MODERN ELECTRIC WATER COMPANY BALANCE SHEETS September 30, 2016 and STOCKHOLDERS' EQUITY (Note 3) ASSETS LIABILITIES

Size: px

Start display at page:

Download "MODERN ELECTRIC WATER COMPANY BALANCE SHEETS September 30, 2016 and STOCKHOLDERS' EQUITY (Note 3) ASSETS LIABILITIES"

Winfred Flynn
5 years ago
Views:

1 2016 Annual Report

3 MODERN ELECTRIC WATER COMPANY BALANCE SHEETS September 30, 2016 and 2015 ASSETS UTILITY PLANT (Note 2) Land $ 836,877 $ 836,877 Buildings & grounds 3,839,993 3,831,720 Equipment & vehicles 3,999,698 3,716,678 Tanks, towers & plant 7,900,406 7,645,759 Water system 9,915,577 9,688,756 Electric system 19,724,963 18,974,419 Construction in process 681, ,952 $ 46,899,039 $ 44,908,161 Less depreciation reserve 27,924,505 26,701,613 Net utility plant $ 18,974,534 $ 18,206,548 PLANT REPLACEMENT AND IMPROVEMENT FUNDS (Note 4) $ 30,063,664 $ 28,099,359 OTHER ASSETS Deferred charges (Note 7) $ 17,914 $ 22,800 Deposits 165, ,266 $ 183,661 $ 170,066 CURRENT ASSETS Cash and equivalents $ 1,110,913 $ 2,255,622 Receivables (Note 1): Customer accounts 1,497,818 1,422,167 Other 16, Inventory (Note 1) 330, ,348 Prepaid expenses 87,965 92,530 Total current assets $ 3,044,180 $ 4,118,748 $ 52,266,039 $ 50,594,721 STOCKHOLDERS' EQUITY (Note 3) Capital stock $1 par value $ 2,785 $ 2,784 Paid-in capital & earnings retained prior to ,113,957 2,113,957 Paid-in capital since ,371 44,371 Earnings retained ,818,293 46,060,273 Accumulated comprehensive income (Note 10) 875 (679,050) LIABILITIES $ 48,980,281 $ 47,542,335 ACCRUED PENSION COSTS (Note 5) $ 1,992,775 $ 1,042,323 CURRENT LIABILITIES Accounts payable $ 811,614 $ 1,531,972 Accrued liabilities: Wages & vacation 344, ,263 Taxes & other 136, ,828 Total current liabilities $ 1,292,983 $ 2,010,063 $ 52,266,039 $ 50,594,721 See Notes to Financial Statements. 2 3

4 MODERN ELECTRIC WATER COMPANY STATEMENTS OF INCOME Years Ended September 30, 2016 and 2015 OPERATING REVENUES: Electric Department Water Customer service $ 13,179,252 $ 2,048,973 Customer construction 127, ,957 Total operating revenues $ 13,306,825 $ 2,168,930 OPERATING EXPENSES: Power purchases $ 8,740,593 $ 106,744 General operations 985, ,864 Maintenance & repairs 529, ,045 Depreciation 645, ,240 Taxes 504,718 95,775 Total operating expenses $ 11,406,019 $ 1,554,668 Income before administrative expenses $ 1,900,806 $ 614,262 Administrative expenses (Note 11) Income from operations OTHER INCOME (EXPENSE): Net investment income Gain on sale of assets Other income (expense) Total other income (loss) Net income (loss) TOTAL TOTAL $ 15,228,225 $ 14,607, , ,404 $ 15,475,755 $ 14,794,233 $ 8,847,337 $ 8,576,886 1,461,008 1,532, , ,202 1,144,890 1,129, , ,750 $ 12,960,687 $ 12,681,999 $ 2,515,068 $ 2,112,234 1,915,895 1,810,719 $ 599,173 $ 301,515 $ 277,616 $ 1,337,559 1,851 8,280 (120,620) (100,062) $ 158,847 $ 1,245,777 $ 758,020 $ 1,547,292 STATEMENTS OF RETAINED EARNINGS Years Ended September 30, 2016 and 2015 Balance, beginning $ 46,060,273 $ 44,512,981 Net income 758,020 1,547,292 Balance, ending $ 46,818,293 $ 46,060,

5 MODERN ELECTRIC WATER COMPANY STATEMENTS OF CASH FLOWS Years Ended September 30, 2016 and 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Cash from customers $ 15,400,003 $ 14,832,107 Cash from investments 2,180 2,054 Cash paid for operations (14,410,364) (13,166,240) Net cash from operations $ 991,819 $ 1,667,921 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets $ 3,101 $ 72,448 Purchase of: Buildings & grounds (8,273) (35,127) Equipment & vehicles (342,932) (184,889) Tanks, towers & plant (254,648) (369,285) Water system (835,163) (173,869) Electric system (698,613) (543,753) Purchase of plant funds - (1,593,155) Net cash used in investing $ (2,136,528) $ (2,827,630) Decrease in cash $ (1,144,709) $ (1,159,709) Beginning cash 2,255,622 3,415,331 Ending cash $ 1,110,913 $ 2,255,622 RECONCILIATION OF NET INCOME TO CASH FROM OPERATING ACTIVITIES: Net income $ 758,020 $ 1,547,292 Adjustments to reconcile net income to cash from operations: (Gain) on sale of fixed assets (1,851) (8,280) Depreciation & amortization 1,339,569 1,352,956 Net reinvested investment income (275,436) (1,335,505) Change in capital stock 1 (2) (Increase) decrease in assets: Accounts receivable (75,651) 37,286 Other receivables (16,618) (46) Inventory 17,564 22,400 Prepaid expenses 4,565 (372) Prepaid pension - 30,000 Deposits (18,481) (18,156) Increase (decrease) in liabilities: Accounts payable (720,358) 61,599 Deferred revenue (101) 588 Accrued liabilities 39,088 45,413 Accrued pension liabilities (58,492) (67,252) Net cash from operations $ 991,819 $ 1,667,921 See Notes to Financial Statements. 6 7

6 What was done with Revenue For the Year Ended September 30, 2016 Net Income 5% ` Power Used 57% MODERN ELECTRIC WATER COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company operates an electric and water utility company in Spokane Valley, Washington. A summary of the Company s significant accounting policies follows: Operations 9% Deprec. 7% Maint. 6% Admin Exp 12% Taxes 4% Revenue recognition: The Company realizes revenue from electric service monthly as the charges are earned. Water service and estimated usage are also billed monthly. Actual residential water usage is determined in June and September at which time water billings are adjusted accordingly. Accounts receivable: The allowance for bad debt reserve was zero at year end. Unpaid accounts receivable create a lien against the property and are therefore adequately secured. Receivables ninety days or more past due were $8,689 and $12,592 as of September 30, 2016 and 2015, respectively. Electric service 85% Revenue For the Year Ended September 30, 2016 Cash and cash equivalents: For the purposes of reporting the statements of cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains its cash accounts in various banks located in Spokane Valley, Washington. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC). All accounts in any one bank are covered up to $250,000. A summary of the total insured and uninsured cash balances follows: Total cash in all banks $ 1,116,673 $ 2,395,332 Portion insured by FDIC 250, ,943 Uninsured cash balances $ 866,673 $ 1,964,389 Water service 14% 8 Investment & other 1% Inventory: Inventory is recorded at average cost not in excess of replacement cost. 9

7 NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) Income tax: The Company is a tax-exempt entity under Internal Revenue Code Section 501 (c) (12), per an exemption letter dated March 12, If a tax-exempt not-for-profit entity has taken uncertain tax positions (entering into transactions that may be subject to income tax on unrelated business income) that have a morelikely-than not possibility of being overturned on examination, the tax-exempt entity may be subject to a liability for the estimated taxes and related penalties and interest associated with those uncertain tax positions. For the years ended September 30, 2016 and 2015, management is not aware of any uncertain tax positions that would be subject to income taxes. As of January 17, 2017, (the date of the independent auditors report) years ended September 30, 2016, 2015, 2014 and 2013 are open to examination by major tax jurisdictions. Pension benefits: The Company has a defined benefit pension plan covering certain employees who meet the eligibility requirements. To be eligible, an employee must be 21 years of age. The plan provides benefits based on the average annual compensation of the highest five consecutive years of compensation out of the last ten years of service of each participant, which are subject to certain reductions if the employee retires before reaching age 65. Participants are required to contribute one percent of their pay to the plan. The employer contributes the remaining amount necessary to provide the plan s defined benefits. As of April 1, 2011, new union employees hired are not eligible for the defined benefit pension plan. The Company has a defined contribution pension plan covering union employees hired on or after April 1, To be eligible, an employee must be 21 years of age and have completed six months of continuous service. The Company contributes 6% of participants base wage and also matches participants contributions up to 5% of participants base wage. The company s contributions to this plan were $50,539 and $31,480 for 2016 and 2015, respectively. In addition, the Company has a deferred compensation plan which is available to all non-union employees and union employees hired prior to April 1, The Company matches employee contributions up to 5% of employee compensation. The Company s contributions to this plan were $78,5558and $80,466 for 2016 and 2015, respectively. 10 NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2. UTILITY PLANT Additions to utility plant are recorded at cost, including any applicable overhead costs. The cost of repairs and minor replacements is charged to maintenance. Gains and losses on the retirement of utility plant are included in the statements of income. Depreciation is computed on the straight-line method with the following range of lives and balances: Lives in Reserve for Depreciation Years at September Buildings & grounds $ 1,756,503 $ 1,654,703 Equipment & vehicles ,049,739 2,869,994 Tanks, towers & pumping plant ,637,569 5,461,824 Water system ,057,216 6,782,090 Electric system ,423,478 9,933,002 NOTE 3. STOCKHOLDERS EQUITY $ 27,924,505 $ 26,701,613 The Company (a Washington corporation) is owned by the owners of the real property within its corporate area. The Company s authorized capital consists of 6,000 shares of $1 par value stock. Stock certificates, as such, are not issued to each owner, but rather ownership is vested in the deed to their property. There are 2,785 acres of land which have vested ownership. Prior to December 31, 1963, the Company did not segregate retained earnings and paid-in capital. The retained earnings shown in the accompanying financial statements represent earnings retained since such date. Since its founding in 1905, Modern Electric Water Company has kept records of property ownership within the service district. These records are the basis for the Company s allocation of shares of common stock and the corresponding voting rights of each member of the Cooperative. 11

8 NOTES TO FINANCIAL STATEMENTS NOTE 3. STOCKHOLDERS EQUITY (continued) The Spokane County Assessor maintains separate property ownership records for all property in Spokane County. In May 2009, the Board of Directors of Modern Electric Water Company elected to adopt the Spokane County Assessor s records regarding property ownership as the basis for determining the ownership shares of Modern Electric Water Company shareholders. The adoption of these records will provide for a more accurate and consistent method of tracking property ownership and the related voting rights. The Company will adjust their records annually based on the County s property ownership records. NOTE 4. PLANT REPLACEMENT AND IMPROVEMENT FUNDS Management intends that these funds be used for replacement, expansion, upgrading of the Company s utility plant and extraordinary operating needs. Changes in various requirements of federal, state or local regulations could require the Company to incur substantial capital expenditures in order to comply with any such new regulations. Management s intention is to use these funds to meet such contingencies when they arise. The Company has invested the funds in debt and equity securities. Debt securities consist primarily of obligations of domestic corporations. Equity securities are held in managed fund portfolios. Since the Company neither buys investment securities in anticipation of short-term fluctuations in market prices nor absolutely commits to holding securities to maturity, these investments are classified as available-for-sale in accordance with FASB ASC 320 and are stated at market value. A summary of cost, market value and unrealized gains at September 30, 2016 and 2015 for these investments follows: Net Securities Securities Unrealized Market 2016 Cost Gain (Loss) Value Debt $ 5,279,485 $ 54,109 $ 5,333,594 Equity 22,787,571 1,942,499 24,730,070 $ 28,067,056 1,996,608 $ 30,063, Debt $ 5,479,801 $ (20,964) $ 5,458,837 Equity 22,311, ,703 22,640,522 $ 27,791, ,739 $ 28,099,359 Net comprehensive income (loss) for the years ended September 30, 2016 and 2015 was $1,688,869 and ($2,218,963), respectively. Net comprehensive income consists of net unrealized holding gain (losses) arising during the year of $2,156,264 and ($2,616,754), respectively, and reclassification 12 NOTES TO FINANCIAL STATEMENTS NOTE 4. PLANT REPLACEMENT AND IMPROVEMENT FUNDS (continued) adjustment for net realized gains (losses) included in net income for the year of $(467,395) and $397,791, respectively. Accumulated comprehensive income at September 30, 2016 and 2015, is $1,996,608 and $307,739, respectively. The cost and market value of debt securities, by contractual maturities, as of September 30, 2016 are as follows: Market Cost Value Due in one year or less $ 4,211,269 $ 4,254,478 Due after one year through five years 880, ,742 Due after five years 187, ,374 $ 5,279,485 $ 5,333,594 NOTE 5. DEFINED BENEFIT PENSION PLAN Net pension cost for the Company s defined benefit pension plan consisted of the following components for the years ended 2016 and 2015: Service cost (benefits earned) $ 248,107 $ 252,240 Interest cost on projected benefit obligation 175, ,905 Actual return on plan assets (250,551) 60,156 Net amortization and deferral 147,739 (163,001) Employee contributions (19,144) (19,552) $ 301,508 $ 292,748 Company contribution $ 360,000 $ 360,000 Benefits paid $ 8,672 $ 377,312 The following table sets forth the plan s funded status as of September 30, 2016 and 2015 and the amount recognized in the accompanying balance sheets as of September 30: Actuarial present value of benefit obligations: Vested benefits $ 4,038,284 $ 2,805,414 Accumulated benefits $ 4,107,481 $ 2,864,359 Projected benefits $ (5,546,351) $ (3,974,876) Plan assets at fair value 3,553,576 2,932,553 Plan assets less than projected benefit obligation $ (1,992,775) $ (1,042,323) Unrecognized net loss 1,995, ,789 Unrecognized prior service cost - - Other comprehensive income (1,995,773) (986,789) Asset (accrual) on balance sheet $ (1,992,775) $ (1,042,323) 13

9 NOTES TO FINANCIAL STATEMENTS NOTE 5. DEFINED BENEFIT PENSION PLAN (Continued) Net comprehensive income (loss) for the years ended September 30, 2016 and 2015 was $(1,008,944) and $(208,128), respectively. Net comprehensive income consists of unrecognized net gain (loss) of $(1,156,683) and $(208,128), respectively; plus (less) net amortization and deferral of $147,739 and (163,002), respectively. Benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter: 2017 $91,992, 2018 $91,983, 2019 $91,971, 2020 $91,955, 2021 $107,581, 2022 to 2026 $920,582. The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the benefit obligations were 3.75% and 3.00%, respectively, at September 30, The expected long-term rate of return on plan assets used in 2016 was 4.50%. NOTE 6. FAIR VALUE Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The carrying values of cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable, accrued liabilities are reasonable estimates of their fair values. For assets and liabilities measured at fair value, the General Accepted Accounting Principal (GAAP) fair value hierarchy prioritizes the inputs used in different valuation methodologies, assigning the highest priority to unadjusted quoted prices for identical assets and liabilities in actively traded markets (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 inputs consist of quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in non-active markets. The following table discloses by level within the fair value hierarchy the Company s assets measured and reported on the Balance Sheets as of September 30, 2016 and 2015: Level 1 Level Assets: Available for Sale Securities Debt Securities $ 4,936,460 $ 397,134 Equity Securities 23,772, ,172 Total $ 28,709,358 $ 1,354,306 NOTES TO FINANCIAL STATEMENTS NOTE 6. FAIR VALUE (Continued) Level 1 Level Assets: Available for Sale Securities Debt Securities $ 5,092,799 $ 366,038 Equity Securities 21,737, ,769 Total $ 26,830,552 $ 1,268,807 NOTE 7. PLANT SYSTEM STUDIES In fiscal year 2013, the Company undertook planning and rate studies in order to anticipate the future growth and demand requirements of its service area. This study was completed in fiscal year 2014 for a total cost of $29,314. This study is being amortized over 6 years and is reported at cost net of accumulated amortization. At September 30, 2016 and 2015, net book value was $17,914 and $22,800, respectively. Amortization expense at September 30, 2016 and 2015 was $4,886 and $ 4,886, respectively. NOTE 8. CONCENTRATIONS All water utilities in the State are required by the Washington Health Department to submit an updated comprehensive water plan outlining the strategies the companies will implement over a six year period to insure their compliance with new regulations. Modern Electric Water Company was required to submit, and has completed an updated plan for the six year period commencing June Effective October 1, 2006, the Company entered into a five-year agreement to purchase all of its electrical power from Bonneville Power Administration. On November 18, 2008 the Company gave authorization to enter into a new agreement with the Bonneville Power Administration to purchase all its electrical power from the Bonneville Power Administration starting October 1, 2011 and ending September 30, The Company is subject to a collective bargaining agreement that covers employees other than management and professional employees. The agreement was renewed on April 1, 2016 and expires on March 31, NOTE 9. DATE OF MANAGEMENT S REVIEW Subsequent events were evaluated on January 17, 2017, which is the date the financial statements were available to be issued

Pension Items $ (986,789) Dave Thompson President Barry Baker Vice President OCI Reclassified out of

following table reflects components of accumulated other comprehensive income at year end.

(1,995,733) (986,789) $ 875 $ (679,050) NOTE 11.

10 NOTES TO FINANCIAL STATEMENTS NOTE 10. ACCUMULATED COMPREHENSIVE INCOME The following table reflects changes to each component of accumulated other comprehensive income (OCI). Beginning balance Unrealized Gains and Losses on Availablefor-Sale Securities $ 307,739 Defined Benefit Pension Items $ (986,789) Dave Thompson President Barry Baker Vice President OCI Reclassified out of accumulated OCI 2,156,264 (467,395) (1,156,683) 147,739 Ending balance $ 1,996,608 $ (1,995,733) The following table reflects components of accumulated other comprehensive income at year end. Unrealized gains and losses (note 4) $ 1,996,608 $ 307,739 Pension liability adjustment (note 5) (1,995,733) (986,789) $ 875 $ (679,050) NOTE 11. ADMINISTRATIVE EXPENSES General office wages and expense $ 813,347 $ 719,097 Taxes 63,077 55,338 Office supplies & maint. 247, ,361 Public relations 66,704 41,492 Dues & subscriptions 53,160 79,738 Pension plan 153, ,932 Postage 67,627 65,647 Accounting & legal fees 69,152 65,526 Insurance 54,444 54,781 Medical plan costs 113,036 81,615 Transportation costs 1,451 2,007 Company power usage 18,181 17,954 Depreciation 194, ,231 $ 1,915,895 $ 1,810,719 Sam Waldron Secretary/Treasurer Scott Hislop Director Chuck Taes Director Joe Morgan General Manager 16

INDEPENDENT AUDITORS REPORT EXECUTIVE REPORT

INDEPENDENT AUDITORS REPORT EXECUTIVE REPORT 2017 Annual Report EXECUTIVE REPORT We know our customers are why Modern Electric Water Company (MEWCo) exists. For that reason, on your behalf, we operate the business you own with integrity, focused