URBANA & CHAMPAIGN SANITARY DISTRICT Urbana, Illinois. FINANCIAL STATEMENTS April 30, 2010

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1 URBANA & CHAMPAIGN SANITARY ISTRICT Urbana, Illinois FINANCIAL STATEMENTS April 30, 2010

2 TABLE OF CONTENTS PAGE INEPENENT AUITOR'S REPORT... I MANAGEMENT'S ISCUSSION AN ANALYSIS... Ill BASIC FINANCIAL STATEMENTS Statement of Net Assets... 1 Statement of Revenues, Expenses and Change in Net Assets... 2 Statement of Cash Flows Notes to Financial Statements 5 REQUIRE SUPPLEMENTAL INFORMATION Schedule of Funding Progress - Illinois Municipal Retirement Fund Schedule of Funding Progress - Post-Retirement Healthcare Plan SINGLE AUIT SECTION Schedule of Expenditures of Federal Awards lndependent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards lndependent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs Schedule of Status of Prior Audit Findings... 26

3 KARL E. RAKE, CPA CURTIS. LILES, CPA R. NEIL RICHARSON, CPA... JAMES P. BRAY, CPA (Retired) BRAY, RAKE, LEES & RICHARSON LLP Certified Public Accountants 1606 N. Willow View Road, Suite IE Urbana, Illinois Phone Fax July 16, Board of Trustees Urbana & Champaign Sanitary istrict Urbana, Illinois Independent Auditor's Report We have audited the accompanying financial statements of Urbana & Champaign Sanitary istrict as and for the year ended of April 30, 2010, as listed in the table of contents. These financial statements are the responsibility of the istrict's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Urbana & Champaign Sanitary istrict as of April 30, 2010, and the changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated July 16, 2010 on our consideration of Urbana & Champaign Sanitary istrict's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants 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 on or 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. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and the schedules of funding progress information on pages Ill through VII and 19 through 20 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 Members of the American Institute of Certified Public Accountant. Members of the Illinois CPA Society

4 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. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and is also not a required part of the financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. BRAT, RAKE, LILES & RICHARSON LLP BRAY, m, LEES & RICHARSON LLP Certified Public Accountants

5 URBANA & CHAMPAIGN SANITARY ISTRICT MANAGEMENT'S ISCUSSION AN ANALYSIS As management of the Urbana & Champaign Sanitary istrict (istrict), we offer readers of the istrict's financial statements this narrative overview and analysis of the financial activities of the istrict for the fiscal year ended April 30, We encourage readers to consider the information presented here in conjunction with the istrict's financial statements and notes to the basic financial statements to enhance their understanding of the istrict's financial performance. Financial Highlights The assets of the istrict exceed its liabilities at April 30, 2010 by $60,552,105. Of this amount, $23,052,206 (unrestricted net assets) may be used to meet the istrict's ongoing obligations. In FY2010, total assets increased by $5,326,899 and total liabilities increased by $5,152,061. The istrict's long-term liabilities increased by $5,330,888 and the istrict's long-term debt increased by $5,350,222. The istrict's operating expenses (excluding depreciation) decreased in FY 10 by $1 31,944. Operating revenues decreased by $1,217,242. Investment income decreased by $273,712 as a result of lower interest rates. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the istrict's basic financial statements. The istrict's basic financial statements include this discussion, the financial statements, and the notes to the financial statements that explain in more detail some of the information in the financial statements. Required Financial Statements The financial statements of the istrict report information using accounting methods similar to those used by private-sector companies. These statements provide both long-term and short-term information about the istrict's overall financial status. The Statement of Net Assets includes all of the istrict's assets and liabilities, and provides information about the nature and amounts of investments in resources (assets) and the obligations to istrict creditors (liabilities). It provides one way to measure the financial health of the istrict by providing the basis for evaluating the capital structure of the istrict and assessing its liquidity and financial flexibility. However, other nonfinancial factors must be considered such as changes in economic conditions, service area growth, and government legislation. All of the current year's revenues and expense are accounted for in the Statement of Revenues, Expenses, and Changes in Net Assets. This statement measures the success of the istrict's operations over the past year, and can be used to determine whether the istrict has successfully recovered all its costs through its user fees and other charges.

6 The final required financial statement is the Statement of Cash Flows. This statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and other financing activities. It provides answers to such questions as where did the cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. Table A-I Condensed Summary of Net Assets Current and other assets Capital assets Total Assets 11 7,248, ,921,858 Long-term liabilities Other liabilities Total Liabilities 56,696,652 51,544,591 Net assets: Invested in capital assets (net of related debt) Unrestricted Total net assets As shown in Table A-I, the largest portion of the istrict's net assets reflects its investment in capital assets (i.e., sewers, buildings, machinery and equipment), which are used to provide wastewater treatment services.

7 Table A-2 Condensed Summary of Revenues, Expenses and Changes in Net Assets FY2010 FY2009 Operating revenues: Sewer user charges $ 9,854,405 $ 9,966,424 Other 960,604 2,065,827 Total Operating revenues 10,815,009 12,032,251 Nonoperating revenues 621, ,274 Total revenues 11,436,472 13,029,525 Operating expenses: Operations epreciation 2,883,423 2,862,281 Total operating expenses 10,021,994 10,132,796 Nonoperating expenses Total expenses 11,261,634 11,463,246 Income (loss) before capital contributions 174,838 1,566,279 Capital contributions - 805,670 Changes in net assets 174,838 2,371,949 Beginning net assets 60,377,267 58,005,318 Ending net assets The major factors which drove these results include: Sewer user charges decreased due to lower billable flow for Commercial and Residential; and Industrial customers. Other operating revenues decreased primarily due to lower connection and interceptor cost recovery fees which is reflective of the slowdown in real estate development due to the economy. Nonoperating revenue decreased 37.7% primarily due to lower interest income on investments which was reflective of the low interest rate environment and also due to lower Illinois Replacement Tax revenue. Operational expenses decreased 1.8%, primarily due to lower worker's compensation insurance and electricity costs, offset somewhat by higher wages.

8 Table A-3 Capital Assets Land Buildings, structures & improvements Machinery & equipment Vehicles Construction in progress Sub-total Less: Accumulated depreciation Net Capital Assets ebt Administration The istrict has $54,941,565 in obligated debt. This debt was incurred for wastewater treatment facilities improvements and sewer interceptor projects funded by the State of Illinois IEPA Revolving Loan Fund. This program provides low interest loans for use in the construction of wastewater treatment facilities. Interest on these loans is payable semi-annually with interest rates ranging from 2.50% to 2.57%. Table A-4 Notes Payable Northwest Interceptor 2005 Improvements Windsor Curtis Phase I Windsor Curtis Phase II Improvement Total Notes Payable Economic Factors and the Next Year's Budget and Rates The management and Trustees of the istrict considered many factors when setting the fiscal year 2011 budgets, user fees, and charges. These include analysis of the local economic condition and the impact of user rates on major customers.

9 Requests for Information This financial report is designed to provide a general overview of the istrict's finances for all those with an interest in the istrict's finances and to demonstrate the istrict's accountability for the funds it receives. Anyone having questions concerning any of the information provided or requests for additional information may contact Michael Little, Executive irector, Urbana & Champaign Sanitary istrict, P.O. Box 669, Urbana, IL VII

10 URBANA & CHAMPAIGN SANITARY ISTRICT STATEMENT OF NET ASSETS April 30, 2010 CASH AN CASH EQUIVALENTS CERTIFICATES OF EPOSIT RECEIVABLES User fees Accrued interest SUPPLIES INVENTORY PREPAI EXPENSES ASSETS CAPITAL ASSETS, net of accumulated depreciation (Note 4) TOTAL ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Notes payable, current portion Obligations under capital leases, current portion LIABILITIES AN NET ASSETS LONG-TERM LIABILITIES Notes payable, long-term (Note 5) Obligations under capital leases, long-term (Note 6) Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted net assets TOTAL LIABILITIES AN NET ASSETS The accompanying notes are an integral part of the financial statements. 1

11 URBANA & CHAMPAIGN SANITARY ISTRICT STATEMENT OF REVENUES, EXPENSES, AN CHANGE IN NET ASSETS Year Ended April 30,2010 OPERATING REVENUES User fees Commercial and residential Industrial Contract Connection and interceptor recovery fees Miscellaneous OPERATING EXPENSES Administrative User charge system Engineering expenses Operations and maintenance Building and grounds Bio-solids Wastewater operations Laboratory epreciation Income from operations NONOPERATING REVENUES (EXPENSES) Replacement income taxes lnterest income Interest expense CHANGE IN NET ASSETS NET ASSETS, BEGINNING OF YEAR NET ASSETS, EN OF YEAR The accompanying notes are an integral part of the financial statements.

12 URBANA & CHAMPAIGN SANITARY ISTRICT STATEMENT OF CASH FLOWS Year Ended April 30,2010 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers and users Payments to suppliers Payments to employees Net cash provided by operating activities CASH FLOWS PROVIE BY NONCAPITAL FINANCING ACTIVITIES Replacement tax receipts Net cash provided by noncapital financing activities CASH FLOWS FROM CAPITAL AN RELATE FINANCING ACTIVITIES Proceeds from IEPA loans Purchase of property and equipment Principal payments on notes payable Principal payments on obligations under capital leases Interest paid on notes payable and capital leases (1,260,781 1 Net cash used in capital and related financing activities (4,038,075) CASH FLOWS FROM INVESTING ACTIVITIES lnterest income Purchase of investments Sale and maturity of investments Net cash used by investing activities Net decrease in cash and cash equivalents CASH AN CASH EQUIVALENTS, BEGINNING OF YEAR CASH AN CASH EQUIVALENTS, EN OF YEAR

13 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIE BY OPERATING ACTIVITIES Net operating income Adjustments to reconcile operating income to net cash provided by operating activities: epreciation Effects of changes in operating assets and liabilities: Receivables Supplies inventory Prepaid expenses Accounts payable Accrued expenses Net cash provided by operating activities NONCASH INVESTING, CAPITAL & FINANCING ACTIVITIES The accompanying notes are an integral part of the financial statements. 4

14 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30,2010 NOTE 1- SUMMARY OF SlGNFlCANT ACCOUNTING POLICIES Urbana & Champaign Sanitary istrict ("istrict") is a governmental unit, which provides wastewater treatment services for the University of Illinois, the Village of Savoy, the cities of Champaign and Urbana, and various unincorporated areas. It is governed by a board of three trustees who are appointed by the Champaign County Board, which has no authority over the istrict other than to appoint trustees. Reporting Entity Generally accepted accounting principles require that the reporting entity include (1) the primary government, (2) organizations for which the primary government is financially accountable and (3) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. These criteria have been considered and there are no agencies or entities which should be presented with the istrict. Basis of Accounting The accounting policies of the istrict conform to generally accepted accounting principles as applicable to local government enterprise funds. The accounts of the istrict are maintained, and the accompanying financial statements have been prepared, on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recognized when incurred. The istrict is applying all applicable Government Accounting Standards Board (GASB) pronouncements as well as following all Financial Accounting Board Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins of the Committee of Accounting Procedure issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Cash and Cash Equivalents For purposes of reporting cash flows, the istrict considers deposits with the Illinois Funds to be cash equivalents. The istrict considers certificates of deposit to be investments regardless of maturity date. Certificates of eposit Certificates of deposit are carried at fair value.

15 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 Accounts Receivable Accounts receivable are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivable are stated at the invoice amount plus delinquency fees. Account balances with invoices over thirty days old are considered delinquent at which time a 10% fee is assigned to the account. Payments of accounts receivable are applied to the specific invoices identified on the customer's remittance advice or, if unspecified, to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance ($0 for fiscal year ended April 30, 2010) that reflects management's best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management's assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the historical experience, management's estimates of the recoverability of amounts due the istrict could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or to require an excessive collection cost, are written off to bad debt expense. lnventories lnventories are stated at the lower of cost or market with cost determined on a first-in, first-out (FIFO) basis. Capital Assets Capital assets are stated at cost, if purchased by the istrict, or at its fair value if donated to the istrict. epreciation is computed using the straight-line method. The estimated useful lives used to depreciate the majority of the assets, by class, are as follows: Buildings, structures, and improvements Machinery and equipment Vehicles years 3-50 years 7 years The istrict reviews capital assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell. Work in Process Work in process includes costs incurred for various improvements and modifications to existing property, plant, and equipment during the year for which the project was incomplete at year end.

16 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and changes in net assets during the reporting period. Actual results could differ from those estimates. Revenue Recognition The istrict recognizes revenues from services provided when the service is provided. NOTE 2 - CASH, CASH EQUIVALENTS AN CERTIFICATES OF EPOSIT At April 30, 2010 the istrict's bank balances of cash, cash equivalents and certificates of deposit were: eposits Illinois Funds Certificates of eposit Book Bank $ 4,902,916 $ 5,135,129 6,706 6,706 17,998,926 17,998,926 Total Custodial Credit Risk - eposits and Certificates of eposit Custodial credit risk is the risk that, in the event of a bank failure, the istrict will not be able to recover its deposits. The istrict has a policy that requires funds on deposit in excess of FlC limits to be secured by a written agreement with collateral held at a third-party institution in the name of the istrict. At April 30, 2010, the istrict's deposits and certificates of deposit were either covered by FlC insurance or by pledged collateral held in the istrict's name. Interest Rate Risk The istrict does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The istrict is allowed to invest in investments approved for governmental units as set forth in the most current issue of the Illinois Compiled Statutes including SEC registered and AAA rated by Moody's and Standard & Poor's Money Market mutual funds consisting of U.S. Government Treasuries. The istrict's investment in Illinois Funds, are rated AAAm by Standard and Poor's.

17 Custodial Credit Risk - Illinois Funds URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the istrict will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The monies invested by the individual participants are pooled together and invested according to the eposit of State Moneys Act (15 ILCS ) and the Public Funds Investment Act (30 ILCS 235J2) and are authorized to the extent they are approved by Standard & Poor's for AAAm rated funds. The individual participants maintain separate investment accounts representing a proportionate share of the pool assets and its respective collateral; therefore no collateral is identified with each individual participant's account. NOTE 3 - MAJOR CUSTOMERS Generally accepted accounting principles require disclosure of information about current vulnerabilities due to certain concentrations. These matters include the following: Operating revenue and user fee receivables as of and for the year ended April 30, 2010 includes the following major customer (any customer providing more than 10% of the istrict's operating revenue): Customer A Operating Revenue User Fee Receivable Percent of Percent of Amount Total Amount Total $ 1,595, % $ 130, %

18 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 NOTE 4 - CAPITAL ASSETS Balance Balance April 30, 2009 Increases ecreases Transfers April 30, 2010 Capital assets, not being depreciated: Land $ 2,328,859 $ 254,654 $ - $ - $ 2,583,513 Work in progress 3,171,814 6,817,579-9,989,393 Total capital assets not being depreciated 5,500,673 7,072, ,572,906 Capital assets, being depreciated: Buildings, structures, and improvements 36, , ,889,238 Machinery & equipment 92,167, , ,570,192 Vehicles 493, ,295 Total capital assets being depreciated 128,999, , ,952,725 Less accumulated depreciation: (47,104,004) (2,883,423) - (49,987,427) Capital assets, net Work in progress at April 30, 2010 consists of the following projects: E. Urbana interceptor Church St Interceptor Computer workstations Project MUNlS upgrade Total

19 NOTE 5 - NOTES PAYABLE URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 The following is a summary of changes in notes payable for the year ended April 30, 2010: Principal Principal Outstanding Outstanding April 30, 2009 Issuances Retirements April 30, 2010 The istrict has a note payable to the Illinois Environmental Protection Agency, which was obtained in connection with the Section VI-Phase A Interceptor. It bears interest at 3.59% and is due in semi-annual installments in April and October of each year through October The istrict paid off the balance in April $ 337,184 $ $ 337,184 $ The istrict has a note payable to the Illinois Environmental Protection Agency, which was obtained in connection with the expansion plan and rehabilitation of the northeast and southwest treatment plants. It bears interest at 2.57% and is due in semi-annual installments in ecember and June of each year through June ,703,927 The istrict has a note payable to the Illinois Environmental Protection Agency which was obtained in connection with the Curtis RoadNVindsor Road Phase II interceptor sewer. It bears interest at 2.5% and is due in semi-annual installments in April and October of each year through October ,994,093

20 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 Principal Principal Outstanding Outstanding April 30, 2009 Issuances Retirements April 30, 2010 The istrict has a note payable to the Illinois Environmental Protection Agency which was obtained in connection with the Curtis RoadNVindsor Road Phase I interceptor sewer. It bears interest at 2.5% and is due in semi-annual installments in August and February of each year through August $ 3,556,139 $ - $ 177,887 $ 3,378,252 The istrict is currently advancing a note payable to the Illinois Environmental Protection Agency which was obtained in connection with the 2010 Improvement project. The note is approved for up to $20 million. $5 million will not be repayed as it is American Recovery and Reinvestment Act of 2009 funds. The note bears 0% interest and will have semi, annual repayments for a 20 year term beginning when construction is complete (expected 1 1/5/2011). Total Less current portion 2,545,799 2,476,643 Total notes payable, net of current portion $ 47,045,544

21 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 Annual debt service requirements to maturity for long-term debt are as follows: Principal $ 2,476,643 2,540,371 2,605,740 2,672,790 2,741,566 14,803,037 16,808,196 2,191,303 Interest $ 1,181,682 1,I 17,954 1,052, , ,759 3,488,587 1,483, Total $ 3,658,325 3,658,325 3,658,325 3,658,325 3,658,325 18,291,624 18,291,624 2,227, Loan still advancing Total NOTE 6 - OBLIGATION UNER CAPITAL LEASES The istrict had a joint loan agreement (under GAS0 this was recognized as a capital lease agreement) with the City of Champaign for the construction of the Northwest lnterceptor Sewer Phase I with an asset balance of $242,152 and accumulated depreciation of $71,838 for the year ended April 30, In April 2010, the istrict paid off this loan. The istrict also has a joint loan agreement (under GASB this is recognized as a capital lease agreement) with the City of Champaign for the construction of the Northwest Interceptor Sewer Phase II with an asset balance of $249,358 and accumulated depreciation of $66,436 for the year ended April 30, The City of Champaign obtained financing with the Illinois Environmental Protection Agency which bears interest at 2.815% and is due in semi-annual installments in August and February of each year through August The istrict is making its payments to the City of Champaign in accordance with the terms of the Illinois Environmental Protection Agency Loan.

22 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 The following is a summary of changes in capital leases for the year ended April 30,2010 Capital Lease Capital Lease Obligation Obligation April 30, 2009 Issuances Retirements April 30, 2010 Champaign NW Interceptor - Phase 1 IEPA loan L Champaign NW Interceptor - $ 88,377 $ - $ 88,377 $ - Phase 2 IEPA loan L ,125-13,384 96,741 Total Less current portion Total liability under capital leases, net of current portion The minimum lease payments under these agreements as of April 30, 2010 are due in future years as follows: Total Less amounts related to interest Total liability under capital leases

23 NOTE 7 - PENSION PLAN Plan escription URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30,2010 The istrict's defined benefit pension plan, through the Illinois Municipal Retirement Fund (IMRF), an Agent Multiple-Employer Public Employee Retirement System, provides retirement and disability benefits, post retirement increases and death benefits to plan members and beneficiaries. Benefit provisions of the plan are established by state statute and may only be changed by the Illinois General Assembly. IMRF issues a financial report that includes financial statements and required supplementary information. The report may be obtained at Funding Policy Employees participating in IMRF are required to contribute 4.50% of their annual covered salary. The member rate is established by state statute. The istrict is required to contribute at an actuarially determined rate. The employer rate for calendar year 2009 was 7.06% of payroll. The employer contribution requirements for disability and death benefits are established and may be amended by the IMRF Board of Trustees while the supplemental retirement benefits rate is set by statute. Annual Pension Cost For ecember 31, 2009, the istrict's annual pension cost of $1 84,690 was equal to the istrict's required and actual contributions. TREN INFORMATION Actuarial Annual Percentage Net Valuation Pension of APC Pension - ate Cost (APC) Contributed Obligation The required contribution was determined as part of the ecember 31, 2007 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.50% investment rate of return (net of administrative and direct investment expenses), (b) projected salary increases of 4.00% a year, attributable to inflation, (c) additional projected salary increases ranging from 0.4% to 10% per year depending on age and service, attributable to senioritylmerit, and (d) post-retirement benefit increases of 3% annually. The actuarial value of IMRF assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period with a 15% corridor between the actuarial and market value of assets. The istrict's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at ecember 31, 2007, valuation was 23 years.

24 Funding Status and Funding Progress URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 As of ecember 31, 2009, the most recent actuarial valuation date, the plan was 84.18% funded. The actuarial accrued liability for benefits was $10,183,631 and the actuarial value of assets was $8,572,583, resulting in an underfunded actuarial accrued liability (UAAL) of $1,611,048. The covered payroll (annual payroll of active employees covered by the plan) was $2,616,012 and the ratio of the UAAL to the covered payroll was 62%. In conjunction with the ecember 2009 actuarial valuation the market value of investments was determined using techniques that spread the effect of short-term volatility in the market value of investments over a five-year period with a 20% corridor between the actuarial and market value of assets. In 2010, the unfunded actuarial accrued liability is being amortized on a level percentage of projected payroll on an open 30 year basis. The schedule of funding progress, presented as Required Supplementary Information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. NOTE 8 - POSTEMPLOYMENT HEALTHCARE PLAN Plan escription The istrict provides Other Post Employment Benefits (OPEB) in the form of continuation of group health insurance coverage to employees (and their beneficiaries) that retire under the Illinois Municipal Retirement Fund system. The istrict's group health insurance plan covers both active and retired members. The health plan does not issue a publicly available financial report. Membership in the plan as of April 30, consisted of: Retirees and beneficiaries receiving benefits Terminated plan members entitled to but not yet receiving benefits Active vested plan members Active nonvested plan members Total Funding Policy Retirees electing coverage pay 100% of the premium to the istrict in accordance with rates set by the istrict. The plan is financed on a pay-as-you-go basis. Annual OPEB Cost and Net OPEB Obligation The istrict's annual OPEB cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liability over a period not to exceed thirty years.

25 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 The following table shows the components of the istrict's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the istrict's net OPEB obligation to the plan as of April 30, 2010: Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation, beginning of year Net OPEB obligation, end of year Percentage Net Fiscal Annual of Annual OPEB OPEB Year ended OPEB Cost Cost Contributed Obligation Funding Status and Funding Progress As of April 30, 2009, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits was $71,909 and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $71,909. The covered payroll (annual payroll of active employees covered by the plan) and the ratio of the UAAL to the covered payroll were not determined. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions of the future employment, mortality and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as Required Supplementary Information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. However, because the istrict maintains no plan assets, information relative to plan asset required disclosure is not applicable.

26 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30, 2010 Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of the sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarially accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the April 30, 2010 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 5% investment rate of return, which includes a 3% inflation factor. This is the expected long-term investment returns on the istrict's own investments calculated based on the funded level of the plan at the valuation date. The healthcare inflation rate was assumed to be 8% initially, reduced by decrements to an ultimate rate of 6%. The UAAL is being amortized as a level of percentage of pay on an open basis. The remaining amortization period was 30 years. NOTE 9 - EFERRE COMPENSATION PLAN The istrict offers its employees a deferred compensation plan (Plan) created in accordance with Internal Revenue Code (IRC) Section 457. The Plan is available to all employees. The Plan is solely funded by contributions made by participants. All fees associated with the Plan are paid by the participants. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The assets of the Plan are held in a trust for the exclusive benefit of the Plan participants. Since the istrict does not hold the assets in a trustee capacity, nor does it have fiduciary accountability for the Plan assets, the Plan assets are not included in the financial statements. NOTE 10 - RISK MANAGEMENT The istrict is exposed to various risks of loss related to torts, theft of, damages to, and destruction of assets; injuries to employees; and natural disasters. The istrict purchases commercial insurance for these risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years.

27 URBANA & CHAMPAIGN SANITARY ISTRICT NOTES TO FINANCIAL STATEMENTS April 30,2010 NOTE I I - COMMITMENTS The istrict has contracted with various companies for construction projects that are currently in process or set to begin. The istrict is obligated to pay the costs under these contracts as the work is completed. The commitments are as follows: Project SW Plant Tower Upgrade FY Sewer Rehab Total NOTE 12 - POLLUTION REMEIATION OBLIGATIONS In accordance with GASB 49, the istrict has determined that there are no situations where the istrict is faced with the responsibility of cleaning up or remediating pollution. Therefore, no liability has been calculated or recorded for pollution remediation obligations.

28 REQUIRE SUPPLEMENTAL INFORMATION

29 URBANA & CHAMPAIGN SANITARY ISTRICT REQUIRE SUPPLEMENTAL INFORMATION SCHEULE OF FUNING PROGRESS April 30, 2010 Illinois Municipal Retirement Fund Actuarial Accrued Actuarial Liability Unfunded Actuarial Value of (AAL) -- AAL Valuation Assets Entry Age (UAAL) ate - w (b-a) UAAL as a Percentage Funded Covered of Covered Ratio Payroll Payroll (alb) ka ((b-a)lc)

30 URBANA & CHAMPAIGN SANITARY ISTRICT REQUIRE SUPPLEMENTAL INFORMATION SCHEULE OF FUNING PROGRESS April 30, 2010 Postretirement Healthcare Plan Actuarial Accrued Actuarial Liability Unfunded Actuarial Value of (AAL) -- AAL Funded Covered Valuation Assets Entry Age (UAAL) Ratio Payroll - ate (a) 0 (b-a) 0 (C) UAAL as a Percentage of Covered Payroll ((b-a)lc)

31

32 URBANA & CHAMPAIGN SANITARY ISTRICT SCHEULE OF EXPENITURES OF FEERAL AWARS Year Ended April 30,2010 Federal GrantorlPass-Through GrantorlProgram Title Pass-Throug h CFA Grantor's Number Number Expenditures U.S. Environmental Protection Agency Passed-through Illinois Environmental Protection Agency Bureau of Water: Clean Water State Revolving Funds Notes: The accompanying schedule of expenditures of federal awards is prepared on the accrual basis of accounting.

33 KARL E. RAKE, CPA CURTIS. LILES, CPA R NEIL RICHARSON, CPA... JAMES P. BRAY, CPA (Retired) BRAY, RAKE, LILES & RICHARSON LLP Certified Public Accountants 1606 N. Willow View Road, Suite IE Urbana, lllinois Phone Fax July 16, Board of Trustees Urbana & Champaign Sanitary istrict Urbana, Illinois Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance With Government Auditing Standards We have audited the financial statements of Urbana & Champaign Sanitary istrict as of April 30, 2010, and have issued our report thereon dated July 16, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered Urbana & Champaign Sanitary istrict's internal control over financial reporting as a basis for designing our audit procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Urbana & Champaign Sanitary istrict's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Urbana & Champaign Sanitary istrict's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be a material weakness, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Urbana & Champaign Sanitary istrict's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. This report is intended solely for the information of management, the board of trustees, others within the entity, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Members of the American Institute of Certified Public Accountants Members of the Illinois CPA Society

34 KARL E. RAKE, CPA CURTIS. LILES, CPA R NEIL RICHARSON, CPA... JAMES P. BRAY, CPA (Retired) BRAY, RAKE, LILES & RICHARSON LLP - Certified Public Accountants 1606 N. Willow View Road, Suite I E Urbana, Illinois Phone Fax July 16, Board of Trustees Urbana & Champaign Sanitary istrict Urbana, Illinois Compliance Independent Auditor's Report on Compliance With Requirements Applicable to Each Maior Proaram and on Internal Control Over Com~liance in Accordance With OMB Circular A-133 We have audited the compliance of Urbana & Champaign Sanitary istrict with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-733 Compliance Supplement that are applicable to its major federal program for the year ended April 30, Urbana & Champaign Sanitary istrict's major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of Urbana & Champaign Sanitary istrict's management. Our responsibility is to express an opinion on Urbana & Champaign Sanitary istrict's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-1 33, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-1 33 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Urbana & Champaign Sanitary istrict's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Urbana & Champaign Sanitary istrict's compliance with those requirements. In our opinion, Urbana & Champaign Sanitary istrict complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended April 30, Members of the American Institute of Certified Public Accountants Members of the Illinois CPA Society

35 Board of Trustees Urbana & Champaign Sanitary istrict July 1 6, Page 2 Internal Control Over Compliance The management of the Urbana & Champaign Sanitary istrict is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Urbana & Champaign Sanitary istrict's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Urbana & Champaign Sanitary istrict's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose discussed in the first paragraph of this section and would not necessarily identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the board of trustees, others within the entity and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. BRAY, RAKE, LILES & RICHARSON LLP Certified Public Accountants

36 URBANA & CHAMPAIGN SANITARY ISTRICT SCHEULE OF FININGS AN QUESTIONE COSTS Year Ended April 30,201 0 A. SUMMARY OF AUITOR'S RESULTS 1. The auditor's report expresses an unqualified opinion on the financial statements of Urbana & Champaign Sanitary istrict as of and for the year ended April 30, No instances of noncompliance material to the financial statements of Urbana & Champaign Sanitary istrict, which would be required to be reported in accordance with Governmenf Auditing Standards, were disclosed during the audit. 3. The auditor's report on compliance for the major federal award programs for Urbana & Champaign Sanitary istrict expresses an unqualified opinion on all major federal programs. 4. No audit findings that are required to be reported in accordance with Section 510(a) of OMB Circular A-133 are reported in this Schedule. 5. The program tested as a major program was: Clean Water State Revolving Funds (CFA# ). 6. The threshold for distinguishing Types A and B programs was $300, Urbana & Champaign Sanitary istrict did not qualify as a low risk auditee. B. FININGS-FINANCIAL STATEMENT AUIT None C. FININGS AN QUESTIONE COSTS-MAJOR FEERAL AWAR PROGRAMS AUIT None