COMMONWEALTH OF PUERTO RICO
METROPOLITAN BUS AUTHORITY
Financial Statements
for the years ended
June 30, 2000 and 1999
TABLE OF CONTENTS
3
Independent Auditors' ReportBalance Sheets
Statements of Revenues and Expenses
Statements of Changes in Capital Accounts
Statements of Cash Flows
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
Hon. Sergio L. González Quevedo, Secretary
Department of Transportation and Public Works
Commonwealth of Puerto Rico
We have audited the accompanying balance sheets of the Commonwealth of Puerto Rico Metropolitan Bus Authority as of June 30, 2000 and 1999, and the related statements of revenues and expenses, changes in capital accounts, and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 audits provide a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the component unit and are not intended to present fairly the financial position and results of operations of the Commonwealth of Puerto Rico, in conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Commonwealth of Puerto Rico Metropolitan Bus Authority as of June 30, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
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License No. 22
Expires December 1, 2001
November 15, 2000
COMMONWEALTH OF PUERTO RICOMETROPOLITAN BUS AUTHORITY
(A Component Unit of the Commonwealth of Puerto Rico)
Assets
June 30,
2000 / 1999
Current assets
Cash and cash equivalents, whose use is limited (notes 1 and 2) / $ 7,807,598 / $ 13,582,683
Receivables
Federal Government appropriations and grants (notes 1, 4 and 8) / 4,902,052 / 2,892,247
Commonwealth of Puerto Rico appropriations and grants (notes 1, 6 and 8) / 5,435,026 / 3,666,231
Other / 560,004 / 409,316
Inventory and other prepaid expenses (note 1) / 5,316,254 / 4,643,422
Total current assets / 24,020,934 / 25,193,899
Property and equipment (notes 1 and 6)
Land / 2,569,210 / 2,569,210
Building / 17,749,122 / 12,719,560
Terminals / 2,526,899 / 2,526,899
Buses / 65,668,772 / 56,810,248
Machinery and equipment / 16,463,394 / 14,971,090
104,977,397 / 89,597,007
Less accumulated depreciation / 39,425,831 / 44,561,251
65,551,566 / 45,035,756
Construction in progress / - / 2,620,831
65,551,566 / 47,656,587
Other assets / 42,072 / 42,072
Total Assets / 89,614,572 / 72,892,558
Liabilities and Capital
Current liabilities
Bank overdraft / 1,028,859 / 1,624,872
Notes payable - current maturities (notes 3 and 8) / 18,492,977 / 2,993,262
Accounts payable to suppliers / 11,630,009 / 5,448,627
Accounts payable to Federal Government - current maturities (note 4) / 1,444,485 / 1,444,485
Accrued payroll taxes (note 8) / 1,941,623 / 2,326,961
Salaries and compensation payable (note 1) / 4,452,373 / 4,215,727
Accrued interest payable (notes 3 and 4) / 806,665 / 278,502
Accrual for claim losses (notes 1 and 5) / 311,364 / 370,659
Other accrued expenses / 2,043,219 / 1,787,039
Total current liabilities / 42,151,574 / 20,490,134
Long-term liabilities
Notes payable, net of current maturities (notes 3 and 8) / - / 2,267,386
Accrued loss on contingencies, excluding current portion (note 7) / 850,000 / 850,000
Total liabilities / 43,001,574 / 23,607,520
Commitments and contingencies (notes 5, 6, 7, 8, 9 and 11)
Capital
Contributed capital (notes 1 and 8)
Commonwealth of Puerto Rico / 90,077,686 / 92,760,257
Federal Government / 56,233,409 / 63,823,322
Others sources / 2,270,341 / 2,270,341
148,581,436 / 158,853,920
Less: depreciation and retirements of assets acquired
with capital contributions / (53,935,374) / 60,135,132
Net contributed capital / 94,646,062 / 98,718,788
(Deficit) / (48,033,064) / (49,433,750)
Total capital / 46,612,998 / 49,285,038
Total liabilities and capital / $ 89,614,572 / $ 72,892,558
COMMONWEALTH OF PUERTO RICO
METROPOLITAN BUS AUTHORITY
(A Component Unit of the Commonwealth of Puerto Rico)
Statement of Cash Flows
Years Ended
June 30,
2000 / 1999
Cash flows from operating activities
Operating (loss) before government subsidies / $0 / ($27,003,853)
Adjustments to reconcile operating (loss) before
government subsidies to net cash provided by
(used in) operating activities
Depreciation
Transferred to deficit / - / 1,855,819
Transferred to contributed capital / - / 3,428,309
Capital expenditures charged to expense / (731,726) / (406,544)
(Increase) decrease in accounts receivable / (3,929,288) / 2,358,982
Decrease (increase) in inventories and other prepaid expenses / (672,833) / (781,681)
Decrease (increase) in other assets / - / 21,257
Decrease (increase) in accrued interest payable / 528,163 / (340,235)
Increase (decrease) in accounts payable to suppliers / 6,181,382 / 181,938
Increase in accrued payaroll taxes / (385,338) / (37,009)
Increase (decrease) in salaries and other compensation payable / 236,646 / (163,226)
Decrease in accrual for claim losses and losses on contingencies / (59,295) / (114,682)
Increase (decrease) in other accrued expenses / 256,180 / 469,352
Total adjustments / 1,423,891 / 6,472,280
Net cash provided by (used in) operating activities / 1,423,891 / (20,531,573)
Cash (used) in investing activities
Acquisition of property and equipment / (23,170,170) / (10,931,397)
Cash flows from non-capital financing activities
Increase (decrease) in bank overdraft / (596,013) / 1,047,647
Government subsidies / - / 23,917,084
Net cash provided by non-capital financing activities / (596,013) / 24,964,731
Cash flows from capital and related financing activities
Contributed Capital
Commonwealth of Puerto Rico / 129,215 / 5,007,318
Federal Government / 1,562,333 / 6,472,162
Return of capital to federal government / (832,005) / -
Borrowings under line of credit / 13,361,544 / 1,510,000
Repayments of long-term debt / (129,215) / (3,854,318)
Net cash provided by (used in) capital and related financing activities / 14,091,872 / 9,135,162
COMMONWEALTH OF PUERTO RICO
METROPOLITAN BUS AUTHORITY
(A Component Unit of the Commonwealth of Puerto Rico)
Notes to Financial Statements
June 30, 2000
Note 1 - Organization and summary of significant accounting policies
The Metropolitan Bus Authority (the Authority) is a public corporation and instrumentality of the Commonwealth of Puerto Rico, created by Act No. 5 of May 11, 1959, as amended, to provide, develop, manage and maintain a public low cost land transportation system for citizens within the Metropolitan Area of San Juan, Bayamón, Carolina, Guaynabo, Cataño, Toa Baja and Trujillo Alto, Puerto Rico. This service is principally financed by the Commonwealth of Puerto Rico and the Federal Government appropriations and by passenger fares. The Authority is exempt from the payment of any taxes on its revenues and properties.
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The accounting and reporting policies of the Authority conform to generally accepted accounting principles. The following is a summary of the significant accounting policies:
Reporting entity
The Metropolitan Bus Authority financial statements are included, as a discretely presented component unit, within the Commonwealth of Puerto Rico reporting entity since the Commonwealth of Puerto Rico is the governing body of the Metropolitan Bus Authority.
Accounting for appropriations and grant awards
Appropriations to subsidize operations are recorded as revenue as realized in the period stated in the grants.
Grants from the Commonwealth and Federal governments for the acquisition of equipment, facilities and technical studies and payments of principal of certain outstanding debts are recorded as contributed capital when committed or received in accordance with the terms of the grant awards. Depreciation and retirement of assets acquired with contributed capital are deducted directly from the related capital account.
Inventory
Inventory is stated at the lower of cost (moving average) or market. Inventory consists of materials, spare parts, tires, fuel and oil.
Property and equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. Expenditures for major renewal and betterment, which extend the useful lives of the assets, are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, ranging from five to forty years.
Accrual for claim losses
An accrual for claim losses is established to cover the estimated settlement costs of claims against the Authority. The accrual, while believed to be adequate by management, is necessarily based upon estimates (note 5).
Vacation and sick leave
Employees earn annual vacation leave at the rate of thirty (30) days per year up to a maximum permissible accumulation of sixty (60) days for regular employees and ninety (90) days for management. Employees accumulate sick leave at the rate of eighteen (18) days per year. Sick leave is payable each year for the excess of one hundred ninety five (195) hours accrued as of each November 30. Maximum permissible accumulation is twenty-six (26) days.
Use of 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risk Financing
The Authority carries commercial insurance to cover for casualty, theft, claims and other losses. The current insurance policies have not been cancelled or terminated. The Authority also pays premiums for workmen compensation to another component unit of the Commonwealth of Puerto Rico.
Statement of cash flows
For purposes of the statement of cash flows, the Authority consider currency on hand, demand deposits and highly liquid investments purchased within three months or less from maturity to be cash equivalents.
Note 2 - Cash and cash equivalents
The Authority is authorized to deposit only in institutions approved by the Department of the Treasury of the Commonwealth of Puerto Rico. Such deposits should be kept in separate accounts in the name of the Authority.
As established by Statement No. 3 of the Governmental Accounting Standards Board, there are three categories of credit risk that apply to the Authority’s cash and cash equivalents. These are the following:
1. Insured or collateralized with securities held by the Authority or by the Authority’s agent in the Authority’s name.
2. Collateralized with securities held by the pledging financial institution’s trust department or the Authority’s agent in the Authority’s name.
3. Uncollateralized
At June 30, the Authority's cash per bank balance and carrying amounts, have been classified as follow:
2000 / 1999Cash in bank
Category 1 / $100,321 / $ 100,466Category 2 / 499,598 / 1,461,527
Category 3 / 7,178,088 / 11,972,281
7,778,007 / 13,534,274
Carrying amount / $7,807,598 / $13,582,683
The Authority received at June 30, 1999, respectively, a legislative contribution of approximately $5,007,000, invested in certificates of deposit, whose use is limited for renewal of facilities, acquisition of buses, purchase of equipment and parts, paving of facilities, improvements of radio communications system, implementation of an environmental project and matching of funds.
Note 3 - Notes payable
Notes payable at June 30, consist of the following:
2000 / 199910% financing agreement with the bank, payable in one (1) installment of $2,862,644 and ten (10) equal installments of $2,865,508 annually including interest up to the balance of the agreement through June 30, 2000. Accrued interest on this note was $12,922 at June 30, 1999. / $ - / $ 129,215
6% non-revolving line of credit with the bank, due on September 1999, accrued interest on this note was $104,318 and 12,080 at June 30, 2000 and 1999, respectively. / 1,510,000 / 1,510,000
7% note payable to the Government Development Bank for Puerto Rico, due on September 30, 2003 and payable in equal payments of $1,480,317, including interest and a final payment of $1,318,676. Accrued interest on this note was $412,217 and $253,500 at June 30, 2000 and 1999, respectively. / 3,621,433 / 3,621,433
5.27% variable interest loan payable to the Government Development Bank for Puerto Rico, due on September 30, 2001 and payable at due date in full. Accrued interest on this loan was $290,130 at June 30, 2000. / 13,361,544 /
-
Long-term debt / 18,492,977 / 5,260,648
Less current maturities
/ 18,492,977 / 2,993,262Long-term debt, net of current maturities / $ - / $2,267,386
Details of long-term debt current maturities for the following three (2) years after June 30, 2000 follows:
June 30 /Amount
2001 / $18,492,977Note 4 - Accounts payable to Federal government
During April 1988, the Federal Transit Administration (FTA), formerly the Urban Mass Transportation Administration (UMTA), based on interpretations made by its Third Party Contract Review Board (TPCRB), questioned the procurement procedures utilized by the Authority for the purchase in February 1988 of fifty-nine buses and requested the reimbursement of $7,042,164 in Federal funds used to purchase these buses. The Authority appealed the interpretations made by FTA and TPCRB, and formally requested a reconsideration to demonstrate that the procurement process was objectively conducted. The TPCRB ratified its initial interpretation and the Authority formally appealed to the Administration.
As a result of the aforementioned interpretation, FTA withheld a request for funds of $6,342,860 that relate to the operating assistance for fiscal year 87-88. On October 4, 1988, the Authority signed an agreement with FTA whereby they agreed to release the operating funds withheld in exchange for a repayment schedule. The repayment schedule requires that the Authority reimburses the $7,042,164 in eight equal installments of $880,270 plus interest at a 6% annual rate commencing on January 1, 1989 up to October 1, 1990. As stated in the agreement, the Authority does not relinquish the further seeking of FTA concurrence on the referenced procurement project.