Attalla Water Works Board

Transcription

1 Attalla Water Works Board Financial Statements for the Years Ended September 30,2009 and 2008 HINDSMAN, HALL & STOREY, P. C. Certified Public Accountants

2 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS Balance Sheets Statements of Revenues, Expenses and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress 21 SUPPLEMENTARY INFORMATION Schedules of Expenses Schedules of Restricted Assets Bonded Debt Financial and Operating Summary 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 Schedule of Findings and Responses

3 HINDSMAN, HALL & STOREY. Pc. Certified Public Accountants INDEPENDENT AUDITORS' REPORT To the Board of Directors of the Attalla Water Works Board of the City of Attalla, Alabama We have audited the accompanying balance sheets of Attalla Water Works Board as of September 30, 2009 and 2008, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Attalla Water Works Board's management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all materiai respects, the respective financial position of the Attalla Water Works Board as of September 30, 2009 and 2008, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 28, 2009 on our consideration of the Board's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Board has not presented the management's discussion and analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be a part of, the basic financial statements. The Schedule of Funding Progress on page 21 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it Forrest Avenue, Gadsden, Alabama Mailing Address: P.O. Drawer 1070, Gadsden, Alabama FAX: hhscpa@gadsden.com

4 Our audit was conducted for the purpose of forming an opinion on the Board's financial statements taken as a whole. The accompanying supplementary information on pages 22 through 27 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole December 28, 2009

5 BALANCE SHEETS September 30, 2009 and ASSETS CURRENT ASSETS Cash and Cash Equivalents Demand Deposit $ 216,519 $ 155,648 Certificates of Deposit and Savings 97,363 94,211 Office Working Fund 5,057 3,740 Replacement Fund 4,330 5,227 Payroll Fund 6,000 6,000 Water Deposit Fund 107, ,064 Total Cash 436, ,890 Accounts Receivable 314, ,445 Other Receivable 800 Inventories 55,205 60,831 Prepaid Expenses 4,769 4,729 Prepaid Insurance 30,587 29,499 Total Current Assets 842, ,194 RESTRICTED ASSETS Bonds and Interest Fund 58,669 84,546 Bond Principal Fund 31 Debt Reserve Fund Series 44,953 44,874 Debt Reserve Fund Series 24,239 24,217 Debt Reserve Fund Series 343, ,290 Construction Fund Series 20, ,926 Construction Fund Series 21 1,238,178 Construction Fund Series 12,817 12,794 Total Restricted Assets 504,873 2,252,825 UTILITY PLANT Utility Plant and Equipment 6,043,678 5,979,420 Less Accumulated Depreciation 2,917,873 2,756,756 3,125,805 3,222,664 Land 181, ,796 Construction in Progress 1,980, ,716 Total Utility Plant (Net Accumuiated Depreciation) 5,288,457 3,804,176 OTHER ASSETS Bond Issuance Costs (Net of Amortization of $4,833 for 2009 and $2,139 for 2008) 54,670 57,364 TOTAL ASSETS $ 6,690,272 $ 6,875,559 The accompanying notes are an integral part to these statements. 3

6 BALANCE SHEETS September 30, 2009 and 2008 LIABILITIES CURRENT LIABILITIES Accounts Payable Accrued Vacation and Sick Pay Accrued Payroll and With holdings Due City of Attalla - Sewer Charges Due City of Attalla - Sanitary Charges Deferred Rental Income Accrued Utility Tax $ 18,952 $ 20,606 15,181 16,857 8,453 6,765 98,329 97,798 42,408 38, ,711 4, , ,820 CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS Current Maturities of Revenue Bonds Payable 225, ,000 Less Unamortized Discount (7,664) (7,664) Net Bonds Payable 217, ,336 Accounts Payable - Restricted 137,961 Accrued Revenue Bond Interest Payable 16,430 19,944 Total Current liabilities Payable from Restricted Assets 233, ,241 TOTAL CURRENT LIABILITIES 422, ,061 NON-CURRENT LIABILITIES Customers' Meter Deposits 126, ,545 Revenue Bonds, Net of Current Maturities 3,995,000 4,220,000 Less Unamortized Bond Discount (107,745) (115,566) Less Deferred Loss on Refunding of Bonds (37,653) (47,267) Total Non-current Liabilities 3,976,552 4,182,712 Total Liabilities 4,399,152 4,737,773 NET ASSETS Invested in Capital Assets, Net of Related Debt 1,310,008 1,209,974 Restricted for Debt Service 454, ,772 Unrestricted 526, ,040 Total Net Assets 2,291,120 2,137,786 TOTAL LIABILITIES AND NET ASSETS $ 6,690,272 $ 6,875,559 The accompanying notes are an integral part to these statements. 4

7 ATIALLA WATER WORKS BOARD STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the Years Ended September 30,2009 and 2008 OPERATING REVENUES Water Service Fees - Residential $ 1,124,721 $ 1,059,243 Water Service Fees - Industrial 315, ,118 Collection Fees 55,221 59,177 City of Attalla - Collection Fees 57,162 66,012 Lease Income 9, Other 10,526 31,173 Total Revenues 1,573,146 1,553,523 OPERATING EXPENSES Direct Costs 184, ,281 Salaries and Related Expense 606, ,224 Other Operating Expenses 426, ,230 Total Operating Expenses 1,217,340 1,231,735 Operating Income 355, ,788 NON-OPERATING REVENUES (EXPENSES) Interest Income 5,647 43,511 Gain on Sale of Assets 1,401 Interest Expense - Bonds (216,854) (187,824) Trustee Fees (19,615) Amortization Expense (10,515) (8,825) Total Non-operating (Expenses) (239,936) (153,138) INCOME BEFORE CAPITAL CONTRIBUTIONS 115, ,650 CAPITAL CONTRIBUTIONS 37,464 INCREASE IN NET ASSETS 153, ,650 Net Assets - Beginning of Year 2,137,786 1,969,136 Net Assets - End of Year $ 2,291,120 $ 2,137,786 The accompanying notes are an integral part of these statements. 5

8 STATEMENTS OF CASH FLOWS For the Years Ended September 30, 2009 and CASH FLOWS FROM OPERATING ACTIVITIES Cash Receipts from Customers $ 1,555,706 $ 1,579,342 Cash Payments to Suppliers for Goods and Services (442,081) (479,200) Cash Payments to Employees for Services (606,430) (609,877) NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 507, ,265 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Sale of Equipment 1,401 Additions to Capital Assets (1,783,359) (352,119) Proceeds from Issuance of Bonds 1,947,308 Bond Issuance Costs (59,503) Principal Payment on Bonds (220,000) (210,000) Interest Payment on Bonds (210,754) (174,466) Trustee Fees (19,615) NET CASH PROVIDED (USED) IN CAPITAL AND RELATED FINANCING ACTIVITIES (2,232,327) 1,151,220 CASH FLOWS FROM INVESTING ACTIVITIES Payments for Restricted Investments (649,800) (2,886,054) Proceeds from Restricted Investments 2,397,752 1,160,308 Proceeds from Capital Contributions 37,464 Interest Received on Investments 5,647 43,511 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,791,063 (1,682,235) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,931 (40,750) CASH AT BEGINNING OF YEAR 370, ,640 CASH AT END OF YEAR $ 436,821 $ 370,890 The accompanying notes are an integral part of these statements. 6

9 ATIALLA WATER WORKS BOARD STATEMENTS OF CASH FLOWS (Continued) For the Years Ended September 30, 2009 and 2008 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income $ 355,806 $ 321,788 Adjustments to Reconcile Operating Income to Cash Flow from Operations Depreciation 161, ,886 (Increase) Decrease in: Accounts Receivable (20,445) 25,879 Other Receivable 800 (800) Inventory 5,626 (4,385) Prepaid Expenses (40) (96) Prepaid Insurance (1,088) 449 Increase (Decrease) in: Accounts Payable (1,654) 809 Due to City of Attalla 4,536 (16,145) Accrued Liabilities 1, Water Deposits 1, NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 507,195 $ 490,265 The accompanying notes are an integral part of these statements. 7

10 ATIALLA WATER WORKS BOARD NOTES TO FINANCIAL STATEMENTS September 30, 2009 and 2008 NOTE A - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Water Works Board of the City of Attalla (the Board) is a public corporation under the laws of the State of Alabama. The purpose of the Board is to produce or acquire and distribute water to its residential and commercial customers within and around the City of Attalla, Alabama. The Board is not considered a component unit of the City of Attalla for financial reporting purposes. Criteria in this determination are the Board's financial independence, selection of management, independence of operations, and accountability for fiscal matters. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The accompanying financial statements are presented on the accrual basis of accounting using governmental accounting standards applicable to an enterprise fund in accordance with Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Government Entities that Use Proprietary Fund Accounting. The Board has elected to apply all applicable FASB pronouncements and Accounting Principles Board Opinions, issued on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements in which case GASB prevails. The accounts of the Board are organized on the basis of a proprietary fund type, specifically an enterprise fund. The activities of this fund are accounted for with a separate set of selfbalancing accounts that comprise the Board's assets, liabilities, net assets, revenues and expenses. Enterprise Funds account for activities (I) that are financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity; or (ii) that are required by laws or regulations that the activity's costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (iii) that the pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service). In the Balance Sheet, Net Assets are classified in the following categories: Invested in capital assets, net of related debt - This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation reduced by the outstanding balances of bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted - This component of net assets consists of constraints placed on net asset use through external constraints imposed by creditors (such as debt covenants), grantors contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. 8

11 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE A - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation (Continued) Unrestricted net assets - This component of net assets consists of net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt". The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions recognized when the exchange takes place. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For the purpose of the statements of cash flows, the Board considers all highly liquid securities with maturities of three months or less to be cash equivalents. Accounts Receivable The Board reports trade receivables at net realizable value. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables, and once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account or against earnings. The Board considers all accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is recorded. Any losses on accounts receivable, in the Board's opinion, would be insignificant after applying customer deposits. Inventories Inventories are valued at lower of cost (first-in, first-out basis) or market and consist of repair parts and meters. 9

12 ATIALLA WATER WORKS BOARD NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE A - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Amortization The Board incurred various bond issuance costs associated with the issuance of their bond issues. These expenses have been recorded as deferred charges and are being amortized by the straight-line method over the life of the respective bond issues, which are 20 to 23 years. Results under the straight-line method do not differ materially from results under the effective interest method. The discounts on the bonds are being amortized using the straight-line method over the life of the bonds, which are 20 to 23 years. Results under the straight-line method do not differ materially from results underthe effective interest method. Payments in Lieu of Taxes The Attalla Water Works Board of the City of Attalla, Alabama, is not subject to federal, state, or local tax. However, annual payments are made to the City of Attalla in lieu of ad valorem and business license taxes. Restricted Assets The Bond Indentures require that certain funds and bank accounts be established and controlled by the trustees in accordance with the terms of the indenture. To conform to the provision of the bond indentures, the accounts of the trusteed funds are kept on a cash receipts and disbursements basis and adjusted at the end of the fiscal year to record the accrued and unpaid interest. All funds held in Trusteed Accounts are required to be secured by federal securities having a market value of not less than the amount of moneys on deposit. When both restricted and unrestricted resources are available for use, it is the Board's policy to use restricted resources first, and then unrestricted resources as they are needed. Utility Plant and Depreciation The policy of the Board is to capitalize expenditures for plant additions and improvements. Capital assets are defined by the Board as assets with an initial cost of more than $250. Water system is recorded at cost. Depreciation of utility plant is applied consistently based on the estimated useful lives of the various assets by groups and applied to the original cost of the properties on a straight-line basis, excluding fully depreciated assets. Improvements that extend the useful life of the assets are capitalized and depreciated over the remaining useful life of the asset. Interest on bonds is capitalized during the construction period for assets financed by bond proceeds. Lives for calculation of depreciation rates on the principal asset classification are as follows: 10

13 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE A - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Utility Plant and Depreciation (Continued) Distribution System and Buildings Trucks and Mobile Equipment Shop Equipment and Furniture and Fixtures Leasehold Improvements years 5 years 5-10 years 15 years Operating Revenues and Expenses Operating revenues and expenses consist of those revenues that result from the ongoing principal operations of the Board. 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 type of activities and result from non-exchange transactions or ancillary activities. When an expense is incurred for purposes for which there are both restricted and unrestricted net assets available, it is the Board's policy to apply those expenses to restricted net assets to the extent such are available and then to unrestricted net assets. Unbilled Water Revenue/Accounts Receivable Revenue for water delivered but not billed under the Board's billing methods is estimated and accrued annually. Most Board customers are billed monthly. All accounts receivable are from customers in the Attalla area. Accounts receivable at September 30, 2009 and 2008 consisted of the following: Water Sewer Other Unbilled - Estimated Total Accounts Receivable $127,433 $131,215 56,610 56,167 35,215 28,503 95,632 78,560 $ $ Capital Contributions Transmission and distribution system assets contributed to the Board by installers (jre capitalized at the installers' costs, which approximate fair value of the time of the Board's acquisition, and recorded as revenue when received. Risk Management The Board is exposed to normal business risk in the course of operations. Commercial insurance is purchased by the Board to cover any normal, insurable loss up to policy limits. During the past three years, there have been no losses, Which exceed insured amounts. 11

14 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE A - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Presentation of Certain Taxes The Board collects carious taxes from customers and remits these amounts to applicable taxing authorities. The Board's accounting policy is to exclude these taxes from revenues and cost of sales. NOTE B - DEPOSITS WITH FINANCIAL INSTITUTIONS The Board's deposits at year-end were held by financial institutions in the State of Alabama's Security of Alabama Funds Enhancement (SAFE) Program. The SAFE Program was established by the Alabama Legislature and is governed by the provisions contained in the Code of Alabama 1975, Sections 41-14A-1 through 41-14A-14. Under the SAFE Program all public funds are protected through a collateral pool administered by the Alabama State Treasurer's Office. Under this program, financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Depository Insurance Corporation (FDIC). If the securities pledged failed to produce adequate funds, every institution participating in the pool would share the liability for the remaining balance. At September 30, 2009 and 2008, the Board had cash deposits and equivalents with a carrying amount of $436,821 and $370,890 and a total bank balance of $447,680 and $366,983, respectively. NOTE C - RESTRICTED ASSETS The Board has established the Debt Reserve Funds, Bond and Interest Fund and Construction Funds in accordance with the Bond Indentures. These restricted assets had the following balances as of September 30, 2009 and 2008: Bonds and Interest Fund $58,669 $84,546 Bond Principal Fund 31 Debt Reserve Fund Series 44,953 44,874 Debt Reserve Fund Series 24,239 24,217 Debt Reserve Fund Series 343, ,290 Construction Fund Series 20, ,926 Construction Fund Series 21 1,238,178 Construction Fund Series 12,817 12,794 Total Restricted Assets $ $ The balance in all of the above funds at September 30, 2009 and 2008 were invested in the First American Treasury Obligation Fund. 12

15 ATIALLA WATER WORKS BOARD NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE C - RESTRICTED ASSETS (Continued) Credit Risk - The Bond Indentures establishes the investments allowed by the Board as Federal Securities certain money market funds regulated under the Federal Investment Company Act of 1940 and/or Secured Deposits having a rating by Standard & Poors Rating Service of AAAm-G AAAm; or AA-m and if rated by Moody's Investors Service, Inc., rated Aaa, Aa1 or Aa2. The funds are invested in the First American Treasury Obligation Fund, a money market mutual fund, which invests in a portfolio of short-term U.S. Treasury obligations and repurchase agreements backed by such obligations. The First American Treasury Obligation Fund has the highest credit rating (AAAm from Standard and Poors, a nationally recognized statistical rating organization). Interest Rate Risk - The Bond Indenture requires the funds be invested in securities having a stated maturity not later than five years after the date the investment is made. The First American Treasury Obligation Fund invests in U.S. Treasury Securities with maturities of 397 days or less. The Fund has a dollar-weighted average portfolio maturity of 60 days or less. NOTE D - CAPITAL ASSETS Capital asset activity for the year ended September 30, 2009 is as follows: Capital Assets, Not Being Depreciated: Balance Balance October 1 September Additions Retirements 2009 Land $ 181,796 $ $ $ 181,796 Construction in Progress 399,716 1,581, ,856 Total Capital Assets. Not Being Depreciated, at Historical Costs ,581,140 2,162,652 Other Capital Assets, Being Depreciated Water System and Improvements 5,189,522 53,850 5,243,372 Buildings 429,185 2, ,985 Land Improvement 15,499 15,499 Shop Equipment 94,284 7, ,892 Furniture and Fixtures 64,023 64,023 Vehicles 186, ,907 Total Other Capital Assets, Being Depreciated, at Historical Cost 5,979,420 64,258 6,043,678 Less Accumulated Depreciation for: WaterSystem and Improvements 2,321, ,776 2,448,011 Buildings 141,988 10, ,355 Land Improvement 2, ,523 Shop Equipment 81,714 5,339 87,053 Furniture and Fixtures 59,208 1,979 61,187 Vehicles 150, Total Accumulated Depreciation 2,756, ,117-2, Other Capital Assets, Net 3,222,664 (96,859) Total Capital Assets, Net $ $ $ - $

16 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE D - CAPITAL ASSETS (Continued) Capital asset activity for the year ended September 30, 2008 is as follows: Capital Assets, Not Being Depreciated: Balance Balance October 1 September Additions Retirements 2008 Land $ 180,413 $ 1,383 $ $ 181,796 Construction in Progress ,505 49, ,716 Total Capital Assets, Not Being Depreciated, at Historical Costs 377, ,888 49, ,512 Other Capital Assets, Being Depreciated Water System and Improvements 4,909, ,950 5,189,522 Buildings 429, ,185 Land Improvement 10,279 5,220 15,499 Shop Equipment 93,010 1,274 94,284 Furniture and Fixtures 64,023 64,023 Vehicies 186, Total Other Capital Assets, Being Depreciated, at Historical Cost 5,692, ,444 5,979,420 Less Accumulated Depreciation for: Water System and Improvements 2,195, ,829 2,321,235 Buildings 131,621 10, ,988 Land Improvement 1, ,590 Shop Equipment 76,678 5,036 81,714 Furniture and Fixtures 56,304 2,904 59,208 Vehicles 133,117 16, ,021 Total Accumulated Depreciation 2594, ,886-2,756, Other Capital Assets, Net 3098, ,558-3,222, Total Capital Assets, Net $ $ $~ $ NOTE E - LONG-TERM DEBT On July 1, 1993 Water Revenue Bonds, Series 1993 were issued in the amount of $3,215,000. The proceeds of these bonds were used to satisfy a temporary construction loan in the amount of $400,359 plus interest and to place funds in escrow sufficient to retire the Water Revenue Bonds Series 1987 and These Series 1993 bonds required principal payments annually through the year 2013 and bore interest at rates ranging from 3.25% to 6.0%, These bonds were retired on August 29, 2001 by the issuance of Water Revenue Bonds, Series

17 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE E - LONG-TERM DEBT (Continued) On August 29, 2001, Water Revenue Bonds, Series 2001, dated August 1, 2001 were issued in the amount of $3,720,000. The Series 2001 bonds require annual principal payments through September 2021, and bear interest at rates ranging from 2.80% to 5.00% payable semi-annually. On November 29, 2007, Water Revenue Bonds, Series 2007, dated November 1, 2007 were issued in the amount of $1,430,000. The Series 2007 bonds require annual principal payments beginning September 1, 2022 and ending September 1, 2028, and bear interest at rates ranging from 4.40% to 4.60% payable semi-annually. On August 14, 2008, Water Revenue Bonds, Series 2008, dated August 1, 2008 were issued in the amount of $580,000. The Series 2008 bonds require annual principal payments beginning September 1, 2029 and ending September 1, 2030, and bear interest at the rate of 5.375% payable semi-annually. Long-term liability activityfor the year ended September 30, 2009 was as follows: Beginning Balance Additions Reductions Ending Balance Amount Due in One Year 2008 Water Revenue Bonds 2007 Water Revenue Bonds 2001 Water Revenue Bonds Less Deferred Amount on Refunding Unamortized Bond Discount Customers' Meter Deposits $ 580,000 1,430,000 2,430,000 (47,267) (123,230) 125,545 $ 1,405 $ (220,000) 9,614 7,821 $ 580,000 $ 1,430,000 2,210, ,000 (37,653) (115,409) (7,664) 126,950 $ $ $ ) $ $ Long-term liability activityfor the year ended September 30, 2008 was as follows: Beginning Balance Additions Amount Ending Due in Reductions Balance One Year 2008 Water Revenue Bonds 2007 Water Revenue Bonds 2001 Water Revenue Bonds Less Deferred Amount on Refunding Unamortized Bond Discount Customers' Meter Deposits $ $ 580,000 1,430,000 2,640,000 (56,880) (61,102) (68,814) 124, $ $ $ $ 580,000 $ 1,430,000 (210,000) 2,430, ,000 9,613 (47,267) 6,686 (123,230) (7,664) 125,545 $ ( ) $ $

18 ATIALLA WATER WORKS BOARD NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE E - LONG-TERM DEBT (Continued) The long-term debt is payable as follows: Fiscal Year Ending September 30, Principal Interest 2010 $ 225,000 $ 197, , , , , , , , , , , , , ,150, , ,000 16,125 $ $ Sinking Fund Requirements $ 422, , , , ,920 1,431,105 1,389,425 1,407, ,125 $ NOTE F - CURRENT REFUNDING OF LONG-TERM DEBT As discussed in Note C, the Board issued Water Revenue Bonds, Series 2001, The proceeds of these bonds were used, in part, to retire the Water Revenue Bonds, Series 1993, The transaction was treated as a current refunding of debt in accordance with GASB 23, "Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities". As such, the difference between the book value of the Series 1993 Bonds and the amount required to retire the debt is accounted for as a deferred loss on the balance sheet. This deferral is being amortized using the straight-line method over the remaining life of the Series 1993 Bonds, 12 years. Results under the straight-line method do not differ materially from results under the effective interest method. NOTE G - RETIREMENT PLAN Plan Description The Board contributes to the Employees' Retirement System of Alabama (System), an agent-multiple employer's public employee retirement system that acts as a common investment and administrative agent for the governing bodies of cities, town, or public or quasi-public organizations of the State of Alabama, Substantially all employees are members of the Employees' Retirement System of Alabama. Benefits vest after 10 years of creditable service, Vested employees may retire with full benefits at age 60 or after 25 years of service, Retirement benefits are calculated by two methods with the retiree receiving payment under the method that yields the highest monthly benefit. The methods are (1) Minimum Guaranteed, and (2) Formula, of which the Formula method usually produces the highest monthly benefit. Under this method retirees are allowed % of their average final salary (best three of the last ten years) for each year of service, Disability retirement benefits are calculated in the same manner. Preretirement death benefits in the amount of the annual salary for the fiscal year preceding death are provided to plan members. 16

19 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE G - RETIREMENT PLAN (Continued) The Employees' Retirement System was established as of October 1, 1945, under the provisions of Act 515, Act of Alabama 1945, for the purpose of providing retirement allowances and other specified benefits for state employees, state police, and on an elective basis to all cities, counties, towns, and quasi-public organizations. The responsibility for general administration and operation of the Employees' Retirement System is vested in the Board of Control. Benefit provisions are established by the Code of Alabama 1975, Sections through , as amended, Sections through , as amended, and Sections 36-27B-1 through 36-27B-6. Authority to amend the plan rests with the legislature of Alabama. However, the legislature has granted the Board authority to accept or reject various Cost-of-Living Adjustments (COLAs) granted to retirees. The Retirement Systems of Alabama issues a publicly available financial report that includes financial statements and required supplementary information for the Employees Retirement Systems of Alabama. That report may be obtained by writing to The Retirement Systems of Alabama, 135 South Union Street, Montgomery, Alabama Funding Policy Membership in ERS is compulsory for all employees of the Board. As such, each employee is required to contribute 5% of their gross salary to the plan. The Board is required to contribute at an actuarially determined rate; the current rate is 1.32% of covered payroll. Annual Pension Cost For the year ended September 30, 2009, the Board's annual pension cost of $14,439 was equal to the Board's required and actual contributions. The required contribution was determined as part of the September 30, 2008 actuarial valuation using the entry age actuarial cost method. The actuarial assumptions included are a.) 8.00% investment rate of return, and b.) projected salary increases ranging from %. Both a.) and b.) included an inflation component of 4.5%. The actuarial value of plan assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The remaining amortization period at September 30, 2008 was 20 years. Trend Information Fiscal Year Ending Annual Pension Cost IAPCl Percentage of APC Contributed Net Pension Obligation 9/ / /30108 $ 5,159 $ 5,082 $ 10, % 100% 100% $0 $0 $0 17

20 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE G - RETIREMENT PLAN (Continued) Funded Status and Funding Progress At September 30, 2008, the most recent actuarial valuation date, the plan was 100.8% funded. The actuarial accrued liability for benefits was $1,364,994 and the actuarial value of assets was $1,376,209, resulting in no unfunded actuarial accrued liability (UAAL). The covered payroll (annual payroll of active employees covered by the plan) was $412,546 and the ratio of the UAAL to the covered payroll was (2.7)%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. NOTE H - CUSTOMER DEPOSITS New customers are required to make a deposit prior to water services being installed as follows: Rental Housing Home Owners Candle Light Park Business Restaurant $ 100 $ 30 $100 $100 $150 NOTE 1- WATER RATES The water rate structure was last changed November 1, The rate schedules that were in effect for the years ended September 30, 2009 and 2008 are presented below: WATER RATES (January 1, September 30,2009) Inside City Limits First 1,000 gallons Next 5,000 gallons Next 14,000 gallons Next 80,000 gallons Next 100,000 gallons All over 200,000 gallons Outside City Limits First 1,000 gallons Next 5,000 gallons Next 14,000 gallons Next 80,000 gallons Next 100,000 gallons All over 200,000 gallons minimum bill 5.20 per 1,000 gallons 4.80 per 1,000 gallons 4.60 per 1,000 gallons 4.25 per 1,000 gallons 3.70 per 1,000 gallons minimum bill 6.25 per 1,000 gallons 5.75 per 1,000 gallons 5.55 per 1,000 gallons 5.10 per 1,000 gallons 4.45 per 1,000 gallons Highway 11 South $17.00 minimum and then go by outside city rates. 18

21 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE 1- WATER RATES (Continued) WATER RATES (November 1, December 31,2008) First 1,000 gallons Next 5,000 gallons Next 14,000 gallons Next 80,000 gallons Next 100,000 gallons All over 200,000 gallons $12.50 minimum bill (Hwy 11 South $16.20) 4.90 per 1,000 gallons 4.50 per 1,000 gallons 4.35 per 1,000 gallons 4.00 per 1,000 gallons 3.50 per 1,000 gallons NOTE J - COMPENSATED ABSENCES Each employee of the Board may accrue one sick day per month and may accumulate twelve days per year. A maximum of 18 sick days may be carried over to the next year. However, the employee may opt to be paid in full for the accumulated sick days at their regular rate of pay in December of each year. At September 30, 2009 and 2008, the Board was liable for $7,936 and $8,441, respectively, as a result of this sick day policy. The Board has adopted the following vacation policy for its employees: Weeks of Vacation One Week Two Weeks Three Weeks Four Weeks Four Weeks Plus one (1) additional day per year in excess of twenty (20) years. Years of Service One Year Two Years Five Years Ten Years Twenty or more years One additional day of vacation is added per year for each year of service in excess of 20 years. Each employee is required to take at least one week vacation annually unless this requirement is formally waived by the Board. The employee may request payment in lieu of taking vacation time off for any additional vacation time. Vacation for the next fiscal year is earned progressively through the preceding year. Therefore, at year end, an employee has their full vacation allotment available for the coming year. At September 30, 2009 and 2008, the Board was liable for $7,245 and $8,416, respectively, as a result of this vacation policy. Total liability for compensated absences for 2009 and 2008 was $15,181 and $16,857, respectively. 19

22 NOTES TO FINANCIAL STATEMENTS (Continued) September 30, 2009 and 2008 NOTE K - LEASE AGREEMENT On July 17, 2008, the Board entered into a five year lease agreement to lease space on its water tower for $800 per month beginning on September 1, This lease agreement automatically renews at the end of the five year period unless terminated by the Board. Lease income for the year ended September 30, 2009 and 2008 was $9,600 and $800, respectively. NOTE L - SUBSEQUENT EVENTS In preparing the financial statements, management evaluated subsequent events through December 28, 2009, the date the financial statements were available to be issued. Subsequent to year end, the Board approved the following increase to water rates to become effective February 1, Base Rate - $18.71 (1000 gallon minimum) Flat Rate - $5.35 per 1000 gallons for all over first

23 REQUIRED SUPPLEMENTARY INFORMATION

24 SCHEDULE OF FUNDING PROGRESS (Unaudited) As of September 30, 2008 (the latest actuarial valuation date) The City participates in the Employees' Retirement System of Alabama (ERS), which is administered by the Retirement Systems of Alabama (RSA). RSA is an agent multiple employer defined benefit pension plan. The amounts reflected herein represent the Authority's portion as reported by RSA. Actuarial Actuarial Accrued Unfunded UAALas a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets Entry Age (UAAL) Ratio Payroll Covered Payroll i!1l..1 Li2..:.ID (llq) (g) [(b~atl c) 9/30/ $ 1,040,702 $ 915,281 $ (125,421) 113.7% $ 343, % 9/30/ $ 1,082,444 $ 1,001,001 $ (81,443) 108.1% $ 329, % 9/30/2005 $ 1,196,468 $ 1,173,404 $ (23,064) 102.0% $ 387, % 9/30/ $ 1,267,985 $ 1,271,525 $ 3, % $ 393, % 9/30/2007 $ 1,325,703 $ 1,279,209 $ (46,495) 103.6% $ 396, % 9/30/2008 $ 1,376,209 $ 1,364,994 $ (11,215) 100.8% $ 412, % 1 Reflects liability for cost of living benefit increases granted on or after October 1, Reflects effect of DROP if unit elected to enroll prior to May 18, 2004, 3 Reflects effect of DROP if unit elected to enroll prior to August 4, Reflects changes in actuarial assumptions. 21

25 SUPPLEMENTARY INFORMATION

26 SCHEDULES OF EXPENSES For the Years Ended September 30, 2009 and Direct Costs Power Purchased $ 150,725 $ 130,891 Water Purchased 24,416 44,903 Chemicals Purchased 9,322 8,487 Total Direct Costs $ 184,463 $ 184,281 Salaries and Related Expenses Salaries - Operative $ 51,610 $ 49,090 Salaries - Maintenance 238, ,190 Salaries - Meter Reading 18,098 17,441 Salaries - Office and Supervisor 128, ,347 Payroll Taxes 33,901 34,996 Insurance - Employees 121, ,396 Retirement 14,439 10,764 Total Salaries and Related Expense $ 606,442 $ 610,224 Operating Expenses Repair and Maintenance $ 84,306 $ 81,182 Depreciation 161, ,886 Truck and Tractor Expense 22,749 41,690 Machine Rental 1, Board Fees 13,100 13,200 Supplies 25,183 28,951 General Expense 1,331 1,189 Bad Debts Environmental 2, Telephone 10,389 12,128 Postage and Shipping 10,118 10,467 Heat - Plant and Pump Station 4,458 3,535 Testing and Lab Fees 8,296 11,429 Insurance 39,695 40,141 Legal and Professional 23,082 13,200 Uniforms Rentals 10,233 9,017 Tax Equivalents - City of Attalla 7,500 7,500 Total Operating Expenses $ 426,435 $ 437,230 22

27 SCHEDULE OF RESTRICTED ASSETS September 30, , , Total and 2008 and 2008 Revenue Revenue Revenue Revenue Revenue Revenue Assets Revenue Bond Revenue Bond Bond Bond Bond Series 2001 Series 2007 Series 2008 Held by Principal and Interest Reserve Reserve Reserve Construction Construction Construction Trustee Fund Fund Fund Fund Fund Fund Fund Fund Balance, 10/1/08 $ 2,252,825 $ - $ 84,546 $ 343,290 $ 24,217 $ 44,874 $ 12,794 $ 1,238,178 $ 504,926 Add: Deposits from Unrestricted Funds 426, ,932 Interest Earned 2, Transfer from Other Funds 220, , Total 649, , , Less: Bond Trustee and Legal Fees 23,010-23,010 Bond Interest Paid 210, ,755 Bonds Redeemed 220, ,000 Transfer to Other Funds 220, , Construction and Acquisition Costs 1,723, ,238, ,650 Total 2,397, , , ,238, ,650 Balance, 9/30/09 $ 504,873 $ 31 $ 58,669 $ 343,162 $ 24,239 $ 44,953 $ 12,817 $ 21 $ 20,981 23

28 SCHEDULE OF RESTRICTED ASSETS (Continued) September 30, , , Total and 2008 and 2008 Revenue Revenue Revenue Revenue Revenue Revenue Assets Revenue Bond Revenue Bond Bond Bond Bond Series 2001 Series 2007 Series 2008 Held by and Interest and Interest Reserve Reserve Reserve Construction Construction Construction Trustee Fund Fund Fund Fund Fund Fund Fund Fund Net Assets includes: Cash $ $ - $ - $ - $ $ $ $ Investments ~ , ,162 24,239 44,953 12, ,981 Total $ 504,873 $ 31 58,669 $ 343,162 $ 24,239 $ 44,953 $ 12,817 $ 21 $ 20,981 Required by Bond Indenture $ 447,453 $ 35,896 $ 342,942 $ 23,812 $ 44,803 $ - $ $ 24

29 BONDED DEBT September 30, 2009 Bonds Current Current Bonds Outstanding Year Year Outstanding 9/30/2008 Addition Reduction 9/30/2009 Interest Maturity Water Revenue Bonds, Series 2001 $ 220,000 $ - $ (220,000) $ 225, , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/2021. Water Revenue Bonds, Series , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/ , , % 9/1/2028 Water Revenue Bonds, Series , , % 9/1/ , , % 9/1/2030 $ 4,440,000 $ - $ (220,000) $ 4,220,000 25

30 FINANCIAL AND OPERATING SUMMARY OPERATIONS Operating Revenues $ 1,573,146 $ 1,552,723 $ 1,580,465 $ 1,380,228 $ 1,200,592 $ 1,333,975 $ 1,074,855 $ 1,026,254 $ 1,034,613 $ 1,071,068 Add Other Revenues 44,512 44,311 52, ,724 26,970 12, ,234 37,646 38,296 Total Revenues 1,617,658 1,597,034 1,633,221 1,534,952 1,227,562 1,346,099 1,096,195 1,075,488 1,072,259 1,109,364 Tax Equivalent Deductions 7,500 7,500 7, ,500 7,500 7,500 7,500 7,500 7,500 Operating Expenditures (Before Depreciation) 1,048,723 1,062,349 1,057,565 1,011, , , , , , ,316 Provision for Depreciation 161, , , , , , , , , ,832 Debt Service 246, , , , , , , , ,029 Total Expenditures 1,464,324 1,428,384 1,380,640 1,338,515 1,350,149 1,300,085 1,177,551 1,145,452 1,042, ,677 INCOME (LOSS) FOR PERIOD $ 153,334 $ 168,650 $ 252,581 $ 196,437 $ (122,587) $ 46,014 $ (81,356) $ (69,964) $ 29,614 $ 132,687 26

31 ATIALLA WATER WORKS BOARD FINANCIAL AND OPERATING SUMMARY Income Available for Debt Service $ 561,435 $ 526,385 $ 566,851 $ 412,383 $ 226,413 $ 394,349 $ 267,935 $ 275,671 $ 339,806 $ 444,548 Debt Service Requirements $ 447,369 $ 406,649 $ 344,130 $ 343,671 $ 342,968 $ 343,757 $ 344,069 $ 343,743 $ 289,783 $ 281,029 Debt Service Coverage Number of Customers, End of Period 2, ,714 2,722 2,764 2,750 2,717 2,724 2,723 2,768 Financial: Utility Plant - Net Value $ 5,288,457 $ 3,804,176 $ 3,475,984 $ 3,541,732 $ 3,403,711 $ 3,186,405 $ 3,083,554 $ 2,943,790 $ 2,991,571 $ 3,063,963 Investment Per Customer $ 1,979 $ 1,421 $ 1,281 $ 1,301 $ 1,231 $ 1,159 $ 1,135 $ 1,082 $ 1,099 $ 1,107 Bonded Debt $ 4,220,000 $ 4,440,000 $ 2,640,000 $ 2,840,000 $ 3,030,000 $ 3,210,000 $ 3,385,000 $ 3,555,000 $ 3,720,000 $ 2,455,000 Bonded Debt Per Customer (As Averaged for Year) $ 1,579 $ 1,659 $ 973 $ 1,043 $ 1,096 $ 1,174 $ 1,244 $ 1,305 $ 1,366 $ 882 Working Capital Summary: Current Assets $ 842,272 $ 761,194 $ 822,990 $ 657,220 $ 577,798 $ 621,373 $ 574,823 $ 603,453 $ 710,816 $ 726,316 Less Current Liabilities 422, , , , , , , , , ,681 NET WORKING CAPITAL $ 't1j!,672 $ 206,133 $ 407,313 $ 265,841 $ 232,745 $ 282,599 $ 226,479 $ 303,138 $ 419,481 $ 497,635 27

32 HINDSMAN, HALL & STOREY, Pc. Certified Public Accountants 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 To the Board of Directors of the Attalla Water Works Board We have audited the financial statements of the Attalla Water Works Board (the Board) as of and for the year ended September 30, 2009, and have issued our report thereon dated December 28, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered the Board's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Board's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses. 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 combination of deficiencies, in internal control such that there is a reasonable possibility that a misstatement of the entity's financial statements will not be prevented or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and responses as , and to be material weaknesses Forrest Avenue, Gadsden, Alabama Mailing Address: P.O. Drawer 1070, Gadsden, Alabama FAX: hhscpa@gadsden.com