CITY OF LITCHFIELD, MINNESOTA AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2011

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1 AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2011 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota

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3 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page ELECTED AND APPOINTED OFFICIALS 1 INDEPENDENT AUDITOR'S REPORT 2-3 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis 4-10 BASIC FINANCIAL STATEMENTS Statement of Net Assets 11 Statement of Activities 12 Balance Sheet - Governmental Funds 13 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 14 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 15 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 16 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund 17 Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Funds 20 Statement of Cash Flows - Proprietary Funds Statement of Fiduciary Net Assets 23 Statement of Changes in Fiduciary Net Assets 23 Notes to the Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress and Employer Contributions - Other Postemployment Benefits Plan 56

4 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page SUPPLEMENTARY INFORMATION COMBINING STATEMENTS OF NONMAJOR FUNDS Combining Balance Sheet - Nonmajor Governmental Funds 57 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 58 Combining Balance Sheet - Nonmajor Governmental Funds - Special Revenue Combining Balance Sheet - Nonmajor Governmental Funds - Debt Service 61 Combining Balance Sheet - Nonmajor Governmental Funds - Capital Projects 62 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds - Special Revenue Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds - Debt Service Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds - Capital Projects 67 INDIVIDUAL FUND STATEMENTS Balance Sheet - General Fund 68 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund 69 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Detail - General Fund Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Trail Project Special Revenue Fund 74 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Golf Course Special Revenue Fund 75 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Small Cities Rehabilitation Special Revenue Fund 76 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Airport Special Revenue Fund 77 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Civic Arena Special Revenue Fund 78

5 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page SUPPLEMENTARY INFORMATION (Cont'd) Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - TIF District No. 1-2 Pleasant View Special Revenue Fund 79 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - TIF District No. 3-1 Longfellow Square Special Revenue Fund 80 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - TIF District No. 4-4 Terraceview Drive Special Revenue Fund 81 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - TIF District No Northstar View Special Revenue Fund 82 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - TIF District No Towmaster Special Revenue Fund 83 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Infrastructure Street Special Revenue Fund 84 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Cemetery Special Revenue Fund 85 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Permanent Improvement Revolving Special Revenue Fund 86 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Community Reinvestment Special Revenue Fund 87 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Highway 12 Beautification Special Revenue Fund 88 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Lake Ripley Improvement Special Revenue Fund 89 Liquor Enterprise Fund Statement of Net Assets 90 Statement of Revenues, Expenses and Changes in Net Assets 91 Sewer Enterprise Fund Statement of Net Assets 92 Statement of Revenues, Expenses and Changes in Net Assets 93

6 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page SUPPLEMENTARY INFORMATION (Cont'd) Electric Enterprise Fund Statement of Net Assets 94 Statement of Revenues, Expenses and Changes in Net Assets 95 Water Enterprise Fund Statement of Net Assets 96 Statement of Revenues, Expenses and Changes in Net Assets 97 Capital Improvement Revolving Internal Service Fund Statement of Net Assets 98 Statement of Revenues, Expenses and Changes in Net Assets 99 Private Purpose Trust Funds Statement of Fiduciary Net Assets 100 Statement of Changes in Fiduciary Net Assets 101 FINANCIAL SCHEDULES Tax Increment Financing Districts Schedule of Sources and Uses of Public Funds Pleasantview Estates Outfall Tax Increment Financing District No Schedule of Sources and Uses of Public Funds Longfellow Square Tax Increment Financing District No Schedule of Sources and Uses of Public Funds Housing - Terraceview Drive Tax Increment Financing District No Schedule of Sources and Uses of Public Funds Northstar I Tax Increment Financing District No

7 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page SUPPLEMENTARY INFORMATION (Cont'd) Schedule of Sources and Uses of Public Funds Towmaster Tax Increment Financing District No G.O. Bonds, Series 2007A 107 G.O. CIP Bonds, Series 2011B 108 G.O. Improvement Bonds, Series 2006A 109 G.O. Refunding Improvement Bonds, Series 2009B 110 G.O. Improvement and Refunding Bonds, Series 2011C 111 Public Project Lease Revenue Bonds, Series 2005A 112 Public Project Lease Revenue Bonds, Series 2007B 113 G.O. Housing Development Bonds, Series 2011A 114 G.O. Sewer System Bonds, Series 2011D 115 G.O. Revenue Loans Payable of G.O. Revenue Loans Payable of G.O. Revenue Note - Wastewater Infrastructure Funding 118 G.O. Wastewater Facility Revenue Refunding Bonds, Series 2002A 119 Electric Utility Revenue Bonds, Series 2008A 120 Electric Revenue Bonds, Series 2009C 121 Assessment Payable 122 Certificates of Indebtedness Certificates of Indebtedness Certificates of Indebtedness Computation of Legal Debt Margin 126

8 TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Page SUPPLEMENTARY INFORMATION (Cont'd) REQUIRED REPORTS Schedule of Expenditures of Federal Awards 127 Notes to Schedule of Expenditures of Federal Awards 128 COMPLIANCE SECTION Independent Auditor's Report on Minnesota Legal Compliance 129 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs

9 ELECTED AND APPOINTED OFFICIALS DECEMBER 31, 2011 Term Expires Mayor Keith Johnson 12/31/2014 Council Member At Large Ron Dingmann 12/31/2012 Council Member - 1st Ward Barbara Altringer 12/31/2014 Council Member - 2nd Ward Connie Lies 12/31/2012 Council Member - 3rd Ward Dwight Lorensen 12/31/2014 Council Member - 4th Ward Vern Loch, Jr. 12/31/2012 Council Member - 5th Ward Gary Walz 12/31/2014 City Administrator Bruce Miller Appointed Assistant City Administrator Joyce Spreiter Appointed 1

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11 Honorable Mayor and Members of the City Council City of Litchfield Litchfield, Minnesota INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Litchfield, Minnesota, as of and for the year ended December 31, 2011, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the City's 2010 financial statements and, in our report dated June 20, 2011, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Litchfield, Minnesota, as of December 31, 2011, and the respective changes in financial position, and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in the notes to the basic financial statements, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions for the year ended December 31, Adoption of the provisions of this statement results in significant changes to the classifications of the components of fund balance. 2

12 City of Litchfield, Minnesota Page 2 In accordance with Government Auditing Standards, we have also issued our report dated May 21, 2012, on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedule of Funding Progress and Employer Contributions as listed in the table of contents 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 sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's financial statements as a whole. The Elected and Appointed Officials section and supplementary information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The combining nonmajor fund financial statements, individual fund statements, financial schedules and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate 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 taken as a whole. The Elected and Appointed Officials section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on the information presented. CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota May 21,

13 REQUIRED SUPPLEMENTARY INFORMATION

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15 - CITY OF LITCHFIELD, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the basic financial statements of the City of Litchfield (the City) presents a discussion and analysis of the City s financial performance during the fiscal year ended December 31, Please read it in conjunction with the City s basic financial statements following this section. Financial Highlights The assets of the City exceeded liabilities by $47.7 million. Of this amount, $15 million may be used to meet the government's ongoing obligations to citizens and creditors in accordance with the City's fund designations and fiscal policies The City s total net assets increased by $2,153,226 mostly due to increases in the Sewer and Electric Funds of $852,923 and $638,870 respectively. The City s governmental funds reported combined ending fund balances of $7.4 million. Of this total amount, approximately 17% is available for spending at the City s discretion. At the end of the current fiscal year, unassigned fund balance for the General Fund was $1.3 million, or 34% of total General Fund expenditures of $3.8 million. The City's long-term debt increased by $6.8 million with the issuance of the G.O. Housing Development Bonds, Series 2011A; G.O. CIP Bonds, Series 2011B; G.O. Improvement and Refunding Bonds, Series 2011C; and the G.O. Sewer System Bonds, Series 2011D. Using This Annual Report This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities provide information about the activities of the City as a whole and present a longer-term view of the City s finances. Fund financial statements are presented after the Statement of Activities. Fund financial statements also report the City s operations in more detail than the government-wide statements by providing information about the City s funds. The remaining statements provide financial information about activities for which the City acts solely as a trustee or agent for the benefit of organizations outside the government. The notes to the basic financial statements provide information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. This annual report also contains other supplementary information in addition to the basic financial statements. The City as a Whole: Statement of Net Assets and Statement of Activities Our analysis of the City of Litchfield begins with the Statement of Net Assets and the Statement of Activities. One of the most important questions asked about the City s finances is, Is the City as a whole better off or worse off as a result of the year s activities? The Statement of Net Assets and the Statement of Activities both report information about the City as a whole and about its activities in a way that helps answer this question. With the exception of Fiduciary Funds, which have been excluded because they do not represent the City's financial resources, the Statement of Net Assets includes all assets and liabilities using the accrual basis of accounting. In the Statement of Activities, all of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City s net assets and changes in them. You can think of the City s net assets the difference between assets and liabilities as one way to measure the City s financial health. Over time, increases or decreases in the City's net assets are one indicator of whether the City's financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, to assess the overall health of the City of Litchfield. 4

16 MANAGEMENT'S DISCUSSION AND ANALYSIS In the Statement of Net Assets and the Statement of Activities, we divide the City into two kinds of activities: Governmental Activities - Most of the City's basic services are reported here, including the police, public works, and parks department, and general administration. Property taxes, and state and federal grants finance most of these activities. Business-Type Activities - The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City's liquor, sewer, electric, and water funds are reported here. The City's Most Significant Funds: Fund Financial Statements Our analysis of the City of Litchfield, Minnesota s major funds begins with the fund financial statements. These statements provide detailed information about the most significant funds not the City as a whole. Some funds are required to be established by state law and by bond covenants. However, the City Council establishes other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City's three kinds of funds - governmental, proprietary, and fiduciary - use different accounting approaches. Governmental Funds - Most of the City s basic services are reported in governmental funds. Governmental funds focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City s general government operations and the basic services it provides. Governmental fund information helps the reader of the statements determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in a reconciliation after the fund financial statements. The governmental fund financial statements can be found on pages of this report. Proprietary Funds - When the City of Litchfield charges customers for the services it provides whether to outside customers or to other units of the City these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Activities. In fact, the City s enterprise funds are the same as the business-type activities we report in the governmentwide statements but provide more detail and additional information, such as cash flows, for proprietary funds. The proprietary fund financial statements can be found on pages of this report. Fiduciary Funds - The City of Litchfield is the trustee, or fiduciary, for resources collected to provide equipment, books and library supplies as determined by the library board. The City is also the trustee, or fiduciary, for an endowment received for the operation, maintenance, and improvement of Anderson Gardens. The resources held in a fiduciary capacity are reported in separate Statements of Fiduciary Net Assets. We exclude these activities from the City's other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The fiduciary fund financial statements can be found on page 23 of this report. 5

17 MANAGEMENT'S DISCUSSION AND ANALYSIS Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the governmentwide and fund financial statements. The notes to the financial statements can be found on pages of this report. Supplementary Information The combining statements in connection with nonmajor governmental funds are presented immediately following the notes to the financial statements. Combining statements and individual fund information can be found on pages of this report. Statement of Net Assets The City of Litchfield's net assets were $47,722,333 on December 31, 2011 (see details in Table 1). This was an increase of $2,153,226 or 4.7% from $45,569,107 at December 31, Table 1 Condensed Statement of Net Assets Governmental Activities Business-Type Activities Current and Other Assets $ 9,734,303 $ 5,808,373 $ 14,433,022 $ 14,791,464 Capital Assets 21,147,945 19,592,305 54,948,701 51,207,120 Total Assets $ 30,882,248 $ 25,400,678 $ 69,381,723 $ 65,998,584 Current and Other Liabilities $ 591,320 $ 297,716 $ 1,733,749 $ 2,111,656 Long-Term Liabilities 11,454,224 6,956,012 38,762,345 36,464,771 Total Liabilities 12,045,544 7,253,728 40,496,094 38,576,427 Net Assets Invested in Capital Assets, Net of Related Debt 12,807,945 12,742,305 16,866,066 16,689,543 Restricted 1,360,741 1,144,321 1,053,665 1,276,625 Unrestricted 4,668,018 4,260,324 10,965,898 9,455,989 Total Net Assets 18,836,704 18,146,950 28,885,629 27,422,157 Total Liabilities and Net Assets $ 30,882,248 $ 25,400,678 $ 69,381,723 $ 65,998,584 Governmental Activities Net assets of the City's governmental activities increased by $689,754, or 3.8%. The most significant change occurred in the unrestricted category. Unrestricted net assets increased by $407,694 mostly due to transfers from utility funds. Business-Type Activities The net assets of our business-type activities increased by $1,463,472, or 5.3%. The increase was due to the following funds change in net assets: Liquor Fund $87,623, Sewer Fund $852,923, Electric Fund $638,870, and Water Fund $(115,944). Most of the change in the Sewer and Electric Funds resulted from operating expenditures being well below budgeted amounts. 6

18 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table indicates the changes in net assets for the City's governmental and business-type activities: Table 2 Condensed Statement of Activities Governmental Activities Business-Type Activities Revenues Program Revenues Fees, Fines, and Charges for Services $ 2,038,260 $ 1,059,521 $ 15,150,202 $ 15,060,644 Operating Grants and Contributions 125, ,583 Capital Grants and Contributions 1,117, , ,944 General Revenues Taxes 2,262,955 2,256,663 Grants and Contributions 1,696,353 1,681,821 Interest Income 9,783 10,348 13,587 21,061 Other 107,341 73,791 51,538 50,009 Total Revenues 7,357,894 5,725,907 15,388,271 15,131,714 Expenses General Government 1,066,856 1,069,868 Public Safety 1,741,095 1,587,862 Public Works 1,317,875 1,062,197 Airport 90, ,925 Culture and Recreation 1,141, ,775 Economic Development 1,597, ,350 Interest on Long-Term Debt 361, ,504 Liquor Store 1,798,569 1,785,903 Sewer Utility 2,143,784 2,068,969 Electric Utility 8,394,417 8,083,036 Water Utility 938, ,778 Total Expenses 7,317,737 5,470,481 13,275,202 12,803,686 Change in Net Assets before Transfers 40, ,426 2,113,069 2,328,028 Transfers 649, ,098 (649,597) (658,098) Change in Net Assets 689, ,524 1,463,472 1,669,930 Net Assets, Beginning of Year 18,146,950 17,233,426 27,422,157 25,752,227 Net Assets, End of Year $ 18,836,704 $ 18,146,950 $ 28,885,629 $ 27,422,157 7

19 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Activities Revenues - The following chart visually illustrates the City's revenue by source for its governmental activities and business-type activities: Revenue by Source - Governmental Activities Taxes 30.76% Grants and Contributions 23.05% Interest Income 0.13% Other 1.46% Capital Grants and Contributions 15.19% Operating Grants and Contributions 1.71% Fees, Fines, and Charges for Services 27.70% Revenue by Source - Business-Type Activities Capital Grants and Contributions 1.12% Interest Income 0.09% Other 0.33% Fees, Fines, and Charges for Services 98.46% 8

20 MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Analysis of the City's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental Funds - The focus of the City's governmental funds is to provide information on near term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $7,426,344 an increase of $3,232,100 in comparison to the prior year. Approximately 17% of this total ($1,285,176) constitutes unassigned fund balance. The remainder of the fund balance ($6,141,168) is not available for new spending because it is either 1) nonspendable ($88,623), 2) restricted ($1,443,545), or assigned ($4,609,000). The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $1,302,455, an increase from 2010 unassigned fund balance of $123,959. As a measure of General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 34 percent of the total General Fund expenditures. Proprietary Funds - The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The unrestricted net assets in the respective proprietary funds are Liquor - $1,194,840, Sewer - $1,936,865, Electric - $6,625,258, and Water - $1,208,935. The proprietary funds that had an increase in total net assets for the year were the Liquor, Sewer, and Electric Funds. General Fund Budgetary Highlights Over the course of the year, the City of Litchfield City Council did not revise the budget. The General Fund budget included sufficient revenues to cover expenditures predicting an increase in fund balance. Expenditures being significantly lower than amounts budgeted resulted in a fund balance increase of $459,544. Capital Assets At the end of 2011, the City of Litchfield had $110 million invested in a broad range of capital assets. Refer to Note 8 of the Notes to the Financial Statements for a schedule showing the City's capital asset activity. The City of Litchfield's fiscal year 2012 capital budget includes completing construction on Marshall Avenue, Fire/Rescue Building, Wastewater Treatment Improvement and Electric Improvement projects. The City Council is working on an updated capital improvement plan. Long-Term Debt At year-end, the City of Litchfield had $50 million in bonds and notes outstanding. Refer to Note 10 of the Notes to the Financial Statements for a schedule showing the City's long-term debt activity. The City of Litchfield was assigned an ""A+" general obligation bond rating from Standard & Poor's. 9

21 MANAGEMENT'S DISCUSSION AND ANALYSIS Economic Factors and Next Year's Budget The City of Litchfield's appointed officials considered many factors when setting the fiscal year 2012 budget, rates, and fees that will be charged for the business-type activities. The major factor accounted for when adopting the General Fund budget was to hold all line items as much as possible to the 2011 final budget. Because of past state funding problems, the City has subsequently taken measures to reduce any adverse impact that this might have on the City's 2012 and future years' budget by making appropriate permanent budget cuts. Contacting the City's Financial Management This financial report is designed to provide our residents, customers, and creditors with a general overview of the City of Litchfield's finances and to show the City's accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the City of Litchfield, 126 Marshall Avenue North, Litchfield, Minnesota 55355, (320) , or ctylitch@hutchtel.net. 10

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23 BASIC FINANCIAL STATEMENTS

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25 STATEMENT OF NET ASSETS DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 Governmental Business-Type Totals Activities Activities ASSETS Cash and Investments $ 7,493,921 $ 10,243,919 $ 17,737,840 $ 14,359,287 Cash with Fiscal Agent 748, ,322 1,439, ,625 Restricted Cash and Investments 1,053,665 1,053,665 1,276,625 Receivables (Net) 809,444 1,487,050 2,296,494 2,084,617 Due from Other Governmental Units 244,516 22, , ,829 Inventories 37, , , ,289 Prepaid Items 51,140 43,774 94,914 95,418 Deferred Charges 225, , , ,208 Net OPEB Asset 123, , , ,939 Capital Assets Assets Not Being Depreciated 4,350,201 30,993,206 35,343,407 28,747,959 Other Capital Assets, Net of Depreciation 16,797,744 23,955,495 40,753,239 42,051,466 Total Assets $ 30,882,248 $ 69,381,723 $ 100,263,971 $ 91,399,262 LIABILITIES AND NET ASSETS Liabilities Accounts and Contracts Payable $ 392,489 $ 1,200,887 $ 1,593,376 $ 1,710,498 Accrued Salaries 77,951 50, , ,827 Accrued Interest Payable 117, , , ,326 Deposits Payable 33,044 33,044 34,343 Due to Other Governmental Units 3,651 22,548 26,199 29,378 Noncurrent Liabilities Due Within One Year 710,000 1,874,242 2,584,242 2,338,102 Due in More than One Year 10,744,224 36,888,103 47,632,327 41,082,681 Total Liabilities 12,045,544 40,496,094 52,541,638 45,830,155 Net Assets Invested in Capital Assets, Net of Related Debt 12,807,945 16,866,066 29,674,011 29,431,848 Restricted for Debt Service 1,360,741 1,053,665 2,414,406 2,420,946 Unrestricted 4,668,018 10,965,898 15,633,916 13,716,313 Total Net Assets 18,836,704 28,885,629 47,722,333 45,569,107 Total Liabilities and Net Assets $ 30,882,248 $ 69,381,723 $ 100,263,971 $ 91,399,262 See Accompanying Notes to the Financial Statements 11

26 STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 Net (Expense) Revenue and Program Revenues Changes in Net Assets Fees, Fines, and Operating Capital Charges for Grants and Grants and Governmental Business-Type Totals Expenses Services Contributions Contributions Activities Activities GOVERNMENTAL ACTIVITIES General Government $ 1,066,856 $ 230,524 $ $ $ (836,332) $ $ (836,332) $ (874,952) Public Safety 1,741, , ,279 45,500 (1,475,912) (1,475,912) (1,304,543) Public Works 1,317,875 5, ,972 (405,524) (405,524) (648,055) Airport 90,954 21,544 22, , , ,916 (48,303) Culture and Recreation 1,141, ,973 4,125 (725,889) (725,889) (539,748) Economic Development 1,597, ,510 (1,002,594) (1,002,594) (262,225) Interest on Long-Term Debt 361, , , ,060 (89,371) Total Governmental Activities 7,317,737 2,038, ,494 1,117,708 (4,036,275) 0 (4,036,275) (3,767,197) BUSINESS-TYPE ACTIVITIES Liquor 1,798,569 1,943, , , ,313 Sewer 2,143,784 2,848,601 83, , , ,629 Electric 8,394,417 9,505,398 89,789 1,200,770 1,200,770 1,415,633 Water 938, ,779 (85,653) (85,653) 27,383 Total Business-Type Activities 13,275,202 15,150, , ,047,944 2,047,944 2,256,958 Total $ 20,592,939 $ 17,188,462 $ 125,494 $ 1,290,652 (4,036,275) 2,047,944 (1,988,331) (1,510,239) GENERAL REVENUES Taxes Property Taxes, Levied for General Purposes 1,746,320 1,746,320 1,739,193 Property Taxes, Levied for Debt Service 516, , ,470 Grants and Contributions not Restricted to Specific Programs 1,696,353 1,696,353 1,681,821 Interest Income 9,783 13,587 23,370 31,409 Other 107,341 51, , ,800 TRANSFERS 649,597 (649,597) Total General Revenues and Transfers 4,726,029 (584,472) 4,141,557 4,093,693 Change in Net Assets 689,754 1,463,472 2,153,226 2,583,454 NET ASSETS, BEGINNING OF YEAR 18,146,950 27,422,157 45,569,107 42,985,653 NET ASSETS, END OF YEAR $ 18,836,704 $ 28,885,629 $ 47,722,333 $ 45,569,107 See Accompanying Notes to the Financial Statements 12

27 BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 Nonmajor Fire/Rescue Ecumen Governmental Total Governmental Funds General Building Improvements Funds ASSETS Cash and Investments $ 2,825,541 $ 1,655,190 $ $ 2,241,646 $ 6,722,377 $ 4,506,551 Cash with Fiscal Agent 272, , , ,160 Receivables Accounts 43,086 3,628 46,714 51,699 Contracts 44,000 44,000 48,000 Taxes 93,603 25, , ,065 Notes 20,589 20,589 20,589 Special Assessments 1, , , ,484 Due from Other Governmental Units 22, , , ,541 Inventories 37,483 37,483 11,892 Prepaid Items 34,694 16,446 51,140 52,159 Due from Other Funds 186, , ,413 Deferred Charges 47,279 Total Assets $ 3,208,044 $ 1,655,190 $ 272,497 $ 3,656,368 $ 8,792,099 $ 6,015,832 LIABILITIES AND FUND BALANCE Liabilities Accounts and Contracts Payable $ 19,253 $ 277,072 $ $ 82,242 $ 378,567 $ 102,992 Cash Drawn in Excess of Funds 842,375 Accrued Salaries 72,141 5,810 77,951 73,076 Due to Other Governmental Units 3, ,651 9,594 Due to Other Funds 186, , ,413 Deferred Revenue 95, , , ,138 Total Liabilities 189, , ,116 1,365,755 1,821,588 Fund Balance Nonspendable 34,694 53,929 88, ,464 Restricted 1,443,545 1,443,545 1,092,118 Assigned 1,681,328 1,378, ,497 1,277,057 4,609,000 2,345,735 Unassigned 1,302,455 (17,279) 1,285, ,927 Total Fund Balance 3,018,477 1,378, ,497 2,757,252 7,426,344 4,194,244 Total Liabilities and Fund Balance $ 3,208,044 $ 1,655,190 $ 272,497 $ 3,656,368 $ 8,792,099 $ 6,015,832 See Accompanying Notes to the Financial Statements 13

28 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, Total Fund Balances - Governmental Funds $ 7,426,344 $ 4,194,244 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in the governmental funds. Governmental Capital Assets 27,261,029 24,773,609 Less: Accumulated Depreciation (8,550,397) (7,919,888) Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. Taxes 119, ,065 Notes 20,589 20,589 Special Assessments 579, ,484 Internal service funds are used by management to charge the costs of equipment to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Assets. 2,098,677 2,098,667 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Net OPEB Asset 123, ,615 Bonds and Notes Payable (10,220,000) (5,575,001) Compensated Absences (114,224) (106,012) Accrued Interest Payable (117,229) (105,839) Deferred Charges 210, ,417 Total Net Assets - Governmental Activities $ 18,836,704 $ 18,146,950 See Accompanying Notes to the Financial Statements 14

29 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 Nonmajor Fire/Rescue Ecumen Governmental Total Governmental Funds General Building Improvements Funds REVENUES Taxes $ 1,516,015 $ $ $ 611,829 $ 2,127,844 $ 2,108,294 Special Assessments 165, , ,347 Licenses and Permits 154, , ,245 Intergovernmental 1,782,520 1,127,483 2,910,003 2,270,042 Charges for Services 194, , ,233 1,505, ,577 Fines and Forfeits 24,210 24,210 26,240 Interest Income 3,761 1,301 3,939 9,001 8,874 Miscellaneous 58,044 68, , ,779 Total Revenues 3,733,645 1, ,363 2,717,454 7,022,763 5,587,398 EXPENDITURES Current General Government 656,465 62, , ,886 Public Safety 1,658,310 1,658,310 1,598,033 Public Works 772,802 47, , ,818 Airport 42,166 42,166 42,800 Culture and Recreation 561, , , ,715 Economic Development 4,133 50,923 55,056 77,499 Miscellaneous 152, , ,699 Capital Outlay Public Safety 9,374 1,309,737 1,319,111 19,184 Public Works 1,004,002 1,004, ,255 Airport 186, ,266 40,106 Economic Development 1,541, ,542, ,852 Debt Service 825, , ,359 Total Expenditures 3,814,940 1,309,737 1,541,488 2,645,699 9,311,864 5,941,206 Excess (Deficiency) of Revenues Over (Under) Expenditures (81,295) (1,308,436) (971,125) 71,755 (2,289,101) (353,808) OTHER FINANCING SOURCES (USES) Sale or Compensation for Property 9,049 9,049 Debt Service Principal (2,140,000) (2,140,000) General Obligation Bond Proceeds 3,162,310 1,243,622 2,469,866 6,875,798 General Obligation Refunding Bond Proceeds 324, ,203 Transfers In 796, ,717 1,352, ,440 Transfers Out (264,707) (635,356) (900,063) (388,123) Total Other Financing Sources (Uses) 540,839 3,162,310 1,243, ,430 5,521, ,317 Net Change in Fund Balances 459,544 1,853, , ,185 3,232,100 26,509 FUND BALANCE, BEGINNING OF YEAR 2,558,933 (475,756) 2,111,067 4,194,244 4,167,735 FUND BALANCE, END OF YEAR $ 3,018,477 $ 1,378,118 $ 272,497 $ 2,757,252 $ 7,426,344 $ 4,194,244 See Accompanying Notes to the Financial Statements 15

30 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, Total Net Change in Fund Balances - Governmental Funds $ 3,232,100 $ 26,509 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds reported capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital Outlay 2,487, ,903 Depreciation Expense (630,509) (627,427) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Deferred Revenue, End of Year 718, ,138 Deferred Revenue, Beginning of Year (566,138) (611,554) Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Net OPEB Asset 7,025 31,934 Compensated Absences (8,212) (1,250) Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. Long-Term Debt Proceeds (7,200,000) Issuance Costs 118,046 Principal Retirement of Long-Term Debt 2,555, ,499 Change in Accrued Interest Payable (11,390) 11,708 Amortization of Bond Issuance Costs (12,330) (7,773) Internal service funds are used by management to charge the costs of equipment to the individual funds. The net revenue (expenditure) of the internal service fund is reported with governmental activities ,837 Change in Net Assets - Governmental Activities $ 689,754 $ 913,524 See Accompanying Notes to the Financial Statements 16

31 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, Over (Under) Budgeted Amounts Final Original Final Actual Budget Actual REVENUES Taxes $ 1,532,123 $ 1,532,123 $ 1,516,015 $ (16,108) $ 1,508,863 Licenses and Permits 66,725 66, ,321 87, ,245 Intergovernmental 1,913,115 1,913,115 1,782,520 (130,595) 1,766,701 Charges for Services 159, , ,774 35, ,720 Fines and Forfeits 21,000 21,000 24,210 3,210 26,240 Interest Income 59,000 59,000 3,761 (55,239) 5,720 Miscellaneous 1,500 1,500 58,044 56,544 39,162 Total Revenues 3,753,113 3,753,113 3,733,645 (19,468) 3,648,651 EXPENDITURES Current General Government 821, , ,465 (164,624) 674,328 Public Safety 1,706,642 1,706,642 1,658,310 (48,332) 1,598,033 Public Works 887, , ,802 (114,240) 769,510 Culture and Recreation 505, , ,295 56, ,250 Economic Development 4,133 4,133 3,438 Miscellaneous 401, , ,561 (248,821) 147,699 Capital Outlay General Government 1,000 1,000 (1,000) Public Safety 4,000 4,000 9,374 5,374 8,500 Economic Development 22,000 Total Expenditures 4,326,389 4,326,389 3,814,940 (511,449) 3,656,758 Excess (Deficiency) of Revenues Over (Under) Expenditures (573,276) (573,276) (81,295) 491,981 (8,107) OTHER FINANCING SOURCES (USES) Sale or Compensation for Property 2,000 2,000 9,049 7,049 Transfers In 601, , , , ,775 Transfers Out (10,000) (10,000) (264,707) (254,707) (288,316) Total Other Financing Sources (Uses) 593, , ,839 (52,436) 321,459 Net Change in Fund Balances $ 19,999 $ 19, ,544 $ 439, ,352 FUND BALANCE, BEGINNING OF YEAR 2,558,933 2,245,581 FUND BALANCE, END OF YEAR $ 3,018,477 $ 2,558,933 See Accompanying Notes to the Financial Statements 17

32 STATEMENT OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 Governmental Activities - Business-Type Activities - Enterprise Funds Internal Service Fund Totals Liquor Sewer Electric Water ASSETS Current Assets Cash and Investments $ 1,040,170 $ 2,290,045 $ 5,721,391 $ 1,192,313 $ 10,243,919 $ 10,079,801 $ 771,544 $ 615,310 Cash with Fiscal Agent 640,046 50, , ,465 Accounts Receivable (Net) 366,211 1,039,448 81,391 1,487,050 1,418,780 Due from Other Governmental Units 22,567 22, ,514 8,708 8,774 Inventories 200, , , ,397 Prepaid Items 3,198 16,679 20,273 3,624 43,774 43,259 Total Current Assets 1,243,524 3,335,548 7,112,464 1,277,328 12,968,864 13,105, , ,084 Noncurrent Assets Restricted Assets Cash - Sinking Fund Account 900, ,412 1,053,665 1,276,625 Capital Assets Assets Not Being Depreciated 22,606 15,261,071 15,466, ,493 30,993,206 26,494,411 Other Capital Assets, Net of Depreciation 26,516 14,152,686 4,464,961 5,311,332 23,955,495 24,712,709 2,437,313 2,738,585 Deferred Charges 51, , , ,299 15,034 17,213 Net OPEB Asset 10,728 26,820 53,662 10, , ,324 Total Noncurrent Assets 59,850 30,392,227 20,241,817 5,718,965 56,412,859 52,893,368 2,452,347 2,755,798 Total Assets $ 1,303,374 $ 33,727,775 $ 27,354,281 $ 6,996,293 $ 69,381,723 $ 65,998,584 $ 3,232,599 $ 3,379,882 See Accompanying Notes to the Financial Statements 18

33 STATEMENT OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 Governmental Activities - Business-Type Activities - Enterprise Funds Internal Service Fund Totals Liquor Sewer Electric Water LIABILITIES AND NET ASSETS Liabilities Current Liabilities (From Current Assets) Accounts and Contracts Payable $ 31,849 $ 733,138 $ 430,532 $ 5,368 $ 1,200,887 $ 1,601,291 $ 13,922 $ 6,215 Accrued Salaries 7,475 11,826 25,822 5,080 50,203 49,751 Accrued Interest Payable 132, ,650 27, , ,487 Deposits Payable 33,044 33,044 34,343 Due to Other Governmental Units 10,397 9,376 2,775 22,548 19,784 Total Current Liabilities (From Current Assets) 49, , ,380 74,137 1,733,749 2,111,656 13,922 6,215 Current Liabilities (From Restricted Assets) Current Portion of Long-Term Debt 1,008, , ,767 1,874,242 1,768, , ,000 Total Current Liabilities (From Restricted Assets) 49,721 1,885,986 1,357, ,904 3,607,991 3,879, , ,215 Noncurrent Liabilities Long-Term Debt, Net of Current Portion 9,691 19,985,948 14,990,646 1,901,818 36,888,103 34,696, ,000 1,120,000 Total Liabilities 59,412 21,871,934 16,348,026 2,216,722 40,496,094 38,576,427 1,133,922 1,281,215 Net Assets Invested in Capital Assets, Net of Related Debt 49,122 9,018,723 4,380,997 3,417,224 16,866,066 16,689,543 1,317,313 1,463,585 Restricted for Debt Service 900, ,412 1,053,665 1,276,625 Unrestricted 1,194,840 1,936,865 6,625,258 1,208,935 10,965,898 9,455, , ,082 Total Net Assets 1,243,962 11,855,841 11,006,255 4,779,571 28,885,629 27,422,157 2,098,677 2,098,667 Total Liabilities and Net Assets $ 1,303,374 $ 33,727,775 $ 27,354,281 $ 6,996,293 $ 69,381,723 $ 65,998,584 $ 3,232,599 $ 3,379,882 See Accompanying Notes to the Financial Statements 19

34 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 Governmental Activities - Business-Type Activities - Enterprise Funds Internal Service Fund Totals Liquor Sewer Electric Water OPERATING REVENUES Sales $ 1,943,424 $ $ $ $ 1,943,424 $ 1,929,216 $ $ Cost of Goods Sold (1,482,464) (1,482,464) (1,475,876) Gross Profit on Sales 460, , , Charges for Services 2,848,601 9,460, ,779 13,161,392 13,071, , ,507 Other 45,386 45,386 59,672 Total Operating Revenues 460,960 2,848,601 9,505, ,779 13,667,738 13,584, , ,507 OPERATING EXPENSES Salaries and Benefits 212, , , ,786 1,666,281 1,552,325 Supplies 7, , , ,612 Other Services and Charges 90, , , , ,684 61,272 Purchased Power 5,641,444 67,807 5,709,251 5,662,783 Production 181,944 36, , ,492 Distribution 208, , , ,540 Administrative and General 312,249 61, , ,028 Depreciation 5, , , ,344 1,160,219 1,151, , ,096 Total Operating Expenses 316,105 1,789,754 7,538, ,989 10,469,775 10,272, , ,368 Operating Income (Loss) 144,855 1,058,847 1,966,471 27,790 3,197,963 3,312,441 (319,812) (193,861) NONOPERATING REVENUES (EXPENSES) Taxes 123, ,709 Intergovernmental 44,074 44,136 Interest Income 1,063 3,478 7,468 1,578 13,587 21, ,474 Refunds and Reimbursements 14,584 14,584 10,943 Miscellaneous Revenue ,723 21,526 36,954 39,066 Interest and Amortization Expense (354,030) (656,960) (82,232) (1,093,222) (1,055,483) (42,861) (51,952) Loss on Inventory Write Down (166,214) (166,214) Miscellaneous Expense (32,316) (31,211) (63,527) (2,753) (2,450) Total Nonoperating Revenues (Expenses) 1,768 (335,829) (811,912) (111,865) (1,257,838) (984,413) 122, ,917 Income (Loss) Before Transfers and Contributions 146, ,018 1,154,559 (84,075) 1,940,125 2,328,028 (197,436) (78,944) CAPITAL CONTRIBUTIONS 83,155 89, ,944 TRANSFERS Transfers In 200, , , , ,781 Transfers Out (59,000) (153,250) (605,478) (31,869) (849,597) (858,098) Total Transfers (59,000) 46,750 (605,478) (31,869) (649,597) (658,098) 197, ,781 Change in Net Assets 87, , ,870 (115,944) 1,463,472 1,669, ,837 NET ASSETS, BEGINNING OF YEAR 1,156,339 11,002,918 10,367,385 4,895,515 27,422,157 25,752,227 2,098,667 1,899,830 NET ASSETS, END OF YEAR $ 1,243,962 $ 11,855,841 $ 11,006,255 $ 4,779,571 $ 28,885,629 $ 27,422,157 $ 2,098,677 $ 2,098,667 See Accompanying Notes to the Financial Statements 20