GLASGOW ELECTRIC PLANT BOARD
REPORT ON AUDIT OF BASIC
FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
For the Years Ended June 30, 2004 and 2003
GLASGOW ELECTRIC PLANT BOARD
REPORT ON AUDIT OF BASIC FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
TABLE OF CONTENTS
PAGES
Managements’ Discussion and Analysis1-9
Independent Auditor’s Report on Basic Financial Statements 10
Basic Financial Statements:
Statements of Net Assets11-12
Statements of Revenue and Expenses 13
Statements of Change in Net Assets 14
Statements of Cash Flows 15-16
Notes to Basic Financial Statements 17-24
Supplemental Information:
Statements of Revenues and Expenses - Electric Division 25
Schedules of Operation Expenses - Electric Division 26
Schedules of Maintenance Expenses - Electric Division 27
Statements of Revenues and Expenses - CATV Division 28-29 Statements of Revenues and Expenses - LAN/Telephone Division 30
Organization 31
Report on Compliance and on Internal Control Over Financial
Reporting Based on an Audit of Financial Statements Performed
in Accordance with Government Auditing Standards 32
Independent Auditor’s Report On Basic Financial Statements
Glasgow Electric Plant Board
Glasgow, Kentucky 42141
We have audited the accompanying financial statements of Glasgow Electric Plant Board, a component unit of City of Glasgow, Kentucky, as of June 30, 2004, and 2003 and for the years then ended as listed in the table of contents. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 provides a reasonable basis for our opinion.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Glasgow Electric Plant Board, as of June 30, 2004, and 2003 and the results of operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated July 31, 2004, on our consideration of Glasgow Electric Plant Board’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of an audit.
As described in Note 1, the Glasgow Electric Plant Board has implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments, as of June 30, 2004.
Our audit was conducted for the purpose of forming opinions on the basic financial statements taken as a whole. The management’s discussion and analysis on pages 1 through 9 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. The supplementary information on pages 25 through 31 are presented for purposes of additional analysis and is, also, not a required part of the basic financial statements. The Management’s Discussion and Analysis and supplemental information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented, in all material respects, in relation to the basic financial statements taken as a whole.
Gilbert & Gilbert CPA’s
July 31, 2004
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF NET ASSETS
June 30, 2004 and 2003
ASSETS
2004 2003
Utility Plant (Note 1):
Utility plant, net$16,826,882 $16,275,732
Other Property:
Non Utility Property, Net 4,942,566 5,126,298
Utility, Plant and Other Property, Net21,769,44821,402,030
Special Funds:
Depreciation fund (Note 1):
Cash and cash equivalents (Note 4) 7,585 5,371
Total Depreciation Fund 7,585 5,371
Construction Fund:
Cash and cash equivalents (Note 4) 1,208,341 1,603,088
Total Construction Fund 1,208,341 1,603,088
Bond Sinking Fund (Note 1):
Cash and cash equivalents (Note 4) 1,997,014 1,964,235
Total Bond Sinking Fund 1,997,014 1,964,235
Escrow Fund:
Cash and cash equivalents (Note 4) 0 151
Total Escrow Fund 0 151
Total Special Funds 3,212,940 3,572,845
Operating Fund:
Cash and cash equivalents (Note 4)834,525690,171
Accounts and notes receivable (Note 5)2,141,6651,966,878
Net unbilled utility revenue116,206142,434
Materials and supplies, at average cost (Note 1)561,202462,445
Other current assets 269,781 332,250
Total Operating Fund (Current Assets) 3,923,379 3,594,178
Deferred charges (Note 1):
Unamortized debt discount, net of accumulated
amortization of $116,378 in 2004 and $100,820 in 2003454,950470,508
Deferred Expenses-Joint Cost (Note 13)465,244525,444
Other Deferred Charges 52,923 91,374
Total Deferred Charges 973,117 1,087,326
Total Assets$ 29,878,884$ 29,656,379
NET ASSETS & LIABILITIES
2004 2003
Long-Term Liabilities:
Deferred Revenue-Joint Cost (Note 13)465,244525,244
Long-Term Debt (Note 10)14,944,38815,630,134
Total Long-Term Liabilities15,409,63216,155,378
Current Liabilities:
Current portion of long-term debt (Note 10)815,000788,702
Accounts payable1,844,3271,653,868
Accrued vacation (Note 1)169,999152,420
Accrued taxes015,708
Customer deposits528,331565,878
Accrued interest67,34070,771
Other accrued liabilities247,924170,372
Other deferred revenue 7,208 27,954
Total Current Liabilities 3,680,129 3,445,673
Total Liabilities19,089,76119,601,051
Net Assets:
Unrestricted funds$ 1,213,658$ 1,186,617
Reserved for bond ordinances 1,997,014 1,964,235
Capital investments 7,578,451 6,904,476
Total Net Assets10,789,12310,055,328
The accompanying notes are an integral part of the financial statements.
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF REVENUE AND EXPENSES
For the Years Ended June 30, 2004 and 2003
2004 2003 Increase (Decrease)
Operating revenue:
Residential sales $ 4,206,532 $ 4,070,919 $ 135,613
Commercial sales2,144,206 1,907,569 236,637
Industrial sales14,121,778 13,913,900 207,878
Street and outdoor lighting sales 388,404 368,744 19,660
20,860,920 20,261,132 599,788
Other revenue:
Customers forfeited discounts83,348 79,292 4,056
Miscellaneous service revenue112,853 85,258 27,595
Rent from electric property165,561 174,948 ( 9,387 )
Net unbilled electric revenue ( 7,190) ( 6,402 ) ( 788 )
Other electric revenue 98 109 ( 11 )
354,670 333,205 21,465
TOTAL OPERATING REVENUE21,215,590 20,594,337 621,253
Operating expenses:
Purchased power17,123,959 16,561,293 562,666
Operation expenses1,297,340 1,215,588 81,752
Maintenance expenses423,365 408,024 15,341
Depreciation (Note 1)740,658 899,050 (158,392)
Taxes 545,730 525,678 20,052
Amortization of debt discount (Note 1)28,311 25,532 2,779
Other operating expenses 1,828 1,945 ( 117 )
TOTAL OPERATING EXPENSES20,161,191 19,637,110 524,081
Operating income 1,054,399 957,227 97,172
Other income (loss):
Interest income 11,527 18,444 ( 6,917 )
Profit or (loss)on CATV Div. ( 6,891) 24,481 (31,372 )
Profit or (loss)on LAN/Telephone Div. 105,761 31,376 74,385
TOTAL OTHER INCOME (LOSS) 110,397 74,301 36,096
Income (loss) before interest expense 1,164,796 1,031,528 133,268
Interest on long-term debt 407,335 368,594 38,741
Other Interest 23,666 27,380 ( 3,714)
TOTAL INTERESTEXPENSE 431,001 395,974 35,027
NET INCOME $ 733,795$ 635,554 $ 98,241
The accompanying notes are an integral part of the financial statements.
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30, 2004 and 2003
2004 2003
Balance July 1$ 10,055,328 $ 9,419,774
Net Income (Loss) 733,795 635,554
Balance June 30 $ 10,789,123 $ 10,055,328
The accompanying notes are an integral part of the financial statements.
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2004 and 2003
2004 2003
Cash flows from operating activities: Cash received from customers $ 24,835,012 $ 24,193,616 Cash payments for power purchased (17,001,823) ( 16,652,297)
Cash payments to suppliers and employees (5,353,918) ( 4,931,591)
Other cash payments ( 37,547) ( 29,525)
Net cash provided by operating activities 2,441,724 2,580,203
Cash flows from noncapital financing activities: Proceeds from noncapital financing 0 0 Net proceeds from noncapital financing 0 0
Cash flows from capital and related financing activities:
Proceeds from 2003 bond series 0 1,790,000
Additions to Unamortized Bond Discounts 0 ( 26,850)
Amortization of bond discounts 15,558 18,024
Principal payments (678,702) (589,032)
Interest on long term debt (407,335) (368,594)
Other interest ( 23,666) (27,380)
Net Capital expenditures(1,673,527) (1,996,119)
Net cash used in capital and related financingactivities (2,767,672) (1,199,951)
Cash flows from investing activities:
Interest income 11,527 18,444
Profits (losses) from divisions 98,870 55,857
Net cash flows from investing activities 110,397 74,301
Net increase (decrease) in cash and cash equivalents (215,551) 1,454,553
Cash and cash equivalents at beginning of year 4,263,016 2,808,463
Cash and cash equivalents at end of year $ 4,047,465 $ 4,263,016
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF CASH FLOWS-CONTINUED
For the Years Ended June 30, 2004 and 2003
2004 2003
Reconciliation of operating income to net cash
Provided by operating activities:
Operating Income$1,054,399$957,227
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 1,325,363 1,403,363
Change in assets and liabilities:
(Increase) decrease in accounts receivable (174,787) 199,635
(Increase) decrease in materials supplies (98,757) 84,869
(Increase) decrease in other current assets 62,469 (63,924)
(Increase) decrease in deferred charges 38,651 81,821
(Increase) decrease in unbilled revenue receivable 26,228 (7,737)
Increase (decrease) in accounts payable 190,459 (63,917) Increase (decrease) in accrued vacation 17,579 23,909 Increase (decrease) in accrued taxes (15,708) (85,725) Increase (decrease) in other accruals 53,375 80,208 Increase (decrease) in customer deposits (37,547) (29,526)
Net cash provided (used)by operating activities $ 2,441,724 $ 2,580,203Supplemental disclosures of cash flows information:
Cash paid for:
Interest paid 788,512 754,972
The accompanying notes are an integral part of the financial statements.
GLASGOW ELECTRIC PLANT BOARD
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Glasgow Electric Plant Board is presented to assist in understanding the financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
These financial statements present only the Glasgow Electric Plant Board, a component unit of City of Glasgow, Kentucky.
GENERAL:
The Glasgow Electric Plant Board, a nonprofit utility company was created by ordinance of the City of Glasgow enacted on January 6, 1958, and January 7, 1958, respectively, under the provisions of Kentucky Revised Statues 96.550 to 96.900 and the governing board of the utility company is appointed by the City of Glasgow City Council. The Plant Board provides electric service, cable television, internet access, and other miscellaneous services within their service area, to the residents of the City of Glasgow and portions of Barren County, Kentucky.
The Company grants credit to customers in Glasgow substantially all of who are local residents, manufacturing industries, and commercial businesses.
The Company’s accounts are kept in accordance with the provisions of its power contract with the Tennessee Valley Authority and are consistent with the requirements of the Federal Energy Regulatory Commission’s system of accounts. The financial statements are presented on the accrual basis of accounting. The accrual basis of accounting recognizes revenues when earned. Expenses are recorded when incurred.
The company applies Financial Accounting Standards Board pronouncements and Accounting Principle Board (APB) opinions issued before November 30, 1989, unless those conflict with or contradict GASB pronouncements in which GASB prevails.
When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, and then unrestricted resources as needed.
This is the initial year the Glasgow Electric Plant Board has changed its financial reporting to comply with GASB Statement No 34, Basic Financial Statements and managements’ Discussion and Analysis for State and Local Governments. The prior year financial statement information has been adjusted to comply with this new financial reporting model, however since the Plant Board is an enterprise type entity, the changes were not significant.
UTILITY PLANT:
The electric plant in service and under construction as of June 30, 2004, and 2003, is stated substantially at original cost, which includes materials, labor, transportation and such indirect costs as engineering, supervision, employee fringe benefits and capitalized interest, if appropriate. As property units are retired in the ordinary course of business, the cost of the property plus removal cost less salvage, is charged to accumulated depreciation.
DEPRECIATION:
Depreciation is calculated by the straight-line method designed to amortize the cost of various classes of depreciable assets over their estimated useful lives which range from five to forty years.
RESTRICTED ASSETS:
Special Funds include bank accounts that are restricted for construction, funded through long-term debt and other bank accounts for the creation of reserves for depreciation of plant and the retirement of debt. Certain liabilities are payable from restricted assets, such as the current portion of long-term debt and accrued interest related to long-term debt. See note 1 describing the priority for use of restricted and unrestricted assets.
NET WORKING CAPITAL:
Included in current liabilities is the accrued interest on long-term debt of $67,340 as it will be paid during the next fiscal year. However, it will be paid from Bond Sinking Funds, not cash or cash equivalents included as current assets. Adjusting for the above results in a net working capital rate of 1.086.
DEPRECIATION FUND:
The ordinance authorizing the bond issue of the Company requires monthly transfers into a depreciation fund. This fund may be used for the costs of acquiring or constructing extensions, additions, improvements and betterments as capital improvements to the Plant. Until the maximum requirement of $400,000 is reached, $40,000 per year is required to be deposited into the fund. During the year sufficient monies were spent on capital improvements to offset the $40,000 per year requirement, the ending balance in the fund to equal $7,585.
BOND SINKING FUND:
The ordinances authorizing the bond issues of the Company requires monthly transfers into bond sinking funds as follows: (1)one-sixth of the next month interest installment to become due on the Bonds then outstanding, plus (2)one-twelfth of the principal of any Bonds maturing on the next succeeding December 1, plus (3) one-sixtieth of the required sinking fund reserve amount (the maximum annual requirement due in any future years). The minimum required sinking fund reserve is equal to an amount not less than the maximum amount of principal and interest requirement polling due in any twelve month period on all the outstanding bonds or a lesser amount as permitted by code (currently 10% of the principal amount issued of all bonds). The current minimum required sinking fund reserve is $1,445,801 This reserve must be maintained through the life of the issue. As of June 30, 2004, the reserve balance exceeded the maximum annual requirement; therefore, only the monthly transfers to meet the current obligation need to be made.
AMORTIZATION OF DEBT DISCOUNTS:
Amortization of debt discounts is being computed by the straight-line method over 240 months. Amortization for the year ended June 30, 2004, and 2003 was $37,512 and $34,733 respectively, which equaled $28,311 and $25,532 charged to the electric division and $4,942 and $4,942 charged to the cable division and $4,259 and $4,259 charged to LAN division.
UNEMPLOYMENT INSURANCE:
Effective January 1, 1979, the Company became liable for coverage of its employees under the Kentucky Unemployment Insurance Act. The Board has elected not to make quarterly contributions to the Kentucky Unemployment Insurance Fund, but to reimburse the Fund for actual charges against the Company. The Company has elected to set up a partial reserve equal to one year’s contribution based on the current number of employees. This reserve is to be increased as the number of employees increase or as benefits are charged to the Company.
ACCRUED VACATION:
The vacations earned by employees are accrued at their current rate of pay. Annual vacations which may be earned depend upon length of service and range 12 to 18 days annually. There is no limit to the number of vacation days personnel may accrue.
BAD DEBT WRITE-OFF:
The Company uses the direct write-off method for bad debts. Whereby each month accounts over six months old are written off, therefore, no allowance for bad debts has been provided as no material write-offs are expected as of June 30, 2004. Customer deposits are applied against accounts receivable as soon as service is disconnected.
MATERIALS AND SUPPLIES:
Materials and supplies are recorded at cost on an average cost basis.
CASH FLOWS:
For purposes of the statement of cash flows, the Company considers all cash and highly liquid assets with a maturity of three months or less to be cash equivalents, some of which are restricted assets.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Those estimates affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
2.NET ASSETS:
GASB Statement No 34 requires the delineation of Net Assets as Invested in Property. Plant and Equipment (“capital investments”). Restricted and Unrestricted. The balance of capital investments represents funds that have been used to acquire transmission line and plant for electric, cable TV and LAN constructed and operated by the Glasgow Electric Plant Board, net of outstanding debt.
The Plant Board has the following restricted net assets: 2004 2003
Reserved for Revenue Bond Ordinance
The following amounts are reserved in accordance
With the Plant Board’s various Revenue Bond Ordinances: $ 1,997,014 $1,964,235
3. PENSION PLAN:
The Company participates in the County Employee Retirement System (CERS), a defined contribution pension plan for employees who meet certain requirements as to age and length of service. Funding for the Plan is provided through payroll withholdings of 5% and a Company contribution of 7.34% for 2004
and 6.34% for 2003 of gross earnings. The cost of the Plan for the years ended June 30, 2004 and 2003 amounted to $143,371 and $122,299 respectively. Employee contributions to the plan for the year equaled $113,040 ($100,389 regular contributions plus $12,651 voluntary contributions) and $103,990, respectively. The Company’s total payroll for two years was $2,009,843 and $1,931,021 and the Company’s contributions were based on a payroll of $2,007,785 and $1,929,014, respectively. Both the Company and the covered employees made the required contributions. As the Company is only one of several employers participating in the Plan, it is not practical to determine the Board’s portion of the unfunded past service cost or if the vested benefits of the Company’s employees exceed the Company’s portion of the Plan assets. Additional information and ten year historical information may be obtained from the separately issued County Employee Retirement System Annual Financial Report.