WEST BEND WATER AND SEWER UTILITIES Enterprise Funds of the City of West Bend, Wisconsin

Transcription

1 WEST BEND WATER AND SEWER UTILITIES Enterprise Funds of the City of West Bend, Wisconsin FINANCIAL STATEMENTS Including Independent Auditors' Report

2 WEST BEND WATER AND SEWER UTILITIES Enterprise Funds of the City of West Bend, Wisconsin TABLE OF CONTENTS As of and for the Years EndedDecember 31, 2013 and 2012 Independent Auditors' Report 1-2 Management's Discussion and Analysis 3-17 Financial Statements Water Utility Statements of Net Position Statements of Revenues, Expenses, and Changes in Net Position 20 Statements of Cash Flows Sewer Utility Statements of Net Position Statements of Revenues, Expenses, and Changes in Net Position 25 Statements of Cash Flows Notes to Financial Statements Supplemental Information Water Utility Utility Plant 56 Operating Revenues and Expenses Sewer Utility Utility Plant 59 Operating Revenues and Expenses 60-61

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5 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) WATER UTILITY

6 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS The management of the West Bend Water Utility offers all persons interested in the financial position of the utility an objective, easy to read overview and analysis of the utility s financial performance during the years ending December 31, 2013 and You are encouraged to read this narrative in conjunction with the utility s financial statements. FINANCIAL HIGHLIGHTS The water utility s total assets increased $396,000 or 1.2% from the prior year. Capital assets decreased $189,000 due to depreciation expense exceeding capital project additions. There was also a $585,000 increase in current and other assets. The water utility s operating revenues, generated mostly by user fees, decreased $146,000 or 2.9% due to a decrease in sales. In 2012, operating revenues increased $341,000 due to being the first full year of rate increase effective April 1, Operating expenses increased $92,000 in 2013 as a result of higher depreciation costs. In 2012, operating expenses decreased $796,000 due to less employee and benefit costs, less tower maintenance costs, and a decrease in depreciation expense. OVERVIEW OF THE FINANCIAL STATEMENTS The water utility is a self-supporting entity and a separate enterprise fund of the City of West Bend. The utility provides water service to the City of West Bend and a small portion of the Town of Barton residents adjacent to the corporate boundaries of the City of West Bend. The water utility is managed by the City of West Bend Board of Public Works in the capacity of a Water and Sewerage Commission and operates under the rules and regulations of the Public Service Commission of Wisconsin. The accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Public Service Commission of Wisconsin, and in accordance with the Governmental Accounting Standards Board. This annual report consists of two parts: Management s Discussion and Analysis, and the basic financial statements as well as the independent auditor s report. An analysis of the utility s financial position begins with a review of the Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position. These two statements report the utility s net position and changes therein. The utility s net position the difference between assets and liabilities is key to measuring the financial health of the utility. Over time, increases or decreases in the net position value are an indicator of whether the financial position is improving or deteriorating. However, it should be noted that the financial position may also be affected by other non-financial factors, including economic conditions, customer growth, climate conditions and new regulations. See accompanying independent auditors report. Page 3

7 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS The Statement of Net Position includes all of the utility s assets and liabilities and provides information about the nature and amount of investments in resources and the obligations to creditors. This statement provides the basis for evaluating the capital structure and assessing the liquidity and financial flexibility of the utility. A summary of the utility s Statement of Net Position is presented below in Table 1. Table 1 Condensed Statement of Net Position Dollar Change Current and other assets $ 5,921,267 $ 5,336,490 $ 4,753,280 $ 584,777 Capital assets 26,681,226 26,869,890 26,915,753 (188,664) Total Assets 32,602,493 32,206,380 31,669, ,113 Long-term debt outstanding 5,280,000 5,836,186 6,463,084 (556,186) Other liabilities 1,267,808 1,161,622 1,192, ,186 Total Liabilities 6,547,808 6,997,808 7,655,483 (450,000) Investment in capital assets 22,022,103 21,740,500 21,173, ,603 Restricted 665, , , ,574 Unrestricted 3,367,503 3,106,567 2,451, ,936 Total Net Position $ 26,054,685 $ 25,208,572 $ 24,013,550 $ 846,113 As can be seen from the table above, the utility s net position increased $846,000 or 3.4%. The utility s net position increased $1,195,000 in 2012, an increase of 5%. See accompanying independent auditors report. Page 4

8 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) The restricted portion of net position includes accounts that are limited by bond covenants. Listed below are restricted assets: Redemption Used to segregate resources accumulated for debt service payments over the next twelve months. Reserve Used for any deficiencies in the redemption account. Depreciation Used to report resources set aside to fund plant renewals and replacement or make up potential future deficiencies in the redemption account. Construction Bond issue monies used only for the restricted construction projects. The Statement of Revenues, Expenses, and Changes in Net Position provides an indication of the utility s financial health. Table 2 Condensed Statement of Revenues, Expenses and Changes in Net Position Dollar Change Operating revenues $ 4,928,810 $ 5,074,512 $ 4,733,307 $ (145,702) Nonoperating revenues 16,410 19,344 22,505 (2,934) Total Revenues 4,945,220 5,093,856 4,755,812 (148,636) Depreciation expense 945, , , ,331 Other operating expenses 2,185,072 2,243,685 2,950,944 (58,613) Nonoperating expenses 265, , ,004 61,946 Total Expenses 3,396,658 3,242,994 4,076, ,664 Income Before Capital Contributions and Transfers 1,548,562 1,850, ,804 (302,300) Capital contributions (3,316) 6,000 44,703 (9,316) Transfers (699,133) (661,840) (635,580) (37,293) Changes in Net Position 846,113 1,195,022 88,927 (348,909) Beginning Net Position 25,208,572 24,013,550 23,924,623 1,195,022 Total Net Position - Ending $ 26,054,685 $ 25,208,572 $ 24,013,550 $ 846,113 See accompanying independent auditors report. Page 5

9 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) As seen on the graph below, operating revenues decreased $146,000 and increased $341,000 in 2013 and 2012, respectively. Operating revenues decreased in 2013 due to decreased sales during a milder summer in comparison to Comparison of Water Revenues $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ The utility annually reviews rates to determine the adequacy of rates. On April 1, 2011 the water utility implemented a 9% rate increase. As rates increased in the past years, water usage has steadily declined due to increased water conservation. 1,000, , , , , , , , , ,000 Comparison of Water Sold Public Authority Industrial Commercial Residential See accompanying independent auditors report. Page 6

10 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) Operating expenses increased $92,000 due to an increase in depreciation. In 2012, operating expenses decreased $796,000 due to decreased tower maintenance and also decrease in salaries, health insurance and benefits. Comparison of Water Expenses , , , ,000 1,000,000 1,200,000 1,400,000 Depreciation Administrative and General Transmission and Distribution Taxes Customer Accounts Water Treatment In 2013 the actual rate of return was 8.13%. The rate of return decreased in 2013 due to decreased revenue and increased expenses. The rate of return increased significantly in 2012 due to reduced operation expenses and increased revenue. Prior to 2012, increased operational and capital costs have caused the rate of return for the utility to remain well below the authorized rate of return, as seen below % 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Comparison of Rate of Return See accompanying independent auditors report. Page 7

11 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) The Statement of Cash Flows report the cash provided and used by operating activities, as well as other cash sources such as investment income and cash payments for repayment of bonds and capital additions. Table 3 Condensed Statements of Cash Flows Dollar Change Cash Flows From: Operating activities $ 2,891,280 $ 2,778,401 $ 1,780,908 $ 112,879 Noncapital financing activities (659,656) (634,509) (622,152) (25,147) Capital and related financing activities (1,445,739) (1,793,677) (877,716) 347,938 Investing activities (299,450) 3,761 3,738 (303,211) Net Change in Cash and Cash Equivalents 486, , , ,459 Cash and Cash Equivalents Beginning of Year 2,377,653 2,023,677 1,738, ,976 Cash and Cash Equivalents End of Year 2,864,088 2,377,653 2,023, ,435 Long-term Investments 300, ,000 Total Cash and Investments $ 3,164,088 $ 2,377,653 $ 2,023,677 $ 786,435 As noted above, cash flows from operating activities increased due to an increase in cash received from customers and a decrease in cash paid to employees for operating payroll in Cash flows from capital and related financing activities increased due to less acquisitions and construction of capital assets. See accompanying independent auditors report. Page 8

12 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) The following summarizes the changes in capital assets. Table 4 Capital Assets Dollar Change Capital Assets Source of supply $ 829,516 $ 772,407 $ 681,970 $ 57,109 Pumping 3,195,106 3,175,680 3,109,572 19,426 Water treatment 1,689,421 1,688,278 1,685,588 1,143 Transmission and distribution 30,039,884 29,867,194 29,406, ,690 General 3,836,944 3,447,345 3,433, ,599 Total Capital Assets 39,590,871 38,950,904 38,316, ,967 Less: Accumulated depreciation (13,212,526) (12,455,163) (11,782,456) (757,363) Construction in progress 302, , ,375 (71,268) Net Capital Assets $ 26,681,226 $ 26,869,890 $ 26,915,753 $ (188,664 ) During 2013 and 2012, the utility s net capital assets decreased $189,000 and $46,000, respectively due to routine additions to plant and annual depreciation expense. The 2013 and 2012 capital assets increased by $640,000 and $634,000, respectively. Both increases were primarily due to transmission and distribution main additions. Please refer to the notes to the financial statements for further detail of the utility s capital assets. LONG-TERM DEBT As of December 31, 2013, the utility has total revenue bond debt of $3,825,000 payable from and secured by a pledge of income and revenue to be derived from the operation of the utility. Total revenue bond debt was $4,230,000 and $4,695,000 as of December 31, 2012 and 2011, respectively. No new revenue bonds were issued in 2013 or 2012.These revenue bonds were issued for various infrastructure projects, mostly related to the water distribution system. As of December 31, 2013, the utility has total general obligation debt of $1,455,000, a decrease of $145,000 from 2012 due to the annual payment. Total general obligation debt was $1,600,000 and $1,760,729 as of December 31, 2012 and 2011, respectively. These general obligation bonds were issued for various infrastructure projects, mostly related to the water distribution system. Tables of separate revenue bond and G.O. debt issues are included in the notes to the financial statements. See accompanying independent auditors report. Page 9

13 WEST BEND WATER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS CURRENTLY KNOWN FACTS/ECONOMIC CONDITIONS The City of West Bend is located 35 miles North of Milwaukee. The City of West Bend has successful business parks and commercial areas as well as steady residential growth which provides the balance needed to maintain our identity as a regional source of shopping and quality living. The Water Utility has maintained and continued project planning as well as financial planning to keep pace with the City s growth. Capital additions such as new water mains, upgrading of existing well control systems and implementation of security needs along with the planned construction of two new wells in the next two years are examples of our continued efforts to maintain and improve our system reliability. Infrastructure in new subdivisions is contributed by developers. We review our rate structure on an annual basis. CONTACTING UTILITY FINANCIAL MANAGEMENT This financial report is designed to provide our customers with a general overview of the utility s finances. If you have questions about this report, or need additional information, contact the Utility Superintendent, West Bend Water Utility, 251 Municipal Drive, West Bend, Wisconsin, See accompanying independent auditors report. Page 10

14 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) SEWER UTILITY

15 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS The management of the West Bend Sewer Utility offers all persons interested in the financial position of the utility an objective, easy to read overview and analysis of the utility s financial performance during the years ending December 31, 2013 and You are encouraged to read this narrative in conjunction with the utility s financial statements. FINANCIAL HIGHLIGHTS The sewer utility s total assets decreased $6,609,000 in 2013 due to a decrease in investments. The sewer utility s total assets increased $103,000 in 2012 due to the addition of the bio solids project to plant in service. This is offset by increases in depreciation and payments made to the city for advances. The sewer utility s operating revenues, generated mostly by user fees, decreased by $85,000 or 2.3%. The 2013 decrease is due to a decrease in volume billed. In 2012, operating revenues increased $294,000 or 8.5%. The 2012 increase in revenues is due to increase in waste treated and hauler revenues. The sewer utility s operating expenses were $51,000 or 1.4% lower than in The decrease is due to a decrease in maintenance and repairs. In 2012, operating expenses were $230,000 or 6.9% higher than in The increase in operating expenses is mostly related to increases in hauling waste. OVERVIEW OF THE FINANCIAL STATEMENTS The sewer utility is a self-supporting entity and a separate enterprise fund of the City of West Bend. The utility provides sewer service to the City of West Bend, Wallace Lake, Silver Lake, and outside waste haulers. The sewer utility is managed by the City of West Bend Board of Public Works and operates under the rules and regulations established by the City Council. The accounting records are maintained in accordance with the Governmental Accounting Standards Board. This annual report consists of two parts: Management s Discussion and Analysis, and the basic financial statements as well as the independent auditor s report. An analysis of the utility s financial position begins with a review of the Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position. These two statements report the utility s net position and changes therein. The utility s net position the difference between assets and liabilities is key to measuring the financial health of the utility. Over time, increases or decreases in the net position value are an indicator of whether the financial position is improving or deteriorating. However, it should be noted that the financial position may also be affected by other non-financial factors, including economic conditions, customer growth, climate conditions and new regulations. See accompanying independent auditors report. Page 11

16 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS The Statement of Net Position includes all of the utility s assets and liabilities and provides information about the nature and amount of investments in resources and the obligations to creditors. This statement provides the basis for evaluating the capital structure and assessing the liquidity and financial flexibility of the utility. A summary of the utility s Statement of Net Position is presented below in Table 1. Table 1 Condensed Statement of Net Position Dollar Change Current and other assets $ 12,717,122 $ 21,310,538 $ 23,351,443 $ (8,593,416) Capital assets 27,577,976 25,594,150 23,450,199 1,983,826 Total Assets 40,295,098 46,904,688 46,801,642 (6,609,590) Long-term debt outstanding 622, , ,214 (60,000) Other liabilities 592,195 4,818,629 1,278,203 (4,226,434) Total Liabilities 1,214,336 5,500,770 2,102,417 (4,286,434) Investment in capital assets 26,955,835 24,914,070 22,625,985 2,041,765 Restricted 326, ,507 1,457,832 68,320 Unrestricted 11,798,100 16,231,341 20,615,408 (4,433,241) Total Net Position $ 39,080,762 $ 41,403,918 $ 44,699,225 (2,323,156) As can be seen from the table above, the utility s net position decreased $2,323,000 in 2013, a decrease of 5.6% versus a decrease of 7.3% and a decrease of 3.3% in 2012 and 2011 respectively. The restricted portion of net assets includes an account that is limited by the Wisconsin Department of Natural Resources (DNR). Replacement Used to accumulate funds for replacement of certain mechanical equipment due to the receipt of state and federal funds. See accompanying independent auditors report. Page 12

17 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) The Statement of Revenues, Expenses, and Changes in Net Position provides an indication of the utility s financial health. Table 2 Condensed Statement of Revenues, Expenses and Changes in Net Position Dollar Change Operating Revenues $ 3,659,335 $ 3,744,364 $ 3,450,686 $ (85,029) Non-Operating Revenues 471, ,689 1,065,993 (237,880) Total Revenues 4,131,144 4,454,053 4,516,679 (322,909) Depreciation Expense 1,199,630 1,119,659 1,067,331 79,971 Other Operating Expenses 2,292,237 2,423,148 2,232,758 (130,911) Non-Operating Expenses 21,205 49,097 32,330 (27,892) Total Expenses 3,513,072 3,591,904 3,332,419 (78,832) Income Before Capital Contributions and Transfers 618, ,149 1,184,260 (244,077) Capital Contributions 89,615 57, ,563 32,408 Transfers (3,030,843) (4,214,663) - 1,183,820 Changes in Net Position (2,323,156) (3,295,307) 1,445, ,151 Beginning Net Position 41,403,918 44,699,225 43,253,402 (3,295,307) Total Net Position - Ending $ 39,080,762 $ 41,403,918 $ 44,699,225 $ (2,323,156) Sewer utility advances to TIF districts No. 5, No.7, No. 9, No. 11, No.12 and No.13 were determined to be uncollectible in An allowance was set up in the amount of $3,030,843 resulting in a transfer out in the same amount. In 2012, the sewer utility transferred $4,214,663 to the City of West Bend to reimburse the city for sewer infrastructure paid out of the city funds. See accompanying independent auditors report. Page 13

18 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) Operating revenues decreased $85,000 and increased $294,000 in 2013 and 2012 respectively. The 2013 decrease is due to lower volume billed in comparison to prior year. The 2012 increase in revenues is due to increase in waste treated and an increase from additional hauler revenues. The sewer utility increased rates last on December 1, $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Comparison of Sewer Revenues $0 Residential Commercial Industrial Public Authority Other Comparison of Sewer Billed 1,400,000 1,200,000 1,000, , , , , Public Authority Industrial Commercial Residential See accompanying independent auditors report. Page 14

19 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) Operating expenses decreased in 2013 by $51,000 or 1.4% and increased in 2012 by $230,000 or 6.9%. The decrease in 2013 was mainly due to a decrease in maintenance and repairs. The increase in 2012 was mainly due to an increase in treatment. Comparison of Sewer Expenses , , , ,000 1,000,000 1,200,000 1,400,000 Depreciation Taxes Administrative and General Customer Accounts Maintenance Operation See accompanying independent auditors report. Page 15

20 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) The Statement of Cash Flows report the cash provided and used by operating activities, as well as other cash sources such as investment income and cash payments for repayment of bonds and capital additions. Table 3 Condensed Statements of Cash Flows Dollar Change Cash Flows From: Operating activities $ 1,294,686 $ 1,217,336 $ 1,432,157 77,350 Noncapital financing activities (4,575,553) (661,769) 2,769 (3,913,784) Capital and related financing activities (3,602,252) (4,170,919) (2,044,143) 568,667 Investing activities 3,888,500 5,193,613 3,287,170 (1,305,113) Net Change in Cash and Cash Equivalents (2,994,619) 1,578,261 2,677,953 (4,572,880) Cash and Cash Equivalents Beginning of Year 5,743,011 4,164,750 1,486,797 1,578,261 Cash and Cash Equivalents End of Year 2,748,392 5,743,011 4,164,750 (2,994,619) Long-term Investments 3,434,801 7,320,607 12,362,457 (3,885,806) Total Cash and Investments $ 6,183,193 $ 13,063,618 $ 16,527,207 $ (6,880,425) The following summarizes the changes in capital assets. Table 4 Capital Assets Dollar Change Capital Assets Collection system $ 22,203,655 $ 20,928,781 $ 20,774,884 $ 1,274,874 Collection system equipment 342, , ,768 - Treatment and disposal 26,057,301 22,891,973 19,781,270 3,165,328 General 702, , ,257 (147,322) Total Capital Assets 49,306,060 45,013,180 41,749,179 4,292,880 Less: Accumulated depreciation (21,780,425) (21,161,806) (20,820,279) (618,619) Construction in progress 52,341 1,742,776 2,521,299 (1,690,435) Net Capital Assets $ 27,577,976 $ 25,594,150 $ 23,450,199 $ 1,983,826 See accompanying independent auditors report. Page 16

21 WEST BEND SEWER UTILITY MANAGEMENT S DISCUSSION AND ANALYSIS UTILITY FINANCIAL ANALYSIS (cont.) During 2013 capital assets increased by $1,983,000 due to the bio-solids project and continued work on replacing plant from flooding in the WWTP. In 2012 capital assets increased by $2,144,000 due to the bio-solids project and continued work on replacing plant from flooding in the WWTP. Please refer to the notes to the financial statements for further detail of the utility s capital assets. LONG-TERM DEBT As of December 31, 2013, the utility has total general obligation debt of $622,141. In 2012, $235,000 of general obligation debt was issued to refund existing general obligation debt at a lower rate. In 2012, the utility had total general obligation debt of $682,141. The utility had total general obligation debt of $824,214 in These general obligation bonds were issued for various infrastructure projects, mostly related to the sewer collection system. A table of separate debt issues is included in the notes to the financial statements. CURRENTLY KNOWN FACTS/ECONOMIC CONDITIONS The City of West Bend is located 35 miles North of Milwaukee. The City of West Bend has successful business parks and commercial areas as well as steady residential growth which provide the balance needed to maintain our identity as a regional source of shopping and quality living. The Sewer Utility has maintained and continued project planning as well as financial planning to keep pace with the City s growth. Infrastructure in new subdivisions is contributed by developers. We review our rate structure on an annual basis. CONTACTING UTILITY FINANCIAL MANAGEMENT This financial report is designed to provide our customers with a general overview of the utility s finances. If you have questions about this report, or need additional information, contact Manager of the Sewer Utility, West Bend Sewer Utility, 512 Municipal Drive, West Bend, Wisconsin, See accompanying independent auditors report. Page 17

22 WATER UTILITY

23 WEST BEND WATER UTILITY STATEMENTS OF NET POSITION As of December 31, 2013 and 2012 ASSETS CURRENT ASSETS Cash and investments $ 1,746,658 $ 1,260,901 Interest receivable Restricted Assets Redemption account 559, ,451 Customer accounts receivable 958, ,286 Other accounts receivable 6,381 6,112 Due from sewer utility 43,332 47,633 Due from other funds Materials and supplies 63,049 62,392 Current portion of advances to other funds 125, ,000 Total Current Assets 3,503,530 2,751,634 NONCURRENT ASSETS Restricted Assets Reserve account 620, ,027 Depreciation account 147, ,274 Other Assets OPEB investment 90,000 90,000 Property held for future use 447, ,747 Preliminary survey and investigation 46,276 31,673 Special assessments receivable 380, ,366 Unamortized debt issuance costs - 86,769 Advances to other funds 685, ,000 Capital Assets Plant in service 39,590,871 38,950,904 Accumulated depreciation (13,212,526) (12,455,163) Construction work in progress 302, ,149 Total Noncurrent Assets 29,098,963 29,454,746 Total Assets 32,602,493 32,206,380 Page 18

24 LIABILITIES CURRENT LIABILITIES Accounts payable $ 140,778 $ 105,690 Due to municipality 587, ,338 Due to other funds Accrued wages 120, ,831 Accrued interest 20,707 21,364 Other current liabilities 7,830 7,836 Current portion of general obligation debt 145, ,000 Current Liabilities Payable from Restricted Assets Current portion of revenue bonds 420, ,000 Accrued interest 41,474 45,220 Total Current Liabilities 1,484,404 1,390,343 NONCURRENT LIABILITIES General obligation debt 1,310,000 1,455,000 Revenue bonds 3,405,000 3,825,000 Unamortized debt premium - 6,186 Accrued sick leave 130, ,920 OPEB obligation 218, ,359 Total Noncurrent Liabilities 5,063,404 5,607,465 Total Liabilities 6,547,808 6,997,808 NET POSITION Net investment in capital assets 22,022,103 21,740,500 Restricted for: Debt service 517, ,231 Equipment replacement 147, ,274 Unrestricted 3,367,503 3,106,567 TOTAL NET POSITION $ 26,054,685 $ 25,208,572 See accompanying notes to the financial statements. Page 19

25 WEST BEND WATER UTILITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Years Ended December 31, 2013 and OPERATING REVENUES Sales of water $ 4,635,215 $ 4,788,500 Other 293, ,012 Total Operating Revenues 4,928,810 5,074,512 OPERATING EXPENSES Operation and maintenance 2,185,072 2,243,685 Depreciation 945, ,477 Total Operating Expenses 3,130,880 3,039,162 OPERATING INCOME 1,797,930 2,035,350 NONOPERATING REVENUES (EXPENSES) Investment income 607 3,686 Miscellaneous revenues 1,293 - Interest expense subsidy 14,510 15,658 Interest expense (192,000) (207,796) Interest charged to construction 6,806 18,017 Amortization of premium and discount, and issuance costs (80,584) (14,053) Total Nonoperating Revenues (Expenses) (249,368) (184,488) Income Before Contributions and Transfers 1,548,562 1,850,862 CAPITAL CONTRIBUTIONS (3,316) 6,000 TRANSFERS - TAX EQUIVALENT (699,133) (661,840) CHANGE IN NET POSITION 846,113 1,195,022 NET POSITION - Beginning of Year 25,208,572 24,013,550 NET POSITION - END OF YEAR $ 26,054,685 $ 25,208,572 See accompanying notes to the financial statements. Page 20

26 WEST BEND WATER UTILITY STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2013 and CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 5,039,269 $ 5,057,365 Paid to suppliers for goods and services (1,300,019) (1,412,110) Paid to employees for operating payroll (847,970) (866,854) Net Cash Flows From Operating Activities 2,891,280 2,778,401 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Paid to municipality for tax equivalent (659,656) (634,509) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (871,505) (1,066,620) Received from the sale of capital assets 42,000 - Capital contributions received 2,684 - Special assessments received 7,975 7,735 Interest expense subsidy received 14,510 15,658 Debt retired (445,000) (535,729) Interest paid (196,403) (214,721) Net Cash Flows From Capital and Related Financing Activities (1,445,739) (1,793,677) CASH FLOWS FROM INVESTING ACTIVITIES Investments purchased (300,000) - Investment income 550 3,761 Net Cash Flows From Investing Activities (299,450) 3,761 Net Change in Cash and Cash Equivalents 486, ,976 CASH AND CASH EQUIVALENTS - Beginning of Year 2,377,653 2,023,677 CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,864,088 $ 2,377,653 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Developer financed additions to utility plant $ (6,000) $ 6,000 Debt paid by TIF districts $ 105,000 $ 90,000 Interest expense paid by TIF districts $ 29,994 $ 33,919 Capitalized interest $ 6,806 $ 18,017 Page 21

27 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income $ 1,797,930 $ 2,035,350 Nonoperating revenue (expense) 1,293 - Noncash items in operating income Depreciation 945, ,477 Depreciation charged to clearing and other utilities 56,940 55,200 Changes in assets and liabilities Customer accounts receivable 14,777 (42,947) Other accounts receivable (567) (304) Due from other funds 38,016 (5,896) Materials and supplies (657) (9,894) Accounts payable 35,230 7,284 Due to other funds (31,591) (23,695) Accrued sick leave 11,248 (22,167) Other current liabilities 6,976 (39,619) Unearned revenue - (23,200) OPEB obligation 15,877 52,812 NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,891,280 $ 2,778,401 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO STATEMENTS OF NET POSITION ACCOUNTS Cash and investments $ 1,746,658 $ 1,260,901 Redemption account 559, ,451 Reserve account 620, ,027 Depreciation account 147, ,274 OPEB Investment 90,000 90,000 Total Cash and Investments 3,164,088 2,377,653 Less: Noncash equivalents (300,000) - CASH AND CASH EQUIVALENTS $ 2,864,088 $ 2,377,653 See accompanying notes to the financial statements. Page 22

28 SEWER UTILITY

29 WEST BEND SEWER UTILITY STATEMENTS OF NET POSITION As of December 31, 2013 and 2012 ASSETS CURRENT ASSETS Cash and investments $ 1,772,561 $ 1,548,593 Interest receivable ,119 Customer accounts receivable 686, ,842 Other accounts receivable 84,732 80,754 Due from municipality 217, ,653 Due from other funds 57,786 16,027 Prepayments Current portion of advances 48,160 3,024 Total Current Assets 2,867,207 2,624,312 NONCURRENT ASSETS Restricted Assets Replacement account 326, ,507 Other Assets Designated project investments 4,023,805 11,196,518 OPEB investment 60,000 60,000 Preliminary survey and investigation 4, Special assessments receivable 829, ,885 Unamortized debt issuance costs - 1,712 Advances to other funds 2,175,792 1,663,520 Long-term receivable from TIF 2,354,619 4,633,735 Non-utility property 75,000 - Capital Assets Plant in service 49,306,060 45,013,180 Accumulated depreciation (21,780,425) (21,161,806) Construction work in progress 52,341 1,742,776 Total Noncurrent Assets 37,427,891 44,280,376 Total Assets 40,295,098 46,904,688 Page 23

30 LIABILITIES CURRENT LIABILITIES Accounts payable $ 223,148 $ 1,045,369 Due to municipality 93, ,451 Due to water utility 43,332 47,633 Due to other funds 143 3,300,030 Accrued wages 71,128 72,932 Accrued interest 5,516 7,299 Current portion of general obligation debt 60,000 60,000 Total Current Liabilities 496,520 4,707,714 NONCURRENT LIABILITIES General obligation debt 562, ,141 Accrued sick leave 51,215 76,565 OPEB obligation 104,460 94,350 Total Noncurrent Liabilities 717, ,056 Total Liabilities 1,214,336 5,500,770 NET POSITION Net investment in capital assets 26,955,835 24,913,721 Restricted for: Equipment replacement 326, ,507 Unrestricted 11,798,100 16,231,690 TOTAL NET POSITION $ 39,080,762 $ 41,403,918 See accompanying notes to the financial statements. Page 24

31 WEST BEND SEWER UTILITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Years Ended December 31, 2013 and OPERATING REVENUES Treatment charges $ 3,574,728 $ 3,690,120 Other 84,607 54,244 Total Operating Revenues 3,659,335 3,744,364 OPERATING EXPENSES Operation and maintenance 2,292,237 2,423,148 Depreciation 1,199,630 1,119,659 Total Operating Expenses 3,491,867 3,542,807 OPERATING INCOME 167, ,557 NONOPERATING REVENUES (EXPENSES) Investment income 17, ,483 Income from merchandising and jobbing 18,221 21,849 Gain on impairment 421, ,064 Gain on sale of property 14,152 - Interest expense (19,493) (47,179) Debt issuance costs (1,712) (1,625) Total Nonoperating Revenues (Expenses) 450, ,592 Income Before Contributions and Transfers 618, ,149 CAPITAL CONTRIBUTIONS 89,615 57,207 TRANSFER IN (OUT) (3,030,843) (4,214,663) CHANGE IN NET POSITION (2,323,156) (3,295,307) NET POSITION - Beginning of Year 41,403,918 44,699,225 NET POSITION - END OF YEAR $ 39,080,762 $ 41,403,918 See accompanying notes to the financial statements. Page 25

32 WEST BEND SEWER UTILITY STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2013 and CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 3,690,748 $ 3,703,568 Paid to suppliers for goods and services (1,804,714) (1,911,218) Paid to employees for operating payroll (591,348) (575,014) Net Cash Flows From Operating Activities 1,294,686 1,217,336 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers to other funds (3,300,000) (914,663) Advances to other funds (1,606,958) - Repayment of advances to other funds 331, ,894 Net Cash Flows From Noncapital Financing Activities (4,575,553) (661,769) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (4,358,368) (4,592,340) Received from insurance 609, ,000 Proceeds from sale 176,665 - Capital contributions received 14,615 57,207 Special assessments received 36,661 7,797 Debt retired (60,000) (377,073) Interest paid (21,276) (48,173) Proceeds from debt issue - 235,000 Debt issuance costs - (3,337) Net Cash Flows From Capital and Related Financing Activities (3,602,252) (4,170,919) CASH FLOWS FROM INVESTING ACTIVITIES Investments sold and matured 3,885,806 5,041,750 Investment income 2, ,863 Net Cash Flows From Investing Activities 3,888,500 5,193,613 Net Change in Cash and Cash Equivalents (2,994,619) 1,578,261 CASH AND CASH EQUIVALENTS - Beginning of Year 5,743,011 4,164,750 CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,748,392 $ 5,743,011 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Donated land $ 75,000 $ - Advances to TIF written off $ 3,030,843 $ - Interest accrued on advances to other funds $ 33,582 $ 83,089 Page 26

33 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income $ 167,468 $ 201,557 Nonoperating revenue (expense) 18,221 21,849 Noncash items in operating income Depreciation 1,199,630 1,119,659 Changes in assets and liabilities Customer accounts receivable 9,721 (22,397) Other accounts receivable (3,978) (27,508) Due from other funds 7,449 (12,740) Accounts payable (1,395) (86,540) Due to other funds (85,386) 20,535 Accrued sick leave (25,350) (10,888) Other current liabilities (1,804) (5,585) OPEB obligation 10,110 19,394 NET CASH FLOWS FROM OPERATING ACTIVITIES $ 1,294,686 $ 1,217,336 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO STATEMENTS OF NET POSITION ACCOUNTS Cash and investments $ 1,772,561 $ 1,548,593 Replacement account 326, ,507 Designated project investments 4,023,805 11,196,518 OPEB Investment 60,000 60,000 Total Cash and Investments 6,183,193 13,063,618 Less: Noncash equivalents (3,434,801) (7,320,607) CASH AND CASH EQUIVALENTS $ 2,748,392 $ 5,743,011 See accompanying notes to the financial statements. Page 27

34 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of West Bend Water and Sewer Utilities (utilities) have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to enterprise funds of governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting principles and policies utilized by the utilities are described below. REPORTING ENTITY The utilities are separate enterprise funds of the City of West Bend (municipality). The utilities are managed by the city council. The utilities provide water and sewer service to properties within the municipality. The water utility operates under service rules and rates established by the Public Service Commission of Wisconsin (PSCW). The sewer utility operates under rules and rates established by the city council. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The utilities are presented as enterprise funds of the municipality. Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business or where the governing body has decided that the determination of revenues earned, costs incurred, and net income is necessary for management accountability. The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In March 2012, the GASB issued Statement No Items Previously Reported as Assets and Liabilities. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. The utilities implemented this standard effective January 1, Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. ASSETS, LIABILITIES AND NET POSITION Deposits and Investments For purposes of the statement of cash flows, cash, and cash equivalents have original maturities of three months or less from the date of acquisition. Page 28

35 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) ASSETS, LIABILITIES AND NET POSITION (cont.) Deposits and Investments (cont.) Investment of the utilities' funds are restricted by state statutes. Investments are limited to: > Time deposits in any credit union, bank, savings bank or trust company maturing in three years or less. > Bonds or securities of any county, city, drainage district, technical college district, village, town, or school district of the state. Also, bonds issued by a local exposition district, local professional baseball park district, local professional football stadium district, local cultural arts district the University of Wisconsin Hospitals and Clinics Authority, or the Wisconsin Aerospace Authority. > Bonds or securities issued or guaranteed by the federal government. > The local government investment pool. > Any security maturing in seven years or less and having the highest or second highest rating category of a nationally recognized rating agency. > Securities of an open end management investment company or investment trust, subject to various conditions and investment options. > Repurchase agreements with public depositories, with certain conditions. The utilities have adopted an investment policy. That policy follows state statute for allowable investments. Investments are stated at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair values are based on quoted market prices. No investments are reported at amortized cost. Adjustments necessary to record investments at fair value are recorded in the operating statement as increases or decreases in investment income. Market values may have changed significantly after year end. Receivables/Payables Transactions between the utilities and other funds of the municipality that are representative of lending/borrowing arrangements outstanding at year end are referred to as advances to/from other funds. All other outstanding balances between the utilities and other funds of the municipality are reported as due to/from other funds. The utilities have the right under Wisconsin statutes to place delinquent water and sewer bills on the tax roll for collection. As such, no allowance for uncollectible customer accounts is considered necessary. Materials and Supplies Materials and supplies are generally used for construction, operation, and maintenance work, not for resale. They are valued at the lower of cost or market utilizing the average cost method and charged to construction or expense when used. Page 29

36 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) ASSETS, LIABILITIES AND NET POSITION (cont.) Restricted Assets Mandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Current liabilities payable from these restricted assets are so classified. Designated Projects Investments These are funds the sewer utility has elected to set aside for future collecting system projects. OPEB Investment These are funds the utilities have elected to set aside for future OPEB obligations. Further information about the OPEB obligation can be seen in Note 10. Prepayments This balance represents prepaid insurance and bills. Preliminary Survey and Investigation The balance represents initial project engineering costs related to utility plant construction. The balance will be capitalized upon commencement of the project. Special Assessments Receivable This account represents the balances of special assessments levied against property owners for infrastructure improvements. The balances are receivable over various time periods with interest accrued annually. Anticipated Future Special Assessments At December 31, 2013 there were $1,258,063 of anticipated future assessments which are not reported as receivables because collection is subject to certain events occurring in the future and no formal repayment schedule has been established. The balance consists of amounts that will be assessed to property owners when specific property is annexed by the municipality or when vacant land is developed. Property Held for Future Use The balance represents land purchased and held for a possible water treatment facility. Non-Utility Property The balance represents wet lands donated to be used in the future to help offset Wastewater treatment levels. Page 30

37 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) ASSETS, LIABILITIES AND NET POSITION (cont.) Capital Assets Capital assets are generally defined by the utilities as assets with an initial, individual cost of more than $500 and an estimated useful life in excess of one year. Capital assets of the utilities are recorded at cost or the fair market value at the time of contribution to the utilities. Major outlays for utility plant are capitalized as projects are constructed. Interest incurred during the construction phase is reflected in the capitalized value of the capital assets constructed, net of interest earned on the invested proceeds over the same period. Capital assets in service are depreciated or amortized using the straight-line method over the following useful lives: Years Water Plant Source of supply 34 Pumping Water treatment Transmission and distribution General 4-34 Sewer Plant Collecting system Treatment and disposal General 4-17 Accrued Vacation and Sick Leave Under terms of employment, employees are granted sick leave and vacations in varying amounts. Only benefits considered to be vested are disclosed in these statements. Vested vacation and sick leave pay is accrued when earned in the financial statements. The liability is liquidated from general operating revenues of the utilities. Other Post-Employment Benefits Obligation The utilities are a part of the municipality's post employment health care benefits plan. The utilities provide postemployment health insurance benefits to all eligible employees. The utilities obligation for postemployment health insurance benefits, as computed by an actuary, is recorded in accordance with the provisions of Statement No. 45 of the Governmental Accounting Standards Board. The utilities have set aside designated funds for the OPEB obligation to use in future years. Long-Term Obligations Long-term debt and other obligations are reported as utility liabilities. Bond premiums and discounts, are amortized over the life of the bonds using the effective interest method. Gains or losses on prior refundings are amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter. The balance at year end for premiums and discounts is shown as an increase or decrease in the liability section of the statement of net position. Page 31

38 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) REVENUES AND EXPENSES The utilities distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the utility's principal ongoing operations. The principal operating revenues of the utilities are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Charges for Services Billings are rendered and recorded quarterly based on metered usage. The utilities does not accrue revenues beyond billing dates. Current water rates were approved by the PSCW effective April 1, Current sewer rates were approved by the city council on December 1, Capital Contributions Cash and capital assets are contributed to the utilities from customers, the municipality, or external parties. The value of property contributed to the utilities are reported as revenue on the statements of revenues, expenses, and changes in net position. Gain on Impairment The sewer utility experienced a flood in the Wastewater Treatment Plant in Insurance proceeds of $609,451 in 2013 and $550,000 in 2012 were received to cover expenses related to replacement and repairs needed for the plant. The utility spent approximately $398,048 in 2013 and $673,000 in $210,139 and $478,000 of the expenses in 2013 and 2012, respectively, were used to replace fully depreciated plant equipment which resulted in a gain on impairment. EFFECT OF NEW ACCOUNTING STANDARDS ON CURRENT PERIOD FINANCIAL STATEMENTS The Governmental Accounting Standards Board (GASB) has approved GASB Statement No. 67, Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25; Statement No. 68, Accounting and Financial reporting for Pensions - an amendment of GASB Statement No. 27; Statement No. 69, Government Combinations and Disposals of Government Operations; and Statement No. 70, Accounting and Financial reporting for Nonexchange Financial Guarantees. Application of these standards may restate portions of these financial statements. COMPARATIVE DATA Certain amounts presented in the prior year data may have been reclassified in order to be consistent with the current year's presentation. Page 32

39 WEST BEND WATER AND SEWER UTILITIES NOTES TO FINANCIAL STATEMENTS NOTE 2 - DEPOSITS AND INVESTMENTS Carrying Value as of December 31, Risks Checking and savings $ 1,017,165 $ 933,482 See city audit report LGIP 1,625,883 7,160,177 Credit risk Certificates of deposit 324,934 - Custodial credit risk Other investments and mutual funds 3,022,275 2,485,110 See city audit report Mutual funds - 26,706 Custodial credit and credit risk U.S. treasuries - 1,133,252 Custodial credit and credit risk Asset backed securities 795,061 - Custodial credit, credit and interest rate risk Corporate bonds 1,585,949 - Custodial credit, credit and interest rate risk U.S. agency securities 725,907 3,702,244 Custodial credit, credit and interest rate risk Demand deposit/money market 249,834 - Custodial credit Cash on hand Totals $ 9,347,281 $ 15,441,271 Deposits in each local and area bank are insured by the FDIC in the amount of $250,000 for time and savings accounts (including NOW accounts) and $250,000 for demand deposit accounts (interest bearing and noninterest bearing). In addition, if deposits are held in an institution outside of the state in which the government is located, insured amounts are further limited to a total of $250,000 for the combined amount of all deposit accounts. Bank accounts are also insured by the State Deposit Guarantee Fund (SDGF) in the amount of $400,000. The utilities may also maintain separate cash and investment accounts at the same financial institutions utilized by the municipality. Federal depository insurance and the SDGF apply to all municipal accounts, and accordingly, the amount of insured funds is not determinable for the utilities alone. Therefore, coverage for the utilities may be reduced. Investment income on commingled investments of the entire municipality is allocated based on average investment balances. The Wisconsin Local Government Investment Pool (LGIP) is part of the State Investment Fund (SIF), and is managed by the State of Wisconsin Investment Board. The SIF is not registered with the Securities and Exchange Commission, but operates under the statutory authority of Wisconsin Chapter 25. The SIF reports the fair value of its underlying assets annually. Participants in the LGIP have the right to withdraw their funds in total on one day's notice. At December 31, 2013 and 2012, the fair value of the LGIP's assets were substantially equal to the utilities' share. Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a financial institution failure, the utilities' deposits may not be returned to the utilities. Page 33