ASSOCIATION OF APARTMENT OWNERS OF HALE KAMAOLE

Transcription

1 ASSOCIATION OF APARTMENT OWNERS OF HALE KAMAOLE FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2016 and 2015

2 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT... 1 FINANCIAL STATEMENTS: BALANCE SHEET... 3 STATEMENT OF REVENUE AND EXPENSES... 4 STATEMENT OF CHANGES IN FUND BALANCE... 5 STATEMENT OF CASH FLOWS... 6 NOTES TO FINANCIAL STATEMENTS... 7 EXHIBIT I, SCHEDULE OF OPERATING EXPENSES SUPPLEMENTARY INFORMATION: SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED)... 13

3 Shaun Thayer, CPA Certified Public Accountant To the Board of Directors Association of Apartment Owners of Hale Kamaole INDEPENDENT AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying financial statements of the Association of Apartment Owners of Hale Kamaole, which comprise the balance sheet as of March 31, 2016 and 2015, and the related statements of revenue and expenses, changes in fund balance, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 of 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 auditor s 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 Association of Apartment Owners of Hale Kamaole as of March 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Emphasis of Matter Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. We have not applied procedures to determine whether the funds designated for future major repairs and replacements as discussed in Note H are adequate to meet such future costs because that determination is outside the scope of our audit. Our opinion on the financial statements is not modified with respect to this matter. P.O. BOX 1500 * WAILUKU, MAUI, HAWAII TELEPHONE (808) * FACSIMILE (808)

4 Independent Auditor s Report - Continued Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Schedule of Operating Expenses is presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 financial statements as a whole. Disclaimer of Opinion on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Supplementary Information on Future Major Repairs and Replacements on page 13 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial 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 sufficient evidence to express an opinion or provide any assurance. Wailuku, Hawaii May 26, 2016 Shaun Thayer, CPA 2

5 Current assets Balance Sheet March 31, 2016 and Operating Reserve ASSETS Fund Funds Total Total Cash and cash equivalents $ 70,357 $ 960,574 $ 1,030,931 $ 909,188 Investments - certificates of deposit ,000 Assessments receivable 26,260-26,260 27,762 Due to operating - 29,226 29,226 - Insurance claim receivable ,381 Prepaid expenses 82,503-82,503 94,788 Other assets Total current assets 179, ,800 1,169,596 1,332,119 Property and equipment Furniture and equipment 18,411-18,411 17,257 Less: accumulated depreciation (11,523) - (11,523) (8,052) Total property and equipment 6,888-6,888 9,205 Total assets $ 186,684 $ 989,800 $ 1,176,484 $ 1,341,324 LIABILITIES & FUND BALANCES Current liabilities Accounts payable $ 90,206 $ - $ 90,206 $ 74,530 Due to reserve 29,226-29,226 - Insurance claims payable 23,111-23,111 33,723 Prepaid assessments 13,096-13,096 13,188 Accrued income taxes Other liabilities Total current liabilities 155, , ,122 Fund balance 30, ,800 1,020,532 1,219,202 Total liabilities & fund balance $ 186,684 $ 989,800 $ 1,176,484 $ 1,341,324 See accompanying notes to financial statements 3

6 Statement of Revenue and Expenses For the Years Ended March 31, 2016 and Operating Reserve Fund Funds Total Total REVENUE: Owner assessments $ 848,066 $ 305,248 $ 1,153,314 $ 1,113,792 Cable television reimbursement 77,358-77,358 73,968 Electricity income 13,327-13,327 13,624 Rental income 6,301-6,301 6,784 Interest and dividend income - 1,182 1,182 1,196 Laundry and vending income ,025 Other income Total revenue 946, ,430 1,252,848 1,210,919 EXPENSES: Repairs and maintenance (Exhibit I) 518, , ,802 Major repairs and replacements - 507, ,657 88,300 Utilities (Exhibit I) 258, , ,910 Insurance 102, , ,176 Professional services (Exhibit I) 46,288-46,288 46,451 Office and administrative (Exhibit I) 14,002-14,002 11,251 Depreciation 3,471-3,471 3,451 GET Income taxes Insurance deductible ,000 Total expenses 943, ,657 1,451, ,176 Excess of revenue over (under) expenses $ 2,557 $ (201,227) $ (198,670) $ 211,743 See accompanying notes to financial statements 4

7 Statement of Changes in Fund Balance For the Years Ended March 31, 2016 and Operating Reserve Fund Funds Total Total BEGINNING BALANCE $ 28,175 $ 1,191,027 $ 1,219,202 $ 1,007,459 EXCESS OF REVENUE OVER (UNDER) EXPENSES 2,557 (201,227) (198,670) 211,743 ENDING BALANCE $ 30,732 $ 989,800 $ 1,020,532 $ 1,219,202 See accompanying notes to financial statements 5

8 CASH FLOW FROM OPERATING ACTIVITIES: Statement of Cash Flows For the Years Ended March 31, 2016 and Operating Reserve Fund Funds Total Total Excess of revenue over (under) expenses $ 2,557 $ (201,227) $ (198,670) $ 211,743 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,471-3,471 3,451 (Increase) decrease in assessments receivable 1,502-1,502 4,712 (Increase) decrease in due to operating - (29,226) (29,226) - (Increase) decrease in insurance claim receivable 7,381-7,381 (7,381) (Increase) decrease in prepaid expenses 12,285-12,285 (19,046) (Increase) decrease in other assets (676) - (676) 4,450 Increase (decrease) in accounts payable 15,676-15,676 3,910 Increase (decrease) in due to reserve 29,226-29,226 - Increase (decrease) in insurance claims payable (10,612) - (10,612) (139,246) Increase (decrease) in prepaid assessments (92) - (92) (7,382) Increase (decrease) in accrued income taxes (194) - (194) (4,150) Increase (decrease) in other liabilities (174) - (174) (126) Net cash provided (used) by operating activities 60,350 (230,453) (170,103) 50,935 CASH FLOW FROM INVESTING ACTIVITIES: Matured certificates of deposit - 586, , ,000 Purchase of certificates of deposit - (293,000) (293,000) (586,000) Purchase of fixed assets (1,154) - (1,154) - Net cash provided (used) by investing activities (1,154) 293, ,846 (100,000) CASH FLOW FROM FINANCING ACTIVITIES: No activities NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 59,196 62, ,743 (49,065) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11, , , ,253 CASH AND CASH EQUIVALENTS, END OF YEAR $ 70,357 $ 960,574 $ 1,030,931 $ 909,188 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ - $ - $ - $ - Cash paid during the year for income taxes $ 218 $ - $ 218 $ 4, See accompanying notes to financial statements 6

9 NOTE A - NATURE OF ASSOCIATION NOTES TO FINANCIAL STATEMENTS March 31, 2016 and 2015 The Association of Apartment Owners of Hale Kamaole is an organization of one hundred eighty eight (188) condominium units formed to provide for the management, maintenance and care of the common areas. The Association was formed as required by Section 514A of the Hawaii Revised Statutes and the Declaration of Condominium Property Regime filed with the State of Hawaii. The condominium is located in Kihei, Maui, Hawaii on acres. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF ACCOUNTING It is the policy of the Association to prepare its financial statements and tax returns using the accrual method of accounting. Accordingly, revenue is recognized when earned and expenses are recognized when obligations are incurred. ACCOUNTS RECEIVABLE AND MAINTENANCE FEES Association members are subject to monthly assessments to provide funds for the Association s operating expenses, future capital acquisitions, and major repairs and replacements. Receivables from members at the balance sheet date represent fees due from unit owners for maintenance assessments and other fees. The Association s policy is to retain legal counsel and place liens on the units of owners whose assessments are delinquent. The Association considers all receivables from members at March 31, 2016 and 2015 to be fully collectible. Any excess assessments at year-end are retained by the Association for use in the following year. INCOME TAXES For the years ended March 31, 2016 and 2015, the Association was taxed as a regular corporation. As a regular corporation, membership income is exempt from taxation if certain elections are made in accordance with Internal Revenue Code, Revenue Ruling The Association is taxed only on its non-membership income, such as rental and interest income, less allocable expenses, at regular federal and state corporate tax rates. Reserve Fund activity is treated as capital contributions/expenditures. In evaluating the tax positions and related income tax contingencies as of March 31, 2016 and 2015, the Association believes it has no uncertain tax positions that would require disclosure or adjustment. The Association s Federal and Hawaii income tax returns for 2012 through 2015 are open tax years under the normal three year statute of limitations and are therefore potentially subject to examination. FAIR VALUE The carrying amounts reflected in the balance sheet for cash and cash equivalents, receivables, and payables approximate their respective fair values due to the short maturities of those instruments. 7

10 NOTES TO FINANCIAL STATEMENTS March 31, 2016 and 2015 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PROPERTY AND EQUIPMENT Real property and common areas acquired from the developer and related improvements to such property are not recorded in the Association s financial statements because those properties are owned by the individual unit owners in common and not by the Association. The Association will capitalize the cost of assets to which it holds title in its name or has other evidence of ownership. Property and equipment will be stated at cost. Depreciation will be provided using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance costs are expensed as incurred. Furniture and equipment is being depreciated over its estimated useful life of 5 years. FUND ACCOUNTING The accounts of the Association are maintained in accordance with the principles of fund accounting. Under fund accounting, resources for various purposes are classified for accounting and reporting purposes into funds established according to their nature and purpose. Operating Fund - The Operating Fund is used to account for financial resources available for the general operations and maintenance of the Association. Reserve Funds - The Reserve Funds account for capital funds accumulated and spent on future major repairs and replacements related to the common areas associated with the units of Hale Kamaole. MANAGEMENT S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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 those estimates. RECLASSIFICATIONS Certain reclassifications of 2015 amounts were made to conform to 2016 presentations. Such reclassifications had no impact on 2015 net income. 8

11 NOTES TO FINANCIAL STATEMENTS March 31, 2016 and 2015 NOTE C - CASH BALANCES AND CONCENTRATIONS The Association maintains its cash and cash equivalent balances at the institutions noted below. Cash accounts, including CD s are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Uninsured funds were approximately $0 and $167,000 at March 31, 2016 and 2015, respectively. Financial instruments which potentially subject the Association to concentration of credit risk consist principally of cash balances maintained at creditworthy financial institutions. The Association maintained cash balances in bank accounts which, at times, may exceed insured limits set by the Federal Deposit Insurance Corporation (FDIC). The Association has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and cash equivalents. At March 31, 2016 and 2015, cash and cash equivalents consisted of the following: Operating: American Savings Bank checking $70,357 $11,161 Total operating 70,357 11,161 Reserves: Merrill Lynch money market 293, Bank of Hawaii money market 250, ,520 Central Pacific Bank money market 250, ,293 American Savings Bank checking 166, ,897 Total reserve 960, ,027 Total cash and cash equivalents $1,030,931 $909,188 NOTE D RENTAL INCOME The Association rents storage and other space under short-term leases. The Association received $6,301 and $6,784 in rental income from these leases for the years ended March 31, 2016 and 2015, respectively. NOTE E - CASH FLOWS FROM OPERATING ACTIVITIES Cash received from owners are for maintenance and reserve assessments for the upkeep of the condominium, other fees, and cable and electric reimbursements. NOTE F - CASH EQUIVALENTS Cash equivalents reflected in the financial statements include certificates of deposit and other investments with original maturities of three months or less. 9

12 NOTE G - COMMITTMENTS NOTES TO FINANCIAL STATEMENTS March 31, 2016 and 2015 The Association has entered into the following contracts as of March 31, 2016: Property management and maintenance of the common elements at approximately $17,200 per month expiring on March 31, Landscape maintenance contract terminating on October 31, Monthly landscaping fees are 14,150 for the first nine months, $14,400 for the next twelve months, and $14,660 for the final twelve months. Fiscal management services at approximately $3,100 per month. Agreement for drywood termite tenting in the amount of $99,479. As of March 31, 2016, a deposit of $5,000 has been paid. The termite tenting is scheduled for September NOTE H - FUTURE MAJOR REPAIRS AND REPLACEMENTS The Hawaii Revised Statutes mandates all condominium Board of Directors to establish and fund reserve accounts for repairs and replacement of major components of condominium property. Associations shall assess their members to either fund a minimum of fifty percent of the estimated replacement reserves (Percent Funded Plan) or fund one hundred percent of the estimated annual replacement expenditures (Cash Flow Plan). Accumulated funds of $960,574 and $1,191,027 at March 31, 2016 and 2015, respectively, are held in the Association s reserve bank and investment accounts and are generally not available for operating purposes. It is the Association s policy that interest earned on such funds is for reserve purposes. The Association s Board of Directors engaged Barrera and Company, Inc. to estimate the remaining useful lives and the replacement costs of the common property components. The study, dated June 30, 2014 assumes an annual inflation rate of 3.00% and an interest rate of 0.50% on reserve funds. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study s estimates of current replacement costs, considering amounts previously designated for future repairs and replacements. Actual expenditures, however, may vary from the estimated amounts and the variations may be material. Therefore, amounts designated for future repairs and replacements may not be adequate to meet future needs. If additional funds are needed, however, the Association has the right, subject to member approval, to increase regular assessments, levy special assessments, or it may delay major repairs and replacements until funds are available. 10

13 NOTES TO FINANCIAL STATEMENTS March 31, 2016 and 2015 NOTE H - FUTURE MAJOR REPAIRS AND REPLACEMENTS (continued) The Association is funding its capital reserves under the Percent Funded method. The Hawaii Revised Statutes require that all condominium associations accumulate funds for future major repairs and replacements and that by January 1, 2000 the required reserve funds must be at least 50% funded. The Association was 62% and 84% funded as of March 31, 2016 and 2015, respectively. NOTE I FIRE DAMAGE In March 2013, external common elements and the interiors of several units were damaged by a fire at Hale Kamaole. A claim for the damages was submitted to the Association s insurance carrier. Insurance claims have been paid as repairs were completed. The remaining insurance claims payable of $23,111 and $33,723 as of March 31, 2016 and 2015, respectively, will be paid as the remaining repairs are completed. In Management s opinion, all damages and claims related to the fire will be fully covered by the Association s insurance policies. NOTE J INVESTMENTS CERTIFICATE OF DEPOSIT The Association has invested a portion of its reserve funds in certificates of deposit with various banks. The certificates mature from May 2015 through August 2015 and have interest rates of 0.35% to 0.40%. The certificates of deposit are stated at cost, which approximates market value. The Association has the ability and intent to hold the certificates until maturity. NOTE K POWER PURCHASE AGREEMENT The Association entered into a power purchase agreement (PPA) with an initial 20 year term expiring in December The Association shall have the right to purchase the system for its then FMV after ten (10) years. The Association shall purchase all electricity generated by the system at a rate of $0.24/kwh. Unless notice is given, after the initial term the agreement shall be automatically extended for an additional five year term. Electrical billings under the agreement were $8,089 and $0, respectively, for the years ended March 31, 2016 and NOTE L DATE OF MANAGEMENT S REVIEW In preparing the financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through May 26, 2016, the date that the financial statements were available to be issued. 11

14 EXHIBIT I. Schedule of Operating Expenses For the Years Ended March 31, 2016 and 2015 Repairs and maintenance Total Total 3/31/16 3/31/15 Maintenance contract (Note G) $ 196,834 $ 196,834 Grounds-landscape contract (Note G) 141, ,253 General 73,939 64,064 Refuse removal 37,440 30,635 Grounds 33,548 16,247 Pools 8,820 11,320 Elevators 7,933 7,668 Pest control 6,497 9,436 Window cleaning 6,344 5,941 Inspections 5, Other Utilities Total repairs and maintenance $ 518,131 $ 462,802 Sewer $ 93,616 $ 92,726 Cable television 68,554 64,371 Water 47,988 51,355 Electricity 46,717 64,693 Telephone 1,670 1,663 Gas Total utilities $ 258,647 $ 274,910 Professional services Fiscal management (Note G) $ 36,426 $ 35,573 Professional fees 8,516 10,378 Reserve study 1, Total professional services $ 46,288 $ 46,451 Office and administrative Meeting expenses $ 5,125 $ 4,720 Administrative and office 4,091 4,567 Unit 161 expenses 3,099 1,964 Other office and administrative 1,687 - Total office and administrative $ 14,002 $ 11,251 See accompanying notes to financial statements 12

15 SUPPLEMENTARY INFORMATION

16 Supplementary Information on Future Major Repairs and Replacements March 31, 2016 (Unaudited) The following table is based on the study conducted by Barrera and Company, Inc. and presents significant information about the components of the common property, see Note H. Estimated Current Fully Useful Remaining Replacement Funded Components Life Life Cost Reserves 1 Asphalt - overlay 30 4 $ 241,748 $ 209,515 2 Asphalt - seal, stripe and repair ,384 74,384 3 Parking bumpers - contingency ,100 2,100 4 Manager's Apt. - refurbish ,000 3,200 5 Office/pavilion - refurbish ,200 4,133 6 Sub breakers and light controls ,200 4,320 7 Well meter - building , Elevators - cab refurbish ,350 7,567 9 Elevators - hydraulic ram ,000 33, Elevators - modernize ,000 44, Chain link fence (10') - tennis ,294 2, Chain link fence (6') - 30% ,199 5, Lower pool - fencing (5') ,529 7, Lower pool - gates ,000 5, Upper pool - fencing (5') ,541 5, Upper pool - gates ,000 3, Irrigation - rebuild system (1) ,500 15, Irrigation - rebuild system (2) ,500 15, Irrigation - rebuild system (3) ,500 15, Irrigation - rebuild system (4) ,500 14, Irrigation well and pump system ,300 3, Landscape - upgrade contingency ,800 22, Well - backflow and regulators , Well - pump refurbish ,900 1, Post mounted fixtures (1) ,400 1, Post mounted fixtures (2) ,400 1, Post mounted fixtures (3) ,400 1, Post mounted fixtures (4) , A/C systems (1) - office , A/C systems (2) - office ,200 7, Line & insulation - repairs/replace ,700 6, Solar heat system - laundry ,900 6, Water heaters (1) ,800 4, Water heaters (2) ,500 16, Water heaters (3) ,500 16, Water heaters (4) ,500 15, Water heaters (5) ,500 13, Water heaters (6) ,500 12, Water heaters (7) ,200 8, Water heaters (8) ,200 7, Water heating solar panels (1) ,650 26, Water heating solar panels (2) ,650 24,955 See accompanying notes to financial statements 13

17 Supplementary Information on Future Major Repairs and Replacements March 31, 2016 (Unaudited) The following table is based on the study conducted by Barrera and Company, Inc. and presents significant information about the components of the common property, see Note H. Estimated Current Fully Useful Remaining Replacement Funded Components Life Life Cost Reserves 43 Water heating solar panels (3) ,200 24, Water heating solar panels (4) ,200 22, Annual contingency 1 0 5,450 5, Backflow preventer ,500 6, BBQ's - replace ,800 16, BBQ's - trench/build ,600 15, Lanai's - wood posts ,650 28, Plumbing lines - contingency ,825 10, Termite treatment , , Wood and structural repairs - annual ,500 51, Stucco and wood - touch-up/clean ,576 28, Stucco surfaces - paint , , Wood surfaces (3 coats) - paint , , Lower pool - decking ,700 28, Lower pool - re-tile ,500 23, Pools (both) - equipment replacement ,725 3, Pools (both) - furnishings ,725 17, Upper pool - decking ,300 48, Upper pool - re-tile ,500 20, Comp. shingle roofing ,500 39, Fire - alarms and pull stations (1) ,575 7, Fire - alarms and pull stations (2) ,575 7, Fire - alarms and pull stations (3) ,825 6, Fire - control panels ,300 6, Tennis - recoat and stripe 5 0 7,725 7, Tennis - resurface courts ,775 36,479 Total $ 2,630,546 $ 1,548,501 See accompanying notes to financial statements 14