AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

Transcription

1 AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION MUNICIPAL UTILITIES BOARD OF THE CITY OF ALBERTVILLE WASTE WATER SYSTEM ALBERTVILLE, ALABAMA June 30, 2017 and 2016

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS REPORT... 1 MANAGEMENT S DISCUSSION AND ANALYSIS... 3 FINANCIAL STATEMENTS: Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows NOTES TO FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A Schedule of Proportionate Share of the Net Pension Liability Schedule of Employer Contributions SUPPLEMENTARY INFORMATION Schedules of Operating Expense Schedules of Operating Statistics Schedules of Debt Service Requirements to Maturity... 43

3 JFNB JOHNSON, FEIGLEY, NEWTON and BRAND, LLP Accounting, Auditing & Consulting H. Joe Johnson, CPA ( ) INDEPENDENT AUDITORS' REPORT George W. Feigley, CPA J. Gail Newton, Partner Michael L. Brand, CPA Board Members The Municipal Utilities Board of the City of Albertville- Waste Water System Albertville, Alabama Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Municipal Utilities Board of the City of Albertville - Waste Water System, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements as listed in the table of contents. Ma11age111e11t's Respo11sibility for tire Fi11a11cial Statemellts 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. A11ditor's Respo11sibility 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 and the standards applicable to financial audits contained in Governmelll 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 arc 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. Opi11io11s In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Municipal Utilities Board of the City of Albertville - Waste Water System, as of June 30, 2016, and the respective changes in financial position thereof, for the year then ended in accordance with accounting principles generally accepted in the United States of America. 105 W. Washington Street Post Office Box 876 Athens, Alabama So612 Athens 2sa.2s2.1soo Decatur 256.S5o.4911 Wats soo.6so.81s4 Fax 2o6.2SS.7257

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 3 10 and the pension schedules on pages 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 Municipal Utilities Board of the City of Albertville Waste Water System s basic financial statements. The schedules of operating expense, statistical section, and schedules of debt service requirements to maturity are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedules of operating expense and debt service requirements to maturity 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 expense are fairly stated in all material respects in relation to the basic financial statements as a whole. The statistical section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Comparative Statements The financial statements for the prior period were audited by a predecessor auditor. The predecessor auditor issued an unqualified opinion on the financial statements as of and for the year ended June 30, 2016 and the date of the auditor s report was October 25, Emphasis of Matter As discussed in Note 1, the financial statements of the Municipal Utilities Board of the City of Albertville Waste Water System, are intended to present the financial position, the changes in financial position and cash flows of only that portion of the business-type activities attributable to the transactions of the Waste Water System. The do not purport to, and do not present fairly the financial position of the Municipal Utilities Board of the City of Albertville, as a whole, as of June 30, 2017 and 2016, the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Johnson, Feigley, Newton & Brand, LLP October 20, 2017

5 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) The MD&A represents management s examination and analysis of the Waste Water System s financial condition and performance for the years ending June 30, 2017 and June 30, This information should be read in conjunction with the financial statements. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. These financial statements report information about the Waste Water System using full accrual accounting methods. The Municipal Utilities Board (MUB) was reorganized and incorporated on May 15, 2013, under Article 9, Chapter 50; Title 11 (Sections et seq.) of the Code of Alabama (1975). Prior to May, 2013, MUB operated within the confines of an Act of the Alabama Legislature passed in While operating under the 1943 Act, MUB was organized as an entity of the City of Albertville and the City had to issue all debt for MUB. The new form of organization allows MUB to issue its own debt. The three member Board of Directors of MUB (appointed by the City Council of Albertville) was given complete control of the public utilities in the City of Albertville. In addition to the Waste Water System, the Board also governs the Electric and Water Systems of the City. Even though MUB is a municipal entity, the financial statements are presented more similar to a private business entity because a majority of the revenues in the Electric, Water and Wastewater Systems are generated from user fees, not any type of public tax. The Governmental Accounting Standards Board requires that these types of municipal entities follow accounting procedures more similar to those of private business. However, the mission of the Board is not to be a profitable entity, unlike a private system, but is to be able to finance all or most of its activities through user fees and reinvest assets in improving and maintaining the system. The financial statements include a statement of net position; a statement of revenues, expenses and changes in net position; a statement of cash flows; and notes to the financial statements. The statement of net position presents the financial position of the Waste Water System and all its assets and liabilities, with the difference reported as net position. Over time, increases or decreases in the System s net position are one indicator of whether the System s financial position is improving or deteriorating. The statement of revenues, expenses, and changes in net position presents the results of the System s activities over the course of the fiscal year. This statement also provides information about the System s recovery of costs. Rate setting policies vary, however, the primary objective of any rate model is to improve equity among customer classes and ensure that capital costs are allocated on the basis of long-term capacity needs, ensuring that growth pays for growth. The statement of cash flows presents changes in cash and cash equivalents, resulting from operations, financing and investing activities. This statement presents cash inflows and cash outflows for the fiscal year. -3-

6 The notes to the financial statements provide required disclosures and other information vital to obtaining a full understanding of the System s financial statements. The notes present information about the System s accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any. Supplementary information, providing additional financial detail, is also provided. The financial statements were prepared by the Board s accounting staff from the detailed books and records of the System. The financial statements were then audited and adjusted, if necessary, during the independent external audit process. -4-

7 Financial Analysis The following comparative condensed financial statements serve as the key financial data and indicators for management, monitoring and planning. The financial statements are studied in depth to detect trends, project growth and prepare budgets for the upcoming year. Municipal Utilities Board of Albertville - Wastewater System Condensed Financial Statements Fiscal Year Ending June 30, 2017 Variance Condensed Statements of Net Position Dollars Percent Utility Plant $75,616,450 $73,653,574 $1,962, % Less Accumulated Depreciation ($36,623,627) ($34,352,967) ($2,270,660) 6.61% Utility Plant Net of Depreciation $38,992,823 $39,300,607 ($307,784) -0.78% Restricted Assets $57 $3 $ % Current Assets & Other Assets $9,023,495 $8,829,638 $193, % Deferred Outflows of Resources $986,218 $1,012,963 ($26,745) -2.64% Total Assets and Deferred Outflows $49,002,593 $49,143,211 ($140,618) -0.29% Current Liabilities $1,163,147 $1,068,349 $94, % Long Term Liabilities $16,032,562 $16,682,698 ($650,136) -3.90% Deferred Inflows of Resources $0 $0 $0 #DIV/0! Total Liabilities and Deferred Inflows $17,195,709 $17,751,047 ($555,338) -3.13% Net Position: Net Invested in Capital Assets $25,414,068 $25,035,138 $378, % Unrestricted $6,392,816 $6,357,026 $35, % Total Net Position $31,806,884 $31,392,164 $414, % Total Liabilities and Net Position $49,002,593 $49,143,211 ($140,618) -0.29% Condensed Statements of Revenues, Expenses, and Changes in Net Position Variance of 2017 Actual Data to: Budget 2016 Actual Actual Budget Actual Dollars Percent Dollars Percent Revenues: Waste Water Sales Revenue $7,311,520 $7,100,000 $7,014,133 $211, % $297, % Other Revenue $460,245 $415,000 $434,618 $45, % $25, % Total Operating Revenue $7,771,765 $7,515,000 $7,448,751 $256, % $323, % Expenses: Operating Expense $6,983,843 $7,145,000 $6,870,367 ($161,157) -2.26% $113, % Operating Income $787,922 $370,000 $578,384 $417, % $209, % Non-Operating Income and Expense-Net ($373,202) ($349,000) ($400,925) ($24,202) 6.93% $27, % Income (Loss) Before Capital Contributions $414,720 $21,000 $177,459 $393, % $237, % Increase (Decrease) in Net Position $414,720 $21,000 $177,459 $393, % $237, % -5-

8 Financial Analysis The following comparative condensed financial statements serve as the key financial data and indicators for management, monitoring and planning. The financial statements are studied in depth to detect trends, project growth and prepare budgets for the upcoming year. Municipal Utilities Board of Albertville - Wastewater System Condensed Financial Statements Fiscal Year Ending June 30, 2016 Variance Condensed Statements of Net Position Dollars Percent Utility Plant $73,653,574 $72,108,034 $1,545, % Less Accumulated Depreciation ($34,352,967) ($32,147,315) ($2,205,652) 6.86% Utility Plant Net of Depreciation $39,300,607 $39,960,719 ($660,112) -1.65% Restricted Assets $3 $8 ($5) % Current Assets & Other Assets $8,829,638 $8,748,377 $81, % Deferred Outflows of Resources $1,012,963 $810,526 $202, % Total Assets and Deferred Outflows $49,143,211 $49,519,630 ($376,419) -0.76% Current Liabilities $1,068,349 $1,272,348 ($203,999) % Long Term Liabilities $16,682,698 $16,906,494 ($223,796) -1.32% Deferred Inflows of Resources $0 $126,083 ($126,083) n/a Total Liabilities and Deferred Inflows $17,751,047 $18,304,925 ($553,878) -3.03% Net Position: Net Invested in Capital Assets $25,035,138 $25,028,965 $6, % Unrestricted $6,357,026 $6,185,740 $171, % Total Net Position $31,392,164 $31,214,705 $177, % Total Liabilities and Net Position $49,143,211 $49,519,630 ($376,419) -0.76% Condensed Statements of Revenues, Expenses, and Changes in Net Position Variance of 2016 Actual Data to: Budget 2015 Actual Actual Budget Actual Dollars Percent Dollars Percent Revenues: Waste Water Sales Revenue $7,014,133 $6,800,000 $6,906,011 $214, % $108, % Other Revenue $434,618 $380,000 $397,684 $54, % $36, % Total Operating Revenue $7,448,751 $7,180,000 $7,303,695 $268, % $145, % Expenses: Operating Expense $6,870,367 $6,230,000 $6,029,023 $640, % $841, % Operating Income $578,384 $950,000 $1,274,672 ($371,616) % ($696,288) % Non-Operating Income and Expense-Net ($400,925) ($373,000) ($408,344) ($27,925) 7.49% $7, % Income (Loss) Before Capital Contributions $177,459 $577,000 $866,328 ($399,541) % ($688,869) % Capital Contributions $0 $0 $437,013 $0 n/a ($437,013) % Increase (Decrease) in Net Position $177,459 $577,000 $1,303,341 ($399,541) % ($1,125,882) % -6-

9 FINANCIAL POSITION Statement of Net Position For the fiscal year ending June 30, 2017, total assets and deferred outflows decreased $140,618 or.3%. Net Waste Water Plant (assets less depreciation) decreased $307,784 or.78% due to fewer capital improvements and increased depreciation. Current and other assets increased $193,857 due to increased cash on hand. Deferred Outflows of Resources decreased $26,745 due to adjustments related to the Net Pension Liability. Total liabilities decreased $553,338 from last year, a 3.12% decrease. Total long-term liabilities decreased by $650,136 this year. Total net position (total assets and deferred outflows less total liabilities) of $31,806,884 reflects an increase of $414,720 from last year, a 1.3% increase. Of this amount, 80% or $25,414,068 is invested in capital assets, and $6,392,816 comprises the non-restricted portion of the net assets, or 20%. For the fiscal year ending June 30, 2016, total assets and deferred outflows decreased $376,419 or.7%. Net Waste Water Plant (assets less depreciation) decreased $660,112 or 1.65% due to fewer capital improvements and increased depreciation. Current and other assets increased $81,261 due to increased cash on hand and increased materials and supplies inventory. Deferred Outflows of Resources increased $202,437 due to adjustments related to the Net Pension Liability. Total liabilities and deferred inflows decreased $553,878 from last year, a 3.03% decrease. Total long-term liabilities decreased by $223,796 this year. Total net position (total assets and deferred outflows less total liabilities) of $31,392,164 reflects an increase of $177,459 from last year, a.57% increase. Of this amount, 79% or $25,035,138 is invested in capital assets, and $6,357,026 comprises the non-restricted portion of the net assets, or 21%. Results of Operations The Waste Water System s operating revenues derive from sales of waste water treatment services. Other revenue consists of forfeited discounts, industry surcharges, service fees, and collection charges. The Waste Water System has three classes of sales: residential, commercial, and industrial. Total sales revenue increased $297,387 for 2017 as follows: Residential $57, % Increase Commercial $11, % Increase Industrial $228, % Increase Uncollectable Accounts ($216) 3.7% Increase Total operating expense increased $113,476 or 1.65% from last year. Waste Water treatment plant expense increased $323,914 due to the costs associated with the Biosolids Dryer being inoperable from October to January. Customer accounts expense increased $7,104 and depreciation expense increased $5,555. Waste Water line expense decreased $45,614 mostly due to clearing of easements in the previous year. Administrative and general expense decreased $53,150 due to the recording of pension expense per GASB68. Pump station expense decreased $124,330 mostly due to decreased maintenance and repair labor. Total sales revenue increased $108,122 for 2016 as follows: Residential $7,988.4% Increase Commercial $24, % Increase Industrial $74, % Increase Uncollectable Accounts $1,025 15% Decrease Total operating expense increased $841,344 or 14% in Depreciation expense increased $821,683. Administrative and general expense increased $59,171 due to the recording of pension expense per GASB68 and customer accounts expense increased $22,609. Waste Water line expense increased $7,558 mostly due to clearing of easements. Waste Water treatment plant expense decreased $31,888 due to decreased supplies cost. Pump station expense decreased $37,789 mostly due to decreased maintenance and repair labor. Capital Contributions The Waste Water system receives funds from grantor agencies, developers and individuals for new construction. There were no capital contributions received in 2017 or

10 Capital Assets and Debt Administration Total Waste Water Plant (before depreciation and retirements) increased $2,296,788 for Structures and buildings increased $1,027,004 which includes upgrades to the biosolids dryer, rehabilitation on the primary clarifiers and transfer/headwork systems, and other capital repairs. Main rehabilitation totaled $615,840 which includes the Section Line Road, Medlock Road and Downtown projects. Pumping Stations increased $483,148 due to the addition of Ohara Pump Station, West Side #9 Pump Station, Section Line Road Pump Station and SCADA Panels at 11 pump stations. Transportation increased $103,997 with the purchase of a Skid Steer and a pickup truck. A new DFMS Server and IP Camera System was purchased at a cost of $51,839. General Plant equipment increased $11,102 due to the purchase of a new refrigerated sampler at the wastewater plant. $3,858 was used for 5 new services. Total long term debt decreased by $685,000 in Total long term debt remaining at June 30, 2017 is $13,515,000. Total Waste Water Plant (before depreciation and retirements) increased $2,821,104 for Structures and buildings increased $1,370,858 which includes the renovation of the WWTP Operation Building, and methane storage tanks. Main rehabilitation totaled $937,981 which includes the Country Club, Library Park and Mathis Mill Road projects. Transportation increased $169,095 with the purchase of a vactor truck, pickup truck and repairs to a backhoe. Communication equipment increased $122,100 due to new mapping software, radio system and SCADA monitoring software. Pumping Stations increased $56,575 due to the addition of Alatrade and West Side #9 Pump Stations. $49,931 was invested in 418 Radio Read Meters. Land was purchased at a cost of $46,335 which included the purchase of land on Section Line Road. An upgrade to software and new furnishings at the Wastewater Plant costs $30,338. Machinery and equipment increased $27,859 due to a new trench box, rock box and scag mower and $10,032 was used for 22 new services. Total long term debt decreased by $665,000 in Total long term debt remaining at June 30, 2016 was $14,200,000. Economic Factors and Next Year s Budget and Rates The Capital Expenditures Budget for 2018 is $3,085,700. These expenditures will include: $1,279,400 Structures Treatment Plant Additions and Capital Repairs $630,000 Main Upgrades Possible CDBG Project and replacement work $434,000 Meters ¾ Radio Read Meters and ERTs for AMI compatibility $390,000 Pump Stations SCADA panels at several locations and Capital Repairs $188,000 Machinery & Equipment Front Loader and Trailer for skid steer $56,800 Communication Equipment Phone System, GPS Antenna (wastewater s portion) and SCADA Dryer $50,000 Transportation Equipment Camera Truck $20,000 -Office & Computer Equipment Miscellaneous $20,000 General Plant Equipment Lab - Miscellaneous $17,500 Service Laterals includes (15) 4 services and 3 of other sizes -8-

11 Final Comments The Waste Water System s management and the MUB Board annually prepare and review operating budgets, payroll budgets and capital purchases budgets. The preparations of these budgets involve reviewing several factors, anticipated growth and expansion or cutbacks in industrial usage, forecasting expenses and determining capital needs. These budgets provide a blueprint for operations for the next year and also assist in determining financial position for the near future. It is the opinion of MUB management and board that current rates are adequate to fund necessary expenditures and to maintain the Wastewater System in good repair. However, if growth far exceeds projected rates and additional facilities would have to be constructed, or if operating expense increases significantly, then wastewater rates would have to be reviewed. Elden Chumley General Manager/CEO Municipal Utilities Board of Albertville Theresa Bailey, CPA Chief Financial Officer Municipal Utilities Board of Albertville -9-

12 STATEMENTS OF NET POSITION JUNE 30, 2017 AND ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,259,561 $ 7,996,879 Accounts receivable Related party 351, ,899 Unbilled revenue 144, ,887 Accrued interest receivable 3,954 2,933 Materials and supplies 198, ,108 Prepaid expenses 39,743 48,378 8,996,866 8,801,084 NONCURRENT ASSETS Restricted Assets Cash and cash equivalents 57 3 Capital Assets Land and construction in progress 582, ,414 Waste water plant in service, net 38,409,881 38,578,193 38,992,823 39,300,607 Other Assets Debt issue costs, net of accumulated amortization of $5,936 for 2017 and $4,011 for ,629 28,554 TOTAL ASSETS 48,016,375 48,130,248 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding, net of accumulated amortization of $128,588 for 2017 and $86,884 for , ,612 Proportionate share of collective deferred outflows related to net pension liability 409, ,351 Total deferred outflows of resources 986,218 1,012,963 TOTAL ASSETS AND DEFERRED OUTFLOWS $ 49,002,593 $ 49,143,211 The notes to financial statements are an integral part of these financial statements. -10-

13 STATEMENTS OF NET POSITION JUNE 30, 2017 AND LIABILITIES CURRENT LIABILITIES Accounts payable - trade $ 191,041 $ 145,389 Accrued wages and compensated absences 157, ,684 Other current liabilities 4,508 5,960 TOTAL CURRENT LIABILITIES 353, ,033 CURRENT LIABILITIES, RESTRICTED Current maturities of long-term debt 705, ,000 Accrued interest payable 104, , , ,316 NONCURRENT LIABILITIES Long-term debt, net of current maturities and (discount) premium 12,769,112 13,471,156 Net pension liability 2,934,502 2,933,974 Accrued liability - OPEB 328, ,568 16,032,562 16,682,698 TOTAL LIABILITIES 17,195,709 17,751,047 NET POSITION Invested in capital assets, net of related debt 25,414,068 25,035,138 Unrestricted 6,392,816 6,357,026 TOTAL NET POSITION 31,806,884 31,392,164 TOTAL LIABILITIES AND NET POSITION $ 49,002,593 $ 49,143,211 The notes to financial statements are an integral part of these financial statements. -11-

14 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION JUNE 30, 2017 AND Percent of Percent of Operating Operating Amount Revenue Amount Revenue OPERATING REVENUE Waste water revenue Residential $ 1,929, % $ 1,872, % Commercial 742, % 730, % Industrial 4,645, % 4,416, % Less uncollectible accounts (6,004) -0.08% (5,788) -0.08% 7,311, % 7,014, % Surcharges 401, % 374, % Revenue from forfeited discounts 24, % 25, % System development charges 14, % 12, % Other Waste water revenue 19, % 22, % 7,771, % 7,448, % OPERATING EXPENSE Operating expense Waste water treatment plant expense 2,309, % 1,985, % Pumping stations expense 526, % 650, % Waste water line expense 616, % 661, % Customer accounting and collections 248, % 241, % Administrative and general 945, % 998, % 4,645, % 4,537, % Other operating expense Provision for depreciation 2,337, % 2,332, % 6,983, % 6,870, % OPERATING INCOME 787, % 578, % NONOPERATING REVENUE (EXPENSE) Interest income 41, % 28, % Interest expense (412,731) -5.31% (427,302) -5.74% Amortization of debt issue costs/discounts (1,925) -0.02% (1,925) -0.03% (373,202) -4.80% (400,925) -5.38% CHANGE IN NET POSITION 414, % 177, % NET POSITION - BEGINNING OF YEAR 31,392,164 31,214,705 NET POSITION - END OF YEAR $ 31,806,884 $ 31,392,164 The notes to financial statements are an integral part of these financial statements. -12-

15 STATEMENTS OF CASH FLOW FOR THE YEARS ENDED JUNE 30, 2017 AND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 7,755,536 $ 7,449,813 Payments to suppliers (2,819,305) (3,094,958) Payments to employees (1,582,051) (1,535,855) NET CASH PROVIDED BY OPERATING ACTIVITIES 3,354,180 2,819,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (1,704,152) (1,754,019) Proceeds from disposal of capital assets 2,200 7,770 Principal paid on bonds and notes payable (685,000) (665,000) Interest paid on bonds and notes payable (372,744) (386,888) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (2,759,696) (2,798,137) CASH FLOWS FROM INVESTING ACTIVITIES Interest received on cash and cash equivalents 41,454 25,369 CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 41,454 25,369 NET INCREASE IN CASH AND CASH EQUIVALENTS 635,938 46,232 CASH AND CASH EQUIVALENTS - Beginning 7,996,882 7,950,650 CASH AND CASH EQUIVALENTS - Ending $ 8,632,820 $ 7,996,882 The notes to financial statements are an integral part of these financial statements. -13-

16 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN STATEMENTS OF CASH FLOW FOR THE YEARS ENDED JUNE 30, 2017 AND RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income $ 787,922 $ 578,384 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 2,381,608 2,406,360 Bad debts 6,004 5,788 Changes in assets and liabilities: (Increase) Decrease in accounts receivable (16,229) (4,726) (Increase) Decrease in material and supplies 28,918 (62,146) (Increase) Decrease in prepaid expenses 8,635 3,247 (Increase) Decrease in internal balances 46,597 23,821 (Decrease) Increase in accounts payable 45,652 (143,937) (Decrease) Increase in accrued wages and compensated absences 35,271 (76,022) (Increase) Decrease in deferred outflows of resources - net pension liability (14,960) (244,140) (Decrease) Increase in deferred inflows of resources - net pension liability - (126,083) (Decrease) Increase in net pension liability ,129 (Decrease) Increase in accrued liability - other post employment benefits 51,380 38,120 (Decrease) Increase in other current liabilities (7,146) 205 Total adjustments 2,566,258 2,240,616 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,354,180 $ 2,819,000 The notes to financial statements are an integral part of these financial statements. -14-

17 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ORGANIZATION The Municipal Utilities Board of the City of Albertville, Alabama (the Board) was reorganized and incorporated on May 15, 2013, under Article 9, Chapter 50, Title 11 (Sections et seg.) of the Code of Alabama (1975). Prior to May 15, 2013, the Board operated within the confines of an Act of the Alabama Legislature passed in While operating under the 1943 Act, the Board was organized as an entity of the City of Albertville and the City had to issue all debt for the Board. The new form of organization allows the Board to issue its own debt. The objectives for which the Board was formed are to acquire, operate, maintain, improve, and extend an Electric System, a water distribution system, and a sanitary sewer system within the City of Albertville and the territory within Marshall County. The Board is also authorized to own and operate a natural gas distribution system, but no such system presently exists. The Board uses enterprise fund accounting for the separate departments, electric, water, and waste water, and issues separate financial statements for each. The financial statements present only the Municipal Utilities Board of the City of Albertville - Waste Water System (the Waste Water System) and do not purport to, and do not, present the financial position of the Municipal Utilities Board of the City of Albertville and the changes in its financial position or its cash flows. The property and business of the Municipal Utilities Board of the City of Albertville is managed by a three member Board of Directors appointed by the Mayor and City Council of the City of Albertville. The members of the Board and management at June 30, 2017 were as follows: Board of Directors James Gentry, Chairman Paul McAbee, Secretary Harold Chitwood, Member Management Elden Chumley, General Manager/CEO NATURE OF BUSINESS The Waste Water System provides waste water collection services to residents and businesses in the City of Albertville, Alabama area. ACCOUNTING PRINCIPLES The Waste Water System's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. BASIS OF PRESENTATION AND ACCOUNTING The Waste Water System utilizes the accrual basis of accounting. Under this basis of accounting, revenues are recognized when earned and expenses are recognized when the related liability is incurred. RECOGNITION OF WASTE WATER REVENUE Waste water revenue is recognized when water is used by the ultimate consumer. TAXES The Waste Water System is not subject to federal and state income taxes nor does the State of Alabama levy utility tax on waste water services. INVENTORIES Inventories of material and supplies are priced at the lower of average cost or market. -15-

18 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued CASH EQUIVALENTS The Waste Water System considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. ACCOUNTS RECEIVABLE All services for electric, water, and waste water are billed and collected by the Municipal Utilities Board of the City of Albertville Electric System, with revenues recognized by each department through an intercompany system of accounting. As of June 30, 2017 and 2016, the total receivables due from customers were $6,380,739 and $6,231,176, respectively. The Board uses the direct write-off method for uncollectible accounts. An allowance for doubtful accounts at June 30, 2017 and 2016 is not considered necessary. The related party receivable amounts as of June 30, 2017 and 2016 were $351,302 and $397,899, respectively, and represent net amounts due from the Electric System to the Waste Water System. CONCENTRATION OF CREDIT RISK The Board grants credit to its customers, substantially all of who are located in the City of Albertville, Alabama. AMORTIZATION Debt issuance costs, bond discounts or premiums, and deferred losses on refunding are amortized over the terms of the bonds using a method which approximates the effective interest method. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made in the prior year amounts to conform to the classifications used in the current year. These reclassifications had no effect on net position. -16-

19 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued - UTILITY PLANT Utility plant is stated at cost less accumulated depreciation. Depreciation is calculated on the composite-rate method. Retirements of units of property from service have been charged to the accumulated depreciation accounts at the original cost of the units plus cost of removal. Salvage value of the units retired is credited to the accumulated depreciation accounts. The costs of maintenance, repairs and replacing minor items are charged principally to expense as incurred. Depreciation rates are as follows: Waste Water Plant: Land and land rights 0.00% Land improvements 3.00% Structures and buildings 3.00% Machinery and equipment 15.00% Radio read meters 2.50% Sewer mains 2.00% Service laterals 2.00% Pumping stations 7.00% General Plant: Furniture and equipment 10.00% Transportation equipment 10.00% Communication equipment 20.00% General plant equipment 8.00% NET POSITION Net position is divided into three components: Net invested in capital assets - consists of net capital assets reduced by outstanding balances of any related debt obligations and deferred inflows of resources attributable to the acquisition, construction, or improvement of those assets increased by balances of deferred outflows of resources related to those assets. Restricted consists of external constraints placed on net position use imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted consists of all other net position that does not meet the definition of the above two components and is available for general use by the Waste Water System. -17-

20 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued - PENSIONS The Employees' Retirement System of Alabama (the Plan) financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Contributions are recognized as revenues when earned, pursuant to the plan requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Expenses are recognized when the corresponding liability is incurred, regardless of when the payment is made. Investments are reported at fair value. Financial statements are prepared in accordance with requirements of the Governmental Accounting Standards Board (GASB). Under these requirements, the Plan is considered a component unit of the State of Alabama and is included in the State's Comprehensive Annual Financial Report. NOTE B CASH AND CASH EQUIVALENTS Cash and cash equivalents include the following amounts at June 30, 2017 and 2016: UNRESTRICTED Checking accounts $ 6,460,962 $ 6,207,003 Investment fund 1,798, ,325 Construction fund - 967,551 8,259,561 7,996,879 RESTRICTED Debt service fund 57 3 $ 8,259,618 $ 7,996,882 The Municipal Utilities Board of the City of Albertville's deposits at year-end were held by financial institutions in the State of Alabama's Security of Alabama Funds Enhancement (SAFE) Program. The SAFE Program was established by the Alabama Legislature and is governed by the provisions contained in the Code of Alabama 1975, Sections 41-14A-1 through 41-14A-14. Under the SAFE Program all public funds are protected through a collateral pool administered by the Alabama State Treasurer's Office. Under this program, financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that financial institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Depository Insurance Corporation (FDIC). If the securities pledged failed to produce adequate funds, every institution participating in the pool would share the liability for the remaining balance. -18-

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE C CAPITAL ASSETS Information related to property, plant and equipment of the Waste Water System for the year ended June 30, 2017 was as follows: Balance at Balance at June 30, 2016 Increases Decreases June 30, 2017 Capital assets not being depreciated: Distribution plant: Land and land rights $ 565,046 $ - $ - $ 565,046 Construction in progress, net change 157, ,472 17,896 Total capital assets not being depreciated 722, , ,942 Capital assets being depreciated: Waste water plant in service: Distribution plant: Land improvements 47, ,473 Structures 37,012,315 1,027, ,241 37,909,078 Sewer mains 23,045, ,840-23,661,633 Service laterals 1,020,923 3,859-1,024,782 Radio read meters 287, ,865 Pumping stations 9,326, ,148 11,884 9,798,167 Machinery and equipment 481,934-52, ,619 Transportation equipment 1,171, ,997-1,275,102 General plant equipment 37,650 11,102-48,752 Furniture and office equipment 207,211 51, ,049 Communication equipment 291, ,988 72,931,160 2,296, ,440 75,033,508 Total capital assets being depreciated 72,931,160 2,296, ,440 75,033,

22 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) Balance at Balance at June 30, 2016 Increases Decreases June 30, 2017 Less accumulated depreciation for: Distribution plant: Land improvements $ 8,951 $ 1,424 $ - $ 10,375 Structures 16,506,273 1,112, ,241 17,488,915 Sewer mains 9,073, ,146-9,535,120 Service laterals 211,803 20, ,261 Radio read meters 54,629 7,197-61,826 Pumping stations 6,608, ,251 11,884 7,250,086 Machinery and equipment 477,971 1,762 50, ,619 Transportation equipment 1,065, ,921-1,189,977 General plant equipment 37, ,650 Furniture and office equipment 172,393 21, ,852 Communication equipment 135,548 58, ,946 34,352,967 2,462, ,239 36,623,627 Total accumulated depreciation 34,352,967 2,462, ,239 36,623,627 Total capital assets being depreciated, net 38,578,193 (166,111) 2,201 38,409,881 Net book value $ 39,300,607 $ (166,111) $ 141,673 $ 38,992,823 Depreciation expense for the year ended June 30, 2017 was charged to the following accounts: Depreciation expense $ 2,337,978 Transportation expense clearing 124,921 $ 2,462,

23 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) Information related to property, plant and equipment of the Waste Water System for the year ended June 30, 2016 was as follows: Balance at Balance at June 30, 2015 Increases Decreases June 30, 2016 Capital assets not being depreciated: Distribution plant: Land and land rights $ 518,711 $ 46,335 $ - $ 565,046 Construction in progress, net change 1,224,453-1,067, ,368 Total capital assets not being depreciated 1,743,164 46,335 1,067, ,414 Capital assets being depreciated: Waste water plant in service: Distribution plant: Land improvements 47, ,473 Structures 35,641,457 1,370,858-37,012,315 Sewer mains 22,107, ,981-23,045,793 Service laterals 1,010,891 10,032-1,020,923 Radio read meters 237,934 49, ,865 Pumping stations 9,461,911 56, ,583 9,326,903 Machinery and equipment 454,075 27, ,934 Transportation equipment 1,018, ,095 16,896 1,171,105 General plant equipment 37, ,650 Furniture and office equipment 176,873 30, ,211 Communication equipment 169, , ,988 70,364,870 2,774, ,479 72,931,160 Total capital assets being depreciated 70,364,870 2,774, ,479 72,931,

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) Balance at Balance at June 30, 2015 Increases Decreases June 30, 2016 Less accumulated depreciation for: Distribution plant: Land improvements $ 7,526 $ 1,425 $ - $ 8,951 Structures 15,417,934 1,088,339-16,506,273 Sewer mains 8,628, ,257-9,073,974 Service laterals 191,541 20, ,803 Radio read meters 48,577 6,052-54,629 Pumping stations 6,139, , ,582 6,608,719 Machinery and equipment 423,990 53, ,971 Transportation equipment 1,000,845 73,937 9,726 1,065,056 General plant equipment 37, ,650 Furniture and office equipment 152,558 19, ,393 Communication equipment 98,892 36,056 (600) 135,548 32,147,315 2,406, ,708 34,352,967 Total accumulated depreciation 32,147,315 2,406, ,708 34,352,967 Total capital assets being depreciated, net 38,217, ,409 7,771 38,578,193 Net book value $ 39,960,719 $ 414,744 $ 1,074,856 $ 39,300,607 Depreciation expense for the year ended June 30, 2016 was charged to the following accounts: Depreciation expense $ 2,332,423 Transportation expense clearing 73,937 $ 2,406,

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE D LONG-TERM DEBT Long-term debt of the Waste Water System at June 30, 2017 and 2016 was as follows: General Obligation Warrant, Series 2012-CWSFT-DL due annually on August 15 through 2033, with interest at 2.75% due semi-annually on February 15 and August 15, secured by waste water revenues $ 4,910,000 $ 5,135,000 Sewer Revenue Bonds, Series 2013-A due annually on May 1 through 2031, with interest from 1.00% to 3.50% due semiannually on May 1 and November 1, secured by waste water revenues 5,420,000 5,740,000 Sewer Revenue Bonds, Series 2013B-CWSRF-DL due annually on August 15 through 2034, with interest at 2.45% due semi-annually on February 15 and August 15, secured by waste water revenues 3,185,000 3,325,000 13,515,000 14,200,000 Less current maturities 705, ,000 12,810,000 13,515,000 Less bond premium (discount) (40,888) (43,844) $ 12,769,112 $ 13,471,156 Changes in long-term debt of the Waste Water System for the year ended June 30, 2017 was as follows: Balance at Balance at June 30, 2016 Issues Retirements June 30, 2017 General Obligation Warrants, Series 2012-CWSRF-DL $ 5,135,000 $ - $ 225,000 $ 4,910,000 Sewer Revenue Bonds Series 2013-A 5,740, ,000 5,420,000 Sewer Revenue Bonds Series 2013-CWSRF-DL 3,325, ,000 3,185,000 Total $ 14,200,000 $ - $ 685,000 $ 13,515,

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE D LONG-TERM DEBT (continued) Changes in long-term debt of the Waste Water System for the year ended June 30, 2016 was as follows: Balance at Balance at June 30, 2015 Issues Retirements June 30, 2016 General Obligation Warrants, Series 2012-CWSRF-DL $ 5,350,000 $ - $ 215,000 $ 5,135,000 Sewer Revenue Bonds Series 2013-A 6,055, ,000 5,740,000 Sewer Revenue Bonds Series 2013-CWSRF-DL 3,460, ,000 3,325,000 Total $ 14,865,000 $ - $ 665,000 $ 14,200,000 Total principal and interest maturities of long-term debt for the years ended June 30 are as follows: Fiscal Year Ending September 30, Principal Interest Total , ,597 1,061, , ,051 1,060, , ,187 1,062, , ,607 1,060, , ,515 1,052, ,180,000 1,104,928 5,284, ,320, ,660 4,836, ,330,000 42,785 1,372,785 Totals $ 13,515,000 $ 3,276,330 $ 16,791,330 For the years ended June 30, 2017 and 2016, interest expense recognized on the revenue bonds and notes was $412,731 and $427,302, respectively. These amounts include amortization of debt costs of $41,704 and amortization of debt discount or premium of $2,956 for each of the years ended June 30, 2017 and The Waste Water System must meet certain loan covenants in connection with its long-term debt. Management is not aware of violations of these covenants at June 30,

27 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 and 2016 (Continued) NOTE E PENSION PLAN The Municipal Utilities Board of the City of Albertville (the Board) contributes to the Employees Retirement System of Alabama, an agent multiple-employer public employee retirement system, which acts as a common investment and administrative agent for the various state agencies and departments. General Information about the Pension Plan Plan description The Employees' Retirement System of Alabama (ERS), an agency multiple-employer plan, was established October l, 1945 under the provisions of Act 515 of the Legislature of 1945 for the purpose of providing retirement allowances and other specified benefits for state employees, State Police, and on an elective basis, to all cities, counties, towns and quasi-public organizations. The responsibility for the general administration and operation of ERS is vested in its Board of Control. The ERS Board of Control consists of 13 trustees. The Plan is administered by the Retirement Systems of Alabama (RSA). Title 36-Chapter 27 of the Code of Alabama grants the authority to establish and amend the benefit terms to the ERS Board of Control. The Plan issues a publicly available financial report that can be obtained at The ERS Board of Control consists of 13 trustees as follows: 1) The Governor, ex officio. 2) The State Treasurer, ex officio. 3) The State Personnel Director, ex officio. 4) The State Director of Finance, ex officio. 5) Three vested members of ERS appointed by the Governor for a term of four years, no two of whom are from the same department of state government nor from any department of which an ex officio trustee is the head. 6) Six members of ERS who are elected by members from the same category of ERS for a term of four years as follows: a. Two retired members with one from the ranks of retired state employees and one from the ranks of retired employees of a city, county, or a public agency each of whom is an active beneficiary of ERS. b. Two vested active state employees. c. Two vested active employees of an employer participating in ERS pursuant to Benefits provided State law establishes retirement benefits as well as death and disability benefits and any ad hoc increase in postretirement benefits for the ERS. Benefits for ERS members vest after 10 years of creditable service. State employees who retire after age 60 (52 for State Police) with 10 years or more of creditable service or with 25 years of service (regardless of age) are entitled to an annual retirement benefit, payable monthly for life. Local employees who retire after age 60 with 10 years or more of creditable service or with 25 or 30 years of service (regardless of age), depending on the particular entity's election, are entitled to an annual retirement benefit, payable monthly for life. Service and disability retirement benefits are based on a guaranteed minimum or a formula method, with the member receiving payment under the method that yields the highest monthly benefit. Under the formula method, members of the ERS (except State Police) are allowed % of their average final compensation (highest 3 of the last 10 years) for each year of service. State Police are allowed 2.875% for each year of State Police service in computing the formula method. -25-