SPARTANBURG SANITARY SEWER DISTRICT

Transcription

1 SPARTANBURG SANITARY SEWER DISTRICT SPARTANBURG, SOUTH CAROLINA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEARS ENDED JUNE 30, 2014 AND 2013

2 I. INTRODUCTORY SECTION

3 SPARTANBURG SANITARY SEWER DISTRICT SPARTANBURG, SOUTH CAROLINA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 SUBMITTED BY: FINANCE DEPARTMENT i

4 SPARTANBURG SANITARY SEWER DISTRICT COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 TABLE OF CONTENTS I. Introductory Section Page Title Page i Table of Contents ii List of Commissioners and Senior Management Staff iii Organizational Chart iv Letter of Transmittal v-viii Certificate of Achievement for Excellence in Financial Reporting ix II. Financial Section Exhibit Page Report of Independent Auditor 1-2 Management s Discussion and Analysis 3-14 Basic Financial Statements Statements of Net Position A Statements of Revenues, Expenses and Changes in Net Position B 17 Statements of Cash Flows C Notes to Financial Statements Required Supplementary Information Schedule of Funding Progress and Employer Contributions for Retiree Health Plan 40 III. Statistical Section Table Page Contents 41 Financial Trends Net Position by Component 1 42 Changes in Net Position 2 43 Revenues by Source 3 44 Operating Expenses 4 45 Revenue Capacity Historical Millage and Rate Information 5 46 Schedule of Historical Discharge 6 47 Property Tax Collections 7 48 Ten Largest Taxpayers 8 49 Assessed Values 9 50 Assessed Value Summary Ten Largest Customers Debt Capacity Debt Outstanding Historical Statements of Revenues, Expenses, Debt Service and Debt Service Coverage Demographic and Economic Information Spartanburg County Demographic Statistics Spartanburg County, South Carolina Major Employers and Changes Operating Information Number of District Customers Schedule of User Charges Schedule of Capacity Fees Miles of Sewer Line Schedule of Treatment Plants Number of Employees IV. Compliance Section 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 ii

5

6 Spartanburg Sanitary Sewer District Organizational Chart Barbara J. J. Barnes Horace Littlejohn, Jr. Jr. LindaP. P. Bilanchone A. A. Manning Lynch, Jr. Jr. Louie W. Blanton John D. Montgomery Louie W. John D. Montgomery Mayor Junie White Mayor Junie White Spartanburg Sanitary Sewer District Commissioners Spartanburg Sanitary Sewer District Commissioners Sue G. Schneider Chief Executive Officer Rebecca F. West Chief Operating Officer G. Newton Pressley Chief Financial Officer iv

7

8

9 policies and procedures have been followed, and that the internal controls and electronic security measures are protecting sensitive customer data. The District s cash management policy provides that available funds are invested overnight and longerterm in accordance with state law, which permits the following types of investments: obligations of the U.S. and its agencies, general obligations of the State of South Carolina and its subdivisions, savings and loan associations to the extent of federal insurance, certificates of deposit collaterally secured, repurchase agreements secured by the foregoing obligations, and the State Treasurer s Investment Pool. For more information regarding the June 30, 2014 investment distribution, see Note 2 to the Financial Statements. The District is a member of the South Carolina Retirement System, one of four defined benefit retirement systems maintained by the Retirement Division of the State Budget and Control Board of South Carolina. For information regarding the District s retirement plan, see Note 7 to the Financial Statements. For information regarding the District s risk management function, see Note 10 to the Financial Statements. FINANCIAL CONDITION The decrease in net position for fiscal year 2014 was $3,802,400, a 7.1% decrease for the fiscal year. The customer base increased by 713 accounts, or 1.8%, for fiscal year The average annual growth rate over the past five years was 1.0%. Debt service coverage of 110% is required by the District s revenue bond covenant. The fiscal year 2014 debt service coverage ratio based on the revenue bond covenant was 120%. A recent rate survey of comparable utilities in the region indicated that the District s customer rates compared favorably with the majority of the agencies in the survey. Various funds are maintained to meet the operational, maintenance, and capital improvement needs of the system. The Depreciation Fund provides for the renovation and replacement of operational equipment and system facilities, and has been adequately funded in recent years with a June 30, 2014 balance of $2,964,552. The Collection System Rehab Fund provides for the evaluation, maintenance and replacement of the collection system; the year-end balance is $1,889,518. The Rate Stabilization Fund, which was established to provide for the smoother transition of future rate increases, has a balance of $3,419,626 at June 30, AWARDS Spartanburg Water (Spartanburg Sanitary Sewer District and Spartanburg Water System) received the National Association of Clean Water Agencies ( NACWA ) Excellence in Management Award in fical year This NACWA award program recognizes public clean water agencies that have demonstrated a successful focus on the attributes of an effectively managed utility. These attributes include: product quality, customer satisfaction, financial viability, operational optimization, infrastructure stability, and operational resiliency. The Government Finance Officers Association of the United States and Canada ( GFOA ) awarded a Certificate of Achievement for Excellence in Financial Reporting to Spartanburg Sanitary Sewer District for its comprehensive annual financial report for the fiscal year ended June 30, This was the eleventh year that the government has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both U. S. generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. vii

10

11 ix

12 II. FINANCIAL SECTION

13 Report of Independent Auditor To the Commissioners and Officers of Spartanburg Sanitary Sewer District 200 Commerce Street Spartanburg, South Carolina Report on Financial Statements We have audited the accompanying statements of net position of Spartanburg Sanitary Sewer District (the District ), as of and for the years ended June 30, 2014 and 2013, and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the District, as of June 30, 2014 and 2013, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. 1

14 Emphasis of Matter As discussed in Note 1 to the basic financial statements, Spartanburg Sanitary Sewer District implemented the provisions of Governmental Accounting Standards Board No. 65, Items Previously Reported as Assets and Liabilities, during the year ended June 30, Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis information on pages 3 through 14 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District s basic financial statements. The introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory and statistical sections have 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 them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 10, 2014 on our consideration of the Agency 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. Spartanburg, South Carolina November 10,

15 Spartanburg Sanitary Sewer District Management s Discussion and Analysis This Management Discussion and Analysis ( MD&A ) serves as an introduction to the basic financial statements and provides a narrative overview and analysis of the District s financial condition and performance for the fiscal year ended June 30, This information should be read in conjunction with the transmittal letter and the District s financial statements, as listed in the table of contents included in this report. Financial Highlights As of June 30, 2014, total assets of $212,371,895 and deferred outflows of resources of $6,098,641 exceed total liabilities of $168,849,116 by $49,621,420. For fiscal year 2013, total assets of $218,195,048 and deferred outflows of resources of $6,493,372 exceeded total liabilities of $171,264,600 by $53,423,820. For the fiscal year ended June 30, 2014, loss or decrease in net position, before capital contributions, was $5,024,535. The District s loss, or decrease in net position, after capital contributions of $1,222,135, was $3,802,400. For fiscal year 2013, loss or decrease in net position, before capital contributions, was $3,131,789 and loss or decrease in net position, after capital contributions of $1,479,036, was $1,652,753. For fiscal year 2014, operating revenues increased by $76,326 to $21,666,380, or 0.4%, nonoperating revenues increased by $70,925 to $5,074,905, or 1.4%, and total expenses increased by $2,039,997 to $31,765,820, or 6.9%. For fiscal year 2013, operating revenues increased by $650,843 to $21,590,054, or 3.1%. Non-operating revenues increased by $161,184 to $5,003,980, or 3.3%. Total expenses increased by $928,489 to $29,725,823, or 3.2%. Debt service coverage of 110% is required by the District s revenue bond covenant. The fiscal year 2014 debt service coverage ratio based on the revenue bond covenant was 112%. The fiscal year 2013 total District debt service coverage ratio was 130%. Overview of the Financial Statements The financial statements of the District report information about the District using accounting methods similar to those used by private-sector companies. These statements provide both long-term and shortterm information about the District s overall financial status. The Statements of Net Position present the District s financial position and reports information on all of the assets (resources owned by the District), deferred outflows of resources and liabilities (obligations of the District), and with the difference between assets and deferred outflows of resources and liabilities reported as net position. All of the current year s revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net Position. Revenue is reported when earned, and expenses are reported when incurred. This statement measures the success of the District s operations over the past year and serves as the basis for determining the District s actual Debt Service Coverage Ratio, as required by the District s revenue bond covenant. The Statements of Cash Flows reports cash receipts, cash payments, and net changes in cash resulting from operating, investing, and financing activities. This statement provides information as to where did cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. 3

16 Financial Analysis of the District The Condensed Balance Sheets are provided below as a summary of Assets, Deferred outflows of resources, Liabilities, and Net Position for the years ended June 30, 2014, 2013 and Financial Analysis of the District Condensed Statements of Net Position (Restated) 2012 Assets Current and noncurrent assets $ 38,685,972 $ 40,574,525 $ 44,208,248 Capital assets, net of accumulated depreciation 173,685, ,620, ,720,813 Total Assets $ 212,371,895 $ 218,195,048 $ 225,929,061 Deferred outflows of resources Bond defeasance loss $ 6,098,641 $ 6,493,372 $ - Liabilities Current liabilities 8,352,849 7,294,319 7,352,317 Noncurrent liabilities 160,496, ,970, ,079,096 Total Liabilities 168,849, ,264, ,431,413 Net position Net investment in capital assets 9,938,841 16,808,927 34,038,584 Restricted 11,922,315 12,280,091 16,381 Unrestricted 27,760,264 24,334,802 22,442,683 Total Net Position $ 49,621,420 $ 53,423,820 $ 56,497,648 Current and noncurrent assets decreased by $1,888,553 to $38,685,972 and $3,633,723 to $40,574,525 in fiscal year 2014 and 2013, respectively, primarily due to the expenditure of bond funds on designated projects. Additionally, capital assets decreased by $3,934,600 to $173,685,923 and $4,100,290 to $177,620,523 in fiscal year 2014 and 2013, respectively. See Capital assets section on pages 9 and 10 for further explanation. For the current fiscal year the District s long-term debt, including current maturities, decreased by $3,557,886 to $163,747,082 or 2.1% and decreased by $83,364 or 0.05% for the prior fiscal year. Current and noncurrent assets included cash and investments of $32,909,695 and $35,081,853 as of June 30, 2014 and 2013, respectively. The distribution by fund of the year-end balances is provided on the next page: 4

17 Fund Operating $ 4,583,326 $ 4,073,880 Debt service trust account 2,851,907 2,518,621 Debt service reserve account 10,243,396 10,242,527 Rate stabilization 3,419,626 3,863,641 Depreciation 2,964,552 3,081,043 Capacity fees 84,150 84,150 Collection system rehab 1,889,518 1,795,880 Capital project funds Capital 5,653,554 7,385,750 Bond funds 1,219,666 2,036,361 Total cash and investments $ 32,909,695 $ 35,081,853 Also included in current and noncurrent assets for fiscal year 2014 are receivables of $4,983,547, with the substantial portion associated with user charge receivables, as follows: billed, not collected, net of allowance for doubtful accounts $1,101,878, amount collected by Spartanburg Water System and transferred to the District after year-end $2,274,945 and revenue earned but not yet billed $1,541,872. For fiscal year 2013, the receivables total was $4,731,939, with the substantial portion associated with user charge receivables, as follows: billed, not collected, net of allowance for doubtful accounts $1,085,372, amount collected by Spartanburg Water System and transferred to SSSD after year-end $2,316,154 and revenue earned but not yet billed $1,250,055. Current liabilities as of June 30, 2014, included accounts payable from operating funds of $515,433, and accounts payable from capital funds of $893,765, retainage payable of $33,933 and the intercompany payable to the Spartanburg Water System of $1,031,732 that is included in other payables. June 30, 2013 current liabilities included accounts payable from operating funds of $557,733, and accounts payable from capital funds of $171,975, retainage payable of $28,240, and the inter-company payable to the Spartanburg Water System of $722,012 that is included in other payables. The Condensed Statements of Revenues, Expenses and Changes in Net Position are provided on the following page as a summary for the fiscal years ended June 30, 2014, 2013 and

18 Condensed Statements of Revenues, Expenses and Changes in Net Position (Restated) 2012 Revenues Operating revenues User charge revenues $ 20,383,889 $ 20,261,923 $ 19,612,860 Other operating revenues 1,282,491 1,328,131 1,326,351 21,666,380 21,590,054 20,939,211 Nonoperating revenues Property tax collections 4,795,266 4,645,343 4,585,212 Other nonoperating revenue 279, , ,584 5,074,905 5,003,980 4,842,796 Total revenues 26,741,285 26,594,034 25,782,007 Expenses Operating expenses, before depreciation 15,624,500 13,228,455 12,455,467 Depreciation expense 9,225,118 8,950,903 8,660,842 Nonoperating expenses 6,916,202 7,546,465 7,747,848 Total expenses 31,765,820 29,725,823 28,864,157 Deficiency, before capital contributions (5,024,535) (3,131,789) (3,082,150) Capital contributions 1,222,135 1,479,036 1,148,652 Decrease in net position (3,802,400) (1,652,753) (1,933,498) Net position, beginning of year, restated 53,423,820 55,076,573 58,431,146 Net position, end of year $ 49,621,420 $ 53,423,820 $ 56,497,648 Revenues (excluding capital contributions) of $26,741,285 for the fiscal year ended June 30, 2014, were comprised of the following: User charges $20,383, % Revenues 2014 Other revenue $803, % Property tax collections $4,795, % Interes t income $21,053.1% Connection fees $240,208.9% Industrial service fees $497, % 6

19 User charge revenue increased from fiscal year 2013 to fiscal year 2014 by $121,966, or.6%, primarily due to increased usage. The increase from fiscal year 2012 to fiscal year 2013 was $649,063, or 3.3%, primarily due to a rate increase implemented in September, Pursuant to Act No of 1970, the District has the authority to levy taxes uniformly throughout the District. The tax revenue may be used to pay debt service on eligible General Obligation ( G.O. ) debt and to pay administrative expenses for the District. Property tax collections increased by $149,923, or 3.2%, due to the increase in real estate and vehicle tax collections. Property tax revenue was received from the following sources during fiscal year 2014: real property $3,884,428, vehicles $454,802, delinquent taxes $151,995, homestead reimbursement $199,601, and other sources $104,440. Property tax revenue for fiscal year 2013 was $4,645,343 and consisted of: real property $3,787,986, vehicles $405,193, delinquent taxes $177,206, homestead reimbursement $192,340, and other sources $82,618 which was an increase of $60,131, or 1.3%, which was also attributed to an increase in real property and vehicles. Interest income decreased $26,847, or 56.0%, to $21,053 for fiscal year 2014, following a reduction of $15,512, or 24.5% in fiscal year 2013, due to the reduction of the bond funds and low interest rates. Industrial service fees of $497,374 included industrial service charges of $295,396 and industrial surcharge revenues of $201,978 for fiscal year 2014 compared to a total of $501,578 for fiscal year Other revenue includes intercompany reimbursements, septic tank discharge revenues, county maintenance fees, service processing/inspection fees, miscellaneous cost recoveries, and sewer collection fees. Operating expenses before depreciation were comprised of the following: Operating expenses before depreciation 2014 System operation and maintenance $3,082, % Group insurance $1,364, % Salaries and wages $3,818, % Treatment supplies $664, % Other expenses $397, % Other supplies and maintenance $909, % 28.00% Fees and Support % services $2,254, % Other outside services $1,132, % Utilities $2,000, % 7

20 The following tables provide a comparison of fiscal year 2014 and 2013 and fiscal year 2013 and 2012 operating expenses for major expense categories. Comparison of operating expenses before depreciation Increase/(Decrease) Expense Category From 2013 to Amount % of Change Salaries and wages $ 3,818,348 $ 3,713,997 $ 104, % Group insurance 1,364,761 1,241,870 $ 122, % System operation and maintenance 3,082,143 1,264,871 $ 1,817, % Treatment supplies 664, ,572 $ (83,625) -11.2% Other supplies and maintenance 909, ,955 $ 197, % Fees and support services 2,254,431 2,138,143 $ 116, % Utilities 2,000,044 1,833,210 $ 166, % Other outside services 1,132,584 1,201,079 $ (68,495) -5.7% Other expenses 397, ,758 $ 22, % Total operating expenses before depreciation $ 15,624,500 $ 13,228,455 $ 2,396, % Comparison of operating expenses before depreciation Increase/(Decrease) Expense Category From 2013 to Amount % of Change Salaries and wages $ 3,713,997 $ 3,709,415 $ 4, % Group insurance 1,241,870 1,004,513 $ 237, % System operation and maintenance 1,264,871 1,163,921 $ 100, % Treatment supplies 748, ,444 $ 27, % Other supplies and maintenance 711, ,095 $ (3,140) -0.4% Fees and support services 2,138,143 1,924,748 $ 213, % Utilities 1,833,210 1,707,039 $ 126, % Other outside services 1,201,079 1,091,591 $ 109, % Other expenses 374, ,701 $ (42,943) -11.5% Total operating expenses before depreciation $ 13,228,455 $ 12,455,467 $ 772, % Operating expenses, before depreciation, increased by $2,396,045, or 18.1% from fiscal year 2013 to fiscal year 2014, primarily due to an increase in system operation and maintenance, other supplies and maintenance, and utilities. The increase from fiscal year 2012 to fiscal year 2013 was $77,988, or 6.2%, primarily due to an increase in group insurance, fees and support service. Highlights of the fiscal year expense comparison is provided below: The Salaries and wages increase resulted primarily from merit pay increases. These increases were offset by cost savings associated with current year vacancies. The Group insurance increase resulted from an increase in premiums and an unfavorable claims experience for fiscal year The System operations and maintenance increase was primarily associated with expenditures for the polychlorinated biphenyls, also known as PCB s, in an approved remediation plan with the South Carolina Department of Health and Environmental Control ( SCDHEC ) and the Environmental Protection Agency ( EPA ). See note in Other Significant Matters. 8

21 The Treatment supplies decrease was primarily associated with reduced chemical costs for the Lawson Fork facility due to installing a new pump that controlled chemical releases more efficiently. The Other supplies and maintenance increase is associated with increased costs for the replacement and repair of stolen catalytic converters on fleet vehicles and higher than expected repairs on vehicles and equipment. The Fees and support services line item includes intercompany fees and charges paid to Spartanburg Water System. This line item reflects the District s allocated share of the following costs: Administrative (including Administration, Human Resources, Accounting, Purchasing and Information Technology); Billing, Customer Service and Meter Reading/Field Services; Engineering; Water Quality supervisory group; Maintenance supervisory group; Reclaimed Water Treatment supervisory group. The fiscal year 2014 increase is primarily due to the following intercompany fees and charges: Reclaimed Water, Fleet Services and Administration. The increase in Utilities results primarily from the following; a water usage increase at the Fairforest treatment facility, a Duke Energy cost increase and an increase in communication equipment and charges for pump stations. The Other outside services decrease was primarily due to a decrease in intercompany labor charges and a reduction in consulting services. The Other line items increase was primarily associated with an increase in bad debt expense. Nonoperating expenses of $6,916,202 in fiscal year 2014 consisted of interest expense/paying agent fees. Total interest expense and paying agent fees decreased by $403,540. Capital Contributions The District receives contributions from developers in the form of cash payments and donated lines. U. S. generally accepted accounting principles require that these contributions be reflected as a revenue source on the Statements of Revenues, Expenses and Changes in Net Position. Capital contributions for fiscal year 2014 totaled $1,222,135, a decrease of $256,901 or 17.4%, and were comprised of donated lines $861,307 and cash payments $360,828. The most significant capital contributions during fiscal year 2014 are as follows: Sapphire Pointe Phase 1, Townes at River Falls Phase 2, and Corporate Center North. Capital contributions for fiscal year 2013 totaled $1,479,036, an increase of $330,384, or 28.8%, and were comprised of donated lines $1,248,573 and cash payments $230,463. The most significant capital contributions during fiscal year 2013 were as follows: Belmont Phase 2, Bridle Path, Glenlake Phase 2B, and Cobbs Creek Phase IV Subdivisions. Capital Assets At June 30, 2014, the District had $173,685,923 invested in capital assets, as provided in the schedule on the following page: 9

22 Treatment plants, interceptor lines, and collection lines Capital Assets at Year-End $ 167,988,549 $ 171,864,287 $ 173,850,332 Other facilities and property 1,025,033 1,067,444 1,110,872 Vehicles, office, and maintenance equipment 1,802,633 1,492,693 1,386,047 Construction in progress 2,869,708 3,196,099 5,373,562 Capital assets - net of accumulated depreciation $ 173,685,923 $ 177,620,523 $ 181,720,813 The fiscal year 2014 increase for Treatment plants, interceptor lines, and collection lines resulted primarily from the following: donated sewer lines of $861,307; the completion of the Fairforest Upgrade project totaling $861,216; the completion of the Pacolet Business District Sewer Line Extension $789,571; and the completion of the Highway 101 Phase 2 $571,115. The net decrease for construction in progress reflects primarily the completed projects transferred to the appropriate capital account. For fiscal year 2013, the increase for Treatment Plants, Interceptor Lines, and Collection Lines resulted primarily from the following: donated sewer lines of $1,248,573; the completion of the Camp Croft Pump Station Upgrade project totaling $1,853,257; the completion of the Highway 101 Section II Construction project totaling $900,923; and also the completion of the Lawson Fork Large Line Cleaning Project totaling $372,749. The net decrease for construction in progress reflects primarily the completed projects transferred to the appropriate capital account. For more information on changes in capital assets, see Note 3 of the financial statements. Debt Administration Debt Service Coverage In the District s revenue bond resolution, the District covenants and agrees that it will, at all times, prescribe and maintain and thereafter collect rates and charges for the services and facilities furnished by the Spartanburg Water System which, together with other income, are reasonably expected to yield annual net earnings in the current fiscal year equal to at least 110% of the annual principal and interest requirements for all revenue bonds outstanding in such fiscal year, plus 100% of debt service on any general obligation bonds not paid from ad valorem tax receipts. The computation of Net earnings is presented by the detailed schedule of Debt Service Coverage, which is provided in the statistical section of this report. The District s historical debt service coverage is summarized by the table on the following page: 10

23 Debt Service Coverage (Restated) 2012 Net earnings per revenue bond covenant $ 10,087,085 $ 11,399,866 $ 11,072,981 Debt service requiring coverage, per covenant Revenue bond debt service 8,431,899 7,614,245 7,683,658 G.O. debt service paid with revenues - 188, ,664 Debt service amount for coverage test $ 8,431,899 $ 7,802,906 $ 7,874,322 Debt service coverage ratio based on revenue covenant Net earnings per revenue bond covenant 10,087,085 11,399,866 11,072,981 Plus: Ad valorem taxes used for G.O. debt service 1,432,338 1,932,803 2,213,339 adjusted net earnings $ 11,519,423 $ 13,332,669 $ 13,286,320 Total District debt service $ 10,242,527 $ 10,242,527 $ 10,087,661 Total District debt coverage ratio Spartanburg Sanitary Sewer Debt service coverage 225% 200% 175% 150% 125% 112% 130% 132% Excess Required 100% 75% 50%

24 Outstanding Debt at Year-End The District had $159,322,125 in short-term and long-term debt outstanding at year-end, as scheduled below: Average Outstanding Debt Yield Short-term Debt Total Short-term Debt Outstanding Long-term Debt General Obligation Bonds 2002 General Obligation Bonds 4.80% , A General Obligation Bonds 3.41% , General Obligation Refunding Bonds 3.75% 12,020,000 12,020,000 12,020, General Obligation Refunding Bonds 2.89% 8,385,000 9,005,000 9,365, General Obligation Refunding Bonds 2.50% 3,455, ,860,000 21,025,000 22,560,000 Revenue Bonds 1999B Sewer System Improvement Bonds 5.28% , A Sewer System Improvement Bonds 3.75% - 205,000 9,195, B Sewer System Improvement Bonds 5.00% ,250, A Sewer System Improvement Bonds 4.63% 4,990,000 5,095,000 5,200, B Sewer System Improvement Bonds 4.63% 35,075,000 35,400,000 35,715, A Sewer Revenue Refunding Bonds 3.97% 7,125,000 7,865,000 7,865, B Sewer Revenue Refunding Bonds 3.97% 18,425,000 19,470,000 20,260, Sewer Taxable Revenue Bond 3.49% 10,260,000 10,260,000 10,260, A Sewer Revenue Refunding Bonds 3.55% 9,125,000 9,220, B Sewer Revenue Refunding Bonds 3.55% 50,125,000 53,730, ,125, ,245, ,545,000 Loans State Revolving Fund Loan 3.50% 337, , ,395 Total Long-term Debt Outstanding 159,322, ,656, ,540,395 Total Debt Outstanding $ 159,322,125 $ 162,656,812 $ 168,540,395 12

25 Current Year Transactions Series 2013 G.O. refunding bond The District issued the 2013 G.O. refunding bond, dated March 1, 2014, in the amount of $3,455,000 with an annual interest rate of 2.5%. The principal amount was converted from the 2013B revenue bonds and was converted in accordance with the authorization provided by the 2013 bond resolution. This conversion allows the District to maintain a sufficient level of eligible G.O. debt service to be paid from ad valorem tax receipts. For more information on changes in short-term and long-term debt, see Notes 4 and 5 of the financial statements. G.O. Debt Limit The District may issue G.O. debt up to an amount equal to 8% of the last certified District assessment, without the requirement of conducting a referendum. Current G.O. debt capacity is determined as follows: Final 2012 Assessed Value, less mfg. depreciation reduction $ 610,651,096 G.O. Debt Ceiling percentage x 8% Current G.O. Debt Ceiling 48,852,088 Less: Outstanding G.O. Debt 23,860,000 Available G.O. Debt Capacity $ 28,992,088 Bond Ratings The District maintained the following ratings during FY14: Agency Revenue G.O. Standard & Poor s AA- AA Moody s A1 Aa3 Financial Planning Although the District does not have a legally adopted budget, an annual operating budget is adopted for management and financial planning purposes. The District conducts an update of the financial planning process as follows: departmental staffing plans, detailed budget requests, and depreciation schedules are prepared; District-wide budget information, including revenues, flow estimates, debt service, cost allocations, etc., are completed; capital improvement plans, and applicable debt service projections are utilized for long-term financial planning; the computerized financial planning and rate-setting model is updated to provide for a five-year financial projection; the annual operating budget is presented to the Commission; and a public hearing is advertised and held prior to final approval of the budget, tax levy, and user charges. The District Commission approved a balanced Annual operating budget for fiscal year 2015 in the total amount of $27,161,635, which represents a 4.5% increase over the previous year s budgeted revenues and expenditures. The fiscal year 2014 budget included funding of reserves as follows: Depreciation fund - $1,500,000; Capital fund - $400,000; and the Collection system rehab fund - $400,

26 Other Significant Matters Clean-up for Polychlorinated Biphenyls (PCB s) Discharge During the year, there was an illegal discharge of waste containing PCB s to one of the District s wastewater collection systems. The District s facilities were contaminated from an isolated, illegal dumping into the sewer systems of South Carolina sewer systems. On October 22, 2013, SCDHEC approved the District s environmental remediation plan for the Lower North Tyger treatment facility. The District s total remediation efforts cost was $1,824,400 funded from the capital reserve and operating funds. The remediation efforts by Clean Harbors Environmental Services were completed on April 28, G.O. Bonds The District issued the 2014 G.O. Bond, dated July 8, 2014, in the amount of $8,062,000, maturing July 1, 2026, with an interest rate of 2.2% per annum. The primary purpose of the funds will be for treatment facility upgrades. Requests for Information This financial report is intended to provide a general overview of the District s finances. For questions concerning this report or other requests for financial information, please contact: Chief Financial Officer Spartanburg Sanitary Sewer District P.O. Box 251 Spartanburg, SC (864)

27 SPARTANBURG SANITARY SEWER DISTRICT STATEMENTS OF NET POSITION Exhibit A JUNE 30, 2014 AND 2013 ASSETS (Restated) Current assets Cash $ 9,747,741 $ 9,163,001 Investments 11,239,639 13,638,761 User charge receivable - net of allowance for doubtful accounts of $115,451 in 2014 and $113,176 in 2013, respectively 2,643,750 2,335,427 Taxes receivable - net of allowance for doubtful accounts of $344,168 in 2014 and $322,357 in 2013, respectively 55,781 71,287 Assessments and improvement charges receivable 9,071 9,071 Other receivables 2,274,945 2,316,154 Inventories 779, ,727 Total current assets 26,750,674 28,283,428 Noncurrent assets Restricted cash 1,678,919 2,037,564 Restricted investments 10,243,396 10,242,527 Net other post-employment benefit asset 12,983 11,006 Capital assets - net of accumulated depreciation 173,685, ,620,523 Total noncurrent assets 185,621, ,911,620 Total Assets $ 212,371,895 $ 218,195,048 DEFERRED OUTFLOWS OF RESOURCES Bond defeasance loss $ 6,098,641 $ 6,493,372 Total deferred outflows of resources $ 6,098,641 $ 6,493,372 The accompanying notes to financial statements are an integral part of this statement. 15

28 SPARTANBURG SANITARY SEWER DISTRICT STATEMENTS OF NET POSITION Exhibit A Continued JUNE 30, 2014 AND (Restated) LIABILITIES Current liabilities Accounts payable $ 1,443,131 $ 757,948 Accrued salaries and wages 293, ,696 Accrued employee benefits 91, ,807 Accrued interest expense 2,242,033 2,037,169 Other payables 1,031, ,012 Long-term debt - current portion 3,250,815 3,334,687 Total current liabilities 8,352,849 7,294,319 Noncurrent liabilities Long-term debt - net of current portion 160,496, ,970,281 Total noncurrent liabilities 160,496, ,970,281 Total Liabilities $ 168,849,116 $ 171,264,600 NET POSITION Net investment in capital assets $ 9,938,841 $ 16,808,927 Restricted for debt service reserves 11,922,315 12,280,091 Unrestricted net position 27,760,264 24,334,802 Total Net Position $ 49,621,420 $ 53,423,820 The accompanying notes to financial statements are an integral part of this statement. 16

29 SPARTANBURG SANITARY SEWER DISTRICT Exhibit B STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2014 AND (Restated) Operating revenues User charge revenues $ 20,383,889 $ 20,261,923 Industrial service fees 497, ,578 Treatment charges 144, ,580 Miscellaneous 640, ,973 Total operating revenues 21,666,380 21,590,054 Operating expenses Operating expenses before depreciation 15,624,500 13,228,455 Depreciation 9,225,118 8,950,903 Total operating expenses 24,849,618 22,179,358 Operating loss (3,183,238) (589,304) Nonoperating revenues (expenses) Connection fees 240, ,255 Property tax collections 4,795,266 4,645,343 Gain on sale of capital assets 18,378 82,482 Interest income 21,053 47,900 Interest expense and paying agent fees (6,916,202) (7,319,742) Bond issuance expense - (226,723) Total nonoperating expenses (1,841,297) (2,542,485) Change in net position before capital contributions (5,024,535) (3,131,789) Capital contributions 1,222,135 1,479,036 Change in net position (3,802,400) (1,652,753) Net position, beginning of year 53,423,820 56,497,648 Change in accounting principle - (1,421,075) Net position, beginning of year, restated 53,423,820 55,076,573 Net position, end of year $ 49,621,420 $ 53,423,820 The accompanying notes to financial statements are an integral part of this statement. 17

30 SPARTANBURG SANITARY SEWER DISTRICT STATEMENTS OF CASH FLOWS Exhibit C FOR THE YEARS ENDED JUNE 30, 2014 AND (Restated) Cash flows provided by operating activities: Cash received from customers $ 21,414,772 $ 21,341,846 Cash paid to suppliers for goods and services (10,781,397) (9,274,968) Cash paid to or for the benefit of employees (3,732,698) (4,582,279) Net cash provided by operating activities 6,900,677 7,484,599 Cash flows used in capital and related financing activities: Capital contributions 360, ,463 Connection fees 240, ,255 Property tax collections 4,795,266 4,645,343 Acquisition and construction of capital assets (4,431,217) (3,603,263) Proceeds from sale of capital assets 20,384 83,705 Proceeds from general obligation bond issue 3,455,000 - Proceeds from revenue bond issues - 64,432,472 Bond issuance costs - (226,723) Principal payments - general obligation bonds (6,120,000) (1,535,000) Principal payments - revenue bonds (620,000) (67,250,000) Principal payments - state revolving fund loan (49,687) (48,584) Interest and paying agent fees (6,744,670) (5,888,305) Net cash used in capital and related financial activities (9,093,888) (8,931,637) Cash flows provided by investing activities: Interest income 21,053 47,900 Net decrease in cash and cash equivalents (2,172,158) (1,399,138) Cash and cash equivalents at beginning of year 35,081,853 36,480,991 Cash and cash equivalents at end of year $ 32,909,695 $ 35,081,853 The accompanying notes to financial statements are an integral part of this statement. 18

31 SPARTANBURG SANITARY SEWER DISTRICT STATEMENTS CASH FLOWS Exhibit C Continued FOR THE YEARS ENDED JUNE 30, 2014 AND (Restated) Reconciliation of operating loss to net cash provided by operating activities: Operating loss $ (3,183,238) $ (589,304) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 9,225,118 8,950,903 (Increase) decrease in assets: Accounts receivable (308,323) (278,716) Taxes receivable 15,506 (22,560) Other receivables 41,209 53,068 Inventories (30,020) 30,137 Net other post-employment benefit asset (1,977) (8,425) (Increase) decrease in liabilities: Accounts payable 685,183 (203,590) Accrued salaries and wages (12,448) 21,407 Accrued employee benefits (44,917) 32,903 Accrued interest expense 204,864 (386,158) Other current liabilities 309,720 (115,066) Net cash provided by operating activities $ 6,900,677 $ 7,484,599 Noncash investing, capital and financing activities Contribution of capital assets $ 861,307 $ 1,248,573 Amortization included in interest expense $ 171,531 $ 391,431 Gain on disposal of capital assets $ 18,378 $ - The accompanying notes to financial statements are an integral part of this statement. 19

32 SPARTANBURG SANITARY SEWER DISTRICT STATEMENTS CASH FLOWS Exhibit C Continued FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 Reconciliation of cash and investments as shown on the Balance Sheets and Cash Flow Statements Balance sheet classifications Current assets Cash $ 9,747,741 $ 9,163,001 Investments 11,239,639 13,638,761 20,987,380 22,801,762 Noncurrent assets Restricted cash 1,678,919 2,037,564 Restricted investments 10,243,396 10,242,527 11,922,315 12,280,091 $ 32,909,695 $ 35,081,853 Cash flow classifications Petty cash $ 550 $ 550 Cash deposits 11,426,110 11,200,015 Investments - cash equivalents 21,483,035 23,881,288 Total cash and cash equivalents $ 32,909,695 $ 35,081,853 The accompanying notes to financial statements are an integral part of this statement. 20

33 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 1 Summary of significant accounting policies This summary of significant accounting policies of the Spartanburg Sanitary Sewer District (the District ) is presented to assist in understanding the financial statements. The financial statements and notes are representations of the District's management, which are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Reporting Entity The District provides public sewer utility services to the residents and businesses of Spartanburg, South Carolina and surrounding communities. The District is a special purpose district created in the year 1929 by the General Assembly of the State of South Carolina. The District is a primary government with no component units. The District is governed by a seven-member commission comprised of three commissioners of the Commission of Public Works of the City of Spartanburg, the Mayor of the City of Spartanburg and three commissioners elected by citizens residing within the District but outside the area of the City of Spartanburg. Basis of Accounting The District s accounting records are maintained on the full accrual basis in conformity with accounting principles generally accepted in the United States of America as applicable to governmental entities. The District accounts for its activities similar to those found in private business enterprises. Revenues and Expenses Operating revenues and expenses consist of those revenues and expenses that result from the ongoing principal operations of the District. Operating revenues consist primarily of charges for services. Non-operating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from nonexchange transactions and ancillary activities. Cash and Cash Equivalents For purposes of reporting cash flows, all investments with a maturity of three months or less at time of purchase are considered to be cash equivalents. Investments Investments are stated at fair value. Taxes Receivable and Ad Valorem Taxes Taxes receivable (current and delinquent) represent property taxes that have been collected and remitted to Spartanburg County Treasurer's office for its distribution to the District. The District's uncollected assessed taxes that have been transferred to the Spartanburg County Delinquent Tax Collector were $344,168 and $322,357 at June 30, 2014 and 2013, respectively. The District has established an offsetting allowance for uncollectible taxes of the same amount. 21

34 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 1 Summary of significant accounting policies (continued) The District's property taxes (except vehicles) are levied by the Spartanburg County Auditor each fall on the assessed value of the property located in the District's area as of the preceding January 1. The tax books are open for collection September 1, with the first penalty of 3% applied to payments made after January 15, the due date. A total penalty of 10% is charged for payments made after January 31. Uncollected property taxes attach as an enforceable lien on January 1. Uncollected property taxes as of March 15 are transferred to the Spartanburg County Delinquent Tax Collector at which time a total penalty of 15% is assessed. Spartanburg County bills and collects the District's property taxes. The District's property tax revenues are recognized when assessed. Assessed values for real estate are established annually by the County Tax Assessor based on the assessment ratio applied to the appropriate class of property. Real and personal property taxes in the District's area were assessed at $591,324,906 and $583,622,359 for the calendar years 2013 and 2012, respectively. Inventories Inventories are valued at cost using the first-in, first-out method. Inventories consist of expendable supplies held for consumption. Capital Assets Capital assets are stated at cost. Donated capital assets are recorded at estimated fair market value on the date donated. Assets are recorded as capital assets when valued at $1,000 or more. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets are depreciated using the straight-line method over the following useful lives: Years System infrastructure Motor equipment 5-10 Maintenance equipment 10 Office equipment 3-10 Buildings and improvements Restricted Use of Funds - When both restricted and unrestricted resources are available for use, it is the System s policy to use restricted resources first, then unrestricted resources as needed. Compensated Absences The District provides eligible employees annual leave for each full calendar month of service. When an employee separates from employment, he is compensated for any unused annual leave. Employees also accumulate sick leave based upon months of service. Sick leave does not vest and is lost upon termination of employment and thus is not accrued. A portion of accumulated sick leave, not to exceed forty-five days, may be redeemed for cash upon retirement. This redemption liability is neither reasonably estimable in aggregate nor accrued for financial statement purposes. Long-Term Debt Bond premium and discounts are deferred and equally amortized over the life of the bonds. 22

35 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 1 Summary of significant accounting policies (continued) The premium on bonds payable at June 30, 2014 and 2013 of $7,088,214 and $7,412,007, respectively, (net of accumulated amortization of $784,661 and $460,868, respectively) is being amortized over the term of the respective bonds using a method which approximates the effective interest method. The discount on bonds payable at June 30, 2014 and 2013 of $2,663,257 and $2,763,851, respectively, (net of accumulated amortization of $762,654 and $662,060, respectively) is being amortized over the term of the respective bonds using a method which approximates the effective interest method. Change in Accounting Principle The System adopted the provisions of GASB Statement 65, Items Previously Reported as Assets and Liabilities ( Statement No. 65 ). The provisions of Statement No. 65 relevant to the System related to changes in the accounting and reporting of bonded debt activities. Specifically, bond issuance costs incurred are recorded as current period expenditures as opposed to being capitalized and amortized over the maturity period of the debt. Statement No. 65 also requires that deferred charges (credits) resulting from the refunding of debt be presented as a deferred outflow (inflow) of resources and not as assets or liabilities. With the change being applied retroactively, the provisions of Statement No. 65 were effective for periods beginning after December 15, As of June 30, 2014, the net position and revenues over expenses after contributions have been adjusted as accordingly: Change in Net Position Net Position July 1, 2013, as previously reported $ (1,428,614) $ 56,497,648 Change in accounting principle (224,139) (1,421,075) July 1, 2013, restated $ (1,652,753) $ 55,076,573 Capital Contributions The District frequently has contributions to its sewer system from developers and contractors. In addition, the District receives grant monies for construction of improvements or extensions to its system at various times. The contributions are recognized in the Statements of Revenues, Expenses and Changes in Net Position when earned. New Pronouncements The GASB has issued several statements which have not yet been implemented by the District. The statement which may have a future impact on the District is as follows: GASB Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27, effective for periods beginning after June 15, 2014, replaces the requirements of GASB Statements No. 27 and No. 50 as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. The standard requires government employers to recognize as a liability, for the first time, their long-term obligation for pension benefits. The employer liability is to be measured as the difference between the present value of projected benefit payments to be provided through the pension plan for past periods of service less the amount of the pension plan s fiduciary net position, with obligations for employers with cost sharing plans based on their proportionate share of contributions to the pension plan. The standard also requires more immediate recognition of annual service cost, interest and changes in benefits for pension expense, specifies requirements for discount rates and actuarial methods and changes disclosure requirements. 23

36 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 2 Cash deposits and investments Custodial credit risk - deposits - The District does not have a formal deposit policy for custodial credit risk which is the risk that in the event of a bank failure, the deposits may not be returned to the District. As of June 30, 2014 and 2013, the District was not exposed to custodial credit risk. Statutes authorize the District to invest in obligations of the United States and its agencies, general obligations (not revenue obligations) of the State of South Carolina and its subdivisions, savings and loan associations to the extent of federal insurance, certificates of deposit collaterally secured, repurchase agreements secured by the foregoing obligations, and the State Treasurer s Investment Pool (SC Pool). The SC Pool, established pursuant to Section of the South Carolina Code, is an investment trust fund, in which public monies in excess of current needs, which are under the custody of any governing body of a political subdivision of the State, may be deposited. The SC Pool is a 2a7-like pool, which is not registered with the Securities and Exchange Commission (SEC), but has a policy that it will operate in a manner consistent with the SEC s Rule 2a7 of the Investment Company Act of In accordance with governmental accounting statements, investments are carried at fair value determined annually based upon quoted market prices. The total fair value of the SC Pool is apportioned to the entities with funds invested on an equal basis for each share owned, which are acquired at a cost of $1.00. The District has not adopted a formal investment policy. The District places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation covers $250,000 for substantially all depository accounts. The District from time to time may have amounts on deposit in excess of the insured limits. At June 20, 2014, the carrying value of cash deposits totaled $11,426,110, with corresponding bank balances of $12,148,791. At June 30, 2013, the carrying value of cash deposits totaled $11,200,015, with corresponding bank balances of $11,846,456. Of the bank balance at June 30, 2014, $500,000 was insured by federal depository insurance and $11,648,791 was collateralized with securities held by the financial institution in the District's name. Due to timing of receipt of customer payments as well as payments of District expenses, bank balances could exceed collateralized amounts from time to time. The District does not have a formal policy limiting investment maturities that would help manage its exposure to fair value losses from increasing interest rates. At June 30, 2014 and 2013, the District s investment balances were as follows: Investment Type Maturity Rating State Treasurer's investment pool <60 days $ 8,387,732 $ 11,120,139 Not rated First American Government Obligation <60 days 13,095,303 12,761,149 Aaa $ 21,483,035 $ 23,881,288 24

37 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 2 Cash deposits and investments (continued) The District is required under bond indenture agreements in connection with the issuance of bonds, to segregate certain assets. The assets listed below have been segregated and are restricted in use. They are shown in their respective categories in the accompanying balance sheets Restricted Assets for the Acquisition and Construction of Capital Assets Cash $ 1,678,919 $ 2,037,564 Restricted Assets for Debt Service Reserve Funds Investments 10,243,396 10,242,527 $ 11,922,315 $ 12,280,091 25

38 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 3 Capital assets A summary of changes in capital assets follows: Capital Assets Nondepreciable 2014 Balance Removals/ Balance June 30, 2013 Additions Disposals June 30, 2014 Construction in progress $ 3,196,099 $ 3,144,537 $ 3,470,928 $ 2,869,708 Depreciable Treatment plant, interceptor and collection lines 223,597,963 3,780, ,378,239 Collection lines - donated 41,949, ,307-42,810,429 Motor equipment 3,719, ,738 83,684 4,009,839 Maintenance equipment 7,139, ,625 6,891 7,696,817 Office equipment 597,664 37,899 34, ,030 Office real estate 257, ,433 Maintenance facility 647,502 1, ,572 Joint lab building 932, ,036 Total depreciable 278,840,588 5,618, , ,334,395 Total Capital Assets 282,036,687 8,763,452 3,596, ,204,103 Accumulated Depreciation Treatment plant, interceptor and collection lines 75,670,117 6,826,715-82,496,832 Collection lines - donated 18,012,681 1,690,606-19,703,287 Motor equipment 3,329, ,731 83,684 3,442,169 Maintenance equipment 6,152, ,657 6,891 6,561,990 Office equipment 482,493 50,928 32, ,894 Office real estate 146,824 6, ,526 Maintanance facility 330,630 18, ,453 Joint lab building 292,073 17, , ,416,164 9,225, , ,518,180 Capital Assets - Net of Accumulated Depreciation $ 177,620,523 $ (461,666) $ 3,472,934 $ 173,685,923 26

39 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 3 Capital assets (continued) Capital Assets Nondepreciable 2013 Balance Removals/ Balance June 30, 2012 Additions Disposals June 30, 2013 Construction in progress $ 5,373,562 $ 4,116,218 $ 6,293,681 $ 3,196,099 Depreciable Treatment plant, interceptor and collection lines 218,603,824 4,994, ,597,963 Collection lines - donated 40,700,549 1,248,573-41,949,122 Motor equipment 3,715, , ,834 3,719,785 Maintenance equipment 6,600, ,588 18,352 7,139,083 Office equipment 599,909 10,983 13, ,664 Office real estate 257, ,433 Maintenance facility 647, ,502 Joint lab building 932, ,036 Total depreciable 272,057,701 7,029, , ,840,588 Total Capital Assets 277,431,263 11,145,519 6,540, ,036,687 Accumulated Depreciation Treatment plant, interceptor and collection lines 69,079,219 6,590,898-75,670,117 Collection lines - donated 16,374,822 1,637,859-18,012,681 Motor equipment 3,292, , ,832 3,329,122 Maintenance equipment 5,797, ,344 17,664 6,152,224 Office equipment 440,007 55,179 12, ,493 Office real estate 140,122 6, ,824 Maintanance facility 311,860 18, ,630 Joint lab building 274,117 17, ,073 95,710,450 8,950, , ,416,164 Capital Assets - Net of Accumulated Depreciation $ 181,720,813 $ 2,194,616 $ 6,294,906 $ 177,620,523 Interest costs were $6,796,352 and $7,181,236 for the years ended June 30, 2014 and 2013, respectively, of which there were no amounts capitalized in either year. Note 4 Long term debt In March 2014, the District issued a Sewer System General Obligation Bond, Series 2013, to pay the costs of refunding a portion of the Sewer System Refunding Revenue and Convertible Series 2013B bond. The reacquisition price equaled the net carrying amount of the old debt. 27

40 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 4 Long term debt (continued) In April 2013, the District issued Sewer System Refunding Revenue and Convertible Bonds, Series 2013A and 2013B, to pay the costs of refunding the Series 1999B bond, a portion of the 2003A bond, and the Series 2003B bond. The reacquisition price exceeded the net carrying amount of the old debt by $4,216,054. This amount is included in the Statement of Net Position as Bond defeasance loss under Deferred outflows of resources and is being amortized over the old debt s life, which is shorter than the life of the refunding debt. The bonds are secured by a pledge of, and lien upon, gross revenues less amounts required to fund the operation and maintenance of the District. The District s bond ordinance also restricts additional indebtedness and requires a certain net earnings level as defined Balance Balance Due Within June 30, 2013 Additions Reductions Defeased June 30, 2014 One Year Bonds Payable General obligation bonds $ 21,025,000 $ 3,455,000 $ (620,000) $ - $ 23,860,000 $ 635,000 Revenue bonds 141,245,000 - (2,665,000) (3,455,000) 135,125,000 2,565,000 State revolving fund loan 386,812 - (49,687) - 337,125 50,815 Bond premium 7,412,007 - (323,793) - 7,088,214 - Bond discount (2,763,851) - 100,594 - (2,663,257) - $ 167,304,968 $ 3,455,000 $ (3,557,886) $ (3,455,000) $ 163,747,082 $ 3,250, (Restated) Balance Balance Due Within June 30, 2012 Additions Reductions Defeased June 30, 2013 One Year Bonds Payable General obligation bonds $ 22,560,000 $ - $ (1,535,000) $ - $ 21,025,000 $ 620,000 Revenue bonds 145,545,000 62,950,000 (1,405,000) (65,845,000) 141,245,000 2,665,000 State revolving fund loan 435,396 - (48,584) - 386,812 49,687 Bond premium 1,428,376 6,119,894 (136,263) - 7,412,007 - Bond discount (2,580,440) (421,368) 237,957 - (2,763,851) $ 167,388,332 $ 68,648,526 $ (2,886,890) $ (65,845,000) $ 167,304,968 $ 3,334,687 28

41 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 4 Long term debt (continued) General Obligation Bonds Bonds payable at June 30, 2014 and 2013 were comprised of the following issues: $14,135,000 General Obligation Bonds, dated January 7, Annual maturities of $115,000 to $3.275 million maturing in 2025 with semi-annual interest of 2.00% to 4.00%. Bonds were issued to refund the 2001, 2002 and 2004 General Obligation Bonds. $ 12,020,000 $ 12,020,000 $9,480,000 General Obligation Refunding Bonds, Series 2011, dated April 14, Annual maturities of $115,000 to $980,000 maturing in 2025 with semi-annual interest of 2.00% to 4.00%. Bonds were issued to refund most of the Series 2002 General Obligation Bonds. 8,385,000 9,005,000 $3,455,000 General Obligation Refunding Bonds, Series 2013, dated March 1, One lump sum principal payment due upon maturity in 2038 with annual payments of semi-annual interest of 2.5%. Bonds were issued to refund part of the Series 2013B Revenue Bond. 3,455,000-23,860,000 21,025,000 Less: current portion (635,000) (620,000) Total long-term general obligation bonds payable $ 23,225,000 $ 20,405,000 29

42 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 4 Long term debt (continued) General Obligation Bonds (continued) Debt service requirements to maturity including interest on the general obligation bonds as of June 30, 2014 are as follows: Year Ending June 30 Principal Interest Total 2015 $ 635,000 $ 787,038 $ 1,422, , ,988 1,417, , ,488 1,423, , ,863 1,419, , ,288 1,598, ,830,000 3,590,850 16,420, ,195,000 1,029,250 5,224, , , ,455, ,000 4,146,000 $ 23,860,000 $ 10,076,515 $ 33,936,515 Revenue Bonds Bonds payable at June 30, 2014 and 2013 were comprised of the following issues: (Restated) $10,695,000 Sewer system Convertible Bonds Series 2003A, dated August 21, 2003, Maturities from 2004 to 2017 and 2029 to 2040 with an interest rate of 2.00% to 5.00%. $ - $ 205,000 $5,670,000 Sewer System Revenue Bonds Series 2005A, dated August 2, Maturities from 2008 to 2040 with an interest rate of 3.00% to 4.50%. 4,990,000 $ 5,095,000 $37,555,000 Sewer System Convertible Bonds Series 2005B, dated August 2, Maturities from 2008 to 2040 with an interest rate of 3.00% to 4.50%. 35,075,000 35,400,000 $7,865,000 Sewer System Refunding Revenue Bonds Series 2009A, dated December 30, Maturities from 2014 to 2021 with an interest rate of 2.50% to 5.0%. Bonds issued to refund the outstanding 1999 Series A Refunding Revenue Bonds. 7,125,000 7,865,000 30

43 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 4 Long term debt (continued) Revenue Bonds (continued) Series 2009B, dated December 30, Maturities from 2011 to 2022 and 2026 to 2028 with an interest rate of 2.50% to 5.0%. Bonds issued to refund most of the outstanding 1999 Series B CIB and all the outstanding 1999 Series B CAB Refunding Revenue Bonds including the accreted 18,425,000 19,470,000 $10,260,000 Sewer System Taxable Revenue Bonds Series 2011, dated November 2, Maturities from 2016 to 2025 with an interest rate of 1.89% to 4.18%. Bonds issued to retire the outstanding Sewer System Revenue Bond 10,260,000 10,260,000 $9,220,000 Sewer System Refunding Revenue and Convertible Bonds Series 2013A, dated April 3, Maturities from 2014 to 2040 with an interest rate of 1.00% to 4.00%. Bonds issued to pay outstanding costs related to the issuance of the 2013 Series Bonds and to retire the outstanding Sewer System Improvement and Refunding Convertible Bonds, Series 1999B; maturities of the Sewer System Convertible Bonds, Series 2003A; the outstanding Sewer System Convertible Bonds, Series 2003B. 9,125,000 9,220,000 $53,730,000 Sewer System Refunding Revenue and Convertible Bonds Series 2013B, dated April 3, Maturities from 2014 to 2038 with an interest rate of 1.00% to 5.00%. Bonds issued to pay outstanding costs related to the issuance of the 2013 Series Bonds and to retire the outstanding Sewer System Improvement and Refunding Convertible Bonds, Series 1999B; maturities of the Sewer System Convertible Bonds, Series 2003A; the outstanding Sewer System Convertible Bonds, Series 2003B. 50,125,000 53,730, ,125, ,245,000 Less: current portion (2,565,000) (2,665,000) Total long-term revenue bonds payable $ 132,560,000 $ 138,580,000 31

44 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 4 Long term debt (continued) State Revolving Fund Loan A $626,900 South Carolina Water Quality Revolving Fund Authority Loan (state revolving fund loan) was assumed by the District with the transfer of the City of Spartanburg s sewer lines. The balance as of June 30, 2014 and 2013 was $337,125 and $386,812, respectively. The loan matures September 2020, with principal and interest payments quarterly of $14,493 with an interest rate of 2.25%. In a separate agreement, the state revolving fund loan was given first lien bond status and deemed fully secured by the gross revenues of the District, same as the revenue bonds. Debt service requirements to maturity including interest on the revenue bonds and the state revolving fund loan as of June 30, 2014 are as follows: Year Ending June 30 Principal Interest Total 2015 $ 2,615,815 $ 5,809,425 $ 8,425, ,591,967 5,739,960 9,331, ,708,147 5,622,972 9,331, ,799,354 5,485,208 9,284, ,955,586 5,334,461 9,290, ,671,256 24,103,524 37,774, ,685,000 21,984,067 44,669, ,075,000 15,184,607 48,259, ,515,000 6,880,826 45,395, ,845, ,350 10,240,350 $ 135,462,125 $ 96,540,400 $ 232,002,525 Note 5 Defeasance of debt and advanced refundings During March 2014, the District issued a Sewer System General Obligation bond, Series 2013, to pay the costs of advance refunding a portion of the Series 2013B bond. As a result of this transaction, $3,455,000 of the Series 2013B bond was defeased by converting these funds (which had been part of a revenue bond) to a general obligation bond. In April 2013, the District issued Sewer System Refunding Revenue & Convertible bonds, Series 2013, to pay the costs of advance refunding the Series 1999B bond, the Series 2003B bond, and a portion of the Series 2003A bond. The net carrying amount of the old debt exceeded the reacquisition price by $2,895,000. This amount is being amortized over the old debt s life, which is shorter than the life of the refunding debt. The transaction also resulted in an economic gain (difference between the present value of the debt service on the old and the new bonds) of approximately $5,901,

45 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 5 Defeasance of debt and advanced refundings (continued) During the year ending June 30, 2013, $800,000 of the Series 1999B Bond, $56,250,000 of the Series 2003B Bond, and $8,795,000 of the Series 2003A bond was defeased by issuing new debt and depositing the proceeds in an irrevocable trust to provide for all future debt service payments of the old debt. Thus, the defeased debt and the irrevocable trust are not included in the financial statements. The proceeds from previous bonds issued that defeased certain bonds in prior years were placed in an irrevocable trust to provide for all future debt payments on the old bonds. Accordingly, the trust account's assets and the liability for the defeased bonds are not included in the District's financial statements. At June 30, 2013, $65,845,000 of bonds outstanding are considered defeased from prior years. During the year ended June 30, 2014, these bonds were called and thus there was no outstanding balance of defeased bonds from prior years at June 30, In the prior year, advance refundings resulted in book losses that are being amortized over the original remaining life of the old bonds that were defeased. The unamortized losses at June 30, 2014 and 2013 shown on the Statement of Net Position as Bond defeasance loss under Deferred outflows of resources. Amortization has been included in interest expense and was $394,731 and $289,736 for the years ended June 30, 2014 and 2013, respectively. Note 6 Capital contributions Donated assets and/or grants provided to finance capital expenditures are accounted for as capital contributions. During the years ended June 30, 2014 and 2013, the District received the following as donated assets or to partially finance plant extensions or additions: Donated assets $ 861,307 $ 1,248,573 Private industry and developers 360, ,463 $ 1,222,135 $ 1,479,036 Note 7 Retirement plan A. Plan Description The District is a member of the South Carolina Retirement System (SCRS), one of four defined benefit retirement systems maintained by the Retirement Division of the State Budget and Control Board of South Carolina. Each system publishes its own component unit financial report. The systems provide retirement, death, and disability benefits to State employees, public school employees, and employees of counties, municipalities, and certain other State political subdivisions. Each system is independent. Assets may not be transferred from one system to another or used for any purpose other than to benefit each system's participants. 33

46 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 7 Retirement plan (continued) A comprehensive annual financial report containing financial statement and required supplementary information for the South Carolina Retirement System and Police Officers Retirement System is issued and publicly available by writing the South Carolina Retirement System, Post Office Box 11960, Columbia, South Carolina B. Funding and Benefit Policies Title 9 of the South Carolina Code of Laws of 1976 (as amended) prescribes requirements relating to membership, benefits, and employee/employer contributions for each system. The following paragraphs summarize the requirements for the SCRS. The SCRS is a cost-sharing multiple-employer pension system that benefits employees of public schools, the State, and its political subdivisions including the District. Membership is required as a condition of employment. Participating employers of the SCRS contribute.15% of payroll to provide a group life insurance benefit for their participants. The District contributed the following for the current year and each of the preceding two years: Percent of Percent of Year Ended Employee Covered Employer Covered Total June 30 Contributions Payroll Contributions Payroll Contributions 2014 $ 236, % $ 329, % $ 566, , % 327, % 540, , % 303, % 510,196 Actuarially determined contribution requirements are equal to the actual contributions made to the SCRS. Note 8 Post retirement health care benefits Description The District, through its substantive commitment to provide other post-employment benefits ( OPEB ), maintains a single employer defined benefit plan to provide certain post-retirement healthcare benefits. Participants must be eligible to retire under the SCRS with a minimum of 12 years of service to receive benefits. The District explicitly provides a portion of the cost of coverage for retirees and the retirees are required to pay a portion of the premiums. The cost of coverage for pre-65 retirees is also implicitly subsidized by the District through the development of an average premium rate. After age 65, the District will pay for supplemental Medicare coverage for retirees. Spouses are not covered for pre or post-65 retirees. Because the Plan consists solely of the District s firm commitment to provide OPEB through the payment of premiums to a commercial insurance company, no stand-alone financial report is either available or generated. 34

47 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 8 Post retirement health care benefits (continued) Funding Policy There were 17 employee retirees receiving benefits as of June 30, 2014 and The Plan is financed on a pay-as-you-go basis and through separate contributions to the South Carolina Other Retirements Benefits Employers Trust ( SC ORBET ), a tax-exempt governmental trust under Internal Revenue Code 115. The SC ORBET allows each member to choose a contribution amount into the trust based on the actuarially determined annual required contribution. Each member continues to contract with its current health care provider for retiree health care coverage and the SC ORBET pays the benefits chosen by the employer directly to the employer or provider. Each member also shares in the SC ORBET s administrative and investment related expenses. Annual OPEB Cost and Net OPEB Obligation (Asset) The District s OPEB cost (expense) is calculated based on the annual required contribution (ARC), an amount actuarially determined. The ARC represents a level of funding that if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excesses) over a period not to exceed 30 years. The following table presents the OPEB cost for the year, the amount actually contributed and changes in the OPEB Plan for the years ended June 30, 2014 and 2013: Net OPEB Obligation (Asset) Annual required contribution (ARC) $ 287,052 $ 275,429 Interest on Net OPEB obligation (715) (168) Adjustment to ARC Annual OPEB cost 286, ,404 Contributions made (288,923) (283,829) Increase in net OPEB obligation (asset) (1,977) (8,425) Net OPEB obligation (asset) - beginning of year (11,006) (2,581) Net OPEB obligation (asset) - end of year $ (12,983) $ (11,006) The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan and the net OPEB obligation (asset) for the fiscal years ended June 30, 2014, 2013 and 2012 is as follows: Annual % of OPEB Year Ended OPEB Cost Contributed Net OPEB Asset June 30, 2014 $ 286, % $ (12,983) June 30, , % (11,006) June 30, , % (2,581) 35

48 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 8 Post retirement health care benefits (continued) Funded Status and Funding Progress As of July 1, 2013, the most recent actuarial valuation date, the funded status of the plan was as follow: Actuarial accrued liability (AAL) $ 4,514,018 Actuarial value of plan assets 1,191,809 Unfunded actuarial accrued liability (UAAL) $ 3,322,209 Funded ratio (actuarial value of assets/aal) 26.40% Covered payroll (annual payroll of active employees covered by the plan) $ 2,883,564 UAAL as a percentage of covered payroll % Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. These actuarial determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress and employer contributions for retiree health plan, presented as Required Supplementary Information following the notes to financial statements, presents multiyear trend information about whether the actuarial value of Plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of benefit costs by the employer to a point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The ARC was determined as part of the July 1, 2013 actuarial valuation using the following methods and assumptions: Actuarial cost method Projected unit credit Amortization method level percentage of payroll, closed Remaining amortization period 25 Inflation rate 2.75% Asset valuation method 5-year smoothed market, 80%-120% corridor Investment return 5.00% Projected salary increases 2.75% Healthcare cost trend rate Pre-Medicare 8.50%-5.00% Post-Medicare 6.50%-5.00% 36

49 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 9 Deferred compensation plans Two deferred compensation plans are available to District employees. The multiple-employer plans, created under Internal Revenue Code Sections 401(k) and 457 are administered and accounted for by the State of South Carolina. Employees may withdraw the current value of their contributions when they terminate employment. With approval of the State's Deferred Compensation Commission, employees may also withdraw the current value of their contributions prior to termination of employment if they meet certain requirements. These requirements differ between the two plans. The plans, available to all District employees, permit them to defer a portion of their salary until future years. Participation in the plans is optional and participants elect how their salary deferrals are invested. Compensation deferred under the Section 401(k) and 457 plans is placed in trust for the contributing employees. Neither the State nor the District has any liability for losses under the plan. Note 10 Risk management The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District is insured under policies through the South Carolina Office of Insurance Services, South Carolina Reserve Fund ( IRF ), a public entity risk pool, which issues policies to assume those risks of loss, accumulates assets to cover the risks of loss, and pays claims incurred for covered losses the District is exposed to, related to the following assets, activities, and/or events: 1. Real property, its contents, and other equipment. 2. Motor vehicles. 3. General tort claims. The IRF purchases reinsurance to obtain certain services and specialized coverage and to limit losses in the areas of property, boiler and machinery, automobile liability, and medical professional liability insurance. The IRF s rates are determined actuarially. The District did not have settled claims that exceeded the District s insurance coverage in any of the past three years. The District provides employee health care under a self-funded insurance program. A commercial insurance company provides aggregate stop loss coverage for claims in excess of $4,110,469 including Spartanburg Water System (the System ) and specific stop loss coverage for each claim in excess of $95,000. The following represents the change in unfiled, unpaid claims from July 1, 2013 to June 30, 2014 and July 1, 2012 to June 30, 2013: Beginning of the year liability $ 94,018 $ 46,576 Claims 1,002, ,761 Claims payments (1,050,564) (903,319) End of the year liability $ 46,113 $ 94,018 This liability is included in accrued employee benefits in the Statements of Net Position. 37

50 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 11 Related party transactions The System provides billing, collection, fleet, engineering and labor services as well as other administrative functions for the District. The amounts paid to the System for all services were as follows: Billing and collection fees $ 265,020 $ 325,008 Administrative fees 770, ,540 Labor reimbursements 558, ,546 Water quality and maintenance facility 377,737 26,364 Fleet services fee 119,738 87,141 Engineering 690, ,777 Operations fee 178, ,952 $ 2,961,169 $ 2,233,328 The following amounts were due from (to) the System at June 30, 2014 and 2013: User charges collected $ 1,621,521 $ 1,431,967 Other receivables 643, ,187 Miscellaneous receipts (1,031,732) (722,012) $ 1,233,465 $ 1,594,142 The District with the System jointly owns an office building on North Liberty Street in downtown Spartanburg, South Carolina. The facility provides offices for the engineering and other support service departments that serve both organizations. The District owns an undivided interest of the office building. At June 30, 2014 and 2013, the District s share is included in capital assets with a cost of $257,433 and accumulated depreciation of $153,526 and $146,824, respectively. The District also jointly owns with the System approximately 42 acres on Highway 295 by-pass in Spartanburg County for future additional space requirements and facilities to accommodate a maintenance shop and personnel involved in maintenance activities. At June 30, 2014 and 2013, the District s share is included in capital assets with a cost of $648,574 and $647,502 and accumulated depreciation of $349,453 and $330,630, respectively. The District additionally jointly owns with the System a laboratory building on Highway 295 by-pass in Spartanburg County. The facility provides offices and laboratories for the industrial wastewater, backflow prevention and water quality services. At June 30, 2014 and 2013, the District s share is included in capital assets with a cost of $794,263 and accumulated depreciation of $299,698 and $281,742, respectively. 38

51 SPARTANBURG SANITARY SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 Note 12 Summary disclosure of significant contingencies and commitments Sick Pay As described more fully in Note 1, an estimate of potential liability is not required. Unemployment Compensation The District is required to pay unemployment compensation on covered employees. It has chosen the alternative of paying claims as billed by the South Carolina Employment Security Commission. However, under this method of funding, no accurate estimate of any potential liability has been made. Federal and State Assisted Programs The District has received proceeds from federal and state grants, and/or entitlements. Periodic audits of these grants are required and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant monies to the grantor agencies. Management believes that any required refunds will be immaterial. No provision has been made in the accompanying financial statements for the refund of grant monies. Underground Storage Tanks The District has underground storage tanks that are subject to federal and state regulations concerning cleanup costs and third-party liability claims. The District has 24-hour per day monitoring systems installed on all storage tanks. However, the District is not insured in the event that a leak should occur, and no estimate of potential liability, if any, has been made in the accompanying financial statements. Construction Commitments Outstanding commitments on construction contracts totaled $457,446 and $157,200 at June 30, 2014 and 2013, respectively. Arbitrage Rebate Liabilities Arbitrage represents the difference or "spread" between lower interest rates on tax-exempt government securities and the higher interest on taxable investment securities. The Internal Revenue Code requires local governments to rebate arbitrage earnings to the federal government every five years for as long as the local government has tax-exempt bonds outstanding. The District does not believe an estimate of potential liability, if any, is required in the accompanying financial statements. Note 13 Subsequent events Subsequent to year end, the District issued a Series 2014 general obligation bond for $8,062,000 to finance the District s capital improvement program. 39

52 REQUIRED SUPPLEMENTARY INFORMATION

53 SPARTANBURG SANITARY SEWER DISTRICT SCHEDULE OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS FOR RETIREE HEALTH PLAN JUNE 30, 2014 Schedule of Funding Progress Actuarial Actuarial Unfunded Ratio UAAL Actuarial Value Accrued Actuarial of as a % Valuation of Liability Accrued Funded Covered of Covered Date Assets (AAL) Liability (UAAL) Obligation Payroll Payroll July 1, (A) (B) (B - A) (A / B) (C) ((B - A) / C) 2013 $1,191,809 $ 4,514,018 $ 3,322, % $ 2,883, % 2011 $ 669,379 $ 3,248,379 $ 2,579, % $ 2,860, % 2009 $ 225,000 $ 3,150,800 $ 2,925, % $ 2,526, % Schedule of Employer Contributions Annual Required Fiscal Contribution Actual Percent Year (ARC) Contributions Funded 2014 $ 287,052 $ 288, % 2013 $ 275,429 $ 283, % 2012 $ 270,777 $ 287, % 40

54 III. STATISTICAL SECTION (UNAUDITED)

55 Statistical Section This part of the Spartanburg Sanitary Sewer District's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. Contents Financial Trends These schedules contain trend information to help the reader understand how the District's financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the District's most significant revenue sources, user charges and property taxes. Debt Capacity These schedules present information to help the reader assess the affordability of the District's current levels of outstanding debt and the District's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the District's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the District's financial report relates to the services the District provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 41

56 Financial Trends

57 Spartanburg Sanitary Sewer District Table 1 Net Position by Component FY 2005 to FY 2014 Net Fiscal Investment in Year Capital Assets Restricted Unrestricted Total Net Position 2014 $ 9,938,841 $ 11,922,315 $ 27,760,264 $ 49,621, (Restated) 16,808,927 12,280,091 24,334,802 53,423, ,038,584 16,381 22,442,683 56,497, ,242, ,925 21,980,956 58,431, ,052,825-23,117,151 62,169, ,244,215-22,232,491 63,476, ,282,189-22,197,881 64,480, ,913,558-20,658,973 60,572, ,704,255-18,122,319 58,826, ,882,309-13,896,142 53,778,451 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 Net Assets by Component Net Investment in Capital Assets Restricted Unrestricted 42

58 Spartanburg Sanitary Sewer District Table 2 Changes in Net Position FY 2005 to FY 2014 FY 2014 Revenues Operating revenues User charge revenues 20,383,889 FY 2013 (Restated) FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 $ $ 20,261,923 $ 19,612,860 $ 18,036,732 $ 17,911,933 $ 18,165,635 $ 16,728,712 $ 14,346,940 $ 14,171,033 $ 12,475,667 Other operating revenues 1,282,491 1,328,131 1,326,351 1,194,606 1,198,291 1,219,673 1,189,676 1,157,659 1,209,326 1,167,555 Total operating revenues 21,666,380 21,590,054 20,939,211 19,231,338 19,110,224 19,385,308 17,918,388 15,504,599 15,380,359 13,643,222 Nonoperating revenues Property tax collections 4,795,266 4,645,343 4,585,212 4,603,660 4,613,814 4,600,793 4,606,015 4,501,133 4,363,444 4,333,035 Other nonoperating revenues 279, , , , , ,260 1,807,008 2,592,096 2,812,005 1,046,099 Total nonoperating revenues 5,074,905 5,003,980 4,842,796 4,848,874 5,014,701 5,162,053 6,413,023 7,093,229 7,175,449 5,379,134 Total revenues 26,741,285 26,594,034 25,782,007 24,080,212 24,124,925 24,547,361 24,331,411 22,597,828 22,555,808 19,022,356 Expenses Operating expenses, excluding depreciation 15,624,500 13,228,455 12,455,467 12,088,292 11,587,195 11,695,601 10,640,171 9,790,205 9,302,581 8,309,088 Depreciation expense 9,225,118 8,950,903 8,660,842 8,512,687 8,422,590 7,701,323 6,192,898 5,197,377 4,745,725 4,168,092 Nonoperating expenses 6,916,202 7,546,465 7,747,848 7,916,738 7,640,535 8,159,462 8,211,368 8,264,661 8,201,127 6,571,011 Total expenses 31,765,820 29,725,823 28,864,157 28,517,717 27,650,320 27,556,386 25,044,437 23,252,243 22,249,433 19,048,191 Excess (Deficiency), before capital contributions (5,024,535) (3,131,789) (3,082,150) (4,437,505) (3,525,395) (3,009,025) (713,026) (654,415) 306,375 (25,835) Capital contributions 1,222,135 1,479,036 1,148, ,675 2,218,665 2,005,661 4,620,565 2,400,374 4,741,748 3,595,070 Increase (Decrease) in net position (3,802,400) (1,652,753) (1,933,498) (3,738,830) (1,306,730) (1,003,364) 3,907,539 1,745,959 5,048,123 3,569,235 Net position, beginning of year 53,423,820 56,497,648 58,431,146 62,169,976 63,476,706 64,480,070 60,572,531 58,826,573 53,778,450 50,209,215 Plus change in accounting principle Net position, restated, beginning of year - (1,421,075) ,423,820 55,076,573 58,431,146 62,169,976 63,476,706 64,480,070 60,572,531 58,826,573 53,778,450 50,209,215 Net position, end of year $ 49,621,420 $ 53,423,820 $ 56,497,648 $ 58,431,146 $ 62,169,976 $ 63,476,706 $ 64,480,070 $ 60,572,532 $ 58,826,573 $ 53,778,450 43

59 Spartanburg Sanitary Sewer District Table 3 Revenues By Source FY 2005 to FY 2014 Operating Revenues Non Operating Revenues Fiscal User Charge Industrial Treatment Connection Property Tax Interest Other Total Year Revenues Service Fees Charges Miscellaneous Fees Collections Income Revenue Revenues 2014 $ 20,383,889 $ 497,374 $ 144,513 $ 640,604 $ 240,208 $ 4,795,266 $ 21,053 $ 18,378 $ 26,741, ,261, , , , ,255 4,645,343 47,900 82,482 26,594, ,612, ,096 98, , ,472 4,585,212 63,412 13,700 25,782, ,036, ,401 85, , ,642 4,603,660 94,645 2,927 24,080, ,911, ,347 91, , ,002 4,613, ,642 77,244 24,124, ,165, ,385 80, , ,147 4,600, ,113-24,547, ,728, ,487 77, , ,712 4,606,015 1,341,879 26,417 24,331, ,346, ,528 80, , ,957 4,501,133 2,016,944 (1,805) 22,597, ,171, ,075 71, , ,151 4,363,444 2,129, ,394 22,555, ,475, ,884 94, , ,249 4,333, ,850-19,022,356 44

60 Spartanburg Sanitary Sewer District Table 4 Operating Expenses FY 2005 to FY 2014 Fiscal Personnel Supplies and Outside Educational Company Depreciation Total Operating Year Costs Maintenance Services and Training Expenses Expense Expenses 2014 $ 5,183,109 $ 4,656,950 $ 5,387,059 $ 150,367 $ 247,015 $ 9,225,118 $ 24,849, ,911,436 2,725,398 5,172, , ,573 8,950,903 22,179, ,713,928 2,600,460 4,723, , ,369 8,660,842 21,116, ,507,888 2,314,832 4,795, , ,092 8,512,687 20,600, ,414,626 2,266,754 4,494,869 78, ,880 8,422,590 20,009, ,381,035 2,338,947 4,565,621 86, ,563 7,701,323 19,396, ,868,721 2,435,148 3,915,484 76, ,176 6,192,898 16,833, ,228,774 2,346,768 3,841,077 85, ,616 5,197,377 14,987, ,266,049 2,362,390 3,316,851 82, ,183 4,745,725 14,048, ,095,434 2,085,762 2,853,739 84, ,862 4,168,092 12,477,180 45

61 Revenue Capacity

62 Spartanburg Sanitary Sewer District Table 5 Historical Millage and Rate Information FY 2005 to FY 2014 Residential Volume Fiscal Ad Valorem Rate History* Charge Year Tax Millage (Avg. 2 Mth. Bill) (per 100 gal) * Residential rate history (avg. 2 mth. bill) is based on an average demand of 15 ccf per billing cycle. 46

63 Spartanburg Sanitary Sewer District Table 6 Schedule of Historical Discharge CY 2004 to CY 2013 Calendar Billion Average Year Gallons MGD* *Million gallons per day of effluent discharge 47

64 Spartanburg Sanitary Sewer District Table 7 Property Tax Collections CY 2004 to CY 2013 Calendar Property Property Delinquent Percent Total Total Total Year Taxes Taxes Percent Taxes Delinquent Collections Percent Direct End Levy Collected Collected Collected Collected To Date Collected Rate* 2013 $ 4,465,012 $ 4,215, % $169, % $4,384, % ,286,070 4,061, % $177, % 4,238, % ,286,748 4,041, % 168, % 4,210, % ,255,448 3,963, % 122, % 4,086, % ,297,656 3,983, % 242, % 4,226, % ,238,632 3,875, % 243, % 4,118, % ,354,656 3,802, % 295, % 4,098, % ,009,898 3,728, % 248, % 3,976, % ,906,143 3,565, % 268, % 3,834, % ,465,802 3,204, % 212, % 3,417, % 7.7 * Total Direct Rate is equivalent to the Ad Valorem Tax Millage Source: Spartanburg County Treasurer 48

65 Spartanburg Sanitary Sewer District Table 8 Ten Largest Taxpayers CY 2004 & CY Assessed Taxes 2004 Assessed Taxes 2013 Customer Value Paid Ranking Value Paid Ranking Duke Energy Corp. $ 12,415,275 $ 3,982,261 1 $ 11,699,340 $ 4,679,684 1 Michelin North America 8,335,324 2,107, ,444,948 2,166,459 2 R. R. Donnelley & Sons 4,933,211 1,531, ,956,154 2,502,132 3 General Motors LLC - - 4,298,960 1,246,538 4 Amazon Com Dedc LLC - - 3,378,049 1,192,789 5 American Fund US Investments - - 2,934,826 1,004,004 6 Yeomans Charles L III Et Al 3,553,530 1,211, ,776,360 1,128,590 7 Bellsouth Telecommunications 4,650,160 1,647, ,663,720 1,149,265 8 Milliken & Company Inc 2,838, , ,509, ,973 9 Land O Sun Dairies LLC - - 2,437, , Mary Black Health Systems LLC 3,910,410 1,218, Tietex International LTD 3,194, ,142 7 Piedmont Natural Gas Co Inc 3,021, , BASF Corporation 2,601, , TOTAL $ 49,453,277 $ 15,113,916 $ 45,099,466 $ 16,698,737 Taxes Paid includes fee in lieu of tax payments. Source: Spartanburg County Auditor. 49

66 Spartanburg Sanitary Sewer District Table 9 Assessed Values CY 2004 to CY 2013 Ratio of Total Calendar Real Personal Total Total Assessed to Total Year Property Property Assessed Value Market Value Market Value 2013 $ 465,685,663 $ 176,669,073 $ 642,354,736 $ 12,215,954, % ,846, ,504, ,350,634 11,708,359, % ,104, ,653, ,970,317 12,103,408, % ,550, ,756, ,306,982 12,430,532, % ,333, ,937, ,270,565 12,598,714, % ,601, ,907, ,509,114 10,263,113, % ,474, ,951, ,425,964 8,784,830, % ,861, ,388, ,249,824 8,834,703, % ,651, ,441, ,092,847 9,154,233, % ,981, ,836, ,817,715 8,797,431, % Assessed Values (millions) $700 $600 $500 $ $300 $ $100 $ Calendar Year Source: Spartanburg County Auditor & Assessor 50

67 Spartanburg Sanitary Sewer District Table 10 Assessed Value Summary CY 2013 Assessd Assessment Market Classification Value Ratio Value 1. Real Property and Mobile Homes $ 465,685,663 4% & 6% $ 10,135,046, Business Personal Property 5,345, % 50,907, Merchant's Furniture, Fixtures, and Equipment 24,891, % 237,057, Motor Vehicles 54,823, % 913,708, Marine Equipment 1,300, % 12,388, Airplanes 305, % 7,643, Manufacturing Property 65,067, % 619,694, Public Utilities 22,906, % 218,160, Transportation Companies for Hire 2,028, % 21,347,526 TOTALS $ 642,354,736 $ 12,215,954,989 Assessment Summary Thousands ($) 500, , , , , , , , ,000 50, ,686 4,884 24,891 54,823 1, ,068 22,907 2,028 Real Prop. & Mobile Homes Manufact. Prop. Motor Vehicles Public Utilities Classification Business Personal Prop. Merchant Prop. Marine Equipment Airplanes Transportation Companies for Hire Source: Spartanburg County Auditor 51

68 Spartanburg Sanitary Sewer District Table 11 Ten Largest Customers FY 2005 & FY Percent Percent of 2005 of 2014 Total Operating 2005 Total Operating 2014 Customer Annual Revenue* Revenue Ranking Annual Revenue* Revenue Ranking SRMC $ 251, % 1 $ 423, % 1 Spartanburg Housing Authority 210, % 2 376, % 2 Pet Inc. Dairy Division 139, % 5 307, % 3 Contec Inc. 198, % 4 BASF Corporation 195, % 5 Wofford College 188, % 6 SC Dept of Corrections 186, % 7 Southwood Realty 180, % 8 Michelin Tire Corp 115, % 8 174, % 9 Blackman Uhler Mfg. Company 166, % 3 164, % 10 Tietex Corporation 167, % 4 Milliken 125, % 6 Siemens 123, % 7 Sodexo Marriott Svc 114, % 9 Spartanburg County Courthouse TOTAL $ 1,528, % $ 2,396, % *Customer revenue includes user charges and industrial wastewater surcharges and service charges. 52

69 Debt Capacity

70 Spartanburg Sanitary Sewer District Table 12 Debt Outstanding FY 2005 to FY 2014 General State Bond As Share of Fiscal Obligation Revenue Revolving Anticipation Total Debt Per Personal Year Bonds Bonds Fund Loans Note Outstanding Capita Income 2014 $ 23,860,000 $ 135,125,000 $ 337,125 $ - 159,322,125 N/A N/A ,691, ,226, , ,304, % 2012* 23,283, ,669, , ,388, % 2011* 24,866, ,725, ,534 10,068,000 $ 170,141, % ,650, ,465, ,891 10,318,000 $ 173,957, % ,320, ,774, ,764 - $ 161,660, % ,085, ,949, ,203 - $ 164,641, % ,795, ,084, $ 166,879, % ,450, ,709, $ 169,159, % ,045,000 94,084, $ 128,129, % *FY2011 & FY2012 debt are presented net of discounts and premiums Total Debt Outstanding (Millions) $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $ Fiscal Year Ended *Per capita number is based on the Spartanburg County population. 53

71 Spartanburg Sanitary Sewer District Table 13 Historical Statements of Revenues, Expenses, Debt Service and Debt Service Coverage FY 2005 to FY (Restated) 2014 Operating revenues $ 13,643,222 $ 15,380,359 $ 15,504,599 $ 17,918,388 $ 19,385,308 $ 19,110,224 $ 19,231,338 $ 20,939,211 $ 21,590,054 $ 21,666,380 Operating expenses before depreciation and amortization (8,309,088) (9,302,581) (9,790,205) (10,640,172) (11,695,601) (11,587,195) (12,088,292) (12,455,467) (13,228,455) (15,624,500) Operating income before depreciation and amortization 5,334,134 6,077,778 5,714,394 7,278,216 7,689,707 7,523,029 7,143,046 8,483,744 8,361,599 6,041,880 Depreciation (4,168,092) (4,745,725) (5,197,377) (6,192,898) (7,701,323) (8,422,590) (8,512,687) (8,660,842) (8,950,903) (9,225,118) Amortization of bond cost (90,983) (106,483) (107,892) (107,892) (107,892) (152,879) (130,265) (130,235) - - Operating Income (Loss) 1,075,059 1,225, , ,426 (119,508) (1,052,440) (1,499,906) (307,333) (589,304) (3,183,238) Nonoperating Revenues Ad valorem taxes 4,333,035 4,363,444 4,501,133 4,606,015 4,600,793 4,613,814 4,603,660 4,585,212 4,645,343 4,795,266 Other nonoperating revenues 1,046,099 2,812,005 2,592,096 1,807, , , , , , ,639 Nonoperating Expenses (6,480,028) (8,094,644) (8,156,769) (8,103,476) (8,051,570) (7,487,656) (7,786,473) (7,617,613) (7,546,465) (6,916,202) Capital Contributions 3,595,070 4,741,748 2,400,374 4,620,565 2,005,661 2,218, ,675 1,148,652 1,479,036 1,222,135 Change in Net Position Per Financial Statements $ 3,569,235 $ 5,048,123 $ 1,745,959 $ 3,907,538 $ (1,003,364) $ (1,306,730) $ (3,738,830) $ (1,933,498) $ (1,652,753) $ (3,802,400) Change in Net Position Per Financial Statements $ 3,569,235 $ 5,048,123 $ 1,745,959 $ 3,907,538 $ (1,003,364) $ (1,306,730) $ (3,738,830) $ (1,933,498) $ (1,652,753) $ (3,802,400) Less: (Gain) loss on sale of capital assets - (52,363) 1, (77,244) (2,927) (13,700) (82,482) (18,378) Less: Restricted investment income (508,925) (1,550,813) (1,081,778) (556,420) (102,362) (55,630) (9,351) (6,617) (3,030) (2,351) Less: Capital Contributions (3,595,070) (4,741,748) (2,400,374) (4,620,565) (2,005,661) (2,218,665) (698,675) (1,148,652) (1,479,036) (1,222,135) Less: Ad valorem used for GO debt service (1) (2,926,568) (2,814,876) (2,822,284) (2,823,486) (2,820,323) (2,720,539) (2,637,456) (2,213,339) (1,932,803) (1,432,338) Less: Transfers into rate stabilization fund (2,550,000) (1,250,000) (25,056) (520,875) (68,459) (25,479) (14,259) (10,621) (8,892) (5,985) Plus: Transfers out of rate stabilization fund ,385, , ,000 1,000, , ,000 Plus: Excess transfers in over out 2,550,000 1,250,000 25, , Plus: Depreciation 4,168,092 4,745,725 5,197,377 6,192,898 7,701,323 8,422,590 8,512,687 8,660,842 8,950,903 9,225,118 Plus: Interest expense 6,473,549 8,080,920 8,143,300 8,090,291 8,037,102 7,472,459 7,769,937 7,597,710 7,181,236 6,796,352 Plus: Amortization of bond cost 90, , , , , , , , Plus: Bond issuance expense ,723 - Net Earnings per Revenue Bond Covenant $ 7,271,296 $ 8,821,451 $ 8,891,897 $ 11,162,374 $ 10,046,148 $ 10,528,641 $ 10,311,391 $ 11,072,981 $ 11,399,866 $ 10,267,085 Debt Service Requiring Coverage, Per Covenant Revenue Bond Debt Service $ 1,706,073 $ 2,993,661 $ 4,901,953 $ 6,500,873 $ 7,211,919 $ 6,953,424 $ 7,066,293 $ 7,683,658 $ 7,614,245 $ 8,431,899 GO Bond Debt Service Paid with Revenues (1) 329, , , , , , , , ,661 - Debt Service Covenant for Coverage Test $ 2,035,111 $ 3,295,191 $ 5,203,483 $ 6,803,442 $ 7,513,815 $ 7,257,747 $ 7,361,127 $ 7,874,322 $ 7,614,245 $ 8,431,899 Debt Service Coverage Ratio Based on Revenue Bond Coverage (2) (4) Total District Debt Service Coverage Calculation Net Earnings per Revenue Bond Covenant $ 7,271,296 $ 8,821,451 $ 8,891,897 $ 11,162,374 $ 10,046,148 $ 10,528,641 $ 10,311,391 $ 11,072,981 $ 11,399,866 $ 10,087,085 Plus: Ad valorem taxes used for GO debt service 2,926,568 2,814,876 2,822,284 2,823,486 2,820,323 2,720,539 2,637,456 2,213,339 1,932,803 1,432,338 Adjusted Net Earnings $ 10,197,864 $ 11,636,327 $ 11,714,181 $ 13,985,860 $ 12,866,471 $ 13,249,180 $ 12,948,847 $ 13,286,320 $ 13,332,669 $ 11,519,423 Total District Debt Service 4,961,679 6,110,067 8,026,559 9,724,259 10,334,138 9,978,286 9,998,583 10,087,661 10,242,527 10,243,396 Total District Debt Service Coverage (3), (4) (1) Based on percentages provided in the SSSD Financial Planning and Rate Model Schedule 2B Debt Service Cost Allocations to determine portion of GO debt attributable to T&T (treatment and transportation) and Collection. (2) The coverage is determined by dividing the Net Earnings per Revenue Bond Covenant by the Total Revenue Bond Debt Service (3) The coverage is determined by dividing the Adjusted Net Earnings by the Total System Debt Service Coverage (4) The Revenue Bond Coverage must be at least 110% to be in compliance with the Revenue Bond Covenant 54

72 Demographic and Economic Information

73 Spartanburg Sanitary Sewer District Table 14 Spartanburg County Demographic Statistics CY 2004 to CY 2013 (1) Personal Income (2) (3) (4) (5) Calendar July 1 Per Median School Unemployment Year Population Total Capita Age Enrollment Rate ,550 7,073,889,000 26, , % ,282 7,407,218,000 27, , % ,546 7,885,832,000 29, , % ,285 8,304,934,000 30, , % ,738 8,618,609,000 30, , % ,822 8,460,000,000 29, , % ,307 8,959,000,000 22, , % ,236 9,085,133,000 21, , % ,745 9,575,231,000 22, , % ,969 9,575,231,000 * 22,275 * , % Data Sources: (1) U.S. Census Bureau of Economic Analysis (CA1-3) & * Current data not available (3) U.S. Census Bureau via South Carolina Division of Research & Statistical Services (4) South Carolina Department of Education DAY PUPIL ACCOUNTING REPORT FY (5) U.S. Department of Labor, Bureau of Labor and Statistics 55

74 Spartanburg Sanitary Sewer District Table 15 Spartanburg County, South Carolina Major Employers and Changes FY 2014 & FY 2004 Employees and % of Workforce Company Name Business/Product 2014 % 2004 % BMW Manufacturing Corporation Automotive manufacturer 8, % 4, % Spartanburg County Schools Public school system 6, % 5, % Spartanburg Regional Medical Center Hospital 5, % 4, % State of South Carolina State government 2, % 2, % Spartanburg County County government, courts, law enforcement 1, % 1, % Milliken & Company Research & development of yarns, chemicals 1, % % Mary Black Memorial Hospital Private hospital 1, % 1, % Michelin Tire Company Radial truck tire manufacturer 1, % 1, % Sealed Air (Cryovac) Mfg. of plastic packaging material 1, % 1, % Bi-Lo Retail grocery % % Inman Mills Man made woven fabric % N/A* 0.0% Spartanburg Steel Fabricate structural metal products % % Kohler Company Manufacturer of china plumbing fixtures % % R. R. Donnelley Catalog printing & binding % % Contec Inc. Wiper manufacturer % N/A* 0.0% Tietex Corporation Mfg. of non-woven material % % Trelleborg Coded Systems (Reeves) Offset printing blankets % N/A* 0.0% Springs Industries Dyeing & finishing textiles N/A* 0.0% 1, % BMG Entertainment Distributor of records, CD's, & tapes N/A* 0.0% % Beverage Air Mfg. of commercial cooling equipment N/A* 0.0% % Alcoa Fujikara Ltd. - Telco Division Mfg. of lighting, wire and fiber optics N/A* 0.0% % Teijin (KOSA) Plastic & synthetic fiber manufacturer N/A* 0.0% % Data Source: Spartanburg County Economic Development Corporation and individual employers (N/A*) Data unavailable 56

75 Operating Information

76 Spartanburg Sanitary Sewer District Table 16 Number of District Customers FY 2005 to FY 2014 Fiscal Year Total Number of Customers , , , , , , , , , ,620 45,000 40,000 Number of Customers 37,703 38,522 35,000 40,000 30,000 35,000 25,000 33,620 34,873 34,873 33,620 37,703 36,750 38,195 36,750 38,195 38,522 38,538 38,817 39,449 40,162 20,000 30,000 15,000 25,000 10, Years 57

77 Spartanburg Sanitary Sewer District Table 17 Schedule of User Charges FY 2014 Base Charge--$1.50 per bill (recovers a portion of District administrative costs) Volume Charge (per 100 gallons): Treatment and Transportation Charge $ Collection Charge $ $ Collection Charge is only charged to customers for which the District provides collection services. 58

78 Spartanburg Sanitary Sewer District Table 18 Schedule of Capacity Fees FY 2014 Discharge Capacity Fee Rates(2) REU (1) Gallons per Day ($) ,000 1, ,000 2, ,800 3, ,000 7, ,200 8, ,000 11, ,200 17, ,000 23, ,200 29, ,000 36, ,000 39, ,000 43, ,000 46, ,000 50,000 (1) Capacity fees for flows not listed in the table are calculated based upon straight line interpolation between listed fees. In making the calculations, discharge flows are rounded to the nearest whole Residential Equivalent Unit ("REU") which is equal to 400 gallons per day. The wastewater discharge from a single family residence is equal to one (1) REU. (2) Capacity fee rates include recovery of a portion of capital costs related to collection system assets in addition to treatment plant and interceptor assets. 59

79 Spartanburg Sanitary Sewer District Table 19 Miles of Sewer Line FY 2005 to FY 2014 Fiscal Miles of Percent Year Sewer Line Increase % % % 2008* % % % % % % % 1200 Miles of Sewer Line * Years * Acquired 371 miles from the City of Spartanburg in January,

80 Spartanburg Sanitary Sewer District Table 20 Schedule of Treatment Plants FY 2014 Permitted Average Treatment Plant Capacity (MGD) Flow (MGD) Clifton Converse Cowpens Fairforest Fingerville Lower North Tyger River Pacolet Mills Page Creek South Tyger River

81 Spartanburg Sanitary Sewer District Table 21 Number of Employees FY 2005 to FY 2014 Fiscal Number of Year Employees Number of Employees Fiscal Year * Added 9 employees as a result of the City acquisition January,

82 IV. Compliance Section

83 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 To the Board of Commissioners Greenville, South Carolina We have audited, in accordance with the 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, the financial statements of Spartanburg Sanitary Sewer District (the District ), as of and for the year ended June 30, 2014, and the related notes to the financial statements and have issued our report thereon dated November 10, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District s internal control over financial reporting ( internal control ) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we do not express an opinion on the effectiveness of the District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 63