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HomeMy Public PortalAboutExhibit MSD 52 - 2012 Audited Financial StatementsExhibit MSD 52 THE METROPOLITAN ST. LOUIS SEWER DISTRICT FINANCIAL STATEMENTS JUNE 30, 2012 AND 2011 Contents Page Independent Auditors' Report 1 - 2 Management's Discussion Of Analysis 3 - 14 Financial Statements Statements Of Net Position 15 - 16 Statements Of Revenues, Expense And Changes In Net Position 17 Statements Of Cash Flows 18 - 19 Notes To Financial Statements 20 - 67 Required Supplementary Information Required Supplementary Information - Schedule Of Funding Progress - Employees' Pension Plan And Post Employment Benefit Plan 68 a RubinBrown Ms. Janice Zimmerman The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, Missouri 63103 Dear Janice: RubinBrown LIP Certified Public Accountants & Business Consultants One North Brentwood Saint Louis, MO 63105 314, 290.3300 '' 314.290.3400 W rubinbrown.com E info@rubinbrown.com Enclosed are your copies of the financial statements for The Metropolitan St. Louis Sewer District as of June 30, 2012. We appreciate the opportunity to be of service to you. If we may furnish you with any additional information, please feel free to contact us. Very truly yours, RubinBrown LLP Jeffrey B. Winter, CPA Partner Direct Dial Number: 314.290.3408 E maiL Jeff.winterrubinbrown.com JBW:rss Enclosures BA KEPRtl�T I LLY INTERNATIONAL RubinBrown Independent Auditors' Report Board of Trustees The Metropolitan St. Louis Sewer District RubinBrown LLP Certified Public Accountants & Business Consultants One North Brentwood Saint Louis, MO 63105 314.290.3300 F 314.290.3400 W rubnbrown.com E info@rubinbrown.com We have audited the accompanying financial statements of the business -type activities of The Metropolitan St. Louis Sewer District (the District) as of and for the year ended June 30, 2012. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the District, 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business -type activities of the District 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 District adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, in 2012. .11F .......t'unbar .f BAKER TILLY INTERNATIONAL Board of Trustees The Metropolitan St. Louis Sewer District In accordance with Government Auditing Standards, we have also issued our report dated November 1, 2012, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. 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. IkentielawnLLP November 1, 2012 Page 2 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION OF ANALYSIS For The Years Ended June 30, 2012 And 2011 The annual report of The Metropolitan St. Louis Sewer District (the "District") 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 District has provided this MD&A to be used in combination with the District'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. 2012 Financial Highlights > The District placed $170.9 million of capital assets into service during fiscal year 2012. This high level of capitalization and construction is reflective of an accelerated building program to meet the needs of the District. These capitalized assets include: Collection and pumping plant $112.1 million Treatment and disposal plant and equipment $41.0 million Land $9.1 million General plant and equipment $8.7 million In conjunction with the new assets, accumulated depreciation increased by $55.7 million. > Contracts and accounts payable decreased by $18.2 million due to a decrease in water back-up claims, a decrease in litigation claims and a decrease in outstanding construction payables. > Operating expenses declined by $28.2 million as the result of declines in asset management costs as expenditures shifted to capital. Page 3 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2011 Financial Highlights > The District placed $300.9 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 District's plants and systems. These capitalized assets include: Treatment and disposal plant and equipment $236.9 million Collection and pumping plant S34.8 million General plant and equipment S17.9 million Land $11.3 million In conjunction with this capitalization of assets, the District increased accumulated depreciation by $58.4 million. > Cash and investments decreased by $52.6 million since the District's new debt was issued as a line of credit requiring the District to spend down reserves. This line of credit structure reflects the State's change in the administration of its State Revolving Fund (SRF) program and does not impact the District's receipt of future State bond funding. > Contracts and accounts payable increased $23.7 million due to $4.3 million in water backup claims from a failure of flood gates along the Mississippi River associated with a severe rain event in June. New construction expenses incurred late in the fiscal year also contributed to this increase. > Operating revenue declined by $27.1 million and non -operating revenue increased by $23.2 million. This resulted from the District's rescinding of its impervious stormwater charge per a July 9, 2010 Court decision which declared the charge unconstitutional. Property taxes were reinstated to partially replace this stormwater funding. Required Financial Statements The financial statements presented by the management of the District include the Statements of Net Position; Statements of Revenues, Expenses, and Changes in Net Position; and Statements 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 District's performance over the time period being reported is more easily determinable. Page 4 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) The Statements of Net Position provide a report of the District's current, restricted, and other non -current assets such as cash, investments, receivables, and property. Also, the Statements of Net Position provide a summary of the District's current, restricted, and non -current liabilities, including contracts and accounts payable, deposits and accrued expenses, and bond and notes payable. Deferred outflows and inflows, where applicable, will also be included. The final section of the Statements of Net Position, the net position section, contains earnings retained for use by the District. 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 District, and assessing the liquidity and financial flexibility of the District. The Statements of Revenues, Expenses, and Changes in Net Position summarize all of the years' revenue and expense. These statements indicate how successful the District was at maintaining expenses below the level of revenue earned. The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, non -capital financing activities, capital and related financing activities, and investing activities. These statements assist the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Financial Analysis The District's financial position improved in the current year, as evidenced by the increase in net position of $21.2 million. The main reason for the improvement is the increase in capital assets of $79.3 million. The District continues capacity expansion and updating of the District's plant and collection system. The District also incurred new debt, increasing liabilities by a net of $62.4 million. Page 5 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Condensed Financial Statements and Analysis Assets: Current, restricted, and other assets Capital assets (net of accumulated depreciation) Total Assets Liabilities: Current liabilities Non -current liabilities Total Liabilities Net Position: Net investment in capital assets Restricted Unrestricted Total Net Position 2012 Analysis Condensed Statements of Net Position (000s) Increase (Decrease) 2012 2011 2012.2011 2010 $ 407,731 $ 403,397 $ 4,334 $ 461,022 2,648,816 2.469,496 2956,547 2,872,893 86,337 101,429 651,916 574,445 738.253 675,574^ 1,936,590 106.694 175.010 1.915,233 94,926 186,860 79,320 2,411.877 83,654 2.572,599 (15,092) 75.512 77,471 589,737 62,379 665,249 21,357 11.768 (11.8449;; 1,868,974 80,782 257,894 $ 2.218,294 $ 2,197 019 $ 21.276 3 2,207,650 Increase (Decrease) 2011-2010 $ (57,626) 57,619 (6) 25.917 (15,292) 10626 46.259 i 'r 1.034;$ $ (10,632) Current restricted and other assets increased $4.3 million or 1.1% in the current year. The increase is predominately due to the restricted cash and investments required as part of the issuance of debt in 2012. Capital assets net of accumulated depreciation increased by $79.3 million or 3.2% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities decreased by $15.1 million or 14.8%, as the result of decreases in contracts and accounts payable from the prior year water back-up claims payables and the stormwater litigation costs. Noncurrent liabilities increased by $77.5 million or 13.5% as the District issued $93.3 million in new debt and paid down existing debt. 2011 Analysis Current restricted and other assets decreased by $57.6 million or 12.5% in the current year. This change is due to the decrease in revenue from the suspension of the impervious fee. Page 6 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Capital assets net of accumulated depreciation increased by $57.6 million or 2.4% overall as the result of new projects in the current year. Current liabilities increased by $25.9 million or 34.3% in the current year. The increase is due to $4.3 million in liabilities for overland flooding resulting from a power outage, $4.8 million from stormwater litigation costs and the remainder from increased payables in connection with capital projects. Noncurrent liabilities decreased by $15.3 million or 2.6% over the prior year as the District paid down existing debt. Page 7 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Statements of Revenues, Expenses, and Changes in Net Position (000s) Operating Revenues: Sewer service charges Provision for doubtful sewer service charge accounts Provision for uncollected stormwater charge accounts Licenses, permits, and other fees Other Total Operating Revenues Non -Operating Revenues: Property taxes levied by the district 24,604 27,126 (2,522) 1,401 Investment income 2,407 3,847 (1,440) 6,554 Rent and other income 295 443 (148) 265 2012 2011 S 227,677 S 223,276 (6,911) (6,249) (2,374) 2,684 2,976 2,550 1,815 226,000 219,444 Increase (Decrease) 2012-2011 $ 4,401 (662) 2,374 (292) 735 6,555 2010 $ 251,683 (10,188) 3,085 2,007 246,587 Total Non -Operating Revenues 27,306 31,416 (4,110) 8,220 Total Revenues 253,306 250,860 2,445 254,807 Operating Expenses: Pumping and treatment 49,005 50,532 (1,527) 47.266 Collection system maintenance 36,695 33,152 3,543 36,082 Engineering 8,544 12.486 (3,942) 15,773 General and administrative 33,180 36,075 (2,895) 39,237 Water backup claims 2,050 8,912 (6,862) 3,951 Depreciation 66,742 66,854 (112) 54,012 Asset management 20,092 36,492 (16,400) 32,458 Total Operating Expenses 216,308 244,503 (28,196) 228,779 Non -operating Expenses: Net (gain) loss on disposal and sale of capital assets 3,163 3,486 (323) 2,719 Non -recurring projects and studies 6,403 10,801 (4,398) 9,872 Legal claims 5 4,829 (4,824) - Interest expense 15,811 7,971 7,840 13,189 Total Non -Operating Expenses 25,382 27,087 (1,704) 25.780 Total Expenses 241,690 271,590 (29,900) 254,559 Income Before Capital Grants And Contribution 11,616 (20,730) 32,346 248 Capital Grants And Contributions 9,659 10,099 (440) 19,785 Change In Net Position 21,275 (10.631) 31,906 20.033 Net Position - Beginning Of Year 2,197,019 2,207,650 (10,631) 2,187,617 Net Position - End Of Year $ 2,218,294 $ 2,197,019 ` $ 21,275 $ 2,20 7,650 Increase (Decrease) 2011-2010 $ (28,407) 3,939 (2, 374) (109) (192) (27..143) 25,725 (2.707) 178 23,196 (3,947) 3,266 (2,930) (3,287) (3,162) 4,961 12,842 4,034 15,724 767 929 4,829 (5,218) 1,308 17,031 (20,978) (9,686) (30,664) 20,033 $ (10,631). Page 8 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2012 Analysis Net position increased by $21.3 million or 1.0% over the prior year. While revenue increased slightly over the prior year, expenses decreased rapidly, as more District resources were targeted toward capital projects. Total revenue increased by $2.4 million or 1.0%. Sewer service charges increased $4.4 million and the provision for uncollected stormwater charges was eliminated as part of the discontinuation of the stormwater impervious fee discussed below, increasing operating revenue by $6.6 million. At the same time, property tax revenue decreased by $2.5 million from decreases in property valuation. Investment income also declined by $1.4 million as a result of low interest rates. Total expenses decreased by $29.9 million or 11.0%. Operating expenses decreased by $28.2 million. Asset management decreased $16 4 million as costs were eliminated and water back-up claims decreased $6.9 million from the non -repetition of overland flooding in the prior year. Non -operating expenses decreased by $1.7 million. Non- recurring projects and studies decreased by $4.4 million and legal claims decreased by $4.8 million from the prior year stormwater legal claim. Capital asset sale losses declined by $0.3 million. Interest expenses increased by $7.8 million in connection with new debt issuance. 2011 Analysis Net position decreased by $10.6 million or $30.6% less than the prior year. While revenue remained relatively flat expenses grew, at a slower pace than the prior year. Total revenue decreased by $3.9 million or 1.5%. While the reinstatement of taxes offset the decline in operating revenue, investment income declined by $2.7 million over the prior year. The decline in investment income is the result of low interest rates along with the decrease in funds available for investment. Total expenses increased for the year by $17.0 million or 6.7%. Total operating costs increased by 15.7 million or 6.9%, in large part due to claims for overland flooding and an increase of $12.8 million or 23.8% in depreciation expense in connection with additional assets placed into service. Non -operating expenses increased by $1.3 million or 5.1% due in part to a $4.8 million legal claim cost in connection with the District's impervious fee case. Page 9 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Cash flows from operating activities Cash flows from non -capital financing activities Cash flows from capital and related financing activities Cash flows from investing activities Condensed Statements of Cash Flows (000s) 2012 2011 67,839 S 56,676 24,604 27,125 (91,085) (141,136) 12,903 51,887 Net increase (decrease) in cash and cash equivalents 14,261 (5,448) Cash and cash equivalents at beginning of year 6,319 11,767 Cash And Cash Equivalents At End Of Year 2012 Analysis S 20,580 S 6,319 Increase (Decrease) 2012-2011 $ 11,163 (2,521) 50,051 (38,984 ) 19,709 (5,448) $ 1.4,261 2010 S 67,916 1,401 (81,406) 17, 399 5,310 6,457 11.767 Increase (Decrease) 2011-2010 $ (11,240) 25,724 (59,730) 34,488 s.tb,75ts) 5,310 $ (5.448) The District ended the year with $20.6 million in cash and cash equivalents or $14.3 million more than the prior year. Cash flows from operating activities increased by $11.2 million as the result of the decrease in litigation and water backup costs noted above. Cash flows from non -capital financing activities decreased by $2.5 million or 9.3% from a decrease in tax revenue. The decrease stems from both a decrease in property values and also a decision by the District to eliminate some sub -district taxes because of sufficient fund balance. Cash flow from capital and related financing activities increased by $50.0 million as the result of new bond proceeds offset by payments for capital improvement. Cash flows from investing activities declined by $39.0 million or 75.1%. 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. Finally, there was a $0.9 million decline in investment income due to the economy's impact on interest rates. Page 10 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2011 Analysis The District ended the year with $6.3 million in cash and cash equivalents or $5.4 million lower than the prior year. This was due to a decline in cash received from customers of $24.5 million or 9.9% with the elimination of the impervious fee; partially offset by a decrease in payments to suppliers of $17.4 million or 17.4%. Cash flow from non -capital financing activities increased by $25.7 million as the result of the reinstatement of taxes to fund stormwater activities. Cash flow from capital and related financing activities decreased by $59.7 million or 73%, because the State of Missouri Direct Loan Series Bond issuance for 2010 provides reimbursement of expenditures, not loan proceeds. Investing activity proceeds provided $34.5 million as investments were used to fund operating and capital activities. Capital Assets Land Construction in progress Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total 2012 Analysis Condensed Statements of Capital Assets Net of Depreciation (000s) Increase (Decrease) 2012 2011 2012.2011 2010 46,027 $ 36,924 379,119 400,756 611,249 1,471,147 41.274 597,316 1,393,394 41,106 Increase (Decrease) 2011-2010 $ 9,103 $ 28,129 t 8,795 (21,637) 570,602 (169,846) 13,933 394,826 202,490 77,753 1,393,152 242 168 25,168 15 938 $ 2,548,816 $ 2,469,496 $ 79,320 $ 2,411,877 $ 57.619 Total capital assets, net of depreciation, increased by $79 3 million over the prior year. Collection and pumping plants contained the majority of the increase with $77 8 million coming on-line this fiscal year. Construction in progress decreased by $21.6 million as $159.6 million in constructed assets were moved into service. Treatment and disposal plant and equipment increased by $13.9 million. Land contributed $9.1 million from acquisition of easements and other land. Page 11 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2011 Analysis Total capital assets, net of depreciation, increased by $57.6 million over the prior year. Construction in progress decreased by $169.8 million as $287.0 million in constructed assets were placed into service. Treatment and disposal plant projects represented the majority of new assets, $202.5 million. Land contributed $8.8 million to the increase from the completion of grading projects. General plant and equipment also increased by $15.9 million, partially as a result of the reclassification of office building assets from treatment and disposal plant to general plant. Long -Term Debt Condensed Statements of Long -Term Debt (000s) 2012 2011 Senior Revenue Bonds: Series 2004A S 163,630 $ 165,590 Series 2006C 60,000 60,000 Series 2008A 30,000 30,000 Series 2010B 85,000 85,000 Series 2011B 52,250 Subordinate Revenue Bonds: Series 2004B 115,960 123,055 Series 2005A 5,055 5,370 Series 2006A 34,225 36,335 Series 2006B 11,620 12,285 Series 2008AB 33,833 35,610 Missouri DNR: Series 2009A 21,085 22,053 Series 2010A 5,880 2,852 Series 2010C 35,519 329 Series 2011A 1,007 - Energy Loan Program 237 25 Oracle/Blue Heron 3,096 6,096 Total 2012 Analysis $ 658,397 $ 584,600 Increase (Decrease) 2012-2011 $ (1,960) 52,250 (7,095) (315) (2,110) (665) (1,777) (968) 3,028 35,190 1,007 212 (3,0H0 ; $ 73,797 2010 S 167,370 60,000 30,000 85,000 130,110 5,665 38,420 12,935 37,375 23,000 37 7,264 $ 597,176 Increase (Decrease) 2011-2010 $ (1,780) (7,0551 (2951 2,085) (650) (1,765) 2,852 329 (12) (1,168) $ (12,576) The District ended fiscal year 2012 with $658.4 million in long-term debt outstanding. The District 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.OM). Page 12 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2011 Analysis The District ended fiscal year 2011 with $584.6 million in long-term debt outstanding, consisting mainly of revenue bonds. The District had one bond addition this year (Series 2010C) resulting in a minimal increase in long-term debt. 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) The District implemented an impervious area based stormwater rate in March 2008. In conjunction, the District elected to discontinue the assessment of approximately $24.4 million per year in property taxes and flat fees previously used for stormwater funding. The impervious stormwater rate structure in place throughout the 2010 fiscal year generated 890.9 million in revenue for stormwater services across the St. Louis region. On July 9, 2010, the Circuit Court of St. Louis County of Missouri ruled the impervious rate unconstitutional. As a result, the District's Board of Trustees rescinded the impervious based rate effective August 1, 2010. The elimination of the rate resulted in an estimated 848.3 million loss in revenue anticipated to address stormwater issues throughout the St. Louis region. The District reinstated the property taxes and flat fees previously discontinued in order to provide a base level of stormwater services as required by the District's Charter. Stormwater services were drastically reduced in fiscal year 2011 and continued at reduced levels in fiscal year 2012. On May 29, 2012, the District filed its Application directly to the Missouri Supreme Court requesting a transfer. On June 1, 2012, the National Association of Clean Water Agencies was allowed to file suggestions in support of the Application for Transfer. A decision is pending as to whether the Supreme Court will hear this case. The potential reinstatement of the stormwater impervious based rate is contingent upon the District's current appeal. Requests For Information This financial report is designed to provide a general overview of the District's finances for all those with an interest in the District'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 j zimmer@stlmsd. com Page 14 This page was intentionally left blank. THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET POSITION Assets Current Assets Cash Pooled cash and investments Investments Sewer service charges receivable, less allowance of $4,038,932 in 2012 and $4,087,758 in 2011 L' nbilled sewer service charges receivable, less allowance of $362,806 in 2011 and 8326, 780 in 2011 Accrued income on investments Other receivables Supplies inventory Total Current Assets Non -Current Assets Restricted Assets Cash Pooled cash and investments Investments Accrued income on investments Other Assets Notes receivable Capital Assets Depreciable: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Less: Accumulated depreciation Net depreciable assets Non -depreciable: Land Construction in progress Net capital assets Total Non -Current Assets Total Assets For The Years Ended June 30, 2012 2011 $ 15,322,804 $ 6,229,447 162, 269,011 190, 353,186 42,931,034 31,200,375 34,608,839 18,140, 324 436,251 928,832 6,301,034 35, 300, 022 16,338,975 759,812 757,176 6,961,285 280,938,129 287, 900, 2 78 5,256,795 72, 357, 560 34,495,472 266,592 89,487 69,042,313 31,133, 772 466,800 112,376,419 100, 732,372 14,417,074 14,764,507 1,011, 7 98,185 2,050.326,859 91,264,888 979,444,620 1,941,575,848 84, 858, 812 3,153,389, 932 1, 029, 720,453 3,005,879,280 974,063,867 2,123,669,479 2,031,815,413 46,026,763 379,119,335 36, 924,144 400, 756, 348 2,548,815,5 77 2,469, 495, 905 2,675,609,070 2,584, 992, 7 84 2,956,547,199 2,872,893,062 Page 15 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET POSITION (Continued) Liabilities Current Liabilities Contracts and accounts payable Deposits and accrued expenses Retainage payable Current portion of bonds and notes payable Current Liabilities -Payable From Restricted Assets Contracts and accounts payable Retainage payable Total Current Liabilities Non -Current Liabilities Deposits and accrued expenses Bonds and notes payable Total Non -Current Liabilities Total Liabilities Net Position Net investment in capital assets Restricted for: Debt service Subdistrict construction and improvement Unrestricted For The Years Ended June 30, 2012 2011 $ 27,152,656 $ 22,949,200 8,694,165 21,857,997 45,410,443 24,629,171 6,199,009 19,383,825 80,654,018 95,622,448 5,399,672 283,053 5,602,225 204,166 5,682, 725 5,806,391 86,336,743 101,428,839 9,572,545 642, 343, 570 8,365,378 566, 079,709 651,916,115 574,445,087 738,252,858 675,873,926 1, 936, 590, 862 39,892, 760 66,800,934 175,009,785 1,915,232,838 34, 395,643 60, 530,338 186,860,317 Total Net Position $ 2,218,294,341 $ 2,197,019,136 Page 16 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF REVENUES, EXPENSE AND CHANGES IN NET POSITION For The Years Ended June 30, 2012 2011 Operating Revenues Sewer service charges $ 22 7,677,430 $ 223,275, 722 Provision for doubtful sewer service charge accounts (6,911,849) (6,248,681) Provision for uncollected stormwater charge accounts (2,373,731) Licenses, permits, and other fees 2,683,823 2,976,253 Other 2,550,316 1,814,694 Total Operating Revenues 225,999, 720 219,444,257 Operating Expenses Pumping and treatment 49,005,251 50,532,451 Collection system maintenance 36,695,192 33,152,223 Engineering 8,543,316 12,485,664 General and administrative 33,180,189 36,075,000 Water backup claims 2,049,901 8,911,970 Depreciation 66,742,064 66,854,265 Asset management 20,092,052 36,491,526 Total Operating Expenses 216,307,965 244,503,099 Operating Income (Loss) 9,691,755 (25,058,842) Non -Operating Revenues Property taxes levied by the District 24,604,173 27,125,451 Investment income 2,407,485 3,847,324 Rent and other income 294,591 442,968 Total Non -Operating Revenues 27,306,249 31,415,743 Non -Operating Expenses Net loss on disposal and sale of capital assets 3,162,723 3,485,952 Non -recurring projects and studies 6,402,888 10,800,843 Legal claims 5,000 4,828,828 Interest expense 15,811,045 7,971,088 Total Non -Operating Expenses 25,381,656 27,086,711 Income (Loss) Before Capital Grants And Contributions 11,616,348 (20,729,810) Capital Grants And Contributions Utility plant contributed 9,495,264 7,5 71,714 Grant revenue 163,593 2,526,838 Total Capital Grants And Contributions 9,658,857 10,098,552 Change In Net Position Net Position - Beginning Of Year Net Position - End Of Year 21,275,205 (10,631,258) 2,197,019,136 2,207,650,394 $ 2,218,294.341 $ 2.197.019,136 Page 17 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Received from customers Paid to employees for services Paid to suppliers for goods and services Net Cash Provided By Operating Activities Cash Flows Provided By Non -Capital Financing Activities Taxes levied and collected Cash Flows From Capital And Related Financing Activities Proceeds from capital grants Proceeds from issuance of debt Premium and (discounts) on sale of bonds Interest received on bond proceeds to be used for capital improvements Principal paid on debt Interest and fees paid on debt Payments for capital assets Proceeds from sale of capital assets Build America bond tax credit Net Cash Used In Capital And Related Financing Activities Cash Flows From Investing Activities Purchase of investments Proceeds from sale and maturity of investments Investment income Proceeds from rents Net Cash Provided By Investing Activities Net Increase (Decrease) In Cash And Cash Equivalents Cash And Cash Equivalents At Beginning Of Year Cash And Cash Equivalents At End Of Year Non -Cash Capital And Investing Activities Capital asset additions included in accounts payable Utility plant contributed by other governments and developers Fair value investment adjustment gain (loss) For The Years Ended June 30, 2012 2011 $ 225,182,816 $ 224,167,793 (85,434,376) (85,069,139) (71,909,584) (82,422,992) 67,838,856 56,675,662 24,604,173 27,125,451 164,164 93,347,308 6,104,835 141,569 (19, 551, 825) (25, 391, 770) (147, 723, 685) 82,464 1,742,160 2,533,168 4,539,018 666,548 (17, 515, 733) (22, 386, 543) (110,811,121) 96,658 1,742,160 (91, 084, 780) (521, 656, 494) 529,712,780 4,551,539 294,591 (141,135,8451. (691,222,800) 737,182,632 5,484,057 442,968 12,902,416 51,886,857 14,260,665 6,318,934 (5,447,875) 11, 766,809 $ 20,579,599 $ 6,318,934 $ 13,744,285 $ 25,234,187 9,495,264 7,571,714 (778,235) 267,028 Page 18 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS (Continued) Reconciliation Of Operating Income (Loss) To Net Cash Flows Provided By Operating Activities Operating Income (Loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation Change in operating assets and liabilities: (Increase) decrease in billed and unbilled sewer service charges receivable (Increase) decrease in other receivables (Increase) decrease in supplies inventory Increase (decrease) in contracts and accounts payable Increase (decrease) in deposits and accrued expenses For The Years Ended June 30, 2012 2011 $ 9,691,755 $ (25,058,842) 66,742,064 66,854,265 (1,110,166) (172,227) 660,251 (7,408,601) (564,220) 4,074,425 74,063 (128, 783) 7,562,465 3,298,069 Net Cash Provided By Operating Activities $ 67,838,856 $ 56,675,662 Page 19 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS 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. 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 District defines its financial reporting entity to include all component units for which the District's governing body is financially accountable. To be considered financially accountable, the component unit must be fiscally dependent on the District and the District must either 1) be able to impose its will on the component unit or 2) the relationship must have the potential for creating a financial benefit or imposing a financial burden on the District. Based on the foregoing, the District's financial statements include all funds that are established under the authority of the District's charter. There are no agencies, boards, commissions, or authorities that are controlled by or dependent on the District. Page 20 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Measurement Focus, Basis Of Accounting, And Financial Statement Presentation Throughout the year, the District 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 District 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 District's measurement focus is on the flow of economic resources. Unbilled sewer service charge revenues are accrued by the District 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 District's principal ongoing operations. The principal operating revenues of the District are user fees, licenses, and permits for wastewater treatment services. Operating expenses include the costs associated with the conveyance and treatment of wastewater, stormwater, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as non -operating revenues and expenses. The District 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 District 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 District 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. Page 21 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District's policy to use restricted resources first, and then unrestricted resources as they are needed. The District 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 District also applies all FASB Statements and Interpretations issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements. The District 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 District'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 District. "Investments" consist of those investments with maturity dates 90 days or greater at the time of purchase by the District. Investments are stated at fair value based upon quoted market prices. 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 composes primarily of charges to customers for wastewater and stormwater services. Receivables are reported at their gross values net of an allowance for uncollectible amounts. Page 22 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District. 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 District includes funding for replacement cost of assets, which may differ from depreciation expense recorded for financial reporting purposes. 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 District 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 District 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. Page 23 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District 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 District. 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 District'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 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 District. The unrestricted net position component of net assets consists of net assets that do not meet the definition of restricted or invested in capital assets, net of related debt. Page 24 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Capital Contributions Capital contributions to the District 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. 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 District 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 District service. The District 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 District 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. Page 25 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 the reported amount of the District's deposits was $56,122,489 and bank balance was $54,926,226. Of the bank balance, $45,540,519 was covered by federal depository insurance and $9,385,707 was collateralized with securities held by a third party financial institution in the District's name. At June 30, 2011, the reported amount of the District's deposits was $38,979,076 and the bank balance was $42,310,339. Of the bank balance, $42,220,762 was covered by federal depository insurance and $89,577 was collateralized with securities held by a third party financial institution in the District's name. Custodial credit risk for deposits is the risk that, in the event of bank failure, the District's deposits may not be returned to the District. The District'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. 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. Page 26 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District 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 District'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 Deposits Money Market Mutual Funds Certificates of deposit U.S. Treasury and agency obligations Commercial paper Bankers' acceptance notes Total 2012 2011 Cost Fair Value $ 56,122,489 4,851,168 900,000 180,442,248 81,436,568 7,554,253 $ 56,122,489 4,851,168 900,000 181, 714,022 81,485,196 7,559,801 Cost Fair Value $ 38,979,076 900,000 211, 886,113 67,890,245 6,288,960 $ 38,979,076 900,000 213,968,746 67, 909, 740 6,291,018 $ 331,306, 726 $ 332,632,676 $ 325,944,394 $ 328,048,580 Reconciliation to the financial statements: Cash Unrestricted Restricted Pooled cash and investments Unrestricted Restricted Investments Unrestricted Restricted 2012 2011 $ 15,322,804 $ 5.256, 795 162,269,011 72,357,560 42,931,034 34,495,472 6,229,447 89,487 190, 353,186 69,042,313 31,200,375 31,133,772 $ 332,632,676 $ 328,048,580 Page 27 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Interest Rate Risk As of June 30, 2012 and 2011, the District had the following investments and maturities: 2012 2011 Weighted Weighted Average Average Maturity Maturity Investment Type Fair Value (Years) Fair Value (Years) Certificates of deposit $ 900,000 1.11 $ 900,000 0.60 U.S. Treasury obligations 50,229,767 0.78 36,390,289 0.91 U.S. agency obligations 131,484,255 2.25 177,578,457 2.24 Commercial paper 81,485,196 0.11 67,909,740 0.10 Bankers' acceptance notes 7,559,801 0.16 6,291,018 0.10 Total $ 271,659,019 1.28 $ 289,069,504 1.51 In accordance with the District's investment policy, the District 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. Custodial/Credit Risk The District 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 District will do business. 2. Diversifying the portfolio so that potential losses on individual securities will be minimized. Page 28 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) In accordance with its investment policy, the District 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 District's investments in commercial paper were rated Al by Standard & Poor's and P-1 by Moody's Investors Service. The District's investments in repurchase agreements carry the explicit guarantee of the U.S. Government. The District'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 places no limit on the amount the District 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 Federal Home Loan Bank Federal National Mortgage Association Federal Home Loan Mortgage Corporation Percent Of Total. Investtnents 2012 2011 8.0 21.1 6.4 19.0 18.9 11.3 Page 29 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 3. Note Receivable The District 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: 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 Less: Amount representing interest Classification in Statement of Net Position: 22,560,226 7,682,391 $ 14,877.835 Current $ 460,761 Non -current 14,417,074 Total $ 14,877.835 Page 30 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 4. Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2012 and 2011: Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets Balance June 30, 2011 Additions Balance Reclass Deletions June 30, 2012 $ 36,924,144 400,756,348 437,680,492 $ 9,102,619 $ 137. , 925, 986 14 7,028,605 $ — $ 46,026,763 — 159,562,999 379,119,335 - 159,562,999 425,146,098 979, 444,620 1,941,575,848 84, 858,812 3,005,879, 280 (382,129,043) (548,181,682) (43,753,142) (974,063,867) 2,031,815,413 $ 2,469,495,905 Balance June 30, 2010 41,013, 831 112,106,178 8,721,309 161,841,318 (26,025,377) (32,259,885) (8,456,802) (66,742,064) 95,099,254 $ 242,127,859 $ Additions $ 28,128,701 $ 11,342,554 $ 570,602,108 117,135,980 598,730, 809 128,478,534 750,240, 748 1,914.386,404 64,195,139 2,725,822,291 236,903,865 34,816,152 17,922,435 289,642,452 8,660,266 - 3,355,167 2,315,233 - 14, 330, 666 (7,605,416) - (1,261,130) - (2,218, 932) (11;085, 478) - 3,245,188 - $ 162,808,187 1,011, 798,185 2,050, 326, 859 91, 264,888 3,153,389,932 (400,549,004) (579,180,437) (49,991,012) (1,029,720,453) 2,123,669,479 $ 2,548,815,577 Balance Reclass Deletions June 30t 2011 $ 2,547,111 $ 36,924,144 — 286,981,740 400,756,348 - 289,528,851 437,680,492 (6,851,394) 848,599 7,626,708 6,851,394 4,110,156 12,555,463 979,444,620 1,941,57e 5,848 84,858,812 3,005,879,280 (355,414,815) (521,233,972) (39,027,424) (915,676,211) 1,813,146,060 $ 2,411,876,889 (28,782,937) (31,129,153) (6,942,175) (66,854,265) 222,788,157 1,679,361 (389,348) - (4,181,443) (1,679,361) (3,895,818) - (8,466,609) - 4,116, 854 (382,129,043) (548,181,682) (43,753,142) (974,063,867) 2,031,815,413 $ 351,266,721 $ — $ 293,647,705 8 2,469,495,905 Page 31 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 stormwater maintenance, debt service, 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 District monthly. On June 12, 2008, pursuant to Ordinance 12661, the District set the property tax rate at zero and began charging a stormwater service charge on March 1, 2008 based on the property's impervious area. Only July 9, 2010, the St. Louis County Circuit Court declared that the stormwater user charge was a tax that requires voter approval under the Hancock Amendment I. In July, the District ceased charging customers for stormwater usage and reenacted the property tax that was previously charged. In fiscal years 2012 and 2011, the District recorded revenue from property taxes in the amount of $24,604,173 and $27,125,451, respectively. Page 32 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 6. Long -Term Liabilities The following is a summary of changes in the District's long-term liabilities for the year ended June 30, 2012: Original Issuance Amounts Balance June 30, 2011 Additions Retirements Balance June 30, 2012 Bonds and notes payable: Wasterwater System Senior revenue bonds: Series 2004A $ 175,000,000 Series 2006C 60,000,000 Series 2008A 30,000,000 Series 2010B 85,000,000 Series 2011B 52,250,000 Water Pollution Control And Drinking Water Series 2004B 161,280,000 Series 2005A Series 2006A Series 2006B Series 2008ArB 6,800,000 42,715,000 14,205,000 40,000,000 Missouri Department of Natural Resources: Energy Loan Program 98,595 Energy Loan Program 223,793 Series 2009A 23,000,000 Series 2010A 7,980,700 Series 2010C 37,000,009 Series 2011A 39,769,300 Capital Lease: Oracle.'Blue Heron Add: Unamortized premium, net Less: Bond issue costs, net Total Deposits and accrued expenses: Landfill closure and postclosure costs Compensated absences Net OPEB obligation Total 12 000 000 $ 165,590,000 $ 60,000,000 30,000,000 85,000,000 52,250,000 Current Portion $ 1,960,000 $ 163,630,000 S 2,165,000 60,000,000 30,000,000 55,000,000 52,250,000 1,640,000 Subordinate Revenue Bonds (State Revolving Loans Program): 123,055,000 7,095,000 115,960,000 5,055,000 5,370,000 36,335,000 12, 285,000 35,610,000 25,251 22,053, 200 2,552,447 329,000 223,793 3,195,942 36,6 71,000 1,006,572 315,000 2,110,000 665,000 1,777,500 11,783 968,700 168,000 1,481,000 6 095 982 — 2,999,842 $ 787,322,358 $ 584,600.580 $ 93,347,398 $ 19,551,525 $ 709,120 11,946 $ 6,601,946 851,568 184,283 2,704,799 2,090,556 1,395,800 10,015,8,65 $ 2,954,070 $ 1,580,083 34, 225,000 11,620,000 33,832,500 13,468 223,793 21,084,500 5,860,389 35,519,000 1,006,572 7,180,000 305,000 2,140,000 675,000 1,792,500 12,157 991,100 341,100 1,520,000 3 096 140 3,096,140 658,396,362 $ 21,857,998 14,196,464 (8, 391,259) $ 664,201,567 $ 721,066 $ 7,269,231 1,817,307 3,399,555 11, 389,852 $ 1, 817,307 Page 33 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The following is a summary of changes in the District's long-term liabilities for the year ended June 30, 2011: Original Balance Balance Issuance June 30, June 30, Current Amounts 2010 Additions Retirements 2011 Portion Bonds and notes payable: Wasterwater 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 Water Polluition Control And Drinking Water Subordiante Revenue Bonds (State Revolving Loans Program): 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 2008AB 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 Add: 1L7namortized premium, net 8,699,649 Less: Bond issue costs, net (7,836,995) 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 l 19,383,825 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 $ 1,9 ,936 $ 10,015,865. $ 1,650,987 Wastewater System Revenue Bonds Payable In February 2004, the District received voter authorization for $500,000,000 of revenue bonds. In August 2008, the District received voter authorization for an additional $275,000,000 of revenue bonds. In June 2012, the District received voter authorization for $945,000,000 of 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 Notes To Financial Statements (Continued) 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 District 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 District will receive a subsidy payment from the Federal government equal to 35% of the interest paid. In January 2010, the District issued S85,000,000 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 District 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. Page 35 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The revenue bonds do not constitute a legal debt or liability for the District, 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 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. Page 36 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. Page 37 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District'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, 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. Page 38 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) In accordance with the Series 2004A, 2004B, 2005A, 2006A, 2006B, 2008AIB bonds, the District'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: Wastewater System Revenue Bonds Payable/ Water Pollution Control And Drinking Water Revenue Bonds Payable Years Ending June 30, 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 2033-2037 2038-2041 Total Principal Interest $ 15.897,500 16,477,500 16,930,000 17 ,925,000 18,49 7 ,500 104, 732,500 115, 795,000 117,127,500 123,385,000 44, 805,000 $ 591,572,500 $ 29,831,871 29,160, 856 28,444,299 27,649,424 26,801,361 119,506,114 91,677,999 63, 766, 475 33,798,013 3,789,888 $ 454,426,300 Total 45, 729,371 45,638,356 45,374,299 45,574,424 45,298,861 224,238,614 207,472,999 180,893,975 157.183,013 48, 594, 888 $ 1,045,998,800 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. Page 39 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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: Energy Efficiency Leveraged Note Payable 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 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: Energy Efficiency Leveraged Note Payable 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 Page 40 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District'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 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: State Of Missouri Direct Loan Series 2009A Years Ending June 30, Principal Interest Total 2013 $ 991,100 S 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 8 21,084,500 $ 2,949,511 $ 24,034,011 Page 41 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District'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 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 District's 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 District'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. Page 42 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Principal And Interest Requirements On State Of Missouri Direct Loan Series 2010C As the District incurred approved 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 1.7% 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: State Of Missouri Direct Loan Series 2010C Years Ending J une 30, Principal 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 Total $ 1,520,000 1,560,000 1,600,000 1.641,000 1,684,000 9,098,000 10, 343, 000 8,073,000 Interest Total 8 579,835 554.590 528,685 502,120 474,862 1,940,086 1,144, 349 269,890 $ 35,519,000 $ 5,994,417 8 2,099,835 2,114,590 2,128, 685 2,143,120 2,158, 862 11,038.086 11,487,349 8,342,890 $ 41,513,417 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 District's 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 District'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. Page 43 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Principal And Interest Requirements On State Of Missouri Direct Loan Series 2011A As the District incurs approved 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. Principal And Interest Requirements On Master Equipment Lease/Purchase Agreement Master Equipment Lease / Purchase Agreement Years Ending June 30, Principal Interest Total 2013 $ 3,096,140 $ 53,316 $ 3,149,456 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 District, 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. Page 44 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Debt Service Fund The Debt Service Fund shall be used by the Trustee for the sole purpose of paying the principal and interest on the bonds, as and when the same become due. 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 District 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 District 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 2008AIB bonds, the District shall deposit into the Special Participant Bond Reserve Account amounts in accordance with the bond ordinance, which shall be disbursed and expensed by the District 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 District totaled $137,354,308 and $148,274,220, respectively. Monies in this account are not considered to be District funds. However, interest earnings on this account may be used by the District 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 District for purposes pursuant to the trust indenture. No monies have been deposited into this account at June 30, 2012 or 2011. Page 45 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. 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 District 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 District. 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 District's long-term debt is estimated based on the current rates offered to the District for debt of the same remaining maturities. The carrying amount and estimated fair value of the District'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 District's long-term debt as of June 30, 2011 was $584,600,880 and $616,167,775, respectively. Page 46 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District 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 District 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 District employees with less than ten years of service, twenty-three elected to leave the Plan. 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. Page 47 THE METROPOLITAN ST. LOWS SEWER DISTRICT Notes To Financial Statements (Continued) 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. 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." Page 48 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District'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. 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 District's 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) S4,052,985 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 Actuarial cost method Amortization method Amortization period Asset valuation method Post -retirement benefit increases Investment rate of return Projected salary increases Social Security wage base December 31, 2011 Entry Age Normal Level dollar closed 20-year period Three-year average of adjusted market values CPI with maximum 3% of current benefit or $50/month, and benefit increases lifetime maximum 45% in the original benefit or S750/month 7.5% per annum (1) 4.5% - 10.0% per annum (1) 4.0% per annum increase (1) Includes inflation component of 3.0% Page 49 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. Historical trend information about the District'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. Page 50 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District 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 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 District, 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 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 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 Plan. An employee shall become a participant in the Plan on the first day on which he performs an hour of service for the District. The District's Board of Trustees, primarily to improve benefits to members, amends the Plan in all its respects. 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. Page 51 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 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 District 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 District 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 District's contributions to the plan amounted to $254,433 and $100,946 for the years ended June 30, 2012 and 2011, respectively. Page 52 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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: Months Of Continuous Service Less than 12 12 but less than 24 24 but less than 36 36 but less than 48 48 but less than 60 60 Vested (Non -Forfeitable) Percentage 0% 20% 40% 60% 80% 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 District 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. Page 53 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Contributions for retirees are as follows: Coverage Tier Monthly 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 District'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 District'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 Page 54 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 District and plan members are established and may be amended by the District. Trend Information Annual Post - Employment Percentage Fiscal Benefit Cost Of APBC Net OPEB Year (APBC) Contributed Obligation 2012 2011 2010 $ 2,059,000 2,142,000 2,103,700 67.8 64.5 57.3 $ 3,399,555 2,704,799 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. Significant actuarial assumptions used in the valuation are as follows: Latest valuation date Actuarial cost method Discount rate Amortization method Amortization period Inflation rate Investment Rate of Return Health cost trend assumption July 1, 2011 Projected unit credit 4.5% per annum Level Percentage of payroll amount, open 30-year period 3.0% 4.5% annual returns net of both administrative and investment expenses Getzen Trend Model — 7.6% graded to 4.7% over 70 years Page 55 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Retirement - Rates Vary By Age Age Before 75 Points After 75 Points 55 1.0% 10.0% 56 2.0 10.0 57 2.0 10.0 58 2.0 10.0 59 3.0 10.0 60 4.0 15.0 61 5.0 15.0 62 20.0 35.0 63 10.0 25.0 64 20.0 25.0 65 100.0 100.0 Disability Percent Becoming A Disabled 20 0.056% 30 0.064 40 0.102 50 0.311 Future Retiree Coverage: 90.0% of eligible employees retiring prior to age 65 are assumed to elect medical coverage Future Dependent Care: 25.0% elect spouse coverage 0.0% dependent children coverage 10. Self -Insurance Programs The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District 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 assets. At June 30, 2012 and 2011, these liabilities amounted to $2,575,977 and $5,557,000, respectively. Page 57 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Medical Trend: Year Medical Year Medical 2011 7.6% 2040 5.4% 2012 6.9 2045 5.3 2013 6.3 2050 5.3 2014 6.0 2055 5.3 2015 6.0 2060 5.3 2016 6.0 2065 5.2 2020 5.9 2070 5.2 2025 5.8 2075 5.0 2030 5.8 2080 4.8 2035 5.7 2081-r 4.7 The healthcare trends used in this valuation are based on long term healthcare trends generated by the Getzen Trend Model (the Model). The Model is the result of research sponsored by the Society of Actuaries and completed by a committee of economists and actuaries. This model is the current industry standard for projecting long term medical trends. Inputs to the model are consistent with the assumptions used in deriving the discount rate used in the valuation. Payroll inflation Mortality 4.5% per annum RP 2000 Mortality Table (employee and healthy annuitant tables) Termination Of Employment: Select Rates (0 to 4 years of service) Years Of Service Rate Ultimate Rates (after 4 years of service) Attained Age Rate 0 20.0% 20 5.5% 1 12.0 30 3.7 2 7.5 40 1.1 50- 0.0 Select rates based on service. Ultimate rates based on attained age. Ultimate rates are from the Samson T-1 Tabie above. Page 56 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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: Liability, beginning of year Current year claims and changes in estimates Claim payments Liability, End Of Year 2012 2011 $ 5,557,000 9,350,602 (12,331,625) $ 4,713,013 12,163,124 (11,319,137) $ 2,575,977 $ 5,557,000 The District 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 District also maintains excess liability insurance coverage for workers' compensation and medical and hospitalization claims; general liability; and water backup damage to customers' property. The District purchases commercial insurance for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. Page 58 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 11. Closure And Post -Closure Care Costs State and federal laws and regulations require the District 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 District 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 8709,120 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 District 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 District 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 District has complied with the State's requirement. The District 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. Page 59 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 12. 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 District 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. Page 60 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) On January 23, 2011, the Plaintiffs, 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 the District's separate sewer system, combined sewer system and wastewater treatments 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. William Zweig et al. v. Metropolitan Sewer District This case was filed on July 18, 2008 and, as amended, contends that the Metropolitan Sewer District Ordinances No. 12560 and No. 12789, which enacted increases in the District's stormwater user charge based on the amount of impervious area on the customer's property, are unconstitutional. The lawsuit claims the ordinances violate the so-called Hancock Amendment, Mo. Const. art. X, § 22(a), because the stormwater user charge is in reality a tax that requires voter approval. The District's Board of Trustees passed the ordinances in December 2007 and December 2008, respectively, without submitting them to the voters. The District contends the stormwater user charge is not a tax and, thus, not subject to voter approval. The original plaintiff is a District stormwater customer who seeks to represent a class of all the District stormwater customers. In July 2009, two more plaintiff class representatives were added to the lawsuit. The lawsuit seeks (1) a declaration that the stormwater user charge is unconstitutional, (2) a refund of all stormwater user charges collected, and (3) payment of the plaintiffs' costs, including attorneys' fees. Page 61 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Trial was held April 13, 2010 through April 16, 2010. On July 9, 2010, the court handed down Findings of Fact, Conclusions of Law, Judgment and Decree in the first phase of the bifurcated trial. The Court declared the Stormwater User Charge is a tax under the Hancock Amendment. The second phase of the trial was heard on October 6, 2010, to determine the amount, if any, to be refunded. The amount of a full refund would be approximately $87 million; a partial refund for the additional amount collected under the user charge would amount to approximately $35 million. The judge ruled on November 29, 2010, that no refund would be issued by the District. The third phase, to determine the amount of Plaintiffs' counsel's attorneys' fees, to be paid by the District, was heard on January 18, 2011. On February 4, 2011, the judge awarded Plaintiffs counsel $4.8 million in attorney's fees and expenses. The record on appeal was filed July 20, 2011, with the Court of Appeals, Eastern District of Missouri. The attorney's fees and expenses were paid into escrow on September 9, 2011, and will remain in escrow pending finality of the litigation. The Court of Appeals heard oral argument on March 6, 2012. On March 27, 2012, the Appellate Court Ruling upheld the Trial Court's decision that the stormwater fee is a tax and that no refund was due, and reversed the application of a multiplier on attorney's fees. On April 11, 2012, the District filed a Motion for Rehearing by the Appellate Court and an Application for Transfer to the Missouri Supreme Court. The Appellate Court denied both. On May 29, 2012, the District filed its Application directly to the Missouri Supreme Court requesting a transfer. On June 1, 2012, the National Association of Clean Water Agencies was allowed to file suggestions in support of our Application for Transfer. On October 30, 2012, the Missouri Supreme Court accepted transfer of the case. The Supreme Court will accept written briefs and hear oral arguments from the parties. A final decision is expected to be rendered in 9 to 12 months. Flooding Cases The District is the defendant in five (5) different flooding cases related to the September 14, 2008, rain event precipitating from remnants of Hurricane Ike. These cases consist of three (3) property damage cases and two (2) wrongful death cases. The defense costs associated with these cases are expected to be covered by the District's insurance carrier. Of the five (5) cases, one (1) involves flooding of Maline Creek and the others involve flooding of the River Des Peres. These cases are in various stages of discovery. The estimated possible loss varies for each case and is dependent upon the value of the property. The property value losses have not been determined at this time and no written demands have been received at this time for the wrongful death cases. The first trial setting is scheduled for October 2012. Page 62 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Contingencies The District has entered into construction and other contracts amounting to $195,950,700 and $212,296,069 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. 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, S225,000,000 of these bonds have been issued. These funds were sought to enable the District to comply with federal and state clean water requirements. The District is a defendant in various other matters of litigation. Of these matters, management and District's legal counsel do not anticipate any material effect on the June 30, 2012 and 2011 financial statements. 13. Restricted Net Position The government -wide Statements of Net Position reports S106,693,694 and $94,925,981 of restricted net position at June 30, 2012 and 2011, respectively, of which $66,800,934 and $60,530,338 are restricted due to enabling legislation, as of June 30, 2012 and 2011, respectively. 14. Segment Information The District issued wastewater revenue bonds to finance wastewater infrastructure projects. The District accounts for both wastewater and stormwater activities in a single enterprise fund, but investors in those bonds rely solely on the revenue generated by the wastewater activities for repayment. Fiscal Year 2012 summary financial information for each business segment is presented below_ Page 63 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 wastewater to stormwater. Unrestricted pooled cash has also been restated due to a variation in segmenting procedures. The result of this is a $1,526,201 reallocation of total current assets from wastewater to stormwater. These restatements have no impact on the enterprise wide statements. A segment is an identifiable activity reported as a stand alone entity for which one or more revenue bonds are outstanding. A segment has a specifically identifiable revenue stream pledged in support of the revenue bonds and has related expenses, gains and losses and assets and liabilities that are required by external parties to be accounted for separately. The wastewater system is the only reportable segment that meets the requirements of GASS Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. The stormwater system is reported on for informational purposes only. Condensed financial information as of and for the years ended June 30, 2012 and 2011 of the District's Wastewater Segment is as follows: Wastewater Segment Condensed Statement Of Net Position Total current assets Total restricted assets Total other assets Net capital assets (as restated) Total Assets Total current liabilities Total current restricted liabilities Total long-term liabilities Total Liabilities Net investment in capital assets Restricted net position Unrestricted net position Total Net Position 2012 2011 (As Restated) $ 277,304,683 53,080,013 14,417,074 2,070,542,089 $ 280,134,902 46,036, 519 14,764,507 1,994,612,256 2,415,343,859 2,335,548,184 79,066,606 6,318 651, 916,115 730,989,039 95,574,254 85,769 574,445,087 670,105,110 1,458,317,374 53,073,695 172,963,751 1,440,349,188 45,950,750 179,143,136 $ 1,684,354,820 $ 1,665,443,074 Page 64 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Condensed Statement Of Revenues, Expenses, And Changes In Net Positions Operating revenues Depreciation expense Other operating expenses Operating Income (Loss) Total nonoperating revenues Total nonoperating expenses Non -Operating Income (Loss) Capital contributions Change in net position Net position - Beginning of year (as restated) Net Position - End Of Year 2011 2012 (As Restated) $ 224,882,086 56,460,108 135,232,302 S 217,011,360 56,403,291 160,572,145 33,189,676 2,370,178 20,231,541 35,924 3,651,021 20,035,529 (17,861,363) 3,583,433 18,911, 746 (16,384, 508) 5,342,555 (11,006,029) 1,665,443,074 1,676,449,103 $ 1,684,354,820 $ 1,665,443,074 Condensed Statement Of Cash Flows Operating activities Noncapital financing activities Capital and related financing activities Investing Increase in cash Cash And Cash Equivalents - Beginning Of Year Cash And Cash Equivalents - End Of Year $ 79,439,669 17,287 (78,270,837) 8,183, 657 $ 64,382,661 5,833 (130,523,071) 60,686,702 9,369,776 (5,447,875) 6,318,934 11,766,809 $ 15,688,710 $ 6,318,934 Page 65 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Condensed financial information as of and for the years ended June 30, 2012 and 2011 of the District's Stormwater Segment is as follows: Stormwater Segment Condensed Statement Of Net Position Total current assets Total restricted assets Net capital assets (as restated) Total Assets Total current liabilities Total current restricted liabilities Total long-term liabilities Total Liabilities Net investment in capital assets Restricted net position Unrestricted net position Total Net Position 2011 2012 (As Restated) $ 3,633,446 59,296,406 478,273,488 $ 7,765,376 54,695,853 474,883,649 541,203,340 1,587,412 5,676,407 537,344,878 48,194 5,720,622 7,263,819 478,273,488 53,619,999 2,046,034 5,768,816 474,883,650 48,975,231 7,717,181 $ 533,939,521 $ 531,576,062 Condensed Statement Of Revenues, Expenses, And Changes In Net Positions Operating revenues Depreciation expense Other operating expenses Operating Income (Loss) Total nonoperating revenues Total nonoperating expenses Non -Operating Income (Loss) Capital contributions Change in net position Net position - Beginning of year (as restated) Net Position - End Of Year $ 1,117,634 10,281,956 14,333,599 $ 2,432,897 10,450,974 17,076,689 (23,497,921) (25,094,766) 24,936,071 5,150,115 27,764,722 7,051,182 19,785,956 20,713,540 6,075,424 4,755,997 2,363,459 531,576,062 374,771 531,201,291 $ 533,939,521 $ 531,576,062 Condensed Statement Of Cash Flows Operating activities Noncapital financing activities Capital and related financing activities Investing Increase in cash Cash And Cash Equivalents - Beginning Of Year Cash And Cash Equivalents - End Of Year $ (11,600,813) 24,586,886 (12,813,943) 4,718,759 $ (7,706,999) 27,119,618 (10, 612,774) (8,799,845) 4,890,889 $ 4,890,889' $ Page 66 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 15. Subsequent Events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through November 1, 2012, 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 is scheduled for November 14, 2012. Page 67 THE METROPOLITAN ST. LOUIS SEWER DISTRICT REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' PENSION PLAN AND POST -EMPLOYMENT BENEFIT PLAN June 30, 2012 Employees' Pension Plan Schedule Of Funding Progress in (000s) 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) 80.7% $ 49,432 99.5% 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 Post -Employment Benefit 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)1(2) (3) (1)-(2)1(3) 7/1/2011 $ 24,103 $ 24,103 0% $ 52,649 45.8% 7/1/2009 24,412 24,412 0% 50,230 48.6 7/1/2007 21,938 21,938 0% 43,640 50.3 Page 68 II)