NORTH PENN WATER AUTHORITY

Transcription

1 ANNUAL FINANCIAL REPORT Years Ended December 31, 2017 and 2016 Certified Public Accountants and Business Consultants

2 INTRODUCTORY SECTION

3 TABLE OF CONTENTS YEARS ENDED DECEMBER 31, 2017 AND 2016 Page Introductory Section Table of Contents 1 Financial Section Independent Auditors Report 2 Management s Discussion and Analysis (Unaudited) 4 Basic Financial Statements Statements of Net Position 15 Statements of Revenues, Expenses and Changes in Net Position 17 Statements of Cash Flows 18 Notes to the Basic Financial Statements 20 Supplementary Information Section Schedule of Corporate Entity 36 Schedules of Operating Revenues 37 Schedules of Operating Expenses, Exclusive of Depreciation and Amortization 38 Schedules of Nonoperating Income 41 Schedules of Property, Plant and Equipment

4 FINANCIAL SECTION

5 PO Box 680, Oaks, PA Fax: Willowbrook Lane, Suite 624, West Chester, PA Fax: PO Box 11847, Wilmington, DE Fax: Maillie LLP maillie.com Independent Auditors Report To the Members of the Board North Penn Water Authority Lansdale, Pennsylvania We have audited the accompanying financial statements of the North Penn Water Authority, which comprise the statements of net position as of December 31, 2017 and 2016, and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements North Penn Water Authority s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the North Penn Water Authority as of December 31, 2017 and 2016, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America (GAAP) Certified Pu b lic Acc oun t a n ts and B u s iness Co n s ult ant s

6 To the Members of the Board North Penn Water Authority Lansdale, Pennsylvania Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis on pages 4 through 14 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with evidence sufficient to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the North Penn Water Authority s basic financial statements. The supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audits of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. Oaks, Pennsylvania March 15,

7 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 As management of the North Penn Water Authority, we are offering readers of the Authority s financial statements this narrative overview and analysis of the Authority s financial performance during the fiscal years ended December 31, 2017 and Please read it in conjunction with the Authority s financial statements, which follow this section FINANCIAL HIGHLIGHTS During the year, the Authority s net position increased by $2,897,327 or 2%. During the year, the Authority s operating revenues were $18,539,765, a decrease from $20,347,956 in 2016 or 8.9%, while operating expenses increased to $10,573,071, up from $9,436,454 in 2016 or 12%. Capital Contributions to the Authority decreased by $13,216,496 to $2,781,192, down from $15,997,688 in 2016 or 82.6%. During the year, long-term debt decreased by $4,345,000. OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of two parts: Management s Discussion and Analysis (this section) and the basic Financial Statements. The Financial Statements also include notes that provide additional information that is essential to the full understanding of the data provided in the statements. REQUIRED FINANCIAL STATEMENTS The Financial Statements of the Authority report information about the Authority using accounting methods similar to those used by private sector companies. These statements offer the short- and longterm financial information about its activities. The Statement of Net Position includes all of the Authority s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to the Authority s creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Authority and assessing the liquidity and financial flexibility of the Authority. All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position. This statement measures the success of the Authority s operations over the past year and can be used to determine whether the Authority has successfully recovered all its costs through its user fees and other charges, along with the profitability and creditworthiness. The final required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the Authority s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where did cash come from, what was cash used for and what was the change in cash balance during the reporting year

8 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 FINANCIAL ANALYSIS OF THE AUTHORITY One of the most important questions asked about the Authority s finances is, Is North Penn Water Authority as a whole better off or not as a result of this year s activities? The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position report information about the Authority in a way that will help answer this question. These two statements report the net position of the Authority and changes in this net position. One can think of the Authority s net position (the difference between assets and liabilities) as one way to measure financial health or financial position. Over time, increases and decreases in the Authority s net position are one indicator of whether its financial health is improving or deteriorating. However, one will need to consider other nonfinancial factors such as changes in economic conditions, population growth and new or changing governmental legislation. Net Position The following table summarizes the changes in net position between December 31, 2017 and 2016: Condensed Statements of Net Position December 31, Variance Dollar % ASSETS Current assets $ 17,308,153 $ 21,524,856 $ (4,216,703) -19.6% Restricted assets 42,767,446 41,053,420 1,714, % Utility plant 169,138, ,283, , % Other assets 2,791,646 3,786,248 (994,602) -26.3% TOTAL ASSETS 232,005, ,647,862 (2,641,903) -1.1% DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 1,400,395 1,602,861 (202,466) -12.6% LIABILITIES Current liabilities 7,175,385 7,057, , % Long-term liabilities 74,347,545 79,158,598 (4,811,053) -6.1% TOTAL LIABILITIES 81,522,930 86,215,851 (4,692,921) -5.4% DEFERRED INFLOWS OF RESOURCES Accumulated increase in fair value of hedging derivative 2,762,108 3,677,873 (915,765) -24.9% Deferred pension credit 586, ,737 (133,010) -18.5% TOTAL DEFERRED INFLOWS OF RESOURCES 3,348,835 4,397,610 (1,048,775) -23.8% NET POSITION Net investment in capital assets 107,135, ,163,932 4,971, % Restricted assets 3,948,119 3,921,101 27, % Unrestricted assets 37,451,224 39,552,229 (2,101,005) -5.3% TOTAL NET POSITION $ 148,534,589 $ 145,637,262 $ 2,897, % - 5 -

9 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Total assets decreased by $2,641,903 in 2017 due primarily to the decrease in cash in the operations and maintenance account and the sale of the East Rockhill system. Total liabilities decreased $4,692,921 due primarily to the repayment of long-term debt. The net effect of these changes resulted in a $2.9 million increase in total net position. Statements of Revenues, Expenses and Changes in Net Position While the Statements of Net Position show the change in financial position on net assets, the Statements of Revenues, Expenses and Changes in Net Position provide answers as to the nature and source of these changes. Condensed Statements of Revenues, Expenses and Changes in Net Position Year Ended December 31, Variance Dollar % Operating revenues $ 18,539,765 $ 20,347,956 $ (1,808,191) -8.9% Operating expenses 10,573,071 9,436,454 1,136, % INCOME FROM OPERATIONS 7,966,694 10,911,502 (2,944,808) -27.0% Nonoperating revenues 2,074,137 2,148,256 (74,119) -3.5% Nonoperating expenses 9,924,696 9,855,718 68, % NONOPERATING EXPENSES, net (7,850,559) (7,707,462) (143,097) -1.9% INCOME (LOSS) BEFORE CONTRIBUTIONS 116,135 3,204,040 (3,087,905) 96.4% Contributions in aid of construction 2,781,192 15,997,688 (13,216,496) -82.6% Revenues CHANGE IN NET POSITION $ 2,897,327 $ 19,201,728 $ (16,304,401) -84.9% Operating revenues decreased $1,808,191 to $18,539,765 or 8.9% from 2016 to Operating revenues include the following: Metered sales $ 17,878,226 $ 19,670,548 Unmetered sales 613, ,284 Other revenues 47,929 48,124 $ 18,539,765 $ 20,347,

10 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 The chart below shows the historical average daily water supplied to the system for the years 2007 through Operating Expenses Operating expenses increased by $1,136,617 to $10,573,071 or 12% from 2016 to Historical Operating Revenues and Expenses - 7 -

11 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Capital Assets At the end of 2017, the Authority had invested $191,263,826 in property, plant and equipment and also had invested $87,199,554 in Forest Park Water. The greatest additions to the Authority s capital assets were additions to and replacements of the Authority s water storage and distribution system. Year Ended December 31, Variance Dollar % PROPERTY, PLANT AND EQUIPMENT Land $ 1,946,280 $ 2,018,729 $ (72,449) -3.6% Wells 952,379 1,036,192 (83,813) -8.1% Storage and distribution system 166,044, ,428,800 5,616, % Plant and structures 10,645,000 10,738,183 (93,183) -0.9% Equipment 11,373,664 10,943, , % Organization expense 301, , % TOTAL 191,263, ,466,613 5,797, % Accumulated depreciation (64,752,975) (61,288,701) (3,464,274) -5.7% NET PROPERTY, PLANT AND EQUIPMENT $ 126,510,851 $ 124,177,912 $ 2,332, % INVESTMENT IN FOREST PARK WATER Forest Park Water Treatment Plant $ 68,868,622 $ 67,917,138 $ 951, % Point Pleasant Pumping Station 13,864,566 13,598, , % PECO Contract 4,466,366 5,009,764 (543,398) -10.8% TOTAL 87,199,554 86,525, , % Accumulated depreciation (44,571,692) (42,420,464) (2,151,228) -5.1% Capital Contributions NET INVESTMENT IN FOREST PARK WATER $ 42,627,862 $ 44,105,426 $ (1,477,564) -3.4% North Penn Water Authority has complied with GASB Statement No. 33, which requires that Contributions in Aid of Construction be shown as revenue. This is classified as Nonoperating Income. Contributions in Aid of Construction involve both assets contributions (water mains and other facilities) and cash contributions (tapping fees and assessments). Together, these contributions totaled $2,781,192 in 2017, which is a decrease of $13,216,496 from Year Ended December 31, Variance Dollar % Contribution in assets $ 2,041,391 $ 593,185 $ 1,448, % Contribution in tapping fees 739,801 15,404,503 (14,664,702) % TOTAL $ 2,781,192 $ 15,997,688 $ (13,216,496) % - 8 -

12 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Long-Term Debt At the end of 2017, the North Penn Water Authority had total debt outstanding of $74,240,000. The Authority s total debt decreased by $4,345,000. All outstanding bonds carry an Aa3 rating from Moody s Investors Service. The Authority s long-term debt consists of the following Water Revenue Bonds: Debt Outstanding Issue December 31, Amount Bonds $ 32,655,000 $ 25,495, Bonds 39,120,000 32,000, Bonds 18,050,000 16,745,000 TOTAL $ 89,825,000 $ 74,240,000. As management of the North Penn Water Authority, we are offering readers of the Authority s financial statements this narrative overview and analysis of the Authority s financial performance during the fiscal year ended December 31, Please read it in conjunction with the Authority s financial statements, which follow this section FINANCIAL HIGHLIGHTS During the year, the Authority s net position increased by $19,201,728 or 15.2%. During the year, the Authority s operating revenues were $20,347,956, an increase from $19,004,222 in 2015 or 7.1%, while operating expenses decreased to $9,436,454, down from $11,426,696 in 2015 or 17.4%. Capital Contributions to the Authority increased by $12,574,667 to $15,997,687, up from $3,423,020 in 2015 or 367.4%. During the year, long-term debt increased by $4,460,

13 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Net Position The following table summarizes the changes in net position between December 31, 2016 and 2015: Condensed Statements of Net Position December 31, Variance Dollar % ASSETS Current assets $ 21,524,856 $ 18,305,867 $ 3,218, % Restricted assets 41,053,420 30,697,769 10,355, % Utility plant 168,283, ,143,353 2,139, % Other assets 3,786,248 5,535,939 (1,749,691) -31.6% TOTAL ASSETS 234,647, ,682,928 13,964, % DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 1,602,861 1,805,328 (202,467) -11.2% LIABILITIES Current liabilities 7,057,253 6,735, , % Long-term liabilities 79,158,598 83,799,651 (4,641,053) -5.5% TOTAL LIABILITIES 86,215,851 90,535,071 (4,319,220) -4.8% DEFERRED INFLOWS OF RESOURCES Accumulated increase in fair value of hedging derivative 3,677,873 4,654,628 (976,755) -21.0% Deferred pension credit 719, ,023 (143,286) -16.6% TOTAL DEFERRED INFLOWS OF RESOURCES 4,397,610 5,517,651 (1,120,041) -20.3% NET POSITION Net investment in capital assets 102,163, ,215,424 (1,051,492) -1.0% Restricted assets 3,921,101 3,912,899 8, % Unrestricted assets 39,552,229 19,307,211 20,245, % TOTAL NET POSITION $ 145,637,262 $ 126,435,534 $ 19,201, %

14 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Total assets increased by $13,964,934 in 2016 due primarily to the payment of tapping fee and additions in utility plant. Total liabilities decreased $4,319,220 due primarily to the repayment of long-term debt. The net effect of these changes resulted in a $19.2 million increase in total net position. Statements of Revenues, Expenses and Changes in Net Position While the Statements of Net Position show the change in financial position on net assets, the Statements of Revenues, Expenses and Changes in Net Position provide answers as to the nature and source of these changes. Condensed Statements of Revenues, Expenses and Changes in Net Position Year Ended December 31, Variance Dollar % Operating revenues $ 20,347,956 $ 19,004,222 $ 1,343, % Operating expenses 9,436,454 11,426,696 (1,990,242) -17.4% INCOME FROM OPERATIONS 10,911,502 7,577,526 3,333, % Nonoperating revenues 2,148,256 34,485 2,113, % Nonoperating expenses 9,855,718 9,706, , % NONOPERATING EXPENSES, net (7,707,462) (9,672,192) 1,964, % INCOME (LOSS) BEFORE CONTRIBUTIONS 3,204,040 (2,094,666) 5,298, % Contributions in aid of construction 15,997,688 3,423,020 12,574, % Revenues CHANGE IN NET POSITION $ 19,201,728 $ 1,328,354 $ 17,873, % Operating revenues increased $1,343,734 to $20,347,956 or 7.1% from 2015 to Operating revenues include the following: Metered sales $ 19,670,548 $ 18,465,805 Unmetered sales 629, ,902 Other revenues 48,124 56,515 $ 20,347,956 $ 19,004,

15 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 The chart below shows the historical average daily water supplied to the system for the years 2006 through Operating Expenses Operating expenses decreased by $1,990,242 to $9,436,454 or 17.4% from 2015 to Historical Operating Revenues and Expenses

16 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Capital Assets At the end of 2016, the Authority had invested $185,466,613 in property, plant and equipment and also had invested $86,525,890 in Forest Park Water. The greatest additions to the Authority s capital assets were additions to and replacements of the Authority s water storage and distribution system. Year Ended December 31, Variance Dollar % PROPERTY, PLANT AND EQUIPMENT Land $ 2,018,729 $ 2,015,950 $ 2, % Wells 1,036,192 1,063,973 (27,781) -2.6% Storage and distribution system 160,428, ,510,654 5,918, % Plant and structures 10,738,183 10,165, , % Equipment 10,943,200 10,724, , % Organization expense 301, , % TOTAL 185,466, ,782,232 6,684, % Accumulated depreciation (61,288,701) (57,596,678) (3,692,023) -6.4% NET PROPERTY, PLANT AND EQUIPMENT $ 124,177,912 $ 121,185,554 $ 2,992, % INVESTMENT IN FOREST PARK WATER Forest Park Water Treatment Plant $ 67,917,138 $ 66,271,039 $ 1,646, % Point Pleasant Pumping Station 13,598,988 13,433, , % PECO Contract 5,009,764 5,522,794 (513,030) -9.3% TOTAL 86,525,890 85,227,558 1,298, % Accumulated depreciation (42,420,464) (40,269,759) (2,150,705) -5.3% NET INVESTMENT IN FOREST PARK WATER $ 44,105,426 $ 44,957,799 $ (852,373) -1.9% Capital Contributions North Penn Water Authority has complied with GASB Statement No. 33, which requires that Contributions in Aid of Construction be shown as revenue. This is classified as Nonoperating Income. Contributions in Aid of Construction involve both assets contributions (water mains and other facilities) and cash contributions (tapping fees and assessments). Together, these contributions totaled $15,997,688 in 2016, which is an increase of $12,574,668 from Year Ended December 31, Variance Dollar % Contribution in assets $ 593,185 $ 2,679,563 $ (2,086,378) % Contribution in tapping fees 15,404, ,457 14,661, % TOTAL $ 15,997,688 $ 3,423,020 $ 12,574, %

17 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) YEARS ENDED DECEMBER 31, 2017 AND 2016 Long-Term Debt At the end of 2016, the North Penn Water Authority had total debt outstanding of $78,585,000. The Authority s total debt decreased by $4,460,000. All outstanding bonds carry an Aa3 rating from Moody s Investors Service. The Authority s long-term debt consists of the following Water Revenue Bonds: Debt Outstanding Issue December 31, Amount Bonds $ 32,655,000 $ 25,495, Bonds 39,120,000 35,690, Bonds 18,050,000 17,400,000 TOTAL $ 89,825,000 $ 78,585,

18 STATEMENTS OF NET POSITION DECEMBER 31, 2017 AND ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,936,544 $ 13,939,454 Investments 695, ,338 Accounts receivable Customers 1,964,770 2,294,905 PECO 596, ,524 Other 498, ,089 Assessments receivable, current portion 19,585 16,003 Unbilled revenues 1,977,167 2,230,590 Materials inventory 1,256,052 1,184,689 Interest receivable 7,383 3,947 Other 356, ,317 TOTAL CURRENT ASSETS 17,308,153 21,524,856 RESTRICTED ASSETS Cash and equivalents 42,079,896 40,322,481 Prepaid pension asset 586, ,737 Interest receivable 100,823 11,202 TOTAL RESTRICTED ASSETS 42,767,446 41,053,420 UTILITY PLANT Property, plant and equipment, net 126,510, ,177,912 Investment in Forest Park Water, net 42,627,863 44,105,426 TOTAL UTILITY PLANT 169,138, ,283,338 OTHER ASSETS Derivative instrument, rate swap 2,762,108 3,677,873 Assessments receivable, noncurrent portion 29, ,375 TOTAL OTHER ASSETS 2,791,646 3,786,248 TOTAL FORWARD 232,005, ,647,862 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 1,400,395 1,602,861 TOTAL FORWARD $ 1,400,395 $ 1,602,

19 STATEMENTS OF NET POSITION DECEMBER 31, 2017 AND ASSETS TOTAL FORWARDED $ 232,005,959 $ 234,647,862 DEFERRED OUTFLOWS OF RESOURCES TOTAL FORWARDED 1,400,395 1,602,861 LIABILITIES CURRENT LIABILITIES Accounts payable 639, ,413 Main extension deposits 793,331 1,190,850 Other 761, ,345 Current liabilities payable from restricted assets Accrued interest on bonds 465, ,645 Bonds payable 4,515,000 4,345,000 TOTAL CURRENT LIABILITIES 7,175,385 7,057,253 NONCURRENT LIABILITIES Long-term debt, bonds payable 69,725,000 74,240,000 Unamortized bond premium, net 4,622,545 4,918,598 TOTAL NONCURRENT LIABILITIES 74,347,545 79,158,598 TOTAL LIABILITIES 81,522,930 86,215,851 DEFERRED INFLOWS OF RESOURCES Accumulated increase in fair value of hedging derivative 2,762,108 3,677,873 Deferred pension credit 586, ,737 TOTAL DEFERRED INFLOWS OF RESOURCES 3,348,835 4,397,610 NET POSITION Net investment in capital assets 107,135, ,163,932 Restricted assets 3,948,119 3,921,101 Unrestricted assets 37,451,224 39,552,229 TOTAL NET POSITION $ 148,534,589 $ 145,637,262 See accompanying notes to the basic financial statements

20 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEARS ENDED DECEMBER 31, 2017 AND OPERATING REVENUES Metered sales $ 17,878,226 $ 19,670,548 Unmetered sales 613, ,284 Other revenues 47,929 48,124 TOTAL OPERATING REVENUES 18,539,765 20,347,956 OPERATING EXPENSES Water collection system 2,129,055 2,450,422 Purification system 80,116 71,019 Laboratory costs 409, ,860 Pumping system 528, ,645 Metering and customer service 411, ,429 Distribution system 2,487,646 1,191,298 Landscape maintenance 33,537 26,564 Administrative and engineering 1,984,743 1,869,453 General expenses 2,507,965 2,478,764 TOTAL OPERATING EXPENSES 10,573,071 9,436,454 OPERATING INCOME 7,966,694 10,911,502 NONOPERATING INCOME 4,855,329 18,145,944 INCOME BEFORE DEBT SERVICE COSTS AND DEPRECIATION AND AMORTIZATION 12,822,023 29,057,446 DEBT SERVICE COSTS Interest on bonds 3,508,643 3,595,801 Amortization of bond discount and premium (296,053) (296,053) TOTAL DEBT SERVICE COSTS 3,212,590 3,299,748 INCOME EXCLUSIVE OF DEPRECIATION AND AMORTIZATION 9,609,433 25,757,698 DEPRECIATION AND AMORTIZATION Property, plant and equipment 4,560,879 4,405,265 Forest Park Water 2,151,227 2,150,705 TOTAL DEPRECIATION AND AMORTIZATION 6,712,106 6,555,970 CHANGE IN NET POSITION 2,897,327 19,201,728 NET POSITION AT BEGINNING OF YEAR 145,637, ,435,534 NET POSITION AT END OF YEAR $ 148,534,589 $ 145,637,262 See accompanying notes to the basic financial statements

21 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 20,107,593 $ 22,393,574 Cash paid to suppliers (7,137,390) (5,577,273) Cash paid to employees (3,556,929) (3,443,495) NET CASH PROVIDED BY OPERATING ACTIVITIES 9,413,274 13,372,806 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Overhead and equipment usage charged to fixed capital assets 29,436 13,692 Contributions and assessments for main extensions 2,781,192 15,997,688 Acquisition and construction of capital assets (7,009,113) (7,481,002) Additions (deletions) to (from) Forest Park Water, net (673,664) (1,298,332) Proceeds from rental of fixed assets 436, ,487 Principal paid on Water Revenue Bonds (4,345,000) (4,460,000) Interest paid on Water Revenue Bonds (3,308,159) (3,404,909) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (12,089,257) (146,376) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 438, ,239 Net sales (purchases) of investments (8,397) 2,669,837 NET CASH PROVIDED BY INVESTING ACTIVITIES 430,488 2,902,076 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,245,495) 16,128,506 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 54,261,935 38,133,429 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,016,440 $ 54,261,935 CASH AND CASH EQUIVALENTS COMPRISED OF Current $ 9,936,544 $ 13,939,454 Restricted 42,079,896 40,322,481 $ 52,016,440 $ 54,261,

22 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 7,966,694 $ 10,911,502 Penalties, service connection fees, miscellaneous sales, other nonoperating reimbursements and revenues from PECO 1,192,002 1,520,721 Adjustments to reconcile operating income to net cash provided by operating activities (Increase) decrease in Accounts receivable Customers 330,135 (81,058) PECO 44,458 46,938 Other (275,489) (45,214) Assessments receivable 75, ,933 Unbilled revenues 253,423 (115,170) Materials inventory (71,363) (32,722) Other current assets (51,956) (37,532) Increase (decrease) in Accounts payable 275,052 47,129 Main extension deposits (397,519) 406,622 Other current liabilities 72,582 (5,343) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,413,274 $ 13,372,806 See accompanying notes to the basic financial statements

23 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE A - THE AUTHORITY North Penn Water Authority (the Authority ) was incorporated on August 10, 1964, under the Municipality Authorities Act of The Authority provides water service to approximately 30,000 customers in ten municipalities in Montgomery and Bucks Counties in Pennsylvania. The Authority is governed by a Board of Directors consisting of one representative from each of the ten member municipalities. Board members are appointed for a term of five years with the exception of the newest member, whose term may be for less than five years to ensure that subsequent reappointments are equally distributed among the ten existing members. Two members of the Board are appointed, or their memberships renewed, in each year. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements maintained on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Rate-Regulated Entity In accordance with current accounting standards, which require a rate-regulated entity to reflect the effects of regulatory decisions in its financial statements, the Authority has deferred certain credits, which it expects to pass on to its customers through the adjustment of water rates. Trust Indenture Trust Indenture stipulated accounts (accounts relating to restricted monetary assets and the liabilities pertinent thereto) are maintained as restricted funds in accordance with the provisions of the Trust Indenture dated as of December 1, 1992, as amended. Tax Status The Authority currently qualifies and intends to continue to qualify as a tax-exempt organization under applicable sections of the Internal Revenue Code. Accordingly, no provisions for federal or state income taxes are required. Reclassifications Certain amounts represented in the prior year have been reclassified in order to be consistent with the current year s presentation

24 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Utility Plant Utility plant, consisting of property, plant and equipment, and investments in Forest Park Water are recorded at cost, and depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Authority organization expenses (feasibility studies, planning studies, valuation of systems to be acquired, etc.) are considered to be a component of property, plant and equipment and are also being amortized on the straightline basis. Investments Investments of the Authority are generally represented by certificates of deposit, U.S. Government securities (including U.S. Government agencies) and commercial paper. The Authority s investments are carried at fair value or at cost, which approximates fair value. For purposes of reporting cash flows, all highly liquid short-term investments with original maturities of three months or less are considered cash equivalents. In accordance with GASB Statements No. 72 Fair Value Measurement and Application and No. 79 Certain External Investment Pools and Pool Participants, investments in marketable securities with readily determinable fair value and all investments in debt securities are reported at their fair values. Investments in qualifying external investment pools are reported at amortized cost basis. Inventory Inventories consist primarily of materials and supplies and are stated at the lower of cost or market, with cost being determined on the average cost basis. Bond Discounts and Premiums Bond discounts and premiums are amortized on the straight-line basis over the life of the bond issue. Accounts Receivable Accounts receivable are stated at their gross value. Based on historical experience, no allowance for doubtful accounts has been deemed necessary. Revenue Recognition Revenues are recognized when services are rendered and include estimates for amounts unbilled at the end of the year for water consumed subsequent to the last billing cycle. Operating Revenues and Expenses The Authority s operating accounts are maintained on the accrual basis of accounting

25 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Outflows/Inflows of Resources In addition to assets, the statements of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the statements of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statements of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has two types of items, which arise only under a modified accrual basis of accounting, that qualify for reporting in this category. They are the accumulated increase in fair value of hedging derivative and the deferred pension credit. These amounts are deferred and recognized as an inflow of resources in the period the amounts become available. Net Position Flow Assumption Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority s policy to consider restricted net position to have been depleted before unrestricted net position is applied. NOTE C - BASIS OF PRESENTATION The focus measurement is upon determination of net income and cash flows. The generally accepted accounting principles applicable are those similar to businesses in the private sector. The Authority establishes water rates, collects water revenues, operates the water system, employs personnel to operate the water system and sends water bills and handles fiscal management for the water system

26 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE D - PROPERTY, PLANT AND EQUIPMENT The major components of property, plant and equipment of the Authority are as follows: Estimated Balance Useful Life December 31, (Years) 2015 Additions COMPONENTS Land 40 $ 2,015,950 $ 2,779 Wells ,063,973 42,734 Storage and distribution system ,510,654 6,146,397 Plant and structures ,165, ,275 Equipment 40 10,724, ,408 Organization expense 301,509 - TOTAL COMPONENTS 178,782,232 7,481,593 Accumulated depreciation Wells (703,784) (21,095) Storage and distribution system (43,875,851) (3,390,454) Plant and structures (4,784,361) (395,996) Equipment (8,041,067) (590,315) Organization expense (191,615) (7,405) TOTAL ACCUMULATED DEPRECIATION (57,596,678) (4,405,265) PROPERTY, PLANT AND EQUIPMENT, net $ 121,185,554 $ 3,076,328 NOTE E - DEPOSITS AND INVESTMENTS Deposits Custodial Credit Risk - Custodial credit risk is the risk that, in the event of a bank failure, the Authority s deposits may not be returned to it. The Authority does not have a deposit policy for custodial credit risk. As of December 31, 2017 and 2016, $52,385,105 and $54,242,054, respectively, of the Authority s bank balance was exposed to custodial credit risk as follows: Uninsured and collateralized with securities held by the pledging bank s trust department not in the Authority s name $ 52,385,105 $ 54,242,054

27 Balance Balance December 31, December 31, Disposals 2016 Additions Disposals 2017 $ - $ 2,018,729 $ 9,045 $ (81,494) $ 1,946,280 (70,515) 1,036,192 2,764 (86,577) 952,379 (228,251) 160,428,800 6,345,506 (729,312) 166,044,994 (149,820) 10,738, ,009 (201,192) 10,645,000 (348,626) 10,943, ,353 (442,889) 11,373, , ,509 (797,212) 185,466,613 7,338,677 (1,541,464) 191,263,826 51,102 (673,777) (19,653) 62,383 (631,047) 169,759 (47,096,546) (3,453,739) 477,317 (50,072,968) 145,864 (5,034,493) (458,806) 167,136 (5,326,163) 346,517 (8,284,865) (621,292) 389,770 (8,516,387) - (199,020) (7,390) - (206,410) 713,242 (61,288,701) (4,560,880) 1,096,606 (64,752,975) $ (83,970) $ 124,177,912 $ 2,777,797 $ (444,858) $ 126,510,

28 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE E - DEPOSITS AND INVESTMENTS (Continued) Investments The Authority had the following investments and maturities: 2017 Investment Maturities Amortized Less Than 1 to 5 Investment Type Fair Value Cost 1 Year Years State investment pools $ - $ 695,735 $ 695,735 $ Investment Maturities Amortized Less Than 1 to 5 Investment Type Fair Value Cost 1 Year Years State investment pools $ - $ 687,338 $ 687,338 $ - A portion of the Authority's investments is in the PLGIT program, of which are funds similar to mutual funds. GASB Statement No. 3, Paragraph 69, provides that certain types of cash and investments, such as cash investments in a State Treasurer's investment pool or mutual fund, cannot be assigned a credit risk category because the government does not own specific securities. Therefore, the PLGIT cash investments included in these statements will not be assigned a credit risk category. The carrying amount of these investments at December 31, 2017 and 2016 is $695,735 and $687,338, respectively. These assets maintain a stable net asset value of $1 per share. All investments are monitored weekly by Standard & Poor's and are subject to an independent audit on an annual basis. Investments held with qualifying external state investment pools are valued at amortized cost in accordance with GASB Statement No. 79. Fair Value Measurement The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are those that lack significant observable inputs. The Authority did not have any recurring fair value measurements as of December 31, 2017 and December 31,

29 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE E - DEPOSITS AND INVESTMENTS (Continued) Interest Rate Risk - The Authority meets with its advisors on a regular basis as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk - The Municipal Authorities Act allows the Authority to invest in the following instruments: 1. United States Treasury bills. 2. Short-term obligations of the United States Government or its agencies or instrumentalities. 3. Deposits in savings accounts or time deposits or share accounts of institutions insured by federal deposit insurance to the extent that such accounts are so insured, and for any amounts above the insured maximum, provided that approved collateral as provided by law therefore shall be pledged by the depository. 4. Obligations of the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth of Pennsylvania, or of any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision. The Authority s investment policy limits its investment choices to credit ratings of A- and above. As of December 31, 2017 and 2016, the Authority s investments were rated as: Investment Standard & Poor s PLGIT AAAm Concentration of Credit Risk - In 2017 and 2016, all of the Authority s investments were in state investment pools

30 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE F - NONEXCHANGE TRANSACTIONS The Authority receives contributions to fund construction necessary to extend service to new areas and improve service to existing areas. Contributions received during the years ended December 31, 2017 and 2016, are recorded as nonoperating income in the statements of revenues, expenses and changes in net position. The changes in contributions in aid of construction of the Authority are as follows: Distribution Main and Capacity Extensions Assessments Charges Totals BALANCE, DECEMBER 31, 2015 $ 77,184,253 $ 758,472 $ 11,338,999 $ 89,281,724 Additions 15,838, ,114 15,997,688 BALANCE, DECEMBER 31, ,022, ,472 11,498, ,279,412 Additions 2,610, ,674 2,781,192 BALANCE, DECEMBER 31, 2017 $ 95,633,345 $ 758,472 $ 11,668,787 $ 108,060,604 NOTE G - EMPLOYEE BENEFIT PLANS Through June 1995, the Authority provided pension benefits for all of its employees through a defined benefit pension plan (the Retirement Plan ) and a 401(k) benefit plan. Effective June 1995, the Authority terminated the Retirement Plan and replaced it with a defined contribution pension plan (the Contribution Plan ). The trustee of the Contribution Plan and 401(k) benefit plan is Securian Retirement Services. See Note H for further discussion of the termination of the Retirement Plan. Following are descriptions of the Authority s employee benefit plans which were in effect during 2017 and 2016: Defined Contribution Pension Plan The Authority sponsors a Contribution Plan for substantially all its full-time employees. Employees are eligible to participate after three full months of employment. The Contribution Plan provides for contributions by the Authority of 7% of eligible employee salaries. Authority contributions are fully vested after five years of service. As discussed in Note H, the Authority intends to partially fund its annual contributions to this plan until the year 2025 by using the assets available from its prior overfunding of the Retirement Plan

31 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE G - EMPLOYEE BENEFIT PLANS (Continued) Authority contributions for 2017 salaries were $228,280, of which $144,142 was contributed in connection with the termination of the Retirement Plan. The Authority contributed $220,200 to this plan for 2016 salaries, of which $139,041 was contributed in connection with the termination of the Retirement Plan. 401(k) Benefit Plan The Authority also has a 401(k) benefit plan which is available to all full-time employees with one or more years of service. The Authority matches 50% of employee contributions up to 6% of employee salaries contributed to the 401(k) benefit plan. The Authority s contribution to the 401(k) benefit plan for 2017 and 2016 was $76,455 and $77,436, respectively. NOTE H - DEFERRED PENSION CREDIT Retirement Plan Through June 1995, the Authority participated in a Public Employee Retirement System (PERS) through the North Penn Water Authority Retirement Income Plan. The PERS was a single-employer defined benefit pension plan covering substantially all of the Authority s fulltime employees. The Authority s funding policy provided for actuarially determined periodic contributions to the Retirement Plan so that sufficient assets would be available to pay benefits when due. The contribution rate for normal cost was determined using the entry age normal actuarial funding method. Effective June 1995, the Authority terminated the Retirement Plan and replaced it with the Contribution Plan. In connection with the termination of the Retirement Plan, the Authority purchased annuities for the retired participants of the Retirement Plan in order to settle the Plan s obligations to these individuals. For active participants, the Authority made a rollover contribution into the Contribution Plan in an amount equal to each active participant s actuarially determined benefit under the Retirement Plan as of June 30, Following the purchase of the annuities and the rollover contribution, there was approximately $1,460,000 in Retirement Plan assets remaining as a result of the funded status of the Retirement Plan at the date of termination. The remaining funds will be used to reduce the Authority s future contributions to the Contribution Plan. In accordance with current accounting standards, the gain resulting from the termination of the Retirement Plan was deferred, and a regulatory liability (deferred pension credit) was established for the amount of the gain. The remaining assets of the Retirement Plan, which are being held pending future contributions to the Contribution Plan, are included in the Authority s restricted assets balance. For the years ended December 31, 2017 and 2016, investment gains and earnings on these restricted assets were approximately $6,031 and $3,299, respectively. These amounts will also be used to offset future contributions to the Contribution Plan. Accordingly, the investment gains and earnings have also been deferred and recorded as a regulatory liability

32 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE I - BONDS PAYABLE The following changes occurred in long-term debt: Balance January 1, Principal 2016 Additions Retirements BONDS PAYABLE Series of 2015 $ 18,050,000 $ - $ (650,000) Series of ,440,000 - (2,750,000) Series of ,555,000 - (1,060,000) Series of 2015 Bonds $ 83,045,000 $ - $ (4,460,000) On May 1, 2015, the Authority issued $18,050,000 of Water Revenue Bonds, Series of 2015 (the 2015 Bonds ). The bond proceeds were used to: 1. Fund capital projects and improvements to existing water tanks, 2. Fund a deposit to the Debt Service Reserve Fund and 3. Pay the costs of issuing and insuring the 2015 Bonds. Details of scheduled future annual maturities of the 2015 Bonds payable at December 31, 2017, are as follows: Maturing Interest November 1, Rate Principal Interest % $ 670,000 $ 704, %-4.00% 690, , % 715, , %-3.00% 730, , %-5.00% 750, , to %-5.00% 4,190,000 2,682, to %-4.00% 5,260,000 1,614, to %-5.00% 3,740, ,250 $ 16,745,000 $ 7,991,213

33 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Balance Balance December 31, Principal December 31, Current 2016 Additions Retirements 2017 Portion $ 17,400,000 $ - $ (655,000) $ 16,745,000 $ 670,000 35,690,000 - (3,690,000) 32,000,000 3,845,000 25,495, ,495,000 - $ 78,585,000 $ - $ (4,345,000) $ 74,240,000 $ 4,515,

34 NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 NOTE I - BONDS PAYABLE (Continued) Series of 2014 Bonds and Interest Rate Swap On December 1, 2014, the Authority issued $39,120,000 of Water Revenue Bonds, Series of 2014 (the 2014 Bonds ). The bond proceeds were used to: 1. Currently refund all the Authority s outstanding 2008 Water Revenue Bonds, 2. Fund a deposit to the Debt Service Reserve Fund and 3. Pay the costs of issuing and insuring the 2014 Bonds. Details of scheduled future annual maturities of the 2014 Bonds payable at December 31, 2017, are as follows: Maturing Interest November 1, Rate Principal Interest % $ 3,845,000 $ 1,430, % 4,000,000 1,265, % 4,175,000 1,091, % 4,360, , % 5,535, , to % 10,085, ,210 Series of 2012 Bonds $ 32,000,000 $ 6,120,450 On October 9, 2012, the Authority issued $32,655,000 of Water Revenue Bonds, Series of 2012 (the 2012 Bonds ). The bond proceeds were used to: 1. Currently refund the Authority s Series of 2002 Water Revenue Bonds, 2. Fund a deposit to the Debt Service Reserve Fund and 3. Pay the costs of issuing and insuring the 2012 Bonds