GLASGOW ELECTRIC PLANT BOARD
REPORT ON AUDIT OF BASIC
FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
For the Years Ended June 30, 2005 and 2004
GLASGOW ELECTRIC PLANT BOARD
REPORT ON AUDIT OF BASIC FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
TABLE OF CONTENTS
PAGES
Managements’ Discussion and Analysis1-8
Independent Auditor’s Report on Basic Financial Statements9
Basic Financial Statements:
Statements of Net Assets10-11
Statements of Revenue and Expenses 12
Statements of Change in Net Assets 13
Statements of Cash Flows 14-15
Notes to Basic Financial Statements 16-24
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
Management Discussion and Analysis-Fiscal Year 2005
This is the second year the Electric Plant Board has prepared its financial statements according to the Governmental Accounting Standards Board (GASB) Statement 34, “Basic Financial Statements-and Management’s Discussion and Analysis for State and Local Governments.” The standard requires that a “Management Discussion and Analysis” be included in annual audited basic financial statements.
The Glasgow Electric Plant Board’s primary service to the community is electric service. Other services include Cable TV, LAN, and telephone.
RevenuesExpensesIncome
Electric22,032,98121,466,387566,594
Cable TV2,867,3572,831,27536,082
LAN1,119,3561,065,43953,917
Telephone 49,705 45,515 4,190
Total26,069,39925,408,616660,783
The following pages include details and graphs concerning the following subjects:
Revenues: Our revenues for the fiscal year increased to 26,069,399 from 24,261,976 from last fiscal year.
Expenses: Our expenses for the fiscal year increased to 25,408,616 from 24,161,976 from last fiscal year.
Our Largest Expense: Purchased power for Electric increased to 17,752,084 from 17,123,959 last fiscal year. Reflecting the increased usage of our customers.
Programming expense increased to 1,433,898 from 1,440,692 reflecting our increase in number of customers and price increases from our Cable TV programming providers.
Net Profits-Decreased to 660,783 from 733,795 from last fiscal year. Reflecting the decrease electric usage by customers.
Cash Balances-decreased to 2,995,502 from 4,047,466 due to the usage of construction funds for our electric projects during the year.
Plant- increased to 37,868,173 from 36,024,857 due to additions to plant in Electric, Cable TV, and LAN operations.
Customer Deposits-have increased to 540,812 from 528,331.
Bonds Payable-have decreased to 14,845,000 from 15,510,000.
Debt Service Coverage (Times)-remains about the same at the 1.84 level. Our bond requirement is 1.2.
Capital Asset and Long-term Debt Activity-The Glasgow Electric Plant Board is currently in the third year of the Bond-2003 series. We are using 400,000 each fiscal year for our normal capital projects for electric and cable. We have met all deposit requirements to our bond reserve accounts and payments of principal and interest on bonds have been met. There has been no change in credit ratings during this fiscal year.
Our Financial Activities have been very strong for the fiscal year of 2005. Due to strong usage by our electric customers, growth of our Cable TV customers and LAN customers has led to increased cash flow and increased profits. Nothing as of this date is known that will effect our continued growth.
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, 2005, and 2004 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, 2005, and 2004 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 25, 2005, 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.
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 8 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 25, 2005
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF NET ASSETS
June 30, 2005 and 2004
ASSETS
2005 2004
Utility Plant (Note 1):
Utility plant, net$17,622,053 $16,826,882
Other Property:
Non Utility Property, Net 4,720,657 4,942,566
Utility, Plant and Other Property, Net22,342,71021,769,448
Special Funds:
Depreciation fund (Note 1):
Cash and cash equivalents (Note 4) 8,726 7,585
Total Depreciation Fund 8,726 7,585
Construction Fund:
Cash and cash equivalents (Note 4) 790,858 1,208,341
Total Construction Fund 790,858 1,208,341
Bond Sinking Fund (Note 1):
Cash and cash equivalents (Note 4) 1,984,673 1,997,014
Total Bond Sinking Fund 1,984,673 1,997,014
Escrow Fund:
Cash and cash equivalents (Note 4) 1 0
Total Escrow Fund 1 0
Total Special Funds 2,784,258 3,212,940
Operating Fund:
Cash and cash equivalents (Note 4)211,244834,525
Accounts and notes receivable (Note 5)2,600,8312,141,665
Net unbilled utility revenue167,090116,206
Materials and supplies, at average cost (Note 1)532,311561,202
Other current assets 490,908 269,781
Total Operating Fund (Current Assets) 4,002,384 3,923,379
Deferred charges (Note 1):
Unamortized bond costs, net of accumulated
amortization of $134,636 in 2005 and $116,378 in 2004487,101454,950
Deferred Expenses-Joint Cost (Note 13)210,244465,244
Other Deferred Charges 23,528 52,923
Total Deferred Charges 720,873 973,117
Total Assets$ 29,850,225$ 29,878,884
NET ASSETS & LIABILITIES
2005 2004
Long-Term Liabilities:
Deferred Revenue-Joint Cost (Note 13)210,244465,244
Long-Term Debt (Note 10)14,293,12314,944,388
Total Long-Term Liabilities14,503,36715,409,632
Current Liabilities:
Current portion of long-term debt (Note 10)810,000815,000
Accounts payable1,990,9301,844,327
Accrued vacation (Note 1)204,223169,999
Accrued taxes00
Customer deposits540,812528,331
Accrued interest63,32567,340
Other accrued liabilities267,256247,924
Other deferred revenue 20,406 7,208
Total Current Liabilities 3,896,952 3,680,129
Total Liabilities18,400,31919,089,761
Net Assets:
Unrestricted funds$ 1,111,889$ 1,213,658
Reserved for bond ordinances 1,984,673 1,997,014
Capital investments 8,353,3447,578,451
Total Net Assets11,449,90610,789,123
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, 2005 and 2004
2005 2004 Increase (Decrease)
Operating revenue:
Residential sales $ 4,194,232$ 4,206,532$ (12,300)
Commercial sales2,097,4552,144,206 (46,751)
Industrial sales14,692,25214,121,778570,474 Street and outdoor lighting sales 387,118 388,404 (1,286)
21,371,05720,860,920 510,137
Other revenue:
Customers forfeited discounts91,40083,3488,052
Miscellaneous service revenue117,251112,8534,398
Rent from electric property373,099165,561207,538
Net unbilled electric revenue37,331 (7,190)44,521
Other electric revenue 150 98 52
619,231 354,670264,561
TOTAL OPERATING REVENUE21,990,28821,215,590774,698
Operating expenses:
Purchased power17,752,08417,123,959628,125
Operation expenses 1,450,6071,297,340153,267
Maintenance expenses423,742423,365377
Depreciation (Note 1)775,325740,65834,667
Taxes620,859545,73075,129
Amortization of debt discount (Note 1) 29,85528,3111,544
Other operating expenses 684 1,828 (1,144)
TOTAL OPERATING EXPENSES21,053,15620,161,191891,965
Operating income 937,132 1,054,399 (117,267)
Other income (loss):
Interest income42,69311,52731,166
Profit or (loss) on CATV Div.36,082 (6,891)42,973
Profit or (loss) on LAN53,917105,761 (51,844)
Profit or (loss) on Telephone Div. 4,190 0 4,190
TOTAL OTHER INCOME (LOSS) 136,882 110,397 26,485
Income (loss) before interest expense 1,074,0141,164,796 (90,782)
Interest on long-term debt390,882407,33516,453
Other Interest 22,349 23,666 1,317
TOTAL INTERESTEXPENSE 413,231 431,001 17,770
NET INCOME$ 660,783$ 733,795 $ (73,012)
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, 2005 and 2004
2005 2004
Balance July 1$ 10,789,123 $ 10,055,328
Net Income (Loss) 660,783 733,795
Balance June 30$ 11,449,906$ 10,789,123
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, 2005 and 2004
2005 2004
Cash flows from operating activities: Cash received from customers $ 25,508,110 $ 24,835,012 Cash payments for power purchased (17,645,428) (17,001,823) Cash payments to suppliers and employees (6,028,804) (5,353,918) Other cash payments 0 (37,547) Net cash provided by operating activities 1,833,878 2,441,724
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 2004 bond series845,0000
Additions to Unamortized bond cost (50,409)0 Additions to Unamortized bond discounts (10,563) 0
Amortization of bond cost18,258 0 Amortization of bond discounts 19,298 15,558 Principal payments (1,510,000) (678,702)
Interest on long term debt (390,882) (407,335)
Other interest (22,349) ( 23,666)
Net Capital expenditures (1,921,076) (1,673,527)
Net cash used in capital and related financingactivities (3,022,723) (2,767,672)
Cash flows from investing activities:
Interest income42,69311,527 Profits (losses) from divisions 94,189 98,870
Net cash flows from investing activities 136,882 110,397
Net increase (decrease) in cash and cash equivalents (1,051,963) (215,551)
Cash and cash equivalents at beginning of year 4,047,465 4,263,016
Cash and cash equivalents at end of year $ 2,995,502$ 4,047,465
GLASGOW ELECTRIC PLANT BOARD
STATEMENTS OF CASH FLOWS-CONTINUED
For the Years Ended June 30, 2005 and 2004
2005 2004
Reconciliation of operating income to net cash
Provided by operating activities:
Operating Income$ 937,132$ 1,054,399
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation1,347,8141,325,363 Change in assets and liabilities:
(Increase) decrease in accounts receivable (459,166) (174,787)
(Increase) decrease in materials supplies 28,891 (98,757) (Increase) decrease in other current assets (221,127) 62,469
(Increase) decrease in deferred charges 29,39538,651 (Increase) decrease in unbilled revenue receivable (50,884) 26,228 Increase (decrease) in accounts payable 146,603 190,459 Increase (decrease) in accrued vacation 34,224 17,579
Increase (decrease) in accrued taxes0 (15,708)
Increase (decrease) in other accruals28,51553,375 Increase (decrease) in customer deposits 12,481 (37,547) Net cash provided (used)by operating activities $ 1,833,878 $ 2,441,724 Supplemental disclosures of cash flows information:
Cash paid for:
Interest paid$ 762,289$ 788,512
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 second year the Glasgow Electric Plant Board has complied the requirements of GASB Statement No 34, Basic Financial Statements and managements’ Discussion and Analysis for State and Local Governments.
UTILITY PLANT:
The electric plant in service and under construction as of June 30, 2005, and 2004, 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.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 $8,726.
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 $ This reserve must be maintained through the life of the issue. As of June 30, 2005, 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, 2005, and 2004 was $39,056 and $37,512 respectively, which equaled $29,855 and $28,311 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
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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, 2005. 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.