The Pointe at Livingston Condominium Association, Inc. Financial Statements December 31, 2011

Transcription

1 Financial Statements December 31, 2011

2 Table of Contents December 31, 2011 INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS Balance Sheet 3 Statement of Revenues and Expenses 4-5 Statement of Changes in Fund Balances 6 Statement of Cash Flows 7-8 Page Notes to the Financial Statements 9-13 SUPPLEMENTARY INFORMATION Schedule of Information on Future Major Repairs and Replacements 14 Schedule of Total Revenues, Operating Expenses and Allocations to Funds as Compared to Budget 15-17

3 Certified Public Accountants and Consultants Independent Auditors' Report To the Board of Trustees and Unit Owners of We have audited the accompanying balance sheet of The Pointe at Livingston Condominium Association, Inc. (the Association ) as of December 31, 2011 and the related statements of revenues and expenses, changes in fund balances and cash flows for the year then ended. These financial statements are the responsibility of the Association's Board of Trustees (the Board ). 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 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 the Board, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Association as of December 31, 2011, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the information on future major repairs and replacements on page 14 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 the Board about the methods of preparing the information and comparing the information for consistency with the Board 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 on the information Tices Lane East Brunswick, NJ Tel: Fax: Penn Plaza, 19th Floor New York, NY Tel: Fax:

4 Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information shown on pages 15 through 17 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of the Board and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information, except for the portions marked unaudited on which we express no opinion, 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. S East Brunswick, New Jersey April 24,

5 Balance Sheet December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Assets Cash $ 356,416 $ 228,973 $ - $ 127,443 $ - Money market mutual funds 142,216-69,412-72,804 Certificates of deposit 1,092, ,092,000 Investments 398, ,974 Accrued investment income receivable 1, ,252 Assessments receivable 5,523 5, Prepaid insurance 31,942 31, Prepaid expenses 10,943 10, Interfund balances - (45,943) 50,000 (4,056) (1) Total Assets $ 2,039,266 $ 231,438 $ 119,412 $ 123,387 $ 1,565,029 Liabilities and Fund Balances Liabilities Accounts payable and accrued expenses $ 82,817 $ 82,817 $ - $ - $ - Federal income tax payable 19,085 19, Assessments received in advance 63,450 63, Other deposits 2,200 2, Total Liabilities 167, , Fund Balances 1,871,714 63, , ,387 1,565,029 Total Liabilities and Fund Balances $ 2,039,266 $ 231,438 $ 119,412 $ 123,387 $ 1,565,029 The accompanying notes are an integral part of these financial statements. 3

6 Statement of Revenues and Expenses For the Year Ended December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Revenues Maintenance assessments $ 1,451,430 $ 1,268,430 $ 33,000 $ - $ 150,000 Settlement income 500, , ,000 Gain on sale from investments 77,998-77,998 Special assessments 53,743 53, Investment income 27, ,462 Other income 14,179 14, Township reimbursement 3,038 3, Legal fee reimbursement 2,539 2, Late charges Clubhouse/lounge income Total Revenues 2,132,179 1,343,304 33, , ,460 The accompanying notes are an integral part of these financial statements. 4

7 Statement of Revenues and Expenses For the Year Ended December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Expenses Administrative 197, , Building and grounds maintenance 552, , Security 290, , Recreation 37,718 37, Utilities 169, , Powerwashing 74,293-74, Painting 23,428-23, Brass hardware 18, ,886 - Façade work 12, ,172 - Elevator 10, ,500 - Garage doors 12, ,187 8,500 Total Expenses 1,400,885 1,248,919 97,721 45,745 8,500 Excess (Deficiency) of Revenues over Expenses $ 731,294 $ 94,385 $ (64,438) $ 123,387 $ 577,960 The accompanying notes are an integral part of these financial statements. 5

8 Statement of Changes in Fund Balances For the Year Ended December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Fund Balances - Beginning of Year $ 1,136,710 $ 19,501 $ 133,850 $ - $ 983,359 Interfund transfer - (50,000) 50, Working capital contributions 3, ,710 Excess (Deficiency) of Revenues over Expenses 731,294 94,385 (64,438) 123, ,960 Fund Balances - End of Year $ 1,871,714 $ 63,886 $ 119,412 $ 123,387 $ 1,565,029 The accompanying notes are an integral part of these financial statements. 6

9 Statement of Cash Flows For the Year Ended December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Cash Flows from Operating Activities Excess (deficiency) of revenues over expenses $ 731,294 $ 94,385 $ (64,438) $ 123,387 $ 577,960 Adjustments to reconcile excess (deficiency) of revenues over expenses to net cash provided by (used in) operating activities Changes in assets and liabilities Accrued investment income receivable Assessments receivable Prepaid insurance Prepaid expenses (1,618) (1,618) Prepaid federal income taxes 1,900 1, Accounts payable and accrued expenses (383) (383) Assessments received in advance 27,055 27, Other deposits Federal income taxes payable 19,085 19, Net Cash Provided by (Used in) Operating Activities 780, ,665 (64,438) 123, ,919 The accompanying notes are an integral part of these financial statements. 7

10 Statement of Cash Flows For the Year Ended December 31, 2011 Deferred Operating Maintenance Settlement Replacement Total Fund Fund Fund Fund Cash Flows from Investing Activities Purchase of certificates of deposits (832,000) (832,000) Maturity of certificates of deposits 290, ,000 Purchase of investments (2,133) (2,133) Net activity in money market mutual fund 25,941-64,438 - (38,497) Net Cash Provided by (Used in) Investing Activities (518,192) - 64,438 - (582,630) Cash Flows from Financing Activities Change in interfund balances - 45,943 (50,000) 4,056 1 Working capital contributions 3, ,710 Interfund transfer - (50,000) 50, Net Cash Provided by (Used in) Financing Activities 3,710 (4,057) - 4,056 3,711 Net Increase in Cash 266, , ,443 - Cash - Beginning of Year 90,365 90, Cash - End of Year $ 356,416 $ 228,973 $ - $ 127,443 $ - Supplemental Disclosure Cash Paid During the Year for Income taxes $ 1,000 The accompanying notes are an integral part of these financial statements. 8

11 Notes to the Financial Statements December 31, 2011 Note 1 Nature of Organization (the Association ), located in the Township of Livingston, New Jersey, is a New Jersey corporation and is subject to the provisions of the Condominium Act of the State of New Jersey. The purposes of the Association are to provide for the management, administration, utilization and maintenance of the common elements. The Association consists of 180 residential units, all of which have been conveyed as of December 31, Note 2 Summary of Significant Accounting Policies Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Board of Trustees (the Board ) 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. Fund Accounting The Association's legal documents (i.e., Master Deed and By-laws) provide certain guidelines to govern the Association's financial activities. In order to ensure observance of the limitations and restrictions placed on the use of resources available to the Association by such documents, the accounts of the Association are maintained in accordance with the principles of fund accounting. The assets, liabilities and fund balances of the Association are reported in the following fund groups: Operating Fund This fund represents the portion of expendable funds that is available for the general operations of the Association. Deferred Maintenance Fund The purpose of this fund is to accumulate sufficient amounts which will allow the Association to have the necessary resources to perform caulking, painting, waterproofing and other maintenance services which occur less frequently than annually. Replacement Fund The purpose of the replacement fund is to accumulate funds for future major repairs and replacements of the Association s common property as determined by the Board. 9

12 Notes to the Financial Statements December 31, 2011 Note 2 Summary of Significant Accounting Policies (Continued) Investments The Association has classified securities as held to maturity. Securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. The Association has the positive intent and ability to hold these securities to maturity. Fair value is measured on a recurring basis based on quoted prices in an active market (all Level 1 measurements). Recognition of Assets The Association s property and other common elements are owned by the unit owners in condominium form pursuant to the Master Deed wherein each of the individual unit owners hold legal title to an undivided interest in property constituting the common elements. The use and disposition of these properties are restricted or governed by the Association s legal documents. Accordingly, no amounts related to these common elements are included on the accompanying balance sheet of the Association. The common elements generally consist of driveways, curbs, sidewalks, parking areas, clubhouse and pool. Maintenance Assessments and Assessments Receivable The Association s members are subject to monthly assessments based upon the annual budget and as determined by the Board. The Association retains excess operating funds at the end of the operating year, if any, for use in future operating periods or as otherwise specified by the Association s governing documents. A portion of the monthly assessments to owners are allocated to the replacement fund and deferred maintenance fund. On a periodic basis, the Board and management evaluate the assessments receivable and estimate an allowance for doubtful accounts, based on history of past write-offs and collections and the current legal status of past due accounts. No allowance was deemed necessary as of December 31, 2011 Investment Income Earned The Board s policy is to retain investment income earned on all replacement and deferred maintenance fund interest bearing cash accounts and investments in the respective funds. Subsequent Events The Board has evaluated subsequent events and transactions for potential recognition or disclosure through the date of the auditors report, which is the date the financial statements were available to be issued. Note 3 Certificates of Deposit and Money Market Mutual Funds The Association holds several certificates of deposit, recorded at cost which approximates fair value at December 31, 2011, with interest rates ranging from 0.35% %. The certificates of deposit are scheduled to mature at various dates from March 2012 through October

13 Notes to the Financial Statements December 31, 2011 Note 3 Certificates of Deposit and Money Market Mutual Funds (Continued) Money market mutual funds are recorded at cost which approximates fair value at December 31, Note 4 Investment At December 31, 2011, the investment was: Held To Maturity: Fair Maturity Date Amortized Cost Market Value U.S. Treasury Strips 8/15/2021 $399,468 $ 412,475 U.S. Treasury strips are recorded at amortized cost and are intended to be held to maturity. Fair value is measured on a recurring basis based on quoted prices in an active market (all Level 1 measurements). Note 5 Income Taxes Under the Internal Revenue Code, associations may be taxed as a condominium management association or as a regular corporation, which is based on an annual election. The Association may select either method in any year and will generally select the method that results in the lowest tax due. A method selected in one year affects only that year and the Association is free to select either method in future years. For the year ended December 31, 2011, the Association expects to be taxed as a regular corporation and therefore not taxed as a condominium management association. Income taxes of $21,985 have been provided based on the excess of non-membership income over non-membership expenses. The Association adopted the new accounting for uncertainty in income tax guidance, which clarifies the accounting and recognition for tax positions taken or expected to be taken in its income tax returns. In evaluating the Association s tax provisions and accruals, the Association believes that they are appropriate based on current facts and circumstances. The prior three years federal tax returns as filed remain open for examination by the Internal Revenue Service. The Association is incorporated pursuant to Title 15A of the New Jersey Statutes and, therefore, is not liable for New Jersey corporation business income tax. 11

14 Notes to the Financial Statements December 31, 2011 Note 6 Working Capital Contributions Upon the acquisition of title to a unit, each new member of the Association must contribute a one-time non-refundable and non-assignable amount equivalent to two months of the current annual assessment. These funds have been allocated to the replacement fund. Note 7 Replacement Fund The Association s governing documents require that funds be accumulated for future major repairs and replacements. Accumulated funds are held in separate savings accounts and are generally not available for expenditures for normal operations. Becht Engineering, professional engineering consultants, conducted a study in July 2011, to be effective January 1, 2012, to estimate the remaining useful lives and the replacement costs of the components of common property. The study includes those components with an estimated remaining useful life within the Board determined useful life guidelines for inclusion in the replacement schedule for purposes of determining annual funding. The estimates were based on then current estimated replacement costs, considering amounts previously accumulated in the replacement fund and utilizing the threshold funding methodology. Threshold funding, based upon a 30 year cash flow analysis, sets a replacement funding goal of keeping the replacement fund balance above a specified dollar amount at its lowest accumulated amount, as specified by the Board, but below the full funding determined level. The funding requirement per the 2011 study is $169,716 using a threshold level of $241,462 which is approximately 5% of the estimated replacement cost of the common property which is included in the engineering study referred to above. The threshold level is projected to be met in The table included in the unaudited supplementary information on future major repairs and replacements is based on the 2011 study. During 2011, the Board funded for major repairs and replacements over the remaining useful lives of the components based on the schedule prepared in conjunction with the Public Offering Statement s estimates of those lives and then current replacement costs. In addition to the 2011 budgeted contributions of $150,000, the Board allocated $331,000 of settlement income (Note 9), $27,462 of investment income, and $77,998 of gains on the sale of investments to the replacement fund. 12

15 Notes to the Financial Statements December 31, 2011 Note 7 Replacement Fund (Continued) Funds are being accumulated in the replacement fund based upon estimated costs for repairs and replacements of common property. Actual expenditures may vary from the estimated amounts, and the variations may be material. Additionally, replacement fund cash and investment balances may, at times, be less than or more than the fund balance, resulting in an interfund balance. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future needs for major repairs and replacements. If additional funds are needed, the Association has the right to increase regular assessments, pass special assessments, or delay major repairs and replacements until funds are available. Note 8 Interfund Transfer During the year ended December 31, 2011, the Board approved an interfund transfer from the operating fund to the deferred maintenance fund in the amount of $50,000. The purpose of the transfer is to allocate a portion of the operating surplus to the deferred maintenance fund as of December 31, Note 9 Special assessment During the year ended December 31, 2011, the Board approved a special assessment totaling $53,743. The purpose of the special assessment was to cover the excess snow clearing costs incurred during the winter season. The assessment was payable over a two month period commencing June 2011 and has been recorded as operating income in the accompanying financial statements. Note 10 Other matters The Association had previously filed claims against the Developer in connection with the transition process. During the year ended, December 31, 2011, the Association finalized a settlement agreement with the Developer and has received the sum of $500,000 to resolve its transition claims. Income from the settlement has been allocated to the settlement fund and replacement funds in the accompanying financial statements in the amount of $169,000 and $331,000, respectively. 13

16 SUPPLEMENTARY INFORMATION

17 Schedule of Information on Future Major Repairs and Replacements December 31, 2011 Becht Engineering, professional engineering consultants, conducted a study in July 2011 to be effective January 1, The study includes those components with an estimated remaining useful life within the board determined useful life guidelines for inclusion in the replacement schedule for purposes of determining annual funding. The estimates were based on the then current estimated replacement costs. The following table is based on the study and presents significant information about the components of common property. As of 2011 Study (Unaudited) Estimated Estimated Current Remaining Useful Replacement Components Lives (Years) Costs Architectural 3-18 $ 2,422,222 Electrical ,085,585 Mechanical ,800 Site ,040 Miscellaneous ,597 Total $ 4,829,244 Replacement fund balance as of December 31, 2011 $ 1,565,029 14

18 Schedule of Total Revenues, Operating Expenses and Allocations to Funds as Compared to Budget For the Year Ended December 31, 2011 Actual (Unaudited) Budget Revenues Maintenance assessments $ 1,451,430 $ 1,451,433 Settlement income 500,000 - Gain on sale of investments 77,998 - Special assessments 53,743 - Investment income 27,877 17,700 Other income 14,179 3,400 Township reimbursement 3,038 2,500 Legal fee reimbursement 2,539 - Late charges Clubhouse/lounge income Total Revenues 2,132,179 1,475,883 Operating Expenses Administrative Insurance 84,806 85,200 Management fees 62,640 62,640 Federal income taxes 21,985 2,600 Legal 14,867 19,000 Audit 3,600 3,600 License and permits 3,312 6,000 Engineering 3,200 - Postage 1,341 1,800 Office and miscellaneous 1,085 2,000 Bank charges CAI membership Contingency - 16,000 Total Administrative 197, ,615 Building and Grounds Maintenance General maintenance 140, ,000 Snow clearing 113,017 45,000 Valet parking 89,519 91,656 Elevator 58,993 38,000 Lawn maintenance 41,270 41,138 Alarm systems 34,158 32,000 Water treatment 12,546 22,000 Electrical 11,531 10,000 15

19 Schedule of Total Revenues, Operating Expenses and Allocations to Funds as Compared to Budget For the Year Ended December 31, 2011 Actual (Unaudited) Budget Operating Expenses (Continued) Building and Grounds Maintenance (Continued) Supplies 9,933 8,500 HVAC 9,104 10,000 Mechanical 7,259 8,000 Mulching 6,816 6,500 Sprinkler maintenance 4,788 8,500 Retention pond maintenance 4,519 5,000 Pest control 3,595 5,000 Plumbing 3,294 2,000 Roof maintenance 1,450 4,500 Developer expense - 24,000 Total Building and Grounds Maintenance 552, ,794 Security Concierge 169, ,000 Security service 121, ,500 Total Security 290, ,500 Recreation Pool operations 20,904 22,474 Clubhouse electric 12,831 20,000 Clubhouse maintenance 2,447 3,300 Recreational equipment 1,536 2,500 Cable expense - - Total Recreation 37,718 48,274 Utilities Electric 130, ,000 Water and sewer 17,971 17,000 Telephone 15,937 14,500 Gas 5,729 5,500 Total Utilities 169, ,000 16

20 Schedule of Total Revenues, Operating Expenses and Allocations to Funds as Compared to Budget For the Year Ended December 31, 2011 Actual (Unaudited) Budget Deferred Maintenance Fund Maintenance assessments allocated to deferred maintenance fund 33,000 33,000 Investment income allocated to deferred maintenance fund Total Allocations to the Deferred Maintenance Fund 33,283 33,000 Settlement Fund Settlement income allocated to settlement fund 169,000 - Investment income allocated to settlement fund Total Allocations to the Settlement Fund 169,132 - Replacement Fund Settlement income allocated to replacement fund 331,000 - Maintenance assessments allocated to replacement fund 150, ,000 Investment income allocated to replacement fund 27,462 17,700 Gain on sale of investments allocated to replacement fund 77,998 - Total Allocations to the Replacement Fund 586, ,700 Total Operating Expenses and Allocations to Funds 2,037,794 1,475,883 Excess of Revenues over Operating Expenses and Allocations to Funds $ 94,385 $ - 17