CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. ANNUAL REPORT DECEMBER 31, 2012
TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS REPORT 1-2 BALANCE SHEETS 3 STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 4 STATEMENTS OF CHANGES IN FUND BALANCES 5 STATEMENTS OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7-13 SUPPLEMENTARY INFORMATION Independent auditors' report on supplementary information 14-15 Schedule of operating expenses 16 Schedule of future major repairs and replacements 17
FINANCIAL STATEMENTS
To the Board of Directors Carriage Gate Homeowners Association, Inc. Denver, Colorado INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of Carriage Gate Homeowners Association, Inc. (a Colorado nonprofit corporation), which comprise the balance sheets as of December 31, 2012, and the related statements of operations and changes in fund balance and cash flows for the year then ended, and the related notes to the financial statements. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility 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. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Carriage Gate Homeowners Association, Inc.as of December 31, 2012, and the changes in net assets, and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. KGC KOLL GIDAN COHEN AND COMPANY PC Certified Public Accountants Aurora, Colorado September 11, 2013
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. BALANCE SHEETS DECEMBER 31, 2012 OPERATING RESTRICTED FUND TOTAL ALL FUND RESERVE SETTLEMENT FUNDS ASSETS CASH $ 4,508 $ 86,358 $ 140,404 $ 231,270 RECEIVABLES, net of allowance for bad debts 304 0 0 304 PREPAID EXPENSES 13,134 0 0 13,134 ACCRUED INTEREST 0 3,005 1,783 4,788 INVESTMENTS 0 391,096 2,414,985 2,806,081 TOTAL ASSETS $ 17,946 $ 480,459 $ 2,557,172 $ 3,055,577 LIABILITIES AND FUND BALANCES ACCOUNTS PAYABLE $ 11,419 $ 0 $ 0 $ 11,419 INCOME TAXES PAYABLE 0 0 10,834 10,834 DUE TO (FROM) OTHER FUNDS 24,182 (24,182) 0 0 FUND BALANCES Fund balances (17,655) 516,739 2,457,026 2,956,110 Accumulated other comprehensive income Total fund balance 0 (12,098) 89,312 77,214 TOTAL LIABILITIES AND FUND BALANCES $ 17,946 $ 480,459 $ 2,557,172 $ 3,055,577 -The Accompanying Notes Are An Integral Part Of These Financial Statements- -3-
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEAR ENDED DECEMBER 31, 2012 OPERATING RESTRICTED FUND TOTAL ALL FUND RESERVE SETTLEMENT FUNDS DUES AND ASSESSMENTS $ 81,210 $ 39,750 $ 0 $ 120,960 OPERATING EXPENSES 121,942 9,451 19,417 150,810 INCOME (LOSS) FROM OPERATIONS (40,732) 30,299 (19,417) (29,850) OTHER INCOME 144 17,183 106,150 123,477 INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (40,588) 47,482 86,733 93,627 PROVISION FOR INCOME TAXES 0 0 15,834 15,834 NET INCOME (LOSS) (40,588) 47,482 70,899 77,793 OTHER COMPREHENSIVE INCOME Net unrealized gain (loss) on investments, net of income taxes 0 2,554 191,445 193,999 TOTAL COMPREHENSIVE INCOME $ (40,588) $ 50,036 $ 262,344 $ 271,792 -The Accompanying Notes Are An Integral Part Of These Financial Statements- -4-
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. STATEMENT OF CHANGES IN FUND BALANCES YEAR ENDED DECEMBER 31, 2012 OPERATING RESERVE FUND SETTLEMENT FUND TOTAL Other Other Comprehensive Comprehensive Regular Income Regular Income BALANCE, beginning of year $ (57,780) $ 469,257 $ (14,652) $ 2,466,840 $ (102,133) $ 2,761,532 Net income (loss) (40,588) 47,482 0 70,899 0 77,793 Net unrealized gain (loss) on investments, net of income taxes 0 0 2,554 191,445 193,999 Inter-fund transfers 80,713 0 0 (80,713) 0 0 BALANCE, end of year $ (17,655) $ 516,739 $ (12,098) $ 2,457,026 $ 89,312 $ 3,033,324 -The Accompanying Notes Are An Integral Part Of These Financial Statements- -5-
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2012 OPERATING RESTRICTED FUND TOTAL ALL FUND RESERVE SETTLEMENT FUNDS CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ (40,588) $ 50,036 $ 262,344 $ 271,792 Adjustments to reconcile net cash. provided by operating activities: Realized (gain) loss on investments 0 392 (22,963) (22,571) Unrealized (gain) loss on investments 0 (2,554) (191,445) (193,999) Changes in certain assets and liabilities 502 (172) 32,031 32,361 Cash from (to) operations (40,086) 47,702 79,967 87,583 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale or maturity of investments 0 64,378 619,038 683,416 Purchase of investments 0 (256,372) (780,335) (1,036,707) 0 (191,994) (161,297) (353,291) CASH FLOWS FROM FINANCING ACTIVITIES: Inter-fund transfer 80,713 0 (80,713) 0 Changes in due (to) other funds (36,335) 32,000 4,335 0 44,378 32,000 (76,378) 0 NET INCREASE (DECREASE) IN CASH 4,292 (112,292) (157,708) (265,708) CASH, Beginning 216 198,650 298,112 496,978 CASH, Ending $ 4,508 $ 86,358 $ 140,404 $ 231,270 SUPPLEMENTAL INFORMATION: Cash (received) during the year for income taxes $ (16,229) -The Accompanying Notes Are An Integral Part Of These Financial Statements- -6-
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS Carriage Gate Homeowners Association, Inc. ("the Association") is a condominium association incorporated in the state of Colorado in 1998, for the purpose of maintaining and preserving common property of the Carriage Gate Homeowners Association, Inc. The condominium management association is located in Arapahoe County Colorado and consists of the owners of 56 residential units. The Association commenced operations in 1998 as a Colorado non-profit corporation for the purpose of furthering the interest of all owners of the condominium owners in the community. NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Association's governing documents provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Association maintains its accounts using fund accounting. Financial resources are classified for accounting and reporting purposes in the following funds established according to their nature and purpose: Operating Fund - This fund is used to account for financial resources available for the general operations of the Association. Restricted Fund - This fund is used to accumulate financial resources designated for future major repairs and replacements and funds held for other restricted purposes. CASH AND CASH EQUIVALENTS Cash and cash equivalents are considered to be all highly liquid investments with an initial maturity of three months or less held in a commercial bank. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. ALLOWANCE FOR BAD DEBTS - The Association provides an allowance for bad debts equal to the estimated uncollectible amounts. The Association's estimate is based on historical collection experience and a review of the current status of the receivables. It is reasonably possible that the Association's estimate of the allowance for bad debts may change. It is management s opinion that all amounts receivable as of the year ended December 31, 2012 are collectable; consequently, no reserve has been recorded. - 7 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) MEMBER ASSESSMENTS The annual budget and assessments of members are determined by the Board of Directors and approved by the membership. Any excess assessments at year end are retained by the Association for use in future years. PROPERTY AND EQUIPMENT - Real property and common areas acquired from the developer and related improvements to such property are not recorded in the Association's financial statements because those properties are owned by the individual unit owners in common and not by the Association. The Association capitalizes personal property at cost if it is used in the operation of the Association. Amounts capitalized as property and equipment, including additions and improvements to existing assets, are recorded at cost. As of December 31, 2012, the Association does not own any personal property. Maintenance cost and repairs are expensed when incurred; renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the respective costs and accumulated depreciation are removed from the accounts. The resulting gain or loss is included in the statement of operations, except for non-monetary exchanges in which the basis of the asset acquired is adjusted for the gain or loss. NOTE 2- RESTRICTED FUNDS The restricted fund is composed of three items: Reserves these are funds held for the future repair and replacement of the common property as per the condominium declaration. Settlement Funds Held In Trust these are funds the Association received as a partial settlement from the developer. NOTE 3 - DATE OF MANAGEMENT'S REVIEW In preparing the financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through September 11, 2013, the date that the financial statements were available to be issued. - 8 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4 - CONTINGENCIES, COMMITMENTS AND CONCENTRATION OF CREDIT RISK The Association occasionally places its cash and temporary investments with several high quality insured financial institutions. At times, such investments may be in excess of FDIC insurance limits. As of December 31, 2012, no cash balances are in excess of FDIC limits. The organization maintains various accounts in various brokerage institutions. These funds are covered by the Securities Investor Protection Corporation ( SPIC ). As of December 31, 2012, the balances in these funds exceeded the SIPC limit of $500,000 as follows: Geordan Capital Management $ 539,611 UBS Financial Services, Inc. 193,208 Merrill Lynch 573,262 Total $ 1,306,081 NOTE 5 RECEIVABLES AND PREPAID ASSESSMENTS Association members are subject to monthly assessments to provide funds for the Association's operating expenses, future capital acquisitions, and major repairs and replacements. Assessments receivable at the balance sheet date represents fees due from unit owners, late fees and other charges due from the owner. The Association's Declaration provides for various collection remedies for delinquent assessments including the filing of liens, retaining legal counsel, foreclosing on the owner and obtaining judgment on other assets of the owner. Any excess assessments at year end are retained by the Association for use in the succeeding year. Also, the Association acts as an intermediary between the developer and the homeowners for the collection of approved expenditures the homeowner incurs as a result of construction defects. The Association bills the developer for these expenditures and records a payable to the homeowner at the same time. As of December 31, 2012, the Association had outstanding receivables of $304 and no prepaid assessments outstanding. - 9 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 6 INCOME TAXES Homeowners associations may be taxes either as an exempt homeowners association under Internal Revenue Code Section 528 which allows any exempt function income and expenses to be disregarded in calculating taxable income or as a regular corporation. As a regular corporation, member expenses under Internal Revenue Code Section 277 are limited to its member income. Any excess member expenses are carryforward to future years to offset any future member income. Also as a regular corporation the association may be allowed to exclude from income revenue from the assessment of any future capital repairs and replacements. For the year ended December 31, 2012, the Association was taxed as a regular corporation. A reconciliation of taxable income from book to the tax return is as follows: Net income (loss) before taxes per books $ 93,627 Items not taxable: Reserve contributions (39,750) Tax exempt interest (12,076) Dividend exclusion (11,822) Capital loss allowed (5,050) Reserve expenses 9,301 Items deferred: Section 277 limitation 33,637 Items taxable: State income taxes (3,302) Taxable income per tax returns $ 64,565 As of December 31, 2012, the Association has $49,541 of IRC Section 277 expenses carry forward. As of December 31, 2012, the Association had no unused capital losses carryforward. The Association has adopted provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes which prescribes when to recognize and how to measure the financial statement effects, if any, of income tax positions taken or expected to be taken on its income tax returns, including the position that the Association continues to qualify to be treated as a tax-exempt entity for both federal and state income tax purposes. These rules require management to evaluate the likelihood that, upon examination by relevant taxing jurisdictions, those income tax positions would be sustained. - 10 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 6 INCOME TAXES (continued) The Association undergoes an annual analysis of its various tax positions, assessing the likelihood of those positions being upheld upon examination with relevant tax authorities, as defined by ASC 740-10. Management does not believe there to be any uncertain tax positions and has thus not recorded any related provision. The Association s tax returns are subject to examination by taxing authorities for a period of three years from the date they are filed. As of December 31, 2012, the tax years subject to examination include 2009 through 2011. NOTE 7 SETTLEMENT FUNDS HELD IN TRUST During 2007, the Association agreed to a cash settlement from two construction defect lawsuits in the amount of $12,346,919. At the end of December 31, 2010, the amount of unspent funds totaled $1,928,713. During 2011, this amount was recognized as earned and recorded in the settlement fund. Any investment income earned on these funds is also credited to the settlement fund. NOTE 8 - FUTURE MAJOR REPAIRS AND REPLACEMENTS The Association's Declaration requires that the Association shall establish and maintain an adequate reserve fund for maintenance, repairs and replacement of the common area improvements and the exterior portion of the private improvements (lots). The Board of directors has designated a portion of each owner's monthly assessment for replacement reserves. Accumulated funds are held in separate investment accounts and generally are not available for expenditures for normal operations. The Board of Directors commissioned a reserve fund analysis in 2010 which was completed during 2010 to estimate the remaining useful lives of the components of common property. The table included in the supplementary schedule of future major repairs and replacements is based on this reserve analysis. Funds are being accumulated in the replacement fund based on estimates of future needs for repairs and replacements of common property components. Actual expenditures may vary from the estimated future expenditures, and the variations may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future needs for major repairs and replacements. If additional funds are needed, the Association has the right to increase regular assessments, pass special assessments or delay performing the major repairs and replacements until funds are available. - 11 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 9 DUE TO (FROM) OTHER FUNDS The following is an analysis of the amounts due to (from) other funds: OPERATING RESERVE SETTLEMENT FUND FUND FUND Total due to (from) $ 24,182 $ (24,182) $ 0 NOTE 10 INTER-FUND TRANSFERS During 2012, funds were transferred from the Settlement Fund to the Operating Fund as a permanent transfer. A summary is as follows: OPERATING RESERVE SETTLEMENT FUND FUND FUND Transfer to (from) $ 80,713 $ 0 $ (80,713) NOTE 11 CASH FLOWS Supplemental information with respect to the statement of cash flows is presented below. OPERATING RESERVE SETTLEMENT FUND FUND FUND ASSETS (Increase) Decrease Dues receivable $ (304) $ 0 $ 0 Prepaid expenses (9,305) 0 0 Accrued interest 0 (172) (32) Prepaid income taxes 0 0 21,229 LIABILITIES Increase (Decrease) Accounts payable 10,111 0 0 Income taxes payable 0 0 10,834 Total due to (from) $ 502 $ (172) $ 32,031-12 -
CARRIAGE GATE HOMEOWNERS ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 12 - FAIR VALUE MEASUREMENTS Quoted Prices In Active Significant Significant Markets for Other Unobserv- Identical Observable able Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Financial Assets: Cash $ 231,270 $ 231,270 $ 0 $ 0 Investments 2,806,081 2,806,081 0 0 Accrued interest 4,788 0 0 4,788 Financial Liabilities: Accounts payable 11,419 0 0 11,419 Financial assets valued using level 1 inputs are based on quoted market prices within active markets. Financial assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets. Financial assets and liabilities valued using level 3 inputs were valued using management s assumptions about what market participants would utilize in pricing the asset or liability. For receivables and payables, the carrying amount is a reasonable estimate of fair value due to the relatively short period of time between origination and collection or payment. - 13 -
SUPPLEMENTARY DATA
To the Board of Directors Carriage Gate Homeowners Association, Inc. Denver, Colorado INDEPENDENT AUDITORS REPORT We have audited the financial statements of Carriage Gate Homeowners Association, Inc. as of and for the year ended December 31, 2012, and our report thereon dated September 11, 2013, which expressed an unmodified opinion on those financial statements, appears on pages 1-2. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of operating expenses for the year ended December 31, 2012, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. - 14 -
The schedule of future major repairs and replacements on page 17 is not a required part of the financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and we do not express an opinion or provide any assurance on it. KGC KOLL GIDAN COHEN AND COMPANY, PC Certified Public Accountants Aurora, Colorado September 11, 2013-15 -
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. SCHEDULE OF OPERATING EXPENSES YEAR ENDED DECEMBER 31, 2012 OPERATING RESTRICTED FUND TOTAL ALL FUND RESERVE SETTLEMENT FUNDS Utilities $ 26,659 $ 0 $ 0 $ 26,659 Insurance 20,249 0 0 20,249 Investment advisory fees 0 150 19,417 19,567 Trees and shrubs 15,992 0 0 15,992 Landscaping 14,852 0 0 14,852 Reserve exp 0 9,301 0 9,301 Management fees 8,700 0 0 8,700 Snow removal 6,693 0 0 6,693 Trash removal 6,552 0 0 6,552 Repairs & maintenance 6,128 0 0 6,128 Professional fees 5,600 0 0 5,600 Miscellaneous 4,450 0 0 4,450 Window/gutter cleaning 4,430 0 0 4,430 Summer event 1,637 0 0 1,637 $ 121,942 $ 9,451 $ 19,417 $ 150,810-16-
CARRIAGE GATE HOMEOWNERS' ASSOCIATION, INC. SCHEDULE OF FUTURE MAJOR REPAIRS AND REPLACEMENTS DECEMBER 31, 2012 (UNAUDITED) The Association hired a consultant to complete a reserve fund analysis in 2010 to estimate the remaining useful lives and the replacement costs of the components of common property. Replacement costs were based on the estimated costs to repair or replace the common property components at the date of the study. The estimateswere obtained using estimating procedures and experience with bidding current prices. The following table is based on the study's significant information about the components of common property. Estimated Remaining Estimated Useful Lives Replacement Component Description (Years) Cost Flat roofs 20 $ 156,000 Stucco siding 12 120,000 Asphal - mtc 2-14 103,425 Balconies 19 97,500 Metal railings 5-23 44,520 Street lights 8 36,000 Irrigation system 14 30,000 Driveways 6 27,000 Entrance monuments 13 24,000 Exterior lighting 8 22,080 Walkways 6 14,062 Retaining walls 7 13,300 Curbs and gutters 13 8,875 Community signs 8 8,216 Site grading and drainage 5 8,000 Mailboxes 13 7,410 Other 6-7 17,473 $ 737,861 The Association is using the "Cash Flow Method" to determine annual funding requirements. The "Cash Flow Method" does not fund for each component separately; rather, the reserve funds are in a common pool to be used to meet the disbursement requirements of any component as it is forecasted by the remaining life. As of December 31, 2012, the Association has accumulated in its replacement fund $480,459. Also, the operating fund owes the replacement fund $24,182 in unfunded reserves. -17-