Northwood Municipal Utility District No.1

Transcription

1 Northwood Municipal Utility District No.1 Notes to Financial Statements June 30, 2010 The District will levy a combined debt service maintenance tax at a rate of $1.25 per $100 assessed valuation until the earlier of December 31, 2026, or the date on which all of the refunding bonds have been paid in full. The tax rate cannot be raised or lowered without consent of the holders of a majority of the refunding bonds. The District has conveyed, under the Plan, title to approximately 116 acres of land and has also conveyed the outstanding reimbursables assigned by the Resolution Trust Corporation (RTC). Note 5: Long-term Liabilities Changes in long-term liabilities for the year ended June 30, 2010, were as follows: Balances, Balances, Beginning Amounts Beginning and End Due in Governmental Activities of Year Increases Decreases of Year One Year Bonds payable: General obligation bonds Due to developer Total governmental activities long-term liabilities $ 2,255,000 $ - S - $ 2,255,000 S - 394, ,123 - $ 2, $ 394,123 S 0 $^ S 0 General Obligation Bonds Amount outstanding, June 30, 2010 Interest rate Maturity dates, serially beginning/ending Interest payment date Mandatory redemption* Refunding Series 1998 $2,255, % As funds are available August 1 December 31, 2026 *The District has the option to redeem all or a portion of the bonds on any date at par plus accrued and unpaid interest. Bonds voted Bonds sold Refunding bonds sold $ 21,340,000 4,650,000 3,995, Northwood MUD Document Production No

2 Notes to Financial Statements June 30, 2010 Unpaid Interest The DistricYs first interest payment was due August 1, 1999, in the amount of $329,587. Additional payments of $329,587 were due August 1, 2000, 2001 and At June 30, 2002, the District had not made any payments to the bondholders. These amounts were included in the partial redemption of bonds in At June 30, 2010, interest accrued since the partial redemption of bonds totaled $551,700 and is recorded in accrued expenses in the government wide financial statements. Estimated Maturities of Debt The District is not obligated to make interest and principal payments unless it has cash in excess of amounts necessary to operate the District. The District is unable to project annual bondholder payments to be made in the future. The bonds are payable from the proceeds of an ad valorem tax levied upon all property within the District subject to taxation and are further payable from, and secured by a lien on, and a pledge of, the net revenues to be received from the operation of the District's waterworks and sanitary sewer system. Partial Redemption of Bonds In 2003, pursuant to the Agreement and the Board of Directors' authorization for partial redemption of outstanding bonds, the District paid all past due accrued interest totaling $1,581,968 and redeemed $1,740,000 in bonds. The bonds were redeemed at $62.50 per $100 for a total redemption price of $1,087,500. Due to Developers Developers have constructed water, sewer and drainage facilities on behalf of the District. The District has agreed to reimburse the developers for these construction costs and interest to the extent approved by the Commission. The District's engineer estimates reimbursable costs for completed projects are $394,123. The District has agreed to reimburse these amounts, plus interest, to the extent approved by the Commission from the proceeds of future bond sales. These amounts have been recorded in the financial statements as long-term liabilities. Note 6: Significant Bond Order and Commission Requirements The Bond Order requires that the District levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due. During the year ended June 30, 2010, the District levied an ad valorem debt service tax at the rate of $ per $100 of assessed valuation, which resulted in a tax levy of $146,708 on the taxable valuation of $14,670,772 for the 2009 tax year Northwood MUD Document Production No

3 Notes to Financial Statements June 30, 2010 Note 7: Regional Wastewater Treatment Plant Tax Rebate On October 20, 1986, the District and the City of Houston (the City) entered into a contract establishing the respective rights, duties and obligations of the District and the City to provide water, sewer and drainage services to serve the land within the District which is also located within the corporate boundaries of the City. Under its terms, the City agrees to make annual payments to the District in order to more equitably distribute the burden of the ad valorem taxes to be levied by the City and the District against the property owners of the District. The District has received a total of $66,839 from the City since the beginning of the contract through June 30, The District is authorized to issue bonds to finance its facilities. Until the City acquires title to the facilities, the District is to own the facilities and is solely responsible for their operation and maintenance. Regional Wastewater Treatment Plant On November 5, 1986, the District entered into a contract with the City for the construction of the City's intercontinental airport regional wastewater treatment plant. In exchange for 2,000,000 gallons-per-day capacity, the District agreed to contribute to the City the plans and specification for the design of the plant, and design ofthe second expansion ofthe plant, as well as construction phase engineering services. Construction of the plant has been completed. The District's initial developers provided financing for approximately $1,300,000 of construction. Pursuant to an assignment and release dated September 6, 1994, the RTC, as successor to the District's initial developers, assigned to the District any rights to reimbursement for this amount and any other amounts. In March 1994, the District assigned 1,000,000 gallons-per-day capacity to North Belt Utility District for $1,117,362. The District currently receives no service from the City and will be subject to monthly operating charges when service is actually utilized. Note 8: Maintenance Taxes At an election held September 14, 1985, voters authorized a maintenance tax not to exceed $0.25 per $100 valuation on all property within the District subject to taxation. During the year ended June 30, 2010, the District levied an ad valorem maintenance tax at the rate of $ per $100 of assessed valuation, which resulted in a tax levy of $36,677 on the taxable valuation of $14,670,772 for 2009 tax year. The maintenance tax is used by the general fund to pay expenditures of operating the District Northwood MUD Document Production No

4 Northwood Municipal Utility District No.1 Notes to Financial Statements June 30, 2010 Note 9: Reimbursement Due Developers The developers of the District constructed certain water, sewer and drainage facilities within the District's boundaries. The District agreed to reimburse the developer for these construction costs from the proceeds of future bond sales to the extent approved by the Commission. The total cost of the construction, which is reimbursable by the District to the developer, was approximately $1,200,000, exclusive of interest. The RTC assigned the rights to be reimbursed to the District. The District subsequently assigned the rights to Northwood Venture II, L.P. (Northwood), pursuant to the purchase of land in the District by Northwood. Note 10: Related-party Transactions Legal counsel for the District owns an interest in Northwood and also owns a portion of the District's Series 1998 bonds. This financial relationship has been disclosed to the District. Due to the financial condition ofthe District, legal counsel has deferred billing approximately $105,000 of legal fees. These amounts have been recorded in accounts payable and accrued expenses in the statement of net assets. Note 11: Uncertainties The City has, in two separate transactions, acquired approximately 115 acres and 90 acres of land in the District. Both acquisitions were for airport expansions and, as a result; approximately one third of the District's land area was removed from its tax rolls. The reduced tax base has had a negative impact on the District's ability to develop a tax base and fund its operations. In addition, the District is having issues with the timely collection of taxes owed by its largest single taxpayer. This taxpayer has been in litigation with the Harris County Appraisal District over the taxable value of their property and as a result, taxes for 2007, 2008 and 2009 have not been paid by the taxpayer pending final resolution of this litigation. The District's ability to meet its obligations is dependent on the taxpayei's ability to pay all property taxes levied. This lack of tax revenue has impacted the District and its ability to operate its facilities. Note 12: Management's Consideration of Going Concern Matters The District has incurred a decrease in net assets for several years and currently has a deficiency of working capital due to recurring negative cash flows. The financial statements have been prepared assuming the District will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. The District's management is considering several alternatives for mitigating these conditions during the next year. These include entering into payment plans with select vendors, as well as the deferral of fees and charges by certain District consultants until the District has available funds. In addition, the District continues to pursue the collection of delinquent Northwood MUD Document Production No

5 Notes to Financial Statements June 30, 2010 taxes by its primary taxpayer (see Note 11) through litigation and other means including consideration of termination of water and sewer services due to nonpayment of taxes. As a result of such efforts, in June 2011, the District collected all outstanding taxes and related penalty and interest due for the 2010 tax year totaling approximately $82,800. Although not currently planned, realization of assets in other than the ordinary course of business in order to meet liquidity needs could incur losses not reflected in these financial statements. Note 13: Risk Management The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. The District has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts in the past three fiscal years Northwood MUD Document Production No

6 Required Supplementary Information Northwood MUD Document Production No

7 Budgetary Comparison Schedule - General Fund Year Ended June 30, 2010 Variance Original Favorable Budget Actual (Unfavorable) Revenues Property taxes $ 35,000 $ 24,449 S (10,551) Water service 43,848 45,590 1,742 Sewer service 65,016 43,052 (21,964) Penalty and interest - 7,927 7,927 Tap connection and inspection fees - 39,308 39,308 Investment income (49) Other income Total revenues 143, ,737 16,813 Expenditures Service operations: Purchased services - 30,526 (30,526) Professional fees 64,000 72,693 (8,693) Contracted services 17,130 18,300 (1,170) Utilities 36,000 23,872 12,128 Repairs and maintenance 20,960 99,550 (78,590) Other expenditures ,956 5,435 Tap connections - 9,185 (9,185) Capital outlay - 15,434 (15,434) Total expenditures 167, ,516 (126,035) Excess expenditures (23,557) (132,779) (109,222) Other Financing Sources Interfund transfers 50,000 - (50,000) Excess sources (uses) 26,443 (132,779) (159,222) Fund Balance (Deficit), Beginning of Year (288,576) (288,576) 0 Fund Balance (Deficit), End of Year $ (262,133) $ (421,355) $ (159,222) Northwood MUD Document Production No

8 Notes to Required Supplementary Information June 30, 2010 Budgets and Budgetary Accounting An annual operating budget is prepared for the general fund by the District's consultants. The budget reflects resources expected to be received during the year and expenditures expected to be incurred. The Board of Directors is required to adopt the budget prior to the start of its fiscal year. The budget is not a spending limitation (a legally restricted appropriation). The original budget of the general fund was not amended during fiscal The District prepares its annual operating budget on a basis consistent with accounting principles generally accepted in the United States of America. The Budgetary Comparison Schedule - General Fund presents the original and revised budget amounts, if revised, compared to the actual amounts of revenues and expenditures for the current year Northwood MUD Document Production No

9 Supplementary Information Northwood MUD Document Production No

10 Northwood Municipal Utility District No.1 Supplementary Schedules Included Within This Report June 30, 2010 (Schedules included are checked or explanatory notes provided for omitted schedules.) [X] [X] [X] Notes Required by the Water District Accounting Manual See "Notes to Financial Statements," Pages Schedule of Services and Rates Schedule of General Fund Expenditures [ ] Schedule of Temporary Investments - Not Applicable [X] [X] [X] Analysis of Taxes Levied and Receivable Schedule of Long-term Debt Service Requirements by Years Changes in Long-term Bonded Debt [X] Comparative Schedule of Revenues and Expenditures - General Fund and Debt Service Fund - Five Years [X] Board Members, Key Personnel and Consultants Northwood MUD Document Production No

11 Schedule of Services and Rates Year Ended June 30, Services provided by the District: X Retail Water _Wholesale Water X Drainage X Retail Wastewater _Wholesale Wastewater _Irrigation Parks/Recreation _Fire Protection _Security ^Solid Waste/Garbage Flood Control _Roads X Participates in joint venturc, rcgional system and/or wastewater service (other than emergency interconnect) Other 2. Retail service providers a. Retail rates for a 5/8" meter (or equivalent): Flat Rate Per 1,000 Minimum Minimum Rate Gallons Over Charge Usage YIN Minimum Usage Levels Water: $ ,000 N ,001 to 10,000 S ,001 to No Limit Wastewater: $ V Regional water fee: $ 0.00 Does the District employ winter averaging for wastewater usage? Yes No X Total charges per 10,000 gallons usage (including fees): Water $ Wastewater S b. Water and wastewater retail connections: Total Active ESFC Active Meter Size Connections Connections Factor ESFC* Unmetered - - x1.0 <3/4" - - x1.0-1" - - x2.5-11/2" 2 2 x " 2 2 x " - - x15.0-4" - - x25.0-6" 1 1 x " - - x " 1 1 x Total water Total wastewater 5 5 x Total water consumption (in thousands) during the fiscal year: Gallons pumped into the system: 14,785 Gallons billed to customers: 11,137 Water accountability ratio (gallons billed/gallons pumped): 75.33%% *"ESFC" means equivalent single-family connections Northwood MUD Document Production No

12 Schedule of General Fund Expenditures Year Ended June 30, 2010 Personnel (including benefits) Professional Fees Auditing Legal Engineering Financial advisor Purchased Services for Resale Bulk water and wastewater service purchases Regional Water Fee Contracted Services Bookkeeping General manager Appraisal district Tax collector Security Other contracted services Utilities Repairs and Maintenance Administrative Expenditures Directors' fees Office supplies Insurance Other administrative expenditures Capital Outlay Capitalized assets Expenditures not capitalized Tap Connection Expenditures Solid Waste Disposal $ - $ 6,500 21,840 44,353-72,693 5,950 30,526 12,350 18,300 23,872 99,550 7,200 1,779 9,120 5,857 23,956 15,434-15,434 9,185 Fire Fighting Parks and Recreation Other Expenditures Total expenditures $ 293, Northwood MUD Document Production No

13 Analysis of Taxes Levied and Receivable Year Ended June 30, 2010 Maintenance Taxes Debt Service Taxes Receivable, Beginning of Year $ 28,347 $ 113,749 Additions and corrections to prior years' taxes (12,928) (51,715) Adjusted receivable, beginning ofyear 15,419 62, Original Tax Levy 28, ,695 Additions and corrections 8,503 34,013 Adjusted tax levy 36, ,708 Total to be accounted for 52, ,742 Tax collections: Current year (24,431) (97,725) Prior years (18) (71) Receivable, end of year $ 27,647 $ 110,946 Receivable, by Years 2009 $ 12,246 $ 48, ,446 49, ,191 4, , , , , Receivable, end of year $ 27,647 $ 110, Northwood MUD Document Production No

14 Analysis of Taxes Levied and Receivable (Continued) Year Ended June 30, 2010 Property Valuations Land Improvements Personal property Exemptions Total property valuations $ 21,381,651 $ 16,291,506 $ 18,451,584 $ 17,536,255 7,500,109 7,004, , , ,563 27,869 28,037 84,010 (14,327,551) (13,354,933) (15,587,009) (14,957,939) $ 14,670,772 $ 9,969,014 $ 3,396,660 $ 3,166,120 Tax Rates per $100 Valuation Debt service tax rates Maintenance tax rates* $ $ $ $ Total tax rates per $100 valuation $ $ $ $ Tax Levy $ 183,385 $ 124,613 $ 42,458 $ 39,577 Percent of Taxes Collected to Taxes Levied* * 67% 50% 86% 96% *Maximum tax rate approved by voters: $0.25 on September 14, 1985 "Calculated as taxes collected for a tax year divided by taxes levied for that tax year Northwood MUD Document Production No

15 Schedule of Long-term Debt Service Requirements by Years June 30, 2010 Refunding Series 1998 Due During Principal Interest Fiscal Years Due Due Ending June 30 August l August l Total The District has restructured its debt and is unable to project the annual payment amounts Northwood MUD Document Production No

16 Northwood Municipal Utility District No.1 Changes in Long-term Bonded Debt Year Ended June 30, 2010 Bond Issue Refunding Series 1998 Interest rate Date interest payable Maturity dates Bonds outstanding, beginning of current year 3.50% August 1 + $ 2,255,000 Retirements, principal Bonds outstanding, end of current year interest paid during current year $ 2,255,000 $ 0 Paying agent's name and address: Series The Bank of New York Mellon Trust Company, N.A., Dallas, Texas Bond authority: Tax Bonds Other Bonds Refunding Bonds Amount authorized by voters $ 21,340,000 Amount issued $ 4,650,000 Remaining to be issued $ 16,690,000 Debt service fund cash and temporary investment balances as of June 30, 2010: 0 $. 0 $ 3,995,000 0 $ $ 10,297 Average annual debt service payment (principal and interest) for remaining term of all debt: * *Unable to determine. Mandatory redemption no later than December 31, Northwood MUD Document Production No

17 Comparative Schedule of Revenues and Expenditures - General Fund Five Years Ended June 30, Amounts General Fund Revenues Propcny taxes S 24,449 $ 12,823 $ 7,780 $ 7,765 $ 8,449 City of liouston tax rebate. 7,681 _ - - Water service 45,590 32,749 6, Sewer secviee 43,052 58,850 4,688 Penalty and interest 7,927 1, Tap connection and inspection fees 39, ,993 Investment income Other income Total revenues 160, , ,345 7,994 8,733 Expenditures Service operations: Purchased services 30, Professional fees 72,693 46,235 60,370 27,627 11,808 Contracted services 18,300 20,040 16,425 2,750 2,650 Utilities 23,872 30,575 28,346 5,580 2,016 Repairs and maintenance 99, ,177 26,565 24,120 2,501 Other expenditures 23,956 21,442 15,330 10,821 12,346 Tap connections 9,185-65, Capital outlay 15,434 30,616 Total expenditures 293, , ,261 70,898 31,321 Excess expenditures (132,779) (294,371) (88,916) (62,904) (22,588) Other Financing Sources Interfund transfers ,000 50,000 50,000 Excess sources (uses) (132,779) (294,371) (43,916) (12,904) 27,412 Fund Balance (Deficit), Beginning of Year (288,576) 5,795 49,711 62,615 35,203 Fund Balance (Deficit), End of Year S (421,355) $ (288,576) $ 5,795 $ 49,711 $ 62,615 Total Active Retail Water Connections * Total Active Retail Wastetvater Connections r *Nu active waler or was1e%mater connections Northwood MUD Document Production No

18 Percent of Fund Total Revenues % % % % % ! D (82.6)% (239.8) % (72.0)% (.796.9)% (258.6) % Northwood MUD Document Production No

19 Northwood Municipal Utility District No.1 Comparative Schedule of Revenues and Expenditures - Debt Service Fund Five Years Ended June 30, Amounts Debt Service Fund Revenues Property taxes $ 97,796 $ 51,294 $ 31,120 S 31,060 $ 33,796 Penalty and interest - 5,835-1,221 4,849 Investment income ,505 2,837 1,595 Total revenues 97,796 57,316 32,625 35,118 40,240 Expenditures Current Professional lets 1,488 1, ,125 2,762 Contracted services 6,622 7,369 6,263 6,013 4,876 Other expenditures 4,499 4,491 5,767 2,792 1,800 Debt service, interest and fees 2 Total expenditures 12,609 13,778 12,998 9,930 9,440 Excess revenues 85,187 43,538 19,627 25,188 30,800 Other Financing Ltaes Intcrfund transfcrs - - (45,000) (50,000) (50,000) Excess sources (uses) 85,187 43,539 (25,373) (24,812) (19,200) Fund Balance, Beginning of Year 84,916 41,378 66,751 91, ,763 Fund Balance, End ofyear $^170,I03 $84,916 S 41,379 $ 66,751 $ 91, Northwood MUD Document Production No

20 Percent of Fund Total Revenues % 89.5 % 95.4 b' 88.4 % 84.0 % % 76.0 % G 76.5 % Northwood MUD Document Production No

21 Northwood Municipal Utility District No.1 Board Members, Key Personnel and Consultants Year Ended June 30, 2010 Complete District mailing address: Northwood Municipal Utility District No. I c% Paul A. Philbin & Assoc., P.C Woodway, Suite 725 Houston, Texas District business telephone number: Submission date of the most recent District Registration Form (TWC Sections and ): September 22, 2010 Limit on fees of office that a director may receive during a fiscal year: $ 7,200 Term of Office Elected Si Expense Title at Board Members Expires Fees* Reimbursements Year-end Elected 05/10- John Perches 05/14 $ 1,350 $ 376 President Elected 05/10- Vice Bill Cox 05/14 1, President Elected 05/08- Jenya Harrison 05/12 1, Secretary Elected 05/08- Deputy G. Crist Burger 05/12 1,800 0 Secretary Elected 05/10- Thomas Carolan 05/ Director *Fees are the amounts actually paid to a director during the District's fiscal year Northwood MUD Document Production No

22 Board Members, Key Personnel and Consultants (Continued) Year Ended June 30, 2010 Consultants Date Hired Fees and Expense Reimbursements Title BKD, LLP Annual $ 6,500 Auditor Legislative Harris County Appraisal District Action 1,239 Appraiser Jones & Carter, Inc. 10/98 55,847 Engineer McLennan & Associates, LP 04/04 5,950 Bookkeeper Municipal District Services 11/08 65,246 Operator Attorney/ Delinquent Paul A. Philbin & Assoc., P.C. 09/98 23,235 Tax Attorney Financial RBC Capital Markets, LLC 10/98 0 Advisor Tax Assessor/ Barbara Wheeler, CTA, RTA 12/85 4,788 Collector Investment Officer Jenya Harrison 10/27/98 N/A Director Northwood MUD Document Production No

23 NORTHWOOD MUD DOCUMENT PRODUCTION NO

24 Northwood Municipal Utility District No.1 Harris County, Texas Accountants' Report and Financial Statements June 30, Northwood MUD Document Production No

25 June 30, 2011 Contents Independent Accountants' Report on Financial Statements and Supplementary information...1 Management's Discussion and Analysis...2 Basic Financial Statements Statement of Net Assets (Deficit) and Governmental Funds Balance Sheet... 8 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances...10 Notes to Financial Statements...11 Required Supplementary Information Budgetary Comparison Schedule - General Fund Notes to Required Supplementary Information Supplementary Information Supplementary Schedules Included Within This Report...26 Schedule of Services and Rates Schedule of General Fund Expenditures...28 Analysis of Taxes Levied and Receivable Schedule of Long-term Debt Service Requirements by Years Changes in Long-term Bonded Debt Comparative Schedule of Revenues and Expenditures - General Fund and Debt Service Fund - Five Years Board Members, Key Personnel and Consultants Northwood MUD Document Production No

26 BKDUP CPAs & Advisors 2800 Post Oak Boulevard. Suite 3200 Houston. TX E00 Fax Board of Directors Northwood Municipal Utility District No. 1 Harris County, Texas Independent Accountants' Report on Financial Statements and Supplementary Information We have audited the accompanying financial statements of the governmental activities and each major fund of Northwood Municipal Utility District No. 1 as of and for the year ended June 30, 2011, which collectively comprise the District's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions 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. 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 the District's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of Northwood Municipal Utility District No. 1 as of June 30, 2011, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the District will continue as a going concern. As discussed in Note 12, the District has a deficit fund balance in its general fund and a net asset deficit in its government-wide financial statements that raise substantial doubt about its ability to continue as a going concern. The District's plans in regard to these matters are also described in Note 12. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The accompanying management's discussion and analysis and budgetary comparison schedule, as listed in the table of contents, are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the District's basic financial statements. We previously expressed unqualified opinions on the 2007 through 2010 basic financial statements. The accompanying supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. June 22, 2012 t- 1,P experience W n Praxit.y f.dfmbfft =" GLOBAL ALLIANCE Of tt20epf0pfnt pwmg Northwood MUD Document Production No

27 Northwood Municipal Utility District No.1 Management's Discussion and Analysis June 30, 2011 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: l) government-wide financial statements, 2) fund financial statements and 3) notes to financial statements. This report also contains supplementary information required by the Governmental Accounting Standards Board (GASB) and other supplementary information required by the District's state oversight agency, the Texas Commission on Environmental Quality (the Commission). In accordance with required reporting standards, the District reports its financial activities as a special-purpose government. Special-purpose governments are governmental entities which engage in a single governmental program, such as the provision of water, sanitary sewer and drainage services. Other activities, such as the provision of recreation facilities and solid waste collection, are minor activities and are not budgeted or accounted for as separate programs. The financial statements of special-purpose governments combine two types of financial statements into one statement. These two types of financial statements are the government-wide financial statements and the fund financial statements. The fund financial statements are presented on the left side of the statements, a column for adjustments is to the right of the fund financial statements and the government-wide financial statements are presented to the right side of the adjustments column. The following sections describe the measurement focus of the two types of statements and the significant differences in the information they provide. Government wide Financial Statements The focus of government-wide financial statements is on the overall financial position and activities of the District. The District's government-wide financial statements include the statement of net assets and statement of activities, which are prepared using accounting principles that are similar to commercial enterprises. The purpose of the statement of net assets is to attempt to report all of the assets and liabilities of the District. The District reports all of its assets when it acquires or begins to maintain the assets and reports all of its liabilities when they are incurred. The difference between the District's total assets and total liabilities is labeled as net assets and this difference is similar to the total stockholders' equity presented by a commercial enterprise. The purpose of the statement of activities is to present the revenues and expenses of the District. Again, the items presented on the statement of activities are measured in a manner similar to the approach used by a commercial enterprise in that revenues are recognized when earned or established criteria are satisfied and expenses are reported when incurred by the District. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues are reported even when they may not be collected for several months or years after the end of the accounting period and expenses are recorded even though they may not have used cash during the current year Northwood MUD Document Production No

28 Management's Discussion and Analysis (Continued) June 30, 2011 Although the statement of activities looks different from a commercial enterprise's statement of income, the financial statement is different only in fonnat, not substance. Whereas the bottom line in a commercial enterprise is its net income, the District reports an amount described as change in net assets, essentially the same thing. Fund Financial Statements Unlike government-wide financial statements, the focus of fund financial statements is directed to specific activities of the District rather than the District as a whole. Except for the general fund, a specific fund is established to satisfy managerial control over resources or to satisfy finance-related legal requirements established by external parties or governmental statutes or regulations. Governmental Funds Governmental-fund financial statements consist of a balance sheet and a statement of revenues, expenditures and changes in fund balances and are prepared on an accounting basis that is significantly different from that used to prepare the government-wide financial statements. In general, these financial statements have a short-term emphasis and, for the most part, measure and account for cash and other assets that can easily be converted into cash. For example, amounts reported on the balance sheet include items such as cash and receivables collectible within a very short period of time, but do not include capital assets such as land and water, sewer and drainage systems. Fund liabilities include amounts that are to be paid within a very short period after the end of the fiscal year. The difference between a fund's total assets and total liabilities is labeled the fund balance and generally indicates the amount that can be used to finance the next fiscal year's activities. Likewise, the operating statement for governmental funds reports only those revenues and expenditures that were collected in cash or paid with cash, respectively, during the current period or very shortly after the end of the fiscal year. Because the focus of the government-wide and fund financial statements is different, there are significant differences between the totals presented in these financial statements. For this reason, there is an analysis in the notes to financial statements that describes the adjustments to fund balances to arrive at net assets presented in the governmental activities column on the statement of net assets. Also, there is an analysis in the notes to financial statements that reconciles the total change in fund balances for all governmental funds to the change in net assets, as reported in the governmental activities column in the statement of activities. Notes to Financial Statements The notes to financial statements provide additional information that is essential to a full understanding of the data found in the government-wide and fund financial statements Northwood MUD Document Production No

29 Northwood Municipal Utility District No. 1 Management's Discussion and Analysis (Continued) June 30, 2011 Financial Analysis of the District as a Whole The District's overall financial position and operations for the past two years are summarized as follows, based on the information included in the government-wide financial statements. Summary of Net Assets (Deficit) Current and other assets Capital assets Total assets Long-term liabilities Other liabilities Total liabilities Net assets (deficit): Restricted Unrestricted Total net assets (deficit) S 283,194 $ 276,393 1,429,809 1,496,067 $ 1,713,003 $ 1,772,460 $ 2,649,123 $ 2,649,123 1,102, ,479 $ 3,752,065 $ 3,634,602 $ 158,663 $ 319,957 (2,197,725) (2,182,099) $ (2,039,062) $ (1,862,142) The total net assets of the District decreased by $176,920, or about 9 percent. The majority of the decrease in net assets is related to depreciation expense on capital assets and interest expense on the District's bonds. Although the District's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. At June 30, 2011, unrestricted net assets were $(2,197,725). This amount was negative because not all expenditures from long-term debt were for the acquisition of capital assets. Within Harris County, the county government assumes the maintenance and other incidents of ownership of most storm sewer facilities constructed by the District. Accordingly, these assets are not recorded in the financial statements of the District. In accordance with GASB Statement No. 34, expenditures for bond issuance costs prior to the implementation of GASB Statement No. 34 on July 1, 2003, were not recorded as deferred charges, which would offset the related liability of long-term debt Northwood MUD Document Production No

30 Management's Discussion and Analysis (Continued) June 30, 2011 Summary of Changes in Net Assets (Deficit) Revenues: Property taxes Charges for services Other revenues Total revenues Expenses: Services Conveyance of capital assets Depreciation Interest Total expenses Change in net assets Net assets (deficit), beginning of year Net assets (deficit), end of year S 79,187 S 118, , ,200 19,390 46, , , , ,395-91,185 66,258 66,259 78,900 78, , ,739 (176,920) (240,066) (1,862,142) (1,622,076) $ (2,039,062) $ (1,862,142) Financial Analysis of the District's Funds The DistricNs combined fund balances as of the end of the fiscal year ended June 30, 2011, were $(208,571), an increase of $42,681 from the prior year. The general fund's fund balance increased by $177,113 due primarily to an interfund transfer from. the debt service fund. The debt service fund's fund balance decreased by $134,432 due primarily to an interfund transfer to the general fund Northwood MUD Document Production No

31 Management's Discussion and Analysis (Continued) June 30, 2011 General Fund Budgetary HiQlliehts There were several differences between the final budgetary amounts and actual amounts. The major differences between budget and actual were due to purchased service expenditures and interfund transfers being higher than anticipated and professional fees being lower than anticipated. The fund balance as of June 30, 2011, was expected to be $(314,461) and the actual end of year fund balance was $(244,242). Capital Assets and Related Debt Capital Assets Capital assets held by the District at the end of the current and previous fiscal years are summarized below: Capital Assets Met of Accumulated Depreciation) Land and improvements Water facilities Wastewater facilities Total capital assets 199,582 S 199, , , , ,208 $ 1,429,809 S 1,496,067 During the current year, there were no additions to capital assets. Debt There were no changes in the debt position of the District during the fiscal year ended June 30, At June 30, 2011, the District had $16,690,000 of unlimited tax bonds authorized, but unissued, for the purposes of acquiring, constructing and improving the water, sanitary sewer and drainage systems within the District. The District's bonds are not rated. Other Relevant Factors Relationship to the City of Houston Under existing Texas law, since the District lies wholly within the extraterritorial jurisdiction of the City of Houston (the City), the District must conform to the City ordinance consenting to the creation of the District. In addition, the District may be annexed by the City without the District's consent. If the District is annexed, the City must assume the District's assets and obligations (including the bonded indebtedness) and abolish the District within 90 days Northwood MUD Document Production No

32 Management's Discussion and Analysis (Continued) June 30, 2011 Plan of Reorzanization On September 6, 1996, the District filed a voluntary petition to reorganize under Chapter 9 of the Federal Bankruptcy Code. The First Amended Plan of Adjustment (the Plan) was filed on March 13, On October 31, 1996, the Bankruptcy Court entered an order granting the relief sought, which was retroactive to the petition date. On May 15, 1998, the Plan was confirmed by the United States Bankruptcy Court, Southern District of Texas, Houston Division. The accompanying financial statements reflect this debt adjustment Northwood MUD Document Production No

33 Statement of Net Assets (Deficit) and Governmental Funds Balance Sheet June 30, 2011 Assets Cash Receivabks: Property taxcs Service accounts Accraed penalty and interest lntertund receivable Prepaid expenditures Capital assets (net of accumulated depreciation): Land and improvements Intrastructure Debt Statement General Service of Net Fund Fund Total Adjustments Assets $ 36,038 $ 90,905 $ 126,943 $ - $ 126,943 19,606 78,785 98,391-98,391 10,433-10,433-10,433-44,207 44,207 24,204-24,204 (24,204) - 3,220-3,220-3, , , ,230,227 1,230,227 Total assets $ 93,501 $ 169,690 $ 263, ,449,812 $ 1,713, See Notes to Financial Statements Northwood MUD Document Production No

34 Northwood Municipal Utility District No.1 Statement of Net Assets (Deficit) and Governmental Funds Balance Sheet (Continued) June 30, 2011 Liabilities Debt Statement General Service Of Net Fund Fund Total Adjustments Assets Accounts payable Accrued expenses Customer deposits Operating deposits Due to others Deferred property tax revenue lnterfund payable Long-term liabilities, due after one year Total liabilities $ 307,755 $ 31,030 $ 338,785 $ - $ 338, , ,775 8,574-8,574-8,574 1, ,606 78,785 98,391 (98,391) ,204 24,204 (24,204) - 2,649,123 2,649, , , ,762 3,280,303 3,752,065 Fund BalanceslNet Assets ( Deficit) Fund balances: Nonspendable, prepaid expense Restricted, unlimited tax bonds Unassigned 3,220-3,220 (3,220) 35,671 35,671 (35,671) (247,462) (247,462) 247,462 Total fund balances (244,242) 35,671 (208,571) 208,571 0 Total liabilities and fund balances S 93,501 $ 169,690 $ 263,191 Net assets (deficit): Restricted for debt service Unrestricted Total net assets (deficit) 158, ,663 (2,197,725) (2,197,725) $ (2,039,062) S (2,039,062) See Notes to Financial Statements Northwood MUD Document Production No

35 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances Year Ended June 30, 2011 Revenues Debt Statement General service of Fund Fund Total Adjustments Activities Property taxes $ 23,877 $ 95,512 $ 119,389 $ (40,202) 3 79,187 City of Houston tau rebate 2,839-2,839-2,839 Water service 59,583-59,583-59,583 Sewer service 62,397-62,397-62,397 Penalty and interest 49 11,201 11,250 5,299 16,549 Investment income Total revenues 148, , ,460 (34,903) 220,557 Ex pend itures/f.x penses Service operations: Purchased services Professional fees Contracted services Utilities Repairs and maintcnanm Other expenditures Depreciation Debt savice, interest 74,048-74,048-74,048 27,283 1,608 28,891 39,540 68,431 18,070 6,929 24,999-24,999 31,259-31,259-31,259 24,268-24,268-24,268 24,064 5,250 29,314-29, ,258 66, ,900 78,900 Total expenditurestexpeases 198,992 13, , , ,477 Excess (Deficiency) of Revenues Over Expenditures (50,247) 92,928 42,681 (42,681) Other Financing Sources (Uses) Tnterfimd transfers 227,360 (227,360) - - Excess (Deficiency) of Revenues and Transfers in Over Expenditures and Transfers Out 177,113 (134,432) 42,681 (42,681) Change in Net Assets (176,920) (176,920) Fund Balances/Net Assets (Deficit) Beginningofyear (421,355) 170,103 (251,252) (1,862,142) End of year $ (244,242) $ 35,671 $ (208,571) $ 0 $ (2,039,062) See Notes to Financial Statements Northwood MUD Document Production No

36 Notes to Financial Statements June 30, 2011 Note 1: Nature of Operations and Summary of Significant Accounting Policies Northwood Municipal Utility District No. 1(the District) was created by an order of the Texas Water Rights Commission, now known as the Texas Commission on Environmental Quality (the Commission), effective August 7, 1985, in accordance with the Texas Water Code, Chapter 54. The District operates in accordance with Chapters 49 and 54 of the Texas Water Code and is subject to the continuing supervision of the Commission. The principal functions of the District are to finance, construct, own and operate waterworks, wastewater and drainage facilities and to provide such facilities and services to the customers of the District. The District is governed by a Board of Directors (the Board) consisting of five individuals who are residents or owners of property within the District and are elected by voters within the District. The Board sets the policies of the District. The accounting and reporting policies of the District conform to accounting principles generally accepted in the United States of America for state and local governments, as defined by the Governmental Accounting Standards Board. The following is a summary of the significant accounting and reporting policies of the District: Reporting Entity The accompanying government-wide financial statements present the financial statements of the District. There are no component units that are legally separate entities for which the District is considered to be financially accountable. Accountability is defined as the District's substantive appointment of the majority of the component unit's governing board. Furthermore, to be financially accountable, the District must be able to impose its will upon the component unit or there must be a possibility that the component unit may provide specific financial benefits to, or impose specific financial burdens on, the District. Government wide and Fund Financial Statements In accordance with required reporting standards, the District reports its financial activities as a special-purpose government. Special-purpose governments are governmental entities which engage in a single governmental program, such as the provision of water, wastewater, drainage and other related services. The financial statements of special-purpose governments combine two types of financial statements into one statement. These two types of financial statements are the government-wide financial statements and the fund financial statements. The fund financial statements are presented with a column for adjustments to convert to the government-wide financial statements. The govemment wide financial statements report information on all of the activities of the District. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Governmental activities generally are financed through taxes, charges for services and intergovernmental revenues. The statement of activities reflects the revenues and expenses of the District Northwood MUD Document Production No

37 Notes to Financial Statements June 30, 2011 The fund financial statements provide information about the District's governmental funds. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is directed to specific activities of the District. The District presents the following major governmental funds: General Fund- The general fund is the primary operating fund of the District which accounts for all financial resources not accounted for in another fund. Revenues are derived primarily from property taxes, charges for services and interest income. Debt Service Fund- The debt service fund is used to account for financial resources that are restricted, committed or assigned to expenditure for principal and interest related costs, as well as the financial resources being accumulated for future debt service. Subsequent to the Chapter 9 bankruptcy proceeding, the resources of the debt service fund are not restricted solely for payment to the bondholders. Fund Balance- Governmental Funds The fund balances for the District's governmental funds are displayed in up to five components: Nonspendable - Amounts that are not in a spendable form or are required to be maintained intact Restricted- Amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may be changed or lifted only with the consent of resource providers. Committed - Amounts that can be used only for the specific purposes determined by resolution of the Board. Commitments may be changed or lifted only by issuance of a resolution by the District's Board. Assigned- Amounts intended to be used by the District for specific purposes as determined by management. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund. Unassigned- The residual classification for the general fund and includes all amounts not contained in the other classifications. The District considers restricted amounts to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. The District applies committed amounts first, followed by assigned amounts, and then unassigned amounts when an expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used Northwood MUD Document Production No