Comprehensive Annual Financial Report. For the Year ended September 30, 2012 Capital Metropolitan Transportation Authority Austin, Texas

Transcription

1 Comprehensive Annual Financial Report For the Year ended September 30, 2012 Capital Metropolitan Transportation Authority Austin, Texas

2

3 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended September 30, 2012 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY AUSTIN, TEXAS Prepared by the Finance Department Billy Hamilton Interim Executive Vice President, Finance & Administration

4 TABLE OF CONTENTS Introductory Section Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Board of Trustees and Administration Organizational Chart Service Area Financial Section Independent Auditors Report Management s Discussion and Analysis (Unaudited) Financial Statements Statements of Net Assets Statements of Revenue, Expenses, and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements Required Supplementary Information (Unaudited) Governmental Accounting Standards Board Statement No. 27, Defined Benefit Retirement Plans, Schedule of Funding Progress and Employer Contributions 52 Statistical Section Condensed Statement of Net Assets Revenue by Source Sales Tax Revenue Estimated Sales Tax Receipts by City LongTerm Debt DebtNet Revenue Coverage Ratio Demographic and Economic Statistics Principal Employers Expenses by Object Class Operating Statistics Capital Assets Total Employees Farebox Recovery Percentages Fare Structure

5 2012 Introductory Section Comprehensive Annual Financial Report

6

7 2910 East Fifth Street, Austin, Texas TEL FAX capmetro.org March 18, 2013 Dear Central Texas Community, On behalf of the board of directors of Capital Metropolitan Transportation Authority, we are pleased to submit to you the Comprehensive Annual Financial Report (CAFR) for the year ended September 30, Capital Metro improved nearly every aspect of its business in 2012, including implementing stronger business and financial management practices and streamlining operations. The agency s improved financial position enables it to invest strategically in the region s mobility. The transit agency has developed and is implementing a fiveyear capital improvement plan, which will help build a strong infrastructure throughout the entire fivecounty region. These improvements include MetroRapid, a new highcapacity transit mode coming to Austin s busiest streets in CAPITAL METRO PROFILE Capital Metro is delivering on its promise to connect people, jobs and communities with quality transportation options. The transit authority provided 34 million rides in calendar year 2012 on the agency s buses, trains, vans and sedans, an increase of more than 1.5 million rides over 2011, far exceeding the national trend. Ridership on the MetroRail Red Line, a 32mile commuter rail line between Leander and downtown Austin, has tripled since service began in In 2012, MetroRail hit a milestone of its one millionth passenger trip, and ridership increased nearly 50 percent in 2012 over Ridership has increased in part due to extended evening service on Fridays and Saturdays, made possible in 2012 through a partnership with the City of Austin. With a fleet of more than 400 buses, Capital Metro provides local and express bus routes, shuttle service to The University of Texas at Austin and parallel doortodoor service for passengers with disabilities. The agency also operates a vanpool program called RideShare and works in partnership with the Capital Area Rural Transportation System (CARTS) to offer transportation to select outlying areas surrounding Austin. 7

8 Beyond its passenger service, Capital Metro moves freight, too, along its own 163mile railroad line between Llano and Giddings, Texas. In FY2012, the freight rail operation shipped 50,742 rail cars, the equivalent of about 203,000 semitrailer trucks that otherwise would have been on the area s highways. Freight rail traffic has increased more than 50 percent since FY2010. Capital Metro was created in 1985, after voters in Austin and the surrounding area approved its creation in accordance with Chapter 451 of the Texas Transportation Code. Capital Metro provides service to nearly one million residents within a 522mile service area that includes the cities of Austin, Manor, San Leanna, Jonestown, Lago Vista, Leander, Point Venture, Volente Beach, and unincorporated portions of Travis and Williamson counties. These communities contribute one percent sales tax to be within Capital Metro s service area. GOVERNANCE Capital Metro is governed by an eightmember board of directors. The board consists of three members appointed by the Capital Area Metropolitan Planning Organization (CAMPO), including an elected official; one member representing the small cities in Capital Metro s service area; a member each appointed by the Travis County commissioners and Williamson County commissioners; and two members appointed by the Austin City Council, in which one must be a member of the Austin City Council. The board is responsible for adopting policies relative to the operation, control and management of the agency. They hire the president/ceo, who has the responsibility of running the daytoday operation of the agency. Capital Metro implemented a new business model in 2012 to streamline operations and improve its business practices. Capital Metro now contracts with private companies to operate all passenger service, including fixedroute and paratransit service. Capital Metro service providers include McDonald Transit Associates, Inc., MV Transportation, Inc., Veolia Transportation, First Transit, CARTS, LeFleur Transportation and Herzog Contracting Corporation. OUR WORKFORCE Capital Metro helps the local economy by employing and contracting a diverse workforce of approximately 1,200. Capital Metro strives to be an employer of choice in the Austin area and the transit industry by providing competitive benefits and pay, as well as nationallyrecognized programs that contribute to employees wellbeing. Capital Metro was named Central Texas Healthiest Employer in 2012 by the Austin Business Journal. The agency s awardwinning wellness program includes three 24hour fitness centers, personal training, nutrition counseling and healthy cafeteria, among other benefits. Since the wellness program was created, employee health care costs and absenteeism rates have steadily declined. BUDGET CONTROL By state law, Capital Metro s board of directors must adopt an annual budget driven by an approved strategic plan that outlines the agency s priorities. The budget must be adopted before the beginning of each fiscal year and before Capital Metro conducts any business in the new fiscal year. The budget is amended if operating expenditures will exceed the budgeted amount. Additionally, the board must approve a fiveyear capital improvement plan. 8

9 Control of the budget is maintained at the department level with overview responsibility exercised by the budget manager. It is the responsibility of each department manager to administer operations in such a manner as to ensure that the use of funds is consistent with the goals and objectives in the strategic plan. ACCOUNTABILITY AND TRANSPARENCY As a steward of public funds and public trust, Capital Metro strives for both financial accountability and transparency. Capital Metro posts detailed financial information on its website, and the agency has earned the Texas Comptroller s highest level of recognition for financial transparency for the third consecutive year. A new longrange financial plan, fiveyear capital improvement plan and improved financial reporting and budget development processes ensure a greater level of accountability and oversight. LOCAL ECONOMIC OUTLOOK The Austin region was recently crowned America s fastest growing by Forbes, for three consecutive years. It is estimated that approximately 150 people are moving to the region daily, and Austin and the Central Texas region are frequently recognized as a great place to live and work. Austin has enjoyed a lower unemployment rate than the rest of the state and the nation. Austin s unemployment rate was 5.1 percent in December 2012, while the state unemployment rate was 6.1 percent. The national unemployment rate was 7.8 percent. The largest portion of Capital Metro s revenue comes from a dedicated one percent sales tax from its member cities. Capital Metro has projected sales tax revenues in FY2013 to increase by three percent over the previous fiscal year. In 2012, Austin became home to the Circuit of the Americas U.S. Grand Prix, which drew an estimated 200,000 visitors to the region for the threeday event in November. Mega events like Formula 1 and SXSW (an annual music, film, and interactive conference and festival) provide a significant positive economic impact as well as increased exposure for Austin on a national stage. MANAGEMENT S DISCUSSION AND ANALYSIS Capital Metro s management is responsible for the accuracy, reliability and presentation of the financial information contained within the CAFR. The report includes all necessary disclosures and other information that enable the reader to gain an understanding of Capital Metro s financial activities. Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to the accompanying basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with the MD&A. Capital Metro s MD&A can be found directly following the independent auditor s report. CERTIFICATE OF ACHIEVEMENT FOR FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Capital Metro for its comprehensive annual financial report for fiscal year ended September 30, 2011 This was the eighth consecutive year that Capital Metro has achieved this prestigious award that recognizes an easilyreadable and efficientlyorganized comprehensive annual financial report. 9

10 ACKNOWLEDGEMENTS The preparation of this report on a timely basis could not be accomplished without the dedicated service of Finance Department staff members. Capital Metro also thanks its board of directors for their continuing support and to the customers and taxpayers for whom we work. Respectfully submitted, Linda S. Watson Capital Metro President/CEO Billy Hamilton Interim Executive Vice President, Finance & Administration 10

11 11

12 BOARD OF TRUSTEES AND ADMINISTRATION BOARD OF TRUSTEES Mike Martinez, Chairman John Langmore, Vice Chair Frank Fernandez, Secretary Justine BlackmoreHlista Chris Riley Ann Stafford Norm Chafetz Beverly Silas APPOINTING BODY Capital Area Metropolitan Planning Organization Capital Area Metropolitan Planning Organization Capital Area Metropolitan Planning Organization Small Cities Elected Official Representative Austin City Council Austin City Council Williamson County Commissioner s Court Travis County Commissioner s Court ADMINISTRATION Linda Watson Vacant Billy Hamilton Elaine Timbes Kerri Butcher President/Chief Executive Officer Executive Vice President, Chief Development Officer Interim Executive Vice President, Finance & Administration Executive Vice President, Chief Operating Officer Chief Counsel 12

13 Organizational Chart 13

14 µ Legend AUSTIN JONESTOWN LAGO VISTA LEANDER MANOR POINT VENTURE TRAVIS COUNTY VILLAGE OF SAN LEANNA CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Service Area TRAVIS COUNTY 183 LEANDER 35 Capital Metro Service Area As Of March 4, 2013 CEDAR PARK JONESTOWN WILLIAMSON COUNTY PFLUGERVILLE TRAVIS COUNTY LAGO VISTA VILLAGE OF VOLENTE POINT VENTURE ST 130 MANOR 290 ST 71 WEST LAKE HILLS AUSTIN ROLLINGWOOD 290 ST 71 VILLAGE OF VOLENTE WILLIAMSON COUNTY VILLAGE OF SAN LEANNA 183 METROACCESS SERVICE ONLY Miles 14

15 2012 Financial Section Comprehensive Annual Financial Report

16 16

17 KPMG LLP Suite Congress Avenue Austin, TX Independent Auditors Report The Finance and Audit Committee of the Board of Directors Capital Metropolitan Transportation Authority: We have audited the accompanying statements of net assets of Capital Metropolitan Transportation Authority (Capital Metro) as of September 30, 2012 and 2011, and the related statements of revenue, expenses, and changes in net assets, and cash flows for the years then ended, which comprise the basic financial statements of Capital Metro. These financial statements are the responsibility of Capital Metro s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc. (Pension Plan) in 2010 and The financial information related to the Pension Plan is included in the accompanying notes to the financial statements, #11. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it related to the amounts and disclosures included for the Pension Plan is based solely on the report of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Pension Plan were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Capital Metro s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Metropolitan Transportation Authority, as of September 30, 2012 and 2011, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. 17 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity. 17

18 In accordance with Government Auditing Standards, we have also issued a report dated March 18, 2013 on our consideration of Capital Metro s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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. U.S. generally accepted accounting principles require that the Management s Discussion and Analysis on pages 19 through 25 and the Schedules of Funding Progress and Employer Contributions for the Retirement Fund of StarTran Inc. and Capital Metropolitan Transportation Authority on pages 52 and 53 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. The introductory section and statistical information on pages 7 to 14 and 57 to 72 are presented for the purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. March 18,

19 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 This section of the financial statements of the Capital Metropolitan Transportation Authority (CMTA) offers a narrative overview and analysis of the financial activities for fiscal years ended September 30, 2012 and The information contained within the Management Discussion and Analysis (MD&A) should be considered only a part of a greater whole. The reader of this statement should take time to read and evaluate all sections of this report, including the footnotes and other supplementary information that is provided in addition to this MD&A. FINANCIAL HIGHLIGHTS 2012 Net assets were $332.0 million as of September 30, 2012, an increase of $13.7 million from net assets of $318.3 for the year ended September 30, 2011 (Table A1). Capital assets (net of depreciation) decreased by $3.8 million to $305.0 million in fiscal year 2012 from $308.8 million as of September 30, 2011 (Table A5). The FY 2012 sales tax revenue was $165.2 million compared to $151.2 million in FY 2011, a 9.3% increase over the prior year. Transportation fares increased 11.1% from $9.9 million in FY 2011 to $11.0 million in FY Commuter rail which went into revenue service in March 2010, totaled $1.0 million in revenue for FY 2011 and in FY 2012 increased to $2.3 million, an increase of 130.0%. Contract revenue increased from $6.8 million as of September 30, 2011 to $7.1 million as of September 30, 2012, an increase of 4.4%. Rail freight revenue for FY 2012 was $5.0 million or a decrease of 33.3% over rail freight revenue of $7.5 million for FY 2011 (Table A2). Operating expenses (including depreciation) was $195.6 million for FY 2011 compared to $203.5 million for FY 2012, or an increase of 4.1% (Table A3). Payments of $8.4 million in FY 2011 and $4.6 million for FY 2012 were made for regional mobility projects (Table A4). FINANCIAL HIGHLIGHTS 2011 Net assets were $318.3 million as of September 30, 2011, a decrease of $4.2 million from net assets of $322.5 for the year ended September 30, 2010 (Table A1). Capital assets (net of depreciation) decreased by $23.9 million to $308.8 million in fiscal year 2011 from $332.7 million as of September 30, 2010 (Table A5). The FY 2011 sales tax revenue was $151.2 million compared to $141.9 million in FY 2010, a 6.6% increase over the prior year. Transportation fares increased 10.0% from $9.0 million in FY 2010 to $9.9 million in FY Commuter rail which went into revenue service in March 2010, and totaled $300,000 in revenue for FY 2010 increased to $1.0 million for FY Contract revenue increased from $5.8 million as of September 30, 2010 to $6.8 million as of September 30, 2011, an increase of 17.2%. Rail freight revenue for FY 2011 was $7.5 million or a decrease of 42.0% over rail freight revenue of $13.1 million for FY 2010 (Table A2). Operating expenses (including depreciation) was $196.7 million for FY 2010 compared to $195.6 million for FY 2011, or a decrease of 0.06% (Table A3). Payments of $9.5 million in FY 2010 and $8.4 million for FY 2011 were made for regional mobility projects (Table A4). 19

20 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 OVERVIEW OF THE FINANCIAL STATEMENTS > This discussion and analysis is intended to serve as an introduction to CMTA s financial statements. The financial statements are comprised of: 1) financial statements, 2) notes to the financial statements, and 3) required supplementary information. The Statement of Net Assets reports CMTA s assets and liabilities, with the difference between the two reported as net assets. This is a measure of financial position, which can indicate financial condition improvement or deterioration from year to year. The Statement of Revenue, Expenses and Changes to Net Assets presents information showing how CMTA s net assets changed during the fiscal year. Operating revenue consists of transportation fare, contract revenue, and commuter rail and rail freight fees. Other nonoperating revenue includes the one percent sales tax which comprises 80% of all revenues in both FY 2012 and 2011, investment income, other income and operating contributions. Operating expenses include providing bus service, commuter rail service, maintenance, security and administration for CMTA. Nonoperating expenses include funding future transportation projects. The Statement of Cash Flows reports cash and cash equivalents activities for the fiscal year resulting from operating activities, noncapital financing activities, capital and related financing activities and investing activities. The Notes to the Financial Statements provide additional information necessary to fully understand the data provided in the financial statements. Required Supplementary Information (unaudited) includes the progress in funding CMTA s obligation to provide pension benefits to its bargaining employees and to its administrative employees and is required supplementary information by accounting principles generally accepted in the United States of America. NET ASSETS > The total net assets of CMTA increased $13.7 million, from $318.3 million for FY 2011 to $332.0 million in FY 2012 due to capital grant contributions offset by a small operating loss. Total assets increased to $424.2 million in FY 2012 from $377.7 million in FY 2011 due to increased cash balances resulting from higher than expected sales tax receipts and loan proceeds from long term financing. Current liabilities increased $21.5 million from $30.1 million in FY 2011 to $51.6 million in FY 2012 due to accrued expenses from contracting out all mass transit operations in August 2012, purchase of new buses in September 2012, the short term payment due on the long term financing and the current portion owed to the City of Austin. Long term liabilities increased from $29.2 million in FY 2011 to $40.6 million for FY 2012 primarily due to the addition of long term debt financing. The total net assets of CMTA decreased $4.2 million, from $322.5 million for FY 2010 to $318.3 million in FY 2011 due an operating loss. Total assets decreased to $377.7 million in FY 2011 from $399.7 million in FY 2010, due to depreciation on capital assets offset slightly by an increase in receivable. Current liabilities decreased $15.9 million from $46.0 million in FY 2010 to $30.1 million in FY 2011 due to a note payment in 2011 of $2.5 million and decreased spending on capital projects. Long term liabilities decreased from $31.2 million in FY 2010 to $29.2 million for FY 2011 due to a principal payment on the rail lease purchase offset by an increase in the amount due the City of Austin. Comparative amounts for prior years have been presented in order to provide an understanding of changes in Capital Metro s financial position and operations. 20

21 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 TABLE A1 : SUMMARY OF CMTA S NET ASSETS (IN MILLIONS OF DOLLARS) Current assets Capital assets (net) Other noncurrent assets Total assets FY 2012 $ FY 2011 $ FY2010 $ Current liabilities Longterm liabilities Total liabilities Net assets Invested in capital assets, net of related debt Unrestricted Total net assets $ $ $322.5 Certain net assets are designated through Board directive for specific uses. As of September 30, 2012 and 2011 CMTA Board has designations of $7.8 million for selfinsurance. COMMITMENTS > CMTA has a capital spending plan for projects for upcoming and future years. CMTA s contractual commitments related to its capital improvement plan are approximately $35.4 million as of September 30, CMTA has also executed contracts with various goods and services providers totaling approximately $360.0 million extending to September The large increase over prior years is due to CMTA contracting all mass transit operations to an outside contractor. CMTA is contractually committed to the Build Central Texas Program and Mobility Programs with the City of Austin and the Suburban Communities Program. These programs are detailed in Notes 6 and 9 in the Notes to the Financial Statements. CHANGE IN NET ASSETS > The change in net assets for FY 2012 was an increase of $13.7 million or 4.3 % of total net assets. Total operating revenue increased by $200,000 or less than 1% due to higher transportation fares, contract revenue and commuter rail but offset by a decrease in rail freight revenue reflecting the results of a new contract. Total operating expenses increased by $7.9 million or 4.1%, due mostly to increased costs for contracted services, demand response and commuter rail operating costs offset by a decline in rail freight expenses reflecting the new contract. Operating loss, including depreciation, was $178.1 million for FY 2012 an increase of $7.7 million or 4.5% over FY Nonoperating revenue, net, increased by $21.4 million, or 13.8% over the previous year primarily due to increased sales tax revenue and operating contributions offset by a decline in mobility expenses of $3.8 million resulting from less spending of the quarter cent funds for the City of Austin. The change in net assets for FY 2011 was a decrease of $4.2 million or 1.3 % of total net assets. Total operating revenue decreased by $3.0 million (10.6%) due to a decrease in rail freight revenue reflecting the results of a new contract offset by an increase in transportation fares and commuter rail revenue. Total operating expenses decreased by $1.1 million, less than 1%, due to a decrease in organization support expenses offset by an increase in scheduled services fixed route. Operating loss, including depreciation, was $170.4 million for FY 2011 an increase of 11.2% over FY Nonoperating revenue, net, increased by $2.5 million, or 1.6% over the previous year due to increased sales tax revenue offset by less operating contributions. 21

22 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 TABLE A2 : SUMMARY OF CHANGES IN CMTA S NET ASSETS (IN MILLIONS OF DOLLARS) OPERATING REVENUE Transportation fares Contract revenue Commuter rail Freight rail Total operating revenue FY 2012 $ FY 2011 $ FY 2010 $ OPERATING EXPENSES Scheduled services fixed route Nonscheduled services special Scheduled services commuter rail Freight rail Service support Organizational support Unallocated depreciation/amortization Total operating expenses OPERATING LOSS (178.1) (170.4) (168.5) NONOPERATING REVENUE (EXPENSES) Sales and use tax Investment income Other income, net Operating contributions Build Central Texas Program Mobility programs Total nonoperating revenue (expenses) (1.2) (4.6) (1.1) (8.4) (2.2) (9.5) Income (loss) before contributions Capital contributions Change in net assets Total net assets, beginning of the year Total net assets, end of the year (2.1) $332.0 (15.8) 11.6 (4.2) $318.3 (16.4) 6.5 (9.9) $

23 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 OPERATING EXPENSES > FY 2012 operating expenses increased 4.0% to $203.5 million in all areas except rail freight which is contracted out with a new contract that has lowered operating costs. FY 2011 operating expenses decreased less than 1% to $195.6 million. However, organizational support decreased significantly due to startup rail cost incurred only in FY 2010 offset by an increase in previously outsourced scheduled services fixed route being brought back in house. TABLE A3 : CMTA S TOTAL OPERATING EXPENSES (INCLUDING DEPRECIATION) (IN MILLIONS OF DOLLARS) Scheduled services fixed route Nonscheduled services special Scheduled services commuter rail Freight rail Service support Organizational support Unallocated depreciation/amortization Total operating expenses FY 2012 $ $203.5 FY 2011 $ $195.6 FY 2010 $ $196.7 NONOPERATING REVENUE > Nonoperating revenue consists of the one percent sales tax levied in CMTA s service area, investment income, operating contributions and other income generated from advertising commissions. Nonoperating revenue is reduced by the costs of providing funding for infrastructure needs in the service area. Sales tax represents the largest component of CMTA s revenue. For FY 2012, sales tax revenue increased by $14 million, or 9.3%, to $165.2 million due to a robust economic recovery in the area. For FY 2011, sales tax revenue increased by $9.3 million, or 6.6%, to $151.2 million due to economic recovery in the area. Investment income of approximately $86,000 for FY 2012 was earned on CMTA s cash reserve of $71.7 million. During the fiscal year 2012, the cash reserve was mostly invested in the Texas Local Government Investment Pools with a small portion invested in a certificate of deposit program. Investment income of $24,600 for FY 2011 was earned on CMTA s cash reserve of $21.2 million. During the fiscal year 2011, the cash reserve was invested solely in the Texas Local Government Investment Pools. CMTA funds programs to fund street maintenance, street repair, and transit capital improvements, etc. through the Build Central Texas program (formerly Build Greater Austin). It also funds mobility projects to assist in future transportation and improve regional mobility. 23

24 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 TABLE A4 : CMTA S NONOPERATING REVENUE & EXPENSES (IN MILLIONS OF DOLLARS) Sales and use tax Investment income Other income, net Operating contributions Build Central Texas Program Mobility programs Total nonoperating revenue (expenses) FY 2012 $ (1.2) (4.6) $176.0 FY (1.1) (8.4) FY (2.2) (9.5) CAPITAL CONTRIBUTIONS > Grant revenue is received from the Federal Transit Administration on a reimbursement basis. These funds are used primarily to fund CMTA s capital improvements but in FY 2012, FY 2011, FY 2010, CMTA also received operating grant funding of $15.6 million, $11.6 million and $20.1 million, respectively. Capital contributions from grant revenue increased to $15.8 million in FY 2012 from $11.6 million in FY Capital contributions from grant revenue increased in FY 2011 from FY 2010 by $5.1 million. There is substantial volatility in capital grant revenue due to the timing of capital projects. TABLE A5 : CMTA S CAPITAL ASSETS (IN MILLIONS OF DOLLARS) Building & improvements Railroad Buses & equipment Passenger parking & stations Leasehold improvements Less: accumulated depreciation Net depreciable property/improvements Land & improvements Construction in progress Capital assets (net) FY 2012 $ $305.0 FY 2011 $ $308.8 FY 2010 $ ( ) ( ) ( ) $332.7 CAPITAL ASSETS > CMTA s net capital assets at September 30, 2012 totaled $305.0 million and consist of buildings, improvements, railroad, buses, equipment, passenger stations, land and construction in progress. This amount represents a decrease of 1.2% over FY 2011 primarily due to depreciation expense. CMTA s net capital assets at September 30, 2011 totaled $308.8 million. This amount represents a decrease of 7.2% or $23.9 million over FY For more detailed information on capital assets, see Note 12 to the financial statements. 24

25 Management s Discussion & Analysis (unaudited) For the years ended September 30, 2012 & 2011 TABLE A6 : CMTA S LONGTERM DEBT (IN MILLIONS OF DOLLARS) Note payableland Rail lease purchase Note payablebuses FY 2012 $ FY 2011 $ 20.0 FY 2010 $ Total $37.2 $20.0 $26.0 LONGTERM DEBT > In February 2006, Capital Metro entered into a lease/purchase financing agreement for funding of rail vehicles in the amount of $36.0 million with quarterly payments beginning in October 2006 for 10 years. In December 2011, Capital Metro refinanced this note with quarterly payments beginning in January 2012 for seven years. In September 2006, Capital Metro entered into a promissory note for the purchase of property in the amount of $2.5 million, simple interest only at 6% quarterly until the Note was due and paid in its entirety in September In February 2012, the Board approved a long term financing agreement in the amount of $20 million for bus purchases with annual principal payments beginning in April 2013 and semiannual interest payments beginning in October 2012 for 10 years. As of September 30, 2012, the lease/purchase financing agreement balance was $17.2 million and the long term financing agreement balance was $20 million. As of September 30, 2011, the lease/purchase financing agreement balance was $20.0 million and the promissory note balance was zero. For more detailed information on longterm debt, see Note 8 to the financial statements. ECONOMIC FACTORS & OUTLOOK FOR FY 2013 > Capital Metro s adopted FY 2013 budget totaled $267.0 million in revenue, $193.9 million in operating expenses, and also included $64.4 million for new capital expenditures and $11.8 million for Regional Mobility and pass through grants. In the FY 2013 budget, sales tax revenue was projected to increase 6.5% over the FY 2012 budgeted sales tax revenue. FY 2013 budgeted operating expenses were projected to increase 12.2 % over FY 2012 budget. Management anticipates that its existing resources will be adequate to satisfy its liquidity requirements for FY REQUEST FOR INFORMATION > This financial report is designed to provide our patrons and other interested parties with a general overview of the finances to demonstrate CMTA s accountability for the funds it receives. If you have questions about this report or need additional financial information, contact Capital Metropolitan Transportation Authority, Finance Department, at 2910 East 5th Street, Austin, Texas 78702, call (512) , or pamela.laine@capmetro.org. 25

26 STATEMENT OF NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2012 & 2011 CURRENT ASSETS Cash and cash equivalents Restricted cash for bus purchases Receivables Sales and use tax Federal Other, net Total receivables Inventory Other current assets Total current assets NONCURRENT ASSETS Capital assets, net Other assets Restricted cash for bus purchases Long term investments Total noncurrent assets Total assets CURRENT LIABILITIES Accounts and retainage payable Accrued expenses Interest payable Master lease purchase financing agreement Note payable City of Austin Interlocal Agreement Total current liabilities LONG TERM LIABILITIES Accrued expenses City of Austin Interlocal Agreement Master lease purchase financing agreement Notes payable Deferred rent Total long term liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Total net assets 2012 $47,052,130 10,000,000 28,588,226 4,996,380 6,102,588 39,687,194 3,044,294 2,302, ,085, ,973,144 2,475,419 10,000,000 4,688, ,136, ,222,373 34,893,749 4,772, ,586 2,578,081 1,790,000 7,278,941 51,644,702 4,849,632 2,489,907 14,631,995 18,210, ,673 40,553,207 92,197, ,763,068 44,261,396 $332,024, $19,81,463 27,227,556 7,578,876 2,577,280 37,383,712 5,947,718 1,795,712 65,008, ,824,844 3,839, ,664, ,672,823 18,541,436 4,334, ,652 3,699,337 3,398,795 30,133,124 3,797,916 8,838,891 16,268, ,470 29,212,174 59,345, ,856,610 29,470,915 $318,327,525 The accompanying notes are an integral part of the financial statements. 26

27 STATEMENT OF REVENUE, EXPENSES, & CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2012 & 2011 OPERATING REVENUE Transportation fares Contract revenue Commuter rail Rail freight Total operating revenue OPERATING EXPENSES Scheduled services fixed route Bus direct Contract services / purchase transportation Materials & Maintenance Depreciation & amortization Subtotal scheduled services fixed route Nonscheduled services special Demand response Vanpool Materials & Maintenance Depreciation & amortization Subtotal nonscheduled services Scheduled services for commuter rail Commuter rail direct Contract services / purchase transportation Materials & Maintenance Depreciation & amortization Subtotal scheduled services commuter rail Rail freight Rail freight Depreciation & amortization Subtotal rail freight Service support Administrative Marketing Transit security Customer service Planning & evaluation Facility maintenance Depreciation & amortization Subtotal service support Organizational Support Administrative, financial, personnel Information technology Subtotal organizational support Unallocated depreciation & amortization Total operating expenses Operating loss 2012 $10,967,223 7,150,215 2,265,523 4,998,943 25,381,904 37,510,937 25,357,159 29,663,225 12,442, ,974,116 17,758, ,210 7,743,861 1,066,263 26,844,018 1,402,931 5,209,761 4,769,843 4,224,722 15,607,257 4,396,868 6,337,083 10,733,951 86,121 2,872,598 2,858,783 1,255,998 1,673,577 7,759,330 5,931,795 22,438,202 15,333,065 4,303,651 19,636,716 3,227, ,461,490 $(178,079,586) 2011 $9,928,579 6,820, ,666 7,550,692 25,254,068 36,632,567 20,688,455 31,008,101 13,511, ,840,704 16,067, ,671 6,728, ,540 23,896, ,106 4,531,326 3,930,707 5,014,928 14,251,067 6,001,118 6,818,541 12,819, ,090 2,787,982 2,775,490 1,149,247 1,798,209 7,064,391 5,239,968 20,921,377 14,945,550 3,668,880 18,614,430 3,287, ,631,536 $(170,377,468) Continued on next page 27

28 STATEMENT OF REVENUE, EXPENSES, & CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2012 & 2011 Nonoperating revenue (expenses) Sales and use tax Investment income Other income, net Operating contributions Build Central Texas Program Mobility interlocal agreements Total nonoperating revenue (expenses) (Loss) before capital contributions Capital contributions Change in net assets Net assets at the beginning of year Net assets at the end of year 2012 $165,248,523 86, ,412 15,643,959 (1,216,386) (4,598,153) 175,969,361 (2,110,225) 15,807,164 13,696, ,327,525 $332,024, $151,156,042 24,616 1,201,994 11,664,109 (1,090,985) (8,398,120) 154,557,656 (15,819,812) 11,623,579 (4,196,233) 322,523,758 $318,327,525 The accompanying notes are an integral part of the financial statements. 28

29 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2012 & 2011 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers Cash payments to employees Cash payments for taxes Cash payments to suppliers for goods and services Other receipts Net cash used in operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Sales and use tax Cash/proceeds received from operating grants Payments for Build Central Texas Program Payments for mobility projects Net cash provided by noncapital financing activities CASH FLOWS FROM CAPITAL & RELATED FINANCING ACTIVITIES Proceeds from capital grants Proceeds from bus purchase loan Purchase of capital assets Proceeds from sale of capital assets Payment of note payable Payments/proceeds from master lease financing agreement Net cash used in capital and related financing activities CASH PROVIDED FROM INVESTING ACTIVITIES Purchase of investments Purchase of fuel of hedging instruments Net investment income Net cash provided by investing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at the end of the year 2012 $26,183,994 (41,310,343) (14,536,252) (106,608,763) 1,277,874 (134,993,490) 163,887,853 18,161,973 (1,216,386) (7,066,991) 173,766,449 15,871,646 20,000,000 (20,024,971) 519,631 (2,758,158) 13,608,148 (4,688,000) (608,446) 86,006 (5,210,440) 47,170,667 19,881,463 $67,052, $27,808,818 (42,149,177) (15,017,381) (114,906,430) 1,976,046 (142,288,124) 148,194,612 9,045,186 (1,106,421) (5,641,899) 150,491,478 8,384,907 (10,612,587) 144,315 (2,484,164) (3,562,933) (8,130,462) (168,000) 107,482 (60,518) 12,374 19,869,089 $19,881,463 Continued on next page 29

30 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2012 & 2011 RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash used in operating activities Depreciation and amortization Writeoff of vacation accruals Writeoff of obsolete inventory Other receipts 2012 $(178,079,586) 33,229, , , , $(170,377,468) 34,680,209 1,201,994 Changes in assets & liabilities Receivable other Inventory Other assets Accounts payable Accrued expenses Deferred rent Interest payable Net cash used in operating activities (1,076,814) 314,365 1,465,921 6,479, ,068 65, ,934 $(134,993,490) 6,881, ,304 (555,983) (14,097,559) (478,151) 56,064 (26,803) $(142,288,124) Noncash transaction Related to the August 2012 contracting with private providers for passenger services, parts inventory was transferred to the private providers in exchange for an accounts receivable to be paid monthly over the term of the contract. The inventory balance was $2.4 million. The accompanying notes are an integral part of the financial statements. 30

31 Notes to the Financial Statement For the years ended September 30, 2012 & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY > Capital Metropolitan Transportation Authority (Capital Metro) is a corporate body and political subdivision of the State of Texas. Capital Metro was established by a referendum on January 19, 1985 to provide mass transportation service to the greater Austin metropolitan area. Capital Metro commenced operations on July 1, Capital Metro is governed by an eightmember Board of Directors (Board) which has governance responsibilities over all activities related to Capital Metro. During the year ended September 30, 2009, the Legislature of the State of Texas enacted Senate Bill 1263, effective September 1, 2009, relating to the composition of the Board of Directors of certain metropolitan transit authorities. As a result of the enacted legislation, all of the members serving on the Board are appointed in accordance with Section , Transportation Code. Capital Metro is not included in any other governmental reporting entity as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards. The appointed members of the Board have the authority to make decisions, possess the power to designate management, have the responsibility to significantly influence operations, and maintain primary accountability for fiscal matters. Prior to August 19, 2012 and as required by accounting principles generally accepted in the United States of America, these financial statements presented Capital Metro (the primary government) and its component unit, StarTran, Inc. (StarTran), a corporation organized under the Nonprofit Corporation Act of the State of Texas. Although it was legally separate from Capital Metro, StarTran was reported as if it were part of Capital Metro because it was incorporated for the purpose of providing employee services to operate mass transit service on behalf of Capital Metro. Pursuant to the contract effective January 1, 1992, between Capital Metro and StarTran, Capital Metro provided all resources needed for business operations and the necessary administrative support needed for StarTran s operations. Senate Bill 1263, passed by the Texas Legislature in 2009 required the Sunset Advisory Commission to evaluate the efficiency and effectiveness of Capital Metro s bus operations. In August 2012, Capital Metro implemented a new business model to streamline operations and improve its business practices. Capital Metro now contracts with private companies to operate passenger services, including fixed route and paratransit services. NATURE OF OPERATING AND NONOPERATING ACTIVITIES > Capital Metro accounts for its operations as a proprietary fund. Proprietary funds are accounted for on the flow of economic resources measurement focus and revenue and expenses are recognized on the accrual basis. In accordance with Statement No. 20 of the Governmental Accounting Standards Board (GASB) Capital Metro has adopted a policy to not follow accounting standards issued by the Financial Accounting Standards Board (FASB) after November 30, 1989, effective October 1, The Authority s primary activity is transit operations designed to provide high quality, customer focused, effective and efficient transportation services and systems for its communities. Transit operations include planning bus routes, customer service, special transit services, purchased transportation services, maintaining equipment, facilities and buses, hiring and training personnel who deliver transit services, and providing security, administration and management of the transit system. Capital Metro also owns and maintains a rail freight line. Operations include managing the rail freight contract and maintenance of the track and track infrastructure. In November 2004, citizens of the Capital Metro service area voted in favor of allowing the agency to operate urban commuter rail service from Leander, Texas to downtown Austin, Texas. Commuter rail service became operational in the March of

32 Notes to the Financial Statement For the years ended September 30, 2012 & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Nonoperating expenses include: 1. Mobility projects and programs to help fund future transportation projects. These projects must improve regional mobility, improve mass transit, leverage federal or private funds, add to an existing program and expedite a critical mobility project. These projects are governed by an interlocal agreement between Capital Metro and the City of Austin. Title to the capital assets belongs to the City of Austin 2. Programs to fund street maintenance, emergency street repair, transit corridor improvements, pedestrian and bicycle safety/access, sidewalks, transit centers, and transit capital improvements. Operating revenue includes passenger fares generated from directly operated services, third party fares generated from contracted services and railroad freight revenue. Nonoperating revenue consists of the one percent sales tax levied in the Authority s service area, federal operating grants that are received on a reimbursement basis, investment income and other income generated from advertising commissions. INVENTORY > Inventory consists of freight rail parts, fuel, and facilities and building maintenance supplies and is stated at cost (weighted average method). CAPITAL ASSETS > Capital assets for capitalization and financial reporting purposes are all items purchased that have a useful life of more than one year, are of a tangible nature and have a value of $5,000 or more. Capital assets are recorded at cost and are depreciated over their useful lives using the straightline method as follows: Buildings and improvements Passenger parking stations Railroad/leasehold improvements Revenue equipment Other equipment Office furniture and fixtures Estimated Useful Lives 40 years 520 years 10 years 212 years 35 years 5 years Depreciation related to assets used in specific functions is included with each program. Indirect depreciation is presented as a separate line in the Statement of Revenue, Expenses and Changes in Net Assets. Expenditures for renewals and betterments that increase property lives are capitalized, and maintenance and repair costs are charged to operations as incurred. REVENUE RECOGNITION > Operating Revenue Passenger fares and charter services are recorded as revenue when the ticket is sold, regardless of when it is used. Sales and Use Tax Revenue Sales tax revenue is accrued on a monthly basis based on information provided by the Comptroller of Public Accounts. Capital Metro receives allocations on a monthly basis. The Board of Directors approved an increase in the sales tax effective October 1, 1995, from 3/4 cent to a full cent. Sales tax revenues account for approximately 80% of revenues in both fiscal years 2012 and

33 Notes to the Financial Statement For the years ended September 30, 2012 & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued CAPITAL REPLACEMENT AND IMPROVEMENT GRANTS > Capital Metro funds its capital improvements with sales taxes and grants from the Federal Transit Administration (FTA). Grant revenue is recognized when all eligibility requirements have been met. The grantor retains a reversionary interest in the capital asset over the estimated useful life of that asset. COMPENSATED LEAVE > Substantially all employees of Capital Metro are eligible to receive compensation for vacations, holidays, illness and certain other qualifying leave. For certain kinds of leave, the number of days compensated is generally based on length of service. Vacation leave, which has been earned and vested but not paid, has been accrued in the accompanying financial statements. Sick leave for Capital Metro administrative employees, which has been earned and vested but not paid, has been accrued in the accompanying financial statements for those employees with five (5) years or more of service. As part of the August 2012 outsourcing to private companies to operate all passenger service, Capital Metro remains responsible for sick leave for the former StarTran employees of approximately $4.3 million which is included in accrued expense. STATEMENTS OF CASH FLOWS > For purposes of the statement of cash flows Capital Metro considers all demand deposits to be cash. Unrestricted cash and investments purchased by Capital Metro within three months of maturity are also considered to be cash equivalents. INCOME TAXES > Capital Metro now contracts passenger services to private companies. However StarTran will continue as a nonprofit corporation until it is dissolved and does not intend to earn a profit during its association with Capital Metro. For federal income tax purposes, StarTran is required to file the necessary federal income tax returns under a forprofit status, and is therefore subject to income tax on any profit earned during the year. Accordingly, StarTran accounts for income taxes under the guidance of Accounting Standards Codification 740 Accounting for Income Taxes. During 2012 and 2011, there were no material differences between the recognition of revenues and expenses for tax and financial statement purposes. There was no tax expense for 2012 and CASH AND INVESTMENTS > Cash and Cash Equivalents include cash on hand, cash in banks, cash held in escrow and treasury bills and treasury notes with original maturities of less than 90 days. Investments are stated at fair value (See Note 2). In November 2012, the Board of Directors of Capital Metro revised and adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act (Chapter 2256, Texas Government Code). Capital Metro is authorized to invest in obligations and instruments as defined in the Act. All investments held by Capital Metro are made in accordance with Capital Metro s Investment Policy. Capital Metro uses investment strategies and procedures that most effectively accomplish the primary goals of preservation of capital and liquidity to meet all obligations in a timely manner. Earnings will be maximized as a subsidiary goal and from the full investment of all available funds. 33

34 Notes to the Financial Statement For the years ended September 30, 2012 & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Net assets on the Statement of Net Assets include the following: INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT > the component of net assets that reports capital assets less both the accumulated depreciation and the outstanding balance of debt that is directly attributable to the acquisition, construction or improvement of these capital assets. UNRESTRICTED > the difference between the assets and liabilities that are not reported in net assets invested in capital assets, net of related debt, or restricted net assets. RISK MANAGEMENT > Capital Metro is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; business interruption; errors and omissions; injuries to employees and natural disasters. Commercial insurance coverage is purchased for claims arising from such matters. During fiscal year 2012 and 2011, Capital Metro was covered under a variety of insurance policies at a cost it considers to be economically justifiable. Capital Metro has commercial insurance for all other risks of loss, except workers compensation and employee health and dental benefits, including employee life and accidental insurance. Claims have not exceeded insurance coverage in each of the past three years. Capital Metro is selfinsured up to $350,000 per occurrence for losses related to workers compensation. (See Note 14) Capital Metro has purchased excess coverage through a commercial insurer licensed in the State of Texas. USE OF ESTIMATES > The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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. COMPARATIVE FINANCIAL STATEMENTS > Comparative amounts for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in Capital Metro s financial position and operations. 2. DEPOSITS AND INVESTMENTS CASH > At September 30, 2012 and 2011, deposits with financial institutions were fully insured, or collateralized by securities held by a third party agent in Capital Metro s name. Cash & Cash Equivalents Demand Deposits Cash Equivalents Restricted Cash Total Cash and Cash Equivalents 2012 Carrying Amount $(401,556) 47,453,686 20,000,000 $67,052, Carrying Amount $(1,271,841) 21,153,304 $19,881,463 34

35 Notes to the Financial Statement For the years ended September 30, 2012 & DEPOSITS AND INVESTMENTS, continued INVESTMENTS > Chapter 2256 of the Texas Government Code, (the Public Funds Investment Act) authorizes Capital Metro to invest its funds under a written investment policy that ensures the safety of principal, provide liquidity and optimize return on investments with the constraints of safety and liquidity. Capital Metro deposits and investments are invested pursuant to the Investment Policy, which is approved annually by the Board of Directors. The Investment Policy includes a list of authorized investments, a maximum allowable stated maturity of individual investments and the maximum average dollar weighted maturity allowed for pooled funds. It includes an Investment Strategy Statement that addresses matching anticipated cash flows with adequate investment liquidity, and a portfolio structure which will experience minimal volatility during economic cycles. The Investment Committee meets quarterly and submits an investment report to the Board of Directors that details the investment position of Capital Metro and the compliance of the investment portfolio as it relates to both the adopted investment strategy statements and the Texas State law. Capital Metro is authorized to invest in the following securities: 1. Obligations of the United States or its agencies and instrumentalities. 2. Direct Obligations of the State of Texas. 3. Other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or is agencies and instrumentalities. 4. Obligations of states, agencies, counties, cities and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and giving received a rating of not less than A or its equivalent. 5. Bankers Acceptances with a stated maturity of 270 days or less from the date of issuance that will be, in accordance with its terms, liquidated in full at maturity; is eligible for collateral for borrowing from a Federal Reserve Bank; and is accepted by a bank organized and existing under the laws of the United States or any state, if the shortterm obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A1 or P1 or an equivalent rating by at least one nationally recognized credit rating agency. 6. Commercial paper with a stated maturity of 270 days or less form the date of issuance that either is rated not less that A1, P1 or the equivalent by at least two nationally recognized credit rating agencies or is rate at least A1, P1, or the equivalent by at least one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any state thereof. 7. Fully collateralized repurchase agreements having a defined termination date and described in more detail in the Investment Policy. 8. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed y the full faith and credit of this State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States. 9. SECregulated, no load money market mutual funds. 10. Local government investment pools. 35

36 Notes to the Financial Statement For the years ended September 30, 2012 & DEPOSITS AND INVESTMENTS, continued Capital Metro participates in three Local Government Investment Pools. TEXPOOL > The State Comptroller of Public Accounts exercises oversight responsibility over TexPool, the Texas Local Government Investment Pool. Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed both of participants in TexPool and of other persons who do not have a business relationship with TexPool. The Advisory Board members review the investment policy and management fee structure. Finally, TexPool is rated AAAm by Standard & Poor s. As a requirement, to maintain the rating, weekly portfolio information must be submitted to Standard & Poor s, as well as the office of the Comptroller of Public Accounts for review. TexPool operates in a manner consistent with the SEC s Rule 2a7 of the Investment Company Act of As such, TexPool uses amortized cost to report net assets and share prices since that amount approximates fair value. As of September 30, 2012 and 2011, Capital Metro s investment in TexPool was $10,179, and $10,167, respectively, or 0.1% of the total portfolio. TexasTERM/TexasDAILY > TexasDAILY is also a Texas Local Government Investment Pool. The Advisory Board of TexasTERM has oversight responsibility and reviews the investment policy and management fee structure. It is rated AAAm by Standard & Poor s. As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poor s. TexasDAILY operates in a manner consistent with SEC s Rule 2a7 of the Investment Company Act of As such, Texas/DAILY uses amortized cost to report net assets and share prices since that amount approximates fair value. Texas/DAILY s bylaws permit the Advisory Board to suspend the right of withdrawal or to postpone the date of payment in the event that the Federal Reserve Bank in Dallas is closed other than for customary weekend and holiday closings or if, in the opinion of the Advisory Board, an emergency exists so the disposal of Texas/DAILY s securities or determination of its net asset value is not reasonably practical. As of September 30, 2012 and 2011, Capital Metro s investment in TexasDAILY was $67,432,499 and $21,132,141, respectively, or 99.9 % and 99.9%, respectively, of the total portfolio. TexSTAR > TexSTAR is another local government investment pool created under the Interlocal Cooperation Act. It is administered by J.P. Morgan Chase and First Southwest Asset Management, Inc. and is rated AAAm by Standard & Poor s. As a requirement to maintain the rating, weekly portfolio information must by submitted to Standard and Poor s. TexSTAR operates in a manner consistent with SEC s Rule 2a7 of the Investment Company Act of As such, TexSTAR uses amortized cost to report net assets and share prices since that amount approximates fair value. TexSTAR reserves the right to suspend the right of withdrawal or to postpone the date of payment in the event that the Federal Reserve is closed other than for customary weekend and holiday closings, in the event of a general suspension of trading in any securities market which affects TexSTAR operations or if, in the opinion of the Board, an emergency exists so the disposal of TexSTAR s securities or determination of its net asset value is not reasonably practical. As of September 30, 2012 and 2011, Capital Metro s investment in TexSTAR was $11,008 and $10,996, respectively, or 0.1% of the total portfolio. Capital Metro did not participate in any reverse repurchase agreements or security lending agreements during fiscal year 2012 or CUSTODIAL CREDIT RISK > All of Capital Metro s investments are required to be insured, registered or held in Capital Metro s name by Capital Metro s agent; therefore, Capital Metro is not exposed to custodial credit risk. 36

37 Notes to the Financial Statement For the years ended September 30, 2012 & DEPOSITS AND INVESTMENTS, continued INTEREST RATE RISK > As a means of minimizing risk of loss due to interest rate fluctuations, investment maturities will not exceed the anticipated cash flow requirements of Capital Metro funds. This is accomplished by purchasing quality, short to mediumterm securities that will complement each other in a laddered or barbell maturity structure. Maturity guidelines state that the dollar weighted average days to final stated maturity shall be 548 days or less. Securities may not be purchased that have a final stated maturity date which exceeds five years. The Capital Metro investment advisor monitors the maturity level and makes changes as appropriate. At September 30, 2012, Capital Metro s exposure to interest rate risk as measured by the segmented time distribution by investment type is summarized as follows: TexPool Texas DAILY/TERM TexSTAR Certificates of Deposit Total Investments 9/30/2012 Investments Maturities in Years Fair Value Less than 1 Less than $10,179 67,432,299 11,008 4,688,000 $72,141,686 $10,179 67,432,299 11,008 $67,453,686 4,688,000 $4,688,000 At September 30, 2011, Capital Metro s exposure to interest rate risk as measured by the segmented time distribution by investment type is summarized as follows: TexPool Texas DAILY TexSTAR Total Investments 9/30/2011 Investments Maturities in Years Fair Value Less than 1 Less than $10,167 21,132,141 10,996 $21,153,304 $10,167 21,132,141 10,996 $21,153,304 CREDIT RISK > Capital Metro s investment policy seeks to control credit risk by investing in compliance with the policy, qualifying the broker and financial institution with whom Capital Metro will transact, sufficient collateralization, portfolio diversification, and limiting maturity. As of September 30, 2012, Capital Metro s exposure to credit risk by investment category as rated by Standard & Poor s is as follows: TexPool Texas DAILY TexSTAR Certificates of Deposit Total Investments 9/30/2012 Fair Value $10,179 67,432,499 11,008 4,688,000 $72,141,686 Rating AAAm AAAm AAAm FDIC Insured 37

38 Notes to the Financial Statement For the years ended September 30, 2012 & DEPOSITS AND INVESTMENTS, continued As of September 30, 2011, Capital Metro s exposure to credit risk by investment category as rated by Standard & Poor s is as follows: TexPool Texas DAILY TexSTAR Total Investments 9/30/2011 Fair Value $10,167 21,132,141 10,996 $21,153,304 Rating AAAm AAAm AAAm CONCENTRATION OF CREDIT RISK > Capital Metro diversifies its investment portfolio so that reliance on any one issuer or broker will not place an undue financial burden on Capital Metro. Capital Metro limits its repurchase agreement exposure with a single firm to no more than 15% of the value of Capital Metro s overall portfolio and its commercial paper and banker s acceptance exposure with a single issuer to no more than 5% of the value of Capital Metro s overall portfolio. Local government investment pools are authorized at 100%. 3. RECEIVABLES Receivables at September 30, 2012 and 2011, respectively, consist of the following: Accounts Receivable Federal Grants Receivable Sales Tax Allowance for Doubtful Accounts Total Receivables 2012 $ 6, 1 4 0, ,996,380 28,588,226 (37,946) $39,687, $2,591,429 7,578,876 27,227,556 (14,149) $37,383,712 Receivables are reviewed to determine if they are collectible and a provision for uncollectible accounts is charged when collection is doubtful. 38

39 Notes to the Financial Statement For the years ended September 30, 2012 & ACCOUNTS AND RETAINAGE PAYABLE AND ACCRUED EXPENSES Current payables and retainage at September 30, 2012 and 2011, respectively, consist of the following: Vendors Payable Health and Dental SelfInsurance Worker s Compensation SelfInsurance Retainage Total Payables and Retainage 2012 $32,708, ,035 1,100, ,113 $34,893, $14,906,467 1,520,000 1,360, ,969 $18,541,436 Accrued expenses at September 30, 2012 and 2011, respectively, consist of the following: Accrued Salaries Accrued Vacation Accrued Sick Leave Accrued Post Employment Benefits Accrued Other Total Accrued Expenses 2012 $ 825,526 1,842,857 6,532, , ,686 $9,621, $1,485,354 2,299,235 3,545, , ,023 $8,132, DESIGNATED NET ASSET & RESERVE POLICY Certain net assets are designated through board directives for specific uses. Effective January 1, 2003, Capital Metro became selfinsured for health and dental benefits for Capital Metro and StarTran employees. As of September 30, 2012 and September 30, 2011, $7.8 million is designated. During fiscal year 2010, Capital Metro adopted a reserve policy which includes five components cash flow reserve, capital project reserve, operating reserve, selfinsurance reserve, and a budget stabilization reserve. The reserves are to be used at the discretion of the Capital Metro Board of Directors to fund temporary cash flow shortages, capital, operating, and selfinsurance costs not in the budget, and/or emergencies or economic downturns. As of September 30, 2012, $50,000 had been allocated to the operating reserve. 6. BUILD CENTRAL TEXAS (FORMERLY BUILD GREATER AUSTIN) The Build Greater Austin Program was renamed by the Board of Trustees at the September 2004 meeting to Build Central Texas Program to better reflect the program objectives. Build Central Texas (BCT) is still comprised of two primary segments: the Build Central Texas Program with the City of Austin and the Suburban Communities Program with the surrounding communities. The Public Transportation Mobility Fund (PTMF) commitment was a precursor to these agreements. 39

40 Notes to the Financial Statement For the years ended September 30, 2012 & BUILD CENTRAL TEXAS (FORMERLY BUILD GREATER AUSTIN), continued The total commitment for the programs is outlined below. Build Central Texas PTMF Suburban Communities Total Commitment 2012 $79,039,427 5,492,467 18,656,639 $103,188,533 As of September 30, expenditures by Capital Metro under the programs, since inception, are as follows: Build Central Texas/PTMF Suburban Communities Total expenditures 2012 $77,073,926 16,750,017 $93,823, $76,282,923 16,324,634 $92,607,557 Either Capital Metro or the City of Austin may terminate the agreement at any time, per the provisions of Section 15 of the Build Greater Austin interlocal agreement. In no way will such termination affect Capital Metro s obligation to make payments for work completed on projects previously approved for funding. Expenses are accrued when the respective city incurs an expenditure for an approved project. 7. LEASES Capital Metro has entered into a lease agreement for certain real property that extends to 50 years. The noncancelable lease commitment expires in October The aggregate minimum annual lease commitment under the term of the foregoing lease is as follows: Fiscal Year Ended September Total lease commitment Operating Leases $182, , , , ,587 6,953,531 $7,866,466 For the five year increment from , the five year rental expense is $912,935. Rent expense was $182,587 and $181,064, respectively for the years ended September 30, 2012 and Currently Capital Metro is on a month to month lease for office space for general office purposes. 40

41 Notes to the Financial Statement For the years ended September 30, 2012 & LONGTERM LIABILITIES In November 2004, the citizens of the Capital Metro service area voted in favor of allowing Capital Metro to operate urban commuter rail service from Leander, Texas to downtown Austin, Texas. In February 2006, the Capital Metro Board of Directors approved a tax exempt lease/purchase financing agreement for the funding of rail vehicles. The Master Lease/Purchase Financing Agreement dated March 1, 2006 between Bank of America Leasing and Capital, LLC and Capital Metro was executed on March 9, 2006 to purchase six rail cars from Stadler Bussnang AG, a corporation organized under the laws of Switzerland. The financed amount was $36,044,935 with an interest rate of %, payments due quarterly on the 15th of October, January, April and July of each year beginning on October 15, 2006 for 10 years in the payment amount of $1,100,281. In December 2011, Capital Metro refinanced this note in the amount of $19,190,263 with an interest rate of 2.48%, payments due quarterly on the 15th of January, April, July and October of each year beginning on January 15, 2012 for 7 years in the payment amount of $745,260. The balance was $17,210,076 as of September 30, In February 2012, the Board approved a long term financing/notes payable agreement with BBVA Compass Bank in the amount of $20,000,000 for bus purchases. This is a 10 year note, an interest rate of 2.15%, callable after April 2017 with interest due each October 1 and April 1 beginning in October 2012 and principal payments annually on April 1 of each year beginning in April DEBT SERVICE REQUIREMENTS Master Lease Financing Agreement LongTerm Financing/Note Payable PRINCIPAL INTEREST PRINCIPAL INTEREST 2013 $2,578,081 $402,957 $1,790,000 $457, ,642, ,423 1,855, , ,708, ,274 1,895, , ,776, ,471 1,935, , ,846, ,969 1,975, , ,917,312 63,726 2,020, , ,667 4,593 2,065, , ,110, , ,155,000 93, ,200,000 47,300 Total $17,210,076 $1,421,413 $20,000,000 $2,470,944 41

42 Notes to the Financial Statement For the years ended September 30, 2012 & LONGTERM LIABILITES, continued CHANGES IN LONGTERM LIABILITIES The changes in longterm liabilities for the year ended September 30, 2012 are as follows: Balance as of 09/30/11 Additions Payments Balance as of 09/30/12 Amounts Due Within One Year Accrued vacation $2,299,235 $2,906,896 $(3,363,274) $1,842,857 $1,252,466 Accrued sick leave 3,545,931 5,661,380 (2,674,403) 6,532,908 2,438,667 Note payablebus 20,000,000 20,000,000 1,790,000 Rail lease purchase 19,968,234 (2,758,158) 17,210,076 2,578,081 Deferred rent 306,470 65, ,673 City of Austin ILA 12,237, ,957 (3,398,795) 9,768,848 7,278,941 Other benefits 371,277 (206,277) 165,000 Total $38,728,833 $29,563,436 $(12,400,907) $55,891,362 $15,338,155 The changes in longterm liabilities for the year ended September 30, 2011 are as follows: Balance as of 09/30/10 Additions Payments Balance as of 09/30/12 Amounts Due Within One Year Accrued vacation $2,153,199 $3,369,912 $(3,223,876) $2,299,235 $1,340,781 Accrued sick leave 3,537,948 2,483,846 (2,475,863) 3,545,931 1,077,746 Note payablebus 2,484,164 (2,484,164) Rail lease purchase 23,531,167 (3,562,933) 19,968,234 3,699,337 Deferred rent 250,406 56, ,470 City of Austin ILA 9,481,465 4,970,479 (2,214,258) 12,237,686 3,398,795 Other benefits 403,096 (31,819) 371,277 Total $41,841,445 $10,880,301 $(13,992,913) $38,728,833 $9,516, COMMITMENTS Capital Metro has a capital spending plan for projects for upcoming and future years. Capital Metro s 2012 capital budget has appropriations of approximately $20.6 million. Capital Metro s contractual commitments related to its capital improvement plan are approximately $35.4 million as of September 30, Capital Metro has executed contracts with various goods and services providers totaling approximately $360.0 million with termination dates through September All contracts contain a termination for convenience clause in which such contracts may be terminated, in whole or in part, for the convenience of Capital Metro. 42

43 Notes to the Financial Statement For the years ended September 30, 2012 & COMMITMENTS,continued Capital Metro and the City of Austin are parties to an Interlocal Agreement of Regional and Transportation Projects dated June 2001 (Regional Mobility). This interlocal agreement allocated $42 million to expedite regional mobility projects in the region. As of September 2012 and 2011, Capital Metro had a remaining balance of $3.5 million and $7.0 million, respectively under this portion of the agreement. Annual payments are expensed each year and are reflected in the Statement of Revenues, Expenses and Changes in Net Assets as mobility program expense when the Capital Metro Board of Directors annually approves the commitment. $3.5 million was approved for FY2012 and Capital Metro has entered into an Interlocal Agreement with the City of Austin, as amended in April 2010, to pay the City of Austin its pro rata share of 25% of Capital Metro s onecent sales tax from 2001 to 2004 in consideration for the City to carry out transportation mobility projects as approved by Capital Metro (ILA). The remaining balance outstanding as of September 30, 2012 was $45.4 million. The amount is payable when the City of Austin incurs an expenditure toward an approved mobility project. As of September 30, 2012, approximately $2.5 million is accrued in the accompanying Statement of Net Assets as a long term liability and $7.3 million is accrued as a short term liability. As specified in the agreement, payment is due to the City if the current year sales tax revenue exceeds the base amount as defined. Capital Metro developed and implemented a plan for a Fuel Risk Management Program to mitigate fuel price risk for diesel and gasoline, protect and manage budget objectives, and reduce price volatility and introduce price predictability. This may be accomplished by purchasing financial instruments known as futures, swap and/or options. This program began in December On September 30, 2012, Capital Metro s hedge consisted of 70% coverage or 84,000 gallons per month of usage from October 2012 through September These outstanding swaps had a total cost of $746,393 with a negative fair value of $28,583 resulting in an unrealized gain of $615,376 as of September 30, (K) PLANS Capital Metro and StarTran have a pension benefits plan for its full time employees and substantially all administrative employees, respectively, under a 401(k) defined contribution plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investments earnings. Employees are eligible to participate after six months of service. In January 2005, Capital Metro and StarTran ended the employer contribution to the plan for Capital Metro and StarTran administrative employees. The plan allows loans to participants. Participants start to vest in the employer s contribution at the completion of one year of service with 100% vesting occurring after five years. Capital Metro and StarTran s designated Plan Administrator administers the plan. Capital Metro and StarTran maintain the authority to amend the plan. The StarTran plans will dissolve in 2013 since all passenger services have been contracted out to private companies. Contributions from participating employees for Capital Metro and StarTran totaled $954,014 and $1,067,246 respectively, for FY 2012 and $781,649 and $1,336,920, respectively, for FY

44 Notes to the Financial Statement For the years ended September 30, 2012 & DEFINED BENEFIT RETIREMENT PLANS Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc. The Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc. (the Plan) was closed and the benefits were frozen for all participants as of August 18, There will no longer be any employee contributions. All future valuations will have an employer cost only. The following plan changes, adopted as a result of the plan freeze on August 18, 2012 are reflected in the latest valuation dated January 1, Participants are eligible for immediate distributions. Service requirements for Unreduced Early Retirement Age (UERA) was changed from 25 years to 22.5 years and participants receive credit toward UERA while working for the new contractor. Lump sums are capped unless a participant is eligible for UERA. Several assumptions and methods were changed in this valuation to account for the plan freeze. Assumed percentage of participants terminating or retiring from active service. Assumed turnover/retirement rate. Interest crediting rate on employee contributions. Interest rate assumption used to calculate the present value of lump sum distributions. Maximum lump sum amounts increased. Administrative expense assumption was increased. The funding method changed from Replacement Life Entry Age to Traditional Entry Age to reflect that the Plan is closed and frozen effective August 18, The following information applies to the Plan prior to August 18, The Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc., (the Plan), which covers substantially all fulltime transportation and maintenance employees is a contributory singleemployer, defined benefit pension plan sponsored by Capital Metro. The Plan became effective March 1, 1958 and was amended September 2002 when the plan was converted to governmental status and the plan sponsor was changed to Capital Metro effective January 1, The annual pension cost has been computed using provisions of GASB Statement No, 27, Accounting for Pensions by State and Local Government Employees. All Plan assets are maintained under a trust agreement. Under the terms of the trust agreement, Smith Barney Corporate Trust (the Trustee) serves as trustee on behalf of the Plan and carries out an investment policy established by the Retirement Plan Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations. The following is a description of the Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran Inc.: PLAN DESCRIPTION > The Retirement Plan Committee for the Plan is the administrator of a singleemployer defined benefit pension plan sponsored by Capital Metro. Eligible employees of StarTran, Inc. 44

45 Notes to the Financial Statement For the years ended September 30, 2012 & DEFINED BENEFIT RETIREMENT PLANS, continued are covered by the Plan. Employees who are covered under the applicable collective bargaining agreements and who work at least 1,000 hours per year are eligible to become participants after one year. The following table summarizes membership of the plan at January 1, Retirees and beneficiaries currently receiving benefits 230 Terminated plan members entitled to, but not yet receiving benefits 128 Active plan members 755 Total 1,113 The Plan provides retirement, death and disability benefits. The retirement benefits become 100% vested after 5 years of vesting service at 20% a year. Employees may retire with unreduced accrued benefits at age 65, or when benefit accrual service equals or exceeds 25 years. The monthly benefit at retirement is payable in a ten year certain and life thereafter form of annuity. If participants terminate employment (for reasons other than death or disability) prior to becoming vested, such participants shall be entitled to a refund equal to the sum of all mandatory contributions made by the participant plus interest on such contributions compounded annually at a rate of 3% for years prior to March 1, 1976 and 5% for years after March 1, 1976 until March 1, 1988 at which time the interest credited for subsequent plan years is an amount equal to 120% of the Federal midterm rate in effect at the beginning of the plan year. Retirement benefit payments are determined by application of a benefit formula based on the participant s years of pension credited service. Effective July 1, 2000, the monthly retirement benefit for each year of benefit accrual service is $60.00 for years earned. There are no automatic or guaranteed postretirement costofliving adjustments, but ad hoc retiree benefits increases may be created via plan amendments. Amendments to the plan are made only with the authority of the Retirement Plan Committee. The most recently available financial statements of the fund are for the year ended December 31, A copy of the Plan s annual audit may be obtained from: Capital Metropolitan Transportation Authority 2910 East Fifth Street Austin, Texas FUNDING POLICY > The employer makes contributions, which are actuarially determined as of each valuation date and compliant with the terms of applicable labor contracts, which currently call for employer contributions to be made equal to 4.3% of participant payroll. The contributions consist of a normal cost contribution and an amortization of the unfunded actuarial accrued liability contribution. Employees are required to contribute to the plan at a rate equivalent to 4.3% of Top Operators hourly wages. Unfunded actuarial accrued liability contributions are determined as a level percent of payroll contribution. The Retirement Plan Committee has the sole authority to establish or to amend the obligations to contribute to the plan either by the employer or the participants. The annual required employer contribution for the 2011 plan year was 4.3% of the total participant pension compensation 45

46 Notes to the Financial Statement For the years ended September 30, 2012 & DEFINED BENEFIT RETIREMENT PLANS, continued during the period January 1, 2011 through December 31, The current annual required employer contribution for the 2012 plan year is 4.3% of total participant pension compensation during the period January 1, 2012 through December 31, The 2012 plan year employer contribution funded the normal cost and amortized the existing unfunded actuarial accrued liability on a closed 30year, level percent of payroll amortization, with 28 years remaining as of the January 1, 2012 valuation amortization period. The costs of administering the plan are paid by the plan, and are considered in the determination of the required employer contribution rate. ANNUAL PENSION COST > For the 2012 and 2011 fiscal year, the employer s annual pension cost was $4,254,165 and $2,031,346, the annual required contribution (ARC) was $4,246,630 and $2,034,486 and the actual contribution was $4,000,000 and $1,279,245. With the January 1, 2003 actuarial valuation, the actuarial cost method changed from Frozen Age Actuarial Cost Method to the Entry Age Normal Cost Method and that method was used to determine the required contribution as part of this actuarial valuation. The actuarial assumptions included (a) an 7.5% investment rate of return (net of investment expenses) and (b) projected retirement ages varying by attained age. The plan does not provide for periodic increases in post retirement benefits unless specifically amended. The most recent such amendment provided for a post retirement benefit increase of 10% effective March 1, The investment return assumption reflects an inflation component of approximately 3%. The actuarial value of plan assets was a 4year smoothing method such that the actuarial value of assets is within 20% of market value. Only 25% of cumulative market fluctuations are recognized in each year. The unfunded actuarial accrued liability is being amortized as a level percent of payroll on a closed 30year amortization period. The following table illustrates the Net Pension Asset. Annual Employer % Annual Interest on Fiscal Year Pension Amount Pension Cost ARC NPO/(NPA) Beginning 10/1 Cost Contributed Contributed 7.50% Adjustment Balance 2010 $1,787,676 $1,384, % $(45,912) $(36,059) $(208,943) ,031,346 1,279, % (15,671) (12,531) 543, ,254,165 4,000, % 40,737 33, ,323 The following table illustrates the funding status of the plan as of the most recent valuation date, January 1, Actuarial Actuarial Unfunded UAAL as a Actuarial Value of Accrued AAL Funded Annual Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Covered Payroll Covered Payroll Date (a) (b) (b)(a) (a)/(b) c (ba)/c 1/1/2012 $29,394,291 $64,608,748 $35,214, % $21,222, % Six year historical trend information designed to provide information about the pension fund s progress made in accumulating sufficient assets to pay benefits due and the fund s funding progress about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AALs for benefits is presented in Required Supplementary Information. 46

47 Notes to the Financial Statement For the years ended September 30, 2012 & DEFINED BENEFIT RETIREMENT PLANS, continued Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees The Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees (the Plan) was established on January 1, 2005 as a noncontributory singleemployer, defined benefit pension plan sponsored by Capital Metro. The Plan covers all fulltime administrative employees of Capital Metro and provides retirement, death, and disability benefits. The annual pension cost for 2011 has been computed using the provisions of GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. All Plan assets are maintained under a trust agreement. Investors Bank & Trust Co. serves as trustee on behalf of the Plan and carries out an investment policy established by the Retirement Plan Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations. The following is a description of the Capital Metropolitan Transportation Authority Plan for Administrative Employees: PLAN DESCRIPTION > The Retirement Plan Committee for the Plan is the administrator of a singleemployer defined benefit pension plan sponsored by Capital Metro. Eligible employees of Capital Metro are covered by the Plan. A fulltime administrative employee of Capital Metro becomes a plan member on the first day of the month coincident with or next following his/her date of hire. The following table summarizes membership of the plan at January 1, Retirees and beneficiaries currently receiving benefits 50 Terminated plan members entitled to, but not yet receiving benefits 88 Active plan members 294 Total 432 The plan provides retirement, death and disability benefits. A plan member shall become vested in his/ her accrued benefit based on the following table: Years of Vesting Service Vested Percentage Less than 1 year 0% 1 to less than 2 20% 2 to less than 3 40% 3 to less than 4 60% 4 to less than 5 80% 5 or greater 100% Employees may retire at age 65. The monthly benefit at retirement is equal to the sum of one and onehalf percent (1½%) of the Plan member s average annual compensation times the years of credited service plus onehalf percent (1/2%) of the Plan member s average annual compensation in excess of covered compensation times years of credited service. The normal form of payment is a life annuity. If a member is married on his retirement date, the automatic form of payment is an actuarially equivalent 50% joint and survivor annuity, unless the member elects otherwise. A member may elect early retirement on the first day of any month following the completion of five (5) years of service and attainment of age 55. The most recently available financial statements of the fund are for the year ended December 31, A copy of the Plan s annual audit may be obtained from: Capital Metropolitan Transportation Authority 2910 East Fifth Street Austin, Texas

48 Notes to the Financial Statement For the years ended September 30, 2012 & DEFINED BENEFIT RETIREMENT PLANS, continued FUNDING POLICY > The Plan is funded by employer contributions. The actuarial cost method used to determine the normal cost and contribution amounts of the Plan is Entry Age Normal Actuarial Cost Method in this valuation. The asset valuation method has been changed to a 5year smoothing method. It is now in it second year of transition. In the first year of this method, the actuarial value of assets was set to equal to market value. The initial Normal Cost is the annual cost of projected benefits for all employees who are eligible for funding. It is determined on a level percentage of payroll basis from entry age the age at which an employee would have first been consider for funding assuming the Plan had always been in effect to assumed exit age. After the initial year, the Normal Cost also reflects the spreading of actuarial gains or losses. ANNUAL PENSION COST > The Plan does not require member contributions. For the 2011 and 2010 fiscal year, the annual pension cost was $1,673,092 and $1,455,716, the annual required contribution (ARC) was $1,659,488 and $1,453,308, and the actual contribution was $1,578,606 and $1,635,369. The actuarial method is Entry Age Normal Actuarial Cost Method, the asset valuation method is market value, the investment rate of return is 7.5%, the projected salary increase is 4.0%, and the inflation factor of 0%. The following table illustrates the Net Pension Obligation/Asset. There are two tables since the information based on fiscal year was not available for Plan Year Annual Employer %Annual Interest on Ended Pension Amount Pension Cost ARC NPO/(NPA) 12/31 Cost Contributed Contributed 7.50% Adjustment Balance 2009 $1,790,783 $1,380, % ($40,841) $53,897 ($133,759) Plan Year Annual Employer %Annual Interest on Ended Pension Amount Pension Cost ARC NPO/(NPA) 10/1 Cost Contributed Contributed 7.50% Adjustment Balance 2010 $1,455,716 $1,635, % ($2,899) $5,307 ($218,301) ,673,092 1,578, % (16,373) 29,977 (123,814) The following table illustrates the funding status of the plan as of the most recent valuation date, October 1, Actuarial Actuarial Unfunded UAAL as a Actuarial Value of Accrued AAL Funded Annual Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Covered Payroll Covered Payroll Date (a) (b) (b)(a) (a)/(b) c (ba)/c 10/1/2012 $14,392,885 $20,255,105 $5,862, % $18,347, % Six year historical trend information designed to provide information about the pension fund s progress made in accumulating sufficient assets to pay benefits due and the fund s progress about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AAL s for benefits is presented in Required Supplementary Information. 48

49 Notes to the Financial Statement For the years ended September 30, 2012 & CAPITAL ASSETS Changes in capital assets for fiscal 2012 were: Capital assets not being depreciated: Land and improvements Construction in process Balance of 09/30/2011 Additions Retirement $53,464,669 6,332,694 $230,000 29,667,819 $(260,431) Transfers & Completed Projects (25,802,132) Balance of 09/30/2012 $53,434,238 10,198,381 Total capital assets not being depreciated 59,797,363 29,897,819 (260,431) (25,802,132) 63,632,619 Other capital assets: Building and improvement Railroad Buses and Equipment Passenger parking & stations Leasehold improvements 84,420, ,028, ,207,013 70,677,031 82,198 (987,247) (17,857,774) (4,275,124) 933,378 1,249,567 22,308,998 1,310,189 84,366, ,277, ,658,237 67,712,096 82,198 Total other capital assets 506,414,703 (23,120,145) 25,802, ,096,690 Less: accumulated depreciation Building and improvement Railroad Buses and equipment Passenger parking & stations Leasehold improvements Less: accumulated depreciation 32,649,558 50,840, ,189,434 20,625,292 82, ,387,222 3,712,003 10,561,805 14,500,881 4,455,199 33,229,888 (978,757) (17,607,064) (4,275,124) (22,860,945) 35,382,804 61,402, ,083,251 20,805,367 82, ,756,165 Total capital assets, net $308,824,844 $(3,332,069) $(519,631) $304,973,144 49

50 Notes to the Financial Statement For the years ended September 30, 2012 & CAPITAL ASSETS, continued Changes in capital assets for fiscal 2011 were: Capital assets not being depreciated: Land and improvements Construction in process Balance of 09/30/2010 Additions Retirement $52,591,322 7,167,942 $378,101 10,612,587 Transfers & Completed Projects $495,246 (11,447,835) Balance of 09/30/2011 $53,464,669 6,332,694 Total capital assets not being depreciated 59,759,264 10,990,688 (10,952,589) 59,797,363 Other capital assets: Building and improvement Railroad Buses and Equipment Passenger parking & stations Leasehold improvements 83,730, ,030, ,530,267 68,511,701 82,198 (7,423,351) 689, ,622 7,100,097 2,165,330 84,420, ,028, ,207,013 70,677,031 82,198 Total other capital assets 502,885,465 (7,423,351) 10,952, ,414,703 Less: accumulated depreciation Building and improvement Railroad Buses and equipment Passenger parking & stations Leasehold improvements Less: accumulated depreciation 29,429,151 39,476, ,240,957 16,757,238 82, ,986,049 3,220,407 11,364,235 16,227,513 3,868,054 34,680,209 (7,279,036) (7,279,036) 32,649,558 50,840, ,189,434 20,625,292 82, ,387,222 Total capital assets, net $332,658,680 $(23,689,521) $(114,315) $308,824,844 Capital Metro owns certain real properties and a mass transit easement, which are used for current rail operations and held for future mass transit purposes. Such property is listed at cost. 50

51 Notes to the Financial Statement For the years ended September 30, 2012 & CONTINGENCIES AND NEW INITIATIVES Various claims have been asserted against Capital Metro from personal injuries involving Capital Metro property. Capital Metro plans to vigorously defend all allegations. Capital Metro has estimated the probable loss from such asserted claims, and a liability has been incurred and is reflected in the financial statements. Certain other claims have been asserted for which estimation of potential loss, if any, cannot be determined. Potential losses on these claims, if any, are not included in the financial statements. Capital Metro receives federal grants that are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under terms of the grant. Capital Metro s management believes such disallowances, if any, will not have a material effect on the financial statements. 14. SELFINSURANCE Worker s compensation claims are reserved and paid in accordance with the provisions of the Texas Worker s Compensation Act. Claims that are probable and can be reasonably estimated are accrued as a part of accounts payable. The selfinsurance retention levels as of September 30, 2012 for worker s compensation are $350,000 per occurrence. At September 30, 2012, there are no claims exceeding Capital Metro s retention limits. Workers Compensation Claims Beginning of year liability Current year claims and/or changes in estimates Claim payments End of year current liability 2012 $1,360, ,013 (705,013) $1,100, $1,590, ,297 (788,297) $1,360,000 The end of year liability includes claims incurred and reported and estimated claims incurred but not reported. Capital Metro has been selfinsured for health and dental since January 1, United Health Care, Inc. administers the plan for Capital Metro and StarTran employees. Health and Dental SelfInsurance Beginning of year liability Current year claims and/or changes in estimates Claim payments End of year current liability 2012 $1,520,000 14,325,013 (14,961,978) $883, $1,324,000 13,980,871 (13,784,871) $1,520,000 Due to the types of risk selfinsured, the ultimate amount to be paid out may be more or less than the amounts accrued within accounts payable at September 30, Capital Metro has a contingent liability in the event the insurer is unable to fulfill its responsibility under the contract. 51

52 Required Supplementary Information, (Unaudited) For the year ended September 30, 2012 Governmental Accounting Standards Board Statement No. 27 Defined Benefit Retirement Plan CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY RETIREMENT PLAN FOR BARGAINING UNIT EMPLOYEES OF STARTRAN INC. Schedule of Funding Progress and Employer Contributions Actuarial Actuarial Unfunded UAAL as a Actuarial Value of Accrued AAL Funded Annual Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Covered Payroll Covered Payroll Date (a) (b) (b)(a) (a)/(b) c (ba)/c 1/1/2007 $26,005,809 $39,022,696 $13,016, % $27,816, % 1/1/ ,115,679 41,740,149 12,624, % 26,434, % 1/1/ ,592,035 45,202,519 18,610, % 28,401, % 1/1/ ,725,459 49,261,768 19,536, % 30,548, % 1/1/ ,066,112 52,937,617 22,871, % 30,523, % 1/1/ ,394,291 64,608,748 35,214, % 21,222, % Fiscal Year Annual Required Actual Percentage Beginning 1Oct Contributions Contributions Contributed ,373,061 1,292, % ,330,512 1,278, % ,600,850 1,395, % ,797,529 1,384, % ,034,486 1,391, % ,246,630 4,000,000* 94.2% *The 2012 actual contributions indicated for fiscal year beginning 2012 is based on an estimated contribution. See accompanying independent auditors report. 52

53 Required Supplementary Information, (Unaudited) For the year ended September 30, 2012 Governmental Accounting Standards Board Statement No. 27 Defined Benefit Retirement Plan CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY RETIREMENT PLAN FOR ADMINISTRATIVE EMPLOYEES Schedule of Funding Progress and Employer Contributions Actuarial Actuarial Unfunded UAAL as a Actuarial Value of Accrued AAL Funded Annual Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Covered Payroll Covered Payroll Date (a) (b) (b)(a) (a)/(b) c (ba)/c 1/1/2008 $4,966,693 $7,679,799 $2,713, % $17,437, % 1/1/2009 5,849,277 9,974,856 4,125, % 18,995, % 1/1/2010 8,451,210 13,669,027 5,217, % 17,330, % 10/1/ ,513,526 15,047,875 4,534, % 17,330, % 10/1/ ,318,870 17,700,666 6,381, % 16,565, % 10/1/ ,392,885 (1) 20,255,105 (2) 5,862, % 18,347, % (1) Projected actuarial value of 10/1/2012 based on a 7.5% rate of return from 4/30/2012 (last known value) to 9/30/2012 based on estimated distributions and contributions. (2) Based on estimated distributions Planned Year Annual Required Actual Percentage Ended Dec. 31 Contributions Contributions Contributed ,575,061 1,575, % ,555,024 1,555, % ,616,637 2,161, % ,836,212 1,380, % ,029,276 1,994, % Fiscal Year Annual Required Actual Percentage Commencing Contributions Contributions Contributed 10/1/2010 1,453,308 1,635, % 10/1/2011 1,659,488 1,578, % See accompanying independent auditors report. 53

54 This page intentionally left blank

55 2012 Statistical Section Comprehensive Annual Financial Report

56

57 This section of Capital Metro s comprehensive 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 Capital Metro s overall financial condition. FINANCIAL TRENDS These schedules contain trend information to help the reader understand how Capital Metro s financial performance and wellbeing have changed over time. (Page 58) REVENUE CAPACITY These schedules contain information to help the reader assess Capital Metro s most significant local revenue source. (Pages 59 61) DEBT CAPACITY This schedule presents information to help the reader assess the affordability of Capital Metro s current level of outstanding debt and the ability to issue additional debt in the future. (Page 62 63) DEMOGRAPHIC AND ECONOMIC INFORMATION These schedules offer demographic and economic indicators to help the reader understand the environment within which Capital Metro s financial activities take place. (Pages 64 65) OPERATING INFORMATION These schedules contain service and infrastructure data to help the reader understand how the information in Capital Metro s financial report relates to the services Capital Metro provides and the activities it performs. (Pages 66 72) Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 57

58 CONDENSED STATEMENT OF NET ASSETS LAST TEN YEARS Total assets $424,222,373 $377,672,823 $399,721,817 $408,666,825 $408,454,908 $415,002,446 $413,349,760 $384,209,353 $378,242,099 $394,229,931 Total liabilities 92,197,909 59,345,298 77,198,059 76,283,235 77,283,013 75,039,534 70,810,730 31,232,701 23,358,423 23,754,024 Net assets Invested in capital assets 287,763, ,856, ,643, ,905, ,857, ,401, ,689, ,529, ,515, ,420,317 Restricted for construction 960,958 Unrestricted 44,261,396 29,470,915 15,880,409 13,478,019 44,314,499 83,561, ,889, ,447, ,368, ,055,590 Total net assets $332,024,464 $318,327,525 $322,523,758 $332,383,590 $331,171,895 $339,962,912 $342,539,030 $352,976,652 $354,883,676 $370,475,907 Unaudited see accompanying auditors report 58

59 REVENUE BY SOURCE LAST TEN YEARS Revenue Sales tax $165,248,523 $151,156,042 $141,867,771 $139,895,675 $154,156,602 $150,295,291 $135,915,215 $122,113,229 $114,480,570 $106,260,112 Transportation fares 10,967,223 9,928,579 9,001,139 7,901,357 5,983,916 5,720,241 5,222,577 4,630,838 3,946,421 3,835,288 Contract revenue 7,150,215 6,820,131 5,865,965 6,539,314 7,114,481 6,462,091 5,995,098 5,907,054 5,915,251 5,995,365 Rail freight revenue 4,998,943 7,550,692 13,074,292 14,393,190 7,473,899 6,435,664 7,265,119 5,639,988 3,590,828 2,700,678 Commuter rail revenue 2,265, , ,038 Investment income 86,006 24,616 29, ,969 2,952,472 6,116,977 5,517,370 2,593,097 1,767,771 4,308,087 Grant income 31,451,123 23,287,688 26,623,174 33,094,397 24,192,975 16,859,282 19,594,725 33,554,221 13,905,544 23,490,205 Other Income 805,412 1,201,994 1,722,216 1,517, ,242 1,278,055 18, , , ,963 Total revenue $222,972,968 $200,924,408 $198,477,566 $204,127,953 $202,650,587 $193,167,601 $179,528,476 $174,539,386 $144,130,409 $147,458,698 Unaudited see accompanying auditors report. 59

60 SALES TAX REVENUE LAST TEN YEARS SALES TAX COMPOUNDED PERCENT PERCENT CHANGE FISCAL YEAR REVENUE CHANGE FROM BASE YEAR (3) FROM PRIOR YEAR 2002 $112,288, $106,260, % 5.4% 2004 $114,480, % 7.7% 2005 $122,113, % 6.7% 2006 $135,915, % 11.3% 2007 $150,295, % 10.6% 2008 $154,156, % 2.6% 2009 $139,895, % 9.3% 2010 $141,867, % 1.4% 2011 $151,156, % 6.5% 2012 $165,248, % 9.3% Average Growth 4.2% Notes: (1) Sales tax revenue accounts for 80% of revenue in FY 2012 (2) Sales tax rate 1% since 1995 (3) Base year for 2003 through 2012 is 2002 SALES TAX REVENUE LAST TEN YEARS Unaudited see accompanying auditors report. 60