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HomeMy WebLinkAbout2011-10-24 - Finance-Accounting Committee Meeting Agenda Packet Yorba Linda Water District AGENDA YORBA LINDA WATER DISTRICT FINANCE-ACCOUNTING COMMITTEE MEETING Monday, October 24, 2011, 4:00 PM 1717 E Miraloma Ave, Placentia CA 92870 COMMITTEE STAFF Director Ric Collett, Chair Ken Vecchiarelli, General Manager Director Robert R. Kiley Stephen Parker, Finance Director 1. PUBLIC COMMENTS Any individual wishing to address the committee is requested to identify themselves and state the matter on which they wish to comment. If the matter is on this agenda, the committee Chair will recognize the individual for their comment when the item is considered. No action will be taken on matters not listed on this agenda. Comments are limited to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to five minutes. 2. ACTION CALENDAR This portion of the agenda is for items where staff presentations and committee discussions are needed prior to formal committee action. 2.1. Submission of 2011 Audit Reports Recommendation: That the Committee recommend the Board of Directors receive and file the FY 2010/11 Comprehensive Annual Financial Report, the Report on Internal Control and the Communication to Those In Governance Letter. 2.2. Investment Report through September 2011 Recommendation: That the Committee recommend the Board of Directors approve the Investment Report for the Period Ending September 30, 2011. 3. DISCUSSION ITEMS This portion of the agenda is for matters such as technical presentations, drafts of proposed policies, or similar items for which staff is seeking the advice and counsel of the Committee members. This portion of the agenda may also include items for information only. 3.1. September 2011 Budget to Actual Results 3.2. Status of Strategic Plan Initiatives 3.3. Future Agenda Items and Staff Tasks 4. ADJOURNMENT 4.1. The next meeting of the Finance-Accounting Committee will be held on November 28, 2011 at 4:00 p.m. Items Distributed to the Committee Less Than 72 Hours Prior to the Meeting Pursuant to Government Code section 54957.5, non-exempt public records that relate to open session agenda items and are distributed to a majority of the Committee less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the District's business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870, during regular business hours. When practical, these public records will also be made available on the District's internet website accessible at http://www.ylwd.com/. Accommodations for the Disabled Any person may make a request for a disability-related modification or accommodation needed for that person to be able to participate in the public meeting by telephoning the Executive Secretary at 714-701-3020, or writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, CA 92885-0309. Requests must specify the nature of the disability and the type of accommodation requested. A telephone number or other contact information should be included so the District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should make the request with adequate time before the meeting for the District to provide the requested accommodation. ITEM NO. 2.1 AGENDA REPORT Meeting Date: October 24, 2011 Budgeted: N/A To: Finance-Accounting Committee Funding Source: N/A From: Ken Vecchiarelli, General Manager Presented By: Stephen Parker, Finance Dept: Finance Manager Reviewed by Legal: N/A Prepared By: Stephen Parker, Finance CEQA Compliance: N/A Manager Subject: Submission of 2011 Audit Reports STAFF RECOMMENDATION: That the Committee recommend the Board of Directors receive and file the FY 2010/11 Comprehensive Annual Financial Report, the Report on Internal Control and the Communication to Those In Governance Letter. DISCUSSION: Staff is pleased to present the Finance-Accounting Committee with Yorba Linda Water District's Comprehensive Annual Financial Report (CAFR) for the fiscal year ending June 30, 2011. Staff will submit the report for a Certificate in Achievement for Excellence in Financial Reporting award from the Government Finance Officers Association. Staff is hopeful that this year's report wil merit this level of recognition, just as last years' CAFR did in receiving the award. White Nelson Diehl Evans LLP (previous Diehl Evans & Company, LLP), the District's external auditors, have completed their audit of the Yorba Linda Water District for the fiscal year ending June 30, 2011, and have rendered an unqualified (clean) opinion in the attached Comprehensive Annual Financial Report. They identified in the attached Report on Internal Control, four internal control findings that rose to the level of a significant deficiency, and have included management's response to those comments. Lastly, they have reported required disclosures to the Finance-Accounting Committee in the Communication To Those In Governance. ATTACHMENTS: Name: Description: T Ype: YLWD CAFR FY 2010-11.pdf FY 10/11 Comprehensive Annual Financial Report Backup Material 6.30.11 Report on Internal Control.pdf FY 10/11 Report on Internal Control Backup Material 6.30.11_Communication _to Those in Governance.pdf FY 10/11 Communication to Those In Governance Backup Material Yorba Linda Water District tir ~r _i f~ l a A~ 'AYft~ ~ Comprehensive Annual Financial ti Report Y' 1 7.1 FY 2010/11 1~n 1~1 4 0. T ■"fir. 1~ ~.r 1717 East Miraloma Avenue ■ Placentia ■ CAi4ornia■ 92870 www.ylwd.com ■ 714-701-3000 Our Mission "Yorba Linda Water District will provide reliable, high quality water and sewer services in an environmentally responsible manner ant the most economical cost to our customers." Our Vision "Yorba Linda Water District will become the premier self-sufficient source for reliable water, sewer and related services in the communities it serves." YORBA LINDA WATER DISTRICT of Yorba Linda, California Comprehensive Annual Financial Report . WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30, 2011 Prepared by: Finance Department - Accounting Section and Cindy Botts, Management Analyst YORBA LINDA WATER DISTRICT TABLE OF CONTENTS For the year ended June 30, 2011 Page Number INTRODUCTORY SECTION: Letter of Transmittal i Board of Directors and Executive Staff xiii Organization Chart xiv District Boundaries xv Certificate of Achievement for Excellence in Financial Reporting xvi FINANCIAL SECTION: Independent Auditors' Report 1 Management's Discussion and Analysis (Required Supplementary Information) 3 Basic Financial Statements: 11 Combined Statements of Net Assets 12 Combined Statements of Revenues, Expenses and Changes in Net Assets 14 Combined Statements of Cash Flows 15 Notes to Basic Financial Statements 17 Required Supplementary Information: 41 Other Post-Employment Benefit Plan - Schedule of Funding Progress 42 Supplementary Information: 43 Combining Schedule of Net Assets 44 Combining Schedule of Revenues, Expenses and Changes in Net Assets 46 Combining Schedule of Cash Flows 47 Schedule of Operating Expenses by Cost Center and Nature of Expenses for Water and Sewer 49 Schedule of Capital Assets 50 YORBA LINDA WATER DISTRICT TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2011 Page Number STATISTICAL SECTION: 51 Description of Statistical Section 53 Financial Trends: Changes in Net Assets 54 Revenue Capacity: Number of Connections 56 Ten Largest Customers 57 Debt Capacity: Ratio of Outstanding Debt 58 Debt Coverage 59 Demographic and Economic Information: Demographics 60 Ten Largest Employers 61 Operating Information: Number of Employees 62 Operating and Capacity Indicators 63 INTRODUCTORY SECTION Yorba Linda Water District October 27, 2011 Members of the Board of Directors Yorba Linda Water District Introduction It is our pleasure to submit Yorba Linda Water District's Comprehensive Annual Financial Report (CAFR) for the fiscal year ending June 30, 2011. This report was prepared pursuant to the guidelines set forth by the Governmental Accounting Standards Board (GASB). District staff prepared this financial report in conjunction with an unqualified opinion issued by the independent audit firm White Nelson Diehl Evans LLP. The independent auditor's report is located at the front of the financial section of this document. Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. This report consists of management's representations concerning the finances of Yorba Linda Water District. Consequently, management assumes full responsibility for the completeness and reliability of the information presented in this report. To provide a reasonable basis for making these representations, the District has established a comprehensive internal control framework that is designed both to protect the District's assets from loss, theft or misuse, and to compile sufficient reliable information for the preparation of the District's financial statements in conformity with generally accepted accounting principles (GAAP). Because the cost of internal control should not outweigh their benefits, the District's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. Management asserts that to the best of our knowledge and belief this financial report is complete and reliable in all material aspects. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Yorba Linda Water District for its comprehensive annual financial report for the fiscal year ended June 30, 2010. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. i A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for certificate again this year. District Structure and Leadership The Yorba Linda Water District is an independent special district, which operates under the authority of Division 12 of the California Water Code. The Yorba Linda Water District has provided water and sewer services to the residents of the City of Yorba Linda, portions of Placentia, Brea, Anaheim, and nearby unincorporated areas since 1959, the year it was formed to take over the assets and water service responsibilities of the Yorba Linda Water Company, a mutual formed in 1909. The District is governed by a five-member Board of Directors, elected at large from within the District's service area. The General Manager administers the day-to-day operations of the District in accordance with policies and procedures established by the Board of Directors. The Yorba Linda Water District employs a full-time staff of 76 employees. The District's Board of Directors meets on the second and fourth Thursday of each month. Meetings are publicly noticed and citizens are encouraged to attend. The District provides water, sewer or a combination of both services to residents and businesses within its service area, which includes approximately 14,475 acres of land comprising 22.6 square miles. The District serves a population of approximately 75,000 and currently provides water service through approximately 23,850 residential, commercial, and light industrial connections. District Services Residential customers make up approximately 92% of the District's customer base and consume approximately 72% of the water provided annually by the District. The District obtains about half of its water supply from the Metropolitan Water District (MWD) through the Municipal Water District of Orange County (MWDOC) and the other half from groundwater wells within the area. In FY 2010/11 the District provided 19,280 acre-feet of water to its customers. The District's service area is known for having larger than average residential lots and a network of horse trails spanning over 100 miles in length. In 2005, CNN ranked the City of Yorba Linda as 21" among the best places in the United States to live. Similarly, in an article by CNN Money, the City of Yorba Linda was listed as one of the most affluent cities in the United States, as well as the highest median income in Orange County, as reported by 2000 Census data, based on towns between 65,000 and 250,000 in population. ii Economic Condition and Outlook The District's administrative offices are located in the City of Placentia in Orange County. The economic outlook for the area is one of very slow growth, which is projected to continue through 2012 because of the ongoing financial crisis and the somewhat distressed housing market. California's water supply continues to be a concern due to projected population increases, cyclical drought conditions, and environmental and regulatory restrictions that threaten the State's water supply and conveyance system through the Sacramento-San Joaquin Delta. These concerns have increased focus on the need for conservation as well as more efficient irrigation methods and systems. Within the District's boundaries, population growth is expected to increase only minimally in the next 5-10 years, as more than 50% of the current households have children under the age of 18 who are not expected to add to this growth via newborns. Additionally, the District's area is primarily "built out", and an influx of residents from outside the area is expected to remain fairly low. The State of California, however, is expected to grow by 20 million people over the next 40 years. In March 2011, the Governor declared an end to a nearly four-year statewide drought. The State's mandate of twenty percent water use reduction by the year 2020 ("20 by 2020"), instituted in 2008 as part of the previous administration's actions to address the water shortage remains in effect. Simultaneously with the rising cost of import water, the District was also limited in the amount of water it was able to provide to its customers without paying significant penalties in fiscal years 2009-2010 and 2010-2011. A water allocation was placed on the District by MWDOC as a result of MWD policies that amounted to a 10% reduction of water usage on the District's average water use for calendar years 2004-2006. Failure to remain within this allocation would have resulted in substantial financial penalties. While allocations were anticipated, the District implemented a conservation ordinance effective July 1, 2009 restricting non-essential water use and curtailing excessive water use. Just prior to the close of the fiscal year 2010-2011, the Board of Directors voted to move from its conservation ordinance Stage 2: Moderate Water Shortage Condition to No Stage, based upon the State's declaration of the conclusion of the drought and MWDOC's decision to conclude water use allocations to its member agencies. As the District's emphasis is now on water use efficiency, the Permanent Restrictions identified in the ordinance will remain in effect. As of the end of the fiscal year 2010-2011, the ordinance has proven to be successful with District customers reducing water usage by an overwhelming 18%. With this trend, the District is optimistic water usage will remain within allocation, penalties will be avoided and the District will reach the State's "20 by 2020" mandate. in Historical Water Use Year Annual Water Purchased Percent Chauc acre-feet FY 2006/07 25,656.5 N/A FY 2007/08 24,635.5 -4.0% FY 2008/09 23,416.8 -4.9% FY 2009/10 20,162.2 -13.9% FY 2010/11 19,279.9 -4.4% Water Conservation Programs The District has implemented conservation management practices since the late 1980's. District staff participates in community events and distributes informational materials to encourage water conservation. Through a partnership program with MWDOC, the District offers the following conservation programs offering rebates for purchase and installation of: Weather-based Irrigation Landscape Controllers Rotating Irrigation Nozzles High Efficiency Clothes Washers In addition to these programs, the District also implemented a Water Conservation Ordinance on July 1, 2009. The ordinance focuses on water use efficiency through the prohibition of wastcfill practices and the establishment of water conservation stages. During fiscal year 2010/11, the District remained at a Stage 2: Moderate Water Shortage Condition, in sync with MWD's water shortage stage. Water Conservation Stages ModerateWater Shortage 111Stage 2 Reduce usage by 10%-20% Stage 3 Severe Water Shortage Reduce usage by 20-35% Critical Water Shortage Stage Reduce usage more than 35% iv Mission/Vision Statement and Major Initiatives The activities of the Board and staff of the District are driven by its Mission Statement: "Yorba Linda Water District will provide reliable, high quality water and sewer services in an environmentally responsible manner, while maintaining an economical cost and unparalleled customer service to our community", and its Vision Statement: "Yorba Linda Water District will become the leading, innovative and efficient source for high quality reliable services." The Mission and Vision Statements dictate the following five core values of the District. 1. Integrity- We demonstrate integrity every day by practicing the highest ethical standards and by ensuring that our actions follow our words. 2. Accountability- We acknowledge that both the Board and the staff of the District are accountable to the public that we serve, as well as to each other. 3. Responsibility- We take full responsibility for our actions- both our successes and our opportunities for growth. We maintain a commitment of courtesy, assessment and resolution with all customer concerns. 4. Transparency - We promote a culture where we actively listen to our customers and communicate openly about our policies, processes and plans for the future. 5. Teamwork - Success centers on all departments working together and sharing information and resources to achieve common goals. We are dedicated to ensuring that every voice of the District, from the Board to each individual employee is treated with dignity and respect, and that differences are valued and individual abilities and contributions are recognized. Major Accomplishments during FY 2010/11 Previously, the Board of Directors approved the FY 2007-2012 five-year capital improvement plan totaling 557.7 million. These projects were identified for funding with the 2003 and 2008 Series Certificates of Participation (Revenue Bonds), in combination with annexation fiords and other reserves held by the District. These projects are completed or underway as of the preparation of this report. For fiscal years 2011 through 2015, staff identified projects totaling 537.4 million. Included in that amount, S4.3 million was spent or forecasted for spending through the end of FY 2010/11. The remaining 533.0 million is therefore proposed for consideration by the Board for capital improvement projects/capital replacement projects (CIP/CRP) that will extend through FY 2014/15. 511.8 million of the 533.1 million is projected for spending in the upcoming FY 2011/12 budget. Funding is available for the FY 2011/12 and FY 2012/13 projects with existing and forecasted capital reserve fiords. Beyond that, additional fiends may be required to complete the entire CIP list. This will depend on bid results and actual costs to complete the approved projects. In FY 2009/10, the Board of Directors approved a Five-Year Capital Improvement Program for 2009 to 2014 with a combined total of 544.4M. Of that amount, an estimated S18AM was spent during FY 2010/11 for projects in planning, design and construction. Those projects included the following: v Highland Reservoir The new S 10.9M Highland Reservoir, in use as of July 2010, provides six million gallons of potable water storage and was fully completed by September 2010. The buried, reinforced concrete reservoir serves the most southerly part of the District and is designed with provisions for expansion to nine million gallons. The new reservoir, considered to be the hub of water storage for the District's groundwater transmission facilities, replaced the Highland Reservoir, originally constructed in 1911. I . l I _ G mow- `.4q _ - - vo~ (Highland Reservoir During Construction) Hidden Hills Reservoir Project Located at the top of Hidden Hills Road, this S6.1M project now provides more efficient operation in the District's highest pressure zones within the Hidden Hills area. The project included construction of a two million gallon buried concrete reservoir and improvements to the Santiago Booster Pump Station. It was fully complete in September 2010. Vista del Verde Valve Replacement This project is a result of needed improvements to a developer-installed system. While adequate to provide water to the surrounding residential community, the system installed was not up to the high standard that the District prefers, leading to difficulty with maintenance. The project replaced twenty-two valves, over the course of two phases, and was complete in May 2011, at a cost of 5440,000. vi Highland Booster Pump Station Replacement The Highland Booster Pump Station Replacement project will allow the District to reliably pump up to 18,000 gallons per minute of water from the adjacent 6 million gallon Highland Reservoir to customers in the largest pressure zone served by the District and up to the Lakeview Reservoir. A feasibility study was completed in early 2009 and the project design plans were completed in June 2010. Construction of the S7M project began in October 2010 and will be completed in early 2012. District Well Projects The District's water demand averages between 22,000 and 24,000 acre-feet per year. Of that total, approximately half is pumped from the groundwater basin and the remainder is imported water purchased through MWDOC. The cost of groundwater, including the cost of pumping, is about half the cost of imported water. As such, the District is working to ensure it can pump its full allotment of groundwater. To do so, it must frilly utilize its existing wells, optimize their capacity, and construct new wells when necessary. In this regard, the CIP includes various well projects, including the following: • Wells 1, 5 and 12 Upgrade Project The District refurbished Wells 1, 5 and 12 located on the grounds of the District headquarters. These wells have a combined capacity of approximately 5,000 gallons per minute. These wells were originally drilled between 1934 and 1950 and were refiirbished to increase combined capacity and useful service life. Refurbishment results in more reliable groundwater production, enabling the District to reduce the use of more expensive imported water. • Well 20 Project This project includes construction of a new groundwater production well near existing Well 11, located at the southerly end of Richfield Road. Well 11 was drilled in 1934 and was relined in the 1990's, but has recently become less productive due to age and wear. Well 20, at a cost of approximately S2M, provides nearly 2,000 gallons per minute of groundwater production. It will improve the District's capability to produce its full allotment of groundwater in place of the more expensive imported water. Construction is scheduled for completion by summer 2012. • South and West Well Project Work has been initiated, investigating potential well sites south and west of the District's existing Richfield Wellfield. If findings are positive, drilling of Well No. 21 is planned for FY 11/12, along with design of above-grade facilities, at an estimated cost of S1 million. Planned for FY 12/13 is construction of Well No. 21 and a transmission pipeline, at an estimated cost of S2 million. Proposed for FY 13/14 and 14/15 is acquisition of two additional wells sites, well drilling and construction, pipelines and appurtenances, at an estimated cost of approximately S5 million. It is anticipated that the project will include three wells to replace and augment existing wells, and to increase the District's groundwater pumping capacity, at a total project cost of approximately S8 million. vii Additional major accomplishments in FY 2010/11 include: Sewer Master Plan The District completed a Sewer Master Plan in February 2011, at a cost of approximately 5260,000. The plan updated the prior plan (completed in 1969) and identifies existing sewer facilities; developed and calibrated a hydraulic computer model; provided flow monitoring; identified existing system deficiencies; forecasted deficiencies that may develop with future build out; and provided recommendations for future improvements, repairs and replacements. Technological Advancements From FY 2008/09 to the present, the District has continued to implement a series of technological improvements including hardware and software system integrations. By ensuring that the District remains current with technology improvements, efficiency gains have been achieved, which include centralizing key information, reducing or eliminating inefficient, redundant manual processes, and updating software to industry standards. One of the largest advancements is the implementation of a new financial software package, which will allow for a streamlined, computerized and centralized approach to the general ledger, accounts payable, inventory, purchase orders, payroll, project accounting, bank reconciliation and budgeting processes. A new and advanced Utility Billing software system has also been implemented, with access to customer history and consumption information, which also offers improved integration with online bill pay, backflow device maintenance and tracking, and integration with the District's Geographical Information System (GIS). Final tasks in the implementation of the District's digital information database and analytical geographical information system (GIS) containing the water and sewer infrastructure, parcel and street information linked to the customer service and operational database systems, began in FY 2010/11. Phase 2 work will begin integration of applications such as CMMS, the hydraulic model, valve-exercising program and hydrant-flushing program. Full completion of the project is anticipated for FY 2012/13. Future Years Amidst the national economic turmoil and the California state budget crisis, our region continues to face water supply issues due to extended drought seasons, as well as judicial, environmental and regulatory restrictions. First and foremost, we continue to monitor the State's budget shortfall and potential shift of our property tax revenues. Secondly, with water conservation and reduced water sales, our ability to maintain a high level of services while holding costs down, has been seriously challenged. viii Water Rate & Increases In FY 2010/11, YLWD charged a uniform commodity rate of S2.52 per unit and a monthly fixed charge of S11.73 for all sizes of meters. One unit of water equals 748 gallons, equating one gallon of water to approximately 50.0034 (one third of a cent). At an average of 30 units of water per month (approximately 22,500 gallons), a typical YLWD customer would pay about S87 on the average for their monthly water bill. YLWD also provided wastewater service to approximately two-thirds of the District's customer base in FY 2010/11, at an additional charge of 55.50 per month. The District signed an agreement with the City of Yorba Linda in April 2011 to transfer the remaining one-third of wastewater service customers to the District, effective July 1, 2011. In FY 2011/12, Yorba Linda Water District faces many challenges related to water supply and demand. The District's water supply is currently derived from both groundwater and import water, approximately 50% from each source. Both import and groundwater prices have dramatically increased over the past three fiscal years. In January 2009, import water prices increased by 14.1% and another 19.7% in September 2009. Effective January 1, 2011, import water costs increased again by 7.5% and are scheduled to increase by an additional 7.5% in January 2012. These most recent increases alone have translated to over S2M in additional costs in FY 2009/10. As a result, the District implemented a 41% water rate increase, beginning September 2009, as well as a pass-through increase on the monthly service charge in August 2010 to cover the 2011 and 2012 import water cost increases. With the intent to develop a rate structure to support conservation and equitability among customers, the District developed a Request for Proposals to conduct a Cost of Service Analysis and Alternative Water Rate Feasibility Study in November 2009. This study will address the impacts of implementing a tiered water conservation rate structure and/or a budget-based water rate structure for customers of the District. It is the District's goal for the study to be completed and approved by the Board of Directors in early 2012, with potential for implementation if the Board decides to move forward with a different rate structure, beginning July 1, 2012. Annexation Initiative While 75% of the District's service boundary is within the territory of the Orange County Water District (OCWD), the agency responsible for managing the groundwater basin, District Staff and the Board will pursue annexation of the remaining 25%. The advantage of 100% annexation is a substantial cost savings in the water the District produces from the groundwater basin. Currently, the OCWD groundwater basin has a pumping limitation of 65% of each agency's annual demands, which is applicable to all Orange County water agencies that are completely annexed within OCWD. Since only 75% the District's boundaries are within OCWD, this equates to a 48% pumping limitation. The remaining water is supplied through the more costly import water. It is estimated that the District would reduce its water costs by over S LOM per year if the entire area is annexed into OCWD. ix Enhanced Outreach & Communications The District continues to enhance its communications with and presence within the community. Within the FY 2010/11 Budget, the District funded a Public Information Officer position. This position develops additional public information and supports water conservation programs with the overall goal of developing a more transparent image of the District to the community. Additionally, it is the District's intent to develop a short-term and long-term public information master plan. The District's Citizens Advisory Committee, who serve as ambassadors to the community meet with District staff on a monthly basis to discuss and provide recon- nendations on various pending District issues. The committee has been actively involved with issues such as the water rate increase, the water conservation ordinance, continuing conservation outreach, public information, and various other matters as they arise. In November 2010, three Citizens Advisory Committee members ran for, and won election to seats on the District Board of Directors. Future Technological Advancements Future technological advancements include the incorporation of a Computerized Maintenance & Management System (CMMS), which will automate and track all field work orders and provide actual costs to perform work order related functions. An Automated Purchase Requisitioning System, which would provide better workflow and approvals for purchasing items, as well has have direct integration with the new financial software. Internal Control Structure District management is responsible for the establishment and maintenance of the internal control structure that ensures the assets of the District are protected from loss, theft or misuse. The internal control structure also ensures adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The District's internal control structure is designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management. Budgetary Control The District Board of Directors adopts an operating and capital budget every year. The budget authorizes and provides the basis for reporting and control of financial operations and accountability for the District's enterprise operations and capital projects. The budget and reporting treatment applied to the District is consistent with the accrual basis of accounting and the financial statement basis. x Cash and Investment Management In order of priority, the District's objectives when investing, reinvesting, purchasing, acquiring, selling and managing public funds are as follows: 1. Safety: Safety of principal is the foremost objective of the investment program. Investments made by the District are undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required to prevent any potential loss on any individual security or depository from exceeding the income generated from the remainder of the portfolio. 2. Liquidity: The investment portfolio will remain sufficiently liquid to enable the District to meet all operating requirements that might be reasonably anticipated. 3. Return on Investments: The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio. Audit and Financial Reporting State Law and Bond covenants require the District to obtain an annual audit of its financial statements by an independent certified public accountant. The accounting firm of White Nelson Diehl Evans LLP has conducted the audit of the District's financial statements. Their unqualified (clean) Independent Auditor's Report appears in the Financial Section. Other References More information is contained in the Management's Discussion and Analysis and the Notes to the Basic Financial Statements found in the Financial Section of the report. Acknowledgements Preparation of this report was accomplished by the combined efforts of District staff. We appreciate the dedicated efforts and professionalism that these staff members contribute to the District. We would also like to thank the members of the Board of Directors and especially the Finance-Accounting Committee members for their continued support in planning and implementation of the Yorba Linda Water District's fiscal policies. Respectfully submitted, Kenneth R. Vecchiarclli Stephen Parker General Manager Finance Director xi This page intentionally left blank X11 Board of Directors & Executive Staff f3 t Michael J. Beverage, President Phil Hawkins, Vice-President A., Al ti~7~11 Gary T. Melton Robert R. Kiley Ric Collet Director Director Director Lee Cory Kenneth R. Vecchiarelli Steven R. Conklin Operations Manager General Manager Engineering Manager ae f , Art Vega Gina Knight Stephen Parker Interim IT Manager HR & Risk Manager Finance Manager X111 Yorba Linda Board of Water District Directors General Manager Engineering Assist. GM/IT Manager D Executive irector Secretary I G.I.S. Info. Systems S.C.A.D.A. Engineering Project Water Quality Administrator Administrator Administrator Secretary Engineer Engineer Info. Systems Sr. Construction WQ Technclanij Technician 1/11 Instrumentation Project Eng. Technician Inspector 1/11 Technician Engineer J 3 FTE I FTE Management Analyst Construction Inspector I Operations HR & Risk Finance Manager Manager Director Sr. Accountant Customer Svc. Personnel Sr. Fleet Operations W Maint. Chief Plant Supervisor Storekeeper Technician Mechanic Assistant Su rinte dent 0 I Customer Srv. Mechanic Sr. Maintananc Accounting 11/111 1 Facilities Sr. Plant Rep. 1/11/111 Meter Services Dist. Operator Assistant 1/11 4 FTE Lead 2 FrE 4 F1 maintenance Operator 2 FTE J I I qn I Li Operator Meter Reader Maintanance Dist. Maintanance Plant 1/11 Operator [if Operator 11 Worker I If Organization Chart 4 FTE 4 FTE 7 FTEJ TE 3 FTE FY 2010-11 Total: 76.5 positions budgeted Job Classification Legend AV Management Part-Time Supervisory/Confidential Bargaining Unit DISTRICT BOUNDARIES N City of Brea c~~ Chino Dills State Park 2 - I i L u~ 5 b i Y D U y d 2 4l Y(RR ALN Y FRALIN kI. City of Yorha Linda sty LL ALTA VISTA f.. City of Placentia f . L~ PA LAMA City of Anaheim XV Certificate of Achievement for Excellence In Financial Reporting Presented to ®rba Linda Water District California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2010 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. ~k`R~~N Gf ilf'~~~i~ A , 2 /UNITED STATE5%. ~ AND E€nnt:; C,kWA • ° f ` President Executive Director xvi FINANCIAL SECTION This page intentionally left blank co . INDEPENDENT AUDITORS' REPORT Board of Directors Yorba Linda Water District Placentia, California We have audited the basic financial statements of the Yorba Linda Water District (the District) as of and for the year ended June 30, 2011 as listed in the table of contents. These basic financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. The prior year partial comparative information has been derived from the financial statements of the District for the year ended June 30, 2010 and in our report dated September 15, 2010, we expressed an unqualified opinion on these financial statements. 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, and the State Controller's Minimum Audit Requirements for California Special Districts. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control over financial reporting. Accordingly, we express no such opinion. 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Yorba Linda Water District as of June 30, 2011 and the results of its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the State Controller's Office and State regulations governing Special Districts. -1- 5 Corporate Park, SUite 100, Irvine, CA 92606-5165 • Tel: 949-399-0600 • Fax: 949-399-0610 Officer located in Orarl(,e 1/11d ,S°an Diego Counties In accordance with Government Auditing Standards, we have also issued our report dated October 18, 2011 on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and other post-employment benefit plan - schedule of funding progress, as identified in the accompanying table of contents, 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 the 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 on them. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements of the District. 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 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 of the District 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 basic financial statements taken as a whole. Our audit was conducted for the purpose of forming an opinion on the District's basic financial statements taken as a whole. The Introductory Section and Statistical Section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Introductory Section and Statistical Section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. n1e.l..s - utl V .s L. UD October 18, 2011 Irvine, California -2- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS For the Year Ended June 30, 2011 The following Management's Discussion and Analysis ("MD&A") of activities and financial performance of the Yorba Linda Water District ("District") provides an introduction to the financial statements of the District for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction with the transmittal letter in the Introductory Section and with the basic financial statements and related notes, which follow this section. Financial Highlights • The District's unrestricted net assets increased by S3.1 million, or a 40% reduction of the negative unrestricted net assets. • During the year the District's revenues were S27.3 million, up 3.7%. • During the year, expenses were S28.7 million, up 4.7%. Required Financial Statements This annual report consists of a series of financial statements. The Statement of Net Assets, Statement of Revenues, Expenses and Changes in Net Assets and Statement of Cash Flows provide information about the activities and performance of the District using accounting methods similar to those used by private sector companies. The District's statements consist of two funds; the Water Fund and the Sewer Fund. The District's records are maintained on an enterprise basis, as it is the intent of the Board of Directors that the costs of providing water and sewer to the customer of the District are financed primarily through user charges. The Statement of Net Assets includes all of the District's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the basis for computing a rate of return, evaluating the capital structure of the District and assessing the liquidity and financial flexibility of the District. All of the current year's revenue and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Assets. This statement measures the success of the District's operations over the past year and can be used to determine if the District has successfully recovered all of its costs through its rates and other charges. This statement can also be used to evaluate profitability and credit worthiness. The final required financial statement is the Statement of Cash Flows, which provides information about the District's cash receipts and cash payments during the reporting period. The Statement of Cash Flows reports cash receipts, cash payments and net changes in cash resulting from operations, investing, non-capital financing, and capital and related financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. See independent auditors' report. -3- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Financial Analysis of the District 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 this year's activities?" The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets report information about the District in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private sector companies. All of the current year's revenues and expenses are taken into account regardless of when the cash is received or paid. These two statements report the District's net assets and changes in them. You can think of the District's net assets (the difference between assets and liabilities), as one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. However, one will need to consider other non-financial factors such as changes in economic conditions, population growth, zoning and new or changed government legislation, such as changes in Federal and State water quality standards. Notes to the Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the basic financial statements. The notes to the basic financial statements can be found on pages 17 through 40. See independent auditors' report. -4- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Statement of Net Assets Condensed Statements of Net Assets 2011 2010 Change Assets: Current unrestricted assets S 15,494,580 S 13,259,954 S 2,234,626 Current restricted assets 20,894,118 26,908,949 (6,014,831) Other assets 755,728 785,655 (29,927) Capital assets, net 181,633,788 180,322,149 1,311,639 Total Assets 218,778,214 221,276,707 (2,498,493) Liabilities: Liabilities payable from unrestricted current assets 5,586,615 6,627,839 (1,041,224) Liabilities payable from restricted assets 1,373,171 1,346,440 26,731 Non-current liabilities 57,582,753 58,324,858 (742,105) Total Liabilities 64,542,539 66,299,137 (1,756,598) Net Assets: Invested in capital assets, net of related debt 146,235,362 146,877,122 (641,760) Restricted for capital projects 12,620,256 15,797,432 (3,177,176) Unrestricted (4,619,943) (7,696,984) 3,077,041 Total Net Assets S 154,235,675 S 154,977,570 S (741,895) As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the District, assets of the District exceeded liabilities by S154.2 million and 5155.0 million as of June 30, 2011 and 2010, respectively. By far the largest portion of the District's net assets (95% and 95% as of June 30, 2011 and 2010, respectively) reflects the District's investment in capital assets (net of accumulated depreciation) less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to customers within the District's service area; consequently, these assets are not available for future spending. For the year ended June 30, 2011, the District showed a negative balance in its unrestricted net assets of S4.6 million, which indicates that there aren't any reserves to be utilized in future years, as was the same with the negative balance of S7.7 million for the year ended June 30, 2010. See independent auditors' report. -5- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Statement of Revenues, Expenses and Changes in Net Assets Condensed Statements of Revenues, Expenses and Changes in Net Assets 2011 2010 Change Revenues: Operating revenues: Water sales S 22,686,251 S 21,806,164 S 880,087 Sewer revenue 1,274,579 1,275,980 (1,401) Other operating revenues 1,035,545 1,102,143 (66,598) Total operating revenues 24,996,375 24,184,287 812,088 Nonoperating revenues: Investment income 274,152 244,857 29,295 Property taxes 1,258,769 1,269,441 (10,672) Other nonoperating revenues 739,062 589,201 149,861 Total nonoperaring revenues 2,271,983 2,103,499 168,484 Total Revenues 27,268,358 26,287,786 980,572 Expenses: Operating expenses: Variable water costs 11,268,306 10,688,318 579,988 Personnel services 6,902,995 6,677,757 225,238 Supplies and services 3,686,333 3,576,147 110,186 Depreciation 5,279,860 5,153,891 125,969 Total operating expenses 27,137,494 26,096,113 1,041,381 Nonoperating expenses: Interest expense 1,172,503 1,170,498 2,005 Other nonoperating expenses 406,575 151,300 255,275 Total nonoperaring expenses 1,579,078 1,321,798 257,280 Total Expenses 28,716,572 27,417,911 1,298,661 Net loss before capital contributions (1,448,214) (1,130,125) (318,089) Capital contributions 706,316 6,278,135 (5,571,819) Change in net assets (741,898) 5,148,010 (5,889,908) Net assets, beginning of year, as restated 154,977,570 149,829,560 5,148,010 Net assets, end of year S 154,235,672 S 154,977,570 S (741,898) See independent auditors' report. -6- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Statement of Revenues, Expenses and Changes in Net Assets (Continued) The statement of revenues, expenses and changes of net assets shows how the District's net assets changed during the fiscal years. In the case of the District, net assets decreased by S742 thousand and increased by S5.1 million for the fiscal years ended June 30, 2011 and 2010, respectively. A closer examination of the sources of changes in net assets reveals that: In 2011, the District's total revenues increased by 5981 thousand, primarily due to an increase in water sales of 5880 thousand from recognizing a full year with higher rates as a result of a large rate increase that went into effect in September 2009. In addition, total expenses increased by S1.3 million primarily due to water rates rising which caused an increase in variable water costs (5580 thousand increase) and other non-operating expense increasing S255 thousand as a result of closing projects that had accumulated in CIP and determining they should be expensed. In 2010, the District's total revenues increased by S2.1 million, primarily due to an increase operating revenues of S2.7 million from increased water revenue from a large rate increase that went into effect in September 2009. Also, non-operating revenues decreased by 5600 thousand primarily due to lower interest rates. In addition, total expenses increased by only S100 thousand despite a S LO million increase in depreciation expense, due to an 18% reduction in water usage by conserving customers and cuts made by District staff in the supplies and service area. See independent auditors' report. -7- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Capital Assets Changes in capital asset amounts for 2011 were as follows: Balance Transfers/ Balance 2010 Additions Deletions 2011 Capital assets: Capital assets, not being depreciated S 24,014,834 5 6,125,312 S (24,916,758) S 5,223,388 Capital assets, being depreciated 206,988,160 25,498,796 (254,120) 232,232,836 Less accumulated depreciation (50,680,845) (5,279,860) 138,269 (55,822,436) Total capital assets, net S180,322,149 S 26,344,248 S (25,032,609) 5181,633,788 Changes in capital asset amounts for 2010 were as follows: Balance Transfers/ Balance 2009 Additions Deletions 2010 Capital assets: Capital assets, not being depreciated S 12,298,890 S 14,082,190 S (2,366,246) 5 24,014,834 Capital assets, being depreciated 198,268,513 8,854,536 (134,889) 206,988,160 Less accLunulated depreciation (45,655,616) (5,153,891) 128,662 (50,680,845) Total capital assets, net 5164,911,787 S 17,782,835 S (2,372,473) 5180,322,149 At the end of fiscal year 2011 and 2010, the District's investment in capital assets amounted to S 181.6 million and S 180.3 million, respectively (net of accumulated depreciation). This investment in capital assets includes land, transmission and distribution systems, reservoirs, tanks, pumps, buildings and structures, equipment, vehicles and construction-in-process, etc. Major capital assets additions during the year included upgrades to the District's transmission and distribution system, most notably the complete replacement of Highland Reservoir and bringing Hidden Hills Reservoir online. Additional information regarding capital assets can be found in note 4 in Notes to Basic Financial Statements. See independent auditors' report. -8- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Long-Term Liabilities Changes in long-term debt amounts for the year ended June 30, 2011 were as follows: Balance Balance 2010 Additions Reductions 2011 2003 Revenue Certificates of Participation S 9,425,000 S - S (225,000) S 9,200,000 2008 Revenue Certificates of Participation 34,035,000 - (630,000) 33,405,000 Subtotal 43,460,000 - (855,000) 42,605,000 Add (Less): Discount (125,851) - 5,433 (120,418) Premium 730,955 - (26,420) 704,535 Total Certificates of Participation 44,065,104 - (875,987) 43,189,117 Compensated absences 1,050,888 518,006 (561,701) 1,007,193 Other post-employment liability 236,483 189,147 (303,565) 122,065 Total S 45,352,475 S 707,153 S (1,741,253) S 44,318,375 Changes in long-term debt amounts for the year ended June 30, 2010 were as follows: Balance Balance 2009 Additions Reductions 2010 2003 Revenue Certificates of Participation S 9,645,000 S - S (220,000) S 9,425,000 2008 Revenue Certificates of Participation 34,640,000 - (605,000) 34,035,000 Subtotal 44,285,000 - (825,000) 43,460,000 Add (Less): Discount (131,283) - 5,432 (125,851) Premium 757,375 - (26,420) 730,955 Total Certificates of Participation 44,911,092 - (845,988) 44,065,104 Compensated absences 1,101,916 552,599 (603,627) 1,050,888 Other post-employment liability 120,774 224,018 (108,309) 236,483 Total S 46,133,782 S 776,617 S (1,557,924) S 45,352,475 Additional information regarding long-term liabilities can be found in note 5 in Notes to Basic Financial Statements. See independent auditors' report. -9- YORBA LINDA WATER DISTRICT MANGEMENT'S DISCUSSION AND ANAL YSIS (CONTINUED) For the Year Ended June 30, 2011 Requests for Information This financial report is designed to provide the District's finding sources, customers, stakeholders and other interested parties with an overview of the District's financial operations and financial condition. Should the reader have questions regarding the information included in this report or wish to request additional financial information, please contact the District at 1717 E. Miraloma Avenue, Placentia, California 92807 or the Finance Department at (714) 701-3040. See independent auditors' report. -10- BASIC FINANCIAL STATEMENTS - II - YORBA LINDA WATER DISTRICT COMBINED STATEMENTS OF NET ASSETS June 30, 2011 (With prior year data for comparison only) ASSETS 2011 2010 CURRENT ASSETS: UNRESTRICTED ASSETS: Cash and cash equivalents $ 11,235,015 $ 8,686,564 Accounts receivable - water and sewer services 3,642,035 3,923,554 Accounts receivable - property taxes 114,949 120,976 Accrued interest receivable 22,049 22,248 Prepaid expenses and deposits 246,919 273,024 Inventory 233,613 233,588 TOTAL UNRESTRICTED ASSETS 15,494,580 13,259,954 RESTRICTED ASSETS: Cash and cash equivalents 18,750,493 26,907,082 Investments 2,143,130 - Accrued interest receivable 495 1,867 TOTAL RESTRICTED ASSETS 20,894,118 26,908,949 TOTAL CURRENT ASSETS 36,388,698 40,168,903 NONCURRENT ASSETS: Bond issuance costs 755,728 785,655 Capital assets (Note 4): Non-depreciable 5,223,388 24,014,834 Depreciable, net of accumulated depreciation 176,410,400 156,307,315 TOTAL NONCURRENT ASSETS 182,389,516 181,107,804 TOTAL ASSETS 218,778,214 221,276,707 See independent auditors' report and notes to basic financial statements. (Continued) -12- YORBA LINDA WATER DISTRICT COMBINED STATEMENTS OF NET ASSETS (CONTINUED) Junc 30, 2011 (With prior year data for comparison only) LIABILITIES 2011 2010 CURRENT LIABILITIES: PAYABLE FROM UNRESTRICTED CURRENT ASSETS: Accounts payable $ 4,506,830 $ 5,536,848 Accrued expenses 130,306 125,727 Compensated absences payable (Note 5) 251,798 261722 Customer and construction deposits 281,156 221,940 Deferred revenue 416,525 480,602 TOTAL PAYABLE FROM UNRESTRICTED CURRENT ASSETS 5,586,615 6,627,839 PAYABLE FROM RESTRICTED ASSETS: Accrued interest payable 483,171 491,440 Certificates of Participation - current portion (Note 5) 890,000 855,000 TOTAL PAYABLE FROM RESTRICTED ASSETS 1,373,171 1,346,440 TOTAL CURRENT LIABILITIES 6,959,786 7,974,279 LONG-TERM LIABILITIES (LESS CURRENT PORTION): Deferred annexation revenue 14,406,176 14,090,105 Compensated absences (Note 5) 755,395 788,166 Other post-employment benefit (OPEB) liability (Notes 5 and 6) 122,065 236,483 Certificates of Participation (Note 5) 42,299,117 43,210,104 TOTAL LONG-TERM LIABILITIES (LESS CURRENT PORTION) 57,582,753 58,324,858 TOTAL LIABILITIES 64,542,539 66,299,137 NET ASSETS: Invested in capital assets, net of related debt (Note 8) 146,235,362 146,877,122 Restricted for capital projects 12,620,256 15,797,432 Unrestricted (4,619,943) (7,696,984) TOTAL NET ASSETS $ 154,235,675 $ 154,977,570 See independent auditors' report and notes to basic financial statements. -13- YORBA LINDA WATER DISTRICT COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the year ended June 30, 2011 (With prior year data for comparison only) 2011 2010 OPERATING REVENUES: Water sales $ 22,686,251 $ 21,806,164 Sewer revenues 1,274,579 1,275,980 Other operating revenues 1,035,545 1,102,143 TOTAL OPERATING REVENUES 24,996,375 24,184287 OPERATING EXPENSES: Variable water costs 11,268,306 10,688,318 Personnel services 6,902,995 6,677,757 Supplies and services 3,686,333 3,576,147 Depreciation 5,279,860 5,153,891 TOTAL OPERATING EXPENSES 27,137,494 26,096,113 OPERATING LOSS (2,141,119) (1,911,826) NONOPERATING REVENUES (EXPENSES): Property taxes 1,258,769 1,269,441 Investment income 274,152 244,857 Interest expense (1,172,503) (1,170,498) Other nonopcrating revenues 739,062 589201 Other nonopcrating expenses (406,575) (151,300) TOTAL NONOPERATING REVENUES (EXPENSES) 692,905 781,701 NET LOSS BEFORE CAPITAL CONTRIBUTIONS (1,448,214) (1,130,125) CAPITAL CONTRIBUTIONS 706,319 6,278,135 CHANGES IN NET ASSETS (741,895) 5,148,010 NET ASSETS - BEGINNING OF YEAR, AS RESTATED 154,977,570 149,829,560 NET ASSETS - END OF YEAR $ 154,235,675 $ 154,977,570 See independent auditors' report and notes to basic financial statements. -14- YORBA LINDA WATER DISTRICT COMBINED STATEMENTS OF CASH FLOWS For the year ended June 30, 2011 (With prior year data for comparison only) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 25,257,632 $ 22,783,879 Cash payments to employees for salaries and wages (7,056,529) (6,661,928) Cash payments to suppliers of goods and services (15,879,098) (14,101,632) Other revenue 245,050 156,025 Other expenses (263,781) (115,942) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,303,274 2,060,402 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Proceeds from property taxes and assessments 1,265,653 1,173,205 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 1,265,653 1,173,205 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Property taxes received for debt service - 4,443 Proceeds from annexation fees and capital contributions 1,022,579 113,312 Acquisition and construction of capital assets (5,599,745) (13,505,308) Proceeds from sales of capital assets 13,678 4,063 Principal paid on long-term liability (855,000) (825,000) Interest paid on long-term liability (1,961,047) (1,991,711) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (7,379,535) (16,200,201) CASH FLOWS FROM INVESTING ACTIVITIES: Salc/purchase of investments, net (2,073,253) 12,671,946 Interest and investment earnings 275,723 258,176 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,797,530) 12,930,122 NET DECREASE IN CASH AND CASH EQUIVALENTS (5,608,138) (36,472) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 35,593,646 35,630,118 CASH AND CASH EQUIVALENTS - END OF YEAR $ 29,985,508 $ 35,593,646 See independent auditors' report and notes to basic financial statements. (Continued) - 15 - YORBA LINDA WATER DISTRICT COMBINED STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended June 30, 2011 (With prior year data for comparison only) 2011 2010 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss $ (2,141,119) $ (1,911,826) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 5,279,860 5,153,891 Other revenues 244,850 156,025 Other expenses (263,781) (115,942) Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 281,520 (1,358,795) Inventory (25) 49,111 Prepaid expenses and deposits 26,105 71,637 Increase (decrease) in liabilities: Accounts payable and accrued expenses (1,030,018) (21,294) Accrued salaries and wages 4,579 (48,852) Accrued other post-employment benefits (OPEB) liability (114,418) 115,709 Accrued compensated absences (43,695) (51,028) Customer and construction deposits 59,216 21,766 Total adjustments 4,444,193 3,972,228 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,303,074 $ 2,060,402 CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION: Unrestricted $ 11,235,015 $ 8,686,564 Restricted 18,750,493 26,907,082 TOTAL CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION $ 29,985,508 $ 35,593,646 NONCASH INVESTING, CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization related to long-tern debt $ 20,988 $ 20,988 Capital contributions $ 706,319 $ 6,278,135 See independent auditors' report and notes to basic financial statements. -16- NOTES TO BASIC FINANCIAL STATEMENTS -17- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Organization and Description of the Reporting Entity: The Yorba Linda Water District (the District) is an independent special district established in 1959, which operates under the authority of Division 12 of the California Water Code for the purpose of providing water and sewer services to the properties within the District. The District is governed by a five member board of Directors elected by the voters in the area to four-year terms. The District provides two services which include Water and Sewer. Water is provided to the entire service area. Sewer is provided to about two-thirds of the service area. The District's service area includes Yorba Linda and portions of Placentia, Anaheim, Brea, and areas of unincorporated Orange County. The District provides water and sewer service to approximately 81,893 residents. The criteria used in determining the scope of the reporting entity are based on the provisions of GASB Statement 14. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority or the component unit's board, or because the component unit will provide a financial benefit or impose a financial burden on the District. The District's reporting entity includes the Yorba Linda Water District Public Financing Corporation, a California nonprofit public benefit corporation, formed in July 2003 for the purpose of providing assistance to the District and other public agencies in the State of California of which the District is a member, or is otherwise engaged with in the financing, refinancing, acquiring, constructing and rehabilitating of facilities, land and equipment, in the sale or leasing of facilities, land and equipment for the use, benefit and enjoyment of the public served by such agencies and any other purpose incidental thereto). Although the District and the Public Facilities Corporation are legally separate entities, the District's Board of Directors is financially responsible for the Public Financing Corporation and, therefore, the accompanying financial statements include the accounts and records of the Public Financing Corporation using the blending method as required by accounting principles generally accepted in the United States of America. There are no separate financial statements for the Public Financing Corporation. b. Basic Financial Statements: The basic financial statements are comprised of the Combined Statements of Net Assets, the Combined Statements of Revenues, Expenses and Changes in Net Assets, the Statements of Cash Flows and the notes to the basic financial statements. See independent auditors' report. -18- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Basis of Presentation: The accounts of the District are an enterprise fund. An enterprise fund is a Proprietary type fund used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. d. Measurement Focus and Basis of Accounting: Measurement focus is a tern used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. The accompanying financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or noncurrent) associated with these activities are included on the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets present increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. e. Net Assets: In the Statement of Net Assets, net assets are classified in the following categories: • Invested in capital assets, net of related debt - This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the assets. • Restricted net assets - This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments. • Unrestricted net assets - This amount is all net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted net assets". When both restricted and unrestricted resources are available for use, the District may use restricted resources or unrestricted resources based on the Board's discretion. See independent auditors' report. -19- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): f. Operating Revenues and Expenses: Operating revenues, such as charges for services (water sales and sewer service charges) result from exchange transactions associated with the principal activity of the District. Nonoperating revenues, such as property taxes and assessments, and investment income, result from nonexchange transactions or ancillary activities in which the District receives value without directly giving equal value in exchange. Operating expenses include the cost of sales and services, administrative expenses and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses. g. Cash and Cash Equivalents: The District considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. h. Investments and Investment Policy: The District has adopted an investment policy directing the District's General Manager or Finance Director to invest, reinvest, sell or exchange securities. Investments are stated at fair value which represents the quoted or stated market value. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation or sale of investments. i. Accounts Receivable: The District extends credit to customers in the normal course of operations. Management has evaluated the accounts and believes they are all collectible. Management evaluates all accounts receivable and if it is determined that they are uncollectible they are written off as a bad debt expense. A charge of S20,263 and S41,612 were made to bad debt expense for the fiscal years ended June 30, 2011 and 2010, respectively. See independent auditors' report. -20- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): j. Property Taxes and Assessments: The Orange County Assessor's Office assesses all real and personal property within the County each year. The Orange County Tax Collector's Office bills and collects the District's share of property taxes and assessments. The Orange County Treasurer's Office remits current and delinquent property tax collections to the District throughout the year. Property taxes in California are levied in accordance with Article XIIIA of the State Constitution at 1% of countywide assessed valuations. This levy is allocated pursuant to state law to the appropriate units of local governments. Property taxes receivable at year-end are related to property taxes collected by the Orange County Tax Collector which have not been credited to the District's cash balance as of June 30. The property tax calendar is as follows: Lien Date: January 1 Levy Date: July 1 Due Dates: First Installment - November 1 Second Installment - March 1 Collection Dates: First Installment - December 10 Second Installment - April 10 k. Prepaid Expenses: Certain payments to vendors reflects costs or deposits applicable to future accounting periods and are recorded as prepaid items in the basic financial statements. L Inventory: Inventory consists primarily of materials and supplies used in the construction and maintenance of the water and sewer systems and are stated at cost using the average-cost method on a first in, first out basis. in. Capital Assets: Capital assets acquired and/or constructed are capitalized at historical cost. District policy has set the capitalization threshold for reporting capital assets at 55,000. Contributed assets are recorded at estimated fair market value at the date of contribution. Upon retirement or other disposition of capital assets, the cost and related accumulated depreciation are removed from the respective balances and any gains or losses are recognized. See independent auditors' report. -21- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): in. Capital Assets (Continued): Depreciation is recorded on the straight-line basis over the estimated useful lives of the assets as follows: Source of Supply 30 to 75 years Pumping Plant 20 to 40 years Water Treatment Plant 12 to 40 years Sewer Plant 5 to 60 years Transmission and Distribution Plant 10 to 40 years General Plant 3 to 40 years n. Bond Issuance Costs: Bond issuance costs are amortized on a straight-line methodology based on the estimated term of the related bond debt. Bond issuance costs were 5755,728 and 5785,655 net of accumulated amortization of S 142,056 and S 112,130 at June 30, 2011 and 2010, respectively. o. Interest Expense: The District incurs interest charges on the Certificates of Participation. Interest expense of 5753,855 and 5787,038 has been capitalized as an addition to the cost of construction for the years ended June 30, 2011 and 2010, respectively. p. Compensated Absences: The District's policy is to permit employees to accumulate earned vacation and sick leave. The liability for vested vacation and sick leave is recorded as an expense when earned. Employees may carry forward up to one and one-half years of earned vacation days and an unlimited number of sick leave days. Upon termination or retirement, permanent employees are entitled to receive compensation at their current base salary for all unused vacation leave except for those employees that have not completed the probationary period. Permanent employees that retire in accordance with the Public Employee's Retirement System qualifications are entitled to receive cash compensation at their current base salary for three-eighths of all unused sick leave and the remaining five-eighths of the unused sick leave is contributed to the employee's PERS account. The District has accrued 100% of the unused sick leave as a liability as it expects most employees to meet the PERS requirements when retiring or leaving the District. See independent auditors' report. -22- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): q. Deferred Credits: Deferred credits represent customer refunds that have not been cashed and are reported as part of deferred revenue. r. Construction Advances and Deposits: Construction deposits are collected by the District to cover the cost of construction projects within the District. Funds in excess of project costs are refunded to the customer. s. Construction Bonding Deposits: The District's policy is to maintain certain bonding requirements for water and sewer construction projects performed within District boundaries to ensure the proper completion of the project. Deposited amounts are refunded upon final approval of the project. t. Prepaid Connection Fees: Connection fees are collected by the District to cover the cost of service connections within the District. Funds in excess of connection costs are refunded to the customer. These amounts are reported as part of deferred revenues. u. Deferred Annexation Revenue: The District collects a fee from newly annexed developments for all residential and commercial properties. This fee is in-lieu of the District's share of the 1% property tax revenue which the District no longer received post-Proposition 13. The fee is a present worth value required to generate a forty year revenue stream equivalent to the lost property tax revenue. It is calculated based on the fair market value estimate of the improved property at the time the fee is collected and based on the current rate of return on the District's investments. The deposit balance accrues interest and provides a source of operational revenue for the District. This deferred revenue source may be used for capital facilities in the future if approved by the Board. v. Water and Sewer Sales: The District recognizes water and sewer service charges based on cycle billings rendered to the customers each month. See independent auditors' report. -23- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): w. Capital Contributions: Capital contributions represent cash and capital asset additions contributed to the District by property owners or real estate developers desiring services that require capital expenditures or capacity commitment. x. Budgetary Policies: The District adopts annual nonappropriated budget for planning, control and evaluation purposes. Budgetary control and evaluation are affected by comparisons of actual revenues and expenses with planned revenues and expenses for the period. Encumbrance accounting is not used to account for commitments related to unperformed contracts for construction and services. y. Use of Estimates: The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, include amounts that are based on management's best estimates and judgments. Accordingly, actual results could differ from the estimates. z. Prior Year Data: Selected information regarding the prior year has been included in the accompanying financial statements. This information has been included for comparison purposes only and does not represent a complete presentation in accordance with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the District's prior year financial statements, from which this selected financial data was derived. See independent auditors' report. -24- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS: Cash and Investments: Cash and investments as of June 30, 2011 are reported in the accompanying combining schedule of net assets as follows: Water Sewer Total Unrestricted Current Assets: Cash and cash equivalents S 9,240,812 S 1,994,203 S 11,235,015 Restricted Assets: Cash and cash equivalents 18,750,493 - 18,750,493 Investments 2,143,130 - 2,143,130 Total Cash and Investments S 30,134,435 S 1,994,203 S 32,128,638 Cash and investments as of June 30, 2011 consisted of the following: Water Sewer Total Cash on hand S 1,200 S - S 1,200 Deposits with financial institutions 708,637 252,563 961,200 Escrow deposits 109,737 - 109,737 Investments 29,314,861 1,741,640 31,056,501 Total Cash and Investments S 30,134,435 S 1,994,203 S 32,128,638 See independent auditors' report. - 25 - YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by the California Government Code and the District's Investment Policy: The table below identifies the investment types that are authorized for the District by the California Government Code (or the District's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District's investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District's investment policy. Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio * in One Issuer Bank or Savings and Loans 5 years None None Local Agency Investment Fund (LAIF) N/A None S 10 million Orange County Commingled Investment Pool N/A None S 10 million California Asset Management Program N/A None None United States Treasury Bills, Notes and Bonds 5 years None None United States Government Sponsored Agency Securities 5 years 50% None Corporate Bonds 5 years 30% None Bankers Acceptances 180 days 10% None Commercial Paper 270 days 25% None Ca1TRUST Investment Pool N/A N/A S10 million Money Market Funds N/A 20% None * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. At June 30, 2011, the District's investment in CalTRUST of 523,265,811 exceeded the limit of S 10 million authorized by the investment policy N/A - Not Applicable See independent auditors' report. -26- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by Debt Agreements: Investments of debt proceeds held by bond trustees are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustees. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of risk. Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity Allowed in One Issuer Cash None None None United States Treasury Bills, Notes and Bonds None None None United States Treasury Obligations None None None Resolution Funding Corp. (REFCORP) None None None Prefunded Municipal Bonds None None None United States Government Sponsored Agency Securities None None None Commercial Paper None None None Money Market Funds None None None Certificates of Deposits None None None Guaranteed Investment Contracts None None None Bankers Acceptance 1 year None None Repurchase Agreements 30 days None None Local Agency Investment Fund None None None Disclosures Relating to Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity as necessary to provide the cash flow and liquidity needed for operations. See independent auditors' report. -27- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Interest Rate Risk (Continued): Information about the sensitivity of the fair values of the District's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the District's investments by maturity as of June 30, 2011. Remaining Maturity (in Months) 12 Months Investment Type or Less Ca1TRUST Investment Pool S 23,265,811 Held by bond trustee: United States Government Sponsored Agency Securities 2,143,129 Money market funds 5,647,561 S 31,056,501 Disclosures Relating to Credit Risk: Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented in the following table are the minimum rating required by (where applicable) the California Government Code, the District's investment policy, or debt agreements, and the actual Standard and Poor's credit rating as of June 30, 2011 for each investment type. Minimum Legal Not Investment Type Ratin4 Total Rated AAA AAI CalTRUST Investment Pool N/A S 23,265,811 S 20,771,146 S - S 2,494,665 Held by bond trustee: United States Government Sponsored Agency Securities N/A 2,143,129 - 2,143,129 - Money market funds A 5,647,561 5,647,561 - - S 31.056.501 S 26,418.707 S 2.143.129 S 2,494.665 Subsequent to June 30, 2011, Standard and Poor's reduced the rating of the United States Government Sponsored Agency Securities from AAA to AA+. See independent auditors' report. -28- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS (CONTINUED): Concentration of Credit Risk: The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Custodial Credit Risk: Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the District will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, the District will not be able to recover the value of its investment or collateral securities that are in the possession of another party. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools (such as LAIF). The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. The District had deposits with bank balances of 51,273,849 as of June 30, 2011. Of the bank balances, up to S677,874 are federally insured and the remaining balance is collateralized in accordance with the Code; however, the collateralized securities are not held in the District's name. See independent auditors' report. -29- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 2. CASH AND INVESTMENTS (CONTINUED): Investment in Ca1TRUST Investment Pool: Ca1TRUST is a Joint Powers Agency Authority created by local public agencies to provide a convenient method for local public agencies to pool their assets for investment purposes. Ca1TRUST is governed by a Board of Trustees made up of experienced local agency treasurers and investment officers. The Board sets overall policies for the program and selects and supervises the activities of the investment manager and other agents. CalTRUST maintains and administers four pooled accounts within the program: Money Market, Short-Term, Medium-Term and Long-Tenn. The Money Market account permits daily transactions, with same-day liquidity (provided redemption requests are received by 1:00 p.m. Pacific time), with no limit on the amount of funds that may be invested. The Short-Term account permits an unlimited number of transactions per month (with prior day notice), with no limit on the amount of funds that may be invested. The Medium- and Long-Term accounts permit investments, withdrawals and transfers once per month, with five days advance notice. All CalTRUST accounts comply with the limits and restrictions placed on local agency investments by the California Government Code. Ca1TRUST imposes a S250,000 minimum investment; however, there is no maximum limit. The fair value of the District's investment in this pool is reported in the accompanying financial statements at amounts based upon the District's percentage interest of the fair value provided by CalTRUST for the Ca1TRUST accounts (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by CalTRUST. 3. RESTRICTED ASSETS: Restricted assets were provided by, and are to be used for the following as of June 30, 2011 and 2010: Source Use 2011 2010 Custodial receipts Custodial costs S 109,737 S 1,282,379 Bond proceeds, taxes, Construction of capital assessments and interest assets expansion 20,784,381 25,626,570 S 20,894,118 S 26,908,949 See independent auditors' report. -30- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 4. CAPITAL ASSETS: Changes in capital assets for the year ended June 30, 2011 is as follows: Balance Balance Rme 30, 2010 Additions Deletions June 30, 2011 Capital assets, not being depreciated: Land, mineral and water rights S 347,490 S - S - S 347,490 Construction in progress 23,667,344 6,125,312 (24,916,758) 4,875,898 Total capital assets, not being depreciated 24,014,834 6,125,312 (24,916,758) 5,223,388 Capital assets, being depreciated: Source of supply 5,721,883 309,114 (4,116) 6,026,881 Pumping plant 16,867,820 801,219 (6,500) 17,662,539 Water treatment plant 2,623,881 123,924 - 2,747,805 Transmission and distribution plant 163,291,245 22,496,269 (146,433) 185,641,081 General plant 18,483,331 1,768,270 (97,071) 20,154,530 Total capital assets, being depreciated 206,988,160 25,498,796 (254,120) 232,232,836 Less accumulated depreciation for: Source of supply (1,517,665) (137,465) 4,116 (1,651,014) Pumping plant (3,814,769) (605,508) 5,193 (4,415,084) Water treatment plant (816,366) (125,857) - (942,223) Transmission and distribution plant (39,266,907) (3,598,042) 31,889 (42,835,060) General plant (5,265,138) (812,988) 97,071 (5,981,055) Total accumulated depreciation (50,680,845) (5,279,860) 138,269 (55,822,436) Total capital assets, being depreciated, net 156,307,315 20,218,936 (115,851) 176,410,400 Total capital assets, net S 180.322.149 S 26.344.248 S(25.032.609) S 181.633.788 Depreciation expense for the depreciable capital assets was 55,279,860 in 2011. The District has been involved in various construction projects throughout the year. The balance of construction in progress at June 30, 2011 is 54,875,898. See independent auditors' report. -31- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 5. LONG-TERM LIABILITIES: Changes in long-term liabilities for the year ended June 30, 2011 were as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Certificates of Participation: 2003 Revenue Certificates of Participation S 9,425,000 S - S (225,000) S 9,200,000 S 235,000 2008 Revemie Certificates of Participation 34,035,000 - (630,000) 33,405,000 655,000 Subtotal 43,460,000 - (855,000) 42,605,000 890,000 Add (Less): Discount (125,851) - 5,433 (120,418) - Prelnlnnl 730,955 - (26,420) 704,535 - Total Certificates of Participation 44,065,104 - (875,987) 43,189,117 890,000 Compensated absences 1,050,888 518,006 (561,701) 1,007,193 251,798 Other post-employment liability 236,483 189,147 (303,565) 122,065 - Total S 45.352.475 S 707.153 S (1.741.253) S 44.318.375 S 1.141.798 2003 Revenue Certificates of Participation: In August 2003, the Public Financing Corporation issued S 10,645,000 2003 Revenue Certificates of Participation for the purpose of financing the Highland Reservoir Renovation and Richfield-Phase 3 Renovation Project. The Certificates bear interest ranging from 2% to 5%, payable semiannually on April 1 and October 1, commencing April 1, 2004. The Term Certificates of 52,295,000 are due on October 1, 2028 and the Term Certificates of 52,930,000 are due on October 1, 2033. A surety bond for S679,137 was issued by Financial Guaranty Insurance Company (FGIC). FGIC is not rated by Moody's Investors' Service, Standard & Poor's or Fitch Investors' Service. At June 30, 2011 the 2003 Certificates outstanding balance was 59,200,000. The Certificates are obligations of the Corporation payable solely from payments received from the District pursuant to the Installment Purchase Agreement, by and between the District and the Corporation. The Installment Purchase Agreement requires the District to fix, prescribe and collect rates and charges for the water service which will be at least sufficient to yield during each fiscal year net revenues equal to 110% of the debt service for such fiscal year. For fiscal year 2011, the net revenues equal to 183% of the debt service. See independent auditors' report. -32- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 5. LONG-TERM LIABILITIES (CONTINUED): 2003 Revenue Certificates of Participation (Continued): The annual debt service requirements for the 2003 Revenue Certificates of Participation outstanding at June 30, 2011 are as follows: Year Ending Principal Interest Total 2012 S 235,000 S 437,382 S 672,382 2013 245,000 428,076 673,076 2014 255,000 418,076 673,076 2015 265,000 407,411 672,411 2016 275,000 395,934 670,934 2017 - 2021 1,570,000 1,778,900 3,348,900 2022 - 2026 1,980,000 1,350,750 3,330,750 2027 - 2031 2,530,000 789,500 3,319,500 2032 - 2034 1,845,000 141,375 1,986,375 Subtotal 9,200,000 6,147,404 15,347,404 Less: Discount (120,418) - (120,418) Total S 9,079,582 S 6,147,404 S 15,226,986 2008 Revenue Certificates of Participation: In February 2008, the District issued 534,995,000 2008 Revenue Certificates of Participation for the purpose of financing the 2008 Capital Improvement Projects. The Certificates bear interest ranging from 4% to 5%, payable semiannually on April 1 and October 1, commencing October 1, 2008. The Term Certificates of S10,885,000 are due on October 1, 2038. The legal reserve requirement is 52,147,096. At June 30, 2011 the reserve fund had a balance of 52,145,021. At June 30, 2011 the 2008 Certificates outstanding balance was 533,405,000. The Certificates are obligations of the Corporation payable solely from payments received from the District pursuant to the Installment Purchase Agreement, by and between the District and the Corporation. The Installment Purchase Agreement requires the District to fix, prescribe and collect rates and charges for the water service which will be at least sufficient to yield during each fiscal year net revenues equal to 110% of the debt service for such fiscal year. For fiscal year 2011, the net revenues equal to 183% of the debt service. See independent auditors' report. -33- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 5. LONG-TERM LIABILITIES (CONTINUED): 2008 Revenue Certificates of Participation (Continued): The annual debt service requirements for the 2008 Revenue Certificates of Participation outstanding at June 30, 2011 are as follows: Year Ending Principal Interest Total 2012 S 655,000 S 1,477,796 S 2,132,796 2013 680,000 1,451,096 2,131,096 2014 705,000 1,423,396 2,128,396 2015 735,000 1,394,596 2,129,596 2016 765,000 1,364,596 2,129,596 2017 - 2021 4,305,000 6,329,580 10,634,580 2022 - 2026 5,245,000 5,374,122 10,619,122 2027 - 2031 6,435,000 4,136,313 10,571,313 2032 - 2036 8,040,000 2,487,363 10,527,363 2037 - 2039 5,840,000 447,250 6,287,250 Subtotal 33,405,000 25,886,108 59,291,108 Add: Premium 704,535 - 704,535 Total S 34,109.535 S 25,886,108 S 59,995,643 Compensated Absences: Compensated absences are comprised of unpaid vacation leave, sick leave and compensating time off which are accrued as earned. (See Note lp). 6. OTHER POST EMPLOYMENT BENEFITS (OPEB): a. Plan Description: The District, through a single employer defined benefit plan, provides post-employment health care benefits. Specifically, the District provides health (medical, dental and vision) insurance for its retired employees and directors, their dependent spouses (if married and covered on the District's plan at time of retirement), or survivors in accordance with Board resolutions. Medical coverage is provided for retired employees who are age 50 or over and who have a minimum of 5 years service with the District. The District pays 100% of the premium for the retiree and two-thirds of the premium amount for eligible dependents accrued at a rate of one year for every three years of service. Two-thirds of the premium amount of medical coverage is provided for the surviving spouse of retired employees for the remaining vested period. The plan does not provide a publicly available financial report. See independent auditors' report. -34- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 6. OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED): b. Funding Policy: The contribution requirements of plan members and the District are established and may be amended by the District, District's Board of Directors, and/or the employee associations. Currently, contributions are not required from plan members. The District is currently funding this OPEB obligation on a pay-as-you-go basis. For the year ended June 30, 2011, the District paid S140,747 in health care costs for its retirees and their covered dependents and made a contribution of 5162,818. c. Annual OPEB Cost and Net OPEB Obligation: The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded liabilities of the plan over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Retiree Health Plan: Annual required contribution S 177,323 Interest on net OPEB obligation 11,824 Adjustment to annual required contribution - Annual OPEB cost (expense) 189,147 Actual contributions made (303,565) Decrease in net OPEB obligation (114,418) Net OPEB Obligation - beginning of year 236,483 Net OPEB Obligation - end of year S 122,065 The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the years ended June 30, 2011, 2010 and 2009 were as follows: Percentage Fiscal Annual of Annual Net Year OPEB OPEB Costs OPEB Ended Cost Contributed Obligation 6/30/09 S 217,979 44.64% S 120,774 6/30/10 224,018 48.35% 236,483 6/30/11 189,147 160.49% 122,065 See independent auditors' report. -35- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 6. OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED): d. Funded Status and Funding Progress: As of March 1, 2011, the most recent actuarial valuation date, the plan was zero percent funded. The actuarial accrued liability for benefits was S1,594,667, and the actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability (UAAL) of 51,594,667. The covered payroll (annual payroll of active employees covered by the plan) was 55,044,860 and the ratio of the UAAL to the covered payroll was 31.61%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about rates of employee turnover, retirement, mortality, as well as economic assumptions regarding claim costs per retiree, healthcare inflation and interest rates. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. e. Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the March 1, 2011 actuarial investment valuation, the entry age normal cost method was used. The actuarial assumptions included an inflation rate of 3.0% per annum, an investment return of 7.6% per annum, a projected salary increase of 3.0% per annum and a health inflation rate of 4.0% per annum. The District is using the level percentage of payroll method to allocate amortization cost by year and a closed 30 year period for the initial unfunded actuarial accrued liability. See independent auditors' report. -36- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 7. DEFINED BENEFIT PENSION PLAN: a. Plan Description: The District participates in the 2.0% at 55 Risk Pool of the California Employees Retirement System (CalPERS), a cost sharing multiple-employer defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by State statute and District ordinance. Copies of CalPERS' annual financial report may be obtained from their Executive Office located at, 400 P Street, Sacramento, CA 95814. b. Funding Policy: The contribution rate for plan members in the CalPERS 2.0% at 55 Risk Pool Retirement Plan is 7% of their annual covered salary. The District makes these contributions required of District employees on their behalf and for their account. Also, the District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The required employer contribution rates for fiscal year 2011, 2010 and 2009 were 10.461%, 10.062% and 9.886%, respectively. The contribution requirements of the plan members are established by State statute, and the employer contribution rate is established and may be amended by CalPERS. For fiscal years 2011, 2010 and 2009 the District's annual employer's contributions were 5527,743, 5492,476 and S482,987, respectively, for CalPERS and was equal to the District's required and actual contributions for each year. 8. NET ASSETS INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT AND ESTRICTED NET ASSETS: The balance of net investment in capital assets consisted of the following as of June 30, 2011 and 2010: 2011 2010 Capital assets, net of accumulated depreciation S 181,633,788 S 180,322,149 Certificates of participation - current (890,000) (855,000) Certificates of participation - long-term (42,299,117) (43,210,104) Unspent debt proceeds 7,790,691 10,620,077 Net assets invested in capital assets, net of related debt S 146,235362 S 146,877,122 See independent auditors' report. -37- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 9. RISK MANAGEMENT: The District is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. In an effort to manage its risk exposure, the District is a member of the Association of California Water Agencies Joint Powers Insurance Authority (the Authority). The Authority is a risk-pooling self-insurance authority, created under provisions of California Government Code Sections 6500 et. seq. The purpose of the Authority is to arrange and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage. At June 30, 2011, as a member of the Authority, the District participated in the insurance programs as follows: • General and auto liability, public officials and employee's error and omissions: Total risk financing self-insurance limits of S1,000,000, combined single limit at S1,000,000 per occurrence. The Authority purchases additional excess coverage layers: S59 million for general, auto and public officials liability, which increases the limits on the insurance coverage noted above. • Employee dishonesty coverage up to 5100,000 per loss includes public employee dishonesty, forgery or alteration and theft, disappearance and destruction coverages, subject to a S 1,000 deductible per occurrence. • Property loss is paid at the replacement cost for property on file, if replaced within two years after the loss, otherwise paid on an actual cash value basis. The District's Retrospective Allocation Point (deductible) is 525,000 per occurrence. The Authority is self-insured for the first 550,000, and purchases excess coverage up to 5100 million, subject to a S1,000 deductible, except for a 5500 deductible on vehicles. • Boiler and machinery coverage for the replacement cost up to S 100 million per occurrence, subject to various deductibles depending on the type of equipment. • Workers' compensation insurance up to California statutory limits for all work related injuries/illnesses covered by California law. Settled claims have not exceeded any of the coverage amounts in any of the last three fiscal years and there were no reductions in the District's insurance coverage during the years ended 2011, 2010 and 2009. Liabilities are recorded when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated net of the respective insurance coverage. Liabilities include an amount for claims that have been incurred but not reported (IBNR). There were no IBNR claims payable as of June 30, 2011, 2010 and 2009. See independent auditors' report. -38- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 10. COMMITMENTS AND CONTINGENCIES: Construction Contracts: The District has a variety of agreements with private parties relating to the installation, improvement or modification of water facilities and distribution systems within its service area. The financing of such construction contracts is being provided primarily from the District's replacement reserves and advances for construction. The District has committed to approximately S6,302,697 of open construction contracts as of June 30, 2011. Construction contracts include: Total Construction Balance Approved Costs to Project Name Contract to Date Complete Elk Mountain site improvement S 19,000 S 16,000 S 3,000 Well No. 20 96,335 67,081 29,254 Well No. 20 179,467 18,420 161,047 Highland BPS upgrade 800,253 655,000 145,253 Highland BPS upgrade 4,525,800 1,097,375 3,428,425 YL Blvd Booster Station 423,000 143,000 280,000 Computerized maintenance and management system 248,626 195,526 53,100 South and West well project 34,180 - 34,180 Ohio Street/Oriente Drive pipeline replacement 174,880 146,292 28,588 Ohio Street/Oriente Drive pipeline replacement 1,389,089 - 1,389,089 Ohio Street/Oriente Drive pipeline replacement 43,798 - 43,798 2010 pipeline replacement project 238,771 99,808 138,963 2010 pipeline replacement project 568,000 - 568,000 S 8,741.199 S 2,438.502 S 6,302.697 Litigation: In November 2008, a series of wildfires, known as the Freeway Complex Fires, spread across the communities of Corona, Chino Hills, Yorba Linda, Anaheim Hills, and Brea in Orange and Riverside Counties. The fires also spread to Diamond Bar in Los Angeles County. The fires burned about 30,305 acres, destroyed about 200 structures, and forced the evacuations of about 7,000 homes. There are claims being asserted against the District by homeowners and others damaged by the fires. As a member of ACWA JPIA (see Note 9), these claims are currently being handled by the JPIA's legal counsel. The District's management believes the ultimate outcome of these claims will not exceed the District's insurance coverage amounts. See independent auditors' report. -39- YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 11. PROPOSITION IA BORROWINGS BY THE STATE OF CALIFORNIA: Under the provisions of Proposition IA and as part of the 2009-2010 budget package passed by the California state legislature on July 28, 2009, the State of California borrowed 8% of the amount of property tax revenue, including those property taxes associated with the in-lieu motor vehicle license fee, the triple flip in the lieu sales tax, and supplemental property tax, apportioned to cities, counties and special districts (excluding redevelopment agencies). The state is required to repay this borrowing plus interest by June 30, 2013. After repayment of this initial borrowing, the California legislature may consider only one additional borrowing within a ten-year period. The amount of this borrowing pertaining to the District was S 102,192. The borrowing by the State of California was recognized as a receivable in the accompanying financial statements. It is reported as part of accounts receivable - property taxes. 12. PRE-ANNEXATION AGREEMENT: In June 2008, the District entered into a pre-annexation agreement with Placentia Yorba Linda Unified School District (PYLUSD) whereby the District intends to provide access to water and sewer service to the PYLUSD for the benefit of a property that PYLUSD wishes to develop for public high school use. Per the agreement, PYLUSD agreed to fund additional District reservoir improvements equal to the cost of constructing additional 450,000 gallons of reservoir storage. The cost for the additional water storage was estimated to be approximately S1.50 per gallon, resulting in a total approximate cost of S675,000. PYLUSD paid the District 532,500 within 30 days of execution of the agreement. The remaining balance is payable over a nine-year period at an annual interest rate of 4%. Annual payments of 581,704, which include principal and interest, started in the fiscal year ended June 30, 2010. The remaining outstanding balance at June 30, 2011 was S490,395. As of June 30, 2011 the District reservoir improvements are still in progress. The District has not yet completed its obligation in its entirety and has not earned the rights to the entire amount. Therefore, the outstanding balance is not recorded in the District's books. 13. RESTATEMENT OF NET ASSETS: Net assets at July 1, 2010 were restated by 5410,247 from 5154,567,323 to 5154,977,570 to reclassify service fees for existing trunk lines received in prior years from a deposit liability to revenues. 14. SUBSEQUENT EVENT: Effective July 1, 2011, all assets, liabilities, contractual rights and obligations, and any other real or personal property or other interest whatsoever of the City of Yorba Linda related to the Sewer Collection Facilities was transferred to the District. In exchange, the District agreed to assume the obligation and responsibility to provide sewer service and maintenance to the East Yorba Linda Area. See independent auditors' report. -40- REQUIRED SUPPLEMENTARY INFORMATION OTHER POST-EMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS -41- YORBA LINDA WATER DISTRICT REQUIRED SUPPLEMENTARY INFORMATION For the year ended June 30, 2011 OTHER POST-EMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS Retiree Health Plan Unfunded Actuarial Actuarial UAAL as a Accrued Actuarial Value Accrued Annual Percentage Actuarial Liability of Assets Liability Funded Covered of Covered Valuation (AAL) (AVA) (UAAL) Ratio Payroll Payroll Date (a) (b) (a) - (b) (b)/(a) (c) [(a)-(b)]/(c) 06/01/09 S 1,740,127 S - S 1,740,127 0.00% S 4,983,653 34.92% 03101111 S 1,594,667 S - S 1,594,667 0.00% S 5,044,860 31.61% See independent auditors' report and notes to basic financial statements. -42- SUPPLEMENTARY INFORMATION -43- YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF NET ASSETS Junc 30, 2011 ASSETS Water Sewer Totals CURRENT ASSETS: UNRESTRICTED ASSETS: Cash and cash cquivalcnts $ 9,240,812 $ 1,994,203 $ 11,235,015 Accounts rcccivable - water and sewer services 3,458,899 183,136 3,642,035 Accounts rcccivable - property taxes 114,091 858 114,949 Accrued intcrestrcccivablc 20,269 1,780 22,049 Prcpaid cxpcnscs and deposits 246,919 - 246,919 Inventory 233,613 233,613 TOTAL UNRESTRICTED ASSETS 13,314,603 2,179,977 15,494,580 RESTRICTED ASSETS: Cash and cash cquivalcnts 18,750,493 - 18,750,493 Investment 2,143,130 2,143,130 Accrued intcrest rcccivablc 495 495 TOTAL RESTRICTED ASSETS 20,894,118 - 20,894,118 TOTAL CURRENT ASSETS 34,208,721 2,179,977 36,388,698 NONCURRENT ASSETS: Bond issuance costs 755,728 - 755,728 Capital assets: Non-depreciable 4,993,359 230,029 5,223,388 Dcpreciablc, nct of accumulated depreciation 152,656,383 23,754,017 176,410,400 TOTAL NONCURRENT ASSETS 158,405,470 23,984,046 182,389,516 TOTAL ASSETS 192,614,191 26,164,023 218,778,214 Scc independent auditors' report. -44- YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF NET ASSETS (CONTINUED) June 30, 2011 LIABILITIES Water Sewer Totals CURRENT LIABILITIES: PAYABLE FROM UNRESTRICTED CURRENT ASSETS: Accounts payable $ 4,382,882 $ 123,948 $ 4,506,830 Accrued expenses 115,056 15,250 130,306 Compensated absences 234,543 17255 251,798 Customer and construction deposits 226,534 54,622 281,156 Deferred revenue 416,525 - 416,525 TOTAL PAYABLE FROM UNRESTRICTED CURRENT ASSETS 5,375,540 211,075 5,586,615 PAYABLE FROM RESTRICTED ASSETS: Accrued interest payable 483,171 - 483,171 Certificates of Participation - current portion 890,000 890,000 TOTAL PAYABLE FROM RESTRICTED ASSETS 1,373,171 - 1,373,171 TOTAL CURRENT LIABILITIES 6,748,711 211,075 6,959,786 LONG-TERM LIABILITIES (LESS CURRENT PORTION): Deferred annexation revenue 14,406,176 - 14,406,176 Compensated absences 703,630 51,765 755,395 Other post-employment benefit (OPEB) liability 111,255 10,810 122,065 Certificates of Participation 42,299, t 17 - 42,299,117 TOTAL LONG-TERM LIABILITIES (LESS CURRENT PORTION) 57,520,178 62,575 57,582,753 TOTAL LIABILITIES 64,268,889 273,650 64,542,539 NET ASSETS: Invested in capital assets, net of related debt 122,251,316 23,984,046 146,235,362 Restricted for capital projects 12,620,256 - 12,620,256 Unrestricted (6,526,270) 1,906,327 (4,619,943) TOTAL NET ASSETS $ 128,345302 $ 25,890,373 $ 154,235,675 See independent auditors' report. -45- YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the year ended Junc 30, 2011 Water Sewer Totals OPERATING REVENUES: Watcr sales $ 22,686,251 $ - $ 22,686,251 Scwcr revenues - 1,274,579 1,274,579 Othcr operating rcvcnucs 981,471 54,074 1,035,545 TOTAL OPERATING REVENUES 23,667,722 1,328,653 24,996,375 OPERATING EXPENSES: Variable water costs 11,267,615 691 11,268,306 Personnel serviccs 6,114,939 788,056 6,902,995 Supplies and services 3,160,419 525,914 3,686,333 Depreciation and amortization 4,669,579 610,281 5,279,860 TOTAL OPERATING EXPENSES 25,212,552 1,924,942 27,137,494 OPERATING LOSS (1,544,830) (596,289) (2,141,119) NONOPERATING REVENUES (EXPENSES): Property taxes 1,258,769 - 1,258,769 Invcst rent income 252,522 21,630 274,152 Interest cxpcnsc (1,171,439) (1,064) (1,172,503) Othcr nonopcrating rcvcnucs 732,638 6,424 739,062 Other nonopcrating expenses (291,195) (115,380) (406,575) TOTAL NONOPERATING REVENUES (EXPENSES) 781,295 (88,390) 692,905 NET LOSS BEFORE CAPITAL CONTRIBUTIONS (763,535) (684,679) (1,448,214) CAPITAL CONTRIBUTIONS 364,564 341,755 706,319 CHANGES IN NET ASSETS (398,971) (342,924) (741,895) NET ASSETS - BEGINNING OF YEAR, AS RESTATED 128,744,273 26,233,297 154,977,570 NET ASSETS - END OF YEAR $ 128,345,302 $ 25,890,373 $ 154,235,675 Scc independent auditors' report. -46- YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF CASH FLOWS For the year ended June 30, 2011 Water Sewer Totals CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 23,932,171 $ 1,325,461 $ 25,257,632 Cash payments to employees for salaries and wages (6,346,307) (710,222) (7,056,529) Cash payments to suppliers of goods and services (15,487,283) (391,815) (15,879,098) Other revenue 244,850 200 245,050 Other expenses (148,850) (114,931) (263,781) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,194,581 108,693 2,303,274 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Proceeds from property taxes and assessments 1,265,653 - 1,265,653 NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES 1,265,653 - 1,265,653 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from annexation fees and capital contributions 751,715 270,864 1,022,579 Acquisition and construction of capital assets (5,351,531) (248,214) (5,599,745) Proceeds from sales of capital assets 13,678 - 13,678 Principal paid on long-term liability (855,000) (855,000) Interest paid on long-term liability (1,959,983) (1,064) (1,961,047) NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES (7,401,121) 21,586 (7,379,535) CASH FLOWS FROM INVESTING ACTIVITIES: Sale/purchase of investments, net (2,079,477) 6,224 (2,073,253) Interest and investment earnings 253,876 21,847 275,723 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,825,601) 28,071 (1,797,530) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,766,488) 158,350 (5,608,138) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 33,757,793 1,835,853 35,593,646 CASH AND CASH EQUIVALENTS - END OF YEAR $ 27,991,305 $ 1,994,203 $ 29,985,508 See independent auditors' report. (Continued) -47- YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF CASH FLOWS (CONTINUED) For the year ended June 30, 2011 Water Sewer Totals RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss $ (1,544,830) $ (596,289) $ (2,141,119) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 4,669,579 610,281 5,279,860 Other revenues 244,850 200 245,050 Other expenses (148,850) (114,931) (263,781) Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 283,368 (1,848) 281,520 Inventory (25) - (25) Prepaid expenses and other deposits 28,169 (2,064) 26,105 Increase (decrease) in liabilities: Accounts payable and accrued expenses (1,164,977) 134,959 (1,030,018) Accrued salaries and wages (10,671) 15,250 4,579 Accrued other post-employment benefits (OPEB) liability (103,945) (10,473) (114,418) Accrued compensated absences (112,715) 69,020 (43,695) Customer and other deposits 54,628 4,588 59,216 Total adjustments 3,739,411 704,982 4,444,393 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,194,581 $ 108,693 $ 2,303,274 CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION: Unrestricted $ 9,240,812 $ 1,994,203 $ 11,235,015 Restricted 18,750,493 - 18,750,493 TOTAL CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION $ 27,991,305 $ 1,994,203 $ 29,985,508 NONCASH INVESTING, CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization related to long-tens debt $ 20,988 $ - $ 20,988 Capital contributions $ 364,564 $ 341,755 $ 706,319 See independent auditors' report. - 48 - YORBA LINDA WATER DISTRICT SCHEDULE OF OPERATING EXPENSES BY COST CENTER AND NATURE OF EXPENSES FOR WATER AND SEWER For the year ended Junc 30, 2011 Water Sewer Totals OPERATING EXPENSES: Variable Water Costs: Imported water $ 7,734,559 $ $ 7,734,559 OCWD replenishment assessment 2,212,161 - 2,212,161 Fucl and power/pumping 787,444 691 788,135 MWD connection charge 533,451 - 533,451 Total Variablc Watcr Costs 11,267,615 691 11,268,306 Pcrsonncl Services: Unit salarics 4,422,739 541,270 4,964,009 Fringc benefits 1,635,800 242,425 1,878,225 Director's fees 56,400 4,361 60,761 Total Pcrsonncl Services 6,114,939 788,056 6,902,995 Supplies and Services: Board elections 32,485 3,213 35,698 Conununications 246,115 24,672 270,787 Contractual services 718,383 63,169 781,552 Data processing 118,175 11,688 129,863 District activities 13,478 1333 14,811 Ducs and memberships 26,899 2,933 29,832 Fccs and permits 57,982 5,911 63,893 Insurance 201,974 19,975 221,949 Maintenance 237,689 42,419 280,108 Matcrials 432,441 20,890 453,331 Noncapital cquipnncnt 87,296 22,534 109,830 Office expense 25,485 2,525 28,010 Professional services 557,721 224,786 781507 Training 20,976 3,293 24,269 Travcl and conferences 19,417 1,949 21,366 Uncollcctiblc accounts 18,919 1,344 20,263 Utilities 83,603 8,250 91,853 Vehicle cxpcnsc 261,381 65,030 326,411 Total Supplics and Services 3,160,419 525,914 3,686,333 TOTAL OPERATING EXPENSES $ 20,542,973 $ 1,314,661 $ 21,857,634 Scc independent auditors' report. -49- YORBA LINDA WATER DISTRICT SCHEDULE OF CAPITAL ASSETS For the year ended June 30, 2011 Water Sewer Totals Land, Mineral and Water Rights: Land $ 138,629 $ $ 138,629 Water rights 86,300 86,300 Mineral rights 63,650 63,650 Land rights and casements 385 58,526 58,911 Total Land, Mineral and Water Rights 288,964 58,526 347,490 Source of Supply: Wells 5,460,513 - 5,460,513 MWD connection 564,368 2,000 566,368 Total Source of Supply 6,024,881 2,000 6,026,881 Pumping Plant: Structures and improvements 9,529,805 - 9,529,805 Equipment 7,857,374 275,360 8,132,734 Total Pumping Plant 17,387,179 275,360 17,662,539 Water Treatment Plant: Structures and improvements 1,473,626 - 1,473,626 Equipment 1,274,179 - 1,274,179 Total Water Treatment Plant 2,747,805 - 2,747,805 Transmission and Distribution Plant: Mains 68,811,395 28,250,714 97,062,109 Reservoirs and tanks 61,484,568 - 61,484,568 Service and meter installation 5,447,665 2,389,115 7,836,780 Fire hydrants 6,252,285 - 6,252,285 Meters 8,738,693 8,738,693 Fire mains 717,746 717,746 Structures and improvements 2,195,750 2,195,750 Control system 1,353,150 - 1,353,150 Total Transmission and Distribution Plant 155,001,252 30,639,829 185,641,081 General Plant: Structures and improvements 13,403,182 - 13,403,182 Transportation equipment 1,532,041 979,744 2,511,785 Power operated equipment 549,710 - 549,710 Communication equipment 565,557 - 565,557 Computer equipment 1,608,857 205,242 1,814,099 Office furniture 1,188,942 - 1,188,942 Tools, shops and garage equipment 67,716 67,716 Other 4,650 4,650 Store equipment 48,889 - 48,889 Total General Plant 18,969,544 1,184,986 20,154,530 Construction in Progress 4,704,395 171,503 4,875,898 Total Capital Assets $ 205,124,020 $ 32,332,204 $ 237,456,224 See independent auditors' report. -50- STATISTICAL SECTION -51- This page intentionally left blank -52- YORBA LINDA WATER DISTRICT DESCRIPTION OF STATISTICAL SECTION CONTENTS June 30, 2011 This part of the District's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements and the note disclosures say about the government's overall financial health. Contents: Pages Financial Trends these schedules contain trend information to help the reader understand how the District's financial performance and well-being have changed over time. 54 Revenue Capacity these schedules contain information to help the reader assess the District's most significant local revenue source, the water sales. 56 Debt Capacity these schedules present information to help the reader assess the affordability of the District's current levels of outstanding debt and the District's ability to issue additional debt in the future. 58 Demographic and Economic Information these schedules offer demographic and economic indicators to help the reader understand the environment within which the District's financial activities take place. 60 Operating Information these schedules contain service and infrastructure data to help the reader understand how the information in the District's financial report relates to the services the District provides and the activities it performs. 62 - 53 - Yorba Linda Water District Changes in Net Assets Last Ten Fiscal Years Fiscal Year Changes in Net Assets: 2011 2010 2009 2008 Operating Rcvcnucs Watcr Salcs $ 22,686,251 $ 21,806,164 $ 19,626,738 $ 19,470,109 Scwcr Rcvcnucs 1,274,579 1,275,980 1,259,723 1247,907 Othcr Operating Rcvcnucs 1,035,545 1,102,143 439,302 380,175 Operating Expenses Variable Watcr Costs 11,268,306 10,688318 10,859,328 10,516,507 Personnel Services 6,902,995 6,677,757 6,498,959 5,751,384 Supplies and Sciviccs 3,686,333 3,576,147 4,151,058 4,361,512 Depreciation 5,279,860 5,153,891 4,167,958 3,571726 Operating Loss (2,141,119) (1,911,826) (4,351,540) (3,103,938) Nonopcrating Revenues (Expenses) Property Taxes 1,258,769 1,269,441 1,283,521 1,263,656 Invcstmcntlncomc 274,152 244,857 689,108 1,508,193 IntcrestExpcnsc (1,172,503) (1,170,498) (1,469,925) (824,387) Other Nonopcrating Rcvcnucs 739,062 589,201 479,911 270,429 Other Nonopcrating Expenses (406,575) (151,300) (177,553) (133,604) Total Nonopcrating Rcvcnucs (Expenses) 692,905 781,701 805,062 2,084,287 Nct Income (Loss) Before Capital Contributions (1,448,214) (1,130,125) (3,546,478) (1,019,651) Capital Contributions 706,319 6,278,135 4,363,527 4,100,051 Changes in Net Assets $ (741,895) $ 5,148,010 $ 817,049 $ 3,080,400 Net Assets by Component: Invested in Capital Assets, Net of Related Dcbt $ 146,235,362 $ 146,877,122 $ 141,514,024 $ 139,677,663 Restricted 12,620,256 15,797,432 14,063,802 14,523,549 Unrestricted (4,619,943) (7,696,984) (6,158,513) (4,898,647) Total Net Assets $ 154,235,675 $ 154,977,570 $ 149,419,313 $ 149,301565 Sourcc: YLWD Audited Financial Statements (Continued) -54- Fiscal Year 2007 2006 2005 2004 2003 2002 $ 18,944,233 $ 17,017,275 $ 14,533,021 $ 14,138,952 $ 12,128,715 $ 12,080,445 806,897 778,275 750,771 763,528 545,119 525,188 393,285 382,917 427,430 385,241 177,966 174,572 10,703,037 8,930,535 7,920,218 8,405,858 7,510,409 7,018,095 5,276,878 4,635,464 4,294,020 3,903,396 3,304,878 2,874,817 3,395,303 2,877,288 2,699,842 2,345,991 2,111,993 1,762,580 3,445,868 2,923,288 2,578,420 2,498,265 2305,286 2,073348 (2,676,671) (1,188,108) (1,781,278) (1,865,789) (2,380,766) (948,635) 1,186,441 335,075 252,663 1,005,859 3,304,314 3,247,591 2,180,067 1,425,663 638,235 342,554 549,093 914,100 (468,087) (472,163) (565,581) (484,895) (214,842) (291,352) 455,067 534,385 416,778 642,358 155,814 277,198 (138,501) (336,649) (179,526) (296,528) (282,039) (311,231) 3,214,987 1,486,311 562,569 1,209,348 3,512,340 3,836,306 538,316 298,203 (1,218,709) (656,441) 1,131,574 2,887,671 6,913,095 26,026,524 6,701,629 2,184,681 11,419,097 1,884,633 $ 7,451,411 $ 26,324,727 $ 5,482,920 $ 1,528,240 $ 12,550,671 $ 4,772,304 $ 121,317,296 $ 106,376,683 $ 84,000,773 $ 74,338,841 $ 80,268,884 $ 67,026,121 23,089,201 22,274,814 23,196,485 25,140,038 16,774,957 16,593,197 1,815,668 10,119,257 5,248,769 7,484,228 8,391,026 9,264,878 $ 146,222,165 $ 138,770,754 $ 112,446,027 $ 106,963,107 $ 105,434,867 $ 92,884,196 -55- Yorba Linda Water District Number of Connections Last Ten Fiscal Years Single Family Multi-Family Commercial/ Direct Rate Fiscal Year Residential Residential Industrial Irrigation (Billing Unit) 2002 19,915 234 1,056 809 $ 1.13 2003 20,383 225 1,050 840 1.33 2004 20,914 225 849 829 1.33 2005 20,773 217 842 803 1.48 2006 21,300 217 847 838 1.57 2007 21,451 228 792 868 1.57 2008 21,580 228 840 857 1.79 2009 21,672 228 831 855 2.52 2010 21,846 228 837 877 2.52 2011 21,701 231 833 879 2.52 NOTE: x $1.48 was approved January 1, 2005 25,000 20,000 - 15,000 ■ Irrigation Industrial 10,000 ■ Residential a Residential 5,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: YLWD Billing System -56- Yorba Linda Water District Ten Largest Customers Current and Nine Years Ago FY 2011 Customer Name Business Type Annual Revenues % of Total 1 City of Yorba Linda Government $ 1,614,372.24 6.46% 2 Placentia Yorba Linda USD Government 289,091.80 1.16% 3 Yorba Linda Villages Homeowner's Assoc. 106,003.75 0.42% 4 Rancho Dominqucz Assoc. Homeowner's Assoc. 99,386.63 0.40% 5 Archstone Apts Apartment Complex 91,111.13 0.36% 6 Cal Water Manufacturer 88,672.44 0.35% 7 Tac West Manufacturer 81,067.98 0.32% 8 Placentia Linda Hospital Hospital 72,837.61 0.29% 9 Advanced Management Apartment Complex 68,314.20 0.27% 10 St Francis of Assisi Private School 66344.50 0.27% $ 1577,202.28 10.31% FY 2002 Customer Name Business Type Annual Revenues % of Total 1 City of Yorba Linda Government $ 1,915,251.67 14.99% 2 Saba Petroleum Manufacturer 175,921.20 1.38% 3 Tac West Inc Manufacturer 98,367.66 0.77% 4 St Francis of Assissi Private School 97,005.47 0.76% 5 Shigcmi Muranaka Nursery Retail 78,760.00 0.62% 7 Placentia Unified School Government 31,609.61 0.25% 6 Sunset Tropicals Nursery Retail 30,968.79 0.24% 8 Costco Warehouse Retail 30,308.28 0.24% 9 Lxccll Circuits Manufacturer 27,839.87 0.22% 10 YL Country Club Private Club 25,743.78 0.20% $ 2,511,776.33 19.65% Sources: City of Yorba Linda CAFR YLWD Billing Department -57- Yorba Linda Water District Ratio of Outstanding Debt Last Ten Fiscal Years Total General Certificates As a Share of Fiscal Obligation of Per Per Personal Year Bonds OCWD Loan Participation Debt Connection Capita Income 2002 $ 5,741169 $ 171,048 $ - $ 5,913,217 $ 267 $ 72 0.10% 2003 3,671,446 149,061 - 3,820,507 170 46 0.05% 2004 1,590,000 - 10,384,239 11,974,239 525 142 0.16% 2005 - 10,000,078 10,000,078 441 119 0.13% 2006 - - 9,873,717 9,873,717 426 115 0.12% 2007 - - 10,540,139 10,540,139 451 122 0.12% 2008 - - 45,502,080 45,502,080 1,932 522 0.50% 2009 - - 44,911,092 44,911,092 1,900 513 0.44% 2010 - - 44,065,104 44,065,104 1,848 499 0.44% 2011 - - 43,189,117 43,189,117 1,827 494 0.46% Composition of Debt $50,000,000 $40,000,000 Participation $30,000,000 - - $20,000,000 - - - ■ OCWD Loan $10,000,000 - - - ® Bonds 61 Debt per Connection $2,500 $2,000 $1,500 $1,000 $500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sourcc: YLWD Audited Financial Statements - 58 - Yorba Linda Water District Debt Coverage Last Ten Fiscal Years Debt Service Fiscal Operating & Net Coverage Year Revenues Maint. Costs Revenues Principal Interest Total Ratio 2002 $ 16,568 $ 11,759 $ 4,809 $ 2,086 $ 305 $ 2,391 2.01 2003 16215 12,873 3,342 2,172 229 2,401 1.39 2004 16,471 14,428 2,043 2,263 148 2,411 0.85 2005 16,178 14,230 1,948 1,760 299 2,059 0.95 2006 19,563 16,009 3,554 200 473 673 5.28 2007 23,036 18,703 4,333 205 469 674 6.43 2008 22,822 19,829 2,993 210 919 1,129 2.65 2009 22,514 20,604 1,910 570 2,051 2,621 0.73 2010 24,417 19,928 4,489 825 1,951 2,776 1.62 2011 25,912 20,845 5,067 855 1,915 2,770 1.83 NOTE: Excludes dcprcciation and debt service payments Source: YLWD Auditcd Financial Statements -59- Yorba Linda Water District Demographics Last Ten Fiscal Years YLWD Personal Income Year Population City of YL Population Personal Income per Capita 2002 70,566 61,362 $ 5,081,187,350 $ 71006 2003 72,080 62,678 6,025,361,496 83,593 2004 73,663 64,055 6,435,285,575 87,361 2005 75,189 65,382 6,699,301,248 89,099 2006 76,817 66,797 7,150,485,256 93,085 2007 78,090 67,904 7,623,582,080 97,626 2008 78,559 68,312 8,179,815,504 104,123 2009 80,209 69,747 9,465,109,914 118,006 2010 81,893 71,211 9,224,696,122 112,643 2011 83,613 72,707 8,990,388,841 107,524 County of Orange Personal Income Year Population Unemployment Rate Personal Income per Capita 2002 2,940,743 5.0% $ 111,750,294 $ 38,001 2003 1983,731 5.0% 117,722,484 39,455 2004 3,019,889 4.8% 125,670,056 41,614 2005 3,047,054 4.3% 133,031,819 43,659 2006 3,072,336 3.2% 143,949,044 46,853 2007 3,098,121 3.9% 151,039,900 48,752 2008 3,121,251 5.2% 155,459,600 49,807 2009 3,139,017 9.0% 155,459,600 49,525 2010 3,158,479 9.8% 151,510,926 47,970 2011 3,178,061 9.0% 147,662,549 46,463 NOTE: Based on City of Yorba Linda population, plus an additional 15% of estimated population for customers outside of the City x As of August 2011 Sources: City of Yorba Linda CAFR County of Orangc CAFR Statc of California, Employment Dcvclopmcnt Dcpartmcnt Statc of California, Dcpartmcnt of Finance YLWD Billing System -60- Yorba Linda Water District Ten Largest Employers Current and Five Years Ago 2008* 2006+ % of Total % of Total Employer ^ Employees Labor Force L Employees Labor Force Viasys Respiratory Care, Inc. 389 1.19 % 359 1.02 % Nobel Biocare USA, Inc. 328 0.93 % 323 0.92 % Costco Wholesale Corp. 276 0.78 % 204 0.58 % City of Yorba Linda 194 0.55 % 180 0.51 % Vons 165 0.47 % 167 0.48 % Kohl's Inc. 158 0.45 % 145 0.41 % Best Buy 129 0.37 % 135 0.38 % Sunrise Retirement Homes 126 0.36 % 120 0.34 % Office Solutions 92 0.26 % 98 0.28 % Cobra Engineering 80 0.23 % 0 0.00 % Total 1,937 5.6 % 1,731 4.9 % NOTES: * Most current available data + Oldest available data The Placentia- Yorba Linda Unified School District has 2,500 employees and serves the entire communities of Yorba Linda and Placentia, and also serves parts of the Cities of Brea, Anaheim and Fullerton. YLWD cannot provide the number of employees working within the boundaries of Yorba Linda. Source: City of Yorba Linda CAFR -61- Yorba Linda Water District Number of Employees Last Ten Fiscal Years Full Time Equivalent Employees by Department Department Fiscal Human Year Administration Engineering Finance Resources IT Operations Total 2002 2.0 10.0 10.0 1.0 1.0 29.0 53.0 2003 2.0 11.0 10.0 1.0 2.0 29.0 55.0 2004 3.0 12.0 10.0 1.0 2.0 32.0 60.0 2005 3.0 13.0 11.0 1.0 3.0 31.0 62.0 2006 4.0 14.0 13.0 3.0 3.0 28.0 65.0 2007 4.0 13.0 15.0 3.0 3.0 32.0 70.0 2008 4.0 13.0 16.0 3.0 6.0 32.0 74.0 2009 4.0 13.0 16.0 3.0 6.0 33.0 75.0 2010 4.5 12.0 15.0 3.0 6.5 35.0 76.0 2011 4.5 12.0 15.0 3.0 7.0 35.0 76.5 80.0 70.0 60.0 Operations 50.0 IT 40.0 ■ Resources Finance 30.0 ■ Engineering 20.0 10.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 NOTE: * Numbcr of employees in each department arc authorized and funded positions. Sourcc: YLWD Human Resources Department -62- Yorba Linda Water District Operating and Capacity Indicators Last Ten Fiscal Years Fiscal Miles of Water Yearly Water Average Year Mains Installed* Production (MG) Production (MGD) 2002 4.81 7,548 20.7 2003 0.78 7,927 21.7 2004 3.64 7,863 21.5 2005 3.64 7,042 19.3 2006 2.52 7,505 20.6 2007 9.72 8,360 22.9 2008 9.72 8,027 22.0 2009 9.72 7,590 20.8 2010 9.72 6,569 18.0 2011 2.00 6,282 17.2 Fiscal Number of Number of Number of Year Booster Pumps Reserviors Field Service Calls 2002 9 9 1,535 2003 11 10 1,727 2004 11 10 1,833 2005 11 10 1,460 2006 11 10 1,484 2007 12 11 1,565 2008 12 11 1,943 2009 12 11 1,674 2010 12 13 1,640 2011 12 13 1,924 MG - Millions of Gallons MGD - Millions of Gallons pcr Day NOTE: * Milcs of Water Main estimated Sources: YLWD Asset Management Plan 2010 YLWD Operations Department -63- This page intentionally left blank -64- IV ' ' INDEPENDENT AUDITORS' 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 The Board of Directors Yorba Linda Water District Placentia, California We have audited the basic financial statements of the Yorba Linda Water District (the District) as of and for the year ended June 30, 2011, and have issued our report thereon dated October 18, 2011. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over financial reporting, described below, that we consider to be significant deficiencies in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. -I- 5 Corporate Park, SL[ite 100, Irvine, CA 92606-5165 • TA 949-399-0600 • Fax: 949-399-0610 Officer located in Orarl(,e 1/11d ,S°an Diego Counties Compliance with Investment Policy Auditors' Comment and Recommendation: The District's investment policy sets limits on how much can be invested in certain types of investments. During our review of investment policy, we noted that investments in Ca1TRUST exceeded the limit set forth in the District's investment policy. The District is not in compliance with its policy. We recommend that the District establish procedures that would ensure adherence to the District's investment policy. Management's Response The District agrees with the comment and will revise the investment policy accordingly. Posting of Rejected Customer Payments Auditors' Comment and Recommendation: During our testing of cash receipts, we noted three customer payments that were rejected by the bank due to insufficient funds in October 2010. The general ledger was not corrected for these rejected items until July 2011. These items remained reconciling items in the bank reconciliations during this period. An important element of internal controls over cash is the reconciliation process to identify differences between the bank and the general ledger and resolve differences timely. When differences are not properly identified, the bank reconciliation is not complete and can result in misappropriation of assets. We recommend that variances be investigated and District takes necessary actions in a timely manner. Management's Response The District agrees with the comment and has changed its policy to address reconciling items in the bank reconciliation process on a more timely basis. Accounts Receivable Auditors' Comment and Recommendation: During our testing of accounts receivable, we noted that the schedule for unbilled water receivable did not agree to the general ledger balance due to a Journal entry for last year's accrual that was not properly reversed. We recommend that District establish procedures that will ensure general account balances are reconciled to subsidiary schedules. Management's Response The District agrees with the comment and will begin reconciling account balances to subsidiary schedules on a quarterly basis to ensure this does not happen during the annual accrual process. -2- Communication between Departments Auditors' Comment and Recommendation: During our review of trust accounts for contractors' retentions, we noted that the general ledger balance of one the trust accounts did not agree with the bank statement. Per further review, we noted that the retention amount was released during the year. Also, we noted that current year additions included assets contributed by developers to the District in prior years. This information was not communicated to the finance department in a timely manner which caused the general ledger balance to be inaccurate. We recommend that the District establish proper communication procedures between the finance department and other departments to ensure that accurate information is timely forwarded to the finance department for financial reporting purposes. Management's Response The District agrees with the comment and the importance of sharing information between departments has been emphasized. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Yorba Linda Water District Directors and management of the Yorba Linda Water District and is not intended to be and should not be used by anyone other than these specific parties. wk;-& NELS-n-- DLCQ Evers Lu'-) October 18, 2011 Irvine, California -3- IV ' ' Board of Directors Yorba Linda Water District Placentia, California We have audited the financial statements of the Yorba Linda Water District for the year ended June 30, 2011, and have issued our report thereon dated October 18, 2011. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our engagement letter dated June 13, 2011 and during our planning meeting on August 8, 2011. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings: Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Yorba Linda Water District are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing accounting policies was not changed during the year ended June 30, 2011. We noted no transactions entered into by the Yorba. Linda Water District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. -1- 5 Corporate Park, SUitc 100, lrvinc, CA 92606-5165 • TA 949-399-0600 • Fax: 949-399-0610 Officer located in Orarl(,e 1/11d ,S°an Diego COGlntie.r Significant Audit Findings (Continued): Qualitative Aspects of Accounting Practices (Continued): The most sensitive estimates affecting the financial statements were: a. Management's estimate that an allowance for doubtful accounts was not necessary. b. Management's estimate of the fair market value of investments which is based on market values provided by outside sources. c. The estimated useful lives of capital assets for depreciation purposes which are based on industry standards. d. The annual required contribution for the District's Other Post-Employment Benefits was prepared by an outside consultant. We evaluated the key factors and assumptions used to develop these estimates in determining that they were reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the financial statements was reported in Note 6 to the financial statements regarding the annual required contribution and the actuarial liability for the District's Other Post-Employment Benefits. Difficulties Encountered in Performim the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. The following material misstatements detected as a result of audit procedures were corrected by management: a. An adjusting journal entry was required to remove the liability and cash associated with a retention that was paid out during the fiscal year. b. An increase of capitalized interest was required for costs allocated to capital projects completed during the fiscal year. c. A deposit liability balance was decreased to recognize capital contributed in prior years and net assets were restated as of July 1, 2010. d. The accounts receivable was decreased to correct errors on calculation for unbilled water and sewer receivables. -2- Disa-reements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated October 18, 2011. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Yorba Linda Water District's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Yorba Linda Water District's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. This information is intended solely for the use of the Board of Directors and management of the Yorba Linda Water District and is not intended to be and should not be used by anyone other than these specified parties. NEL-V ML October 18, 2011 Irvine, California -3- ITEM NO. 2.2 AGENDA REPORT Meeting Date: October 24, 2011 Budgeted: N/A To: Finance-Accounting Committee Funding Source: N/A From: Ken Vecchiarelli, General Manager Presented By: Stephen Parker, Finance Dept: Finance Manager Reviewed by Legal: N/A Prepared By: Delia Lugo, Senior Accountant CEQA Compliance: N/A Subject: Investment Report through September 2011 SUMMARY: Government Code Section 53607, et, seq., requires the person delegated to invest funds to make a quarterly report of the investments to the legislative body. STAFF RECOMMENDATION: That the Committee recommend the Board of Directors approve the Investment Report for the Period Ending September 30, 2011. DISCUSSION: Staff is submitting the September 2011 Monthly Investment Report for the Committee's review. The Investment Portfolio Report presents the market value and percent yield for all the District investments by institution. The Investment Report Summary includes budget and actual interest and average term portfolio information as well as market value broken out by reserves categories. The total yield for the month ending September 2011 increased to 1.08%. Though the yield for funds invested in the Wells Fargo Money Market drastically decreased from 0.16% to .05%, the impact on the overall investment portfolio was minimal as a result of the yield in CalTrust's Medium Term fund increasing from 1.26% to 1.31%, and the District spending down a significant amount of the 2008 COP Revenue Bonds, which earn a very small interest rate. The overall decrease in the investment balance from the previous month is $3,324,000. A couple of the larger balance changes include a decrease in the Reserve for Debt Service fund of $1,340,000 due to the September 30, 2011 Debt Service principal and interest payment in the amount of $1,855,000 and a decrease of $1,698,000 in the 2008 COP Revenue Bond due to spending on CIP projects (the Highland Booster Pump Station Upgrade was allocated $1,194,000 of this total). Another item to note is that the Sewer Capital Projects fund increased by $314,000; $264,000 of that increase was received from the City of Yorba Linda in conjunction with the completed transfer of City sewers to YLWD. PRIOR RELEVANT BOARD ACTION(S): Monthly Investment Reports are presented to the Finance-Accounting Committee on a regular basis. Quarterly Investment Reports are presented to the Board of Directors. The Investment Reports for the months ended July 31, 2011 and August 31, 2011 were received and filed by the Finance-Accounting Committee on September 26, 2011. The Investment Report for the quarter ended June 30, 2011 was received and filed by the Board of Directors on August 11, 2011. ATTACHMENTS: Invst Rpt 9-11.xlsx September 2011 Investment Report Backup Material Invst_Agenda _Backup - Sept 2011.xlsx Agenda Backup Backup Material Yorba Linda Water District Investment Portfolio Report September 30, 2011 Market % Percent Value Cost of Total Institution Yield Checking Account: $ 1,308,603 $ 1,308,603 Wells Fargo Bank $ 1,308,603 $ 1,308,603 4.64% Total 0.00% Money Market Accounts: $ 847,393 $ 847,393 Wells Fargo Money Market 0.05% 2,754,064 2,754,064 US Bank (2008 Revenue Bond) 0.10% 1,927 1,927 US Bank (2008 Bond Reserve) 0.10% $ 3,603,384 $ 3,603,384 12.78% Total 0.09% Federal Home Loan Bank: $ 2,158,358 $ 2,144,397 US Bank (2008 Bond Reserve) 1.35% $ 2,158,358 $ 2,144,397 7.66% 1.35% Pooled Investment Accounts: $ 1,846,000 $ 1,846,000 Local Agency Investment Fund 0.38% 358 358 Ca1TRUST Short Term 0.54% 19,278,307 18,889,908 Ca1TRUST Medium Term 1.31% $ 21,124,665 $ 20,736,266 74.93% 1.23% $ 28,195,010 $ 27,792,651 100% Total Investments 1.08% Per Government Code requirements, the Investment Report is in compliance with the Yorba Linda Water District's Investment Policy, and there are adequate funds available to meet budgeted and actual expenditures for the next six months. Delia Lugo, Senior Accountant 9/30/11 Investment Summary Report Below is a chart summarizing the yields as well as terms and maturities for the month of September 2011: Avg. Portfolio Avg. Portfolio # of Month Yield Without Yield With Days to of 2010 CalTRUST CalTRUST Maturity September 0.51% 1.08% 495 Below is are charts comparing operating fund interest for current and prior fiscal years. Actual Interest 9/30/2010 9/30/2011 Monthly - September $ 22,196 $ 23,178 Year-to-Date $ 46,099 $ 48,083 Budget 2010/2011 2011/2012 Interest Budget, September YTD $ 39,000 $ 47,500 Interest Budget, Annual $ 156,000 $ 190,000 Interest earned on investments is recorded in the fund that owns the investment. Investment Summary Comparison Between Current and Previous Month The distribution of investments in the portfolio both in dollars and as a percentage of the total portfolio by funds is as follows: August 2011 % Alloc September 201' % Alloc Fund Description Balance 8/31/2011 Balance 9/30/2011 Water Operating Reserve $ 2,226,248 7.15% $ 1,103,450 4.10% Water Emergency Reserve 1,003,134 3.22% 1,000,991 3.72% Water Capital Project Reserve 17,989,548 57.81% 17,656,325 65.69% Water Reserve for Debt Service 1,339,814 4.30% 0 0.00% COP Revenue Bond 2008 - Reserve 2,167,899 6.96% 2,160,285 8.03% COP Revenue Bond 2008 4,452,264 14.30% 2,754,064 10.24% Sewer Operating 118,775 0.38% 67,883 0.25% Sewer Emergency Reserve 1,002,242 3.22% 1,000,344 3.72% Sewer Capital Project Reserve 829,235 2.66% 1,143,065 4.25% $ 31,129,159 100.00% $ 26,886,407 100.00% Wells Fargo Bank Checking Water Operating 360,445 1,307,761 Sewer Operating 29,302 842 389,747 1,308,603 Totals $ 31,518,906 $ 28,195,010 ITEM NO. 3.1 AGENDA REPORT Meeting Date: October 24, 2011 Budgeted: N/A To: Finance-Accounting Committee Funding Source: N/A From: Ken Vecchiarelli, General Manager Presented By: Stephen Parker, Finance Dept: Finance Manager Reviewed by Legal: N/A Prepared By: Stephen Parker, Finance CEQA Compliance: N/A Manager Subject: Summary of January Workshop Discussion SUMMARY: Staff has worked with Raftelis Financial Consultants for 1 1/2 years on the Cost of Service and Water Rate Study and the Sewer Financial Model. The results of that work will be presented to the entire Board at a workshop in January 2012. The Finance-Accounting Committee asked for a summary of the information that would be presented at that workshop. The information provided today is a high-level summary of what will be presented at the January 2012 workshop. DISCUSSION: At the January workshop, staff and Raftelis Financial Consultants will: . Summarize water and sewer model capability . Discuss sewer fund's projected needs . Discuss sewer rate issues (Prop 218) . Explain how CIP drives the water rate . Discuss water fund's projected needs . Identify water rate options including: status quo; adjusting commodity rate structure; adjusting the fixed rate structure; and combining options . Discuss customer effect of various rate options PRIOR RELEVANT BOARD ACTION(S): On March 11, 2010, the Board of Directors authorized the General Manager to execute a Professional Services Agreement with Raftelis Financial Consultants in the amount of $77,005 to conduct a Cost of Service and Water Rate Study. On June 23, 2011, the Board of Directors approved an amendment in the amount of $10,000 to the existing Professional Services Agreement with Raftelis Financial Consultants to add a deliverable of a Sewer Financial Model. ITEM NO. 3.2 AGENDA REPORT Meeting Date: October 24, 2011 Budgeted: N/A To: Finance-Accounting Committee Funding Source: N/A From: Ken Vecchiarelli, General Manager Presented By: Stephen Parker, Finance Dept: Finance Manager Reviewed by Legal: N/A Prepared By: Delia Lugo, Senior Accountant CEQA Compliance: N/A Subject: September 2011 Budget to Actual Results DISCUSSION: Attached are the District's budget to actual summary results for the Water Fund, Sewer Fund and a combined statement for both funds pertaining to the reporting month of September 2011. For the month of September 2011, the District water revenue is trending slightly below expectations due to lower water consumption from cooler than normal summer temperatures. Water operating revenue is 29.7% of annual budget, which is lower by approximately 3.8% from the historical trend for the first quarter of the fiscal year. Other Operating Revenue is 45% of annual budget for the month of September. This is primarily due to the activity that was reported in the prior months in relation to the Vista Del Verde project. Variable water costs as a percentage of budget are higher than operating revenues as a result of purchasing more import water prior to Metropolitan Water District of Southern California's 7.5% rate increase, which takes effect on January 1, 2012.The majority of the water funds' individual supplies and services expenses are trending below or on budget, with the exception of Dues and Memberships and Insurance, which are higher because of timing differences. In the month of September Sewer Other Operating Revenue is well over budget due to the Vista del Verde Project as reported in prior months. Sewer Other Non-Operating revenue is also well over budget, primarily due to receiving $264,000 from the City of Yorba Linda for the sewer transfer. The sewer fund's supplies and services expenses are trending below or on budget, with the exception of Professional Services, which are slightly higher due to Locke Ranch annexation fees that were not budgeted and Non-Capital Equipment, which is higher as a result of a larger percentage of their purchases in this area being completed earlier in the year. One final item to note is that YLWD has recorded the fair market value of the City of YL sewers in capital assets in our sewer fund. The value, recorded at more than $17 million, is recorded on the income statement as contributed capital. ATTACHMENTS: Name: Description: Type: September 2011 Combined.xls September 2011 Consolidated Statement Backup Material September 2011 Water.xls September 2011 Water Statement Backup Material September _2011_Sewer.xls September 2011 Sewer Statement Backup Material Yorba Linda Water District Summary Financial Report Water & Sewer Funds For Three Months Ending September 30, 2011 Original YTD YTD YTD Budget Actual Under(Over) % of FY 2012 FY 2012 Budget Budget Revenue (Operating): Water Revenue (Residential) $17,904,893 $5,025,312 $12,879,581 28.07% Water Revenue (Commercial & Fire Det.) 1,726,651 556,408 1,170,243 32.22% Water Revenue (Landscape/Irrigation) 3,757,058 1,422,287 2,334,771 37.86% Water Revenue (Service Charge) 3,406,392 840,580 2,565,812 24.68% Sewer Charge Revenue 1,548,550 364,074 1,184,476 23.51% Locke Ranch Assessments 159,862 491 159,371 0.31% Other Operating Revenue 754,361 391,358 363,003 51.88% Total Operating Revenue: 29,257,767 8,600,510 20,657,257 29.40% Revenue (Non-Operating): Interest 190,000 48,083 141,917 25.31% Property Tax 1,232,000 45,107 1,186,893 3.66% Other Non-Operating Revenue 499,369 383,524 115,845 76.80% Total Non-Operating Revenue: 1,921,369 476,714 1,444,655 24.81% Total Revenue 31,179,136 9,077,224 22,101,912 29.11% Expenses (Operating): Variable Water Costs (G.W., Import & Power) 13,671,538 4,667,323 9,004,215 34.14% Salary Related Expenses 7,941,303 1,667,062 6,274,241 20.99% Supplies & Services 4,020,832 910,562 3,388,537 22.65% Total Operating Expenses 25,633,673 7,244,947 18,666,993 28.26% Expenses (Non-Operating): Interest on Long Term Debt 1,906,426 476,565 1,429,861 25.00% Other Expense 123,193 8,841 114,352 7.18% Total Non-Operating Expenses: 2,029,619 485,406 1,544,213 23.92% Total Expenses 27,663,292 7,730,353 20,211,206 27.94% Net Income (Loss) Before Capital Contributions 3,515,844 1,346,871 1,890,706 38.31% Contributed Capital - 17,061,427 (17,061,427) 0.00% Net Income (Loss) Before Depreciation 3,515,844 18,408,298 (14,892,454) 523.58% Depreciation & Amortization 5,561,699 1,608,276 3,953,423 28.92% Total Net Income (Loss) ($2,045,855) $16,800,022 ($18,845,877) -821.17% Capital - Direct Labor - (95,912) 95,912 0.00% Yorba Linda Water District Water Fund For Three Months Ending September 30, 2011 Original Sept YTD YTD YTD Budget Actual Actual Under(Over) % of FY 2012 FY 2012 FY 2012 Budget Budget Revenue (Operating): Water Revenue (Residential) $17,904,893 $1,980,485 $5,025,312 $12,879,581 28.07% Water Revenue (Commercial & Fire Det.) 1,726,651 218,846 556,408 1,170,243 32.22% Water Revenue (Landscape/Irrigation) 3,757,058 570,004 1,422,287 2,334,771 37.86% Water Revenue (Service Charge) 3,406,392 280,624 840,580 2,565,812 24.68% Other Operating Revenue 697,360 55,370 310,446 386,914 44.52% Total Operating Revenue: 27,492,354 3,105,329 8,155,033 19,337,321 29.66% Revenue (Non-Operating): Interest 170,000 21,369 44,373 125,627 26.10% Property Tax 1,232,000 40,960 45,107 1,186,893 3.66% Other Non-Operating Revenue 495,394 (9,645) 124,081 371,313 25.05% Total Non-Operating Revenue: 1,897,394 52,684 213,561 1,683,833 11.26% Total Revenue 29,389,748 3,158,013 8,368,594 21,021,154 28.47% Expenses (Operating): Variable Water Costs (G.W., Import & Power) 13,671,538 1,531,333 4,667,323 9,004,215 34.14% Salary Related Expenses 6,953,531 698,091 1,459,149 5,494,382 22.24% Supplies & Services: Communications 366,513 23,885 52,396 314,117 14.30% Contractual Services 527,485 29,574 90,170 437,315 17.09% Data Processing 119,645 1,786 13,279 106,366 11.10% Dues & Memberships 55,682 451 24,997 30,685 44.89% Fees & Permits 136,504 14,638 24,293 112,211 17.80% Insurance 221,526 - 179,798 41,728 81.16% Materials 352,642 30,093 90,186 262,456 25.57% District Activities, Emp Recognition 20,757 601 2,381 18,376 11.47% Maintenance 368,603 39,370 59,110 309,493 16.04% Non-Capital Equipment 79,221 2,576 12,808 66,413 16.17% Office Expense 45,714 4,372 9,887 35,827 21.63% Professional Services 766,431 64,062 154,529 611,902 20.16% Training 48,625 3,524 9,849 38,776 20.26% Travel & Conferences 49,649 1,345 4,182 45,467 8.42% Uncollectible Accounts 35,340 42 432 34,908 1.22% Utilities 113,925 8,674 22,846 91,079 20.05% Vehicle Equipment 278,209 19,783 60,559 217,650 21.77% Supplies & Services Sub-Total 3,586,471 244,776 811,702 2,774,769 22.63% Total Operating Expenses 24,211,540 2,474,200 6,938,174 17,273,366 28.66% Expenses (Non-Operating): Interest on Long Term Debt 1,906,426 158,855 476,565 1,429,861 25.00% Other Expense 117,193 2,947 8,841 108,352 7.54% Total Non-Operating Expenses: 2,023,619 161,802 485,406 1,538,213 23.99% Total Expenses 26,235,159 2,636,002 7,423,580 18,811,579 28.30% Net Income (Loss) Before Capital Contributions 3,154,589 522,011 945,014 2,209,575 29.96% Capital Contributions - 16,537 16,537 (16,537) 0.00% Net Income (Loss) Before Depreciation 3,154,589 538,548 961,551 2,193,038 30.48% Depreciation & Amortization 4,628,999 445,589 1,339,117 3,289,882 28.93% Total Net Income (Loss) ($1,474,410) $92,959 ($377,566) ($1,096,844) 25.61% Capital - Direct Labor - (33,788) (87,558) 87,558 - Yorba Linda Water District Sewer Fund For Three Months Ending September 30, 2011 Original Sept YTD YTD YTD Budget Actual Actual Under(Over) % of FY 2012 FY 2012 FY 2012 Budget Budget Revenue (Operating): Sewer Charge Revenue $1,548,550 $134,676 $364,074 $1,184,476 23.51% Locke Ranch Assessments 159,862 197 491 159,371 0.31% Other Operating Revenue 57,001 3,932 80,912 (23,911) 141.95% Total Operating Revenue: 1,765,413 138,805 445,477 1,319,936 25.23% Revenue (Non-Operating): Interest 20,000 1,808 3,710 16,290 18.55% Other Non-Operating Revenue 3,975 252,326 259,443 (255,468) 6526.87% Total Non-Operating Revenue: 23,975 254,134 263,153 (239,178) 1097.61% Total Revenue 1,789,388 392,939 708,630 1,080,758 39.60% Expenses (Operating): Salary Related Expenses 987,772 99,281 207,913 779,859 21.89% Supplies & Services: Communications 30,587 1,802 4,975 25,612 16.27% Contractual Services 40,135 2,282 7,027 33,108 17.51% Data Processing 9,005 134 999 8,006 11.09% Dues & Memberships 4,505 34 1,875 2,630 41.62% Fees & Permits 14,066 1,492 1,811 12,255 12.88% Insurance 16,674 - 13,533 3,141 81.16% Materials 35,703 353 6,118 29,585 17.14% District Activities, Emp Recognition 1,562 45 175 1,387 11.20% Maintenance 74,267 15,176 17,006 57,261 22.90% Non-Capital Equipment 18,799 259 5,750 13,049 30.59% Office Expense 3,411 329 744 2,667 21.81% Professional Services 75,769 6,029 24,161 51,608 31.89% Training 5,100 530 1,293 3,807 25.35% Travel & Conferences 4,202 101 371 3,831 8.83% Uncollectible Accounts 2,660 3 14 2,646 0.53% Utilities 9,575 703 1,840 7,735 19.22% Vehicle Equipment 78,341 4,286 11,168 67,173 14.26% Supplies & Services Sub-Total 424,361 33,558 98,860 325,501 23.30% Total Operating Expenses 1,412,133 132,839 306,773 1,105,360 21.72% Expenses (Non-Operating): Other Expense 6,000 - - 6,000 0.00% Total Non-Operating Expenses: 6,000 - - 6,000 0.00% Total Expenses 1,418,133 132,839 306,773 1,111,360 21.63% Net Income (Loss) Before Capital Contributions 371,255 260,100 401,857 (30,602) 108.24% Contributed Capital - 17,044,530 17,044,890 (17,044,890) 0.00% Net Income (Loss) Before Depreciation 371,255 17,304,630 17,446,747 (17,075,492) 4699.40% Depreciation & Amortization 932,700 107,431 269,159 663,541 28.86% Total Net Income (Loss) ($561,445) $17,197,199 $17,177,588 ($17,739,033) -3059.53% Capital - Direct Labor (440) (8,354) 8,354 ITEM NO. 3.3 AGENDA REPORT Meeting Date: October 24, 2011 Budgeted: N/A To: Finance-Accounting Committee Funding Source: N/A From: Ken Vecchiarelli, General Manager Presented By: Stephen Parker, Finance Dept: Finance Manager Reviewed by Legal: N/A Prepared By: Stephen Parker, Finance CEQA Compliance: N/A Manager Subject: Status of Strategic Plan Initiatives DISCUSSION: Attached are the strategies identified in the 2011-2013 Strategic Plan that relate to Fiscal Responsibility, which are overseen by the Finance-Accounting Committee. Included is an update on each strategy relating to Fiscal Responsibility. PRIOR RELEVANT BOARD ACTION(S): On June 9, 2011 the Board adopted the 2011-2013 Strategic Plan. ATTACHMENTS: Name: Description: Type: Strategic Plan Tracking- FA.xlsx Strategic Plan Tracking - FA Backup Material Strategic Plan Initiatives Status Report Finance-Accounting Committee Strategies Start Date Completion Lead Party Oct 2011 Progress Date FR 1: Maintain Fiduciary Res onsibilit Prepare a High Level Annual Budget Document and Completed Budget June 2011. Submitted budget for CSMFO and Comprehensive Annual GFOA award September 2011. CAFR submitted to the FAC and FR 1-13 Financial Report and Feb-11 Jun-11 Finance Director Board in October 2011. Staff will submit for the GFOA award in Compete for Recognition by the Government November 2011. Finance Officers Association Revise the Water and Sewer Rules and General Preliminary review of fee schedule completed. A number of revisions FR 1-C Regulation and Evaluate Feb- 11 Dec- 11 Manager/ to the water and sewer rules and regs are completed and pending Fee Schedules Regularly internal reviews. Plan to finalize in November for submission in for Proper Cost of Service Finance Director December. Coverage FR 2: Increase Reserve Funding Annual Review Implement an Approach of CIP Finance Forward projection of reserve balances will be completed along with FR 2-C to Ensure Reserves are Apr-11 Financial Director/Board future financial projections. The District's reserve needs will be Needs Included Responsibly Funded in Budget of Directors updated for FY 2012/ 13 with this new data. Preparation FR 3: Identif and Develop Additional Revenue Options Review Opportunities to Earn "Cash Back" on Staff has submitted a vendor match list to nine banks, and FR 3-13 Operating Expense Jan-11 On-going Finance Director interviewed with seven of them. Staff is planning to make a through Commercial recommendation to the FAC in November. Credit Card Accounts Manage Cash Flow to Delia Lugo, Senior Accountant reviews the cash balances and needs FR 3-C Maximize Investment On-going On-going Finance Director daily. Mutliple times a month, excess cash is transferred to Income investments to earn interest until the next check register. FR 4: Provide a Rate Structure that Promotes Water Use Efficiency Complete the Cost of Finance Staff met with Raftelis and finalized the recommendations that will be FR 4-A Service and Water Rates Mar-10 Mar-12 Director/Board presented to the Board at the January 2012 workshop. A preliminary discussion of the workshop items was included in the Study of Directors October Finance-Accounting Committee meeting. Evaluate Equitable Rate Board of The Board will be given information on multiple rate structure FR 4-13 Structures that Promote Oct- 11 M ar- 12 Directors/ options in January 2012 with which they can give staff direction as to Conservation and General what rate structure they believe would best promote conservation Efficiency Manager and efficiency. Completed FR 1-A Develop a Comprehensive Feb- 11 Oct- 11 Finance Director 5-year financial plan included in budget. Water and sewer financial Multi-Year Financial Plan models should be available by January 2012. FR 1-D Evaluate and Revise the Nov- 10 Mar- 11 Finance Director Completed March 2011. Consider changing allocation methodology Sewer Fund Allocation in conjunction with FY 2012/13 budget process. Maintain Commitment to Include in FR 1-E Strong Debt Services Sept-09 Rate Quarterly Board of Quarterly review of debt service ratios will continue as well as Ratio Increase Financial Directors integrating the ratio into forward financial projections. Review Review the Reserve Policy Finance Completed review/revision of reserve policy in June 2011. Will FR 2-A and Funding Levels Apr-11 Jul-11 Director/Board review again in conjunction with the 2012/ 13 Budget process. Annually of Directors