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Wastewater Segment 2012 Final Report THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT FINANCIAL STATEMENTS JUNE 30, 2012 AND 2011 Contents Page Independent Auditors’ Report ..................................................... 1 - 2 Management’s Discussion And Analysis .................................. 3 - 10 Financial Statements Statements Of Net Position ........................................................ 11 - 12 Statements Of Revenues, Expense And Changes In Net Position ................................................................ 13 Statements Of Cash Flows ......................................................... 14 - 15 Notes To Financial Statements .................................................. 16 - 57 Required Supplementary Information Required Supplementary Information - Schedule Of Funding Progress - Employees’ Pension Plan And Post Employment Benefit Plan .............................................................. 58 Independent Auditors’ Report Board of Trustees The Metropolitan St. Louis Sewer District We have audited the accompanying financial statements of The Metropolitan St. Louis Sewer District - Wastewater Segment (the Wastewater Segment) as of and for the year ended June 30, 2012. These financial statements are the responsibility of the Wastewater Segment’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Wastewater Segment, as of and for the year ended June 30, 2011, were audited by other auditors, whose report dated November 8, 2011, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Wastewater Segment’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the basic financial statements of the Wastewater Segment are intended to present the financial position, and the changes in financial position and cash flows of only that portion of The Metropolitan St. Louis Sewer District (the District) that is attributable to the Wastewater Segment. They do not purport to, and do not, present fairly the financial position of the District as of June 30, 2012, and its changes in its financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Board of Trustees The Metropolitan St. Louis Sewer District Page 2 In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Wastewater Segment as of June 30, 2012, and the respective changes in financial position and cash flows thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the financial statements, the Wastewater Segment adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, in 2012. Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and the Schedule Of Funding Progress for the Employees’ Pension Plan and Other Post-Employment Benefit Plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. January 8, 2013 THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Page 3 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Years Ended June 30, 2012 And 2011 The annual report of The Metropolitan St. Louis Sewer District - Wastewater Segment (the Wastewater Segment) includes the independent auditors’ report, management’s discussion and analysis (“MD&A”), and the financial statements accompanied by notes essential to the user’s understanding of the financial statements. Management of The Metropolitan St. Louis Sewer District (the District) has provided this MD&A to be used in combination with the Wastewater Segment’s financial statements. This narrative is intended to provide the reader with more insight into management’s knowledge of the transactions, events, and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District’s operations. 2011 was the first year the District presented Wastewater Segment financial statements. 2012 Financial Highlights  The Wastewater Segment placed $146.8 million of capital assets into service during fiscal year 2012. This high level of capitalization occurred to more precisely reflect the timing of placement into service of the Wastewater Segment’s plants and systems. These capitalized assets include: Collection and pumping plant $ 90.5 million Treatment and disposal plant and equipment $ 41.0 million Land $ 8.4 million General plant and equipment $ 6.9 million In conjunction with this capitalization of assets, the Wastewater Segment had depreciation expense of $56.5 million.  Operating expenses decreased by $25.3 million due to a decrease in water back- up claims, a decrease in litigation claims, and a decrease in asset management costs as more costs were shifted for capital projects. 2011 Financial Highlights  The Wastewater Segment placed $285.9 million of capital assets into service during fiscal year 2011. This high level of capitalization occurred to more precisely reflect the timing of placement into service of the Wastewater Segment’s plants and systems. These capitalized assets include: Treatment and disposal plant and equipment $ 236.9 million Collection and pumping plant $ 24.6 million General plant and equipment $ 15.4 million Land $ 9.0 million In conjunction with this capitalization of assets, the Wastewater Segment had depreciation expense of $56.4 million. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 4 Required Financial Statements The financial statements presented by the management of the Wastewater Segment include the Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; and Statement of Cash Flows. These statements are prepared using the accrual basis of accounting. This method of accounting recognizes revenue at the time it is earned and expense when the related liability occurs. As a result of using this method of accounting, the Wastewater Segment’s performance over the time period being reported is more easily determinable. The Statement of Net Position provide a report of the Wastewater Segment’s current, restricted, and other noncurrent assets such as cash, investments, receivables, and property. Also, the Statements of Net Position provide a summary of the Wastewater Segment’s current, restricted, and noncurrent liabilities, including contracts and accounts payable, deposits and accrued expenses, and bond and notes payable. The final section of the Statements of Net Position, the net position section, contains earnings retained for use by the Wastewater Segment. Increases or decreases in the net position section may be indicative of an improving or declining financial position. This statement provides the basis for computing rate of return, evaluating the capital structure of the Wastewater Segment, and assessing the liquidity and financial flexibility of the Wastewater Segment. The Statement of Revenues, Expenses, and Changes in Net Position summarize the year’s revenue and expense. This statement indicates how successful the Wastewater Segment was at maintaining expense below the level of revenue earned. The Statement of Cash Flows accounts for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, noncapital financing activities, capital and related financing activities, and investing activities. This statement assists the user in determining the sources of cash coming into the Wastewater Segment, the items for which cash was expended, and the beginning and ending cash balance. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 5 Condensed Financial Statements and Analysis Increase 2011 (Decrease) 2012 (As Restated) 2012-2011 Assets: Current, restricted, and other assets 344,802$ 340,936$ 3,866$ Capital assets (net of accumulated depreciation) 2,070,542 1,994,612 75,930 Total Assets 2,415,344 2,335,548 79,796 Liabilities: Current liabilities 79,073 95,660 (16,587) Noncurrent liabilities 651,916 574,445 77,471 Total Liabilities 730,989 670,105 60,884 Net Position: Net investment in capital assets 1,458,317 1,440,349 17,968 Restricted 53,074 45,951 7,123 Unrestricted 172,964 179,143 (6,179) Total Net Position $ 1,684,355 $ 1,665,443 18,912$ Condensed Statements of Net Position (000s) 2012 Analysis Current restricted and other assets increase by $3.9 million or 1%. The increase is predominately due to the restricted cash and investments required as part of the new debt issuance in 2012. Capital assets net of accumulated depreciation increased by $75.9 million or 3.8% as the result of continued high levels of construction and acquisition of assets by the Wastewater Segment. Current liabilities decreased by $16.6 million or 17.3%, as the result of decreases in contracts and accounts payable from the prior year water back-up claims payables and litigation costs paid in 2011. Noncurrent liabilities increased by $77.5 million or 13.5% as the Wastewater Segment issued $93.3 million in new debt and paid down existing debt. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 6 Increase 2011 (Decrease) 2012 (As Restated) 2012-2011 Operating Revenues: Sewer service charges 226,328$ 218,469$ 7,859$ Provision for doubtful sewer service charge accounts (6,680) (6,249) (431) Licenses, permits, and other fees 2,684 2,976 (292) Other 2,550 1,815 735 Total Operating Revenues 224,882 217,011 7,871 Non-operating Revenues: Property taxes levied by the district 17 6 11 Investment income 2,058 3,202 (1,144) Rent and other income 295 443 (148) Total Non-operating Revenues 2,370 3,651 (1,281) Total Revenues 227,252 220,662 6,590 Operating Expenses: Pumping and treatment 49,005 50,532 (1,527) Collection system maintenance 29,409 23,098 6,311 Engineering 2,422 6,365 (3,943) General and administrative 33,713 36,075 (2,362) Water backup claims 1,517 8,912 (7,395) Depreciation 56,460 56,403 57 Asset management 19,166 35,590 (16,424) Total Operating Expenses 191,692 216,975 (25,283) Non-operating Expenses: Net gain on disposal and sale of capital assets 2,881 3,374 (493) Non-recurring projects and studies 1,539 8,691 (7,152) Interest expense 15,811 7,971 7,840 Total Non-operating Expenses 20,231 20,036 195 Total Expenses 211,923 237,011 (25,088) Income Before Capital Contributions 15,329 (16,349) 31,678 Capital contributions 3,583 5,343 (1,760) Change in Net Position 18,912 (11,006) 29,918 Net Position - Beginning of Year, As Previously Stated 1,665,443 1,685,262 (19,819) Prior Period Adjustment — (8,813) 8,813 Net Position - Beginning of Year, As Restated 1,665,443 1,676,449 (11,006) Net Position - End of Year $ 1,684,355 $ 1,665,443 18,912$ Statements of Revenues, Expenses, and Changes in Net Position (000s) 2012 Analysis Net position increased by $18.9 million or 1.1% over the prior year. While revenue increased slightly over the prior year, expenses decreased rapidly, as more Wastewater Segment resources were targeted toward capital projects. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 7 Total revenue increased by $6.6 million or 3.0%. Sewer service charges increased $7.9 million, increasing operating revenue by $7.9 million. At the same time, property tax revenue remained relatively unchanged, increasing by $11 thousand. Investment income declined by $1.1 million as a result of low interest rates. Total expenses decreased by $25.1 million or 10.6%. Operating expenses decreased by $25.3 million. Asset management decreased $16.4 million as costs were eliminated and water back-up claims decreased $7.4 million from the non-repetition of overland flooding in the prior year. Non-operating expenses increased by $200 thousand. Non- recurring projects and studies decreased by $7.2 million as more projects remained capital in nature. Interest expenses increased by $7.8 million in connection with new debt issuance. Increase (Decrease) 2012 2011 2012-2011 Cash flows from operating activities $ 79,440 $ 64,382 $ 15,058 Cash flows from non-capital financing activities 17 6 11 Cash flows from capital and related financing (78,271) (130,523) 52,252 Cash flows from investing activities 8,184 60,687 (52,503) Net increase (decrease) in cash and cash equivalents 9,370 (5,448) 14,818 Cash and cash equivalents at beginning of year 6,319 11,767 (5,448) Cash and cash equivalents at end of year 15,689$ 6,319$ 9,370$ Condensed Statements of Cash Flows (000s) 2012 Analysis The Wastewater Segment ended the year with $15.7 million in cash and cash equivalents or $9.4 million more than the prior year. Cash flows from operating activities increased by $15.1 million as the result of the decrease in litigation and water backup costs noted above. Cash flows from non-capital financing activities increased by $0.1 million or 66.3% from a small increase in tax revenue. Cash flow from capital and related financing activities increased by $52.3 million as the result of new bond proceeds offset by payments for capital improvement. Cash flows from investing activities declined by $52.5 million or 641.6%. The decline mostly stems from less volume in the purchases and maturities of investments. In FY11, there were less bond proceeds available for reinvestment, instead maturities were used to fund capital expenditures. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 8 Capital Assets Condensed Statements of Capital Assets Net of Depreciation (000s) Increase (Decrease) 2012 2011 2012-2011 Land 40,669$ 32,246$ 8,423$ Construction in progress 366,063 378,302 (12,239) Treatment and disposal plant and equipment 611,249 597,316 13,933 Collection and pumping plant 1,022,136 955,979 66,157 General plant and equipment 30,425 30,770 (345) Total 2,070,542$ 1,994,613$ 75,929$ 2012 Analysis Total capital assets, net of depreciation, increased by $75.9 million over the prior year. Collection and pumping plants contained the majority of the increase with $66.2 million coming on-line this fiscal year. Construction in progress decreased by $12.2 million as $146.9 million in constructed assets were moved into service. Treatment and disposal plant and equipment increased by $13.9 million. Land contributed $8.4 million from acquisition of easements and other land. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 9 Long-Term Debt Condensed Statements of Long-Term Debt (000s) (Decrease) 2012 2011 2012-2011 Senior Revenue Bonds: Series 2004A $ 163,630 $ 165,590 $ (1,960) Series 2006C 60,000 60,000 — Series 2008A 30,000 30,000 — Series 2010B 85,000 85,000 — Series 2011B 52,250 — 52,250 Subordinate Revenue: Series 2004B 115,960 123,055 (7,095) Series2005A 5,055 5,370 (315) Series 2006A 34,225 36,335 (2,110) Series 2006B 11,620 12,285 (665) Series 2008AB 33,833 35,610 (1,777) Missouri DNR: Series 2009A 21,085 22,053 (968) Series 2010A 5,880 2,852 3,028 Series 2010C 35,519 329 35,190 Series 2011A 1,007 — 1,007 Energy Loan Program 237 25 212 Oracle/Blue Heron 3,096 6,096 (3,000) Total $ 658,397 $ 584,600 $ 73,797 2012 Analysis The Wastewater Segment ended fiscal year 2012 with $658.4 million in long-term debt outstanding. The Wastewater Segment had two bond additions this year, a senior revenue bond (Series 2011B) for $52.3 million and an SRF Bond (2011A) for $1.0 million and added to SRF bonds 2010C ($35.2M) and 2010A ($3.0M). THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Management’s Discussion And Analysis (Continued) Page 10 Decisions Impacting the Future On July 7, 2011, the District entered into a Consent Decree (CD) with the U.S. Environment Protection Agency and the Coalition for the Environment settling a lawsuit for alleged violations of the Clean Water Act. Along with providing a schedule for implementation of various system improvements and programs, the Consent Decree also addressed all allegations made by the Plaintiffs in this action. The public comment period ended October 10, 2011. The Court extended the stay of litigation until November 18, 2011, with a joint status report due on November 25, 2011. The CD did not become final until it was entered by the Federal Court on April 27, 2012. See note 12 for additional information regarding this litigation. The District continued to implement the second phase of its multi decade wastewater capital improvement replacement program (CIRP) utilizing the proceeds of a $275.0 million bond authorization granted by St. Louis voters in August 2008. The remainder of this phase of the CIRP included the design and construction of $131.0 million of capital improvements through 2012. These regulatory required projects included completion of the Lemay Treatment Plant expansion, pump station improvements, and sewage collection system replacement and rehabilitation. The next phase of the capital program is reflected in the $1 billion of projects through FY16 in order to comply with the CD. At an election held on June 5, 2012, voters within the District approved the issuance by the District of $945,000,000 in sewer system revenue bonds to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. In August of 2012 the District issued the first $225,000,000 in bonds under this authorization, which will fund capital expenditures for the next two years. Requests for Information This financial report is designed to provide a general overview of the Wastewater Segment’s finances for all those with an interest in the Wastewater Segment’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed or e-mailed to: Janice M. Zimmerman, Director of Finance The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 314-768-6200 jzimmer@stlmsd.com THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT See the accompanying notes to the financial statements. Page 11 STATEMENTS OF NET POSITION 2011 2012 (As Restated) Current Assets Cash                                                 15,322,804$ 6,229,447$ Pooled cash and investments                          158,956,091 182,960,672 Investments                                          42,931,034 31,200,375 Sewer service charges receivable, less allowance of 34,399,613 34,927,160 $4,017,432 in 2012 and $4,021,238 in 2011 Unbilled sewer service charges receivable, less allowance of 18,029,381 16,338,975 $360,588 in 2012 and $324,577 in 2011 Accrued income on investments                        435,894 759,812 Other receivables                      928,832 757,176 Supplies inventory                                   6,301,034 6,961,285 Total current assets                            277,304,683 280,134,902        Noncurrent Assets Restricted Assets Cash                                                 365,906 89,487 Pooled cash and investments                          18,065,703 14,556,964 Investments                                          34,495,472 31,133,772 Accrued income on investments                        152,932 256,296                                                             53,080,013 46,036,519 Other Assets Notes receivable                                     14,417,074 14,764,507        Capital Assets Depreciable: Treatment and disposal plant and equipment           1,011,798,185 979,444,620 Collection and pumping plant                         1,456,888,080 1,368,853,520 General plant and equipment                          75,142,828 70,070,216                                                             2,543,829,093 2,418,368,356 Less:  Accumulated depreciation                      880,018,764 834,303,910 Net depreciable assets       1,663,810,329 1,584,064,446        Nondepreciable: Land                                                 40,668,968 32,245,624 Construction in progress                             366,062,792 378,302,186 Net capital assets                                2,070,542,089 1,994,612,256        Total Noncurrent Assets                         2,138,039,176 2,055,413,282        Total Assets                               2,415,343,859 2,335,548,184 June 30, Assets THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT See the accompanying notes to the financial statements. Page 12 STATEMENTS OF NET POSITION (Continued) Liabilities 2011 2012 (As Restated)        Current Liabilities Contracts and accounts payable                       25,565,244$ 45,362,599$ Deposits and accrued expenses                        22,949,200 24,629,171 Retainage payable                                    8,694,165 6,198,659 Current portion of bonds and notes payable           21,857,998 19,383,825                                                             79,066,607 95,574,254 Current Liabilities-Payable From Restricted Assets Contracts and accounts payable                       6,318 23,926 Retainage                                            — 61,843                                                             6,318 85,769 Total current liabilities                       79,072,925 95,660,023        Noncurrent Liabilities Deposits and accrued expenses                        9,572,545 8,365,378 Bonds and notes payable                              642,343,569 566,079,709                                                             651,916,114 574,445,087        Total Liabilities                     730,989,039 670,105,110 Net Position Net investment in capital assets 1,458,317,373 1,440,349,187 Restricted for: Debt service                                       39,892,760 34,395,643 Subdistrict construction and improvement           13,180,935 11,555,107 Unrestricted                                         172,963,752 179,143,137 Total Net Position                     1,684,354,820$ 1,665,443,074$   Net Position June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT See the accompanying notes to the financial statements. Page 13 STATEMENTS OF REVENUES, EXPENSE AND CHANGES IN NET POSITION For The Years Ended June 30, 2011 2012 (As Restated) Operating Revenues Sewer service charges                                   226,328,059$ 218,469,094$ Provision for doubtful sewer service charge accounts (6,680,112) (6,248,681) Licenses, permits, and other fees                       2,683,823 2,976,253 Other                                                   2,550,316 1,814,694 Total Operating Revenues                              224,882,086 217,011,360        Operating Expenses Pumping and treatment                                   49,005,251 50,532,451 Collection system maintenance                           29,408,708 23,098,094 Engineering                                             2,422,516 6,364,864 General and administrative                              33,712,843 36,075,000 Water backup claims                                     1,517,247 8,911,970 Depreciation                                            56,460,108 56,403,291 Asset management 19,165,737 35,589,766 Total Operating Expenses                             191,692,410 216,975,436          Operating Income                                          33,189,676 35,924        Non-Operating Revenues Property taxes levied by the District                   17,287 5,834 Investment income                                       2,058,300 3,202,219 Rent and other income                                   294,591 442,968 Total Non-Operating Revenues                          2,370,178 3,651,021        Non-Operating Expenses Net loss on disposal and sale of capital assets         2,881,499 3,373,995 Non-recurring projects and studies                       1,538,997 8,690,446 Interest expense                                        15,811,045 7,971,088 Total Non-Operating Expenses                          20,231,541 20,035,529        Income (Loss) Before Capital Contributions                       15,328,313 (16,348,584)        Capital Contributions Utility plant contributed                               3,419,840 3,055,730 Grant revenue                                           163,593 2,286,825 Total Capital Contributions                          3,583,433 5,342,555        Change In Net Position                                     18,911,746 (11,006,029) Net Position-Beginning Of Year, As Previously Stated 1,665,443,074 1,685,262,180 Prior Period Adjustments — (8,813,077) Net Position-Beginning Of Year, As Restated      1,665,443,074 1,676,449,103        Net Position-End Of Year                                    1,684,354,820$ 1,665,443,074$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT See the accompanying notes to the financial statements. Page 14 STATEMENTS OF CASH FLOWS Ended June 30, 2012 2011 Cash Flows From Operating Activities Received from customers 224,012,490$ 214,709,285$ Paid to employees for services (85,434,376) (85,069,139) Paid to suppliers for goods and services (59,138,445) (65,257,485) Net Cash Provided By Operating Activities 79,439,669 64,382,661 Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected 17,287 5,833 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 164,164 2,293,155 Proceeds from issuance of debt 93,347,308 4,539,018 Premium on sale of bonds 6,104,835 — Interest received on bond proceeds to be used for capital improvements 141,569 666,548 Principal paid on debt (19,551,825) (17,515,733) Interest and fees paid on debt (25,391,770) (22,386,543) Payments for capital assets (134,909,741) (99,958,334) Proceeds from sale of capital assets 82,464 96,658 Build America bond tax credit 1,742,160 1,742,160 Net Cash Used In Capital And Related Financing Activities (78,270,837) (130,523,071) Cash Flows From Investing Activities Purchase of investments (447,054,545) (547,231,229) Proceeds from sale and maturity of investments 450,837,744 602,607,158 Investment income 4,105,867 4,867,805 Proceeds from rents 294,591 442,968 Net Cash Provided By Investing Activities 8,183,657 60,686,702 Net Increase (Decrease) In Cash And Cash Equivalents 9,369,776 (5,447,875) Cash And Cash Equivalents At Beginning Of Year 6,318,934 11,766,809 Cash And Cash Equivalents At End Of Year 15,688,710$ 6,318,934$ Noncash Capital And Investing Activities: Capital asset additions included in accounts payable 11,265,187$ 7,855,206$ Portion of utility plant contributed represented by: Utility plant contributed by other governments and developers 3,419,840 3,055,730 Fair value investment adjustment gain (577,137) 127,904 For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT See the accompanying notes to the financial statements. Page 15 STATEMENTS OF CASH FLOWS (Continued) Ended June 30, 2012 2011 Reconciliation Of Operating Income To Net Cash Flows Provided By Operating Activities Operating Income 33,189,676$ 35,924$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 56,460,108 56,403,291 Change in operating assets and liabilities: Increase in billed and unbilled sewer service charges receivable (1,162,859) (2,951,186) (Increase) decrease in other receivables (172,227) 74,063 Increase in supplies inventory 660,251 (128,783) (Increase) decrease in contracts and accounts payable (8,971,060) 7,651,283 Increase (decrease) in deposits and accrued expenses (564,220) 3,298,069 Net Cash Provided By Operating Activities 79,439,669$ 64,382,661$ For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Page 16 NOTES TO FINANCIAL STATEMENTS June 30, 2012 And 2011 1. Organization And Summary Of Significant Accounting Policies Organization The Metropolitan St. Louis Sewer District (the District) was authorized by the voters, established and chartered under the provisions of the Constitution of Missouri, as a municipal corporation and a political subdivision of the State of Missouri. Upon creation in 1954, the District assumed responsibilities to provide for the construction, operation, and maintenance of the sewer facilities within its defined boundaries. The District’s service area now comprises all of the City of St. Louis and most of St. Louis County. Subdistricts within the District’s total service area represent separate geographic areas within which specific taxes are levied for the retirement of indebtedness issued to finance construction of sanitary or stormwater facilities within the area or to operate, maintain, or construct improvements within the subdistrict. The District also maintains all of the publicly owned stormwater sewers within its original boundaries and is continuing to accept maintenance of the stormwater sewers in the remainder of its service area. The District is segmented into two distinct accounting segments: Wastewater and Stormwater. Each are clearly defined by assets, liabilities, and net position, as well as designated revenues and expenses. For the purposes of the financial statements accompanied by this set of notes, The Metropolitan St. Louis Sewer District - Wastewater Segment’s (the Wastewater Segment) operations are illustrated individually. The purpose of these segmented statements is to give detailed additional information in order to facilitate future financings for operating and capital activities. Pursuant to provisions of its charter and subject to limitations imposed by the Constitution of Missouri, all powers of the District are vested in a six-member Board of Trustees (the Board), three of whom are appointed by the Mayor of the City of St. Louis and three of whom are appointed by the County Executive of St. Louis County. Reporting Entity The Wastewater Segment includes all wastewater and combined sewer funds that are established under the authority of the District’s Charter. The Wastewater Segment has adopted the accounting policies and procedures of the District as a whole, and has followed generally accepted accounting principles in preparation of these statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 17 Measurement Focus, Basis Of Accounting, And Financial Statement Presentation Throughout the year, the Wastewater Segment maintains its detailed accounting records on the modified accrual basis of accounting. In order to account for the transactions related to certain subdistricts and restricted resources, separate fund accounting records are maintained. For financial reporting purposes, the Wastewater Segment reports its operations as a single enterprise fund. Accordingly, the accounting records are converted to the accrual basis of accounting and all interfund transactions are eliminated. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related liability is incurred. The Wastewater Segment’s measurement focus is on the flow of economic resources. Unbilled sewer service charge revenues are accrued by the Wastewater Segment based on estimated billings for services provided through the end of the current fiscal year. Revenues and expenses are divided into operating and non-operating items. Operating revenues generally result from providing services in connection with the Wastewater Segment’s principal ongoing operations. The principal operating revenues of the Wastewater Segment are user fees, licenses, and permits for wastewater treatment services. Operating expenses include the costs associated with the conveyance and treatment of wastewater, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as non-operating revenues and expenses. The Wastewater Segment follows GASB Statement No. 33, Accounting and Financial Reporting for Non-Exchange Transactions (GASB 33), which establishes accounting and financial reporting standards for non-exchange transactions involving financial or capital resources. GASB 33 groups non-exchange transactions into the following four classes, based upon their principal characteristics: derived tax revenues, imposed non-exchange revenues, government mandated non-exchange transactions, and voluntary non- exchange transactions. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 18 The Wastewater Segment recognizes assets from imposed non-exchange revenue transactions in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. Revenues are recognized in the period when the resources are required to be used for the first period that use is permitted. The Wastewater Segment recognizes revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied. Imposed non-exchange revenues also include licenses, permits, and other fees. Intergovernmental revenues, representing grants and assistance received from other governmental units, are generally recognized as revenues in the period when all eligibility requirements, as defined by GASB 33, have been met. Any resources received before eligibility requirements are met are reported as unearned revenues. When both restricted and unrestricted resources are available for use, it is the Wastewater Segment’s policy to use restricted resources first, and then unrestricted resources as they are needed. The Wastewater Segment follows all Governmental Accounting Standards Board (GASB) pronouncements as well as all Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principle Board Opinions, and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. In addition, the Wastewater Segment also applies all FASB Statements and Interpretations issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements. The Wastewater Segment early adopted GASB Statement No. 63, Financial Reporting of Deferred Outlaws of Resources, Deferred Inflows of Resources, and Net Position during fiscal year 2012. Cash And Cash Equivalents And Investments For purposes of the Statements of Cash Flows, the Wastewater Segment’s “cash and cash equivalents” consist of all highly liquid investments (including restricted assets) with maturity dates of 89 days or less from the date acquired by the Wastewater Segment. “Investments” consist of those investments with maturity dates 90 days or greater at the time of purchase by the Wastewater Segment. Investments are stated at fair value based upon quoted market prices. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 19 Investments are reported at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair value is determined based on quoted market prices. Adjustments necessary to record investments at fair value are recorded in the statements of revenues, expense, and changes in net position as increases or decreases in investment income. Accounts Receivable Accounts receivable is composed primarily of charges to customers for wastewater services. Receivables are reported at their gross values net of an allowance for uncollectible amounts. Restricted Assets Mandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Current liabilities payable from these restricted assets are so classified. Capital Assets Capital assets are valued at historical cost or estimated historical cost based in part upon a study performed in 1981. Donated capital assets are recorded at fair value at the time of the contribution to the Wastewater Segment. Interest cost is capitalized as part of the historical cost of acquiring certain assets when the effect of such capitalization is material to the financial statements. Interest is not capitalized on assets constructed with contributions from other governmental sources. Depreciation is calculated on a straight-line basis over the following estimated useful lives: Treatment and disposal plant and equipment 10 to 70 years Collection and pumping plant 10 to 100 years General plant and equipment 3 to 50 years When designing user charge rates, the Wastewater Segment includes funding for replacement cost of assets, which may differ from depreciation expense recorded for financial reporting purposes. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 20 Normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Betterments are capitalized and depreciated over the remaining useful lives of the related assets, as applicable. Previously, the Wastewater Segment defined capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of three years. In April of 2010 the Wastewater Segment updated this policy and as a result, an asset must now have an individual cost of more than $5,000 to be considered a capital asset. This change in policy does not have a retroactive effect on capital assets put in place before April 2010. Capitalization Of Interest Interest costs are capitalized as part of the costs of capital assets during the period of construction based on the related weighted average net borrowing costs incurred. Interest earned on temporary investments acquired with the proceeds of such borrowed funds from the date of the borrowing until the assets are ready for their intended use is used to reduce the interest costs capitalized on the constructed assets. Interest is not capitalized for outlays financed by capital grants (or other outside parties) externally restricted for the acquisition of specified assets. In 2012 and 2011, the Wastewater Segment capitalized $7,412,451 and $11,738,283 of net interest expense, respectively. Supplies Inventory Supplies inventory consists of parts and supplies to be used to operate and maintain treatment facilities and various treatment-related equipment at the Wastewater Segment. This inventory is stated at the lower of cost or market, determined on the average cost method. Expenses are recognized when the inventory is consumed. Net Position The Wastewater Segment’s net position is calculated as follows: the net investment in capital assets component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding debt that is attributable to the acquisition, construction, or improvement of those assets. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 21 The restricted component of net position consists of constraints placed on net position through external constraints imposed by creditors, grantors, contributors, laws, or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Property taxes levied by the various subdistricts and other revenues received for construction in those sub-districts have also been restricted for that use. Sewer extension and connection fees, grants, and other revenues received for construction within certain sub-districts have been restricted for that use. In addition, a portion of sanitary sewer charges have been restricted for the payment of principal and interest on certain debt of the Wastewater Segment. The unrestricted net position component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. Capital Contributions Capital contributions to the Wastewater Segment represent government grants and other aid used to fund capital projects. In accordance with GASB 33, capital contributions are recognized as revenue when the expenditure is made and the amount becomes subject to claim for reimbursement. Bond Issuance Costs/Bond Premiums And Discounts Bond issuance costs incurred, as well as bond premiums and discounts, are paid from the proceeds of revenue bond issues and are deferred and amortized using the straight-line method over the term of the bonds. Compensated Absences Vacation Under the terms of the District’s personnel policies, employees are allowed to carry a maximum of 30 to 45 days of vacation (depending on length of service) from one calendar year to the next. Since vacation accrued at year-end is expected to be used by the employee during the following fiscal year, the accrual is reported as a component of current deposits and accrued expenses payable. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 22 Sick Leave Employees earn sick pay benefits at accrual rates ranging from 10 days per year to 12 days per year (depending on length of service). Unused sick leave can be carried over at year-end without limitation. An employee retiring from the Wastewater Segment with five or more years of service, who has unused accrued sick leave remaining, will be compensated for that portion of unused accrued sick leave at the rate of 1-1/4% for each year of Wastewater Segment service. The Wastewater Segment has recorded a liability, which has been actuarially determined to be equal to the accumulated expense charge that will amortize the employees’ benefits over their period of Wastewater Segment service. The liability, included in current deposits and accrued expenses payable, includes vested accumulated rights to receive sick leave benefits estimated to be paid within one year. The portion of sick leave expected to be paid after one year is recorded as a component of non-current deposits and accrued expenses payable. Use Of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. Reclassification Certain amounts in prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. 2. Deposits And Investments Deposits At June 30, 2012 and 2011 the reported amount of the Wastewater Segment’s deposits was $44,901,891 and $27,903,983, respectively. Custodial credit risk for deposits is the risk that, in the event of bank failure, the Wastewater Segment’s deposits may not be returned to the Wastewater Segment. The Wastewater Segment’s investment policy complies with the provisions of state laws and requires collateralization on repurchase agreements, time certificates of deposit and deposits with banking institutions with a market value of 103 percent. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 23 Deposits in each bank are insured by the Federal Deposit Insurance Corporation (FDIC) in the amount of $250,000 for interest bearing accounts and unlimited coverage for noninterest bearing accounts. The FDIC created the Temporary Liquidity Guarantee Program. One element of that program provides for an unlimited guarantee by the FDIC of funds held in an insured depository institution in non-interest-bearing transaction deposit accounts through December 31, 2012. This guarantee is over and above the $250,000 coverage on all interest bearing deposit accounts. Investments With the approval of the District’s Board of Trustees, the Secretary-Treasurer is authorized to invest excess cash in any investment authorized by the District’s charter. The District’s investment policy conforms to the investment policy guidelines for the State of Missouri. The District’s investment policy authorizes the Wastewater Segment to invest in the following instruments: U.S. Treasury obligations, certificates of deposit, obligations of any agency or instrumentality of the U.S., repurchase agreements, bankers’ acceptances, and commercial paper rated in the three highest classifications, for terms specified in the policy. At June 30, 2012 and 2011, all of the Wastewater Segment’s investments were in compliance with the District’s investment policy and charter. A summary of deposits and investments as of June 30, 2012 and 2011 is as follows: Investment Type Cost Fair Value Cost Fair Value Deposits 44,901,891$ 44,901,891$ 27,903,983$ 27,903,983$ Certificates of deposit 684,889 684,889 695,583 695,583 U.S. Treasury and agency obligations 150,399,836 151,398,020 171,561,771 173,186,409 Commercial paper 65,553,391 65,592,409 58,809,548 58,827,018 Bankers’ acceptance notes 7,554,253 7,559,801 5,556,133 5,557,724 Total 269,094,260$ 270,137,010$ 264,527,018$ 266,170,717$ 2012 2011 THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 24 Reconciliation to the financial statements: 2012 2011 Cash Unrestricted $ 15,322,804 $ 6,229,447 Restricted 365,906 89,487 Pooled cash and investments Unrestricted 158,956,091 182,960,672 Restricted 18,065,703 14,556,964 Investments Unrestricted 42,931,034 31,200,375 Restricted 34,495,472 31,133,772 $ 270,137,010 $ 266,170,717 Interest Rate Risk As of June 30, 2012 and 2011, the Wastewater Segment had the following investments and maturities: Weighted Average Weighted Average Investment Type Fair Value Maturity (Years)Fair Value Maturity (Years) Certificates of deposit 684,889$ 1.11 695,583$ 0.60 U.S. Treasury obligations 43,290,576 0.78 31,588,641 0.96 U.S. agency obligations 108,107,444 2.33 141,597,768 2.25 Commercial paper 65,592,409 0.11 58,827,018 0.10 Bankers’ acceptance notes 7,559,801 0.00 5,557,724 0.10 Total 225,235,119$ 1.31 238,266,734$ 1.49 2012 2011 In accordance with the District’s investment policy, the Wastewater Segment will minimize the risk that the fair value of debt securities in the portfolio will fall due to increases in general interest rates by: 1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 2. Investing operating funds primarily in short-term securities. 3. State law limits the maximum stated maturities to five years on any investment from the date of purchase. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 25 Custodial/Credit Risk The Wastewater Segment will minimize credit risk for investments, the risk of loss due to failure of the security issuer or backer, by: 1. Prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the Wastewater Segment will do business. 2. Diversifying the portfolio so that potential losses on individual securities will be minimized. In accordance with its investment policy, the Wastewater Segment limits its investments in these investment types to the top rating issued by Nationally Recognized Statistical Rating Organizations. As of June 30, 2012 and 2011, the Wastewater Segment’s investments in commercial paper were rated A1 by Standard & Poor’s and P-1 by Moody’s Investors Service. The Wastewater Segment’s investments in repurchase agreements carry the explicit guarantee of the U.S. Government. The Wastewater Segment’s investments in U.S. agency obligations that do not carry the explicit guarantee of the U.S. Government all carry a rating assigned by Standard & Poor’s of “AA+.” Concentration Of Credit Risk The District’s policy places no limit on the amount the Wastewater Segment may invest in any one issuer with respect to U.S. Treasury obligations and collateralized time and demand deposits. U.S. agency obligations and government-sponsored enterprises are limited to 60% of the portfolio; and collateralized repurchase agreements are limited to 50% of the portfolio. U.S. agency obligations are limited to 30% of the portfolio, and commercial paper and bankers’ acceptances are limited to 25% each. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2012 and 2011: Issuer 2012 2011 Federal National Mortgage Association 54.5 18.6 Federal Home Loan Bank 20.0 18.9 Federal Home Loan Mortgage Corporation 15.9 11.0 Percent Of Total Investments THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 26 3. Note Receivable The Wastewater Segment has a note receivable with the City of Arnold, Missouri (the “City”) bearing interest at 4.35% for its portion of the capital costs related to the Lower Meramec Wastewater Treatment Plant. The current portion of this note is contained in the other receivables line on the balance sheet. The note receivable will be paid over 30 years. At June 30, 2012, future payments are as follows: Year Amount 2013 1,100,499$ 2014 1,100,499 2015 1,100,499 2016 1,100,499 2017 1,100,499 2018-2022 5,502,494 2023-2027 5,502,494 2028-2032 5,502,494 2033 550,249 22,560,226 7,682,391 14,877,835$ Position: 460,761$ 14,417,074 14,877,835$ Total Less: Amount representing interest Classification in Statement of Net Current Non-current THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 27 4. Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2012 and 2011: Balance Balance June 30, 2011 Additions Reclass Deletions June 30, 2012 Capital assets not being depreciated: Land 32,245,624$ 8,423,344$ —$ —$ 40,668,968$ Construction in progress 378,302,186 131,551,729 — 143,791,123 366,062,792 Total capital assets not being depreciated 410,547,810 139,975,073 — 143,791,123 406,731,760 Capital assets being depreciated: Treatment and disposal plant and equipment 979,444,620 41,043,157 — 8,689,592 1,011,798,185 Collection and pumping plant 1,368,853,520 90,487,928 — 2,453,368 1,456,888,080 General plant and equipment 70,070,216 6,901,646 — 1,829,034 75,142,828 Total capital assets being depreciated 2,418,368,356 138,432,731 — 12,971,994 2,543,829,093 Less: Accumulated depreciation: Treatment and disposal plant and equipment (382,128,943) (26,025,377) — (7,605,316) (400,549,004) Collection and pumping plant (412,874,622) (23,018,527) — (1,141,039) (434,752,110) General plant and equipment (39,300,345) (7,416,204) — (1,998,899) (44,717,650) Total accumulated depreciation (834,303,910) (56,460,108) — (10,745,254) (880,018,764) Total capital assets being depreciated, net 1,584,064,446 81,972,623 — 2,226,740 1,663,810,329 Total Capital Assets 1,994,612,256$ 221,947,696$ —$ 146,017,863$ 2,070,542,089$ Balance Balance June 30, 2010 Additions Reclass Deletions June 30, 2011 Capital assets not being depreciated: Land 25,287,702$ 8,960,618$ —$ 2,002,696$ 32,245,624$ Construction in progress 553,484,045 101,607,323 — 276,789,182 378,302,186 Total capital assets not being depreciated 578,771,747 110,567,941 — 278,791,878 410,547,810 Capital assets being depreciated: Treatment and disposal plant and equipment 750,240,748 236,903,865 (6,851,394) 848,599 979,444,620 Collection and pumping plant 1,347,728,028 24,605,643 — 3,480,151 1,368,853,520 General plant and equipment 53,460,285 15,425,430 6,851,394 5,666,893 70,070,216 Total capital assets being depreciated 2,151,429,061 276,934,938 — 9,995,643 2,418,368,356 Less: Accumulated depreciation: Treatment and disposal plant and equipment (355,414,715) (28,782,936) 1,679,361 (389,347) (382,128,943) Collection and pumping plant (393,531,724) (22,353,245) — (3,010,347) (412,874,622) General plant and equipment (35,158,752) (5,267,110) (1,679,361) (2,804,878) (39,300,345) Total accumulated depreciation (784,105,191) (56,403,291) — (6,204,572) (834,303,910) Total capital assets being depreciated, net 1,367,323,870 220,531,647 — 3,791,071 1,584,064,446 Total Capital Assets 1,946,095,617$ 331,099,588$ —$ 282,582,949$ 1,994,612,256$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 28 5. Property Tax On or before October 1 of each year, the District levies ad valorem taxes on all taxable tangible property, real and personal, within its boundaries based on assessed valuations established by the City of St. Louis and St. Louis County Assessors. Tax rates vary by sub-district and purpose. Taxes levied are used for operations and maintenance and construction. Taxes are recorded as non- operating revenues. Property tax bills are mailed in October. They become delinquent and represent a lien on the related property if not paid by December 31. All property taxes are billed and collected by the City of St. Louis and St. Louis County Collectors’ of Revenue and are distributed to the Wastewater Segment monthly. The District has voluntarily rolled back the tax rate on all wastewater only subdistricts to zero. The Wastewater Segment continues to collect and recognize as revenue delinquent taxes levied prior to the voluntary reduction of the tax rates. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 29 6. Long-Term Liabilities The following is a summary of changes in the Wastewater Segment’s long-term liabilities for the year ended June 30, 2012: Original Balance Balance Issuance June 30, June 30, Current Amounts 2011 Additions Retirements 2012 Portion Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A 175,000,000$ 165,590,000$ —$ 1,960,000$ 163,630,000$ 2,165,000$ Series 2006C 60,000,000 60,000,000 — — 60,000,000 — Series 2008A 30,000,000 30,000,000 — — 30,000,000 — Series 2010B 85,000,000 85,000,000 — — 85,000,000 — Series 2011B 52,250,000 — 52,250,000 — 52,250,000 1,640,000 Series 2004B 161,280,000 123,055,000 — 7,095,000 115,960,000 7,180,000 Series 2005A 6,800,000 5,370,000 — 315,000 5,055,000 305,000 Series 2006A 42,715,000 36,335,000 — 2,110,000 34,225,000 2,140,000 Series 2006B 14,205,000 12,285,000 — 665,000 11,620,000 675,000 Series 2008A/B 40,000,000 35,610,000 — 1,777,500 33,832,500 1,792,500 Missouri Department of Natural Resources: Energy Loan Program 98,595 25,251 — 11,783 13,468 12,157 Energy Loan Program 223,793 — 223,793 — 223,793 — Series 2009A 23,000,000 22,053,200 — 968,700 21,084,500 991,100 Series 2010A 7,980,700 2,852,447 3,195,942 168,000 5,880,389 341,100 Series 2010C 37,000,000 329,000 36,671,000 1,481,000 35,519,000 1,520,000 Series 2011A 39,769,300 — 1,006,572 — 1,006,572 — Capital Lease: Oracle/Blue Heron 12,000,000 6,095,982 — 2,999,842 3,096,140 3,096,140 787,322,388$ 584,600,880$ 93,347,308$ 19,551,825$ 658,396,362 21,857,998$ Add: Unamortized premium, net 14,196,464 Less: Bond issue costs, net (8,391,259) Total 664,201,567$ Deposits And Accrued Expenses: Landfill closure and postclosure costs 709,120$ 11,946$ —$ 721,066$ —$ Compensated absences 6,601,946 851,568 184,283 7,269,231 1,817,307 Net OPEB obligation 2,704,799 2,090,556 1,395,800 3,399,555 — Total 10,015,865$ 2,954,070$ 1,580,083$ 11,389,852$ 1,817,307$ Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Loans Program): THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 30 The following is a summary of changes in the Wastewater Segment’s long-term liabilities for the year ended June 30, 2011: Original Balance BalanceIssuance June 30, June 30, Current Amounts 2010 Additions Retirements 2011 Portion Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A 175,000,000$ 167,370,000$ —$ 1,780,000$ 165,590,000$ 1,960,000$ Series 2006C 60,000,000 60,000,000 — — 60,000,000 — Series 2008A 30,000,000 30,000,000 — — 30,000,000 — Series 2010B 85,000,000 85,000,000 — — 85,000,000 — Series 2004B 161,280,000 130,110,000 — 7,055,000 123,055,000 7,095,000 Series 2005A 6,800,000 5,665,000 — 295,000 5,370,000 315,000 Series 2006A 42,715,000 38,420,000 — 2,085,000 36,335,000 2,110,000 Series 2006B 14,205,000 12,935,000 — 650,000 12,285,000 665,000 Series 2008A/B 40,000,000 37,375,000 — 1,765,000 35,610,000 1,777,500 Missouri Department of Natural Resources: Energy Loan Program 98,595 36,671 — 11,420 25,251 11,783 Series 2009A 23,000,000 23,000,000 — 946,800 22,053,200 968,700 Series 2010A 7,980,700 2,852,447 — — 2,852,447 — Series 2010C 37,000,000 — 329,000 — 329,000 1,481,000 Capital Lease: Oracle/Blue Heron 12,000,000 7,263,687 1,759,808 2,927,513 6,095,982 2,999,842 695,079,295$ 600,027,805$ 2,088,809$ 17,515,733$ 584,600,880 19,383,825$ Add: Unamortized premium, net 8,699,649 Less: Bond issue costs, net (7,836,995) Total 585,463,534$ Deposits And Accrued Expenses: Landfill closure and postclosure costs 662,016$ 47,104$ —$ 709,120$ —$ Compensated absences 6,279,402 860,880 538,336 6,601,946 1,650,487 Net OPEB obligation 1,924,162 2,162,237 1,381,600 2,704,799 — Total 8,865,580$ 3,070,221$ 1,919,936$ 10,015,865$ 1,650,487$ Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Loans Program): Wastewater System Revenue Bonds Payable In February 2004, the District received voter authorization for $500,000,000 of Wastewater revenue bonds. In August 2008, the District received voter authorization for an additional $275,000,000 of Wastewater revenue bonds. In June 2012, the District received voter authorization for $945,000,000 of wastewater revenue bonds. From the total voter authorization of $1,720,000,000, $945,000,000 has not been issued as of June 30, 2012. These funds were sought to enable the District to comply with federal and state clean water requirements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 31 In December 2011, the District issued $52,250,000 of Wastewater System Revenue Bonds Series 2011B (Series 2011B). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing wastewater facilities. These senior bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2032. As Build America Bonds under The American Recovery and Reinvestment Act of 2009, the Wastewater Segment will receive a subsidy payment from the Federal government equal to 35% of the interest paid. In January 2010, the District issued $85,000,000 of Wastewater System Revenue Bonds Series 2010B (Series 2010B). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing wastewater facilities. These senior bonds have an interest rate of 5.9% and are payable in semiannual installments at varying amounts through May 1, 2039. In November 2008, the District issued $30,000,000 of Wastewater System Revenue Bonds Series 2008A (Series 2008A) from the authorization for the purpose of providing funds to finance the capital improvements and replacement program. These senior bonds have interest rates ranging from 5.1% to 5.3% and are payable in semiannual installments at varying amounts through May 1, 2038. In November 2006, the District authorized and issued $60,000,000 of Wastewater System Revenue Bonds Series 2006C (Series 2006C) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 4.1% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2036. In May 2004, the District authorized and issued $175,000,000 of Wastewater System Revenue Bonds Series 2004A (Series 2004A) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 2.0% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2034. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 32 The Wastewater revenue bonds do not constitute a legal debt or liability for the District, the Wastewater Segment, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Revenue derived from the operations of the Wastewater System is pledged for the retirement of the outstanding Wastewater System Revenue Bonds listed below. Under the provisions of the bond indentures, the District covenants to establish rates for the services of the Wastewater System sufficient to fund operations, maintain reserves, and provide revenues to apply principal and interest on these bonds. The issuance of the revenue bonds does not obligate the District or Wastewater Segment to levy any form of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The scheduled payment of the principal of and interest on the Series 2006C and 2004A Bonds are guaranteed under a financial guaranty insurance policy. Water Pollution Control And Drinking Water Revenue Bonds Payable In October 2008, the State Environmental Improvement and Energy Resources Authority (the Authority) authorized and issued $69,435,000 of Water Pollution Control and Drinking Water Revenue Bonds (State Revolving Funds Programs) Series 2008A (Series 2008A/B). The Series 2008A/B bonds provided funds to make loans to fourteen Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2008A/B bonds issued by the Authority were used to purchase subordinate Participant Revenue Bonds (Participant Bonds) authorized and issued by the District in the aggregate principal amount of $40,000,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District’s Participant Bonds have interest rates ranging from 4.0% to 5.7% and are payable in semiannual installments at varying amounts through January 1, 2029. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 33 In November 2006, the Authority authorized and issued $22,105,000 of State Revolving Funds Programs Series 2006B (Series 2006B). The Series 2006B bonds provided funds to make loans to seven Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006B bonds issued by the Authority were used to purchase Participant Bonds authorized and issued by the District in the aggregate principal amount of $14,205,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District’s Participant Bonds have interest rates ranging from 4.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2027. In May 2006, the Authority authorized and issued $87,505,000 of State Revolving Funds Programs Series 2006A (Series 2006A). The Series 2006A bonds provided funds to make loans to thirteen Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $42,715,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District’s Participant Bonds have interest rates ranging from 3.5% to 4.5% and are payable in semiannual installments at varying amounts through July 1, 2026. In May 2005, the Authority authorized and issued $53,060,000 of State Revolving Funds Programs Series 2005A (Series 2005A). The Series 2005A bonds provided funds to make loans to ten Missouri political subdivisions and one Missouri non- profit corporation that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2005A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $6,800,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District’s Participant Bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2026. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 34 In May 2004, the Authority authorized and issued $179,780,000 of State Revolving Funds Programs Series 2004B (Series 2004B). The Series 2004B bonds provided funds to make loans to seven Missouri political subdivisions that will be used to finance water pollution control projects. A portion of the proceeds of the Series 2004B bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $161,280,000, the proceeds of which will be used to finance the Wastewater Segment’s three water pollution control construction projects outlined in the agreement. The District’s Participant Bonds have interest rates ranging from 2.0% to 5.3% and are payable in semiannual installments at varying amounts through January 1, 2027. The Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds do not constitute a legal debt or liability for the District, Wastewater Segment, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds and the Series 2009A, 2010A, 2010C, and 2010C direct loans do not obligate the District to levy any form of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. In connection with the District’s issuance of the Participant Bonds, which were purchased with the proceeds of the Series 2004B, 2005A, 2006A, 2006B, 2008A/B bonds, the District participates in the State Revolving Loan Program established by the Missouri Department of Natural Resources (the DNR). Monies from federal capitalization grants and state matching funds are used to fund a reserve account for each participant. As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits in a bond reserve fund in the District’s name an additional 60% of the expenditure amount for the Series 2004B bonds or 70% for the Series 2005A, 2006A, 2006B bonds or 100% for the Series 2008A/B bonds. Interest earned from this reserve fund can be used by the District to fund interest payments on the bonds. On the date of each payment of the principal amount of the District’s Participant Bonds, the trustee transfers from this reserve account to the master trustee an amount equal to 60% of the principal payment for the Series 2004B bonds or 70% for the Series 2005A, 2006A, 2006B bonds or 100% for the series 2008A/B bonds. The costs of operation and maintenance of the wastewater treatment and sewerage facilities and the debt service is payable from wastewater revenues. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 35 In accordance with the Series 2004A, 2004B, 2005A, 2006A, 2006B, 2008A/B bonds, the Wastewater Segment’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 125% of the current portion of principal and interest due on all senior bonds and at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2012 and 2011, the District was in compliance with this covenant. Principal And Interest Requirements On Revenue Bonds Payable The annual principal and interest requirements to maturity on revenue bonds payable outstanding as of June 30, 2012 are as follows: Years Ending June 30,Principal Interest Total 2013 15,897,500$ 29,831,871$ 45,729,371$ 2014 16,477,500 29,160,856 45,638,356 2015 16,930,000 28,444,299 45,374,299 2016 17,925,000 27,649,424 45,574,424 2017 18,497,500 26,801,361 45,298,861 2018-2022 104,732,500 119,506,114 224,238,614 2023-2027 115,795,000 91,677,999 207,472,999 2028-2032 117,127,500 63,766,475 180,893,975 2033-2037 123,385,000 33,798,013 157,183,013 2038-2041 44,805,000 3,789,888 48,594,888 Total 591,572,500$ 454,426,300$ 1,045,998,800$ Wastewater System Revenue Bonds Payable/ Water Pollution Control And Drinking Water Revenue Bonds Payable Energy Efficiency Leveraged Note Payable In April 2004, the DNR loaned $98,595 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 3.2% per annum and is payable through August 1, 2013. The purpose of this note is to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note is paid from the energy savings from the projects or avoided costs resulting from the projects. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 36 Principal And Interest Requirements On Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2012 are as follows: Years Ending June 30, Principal Interest Total 2013 12,157$ 329$ 12,486$ 2014 1,311 21 1,332 Total 13,468$ 350$ 13,818$ Energy Efficiency Leveraged Note Payable Energy Efficiency Leveraged Note Payable In February 2012, the DNR loaned $223,793 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 2.5% per annum and is payable through February 1, 2020. The purpose of this note is to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note will be paid from the energy savings from the projects or avoided costs resulting from the projects. Principal And Interest Requirements On Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2012 are as follows: Years Ending June 30, Principal Interest Total 2013 —$ —$ —$ 2014 32,402 3,520 35,922 2015 31,332 4,590 35,922 2016 32,120 3,802 35,922 2017 32,928 2,994 35,922 2018-2020 95,011 3,928 98,939 Total 223,793$ 18,834$ $ 242,627 Energy Efficiency Leveraged Note Payable THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 37 State Of Missouri Direct Loan Series 2009A In October 2009, the DNR loaned $23,000,000 to the District. The State of Missouri Direct Loan Series 2009A bears interest at a rate of 1.5% per annum and is payable through January 1, 2030. The purpose of this note is to finance the designing, constructing, improving, renovating, repairing, replacing and equipping new and existing sewer facilities within the District. The principal and interest on the bonds are expected to be paid from future wastewater revenues. All funds have been drawn on this loan as of June 30, 2011. In accordance with the Direct Loan Series 2009A, the Wastewater Segment’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2012 and 2011, the District was in compliance with this covenant. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2009A As the District incurred approved Wastewater Segment capital expenses, the DNR reimbursed the District for the expenses from the bond proceeds account and deposited the approved amount in a bond reserve fund. The District repaid the bond at an interest rate of 1.5% based on the amount that has been reimbursed. As of June 30, 2010, the full $23,000,000 had been reimbursed. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2009A outstanding as of June 30, 2012 are as follows: Years Ending June 30,Principal Interest Total 2013 991,100$ 304,236$ 1,295,336$ 2014 1,014,000 289,684 1,303,684 2015 1,037,500 274,794 1,312,294 2016 1,061,500 259,560 1,321,060 2017 1,086,000 243,973 1,329,973 2018-2022 5,818,700 973,154 6,791,854 2023-2027 6,523,400 525,723 7,049,123 2028-2031 3,552,300 78,387 3,630,687 Total 21,084,500$ 2,949,511$ 24,034,011$ State Of Missouri Direct Loan Series 2009A THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 38 State Of Missouri Direct Loan Series 2010A In January 2010, the State of Missouri’s Direct Loan Program - ARRA issued to the District an amount totaling $7,980,700 for the construction, improvement, renovation, repair, replacement and equipping of its wastewater system, under the authority of and in full compliance with the District’s Charter (Plan). The District’s interest rate is 1.5% and is payable in semiannual installments at varying amounts through July 1, 2031. Amounts drawn and outstanding at June 30, 2012 and 2011 are $5,880,389 and $2,852,447, respectively. In accordance with the Direct Loan Series 2010A, the Wastewater Segment’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2012 and 2011, the District was in compliance with this covenant. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2010A As the District incurs approved Wastewater Segment capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been reimbursed. The payment requirements to maturity will be determined after the debt is fully issued. State Of Missouri Direct Loan Series 2010C In December 2010, the State of Missouri Direct Loan Program - ARRA issued to the District an amount totaling $37,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the wastewater system. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The District’s interest rate is 1.7% and is payable in semiannual installments at varying amounts through January 1, 2031. Amounts drawn and outstanding at June 30, 2012 and 2011 are $35,519,000 and $329,000, respectively. In accordance with the Direct Loan Series 2010C, the Wastewater Segment’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2011 and 2010, the District was in compliance with this covenant. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 39 Principal And Interest Requirements On State Of Missouri Direct Loan Series 2010C As the District incurred approved Wastewater Segment capital expenses, the DNR reimbursed the Wastewater Segment for the expenses from the bond proceeds account and deposited the approved amount in a bond reserve fund. The District repaid the bond at an interest rate of 1.7% based on the amount that has been reimbursed. As of June 30, 2012, the full $37,000,000 had been reimbursed. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010C outstanding as of June 30, 2012 are as follows: Years Ending June 30, Principal Interest Total 2013 $ 1,520,000 579,835$ 2,099,835$ 2014 1,560,000 554,590 2,114,590 2015 1,600,000 528,685 2,128,685 2016 1,641,000 502,120 2,143,120 2017 1,684,000 474,862 2,158,862 2018-2022 9,098,000 1,940,086 11,038,086 2023-2027 10,343,000 1,144,349 11,487,349 2028-2032 8,073,000 269,890 8,342,890 Total 35,519,000$ 5,994,417$ 41,513,417$ State Of Missouri Direct Loan Series 2010C State Of Missouri Direct Loan Series 2011A In November 2011, the State of Missouri Direct Loan Program - ARRA issued to the District an amount totaling $39,769,300 for the purpose of improving, renovating, repairing, replacing and equipping the wastewater system. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The District’s interest rate is 1.5% and is payable in semiannual installments at varying amounts through January 1, 2034. In accordance with the Direct Loan Series 2011A, the Wastewater Segment’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2012 the District was in compliance with this covenant. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 40 Principal And Interest Requirements On State Of Missouri Direct Loan Series 2011A As the District incurs approved Wastewater Segment capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been reimbursed. As of June 30, 2012 the outstanding loan balance was $1,006,572. The payment requirements to maturity will be determined after the debt is fully issued. Master Equipment Lease / Purchase Agreement In June 2009, the District entered into a lease purchase agreement in which the District has received proceeds in the total amount of $12,000,000 in varying installments. These proceeds were used to lease technology related to the District’s upgrade to a new enterprise system. The lease bears interest at a rate of 3.2% and is payable through June 19, 2013, at which time the District has the option to purchase the leased equipment. Years Ending June 30, Principal Interest Total 2013 3,096,140$ $ 53,316 $ 3,149,456 Master Equipment Lease / Purchase Agreement Restricted Cash And Investments The following trustee held accounts have been established in accordance with bond ordinances and financing agreements that require receipts generated from operations be segregated and certain reserve accounts be established: Revenue Fund The Revenue Fund will be used for the purpose of depositing wastewater operating revenues, providing funds to pay for expenses related to the operation and maintenance of the Wastewater Segment, and fulfilling Sinking Fund requirements in accordance with the bond ordinances. Sinking Fund The bond ordinances provide for deposits to and the use of monies in the Sinking Fund to be used for the sole purpose of principal and interest payments on the bonds. Sufficient monies shall be paid in periodic installments from the Revenue Fund. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 41 Debt Service Reserve Fund After initial deposit of the amount required pursuant to the bond ordinances and financing agreements of the Series 2004A, 2006C, 2008A, 2010B, and 2011B bonds, monies in the Debt Service Reserve Fund shall be disbursed and expensed by the Wastewater Segment solely for the payment of the principal and interest on the bonds and notes to the extent of any deficiency in the Debt Service Fund for such purpose. The Wastewater Segment may disburse and expend monies from the Debt Service Reserve Fund for such purpose immediately. As of June 30, 2012 and 2011, cash and investments in the Debt Service Reserve Fund totaled $34,861,380 and $31,223,261, respectively. Special Participant Bond Reserve Account For the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the Wastewater Segment shall deposit into the Special Participant Bond Reserve Account amounts in accordance with the bond ordinance, which shall be disbursed and expensed by the Wastewater Segment solely for the payment of the principal and interest on the Participant Bonds to the extent of any deficiency in the Sinking Fund for such purpose. At June 30, 2012 and 2011, cash and investments in the Special Participant Bond Reserve Account held on behalf of the Wastewater Segment totaled $137,354,308 and $148,274,220, respectively. Monies in this account are not considered to be Wastewater Segment funds. However, interest earnings on this account may be used by the Wastewater Segment to reduce interest payments on the bonds outstanding. Renewal And Extension Fund All sums accumulated and retained in the Renewal and Extension Fund shall be first used to prevent default in the payment of principal and interest on the bonds when due and shall then be applied by the Wastewater Segment for purposes pursuant to the trust indenture. No monies have been deposited into this account at June 30, 2012 or 2011. Project Fund The Project Fund for all bond issuances outstanding will be used for the purpose of providing monies to pay project costs. The proceeds from the bonds and notes, after a deposit into the Debt Service Reserve Fund for the amounts required pursuant to the bond ordinances and note agreements of Series 2004A, 2006C, 2008A, 2010B, and 2011B bonds, shall be deposited into the Project Fund. At June 30, 2012 and 2011, cash and investments in the Project Fund totaled $51,976,851 and $31,200,465, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 42 Rebate Fund The bond ordinances provide for the creation of a Rebate Fund into which shall be deposited such amounts as are required to be deposited therein pursuant to the arbitrage instructions regarding the calculation and payment of rebate amounts due. The Wastewater Segment does not have any rights in or claims to such money; provided, however, any funds remaining in the Rebate Fund after redemption and payment of all bonds and payment of any rebatable arbitrage amount, or provision having been made therefore, shall be remitted to the Wastewater Segment. At June 30, 2012 and 2011, cash and investments in the Rebate Fund totaled $234,216 and $236,676, respectively. Administrative Fee Fund The Administrative Fee Fund will be used for the payment of the Trustee’s fees and other administrative fees pursuant to the note agreement. The Trustee shall immediately withdraw the fee amounts when due. Monies held in this account shall not be invested. Fair Value Of Financial Instruments The value of the Wastewater Segment’s long-term debt is estimated based on the current rates offered to the Wastewater Segment for debt of the same remaining maturities. The carrying amount and estimated fair value of the Wastewater Segment’s long-term debt as of June 30, 2012 was $658,396,362 and $718,482,758, respectively. The carrying amount and estimated fair value of the Wastewater Segment’s long-term debt as of June 30, 2011 was $584,600,880 and $616,167,775, respectively. 7. Pension Plan Plan Description The Metropolitan St. Louis Sewer District Employees’ Pension Plan (the Plan) is a noncontributory single employer defined benefit plan providing retirement benefits as well as death and disability benefits. As a condition of employment, all full-time employees of the Wastewater Segment commencing service prior to December 31, 2010, were eligible to be covered by the Plan. As of January 1, 2011 the Plan was frozen to new employees. Instead, new employees of the Wastewater Segment may participate in the defined contribution plan. Current employees with less than ten years of service on this date could also voluntarily elect to transfer from the Plan and enter the defined contribution plan. Of the 404 Wastewater Segment employees with less than ten years of service, twenty- three elected to leave the Plan. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 43 The District’s Board of Trustees, primarily to improve benefits to members, amends the Plan, established on November 1, 1967. A Pension Committee consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff administer the Plan. A committee of the District’s Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan’s investments and the related rates of return on a periodic basis. The Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 and, as such, is not subject to the Act’s reporting requirements. All benefits vest after five years of credited service. Members retiring at or after age 65 with five or more years credited service are entitled to a pension benefit. The Plan permits early retirement with reduced benefits beginning at age 55 if the member has completed five years of employment. Ordinance No. 10664 provides for unreduced retirement benefits to any member whose combined age and term of service is equal to 75. Effective January 1, 1999, Ordinance No. 10491 amended the Plan benefits formula. The annual benefit payable became 1.7% of final average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years. Also, the annual reduction for early retirement was revised from 5% to 2% prior to age 60 and from 2.5% to 1% after age 60. Ordinance No. 10664, effective January 1, 2000, amended the Plan benefits formula to 1.45% of final average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years. This ordinance also provided for a survivor’s benefit for vested members who have not yet reached their normal retirement date or earned 75 points. The survivor’s benefit is equal to the greater of 50% of the member’s monthly accrued retirement benefit as of the date of death, or 15% of the monthly earnings and the member’s monthly accrued retirement benefit actuarially reduced under the 100% joint and survivor annuity option. Members are also able to select a Contingent Annuity Pop-Up option. This option allows the member to elect a survivor annuity for life, with the provision that if the beneficiary should predecease the member, the benefit shall increase to the amount payable had the survivor option not been selected. Ordinance Number 10872, effective January 1, 2001, further amended the Plan to extend the cost of living increases for retirees from a maximum of 30% to 45% of the original benefit. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 44 Effective August 1, 2004, Ordinance No. 11781 amended the Plan to change the benefit formula to 1.7% of final average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years without including accrued sick leave. Sick leave is paid out at 1.25% per year of service times the amount of leave accrued. Also, the Plan was amended to provide the retiring member with a 10% partial lump sum payment option. The balance of the distribution will be paid in accordance with any one of the other payment options available under the Plan. The retirement benefit payable to a member who retires after the normal retirement date is the greater of a) the benefit that would have been payable on the normal retirement date plus a special annual retirement benefit provided by the accumulated value, at 4% per annum interest, of the monthly benefit that would have been received prior to the postponed retirement date or b) the benefit determined as of the postponed retirement date under the normal formula. Effective August 27, 2011, Ordinance No. 13288 amended the Plan to include the following: “Upon termination or complete discontinuance of contributions under the Plan, the rights of all Members to benefits accrued to the date of such termination or discontinuance shall be non-forfeitable, to the extent then funded.” Amounts in participants’ accounts are distributed upon retirement, death, disability, or termination of employment. The normal form of retirement benefit is either a lump sum payment or equal monthly installments. The Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Funding Policy The Wastewater Segment’s employees do not contribute to the Plan. Ordinances establishing the Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. The Entry Age Normal actuarial funding method is used to determine contributions. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 45 Annual Pension Cost Contributions of $10,719,154 and $10,500,769, excluding certain professional fees paid by the District, were made to the Plan during the fiscal years ended June 30, 2012 and 2011, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2011 and 2010, respectively, and for 2011 consisted of a) $6,150,879 normal cost plus b) $4,052,985 amortization of the actuarial accrued assets in excess of the unfunded actuarial accrued liability and prior changes c) multiplied by an interest factor of 1.075. The District provides certain professional fees, office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from plan net assets. Significant actuarial assumptions used in the valuations are as follows: Latest valuation date December 31, 2011 Actuarial cost method Entry Age Normal Amortization method Level dollar closed Amortization period 20-year period Asset valuation method Three-year average of adjusted market values Post-retirement benefit increases CPI with maximum 3% of current benefit or $50/month, and benefit increases lifetime maximum 45% in the original benefit or $750/month Investment rate of return 7.5% per annum (1) Projected salary increases 4.5% - 10.0% per annum (1) Social Security wage base 4.0% per annum increase (1) Includes inflation component of 3.0%. Trend Information Certain actuarial assumption changes were made and went into effect January 1, 2012. They are as follows:  The assumed interest rate was decreased from 7.5% to 7.25%.  A five-year projection was added to the healthy mortality assumption to reflect expected future mortality improvements.  The amount of assumed investment related expenses paid from the Trust was decreased to reflect a more conservative interest rate assumption. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 46 Historical trend information about the Wastewater Segment’s participation in the Plan is presented below to help readers assess the Plan’s funding status on a going-concern basis and assess progress being made in accumulating assets to pay benefits when due. Annual Pension Percentage Of Net Pension Fiscal Year Cost (APC) APC Contributed Obligation 2012 10,719,154$ 100% — 2011 10,500,769 100% — 2010 9,583,137 100% — Funded Status And Funding Progress As of January 1, 2012, the Plan was 80.7% funded. The actuarial accrued liability for benefits was approximately $254,997,000, and the actuarial value of assets was approximately $205,792,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $49,205,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $49,432,000, and the ratio of the UAAL to covered payroll was 99.5%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. 8. Other Pension Plans Deferred Compensation Plan The District offers its employees a Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all Wastewater Segment employees, permits them to defer a portion of their salary. The deferred compensation is not available to employees until termination, retirement, death, disability or due to financial hardship as defined by the Deferred Compensation Plan. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 47 The Deferred Compensation Plan was amended and restated to comply with the Economic Growth and tax Relief Reconciliation Act of 2001 (the Act). The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended. The Deferred Compensation Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries under Section 1448 of the Small Business Job Protection Act of 1996. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the accompanying financial statements. The Deferred Compensation Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer Wastewater Segment, 2350 Market Street, St. Louis, MO 63103-2555. Defined Contribution Plan The Plan is a defined contribution benefit plan established by the District’s Board of Trustees (the Board) through Ordinance 13180 and became effective January 1, 2011. The following employees are eligible to participate in the Plan: (i) employees first hired on or after January 1, 2011, and (ii) employees hired prior to January 1, 2011 who elect to terminate participation in the Metropolitan St. Louis Sewer District Employees’ Pension Plan, effective as of April 1, 2011, in accordance with the provisions of such Pension Plan, and (iii) employees rehired on or after January 1, 2011 who are not eligible to accrue benefits under the Metropolitan St. Louis Sewer District Employees’ Pension Plan. An employee shall become a participant in the Plan on the first day on which he performs an hour of service for the Wastewater Segment. The Board, primarily to improve benefits to members, amends the Plan in all its respects. A pension committee consisting of two members of the Board, two elected employee members and four members of the Wastewater Segment’s management staff administer the Plan. A committee of the Board, with the aid of an investment advisor, reviews and evaluates the Plan’s investments and the related rates of return on a periodic basis. This Plan is intended to provide a means whereby the District may provide retirement benefits to eligible employees and encourage such employees to establish a regular method of savings, thereby providing a measure of financial security for such employees and their beneficiaries upon retirement or in the event of death or disability. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 48 The Defined Contribution Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Employer Basic Contributions: For each payroll period, the Wastewater Segment contributes an amount equal to 7% of the covered compensation earned during such period by each participant entitled to an allocation of such contribution. Employer Matching Contributions: For each payroll period, the Wastewater Segment contributes an amount equal to 50% of the covered compensation of such participant withheld as an annual deferral (as defined in the Deferred Compensation Plan); provided that, before-tax contributions in excess of 4% of the covered compensation of the participant for the payroll period shall not be considered for purposes of Employer Matching Contributions. Employer Matching Contributions shall be up to the maximum amount of compensation that may be taken into account for the Plan year. In no event shall the sum of the employer contributions and employee contributions allocated to the account of a participant for the Plan year exceed the lesser of: (a) The amount specified in the applicable Internal Revenue Code, as adjusted annually for any applicable increases in the cost of living. (b) 100% of the participant’s compensation for such year. The compensation limit referred to in (b) shall not apply to any contribution from medical benefits after separation from service. The Wastewater Segment’s contributions to the plan amounted to $254,433 and $100,946 for the years ended June 30, 2012 and 2011, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 49 Vesting: As of any time before the normal retirement age of a participant, the first day of the month coinciding with or next following a person’s sixty-fifth birthday and completion of sixty months of continuous service (other than upon death or permanent disability), the vested percentage of the amounts credited to the participant’s employer basic contributions account shall be determined in accordance with the following schedule: Vested (Non- Months Of Forfeitable) Continuous Service Percentage Less than 12 — 12 but less than 24 20% 24 but less than 36 40% 36 but less than 48 60% 48 but less than 60 80% 60 100% 9. Post-Employment Benefits Other Than Pensions Plan Description As part of a total compensation package effective August 1, 2004 for general employees and, with respect for union members, the later of August 1, 2004 or the date of union ratification of a Memorandum of Understanding with respect to this Plan modification, the District provides a single-employer defined benefit health care plan to employees who retire from the Wastewater Segment on or after age 62 and with five years of service or whose age plus years of service equal 75 points (“Rule of 75”). The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare at age 65. In addition, there is a closed group of disabled former employees who receive life insurance coverage from the District. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 50 Contributions for retirees are as follows: Monthly Coverage Tier Premium Retiree* $434.03 Retiree + Spouse $924.60 Retiree + Child $840.09 Family (1 Child) $1,281.45 *The District pays the retiree’s premium for a retiree who retires after age 62 or after attaining 75 points. Eventually, affected retirees will have to pay up to 10% of the above premium. The Wastewater Segment’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45 and in conjunction with Plan benefits currently in force. The actuarial valuations have been determined using estimated data provided by the District in combination with assumptions on the probability of future events, while also keeping an eye on long-term viability. These valuations are subject to continual revision as future actuarial measurements may differ significantly from current measurements due to the realization of new estimates and factors. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities. The Wastewater Segment’s annual OPEB cost for the current year and the related information are as follows: Amortization of past service cost 803,400$ Normal cost 1,166,900 Interest to end of fiscal year 88,700 Annual Required Contribution (ARC) 2,059,000$ Interest on net OPEB obligation 121,716$ Adjustment to ARC (90,160) Annual OPEB cost 2,090,556 Contributions made (1,395,800) Increase in net OPEB obligation 694,756 Net OPEB obligation - beginning of year 2,704,799 Net OPEB obligation - end of year 3,399,555$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 51 The Plan was established by District Ordinance, which assigned the authority to establish and amend plan benefit provisions to the District. The contribution requirements of the Wastewater Segment and plan members are established and may be amended by the District. Trend Information Employment Percentage Fiscal Benefit Cost Of APBC Net OPEB Year (APBC) Contributed Obligation 2012 2,059,000$ 67.8 3,399,555$ 2011 2,142,000 64.5 2,704,799 2010 2,103,700 57.3 1,924,162 As of June 30, 2012, the Plan was not funded. The actuarial accrued liability for benefits as of July 1, 2011, the latest actuarial valuation was approximately $24,103,000, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $24,103,000. The covered payroll (annual payroll of active employees covered by the plan) in 2011 was approximately $52,649,000, and the ratio of the UAAL to covered payroll was 45.8%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents trend information about whether the actuarial accrued liability for benefits is increasing or decreasing over time. Actuarial funding calculations of the plan reflect a long-term perspective. The plan’s actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 52 Significant actuarial assumptions used in the valuation are as follows: Latest valuation date July 1, 2011 Actuarial cost method Projected unit credit Discount rate 4.5% per annum Amortization method Level Percentage of payroll amount, open Amortization period 30-year period Inflation rate 3.0% Investment Rate of Return 4.5% annual returns net of both administrative and investment expenses Health cost trend assumption Getzen Trend Model - 7.6% graded to 4.7% over 70 years For more information, see the separately issued financial statements of the District as of June 30, 2012. 10. Self-Insurance Programs The Wastewater Segment 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. The Wastewater Segment has established a risk management program and retains the risk related to its obligation to provide workers’ compensation and medical and hospitalization benefits to its employees; and to pay water backup claims to its customers. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included as a component of current deposits and accrued expenses, and as such are expected to be paid within one year of the date of the statement of net position. At June 30, 2012 and 2011, these liabilities amounted to $2,575,977 and $5,557,000, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 53 The claims liabilities reported are based on the requirements of GASB Statement No. 10, Accounting and Financial Reporting and Risk Financing and Related Insurance Issues, which requires that a liability for claims be reported if information obtained prior to the issuance of the financial statements indicates it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Changes in the balance of claims liabilities during fiscal 2012 and 2011 were as follows: 2012 2011 Liability, Beginning Of Year 5,557,000$ 4,713,013$ Current year claims and changes in estimates 9,350,602 12,163,124 Claim payments (12,331,625) (11,319,137) Liability, End Of Year 2,575,977$ 5,557,000$ The Wastewater Segment obtains periodic funding valuations from the third- party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. The Wastewater Segment also maintains excess liability insurance coverage for workers’ compensation and medical and hospitalization claims; general liability; and water backup damage to customers’ property. The Wastewater Segment purchases commercial insurance for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 54 11. Closure And Post-Closure Care Costs State and federal laws and regulations require the Wastewater Segment to place a final cover on its Prospect Hill Reclamation Project landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for 30 years after closure. Although closure and post-closure care costs will be paid only near or after the date that the landfill stops accepting waste, the Wastewater Segment reports a portion of these closure and post-closure care costs as an operating expense in each period based on landfill capacity used as of the end of the fiscal year. The $721,066 and $709,120 reported as landfill closure and post-closure care liabilities at June 30, 2012 and 2011, respectively, represent the cumulative amounts reported at fiscal year-end based on the use of 93.8% and 92.2% of the estimated capacity of the landfill for fiscal years ended 2012 and 2011, respectively. The Wastewater Segment will recognize the remaining estimated cost of closure and post-closure care of $59,731 at June 30, 2016 as the facility nears capacity. These amounts are based on what it would cost to perform all closure and post-closure care in 2012. The Wastewater Segment is required to demonstrate that it has the financial capability to close the landfill to the State of Missouri through the use of a financial test as specified in 10 CSR 80-2.030(4)(D)6 of the Missouri Solid Waste Management Rules. The Wastewater Segment has complied with the State’s requirement. The Wastewater Segment recognizes that estimates of closure costs may change as a result of inflation, deflation, and/or changes in technology and applicable laws and regulations. If closure cost estimates change, the liability currently reported on the balance sheet will be adjusted accordingly. 12. Prior Period Adjustments In 2011, the construction in progress account was segmented based on the information that was available at the time. In 2012, more accurate information became available regarding the segmentation of the projects in the construction in progress account. The result of this is a $7,286,877 reallocation of net capital assets for fiscal year 2011 from the Wastewater Segment to the Stormwater Segment. Unrestricted pooled cash has also been restated due to a variation in segmenting procedures. The result of this is a $1,526,200 reallocation of total current assets from the Wastewater Segment to the Stormwater Segment. These restatements resulted in a $8,813,077 decrease in 2011 Net Position - Beginning Of Year. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 55 13. Commitments And Contingencies United States And State Of Missouri V. Metropolitan St. Louis Sewer District; In The US District Court For The Eastern District Of Missouri; Case No. 07-1120 A lawsuit was filed in June 2007 by the Department of Justice on behalf of the United States Environmental Protection Agency (“EPA”) for various alleged violations of the Clean Water Act. The suit is based on violations of the Clean Water Act as a result of overflows in the combined and sanitary sewer systems causing pollutants to reach waters of the United States. There are other counts involving violations of permit conditions. The District has been the subject of several investigatory actions by EPA since June 2007. Negotiations have been ongoing with the EPA and the Department of Natural Resources (“DNR”) regarding the sewer collection system, both the combined system and the sanitary system, for several years. The Missouri Coalition for the Environment (“MCE”) gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and the DNR then brought the suit in June 2007, and MCE moved to intervene. Intervention was granted in August 2007. In October 2007, the Court granted the District’s motion to dismiss all of the plaintiffs’ claims for civil penalties attributable to any and all of the District’s alleged violations of the Clean Water Act that occurred before June 11, 2002. Also, the suit alleges that the District does not have an approved Long-Term Control Program (“LTCP”) for the combined system. The District has been working on these issues for several decades and has asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. As required by its Charter, the District has increased rates which will continue to fund the improvements sought by the EPA and the DNR. In September 2008, the Judge put in place a Stay while the parties mediated the issues. Pursuant to MSD Ordinance No. 13277, the Wastewater Segment executed the Consent Decree (“CD”) on July 15, 2011. The CD was lodged with the court on August 4, 2011. An extended public comment period ended October 10, 2011. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 56 On January 23, 2011, the Plaintiff’s, excluding the State of Missouri, filed a Motion to Enter the Proposed Consent Decree. That same day the State of Missouri filed a Motion to Dismiss their Claims without Prejudice. On January 17, 2012, the District filed a Motion to Support the State of Missouri’s Motion only if conditions were imposed. On February 9, 2012, the State filed a Motion opposing the conditions proposed by the District. On April 27, 2012, the Court entered the decree, thus concluding the litigation of this lawsuit. On that same day the Court entered a Memorandum and Order regarding the State of Missouri’s Motion to Dismiss its Claims. The Court realigned the State of Missouri as a defendant and reaffirmed the August 3, 2009, decision by the Eighth Circuit Court of Appeals that the State had waived its sovereign immunity. Although this litigation matter has concluded, the District is working diligently to implement the Consent Decree. The Consent Decree requires the District to spend approximately $4.7 billion, in 2011 dollars, over a 23-year implementation period. Throughout this period improvements will be made to the District’s separate sewer system, combined sewer system and wastewater treatment plants. The District’s first report was submitted on May 24, 2012. On June 1, 2011, the State of Missouri approved Chapter 11, Chapter 12, and Appendix Q of the District’s Combined Sewer Overflow Long-Term Control Plan Updated Report, dated February 2011. Contingencies The Wastewater Segment has entered into construction and other contracts amounting to $187,457,912 and $199,147,221 at June 30, 2012 and 2011, respectively. Grants to be received from various governmental agencies and entities to partially offset the cost of the contract commitments amounted to $6,113 and $154,237 at June 30, 2012 and 2011, respectively. The District is a defendant in various other matters of litigation. Of these matters, management and the District’s legal counsel do not anticipate any material effect on the June 30, 2012 and 2011 financial statements. 14. Restricted Net Position The government-wide Statements of Net Position reports $53,073,695 and $45,950,750 of restricted net position at June 30, 2012 and 2011, respectively, of which $13,180,935 and $11,555,107 are restricted due to enabling legislation, as of June 30, 2012 and 2011, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Notes To Financial Statements (Continued) Page 57 15. Subsequent Events In preparing these financial statements, the Wastewater Segment has evaluated events and transactions for potential recognition or disclosure through January 8, 2013, the date the financial statements were available to be issued. As of June 30, 2012, the District had received voter authorization for $945,000,000 of revenue bonds which have remained unissued and on August 23, 2012, $225,000,000 of these bonds have been issued. These funds were sought to enable the District to comply with federal and state clean water requirements. On October 23, 2012, the District’s Board of Trustees approved the issuance of $141,730,000 of Wastewater System Revenue Bonds, Series 2012B. The bond proceeds will be used to advance refund the Series 2004A Bonds maturing in the years 2015 and thereafter. The closing date for the bonds was November 14, 2012. THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SEGMENT Page 58 REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES’ PENSION PLAN AND POST-EMPLOYMENT BENEFIT PLAN Unfunded Entry Age Actuarial UAAL As A Actuarial Actuarial Accrued Annual Percentage Actuarial Value Accrued Liability Funded Covered Of Covered Valuation Of Assets Liability (UAAL) Ratio Payroll Payroll Date (1) (2) (1)-(2) (1)/(2) (3) (1)-(2)/(3) 12/31/2011 205,792$ 254,997$ (49,205)$ 49,432$ 12/31/2010 189,012 231,599 (42,587) 81.6 51,703 82.4 12/31/2009 185,753 223,063 (37,310) 83.3 52,267 71.4 12/31/2008 183,679 212,066 (28,387) 86.6 48,077 59.0 12/31/2007 185,356 195,834 (10,478) 94.6 43,640 24.0 12/31/2006 170,757 187,432 (16,675) 91.1 42,113 39.6 80.7%99.5% Employees' Pension Plan Schedule Of Funding Progress in (000s) Unfunded Actuarial UAAL As A Actuarial Actuarial Accrued Percentage Actuarial Value Accrued Liability Funded Covered Of Covered Valuation Of Assets Liability (UAAL) Ratio Payroll Payroll Date (1) (2) (1)-(2) (1)/(2) (3) (1)-(2)/(3) 7/1/2011 — 24,103$ 24,103$ 0% 52,649$ 7/1/2009 — 24,412 24,412 0% 50,230 48.6 7/1/2007 — 21,938 21,938 0% 43,640 50.3 45.8% Post-Employment Benefit Plan Schedule Of Funding Progress in (000s)