1、The York Water Company2 0 0 7 A n n u a l R e p o r tCustomers Today&TomorrowPrepared to ServePresident and CEOs LetterDear Shareholders.3FinancialsFinancial Highlights.9Shareholder Information.10Managements Discussionand Analysis.11Managements Report on InternalControl Over Financial Reporting.20Re
2、port of Independent RegisteredPublic Accounting Firm on InternalControl Over Financial Reporting.21Report of Independent RegisteredPublic Accounting Firm.22Balance Sheets.23Statements of Income.24Statements of CommonStockholders Equityand Comprehensive Income.25Statements of Cash Flows.26Notes to Fi
3、nancial Statements.27Supplemental Information.44Additional InformationDirectors.46Officers and Key Employees.47Transfer Agent and Registrar.47Stock Exchange Listing.47Independent Auditors.47Table of ContentsPresident and CEOs LetterDear Shareholders.3FinancialsFinancial Highlights.9Shareholder Infor
4、mation.10Managements Discussionand Analysis.11Managements Report on InternalControl Over Financial Reporting.20Report of Independent RegisteredPublic Accounting Firm on InternalControl Over Financial Reporting.21Report of Independent RegisteredPublic Accounting Firm.22Balance Sheets.23Statements of
5、Income.24Statements of CommonStockholders Equityand Comprehensive Income.25Statements of Cash Flows.26Notes to Financial Statements.27Supplemental Information.44Additional InformationDirectors.46Officers and Key Employees.47Transfer Agent and Registrar.47Stock Exchange Listing.47Independent Auditors
6、.47Table of ContentsPreparing to Serve the changing needs of customers in our expanding distributionterritory and supply system is a hallmark of The York Water Company.1The York Water Company2 0 0 7 A n n u a l R e p o r tIn our 2002 Annual Report to Shareholders,we reported that TheYork Water Compa
7、nyhas aStrong Tradition of Planningfor the future,anticipating customerneeds and taking the action steps necessary to preserve and supply a sustainable source of highquality water.At that time,we were discussing York Waters efforts to install a pumping station and a 15-milepipeline from the Susqueha
8、nna River to Lake Redman.This major water project was completed in2004 and provided our customer base with a reserve water source to use during periods of highdemand and extended periods of drought.This tradition ofPreparing to Servethe changing needs ofCustomersin ourexpanding distribution territor
9、y and supply system is a hallmark of The York Water Company.Changes in technology and the demand for drinking water continuously require us to expand ourservice capabilities.2007 was no exception;and,we are in the midst of another major planning,engineering and construction project to continue our t
10、radition of supplying an adequate andsustainable supply of water.We are preparing nowto meet the present and future needs of our customers byupgrading and improving our pumping and purification capabilities.During 2007,2008 and 2009,wewill be investing$10 million in these facilities.Three major cons
11、truction initiatives are alreadyunderway including a new Residuals Processing Building,upgraded Sedimentation Facilities,and anew Emergency Power Generation Facility.Our customers of today and tomorrow can be assured that The York Water Company is Prepared toServe.We will continue to anticipate our
12、communities needs and growth.Wherever and whenever,“that goodYork water”is needed,it will be available in plentiful supply.Prepared to ServeCustomers Today&Tomorrow2Letter From the CEOThe York Water Company2 0 0 7 A n n u a l R e p o r tThe York Water Company2 0 0 7 A n n u a l R e p o r t3Letter Fr
13、om the CEODear Shareholders,We are pleased to report another remarkable yearin 2007.We posted another year of record financialperformance,and a productive year for growth andexpansion of service territory.Jeffrey S.OsmanPresident andChief Executive Officer(Retired)Letter From the CEO4Growth and Expa
14、nsion of TerritoryThe number of customers served grewby 2.3%during 2007 to 58,890.The percent of customergrowth in 2007 was lower than in the last several years due to weakness in the housing market.Also in 2007,the Pennsylvania Public Utility Commission authorized an increase in the number ofmunici
15、palities in which we may serve from 42 to 46.Financial PerformanceWe again achieved record operating revenues,operating income and net income.Earnings pershare decreased by 1.7%to$0.57 due to the dilution caused by our public offering of approximately740,000 shares of common stock in December 2006.O
16、perating revenues grew by 9.7%to$31.4 million(surpassing the$30 million mark for the firsttime).Operating income increased 9.8%to$14.2 million.Our earnings increased by 5.3%to$6.4million.Our operating revenue growth was offset by a reduction in our customers per capita consumption,which we attribute
17、 to a drought watch declared in our service territory during the third quarterof 2007.The York Water Company2 0 0 7 A n n u a l R e p o r tLetter From the CEOThe York Water Company2 0 0 7 A n n u a l R e p o r t5Shareholder ValueOur shareholders experienced a decrease in shareholder value during 200
18、7.The market price of ourcommon stock decreased$2.38 per share to$15.50,or a 13.3%decrease.This decrease,together witha$0.475 per share dividends paid during the year brought the total decrease in shareholder valueto 9.8%.In line with our objective to maintain regular dividend increases,we raised th
19、e quarterlydividend rate by 2.5%during the year.We have raised our dividend for eleven consecutive yearsAcquisitionsOn January 5,2007,the Company closed the acquisition of the water system of the Borough ofAbbottstown,serving approximately 400 customers in the Borough through an interconnection with
20、our distribution system.This acquisition marks our first entry into the growing Adams Countyregion,one of the fastest growing regions in Pennsylvania.On May 16,2007,we announced that we had entered into an agreement to acquire the water systemof West Manheim Township.This acquisition is expected to
21、result in the addition of approximately2,100 customers,and is the largest in our history.The closing on this acquisition and theinterconnection to our distribution is anticipated to occur in the fourth quarter of 2008.Letter From the CEOThe York Water Company2 0 0 7 A n n u a l R e p o r t6Letter Fr
22、om the CEOThe York Water Company2 0 0 7 A n n u a l R e p o r t7Dedicated and Experienced EmployeesThe success that we have achievedis due to the dedication and talent of our employees.It is theirenergy and spirit that keeps this Company growing and thriving.OutlookEfforts to expand our franchise ca
23、rry on.We continue to monitor our operating region foropportunities to acquire new franchise territories,and thus new water customers.We also continueto expand our service capabilities to adapt to changes in technology and demand for drinking waterquality.We will continue to anticipate our communiti
24、es growth.Wherever and whenever“Thatgood York water”is needed,it will be available in plentiful supply.In 2007,we lost our friend and associate,Bob Skold.Bob had been a Director from November 1975 through September1995,and a Director Emeritus from September 1995 until hisdeath.His counsel,guidance a
25、nd friendship will be sorely missed.Chlo Eichelberger retired from the Board of Directorson March 31,2007.Chlo served on the Board with distinctionsince September 15,1995.During those years,Chlodemonstrated the highest standards of service to the Company.Chlo has been elected as a Director Emeritus.
26、8Letter From the CEOThe York Water Company2 0 0 7 A n n u a l R e p o r tFinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t9Highlights of Our 192nd Year(In thousands of dollars,except per share amounts)Summary of OperationsFor the Year20072006200520042003Water operating revenue.$31,433$
27、28,658$26,805$22,504$20,889Operating expenses.17,26915,75414,01712,59511,555Operating income.14,16412,90412,7889,9099,334Interest expense.3,9163,7273,4232,1322,523Gain on sale of land.743Other income(expenses),net.(142)110(149)(168)12Income before income taxes.10,1069,2879,2168,3526,823Income taxes.
28、3,6923,1963,3833,0512,375Net income.$6,414$6,091$5,833$5,301$4,448Per Share of Common StockBook value.$5.97$5.84$4.85$4.65$4.05Basic earnings per share.57.58.56.53.46Dividends.475.454.424.394.367Weighted average number of sharesoutstanding during the year.11,225,82210,475,17310,359,3749,937,8369,579
29、,690Utility PlantOriginalcost,netof acquisitionadj.$222,354$202,020$181,756$163,701$138,314Construction expenditures.19,75421,68215,55325,98111,527OtherTotal assets.$210,969$196,064$172,296$156,066$127,508Long-term debtincluding current maturities.70,50562,33551,87451,91332,652For Managements Discus
30、sion and Analysis of Financial Condition and Results of Operations,please refer to page 11.FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t10Market for Common Stock and DividendsThe common stock of The York Water Company is traded on the NASDAQ Global Select Market(Symbol“YORW”).Quart
31、erly price ranges and cash dividends per share for the last two years follow:20072006HighLowDividend*HighLowDividend*1st Quarter$18.15$16.12$0.118$18.67$15.33$0.1122nd Quarter18.5516.600.11820.9915.920.1123rd Quarter18.4016.700.11820.6915.720.1124th Quarter17.3015.450.12120.3517.500.118*Cash dividen
32、ds per share reflect dividends declared at each dividend date.(Refer to Note 4 to the Financial Statements for a description of the restriction on the declaration and payment of cash dividends.)Prices are sales prices listed on the NASDAQ Global Select Market.Shareholders of record(excluding individ
33、ual participants in securities positions listings)as of December 31,2007 numberedapproximately 1,443.Dividend 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
34、of the stated record date,which is ordinarily the lastday of the calendar month immediately preceding the dividend payment.The dividend paid on the Companys common stock on January 15,2008 was the 548th consecutive dividend paid by theCompany.The Company has paid consecutive dividends for its entire
35、 history,since 1816.The policy of our Board of Directorsis currently to pay cash dividends on a quarterly basis.The dividend rate has been increased annually for eleven consecutiveyears.Future cash dividends will be dependent upon the Companys earnings,financial condition,capital demands andother fa
36、ctors and will be determined by the Companys Board of Directors.Financial Reports and Investor RelationsShareholders may request,without charge,copies of the Companys financial reports,including Annual Reports,and Forms8-K,10-K and 10-Q filed with the Securities and Exchange Commission(SEC).Such req
37、uests,as well as other investorrelations inquiries,should be addressed to:YORW on the InternetThe 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-
38、7089Kathleen M.Miller Chief Financial OfficerShareholder Information*Cash dividends per share reflect dividends declared at each dividend date.(Refer to Note 4 to the Financial Statements for a description of the restriction on the declaration and payment of cash dividends.)Prices are sales prices l
39、isted on the NASDAQ Global Select Market.Forward-looking StatementsThis Annual Report contains certain matters which are not historical facts,but which are forward-looking statements.Words such as“may,”“should,”“believe,”“anticipate,”“estimate,”“expect,”“intend,”“plan”and similar expressions areinte
40、nded to identify forward-looking statements.The Company intends these forward-looking statements to qualify for safeharbor from liability established by the Private Securities Litigation Reform Act of 1995.These forward-looking statementsinclude certain information relating to the Companys business
41、strategy;statements including,but not limited to:expected profitability and results of operations;goals,priorities and 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 th
42、ose dividends.The forward-looking statements in this Annual Report reflect what the Company currently anticipates will 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 st
43、atements in this Annual Report are no longer accurate,whether asa result of new information,what actually happens in the 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
44、rate relief granted;the level of commercial and industrial business activity within the Companys service territory;construction 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 p
45、rojects;material changes in demand from customers,including the impact of conservation efforts which may impact the demandof customers for water;changes in economic and business conditions,including interest rates,which are less favorable than expected;andother matters set forth in Item 1A,“Risk Fac
46、tors,”of the Companys Annual Report on Form 10-K for the year endedDecember 31,2007.FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t11Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)OverviewThe Company is th
47、e oldest investor-owned water utility in the United States and is duly organized under the laws ofthe Commonwealth of Pennsylvania.The Company has operated continuously since 1816.The business of the Company isto impound,purify and distribute water.The Company operates within its franchised territor
48、y,which covers 39municipalities within York County,Pennsylvania and seven municipalities within Adams County,Pennsylvania.TheCompany is regulated by the Pennsylvania Public Utility Commission,or PPUC,in the areas of billing,payment procedures,dispute processing,terminations,service territory and rat
49、e setting.The Company must obtain PPUC approval beforechanging any of the aforementioned procedures.Water service is supplied through the Companys own distribution system.The Company obtains its water supply from the south branch and east branch of the Codorus Creek,which drains an area ofapproximat
50、ely 117 square miles.The Company has two reservoirs,Lake Williams and Lake Redman,which together hold upto approximately 2.2 billion gallons of water.The Company has a 15-mile pipeline from the Susquehanna River to LakeRedman which provides access to an additional supply of 12.0 million gallons of w
51、ater per day.As of December 31,2007,the Companys average daily availability was 35.0 million gallons,and daily consumption was approximately 19.1 milliongallons.The Companys service territory had an estimated population of 171,000 as of December 31,2007.Industry withinthe Companys service territory
52、is diversified,manufacturing such items as fixtures and furniture,electrical machinery,foodproducts,paper,ordnance units,textile products,air conditioning systems,barbells and motorcycles.The Companys business does not require large amounts of working capital and is not dependent on any single custo
53、meror a very few customers.In 2007,operating revenue 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
54、 ability to obtain rate increases from regulatory authoritiesin 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 31,2007,the Company has maintained an
55、increasing growth in number ofcustomers and distribution facilities as demonstrated by the following chart:FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t1220072006200520042003Average daily consumption(gallons per day)19,058,00018,769,00018,657,00018,116,00017,498,000Miles of mains a
56、t year-end845817786752730Additional distribution mainsinstalled/acquired(ft.)147,803159,330212,702114,65844,958Number of customers at year-end58,89057,57855,73153,13451,916Population served at year-end171,000166,000161,000158,000156,000Managements Discussion&Analysis of Financial Condition&Results o
57、f Operations(In thousands of dollars,except per share amounts)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 custom
58、ers,customer complaintrate,annual customer rates,and the efficiency 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 Companys 2007 performance was strong un
59、der most of the above measures,however earnings per share were not asstrongasforecasted.Attheendof2006,weissuedapproximately740,000additionalsharesofcommonstock.Despiteanincreasein net income in 2007 over 2006 of 5.3%,earnings per share fell by 1.7%due to dilution.Increased expenses prevented net in
60、comefrom reaching the level required to produce earnings per share equal to or greater than 2006.The efficiency ratio,which is calculated as net income divided by revenues,is used by management to evaluate its abilityto keep expenses in line.Over the five previous years,our ratio averaged 21.5%.In 2
61、007,the ratio fell slightly to 20.4%due toincreased expenses which had not yet been included in rates charged to customers.The increased expenses will be included ina future rate filing which should help bring our efficiency ratio back to historical levels.Management continues to look for waysto dec
62、rease expenses and increase efficiency.Results of Operations2007 Compared with 2006Net income for 2007 was$6,414,an increase of$323,or 5.3%,from net income 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 and a 7.2%increase in the a
63、verage number ofcommon shares outstanding.The increase in the number of shares outstanding is primarily a result of the 739,750 additionalshares issued by the Company in a public offering in December 2006.The primary contributing factors to the increase in netincome were higher water operating reven
64、ues 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 for 2007.The primaryreason for the increase in revenues was a 9.2%rate increase effective September 15,2006.The average number of customersserved in 2007
65、increased as compared to 2006 by 1,793 customers,from 56,697 to 58,490 customers,due to growth in theCompanys service territory and the Abbottstown Borough water system acquisition on January 5,2007.Despite this increasein customers,the total per capita volume of water sold in 2007 decreased compare
66、d to 2006 by approximately 1.2%due toreduced consumption in our service territory.The Companys service territory was on drought watch,which calls for avoluntary reduction in water use of 5%,during the months of August and October through December 2007.This had a smallnegative impact on revenues.The
67、Company expects revenues to continue to increase as a result of increases to the customerbase within its current service area,although at a lower rate due to the slump in the housing market,and through strategicacquisitions.The Company also seeks rate relief on a timely basis.Drought warnings or res
68、trictions as well as regulatoryactions could impact results.Operating expensesfortheyearincreased$1,515,or9.6%,from$15,754for2006to$17,269for2007.Higherdepreciationexpenseof approximately$705 due to increased plant investment,higher salaries of approximately$647 due to increased rates andadditional
69、employees and increased pension expense of approximately$248 were the principal reasons for the increase.Higherelectric costs,increased maintenance at the filter plant and higher chemical expense aggregating approximately$260 also addedto the increase.The increase was partially offset by lower inter
70、nal control compliance costs,reduced realty and capital stock taxesFinancialsThe York Water Company2 0 0 7 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)and increased capitalized overhead aggrega
71、ting approximately$468.Depreciation expenses are expected to continue to rise duetothelevelofplantinvestmentin2007.Pensionexpenseisexpectedtoleveloffin2008.Otheroperatingexpensesshouldcontinueto increase at a moderate level as costs to serve additional customers and to extend our distribution system
72、 continue to rise.Interest expense on long-term debt increased$545,or 15.4%,from$3,550 for 2006 to$4,095 for 2007,due primarily to anincrease in the amount of long-term debt outstanding.The Company issued tax-exempt debt through the York CountyIndustrial Development Authority,or YCIDA,in the amount
73、of$10,500 in October 2006.The proceeds of the bond issuancewere used to pay down a portion of the Companys short-term borrowings.Increased borrowings under the Companyscommitted line of credit to fund operations and construction added to the increase.Interest expense on short-term debt for 2007 was$
74、566 lower than 2006 due to a decrease in short-term borrowings usedto fund operations and construction expenditures.The average 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,du
75、e to a decrease inconstruction expenditures that were eligible for interest.Construction in 2006 included expenditures for large projects suchas the main extension to Abbottstown and the enterprise software system.The 2008 allowance is expected to be higher thanthe 2007 level due to a large water tr
76、eatment project and a main extension to West Manheim Township.Other expenses,net increased by$252 in 2007 as compared to 2006 primarily due to reduced interest income on waterdistrict notes receivable because of a reduction in the note balance.Increased charitable contributions,many eligible for tax
77、credits,added to the increase.Federal and state income taxes increased by$496,or 15.5%,primarily due to higher taxable income.The Companyseffective tax rate was 36.5%in 2007 and 34.4%in 2006.2006 Compared with 2005Net income for 2006 was$6,091,an increase of$258,or 4.4%,compared to net income of$5,8
78、33 for 2005.Increased waterrevenues were the primary contributing factor.An increased allowance for funds used during construction,decreasedsupplemental retirement expenses and a lower effective tax rate also added to the increase.Higher operating expenses andhigher short-term interest expenses part
79、ially offset the increase.Water operating revenues for the year increased$1,853,or 6.9%,from$26,805 for 2005 to$28,658 for 2006.A 9.2%rateincrease effective September 15,2006 accounted for approximately$719,or 38.8%,of the increase in water operating revenuesfor 2006.The average number of customers
80、served in 2006 increased as compared to 2005 by 2,287,from 54,410 to 56,697customers,due to growth in the Companys service territory and the Spring Grove and Mountain View acquisitions in Julyand November 2005,respectively.Despite this increase in customers,the total per capita volume of water sold
81、in 2006decreased compared to 2005 due to reduced consumption in the service territory.Operating expenses for the year increased$1,737,or 12.4%,from$14,017 for 2005 to$15,754 for 2006.Higher salaries dueto wage increases and additional employees of approximately$458,increased software training,conver
82、sion and supportexpenses of approximately$184,higher internal control compliance expenses of approximately$171,higher depreciationFinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t14Results of Operations(continued)Managements Discussion&Analysis of Financial Condition&Results of Operati
83、ons(In thousands of dollars,except per share amounts)The York Water Company2 0 0 7 A n n u a l R e p o r t15expense of$155 due to increased plant investment,increased distribution system maintenance of approximately$132 and highertransportation expenses due to additional vehicles and increased gas p
84、rices of approximately$116 were the principal reasons forthe increase.Higher pension expense,payroll taxes,electric costs,bad debt expense,shareholder expenses and chemical costsaggregating approximately$512 also contributed to the increase.The increase was partially offset by lower rate case expens
85、e,reduced hydrant expenses due to inventorying additional parts and higher capitalization of indirect costs aggregating$173.Interest expense on long-term debt increased$80,or 2.3%,from$3,470 for 2005 to$3,550 for 2006,due primarily to anincrease in amounts outstanding.The Company issued tax-exempt d
86、ebt through the YCIDA in the amount of$10,500 inOctober 2006.The proceeds of the bond issue were used to pay down a portion of the Companys short-term borrowings.Theincrease was partially offset by the remarketing of the Companys 6.0%Industrial Development Authority RevenueRefunding Bonds,Series 199
87、5,and the interest rate being redetermined to 3.75%on June 1,2005.Interest expense on short-term debt increased$481,from$134 for 2005 to$615 for 2006 due to an increase in short-termborrowings used to fund operations and construction expenditures.The average short-term debt outstanding in 2006 and 2
88、005was$10,453 and$2,700,respectively.Allowance for funds used during construction increased$257 from$181 for 2005 to$438 for 2006 due to an increase inconstruction expenditures that were eligible for interest,including expenditures for the main extension to Abbottstown and theenterprise software sys
89、tem.Other income,net increased by$259 in 2006 as compared to 2005 primarily due to reduced supplemental retirement expensesof approximately$225 due to an increase in the discount rate.Lower contributions and increased interest income on waterdistrict notes receivable aggregating approximately$81 als
90、o added to the increase.Higher non-operating property maintenanceexpenses of approximately$28 partially offset the increase.Federal and state income taxes decreased by$187,or 5.5%.The effective tax rate declined from 36.7%in 2005 to 34.4%in 2006due to the qualified domestic production deduction.Rate
91、 DevelopmentsFrom time to time the Company files applications for rate increases with the PPUC and is granted rate relief as a result ofsuch requests.The most recent rate request was filed by the Company on April 27,2006,and sought an increase of$4,500,which would have represented a 16.0%increase in
92、 rates.Effective September 15,2006,the PPUC authorized an increase inrates designed to produce approximately$2,600 in additional annual revenues,which represented an increase of 9.2%in theCompanys rates at such time.The Company anticipates that it will file a rate increase request in 2008.Acquisitio
93、nsOn May 16,2007,the Company announced that it had entered into an agreement to acquire the water system of WestManheim Township in York County,Pennsylvania.This acquisition is expected to result in the addition of 2,100 customersand will cost approximately$2,075.The agreement was approved by the PP
94、UC on December 20,2007,and now awaitsPennsylvania Department of Environmental Protection(DEP)approval on the construction permits.Upon approval by DEP,the Company will construct a main from its current distribution system to interconnect with West Manheims distributionsystem.The interconnection and
95、closing on this acquisition are expected to occur in the fourth quarter of 2008.FinancialsManagements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)The York Water Company2 0 0 7 A n n u a l R e p o r t16FinancialsManagements Discuss
96、ion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)On January 5,2007,the Company completed the acquisition of the water system of Abbottstown Borough which servedapproximately 400 customers in Adams County,Pennsylvania.The purchase price of app
97、roximately$900 was less than thedepreciated original cost of these assets.The Company has recorded a negative acquisition adjustment of approximately$131 andis amortizing this credit over the remaining life of the acquired assets.The purchase was funded through internally-generatedfunds and short-te
98、rm borrowings.The Company began serving the customers of Abbottstown Borough in January 2007.See Note 2 to the financial statements for additional acquisitions.Liquidity and Capital ResourcesAs of December 31,2007,current liabilities exceeded current assets by$14,548.At December 31,2006,current asse
99、tsexceeded current liabilities by$775.The change was primarily due to an increase in current maturities of long-term debt,due to the reclassification of our$12,000 variable rate PEDFA Series B Bonds from long-term to short-term debt describedbelow,and an increase in short-term borrowings.As of Febru
100、ary 2008,the Company maintains two lines of creditaggregating$28,000.Loans granted under these lines of credit bear interest at LIBOR plus 0.70%to 0.75%.Both lines ofcredit are unsecured.One line,amounting to$11,000 is payable upon demand,whereas the other is a committed line witha revolving 2-year
101、maturity.The Company had$11,210 outstanding borrowings under its lines of credit as of December 31,2007,and no line of credit borrowings as of December 31,2006.The borrowings were incurred primarily for acquisitionsand construction expenditures.$8,210 of the outstanding borrowings were under the com
102、mitted line of credit andclassified as long term,and$3,000 of the borrowings were under the short-term line.The weighted average interest rate online of credit borrowings at December 31,2007 was 5.62%.The Company is not required to maintain compensatingbalances on its lines of credit.The holders of
103、our$12,000 variable rate PEDFA Series B Bonds may tender their bonds at any time.When the bondsare tendered,they are subject to an annual remarketing agreement,pursuant to which a remarketing agent attempts toremarket the tendered bonds pursuant to the terms of the Indenture.The Company also has a S
104、tandby Bond PurchaseAgreement(also known as a liquidity facility)whereby bonds which cannot be remarketed are purchased by a financialinstitution(PNC Bank).If PNC Bank is unable to remarket or sell the bonds within 6 months,the Company must begin tobuy back the bonds in monthly installments over a f
105、ive-year period.The effect of this arrangement has historically allowedthe Company to classify these bonds as long-term debt.In January 2008,the credit rating of the insurer of the bonds was downgraded,and as a result,all of the bonds weretendered.As a result of these events,we have classified the$1
106、2,000 variable rate debt as short term on the balance sheet.The remarketing agent is currently attempting to remarket the bonds,but these efforts may not be successful.Also,theterms of the standby agreement permit PNC Bank to terminate the agreement after an insurer credit downgrade hasoccurred.If t
107、he remarketing agent is unable to remarket the bonds,it is likely that PNC Bank will terminate the standbyagreement and the Company will be required to refund and refinance all of the bonds.The Company is currently lookinginto both fixed and variable financing options that will best satisfy both sho
108、rt-term and long-term objectives.The Companyalso has sufficient line of credit capacity to be able to buy the bonds back temporarily until a more permanent refinancingcan be obtained.Acquisitions(continued)The York Water Company2 0 0 7 A n n u a l R e p o r t17Managements Discussion&Analysis of Fina
109、ncial Condition&Results of Operations(In thousands of dollars,except per share amounts)During 2007,the Company incurred$19,754 of construction expenditures for routine items as well as a new standpipe,main replacements and relinings,software development and a water treatment expansion project.In add
110、ition to theaforementioned construction expenditures,the Company incurred approximately$900 for the purchase of the watersystem of Abbottstown Borough.The Company was able to fund operating activities,acquisitions and constructionexpenditures using internally-generated funds,borrowings against the C
111、ompanys lines of credit,proceeds from theissuance of common stock under its dividend reinvestment plan(stock issued in lieu of cash dividends),or DRIP,andemployee stock purchase plan,or ESPP,customer advances and the distribution surcharge allowed by the PPUC.Thedistribution surcharge allows the Com
112、pany to add a charge to customers bills for qualified replacement costs of certaininfrastructure without submitting a rate filing.We anticipate construction expenditures for 2008 and 2009 of approximately$24,640 and$15,350,respectively.In addition to routine transmission and distribution projects,a
113、portion of the anticipated2008 and 2009 expenditures will be for additional standpipes,booster stations,upgrades to water treatment facilities,distribution center renovations,the West Manheim acquisition and main extension and various replacements of aginginfrastructure.Internally-generated funds,bo
114、rrowings against the Companys lines of credit,proceeds from the issuanceof common stock under its DRIP and ESPP,customer advances,the distribution surcharge and potential long-term debtand common stock issues will be used to satisfy the need for additional cash.DividendsDuring 2007,the Companys divi
115、dend payout ratios relative to net income and cash provided by operating activities were83.1%and 52.6%,respectively.During the fourth quarter of 2007,the Board of Directors increased the dividend by 2.5%from 11.8 cents per share to 12.1 cents per share per quarter.This was the eleventh consecutive a
116、nnual dividend increaseand the 192nd consecutive year of paying dividends.While the Company expects to maintain this dividend amount in2008,future dividends will be dependent upon the Companys earnings,financial condition,capital demands and otherfactors and will be determined by the Companys Board
117、of Directors.Common Stockholders EquityCommon stockholders equity as a percent of the total capitalization,defined as total common stockholders equityplus long-term debt(including current maturities),was 48.8%as of December 31,2007,compared with 51.2%as ofDecember 31,2006.It is the Companys intent t
118、o maintain a ratio near fifty percent.InflationThe Company,like all other businesses,is affected by inflation,most notably by the continually increasing costsincurred to maintain and expand its service capacity.The cumulative effect of inflation results in significantly higherfacility replacement co
119、sts which must be recovered from future cash flows.The ability of the Company to recover thisincreased investment in facilities is dependent upon future revenue increases,which are subject to approval by the PPUC.The Company can provide no assurances that its rate increases will be approved by the P
120、PUC;and,if approved,theCompany cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover theinvestments and expenses for which the rate increase was sought.FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t18Payments Due by PeriodTotal200820092
121、01020112012ThereafterLong-term debt obligations(a)$70,505$12,040$10,951$4,341$41$42$43,090Interest on long-term debt(b)47,5883,4803,4193,2883,2213,22030,960Short-term borrowings(c)3,0003,000Purchase obligations(d)4,8694,869Defined benefit obligations(e)800800Deferred employee benefits(f)4,0902022101
122、812152183,064Total$130,852$24,391$14,580$7,810$3,477$3,480$77,114Critical Accounting EstimatesThe methods,estimates and judgments we use in applying our accounting policies have a significant impact on the resultswe report in our financial statements.Our accounting policies require us to make subjec
123、tive judgments because of the needto make estimates of matters that are inherently uncertain.Our most critical accounting estimates include:regulatory assetsand liabilities,revenue recognition and accounting for our pension plans.Regulatory Assets and LiabilitiesSFAS No.71 defines generally accepted
124、 accounting principles for companies whose rates are established by or are subject toapproval by an independent third-party regulator.In accordance with SFAS No.71,the Company defers costs and credits onits balance sheet as regulatory assets and liabilities when it is probable that these costs and c
125、redits will be recognized in therate-making process in a period different from when the costs and credits were incurred.These deferred amounts are thenrecognized in the income statement in the period in which they are reflected in customer rates.If the Company later finds thatFinancials(a)Represents
126、 debt maturities including current maturities.Included in the table is a payment of$12,000 in 2008 on the variable ratebonds which were tendered in January 2008.The Company may be required to refund the bonds if they cannot be remarketed,and if the standby bond purchase agreement is cancelled.(b)Exc
127、ludes interest on the$12,000 variable rate debt and the associated interest rate swap payments as these payments cannot bereasonably estimated.Also excludes interest on the committed line of credit due to the variability of both the outstanding amountand the interest rate.(c)Represents obligations u
128、nder the Companys short-term line of credit.(d)Represents purchase obligations under contracts relating to the West Manheim Township acquisition and the filter plant upgrade.(e)Represents contributions expected to be made to qualified defined benefit plans.The amount of required contributions in 200
129、9and thereafter is not currently determinable.(f)Represents the obligations under the Companys Supplemental Retirement and Deferred Compensation Plans for executives.In addition to these obligations,the Company makes refunds on CustomersAdvances for Construction over a specific periodof time based o
130、n 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 these refund amounts are payable annually through 2
131、018 and amounts not paid by the contractexpiration dates become non-refundable and are transferred to Contributions in Aid of Construction.Contractual ObligationsThe following summarizes the Companys contractual obligations by period as of December 31,2007:Managements Discussion&Analysis of Financia
132、l Condition&Results of Operations(In thousands of dollars,except per share amounts)these assets and liabilities cannot be included in rate-making,they are adjusted appropriately.See Note 1 for additional detailsregarding regulatory assets and liabilities.Revenue RecognitionRevenues include amounts b
133、illed to metered customers on a cycle basis and unbilled amounts based on both actualand estimated usage from the latest meter reading to the end of the accounting period.Estimates are based on average dailyusage for those particular customers.The unbilled revenue amount is recorded as a current ass
134、et on the balance sheet.Actual results could differ from these estimates and would result in operating revenues being adjusted in the period in whichthe actual usage is known.Based on historical experience,the Company believes its estimate of unbilled revenuesis reasonable.Pension AccountingAccounti
135、ng for defined benefit pension plans requires estimates of future compensation increases,mortality,the discountrate,and expected return on plan assets as well as other variables.The Company selected its December 31,2007 and 2006discount rates based on the Citigroup Pension Liability Index.This index
136、 uses the Citigroup spot rates for durations out to30 years and matches them to expected disbursements from the plan over the long term.The Company believes this indexmost appropriately matches its pension obligations.The present values of the Companys future pension obligations weredetermined using
137、 a discount rate of 6.5%at December 31,2007 and 5.9%at December 31,2006.Choosing a lower discount rate normally increases the amount of pension expense and the corresponding liability.In the caseof the Company,a 25 basis point reduction in the discount rate would increase its liability by$602,but wo
138、uld not have animpact on its pension expense.The PPUC,in a previous rate settlement,agreed to grant recovery of the Companyscontribution to the pension plans in customer rates.As a result,under SFAS No.71,expense in excess of the Companyspension plan contribution is deferred as a regulatory asset an
139、d will be expensed as contributions are made to the plans andthe contributions are recovered in customer rates.Therefore,changes in the discount rate affect regulatory assets rather thanpension expense.The Companys estimate of the expected return on plan assets was primarily based on the historic re
140、turns and projectedfuture returns of the asset classes represented in its plans.Approximately 60%of pension assets are equity securities and 40%are debt securities.The Company used 7%as its estimate of expected return on assets in both 2007 and 2006.If the Companywere to reduce the expected return b
141、y 25 basis points to 6.75%,its liability would increase by$39,but its expense would againremain unchanged because the expense is equal to the Companys contribution to the plans.The additional expense wouldinstead be recorded as an increase to regulatory assets.Other critical accounting estimates are
142、 discussed in the Significant Accounting Policies Note to the Financial Statements.Off-Balance Sheet TransactionsThe Company does not use off-balance sheet transactions,arrangements or obligations that may have a material current orfuture effect on financial condition,results of operations,liquidity
143、,capital expenditures,capital resources or significantcomponents of revenues or expenses.The Company does not use securitization of receivables or unconsolidated entities.TheCompany does not engage in trading or risk management activities,with the exception of the interest rate swap agreementdiscuss
144、ed in Note 4 to the financial statements,does not use derivative financial instruments for speculative trading purposes,has no lease obligations,and does not have material transactions involving related parties.Impact of Recent Accounting PronouncementsSee Note 1 to the financial statements,“Signifi
145、cant Accounting Policies”for the effect of new accounting pronouncements.The York Water Company2 0 0 7 A n n u a l R e p o r t19Managements Discussion&Analysis of Financial Condition&Results of Operations(In thousands of dollars,except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n
146、u a l R e p o r t20Management of The York Water Company(the“Company”)is responsible 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
147、 reporting and the preparation of financial statements forexternal purposes in accordance 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,accu
148、rately and fairly reflect the transactions and dispositions of the assets of the company;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
149、 of the company are being made only in accordance withauthorizations of management 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 finan
150、cial statements.Because of its inherent limitations,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 t
151、hat the degree of compliance with the policies or procedures may deteriorate.Management evaluated the Companys internal control over financial reporting as of December 31,2007.In making thisassessment,management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
152、Commission in Internal Control-Integrated Framework(COSO).As a result of this assessment and based on the criteria in theCOSO framework,management has concluded that,as of December 31,2007,the Companys internal control over financialreporting was effective.The Companys independent auditors,Beard Mil
153、ler Company LLP,have audited the Companys internal control overfinancial reporting.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 OfficerKath
154、leen M.MillerChief Financial OfficerMarch 10,2008FinancialsManagements Report on Internal Control Over Financial ReportingThe York Water Company2 0 0 7 A n n u a l R e p o r t21To the Board of Directors and Stockholdersof The York Water CompanyWe have audited The York Water Companys internal control
155、 over financial reporting as of December 31,2007,based oncriteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission(COSO).The York Water Companys management is responsible for maintaining effective internalcontrol over f
156、inancial reporting and for its assessment of the effectiveness of internal control over financial reporting 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
157、 based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting 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 ma
158、intained in all material respects.Our audit of internal control over financialreporting included obtaining 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 con
159、trol based on the assessedrisk.Our audit also included performing such other procedures as we considered 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 reasonabl
160、e assurance regarding thereliability of financial reporting and the preparation of financial statements 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 ma
161、intenance of records that,in reasonable detail,accurately and fairly reflect thetransactions and dispositions 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 ac
162、counting principles,andthat receipts and expenditures of the Company are being made only in accordance 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 Compan
163、ys assets that could have a material effect on the financial statements.Because of its inherent limitations,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 ma
164、y become inadequatebecause of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.In our opinion,The York Water Company maintained,in all material respects,effective internal control over financialreporting as of December 31,2007,based on criteria e
165、stablished in Internal ControlIntegrated Framework issued by theCommittee of Sponsoring Organizations 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 o
166、f income,common stockholders equity and comprehensive income,and cashflows of The York Water Company,and our report dated March 10,2008 expressed an unqualified opinion.Beard Miller Company LLPYork,PennsylvaniaMarch 10,2008Report of Independent Registered Public Accounting FirmFinancialsThe York Wat
167、er Company2 0 0 7 A n n u a l R e p o r t22FinancialsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholdersof The York Water CompanyWe have audited the accompanying balance sheets of The York Water Company as of December 31,2007 and 2006,and therelated stat
168、ements of income,common stockholders equity and comprehensive income,and cash flows for each of the yearsin the three-year period ended December 31,2007.The York Water Companys management is responsible for these financialstatements.Our responsibility is to express an opinion on these financial stat
169、ements 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 we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material miss
170、tatement.An audit includes examining,on a test basis,evidence supporting theamounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used andsignificant estimates made by management,as well as evaluating the overall financial statement presentati
171、on.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 financial position of TheYork Water Company as of December 31,2007 and 2006,and the results of its operations and its cash flo
172、ws for each of theyears in the three-year period ended December 31,2007 in conformity with accounting principles generally accepted in theUnited States of America.As discussed in Note 6 to the financial statements,the Company changed its method of accounting for defined benefitpension plans in 2006.
173、We also have 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 31,2007,based on criteria established inInternal ControlIntegrated Framework issued by the Committee
174、of Sponsoring Organizations of the Treadway Commission(COSO),and our report dated March 10,2008 expressed an unqualified opinion.Beard Miller Company LLPYork,PennsylvaniaMarch 10,2008As of December 31Assets20072006Utility Plant,at original cost.$223,538$203,101Plant acquisition adjustments.(1,184)(1
175、,081)Accumulated depreciation.(31,308)(28,220)Net utility plant191,046173,800Other Physical Property:Less accumulated depreciation of$150 in 2007 and$138 in 2006.574569Current Assets:Receivables,less reserves of$193 in 2007 and$173 in 2006.2,9542,304Unbilled revenues.2,2162,536Recoverable income tax
176、es.252520Materials and supplies inventories,at cost.802820Prepaid expenses.456400Deferred income taxes.132118Total current assets.6,8126,698Other Long-Term Assets:Deferred debt expense.1,1701,263Notes receivable.6101,941Deferred regulatory assets.7,7098,993Other.3,0482,800Total long-term assets12,53
177、714,997Total Assets$210,969$196,064Stockholders Equity and LiabilitiesCommon Stockholders Equity:Common stock,no par value,authorized 46,500,000 shares,issued andoutstanding 11,264,923 shares in 2007 and 11,201,119 shares in 2006.$56,566$55,558Retained earnings.10,9869,904Accumulated other comprehen
178、sive loss.(280)(101)Total common stockholders equity.67,27265,361Preferred stock,authorized 500,000 shares,no shares issued.Long-term debt,excluding current portion.58,46561,095CommitmentsCurrent Liabilities:Short-term borrowings.3,000Current portion of long-term debt.12,0401,240Accounts payable.3,1
179、641,627Dividends payable.1,1261,075Accrued taxes.2470Accrued interest.910916Other accrued expenses.1,096995Total current liabilities21,3605,923Deferred Credits:Customers advances for construction.21,82125,221Contributions in aid of construction.19,73615,952Deferred income taxes.16,96415,529Deferred
180、employee benefits.4,0425,891Other deferred credits.1,3091,092Total deferred credits63,87263,685Total Stockholders Equity and Liabilities$210,969$196,064The accompanying notes are an integral part of these statements.The York Water Company2 0 0 7 A n n u a l R e p o r t23Balance Sheets(In thousands o
181、f dollars,except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t24Water Operating Revenues:Residential.$19,722$17,972$16,737Commercial and industrial.9,2908,4978,009Other.2,4212,1892,05931,43328,65826,805Operating Expenses:Operation and maintenance.6,5935,9765,298Ad
182、ministrative and general.6,5066,1745,432Depreciation and amortization.3,2272,5222,364Taxes other than income taxes.9431,08292317,26915,75414,017Operating income.14,16412,90412,788Other Income(Expenses):Interest on long-term debt.(4,095)(3,550)(3,470)Interest on short-term debt.(49)(615)(134)Allowanc
183、e for funds used during construction.228438181Other income(expenses),net.(142)110(149)(4,058)(3,617)(3,572)Income before income taxes.10,1069,2879,216Federal and state income taxes.3,6923,1963,383Net Income.$6,414$6,091$5,833Basic Earnings Per Common Share$0.57$0.58$0.56Cash Dividends Declared Per C
184、ommon Share$0.475$0.454$0.424FinancialsStatements of Income(In thousands of dollars,except per share amounts)The accompanying notes are an integral part of these statements.200720062005Year Ended December 31AccumulatedOtherCommonRetainedComprehensiveStockEarningsIncome(Loss)TotalBalance,December 31,
185、2004.$41,014$7,192$(169)$48,037Net income.5,8335,833Other comprehensive income(loss):Unrealized loss on interest rate swap,net of$101 income tax.(148)(148)Reclassification adjustment for amountsrecognized in income,net of$57income tax.8484Comprehensive income.5,769Dividends($.424 per share).(4,392)(
186、4,392)Issuance of common stock underdividend reinvestment andemployee stock purchase plans.1,0011,001Balance,December 31,2005.42,0158,633(233)50,415Net income.6,0916,091Other comprehensive income(loss):Unrealized gain on interest rate swap,net of$82 income tax.120120Reclassification adjustment for a
187、mountsrecognized in income,net of$8 income tax1212Comprehensive income.6,223Dividends($.454 per share).(4,820)(4,820)Issuance of 739,750 shares common stock.12,48212,482Issuance of common stock underdividend reinvestment andemployee stock purchase plans.1,0611,061Balance,December 31,2006.55,5589,904
188、(101)65,361Net income.6,414-6,414Other comprehensive income(loss):Unrealized loss on interest rate swap,net of$125 income tax.(183)(183)Reclassification adjustment for amountsrecognized in income,net of$3 income tax.44Comprehensive income.6,235Dividends($.475 per share).(5,332)(5,332)Issuance of com
189、mon stock underdividend reinvestment andemployee stock purchase plans.1,0081,008Balance,December 31,2007.$56,566$10,986$(280)$67,272The accompanying notes are an integral part of these statements.The York Water Company2 0 0 7 A n n u a l R e p o r t25FinancialsStatements of Common Stockholders Equit
190、y and Comprehensive IncomeFor the Years Ended December 31,2007,2006 and 2005(In thousands of dollars,except per share amounts)The York Water Company2 0 0 7 A n n u a l R e p o r t26FinancialsStatements of Cash Flows(In thousands of dollars,except per share amounts)Cash Flows from Operating Activitie
191、s:Net income.$6,414$6,091$5,833Adjustments to reconcile net income tonet cash provided by operating activities:Depreciation and amortization.3,2272,5222,364Increase in deferred income taxes.1,1431,496688Other.(71)(115)(85)Changes in assets and liabilities:Increase in accounts receivable,unbilled rev
192、enues and recoverableincome taxes.(216)(1,729)(261)(Increase)decrease in materials and supplies and prepaid expenses(38)(29)567Increase(decrease)in accounts payable,accrued expenses,regulatoryand other liabilities,and deferred employee benefits and credits(1,654)1,5041,149Increase(decrease)in accrue
193、d interest and taxes.(52)111(477)(Increase)decrease in regulatory and other assets.1,287(2,735)(1,327)Net cash provided by operating activities.10,0407,1168,451Cash Flows from Investing Activities:Utility plant additions,including debt portion of allowance forfunds used during construction of$127 in
194、 2007,$245 in 2006 and$101 in 2005.(18,154)(20,678)(15,562)Acquisitions of water systems.(896)(1,994)Decrease in notes receivable.85825541Net cash used in investing activities.(18,192)(20,423)(17,515)Cash Flows from Financing Activities:Customers advances for construction and contributionsin aid of
195、construction.2,4474,0655,328Repayments of customer advances.(1,469)(1,465)(1,141)Proceeds(issuance costs)of long-term debt.8,2109,920(35)Repayments of long-term debt.(40)(39)(39)Borrowings(repayments)under short-term line-of-credit agreements.3,000(7,292)7,292Changes in cash overdraft position.277(7
196、53)805Issuance of common stock.1,00813,5431,001Dividends paid.(5,281)(4,672)(4,311)Net cash provided by financing activities.8,15213,3078,900Net change in cash and cash equivalents.(164)Cash and cash equivalents at beginning of year.164Cash and cash equivalents at end of year.$Supplemental disclosur
197、es of cash flow information:Cash paid during the year for:Interest,net of amounts capitalized.$3,970$3,815$3,473Income taxes.2,3242,1743,027200720062005Year Ended December 31The accompanying notes are an integral part of these statements.Supplemental schedule of non-cash investing and financing acti
198、vities:Accounts payable includes$2,311 in 2007,$900 in 2006 and$1,223 in 2005 for the construction of utility plant.Accounts payable and other deferred credits includes$173 in 2007,$239 in 2006 and$303 in 2005 for the acquisition of water systems.The change in notes receivable includes$473 in 2007 a
199、nd($4)in 2005 offset by like amounts of customer advances.1.Significant Accounting PoliciesThebusinessofTheYorkWaterCompanyistoimpound,purifyanddistributewater.TheCompanyoperateswithinitsfranchisedterritory located in York and Adams Counties,Pennsylvania,and is subject to regulation by the PPUC.The
200、following summarizes the 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.Watersyst
201、emsacquiredarerecordedatestimatedoriginalcostofutilityplantwhenfirst 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
202、acquisitionadjustmentwithinutilityplant.AtDecember31,2007and2006,utilityplantincludesacreditacquisitionadjustmentof$1,184and$1,081,respectively.The acquisition ofAbbottstown Borough water assets yielded a negative acquisition adjustment of$131.Thenet acquisition adjustment is being amortized over th
203、e remaining life of the respective assets.Amortization amounted to$28 in2007,$31 in 2006 and$34 in 2005.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 va
204、lue,are charged to the reserve 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 char
205、ges to maintenance expense the 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 p
206、roperty is capitalized to the 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
207、 astraight-line basis over the 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 re
208、porting purposes:Mains and accessories.$111,500$102,74313-85yrsServices,meters and hydrants.46,55642,44722-54yrsOperations structures,reservoirs and water tanks.35,96633,67711-67yrsPumping and purification equipment.7,9517,4288-33 yrsOffice,transportation and operating equipment.8,6767,4581-22 yrsLa
209、nd and other non-depreciable assets.2,7712,690Utility plant in service.213,420196,443Construction work in progress.10,1186,658Total Utility Plant.$223,538$203,101The effective rate of depreciation was 1.98%in 2007,1.72%in 2006,and 1.82%in 2005 on average utility plant,net ofcustomers advances and co
210、ntributions.Larger depreciation provisions are deducted for tax purposes.Utility Plant Asset CategoryDecember 31,20072006Approximate rangeof remaining livesThe York Water Company2 0 0 7 A n n u a l R e p o r t27Notes to Financial Statements(In thousands of dollars,except per share amounts)Financials
211、The York Water Company2 0 0 7 A n n u a l R e p o r t28AssetsIncome taxes.$2,809$2,415VariousPostretirement benefits.4,3236,07910-20 yearsUtility plant retirement costs.5103385 yearsRate case filing expenses.671611-2 years$7,709$8,993LiabilitiesIncome taxes.$860$8671-50 yearsFinancialsNotes to Finan
212、cial Statements(In thousands of dollars,except per share amounts)December 31,200720061.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 prov
213、isions charged 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.Managem
214、ents periodic 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 t
215、erms are considered 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 basi
216、s over the 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 r
217、epaytheir 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 impair
218、ment is measured 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
219、Regulation.”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
220、 cost or credit 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 C
221、ompanys rate 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 relatedprimar
222、ily to differences 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)theunderfund
223、ed status 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
224、plans and 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 that areexpected to be recovered over a five-year period in rates.Rate case
225、filing expenses are deferred and amortized over aperiod of 1-2 years.Regulatory liabilities relate mainly to deferred investment tax credits,and additionally to deferred taxes relatedto postretirement death benefits and bad debts.These liabilities will be given back to customers in rates as tax dedu
226、ctionsoccur over the next 1-50 years.Regulatory liabilities are part of other accrued expenses and other deferred credits on thebalance sheets.Materials and Supplies InventoriesMaterials and supplies inventories are stated at cost.Costs are determined using the average cost method.Other AssetsOther
227、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 ConstructionCustomer advances are cash payments from de
228、velopers,municipalities,customers or builders for construction of utilityplant and are refundable as operating revenues are earned and any notes receivable have been paid after the completionof construction.After all refunds to which the customer is entitled are made,any remaining balance is transfe
229、rred tocontributions in aid of construction.From 1986-1996 when customer advances were taxable income to the Company,additional funds were collected from customers to cover the taxes.Those funds were recorded as a liability withinCustomer Advances and are being amortized as deferred income over the
230、tax life of the underlying assets.Contributions in Aid of ConstructionContributions in Aid of Construction is composed of(i)direct,non-refundable contributions from developers,customersor builders for construction of water infrastructure and(ii)customer advances that have become non-refundable.Contr
231、ibutions in aid of construction are deducted from the Companys rate base,and therefore,no return is earned onproperty financed with contributions.The PPUC requires that contributions received remain on the Companys balancesheet indefinitely as a long-term liability.Comprehensive IncomeAccounting pri
232、nciples generally accepted in the United States of America require that recognized revenue,expenses,gainsand losses be included in net income.Although certain changes in assets and liabilities,such as unrealized gains and losseson interest rate swaps,are reported as a separate component of the equit
233、y section of the balance sheet,such items,alongwith net income,are components of comprehensive income.The York Water Company2 0 0 7 A n n u a l R e p o r t29Notes to Financial Statements(In thousands of dollars,except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t3
234、0Interest Rate Swap AgreementThe Company utilizes an interest rate swap agreement to convert a portion of its variable-rate debt to a fixed rate.TheCompany has designated the interest rate swap agreement as a cash flow hedge.Interest rate swaps are contracts in which aseries of interest rate cash fl
235、ows are exchanged over a prescribed period.The notional amount on which the interest paymentsare based is not exchanged.As a derivative,the interest rate swap is recorded on the balance sheet in other deferred credits at fair value.The effectiveportion of the gain or loss on a derivative designated
236、and qualifying as a cash flow hedging instrument is initially reportedas a component of other comprehensive income and subsequently reclassified into earnings as interest expense in the sameperiod or periods during which the hedged transaction affects earnings.The ineffective portion of the gain or
237、loss on thederivative instrument,which has been minimal to date,is recognized currently in earnings.During the twelve months endingDecember 31,2008,the Company expects to reclassify$45(net of tax)from other comprehensive loss to earnings as anexpense.The interest rate swap will expire on October 1,2
238、029.Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge andare expected to be,and are,effective in substantially reducing interest rate risk arising from the assets and liabilities identifiedas exposing the Company to risk.Those de
239、rivative financial instruments that do not meet the hedging criteria would beclassified as trading activities and would be recorded at fair value with changes in fair value recorded in income.Derivativehedge contracts must meet specific effectiveness tests(i.e.,over time the change in their fair val
240、ues or cash flows due to thedesignated hedge risk must be within 80 to 125 percent of the opposite change in the fair values or cash flows of the hedgedassets or liabilities).Further,if the underlying financial instrument differs from the hedged asset or liability,there mustbe a clear economic relat
241、ionship between the prices of the two financial instruments.If periodic assessment indicatesderivatives no longer provide an effective hedge,the derivative contracts would be closed out and settled or classified as atrading activity.Income TaxesCertain income and expense items are accounted for in d
242、ifferent time periods for financial reporting than for income taxreporting purposes.Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financial statement carryi
243、ng amounts of existing assets andliabilities and their respective tax bases and tax credit carryforwards.Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settle
244、d.The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date.To the extent such income taxes increase or decrease future rates,an offsettingregulatory asset or liability has been recorded.Investment tax credits hav
245、e been deferred and are being amortized to income over the average estimated servicelives of the related assets.As of December 31,2007 and 2006,deferred investment tax credits amounted to$1,005 and$1,044,respectively.Financials1.Significant Accounting Policies(continued)Notes to Financial Statements
246、(In thousands of dollars,except per share amounts)Allowance for Funds Used During ConstructionAllowance for funds used during construction(AFUDC)represents the cost of funds used for construction purposes duringthe period of construction.These costs are reflected as non-cash income during the constr
247、uction period and as an addition tothe cost of plant constructed.The PPUC approved rate was 10.04%for 2007,2006 and 2005.AFUDC is recovered throughwater rates as utility plant is depreciated.Cash and Cash EquivalentsFor the purposes of the statements of cash flows,the Company considers all highly li
248、quid debt instruments purchased witha maturity of three months or less to be cash equivalents except for those instruments earmarked to fund constructionexpenditures or repay long-term debt.The Company had a book overdraft of$328 and$51 at December 31,2007 and 2006,respectively.The book overdraftrep
249、resents outstanding checks and other items which had not cleared the 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 Prepa
250、ration of Financial StatementsThe preparation of financial statements 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 contingen
251、t assets and liabilities at the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period.Actual results could differ from those estimates.ReclassificationsCertain 2006 and 2005 amounts have been reclassified to conform to the 2007 presentation.Suc
252、h reclassifications had no effecton net income.Impact of Recent Accounting PronouncementsIn July 2006,the Financial Accounting Standards Board(FASB)issued FASB Interpretation(FIN)No.48,“Accounting forUncertainty in Income Taxes.”FIN No.48 prescribes(a)a consistent recognition threshold and(b)a measu
253、rement attributefor the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return,andprovides guidance on derecognition,classification,interest and penalties,accounting,disclosure and transition.Thisinterpretation was effective for fiscal years b
254、eginning after December 15,2006.The Company evaluated and adopted thisinterpretation in January 2007 concluding that there were no uncertain tax positions meeting the recognition andmeasurement test of FIN No.48.The Company will continue to monitor tax positions going forward.In September 2006,the F
255、ASB issued SFAS No.157,“Fair Value Measurements,”to eliminate the diversity in practice thatexists due to the different definitions of fair value and the limited guidance for applying those definitions.SFAS No.157defines fair value as the price that would be received to sell an asset or paid to tran
256、sfer a liability in an orderly transactionbetween market participants at the measurement date(an exit price),as opposed to the price that would be paid to acquirethe asset or received to assume the liability at the measurement date(an entry price).SFAS No.157 is effective for financialstatements iss
257、ued for fiscal years beginning after November 15,2007,and interim periods within those fiscal years.TheCompany has evaluated this standard and determined that it did not have a material effect on financial position and resultsof operations.The Company adopted this standard in January 2008.The York W
258、ater Company2 0 0 7 A n n u a l R e p o r t31Notes to Financial Statements(In thousands of dollars,except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t32Impact of Recent Accounting Pronouncements(continued)In September 2006,the FASB issued SFAS No.158,“Employers A
259、ccounting for Defined Benefit Pension and OtherPostretirement Plans.”SFAS No.158 requires(1)recognition of the funded status of a benefit plan in the balance sheet,(2)recognition in other comprehensive income of gains or losses and prior service costs or credits arising during the periodbut which ar
260、e not included as components of periodic benefit cost,(3)measurement of defined benefit plan assets andobligations as of the balance sheet date,and(4)disclosure of additional information about the effects on periodic benefit costfor the following fiscal year arising from delayed recognition in the c
261、urrent period.The requirements to recognize thefunded status of a plan and to comply with disclosure provisions were effective as of the end of the fiscal year that endsafter December 15,2006.The requirement to measure plan assets and benefit obligations as of the balance sheet date iseffective for
262、fiscal years ending after December 15,2008.The Company adopted this standard as of December 31,2006,andhas accordingly reported the unfunded status of its defined benefit pension plans as well as the required disclosures.Therequirement to measure plan assets and benefit obligations as of the balance
263、 sheet date,effective after December 15,2008,will have no impact,as the Companys plans are already measured at the balance sheet date.In February 2007,the FASB issued SFAS No.159,“Establishing the Fair Value Option for Financial Assets and Liabilities,”to permit all entities to choose to elect to me
264、asure eligible financial instruments at fair value.The decision to elect the fairvalue option should be made on an instrument-by-instrument basis with certain exceptions.If the fair value option iselected,an entity must report unrealized gains and losses in earnings at each subsequent reporting date
265、,and recognizeupfront costs and fees related to those items in earnings as incurred and not deferred.SFAS No.159 applies to fiscal yearsbeginning after November 15,2007,with early adoption permitted for an entity that has also elected to apply the provisionsof SFAS No.157,“Fair Value Measurements.”T
266、he Company has evaluated this standard and determined that it did notimpact financial position or results of operations.The Company adopted this standard in January 2008.In December 2007,the FASB issued SFAS No.141(R),“Business Combinations.”The statement establishes principles andrequirements for h
267、ow the acquirer(1)recognizes and measures in its financial statements the identifiable assets acquired,the liabilities assumed,and any noncontrolling interest in the acquiree,(2)recognizes and measures the goodwill acquiredin the business combination or a gain from a bargain purchase,and(3)determine
268、s what information to disclose to enableusers of the financial statements to evaluate the nature and financial effects of the business combination.This statement iseffective for annual periods beginning after December 15,2008.This statement will not have an impact on the Companysfinancial statements
269、 unless another company is purchased.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(minority)interests in subsidiariesas equity in the consolidated financ
270、ial statements and it requires consolidated net income to include amounts attributableto both the parent and noncontrolling interest.This statement is effective for annual periods beginning after December 15,2008.This statement will not affect the Companys financial statements since there are no sub
271、sidiaries.Financials1.Significant Accounting Policies(continued)Notes to Financial Statements(In thousands of dollars,except per share amounts)2.AcquisitionsOn May 16,2007,the Company announced that it had entered into an agreement to acquire the water system of WestManheim Township in York County,P
272、ennsylvania.This acquisition is expected to result in the addition of 2,100 customersand will cost approximately$2,075.The agreement was approved by the PPUC on December 20,2007,and now awaitsPennsylvania Department of Environmental Protection(DEP)approval on the construction permits.Upon approval b
273、y DEP,the Company will construct a main from its current distribution system to interconnect with West Manheims distributionsystem.The interconnection and closing on this acquisition are expected to occur in the fourth quarter of 2008.On January 5,2007,the Company completed the acquisition of the wa
274、ter system of Abbottstown Borough which servedapproximately 400 customers in Adams County,Pennsylvania.The purchase price of approximately$900 was less than thedepreciated original cost of these assets.The Company has recorded a negative acquisition adjustment of approximately$131 and is amortizing
275、this credit over the remaining life of the acquired assets.The purchase was funded throughinternally-generated funds and short-term borrowings.The Company began serving the customers ofAbbottstown Boroughin January,2007.On November 15,2005,the Company acquired the Mountain View Water Company.In lieu
276、 of an actual payment for thesystem,the Company extended its distribution system to connect to the Mountain View system and provided facilityupgrades for the Mountain View system as well.This acquisition added approximately 260 customers.On July 6,2005,the Company acquired 100%of the capital stock o
277、f Spring Grove Water Company for a purchase priceof approximately$973.Of the total price,$645 was paid from borrowings under the Companys lines of credit.Up to$328may be paid to the former owner in installments based on the amount of water such former owner purchases from theCompany over the 60-mont
278、h period following the closing.As of December 31,2007,the Company had made installmentpayments totaling approximately$155.The acquired company provided water service to 21 customers just outside theBorough of Spring Grove.The acquisition included assets with a book value of$284 and assumed liabiliti
279、es of$25.TheCompany recorded an acquisition adjustment of$715 and is amortizing these costs over the remaining life of theacquired assets.Also on July 6,2005,the Company acquired the water utility assets of Spring Grove Borough for a purchase price ofapproximately$1,312,which is less than the deprec
280、iated original cost of these assets.The Company recorded a negativeacquisition adjustment of$514 and is amortizing this credit over the remaining life of the acquired assets.The Companyused borrowings under its lines of credit to fund this purchase.This acquisition added approximately 850 customers.
281、The Company began to include the operating results of the acquired systems in its operating results on the acquisitiondates.The results have been immaterial to total company results.The York Water Company2 0 0 7 A n n u a l R e p o r t33Notes to Financial Statements(In thousands of dollars,except pe
282、r share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t34FinancialsThe provisions for income taxes consist of:200720062005Federal current.$1,946$1,295$1,979State current.603404716Federal deferred.1,1701,507807State deferred.1228(80)Federal investment tax credit,net of current
283、 utilization.(39)(38)(39)Total income taxes.$3,692$3,196$3,383A reconciliation of the statutory Federal tax provision(34%)to the total provision follows:200720062005Statutory Federal tax provision.$3,436$3,158$3,133State income taxes,net of Federal benefit.407285420Tax-exempt interest.(21)(75)(67)Am
284、ortization of investment tax credit.(39)(39)(39)Cash value of life insurance.(29)(34)(28)Domestic production deduction.(73)(42)(36)Other,net.11(57)Total income taxes.$3,692$3,196$3,383Notes to Financial Statements(In thousands of dollars,except per share amounts)The tax effects of temporary differen
285、ces between book and tax balances that give rise to significant portions of the deferredtax assets and deferred tax liabilities as of December 31,2007 and 2006 are summarized in the following table:Deferred tax assets:Reserve for doubtful accounts.$78$70Deferred compensation.829855Customers advances
286、 and contributions.201252Deferred taxes associated with the gross-up of revenues necessaryto return,in rates,the effect of temporary differences.7062Pensions.8681,581Unrealized loss on interest rate swap.19169Costs deducted for book,not for tax.5952Total deferred tax assets.2,2962,941Deferred tax li
287、abilities:Accelerated depreciation.15,70714,342Investment tax credit.597620Deferred taxes associated with the gross-up of revenues necessaryto recover,in rates,the effect of temporary differences.861691Regulatory asset for pensions.1,7552,497Costs deducted for tax,not for book.208202Total deferred t
288、ax liabilities.19,12818,352Net deferred tax liability.$16,832$15,411Reflected on balance sheets as:Current deferred tax asset.$(132)$(118)Noncurrent deferred tax liability.16,96415,529Net deferred tax liability.$16,832$15,411No valuation allowance is required for deferred tax assets as of December 3
289、1,2007 and 2006.In assessing the soundness of deferred taxassets,management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income d
290、uring the periods in which thosetemporary differences become deductible.Management considers the scheduled reversal of deferred tax liabilities,projected future taxableincome,and tax planning strategies in making this assessment.Based upon the level of historical taxable income and the current regul
291、atoryenvironment,management believes it is more likely than not the Company will realize the benefits of these deductible differences.200720063.Income TaxesThe Company adopted FASB Interpretation(FIN)No.48,“Accounting for Uncertainty in Income Taxes,”in January 2007.The Company determined that there
292、 were no uncertain tax positions meeting the recognition and measurement test of FINNo.48 recorded in the years that remain open for review by taxing authorities.The Federal income tax returns for the years2004 through 2006 remain open,and the state income tax return for 2006 remains open.The Compan
293、y has not yet filed taxreturns for 2007,but has not taken any new positions in its 2007 income tax provision.The Companys policy is to recognize interest and penalties related to income tax matters in other expenses.The Companyrecorded interest and penalties of$5 for the year ended December 31,2007.
294、There were no interest or penalties for the yearsended December 31,2006 and 2005.Long-term debt as of December 31,2007 and 2006 is summarized in the following table:200720063.60%Industrial Development Authority RevenueRefunding Bonds,Series 1994,due 2009.$2,700$2,7003.75%Industrial Development Autho
295、rity RevenueRefunding Bonds,Series 1995,due 2010.4,3004,3004.05%Pennsylvania Economic Development Financing AuthorityExempt Facilities Revenue Bonds,Series A,due 2016.2,3502,3505.00%Pennsylvania Economic Development Financing AuthorityExempt Facilities Revenue Bonds,Series A,due 2016.4,9504,95010.17
296、%Senior Notes,Series A,due 2019.6,0006,0009.60%Senior Notes,Series B,due 2019.5,0005,0001.00%Pennvest Loan,due 2019.49553510.05%Senior Notes,Series C,due 2020.6,5006,5008.43%Senior Notes,Series D,due 2022.7,5007,500Variable Rate Pennsylvania Economic Development Financing AuthorityExempt Facilities
297、Revenue Bonds,Series B,due 2029.12,00012,0004.75%Industrial Development Authority Revenue Bonds,Series 2006,due 2036.10,50010,500Committed Line of Credit,due 2009.8,210Total long-term debt.70,50562,335Less current maturities.(12,040)(1,240)Long-term portion.$58,465$61,095Payments due by period:20082
298、009201020112012$12,040$10,951$4,341$41$424.Long-Term Debt and Short-Term BorrowingsIncluded in payments due by period are payments of$12,000 in 2008 on the variable rate bonds(due 2029)which could berefunded at any time.2009 payments include the payback of the committed line of credit.The holders of
299、 our$12,000 variable rate PEDFA Series B Bonds may tender their bonds at any time.When the bonds aretendered,they are subject to an annual remarketing agreement,pursuant to which a remarketing agent attempts to remarket theThe York Water Company2 0 0 7 A n n u a l R e p o r t35Notes to Financial Sta
300、tements(In thousands of dollars,except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t36tenderedbondspursuanttothetermsoftheIndenture.TheCompanyalsohasaStandbyBondPurchaseAgreement(alsoknownasa liquidity facility)whereby bonds which cannot be remarketed are purchase
301、d by a financial institution(PNC Bank).If PNC Bank isunabletoremarketorsellthebondswithin6months,theCompanymustbegintobuybackthebondsinmonthlyinstallmentsovera five-year period.The effect of this arrangement has historically allowed the Company to classify these bonds as long-term debt.In January 20
302、08,the credit rating of the insurer of the bonds was downgraded,and as a result,all of the bonds were tendered.As a result of these events,we have classified the$12,000 variable rate debt as short term on the balance sheet.The remarketingagent is currently attempting to remarket the bonds,but these
303、efforts may not be successful.Also,the terms of the standbyagreement permit PNC Bank to terminate the agreement after an insurer credit downgrade has occurred.If the remarketing agentis unable to remarket the bonds,it is likely that PNC Bank will terminate the standby agreement and the Company will
304、berequiredtorefundandrefinanceallofthebonds.TheCompanyiscurrentlylookingintobothfixedandvariablefinancingoptionsthat will best satisfy both short-term and long-term objectives.The Company also has sufficient line of credit capacity to be ableto buy the bonds back temporarily until a more permanent r
305、efinancing can be obtained.The Company may elect to have the Series B Bonds redeemed,in whole or in part,on any date that interest is payable for aredemption price equal to 100%of the principal amount thereof plus accrued interest to the date of redemption.The Series BBonds are also subject to manda
306、tory redemption for the same redemption price in the event that the Internal Revenue Servicedetermines that the interest payable on the Series B Bonds is includable in gross income of the holders of the bonds for federal taxpurposes.The variable interest paid to bondholders is calculated using the P
307、EDFAtax-exempt rate which averaged 3.71%in 2007.In connection withthe$12,000 PEDFAloan agreement,mentioned above,we entered into an interest rate swap with PNC Bank,National Association in order to hedge against interest rate fluctuations due to the variable interest rate under the terms of theloan
308、agreement.Pursuant to the terms of the interest rate swap,we are obligated periodically to pay an amount based on a fixedinterest rate of 3.16%,and we will receive an amount based on a variable rate.The variable rate is based on a percentage of theone-month LIBOR.If the rate we receive from the swap
309、 counterparty(PNC)approximates the variable rate paid to bondholders,we will effectively fix our interest rate at 3.16%per annum.As of December 31,2007,there was a spread of 51 basis points whichequates to an effective rate of 3.67%.The all-in interest rate(including variable interest and swap payme
310、nts)for the year 2007averaged 3.77%.The interest rate swap will terminate on the maturity date of the Series B Bonds(which is the same date as thematurity date of the loan under the loan agreement),unless sooner terminated pursuant to its terms.In the event the interest rateswap terminates prior to
311、the maturity date of the Series B Bonds,either we or PNC Bank may be required to make a terminationpayment to the other based on market conditions at such time.If we decide to refund and refinance the variable rate bonds,theswap may continue or it may be terminated depending on the option we choose.
312、If the Company had terminated the rate swapas of February 27,2008,the Companys termination payment would have amounted to$405.Notwithstanding the terms of theswap agreement,we are ultimately obligated for all amounts due and payable under the loan agreement.Interest rate swap agreements derive their
313、 value from underlying interest rates.These transactions involve both credit andmarket risk.The notional amounts are amounts on which calculations,payments,and the value of the derivative are based.Notional amounts do not represent direct credit exposure.Direct credit exposure is limited to the net
314、difference between thecalculated amounts to be received and paid,if any.Such difference,which represents the fair value of the swap,is reflected on theCompanys balance sheet.The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to the agreement.TheCompany
315、 controls the credit risk of its financial contracts through credit approvals,limits and monitoring procedures,and doesnot expect the counterparty to default on its obligations.Financials4.Long-Term Debt and Short-Term Borrowings(continued)Notes to Financial Statements(In thousands of dollars,except
316、 per share amounts)On October 1,2006,the York County Industrial Development Authority,or the YCIDA,issued$10,500 aggregate principalamount of Exempt Facilities Revenue Bonds,Series 2006 for the benefit of the Company.The YCIDAthen loaned the proceeds ofthe offering to the Company pursuant to a loan
317、agreement.The loan agreement provides for a$10,500 loan bearing interest at4.75%.The bonds and the related loan will mature on October 1,2036.The loan agreement contains various covenants andrestrictions.We believe that we are in compliance with all of these restrictions.The proceeds,net of issuance
318、 costs,were used topay down short-term borrowings incurred for various operations and construction projects.The terms of the debt agreements limit in some cases the Companys ability to borrow additional funds,to prepay itsborrowings and include certain restrictions with respect to declaration and pa
319、yment of cash dividends and acquisition of theCompanys stock.Under the terms of the most restrictive agreements,the Company cannot borrow in excess of 60%of its utilityplant,and cumulative payments for dividends and acquisition of stock since December 31,1982 may not exceed$1,500 plus netincome sinc
320、e that date.As of December 31,2007,none of the earnings retained in the business are restricted under theseprovisions.One of the notes also requires a pledge of$800 of receivables as security for the loan.As of February 2008,theCompanymaintainsunsecuredlinesofcreditaggregating$28,000withtwobanks.Loa
321、nsgrantedunderthese lines bear interest based on LIBOR plus 0.70%to 0.75%.The Company had$11,210 outstanding borrowings under its linesof credit as of December 31,2007,and no borrowings as of December 31,2006.The weighted average interest rate on line of creditborrowings as of December 31,2007 was 5
322、.62%.One line,amounting to$11,000 is payable upon demand,whereas the other is acommitted line with a revolving 2-year maturity.The Company is not required to maintain compensating balances and there areno commitment fees on its lines of credit.5.Common Stock and Earnings Per ShareEarnings per share
323、are based upon the weighted average number of shares outstanding of 11,225,822 in 2007,10,475,173 in 2006and 10,359,374 in 2005.The Company does not have dilutive securities outstanding.Under the employee stock purchase plan,all full-time employees who have been employed at least six consecutive mon
324、thsmay purchase shares of the Companys common stock through payroll deductions limited to 10%of gross compensation.Thepurchase price is 95%of the fair market value(as defined).Shares issued during 2007,2006 and 2005 were 5,398,5,747 and 6,843,respectively.As of December 31,2007,58,529 authorized sha
325、res remain unissued under the plan.Under the optional dividend reinvestment plan,holders of the Companys common stock may purchase additional shares.The purchase price is 95%of the fair market value(as defined).Shares issued during 2007,2006,and 2005 were 58,406,55,695 and62,581,respectively.As of D
326、ecember 31,2007,965,619 authorized shares remain unissued under the plan.On August 28,2006,the Companys Board of Directors declared a three-for-two split of its common stock in the form of a stockdividend.The split was effected on September 11,2006 to shareholders of record as of September 1,2006.On
327、e additional share ofcommon stock was issued for every two shares issued and outstanding as of September 1,2006.The transaction had no effect ontotal shareholders equity.Accordingly,the financial statements as well as share and per share amounts in this report have beenrestated to reflect the stock
328、split.In December 2006,the Company closed an underwritten public offering of 645,000 shares and an over-allotment of 94,750 sharesof its common stock.Janney Montgomery Scott LLC was the sole underwriter in the offering.The Company received net proceedsintheoffering,afterdeductingofferingexpensesandu
329、nderwritersdiscountsandcommissions,ofapproximately$12.5million.Thenet proceeds were used to repay the Companys remaining short-term borrowings and to fund operations and capital expenditures.The York Water Company2 0 0 7 A n n u a l R e p o r t37Notes to Financial Statements(In thousands of dollars,
330、except per share amounts)FinancialsThe York Water Company2 0 0 7 A n n u a l R e p o r t38FinancialsNotes to Financial Statements(In thousands of dollars,except per share amounts)6.Employee Benefit PlansThe Company maintains two defined benefit pension plans covering substantially all of its employe
331、es.The benefits are basedupon years of service and compensation over the last five years of service.The Companys funding policy is to contributeannually the amount permitted by the PPUC to be collected from customers in rates,but in no case less than the minimumrequired contribution.The following ta
332、ble sets forth the plans funded status as of December 31,2007 and 2006.The measurement of assets andobligations of the plans is as of December 31,2007 and 2006.Obligations and Funded Status at December 3120072006Change in Benefit ObligationPension benefit obligation beginning of year.$19,620$19,508S
333、ervice cost.724685Interest cost.1,1501,059Plan amendments.81Actuarial gain.(1,540)(861)Benefit payments.(815)(771)Pension benefit obligation end of year.19,22019,620Change in Plan AssetsFair value of plan assets beginning of year.15,72514,423Actual return on plan assets.1,3721,521Employer contributions.800552Benefits paid.(815)(771)Fair value of plan assets end of year.17,08215,725Funded Status of
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