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HomeMy WebLinkAbout2014-09-18 - Finance-Accounting Committee Meeting Agenda PacketYorba Linda '"Water District AGENDA YORBA LINDA WATER DISTRICT FINANCE - ACCOUNTING COMMITTEE MEETING Thursday, September 18, 2014, 4:00 PM 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER 2. ROLL CALL COMMITTEE Director Phil Hawkins, Chair Director Michael J. Beverage STAFF Marc Marcantonio, General Manager Steve Conklin, Engineering Manager Delia Lugo, Finance Manager 3. 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. 4. ACTION CALENDAR This portion of the agenda is for items where staff presentations and committee discussions are needed prior to formal committee action. 4.1. Submission of 2014 Audit Reports Recommendation: That the Committee recommend the Board of Directors receive and file the FY 2013114 Comprehensive Annual Financial Report, the Report on Internal Control and the Communication to Those In Governance Letter. 5. 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. 5.1. Investment Report for Period Ending August 31, 2014 5.2. Budget to Actual Results for August 2014 5.3. Future Agenda Items and Staff Tasks 6. ADJOURNMENT 6.1. The next Finance - Accounting Committee meeting is scheduled to be held Monday, October 27, 2014 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. 4.1 AGENDA REPORT Meeting Date: September 18, 2014 To: Finance - Accounting Committee From: Marc Marcantonio, General Manager Presented By: Delia Lugo, Finance Manager Dept: Finance Prepared By: Delia Lugo, Finance Manager Subject: Submission of 2014 Audit Reports STAFF RECOMMENDATION: That the Committee recommend the Board of Directors receive and file the FY 2013/14 Comprehensive Annual Financial Report, the Report on Internal Control and the Communication to Those In Governance Letter. DISCUSSION: The final drafts of Yorba Linda Water District's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year ending June 30, 2014, Report on Internal Controls and Communication to Those in Governance Letter will be submitted as hand -outs at our scheduled Committee meeting. ATTACHMENTS: Name: Description: Type: YLWD 2014 CAFR.pdf Backup Material Backup Material YLWD 2014 ACL.pdf Backup Material Backup Material YLWD 2014 GAS.pdf Backup Material Backup Material Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT of Yorba Linda, California Comprehensive Annual Financial Report .............................................................................................................. ............................... WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS For the Fiscal Year Ending June 30, 2014 Prepared by: The Yorba Linda Water District Finance Department Delia Lugo, Finance Manager Kelly McCann, Senior Accountant Maria Trujillo, Accounting Assistant II Richard Cabadas, Accounting Assistant I iiil Cindy Botts, Management Analyst Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT TABLE OF CONTENTS For the year ended June 30, 2014 INTRODUCTORY SECTION: Page Letter of Transmittal i Board of Directors and Executive Staff xii Organization Chart xiii District Boundaries xiv Certificate of Achievement for Excellence in Financial Reporting xv FINANCIAL SECTION: Independent Auditors' Report 1 Management's Discussion and Analysis (Required Supplementary Information) 5 Basic Financial Statements: 13 Statements of Net Position 14 Statements of Revenues, Expenses and Changes in Net Position 16 Statements of Cash Flows 17 Notes to Basic Financial Statements 19 Required Supplementary Information: 47 Other Post - Employment Benefit Plan - Schedule of Funding Progress 48 Supplementary Information: 49 Combining Schedule of Net Position 50 Combining Schedule of Revenues, Expenses and Changes in Net Position 52 Combining Schedule of Cash Flows 53 Schedule of Operating Expenses by Cost Center and Nature of Expenses for Water and Sewer 55 Schedule of Capital Assets 56 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2014 Page Nnmhar STATISTICAL SECTION: 57 Description of Statistical Section 59 Financial Trends: Changes in Net Position 60 Revenue Capacity: Number of Connections 62 Ten Largest Customers 63 Debt Capacity: Ratio of Outstanding Debt 64 Debt Coverage 65 Demographic and Economic Information: Demographics 66 Ten Largest Employers 67 Operating Information: Number of Employees 68 Operating and Capacity Indicators 69 Backup Material Distributed Less Than 72 Hours Prior to the Meeting INTRODUCTORY SECTION Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District September 12, 2014 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, 2014. 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 its 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, 2013. In order to be awarded a Certificate of Achievement, a governmental entity 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. Backup Material Distributed Less Than 72 Hours Prior to the Meeting 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 77 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 72,000 and currently provides water service through approximately 24,554 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 2013/14 the District provided 22,614 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 CNN Money's "Best Places to Live for 2012 ", Yorba Linda was one of four Southern California cities listed. Similarly, the City of Yorba Linda's median income is 48% greater than the overall median income for Orange County, as reported by 2010 Census data. Backup Material Distributed Less Than 72 Hours Prior to the Meeting 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 shows moderate growth, which is projected to continue with new commercial business and a steadily improving housing market. District expenses have increased approximately $900,000 per year over the past four fiscal years, with the fiscal year 2014/15 budget expected to increase an additional $1,000,000. A primary factor of the increase in these expenses is the cost of water YLWD pays to the Municipal Water District of Orange County (MWDOC) for import water and assessments. MWDOC's cost is primarily based on the cost of water they must pay to the Metropolitan Water District of Southern California (MWD). Impacting the fiscal year 2013/14 budget was an average 4.8 rate increase from MWD, effective January 1, 2014. An additional 3.7% increase was also adopted and will take effect January 1, 2015. These rate increases are part of an overall 24% rate increase since January 1, 2010. As the cost of import water has continued to increase, the cost of groundwater, purchased from the Orange County Water District (OCWD), has kept pace. Over the FY 2010/11, FY 2011/12 and FY 2012/13 years, the District averaged annual sales of 19,907 acre -feet. However, during the 2013/14 fiscal year, the District sold approximately 2,000 acre -feet more water than anticipated. This amounts to an increase in water sales revenue of $1.8 million. This increase was the result of calendar year 2013 being the driest year on record for most of California since 1850. In response to this and to the California Department of Water Resources snowmelt runoff report for 2014, Governor Brown has announced a Drought State of Emergency for California. For FY 2014/15 the District's water sales are estimated to be greater than 21,000 acre - feet, even with 5% voluntary conservation efforts from the District's customer base being taken into consideration. As of May 2014, the District was granted annexation of the remaining 26% of its service area into Orange County Water District (OCWD). It is anticipated that with full annexation the District will be able to pump the maximum groundwater allowable each year, at a lower cost than purchasing the same amount of imported water from MWD. However, the District will not be able to take advantage of full annexation for FY 2014/15 due to the 2003 Conjunctive Use Program (CUP) Agreement and due to the need to complete construction of capital facilities. The CUP Agreement requires the District to withdraw 2,193 acre -feet over and above OCWD's Basin Production Percentage (BPP) for the upcoming fiscal year and pay for the water at current import water rates, after subtracting power and operations and the maintenance charges of $132 per acre -foot. Had the District been able to access the entirety of OCWD's Basin Production Percentage (BPP) for the fiscal year 2014/15, the District would have been able to lower its variable water costs by approximately $1.0 million. As variable water costs comprise approximately 53% of the District's operating expenses, ensuring these costs are held as low as possible is a top priority each and every fiscal year. Backup Material Distributed Less Than 72 Hours Prior to the Meeting 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 —all of which lead to increasing supply costs. 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. Mission /Vision Statement and Maior 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. iv Backup Material Distributed Less Than 72 Hours Prior to the Meeting Major Accomplishments during FY 2013/14 Previously, the Board of Directors approved the FY 2007 -2012 five -year capital improvement plan totaling $57.7 million. The projects in this plan were identified for funding with the 2003 and 2008 Series Certificates of Participation (Revenue Bonds), in combination with annexation funds and other reserves held by the District. These projects are completed or underway as of the time of preparation of this report. For fiscal years 2011 through 2015, staff identified projects totaling $37.4 million. Included in that amount, $4.3 million was spent through the end of fiscal year 2010/11. The remaining $33.1 million is therefore proposed for consideration by the Board for Capital Improvement Projects /Capital Replacement Projects (CIP /CRP) that will extend through fiscal year 2015/16. Approximately $8.5 million of the $33.1 million was spent in fiscal year 2011/12, $5.8 million in fiscal year 2012/13, and $3.9 million in fiscal year 2013/14 for projects in planning, design and construction. Fiscal year 2013/14 projects included the following: Yorba Linda Blvd Booster Pump Station Project Total Project Budget: $1,898,000 Proposed FY 14/15 Budget: $100,000 The project consists of replacing the existing Palm Avenue Booster Pump Station with a three -pump 5,000 -gpm capacity new pump station at Gun Club Road and Yorba Linda Blvd. The project will make it possible to deliver more groundwater to the easterly portion of the District's service area. Construction of the new pump station began in FY12/13 and will be complete in FY 14/15. Incurred costs through FY 13/14 and projected costs in FY 14/15 are estimated to be $1,798,000 and $100,000, respectively. Well #21 Project Total Project Budget: $2,307,000 Proposed FY 14/15 Budget: $940,000 Work began in FY 12/13 on plans for the drilling of the new well. In FY13/14, a test well was drilled to confirm the quantity and quality of water for the well. Thereafter, the well was drilled out and completed with a steel casing and pump- tested. Project costs in FY 13/14 and FY 14/15 are estimated to be $1,086,000 and $940,000, respectively. Work planned for FY 14/15 includes construction of wellhead facilities and a discharge pipeline. v Backup Material Distributed Less Than 72 Hours Prior to the Meeting Well #22 Project Total Project Budget: $2,500,000 Proposed FY 14/15 Budget: $445,000 Reconnaissance field investigation and site evaluations started in FY 13/14. In FY14/15, a site is expected to be determined and the property acquired, at a budgeted cost of $445,000. Budgeted for FY15/16 is the drilling of the well and the preparation of plans for well equipping at an estimated cost of $800,000. Budgeted for FY 16/17 is construction of wellhead facilities and a discharge pipeline at an estimated cost of $1,247,000. Fairmont Pump Station Upgrade Project Total Project Budget: $6,300,000 Proposed FY 14/15 Budget: $2,500,000 The project is the refurbishment and upgrading of the Fairmont Booster Station. The existing 37 -year old booster station will be demolished and its two booster pumps will be replaced by six, pumping to two different pressure zones. A new building will be constructed to house the pumps, as well as disinfection, electrical and back -up generation facilities. The project will also include refurbishment of elements of the Fairmont Reservoir. Planned for FY14/15 is completion of design plans and the beginning of construction at an estimated cost of $2.5 million. Construction will continue in FY 15/16 at an estimated cost of $2.9 million. Part of the cost of the improvements will be offset by developer - provided funding. Lakeview Grade Separation Project Total Project Budget: $600,000 Proposed FY 14/15 Budget: $265,000 The Orange County Transportation Authority (OCTA) is the lead agency for a planned Lakeview Avenue bridge over Orangethorpe Avenue and the adjacent BNSF Railroad tracks. As part of the project, it will be necessary to replace and relocate the District's water line currently in Lakeview Avenue through the project area. The District's share of the pipeline relocation will be $250,000. Construction of the pipeline relocation work is anticipated to begin mid -2014, with a mid -2015 completion for all utility relocations. OCTA's bridge construction will follow. Yorba Linda High School Park Pipeline Relocation Project Total Project Budget: $370,000 Proposed FY 14/15 Budget: $325,000 The proposed Yorba Linda High School Park, within Placentia - Yorba Linda Unified School District's (PYLUSD) property located south of Yorba Linda High School, includes proposed grading with nearly 18 -feet of fill over our existing 39 -inch diameter Bryant Cross Feeder (BCF) pipeline. The BCF pipeline will be unable to support the additional fill, and must be relocated. Per the Pre - Annexation Agreement with PYLUSD, the District is responsible for design and construction costs for relocating approximately 530 lineal feet of the BCF pipeline, at an estimated cost of $370,000. This work is anticipated to start late summer 2014 and be completed by late 2014. vi Backup Material Distributed Less Than 72 Hours Prior to the Meeting Future Pipeline Replacement Project Total Project Budget: $2,690,000 Proposed FY 14/15 Budget: $660,000 In accordance with the District's Asset Management Plan, the District is replacing older water pipelines as part of an ongoing program. Staff will design approximately 2,000 feet of the more critical pipeline replacement reaches during FY 14/15, with pipeline construction in late FY 14/15 to early FY15/16. Additional waterline replacement work +will be designed and installed during subsequent fiscal years. Deville Drive Waterline Extension Total Project Budget: $50,000 Proposed FY 14/15 Budget: $25,000 The District will design and install approximately 130 -feet of 6 -inch diameter pipeline in Deville Drive in accordance with a previous Agreement and payment made by a Deville Drive property owner. Staff completed the design in -house during FY 13/14. Installation is anticipated to be complete during FY 14/15. Timber Ridge Booster Station Rehabilitation Total Project Budget: $250,000 Proposed FY 14/15 Budget: $240,000 Timber Ridge Booster Station is undersized and needs additional emergency pumping capacity. Staff will evaluate the least cost method to install a new gas engine enclosed with a new building, or install a new electric generator and possibly upsizing one or more of the existing pumps. Future PRS Rehabilitation Total Project Budget: $1,430,000 Proposed FY 14/15 Budget: $100,000 The District will solicit proposals for design and rehabilitation upgrades of the existing Pressure Reducing Stations (PRS) that require frequent maintenance, and do not meet current District standards. Design work will be completed during FY 14/15 and construction is anticipated to be complete during FY 15/16. vii Backup Material Distributed Less Than 72 Hours Prior to the Meeting Other major accomplishments in fiscal year 2013/14 include the following: • Completed Construction of 2012 Waterline Project • Completed Construction of Elk Mountain Booster Surge Tank • Completed Construction of Yorba Linda Boulevard Pipeline Project • Commenced Construction of Yorba Linda Booster Station Project • Commenced Construction of Well #21 • Commenced Design of Fairmont Booster Pump Station Replacement Project • Received Positive Auditors Letter for FY 2012/13 • Received State and National Recognition for CAFR • Received State and National Recognition for FY 2013/14 Budget document • Executed Multi -Year Memorandum of Understanding (MOU) • Annexation to OCWD Approved Future Years Amidst the national economic conditions and the Governor's state declaration of Drought Water Emergency, 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 mandated water conservation restrictions 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. Water Rate & Increases In FY 2013/14, YLWD charged a uniform commodity rate of $2.64 per unit and a monthly fixed charge based on the size of the meter. Meters sized 5/8 and 3/4 inch were charged $8.08, 1 inch meters were charged $14.67, 1 '/2 inch meters were charged $29.34, 2 inch meters were charged $46.94, 3 inch meters were charged $102.67, 4 inch meters were charged $187.80 and 6 inch meters were charged $410.67. One unit of water equals 748 gallons, equating one gallon of water to a cost of approximately $0.0035 (one third of a cent). At an average of 30 units of water per month (approximately 22,500 gallons), a typical 1 inch metered YLWD customer would pay about $ 93.87 on the average for their monthly water bill. YLWD also provided wastewater service to all 24,796 of the District's water customer base in fiscal year 2013/14, at a charge of $5.50 per month. The District also provided sewer service to approximately 1,400 customers that it does not provide water to. These customers, in the "Locke Ranch" area of Yorba Linda, are served by a private water company — Golden State Water Company. These rates are the result of a Cost of Service Analysis and Alternative Water Rate Feasibility Study in fiscal year 2011/12, which addressed the impacts of implementing a tiered water conservation rate structure and /or a budget -based water rate structure for customers of the District. The result of this study was a three -year rate increase to customers on the Monthly Service Charge, approved by the Yorba Linda Water District Board of Directors. The approved rate increase is a percentage on the District's overall viii Backup Material Distributed Less Than 72 Hours Prior to the Meeting revenue and consists of a 1.5% revenue increase beginning on July 1, 2012, a 2.5% increase beginning on July 1, 2013, and a 2.5% increase beginning on July 1, 2014. These increases will assist in covering the costs associated with operating, maintaining and replacing the District's water facilities. The District will also be passing through to customers any future increases on the commodity charge from its water suppliers as these charges are based on the amount of water sold. In conjunction with this rate increase, the Board of Directors recommended that staff pursue a line of credit with Wells Fargo for $7 million with a 3 -year renewable term and an interest rate based on 1 month London Inter -Bank Offered Rate (LIBOR), currently calculated at 1.10 %. The line of credit will allow the District to pursue future capital improvement projects with a minimal borrowing cost and a lowered financial burden to our customers. The District also issued Refunding Revenue Bonds, Series 2012A, which advance refunded the 2003 Certificates of Participation (COP) Bonds. This is estimated to save approximately $80,000 annually. In FY 2014/15, 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 four fiscal years, and it is anticipated that costs will continue to increase as supplies become more strained from projected population increases, cyclical drought conditions, and environmental and regulatory restrictions. Enhanced Outreach & Communications The District continues to enhance its communications with and presence within the community. Within the FY 2013/14 Budget, the District funded a Public Information Officer position and one part -time Public Affairs Intern positions. The Public Affairs division of the Administration department develops and disseminates information to the public and supports water conservation programs with the overall goal of developing a more transparent image of the District to the community. The District's Citizens Advisory Committee, made up of local residents, who serve as ambassadors to the community, meet with District staff on a monthly basis to discuss and provide recommendations 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. Those three seats will be up for re- election in November 2014. ix Backup Material Distributed Less Than 72 Hours Prior to the Meeting Technological Advancements in Progress Technological advancements include the incorporation of a Computerized Maintenance & Management System (CMMS), which automates and tracks field work orders and provide actual costs to perform work -order related functions. In planning is an Automated Purchase Requisitioning System, which will provide better workflow and approvals for purchasing items, as well as 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. 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. Backup Material Distributed Less Than 72 Hours Prior to the Meeting 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, Marc Marcantonio General Manager xi D Lug Finance Manager Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Board of Directors and Executive Staff Robert R. Kiley, President Michael J. Beverage Director Marc Marcantonio General Manager Gina Knight HR & Risk Manager Ric Collett, Vice President Phil Hawkins Director Steve Conklin Engineering Manager �i Delia Lugo Finance Manager W Gary T. Melton Director John DeCriscio Operations Manager •r Art Vega Acting IT Manager a Yorba Linda Water District S.C.A.D.A. Into. 5vstems Administrator Administrator InsTec n iciation Into. 5vstems Systems Analyst/ Technician Technician I Programmer Board of Directors Management Analyst IIR & Risk Manager G.1.5. Analyst Safety Training HR At Analyst Public IMormation Officer 7Assistant t Customer Svc. Meter Services Supervisor Lead Public Affalrs Specialist Customer Srv. Meter Reader 1 Rep. l /II /III 1/11 4 FTE 3 FTE Organization Chart FY 2014/15 Total: 77 FTE positions budgeted 1 part -time position (non- benefited) Executive Secretary Records Management Specialist Engineering Manager Sr. Project Water Quality Construction Manager Engineer Project Supervisor WO Technician I /II Sr. Construction ssocjate En 1. Technician Inspector hgmeer 11 1 FTE Construction I� Inspector Mechanic II /III Sr. Maintanance Dist. Operator Facilities Sr. Plant 2 FTE Maintenance Operator 4 FTE Maintanance Dist. Maintanance Dist. Maintanance Plant Operator Operator III Operator 11 Worker I If 4 PTE S FTE 9 FTE 3 FTE Job Classification Management Part -Time Supervisory/Confidential Bargaining Unit Legend S. i Os QA, r CL N � O M rt L �v N _i 0 rF X _a U W Q City of Brea ' q V IUPERIAL F i City of GARDENIA RESERVOIR VILLEYVIEIaRESERVOR Y RBALHDA J� City of Yorha Linda 0 .,.,.RESERVOIR jtl ,qp 00 Or J y r r \ r d 1 u 4d ORpHD N0 LA PALUA 4 n 0 LRTLECANYONRESERVNR 1 QUARTER HORSE RESERVOIR ERVaR a SPRINGVIEWRESERVON a � - _ SANTIAGORESi Leg F�y Y_WD S.rvice etvidary r PrxucWv.l. e0.exnors City Boundaries Cvno KASWe: t Chino Hills State Park �Ctlo'Broe QCt °'P—w Q C.A o'YO'x Lrie St- 1c.tM7. —FI—Y E) HIODEN HILLS RESERVOIR ueg'sunt WOIR 4�4CAMNODEBRYAVTRESERVOIR BRYANTRAA'CHRESERVOIR W aXUOJ'YTAINRESERWIR 0 oQ City of Anaheim U)_ i � I i 0� f ey. I W I CL I CD N Backup Material Distributed Less Than 72 Hours Prior to the Meeting IIJ Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to Yorba Linda Water District California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2013 Executive Director /CEO Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank Backup Material Distributed Less Than 72 Hours Prior to the Meeting FINANCIAL SECTION Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank INDEPENDENT AUDITORS' REPORT Board of Directors Yorba Linda Water District Placentia, California Report on the Financial Statements We have audited the accompanying financial statements of Yorba Linda Water District (the District), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District's financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Backup Material Distributed Less Than 72 Hours Prior to the Meeting Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Yorba Linda Water District, as of June 30, 2014, and the respective changes in financial position and cash flows thereof for the year then ended in accordance 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. Other Matters Partial Summarized Comparative Information The financial statements include partial year comparative information. Such information does not include all of the information required to constitute a presentation in accordance with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the District's financial statements for the year ended June 30, 2013 from which such partial information was derived. Report on Required Supplementary Information 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 as required supplementary information, 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. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District's financial statements. The introductory section, supplementary information consisting of combining schedules, schedule of operating expenses by cost center and nature of expenses for water and sewer, schedule of capital assets and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. -2- Backup Material Distributed Less Than 72 Hours Prior to the Meeting Other Matters (Continued) Other Information (Continued) The combining schedules, schedule of operating expenses by cost center and nature of expenses for water and sewer and schedule of capital assets, as listed in the table of contents, are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining schedules, schedule of operating expenses by cost center and nature of expenses for water and sewer and schedule of capital assets are fairly stated in all material respects in relation to the basic financial statements taken as a whole. 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 express no opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 12, 2014 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Irvine, California September 12, 2014 -3- Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank -4- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended June 30, 2014 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, 2014. 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 net position increased by $6 million, or a 3.7% increase in net position. a During the year the District's revenues were $34.1 million, up 10.1%. • During the year, the District's expenses were $35.1 million, up 3.8 %. Required Financial Statements This annual report consists of a series of financial statements. The Statement of Net Position, Statement of Revenues, Expenses and Changes in Net Position 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 Position includes all of the District's investments in resources (assets), deferred outflows of resources, obligations to creditors (liabilities) and deferred inflow of resources. 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 Position. 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. -5- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 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 Position and the Statement of Revenues, Expenses and Changes in Net Position report information about the District in a way that helps answer this question. These statements include all assets, deferred outflows of resources, liabilities, and deferred inflows of resources 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 position and changes in them. You can think of the District's net position (the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources), as one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position is 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 19 through 46. See independent auditors' report. 9 Me Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Statement of Net Position Assets: Current assets Restricted assets Capital assets, net Total assets Deferred Outflows of Resources: Deferred amount on refunding Liabilities: For the Year Ended June 30, 2014 2014 2013 Change $ 31,772,410 $ 21,994,679 $ 9,777,731 2,229,419 2,171,030 58,389 199,641,820 200,985,168 (1,343,348) 233,643,649 225,150,877 8,492,772 474,939 498,686 (23,747) Liabilities payable from unrestricted current assets 6,390,185 6,157,781 232,404 Liabilities payable from restricted assets 1,087,095 975,640 111,455 Non - current liabilities 58,864,439 56,789,561 2,074,878 Total liabilities 66,341,719 63,922,982 2,418,737 Net position: Net investment in capital assets 161,159,541 161,494,158 (334,617) Unrestricted 6,617,328 232,423 6,384,905 Total net position $ 167,776,869 $ 161,726,581 $ 6,050,288 As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the District, assets and deferred outflows of resources of the District exceeded liabilities by $167.8 million and $161.7 million as of June 30, 2014 and 2013, respectively. By far the largest portion of the District's net position (96% and 100% as of June 30, 2014 and 2013, 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, 2014, the District showed a positive balance in its unrestricted net position of $6.6 million, which indicates that there are reserves to be utilized in future years, which is a significant improvement from the stated balance of $232 thousand for the year ended June 30, 2013. See independent auditors' report. -7- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 Statement of Revenues, Expenses and Changes in Net Position Revenues: Operating revenues: Water sales Sewer revenue Other operating revenue Total operating revenues Non - operating revenues: Investment income Property taxes Other non - operating income Total non - operating revenue Total revenues Expenses: Operating expenses: Variable costs Pesonnel services Supplies and services Depreciation Total operating expenses Non - operating expenses: Interest expense Bond issuance cost Other non - operating expense Total non - operating expenses Total expenses 2014 $ 28,376,082 1,762,816 1,047,625 31,186,523 145,048 1,394,722 1,325,685 2,865,455 34,051,978 14,673,144 7,529,481 3,849,183 7,315,084 33,366,892 1,715,429 47,948 1,763,377 35,130,269 Net income(loss) before capital contributions (1,078,291) and extraordinary item Capital contributions 2,128,579 Extraordinary item 5,000,000 2013 $ 26,369,940 1,762,039 723,577 28,855,556 137,569 1,340,916 588,854 2,067,339 30,922,895 13,509,336 7,225,729 4,222,398 6,884,213 31,841,676 1,781,416 192,410 35,954 2,009,780 33,851,456 (2,928,561) 1,174,673 Change $ 2,006,142 777 324,048 2,330,967 7,479 53,806 736,831 798,116 3,129,083 1,163,808 303,752 (373,215) 430,871 1,525,216 (65,987) (192,410) 11,994 (246,403) 1,278,813 1,850,270 953,906 5,000,000 Change in net position 6,050,288 (1,753,888) 7,804,176 Net position, beginning of year 161,726,581 163,480,469 (1,753,888) Net position, end of year $ 167,776,869 $ 161,726,581 $ 6,050,288 See independent auditors' report. Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 The statement of revenues, expenses and changes of net position shows how the District's net position changed during the fiscal years. In the case of the District, net position increased by $6 million and decreased by $1.8 million for the fiscal years ended June 30, 2014 and 2013, respectively. A closer examination of the sources of changes in net position reveals that: In 2014, the District's total revenues increased by $3.1 million, primarily due to an increase in water sales of $2.0 million as a result of a warm weather patterns and the lack of rain over the course of the year and an increase in non - operating other income of $736 thousand due to recorded gains for the sale of assets. Total expenses increased by $1.3 million primarily due to increased variable water costs of $2.0 million due to increased water purchases. In addition, the District recorded a receipt of funds from the resolution of a claim as an Extraordinary Item in the amount of $5 million. In 2013, the District's total revenues increased by $933 thousand, primarily due to an increase in water sales of $1.3 million as a result of a warmer summer than the two previous years and an improving economy. In addition, total expenses increased by $2.6 million primarily due to increased variable water costs of $1.2 million due to increased water purchases and an overall increase of $950 thousand in the remaining operating expense categories. See independent auditors' report. M Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 Capital Assets Changes in capital asset amounts for 2014 were as follows: Balance Transfers/ Balance 2013 Additions Deletions 2014 Capital assets: Capital assets, not being depreciated $ 5,835,304 $ 5,658,198 $ (4,596,188) $ 6,897,314 Capital assets, being depreciated 264,004,834 4,915,408 (1,073,446) 267,846,796 Less accumulated depreciation (68,995,334) (7,315,084) 1,069,185 (75,241,233) Total capital assets, net $ 200,844,804 $ 3,258,522 $ (4,600,449) $ 199,502,877 Changes in capital asset amounts for 2013 were as follows: Balance Transfers/ Balance 2012 Additions Deletions 2013 Capital assets: Capital assets, not being depreciated $ 10,886,493 $ 6,191,597 $ (11,242,786) $ 5,835,304 Capital assets, being depreciated 252,375,491 11,736,626 (107,283) 264,004,834 Less accumulated depreciation (62,212,128) (6,884,213) 101,007 (68,995,334) Total capital assets, net $ 201,049,856 $ 11,044,010 $ (11,249,062) $ 200,844,804 At the end of fiscal year 2014 and 2013, the District's investment in capital assets amounted to $199.5 million and $200.8 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 projects in fiscal year 2013 -14 include Yorba Linda Boulevard Pipeline project, construction of various water and sewer mains for development, and the purchase of various district vehicles. Additional information regarding capital assets can be found in note 4 in Notes to Basic Financial Statements. See independent auditors' report. -10- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 Long -Term Liabilities Changes in long -term debt amounts for the year ended June 30, 2014 were as follows: Additional information regarding long -term liabilities can be found in note 5 in Notes to Basic Financial Statements. See independent auditors' report. -11- Beginning Ending Balance Additions Reductions Balance 2008 Revenue Certificates of Participation $ 32,070,000 $ $ (705,000) $ 31,365,000 2012A Refuding Certificate of Participation 8,330,000 (260,000) 8,070,000 Subtotal 40,400,000 (965,000) 39,435,000 Add (Less): 2008 Pemium 651,695 (26,420) 625,275 2012A Premium 958,027 (47,703) 910,324 Total Certificates 42,009,722 (1,039,123) 40,970,599 Line of Credit 1,171,131 3,471,525 4,642,656 Compensated Balances 1,000,383 623,735 (576,776) 1,047,342 Total $ 44,181,236 $ 4,095;260 $ (1,615,899) $ 46,660,597 Changes in long -term liabilities amounts for the year ended June 30, 2013 were as follows: Beginning Ending Balance Additions Reductions Balance 2003 Revenue Certificates of Participation $ 8,965,000 $ $ (8,965,000) $ - 2008 Revenue Certificates of Participation 32,750,000 (680,000) 32,070,000 2012A Refuding Certificate of Participation - 8,330,000 - 8,330,000 Subtotal 41,715,000 8,330,000 (9,645,000) 40,400,000 Add (Less): 2003 Discount (114,986) - 114,986 - 2008 Pemiuin 678,115 - (26,420) 651,695 2012A Premium - 1,001,754 (43,727) 958,027 Total Certificates 42,278,129 9,331,754 (9,600,161) 42,009,722 Line of Credit 1,171,131 1,171,131 Compensated Balances 1,063,572 624,669 (687,858) 1,000,383 Total $ 43,341,701 $ 11,127,554 $ (10,288,019) $ 44,181,236 Additional information regarding long -term liabilities can be found in note 5 in Notes to Basic Financial Statements. See independent auditors' report. -11- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) For the Year Ended June 30, 2014 Requests for Information This financial report is designed to provide the District's funding 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. -12- Backup Material Distributed Less Than 72 Hours Prior to the Meeting BASIC FINANCIAL STATEMENTS -13- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT STATEMENTS OF NET POSITION June 30, 2014 (With prior year data for comparison only) ASSETS AND DEFERRED OUTFLOWS 2014 2013 OF RESOURCES 14181a3=41111 :`Y.yX11I I UNRESTRICTED ASSETS: Cash and cash equivalents (Note 2) $ 20,111,912 $ 10,354,438 Investments (Note 2) 7,141,791 7,051,042 Accounts receivable - water and sewer services 3,976,655 4,063,578 Accounts receivable - property taxes 24,597 16,885 Accrued interest receivable 11,991 8,205 Prepaid expenses and deposits 267,261 259,329 Inventory 238,203 241,202 TOTAL UNRESTRICTED ASSETS 31,772,410 21,994,679 RESTRICTED ASSETS: Cash and cash equivalents (Note 2) 114,334 33,886 Investments (Note 2) 2,115,085 2,137,144 TOTAL RESTRICTED ASSETS 2,229,419 2,171,030 TOTAL CURRENT ASSETS 34,001,829 24,165,709 NONCURRENT ASSETS: Capital assets (Note 4): Non - depreciable 6,897,314 5,835,304 Depreciable, net of accumulated depreciation 192,605,563 195,009,500 Other post - employment benefit (OPEB) asset (Note 6) 138,943 140,364 TOTAL NONCURRENT ASSETS 199,641,820 200,985,168 TOTAL ASSETS 233,643,649 225,150,877 DEFERRED OUTFLOWS OF RESOURCES: Deferred amount on refunding 474,939 498,686 TOTAL DEFERRED OUTFLOWS OF RESOURCES 474,939 498,686 See independent auditors' report and notes to basic financial statements. (Continued) -14- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT STATEMENTS OF NET POSITION (CONTINUED) June 30, 2014 (With prior year data for comparison only) LIABILITIES CURRENT LIABILITIES: PAYABLE FROM UNRESTRICTED CURRENT ASSETS: Accounts payable Accrued expenses Compensated absences payable - current portion (Note 5) Customer and construction deposits Unearned revenue Accrued interest payable TOTAL PAYABLE FROM UNRESTRICTED CURRENT ASSETS PAYABLE FROM RESTRICTED ASSETS: Retention payable Certificates of Participation - current portion (Note 5) TOTAL PAYABLE FROM RESTRICTED ASSETS TOTAL CURRENT LIABILITIES LONG -TERM LIABILITIES (LESS CURRENT PORTION): Unearned annexation revenue Compensated absences (Note 5) Payable on line of credit (Note 5) Certificates of Participation (Note 5) TOTAL LONG -TERM LIABILITIES (LESS CURRENT PORTION) TOTAL LIABILITIES NET POSITION: Net investment in capital assets (Note 8) Unrestricted TOTAL NET POSITION See independent auditors' report and notes to basic financial statements. -15- 2014 2013 $ 4,748,341 $ 4,594,253 263,178 197,033 261,836 250,096 309,734 277,799 374,356 397,522 432,740 441,078 6,390,185 6,157,781 77,095 10,640 1,010,000 965,000 1,087,095 975,640 7,477,280 7,133,421 13,475,678 13,823,421 785,506 750,287 4,642,656 1,171,131 39,960,599 41,044,722 58,864,439 56,789,561 66,341,719 63,922,982 161,159,541 161,494,158 6,617,328 232,423 $ 167,776,869 $ 161,726,581 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the year ended June 30, 2014 (With prior year data for comparison only) OPERATING REVENUES: Water sales Sewer revenues Other operating revenues TOTAL OPERATING REVENUES OPERATING EXPENSES: Variable water costs Personnel services Supplies and services Depreciation TOTAL OPERATING EXPENSES OPERATING LOSS NONOPERATING REVENUES (EXPENSES): Property taxes Investment income Interest expense Bond issuance costs Other nonoperating revenues Other nonoperating expenses TOTAL NONOPERATING REVENUES (EXPENSES) NET LOSS BEFORE CAPITAL CONTRIBUTIONS AND EXTRAORDINARY ITEM CAPITAL CONTRIBUTIONS EXTRAORDINARY ITEM (NOTE 11) CHANGES IN NET POSITION NET POSITION - BEGINNING OF YEAR NET POSITION - END OF YEAR See independent auditors' report and notes to basic financial statements. -16- 2014 2013 $ 28,376,082 $ 26,369,940 1,762,816 1,762,039 1,047,625 723,577 31,186,523 28,855,556 14,673,144 13,509,336 7,529,481 7,225,729 3,849,183 4,222,398 7,315,084 6,884,213 33,366,892 31,841,676 (2,180,369) (2,986,120) 1,394,722 1,340,916 145,048 137,569 (1,715,429) (1,781,416) - (192,410) 1,325,685 588,854 (47,948) (35,954) 1,102,078 57,559 (1,078,291) (2,928,561) 2,128,579 5,000,000 1,174,673 6,050,288 (1,753,888) 161,726,581 163,480,469 $ 167,776,869 $ 161,726,581 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT STATEMENTS OF CASH FLOWS For the year ended June 30, 2014 (With prior year data for comparison only) 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 31,243,814 $ 28,610,921 Cash payments to employees for salaries and wages (7,414,956) (8,188,469) Cash payments to suppliers of goods and services (18,245,150) (17,945,308) Otherrevenues 271,192 359,936 Other expenses (24,201) (1,219) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,830,699 2,835,861 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Cash received for extraordinary item 5,000,000 - Proceeds from line of credit 3,471,525 1,171,131 Proceeds from property taxes and assessments 1,386,865 1,452,375 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 9,858,390 2,623,506 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from annexation fees and capital contributions 200,942 180,772 Acquisition and construction of capital assets (4,022,245) (5,510,763) Proceeds from sales of capital assets 615,655 10,502 Proceeds from long -term debt issuance - 9,331,754 Repayment of certificates of participation - (9,127,367) Bond issuance costs - (204,383) Principal paid on long -term liability (965,000) (925,000) Interest paid on long -term liability (1,813,252) (1,884,903) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (5,983,900) (8,129,388) CASH FLOWS FROM INVESTING ACTIVITIES: Sale /purchase of investments, net 3,340 (7,242,582) Interest and investment earnings 129,393 148,345 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 132,733 (7,094,237) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,837,922 (9,764,258) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 10,388,324 20,152,582 CASH AND CASH EQUIVALENTS - END OF YEAR $ 20,226,246 $ 10,388,324 See independent auditors' report and notes to basic financial statements. (Continued) -17- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended June 30, 2014 (With prior year data for comparison only) RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation Otherrevenues Other expenses Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable Inventory Prepaid expenses and deposits Other post - employment benefits (OPEB) asset Increase (decrease) in liabilities: Accounts payable and accrued expenses Accrued salaries and wages Pension related debt Accrued compensated absences Customer and construction deposits Total adjustments NET CASH PROVIDED BY OPERATING ACTIVITIES CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION: Unrestricted Restricted TOTAL CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION NONCASH INVESTING, CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization related to long -term debt Capital contributions Write -off bond discount for defeased bonds See independent auditors' report and notes to basic financial statements. -18- 2014 2013 $ (2,180,369) $ (2,986,120) 7,315,084 6,884,213 271,192 359,936 (24,201) (1,219) 86,923 (208,252) 2,999 43,079 (7,932) (15,558) 1,421 (107,734) 220,543 (287,381) 66,145 44,126 - (835,943) 46,959 (63,189) 31,935 9,903 8,011,068 5,821,981 $ 5,830,699 $ 2,835,861 $ 20,111,912 $ 10,354,438 114,334 33,886 $ 20,226,246 $ 10,388,324 $ 74,123 $ 70,147 $ 1,943,658 $ 1,174,673 $ - $ 114,986 Backup Material Distributed Less Than 72 Hours Prior to the Meeting NOTES TO BASIC FINANCIAL STATEMENTS -19- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2014 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 service to approximately 73,990 residents and sewer service to approximately 72,498 residents. The financial statements present the District and its component units. 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 Statements of Net Position, the Statements of Revenues, Expenses and Changes in Net Position, the Statements of Cash Flows and the notes to the basic financial statements. See independent auditors' report. -20- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 term 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, deferred outflows of resources, liabilities and deferred inflows of resources (whether current or noncurrent) associated with these activities are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. 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. New Accounting Pronouncements: Current Year Standards: GASB 66 - "Technical Corrections, an amendment of GASB Statement No. 10 and Statement No. 62 ", required to be implemented in the current fiscal year did not impact the District. GASB 70 - "Accounting and Financial Reporting for Nonexchange Financial Guarantees", required to be implemented in the current fiscal year did not impact the District. See independent auditors' report. -21- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. New Accounting Pronouncements (Continued): Pending Accounting Standards: GASB has issued the following statements which may impact the District's financial reporting requirements in the future: • GASB 68 - "Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27 ", effective for the fiscal years beginning after June 15, 2014. • GASB 69 - "Government Combinations and Disposals of Government Operations effective for periods beginning after December 15, 2013. • GASB 71 - "Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68", effective for periods beginning after June 15, 2014. f. 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. g. Investments and Investment Policy: The District has adopted an investment policy directing the District's General Manager or Finance Manager 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. h. 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 $29,632 was made to bad debt expense for the fiscal year ended June 30, 2014. See independent auditors' report. -22- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): i. 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. j. 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. k. 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 $5,000. 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. 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 1. Interest Expense: The District incurs interest charges on the Line of Credit and Certificates of Participation. Interest expense of $15,362 has been capitalized as an addition to the cost of construction for the year ended June 30, 2014. See independent auditors' report. -23- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): m. Deferred Outflows /Inflows of Resources: In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred ou flows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense) until then. The District has one item that qualifies for reporting in this category. It is the deferred loss on refunding reported in the Statement of Net Position. A deferred loss on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The District does not have any applicable deferred inflows of resources. n. 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. o. 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. See independent auditors' report. -24- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): p. 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. q. Unearned Revenue: Unearned revenue consists of customer refunds that have not been cashed and 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. r. Unearned 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 I% 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 unearned revenue source may be used for capital facilities in the future if approved by the Board. s. Net Position: In the Statement of Net Position, net position is classified in the following categories: • Net investment in capital assets - 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 position - This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments. • Unrestricted net position - This amount is all net position that does not meet the definition of "net investment in capital assets" or "restricted net position ". See independent auditors' report. -25- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): t. Net Position Flow Assumptions: Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the Statement of Net Position, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District's practice to consider restricted - net position to have been depleted before unrestricted - net position is applied. u. 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. v. 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. See independent auditors' report. -26- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): v. Property Taxes and Assessments (Continued): 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: Levy Date: Due Dates: Collection Dates: w. Water and Sewer Sales: January 1 July 1 First Installment - November 1 Second Installment - March 1 First Installment - December 10 Second Installment -April 10 The District recognizes water and sewer service charges based on cycle billings rendered to the customers each month. x. 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. y. 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. z. Use of Estimates: The financial statements are prepared in accordance 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. See independent auditors' report. -27- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 2. CASH AND INVESTMENTS: Cash and Investments: Cash and investments as of June 30, 2014 are reported in the accompanying statement of net position as follows: Unrestricted Current Assets: Cash and cash equivalents $ 20,111,912 Investments 7,141,791 Restricted Assets: Cash and cash equivalents 114,334 Investments 2,115,085 Total Cash and Investments 29.483,122 Cash and investments as of June 30, 2014 consisted of the following: Cash on hand $ 1,250 Deposits with financial institutions 4,999,634 Escrow deposits 77,095 Investments 24,405,143 Total Cash and Investments $ 29,483,122 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. See independent auditors' report. Me Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by the California Government Code and the District's Investment Policy (Continued): 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. Authorized Investment Type Bank or Savings and Loans Negotiable Certificates of Deposit Local Agency Investment Fund (LAIF) Orange County Commingled Investment Pool California Asset Management Program United States Treasury Bills, Notes and Bonds United States Government Sponsored Agency Securities Corporate Bonds Bankers Acceptances Commercial Paper CalTRUST Investment Pool Money Market Funds Maximum Maximum * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. (1) Limited to bond proceeds held by the District. N/A - Not Applicable See independent auditors' report. -29- Percentage Investment Minimum Maximum of in One Credit Maturity Portfolio * Issuer Rating_ 5 years None None FDIC or FSLIC 5 years 30% None A and FDIC/ collateralized N/A None None N/A N/A None None N/A N/A (1) None N/A 5 years None None N/A 5 years None None N/A 5 years 30% None A 180 days 10% 5% A -1 270 days 25% 5% A -1 N/A None None N/A N/A 20% 10% N/A * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. (1) Limited to bond proceeds held by the District. N/A - Not Applicable See independent auditors' report. -29- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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. 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. -30- 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. -30- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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, 2014. 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, 2014 for each investment type. Minimum Legal Remaining Maturity (in Months) Investment Type 12 Months 13 to 24 25 to 36 37 to 48 48 to 60 Ca1TRUST Investment Pool Investment Type or Less Months Months Months Months Totals Ca1TRUST Investment Pool $ 9,395,888 $ - $ - $ - $ - $ 9,395,888 LAIF 5,752,379 - - - - 5,752,379 United States Government Negotiable Certificates of Deposit N/A 4,672,466 4,672,466 - Sponsored Agency Securities - - - 2,469,325 - 2,469,325 Negotiable Certificates of Deposit - 249,281 496,776 3,926,409 - 4,672,466 Held by bond trustee: - 2,115,085 United States Government Sponsored Agency Securities - - 2,115,085 - - 2,115,085 $ 15,148,267 $ 249,281 $ 2,611,861 $-5 7N4 $ - $24,405,143 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, 2014 for each investment type. Minimum See independent auditors' report. -31- 24.405.143 19.819.293 4.585.850 Legal Not Investment Type Rating Total Rated AA+ Ca1TRUST Investment Pool N/A $ 9,395,888 $ 9,394,448 $ 1,440 LAIF N/A 5,752,379 5,752,379 - United States Government Sponsored Agency Securities N/A 2,469,325 - 2,469,325 Negotiable Certificates of Deposit N/A 4,672,466 4,672,466 - Held by bond trustee: United States Government Sponsored Agency Securities N/A 2,115,085 - 2,115,085 See independent auditors' report. -31- 24.405.143 19.819.293 4.585.850 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 with the exception of banker's acceptances, commercial paper and money market funds which are limited to an investment in any one issuer of 5 %, 5% and 10 %, respectively. 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 and Ca1TRUST Investment Pool). 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. As of June 30, 2014, all of the District's deposits with financial institutions were covered by federal depository insurance limits or were held in collateralized accounts. Investment in State Investment Pool: The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. 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 prorate share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. See independent auditors' report. -32- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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. Ca1TRUST maintains and administers four pooled accounts within the program: Money Market, Short-Term, Medium -Term and Long -Term. 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 Ca1TRUST accounts comply with the limits and restrictions placed on local agency investments by the California Government Code. CalTRUST imposes a $250,000 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 Ca1TRUST 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 Ca1TRUST. 3. RESTRICTED ASSETS: Restricted assets were provided by, and are to be used for the following as of June 30, 2014: Source Use 2014 Bond proceeds Repayment of debt 2,152,324 See independent auditors' report. -33- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 4. CAPITALASSETS: Changes in capital assets for the year ended June 30, 2014 is as follows: Capital assets, not being depreciated: Land, mineral and water rights Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Source of supply Pumping plant Water treatment plant Transmission and distribution plant General plant Total capital assets, being depreciated Less accumulated depreciation for: Source of supply Pumping plant Water treatment plant Transmission and distribution plant General plant Total accumulated depreciation Total capital assets, being depreciated, net Total capital assets, net Balance Balance June 30, 2013 Additions Deletions June 30, 2014 $ 347,490 $ - $ (60,071) $ 287,419 5,487,814 5,658,198 (4,536,117) 6,609,895 5,835,304 5,658,198 (4,596,188) 6,897,314 6,096,155 - - 6,096,155 24,303,259 9,438 - 24,312,697 3,130,572 - - 3,130,572 209,226,145 4,621,435 - 213,847,580 21,248,703 284,535 (1,073,446) 20,459,792 264,004,834 4,915,408 (1,073,446) 267,846,796 (1,978,263) (168,655) - (2,146,918) (5,733,159) (906,913) - (6,640,072) (1,159,062) (197,192) - (1,356,254) (52,111,243) (4,880,941) - (56,992,184) (81013,607) (1,161,383) 1,069,185 (8,105,805) (68,995,334) (7,315,084) 1,069,185 (75,241,233) 195,009,500 (2,399,676) (4,261) 192,605,563 200.844.804 3.258.522 $ (4.600.449) 199.502.877 Depreciation expense for the depreciable capital assets was $7,315,084 in 2014. The District has been involved in various construction projects throughout the year. The balance of construction in progress at June 30, 2014 is $6,609,895. See independent auditors' report. -34- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 5. LONG -TERM LIABILITIES: Changes in long -term liabilities for the year ended June 30, 2014 were as follows: Certificates of Participation: 2008 Revenue Certificates of Participation 2012A Refunding Certificates of Participation Subtotal Add (Less): 2008 Premium 2012A Premium Total Certificates of Participation Line of credit Compensated absences Total Balance Balance Due Within June 30, 2013 Additions Reductions June 30, 2014 One Year $ 32,070,000 $ 8,330,000 40,400,000 - $ (705,000) $ 31,365,000 $ 735,000 (260,000) 8,070,000 275,000 - (965,000) 39,435,000 1,010,000 651,695 - (26,420) 625,275 - 958,027 - (47,703) 910,324 - 42,009,722 - (1,039,123) 40,970,599 1,010,000 1,171,131 3,471,525 - 4,642,656 - 1,000,383 623,735 (576,776) 1,047,342 261,836 44.181.236 4.095.260 S (1.615.899) 46.660.597 1.271.836 2008 Revenue Certificates of Participation: In February 2008, the District issued $34,995,000 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. The Term Certificates of $10,885,000 are due on October 1, 2038. The legal reserve requirement is $2,147,096. At June 30, 2014 the reserve fund had a balance of $2,152,324. At June 30, 2014 the 2008 Certificates outstanding balance was $31,365,000. 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 2014, the net revenues equal to 230% of the debt service. The Certificates of Participation are subject to federal arbitrage regulations. The District calculated no arbitrage rebate due as of March 2013. See independent auditors' report. -35- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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, 2014 are as follows: Year Ending 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 Subtotal Principal $ 735,000 765,000 795,000 825,000 860,000 4,845,000 5,920,000 7,335,000 9,285,000 31,365,000 2012A Refunding Certificates of Participation: Interest $ 1,394,596 1,364,596 1,333,396 1,300,996 1,267,296 5,780,980 4,674,645 3,211,690 1,205,625 21,533,820 Total $ 2,129,596 2,129,596 2,128,396 2,125,996 2,127,296 10,625,980 10,594,645 10,546,690 10,490,625 52,898,820 In September 2012, the District issued $8,330,000 of Revenue Refunding Certificates of Participation, Series 2012A. The 2012A Certificates were issued to provide funds (1) to advance refund all of the currently outstanding District Certificates of Participation Series 2003 and (2) to pay costs of issuance of the 2012A Bonds. The District completed the refunding to reduce its total debt service payments over the next 21 years by over $1.72 million, resulting in an economic gain (difference between the present value of the old and new debt service payments) of over $1.32 million. The 2003 Certificates were paid off in October 2012. The Certificates bear interest ranging from 2% to 5 %, payable semiannually on April 1 and October 1. 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 2014, the net revenues equal to 230% of the debt service. The Certificates of Participation are subject to federal arbitrage regulations. The District has no arbitrage calculation due until September 2017. See independent auditors' report. -36- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 5. LONG -TERM LIABILITIES (CONTINUED): 2012A Refunding Certificates of Participation (Continued): The annual debt service requirements for the 2012A Revenue Refunding Certificates of Participation outstanding at June 30, 2014 are as follows: Year Ending 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2033 Subtotal Line of Credit: Principal $ 275,000 280,000 285,000 295,000 310,000 1,730,000 2,190,000 2,705,000 8,070.000 Interest $ 318,912 311,962 303,487 293,312 281,212 1,199,275 729,680 222,021 3,659.861 Total $ 593,912 591,962 588,487 588,312 591,212 2,929,275 2,919,680 2,927,021 11,729.861 On September 24, 2012, the District established a $7,000,000 Line of Credit ( "Line ") pursuant to a line of credit agreement ( "Credit Agreement ") with Wells Fargo Bank, NA. The Line is subordinate to the 2008 Revenue Certificates of Participation and the Revenue Refunding Bonds, Series 2012A and borrowings from it are due and payable by September 30, 2016, though the maturity date can be extended by request of the District and agreement by the bank. The Line has an interest rate equal to One -Month LIBOR + 0.90 %, with an annual unused commitment fee of 0.35 %. As of June 30, 2014, the District has drawn down $4,642,656 of the available line and has incurred $41,845 of interest expense and fees. The Credit 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 2014, the net revenues equal to 230% of the debt service. Compensated Absences: Compensated absences are comprised of unpaid vacation leave, sick leave and compensating time off which are accrued as earned. (See Note In). See independent auditors' report. -37- 6 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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. 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 has established a trust to fund future OBEP benefits. For the year ended June 30, 2014, the District made a contribution of $187,756 to the OPEB trust. c. Annual OPEB Cost and Net OPEB Asset: 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 Interest on net OPEB asset Adjustment to annual required contribution Annual OPEB cost (expense) Actual contributions made Decrease in net OPEB asset Net OPEB asset - beginning of year Net OPEB asset - end of year See independent auditors' report. $ 187,756 (10,176) 11,597 189,177 (187,756) 1,421 140,364) (138.943) 6 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED): c. Annual OPEB Cost and Net OPEB Asset (Continued): The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation (asset) for the years ended June 30, 2014, 2013 and 2012 were as follows: Fiscal Year Ended 6/30/12 6/30/13 6/30/14 Annual OPEB Cost $ 164,390 170,501 189,177 d. Funded Status and Funding Progress: Percentage of Annual OPEB Costs Contributed 194.10% 163.87% 99.25% Net OPEB Obligation (Asset) $ (32,630) (140,364) (13 8,943) As of July 1, 2013, the most recent actuarial valuation date, the plan was 28.36 percent funded. The actuarial accrued liability for benefits was $1,896,791, and the actuarial value of assets was $537,913, resulting in an unfunded actuarial accrued liability (UAAL) of $1,358,878. Assets were valued using a five year smoothing formula with a 20% corridor around market value. The covered payroll (annual payroll of active employees covered by the plan) was $5,200,000 and the ratio of the UAAL to the covered payroll was 26.13 %. 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. See independent auditors' report. -39- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 6. OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED): 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 July 1, 2013 actuarial valuation, the entry age normal cost method was used. The actuarial assumptions included an inflation rate of 2.75% per annum, an investment return of 7.25% per annum, a projected salary increase of 2.75% 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 and an open 30 year amortization for any residual unfunded actuarial accrued liabilities. 7. DEFINED BENEFIT PENSION PLAN: a. Plan Description: The District participates in the 2.0% at 55, 2.0% at 60 (effective for new hires after December 22, 2011) and 2.0% at 62 Risk Pools of the California Employees Retirement System (Ca1PERS), a cost sharing multiple - employer defined benefit pension plan. Ca1PERS provides retirement and disability benefits, annual cost -of- living adjustments, and death benefits to plan members and beneficiaries. Ca1PERS 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 Ca1PERS' 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, and 2.0% at 60 Risk Pool Retirement Plans is 7% of their annual covered salary. Management, supervisory and confidential employees pay 5% of the required 7% contribution. The District contributes the remaining 2% on their behalf and for their account. Bargaining unit employees pay 4% of the required contribution. The District contributes the remaining 3% on behalf and for their account. As of July 1, 2014, all employees will contribute the full 7% of the employee contribution. 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 are equal to the annual pension cost (APC) percentage of payroll for fiscal year 2014, 2013 and 2012. See independent auditors' report. -40- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 7. DEFINED BENEFIT PENSION PLAN: b. Funding Policy (Continued): Upon the implementation of the California Employees' Pension Reform Act (PEPRA) on January 1, 2013, the 2.0% at 62 Risk Pool Retirement Plan was created and is open to all new employees who do not qualify for the 2.0% at 60 Risk Pool Retirement Plan. Active plan members are required to contribute 6.25% of their annual covered salary, which is paid by the employees and is equal to the required employer contribution rates. The required employer contribution rates are equal to the annual pension cost (APC) percentage of payroll for fiscal year 2014. The contribution requirements of the plan members are established by State statute, and the employer contribution rate is established and may be amended by Ca1PERS. For fiscal years 2014, 2013 and 2012 the District's annual employer's contributions for Ca1PERS were equal to the District's required and actual contributions for each year as follows: 2% at 55 Risk Pool Fiscal Annual Percentage APC Year Pension of APC Percentage Ended Cost (APC Contributed of Payroll 6/30/12 $ 548,528 100.00 % 11.507 % 6/30/13 491,326 100.00 % 10.238 % 6/30/14 492,950 100.00 % 10.781 % 2% at 60 Risk Pool Fiscal Annual Percentage APC Year Pension of APC Percentage Ended Cost (APC Contributed of Payroll 6/30/12 $ 780 100.00 % 8.197 % 6/30/13 12,996 100.00 % 8.311 % 6/30/14 20,632 100.00 % 8.486 % 2% at 62 Risk Pool Fiscal Annual Percentage APC Year Pension of APC Percentage Ended Cost (APQ Contributed of Pgffoll 6/30/12 N/A N/A N/A 6/30/13 $ 921 100.00 % 6.250 % 6/30/14 24,261 100.00 % 6.250 % See independent auditors' report. -41- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 8. NET INVESTMENT IN CAPITAL ASSETS: The balance of net investment in capital assets consisted of the following as of June 30, 2014: 2014 Capital assets, net of accumulated depreciation $ 199,502,877 Certificates of participation - current (1,010,000) Certificates of participation - long -term (39,960,599) Unspent debt proceeds 2,152,324 Deferred amount on refunding 474,939 Net investment in capital assets 161,159.541 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, 2014, 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 $2,000,000, combined single limit at $2,000,000 per occurrence. The Authority purchases additional excess coverage layers: $58 million for general, auto and public officials liability, which increases the limits on the insurance coverage noted above. • Employee dishonesty coverage up to $100,000 per loss includes public employee dishonesty, forgery or alteration and theft, disappearance and destruction coverages, subject to a $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 $25,000 per occurrence. The Authority is self - insured for the first $100,000, and purchases excess coverage up to $100 million limited to insurable value, subject to a $1,000 deductible, except for a $500 deductible on vehicles. See independent auditors' report. -42- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 9. RISK MANAGEMENT (CONTINUED): • Boiler and machinery coverage for the replacement cost up to $100 million per occurrence limited to insurable value, 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. The Authority is self - insured to $2,000,000 and has purchased excess insurance to the statutory limit. 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 2014, 2013 and 2012. 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 claims payable as of June 30, 2014, 2013 and 2012. 10. 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 $1.50 per gallon, resulting in a total approximate cost of $675,000. PYLUSD paid the District $32,500 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 $81,704, which include principal and interest, started in the fiscal year ended June 30, 2010. The remaining outstanding balance at June 30, 2014 was $296,581. As of June 30, 2014 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. See independent auditors' report. -43- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 11. 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 $1,118,823 of open construction contracts as of June 30, 2014. Construction contracts include: Project Name YL Blvd BPS YL Blvd BPS Well No. 21 Lakeview Grade Separation YLWD - Fairmont /Zone 5 BPS Project 2010 Waterline Project - Phase II DeVille Dr. Waterline Extension Pascal & Ludwig Yorba Lind High School Park Litigation: Total Approved Contract $ 1,581,179 263,813 863,345 250,000 549,584 61,388 44,539 80,200 345,780 Construction Costs to Date $ 1,526,484 221,139 669,712 455,440 48,230 Balance to Complete $ 54,695 42,674 193,633 250,000 94,144 13,158 44,539 80,200 345,780 4.039.828 2.921.005 1.118.823 In 2008, a firestorm known as the Freeway Complex Fire, the largest wildfire in the County in half a century, resulted in the destruction of several homes served by the District. Certain homeowners sued the District, alleging that the water system failed to provide sufficient water for fire protection purposes. The District's excess liability insurers denied coverage for the Freeway Complex Fire lawsuit. In June 2012, with no admission of liability, the District and ACWA JPIA paid $10,000,000 (the "Settlement Amount ") as part of a settlement with the plaintiff - homeowners. The District's portion of the settlement amount was $5,000,000, which was paid from District reserves. As part of the settlement, the lawsuit was referred to a third -party neutral who awarded damages in favor of some plaintiff - homeowners. Under the settlement, the successful plaintiff - homeowners will attempt to recover their awards in a separate lawsuit against the District's excess liability insurers, but will not pursue further recovery from the District. See independent auditors' report. Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 11. COMMITMENTS AND CONTINGENCIES (CONTINUED): Litigation (Continued): In fiscal year 2013 -2014, the District recovered the Settlement Amount of $5,000,000 from the District's excess liability insurance that is shown as an extraordinary item in the Statement of Revenues, Expenses and Changes in Net Position. 12. SUBSEQUENT EVENTS: In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through September 12, 2014, the date the financial statements were available to be issued. See independent auditors' report. -45- Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank -46- Backup Material Distributed Less Than 72 Hours Prior to the Meeting REQUIRED SUPPLEMENTARY INFORMATION OTHER POST-EMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS -47- Retiree Health Plan Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT REQUIRED SUPPLEMENTARY INFORMATION For the year ended June 30, 2014 OTHER POST - EMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS Unfunded See independent auditors' report and notes to basic financial statements. -48- 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) 03/01/2011 $ 1,594,667 $ - $ 1,594,667 0.00% $ 5,044,860 31.61% 06/30/2011 $ 1,597,488 $ 164,291 $ 1,433,197 10.28% $ 4,773,686 30.02% 07/01/2013 $ 1,896,791 $ 537,913 $ 1,358,878 28.36% $ 5,200,000 26.13% See independent auditors' report and notes to basic financial statements. -48- Backup Material Distributed Less Than 72 Hours Prior to the Meeting SUPPLEMENTARY INFORMATION BELIE Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF NET POSITION June 30, 2014 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 141816113=41111 :`Y.yX11 11 UNRESTRICTED ASSETS: Cash and cash equivalents Investments Accounts receivable - water and sewer services Accounts receivable - property taxes Accrued interest receivable Prepaid expenses and deposits Inventory TOTAL UNRESTRICTED ASSETS RESTRICTED ASSETS: Cash and cash equivalents Investments TOTAL RESTRICTED ASSETS TOTAL CURRENT ASSETS NONCURRENT ASSETS: Capital assets: Non - depreciable Depreciable, net of accumulated depreciation Other post - employment benefit (OPEB) asset TOTAL NONCURRENT ASSETS TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES: Deferred amount on refunding TOTAL DEFERRED OUTFLOWS OF RESOURCES See independent auditors' report. -50- Water Sewer Totals $ 17,009,506 $ 3,102,406 $ 20,111,912 6,946,248 195,543 7,141,791 3,791,258 185,397 3,976,655 22,837 1,760 24,597 10,336 1,655 11,991 267,261 - 267,261 238,203 - 238,203 28,285,649 3,486,761 31,772,410 114,334 - 114,334 2,115,085 - 2,115,085 2,229,419 - 2,229,419 30,515,068 3,486,761 34,001,829 6,681,561 215,753 6,897,314 153,251,766 39,353,797 192,605,563 129,217 9,726 138,943 160,062,544 39,579,276 199,641,820 190,577,612 43,066,037 233,643,649 474,939 474,939 474,939 474,939 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF NET POSITION (CONTINUED) June 30, 2014 LIABILITIES Water Sewer Totals CURRENT LIABILITIES: PAYABLE FROM UNRESTRICTED CURRENT ASSETS: Accounts payable Accrued expenses Compensated absences payable - current portion Customer and construction deposits Unearned revenue Accrued interest payable TOTAL PAYABLE FROM UNRESTRICTED CURRENT ASSETS PAYABLE FROM RESTRICTED ASSETS: Retention payable Certificates of Participation - current portion TOTAL PAYABLE FROM RESTRICTED ASSETS TOTAL CURRENT LIABILITIES LONG -TERM LIABILITIES (LESS CURRENT PORTION): Unearned annexation revenue Compensated absences Payable on line of credit Certificates of Participation TOTAL LONG -TERM LIABILITIES (LESS CURRENT PORTION) TOTAL LIABILITIES NET POSITION: Net investment in capital assets Unrestricted TOTAL NET POSITION See independent auditors' report. -51- $ 4,673,127 $ 75,214 $ 4,748,341 263,178 - 263,178 261,836 - 261,836 270,038 39,696 309,734 373,356 1,000 374,356 432,740 - 432,740 6,274,275 115,910 6,390,185 77,095 - 77,095 1,010,000 - 1,010,000 1,087,095 - 1,087,095 7,361,370 115,910 7,477,280 13,475,678 - 13,475,678 785,506 - 785,506 4,642,656 - 4,642,656 39,960,599 - 39,960,599 58,864,439 - 58,864,439 66,225,809 115,910 66,341,719 121,589,991 39,569,550 161,159,541 3,236,751 3,380,577 6,617,328 $ 124,826,742 $ 42,950,127 $ 167,776,869 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the year ended June 30, 2014 OPERATING REVENUES: Water sales Sewer revenues Other operating revenues TOTAL OPERATING REVENUES OPERATING EXPENSES: Variable water costs Personnel services Supplies and services Depreciation TOTAL OPERATING EXPENSES OPERATING LOSS NONOPERATING REVENUES (EXPENSES): Property taxes Investment income Interest expense Other nonoperating revenues Other nonoperating expenses TOTAL NONOPERATING REVENUES (EXPENSES) NET LOSS BEFORE CAPITAL CONTRIBUTIONS AND EXTRAORDINARY ITEM CAPITAL CONTRIBUTIONS EXTRAORDINARY ITEM CHANGES IN NET POSITION NET POSITION - BEGINNING OF YEAR NET POSITION - END OF YEAR See independent auditors' report. -52- Water Sewer Totals $ 28,372,296 $ 3,786 $ 28,376,082 - 1,762,816 1,762,816 936,977 110,648 1,047,625 29,309,273 1,877,250 31,186,523 14,673,144 - 14,673,144 6,728,455 801,026 7,529,481 3,451,602 397,581 3,849,183 5,982,770 1,332,314 7,315,084 30,835,971 2,530,921 33,366,892 (1,526,698) (653,671) (2,180,369) 1,394,722 - 1,394,722 131,833 13,215 145,048 (1,715,429) - (1,715,429) 1,255,176 70,509 1,325,685 (47,948) - (47,948) 1,018,354 83,724 1,102,078 (508,344) (569,947) (1,078,291) 1,235,502 893,077 2,128,579 5,000,000 - 5,000,000 5,727,158 323,130 6,050,288 119,099,584 42,626,997 161,726,581 $ 124,826,742 $ 42,950,127 $ 167,776,869 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF CASH FLOWS For the year ended June 30, 2014 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from annexation fees and capital contributions Acquisition and construction of capital assets Proceeds from sales of capital assets Principal paid on long -term liability Interest paid on long -term liability NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Sale /purchase of investments, net Interest and investment earnings NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR CASH AND CASH EQUIVALENTS - END OF YEAR See independent auditors' report. -53- 9,858,390 - 9,858,390 153,950 Water Sewer Totals CASH FLOWS FROM OPERATING ACTIVITIES: (4,022,245) 615,655 - Cash received from customers $ 29,319,788 $ 1,924,026 $ 31,243,814 Cash payments to employees for salaries and wages (6,614,029) (800,927) (7,414,956) Cash payments to suppliers of goods and services (17,905,874) (339,276) (18,245,150) Other revenues 207,144 64,048 271,192 Other expenses (24,201) - (24,201) NET CASH PROVIDED BY OPERATING ACTIVITIES 4,982,828 847,871 5,830,699 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: 9,837,922 8,073,213 2,315,111 Cash received for extraordinary item 5,000,000 - 5,000,000 Proceeds from line of credit 3,471,525 - 3,471,525 Proceeds from property taxes and assessments 1,386,865 - 1,386,865 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from annexation fees and capital contributions Acquisition and construction of capital assets Proceeds from sales of capital assets Principal paid on long -term liability Interest paid on long -term liability NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Sale /purchase of investments, net Interest and investment earnings NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR CASH AND CASH EQUIVALENTS - END OF YEAR See independent auditors' report. -53- 9,858,390 - 9,858,390 153,950 46,992 200,942 (3,900,317) (121,928) (4,022,245) 615,655 - 615,655 (965,000) - (965,000) (1,813,252) - (1,813,252) (5,908,964) (74,936) (5,983,900) 1,191 2,149 3,340 117,182 12,211 129,393 118,373 14,360 132,733 9,050,627 787,295 9,837,922 8,073,213 2,315,111 10,388,324 $ 17,123,840 $ 3,102,406 $ 20,226,246 (Continued) Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT COMBINING SCHEDULE OF CASH FLOWS (CONTINUED) For the year ended June 30, 2014 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation Otherrevenues Other expenses Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable Inventory Prepaid expenses and deposits Other post - employment benefits (OPEB) asset Increase (decrease) in liabilities: Accounts payable and accrued expenses Accrued salaries and wages Accrued compensated absences Customer and construction deposits Total adjustments Water Sewer Totals $ (1,526,698) $ (653,671) $ (2,180,369) 5,982,770 1,332,314 7,315,084 207,144 64,048 271,192 (24,201) - (24,201) 36,631 50,292 86,923 2,999 - 2,999 (7,932) - (7,932) 1,322 99 1,421 159,989 60,554 220,543 66,145 - 66,145 46,959 - 46,959 37,700 (5,765) 31,935 6,509,526 1,501,542 8,011,068 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,982,828 $ 847,871 $ 5,830,699 CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION: Unrestricted $ 17,009,506 $ 3,102,406 $ 20,111,912 Restricted 114,334 - 114,334 TOTAL CASH AND CASH EQUIVALENTS - FINANCIAL STATEMENT CLASSIFICATION $ 17,123,840 $ 3,102,406 $ 20,226,246 NONCASH INVESTING, CAPITAL AND RELATED FINANCING ACTIVITIES: Amortization related to long -term debt Capital contributions See independent auditors' report. -54- $ 74,123 $ - $ 74,123 $ 1,153,798 $ 789,860 $ 1,943,658 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT SCHEDULE OF OPERATING EXPENSES BY COST CENTER AND NATURE OF EXPENSES FOR WATER AND SEWER OPERATING EXPENSES: Variable Water Costs: Imported water OCWD replenishment assessment Continuous use program MWD connection charge Fuel and power /pumping Total Variable Water Costs Personnel Services: Unit salaries Fringe benefits Director's fees Total Personnel Services Supplies and Services: Communications Contractual services Data processing District activities Dues and memberships Fees and permits Insurance Maintenance Materials Noncapital equipment Office expense Professional services Training Travel and conferences Uncollectible accounts Utilities Vehicle expense Total Supplies and Services TOTAL OPERATING EXPENSES See independent auditors' report. For the year ended June 30, 2014 -55- Water Sewer Totals $ 8,543,129 $ - $ 8,543,129 3,313,606 - 3,313,606 681,471 - 681,471 977,043 - 977,043 1,157,895 - 1,157,895 14,673,144 - 14,673,144 4,799,883 607,856 5,407,739 1,857,403 187,689 2,045,092 71,169 5,481 76,650 6,728,455 801,026 7,529,481 199,790 14,873 214,663 528,149 38,982 567,131 146,497 11,605 158,102 14,931 1,087 16,018 62,930 4,601 67,531 170,327 12,968 183,295 249,605 21,512 271,117 317,247 79,991 397,238 634,634 85,807 720,441 120,883 17,560 138,443 34,729 6,736 41,465 508,378 24,521 532,899 28,293 5,778 34,071 27,639 1,814 29,453 26,116 3,516 29,632 35,103 3,098 38,201 346,351 63,132 409,483 3,451,602 397,581 3,849,183 $ 24,853,201 $ 1,198,607 $ 26,051,808 Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT SCHEDULE OF CAPITAL ASSETS For the year ended June 30, 2014 Water Sewer Totals Land, Mineral and Water Rights: Land $ 78,558 $ - $ 78,558 Water rights 86,300 - 86,300 Mineral rights 63,650 - 63,650 Land rights and easements 385 58,526 58,911 Total Land, Mineral and Water Rights 228,893 58,526 287,419 Source of Supply: Wells 5,531,787 - 5,531,787 MWD connection 564,368 - 564,368 Total Source of Supply 6,096,155 - 6,096,155 Pumping Plant: Structures and improvements 12,865,109 - 12,865,109 Equipment 11,016,013 431,575 11,447,588 Total Pumping Plant 23,881,122 431,575 24,312,697 Water Treatment Plant: Structures and improvements 1,302,811 - 1,302,811 Equipment 1,827,761 - 1,827,761 Total Water Treatment Plant 3,130,572 - 3,130,572 Transmission and Distribution Plant: Mains 75,638,459 46,818,335 122,456,794 Reservoirs and tanks 61,484,568 - 61,484,568 Service and meter installation 5,971,232 2,668,246 8,639,478 Fire hydrants 6,756,453 - 6,756,453 Meters 9,141,505 - 9,141,505 Fire mains 717,746 - 717,746 Structures and improvements 2,599,123 - 2,599,123 Control system 2,018,428 33,485 2,051,913 Total Transmission and Distribution Plant 164,327,514 49,520,066 213,847,580 General Plant: Structures and improvements 13,154,085 - 13,154,085 Transportation equipment 1,728,783 1,182,655 2,911,438 Power operated equipment 549,710 - 549,710 Communication equipment 511,269 - 511,269 Computer equipment 1,848,902 238,071 2,086,973 Office furniture 1,098,711 - 1,098,711 Tools, shops and garage equipment 82,715 - 82,715 Other 4,650 - 4,650 Store equipment 60,241 - 60,241 Total General Plant 19,039,066 1,420,726 20,459,792 Construction in Progress 6,452,668 157,227 6,609,895 Total Capital Assets $ 223,155,990 $ 51,588,120 $ 274,744,110 See independent auditors' report. -56- Backup Material Distributed Less Than 72 Hours Prior to the Meeting STATISTICAL SECTION -57- Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank -58- Backup Material Distributed Less Than 72 Hours Prior to the Meeting YORBA LINDA WATER DISTRICT DESCRIPTION OF STATISTICAL SECTION CONTENTS June 30, 2014 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. 60 Revenue Capacity these schedules contain information to help the reader assess the District's most significant local revenue source, water sales. 62 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. 64 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. 66 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. 68 -59- Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Changes in Net Position Last Ten Fiscal Years Operating Expenses Variable Water Costs 14,673,144 Fiscal Year 12,275,853 11,268,306 Changes in Net Position: 2014 2013 2012 2011 Operating Revenues 3,849,183 4,222,398 3,811,125 3,686,333 Water Sales $ 28,376,082 $ 26,369,940 $ 24,998,673 $ 22,686,251 Sewer Revenues 1,762,816 1,762,039 1,785,804 1,274,579 Other Operating Revenues 1,047,625 723,577 848,238 1,035,545 Operating Expenses Variable Water Costs 14,673,144 13,509,336 12,275,853 11,268,306 Personnel Services 7,529,481 7,225,729 6,979,088 6,902,995 Supplies and Services 3,849,183 4,222,398 3,811,125 3,686,333 Depreciation 7,315,084 6,884,213 6,595,720 5,279,860 Operating Loss (2,180,369) (2,986,120) (2,029,071) (2,141,119) Nonoperating Revenues (Expenses) Property Taxes 1,394,722 1,340,916 1,273,855 1,258,769 Investment Income 145,048 137,569 277,137 274,152 Interest Expense (1,715,429) (1,781,416) (1,626,190) (1,172,503) Bond Issuance Costs - (192,410) - - Other Nonoperating Revenues 1,325,685 588,854 805,654 739,062 Other Nonoperating Expenses (47,948) (35,954) (108,984) (406,575) Total Nonoperating Revenues (Expenses) 1,102,078 57,559 621,472 692,905 Net Income (Loss) Before Capital Contributions and Extraordinary Items (1,078,291) (2,928,561) (1,407,599) (1,448,214) Capital Contributions 2,128,579 1,174,673 17,214,138 706,319 Extraordinary Items 5,000,000 - (5,000,000) - Changes in Net Position $ 6,050,288 $ (1,753,888) $ 10,806,539 $ (741,895) Net Position by Component: Net Investment in Capital Assets $ 161,494,158 $ 161,494,158 $ 161,672,565 $ 146,235,362 Restricted - - 9,598,420 12,620,256 Unrestricted 6,617,328 232,423 (6,228,771) (4,619,943) Total Net Assets $ 168,111,486 $ 161,726,581 $ 165,042,214 $ 154,235,675 Source: YLWD Audited Financial Statements -60- (Continued) Backup Material Distributed Less Than 72 Hours Prior to the Meeting Fiscal Year 2010 2009 2008 2007 2006 2005 $ 21,806,164 $ 19,626,738 $ 19,470,109 $ 18,944,233 $ 17,017,275 $ 14,533,021 1,275,980 1,259,723 1,247,907 806,897 778,275 750,771 1,102,143 439,302 380,175 393,285 382,917 427,430 10,688,318 10,859,328 10,516,507 10,703,037 8,930,535 7,920,218 6,677,757 6,498,959 5,751,384 5,276,878 4,635,464 4,294,020 3,576,147 4,151,058 4,361,512 3,395,303 2,877,288 2,699,842 5,153,891 4,167,958 3,572,726 3,445,868 2,923,288 2,578,420 (1,911,826) (4,351,540) (3,103,938) (2,676,671) (1,188,108) (1,781,278) 1,269,441 1,283,521 1,263,656 1,186,441 335,075 252,663 244,857 689,108 1,508,193 2,180,067 1,425,663 638,235 (1,170,498) (1,469,925) (824,387) (468,087) (472,163) (565,581) 589,201 479,911 270,429 455,067 534,385 416,778 (151,300) (177,553) (133,604) (138,501) (336,649) (179,526) 781,701 805,062 2,084,287 3,214,987 1,486,311 562,569 (1,130,125) (3,546,478) (1,019,651) 538,316 298,203 (1,218,709) 6,278,135 4,363,527 4,100,051 6,913,095 26,026,524 6,701,629 $ 5,148,010 $ 817,049 $ 3,080,400 $ 7,451,411 $ 26,324,727 $ 5,482,920 $ 146,877,122 $ 141,514,024 $ 139,677,663 $ 121,317,296 $ 106,376,683 $ 84,000,773 15,797,432 14,063,802 14,523,549 23,089,201 22,274,814 23,196,485 (7,696,984) (6,158,513) (4,898,647) 1,815,668 10,119,257 5,248,769 $ 154,977,570 $ 149,419,313 $ 149,302,565 $ 146,222,165 $ 138,770,754 $ 112,446,027 -61- Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Number of Connections Last Ten Fiscal Years NOTE: * $1.48 was approved January 1, 2005 Single Family Multi- Family Commercial/ Fiscal Year Residential Residential Industrial 2005 20,773 217 842 2006 21,300 217 847 2007 21,451 228 792 2008 21,580 228 840 2009 21,672 228 831 2010 21,846 228 837 2011 21,701 231 833 2012 22,064 240 829 2013 22,480 158 908 2014 22,586 230 892 NOTE: * $1.48 was approved January 1, 2005 25,000 20,000 — — 15,000 ■ Irrigation ■ Industrial 10,000 ■ Residential ■ Residential 5,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: YLWD Billing System -62- Direct Rate Irrigation (Billing Unit) 803 $ 1.48 838 1.57 868 1.57 857 1.79 855 2.52 877 2.52 879 2.52 846 2.52 933 2.64 876 2.70 25,000 20,000 — — 15,000 ■ Irrigation ■ Industrial 10,000 ■ Residential ■ Residential 5,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: YLWD Billing System -62- FY 2014 1 2 3 4 5 6 7 8 9 10 FY 2004* 1 2 3 4 5 7 6 8 9 10 Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Ten Largest Customers Current and Ten Years Ago Customer Name City of Yorba Linda Placentia -Yorba Linda USD Fairmont Hill Community Assoc. Archstone Apartments Yorba Linda Villages The Hills at Yorba, Linda Lake Park Mobil Home Community Woodgate Condominiums Kerrigan Ranch I1 Community Assoc. Aspetic Tech Customer Name City of Yorba, Linda Saba Petroleum Tac West Inc St Francis of Assissi Shigemi Muranaka Sunset Tropicals Placentia -Yorba Linda USD Costco Excell Circuits Yorba Linda Country Club NOTE: * Last available data Source: YLWD Billing Department Business Type Government Government Homeowners' Assoc. Apartment Complex Homeowners' Assoc. Homeowners' Assoc. Homeowners' Assoc. Homeowners' Assoc. Homeowners' Assoc. Manufacturing Business Type Government Manufacturer Manufacturer Private School Nursery Retail Government Nursery Retail Warehouse Retail Manufacturer Private Club -63- Annual Revenues $ 1,860,227.00 267,442.00 110,976.00 108,023.00 99,849.00 94,025.00 53,825.00 59,401.00 59,149.00 55,728.00 $ 2,768,645.00 Annual Revenues $ 1,162,249.51 27,162.94 18,409.96 13,001.84 12,303.44 9,493.13 9,381.26 8,933.78 8,893.10 8,453.53 $ 1,278,282.49 % of Total 5.96% 0.86% 0.36% 0.35% 0.32% 0.30% 0.17% 0.19% 0.19% 0.18% 8.88% % of Total 7.60% 0.18% 0.12% 0.09% 0.08% 0.06% 0.06 % 0.06% 0.06% 0.06% 8.36% Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Obligation Bonds Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Ratio of Outstanding Debt Last Ten Fiscal Years Certificates of OCWD Loan Participation Debt $ - $ 10,000,078 $ 10,000,078 - 9,873,717 9,873,717 - 10,540,139 10,540,139 - 45,502,080 45,502,080 - 44,911,092 44,911,092 - 44,065,104 44,065,104 - 43,189,117 43,189,117 - 42,278,129 42,278,129 - 42,009,722 42,009,722 - 40,970,599 40,970,599 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $2,500 $2,000 $1,500 $1,50000 $500 Total As a Share of Per Per Personal Connection Capita Income Composition of Debt Debt per Connection 441 $ 142 426 139 451 148 1,932 637 1,900 628 1,848 611 1,827 604 1,764 583 1,753 648 1,668 554 Partic OCWI Bond 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: YLWD Audited Financial Statements -64- 0.14% 0.14% 0.56% 0.55% 0.54% 0.52% 0.49% 0.52% 0.43% Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Debt Coverage Last Ten Fiscal Years Operating & Revenues _Maint. Costs $ 16,178 $ 19,563 23,036 22,822 22,514 24,417 25,912 27,818 27,055 29,309 14,230 $ 16,009 18,703 19,829 20,604 19,928 20,845 21,950 23,790 24,853 Debt Service Interest Net Revenues Principal 1,948 _ $ 1,760 $ 3,554 200 4,333 205 2,993 210 1,910 570 4,489 825 5,067 855 5,868 890 3,265 925 4,456 965 NOTE: Excludes depreciation and debt service payments Source: YLWD Audited Financial Statements -65- 299 $ 473 469 919 2,051 1,951 1,949 1,915 1,985 1,813 Total 2,059 673 674 1,129 2,621 2,776 2,804 2,805 2,910 2,778 Coverage Ratio 0.95 5.28 6.43 2.65 0.73 1.62 1.81 2.09 1.12 1.60 Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Demographics Last Ten Fiscal Years YLWD Year Population * City of YL Population Personal Income Personal Income per Capita 2005 70,364 65,382 $ 6,699,301,248 $ 95,209 2006 70,935 66,797 7,150,485,256 100,803 2007 71,258 67,904 7,623,582,080 106,986 2008 71,428 68,312 8,179,815,504 114,518 2009 71,507 68,852 8,239,633,400 115,228 2010 72,083 69,816 8,095,032,402 112,302 2011 71,520 70,681 8,233,404,978 115,120 2012 72,498 72,706 8,660,636,569 119,460 2013 64,861 65,777 8,040,383,024 123,963 2014 73,990 67,069 9,517,881,804 128,637 County of Orange Personal Income Year Population Unemployment Rate Personal Income per Capita 2005 3,047,054 4.3% $ 135,070,503 $ 44,328 2006 3,072,336 3.2% 145,435,581 47,337 2007 3,098,121 3.9% 150,214,330 48,486 2008^ 3,121,251 5.2% 157,828,108 50,566 2009^ 3,139,017 9.0% 159,710,562 50,879 2010 #^ 3,170,721 9.8% 150,467,328 47,455 2011 #^ 3,192,916 8.7% 155,323,766 48,646 2012^ 3,182,171 7.9% 160,637,055 50,480 2013^ 3,055,792 8.5% 160,072,905 52,383 2014 3,081,804 6.2% 168,966,068 54,827 NOTES: ^ No personal income data available for County of Orange, used State of California data. # No population data available for County of Orange, used State of California data. Sources: City of Yorba Linda CAFR County of Orange CAFR State of California, Employment Development Department State of California, Department of Finance -66- Backup Material Distributed Less Than 72 Hours Prior to the Meeting ^ Yorba Linda Water District Ten Largest Employers Current and Eight Years Ago 2014* 2006+ % of Total % of Total Labor Force Employees I 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 -67- Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Number of Employees Last Ten Fiscal Years Full Time Equivalent Employees by Department * 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NOTE: * Number of employees in each department are authorized and funded positions. Source: YLWD Human Resources Department -68- Operations IT 0 Resources Finance Engineering Department Fiscal Human Year Administration Engineering Finance Resources IT Operations Total 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 6.0 35.5 76.0 2011 5.5 11.0 14.0 3.0 7.0 37.0 77.5 2012 5.0 11.0 14.0 3.0 7.5 37.0 77.5 2013 5.0 11.0 14.0 4.5 7.5 37.0 79.0 2014 5.5 10.0 13.0 4.0 7.0 38.0 77.5 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NOTE: * Number of employees in each department are authorized and funded positions. Source: YLWD Human Resources Department -68- Operations IT 0 Resources Finance Engineering Fiscal Year Backup Material Distributed Less Than 72 Hours Prior to the Meeting Yorba Linda Water District Operating and Capacity Indicators Last Ten Fiscal Years Miles of Water Mains Installed* Yearly Water Production (MG) Average Production (MGD) Number of Field Service Calls 2005 3.64 7,042 19.3 1,460 2006 2.52 7,505 20.6 1,484 2007 9.72 8,360 22.9 1,565 2008 9.72 8,027 22.0 1,943 2009 9.72 7,590 20.8 1,674 2010 9.72 6,569 18.0 1,640 2011 2.00 6,282 17.2 1,924 2012 2.02 6,780 18.6 1,693 2013 1.10 7,099 18.6 1,561 2014 0.77 7,329 20.1 1,500 Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of Booster Pumps MG - Millions of Gallons MGD - Millions of Gallons per Day GPM - Gallon per Minute 11 11 11 11 11 11 12 12 12 12 NOTE: * Miles of Water Main estimated Sources: YLWD Asset Management Plan 2010 YLWD Operations Department Capacity by Booster Pump (GPM) 43,025 43,025 43,025 43,025 43,025 43,025 46,525 46,525 46,525 46,525 -69- Number of Reservoirs 11 11 11 11 12 12 14 14 14 14 Capacity by Reservoir (MG) 37 41 41 41 49 49 57 57 57 57 Backup Material Distributed Less Than 72 Hours Prior to the Meeting This page intentionally left blank -70- 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, 2014, and have issued our report thereon dated September 12, 2014. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government 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 April 22, 2014 and our meeting on planning matters on July 29, 2014. 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 policies was not changed during the year. We noted no transactions entered into by the 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. The most sensitive estimates affecting the financial statements were: a. Management's estimate of the fair market value of investments which is based on market values provided by outside sources. b. The estimated useful lives of capital assets for depreciation purposes which are based on industry standards. c. The value of the capital assets received as a contribution from developers was based on the developer's acquisition cost. d. The annual required contribution for the District's Other Post - Employment Benefits was prepared by an outside consultant. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Backup Material Distributed Less Than 72 Hours Prior to the Meeting Significant Audit Findings (Continued) Qualitative Aspects of Accounting Practices (Continued) 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 disclosures affecting the financial statements were 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, Note 7 regarding the defined benefit pension plan, and Note 11 regarding the settlement of the Freeway Complex Fire case. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing 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. The accounts payable balance was adjusted to reflect the balance in the detail schedule. b. The unbilled receivable balance was adjusted to correct the calculation of the amount. Disagreements 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 September 12, 2014. 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 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. -2- Backup Material Distributed Less Than 72 Hours Prior to the Meeting Significant Audit Findings (Continued) 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 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 Matters We applied certain limited procedures to management's discussion and analysis and OPEB schedule of funding progress, which are required supplementary information (RSI) that supplement the financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on combining schedule of net position, combining schedule of revenues, expenses and changes in net position, combining schedule of cash flows, schedule of operating expenses by cost center and nature of expenses for water and sewer, and schedule of capital assets, which accompany the financial statements but are not RSI. With respect to this supplementary information, 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. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Restriction on Use 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. Z�� � tLV,1) &,° Irvine, California September 12, 2014 -3- 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 A UDITING STANDARDS The Board of Directors Yorba Linda Water District Placentia, California We have audited, in accordance with the 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, the financial statements of the Yorba Linda Water District (the District) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District's financial statements and have issued our report thereon dated September 12, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. 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. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Backup Material Distributed Less Than 72 Hours Prior to the Meeting Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free from material misstatement, 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California September 12, 2014 -2- Meeting Date; To: From: Presented By Prepared By: Subject: SUMMARY: ITEM NO. 5.1 AGENDA REPORT September 18, 2014 Finance - Accounting Committee Marc Marcantonio, General Manager Delia Lugo, Finance Manager Dept: Finance Kelly McCann, Senior Accountant Investment Report for Period Ending August 31, 2014 Staff is submitting the Investment Reports for the Month Ending August 31, 2014 for the Committee's review. DISCUSSION: The Investment Portfolio Report presents the market value and percent yield for all 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 reserve categories. The total yield for the month ending August 31, 2014 is 0.63 %. The overall increase in the investment balance from the previous month is approximately $1,036,000. A couple of large balance changes include an increase in the Water Operating Reserve Fund of $472,167 due to a positive net effect between operating revenues and expenses through the reporting month of the Fiscal Year. An increase in Water Reserve for Debt Services Fund of $589,528 is due to a Debt Service principal and interest payment required in September 2014. STRATEGIC PLAN: FR 1 -F: Continue to Record and Report the Fairly Stated Financial Activities of the District in a Timely and Transparent Manner to the Board of Directors and Member Agencies ATTACHMENTS: Name: Invst Rpt 08- 14.xlsx Description: Investment Report for Period Ending August 2014 Type: Backup Material Invst Agenda Backup - August 2014.xlsx Agenda Backup Backup Material Yorba Linda Water District Investment Portfolio Report August 31, 2014 Market % Date of Percent Value Par of Total Institution Maturity Yield Checking Account. $ 84,391 $ 84,391 Wells Fargo Bank 77,041 77,041 Pershing $ 161,432 $ 161,432 0.56% Total 0.00% Money Market Accounts: $ 54,975 $ 54,975 37,241 37,241 4,117,601 $ 4,117,601 14.26% Federal Agency Securities: Wells Fargo Money Market 0.03% US Bank (Revenue Bonds) 0.03% Bank of the West 0.24% Total 0.24% $ 493,550 $ 500,000 Fannie Mae 05/25/18 1.13% 492,980 500,000 Federal Home Loan Bank 06/12/18 1.01% 498,740 500,000 Fannie Mae 06/12/18 0.85% 494,195 500,000 Federal Home Loan Bank 06/13/18 1.11% 494,430 500,000 Federal Home Loan Bank 06/20/18 1.13 % 2,111,130 2,124,676 Federal Home Loan Bank 05/24/17 0.88 % $ 4,585,025 $ 4,624,676 15.88% Total 05/14/18 0.97% Certificates of Deposits: $ 245,748 $ 248,000 Crf Bank, Salt Lake 05/22/18 1.21% 245,572 248,000 Discover 05/22/18 1.21% 245,991 248,000 Goldman Sachs Bank 05/22/18 1.20% 245,818 248,000 Beal Bank 05/23/18 1.00% 247,306 248,000 Wells Fargo 04/27/18 0.90% 244,639 247,000 Barclays Bank 04/30/18 0.70% 246,457 248,000 State Bank of India 05/14/18 1.15% 247,538 249,000 Webster Bank 05/03/18 0.90% 245,738 248,000 American Express Centurion Bank 05/23/18 1.21% 243,799 248,000 GE Capital Bank 05/24/18 1.11% 249,000 249,000 Merrick Bank 05/24/17 0.75% 248,000 248,000 BMW Bank 05/24/17 0.90% 249,396 249,000 Firstbank Puerto Rico 05/24/16 0.74% 246,724 249,000 Oriental Bank & Trust 05/29/18 1.05% 246,801 249,000 Silvergate Bank 05/30/18 1.00% 246,724 249,000 Enterprise Bank & TR Co Lowell 05/30/18 1.00% 246,704 249,000 Safm National Bank 05/31/18 1.00% 245,728 248,000 Townebank Portsmouth 05/31/18 1.00% 246,722 249,000 Mascoma Savings Bank 05/29/18 1.00 % $ 4,684,406 $ 4,719,000 16.22% Total 1.00% Pooled Investment Accounts: $ 5,934,001 $ 5,934,001 Local Agency Investment Fund 0.26 % 3,073 3,072 CalTRUST Short Term 0.39% 9,393,117 9,403,156 Ca1TRUST Medium Term 0.70% $ 15,330,190 $ 15,340,229 53.08% 0.53% $ 28,878,654 $ 28,9629938 100% Total Investments 0.63% 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. /A;—� Kelly D. McCann, Senior Accountant 8/31/14 Investment Summary Report Below is a chart summarizing the yields as well as terms and maturities for the month of August 2014: Average # of Month Portfolio Days to of 2014 Yield Maturity August 0.63% 413 Below is are charts comparing operating fund interest for current and prior fiscal years. Actual Interest 4.73% 8/31/2013 3.68% 8/31/2014 Monthly - August $ 7,775 $ 11,523 Year -to -Date $ 17,063 $ 18,689 Budget 1,009,253 2013/2014 2,125,861 2014/2015 Interest Budget, August YTD $ 14,500 $ 18,667 Interest Budget, Annual $ 87,000 $ 112,000 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: July 2014 % Alloc August 2014 % Alloc Fund Description Balance 7/31/2014 Balance 8/31/2014 Water Operating Reserve Water Emergency Reserve Water Capital Project Reserve Water Reserve for Debt Service Maintenance Reserve Employee Liability Reserve COP Revenue Bond 2008 - Reserve Sewer Operating Sewer Emergency Reserve Sewer Capital Project Reserve Water Operating Sewer Operating $ 1,300,815 4.73% 1,010,584 3.68% 16,665,947 60.65% 2,730,550 9.94% 200,091 0.73% 200,114 0.73% 2,143,759 7.80% 92,869 0.34% 1,009,253 3.67% 2,125,861 7.74% $ 27,479,843 100.00% Wells Fargo Bank Checking 223,554 139,754 363,308 $ 2,035,776 7.07% 1,013,152 3.52% 16,694,667 57.98% 3,320,078 11.53% 150,335 0.52% 200,153 0.70% 2,148,371 7.46% 92,904 0.32% 1,011,092 3.51% 2,127,735 7.39% $ 28,794,263 100.00% (39,240) 123,631 84,391 Totals $ 27,843,151 $ 28,878,654 Meeting Date: To: From: Presented By Prepared By: Subject: DISCUSSION: ITEM NO. 5.2 AGENDA REPORT September 18, 2014 Finance - Accounting Committee Marc Marcantonio, General Manager Delia Lugo, Finance Manager Dept: Finance Kelly McCann, Senior Accountant Budget to Actual Results for August 2014 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 August 2014. For the month of August 2014, the District water revenue is 20.85% of annual budget, which is 2.55% lower than the historical trend for this point in the year. The majority of the Water Fund's Individual Supplies and Services expenses are below budget, with the exceptions of Dues & Memberships and Maintenance due to the previous month reported reasons. In addition, materials is presented at 20.92% of annual budget due to purchases pertaining to replacement meters, water service repair parts and hydrant repair parts, and Vehicle Equipment is presented at 22.10% of annual budget due to costs related to vehicle maintenance costs. Overall, Sewer Supplies and Services expenses are trending below budget, with the same exceptions noted in the water fund. STRATEGIC PLAN: FR 1 -F: Continue to Record and Report the Fairly Stated Financial Activities of the District in a Timely and Transparent Manner to the Board of Directors and Member Agencies ATTACHMENTS: Name: August 2014 consolidated stmt.xlsx August 2014 Water Stmt.xlsx August 2014 Sewer Stmt.xlsx Description: Aug 2014 Consolidated Stmt August 2014 Water Stmt August 2014 Sewer Statement Type: Backup Material Backup Material Backup Material Revenue (Operating): Water Revenue (Residential) Water Revenue (Commercial & Fire Det.) Water Revenue (Landscape /Irrigation) Water Revenue (Service Charge) Sewer Charge Revenue Locke Ranch Assessments Other Operating Revenue Total Operating Revenue: Revenue (Non- Operating): Interest Property Tax Other Non - Operating Revenue Total Non - Operating Revenue: Total Revenue Expenses (Operating) Yorba Linda Water District Summary Financial Report Water & Sewer Funds For Two Months Ending August 31, 2014 Annual YTD Aug YTD YTD YTD Budget Budget Actual Actual Under(Over) % of FY 2015 FY 2015 FY 2015 FY 2015 Budget Budget $17,154,552 $2,859,092 $1,627,633 $3,643,709 $13,510,843 21.24% 2,074,097 345,683 176,004 392,583 1,681,514 18.93% 4,792,995 798,833 505,116 1,095,932 3,697,063 22.87% 4,478,000 746,333 420,484 790,022 3,687,978 17.64% 1,605,292 267,549 133,342 270,059 1,335,233 16.82% 201,000 33,500 116 116 200,884 0.06% 719,777 119,963 90,047 180,961 538,816 25.14% 31,025,713 5,170,952 2,952,742 6,373,382 24,652,331 20.54% 112,000 18,667 11,523 18,689 93,311 16.69% 1,283,642 213,940 8,026 8,026 1,275,616 0.63% 533,525 88,921 74,963 90,931 442,594 17.04% 1,929,167 321,528 94,512 117,646 1,811,521 6.10% 32,954,880 5,492,480 3,047,254 6,491,028 26,463,852 19.70% Variable Water Costs (G.W., Import & Power) 14,928,972 2,488,162 1,539,229 3,233,429 11,695,543 21.66% Salary Related Expenses 8,224,812 1,370,802 806,409 1,242,971 6,981,841 15.11% Supplies & Services 4,389,840 731,640 261,794 577,592 3,812,248 13.16% Total Operating Expenses 27,543,624 4,590,604 2,607,432 5,053,992 22,489,632 18.35% Expenses (Non- Operating): 7,337,500 1,222,917 613,426 1,226,852 6,110,648 16.72% Interest on Long Term Debt 1,780,793 296,799 141,791 283,582 1,497,211 15.92% Other Expense 72,000 12,000 573 (8,352) 80,352 - 11.60% Total Non- Operating Expenses: 1,852,793 308,799 142,364 275,230 1,577,563 14.85% Total Expenses 29,396,416 4,899,403 2,749,796 5,329,222 24,067,194 18.13% Net Income (Loss) Before Capital Contributions 3,558,464 593,077 297,458 1,161,806 2,396,658 32.65% Capital Contributions - - - 1,177 1,177 0.00% Net Income (Loss) Before Depreciation 3,558,464 593,077 297,458 1,162,983 2,397,835 32.68% Depreciation & Amortization 7,337,500 1,222,917 613,426 1,226,852 6,110,648 16.72% Total Net Income (Loss) ($3,779,036) ($629,839) ($315,968) ($63,869) ($3,715,167) 1.69% Yorba Linda Water District Water Fund For Two Months Ending August 31, 2014 Annual YTD Aug YTD YTD YTD Budget Budget Actual Actual Under(Over) % of Annual FY 2015 FY 2015 FY 2015 FY 2015 FY Budget Budget Revenue (Operating) Water Revenue (Residential) $17,154,552 $2,859,092 $1,627,633 $3,643,709 $13,510,843 21.24% Water Revenue (Commercial & Fire Det.) 2,074,097 345,683 176,004 392,583 1,681,514 18.93% Water Revenue (Landscape /Irrigation) 4,792,995 798,833 505,116 1,095,932 3,697,063 22.87% Water Revenue (Service Charge) 4,478,000 746,333 420,484 790,022 3,687,978 17.64% Other Operating Revenue 670,003 111,667 85,895 160,738 509,265 23.99% Total Operating Revenue: 29,169,647 4,861,608 2,815,132 6,082,984 23,086,663 20.85% Revenue (Non- Operating): 3,015,880 502,647 285,858 1,057,644 1,958,236 35.07% Interest 100,000 16,667 10,319 17,475 82,525 17.48% Property Tax 1,283,642 213,940 8,026 8,026 1,275,616 0.63% Other Non - Operating Revenue 521,600 86,933 72,965 92,927 428,673 17.82% Total Non - Operating Revenue: 1,905,242 317,540 91,310 118,428 1,786,814 6.22% Total Revenue 31,074,889 5,179,148 2,906,442 6,201,412 24,873,477 19.96% Expenses (Operating): Variable Water Costs (G.W., Import & Power) 14,928,972 2,488,162 1,539,229 3,233,429 11,695,543 21.66% Salary Related Expenses 7,363,472 1,227,245 696,431 1,099,907 6,263,565 15.71% Supplies & Services: Communications 273,786 45,631 15,480 29,992 243,794 10.95% Contractual Services 521,451 86,909 41,092 72,218 449,233 13.85% Data Processing 173,752 28,959 5,086 5,124 168,628 2.95% Dues & Memberships 72,321 12,054 1,082 23,413 48,908 32.37% Fees & Permits 169,437 28,240 9,079 10,747 158,690 6.34% Board Election 69,750 11,625 - - 69,750 0.00% Insurance 291,406 48,568 91 91 291,315 0.03% Materials 579,369 96,562 75,413 121,226 458,143 20.92% District Activities, Emp Recognition 22,980 3,830 249 407 22,573 1.77% Maintenance 394,416 65,736 19,991 110,691 283,725 28.06% Non - Capital Equipment 132,525 22,088 18,176 26,355 106,170 19.89% Office Expense 37,642 6,274 3,382 4,753 32,889 12.63% Professional Services 672,197 112,033 14,570 47,537 624,660 7.07% Training 58,571 9,762 4,398 7,505 51,066 12.81% Travel & Conferences 42,129 7,022 1,063 2,420 39,709 5.74% Uncollectible Accounts 37,200 6,200 (83) (78) 37,278 -0.21% Utilities 83,700 13,950 4,741 10,673 73,027 12.75% Vehicle Equipment 281,139 46,857 28,750 62,128 219,011 22.10% Supplies & Services Sub -Total 3,913,772 652,295 242,560 535,202 3,378,570 13.67% Total Operating Expenses 26,206,216 4,367,703 2,478,220 4,868,538 21,337,678 18.58% Expenses (Non- Operating): Interest on Long Term Debt 1,780,793 296,799 141,791 283,582 1,497,211 15.92% Other Expense 72,000 12,000 573 (8,352) 80,352 - 11.60% Total Non - Operating Expenses: 1,852,793 308,799 142,364 275,230 1,577,563 14.85% Total Expenses 28,059,009 4,676,501 2,620,584 5,143,768 22,915,241 18.33% Net Income (Loss) Before Capital Contributions 3,015,880 502,647 285,858 1,057,644 1,958,236 35.07% Capital Contributions - - - - - 0.00% Net Income (Loss) Before Depreciation 3,015,880 502,647 285,858 1,057,644 1,958,236 35.07% Depreciation & Amortization 5,992,500 998,750 501,503 1,003,006 4,989,494 16.74% Total Net Income (Loss) ($2,976,620) ($496,103) ($215,645) $54,638 ($3,031,258) -1.84% Capital - Direct Labor (30,882) (57,184) Yorba Linda Water District Sewer Fund For Two Months Ending August 31, 2014 Annual YTD Aug YTD YTD YTD Budget Budget Actual Actual Under(Over) % of Annual FY 2015 FY 2015 FY 2015 FY 2015 Budget Budget Revenue (Operating) Sewer Charge Revenue $1,605,292 $267,549 $133,342 $270,059 $1,335,233 16.82% Locke Ranch Assessments 201,000 33,500 116 116 200,884 0.06% Other Operating Revenue 49,774 8,296 4,152 20,223 29,551 40.63% Total Operating Revenue: 1,856,066 309,344 137,610 290,398 1,565,668 15.65% Revenue (Non- Operating): 542,585 90,431 11,597 104,162 438,423 19.20% Interest 12,000 2,000 1,205 1,215 10,785 10.13% Other Non - Operating Revenue 11,925 1,988 1,998 (1,996) 13,921 - 16.74% Total Non - Operating Revenue: 23,925 3,988 3,203 (781) 24,706 -3.26% Total Revenue 1,879,991 ($133,736) ($100,326) ($118,508) ($683,907) 14.77% 313,332 140,813 289,617 1,590,374 15.41% Expenses (Operating): Salary Related Expenses 861,340 143,557 109,978 143,064 718,276 16.68% Supplies & Services: Communications 21,108 3,518 1,165 2,257 18,851 10.69% Contractual Services 39,249 6,542 3,088 5,436 33,813 13.85% Data Processing 13,078 2,180 383 386 12,692 2.95% Dues & Memberships 5,744 957 81 1,762 3,982 30.68% Fees & Permits 16,753 2,792 468 724 16,029 4.32% Board Election 5,250 875 - - 5,250 0.00% Insurance 21,934 3,656 7 7 21,927 0.03% Materials 78,756 13,126 2,108 7,185 71,571 9.12% District Activities, Emp Recognition 1,730 288 19 24 1,706 1.39% Maintenance 112,605 18,768 1,641 1,970 110,635 1.75% Non - Capital Equipment 19,475 3,246 2,136 6,413 13,062 32.93% Office Expense 2,833 472 255 358 2,475 12.64% Professional Services 39,413 6,569 1,097 3,567 35,846 9.05% Training 6,609 1,101 319 1,421 5,188 21.50% Travel & Conferences 4,371 728 80 182 4,189 4.16% Uncollectible Accounts 2,800 467 (17) (12) 2,812 -0.43% Utilities 7,100 1,183 421 934 6,166 13.15% Vehicle Equipment 77,261 12,877 5,987 9,777 67,484 12.65% Supplies & Services Sub -Total 476,066 79,344 19,238 42,391 433,675 8.90% Total Operating Expenses 1,337,406 222,901 129,216 185,455 1,151,951 13.87% Expenses (Non- Operating) Interest Expense - 0.00% Other Expense - - - 0.00% Total Non - Operating Expenses: - - - - - 0.00% Total Expenses 1,337,406 222,901 129,216 185,455 1,151,951 13.87% Net Income (Loss) Before Capital Contributions 542,585 90,431 11,597 104,162 438,423 19.20% Capital Contributions - - - 1,176 1,176 0.00% Net Income (Loss) Before Depreciation 542,585 90,431 11,597 105,338 439,599 19.41% Depreciation & Amortization 1,345,000 224,167 111,923 223,846 1,121,154 16.64% Total Net Income (Loss) ($802,415) ($133,736) ($100,326) ($118,508) ($683,907) 14.77% Capital - Direct Labor (596)