GLASGOW ELECTRIC PLANT BOARD FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION. June 30, 2014 and 2013

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION June 30, 2014 and 2013

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3 TABLE OF CONTENTS Introductory Section Directory 1 Pages Financial Section Independent Auditor's Report 2-3 Management's Discussion and Analysis 4-15 Financial Statements Statements of Net Position Statements of Revenues, Expenses, and Changes in Net Position 18 Statements of Cash Flows Notes to Financial Statements Other Supplementary Information Section Statement of Revenues, Expenses, and Changes in Net Position - Budget and Actual 34 Statement of Combining Revenues, Expenses, and Changes in Net Position 35 Schedule of Operating Revenue and Expense - Electric Division Schedule of Operating Revenue and Expense - CATV Division Schedule of Operating Revenue and Expense - LAN Division Schedule of Operating Revenue and Expense - JMYTC Division 43 Schedule of Utility Plant in Service 44 Schedule of Long-Term Debt 45 Schedule of Electric Rates in Force - Unaudited 46 Other Supplementary Information - Unaudited 47 Internal Control and Compliance Section 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 48-49

4 INTRODUCTORY SECTION

5 DIRECTORY June 30, 2014 and 2013 Board of Directors Norma Redford, Chairman Jeff Harned, Secretary-Treasurer Jim Lee, Member Cheryl Berry Ambach, Member Harold Armstrong, Member Management Team William J. Ray, Superintendent Melanie Reed Financial Manager Legal Counsel Herbert, Herbert, and Pack Glasgow, Kentucky Independent Certified Public Accountants Campbell, Myers, and Rutledge, PLLC Glasgow, Kentucky Page 1

6 FINANCIAL SECTION

7 To the Board of Directors Glasgow Electric Plant Board Glasgow, Kentucky INDEPENDENT AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of Glasgow Electric Plant Board, component unit of the City of Glasgow, Kentucky, as of and for the years ended June 30, 2014 and 2013, and the related notes to the financial statements, which collectively comprise the Glasgow Electric Plant Board s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Page 2

8 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of Glasgow Electric Plant Board, as of June 30, 2014 and 2013, and the respective changes in financial position, and, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 4-15 and page 34 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Company s basic financial statements. The introductory section and other supplementary information section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedules of operating revenues and operating expenses are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedules of operating revenues and operating expenses are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory section and other supplementary information on pages have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 17, 2014, on our consideration of the Company s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Glasgow Electric Plant Board s internal control over financial reporting and compliance. Campbell, Myers & Rutledge, PLLC Certified Public Accountants Glasgow, Kentucky September 17, 2014 Page 3

9 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the Glasgow Electric Plant Board, we offer readers of the System s financial statements this narrative overview and analysis of the financial activities of the System for the fiscal years ended June 30, 2014 and All amounts, unless otherwise indicated, are expressed in dollar amounts. Financial Highlights Management believes the System s financial condition is strong. The System is well within the stringent financial policies and guidelines set by the Board and management. The following are key financial highlights. Revenues: Our revenues for the fiscal year remained constant at $36,762,439 compared to $36,836,610 for our last fiscal year, due to comparative kwh sales. Expenses: Our expenses for the fiscal year decreased to $34,820,774 compared to $35,371,557 for our last fiscal year. This is mainly due to a large decrease in tree trimming costs as well as better awareness of power cost factors. Significant Expenses: Purchased power for Electric decreased to $22,705,035 compared to $23,161,863 for our last fiscal year. This is mainly due to work by System to improve its load factor and reduce its net wholesale power cost. Programming expense increased to $2,925,887 compared to $2,737,662 for last fiscal year. This increase reflects price increases from our cable programming vendors. LAN bandwidth expense increased to $362,279 from $335,621 the previous year due to the increased demand for higher speeds of service. Net Profits: Net income decreased to $1,115,271 in the current year compared to $1,465,241 during our last fiscal year. The main contributor to this was the retirement of Fiber to the Home plant during the year, resulting in an extraordinary loss of $826,394. Plant in Service Cost: Increased to $61,917,081 from $61,314,564 due to various additions to plant. Cash Balances: Increased to $9,018,033 compared to $6,474,164 last year due to a bond issue during the fiscal year. Unbilled Revenue: Decreased from $205,382 in 2013 to $0.00 for As of June 30, 2014, all billing routes were on a calendar month billing period. This eliminated the need for unbilled revenue. Customer Deposits: Decreased to $1,076,700 from $1,090,491 due primarily to the introduction of a prepay program. With the prepay program, customers are not required to make a deposit. Bonds and Notes Payable: Increased to $24,866,756 from $23,591,181 due to new debt being issued during the current year of $3,070,000. Debt Service Coverage (Times): Remained the same as the previous year at Capital Asset and Long-term Debt Activity: We have met all deposit requirements to our bond reserve accounts and payments of principal and interest on bonds have been met. Page 4

10 OVERVIEW OF THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Management s Discussion and Analysis (MD&A) serves as an introduction to, and should be read in conjunction with, the financial statements and supplementary information. The MD&A represents management s examination and analysis of the System s financial condition and performance. Summary financial statement data, key financial and operational indicators used in the System s strategic plan, budget, bond resolutions and other management tools were used for this analysis. The Financial Statements and Supplementary Information are made up of four sections: 1) the introductory section, 2) the financial section, 3) the other supplementary information section and 4) the internal control and compliance section. The introductory section includes the System s directory. The financial section includes the MD&A, the independent auditor s report, the financial statements with accompanying notes, and the supplementary information. The other supplementary information section includes selected financial and operational information. The internal control and compliance section includes the report on internal control and compliance. These sections make up the financial report presented here. REQUIRED FINANCIAL STATEMENTS A Proprietary Fund is used to account for the operation of the System, which is financed and operated in a manner similar to private business enterprises where the intent is that the costs of providing services to the general public on a continuing basis be financed or recovered primarily through user charges. The financial statements report information about the System, using accounting methods similar to those used by private sector companies. These statements offer short- and long-term financial information about its activities. The Statement of Net Position presents the financial position of the System on a full accrual historical cost basis. The statement includes all of the System s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to the System s creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the System, and assessing the liquidity and financial flexibility of the System. The Statement of Revenues, Expenses and Changes in Net Position presents the results of the business activities over the course of the fiscal year and information as to how the net position changed during the year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. This statement measures the success of the System s operations and can be used to determine whether the System has successfully recovered all of its costs. This statement also measures the System s profitability and credit worthiness. The Statement of Cash Flows presents changes in cash and cash equivalents, resulting from operations, financing and investing activities. This statement presents cash receipts and cash disbursements information, without consideration of the earnings event, when an obligation arises. The Notes to Financial Statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about the System s accounting policies, significant account balances and activities, material risk, obligations, commitments, contingencies and subsequent events, if any. FINANCIAL ANALYSIS One of the most important questions asked about the System s finances is is the System, as a whole, better off or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Revenue, Expenses and Changes in Net Position report information about the System s activities in a way that will help answer this question. Page 5

11 These two statements report the net assets of the System, and changes in the net position. Net position is one way to measure the financial health or financial position of the System. Over time, increase in the System s net position is an indicator of whether its financial health is improving or deteriorating. However, you will need to consider other non-financial factors such as changes in economic conditions, customer growth and legislative mandates. The Glasgow Electric Plant Board s primary service to the Community is electric service. Other services include Cable television, LAN/WAN, Internet access and colocation. The System s total net position increased by $530,364 for the fiscal year ended June 30, The analysis below focuses on the System s net position (Table 1) and changes in net position (Table 2) during the year. Table 1A CONDENSED STATEMENT OF NET POSITION Increase (Decrease) June 30, 2014 June 30, 2013 Amount Percent Current and other assets $13,898,426 $ 11,187,153 $ 2,711, % Capital assets 33,769,584 33,956,974 (187,390) -0.55% Total assets 47,668,010 45,144,127 2,523, % Deferred outflows of resources 437, ,139 27, % Total deferred outflows of resources 437, ,139 27, % Long-term liabilities 22,896,086 21,781,756 1,114, % Other liabilities 9,191,427 8,869, , % Total liabilities 32,087,513 30,651,237 1,436, % Invested in capital assets, net of related debt $9,340,631 10,775,932 (1,435,301) % Restricted for debt service $2,571,838 2,657,022 (85,184) -3.21% Resticted for construction 2,925, ,994 2,128, % Unrestricted 1,180, , , % Total Net Position $16,018,300 $ 14,903,029 $ 1,115, % Table 1B CONDENSED STATEMENT OF NET POSITION Increase (Decrease) June 30, 2013 June 30, 2012 Amount Percent Current and other assets $ 11,187,153 $ 11,055,084 $ 132, % Capital assets 33,956,974 34,339,846 (382,872) -1.11% Total assets 45,144,127 45,394,930 (250,803) -0.55% Deferred outflows of resources 410, ,618 (31,479) -7.13% Total deferred outflows of resources 410, ,618 (31,479) -7.13% Long-term liabilities 21,781,756 23,591,182 (1,809,426) -7.67% Other liabilities 8,869,481 8,810,089 59, % Total liabilities 30,651,237 32,401,271 (1,750,034) -5.40% Invested in capital assets, net of related debt 10,775,932 10,066, , % Restricted for debt service 2,657,022 2,594,352 62, % Restricted for construction 796,994 1,854,355 (1,057,361) % Unrestricted 673,081 (1,077,870) 1,750, % Total Net Position $ 14,903,029 $ 13,437,788 $ 1,465, % Page 6

12 The increase in current and other assets, long-term liabilities and net position restricted for construction is due to a bond issue of $3,070,000 in the current year. This resulted in an increase to restricted cash of $2,725,000. Unrestricted net position increased dramatically over the previous year due the increase in cash from reduced expenses. Changes in the System s net position can be determined by reviewing the following condensed Statement of Revenues, Expenses and Changes in Net Position for the years. Table 2A CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Increase (Decrease) June 30, 2014 June 30, 2013 Amount Percent Revenues: Electric $ 30,172,589 $ 30,522,349 $ (349,760) -1.15% Cable TV 4,329,476 4,286,346 43, % LAN 2,204,274 1,983, , % JMYTC 56,100 44,102 11, % Total revenues 36,762,439 36,836,610 (74,171) -0.20% Expenses: Electric $ 28,414,679 $ 29,208,708 $ (794,029) -2.72% Cable TV 4,903,158 4,652, , % LAN 1,502,937 1,510,282 (7,345) -0.49% JMYTC % Total expenses 34,820,774 35,371,369 (550,595) -1.56% Extraordinary loss-removal of plant (826,394) - (826,394) Change in net position 1,115,271 1,465,241 (349,970) % Total Net Position - beginning 14,903,029 13,437,788 1,465, % Total Net Position - ending $ 16,018,300 $ 14,903,029 $ 1,115, % Page 7

13 Table 2B CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Increase (Decrease) June 30, 2013 June 30, 2012 Amount Percent Revenues: Electric $ 30,522,349 $ 30,017,966 $ 504, % Cable TV 4,286,346 4,051, , % LAN 1,983,813 1,814, , % JMYTC 44,102 44, % Total revenues 36,836,610 35,927, , % Expenses: Electric $ 29,208,708 $ 28,910,459 $ 298, % Cable TV 4,652,379 4,464, , % LAN 1,510,282 1,593,526 (83,244) -5.22% JMYTC % Total expenses 35,371,369 34,968, , % Change in net position 1,465, , , % Total Net Position - beginning 13,437,788 12,478, , % Total Net Position - ending $ 14,903,029 $ 13,437,976 $ 1,465, % Increases in Cable TV and LAN divisions were primarily due to rate increases Total expenses decreased by $550,783 for the year. Ending net position showed an increase of 19.2% over the two year period due to the above mentioned facts. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2014, the System had $33.8 million (net of accumulated depreciation) invested in a broad range of System capital assets. This investment includes land, land rights, distribution and transmission systems and their related equipment, and various types of equipment, including Cable TV, and broadband fiber optic plant. Based on the uses of the aforementioned assets, they are classified for financial purposes as transmission plant, distribution plant, general plant, electric plant held for future use, construction in progress, and other property Telecom. This investment represents an overall decrease (net of increases and decreases) of $187,390 or.55% less than last year. Only small capital projects have been completed in the current year. That combined with continuing depreciation and removal of the Fiber to the Home plant resulted in an overall decrease to capital assets. The following tables summarize the System s capital assets, net of accumulated depreciation, and changes therein, for the years ended June 30, 2014 and These changes are presented in detail in Note 3F to the financial statements. Page 8

14 Table 3A UTILITY PLANT IN SERVICE, NET OF ACCUMULATED DEPRECIATION Increase (Decrease) June 30, 2014 June 30, 2013 Amount Percent Transmission plant $ 1,434,668 $ 1,503,471 $ (68,803) -4.58% Distribution plant 18,493,445 17,412,499 1,080, % General plant 7,123,695 7,935,337 (811,642) % Electric plant held for future use 10,000 10, % Construction in progress 211, ,861 (90,182) % Other property - telecom 6,496,097 6,793,806 (297,709) -4.38% Total capital assets (net) $ 33,769,584 $ 33,956,974 $ (187,390) -0.55% Table 3B CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION Increase (Decrease) June 30, 2013 June 30, 2012 Amount Percent Transmission plant $ 1,503,471 $ 1,419,568 $ 83, % Distribution plant 17,412,499 17,027, , % General plant 7,935,337 7,215, , % Electric plant held for future use 10,000 10, % Construction in progress 301,861 1,673,116 (1,371,255) % Other property - telecom 6,793,806 6,994,342 (200,536) -2.87% Total capital assets (net) $ 33,956,974 $ 34,339,846 $ (382,872) -1.11% The major portion of the additions took place in the Distribution plant. Transmission and General plant decreased due to no new major assets being constructed during the year. Construction in Progress decreased as additional work order closings beyond current year were performed during the year to get the process up-to-date. The System plans on using existing financial resources, increased funds from planned rate increases and proceeds from future bond issues to continue upgrading and expanding existing and adding new systems where it sees fit. Debt Administration The System has outstanding Revenue Bonds and Notes Payable of $24,866,756 as of June 30, Principal payments are due in the upcoming fiscal year in the amount of $1,970,670 with interest payments totaling approximately $884,119 also due. Details relating to the outstanding debt can be found in Note 3G. The System is well within its debt covenants and foresees no problems in the future relating to outstanding debt. Page 9

15 ADDITIONAL FINANCIAL ANALYSIS The following includes details and graphs to help provide additional financial analysis of the System s financial position: June 30, Electric $ 30,172,589 $ 30,522,349 $ 30,017,966 Cable 4,329,476 4,286,346 4,051,137 LAN 2,204,274 1,983,813 1,814,692 JMYTC 56,100 44,102 44,175 Total $ 36,762,439 $ 36,836,610 $ 35,927,970 Page 10

16 June 30, Electric $ 28,414,679 $ 29,208,708 $ 28,910,459 Cable 4,903,158 4,652,379 4,464,087 LAN 1,502,937 1,510,282 1,593,526 JMYTC Total $ 34,820,774 $ 35,371,369 $ 34,968,072 June 30, Purchased power $ 22,705,035 $ 23,161,863 $ 23,151,069 Programming expense 2,925,887 2,737,662 2,574,938 LAN expense 362, , ,797 Total $ 25,993,201 $ 26,235,146 $ 26,025,804 Page 11

17 June 30, Electric $ 931,516 $ 1,313,641 $ 1,107,507 Cable (573,682) (366,033) (412,950) LAN 701, , ,166 JMYTC 56,100 44,102 44,175 Total $ 1,115,271 $ 1,465,241 $ 959,898 June 30, Construction $ 2,925,022 $ 796,994 $ 1,854,355 Sinking 2,571,838 2,657,022 2,594,352 Operating 3,521,173 3,020,148 1,947,131 Total $ 9,018,033 $ 6,474,164 $ 6,395,838 Page 12

18 June 30, Electric $ 49,084,459 $ 48,356,449 $ 47,663,898 Telecom 12,832,622 12,958,115 12,391,739 Total $ 61,917,081 $ 61,314,564 $ 60,055,637 June 30, Deposits $ 920,813 $ 927,867 $ 867,397 Interest 155, , ,712 Total $ 1,076,700 $ 1,090,491 $ 1,038,109 Page 13

19 June 30, $ - $ 1,050,000 $ 1,135, , , , ,030,000 4,285,000 4,530, ,665,000 8,370,000 9,065, ,230,000 3,370,000 3,510, ,705,000 3,060,000 3,405, ,990,000 2,075,000 2,150, A 3,105, B 940, Note Payable-KIA 1,000,242 1,057,744 1,114,902 Note Payable-BB&T 101, , ,491 Total $ 24,866,756 $ 23,591,181 $ 25,349,393 Debt Service Coverage Operating revenues $ 36,745,660 $ 36,826,202 $ 35,817,831 $ 36,350,444 $ 32,766,035 Operating expenses 33,532,168 34,251,335 33,322,722 33,797,288 30,264,064 Operating income 3,213,492 2,574,867 2,495,622 2,553,156 2,501,971 Depreciation expense 2,150,786 2,171,780 2,035,154 1,768,329 1,747,147 Net revenue before debt service 5,364,278 4,746,647 4,530,776 4,321,485 4,249,118 Estimated maximum debt service 2,975,579 2,641,636 2,647,066 2,496,329 2,157,085 Coverage (times) ECONOMIC FACTORS AND NEXT YEAR S RATES The System s wholesale energy provider changes the Total Monthly Fuel Cost (FCA) on a monthly basis. Effective July 1, 2014 the FCA was increased approximately 1.4% for all rate classes. The forecast for 2015 shows a total estimated decrease of approximately 7.5% from July 1, 2014 to June 30, TVA has announced in August 2014 their plans to increase their wholesale cost of power by approximately 1.5%, effective October 1, The System s board will implement new retail rates, as recommended by TVA, to collect the additional revenue necessary to offset this rate increase and those should become effective on October 1, 2014 as well. The System s board has approved cable and internet rate increases to be effective July 1, The transparent, cost-based rates are projected to generate additional revenue for these services, in order to keep the combined cable and internet businesses at a break-even point, which will accomplish the mandate of operating on a not-for-profit basis. The notes to the financial statements are an integral part of this statement. Page 14

20 The System s Board and management will need to analyze and adjust the rates annually to maintain this status and will likely implement a rate adjustment on January 1, 2015 to offset the anticipated programming cost increases that will flow from the 2014 broadcaster retransmission consent elections. On April 1, 2012, the EPB moved to the TVA mandated Time-of-Use (TOU) wholesale rate environment. The System has been deeply involved in analyzing consumer energy consumption data, made possible by its recently completed AMI deployment, compared to the TVA TOU wholesale rate. Those studies have uncovered numerous wholesale/retail rate mismatches that result in many customer s bills not properly covering the cost of serving those customers, while many other customers are experiencing bills that are over-collecting the revenue necessary to serve them. A new system of retail rates, called the Infotricity Retail Rate, has been developed and submitted to TVA for approval. Once approved, these rates are likely to become effective in late The System continued to research infotricity through projects funded by TVA an EPRI during These projects involve installation of Wi-Fi enabled thermostats and Heat Pump Water Heaters to study their performance and customer reaction to the new technologies. These projects continue to test the theory that daily load shape can be shifted to provide a better match of energy demand and generation components by using broadband, IP-based metering, IP-connected appliances and loads, and software designed to shape load to match the cleanest and most efficient generation assets. This research is essential to the implementation of the Infotricity Retail Rate. The cost to the System will be minimal but will provide major insight into these areas. The projects will continue throughout fiscal year CONTACTING THE AUTHORITY S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the System s finances for all those with an interest in the System s finances and to demonstrate the System s accountability for the money it receives. Questions concerning any information provided in this report or requests for any additional information should be directed to the General Manager of Glasgow Electric Plant Board, P.O. Box 1809, Glasgow, KY The notes to the financial statements are an integral part of this statement. Page 15

21 STATEMENTS OF NET POSITION JUNE 30, 2014 and 2013 ASSETS RESTATED Utility Plant: Utility plant in service $ 49,084,459 $ 48,356,449 Other property - Telcom 12,832,622 12,958,115 Less accumulated depreciation (28,147,497) (27,357,590) Total utility plant 33,769,584 33,956,974 Current assets: Cash and cash equivalent - unrestricted 3,521,173 3,020,148 Cash and cash equivalent - restricted 5,496,860 3,454,016 Accounts receivable (less allowance for doubtful accounts of $66,945 and $196,025) 3,979,654 3,734,397 Materials and supplies 615, ,080 Prepayments and other assets 285, ,512 Total current assets 13,898,426 11,187,153 Total Assets $ 47,668,010 $ 45,144,127 Deferred outflows of resources Unamortized discount on bonds $ 437,803 $ 410,139 Total deferred outflows of resources $ 437,803 $ 410,139 The notes to the financial statements are an integral part of this statement. Page 16

22 STATEMENTS OF NET POSITION (CONCLUDED) JUNE 30, 2014 and 2013 LIABILITIES RESTATED Current liabilities: Current maturities of long-term debt $ 1,970,670 $ 1,809,425 Accounts payable 4,695,586 4,584,701 Accrued vacation 413, ,481 Accrued taxes 256, ,965 Consumer deposits 1,076,700 1,090,491 Accrued interest 84,092 71,306 Other accrued liabilities 285, ,648 Other deferred revenue 408, ,464 Total current liabilities 9,191,427 8,869,481 Noncurrent liabilities: Bonds payable (less current maturities) 21,878,755 20,680,000 Notes payable (less current maturities) 1,017,331 1,101,756 Total long-term liabilities 22,896,086 21,781,756 Total liabilities $ 32,087,513 $ 30,651,237 Net Position Invested in capital assets, net of related debt $ 9,340,631 $ 10,775,932 Restricted for debt service 2,571,838 2,657,022 Restricted for construction 2,925, ,994 Unrestricted 1,180, ,081 Total Net Position $ 16,018,300 $ 14,903,029 The notes to the financial statements are an integral part of this statement. Page 17

23 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2014 and 2013 RESTATED Operating revenues: $ 36,745,660 $ 36,826,202 Operating expenses: Cost of sales and service 25,993,201 26,235,146 Operations expense 4,790,353 4,741,859 Maintenance expense 597,828 1,102,550 Provision for depreciation 2,150,786 2,171,780 Total operating expenses 33,532,168 34,251,335 Operating income (loss) 3,213,492 2,574,867 Nonoperating revenue (expenses): Interest and other income 16,779 10,408 Interest and other expense (795,965) (787,074) Amortization debt discount (99,494) (78,749) Total nonoperating revenue (expenses) (878,680) (855,415) Income before transfers 2,334,812 1,719,452 Transfers: Transfers out - tax equivalents (393,147) (254,211) Extraordinary loss-removal of plant (826,394) - Change in Net Position 1,115,271 1,465,241 Total Net Position - beginning 14,903,029 13,437,788 Total Net Position - ending $ 16,018,300 $ 14,903,029 The notes to the financial statements are an integral part of this statement. Page 18

24 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2014 and 2013 RESTATED Cash flows from operating activities: Cash received from customers and others $ 36,561,053 $ 36,812,035 Cash paid to suppliers and employees (31,203,491) (32,030,223) Net cash provided (used) by operating activities 5,357,562 4,781,812 Cash flows from capital and related financing activities: Proceeds from bonds and notes 4,045,000 - Principal paid on bonds and notes (2,769,425) (1,805,671) Interest paid on bonds and notes (808,927) (773,984) Net construction and acquisition of plant (2,018,051) (1,810,526) Extraordinary loss on removal of plant (826,934) - Net cash provided (used) by capital and related financing activities (2,378,337) (4,390,181) Cash flows from non-capital financing activities: Increase (decrease) in customer deposits (13,790) 52,382 Amounts paid to others - tax equivalents (428,739) (454,460) Net cash provided (used) by non-capital financing activities (442,529) (402,078) Cash flows from investing activities: Interest received 16,668 10,715 Investment in MuniNet (32,995) (62,800) Cash received for sale of plant 23, ,858 Net cash provided (used) by investing and related financing activities 7,173 88,773 Net increase (decrease) in cash and cash equivalents 2,543,869 78,326 Cash and cash equivalents - beginning of year 6,474,164 6,395,838 Cash and cash equivalents - end of year $ 9,018,033 $ 6,474,164 Unrestricted cash and cash equivalents on deposit $ 3,521,173 $ 3,020,148 Restricted cash and cash equivalents on deposit 5,496,860 3,454,016 Total cash and cash equivalents $ 9,018,033 $ 6,474,164 The notes to the financial statements are an integral part of this statement. Page 19

25 STATEMENTS OF CASH FLOWS (CONCLUDED) FOR THE YEARS ENDED JUNE 30, 2014 and 2013 Reconciliation of operating income to net cash provided by operating activities: RESTATED Operating income (loss) $ 3,213,492 $ 2,574,867 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Provision for depreciation 2,150,786 2,171,780 Amortization and acquisition adjustment (99,494) (78,749) (Increase) decrease in accounts and rents receivable (389,985) (240,376) (Increase) decrease in unbilled revenue 205, ,208 (Increase) decrease in materials and supplies 82,410 (5,165) (Increase) decrease in prepayments and other current assets 195 (34,716) Increase (decrease) in accounts payable and accrued expenses 194, ,963 Net cash provided (used) by operating activities $ 5,357,562 $ 4,781,812 The notes to the financial statements are an integral part of this statement. Page 20

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 and 2013 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The Glasgow Electric Plant Board (System), a nonprofit utility company was created by ordinance of the City of Glasgow, Kentucky enacted on January 6, 1958, and respectively, under the provision of Kentucky Revised Statute to and the governing board of the utility is appointed by the City of Glasgow City Council. The Plant Board provides electric service, cable television, internet access, and other miscellaneous services within their service area, to residents of the City of Glasgow and portions of Barren County, Kentucky. These financial statements present only the Glasgow Electric Plant Board, a fund of the City of Glasgow, Kentucky. B. Measuring Focus, Basis of Accounting, and Financial Statement Presentation The System s financial statements are presented on the full accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The accounting policies of the System conform to applicable generally accepted accounting principles as defined in the pronouncements of the Governmental Accounting Standards Board (GASB), Financial Accounting Standards (FASB) Statements and Interpretations, Accounting Principle Board (APB) Opinions and Accounting Research Bulletins (ARBs), issued on or before November 30, The System does not apply FASB pronouncements or APB opinions issued after November 30, Enterprise funds distinguish operating revenues and expenses from non-operating items. Operating revenue and expenses generally result from providing services and delivering goods in connection with the enterprise fund s principal ongoing operations. The principal operating revenues of the System are charges for sales to customers for sales and service. Operating expenses for the enterprise funds include the cost of sales and service, administrative expense, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The books of account are kept in accordance with the provision of the power contract with Tennessee Valley Authority and meet the requirements of the Federal Energy Regulatory System Commission s chart of accounts. The System grants credit to customers in Glasgow, Kentucky, substantially all of who are local residents, manufacturing industries, and commercial businesses. When both restricted and unrestricted resources are available for use, it is the System s policy to use restricted resources first, and then unrestricted resources as needed. C. Assets, Liabilities, and Net Position Deposits and Investments The System s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Accounts Receivable Trade receivables result from unpaid billings for service to customers and from unpaid billings related to work performed or materials sold to certain entities. All trade receivables are shown net of an allowance for uncollectible accounts. The allowance for uncollectible customer accounts recorded by the System is based on past history of uncollectible accounts and management s analysis of current accounts. Page 21

27 NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 2014 and 2013 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Inventories and Prepaid Items All inventories are valued at the lower of average cost or market, using the first-in/first-out (FIFO) method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. Restricted Assets Certain proceeds of the bond issues, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because they are maintained in separate bank accounts and their use is limited by applicable bond covenants. Additionally, certain funds are set aside for construction funded through long-term debt and for the creation of reserves for depreciation of plant and the retirement of related debt. Capital Assets Capital assets, which include property, plant, equipment, and construction in progress, are defined by the System as assets with an initial, individual cost of more than $500 and an estimated useful life in excess of five years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Original cost includes materials, labor, transportation, and such other indirect costs as engineering, supervision, and employee fringe benefits. Assets acquired through contributions from developers or other customers are capitalized at their fair market value at the date of donations. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. For the year June 30, 2014, there was no capitalized interest. As property units are retired in the ordinary course of business, the cost of the property plus removal cost less salvage, is charged to accumulated depreciation. Property, plant, and equipment of the System is depreciated using the straight-line method over the following useful lives: General plant Transmission plant Distribution plant Other property Telcom 5 40 years years years 5 40 years Compensated Absences It is the System s policy to permit employees to accumulate earned but unused personal benefits. Personal leave earned by employees is accrued based on years of continuous service. The maximum personal leave that can be carried forward from year to year is the greater of 1,040 hours or the total converted amount under the new policy at January 1, All personal leave pay has been accrued and is reflected as a liability in the financial statements. When an employee ceases to be employed, all benefits shall cease to accrue at the end of the month during which active employment ends. Long-term Obligations Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Page 22

28 NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 2014 and 2013 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Concluded Net Position Net position consists of the following components: Invested in Capital Assets, net of related debt Consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds that are attributable to the acquisition, or improvement of those assets; debt related to unspent proceeds or other restricted cash and investments is excluded from the determination. Restricted for construction Consists of monies held for future construction projects Restricted for Debt Service Consists of net position for which constraints are placed thereon by lenders less any related liabilities. Unrestricted All other net position that do not meet the description of the above categories. NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information The System adopts flexible annual operating and capital budgets. Budgets are adopted on a basis consistent with generally accepted accounting principles. The current operating budget details the System s plans to earn and expand funds for charges incurred for operation, maintenance, certain interest and general functions, and other charges for the fiscal year. The capital budget details the plan to receive and expand cash basis capital contribution fees, special assessments, grants, borrowings, and certain revenues for capital projects. All unexpected appropriations in the operating budget remaining at the end of the fiscal year lapse. Management submits a proposed budget to the System s Board. A budget is then adopted for the next fiscal year. During the year, management is authorized to transfer budgeted amounts between line items. NOTE 3 DETAILED NOTES ON ALL FUNDS A. Deposits The System s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Custodial Credit Risk The System s policies limit deposits and investments to those instruments allowed by applicable state laws and described in Note 1. State statutes require that all deposits with financial institutions must be collateralized by securities whose market value is equal to 100% of the value of uninsured deposits. The deposits must be collateralized by federal depository insurance, by collateral held by the System s agent in the System s name, or by the Federal Reserve Banks acting as third party agents. State statutes also authorize the System to invest in bonds, notes or treasury bills of the United States or any of its agencies, certificates of deposit that are insured by the FDIC or similar entity or fully collateralized and savings and loan associations and federally chartered banks and savings and loan associations, repurchase agreements utilizing obligations of the United States or its agencies as the underlying securities, the state pooled investment funds, and mutual funds. Page 23

29 NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 2014 and 2013 NOTE 3 DETAILED NOTES ON ALL FUNDS, Continued Statutes also require that securities underlying repurchase agreements must have a market value of at least equal to the amount of funds invested in the repurchase transaction. As of June 30, 2014, all bank deposits were fully collateralized or insured. B. Bond Sinking Fund The ordinances authorizing the bond issues of the System require monthly transfers into bond sinking funds as follows: 1) one-sixth of the next month interest installment to become due on the Bonds then outstanding, plus (2) one-twelfth of the principal of any bonds maturing on the next succeeding December 1, plus (3) one-sixteenth of the required sinking fund reserve amount (the maximum annual requirement due in any future years). The minimum required sinking fund reserve is equal to an amount not less than the maximum amount of principal and interest requirement polling due in any twelve month period on all the outstanding bonds or a lesser amount as permitted by code (currently 10% of the principal amount issued of all bonds). The current minimum required sinking fund reserve is $1,755,000. This must be maintained through the life of the issue. As of June 30, 2014 and 2013, the reserve balance exceeded the maximum annual requirement; therefore, only the monthly transfers to meet the current obligation need to be made. C. Amortization of Debt Discount Amortization of debt discounts is being computed using the straight-line method over the life of the bond. Amortization for the year ended June 30, 2014 was $99,494, which included $93,786 charged to the Electric Division and $5,708 charged to the CATV Division. Amortization for the year ended June 30, 2013 was $78,749, which included $58,829 charged to the Electric Division and $19,920 charged to the CATV Division. D. Receivables Receivables as of the fiscal year ended June 30 consisted of the following: Accounts receivable: Electric $ 3,761,569 $ 3,254,870 Unbilled revenue - 205,382 Non-electric 218, ,145 Accounts receivable, net $ 3,979,654 $ 3,734,397 Page 24

30 NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 2014 and 2013 NOTE 3 DETAILED NOTES ON ALL FUNDS, Continued E. Restricted Assets All deposits required by bond covenants have been made. Transactions in funds, other than the bond funds and any other special funds set aside to repair and replace plant are at the discretion of the Board of Directors and there are no applicable legal requirements or restrictions on these funds. The Plant Board has the following restricted assets: Restricted for debt service in accordance with various revenue bond ordinances: Sinking fund reserves $ 2,571,838 $ 2,657,022 Restricted for construction, funded through long-term debt: Construction funds 2,925, ,994 $ 5,496,860 $ 3,454,016 F. Capital Assets Capital assets activity during the year was as follows: Balance Balance Description June 30, 2013 Additions Disposals June 30, 2014 Capital assets, not being depreciated Transmission plant $ 38,708 $ - $ - $ 38,708 Distribution plant 43, ,743 General plant 21, ,830 Plant held for future use 10, ,000 Construction in progress 301,861-90, ,679 Total capital assets, not being depreciated 416,142-90, ,960 Capital assets, being depreciated Transmission plant 2,508,780 7,734 4,652 2,511,862 Distribution plant 29,510,050 2,030, ,735 30,859,587 General plant 15,921, ,372 1,167,799 15,387,050 Other property - Telcom 12,958, , ,260 12,832,622 Total capital assets, being depreciated 60,898,422 3,019,145 2,326,446 61,591,121 Less accumulated depreciation for: Transmission plant 1,044,017 77,051 5,166 1,115,902 Distribution plant 12,141,294 1,055, ,310 12,409,885 General plant 8,007,970 1,833,010 1,555,795 8,285,185 Other property - Telcom 6,164, , ,635 6,336,525 Total accumulated depreciation 27,357,590 3,607,813 2,817,906 28,147,497 Total capital assets, being depreciated, net 33,540,832 (588,668) (491,460) 33,443,624 Total capital assets, net $ 33,956,974 $ (588,668) $ (401,278) $ 33,769,584 Page 25

31 NOTES TO FINANCIAL STATEMENTS, CONTINUED JUNE 30, 2014 and 2013 NOTE 3 DETAILED NOTES ON ALL FUNDS, Continued Balance Balance Description June 30, 2012 Additions Disposals June 30, 2013 Capital assets, not being depreciated Transmission plant $ 38,708 $ - $ - $ 38,708 Distribution plant 43, ,743 General plant 21, ,830 Plant held for future use 10, ,000 Construction in progress 1,673,116-1,371, ,861 Total capital assets, not being depreciated 1,787,397-1,371, ,142 Capital assets, being depreciated Transmission plant 2,489, , ,963 2,508,780 Distribution plant 28,575,203 1,368, ,911 29,510,050 General plant 14,811,753 1,175,186 65,462 15,921,477 Other property - Telcom 12,391, ,650 87,274 12,958,115 Total capital assets, being depreciated 58,268,240 3,346, ,610 60,898,422 Less accumulated depreciation for: Transmission plant 1,108,685 76, ,591 1,044,017 Distribution plant 11,591,538 1,010, ,707 12,141,294 General plant 7,405, ,862 32,689 8,007,970 Other property - Telcom 5,609, ,304 21,766 6,164,309 Total accumulated depreciation 25,715,791 2,298, ,753 27,357,590 Total capital assets, being depreciated, net 32,552,449 1,048,240 59,857 33,540,832 Total capital assets, net $ 34,339,846 $ 1,048,240 $ 1,431,112 $ 33,956,974 Depreciation expense amounted to $1,563,726 in 2014 and $1,587,774 in 2013 in the electric department, $411,606 in 2014 and $403,819 in 2013 in the CATV division and $175,454 in 2014 and $180,187 in 2013 in the LAN division totaling $2,150,786 for the fiscal year ended June 30, 2014 and $2,171,780 for Depreciation expense for the CATV and LAN divisions are included in the profits for each individual division. Included in additions are depreciation expenses charged to transportation expense in the amount of $81,232 for 2014 and $71,554 for G. Long-term Debt The annual debt service requirements to maturity, including principal and interest, as of June 30 are as follows: 3 Principal Interest Total 2015 $ 1,970,670 $ 884,119 $ 2,854, ,986, ,926 2,806, ,053, ,016 2,816, ,089, ,479 2,789, ,114, ,682 2,752, ,521,633 2,241,725 9,763, ,395,805 1,006,094 6,401, ,735, ,160 1,896,232 Total $ 24,866,756 $ 7,215,201 $ 32,081,957 Page 26