currently in compliance with all ofthese restrictions.See Note 4 to the Companys financial statements included herein for additional infor
145、mation regardingthese restrictions.The 3.6%Industrial Development Authority Revenue Refunding Bonds,Series 1994,have a mandatory tender date ofMay 15,2009.The Company currently plans to meet its$2,700 obligation using funds available under its lines of credit ora potential equity transaction.Liquidi
146、ty and Capital Resources(continued)Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t15Common StockIn June 2008,the Company modified its Dividend Reinvestment Plan to incl
147、ude direct stock purchase and sale options.These options are subject to certain restrictions and are available to both current shareholders and the general public.Purchases are made weekly at 100%of the stocks fair market value,as defined in the Prospectus contained in AmendmentNo.1 to Securities an
148、d Exchange Commission Form S-3,filed by the Company on June 26,2008.As of December 31,2008,$295 in equity proceeds had been realized.Common stockholders equity as a percent of the total capitalization,defined as total common stockholders equityplus long-term debt(including current maturities),was 44
149、.7%as of December 31,2008,compared with 48.8%as ofDecember 31,2007.It is the Companys intent to maintain a ratio near fifty percent.Economic conditions in 2008 causedus to modify our plans.We had anticipated a stock offering at the end of 2008,but decided not to proceed at that time dueto a reduced
150、stock price,the potential inability to raise the needed funds and the prospect of further dilution to our stockvalue.As a result of these circumstances,we increased our line of credit borrowing capacity and are closely monitoring ourcapital and operating expenditures.We will re-evaluate the possibil
151、ity of an equity offering in 2009.Credit RatingIn September of 2008,Standard and Poors affirmed our credit rating at A-,with a stable outlook.Our ability to maintainthis rating depends,among other things,on adequate and timely rate relief,which we have been successful in obtaining,and our ability to
152、 fund capital expenditures in a balanced manner using both debt and equity.In 2009,our objectives willbe to maximize our funds provided by operations and increase the equity component of total capitalization.DividendsDuring 2008,the Companys dividend payout ratios relative to net income and cash pro
153、vided by operating activities were85.9%and 47.4%,respectively.During the fourth quarter of 2008,the Board of Directors increased the dividend by 4.1%from 12.1 cents per share to 12.6 cents per share per quarter.This was the twelfth consecutive annual dividend increaseand the 193rd consecutive year o
154、f paying dividends.The Companys Board of Directors declared a dividend in the amount of$0.126 per share at its January 2009 meeting.The dividend is payable on April 15,2009 to shareholders of record as of February 27,2009.While the Company expectsto maintain this dividend amount in 2009,future divid
155、ends will be dependent upon the Companys earnings,financialcondition,capital demands and other factors and will be determined by the Companys Board of Directors.See Note 4 tothe Companys financial statements included herein for restrictions on dividend payments.InflationThe Company is affected by in
156、flation,most notably by the continually increasing costs incurred to maintain and expandits service capacity.The cumulative effect of inflation results in significantly higher facility replacement costs which mustbe recovered from future cash flows.The ability of the Company to recover this increase
157、d investment in facilities isdependent upon future rate increases,which are subject to approval by the PPUC.The Company can provide noassurances that its rate increases will be approved by the PPUC;and,if approved,the Company cannot guarantee thatthese rate increases will be granted in a timely or s
158、ufficient manner to cover the investments and expenses for which therate increase was sought.Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r tThe York Water Company2 0 0
159、8 A n n u a l R e p o r t16Payments Due by PeriodTotal20092010201120122013ThereafterLong-term debt obligations(a)$86,353$2,741$25,439$41$42$42$58,048Interest on long-term debt(b)70,9964,3194,1884,1214,1204,12050,128Short-term borrowings(c)6,0006,000Purchase obligations(d)5,6325,632Defined benefit ob
160、ligations(e)1,2181,218Deferred employee benefits(f)4,4852582282232171893,370Other deferred credits(g)3,7843132241982601842,605Total$178,468$20,481$30,079$4,583$4,639$4,535$114,151Critical Accounting EstimatesThe methods,estimates and judgments we use in applying our accounting policies have a signif
161、icant impact on the resultswe report in our financial statements.Our accounting policies require us to make subjective judgments because of the needto make estimates of matters that are inherently uncertain.Our most critical accounting estimates include:regulatory assetsand liabilities,revenue recog
162、nition and accounting for our pension plans.Regulatory Assets and LiabilitiesSFAS No.71,“Accounting for the Effects of Certain Types of Regulation,”defines generally accepted accounting principlesfor companies whose rates are established by or are subject to approval by an independent third-party re
163、gulator.Inaccordance with SFAS No.71,the Company defers costs and credits on its balance sheet as regulatory assets and liabilitieswhen it is probable that these costs and credits will be recognized in the rate-making process in a period different from when(a)Represents debt maturities including cur
164、rent maturities.Included in the table is a payment of$12,000 in 2010 on the variable ratebonds which would only be due if the bonds were unable to be remarketed.There is currently no indication of this happening.(b)Excludes interest on the$12,000 variable rate debt as these payments cannot be reason
165、ably estimated.Also excludes interest on thecommitted line of credit due to the variability of both the outstanding amount and the interest rate.(c)Represents obligations under the Companys short-term line of credit.(d)Represents an approximation of open purchase orders at period end and obligations
166、 under contracts relating to the West ManheimTownship water asset acquisition and the construction of a new standpipe.(e)Represents contributions expected to be made to qualified defined benefit plans.The amount of required contributions in 2010 andthereafter is not currently determinable.(f)Represe
167、nts the obligations under the Companys Supplemental Retirement and Deferred Compensation Plans for executives.(g)Represents the estimated settlement payments to be made under the Companys interest rate swap contract.In addition to these obligations,the Company makes refunds on CustomersAdvances for
168、Construction over a specific periodof time based on operating revenues related to developer-installed water mains or as new customers are connected to andtake service from such mains.The refund amounts are not included in the above table because the timing cannot be accuratelyestimated.Portions of t
169、hese refund amounts are payable annually through 2019 and amounts not paid by the contractexpiration dates become non-refundable and are transferred to Contributions in Aid of Construction.See Note 9 to the Companys financial statements included herein for a discussion of our commitments.Contractual
170、 ObligationsThe following summarizes the Companys contractual obligations by period as of December 31,2008:Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)the costs and credits were incurred.These deferred amounts are then
171、 recognized in the statement of income in the period inwhich they are reflected in customer rates.If the Company later finds that these assets and liabilities cannot be included inrate-making,they are adjusted appropriately.See Note 1 for additional details regarding regulatory assets and liabilitie
172、s.Revenue RecognitionRevenues include amounts billed to metered customers on a cycle basis and unbilled amounts based on both actual andestimated usage from the latest meter reading to the end of the accounting period.Estimates are based on average daily usagefor those particular customers.The unbil
173、led revenue amount is recorded as a current asset on the balance sheet.Actual resultscould differ from these estimates and would result in operating revenues being adjusted in the period in which the actualusage is known.Based on historical experience,the Company believes its estimate of unbilled re
174、venues is reasonable.Pension AccountingAccounting for defined benefit pension plans requires estimates of future compensation increases,mortality,the discount rate,and expected return on plan assets as well as other variables.These variables are reviewed annually with the Companyspension actuary.The
175、 Company selected its December 31,2008 and 2007 discount rates based on the Citigroup Pension LiabilityIndex.This index uses the Citigroup spot rates for durations out to 30 years and matches them to expected disbursements fromthe plan over the long term.The Company believes this index most appropri
176、ately matches its pension obligations.The presentvalues of the Companys future pension obligations were determined using a discount rate of 6.0%at December 31,2008 and6.5%at December 31,2007.Choosing a lower discount rate normally increases the amount of pension expense and the corresponding liabili
177、ty.In the case ofthe Company,a 25 basis point reduction in the discount rate would increase its liability by$47,but would not have an impact onits pension expense.The PPUC,in a previous rate settlement,agreed to grant recovery of the Companys contribution to thepension plans in customer rates.As a r
178、esult,under SFAS No.71,expense in excess of the Companys pension plan contributionis deferred as a regulatory asset and will be expensed as contributions are made to the plans and the contributions are recoveredin customer rates.Therefore,changes in the discount rate affect regulatory assets rather
179、than pension expense.The Companys estimate of the expected return on plan assets was primarily based on the historic returns and projected futurereturns of the asset classes represented in its plans.The target allocation of pension assets is 50%to 70%equity securities,30%to50%debt securities,and 0%t
180、o 10%reserves.The Company used 7%as its estimate of expected return on assets in both 2008 and2007.If the Company were to reduce the expected return by 25 basis points to 6.75%,its liability would increase by$43,but itsexpense would again remain unchanged because the expense is equal to the Companys
181、 contribution to the plans.The additionalexpense would instead be recorded as an increase to regulatory assets.Other critical accounting estimates are discussed in the Significant Accounting Policies Note to the Financial Statements.Off-Balance Sheet TransactionsThe Company does not use off-balance
182、sheet transactions,arrangements or obligations that may have a material current orfuture effect on financial condition,results of operations,liquidity,capital expenditures,capital resources or significantcomponents of revenues or expenses.The Company does not use securitization of receivables or unc
183、onsolidated entities.TheCompany does not engage in trading or risk management activities,with the exception of the interest rate swap agreementdiscussed in Note 4 to the financial statements,does not use derivative financial instruments for speculative trading purposes,has no lease obligations,no gu
184、arantees and does not have material transactions involving related parties.Impact of Recent Accounting PronouncementsSee Note 1 to the financial statements,“Significant Accounting Policies”for the effect of new accounting pronouncements.The York Water Company2 0 0 8 A n n u a l R e p o r t17Manageme
185、nts Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t18Managements Report on Internal Control Over Financial ReportingManagement of The York Water Company(the“Company”)is responsible
186、 for establishing and maintainingadequate internal control over financial reporting.Internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in acco
187、rdance with generally accepted accounting principles.A companys internal control over financialreporting includes those policies and procedures that pertain to the maintenance of records that,in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the co
188、mpany;provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles,and that receipts and expenditures of the company are being made only in accordance withauthorizations of management
189、and directors of the company;and provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition,use,or disposition of the companys assets that could have a material effect onthe financial statements.Because of its inherent limitations,internal control over financial
190、 reporting may not prevent or detect misstatements.Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.Manage
191、ment evaluated the Companys internal control over financial reporting as of December 31,2008.In making thisassessment,management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission in Internal Control-Integrated Framework(COSO).As a result of this asses
192、sment and based on the criteria in theCOSO framework,management has concluded that,as of December 31,2008,the Companys internal control over financialreporting was effective.The Companys independent auditors,Beard Miller Company LLP,have audited the Companys internal control overfinancial reporting.
193、Their opinions on the Companys internal control over financial reporting and on the Companys financialstatements appear on the following pages of this annual report.Jeffrey R.HinesPresident,Chief Executive OfficerKathleen M.MillerChief Financial OfficerMarch 11,2009The York Water Company2 0 0 8 A n
194、n u a l R e p o r t19Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholdersof The York Water CompanyWe have audited The York Water Companys internal control over financial reporting as of December 31,2008,based oncriteria established in Internal ControlInte
195、grated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission(COSO).The York Water Companys management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness of internal control over financial rep
196、orting includedin the accompanying Managements Report on Internal Control over Financial Reporting.Our responsibility is to express anopinion on the Companys internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Acc
197、ounting Oversight Board(UnitedStates).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all material respects.Our audit of internal control over financialreporting included obta
198、ining an understanding of internal control over financial reporting,assessing the risk that a materialweakness exists,and testing and evaluating the design and operating effectiveness of internal control based on the assessedrisk.Our audit also included performing such other procedures as we conside
199、red necessary in the circumstances.We believethat our audit provides a reasonable basis for our opinion.A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statemen
200、ts for external purposes in accordance withgenerally accepted accounting principles.A companys internal control over financial reporting includes those policies andprocedures that(1)pertain to the maintenance of records that,in reasonable detail,accurately and fairly reflect thetransactions and disp
201、ositions of the assets of the Company;(2)provide reasonable assurance that transactions are recordedas necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,andthat receipts and expenditures of the Company are being made only in accordanc
202、e with authorizations of management anddirectors of the Company;and(3)provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition,use,or disposition of the Companys assets that could have a material effect on the financial statements.Because of its inherent limit
203、ations,internal control over financial reporting may not prevent or detect misstatements.Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions,or that the degree of compliance with the policie
204、s or procedures may deteriorate.In our opinion,The York Water Company maintained,in all material respects,effective internal control over financialreporting as of December 31,2008,based on criteria established in Internal ControlIntegrated Framework issued by theCommittee of Sponsoring Organizations
205、 of the Treadway Commission(COSO).We have also audited,in accordance with the standards of the Public Company Accounting Oversight Board(United States),the balance sheets and the related statements of income,common stockholders equity and comprehensive income,and cashflows of The York Water Company,
206、and our report dated March 11,2009 expressed an unqualified opinion.Beard Miller Company LLPYork,PennsylvaniaMarch 11,2009The York Water Company2 0 0 8 A n n u a l R e p o r t20Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholdersof The York Water CompanyW
207、e have audited the accompanying balance sheets of The York Water Company as of December 31,2008 and 2007,and therelated statements of income,common stockholders equity and comprehensive income,and cash flows for each of the yearsin the three-year period ended December 31,2008.The York Water Companys
208、 management is responsible for these financialstatements.Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(UnitedStates).Those standards require that
209、we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.An audit includes examining,on a test basis,evidence supporting theamounts and disclosures in the financial statements.An audit also includes assessing the accounting
210、principles used andsignificant estimates made by management,as well as evaluating the overall financial statement presentation.We believe thatour audits provide a reasonable basis for our opinion.In our opinion,the financial statements referred to above present fairly,in all material respects,the fi
211、nancial position of TheYork Water Company as of December 31,2008 and 2007,and the results of its operations and its cash flows for each of theyears in the three-year period ended December 31,2008 in conformity with accounting principles generally accepted in theUnited States of America.We also have
212、audited,in accordance with the standards of the Public Company Accounting Oversight Board(United States),The York Water Companys internal control over financial reporting as of December 31,2008,based on criteria established inInternal ControlIntegrated Framework issued by the Committee of Sponsoring
213、 Organizations of the Treadway Commission(COSO),and our report dated March 11,2009 expressed an unqualified opinion.Beard Miller Company LLPYork,PennsylvaniaMarch 11,2009As of December 31Assets20082007Utility Plant,at original cost.$246,613$223,538Plant acquisition adjustments.(1,364)(1,184)Accumula
214、ted depreciation.(34,429)(31,308)Net utility plant.210,820191,046Other Physical Property:Less accumulated depreciation of$162 in 2008 and$150 in 2007.562574Current Assets:Receivables,less reserves of$195 in 2008 and$193 in 2007.3,2432,954Unbilled revenues.2,6872,216Recoverable income taxes.131252Mat
215、erials and supplies inventories,at cost.741802Prepaid expenses.412456Deferred income taxes.133132Total current assets.7,3476,812Other Long-Term Assets:Deferred debt expense.2,0131,170Notes receivable.536610Deferred regulatory assets.15,9727,709Other.3,1923,048Total long-term assets.21,71312,537Total
216、 Assets$240,442$210,969Stockholders Equity and LiabilitiesCommon Stockholders Equity:Common stock,no par value,authorized 46,500,000 shares,issued andoutstanding 11,367,248 shares in 2008 and 11,264,923 shares in 2007.$57,875$56,566Retained earnings.11,89110,986Accumulated other comprehensive loss.(
217、280)Total common stockholders equity.69,76667,272Preferred stock,authorized 500,000 shares,no shares issued.Long-term debt,excluding current portion.83,61258,465Commitments(Note 9)Current Liabilities:Short-term borrowings.6,0003,000Current portion of long-term debt.2,74112,040Accounts payable.2,0113
218、,164Dividends payable.1,1921,126Accrued taxes.7524Accrued interest.1,080910Other accrued expenses.1,0971,096Total current liabilities.14,19621,360Deferred Credits:Customers advances for construction.18,25821,821Deferred income taxes.19,54916,964Deferred employee benefits.9,7584,042Other deferred cre
219、dits.2,7891,309Total deferred credits.50,35444,136Contributions in aid of construction.22,51419,736Total Stockholders Equity and Liabilities$240,442$210,969The accompanying notes are an integral part of these statements.The York Water Company2 0 0 8 A n n u a l R e p o r t21Balance Sheets(In thousan
220、ds of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t22Water Operating Revenues:Residential.$20,572$19,722$17,972Commercial and industrial.9,6719,2908,497Other.2,5952,4212,18932,83831,43328,658Operating Expenses:Operation and maintenance.6,7496,5935,976Administ
221、rative and general.6,6856,5066,174Depreciation and amortization.3,6223,2272,522Taxes other than income taxes.1,0389431,08218,09417,26915,754Operating income.14,74414,16412,904Other Income(Expenses):Interest on long-term debt.(4,545)(4,095)(3,550)Interest on short-term debt.(214)(49)(615)Allowance fo
222、r funds used during construction.647228438Other income(expenses),net.(573)(142)110(4,685)(4,058)(3,617)Income before income taxes.10,05910,1069,287Federal and state income taxes.3,6283,6923,196Net Income.$6,431$6,414$6,091Basic Earnings Per Share$0.57$0.57$0.58Cash Dividends Declared Per Share$0.489
223、$0.475$0.454Statements of Income(In thousands of dollars,except per share amounts)The accompanying notes are an integral part of these statements.200820072006Year Ended December 31The accompanying notes are an integral part of these statements.The York Water Company2 0 0 8 A n n u a l R e p o r t23S
224、tatements of Common Stockholders Equity and Comprehensive IncomeFor the Years Ended December 31,2008,2007 and 2006(In thousands,except per share amounts)AccumulatedOtherCommonRetainedComprehensiveStockEarningsIncome(Loss)TotalBalance,December 31,2005.$42,015$8,633$(233)$50,415Net income.6,0916,091Ot
225、her comprehensive income(loss):Unrealized gain on interest rate swap,net of$82 income tax.120120Reclassification adjustment for amountsrecognized in income,net of$8 income tax.1212Comprehensive income.6,223Dividends($.454 per share).(4,820)(4,820)Issuance of 739,750 shares of common stock.12,48212,4
226、82Issuance of common stock underdividend reinvestment andemployee stock purchase plans.1,0611,061Balance,December 31,2006.55,5589,904(101)65,361Net income.6,4146,414Other comprehensive income(loss):Unrealized loss on interest rate swap,net of$125 income tax.(183)(183)Reclassification adjustment for
227、amountsrecognized in income,net of$3 income tax.44Comprehensive income.6,235Dividends($.475 per share).(5,332)(5,332)Issuance of common stock underdividend reinvestment andemployee stock purchase plans.1,0081,008Balance,December 31,2007.56,56610,986(280)67,272Net income.6,4316,431Other comprehensive
228、 income(loss):Reclassification adjustment for unrealizedloss on interest rate swap to regulatoryasset net of$191 income tax.280280Comprehensive income.6,711Dividends($.489 per share).(5,526)(5,526)Issuance of common stock underdividend reinvestment,direct stock andemployee stock purchase plans.1,309
229、1,309Balance,December 31,2008.$57,875$11,891$69,766The York Water Company2 0 0 8 A n n u a l R e p o r t24Statements of Cash Flows(In thousands of dollars,except per share amounts)Cash Flows from Operating Activities:Net income.$6,431$6,414$6,091Adjustments to reconcile net income tonet cash provide
230、d by operating activities:Depreciation and amortization.3,6223,2272,522Increase in deferred income taxes.1,9111,1431,496Other.(166)(71)(115)Changes in assets and liabilities:Increase in accounts receivable,unbilled revenues and recoverableincome taxes.(816)(216)(1,729)(Increase)decrease in materials
231、 and supplies and prepaid expenses.105(38)(29)Increase(decrease)in accounts payable,accrued expenses,regulatoryand other liabilities,and deferred employee benefits and credits.870103(1,161)Increase(decrease)in accrued interest and taxes.221(52)111Increase in regulatory and other assets.(651)(470)(70
232、)Net cash provided by operating activities.11,52710,0407,116Cash Flows from Investing Activities:Utility plant additions,including debt portion of allowance forfunds used during construction of$427 in 2008,$127 in 2007 and$245 in 2006.(24,438)(18,154)(20,678)Acquisitions of water systems.(259)(896)D
233、ecrease in notes receivable.74858255Net cash used in investing activities.(24,623)(18,192)(20,423)Cash Flows from Financing Activities:Customers advances for construction and contributionsin aid of construction.8042,4474,065Repayments of customer advances.(1,489)(1,469)(1,465)Proceeds of long-term d
234、ebt issues.52,3088,21010,500Debt issuance costs.(950)(580)Repayments of long-term debt.(36,460)(40)(39)Borrowings(repayments)under short-term line of credit agreements.3,0003,000(7,292)Changes in cash overdraft position.34277(753)Issuance of common stock.1,3091,00813,543Dividends paid.(5,460)(5,281)
235、(4,672)Net cash provided by financing activities.13,0968,15213,307Net change in cash and cash equivalents.Cash and cash equivalents at beginning of year.Cash and cash equivalents at end of year.$Supplemental disclosures of cash flow information:Cash paid during the year for:Interest,net of amounts c
236、apitalized.$4,200$3,970$3,815Income taxes.1,6112,3242,174200820072006Year Ended December 31The accompanying notes are an integral part of these statements.Supplemental schedule of non-cash investing and financing activities:Accounts payable includes$950 in 2008,$2,311 in 2007 and$900 in 2006 for the
237、 construction of utility plant.Accounts payable and other deferred credits includes$93 in 2008,$173 in 2007 and$239 in 2006 for the acquisition of water systems.The change in notes receivable includes$473 in 2007 offset by like amounts of customer advances.Contributions in aid of construction includ
238、es$51 in 2008 of contributed land.1.Significant Accounting PoliciesThebusinessofTheYorkWaterCompanyistoimpound,purifyanddistributewater.TheCompanyoperateswithinitsfranchisedterritory located in York and Adams Counties,Pennsylvania,and is subject to regulation by the PPUC.The following summarizes the
239、 significant accounting policies employed by The York Water Company.Utility Plant and DepreciationThe cost of additions includes contracted cost,direct labor and fringe benefits,materials,overhead and,for certain utility plant,allowanceforfundsusedduringconstruction.Watersystemsacquiredarerecordedat
240、estimatedoriginalcostofutilityplantwhenfirst devoted to utility service and the applicable depreciation is recorded to accumulated depreciation.The difference betweenthe estimated original cost less applicable accumulated depreciation,and the purchase price is recorded as an acquisitionadjustmentwit
241、hinutilityplant.AtDecember31,2008and2007,utilityplantincludesacreditacquisitionadjustmentof$1,364and$1,184,respectively.The acquisition of Asbury Pointe water assets yielded a negative acquisition adjustment of$207.The netacquisition adjustment is being amortized over the remaining life of the respe
242、ctive assets.Amortization amounted to$27 in 2008,$28 in 2007 and$31 in 2006.Upon normal retirement of depreciable property,the estimated or actual cost of the asset is credited to the utility plant account,and such amounts,together with the cost of removal less salvage value,are charged to the reser
243、ve for depreciation.To the extentthe Company recovers cost of removal or other retirement costs through rates after the retirement costs are incurred,a regulatoryasset is reported.Gains or losses from abnormal retirements are reflected in income currently.The Company charges to maintenance expense t
244、he cost of repairs and replacements and renewals of minor items of property.Maintenance of transportation equipment is charged to clearing accounts and apportioned therefrom in a manner similar todepreciation.The cost of replacements,renewals and betterments of units of property is capitalized to th
245、e utility plant accounts.The straight-line remaining life method is used to compute depreciation on utility plant cost,exclusive of land and land rights.Annual provisions for depreciation of transportation and mechanical equipment included in utility plant are computed on astraight-line basis over t
246、he estimated service lives.Such provisions are charged to clearing accounts and apportioned therefromto operating expenses and other accounts in accordance with the Uniform System of Accounts as prescribed by the PPUC.Thefollowing remaining lives are used for financial reporting purposes:Mains and a
247、ccessories.$128,142$111,50013-84yrsServices,meters and hydrants.49,54446,55622-54yrsOperations structures,reservoirs and water tanks.45,07635,9669-64yrsPumping and purification equipment.8,4367,9516-25 yrsOffice,transportation and operating equipment.9,1518,6763-24 yrsLand and other non-depreciable
248、assets.2,8212,771Utility plant in service.243,170213,420Construction work in progress.3,44310,118Total Utility Plant.$246,613$223,538The effective rate of depreciation was 1.94%in 2008,1.98%in 2007,and 1.72%in 2006 on average utility plant,net ofcustomers advances and contributions.Larger depreciati
249、on provisions are deducted for tax purposes.Utility Plant Asset CategoryDecember 31,20082007Approximate rangeof remaining livesThe York Water Company2 0 0 8 A n n u a l R e p o r t25Notes to Financial Statements(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a
250、 l R e p o r t26AssetsIncome taxes.$3,291$2,809VariousPostretirement benefits.9,7644,32310-20 yearsUnrealized swap losses.2,0371-21 yearsUtility plant retirement costs.5905105 yearsRate case filing expenses.290671-4 years$15,972$7,709LiabilitiesIncome taxes.$861$8601-50 yearsNotes to Financial State
251、ments(In thousands of dollars,except per share amounts)December 31,200820071.Significant Accounting Policies(continued)Accounts ReceivableAccounts receivable are stated at outstanding balances,less a reserve for doubtful accounts.The reserve for doubtful accounts isestablished through provisions cha
252、rged against income.Accounts deemed to be uncollectible are charged against the reserve andsubsequent recoveries,if any,are credited to the reserve.The reserve for doubtful accounts is maintained at a level consideredadequate to provide for losses that can be reasonably anticipated.Managements perio
253、dic evaluation of the adequacy of thereserveisbasedonpastexperience,agingsofthereceivables,adversesituationsthatmayaffectacustomersabilitytopay,currenteconomic conditions,and other relevant factors.This evaluation is inherently subjective.Unpaid balances remaining after thestated payment terms are c
254、onsidered past due.RevenuesRevenues include amounts billed to customers on a cycle basis and unbilled amounts based on actual and estimated usage fromthe latest meter reading to the end of the accounting period.Deferred Debt ExpenseDeferred debt expense is amortized on a straight-line basis over the
255、 term of the related debt.Notes ReceivableNotes receivable are recorded at cost and represent amounts due from various municipalities for construction of water mains intotheir particular municipality.Management,considering current information and events regarding the borrowers ability to repaytheir
256、obligations,considers a note to be impaired when it is probable that the Company will be unable to collect all amounts dueaccording to the contractual terms of the note agreement.When a note is considered to be impaired,the carrying value of the noteis written down.The amount of the impairment is me
257、asured based on the present value of expected future cash flows discountedat the notes effective interest rate.Regulatory Assets and LiabilitiesThe Company is subject to the provisions of Statement of Financial Accounting Standards(SFAS)No.71,“Accounting for theEffects of Certain Types of Regulation
258、.”SFAS No.71 provides for the recognition of regulatory assets and liabilities as allowedby regulators for costs or credits that are reflected in current customer rates or are considered probable of being included in futurerates.The regulatory assets or liabilities are then relieved as the cost or c
259、redit is reflected in rates.Regulatory assets represent coststhat are expected to be fully recovered from customers in future rates while regulatory liabilities represent amounts that areexpected to be refunded to customers in future rates.These deferred costs have been excluded from the Companys ra
260、te base and,therefore,no return is being earned on the unamortized balances.Regulatory assets and liabilities are comprised of the following:RemainingRecovery PeriodsCertain items giving rise to deferred state income taxes,as well as a portion of deferred Federal income taxes relatedprimarily to dif
261、ferences between book and tax depreciation expense,are recognized for ratemaking purposes on a cash orflow-through basis and will be recovered in rates as they reverse.Postretirement benefits include(a)deferred pension expense in excess of contributions made to the plans,and(b)theunderfunded status
262、of the pension plans.The underfunded status represents the excess of the projected benefit obligationover the fair market value of the assets.Both are expected to be recovered in future years as additional contributions aremade.The recovery period is dependent on contributions made to the plans and
263、the discount rate used to value theobligations.The period is estimated at between 10 and 20 years.The regulatory asset for utility plant retirement costs,including cost of removal,represents costs already incurred whichare expected to be recovered over a five-year period in rates,through depreciatio
264、n expense.Rate case filing expenses aredeferred and amortized over a period of 1-4 years.Beginning October 1,2008,the Company began using regulatory accounting treatment to defer the mark-to-marketunrealized gains and losses on its interest rate swap to reflect that the gain or loss is included in t
265、he ratemaking formulawhen the transaction actually settles.The value of the swap as of the Balance Sheet date is recorded as part of otherdeferred credits.Realized gains or losses on the swap are recorded as interest expense in the statement of income.Thedeferred unrealized loss on the value of the
266、interest rate swap of$2,037 as of December 31,2008 is included as a RegulatoryAsset for the first time in the Balance Sheet included herein.Regulatory liabilities relate mainly to deferred investment tax credits,and additionally to deferred taxes related topostretirement death benefits and bad debts
267、.These liabilities will be given back to customers in rates as tax deductions occuroverthenext1-50years.Regulatoryliabilitiesarepartofotheraccruedexpensesandotherdeferredcreditsonthebalancesheets.Materials and Supplies InventoriesMaterials and supplies inventories are stated at cost.Costs are determ
268、ined using the average cost method.Other AssetsOther assets consist mainly of the cash value of life insurance policies held as an investment by the Company forreimbursement of costs and benefits associated with its supplemental retirement and deferred compensation programs.Customers Advances for Co
269、nstructionCustomer advances are cash payments from developers,municipalities,customers or builders for construction of utility plant,and are refundable upon completion of construction,as operating revenues are earned.If the Company loaned funds forconstruction to the customer,the refund amount is cr
270、edited to the note receivable rather than paid out in cash.After all refundsto which the customer is entitled are made,any remaining balance is transferred to contributions in aid of construction.From1986-1996 when customer advances were taxable income to the Company,additional funds were collected
271、from customers tocover the taxes.Those funds were recorded as a liability within Customer Advances and are being amortized as deferredincome over the tax life of the underlying assets.Contributions in Aid of ConstructionContributionsinAidofConstructioniscomposedof(i)direct,non-refundablecontribution
272、sfromdevelopers,customersorbuildersfor construction of water infrastructure and(ii)customer advances that have become non-refundable.Contributions in aid ofconstructionaredeductedfromtheCompanysratebase,andtherefore,noreturnisearnedonpropertyfinancedwithcontributions.The PPUC requires that contribut
273、ions received remain on the Companys balance sheet indefinitely as a long-term liability.The York Water Company2 0 0 8 A n n u a l R e p o r t27Notes to Financial Statements(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t28Comprehensive IncomeAc
274、counting principles generally accepted in the United States of America require that recognized revenue,expenses,gains andlosses be included in net income.Although certain changes in assets and liabilities,such as unrealized gains and losses on interestrate swaps,are usually reported as a separate co
275、mponent of the equity section of the balance sheet,such items,along with netincome,are components of comprehensive income.As of December 31,2008,the Company is now using regulatory accounting forits unrealized gains and losses on its interest rate swap,and will no longer report comprehensive income
276、for this item in the future.Interest Rate Swap AgreementThe Company utilizes an interest rate swap agreement to convert a portion of its variable-rate debt to a fixed rate.The Companyhad designated the interest rate swap agreement as a cash flow hedge.Interest rate swaps are contracts in which a ser
277、ies ofinterest rate cash flows are exchanged over a prescribed period.The notional amount on which the interest payments are basedis not exchanged.The interest rate swap agreement is classified as a financial derivative used for non-trading activities.As a derivative,the interest rate swap is record
278、ed on the balance sheet in other deferred credits at fair value.Prior to October 1,2008,theCompanyusedhedgeaccountingtorecorditsswaptransactions.Theeffectiveportionofthegainorlossonaderivativedesignated and qualifying as a cash flow hedging instrument was initially reported as a component of other c
279、omprehensiveincome and subsequently reclassified into earnings as interest expense in the same period or periods during which the hedgedtransaction affected earnings.The ineffective portion of the gain or loss on the derivative instrument was recognized in earnings.Beginning October 1,2008,the Compa
280、ny began using regulatory accounting treatment rather than hedge accounting to deferthe unrealized gains and losses on its interest rate swap.Instead of the effective portion being recorded as othercomprehensive income and the ineffective portion being recognized in earnings,the entire unrealized sw
281、ap value is nowrecorded as a regulatory asset.Based on current ratemaking treatment,the Company expects the gains and losses to berecognized in rates and interest expense as the swap settlements occur.This change in accounting treatment resulted in thereversal of$224 of long-term interest expense,$1
282、89 recorded in deferred income taxes and$277 recorded in accumulatedother comprehensive income as of September 30,2008.During the twelve months ending December 31,2009,the Companyexpects to reclassify$313(before tax)from regulatory assets to interest expense.This additional expense is expected to be
283、partially offset by lower variable interest costs.The interest rate swap will expire on October 1,2029.Income TaxesCertain income and expense items are accounted for in different time periods for financial reporting than for income taxreporting purposes.Income taxes are accounted for under the asset
284、 and liability method.Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets andliabilities and their respective tax bases and tax credit carryforwards.Deferred tax assets and l
285、iabilities are measured usingenacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled.The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in theperiod that includes th
286、e enactment date.To the extent such income taxes increase or decrease future rates,an offsettingregulatory asset or liability has been recorded.Investment tax credits have been deferred and are being amortized to income over the average estimated service lives of therelated assets.As of December 31,
287、2008 and 2007,deferred investment tax credits amounted to$967 and$1,005,respectively.1.Significant Accounting Policies(continued)Notes to Financial Statements(In thousands of dollars,except per share amounts)Allowance for Funds Used During ConstructionAllowance for funds used during construction(AFU
288、DC)represents the estimated cost of funds used for constructionpurposes during the period of construction.These costs are reflected as non-cash income during the construction period andas an addition to the cost of plant constructed.AFUDC includes the net cost of borrowed funds and a rate of return
289、on otherfunds.The PPUC approved rate of 10.04%was applied for 2007 and 2006.We applied a blended rate in 2008 due to our partialuse of tax-exempt financing for 2008 construction projects.The tax-exempt borrowing rate of 6.00%was applied to thoseexpenditures so financed,whereas the approved 10.04%rat
290、e was applied to the remainder of 2008 expenditures.AFUDC isrecovered through water rates as utility plant is depreciated.Cash and Cash EquivalentsFor the purposes of the statements of cash flows,the Company considers all highly liquid debt instruments purchased witha maturity of three months or les
291、s to be cash equivalents except for those instruments earmarked to fund constructionexpenditures or repay long-term debt.The Company had a book overdraft of$362 and$328 at December 31,2008 and 2007,respectively.The book overdraftrepresents outstanding checks and other items which had not cleared the
292、 bank as of the end of the period.The overdraft isincluded in accounts payable on the balance sheet and the change in overdraft position is recorded as a financing activity onthe statement of cash flows.Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statement
293、s in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the financial statements and
294、 the reported amounts of revenuesand expenses during the reporting period.Actual results could differ from those estimates.ReclassificationsCertain 2007 amounts have been reclassifiedto conform to the 2008 presentation.Such reclassifications had no effect on the statementof income,statement of commo
295、n stockholders equity and comprehensive income,or statement of cash flow category reporting.ContributionsinAidofConstructionwerereclassifiedasaseparatelinewithinliabilitiestobeconsistentwithwaterindustrypractice.Asdiscussedabove,theCompanychangedtheaccountingtreatmentforitsinterestrateswap.Fortheyea
296、rsendedDecember31,2006and December 31,2007,and for the nine months ended September 30,2008,the Company accounted for the interest rate swap as acash flow hedge.As of October 1,2008,management assessed the probability of collecting the unrealized gain or loss value of theswap in rates as the Company
297、is currently reflecting the realized gain or loss as a component of interest expense in the statement ofincome.This change in accounting treatment resulted in the reversal of$224 of long-term interest expense,$189 recorded in deferredincometaxesand$277recordedinaccumulatedothercomprehensiveincomeaso
298、fSeptember30,2008.Managementdeterminedthatthe amounts previously reported using the cash flow hedge method of accounting as of the years ended December 31,2006 andDecember 31,2007,and for each of the three quarters and periods ended March 31,2008,June 30,2008 and September 30,2008 werenot materially
299、 misstated.Impact of Recent Accounting PronouncementsIn September 2006,the Financial Accounting Standards Board(FASB)issued SFAS No.157,“Fair Value Measurements,”toeliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applyingthos
300、e definitions.SFAS No.157 defines fair value as the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date(an exit price),as opposed to the price thatwould be paid to acquire the asset or received to
301、assume the liability at the measurement date(an entry price).SFAS No.157,as originally issued,was effective for financial statements issued for fiscal years beginning after November 15,2007,andThe York Water Company2 0 0 8 A n n u a l R e p o r t29Notes to Financial Statements(In thousands of dollar
302、s,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t30Impact of Recent Accounting Pronouncements(continued)interim periods within those fiscal years.In February 2008,the FASB issued FSP FAS 157-2 which delayed the effective date,by one year,of SFAS No.157 for nonfinancial
303、 assets and nonfinancial liabilities with certain exceptions.The Company adoptedthis standard for financial assets and liabilities in January 2008 and determined that it did not have a material impact on itsfinancial position or results of operations at that time,but required additional disclosures
304、with regard to its interest rate swap.See Note 10 for additional information and disclosures.The Company has reviewed its nonfinancial assets and liabilities forapplicability and determined that this statement will not have a material impact on its results of operations or financialposition.In Octob
305、er 2008,the FASB issued FSP SFAS No.157-3,“Determining the Fair Value of a Financial Asset When TheMarket for That Asset Is Not Active”(FSP 157-3),to clarify the application of the provisions of SFAS 157 in an inactive marketand how an entity would determine fair value in an inactive market.FSP 157-
306、3 was effective immediately and applied to ourSeptember 30,2008 financial statements.The application of the provisions of FSP 157-3 did not affect the Companys results ofoperations or financial condition as of and for the periods ended September 30,2008 and December 31,2008.In February 2007,theFASBi
307、ssuedSFASNo.159,“EstablishingtheFairValueOptionforFinancialAssetsandLiabilities,”topermitall entities to choose to elect to measure eligible financial instruments at fair value.The decision to elect the fair value option shouldbe made on an instrument-by-instrument basis with certain exceptions.If t
308、he fair value option is elected,an entity must reportunrealizedgainsandlossesinearningsateachsubsequentreportingdate,andrecognizeupfrontcostsandfeesrelatedtothoseitemsinearningsasincurredandnotdeferred.SFASNo.159appliestofiscalyearsbeginningafterNovember15,2007,withearlyadoptionpermitted for an enti
309、ty that has also elected to apply the provisions of SFAS No.157,“Fair Value Measurements.”The Companyelected not to apply the provisions of SFAS No.159 for financial instruments not previously recorded at fair value.In December 2007,the FASB issued SFAS No.141(R),“Business Combinations.”The statemen
310、t establishes principles andrequirements for how the acquirer(1)recognizes and measures in its financial statements the identifiable assets acquired,theliabilities assumed,and any noncontrolling interest in the acquiree,(2)recognizes and measures the goodwill acquired in thebusiness combination or a
311、 gain from a bargain purchase,and(3)determines what information to disclose to enable users ofthe financial statements to evaluate the nature and financial effects of the business combination.This statement is effective forannual periods beginning after December 15,2008.The Company has reviewed this
312、 statement and determined that it wouldnot have a material impact on its financial statements going forward.In December 2007,the FASB issued SFAS No.160,“Noncontrolling Interests in Consolidated Financial Statements anamendment of ARB No.51.”SFAS No.160 requires all entities to report noncontrolling
313、(minority)interests in subsidiaries asequityintheconsolidatedfinancialstatementsanditrequiresconsolidatednetincometoincludeamountsattributabletoboththeparent and noncontrolling interest.This statement is effective for annual periods beginning after December 15,2008.Thisstatement will not affect the
314、Companys financial statements as the Company does not have any subsidiaries.In March 2008,the FASB issued SFAS No.161,“Disclosures about Derivative Instruments and Hedging Activities anamendment of FASB Statement No.133.”This standard requires companies to provide qualitative disclosures about theob
315、jectives and strategies for using derivatives,quantitative data about the fair value of and gains and losses on derivativecontracts,and details of credit-risk-related contingent features in their hedged positions.This standard is effective for financialstatements issued for fiscal years and interim
316、periods beginning after November 15,2008,with early application encouraged,but not required.The Company is currently researching the additional required disclosures with regard to its interest rate swapand plans to adopt this standard in the first quarter of 2009.In May 2008,the FASB issued SFAS No.
317、162,“The Hierarchy of Generally Accepted Accounting Principles.”This guidanceidentifies sources of accounting principles and the framework for selecting the principles used in the preparation of financial1.Significant Accounting Policies(continued)Notes to Financial Statements(In thousands of dollar
318、s,except per share amounts)statements of nongovernmental entities that are presented in accordance with U.S.generally accepted accounting principles(GAAP).This statement is effective 60 days after the SECs approval of the Public Company Accounting Oversight BoardAuditing amendments to SAS No.69.This
319、 statement is not expected to have an impact on the Companys financial statements.In September 2008,the FASB ratified EITF Issue No.08-5,“Issuers Accounting for Liabilities Measured at Fair Value Witha Third-Party Credit Enhancement”(EITF 08-5).EITF 08-5 provides guidance for measuring liabilities i
320、ssued with anattached third-party credit enhancement(such as a guarantee).It clarifies that the issuer of a liability with a third-partycredit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability.EITF 08-5 is effective for the first repor
321、ting period beginning after December 15,2008.Earlier application is permitted.TheCompany applied this pronouncement to its long-term debt issues which included bond insurance or letters of credit incalculating the fair market value of debt disclosed in footnote 10.In November 2008,the SEC released a
322、 proposed roadmap regarding the potential use by U.S.issuers of financial statementsprepared in accordance with International Financial Reporting Standards(IFRS).IFRS is a comprehensive series of accountingstandards published by the International Accounting Standards Board(”IASB”).Under the proposed
323、 roadmap,the Companymay be required to prepare financial statements in accordance with IFRS as early as 2014.The SEC will make a determinationin 2011 regarding the mandatory adoption of IFRS.The Company is currently assessing the impact that this potential changewould have on its financial statement
324、s,and it will continue to monitor the development of the potential implementation of IFRS.In December 2008,the FASB issued FSP FAS 132(R)-1,“Employers Disclosures about Postretirement Benefit Plan Assets.”This FSP amends SFAS 132(R),“Employers Disclosures about Pensions and Other Postretirement Bene
325、fits,”to provideguidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan.Thedisclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15,2009.TheCompany is currently reviewing the effect this ne
326、w pronouncement will have on its consolidated financial statements.2.AcquisitionsOn January 5,2007,the Company closed the acquisition of the water system of Abbottstown Borough which servedapproximately 400 customers in Adams County,Pennsylvania.The purchase price of approximately$900 was less than
327、thedepreciated original cost of these assets.The Company has recorded a negative acquisition adjustment of approximately$131andisamortizingthiscreditovertheremaininglifeoftheacquiredassets.Thepurchasewasfundedthroughinternally-generatedfunds and short-term borrowings.The Company began serving the cu
328、stomers of Abbottstown Borough in January 2007.On May 16,2007,the Company announced that it had entered into an agreement to acquire the water system of West ManheimTownship in York County,Pennsylvania.This acquisition resulted in the addition of 1,800 customers at a purchase price ofapproximately$2
329、,075.The Company began serving the customers of West Manheim Township in December 2008 through aninterconnection with its current distribution system.Closing on this acquisition took place in January 2009.On November 24,2008 the Company completed the acquisition of the water facilities ofAsbury Poin
330、te Water Company inYorkCounty,Pennsylvania.The Company acquired and is usingAsbury Pointes distribution system through an interconnection withits current distribution system.This acquisition resulted in the addition of approximately 250 customers and the purchase pricewas approximately$242,which is
331、less than the depreciated original cost of the assets.The Company recorded a negativeacquisition adjustment of approximately$207 and will amortize it over the remaining life of the underlying assets.The Company began to include the operating results of the acquired systems in its operating results o
332、n the acquisition dates.The results have been immaterial to total company results.The York Water Company2 0 0 8 A n n u a l R e p o r t31Notes to Financial Statements(In thousands of dollars,except per share amounts)The York Water Company2 0 0 8 A n n u a l R e p o r t32The provisions for income tax
333、es consist of:200820072006Federal current.$1,157$1,946$1,295State current.559603404Federal deferred.1,9541,1701,507State deferred.(3)1228Federal investment tax credit,net of current utilization.(39)(39)(38)Total income taxes.$3,628$3,692$3,196A reconciliation of the statutory Federal tax provision(34%)to the total provision follows:200820072006Statutory Federal tax provision.$3,420$3,436$3,158Stat
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