ORANGE COUNTY REPORT ON AUDIT OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION INCLUDING REPORTS ON COMPLIANCE
AUDIT REPORT CONTENTS Page INDEPENDENT AUDITOR S REPORT MANAGEMENT S DISCUSSION AND ANALYSIS... i-xv FINANCIAL SECTION Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets... 1 Statement of Activities... 2 Fund Financial Statements: Balance Sheet Governmental Funds... 3 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets... 4 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds... 5 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities... 6 Statement of Fund Net Assets Proprietary Funds... 7 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds... 8 Statement of Cash Flows Proprietary Funds... 9-10 Statement of Fund Net Assets Fiduciary Funds... 11 Statement of Changes in Fund Net Assets Fiduciary Funds... 12 Notes to Financial Statements... 13-58 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Budgetary Comparison for the General Fund... 59 Schedule of Postemployment Healthcare Benefits Funding Progress... 60 Notes to Required Supplementary Information... 61
AUDIT REPORT CONTENTS Page SUPPLEMENTARY INFORMATION History and Organization... 62 Schedule of Average Daily Attendance (ADA)... 63 Schedule of Instructional Time... 64 Schedule of Instructional Time Gates Charter School... 65 Schedule of Expenditures of Federal Awards... 66-67 Schedule of Financial Trends and Analysis... 68 Schedule of Charter Schools... 69 Reconciliation of Annual Financial and Budget Report with Audited Financial Statements... 70 Notes to Supplementary Information... 71-72 OPTIONAL SUPPLEMENTARY INFORMATION Individual and Combining Statements by Fund Types: Combining Statements Major Funds: Major Debt Service Funds Public Financing Authorities Combining Balance Sheet... 73 Combining Statement of Revenues, Expenditures and Changes in Fund Balances... 74 Major Debt Service Funds Community Facilities Districts Combining Balance Sheet... 75 Combining Statement of Revenues, Expenditures and Changes in Fund Balances... 76 Major Capital Projects Funds Community Facilities Districts Combining Balance Sheet... 77-78 Combining Statement of Revenues, Expenditures and Changes in Fund Balances... 79-80 Combining Statements Non-Major Fund: Non-Major Debt Service Fund Balance Sheet... 81 Statement of Revenues, Expenditures and Changes in Fund Balances... 82 Non-Major Special Revenue Funds Combining Balance Sheet... 83 Combining Statement of Revenues, Expenditures and Changes in Fund Balances... 84
AUDIT REPORT CONTENTS Page Non-Major Capital Projects Funds Combining Balance Sheet... 85 Combining Statement of Revenues, Expenditures and Changes in Fund Balances... 86 Combining Statements Fiduciary Funds Trust and Agency Funds: Combining Statement of Net Asset... 87 Combining Statement of Changes in Net Assets... 88 Combining Statements Fiduciary Funds High School Associated Student Body Funds: Combining Statement of Net Assets... 89 Combining Statement of Changes in Net Assets... 90 Combining Statements Fiduciary Funds Intermediate School Associated Student Body Funds: Combining Statement of Net Assets... 91 Combining Statement of Changes in Net Assets... 92 Combining Statement Fiduciary Funds Elementary School Associated Student Body Funds: Combining Statement of Changes in Net Assets... 93 Notes to Optional Supplementary Information... 94 OTHER INDEPENDENT AUDITOR S REPORTS 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... 95-96 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133... 97-98 Independent Auditor s Report on State Compliance... 99-100 FINDINGS AND QUESTIONED COSTS Schedule of Findings and Questioned Costs Summary of Auditor Results... 101 Schedule of Findings and Questioned Costs Related to Financial Statements... 102-103 Schedule of Findings and Questioned Costs Related to Federal Awards... 104 Schedule of Findings and Questioned Costs Related to State Awards... 105 Status of Prior Year Findings and Questioned Costs... 106-107
INDEPENDENT AUDITOR S REPORT Board of Education Saddleback Valley Unified School District 25631 Peter A. Hartman Way Mission Viejo, California 92691 We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the Saddleback Valley Unified School District as of and for the year ended, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Saddleback Valley Unified School District as of, and the respective changes in financial position and, where applicable cash flows thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 3, 2012 on our consideration of the Saddleback Valley Unified School District'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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 2210 E. Route 66, Suite 100, Glendora, CA 91740 Tel 626.857.7300 l Fax 626.857.7302 l E-Mail info@vlsllp.com l Web www.vlsllp.com
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended INTRODUCTION The following discussion and analysis provides an overview of the financial position and activities of the Saddleback Valley Unified School District for the year ended. This discussion has been prepared by management and should be read in conjunction with the financial statements and notes thereto which follow this section. The Saddleback Valley Unified School District's goal is to provide, in an atmosphere of care and concern, an opportunity for every student to recognize and fully develop his/her particular academic, technical, vocational, physical and social skills. Saddleback Valley Unified School District's goal for students is to graduate prepared to succeed in tomorrow's world. The Management s Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in its Statement No. 34 (Basic Financial Statement - and Management's Discussion and Analysis - for the State and Local Governments) issued June 1999. Certain comparative information between the current and the prior year is required to be presented in the MD&A. The Saddleback Valley Unified School District is a large urban school district offering instruction to students from kindergarten through twelfth grade including programs for vocational and adult education. During the 2011-12 school year, the district operated twenty-three elementary schools, one early childhood center, one special education high school, four intermediate schools, four high schools, one continuation high school, one independent study high school and one adult education program on the traditional September through June schedule, for the instruction of approximately 30,900 students. USING THE COMPREHENSIVE ANNUAL FINANCIAL REPORT This comprehensive annual financial report consists of a series of financial statements and notes to those statements. The statements are organized so the reader can understand the Saddleback Valley Unified District as a whole, and then proceed to provide an increasingly detailed look at specific financial activities. The Management s Discussion and Analysis Statement is provided to assist our citizens, taxpayers and investors in reviewing the District's finances and to show the District's accountability for the money it receives. -i-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended FINANCIAL HIGHLIGHTS The Saddleback Valley Unified School District's Government-wide Statement of Net Assets illustrates total net assets of $305,144,566 the result of assets of $520,502,781 minus liabilities of $215,358,215. This is a 3% increase in total net assets over the prior year. The General Fund reported a positive fund balance of $52,153,152 with a net increase for the fiscal year of $11,604,454. Expenses and other financing sources/uses for the General Fund were $219,053,327 with revenues for the General Fund at $230,657,781. It is important to note that the increase in fund balance was largely due to continuation of salary and benefit concessions made by all bargaining groups. The District ended the year with an unrestricted reserve level of approximately 20% which was necessary to help support severe budgetary shortfalls had the November 2012 Governor s tax initiative not passed. This uncertainty along with a budgetary shortfall in the district s multi-year projection left the district relying on these one-time funds. STUDENT ENROLLMENT & DEMOGRAPHIC TRENDS The Saddleback Valley Unified School District has K-12 enrollment of approximately 30,350 students for the 2012-13 school year. Given the current political and economic uncertainty, it is difficult to make intelligent projections about school funding. In the 2011-12 fiscal year the COLA was 2.24% with a 20.602% deficit for school districts in California. In addition, the Saddleback Valley Unified School District has experienced a decrease in K-12 student enrollment each year since the 2003-04 school year. In addition to tracking enrollment, District planners also watch actual Average Daily Attendance (ADA). The ADA is always lower than a District's enrollment, although the two terms are often (though incorrectly) used interchangeably. The anticipated 2012-13 regular K-12 ADA (including County Special Education students) for the District is 29,522. The ratio of actual attendance to enrollment summarizes the District's changes and efforts to increase attendance. Figure 1 summarizes a historical analysis of the District's enrollment. -ii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended 38,000 37,000 Enrollment Attendance 36,000 35,000 34,000 33,000 32,000 31,000 30,000 29,000 28,000 01/02 03/04 05/06 07/08 09/10 11/12 Figure 1. Amounts do not include ROP or Adult Education enrollment or ADA. School districts have traditionally placed great importance on the accurate projection of student enrollment for the ensuing budget year, due to the broad range of funding and programs impacted by this number. These impacts range from the very basic funding for California school districts which calculates the number of days attended by the enrolled students times a unique "base revenue limit amount" to how much a particular special program will receive, to the amount of one-time monies a district may receive. In 2013-14, the Saddleback Valley Unified School District s base revenue limit is projected at $6,705 however due to the State s fiscal crisis the funded revenue after a 22.272% deficit is projected at $5,212 per ADA. -iii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended REPORTING THE DISTRICT AS A WHOLE THE STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES One of the most important questions asked about the District's finances is, "Is the District better off or worse off as a result of the year's activities?" The Statement of Net Assets and the Statement of Activities report information about the District as a whole and about its activities in a manner that helps to answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year's revenues and expenses are taken into consideration regardless of when cash is received or paid. These two statements report the Saddleback Valley Unified District's net assets and changes in them. The change in net assets provides the reader a tool to assist in determining whether the District's financial health is improving or deteriorating. The reader will need to consider other non-financial factors such as property tax base, current property tax laws, student enrollment, and facility conditions in arriving at their conclusion regarding the overall health of the District. FUND FINANCIAL STATEMENTS The fund financial statements provide detailed information about the most significant funds, not the District as a whole. Funds are accounting formats the district uses to keep track of specific sources of funding and expenditures in particular programs. Some funds are required by bond covenants and by state law and other funds are established by the district to control and manage a variety of activities for particular purposes (such as repaying its long-term debts). Other funds may also address specific accounting requirements for certain revenue and expenditure classifications (such as federal grants). GOVERNMENTAL FUNDS Most of the District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. A detailed short-term view is provided by the governmental fund statements. These help determine whether there are more or fewer financial resources that can be spent in the near future for financing the district's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information is provided in the reconciliation provided after the governmental fund statements that explains the differences (or relationships). -iv-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended PROPRIETARY FUNDS The proprietary fund category includes Enterprise and Internal Service Funds. One type of proprietary fund, the enterprise fund, is the same as the business-type activities, but provides more detail and additional information, such as cash flows. The District currently operates one Enterprise Fund-the Recreation and Community Services Program fund. Internal Services funds (the second type of proprietary funds) report activities that provide supplies and services for the other programs and activities of the District. Proprietary funds are reported in the same way as the district-wide statements. The district has an internal service fund used for the employee self-insurance health and welfare fund, workers' compensation fund and the property and liability fund. FIDUCIARY FUNDS Fiduciary funds are used to account for resources held for the benefit of parties outside the governmental entity. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the District s own programs. The District uses an agency fund to account for resources held for student activities and groups. These funds include Associated Student Body funds and a Foundation Trust fund for scholarships. The Saddleback Valley Unified School District is the trustee, or fiduciary, for its student activity funds. All of the School District s fiduciary activities are reported in separate Statements of Fiduciary Net Assets. We exclude these activities from the District s other financial statements because the District cannot use these assets to finance its operations. The Saddleback Valley Unified School District is responsible for ensuring that the assets reported in these funds are used for their intended purpose. NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. -v-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended The Statement of Net Assets is summarized below: 2012 2011 (1) Variance Assets Cash $ 97,862,318 $ 100,040,687 $ (2,178,369) Investments with fiscal agent 5,389,421 5,389,421 - Accounts receivable and prepaid expenditures 45,492,673 33,804,153 11,688,520 Stores inventory 466,830 376,355 90,475 Capitalized fees 1,468,387 1,553,034 (84,647) Capital assets, net 369,823,152 378,879,504 (9,056,352) Total Assets 520,502,781 520,043,154 459,627 Liabilities Accounts payable and other current liabilities 40,038,111 42,819,725 (2,781,614) Long-term debt outstanding 175,320,104 181,420,755 (6,100,651) Total Liabilities 215,358,215 224,240,480 (8,882,265) Net Assets Invested in capital assets, net of related debt 217,952,879 218,904,223 (951,344) Restricted 37,395,843 37,857,359 (461,516) Unrestricted 49,795,844 39,041,092 10,754,752 Total Net Assets $ 305,144,566 $ 295,802,674 $ 9,341,892 (1) Certain reclassifications have been made to the June 30, 2011 net assets to conform with net assets. Assets overall remained the same with larger variances existing in receivables due to the large amount of state aid deferrals. The decrease in capital assets is largely due to depreciation of buildings. Liabilities were reduced for payments made on long term debt payments for Community Facility District Bonds and the Measure B Bond Building Funds. Net assets increased overall due to the General fund unrestricted reserve increase which was due to salary concessions made by all bargaining groups. The restricted funds in this classification are restricted for capital projects such as the Building Fund, the Capital Facilities Fund, the Special Reserve for Capital outlay Projects Fund, the County School Facilities Funds, and the Community Facilities District. -vi-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended Government-Wide Net Assets Restricted 12% Unrestricted 16% Investments in Capital Assets 72% Figure 2. Statement of Revenues, Expenses and Changes in Net Assets Changes in total net assets, as presented on the Statement of Net Assets, are based on the activity presented in the Statement of Activities. The purpose of this statement is to present the revenues earned, whether received or not, by the District, and the expenses incurred, whether paid or not, by the District. Thus, this Statement presents the District's results of operations. -vii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended The Statement of Revenues, Expenses and changes in Net Assets is summarized below: 2012 2011 Variance Revenues Program revenues: Charges for services $ 4,467,556 $ 4,767,503 $ (299,947) Operating grants and contributions 45,187,020 51,620,736 (6,433,716) Capital grants and contributions 1,571,827 1,288,936 282,891 General revenues: Property taxes 137,491,842 145,927,760 (8,435,918) Grants, subsidies and contributions unrestricted 72,363,230 65,229,604 7,133,626 Interest and investment earnings 1,082,462 1,345,237 (262,775) Other 12,256,627 11,085,875 1,170,752 Total revenues 274,420,564 281,265,651 (6,845,087) Expenses Instruction 153,820,029 159,159,560 (5,339,531) Instruction related services 18,638,930 18,861,358 (222,428) Pupil services 18,925,895 18,442,062 483,833 Ancillary services 1,443,142 1,421,179 21,963 Community services 7,495,766 7,282,629 213,137 Enterprise activities 3,702,899 3,145,297 557,602 General administration 11,090,764 9,847,129 1,243,635 Plant services 19,273,229 22,056,184 (2,782,955) Other outgo and debt service 15,074,926 16,202,140 (1,127,214) Depreciation (unallocated) 15,613,092 15,656,143 (43,051) Total expenses 265,078,672 272,073,681 (6,995,009) Increase in net assets 9,341,892 9,191,970 149,922 Net assets, beginning of year 295,802,674 286,610,704 9,191,970 Net assets, end of year $ 305,144,566 $ 295,802,674 $ 9,341,892 The overall revenues decreased due to the receipt of one-time Federal ARRA and Jobs funds in 2011. The decrease in instruction expenditures is mostly attributable to normal attrition and decreased staffing due to declining enrollment. The decreased plant services expenditures reflects Measure B bond projects. -viii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended The information in the following table shows the District's ten largest functions and each program's net cost (total cost less revenues generated by the activities). This table also provides information on the net cost offset by unrestricted grants, subsidies and contributions to show the remaining financial needs supported by local taxes and other miscellaneous revenues. Governmental Activities Fiscal Year ended Total Cost Net Cost Functions/Programs of Services of Services Governmental activities: Instruction 153,820,029 $ 125,271,481 Instruction related services 18,638,930 15,876,999 Pupil services 18,925,895 10,023,658 Ancillary services 1,443,142 1,442,106 Community services 7,495,766 7,412,665 Enterprise activities 3,702,899 72,489 General administration 11,090,764 9,681,432 Plant services 19,273,229 17,601,520 Other outgo and debt service 15,074,926 10,856,827 Depreciation (unallocated) 15,613,092 15,613,092 Total governmental activities $ 265,078,672 $ 213,852,269 -ix-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended GOVERNMENTAL FUNDS The District's Governmental funds include the Building Fund, County School Facilities Fund, Community Facilities District Funds, Other Governmental Funds, and most importantly, the General Fund. Figures 3 and 4 summarize the District's governmental funds, revenues and expenditures. Significant changes within the individual funds include a $11.6 million dollar increase to the General fund. Other fund balances reflect the slowing of construction relating to Measure B Bond building projects. Revenues Local 13% State 20% Federal 7% Revenue Limit 60% Figure 3. Expenditures Gen. Admn. 4% Ancillary Svcs. 3% Other Outgo 3% Debt Svc. 8% Enterprise 0% Pupil Svcs. 7% Instruction 58% Instr. Related 7% Plant Svcs. 10% Figure 4. -x-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended GENERAL FUND BUDGET INFORMATION The District's budget is prepared in accordance with California law and is based on the basis of accounting, consistent with generally accepted governmental accounting principles, utilizing cash receipts, disbursements and encumbrances. The most significant budgeted fund is the General Fund. The District begins the budget process in January of each year, to be completed by June 30. After updating of the forecast for changes in revenue and expenditure assumptions, the operating budget begins at the school level. Each school in the District receives a per pupil allocation augmented with resources for special education students. The departments provide input to the Business Office for their budget needs. The site and department budgets are reviewed monthly to ensure management becomes aware of any significant variations during the year. The District's largest operating expenses are primarily for salaries and benefits. The District expended approximately 86% of the total general fund budget on salaries and benefits. Certificated salaries were adjusted for step and column salary adjustments and corresponding salary savings due to attrition and retirements. For the current year, step increases were approximately 1.7% for certificated employees. Due to salary imposed concessions resulting from the lack of an agreement with the CSEA bargaining unit, classified employees did not receive step and column adjustments in 2011-12. Health and Welfare benefits include medical, vision, dental and life insurance paid by the District on behalf of all full time employees. The district offers PPO and HMO plans which are offset by employee contributions. These costs are projected to increase approximately 4.3% in 2012-13. During the fiscal year, the Board of Education authorized revisions to the original budget to accommodate differences from the original budget to the actual expenditures of the District. A budgetary comparison schedule for the general fund is presented on page 59. GENERAL FUND BUDGET VARIATIONS In June of each year, a Budget is adopted by the Saddleback Valley Unified School District's Board of Education, effective July 1 through June 30. The Budget is based on year-ending projections from the previous year's budget along with assumptions based on the Governor s May revise projection for the next fiscal year. As the school year progresses, the Budget is revised and updated, with numerous financial reports made public outlining the revisions. Finally, in August of the following year, the books are closed for the July 1 - June 30 fiscal year, and the results are audited, yielding actual final numbers. Budgets may be adjusted during this time based on more current information resulting from an adopted State Budget. -xi-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended There are several reasons for budget revisions. Most notable are any salary increases granted by the Board of Education for district employees, for the original budget does not presume salary increases. Also, any changes in the number of staff and/or staff utilization of health and welfare benefits that vary from the original projections would also yield budget revisions. For the Saddleback Valley Unified School District and other districts throughout California, the 2011-12 fiscal year once again presented another challenging year in history. The uncertainties of the weak economic indicators along with the State s fiscal health caused districts to continually review and monitor budgetary projections. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The Governmental Accounting Standards Board Statement Number 34 (GASB 34) requires that governmental agencies account for fixed assets in the same way that private and public corporations do. This involves recognizing the value of the District's fixed assets, such as, land, building and equipment in the fixed asset section of the balance sheet. Districts must track annual and accumulated depreciation on major assets. As of the District had $369,659,496 invested in net capital assets for governmental activities, primarily related to school construction and other capital improvements. This is a net of depreciation. Note 11 to the financial statements provide additional information on capital assets. A summary of capital assets, net of depreciation is presented below: Governmental Business Type Type Total Land $ 39,487,653 $ $ 39,487,653 Work in progress 1,488,231 1,488,231 Depreciable assets, net 328,683,612 163,656 328,847,268 Total capital assets $ 369,659,496 $ 163,656 $ 369,823,152 The net capital assets balance decreased 2.4% from the prior year balance due to normal depreciation of buildings and site improvements. -xii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended Debt Note 10 to the financial statements provide additional information on outstanding debt. A summary of the District's outstanding debt at year-end is presented below: Governmental Business Type Type Total Public Financing Authority Bonds $ 28,894,918 $ $ 28,894,918 Compensated Absences 2,168,416 2,168,416 Early Retiree Benefits 5,834,789 5,834,789 Other Postemployment Benefits 10,947,547 10,947,547 General Obligation Bonds 135,876,683 135,876,683 Net Long Term Debt $ 183,722,353 $ - $ 183,722,353 The long-term debt balance decreased 3.4% from the prior year. The credit rating for the general obligation bonds for 2004A series and the 2007A series is an A+ rating -xiii-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended ECONOMIC FACTORS THAT MAY AFFECT THE FUTURE 2012-13 Revenue Limit - The District is currently projecting a revenue limit of $5,212 per ADA for 2012-13. The First Interim projects a 3.24% COLA with a 22.272% deficit for 2012-2013. A 0% COLA has been projected for 2013-14 with a 22.272% deficit. Projected Student Average Daily Attendance - District ADA is projected to decrease in the next three years. Revenue limit ADA is projected at 29,248 for 2012-13 including 28,041 for regular student ADA, 315 for County ADA and 892 for Special Education student ADA. Additionally, Gates Charter School is projected at 926 ADA. Since Saddleback Valley Unified School District is a declining enrollment district, the revenue limit is calculated on prior year ADA. Year P-2 ADA (1) Decline Percent Growth/ 2000-01 (actual) 33,659 0.80% 2001-02 (actual) 34,102 1.30% 2002-03 (actual) 34,456 1.00% 2003-04 (actual) 34,189-0.78% 2004-05 (actual) 33,798-1.14% 2005-06 (actual) 33,387-1.23% 2006-07 (actual) 32,944-1.33% 2007-08 (actual) 32,584-1.09% 2008-09 (actual) 32,027-1.71% 2009-10 (actual) 31,432-1.86% 2010-11 (actual) 30,832-1.91% 2011-12 (actual) 30,174-2.13% 2012-13 (est.) 29,522-2.16% (1) Including the County instructed students and excluding ROP and Adult Education students. Lottery - Lottery income for years 2012-13 through 2014-15 is based on estimates from the State Department of Education, the Orange County Office of Education, and School Services of California. Projected unrestricted lottery income is $124 per ADA for 2012-13 and future years. -xiv-
ORANGE COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS For the Fiscal Year Ended State Class Size Reduction The February 2010 State Budget package reduced the penalties for classes within the CSR program. Under the new provisions, the maximum penalty of 30% is applied to all classrooms over 25 students, though the reimbursement is limited to 20 students per class. The 2012-13 District budget includes approximately $4.4 million for K-3 revenue from the State. This estimate is based on 8,176 students (Grades K through 3). Kindergarten will be staffed the same as grades 1-3 at 29:1. Special Education - It is estimated that the District will receive funding for Special Education in 2012-13. Based on current estimates, the General Fund contribution in support of various Special Education programs in 2012-13 will be approximately $13.7 million. Ending Fund Balance Projection - The District's 2012-13 ending fund balance is projected to have sufficient reserves over the 3% contingency requirement. The District's system of budgeting and internal controls is well regarded and it will take all of the District's financial abilities to meet the challenges of the future. CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, and investors and creditors with a general overview of the School District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact: Geri Partida Assistant Superintendent, Business Services 25631 Peter A. Hartman Way Mission Viejo, California 92691 -xv-
FINANCIAL SECTION
STATEMENT OF NET ASSETS Governmental Activities Business-type Activities ASSETS Cash in County Treasury $ 86,639,516 $ 899,714 $ 87,539,230 Cash on Hand and in Banks 804,539 2,000 806,539 Cash in Revolving Fund 120,000 120,000 Collections Awaiting Deposit 242,642 32,148 274,790 Cash with Fiscal Agent 9,121,759 9,121,759 Investments 5,389,421 5,389,421 Accounts Receivable: Federal and State Governments 43,218,004 43,218,004 Local Governments 525,669 279,677 805,346 Miscellaneous 1,200,974 2,377 1,203,351 Due from Governmental Fund 315 315 Due from Enterprise Fund 94,859 94,859 Inventories 466,830 466,830 Prepaid Expenses 170,798 170,798 Capitalized Fees 1,468,387 1,468,387 Land 39,487,653 39,487,653 Work in Progress 1,488,231 1,488,231 Depreciable Assets, net 328,683,612 163,656 328,847,268 TOTAL ASSETS 519,122,894 1,379,887 520,502,781 Total LIABILITIES Accounts Payable and Other Current Liabilities 18,346,690 366,529 18,713,219 Deferred Revenue 834,121 633,879 1,468,000 Estimated Liability for Open Claims and IBNR's 11,359,469 11,359,469 Due to Governmental Fund 94,859 94,859 Due to Enterprise Fund 315 315 Current Portion of Long-term Liabilities: Public Financing Authority Bonds 3,690,000 3,690,000 Early Retiree Benefits 1,189,718 1,189,718 General Obligation Bonds 3,522,531 3,522,531 Non-Current Portion of Long-term Liabilities: Public Financing Authority Bonds 25,204,918 25,204,918 Compensated Absences 2,168,416 2,168,416 Early Retiree Benefits 4,645,071 4,645,071 Other Postemployment Benefits 10,947,547 10,947,547 General Obligation Bonds 132,354,152 132,354,152 TOTAL LIABILITIES 214,262,948 1,095,267 215,358,215 NET ASSETS Invested in Capital Assets, net of related debt 217,789,223 163,656 217,952,879 Restricted for: Debt Service 18,498,307 18,498,307 Educational Programs 2,829,069 2,829,069 Restricted for Capital Projects 16,068,467 16,068,467 Unrestricted 49,674,880 120,964 49,795,844 TOTAL NET ASSETS $ 304,859,946 $ 284,620 $ 305,144,566 See the accompanying notes to the financial statements. -1-
STATEMENT OF ACTIVITIES For the Fiscal Year Ended Functions Expenses GOVERNMENTAL ACTIVITIES: Charges for Services Program Revenues Operating Grants and Contributions Capital Grants and Contributions Net (Expense) Revenue and Changes in Net Assets Governmental Activities Business-type Activities Instruction $ 153,820,029 $ 165,754 $ 28,382,794 $ $ (125,271,481) $ $ (125,271,481) Instruction-related Services 18,638,930 10,095 2,751,836 (15,876,999) (15,876,999) Pupil Services 18,925,895 2,495,802 6,406,435 (10,023,658) (10,023,658) Ancillary Services 1,443,142 9 1,027 (1,442,106) (1,442,106) Community Services 7,495,766 26,636 56,465 (7,412,665) (7,412,665) Enterprise Activities 670 (670) (670) General Administration 11,090,764 103,811 1,305,521 (9,681,432) (9,681,432) Plant Services 19,273,229 35,396 64,486 1,571,827 (17,601,520) (17,601,520) Other Outgo 7,388,384 508,091 3,710,008 (3,170,285) (3,170,285) Debt Service - Interest 7,686,542 (7,686,542) (7,686,542) Depreciation (unallocated) 15,613,092 (15,613,092) (15,613,092) TOTAL GOVERNMENTAL ACTIVITIES 261,376,443 3,345,594 42,678,572 1,571,827 (213,780,450) - (213,780,450) Total BUSINESS-TYPE ACTIVITIES Enterprise Activities 3,702,229 1,121,962 2,508,448 (71,819) (71,819) TOTAL BUSINESS-TYPE ACTIVITIES 3,702,229 1,121,962 2,508,448 - - (71,819) (71,819) TOTAL $ 265,078,672 $ 4,467,556 $ 45,187,020 $ 1,571,827 (213,780,450) (71,819) (213,852,269) GENERAL REVENUES: Property Taxes Levied for: General Purposes 119,518,309 119,518,309 Debt Service 14,890,828 14,890,828 Other Specific Purposes 3,082,705 3,082,705 Federal and State Aid not Restricted to Specific Purposes 72,363,230 72,363,230 Interest and Investment Earnings 1,079,460 3,002 1,082,462 Miscellaneous 12,256,627 12,256,627 TOTAL GENERAL REVENUES 223,191,159 3,002 223,194,161 Change in Net Assets 9,410,709 (68,817) 9,341,892 Net Assets at Beginning of Year 295,449,237 353,437 295,802,674 Net Assets at End of Year $ 304,859,946 $ 284,620 $ 305,144,566 See the accompanying notes to the financial statements. -2-
BALANCE SHEET - GOVERNMENTAL FUNDS General Fund Building Fund Special Reserve for Capital Outlay Projects Fund Debt Service Funds-Public Financing Authorities Debt Service Funds- Community Facilities Districts Capital Projects Funds- Community Facilities Districts Other Governmental Funds Total Governmental Funds ASSETS Cash in County Treasury $ 22,167,323 $ 11,557,891 $ 14,389,967 $ $ $ $ 12,231,339 $ 60,346,520 Cash on Hand and in Banks 2,000 798,039 4,500 804,539 Cash in Revolving Fund 120,000 120,000 Cash with Fiscal Agent 283,837 6,388,703 219,219 6,891,759 Investments 4,161,845 1,227,576 5,389,421 Long Term Investments Bond Receivable 30,995,320 30,995,320 Accounts Receivable: Federal and State Governments 39,608,586 3,609,418 43,218,004 Local Governments 525,669 525,669 Miscellaneous 709,876 3,700 5,006 116,317 166,473 1,001,372 Due from Other Funds 1,216,821 1,580,371 8,266 2,805,458 Inventories 437,433 29,397 466,830 Prepaid Expenditures 128,128 1,800 40,870 170,798 TOTAL ASSETS $ 64,915,836 $ 13,143,762 $ 14,394,973 $ 35,441,002 $ 7,616,279 $ 1,133,575 $ 16,090,263 $ 152,735,690 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ 11,183,286 $ 242,172 $ 250,109 $ $ $ $ 2,021,222 $ 13,696,789 Due to Other Funds 101,412 262 383,069 2,306,171 2,790,914 Deferred Revenue 182,159 651,962 834,121 TOTAL LIABILITIES 11,466,857 242,434 250,109 - - 383,069 4,979,355 17,321,824 FUND BALANCES Nonspendable 685,561 1,800 70,267 757,628 Restricted 2,308,889 12,899,528 14,144,864 35,441,002 7,616,279 750,506 8,129,623 81,290,691 Committed 1,114,011 334,200 1,448,211 Assigned 6,143,052 2,576,818 8,719,870 Unassigned 43,197,466 43,197,466 TOTAL FUND BALANCES 53,448,979 12,901,328 14,144,864 35,441,002 7,616,279 750,506 11,110,908 135,413,866 TOTAL LIABILITIES AND FUND BALANCES $ 64,915,836 $ 13,143,762 $ 14,394,973 $ 35,441,002 $ 7,616,279 $ 1,133,575 $ 16,090,263 $ 152,735,690 See the accompanying notes to the financial statements. -3-
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS Total fund balances-governmental funds $ 135,413,866 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used for governmental activities are not financial resources and therefore are not reported as assets in governmental funds. These assets consist of: Land $ 39,487,653 Work in progress 1,488,231 Depreciable assets, net 328,683,612 Total capital assets 369,659,496 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Public Financing Authority Bonds (28,894,918) Compensated absences (2,168,416) Early retiree benefits (5,834,789) Other postemployment benefits (10,947,547) General obligation bonds and premium (135,876,683) (183,722,353) Internal service funds are used by the District s management to charge the cost of the health and welfare, worker s compensation and liability insurance programs to the individual funds. The assets and liabilities of the internal service funds are included with governmental activities. 16,153,327 Interest expense related to special assessment debt and public financing authority bonds payable was incurred but not accrued through (3,117,457) Costs associated with issuing debt are recorded as expenditures in the year incurred and are not capitalized in governmental funds 1,468,387 Bonds receivable are reported as investments in the Public Financing Authority s fund statements but are eliminated on the statement of net assets (30,995,320) Total net assets governmental activities $ 304,859,946 See the accompanying notes to the financial statements. -4-
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the Fiscal Year Ended General Fund Building Fund Special Reserve for Capital Outlay Projects Fund Debt Service Funds-Public Financing Authorities Debt Service Funds- Community Facilities Districts Capital Projects Funds- Community Facilities Districts Other Governmental Funds Total Governmental Funds REVENUES Revenue Limit Sources: State Apportionments $ 41,699,777 $ $ $ $ $ $ $ 41,699,777 Local Sources 119,518,308 119,518,308 Total Revenue Limit Sources 161,218,085 - - - - - - 161,218,085 Federal Sources 15,086,291 3,639,972 18,726,263 Other State Sources 50,519,389 4,771,774 55,291,163 Other Local Sources 3,846,346 64,210 3,168,033 2,083,821 4,995,992 542,909 20,861,693 35,563,004 TOTAL REVENUES 230,670,111 64,210 3,168,033 2,083,821 4,995,992 542,909 29,273,439 270,798,515 EXPENDITURES Instruction 152,461,681 774,162 153,235,843 Instruction-related Services 18,346,576 222,052 18,568,628 Pupil Services 13,215,436 5,659,824 18,875,260 Ancillary Services 1,437,634 1,437,634 Community Services 7,495,762 7,495,762 Enterprise 670 670 General Administration 10,656,353 122,290 4,924 272,427 11,055,994 Plant Services 20,021,340 2,208,011 843,934 618,608 2,413,127 26,105,020 Other Outgo 4,560,993 2,417,574 6,978,567 Debt Service 409,817 4,915,803 6,129,210 9,419,569 20,874,399 TOTAL EXPENDITURES 221,110,500 2,208,011 843,934 5,038,093 6,134,134 618,608 28,674,497 264,627,777 Excess (deficiency) of revenues over expenditures 9,559,611 (2,143,801) 2,324,099 (2,954,272) (1,138,142) (75,699) 598,942 6,170,738 OTHER FINANCING SOURCES (USES) Interfund Transfers In 2,851,278 25,000 699,494 3,575,772 Interfund Transfers Out (699,494) (25,000) (2,851,278) (3,575,772) Proceeds from Sale of Assets 259,400 259,400 TOTAL OTHER FINANCING SOURCES (USES) - 2,851,278 259,400 (674,494) 674,494 - (2,851,278) 259,400 Net Changes in Fund Balances 9,559,611 707,477 2,583,499 (3,628,766) (463,648) (75,699) (2,252,336) 6,430,138 Fund Balances at Beginning of Year 40,729,743 12,193,851 11,561,365 39,069,768 8,079,927 826,205 16,522,869 128,983,728 Adjustment for Reclassification (See Note 18) 3,159,625 (3,159,625) - Fund Balances at Beginning of Year, as Restated 43,889,368 12,193,851 11,561,365 39,069,768 8,079,927 826,205 13,363,244 128,983,728 Fund Balances at End of Year $ 53,448,979 $ 12,901,328 $ 14,144,864 $ 35,441,002 $ 7,616,279 $ 750,506 $ 11,110,908 $ 135,413,866 See the accompanying notes to the financial statements. -5-
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES For the Fiscal Year Ended Net change in fund balances Total government funds $ 6,430,138 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures. However, in the statement of activities, the cost of those assets is allocated over their useful lives as depreciation expense. Capital outlay (net of deletions) $ 6,641,224 Depreciation expense (15,613,092) (8,971,868) Repayment of long-term debt is reported as expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. General obligation bond principal payments 3,010,000 Special assessment debt principal payments 755,000 Public financing authority bond principal payments 3,405,000 Early retirement plan payments and changes in estimates 1,182,984 8,352,984 Repayment of internal debt between the Community Facilities District and Public Financing Authority is recorded as debt service expense on the fund statements but is eliminated in the statement of activities 3,520,000 Some items reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Net decrease in accrued interest 118,126 Net increase in compensated absences (178,663) Amortization of premium of general obligation bonds 227,531 Amortization of issuance costs of general obligation bonds (84,647) Increase in other postemployment benefit obligation (2,123,205) (2,040,858) Internal service funds are used by the District to charge the costs of the health and welfare, worker s compensation and property and liability insurance programs to the individual funds. The net income of the internal service funds are reported with governmental activities 2,120,313 Change in net assets of governmental activities $ 9,410,709 See the accompanying notes to the financial statements. -6-
STATEMENT OF FUND NET ASSETS PROPRIETARY FUNDS Governmental Activities Internal Service Fund Business Type Activities Community Recreation Fund ASSETS Cash in County Treasury $ 26,292,996 $ 899,714 Cash on Hand and in Banks 2,000 Collections Awaiting Deposit 242,642 32,148 Cash with Fiscal Agent 2,230,000 Accounts Receivable: Local Governments 279,677 Miscellaneous 199,602 2,377 Due from Other Funds 80,239 315 Depreciable Assets, net 163,656 TOTAL ASSETS 29,045,479 1,379,887 LIABILITIES Accounts Payable 1,532,444 366,529 Due to Other Funds 239 94,859 Deferred Revenue 633,879 Estimated Liability for Open Claims and IBNRs 11,359,469 TOTAL LIABILITIES 12,892,152 1,095,267 NET ASSETS Invested in Capital Assets, net of related debt 163,656 Unrestricted 16,153,327 120,964 TOTAL NET ASSETS $ 16,153,327 $ 284,620 See the accompanying notes to the financial statements. -7-
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS For the Fiscal Year Ended Governmental Activities Internal Service Fund Business Type Activities Community Recreation Fund OPERATING REVENUES Self-Insurance Premiums $ 41,447,502 $ Other Local Sources 33,419 3,630,410 TOTAL OPERATING REVENUES 41,480,921 3,630,410 OPERATING EXPENSES Certificated Salaries 371,578 Classified Salaries 190,216 1,694,712 Employee Benefits 95,795 410,363 Books and Supplies 16,165 300,905 Services and Other Operating Expenses 39,199,563 896,042 Depreciation Expense 28,629 TOTAL OPERATING EXPENSES 39,501,739 3,702,229 Operating Income (Loss) 1,979,182 (71,819) NON-OPERATING REVENUES (EXPENSES) Interest Income 141,131 3,002 TOTAL NON-OPERATING REVENUES (EXPENSES) 141,131 3,002 Change in Net Assets 2,120,313 (68,817) Net Assets at Beginning of Year 14,033,014 353,437 Net Assets at End of Year $ 16,153,327 $ 284,620 See the accompanying notes to the financial statements. -8-
STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Fiscal Year Ended Governmental Activities Business-type Activities Internal Service Fund Community Recreation Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Premiums $ 41,234,078 $ Cash Received from Rebates 658,970 Cash Received from Other Local Sources 3,712,186 Cash Paid for Claims (38,059,229) Cash Paid to Employees (286,011) (2,485,335) Cash Paid for Operating Expenses (1,908,169) (1,112,427) Net Cash Provided by Operating Activities 1,639,639 114,424 CASH FLOWS FROM INVESTING ACTIVITIES: Interest Income 149,905 3,055 Transfer of Capital Assets 55,855 Net Cash Provided by Investing Activities 149,905 58,910 Net Increase in Cash 1,789,544 173,334 Cash - July 1, 2011 26,976,094 760,528 Cash - $ 28,765,638 $ 933,862 See the accompanying notes to the financial statements. -9-
STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Fiscal Year Ended Governmental Activities Internal Service Fund Business-type Activities Community Recreation Fund ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES OPERATING (LOSS) INCOME $ 1,979,182 $ (71,819) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities: Depreciation Expense 28,629 Changes in Operating Assets and Liabilities: Decrease in Accounts Receivable 491,712 164,818 (Increase) Decrease in Due From Other Funds (79,585) 11,907 Increase in Accounts Payable 2,689 52,514 Decrease in Estimated Liability for Open Claims and IBNR (754,598) Increase in Due to Other Funds 239 23,324 Decrease in Deferred Revenue (94,949) Total Adjustments (339,543) 186,243 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,639,639 $ 114,424 Cash balances at consisted of the following: Cash in County Treasury $ 26,292,996 $ 899,714 Cash on Hand and in Banks 2,000 Cash Collections Awaiting Deposit 242,642 32,148 Cash with Fiscal Agent 2,230,000 Total $ 28,765,638 $ 933,862 See the accompanying notes to the financial statements. -10-
STATEMENT OF FUND NET ASSETS - FIDUCIARY FUNDS Trust Fund Associated Student Body Funds ASSETS Cash in County Treasury $ 12,618 $ Cash on Hand and In Banks 3,390,353 Accounts Receivable: Miscellaneous 6 8,854 Stores Inventory 56,414 Prepaid Expenses 186,899 TOTAL ASSETS 12,624 3,642,520 LIABILITIES Accounts Payable 1 366,335 Due to Other Funds Deferred Revenue 134,424 Funds Held in Trust 1,909,085 TOTAL LIABILITIES 1 2,409,844 NET ASSETS Unrestricted 12,623 1,232,676 TOTAL NET ASSETS $ 12,623 $ 1,232,676 See the accompanying notes to the financial statements. -11-
STATEMENT OF CHANGES IN FUND NET ASSETS - FIDUCIARY FUNDS For the Fiscal Year Ended Trust Fund Associated Student Body Funds ADDITIONS Revenue from Local Sources $ 599 $ 3,741,667 TOTAL ADDITIONS 599 3,741,667 DEDUCTIONS Other Expenses 5,014 3,524,905 TOTAL DEDUCTIONS 5,014 3,524,905 Changes in net assets (4,415) 216,762 Net Assets at Beginning of Year 17,038 1,015,914 Net Assets at End of Year $ 12,623 $ 1,232,676 See the accompanying notes to the financial statements. -12-