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Home My WebLink AboutRes 07-17 Approving the Comprehensive Annual Financial Report Year Ending September 30, 2006TOWN OF WESTLAKE RESOLUTION NO. 07-17 A RESOLUTION OF THE BOARD OF ALDERMEN OF THE TOWN OF WESTLAKE, TEXAS, APPROVING THE FISCAL YEAR 2005/2006 ANNUAL AUDIT REPORT FROM PATTILLO, BROWN & HILL, L.L.P. WHEREAS, Section 103.001 of the Local Government Code requires that a municipality shall have its records and accounts audited annually and shall have an annual financial statement prepared based on the audit; and WHEREAS, Section 103.002 of the Local Government Code requires that a municipality shall employ at its own expense a certified public accountant who is licensed in this state or a public accountant who holds a permit to practice from the Texas State Board of Public Accountancy to conduct the audit and to prepare the annual financial statements; and WHEREAS, the firm of Pattillo, Brown & Hill, L.L.P. was selected and approved by the Board of Aldermen on July 12, 2006 to perform the Town of Westlake's financial audit for the year ended September 30, 2006. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF ALDERMEN OF THE TOWN OF WESTLAKE: SECTION 1: That the Board of Aldermen does hereby approve the fiscal year 2005/2006 annual audit report from Pattillo, Brown & Hill, L.L.P. SECTION 2: That this Resolution shall become effective upon the date of its passage. PASSED AND APPROVED ON THIS 26TH DAY OF FEBRUARY, 2007. ATTEST: Sutter, Town Secretary APPR D T�O(O L. Stanton L ,TQ.n Attorney Scott Bradley, -Mayor Trent O. Petty, Town ager ?es 0`1-11 ANNUAL FINANCIAL REPORT TOWN OF WESTLAKE, TEXAS YEAR ENDED SEPTEMBER 30, 2006 PATTILLO, BROWN & HILL, L.L.L. CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS TOWN OF WESTLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006 TABLE OF CONTENTS Page Number Independent Auditors' Report....................................................................................... 1-2 Management's Discussion and Analysis .......... ......... ....... .............. I ........... .................. 3-10 Basic Financial Statements Govenunent-wide Financial Statements Statement of Net Assets.................................................................................. 11 Statement of Activities.................................................................................... 12-13 Fund Financial Statements Balance Sheet Governmental Funds............................................................. 14 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Assets......................................................... 15 Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds ...................................................... 16 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities......................................................... 17 Statement of Net Assets — Proprietary Funds .................................................. 18 Statement of Revenues, Expenses and Changes in Fund Net Assets — Proprietary Funds ........................................................ 19 Statement of Cash Flows — Proprietary Funds ................................................ 20 Discretely Presented Component Units Financial Statements: Discretely Presented Component Units- Combining Statement of Net Assets......................................................... 21-22 (continued) i THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2,006 TABLE OF CONTENTS (Continued) Discretely Presented Component Units- Combining Statement of Activities .............. ............................................. 23 -24 Notes to Financial Statements................................................................................. 25-53 Required Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual — General Fund ................................. 54 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — Westlake Academy General Fund............................................................. 55 Notes to Required Supplementary Information...................................................... 56 Internal Control report Report on Compliance and Internal Control Over Financial Reporting Based on an audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................... 57-58 ii THIS PAGE LEFT BLANK INTENTIONALLY 111MPATTILLO; BROWN & HILL,L-L.P. CERTIFIED PUBLIC ACCOUNTANTS_ M BUSINESS CONSULTANTS INDEPENDENT INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Board of Aldermen Town of Westlake, Texas We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate discretely presented component units of the Town of Westlake, Texas (the "Town"), as of and for the year ended September 30, 2006, which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town of Westlake, Texas' management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Westlake Academy, which represent 8%, 9%, and 21% respectively of the assets, net assets, and revenues of the govermuental funds and Texas Student Housing Corporation -- MSU Project, which represent 9%, 4%, and 8% respectively, of the assets, net assets, and revenues of the aggregate discretely presented component units of the Town of Westlake. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Westlake Academy and Texas Student Housing Corporation — MSU Project, is based on the report of the other auditors. 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 and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate discretely presented component units of the Town of Westlake, Texas, as of September 30, 2006, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 1 115 SOUTH CHURCH STREET ■ HILLSBORO, TX 76645 ■ (254) 582-2583 E PAX: (254) 582-5731' www.pbhcpa.com AFFILIATE OFFICES: BROWNSVILL.E, TX (956) 544-7778 ■ TEMPLE, TX (254) 791-3460 WACO, TX (254) 772-4901 E ALBUQUERQUE, NM (505) 266-5904 THIS PAGE LEFT BLANK INTENTIONALLY The Management's Discussion and Analysis and budgetary comparison information on pages 3 through 10 and 54 and 55 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. Vire and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have issued a report dated December 14, 2006, on our consideration of the Town's internal control over financial reporting and our tests of compliance with certain provisions of laws, regulations, contracts, grants 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Pa A, fl V� a Mab, ; 1 F December 14, 2006 2 THIS PAGE LEFT BLANK INTENTIONALLY MANAGEMENT'S DISCUSSION AND ANALYSIS The Town of Westlake is pleased to present this overview and analysis of the financial activities of the Town for the fiscal year ended September 30, 2006. The Town implemented Governmental Accounting Standards Board Statement 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments (Statement 34) for the first time for fiscal year 2004; therefore, comparative data is shown in various tables within this report. FINANCIAL HIGHLIGHTS ■ The Assets of the Town exceeded its liabilities at the close of the most recent fiscal year by $20,192,166 (Net assets). ■ As of the close of the current fiscal year, the Town of Westlake's governmental funds reported combined ending fund balances of $4,685,265, an increase of $2,786,635 in comparison with the prior year. ■ At the end of the current fiscal year, fund balance for the general fund was $3,285,164, an increase of $2,347,738 in comparison with the prior year. Of this total fund balance, $2,850,789 is unreserved. This represents 63% of total general fund expenditures and is equivalent to 230 operating days. OVERVIEW OF THE FINANCIAL STATEMENTS This overview is intended to serve as an introduction to the Town's basic financial statements. The Town's annual report consists of three parts-- management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include statements that present different views of the Town's overall financial health; ■ The first two statements are government -wide financial statements that provide both long-terin and short-term information about the Town's overall financial status. ■ The remaining statements are fund financial statements that focus on individual parts of the government, reporting the Town's operations in more detail than the government -wide statements. ■ The governmental funds statements tell how general government services were financed in the short term as well as what remains for future spending. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the infomjation in the financial statements. 3 Government -wide financial statements The government -wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a manner similar to a private -sector business. The government -wide financial statements are prepared utilizing the economic resources measurement focus and the accrual basis of accounting. The statement of net assets presents information on all of the Town's assets and liabilities with the difference between the two reported as net assets. Over time, increases or decreases in the Town's net assets serve as a useful indicator of the long-term financial trends experienced by the Town. Other non-financial factors should also be taken into consideration, such as changes in the condition of the Town's infrastructure (i.e. roads, drainage improvements, etc.), to assess the overall financial condition. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All of the revenues and expenses are taken into account as soon as they occur, regardless of the timing of related cash flows. Thus revenues and expenses are reported in this statement for some items that will only be reflected in terms of cash flow in future fiscal periods. The government -wide financial statements are prepared utilizing the economic resources measurement focus and the accrual basis of accounting. Both of the government -wide financial statements distinguish functions of the Town that are principally supported by sales taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the Town include general government, public safety, culture and recreation, economic development, public works, visitor services and education. The business -type activities of the Town include water and sewer. The government -wide financial statements include not only the Town (known as the primary government), but also discretely presented component units: the Lone Star Public Facility Corporation, 4A Economic Development Corporation, 4B Economic Development Corporation and the Texas Student Housing entities. In addition, the Town has one blended component unit, Westlake Academy, an open enrollment charter school owned and operated by the Town of Westlake. Fund Financial Statements A fiend is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Below are the three types of funds.. The Town had only "Governmental fiends and Propriety funds" for the year ended September 30, 2006. Governmental funds - Governmental funds are used to account for essentially the same functions reported as government activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financial requirements. 4 Most of the Town's basic services are included in governinental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Town's programs. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, the reader may better understand the long-tenn impact of the government's near -tern financing decisions. Both the gover irnental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town maintains seven individual governmental funds. Information is presented separately in the govennnental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General, Visitors Association, Westlake Academy General,. Westlake Academy Special Revenue, Capital Projects, FEMA Grant and Debt Service funds, all of which are presented as major fiends. The Town adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget Proprietary funds - There are two types of Proprietary funds, Enterprise Funds and Internal Service Funds. The Town maintains one type of proprietary fund -- an enterprise fund. Enterprise funds are used to report the same fiinctions presented as business -type activities in the government -wide financial statements. The Town uses an enterprise fund to account for its water and sewer activities. All activities associated with providing such services are accounted for in this fund, including administration, operation, maintenance, debt service, capital improvements, billing and collection. The Town's intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. The Town has no Internal Service Funds (fund to report activities that provide supplies and services for the Town's other programs and activities, i.e. self insurance and fleet management,) Fiduciary funds - Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government -wide financial statements because the resources of those funds are not available to support the Town's own programs. The accounting used for fiduciary funds is similar to the accounting used for proprietary fiends. The Town of Westlake does not currently have any fiduciary funds. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. GOVERNMENT -WIDE FINANCIAL ANALYSIS The Town's combined net assets were $20,192,1.66 as of September 30, 2006. Analyzing the net assets and net expenses of governmental and business -type activities separately, business -type 5 activities' net assets are $6,589,878 as can be seen in the following "Condensed Statement of Net Assets". The largest portion of the Town's net assets, $17,608,386 reflects its investment in capital assets (e.g. land, buildings, equipment, improvements, construction in progress, and infrastructure), less any debt used to acquire capital assets still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt may be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities, Condensed Statement of Net Assets Total revenues for governmental activities increased when compared to the prior year by $4,667,063. General revenue had an increase of $1,470,406 while program revenues had an increase of $3,196,657. These increases were primarily due to the following factors: General revenues - Sales tax increased by $816,100 due to the economic development agreement with Maguire Partners for the First American renovations. Franchise tax had an increase of $104,889; Unrestricted grants related to the Academy increased approximately $100,002; Interest income increased. by $57,022; and Miscellaneous increased $418,529 mostly due to gifts and bequests made to Westlake Academy and a reclassification of contributions. Program revenues - Charges for services decreased by $158,356; Operating Grants and Contributions increased by $2,040,526 due to the contribution from 4A Development Fund upon its dissolution; Capital Grants and Contributions increased by $1,314,487 mostly due to the anonymous donation to purchase land. 0 Governmental Business -like Activities Activities Totals 2006 2005 2006 2005 2006 2005 Current and other assets $ 5,585,570 $ 2,712,381 $ 1,289,240 $ 1,047,661 $ 6,874,810 $ 3,760,042 Capital assets 27,897986 27,071,572 14,3I5,110 14,431,702 42,213,096 41,503,274 Total Assets 33,483,556 29,783,953 15,604,350 15,479,363 49,087,906 45,263,316 Long-term liabilities outstanding 18,335,885 18,726,329 5,822,299 5,878,381 24,158,184 24,604,710 Other liabilities 1,545,383 1,524,320 31192,173 2,771,474 4,737,556 4,295,794 Total Liabilities 19,881,2.68 20,250,649 9014,472 8,649,855 28,895,740 28,900,504 Net Assets: Invested in capital assets, net of related debt 9,171,657 7,975,910 8,436,729 8,450,781 17,608,386 16,426,691 Restricted 1,406,756 - - - 1,406,756 - Unrestricted 3,023,875 1,557,394 (1,846,851) (1,621,273} 111175024 (63,879) Total Net Assets $ 13,602,288 $ 9,533,304 $ 6,589,878 $ 6,829,508 $20,192,166 $16,362,812 Governmental activities: Governmental activities increased the Town's net assets by $4,068,984. Net assets invested in capital assets, net of related debt increased by $1,195,747 primarily due to completion of capital projects and recognition of capital contributions. Unrestricted net assets increased by $1,466,481. Total revenues for governmental activities increased when compared to the prior year by $4,667,063. General revenue had an increase of $1,470,406 while program revenues had an increase of $3,196,657. These increases were primarily due to the following factors: General revenues - Sales tax increased by $816,100 due to the economic development agreement with Maguire Partners for the First American renovations. Franchise tax had an increase of $104,889; Unrestricted grants related to the Academy increased approximately $100,002; Interest income increased. by $57,022; and Miscellaneous increased $418,529 mostly due to gifts and bequests made to Westlake Academy and a reclassification of contributions. Program revenues - Charges for services decreased by $158,356; Operating Grants and Contributions increased by $2,040,526 due to the contribution from 4A Development Fund upon its dissolution; Capital Grants and Contributions increased by $1,314,487 mostly due to the anonymous donation to purchase land. 0 Total expenses for governmental activities decreased by $263,756 or approximately 3%. $289,671 was due to the decrease in attorney fees and the unexpected liability related to the settlement of a protracted lawsuit involving annexation which began in 2002 and was expensed in the prior year. Business -type activities: Business -type activities decreased the Town's net assets by $239,630. The major component related to this decrease is the fact the Town received a contribution for a waterline from Fidelity in the amount of $370,551 in fiscal year 04-05. The following table provides a summary of the Town's operations for fiscal year ended September 30, 2006, with comparative totals for the fiscal year ended September 30, 2005. Change in Net Assets General revenues: Governmental Business -like - - 1,811,281 2,198,123 Activities Activities Totals - 1,705,528 2406 2005 2006 2005 2006 2045 Revenues: 1,810,706 994,606 Hotel occupancy 35,759 Program revenues: - - 35,759 313,450 taxes Charges for services $ 1,677,156 $ 1,835,512 $ 1,842,238 $ 1,722,659 $ 3,519,394 $ 3,558,171 Operating grants and 13,674 13,846 - - 13,674 contributions 3,686,964 1,646,438 19,653 370,551 3,706,617 2,016,989 Capital grants and 352,115 Unrestricted grants 1,822,200 1,722,198 contributions 1,455,626 I41,139 - - 1,455,626 141,139 General revenues: 1,811,281 2,198,123 - - 1,811,281 2,198,123 Taxes I,705,528 1,592,962 - 1,705,528 1,592,962 Sales taxes 1,810,706 994,606 - - 1,810,706 994,606 Hotel occupancy 35,759 313,450 - - 35,759 313,450 taxes 415,544 381,221 - - 415,544 381,221 Mixed beverage taxes 13,674 13,846 - - 13,674 13,846 Franchise taxes 457,004 352,115 - - 457,004 352,115 Unrestricted grants 1,822,200 1,722,198 - - 1,822,200 1,722,198 Interest on investments 98,824 41,802 25,604 2,416 124,428 44,218 Miscellaneous 448,827 30,298 56,025 - 504,852 30,298 Sale of Lan_ d - 33,749 - - 33,749 Transfers 45,319 71,857 (45,319) (71,857) - - Total revenues 11,931,844 7,264,781 1,898,201 2023769 13,830,045 9,288,550 Expenses: General government 1,811,281 2,198,123 - - 1,811,281 2,198,123 Public safety I,705,528 1,592,962 - 1,705,528 1,592,962 Culture and recreation 91,444 96,617 - - 91,444 96,617 Economic development 35,759 313,450 - - 35,759 313,450 Public works 613,956 342,500 - - 6I3,956 342,500 Protective inspections - - - - - - Visitor services 393,115 448,604 - 393,115 448,604 Education 2,249,998 2,166,256 - - 2,249,998 2,166,256 Interest on long-term debt 1,021,779 1,028,104 - - 1,021,779 1,028,104 Water and sewer - - 2,137,831 1888 064 2,137,831 1,888,064 Total expenses 7,922,860 8,186,616 2,137,831 1,888,064 10,060,691 10,074,680 Change in net assets 4,008,984 (921,835) (239,630) 135,705 3,769,354 (786,130) Prior period adjustment 60,000 - 38,115 60,000 38,115 Net assets, beg. of year 9,533,304 10,455,139 6,829,508 6655688 16,362,812 17,110,827 Net assets, end of year $ 13,602,288 $ 9,533,304 $ 6,589,878 $ 6,829,508 $ 20,192,166 $ M,362,812 7 FINANCIAL ANALYSTS OF THE TOWN'S FUNDS Governmental funds: The focus of the Town's governmental funds is to provide information on near- term inflows, outflows, and balances of spendable resources. Such infonnation is useful in assessing the Town's financing requirements. 1n particular, unreserved fund balance may serve as a useful measure of a Town's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the Town's governmental funds reported combined ending fund balances of $4,685,265 an increase of $2,786,635 in comparison with the prior year. During the current year, the fund balance of the Town's general fund increased by $2,347,738. The key factor in this increase was the contribution of funds after the dissolution of Westlake 4A DeveIopment Fund, The Visitors Association Fund's net increase in fund balance of $90,450 was primarily due to an increase in the Town's hotel occupancy tax of $34,323 and a contribution of $20K for the Town's 50 year celebration and the Historical Preservation Society's history book. A decrease of approximately $25K was realized upon the departure of the Marketing Director in July, The fund balance of the Academy's general fund increased by $195,629. The majority of this increase can be attributed to the Blacksmith Apprentice Program. The prior year population of 267 had an average of $908 per student. Fiscal year 2006 population of 322 (added kindergarten and seventh grade) averaged $1,096 per student. Also, an additional $40,000 Blacksmith donations received in FY 2005 were transferred to the Academy in fiscal year 2006. Settle -up of fiscal year 2005 state funds of $30,577 were also distributed during fiscal year 2006. Proprietary funds: The Town's proprietary fund statements provide the same type of information found in the government -wide financial statements but in more detail. General Fund Budgetary Highlights The General Fund budget was amended in total to increase the $1,023,982 excess revenues over expenditures to an excess of $1,458,965. This amendment was primarily due to the increase of projected sales tax revenues in both the General Fund and in the 4A Development Fund which was dissolved and transferred to the General Fund. This amendment resulted in an overall increase in revenues totaling $1,137,729 as well as an increase in total expenditures of $1,002,105. A portion of the increased revenues and expenditures is due to a $1.2M anonymous donation to purchase land; therefore, both revenues and expenditures were increased by this amount. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS ■ The Town continues its conservative budget approach in fiscal year 2006-2007. Due to the continued uncertainty of commercial development in Westlake, there will be a continued emphasis of maintaining basic service levels without implementing a property tax. This philosophy has enabled Westlake staff to prioritize short and mid-term goals according to available resources. The creation of the Property Tax Reduction Sales Tax Fund in 2006 will allow the Town to use funds for general operations that were previously designated for economic development. This new % cent sales tax was chosen to recommend to the voters over creating a Crime Control District (CCD), due to the Iess restrictive guidelines which govern how the fluids can be used. P ■ The fiscal year 2006-2007 budget reflects another large capital expenditure for the relocation of remaining town employees to leased office space in May 2007. When school convenes in September 2007, no town employees will remain at the civic campus location. The capital to renovate the existing space for school use is budgeted to be $509,000. The operating budget of the Town will also increase by $118,528 to pay for the new lease space in Solana to house all Town employees. ■ The revenue budget has decreased from the final 2006 budget of $4.9 million to $3.8 million, an approximate $1.08 million decrease. Details of this decrease include the unanticipated receipt of an anonymous donation of $1.2 million during fiscal year 2005-2006 as well as a fiscal year 2006-2007 budget decrease in sales tax, building permits and inspection/plan reviews. ■ Amounts available for appropriation in the general fund budget are $3.82 million, a decrease of $.88 million from the final 2006 budget of $4.7 million. This decrease is primarily made up of the following: o $1.2 purchase of land in fiscal year 2005-2006 o Increase in the Court lease for a full year opposed to a portion of the year is approximately $50 thousand for fiscal year 2006-2.007 o Town rental and associated moving costs to Solana of approximately $65 thousand for FY 2006-2007 o $150 thousand budgeted for Economic Development related to First American for FY 2006-2007 o $20 thousand increase in Keller Police Contract c $33 thousand for upgrade of both the Finance and Municipal software programs ■ Transfers out relate to various anticipated capital projects: o $494 thousand for the renovation of the civic campus expansion o $118 thousand for the reconstruction of Roanoke & Qttinger Road o $200 thousand for FM 1938 Pedestrian Crossing If these estimates are realized, the Town's budgetary general fund fund balance should decrease by $789 thousand. W7 CONTACTING THE TOWN'S FINANCE DEPARTMENT This financial report is designed to provide our citizens, customers, and investors and creditors with a general overview of the Town's finances and to demonstrate the Town's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Town's Finance Director, Debbie Piper, at 817-490-5712. 10 BASIC FINANCIAL STATEMENTS THIS PAGE LEFT BLAND INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF NET ASSETS SEPTEMBER 30, 2006 Primary Government Discretely Governmental Business -type Presented Activities Activities Total Component Units ASSETS Cash and cash equivalents $ 4,342,169 Accounts receivables (net of allowance) 727,431 Notes receivable 37,613 Internal balances 107,420 Due from primary government - Due from component units 343,845 Prepaid items 15,662 Other assets - Deferred expenses 11,430 Restricted assets: 2,216,715 Cash and cash equivalents - Capital assets: 516,631 Land and construction in progress 9,386,531 Capital assets, net of accumulated depreciation 18,511,455 Debt issue costs, net of amortization - Total assets 33,483,556 I LIABILITIES AND NET ASSETS LIABILITIES 651,074 514,937 27,777 95,452 48,800 14,266,310 15,604,350 $ 4,993,243 1,242,368 37,613 135,197 343,845 15,662 11,430 95,452 9,43 5,331 32,777,765 49,087,906 Accounts payable 705,765 240,272 946,037 Due to component units - 386,500 386,500 Due to primary government - - - Customer deposits payable - 89,950 89,950 Accrued interest payable 421,397 1,795,318 2,216,715 Unearned revenue - 516,631 516,631 Internal Balances 27,777 107,420 135,197 Noncurrent liabilities: Due within one year 390,444 56,082 446,526 Due in more than one year 18,335,885 5,822,299 24,158,184 Total liabilities 19,881,268 9,014,472 28,895,740 NET ASSETS Invested in capital assets, net of related debt 9,171,657 8,436,729 17,608,386 Restricted 1,406,756 - 1,406,756 Unrestricted 3,023,875 ( 1,846,851) 1,177,024 $ 13,602,288 $ 6,589,878 $ 20,192,166 Total net assets The accompanying notes are an integral part of these financial statements. 11 $ 4,626,541 1,174,505 386,500 133,330 5,900 10,803,606 13,622,885 111,272,598 6,100,285 148,126,150 4,638,742 326,651 75,353 6,712,724 4,829,186 83,858,253 72,882,956 173,323,865 ( 29,983,936) 5,092,799 { 306,578 $( 25,197,715) TOWN OF WESTLAKE STATEMENT OF ACTIVITIES SEPTEMBER 30, 2006 Functions/Programs Expenses Primary government: Governmental activities_ General government $ 1,811,281 Public safety 1,705,528 Culture and recreation 91,444 Economic Development 35,759 Public works 613,956 Visitor Services 393,115 Education 2,249,998 Interest on long-term debt 1,021,779 Total governmental activities 7,922,860 Program Revenues Operating Capital Charges for Grants and Grants and $ 1,690 $ 2,489,843 $ 1,455,626 877,356 43,047 - 699,753 - - 98,357 132,295 - - 1,021,779 - 1,677,156 3,686,964 1,455,626 Business -type activities: Water utilities 2,137,831 1,842,238 19,653 - Total business -type activities 2,137,831 1,842,238 19,653 - Total primary government $ 10,060,691 $ 3,519,394 $ 3,706,617 $ 1,455,626 Reported discretely presented Component units $_29,555,893 $_18,977,821 $ - $ - General revenues: Sales taxes Hotel occupancy taxes Mixed beverage taxes Franchise taxes Unrestricted grants Interest income Miscellaneous Transfers Total general revenues and transfers Change in net assets PRIOR PERIOD ADJUSTMENT Net assets, beginning Net assets, ending The accompanying notes are an integral part of these financial statements. 12 ( 10,578,072) 1,810,706 Net (Expense) Revenue and 1,810,706 Changes in Net Assets 415,544 Primary Government Discretely Governmental Business -type Presented Activities Activities Total Component Units - $ 2,135,878 $ - $ 2,135,878 $ - ( 785,125) - ( 785,125) - ( 91,444) i - ( 91,444) - 85,797 - 85;797 - j ( 393,115) - ( 393,115) - { 2,019,346) _ { 2,019,346) - ( 1,103,114) - ( 1,103,114) - - ( 275,940) ( 275,940) - - ( 275,940) ( 275,940) - ( 1,103,114) ( 275,940) ( 11379,054) - ( 10,578,072) 1,810,706 - 1,810,706 1,810,707 415,544 - 415,544 - 13,674 - 13,674 - 457,004 - 457,004 - 1,822,200 - 1,822,200 - 98,824 25,604 124,428 607,440 448,827 56,025 504,852 25,000 45,319 { 45,319) - - 5,112,098 36,310 5,148,408 2,443,147 4,008,984 ( 239,630) 3,769,354 ( 8,134,925) 60,000 - 60,000 5,543,786 9,533,304 6,829,508 16,362,812 ( 22,606,576) $ 13,602,288 $ 6,589,878 $ 20,192,166 ${ 25,197,715 13 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLA.KE BALANCESHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2006 I a accompanying notes are an integral part of these financial statements. 14 Westlake Westlake Academy Academy Debt Total Visitors GeneraP Special Service Capital FEMA Governmental General Association Fund Revenue Fund Fund Projects Grant Funds ASSETS: sh and cash equivalents $ 2,736,573 $ 863,720 $ 374,734 $ $ $ 367,142 $ $ 4,342,169 ceivables Accounts receivable 61I,785 31,221 83,008 1,4I7 - 727,431 Nates receivable 37,613 - - - - 37,613 ie from other Funds 132;217 37,969 170,186 -ie from component unit 329,176 - 329,176 Prepaid items 15,662 - 15,662 feared expenses - - 11,430 - - 11,430 )TALASSETS 5 3,863,026 $ 894,941 $ 469,172 $ 1,417 $ $ 405,111 $ $ 5633,667 "d.BIL1TIES AND FUND BALANCE: Lbilities: Accounts payable 335,353 25,119 41,452 1,417 302,424 705,765 Due to other funds 75,746 128 - - - 75,874 Deferred revenue 166,763 166,763 talliabilities 577,862 25,247 41,452 1,417 302,424 - $ 946,402 id Equity: Fund balance Reserved to promote tourism - 869,694 - 869,694 Reserved for future projects 324,185 - - 102,687 426,872 Reserved for court security and technology 110,190 - - 110,190 Unreserved and undesignated 2,850,789 427,720 3,278,509 " 'al fund equity 3,295,164 869,694 427,720 - 102,687 4,685,265 TALLIABIUTIES AND FffND EQUITY 3,863,026 $ 894,941 $ 469,172 $ 1,417 $ $ 405,111 $ $ 5,633,667 I a accompanying notes are an integral part of these financial statements. 14 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 309 2006 Total fund balances per balance sheet Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in govenunental activities are not financial resources and, therefore, are not reported in the funds. Receivables for court fines are deferred at the fund level but are recognized as revenues in the government wide statement of net assets Interest payable on long-term debt does not require current financial resources; therefore, interest payable is not reported as a liability in the governmental funds balance sheet. Long-term liabilities, including bonds payable and compensated absences are not due and payable in the current period and therefore, are not reported in the funds. Net assets of governmental activities The accompanying notes are an integral part of these financial statements. 15 $ 4,685,265 27,897,986 166,763 ( 421,397) (18,726,329} $ 13,602,288 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES SEPTEMBER 30, 2006 The accompanying notes are an integral part of these financial statements. 16 Westlake Westlake Academy Academy Debt "Total Visitors General Special Service Capital FEMA Governmental General Association Fund Revenue Fund Fund Protects Grant Funds "sVENUES: ...xes Sales $ 1,810,706 $ - $ - $ - $ - $ - $ - $ 1,810,706 Mixed beverage 13,674 - - - - - - 13,674 Hotel occupancy - 415,544 - - - - - 415,544 Franchise 457,004 - - - - - - 457,004 aTate program revenues - - 1,916,394 8,649 - - - 1,925,043 Fede"[ program revenues 3,163 - - 29,452 - - 43,047 75,662 '-`erest income 53,585 37,059 8,180 - - - - 98,824 ilding permits and fees 748,016 - - - - - - 749,016 les and penalties 751,036 - - - - - - 751,036 Contributions 3,535,698 - - - 1,210,411 217,976 - 4,964,085 Miscellaneous 33,270 _30962 482,952 - - - 547,184 tal revenues 7,406,152 483,565 2,407,526 38,101 1,210,411 217,976 43,047 11,806,778 .:,{PENDITURES: Current General goveraramt 2,386,205 - - - - 156,090 - 2,542,295 Public safety 1,579,810 - - - - - 47,831 1,627,641 Culture and recreation 91,444 - - - - - - 91'444 Publicworks 434,716 - - - - - - 434,716 Economic Development 35,759 - - - - - - 35,759 Visitor services - 393,115 - - - - - 393,115 Education - - 2,211,897 38,101 - - - 2,249,998 pital outlay - - - - - 371,960 - 371,860 Debt service Principal relarement - - - - 350,000 350,000 Interest and other fiscal charges - 1,028,634 - - 1,028,634 Total expenditures 4,527,934 393,115 2,211,897 38,101 1,378,634 527,950 47,831 9,125,462 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,878,218 90,450 195,629 - (168,223) (309,974) (4,784) 2,68016 'HER FINANCING SOURCES (USES} - 168,223 402,792 4,784 704,577 Transfers in Transfers out 128,778 (659,258 - - - ( 659,258) Total other financing sources (uses) (530,480} - - 168,223 402,792 4,784 T CHANGE IN FUND BALANCES 2,347,738 90,450 195,629 - - 92,818 - 2,726,635 FUND BALANCES, BEGINNING 937,426 779,244 232,09I - - (50,13 t) - 1,898,630 - ` IOR PERIOD ADJUSTMENT 60,000 60,000 ND BALANCES, ENDING $ 3,285,164 $ 669,694 $ 427,720 $ S $ 102,687 $ $ 4,685,265 The accompanying notes are an integral part of these financial statements. 16 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES SEPTEMBER 30, 2006 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balance - total governmental funds $ 2,726,635 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeds capital outlays in the current period. 826,414 The issuance of long-term debt (e.g., bonds, leases) provided current financial resources to governmental funds, while repayment of the principal of long- term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. 369,333 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. 86,602 Change in net assets of governmental activities $ 4,008,984 The accompanying notes are an integral part of these financial statements. 17 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF NET ASSETS PROPRIETARY FUND SEPTEMBER 30, 2006 ASSETS Cash and cash equivalents $ 651,074 Accounts receivable 514,937 Due from other funds 27,777 Restricted cash and investments 45,452 Capital assets not being depreciated 48,800 Capital assets, net of accumulated depreciation and amortization t4,266,310 TOTAL ASSETS 15,604,350 LIABILITIES Accounts payable 240,272 Due to component units 386,500 Accrued interest payable 1,795,318 Due to other funds 107,420 Unearned revenue 516,631 Current liabilities payable from restricted assets Customer deposits payable 89,950 Noncurrent liabilities Due within one year 56,082 Due in more than one year 5,822,299 TOTAL LIABILITIES 9,014,472 NET ASSETS Invested in capital assets, net of related debt 8,436,729 Unrestricted ( 1,846,851} TOTAL NET ASSETS $ 6,589,878 The accompanying notes are an integral part of these financial statements. 18 THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS SEPTEMBER 3012006 OPERATING REVENUES: Charges for services $ 1,842,238 Contributions 19,653 Miscellaneous revenue 56,025 Total operating revenue 1,917,916 OPERATING EXPENSES: Payroll costs 97,255 Professional and contract services 14,094 Depreciation 415,329 Amortization of wastewater treatment rights 31,760 Water purchases 749,920 Other operating costs 417,340 Total operating expenses 1,725,698 Net operating income 192,218 NON-OPERATING REVENUES (EXPENSES): Interest income 25,604 Interest expense { 412,133) Income before transfers ( 386,529) Transfer 45,3 Change in net assets ( 239,630) Total net assets, beginning of year 6,829,508 Total net assets, end of year $ 6,589,878 The accompanying notes are an integral part of these financial statements. 19 THIS PAGE LEFT BLANK INTENTIONALLY j TOWN OF WESTLAKE STATEMENT OF CASH FLOWS PROPRIETARY FUND SEPTEMBER 30, 2006 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 1,916,900 Cash payments to employees/retirees ( 97,253) Cash payments for goods and services ( 1,280,542) Net cash provided by operating activities 539,105 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Net interfund borrowings 109,231 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on debt ( 102,540) Interest paid on debt ( 138,274) Investment earnings 25,604 Purchase of property and equipment ( 330,497) Net cash used by capital and related fumncing activities ( 545,707) Net increase in cash and cash equivalents 102,629 Cash and cash equivalents at the beginning of the year 643,897 Cash and cash equivalents at the end of the year $ 746,526 RECONCILIATION OF TOTAL CASH AND CASH EQUIVALENTS Cash and cash equivalents $ 651,074 Restricted cash and cash equivalents 95,452 Total cash and cash equivalents $ 746,526 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 192,218 Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation and amortization 447,089 - Changes in operating asets and liabilities: Receivables 13,939 Prepaid Items 1,468 Accounts payable (100,604) Customer deposits payable (12,540) 540 Deferred revenue 2,465 Net cash provided by operating activities $ 539,105 The accompanying notes are an integral part of these financial statements. 20 TOWN OF WESTLAKE DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF NET ASSETS SEPTEMBER 30, 2006 ASSETS Cash and cash equivalents Accounts receivables (net of allowance) Due from primary government Prepaid items Other assets Restricted assets: Cash and cash equivalents Capital assets: Land and construction in progress Capital assets, net of accumulated depreciation Debt issue costs, net of amortization Total assets LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expneses Deposits Due to component units Due to primary government Unearned revenue Accrued interest payable Noncurrent liabilities: Due within one year Due in more than one year Total liabilities NET ASSE'T'S Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 962,770 166,877 159,774 - - - 247,484 2,296,500 509,915 - - 37,232,924 166,877 I59,774 41,249,593 - { 9,094,604) - - - 50,763 12,363 - 386,753 823,317 $ 12,363 $ - $ 386,753 $(____ 8,220,524) The accompanying notes are an integral part of these financial statements. 21 Texas Student Lone Star Westlake Westlake Housing Authority Public Facility 4A 4B Ballpark Austin Corporation. Corporation Corporation Project $ 12,363 $ 7,103 $ 253 $ 382,330 - 159,774 159,774 70,960 - - 386,500 - - - - 52,912 - 2,347,263 - - 4,788,265 - - 22,399,970 - - - 2,987,369 12,363 166,877 546,527 33,029,069 962,770 166,877 159,774 - - - 247,484 2,296,500 509,915 - - 37,232,924 166,877 I59,774 41,249,593 - { 9,094,604) - - - 50,763 12,363 - 386,753 823,317 $ 12,363 $ - $ 386,753 $(____ 8,220,524) The accompanying notes are an integral part of these financial statements. 21 Texas Student Texas Student Texas Student Texas Student Texas Student 4,638,742 Housing Housing Housing Authority Housing Housing Authority - 75,353 Corporation - The Corporation - The Townlake Corporation College Station Texas Student 326,651 Ridge at North Texas Ridge at San Marcos Austin Project MSU Project Project Housing Authority Total e 528,528 $ 33,568 $ 381,986 $ 324,048 $ 2,439,081 $ 517,281 $ 4,626,541 64,689 112,462 45,095 216,296 321,021 24,434 1,174,505 - - 21,828,818 - - - 386,500 16,243 10,239 12,945 33,454 - 7,537 133,330 900 - -- 5,000 - 5,900 2,329,999 307,694 1,525,852 2,422,132 1,870,666 - 10,803,606 2,200,000 1,552,207 2,182,816 - 2,899,597 - 13,622,885 21,542,952 13,069,444 15,960,422 10,615,859 27,683,951 454,734 111,272,598 842,909 827,436 1,040,781 401,790 - - 6,100,285 27,525,320 15,913,950 21,149,897 14,013,579 35,219,3 t6 549,252 148126,150 1,907,920 1,021,755 284,368 36,038 425,891 4,638,742 75,353 - - - - 75,353 - - - 326,651 460,581 186,025 214,365 613,054 3,013,159 94,518 4,829,186 917,675 1,574,319 148,569 461,875 1,313,786 - 6,712,724 30,832,766 19,580,869 189,703 145,000 32,600,000 - 83,858,253 - - 21,828,818 13,821,214 - - 72,882,956 34,194,295 22,362,968 22,665,823 15,077,181 37,352,836 94,518 173,323,865 I 7,089,814) ( 4,959,218) ( 3,875,283) ( 2,948,565) ( 2,016,452) - ( 29,983,936) 1,412,324 - 1,187,580 2,442,132 - - 5,092,799 ( 991,485) ( 1,489,800) 1,171,777 { 557,169} ( 117,068) 454,734 ( 306,578) _ 6,668,9 $ 6,449,018 $( 1,515,926} $( 1,063,602} $ 2,133,520 $ 454,734 $( 25,197,715) 22 TOWN OF WESTLAKE DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF ACTIVITIES SEPTEMBER 30, 2006 Functions/Programs Governmental activities: Lone Star Public Facility Corporation Westlake 4A Corporation Westlake 413 Corporation Total governmental activities Business -type activities: Texas Student Housing Authority Texas Student Housing Authority: College Station Project Ballpark Austin Project Town Lake Austin Project Texas Student Housing Authority: MSU Project The Ridge at North Texas The Ridge at San Marcos Total business -type activities Total primary government 481,41.0 Program Revenues 6,395,292 Operating Capital 5,051,902 Charges for Grants and Grants and Expenses Services Contributions Contributions 2,068,108 1,595,642 - - 2,298,048 - - 1,210,411 - - 3,508,459 - - 481,41.0 478,115 - - 6,395,292 4,876,763 - - 5,051,902 3,206,589 - - 3,579,220 3,112,119 - - 2,068,108 1,595,642 - - 5,134,218 3,629,813 - - 3,337,284 2,078,780 - - 26,047,434 18,977,821 - $ 29,555,893 $ 18,977,821 $ - $ - General revenues: Sales Tax Interest income Miscellaneous Total general revenues and transfers Change in net assets Net assets, beginning Prior period adjustment Net assets, ending The accompanying notes are an integral part of these financial statements. 23 Net (Expense) Revenue and Changes in Net Assets I j Primary Government Governmental Business -type Activities Activities Total i ( 2,298,048) - ( 2,298,048) ( 1,210,411) - ( 1,210,411) ( 3,508,459) - ( 3,508,459) 3,295) ( 3,295) - ( 1,518,529) ( 1,518,529) - ( 1,845,313) ( 1,845,313) - ( 467,101) ( 467,101) - ( 472,466) ( 472,466) - ( 1,504,405) ( 1,504,405) - ( 1,258,504) 1,258,504 - ( 7,069,613) ( 7,069,613) 3,508,459) { 7,069,613) ( 1Q,578,072 1,810,707 - 1,810,707 75,312 532,128 607,440 - 25,000 25,000 1,886,019 557,128 2,443,147 ( 1,622,440) ( 6,512,485) ( 8,134,925) 2,081,556 ( 24,688,132) ( 22,606,576) ( 60,000) 5,603,786 5,543,786 $ 399,116 $( 25,596,831) $( 25,197,715} 24 THIS MAGE LEFT BLANK INTENTIONALLY NOTES TO FINANCIAL STATEMENTS THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE, TEXAS NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2006 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Statement The Town of Westlake, Texas (the "Town") was incorporated under the provisions of the laws of the State of Texas on December 26, 1956. The Town operates under a Board - Manager form of government and provides the following services as authorized by the laws of the State of Texas: public safety; cultural and recreation; and economic development. The accounting and reporting policies of the Town conform with accounting principles generally accepted in the United States of America applicable to state and local goverrunents. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board ("GASB"), the American Institute of Certified Public Accountants in Industry Audit Guide entitled, Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). The Town has elected not to apply Financial Accounting Standards and Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. The more significant accounting policies of the Town are described below. B. Financial Reporting Enti The Town's basic financial statements include the accounts of the Town's financial reporting entity, including the primary government, organizations for which the Town is financially accountable and other organizations for which the nature and significance of their relationship with the Town are such that inclusion would cause the Town's financial statement to be misleading or incomplete. The criteria for including organizations as component units within the Town's reporting entity, includes whether: ■ The organization is legally separate (can sue and be sued in their own name); N The Town holds the corporate powers of the organization; ■ The Town appoints a voting majority of the organization's board; ■ The Town is able to impose its will on the organization; The organization has the potential to impose a financial benefitiburden on the Town; and ■ There is fiscal dependency by the organization on the Town. (continued) 25 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Financial ReportinIZ Entity (Continued) Component units are blended with the balances and transactions of the Town if one of the following criterion are met: ■ The component unit is substantially the sarne governing body as the Town; or The component unit provides services entirely (or almost entirely) to the Town or benefits the Town exclusively (or almost exclusively). Based on the aforementioned criteria, the Town has the following component twits: Lone Star Public Facilities Corporation, Westlake 4A Corporation, Westlake 4B Corporation, Westlake Academy, Texas Student Housing Corporation, Texas Student Housing Authority, Jefferson Commons at the Ballpark Project; Jefferson Commons at Town. Lake Project, College Station Cambridge Project, Texas Student Housing Corporation — Denton Project, Texas Student Housing Corporation — San Marcos Project, and Texas Student Housing Corporation — MSU Project. C.Component _Units Discretely Presented Lone Star Public Facilities Corporation is a Texas nonprofit corporation that acts on behalf of the Town to further the public purposes under the Public Facilities Corporation Act, as its duly constituted authority and instrumentality. The board of directors, appointed by the Town's governing body, is comprised of seven members, of whom five must be members of the Town's governing body. Westlake 4A Corporation is a Texas nonprofit industrial development corporation under the Development Corporation Act of 1979 formed to promote economic development within the Town and the State of Texas in order to eliminate unemployment and underemployment, and to promote and encourage employment and the public welfare of, for, and on behalf of the Town by using the proceeds of a sales and use tax for the promotion and development of new and expanded business enterprises and any other lawful activities as defined and permitted under Section 4A of the Act. The board of directors is composed of five persons appointed by the Town's governing body, two of which are members of the Town's governing board. Westlake 4B Corporation is a Texas nonprofit industrial corporation under the Development corporation Act of 1979 formed to promote economic development within the Town and the State of Texas in order to eliminate unemployment and underemployment, and to promote and encourage employment and the public welfare of, for, and on behalf of the Town by developing, implementing, financing, and providing one or more projects defined and permitted under Section 413 of the Act. The board of directors is composed of seven persons appointed by the members of the Town's governing board. Four of the members of the board of directors are members of the Town's governing board. (continued) 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Component_ Units Discretely Presented The Texas Student Housing Authority, Ballpark Austin Project, Town Lake Austin Project, College Station Project, Texas Student Housing corporation — The Midge at North Texas Project, Texas Student Housing Corporation — San Marcos Project, and Texas Student Housing Corporation — MSU Project (collectively, "Texas Student Housing") are Texas nonprofit organizations as a duly constituted authority of the Town pursuant to Section 53.35(b) of the Texas Education Code, as amended (Act). Texas Student Housing's primary purpose is to construct, own, and operate student housing facilities on college campuses in Texas. The board consists of seven directors which are appointed by the Town's governing body. Housing entities are reported as Enterprise Funds, The Town is not responsible for the long-term debt of the Texas Student Housing entities. All Texas Student Housing entities have separately issued financial statements. These statements can be obtained by contacting the Texas Student Housing Authority. The financial statements are formatted to allow the user to clearly distinguish between the primary government and the discretely presented component units. Blended Westlake Academy ("Academy") is an open -enrollment charter school, as provided by Subchapter D, Chapter 12, of the Texas Education Code. The Town of Westlake ("Charter Halder") applied for and became the first municipality in Texas to ever receive this special charter designation. The board consists of six trustees and is appointed by the Town's governing body. Currently, all the members of the board of trustees are members of the Town's governing body. The Academy's yearend is August 31. D. Government -wide and Fund Financial Statements The government -wide financial statements (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information.on all of the non -fiduciary activities of the Town. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxies and other items not properly included among program revenues are reported instead as general revenues. (continued) 27 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Government -wide and Fund Financial Statements (Continued) Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds are reported as separate columns in the fund financial statements. E. Measurement Focus, Basis of AccountinIZ, and Financial Statement Presentation The goverrnnent-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Town considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the Town. The Town uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fund is a separate accounting entity with a self -balancing set of accounts. The Town reports the following major governmental funds. General Fund to account for all financial resources except those required to be accounted for in another fund. The General Fund balance is available for any purpose, provided it is expended or transferred in accordance with the legally adopted budget of the Town. Special Revenue Funds — to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or major capital projects) that are legally restricted to expenditures for specified purposes. (continued) 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Visitors Association Fund — to account for municipal hotel occupancy taxes collected and expenditures to promote tourism and the convention and hotel industry. FEMA Grant Fund — to account for activity relating to the Federal Emergency Grant Program. Westlake Acadeiny General Fund — to account for all financial resources of the Academy except those required to be accounted for in another fund. Westlake Acadeiny S eeial Revenue Fund — Accounts for resources restricted to or designated for, specific purposes by the Academy or a grantor. Debt Service Fund — to account for resources accumulated and payments made for principal and interest on long-terin general obligation debt of govermnental funds in a Debt Service Fund. Capital Projects Fund --to account for proceeds from long-term financing and revenue and expenditures related to authorized construction and other capital asset acquisitions. Proprietary Funds Proprietary Funds are those used to account for the Town's ongoing organizations and activities, which are similar to those found in the private sector. The measurement focus is upon capital maintenance and upon determination of net income, financial position and changes in financial position. The following are the proprietary fund types maintained by the Town: The Town reports the following proprietary fund: Enterprise Fund — to account for revenues and expenses related to providing water and sewer services to the general public on a continuing basis. Enterprise Fund equity is segregated into contributed capital and retained earnings. Use of Estimates The preparation of the basic financial statements in conformity with accounting principles generally accepted in the United States of America requires the Town to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. (continued) 29 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Investments Cash and investments of all funds, including restricted cash, are available upon demand and are considered to be "cash equivalents." For purposes of the statement of cash flows, the Town considers highly -liquid investments (including restricted assets) with an original maturity of three months or less when purchased to be cash equivalents. All investments are recorded at fair value based on quoted market prices. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. Interfund Receivables and Payables Short -teen amounts owed between funds are classified as "due to/fi-om other funds." Amounts owed between funds payable in more than one year are classified as "advances to/from other funds." Fund Changes and Transactions Between Funds Legally authorized transfers are treated as operating transfers and are included in the results of operations of both governmental and proprietary funds. The Town allocates to the Enterprise Fund an indirect cost percentage of the salaries and wages and related costs of personnel who perform administrative services for that fund but are paid through the General Fund along with other indirect costs deemed necessary for their operations. Capital Assets All fixed assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Assets capitalized have an original cost of $5,004 or more and over three years of life. Depreciation has been calculated on each class of depreciable property using the straight-line method. Estimated useful lives are as follows: Assets Years Water and sewer system 10-50 Buildings 20-50 Machinery and equipment 4-10 Improvements 5-30 (continued) 30 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Assets, Liabilities, and Net Assets or Equi (Continued) Compensated Absences The Town's policy allows employees to earn 5 days of vacation and 5 days of sick leave after six months of service and 10 days of vacation and 10 days of sick leave upon completion of a year of service. After completion of 5 years of service, 15 days of vacation and 15days of sick leave per year are earned. After completion of 10 years of service, 20 days of vacation and 20 days of sick leave per year are earned. No accumulated, unused sick time or vacation is payable upon termination or retirement. Reserved and Designated Fund Equity Reserved fund balances are not appropriable for expenditure or are legally segregated for a specific future use. Designated fund balances are established to indicate tentative plans for financial resources utilization in a future period. 2. DETAILED NOTES ON ALL FUNDS Deposits and Investments State statutes govern the Town's investment policies. Town funds are deposited in U. S. Federal Deposit Insurance Corporation ("FDIC") insured banks located within the Town and in the State of Texas Local Government Investment Pool ("TexPool"). Permissible investments include the following: L Obligations of the U. S. or its agencies and instrumentalities; 2. Direct obligations of the State of Texas or its agencies; Other obligations, the principal and interest of whieh are unconditionally guaranteed by the State of Texas or the United States. 4. Obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to the investment quality by a nationally recognized investment firm and having received a rating of not less than A or its equivalent. 5. Certificates of deposit issued by state and national banks domiciled in the State of Texas that are guaranteed or insured by the FDIC or secured by other obligations that have a market value of not less than the principal amount of the certificates; and 6. Fully collateralized direct repurchase agreements having a defined termination date, secured by direct obligations of the United States or its agencies and instrumentalities, pledged with a third party selected or approved by the Town, and placed through a primary government securities dealer, as defined by the Federal Reserve, or through a bank domiciled in the State of Texas. (continued) 31 2. DETAILED NOTES ON ALL FUNDS (Continued) Deposits and Investments (Continued) The Town did not engage in repurchase or reverse repurchase agreement transactions during the current year. During the year ended September 30, 2006, the Town had investments with TexPool. TexPool, a public funds investment pool created by the Treasurer of the State of Texas acting by and through the Texas Treasury Safekeeping Trust Company, which is empowered to invest funds and acts as custodian of in vestments purchased with local investment funds. These investments are not required to be categorized because the investor is not issued securities, but rather it owns an undivided beneficial interest in the assets of the respective funds. The fir value of the position in TexPool is the same as the value of the pool shares. On September 1, 1989, local government investment pools became authorized investments for the majority of public entities in Texas. The Interlocal Cooperation Act was amended by the 71" Texas Legislature to facilitate the creation of local government investment pools in Texas. This act permits the creation of investment pools to which a majority of political subdivisions (local governments) may delegate, by contract, the authority to make investments purchased with local investment funds and to hold legal title as custodian of the investments. TexPool was organized to conform with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code, The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. .Among other things, it requires the Town to adopt, implement, and publicize its investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar — weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, and (9) bid solicitation preferences for certificates of deposit. Statutes and the Town's investment policy authorized the Town to invest in the following investments as summarized in the table below: (continued) 32 Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity of Portfolio in One Issuer Obligations of, or guaranteed by Governmental entities 2 years None None Certificates of deposit 1 year None None Mutual funis 2 years 80% None Investment pools - None None (continued) 32 :2. DETAILED NOTES ON ALL FUNDS (Continued) Deposits and Investments (Continued) At September 30, 2006, the Town's investments included investment pools in the name of the Town or its agent in the Town's name. The Town's investments were as follows: Carrying Amount Primary government investments: TexPool $ 4,489,896 Cash 598,799 Total cash and investmcnts $ 5,088,695 Minimum Rating Fair Legal as of Value Rating__ Year-end $ 4,489,896 NIA AAA -m 598,799 NIA N/A $ 5,088,695 Reconciliation of total cash and investments at September 30, 2006, are as follows: Cash and cash equivalents Restricted cash and investments $ 4,993,243 95,452 $ 5,088,695 The Town's entire cash deposits in the bank of $768,134 on ,September 30, 2006, were covered by federal depository insurance or by collateral. Component units Investments: TexPool Cash Total Carrying Amount Fair 'Value 19,719 $ 19,719 4,606,822 4,606,822 $ 4,626,541 $ 4,626,541 Weighted Average Maturity (Days) 6 months NIA Interest Rate Risk This is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value of changes in market interest rates. One of the ways that the Town manages its exposure to interest rate risk is by investing in investment pools which purchase a combination of shorter term investments with an average maturity of less than 29 days thus reducing the interest rate risk. The Town monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The Town has no specific limitations respect to this metric. Credit Risk This is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented above is the minimum rating required by (where applicable) the Public Funds Investment Act, the Town's investment policy, or debt agreements, and the actual rating as of year-end for each investment type. (continued) 33 2. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets Capital asset activity for the year ended September 30, 2006, was as follows: Primary Government (continued) 34 Beginning Decreases/ Ending Balance Increases Adjustment Transfers Balance Governmental activities: Capital assets, not being depreciated: Land $ 8,251,046 $ 1,124,596 $( 10,889) $ - $ 9,386,531 Construction in progress 9,153 - { 9,153) Total assets not being depreciated 8,260,199 1,124,596 ( 10;889) (9,153) 9,386,531 Capital assets, being depreciated: Capital improvements 3,958,380 186,391 - 9,153 4,153,924 Buildings 16,038,630 258,930 - 16,297,560 Machinery and equipment 1,906,712 30,048 1,936,760 Total capital assets being depreciated 21,903,722 475,369 9,153 22,388,244 Less accumulated depreciation: Capital improvements 1,668,952 246,950 - - 1,915,902 Buildings 924,278 327,034 - 1,251,312 Machinery and equipment 499,119 210,456 - 709,575 Total accumulated depreciation 3,092,349 784,440 - - 3,876,789 Total capital assets being depreciated, net 18,811,373 C__ 309,071) - 9,153 18,511,455 Governmental activities capital assets, net $ 27,071,572 $ 815,525 $( 10,889) $ - $ 27,897,986 Business -type activities: Capital assets, not being depreciated: Construction in progress $ 1I2,700 $ 10,475 $ - ${ 74,375) $ 48,800 Total assets not being depreciated 112,700 10,475 - {_ 74,375) 48,800 Capital assets, being depreciated: Capital improvements 12,377,611 320,024 - 74,375 12,772,010 Wastewater treatment rights 635,199 - - - 635,199 Machinery and equipment 3,367,742 - - - 3,367,742 Total capital assets being depreciated 16,380,552 320,024 - 74,375 16,774,951 Less accumulated depreciation: Capital improvements 1,335,416 299,238 - 242 1,634,896 Wastewater treatment rights 562,041 115,851 - - 677,892 Machinery and equipment 164,093 31,760 - - 195,853 Total accumulated depreciation 2,061,550 446,849 - 242 2,508,641 Total capital assets being depreciated, net 14,319,002 { 126,825) - 74,133 14,266,310 Business -type activities capital assets, net $ 14,431,702 % 116,350) $ - $ 242) $ 14,315,110 (continued) 34 2. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets (Continued) Depreciation was charged to departments of the primary government as follows: Governmental activities: General government $ 453,854 Public safety 77$87 Public works 252,699 Total depreciation expense - governmental activities $ 784,440 A summary of discretely presented component units' capital assets at September 30, 2006, follows: Ballpark Austin Project Beginning Balance Additions Retirements Capital assets, not being depreciated: Land $ 4,788,265 $ - Total capital assets, not being depreciated 4,788,265 - Capital assets, being depreciated: Building 21,345,305 - Improvements, furniture and fixtures 6,993,063 - Total capital assets, being depreciated 28,338,368 - Less accumulated depreciation for: Building 2,608,870 711,510 Improvements, furniture and fixtures 2,056,484 561,534 Total accumulated depreciation 4,665,354 1,273,044 Total capital assets, Ending Balance $ 4,788,265 4,788,265 21,345,305 6,993,063 28,338,368 3,320,380 2,618,018 5,938,398 being depreciated, net 23,673,014 ( 1,273,044) - 22,399,970 Capital assets, net $ 28,461,279 ${ 1,273,044) $ - $ 27,188,235 (continued) 35 2. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets (Continued) The Ridge at North Texas Ending Deletions Balance $ - $ 2,200,000 2,200,000 25,705,000 1,253,841 26,958,841 3,422,375 - 1,993,514 5,415,889 being depreciated, net Beginning ( 1,043,238) - 21,542,952 Balance Additions Capital assets, not being depreciated: 23,742,952 Land $ 2,200,000 $ Total capital assets, not being depreciated 2,200,000 - Capital assets, being depreciated: Balance Additions Retirements Building 25,705,000 - Furniture and fixtures 1,253,841 - Total capital assets, $ - $ - $ 1,552,207 being depreciated 26,958,841 Less accumulated depreciation for: not being depreciated 1,552,207 Building 2,570,542 851,833 Furniture and fixtures 1,802,109 191,405 Total accumulated depreciation 4,372,651 1,043,238 Total capital assets, Furniture, fixtures and equipment 818,332 Ending Deletions Balance $ - $ 2,200,000 2,200,000 25,705,000 1,253,841 26,958,841 3,422,375 - 1,993,514 5,415,889 being depreciated, net 22,586,190 ( 1,043,238) - 21,542,952 Capital assets, net $ 24,786,190 $( 1,043,238) $ - $ 23,742,952 The Ridge at San Marcos Beginning Ending Balance Additions Retirements Balance Capital assets, not being depreciated: Land $ 1,552,207 $ - $ - $ 1,552,207 Total capital assets, not being depreciated 1,552,207 - - 1,552 207 Capital assets, being depreciated: Building 15,875,143 - - 15,875,143 Furniture, fixtures and equipment 818,332 - - 818,332 Total capital assets, being depreciated 16,693,475 - - 16,693,475 Less accumulated depreciation 2,978,451 645,580 - 3,624,031 Total capital. assets, being depreciated, net 13,715,0246( 45,580} - 13,715,024 Capital assets, net $ 15,267,231 $� 645,SS0) $ - $ 14,621,651 (continued) 36 2. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets (Continued) Town Lake Austin Project Beginning Balance Additions Capital assets, not being depreciated: Land $ 2,182,816 $ - $ Total capital assets, not being depreciated 2,182,816 Capital assets, being depreciated: Building and improvements 13,270,150 Capitalized purchase costs 887,095 Land improvements 2,806,596 Unit appliances 295,134 - Furniture and fixtures 915,951 - Total capital assets, being depreciated 18,174,926 Less accumulated depreciation for: Building and improvements 884,198 442,035 Capitalized purchase costs 59,140 29,570 Land improvements 187,106 93,553 Unit appliances 84,324 42,162 Furniture and fixtures 261,566 130,850 Total accumulated depreciation 1,476,334 738,170 Total capital assets, Ending Retirements Balance $ 2,1822816 2,182,816 13,270,150 887,095 2,806,596 295,134 915,951 18,174,926 - 1,326,233 88,710 - 280,659 126,486 392,416 2,214,504 being depreciated, net 16,698,592 738,170 - 15,960,422 Capital assets, net $ 18,881,408 $( 738,170) $ - $ 18,143,238 MSU Project Capital assets, being depreciated: Building Furniture and fixtures Total capital assets, being depreciated Less accumulated depreciation: Total capital assets, being depreciated, net Beginning Ending Balance Additions Retirements Balance $ 11,300,714 $ - $ - $ 11,300,714 629,004 4,995 _ 633,999 11,929,718 4,995 _ 11,934,713 878,764 440,090 - 1,318,854 $ 11,050,954 $( 435,095} $ $ 10,615,859 (continued) 37 2. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets (Continued) College Station Project Beginning Prior Period Balance Additions Deletions Adjustment Capital assets, not being depreciated: Land $ 2,899,597 $ $ Total capital assets, not being depreciated 2,899,597 Capital assets, being depreciated: Building 27,727,646 Furniture and fixtures 2,591,427 w - Total capital assets, being depreciated 30,319,073 - Less impairment charge: Building ( 5,641,286) - Less accumulated depreciation for: Building ( 827,692) ( 955,553) Furniture and fixtures ( 425,825) X426,052) - Total accumulated depreciation ( 1 253,517) (1,381,605} - Total capital assets, 5,641,286 Ending Balance $ 2,899,597 2,899,597 27,727,646 2,591,427 30,319,073 ( 1,783,245) ( 851,877} ( 2,635,122) being depreciated, net 23,424,274 ( 1,381,605} 5,641,286 27,683,951 Capital assets, net $ 26,323,867 $( $ - $ 5,641,286 $ 30,583,548 Restricted Net Assets Proprietary Fund Within the proprietary funds, $89,950 of the fund represents customer deposits received for water and sewer usage that are refundable upon termination of service. The remaining balance of $5,502 is to be used for specific water line construction. Discretely Presented Component Units Within the discretely presented component units, $10,803,606 in cash and cash equivalents represents funds held for debt service. Interlocal Agreement with Trophy ClublWestlake Department of Public Safetv On April 24, 2000, the Town approved an interlocal agreement with the Trophy Club/Westlake Department of Public Safety ("DPS"), which called for the Town of Westlake to participate in the financing of an emergency vehicle for the DPS. The Town recorded a note receivable of $125,000 based on the terms of the interlocal agreement. (continued) 38 2. DETAILED NOTES ON ALL FUNDS (Continued) Interlocal Agreement with Trophy ClublWestlake Department of Public Safe (Continued) The Agreement calls for eight principal and interest payments to the Town, with interest calculated at a stated rate of 6.75%. The schedule of future collections by the Town under this agreement, in each of the next five fiscal years, is as follows: Year Ending September 30, Principal Interest Total 2007 $ 18,192 $ 2,539 $ 20,731 2008 19,421 1,311 20,732 Total $ 37,613 $ 3,850 $ 41,463 Effective June 1, 2002, the Trophy Club/Westlake Department of Public Safety was officially dissolved. The Town of Trophy Club will continue to repay the remaining debt according to the terms of the note. General Lona -term Debt Long-term liability activity for the year ended September 30, 2006, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Combination tax and limited Pledge Revenue Certificates of Obligation, Series 2002 $ 12,400,000 $ - $ 210,000 $ 12,190,000 $ 225,000 Combination tax and limited PIedge Revenue Certificates of Obligation, Series 2003 6,410,000 - 140,000 6,270,000 145,000 Fidelity Tax Reimbursement 285,662 - _ 19,333 266,329 20,444 $ 19,095,662 $ - $ 369,333 $ 18,726,329 $ 390,444 Debt service requirements of certificates of obligation to be retired from governmental funds are as follows: Year Ending Total September M, Principal- Interest Requirements 2007 $ 370,000 $ 1,011,354 $ 17381,354 2008 380,000 993,249 1,373,249 2009 400,000 974,059 1,374,059 2010 420,000 953,309 1,373,309 2011 440,000 930,969 1,370,969 2012-2016 2,540,000 4,268,146 6,808,146 2017-2021 3,230,000 3,487,231 6,717,231 2022-2026 4,130,000 2,518,723 6,648,723 2027-2031 5,315,000 1,255,510 6,570,510 2032 1,235,000 68,390 1,303,390 Total $ 18,460,000 $ 16,460,940 $ 34,920,940 (continued) 39 2. DETAILED NOTES ON ALL FUNDS (Continued) General Lone -term Debt (Continued) On August 10, 1998, the Town entered into an economic development agreement with Fidelity Texas Limited Partnership ("Fidelity") which provided that Fidelity will receive a rebate of one percent of local sales taxes collected by the Town and paid by Fidelity. The agreement provided that the rebate will be paid to Fidelity within 30 days of each calendar quarter from the sales taxes received by the Town. On November 13, 2000, the agreement was amended to allow for a payment schedule of 15 annual equal installments for sales tax rebate due and payable to Fidelity. The amount due will not bear interests. The loan is discounted to present value and amortized over the life of the loan using the effective interest method. Debt service requirements for deferred rebates to be retired from governmental funds are as follows: Year Ending Tata[ September 30, Principal Interest Requirements 2007 $ 20,444 $ 15,314 $ 35,758 2008 21,620 14,138 35,758 2009 22,863 12,895 35,758 2010 24,178 11,581 35,759 2011 25,568 10,190 35,758 2012-2016 151,656 27,135 178,791 Total $ 266,329 $ 91,253 $ 357,582 The Certificates of Obligation, Series 2002 and 2003 require the Town to provide certain updated financial information and operating data to certain information vendors annually, as permitted by SEC Rule 15c2-12 (the "Rule"). The issuer will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). Proprietary Long-term Debt Elevated Water Storage Facility On October 9, 2000, the Town approved an interlocal agreement with the City of Keller, which provided for the joint construction, operation, maintenance and use of an elevated water storage facility and appurtenances. The Town recorded a contractual obligation of $1,466,000 based on the terms of the interlocal agreement, which requires 20 annual principal and interest payments to the City of Keller, with payments due each September 30 at interest rates ranging from 5.0% to 5.65%. (continued) 40 2. DETAILED NOTES ON ALL FUNDS (Continued) Proprietary Long-term Debt (Continued) Dove Road Water Line and West Pump Station In April 2000, the Town approved an agreement with the Hillwood Development Corporation ("Hillwood"). In the agreement, Hillwood agreed to bear all initial costs for the design, engineering and constructions of the Dove Road Water Line and the West Pump Station that will service the residents of the Town. The Town agreed to reimburse Hillwood for the cost of the project upon completion and the Town's acceptance of the project, which occurred in June 2001, solely from a $.25 charge per 1,000 gallons of usage. The Town further agreed to deposit debt service revenue of $.25 per 1,000 gallons of usage collected from Town residents to fund its repayment to Hillwood. Debt service revenue will be allocated between Hillwood service area and Town service area by 52% and 48%, respectively and deposited into two separate debt service funds that will result in debt service revenue to pay the respective share of the construction cost. The Town recorded a limited pledge contractual obligation of $4,679,944 for the project cost based upon the terins of the agreement, which requires 239 monthly principal and 'interest payments to Hillwood, at an interest rate of 6.75°/x. If the Town collects insufficient founds to pay current interest on the debt, the interest payment may be deferred. No portion of debt payments will be applied to the principal component, until all current and deferred interest is fully paid. Proprietary long-term debt as of September 30, 2006, is as follows: Outstanding Description 09/30/05 Issued Contractual obligations: Elevated water storage Limited pledge contractual obligation: Dove Road Water Line and West Pump Station $ 1,300,977 $ 4,679,944 Outsstanding Current Retired 09/30/06 Portion $ 102,540 $ 1,198,437 $ 56,082 4,679,944 - $ 5,980,921 $ - $ 102,540 $ 5,878,381 $ 56,082 The schedule of future payments by the Town under these agreements is as follows: Year Ending September 30, Total Principal Interest Requirements 2007 $ 56,082 $ 515,151 $ 571,233 2008 59,277 543,041 602,318 2009 64,082 572,612 636,694 2010 67,298 604,752 672,050 2011 72,100 639,689 711,789 2012-2016 429,378 3,812,866 4,242,244 2017-2021 450,220 4,736,797 5,187,017 2022 4,679,944 - 4,679,944 Total $ 5,878,381 $ 11,424,908 $ 17,303,289 (continued) 41 01 DETAILED NOTES ON ALL FUNDS (Continued) Discretely Presented Lonjt-term Debt College Station Project The Project's installment note payable is sunrrnarized as follows: Interest Lender/Security/Due Date Rate Balance Cambridge Student Housing Financing Company, L.P.; substantially all assets and assignment of rents; clue November 1, 2039 8.00% $ 32,600,000 The Project's installment note is payable monthly with principal and interest payments of $231,515 until November 1, 2039. The following is a summary of long-term debt transactions of the Project for the year ended August 31, 2006: Amounts Beginning Ending Due within Balance Increases Decreases Balance One Year $ .32,600,000 $ - $ - $ 32,600,000 $ 32,600,000 The Project's original developer refinanced the installment note through a secondary offering with Cambridge Student Housing Financing Company, L.P. The debt certificates were sold to private investors in the following classes; Class (Series) Offering Total A $ 17,500,000 B 4,900,000 C 4,820,000 D 5,380,000 Total $ 32,600,000 Each class has certain rights and privileges, as contained in the private placement memorandum. As a part of the offering, the Project entered into a trust agreement with J. P. Morgan Trust Company, N.A. (the "Trustee") for the purpose of determining that each class is paid in accordance with the private placement memorandum. At August 31, 2006, the Project was not in compliance with the fixed charge coverage ratio, which constitutes a default of the lending agreement. Upon default, the lender may accelerate the maturity of the unpaid portion of the principal payable under the installment sale agreement. However, the Authority does not anticipate this event will occur, since foreclosure by private interests would result in the loss of talc -exempt status for the Project. (continued) 42 i 2. DETAILED NOTES ON ALL FUNDS (Continued) Discretely presented Long-term. Debt (Continued) September 30� Principal MSU Project Requirements 2007 The long-term debt activity of the MSU Project is as follows: $ 919,763 $ 1,064,763 I R 170,000 Amounts Beginning Ending Due Within Balance Increases Decreases Balance One Year Series 2002 889,650 1,099,650 Revenue bonds $ 14,540,000 $ - $ 110,000 $ 14,430,000 $ 145,000.00 Less discounts 488,000 - 24,214 463,786 24,214 I $ 14,052 000 $ - $ 85,786 $ 13,966,214 $ 120,786.00 The bonds are payable solely from the revenues generated by the property and are secured by the revenues pledged and assigned under the terms of the trust indenture. Interest rates range from 5.5% to 6.5%. Future payments on the bonds are as follows: Year Ending Total September 30� Principal Interest Requirements 2007 $ 145,000 $ 919,763 $ 1,064,763 2008 170,000 911,100 1,081,100 2009 200,000 900,925 1,100,925 2010 210,000 889,650 1,099,650 2011 220,000 877,826 1,097,826 2012-2016 1,305,000 4,176,137 5,481,137 2017-2021 1,770,000 3,685,500 5,455,500 2022-2026 2,435,000 3,007,062 5,442,062 2027-2031 3,335,000 2,077,237 5,412,237 2032-2035 4,640,000 729,299 5,369,299 `total $ 14,430,000 $ 18,174,499 $ 32,604,499 The bonds have numerous covenants which must be complied with annually. For the year ended August 31, 2006, all of the covenants have been satisfactorily met, except the fixed charges coverage ratio. Management does not believe this will impact the ability to continue to service the bonds. Town Lake Austin project Amounts Beginning Ending Due Within Balance Adjustments Increases Decreases Balance One Year Revenue Bonds: 2002 A-1 Bonds $ 17,104,863 $ - $ $( 175,583) $ 16,929,280 $ 189,703 2002 A-2 Bonds 5,388,125 298,884 _ - 5,089,241 - Total $ 22,492,988 $ 298,884$ - $( 175,583 $ 22,{118,521 $ 189,703 (continued) 43 2. DETAILED NOTES ON ALL FUNDS (Continued) Discretely Presented Lan -term Debt (Continued) Town Lake Austin Project (Continued) The bonds are payable solely from the revenues generated by the Project and are secured by the revenues pledged and assigned under the terms of the trust indenture. Interest rates for the bonds range from 7.76% to 8.69% at present and principal and interest payments are made monthly. The future debt service requirements of the bonds are as follows: Year Ending Govenmental Activities August 31, Principal Interest - 2007 $ 189,703 $ 1,725,127 2008 204,958 1,709,872 2009 221,441 1,693,389 2010 239,248 1,675,582 2011-2015 1,517,705 8,056,448 2016-2020 2,234,316 7,339,837 2021-2025 3,289,289 6,284,864 2026-2030 4,842,385 4,727,764 2031-2035 6,165,901 3,586,576 2036-2039 3,113,575 2,959,136 Totals $ 22,018,521 $ 39,758,595 The Ridge at San Marcos Beginning Balance Adjustments Increases Decreases Total $ 1,914,830 1,914,830 1,914,830 1,914,830 9,574,153 9,574,153 9,574,153 9,570,149 9,752,477 6,072,711 $ 61,777,116 Amounts Ending Due Within Balance One Year Revenue Bonds: 2000 Bonds $ 19,610,508 $ 29,639 $ - $ - $ 19,580,869 $ 19,580,869 Total $ 19,610,508 $C29,639) $ - $ - $ 19 584,869 $ 19,580,869 The bonds are payable solely from the revenues generated by the Project and are secured by the revenues pledged and assigned under the terms of the trust indenture. The annual interest rate is 8.2% and interest is due on the first of each month. In the case of default under the terms of the indenture, the interest rate increases by 2%. During 2006, the Project defaulted on the bonds and the interest rate increased to 10.2%. During 2005, the Project ceased making the required principal and interest payments required by the loan and financing agreement. This constitutes an event of the default under provisions of the indenture and permits the trustee at the direction of the servicing agent to declare the principal and all interest then due to be immediately due and payable. As a result, the outstanding principal at August 31, 2006, has been shown as a current liability in the accompanying financial statements. In addition, the Project was not in compliance with certain debt covenants as of August 31, 2006. (continued) 44 2. DETAILED NOTES ON ALL FUNDS (Continued) Discretely Presented Long-term Debt (Continued) Year Ending August 31 Principal 2007 $ 19,580,869 Ballpark Austin Project Interest Total $ 34,304,601 $ 53,885,470 The long -teen debt activity of the Ballpark Austin Project is as follows: The bonds are payable solely from the revenues generated by the Project and secured by the revenues pledged and assigned under the terms of the trust indenture. Interest rates on the bonds range from 4.00% to 11.00% and are payable semi-annually. The debt service requirements of the bonds are as follows: Year Ending Auizust 31. 2007 2008 2009 2010 2011 2012-2016 2017-2021 2022-2026 2027-2031 2032-2033 Totals Principal 570,000 595,000 620,000 650,000 680,000 3,990,000 5,205,000 6,795,000 8,920,000 9,780,000 Governmental Activities Interest $ 2,392,174 2,367,341 2,340,339 2,311,359 2,280,294 10, 823,219 9,606,319 8,012,963 5,891,838 1,618,400 Total $ 2,962,174 2,962,341 2,960,339 2,961,359 2,960,294 14,8I3,219 14,811,319 14,807,963 14,811,838 11,398,400 $ 37,805,000 $ 47,644,246 $ 85,449,246 At August 31, 2006, the Project had not made interest payments on the Subordinate 2001C Bond Series since July 2003, and the Subordinate 2001C Bond is in default. In addition, the Project's fixed charges coverage ratio was not in compliance with the covenants of the indenture. These events do not constitute an event of default that accelerates the bonds. As a result, the maturities are presented under the original repayment terms. (continued) 45 Amounts Beginning Ending Due within Balance Increases Decreases Balance One Ycar Revenue Bcnds: 2001A Bands $ 32,955,000 $ $( 515,000) $ 32,440,000 $ 535,000 2001B Bonds 2,395,000 ( 30,000) 2,365,000 35,000 20010 Bonds 3,000,000 - 3,000,000 - Less discounts L 1,582,246) 60,085 ( 1,522,161) ( 60,085) Total $ 36,767,754 $ $ 484,915 $ 36,282,839 $ 509,915 The bonds are payable solely from the revenues generated by the Project and secured by the revenues pledged and assigned under the terms of the trust indenture. Interest rates on the bonds range from 4.00% to 11.00% and are payable semi-annually. The debt service requirements of the bonds are as follows: Year Ending Auizust 31. 2007 2008 2009 2010 2011 2012-2016 2017-2021 2022-2026 2027-2031 2032-2033 Totals Principal 570,000 595,000 620,000 650,000 680,000 3,990,000 5,205,000 6,795,000 8,920,000 9,780,000 Governmental Activities Interest $ 2,392,174 2,367,341 2,340,339 2,311,359 2,280,294 10, 823,219 9,606,319 8,012,963 5,891,838 1,618,400 Total $ 2,962,174 2,962,341 2,960,339 2,961,359 2,960,294 14,8I3,219 14,811,319 14,807,963 14,811,838 11,398,400 $ 37,805,000 $ 47,644,246 $ 85,449,246 At August 31, 2006, the Project had not made interest payments on the Subordinate 2001C Bond Series since July 2003, and the Subordinate 2001C Bond is in default. In addition, the Project's fixed charges coverage ratio was not in compliance with the covenants of the indenture. These events do not constitute an event of default that accelerates the bonds. As a result, the maturities are presented under the original repayment terms. (continued) 45 2. DETAILED NOTES ON ALL FUNDS (Continued) Discretely Presented Long-term Debt (Continued) The Ridge at North Texas The long-term debt activity of the Ridge at North Texas is as follows: The debt originally was to be amortized through 2031 with varying monthly principal payment amounts ranging from $2,618,093 to $3,465,280 for interest and principal. The annual requirements to amortize all debts outstanding as of August 31, 2006, are as follows and have not been adjusted for the default of the bonds. Under the original terms of the Indenture, a total of $485,000 in principal and $2,134,843 in interest is due in fiscal 2007. The total interest to be paid will depend on the ultimate maturities of the bonds. Year Ending August 31, Principal Interest Total 2007 $ 31,730,000 $ 35,905,245 $ 67,635,245 The Town of Westlake does not have any liability for the payment of debt of the discretely presented component units as the bonds are non-recourse to both the Town and Texas Student Housing Authority. Deferred Revenue Deferred revenue in the proprietary fund of $516,631 relates to the collection of the entire amount due on six Ductbank leases as follows. One 20 -year lease with AT&T local network services and five 20, 25 and 30 -year leases with Verizon Southwest for use of the Town's Ductbank. Commitments and Contingencies Lease Obligations The Town has commitments relative to municipal services, and contractual relationships concerning certain utilities and public safety resources, which are normal in its ongoing activity. Noncancellable obligations consist of agreements for services at September 30, 2006. (continued) 46 .Amounts Beginning Ending Due within Balance Increases Decreases Balance One Year Revenue Bonds: 2001A Bonds $ 28,955,000 $ - $( 465,000) $ 28,490,000 $ 28,490,000 2001B Bonds 3,240,000 - 3,240,000 3,240,000 Less discounts L___934,719) - 37,485 { 897,234) L__897,234 Total $ 31,260,281$ $( 427,515) $ ___30,832,766 $ 30,832,766 The debt originally was to be amortized through 2031 with varying monthly principal payment amounts ranging from $2,618,093 to $3,465,280 for interest and principal. The annual requirements to amortize all debts outstanding as of August 31, 2006, are as follows and have not been adjusted for the default of the bonds. Under the original terms of the Indenture, a total of $485,000 in principal and $2,134,843 in interest is due in fiscal 2007. The total interest to be paid will depend on the ultimate maturities of the bonds. Year Ending August 31, Principal Interest Total 2007 $ 31,730,000 $ 35,905,245 $ 67,635,245 The Town of Westlake does not have any liability for the payment of debt of the discretely presented component units as the bonds are non-recourse to both the Town and Texas Student Housing Authority. Deferred Revenue Deferred revenue in the proprietary fund of $516,631 relates to the collection of the entire amount due on six Ductbank leases as follows. One 20 -year lease with AT&T local network services and five 20, 25 and 30 -year leases with Verizon Southwest for use of the Town's Ductbank. Commitments and Contingencies Lease Obligations The Town has commitments relative to municipal services, and contractual relationships concerning certain utilities and public safety resources, which are normal in its ongoing activity. Noncancellable obligations consist of agreements for services at September 30, 2006. (continued) 46 2. DETAILED NOTES ON ALL FUNDS (Continued) Commitments and Contingencies (Continued) Lease Obligations (Continued) Minimum lease payments and contractual obligations under these noncancellable leases and agreements as of September 30, 2006, are as follows: Year Ending September 30, Amount 2007 $ 80,863 2008 78,508 Total $ 159,371 Rental expenditures in 2006 were $19,627. Interlocal Agreement with the City of Southlake In August 1995, the Town entered into an agreement with the City of Southlake to allow the Town to utilize capacity in a sewer line and to set forth their respective rights and obligations with respect to the sewer line owned by the City of Southlake. The Town is obligated to share in the cost of construction, operation and maintenance of the water sewer line. The sewer line was constructed in 2000. Additionally, the Town must pay the City of Southlake all transportation, treatment and related costs allocable to the metered flow of sewage from the Town into the sewer line. Federal and State Program Revenues The Town received financial assistance from various federal and state governmental agencies in the form of grants. The disbursement of fiends received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any unallowed disbursement resulting from such audits becomes a liability of the Town. In the opinion of the Town management, no material refunds will be required as a result of unallowed disbursements (if any) by the grantor agencies. Sources of federal and state program revenues for the year ended September 30, 2006, were as follows: FEMA Westlake Source General Grant Total Federal program revenues: Tobacco Grant $ 3,163 $ - $ - $ 3,163 Federal Emergency Management Agency - 43,047 - 43,047 U. S. Department of Education - Passed through State Department of Education - - 29,452 29,452 $ 3,163 $ 43,047 $ 29,452 $ 75,662 State program revenues: State Department of Education $ $ - $ 1,925 043 $ 1,925,043 (continued) 47 2. DETAILED NOTES OWN ALL FUNDS (Continued) Retirement Plan Plan Description The Town provides pension benefits for all of its fulltime employees through a nontraditional, joint contributory, hybrid defined contribution plan in the statewide Texas Municipal Retirement System ("TMRS"), one of 811 administered by TMRS, an agent multiple -employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the Town -financed monetary credits, with interest. At the date the plan began, the Town granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are 100%, 150%, or 200% of the employee's accumulated contributions. In addition, the Town can grant, as often as annually, another type of monetary credit referred to as updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and Town matching percent had always been in existence and if the employee's salary had always been the average of his/her salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer -financed monetary credits with interest were used to purchase an annuity. Plan Description (Continued) The plan provisions are adopted by the governing body of the Town, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Deposits are at a rate of 7%, and the Town matching ratio is currently 2 to 1. An employee is vested after 5 years of service. Employees can retire at age 60 with 5 years of service or at any age after 20 years of service with the Town. Contributions Under the state law governing TMRS, the actuary annually determines the Town contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the Town matching percent, which are the obligation of the Town as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the Town to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25 -year (continued) 48 t I 2. DETAILED NOTES ON ALL FUNDS (Continued) Retirement PIan (Continued) amortization period. The unit credit actuarial cast method is used for determining the Town contribution rate. Both the employees and the Town make contributions monthly. Since the Town needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect. Schedule of Actuarial Liabilities and Funding Progress Actual Valuation Date 12/031/03 12/031/04 12/031/05 Actuariai value of assets $ 212,522 $ 412,742 $ 597,993 Actuarial accred liability 230,684 423,569 635,973 Percent funded 92.1% 97.4% 94.0% Unfunded (overfunded) actuarial accrued liability (URAL) 18,162 10,827 37,980 Annual covered payroll 844,639 1,299,091 1,243,374 U.A,AL as a percentage of covered payroll 2.2% 0.8% 3,1% Net pension obligation (NPO at the beginning of period - - - Annual required contribution (ARC) 77,491 105,663 98,388 Contributions evade 77,491 105,663 98,388 NPO at the end of the period - - Actuarial Assumptions Actuarial Cost Method - Unit Credit Amortization Method - Level Percent of Payroll Remaining Amortization Period - 25 Years - Open Period Asset Valuation Method - Amortized Cost (to accurately reflect the requirements of GASB Statement No. 25, paragraphs 36e and 138) Amortzation Period - Open Investment Rate of Return - 7% Projected Salary Increases - None Includes Inflation at - 3.5% Cost -of -living Adjustments - None (continued) M 2. DETAILED NOTES ON ALL FUNDS (Continued) Interfund Balances and Transactions (Continued) Interfund receivables and payables at September 30, 2006, were as follows: Due from Other Funds _ General fund: Westlake Academy $ 14,669 $ Visitors Association 128 Enterprise fund 107,420 General fund(PCM) 10,000 CapitalP rojects fund - Special revenue fund: Visitors Association - Capital projects fund: General fund 37,969 Enterprise fund: General fund 27,777 107,420 $ 197,963 $ 183,294 These balances represent timing differences related to routine advances from the Town for water and sewer and academy operations and other capital transactions. Interfund receivables and payables between the Westlake Academy General Fund and the Town differ by $14,669 as a result of different fiscal year -ends. Receivable and payable balances between the Town and its component units consisted of the following at September 30, 2006: Due to Other Funds 27,777 10,000 37,969 128 Primary government General fund: Westlake 4A Corporation Westlake 4B Corporation Texas Student Housing Enterprise fund: Westlake 4B Corporation Component units Westlake 4B Corporation: General fund Enterprise fund Westlake 4A Cororation: General fund Texas Student Housing General fund Totals (continued) 50 Due from Due to Other Funds Other Funds $ 166,877 $ 159,774 2,525 386,500 386,500 159,774 166,877 - L,JLJ $ 715,676 $ 715,676 2. DETAILED NOTES ON ALL FUNDS (Continued) Interfund Balances and Transactions (Continued) These balances represent advances from the component units for operations and capital expenditures. Amounts totaling $386,500 represent advances for capital transactions to be repaid over a 15 -year term. Transactions between the primary government's funds and its component units for the year ended September 30, 2006, consisted of the following: Contribution to Primary Government Capital Debt Contribution from Projects Service General Total Component units: Westlake 4A Corporation $ 67,976 $ - $ 2,230,072 $ 2,298,048 Westlake 4B Corporation - 1,210,411 - 1,210,411 $ 67,976 $ 1,210,411 $ 2,230,072 $ 3,508,459 Interfund transfers between the primary government's funds consisted of: Transfers in Transfers out General fund: Transfer out to FEMA fund $ - $ 4,784 Transfer in from utility fund 45,319 - Transfer in from general fund(PCM) 83,459 83,459 Transfer out to debt service fund - 168,223 Transfer out to capital projects fund - 402,792 Debt service fund: Transfer out to general fund 168,223 - FEMA fund: Transfer in from general fiord 4,784 Capital projects fund: Transfer in from general fluid 402,792 - Utility fund: Transfer out to general fund - 45,319 $ 704,577 $ 704,577 Contributions from the Westlake 4B Corporation to the Debt Service Fund in the amount of $1,210,411 represent principal and interest expense associated with debt for the construction of the Academy and civic center as authorized in Section 4B of the Texas Revised Civil Statutes, Ann. Sec. 5190.6. (continued) 51 2. DETAILED NOTES ON ALL FUNDS (Continued) Interfund Balances and Transactions (Continued) Contributions from the Westlake 4A Corporation to the General Fund in the amount of $2,230,072 represent the payment of the sales tax rebate to Fidelity as well as the transfer of funds upon dissolution of the fund. Contributions from the Westlake 4A Corporation to the Capital Projects Fund represent expenditures related to FM1938 and SH114. Water Purchase and Wastewater Treatment Contracts The Town has a contract with the City of Fort Worth, Texas, to purchase water. Linder the contract, the Town may obtain from the City of Fort Worth, a supply of potable water at a reasonable rate based on water usage. The rate charges arc subject to minimum annual contract payments. Water expense for the year ended September 30, 2006, was $749,920. Risk Management The Town 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 Town's general liability, workers' compensation liability, law enforcement liability, errors and omissions liability, and automobile liability coverage is insured by the Texas Municipal. League, a public entity risk pool. The Town's only responsibility to the Texas Municipal League is to pay premiums for insurance and related deductible amounts of these policies. Other risk of loss is covered by commercial insurance. Settlements of claims have not exceeded coverage in the past three years. Contingent Liabilities Various claims and lawsuits are pending against'the Town. In the opinion of Town management, after consultation with legal counsel, the potential loss on all claims and lawsuits will not materially effect the Town's financial position. Prior Period Adiustments Primary Government Payroll expenditures in the amount of $60,000, which represented the allocation of time spent by staff on SH 114, were paid by the Westlake 4A Corporation fund and recorded in the Capital Project fund, where the project was accounted for at September 30, 2005. The adjustment did not properly recognize the transfers of funds. A prior period adjustment for $60,000 has been recorded in the current year to correct this error. (continued) 52 2. DETAILED NOTES ON ALL FUNDS (Continued) i Component Unit In the August 31, 2005, audit of the College Station Project, an asset impairment charge of $5,641,286 was recorded as a reduction of fixed assets with the offset being an expense on the statement of activities. GASB 42 defines impairment as a significant, unexpected decline in the service utility of a capital asset. It also defines some of the common indicators: • Evidence of physical damage; • Enactment of regulations or changes in environmental factors; i Teclu-iological development or evidence of obsolescence; • Change in the manner or expected duration of use; and • Construction stoppage. In review of the impairment calculation, none of these factors were apparent. The recourse of this is to remove the impairment charge from the balance sheet and show an increase to beginning net assets. 53 THIS PAGE LEFT BLANK INTENTIONALLY REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE LEFT BLANK INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2006 REVENUES Taxes Sales Mixed beverages Franchise Federal program revenues Interest income Building permits and fees Fines and penalties Contributions from others Other miscellaneous income Total revenues EXPENDITURES Current General government and administration Public safety Cultural and recreational Public works Fconomic development Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCE, BEGINNING FUND BALANCE, ENDING General Fund Budgeted Amounts Original Amended 1,320,000 $ 1,525,000 10,500 13,000 362,100 398,752 3,163 3,163 14,590 32,389 900,552 681,810 1,024,100 881,411 50,000 1,300,000 106,262 90,308 3,788,104 4,925,833 Variance Favorable Actual (Unfavorable) 1,810,706 $ 285,706 13,674 674 457,004 58,252 3,163 - 53,585 21,196 748,016 66,206 751,036 ( 130,375) 3,535,698 2,235,698 33,270 { 57,038) 7,406,152 2,480,319 1,486,853 2,545,652 2,386,205 159,447 1,717,898 1,584,269 1,579,810 4,459 114,578 120,299 91,444 28,855 389,940 425,395 434,716 ( 9,321) 35,759 35,759 - 3,709,269 4,711,374 4,527,934 ( 183,440) 78,835 214,459 2,878,218 2,663,759 1,965,337 2,070,381 128,778 ( 1,941,603) { 1,020,190 ( 825,875) ( 659,258) 166,617 945,147 1,244,506 ( 530,480) ( 1,774,986) 1,023,982 1,458,965 2,347,738 888,773 937,426 937,426 937,426 - $ 1,961,408 $ 2,396,391 S 3,285,164 $ 888,773 The accompanying notes are an integral part of these financial statements. 54 THIS PAGE LEFT BLAND INTENTIONALLY TOWN OF WESTLAKE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - WESTLAKE ACADEMY GENERAL FUND FOR THE YEAR ENDED AUGUST 31, 2006 The accompanying notes are au integral part of these financial statements. 55 Variance Budgeted Amounts Favorable Original Amended Actual (Unfavorable) REVENUES State program revenues $ 1,838,101 $ 1,886,206 $ 1,916,394 $ 30,188 Other miscellaneous income 451,200 483,470 491,132 7,662 Total revenues 2,289,301 2,369,676 2,407,526 37,850 EXPENDITURES Education 2,278,741 2,276,092 2,211,897 64,195 Total expenditures 2,278,743 2,276,092 2,211,897 64,195 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 10,560 93,584 195,629 102,045 FUND BALANCE, BEGINNING 232,091 232,091 232,091 - FUND BALANCE, ENDING $ 242,651 $ 325,675 $ 427,720 $ 102,045 The accompanying notes are au integral part of these financial statements. 55 THIS PAGE LEFT BLAND INTENTIONALLY TOWN OF WESTLAKE, TEXAS NOTES TO REQUIRED SUPPLEMENTARY INFORMATION Budgetary Control The Board of Aldermen adopts an annual budget prior to October I for the general and proprietary funds. The annual budget for the general and proprietary funds is prepared in accordance with the basis of accounting utilized by that fund and is legally enacted through passage of an ordinance. The Board of Aldermen throughout the fiscal year can amend the budget. The Combined Schedule of Revenues, Expenditures; and Changes in Fund Balances Budget and Actual --- General Fund and Westlake Academy General Fund presents a comparison of budgetary data to actual results of operations for which the annual operating budget is legally adopted. The general fiend utilizes the same basis of accounting for both budgetary purposes and actual results. Formal budgetary accounting is to be employed as a management control for all funds of the Town. The Town Manager is authorized to transfer budgeted amounts between line items and departments within any fund; however, the Board of Aldermen must approve any revisions that alter the total expenses/expenditures of any fund. 56 THIS PAGE LEFT BLANK INTENTIONALLY INTERNAL CONTROL THIS PAGE LEFT BLANK INTENTIONALLY a =�Xlm 11T4 PATTILLO, BROWN & HILL, L.L_P. CERTIFIED PUBLIC ACCOUNTANTS 11 BUSINESS CONSULTANTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMENTA UDITING STANDARDS INDEPENDENT AUDITORS' REPORT Board of Alderman Town of Westlake, Texas 2650 JT Ottinger Road Westlake, Texas 76262 Members of the Board: We have audited the financial statements of the Town of Westlake, Texas as of and for the year ended September 30, 2006, and have issued our report thereon dated December 14, 2006. 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. Compliance As part of obtaining reasonable assurance about whether the Town of Westlake's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. 57 115 SOUTH CHURCH STREET t HILLSBORO, TX ■ (254) 582-25830 FAX: (254) 582-5731 i www.pbhcpa.com AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 ■ TEMPLE, TX (254) 791-3460 WACO, TX (254) 772-4901 ■ ALBUQUERQUE, NM (505) 266-5904 THIS PACE LEFT BLANK INTENTIONALLY Internal Control Over Financial Reporting In planning and performing our audit, we considered the Town of Westlake's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited nnay occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to the administration of the Town of Westlake, Texas in a separate letter dated December 14, 2006. This report is intended for the information of the Town's Board of Aldennan, the administration„ federal awarding agencies and pass-through entities, and is not intended to be used and should not be used by anyone other than these specified parties. PaIdL j toU.M, 4 V_, �, �, �, December 14, 2006 58 TRIS PAGE LEFT BLANK INTENTIONALLY