2012 Financial Statement

City of Pell City, Alabama

Financial Statements

September 30,2012

City of Pell City, AlabamaTable of Contents

September 30, 2012

lndependent Auditors' Report

Management Discussion and Analysis

Basic Financial StatementsGovernment-wide Financial Statements:

Statement of Net Assets

Statement of Activities

Fund Financial Statements:

Balance Sheet - Governmental Funds

Reconciliation of the Governmental Funds Balance Sheet to theStatement of Net Assets

Statement of Revenues, Expenditures and Ghanges in Fund Balances- Governmental Funde

Reconciliation of the Statement of Revonues, Expenditures and Ghangesin Fund Balances of Governmental Funds to the Statement of Activities

Statement of Fund Net Assets - Proprietary Fund

Statement of Revenues, Expenses, and Ghanges in Fund Net Assets- Proprietary Fund

Statement of Gash Flows - Proprietary Fund

Notes to Financial Statements

13

14

1-3

4-12

16

17-18

21

22

23-39

15

19

20

I ndependent Auditors' Report

To the Honorable Mayor, City Managerand Members of the City CouncilPell City, Alabama

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, thebusiness-type activities, the aggregate discretely presented component units, each majorfund, and the aggregate remaining fund information of the City of Pell City, Alabama (the"City"), as of and for the year ended September 30, 2012, and the related notes to thefinancial statements, which collectively comprise the City's basic financial statements aslisted in the table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financialstatements in accordance with accounting principles generally accepted in the UnitedStates of America; this includes the design, implantation, and maintenance of internalcontrol relevant to the preparation and fair presentation of financial statements thatare free from material misstatement, whether due to fraud or error.

Aud itor's Responsibility

Our responsibility is to express opinions on these financial statements based on ouraudit. We conducted our audit in accordance with auditing standards generally accepted inthe United States of America and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the basic financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor'sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. ln making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity's internal control. Accordingly, we express no such opinion. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to providea basis for our audit opinions.

Opinions

ln our opinion, the financial statements referred to above present fairly, in all materialrespects, the respective financial position of the governmental activities, the business-typeactivities, the aggregate remaining fund information of the City as of September 30, 2012,and the respective changes in financial position and, where applicable, cash flowsthereof for the year then ended in accordance with accounting principles generally acceptedin the United States of America.

Other Matters

Req u i red S u pple m entary I nform ation

Accounting principles generally accepted in the United States of America require that themanagement's discussion and analysis and budgetary comparison information on pages 3through 11 and 39 through 41 be presented to supplement the basic financial statements.Such information, although not a part of the basic financial statements, is required by theGovernmental Accounting Standards Board, who considers it to be an essential part offinancial reporting for placing the basic financial statements in an appropriate operational,economic, or historical context. We have applied certain limited procedures to the requiredsupplementary information in accordance with auditing standards generally accepted in theUnited States of America, which consisted of inquiries of management about the methods ofpreparing the information and comparing the information for consistency with management'sresponses to our inquiries, the basic financial statements, and other knowledge we obtainedduring our audit of the basic financial statements. We do not express an opinion or provideany assurance on the information because the limited procedures do not provide us withsufficient evidence to express an opinion or provide any assurance.

Other lnformation

Our audit was conducted for the purpose of forming opinions on the financial statementsthat collectively comprise the City's basic financial statements. The introductory section,combining and individual nonmajor fund financial statements, and statistical section, arepresented for purposes of additional analysis and are not a required part of the financialstatements. The schedule of expenditures of federal awards is presented for purposes ofadditional analysis as required by U.S. Office of Management and Budget Circular A-133,Audits of Sfafes, Local Governments, and Non-Profit Organizations, and is also not arequired part of the basic financial statements.

The combining and individual nonmajor fund financial statements and the schedule ofexpenditures of federal awards are the responsibility of management and were derivedfrom and relate directly to the underlying accounting and other records used to prepare thebasic financial statements. Such information has been subjected to the auditing proceduresapplied in the audit of the basic financial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accountingand other records used to prepare the basic financial statements or to the basic financialstatements themselves, and other additional procedures in accordance with auditingstandards generally accepted in the United States of America. ln our opinion, thecombining and individual nonmajor fund financial statements and the schedule ofexpenditures of federal awards are fairly stated in all material respects in relation to thebasic financial statements as a whole,

The introductory and statistical sections have not been subjected to the auditingprocedures applied in the audit of the basic financial statements and, accordingly, we donot express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards

ln accordance with Governmental Auditing Sfandards, we have also issued a report datedJune 14, 2013 on our consideration of the City's internal control over financial reportingand on our tests of its compliance with certain provisions of laws, regulations, contracts,and grant agreements and other matters. The purpose of that report is to describe thescope of our testing of internal control over financial reporting and compliance and theresults of that testing, and not to provide an opinion on the internal control over financialreporting or on compliance. That report is an integral part of an audit performed inaccordance with Government Auditing Standards in considering the City's internal controlover financial reporting and compliance.

'frao rfuw''d,v c

Pell City, AlabamaJune 14,2013

MANAGEMENT'S DISCUSSION AND ANALYSIS

Our discussion and analysis of the City of Pell City's financial performance provides anoverview of the City's financial activities for the fiscal year ended September 30, 2012. Pleaseread it in conjunction with the City's financial statements, which begin on page 13.

FINANCIAL HIGHLIGHTS

The City's total net assets increased $1.5 million as a result of this year's operations.The net assets of our businesstype activities decreased $ 0.5 million as a result of thisyear's operations, while net assets of our governmental activities increase by $ Zmillion, or 10.8 percent, while net assets of our businesstype activities contracted by2.6 percent.

Total cost of all of the City's programs increased by $1 ,690,655 or almost 10 percent.

The General Fund revenues received during the 2012 fiscal year were exceeded byexpenditures by $4,068, 1 97.

' At the end of the 2012 fiscal year, the general fund unreserved fund balance was $9.5million, or 68 percent of the total general fund operating expenses before debt service,

Using the Annual Financial Report - An Overview for the UserThe annual financial report consists of five parts - management's discussion and analysis (thissection), the independent auditors' report, the basic financial statements, required supplementaryinformation, and other supplementary information.

The City's basic financial statements are comprised of three components: 1) government-widefinancial statements,2) fund financial statements, and 3) notes to the basic financiat statements.

Government'Wide Financial Sfafemenfs - The focus of these statements is to provide readerswith a broad overview of the City's finances as a whole, similar to a private-sector business,instead of an individual fund basis.

Government-wide statements report both long-term and short-term information about the City'soverall financial status including the capitalization of capital assets and depreciation of allexhaustible capital assets and the outstanding balances of long-term debt and other obligations.These statements report all assets and liabilities perpetuated by these activities using thelccrualbasis of accounting. The accrual basis takes into account all of the City's current year's revenuesand expenses regardless of when cash is received or paid. This approach moves the financialreporting method for governmental entities closer to the financial reporting methods used in theprivate sector.

fhe government-wide financiat statements report is on all of the governmental activities andbusiness-type activities of the City as a whole.

The statement of net assets (on page 13) is most closely related to a balance sheet. lt presentsinformation on all of the City's assets (what it owns) and liabilities (what it owes), with the differencebetween the two reported as net assets. The net assets reported in this statement represent theaccumulation of changes in net assets for the current fiscal year and all fiscal years in the pastcombined. over time, the increase or decrease in net assets ieported in this statement may serveas a useful indicator of whether the financial position of the City is improving or deteriorating.

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The sfafement of activities (on page 14) is most closely related to an income statement. ltpresents information showing how the City's net assets changed during the current fiscal yearonly. All of the current year's revenues and expenses are accounted for in the statementof actiuities regardless of when cash is received or paid. This statement shows gross expensesand offsetting program revenues to arrive at net cost information for each major expense functionor activity of the City. By showing the change in net assets for the year, the reader may be ableto determine whether the City's financial position has improved or deteriorated over the courseof the current fiscal year.

However, the reader will also need to consider non-financial factors, such as changes in theCity's property tax base and the condition of the City's infrastructure assets, in order to assessthe overall health of the City.

Fund Financial Sfafemenfs - A fund is a grouping of related accounts that is used to maintaincontrol over resources that have been segregated for specific activities or objectives. The Cityuses fund accounting to ensure and demonstrate compliance with finance-related legal andinternal requirements. All of the funds of the City can be classified as governmental orproprietary funds.

Governmental Funds - Governmental fund financiat statements begin on page 15. Thesestatements account for basically the same governmental activities reported in the government-wide financial statements. Fund financiat statemenfs presented herein display information oneach of the City's most important governmental funds or major funds. This is iequired in orderto better assess the City's accountability for significant governmental programs or certaindedicated revenue. The City's major funds are the General Fund, and the 2OOO Bridge andSewer Fund (capital projects fund).

The fund financial statements are measured on the modified-accrual basis of accounting. As aresult, the fund financial statements focus more on the near term use and availability ofspendable resources. The information provided in these statements is useful in determining theCity's immediate financial needs. This is in contrast to the accrual-based government-widefinancial statements, which focus more on overall long-term availability of spendable resources.The relationship between governmental activities reported in the government-wide financiatstatements and the governmental funds reported in the fund financial statements arereconciled on pages 16 and 19 of these financial statements. These reconciliations are useful toreaders in understanding the long-term impact of the City's short-term financing decisions.

Proprietary Funds - When the City charges customers for the service it provides these servicesare generally reported in proprietary funds. Proprietary funds are reported in the same way that allactivities are reported in the Statement of Net Assets and the Statement of Activities. ln fact,the City's enterprise funds (a component of proprietary funds) are the same as the business-typeactivities we report in the government-wide statements but provide more detail and additionalinformation, such as cash flows, for proprietary funds.

Alofes to the Basic Financial Sfafemenfs - The nofes to the basic financiat statemenfs provideadditional information that is essential for the statements to fairly represent the City's financialposition and its operations. The notes contain important information that is not part of the basicfinancial statements, However, the notes are an integral part of the statements, not anappendage to them. The nofes to the basic financial statemenfs begin on page 23 in thissection.

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After the presentation of the basic financial statements, the required supplementaryinformation is presented following the notes to the basic financial statements. The requiredsupplementary information beginning on page 40 provides a comparison of the adopted budgetof the City's General Fund to the actual operating results for the fiscal year. The comparisonof this data allows users to assess management's ability to project and plan for its operationsthroughout the year.

Analysis of the city of Pell Gity's overall Financiar positionAs indicated earlier, net assets may serve over time as a useful indicator of a government'sfinancial position. Refer to Table 1 when reading the following analysis of net assets.

Table {: Summary of Net AssetsAs of September 30, 2012

(dollars in thousands)Total

PrimaryGovernment

GovernmentalActivities

Business-typeActivities

Assets:Current and other assetsCapital assets

Totalassets

Liabilities:Other LiabilitiesLong-term liabilities

Total liabilities

Net Assets:lnvested in capital assets,(net of related debt)RestrictedUnrestricted

Total net Assets

2012

$ 40,54215,22555,767

6,46129,90735,368

2011

$ 35,38915,52150,910

5,1 19

27,68732,806

2012

$ 5,68343,74749,430

1,52130,74432,265

2011

$ 6,28742,80849,095

1 ,51029,94431,454

7,98259,65167,633

6,62957,63164,260

2012 2011

$ 46,225 $ 41,67658,972 58,329

105,197 100,005

5,0526,5158,832

$ 20,399

13,2241,2773,603

_$_1_s.LE_

1 '1 ,9152,0283,222

$ 17,165

12,0511,5354,054

$ 17,640

16,9678,543

12,054$ 37,564

25,2752,8127,657

$ 35,744

The city's assets exceeded liabilities by $ 20.4 million at september 30, 2012,

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Net assets invested in capital assets of $5 million reflect the City's investment in capital assets(e.g., land, infrastructure, buildings, improvements other than buildings, fixtures, furniture,equipment and transportation equipment), less accumulated depreciation and debt related to theacquisition of the assets. Since these capital assets are used in governmental activities,this portion of net assets is not available for future spending or funding of operations.

Restricted net assets in the amount of $628,855 represents the net assets of the Four, Five andSeven Cent State Shared Gasoline Tax Funds and distributions from the Alabama Trust Fundrestricted for capital improvements. These net assets have been restricted by enablinglegislation. Unrestricted net assets of $8,831,974 may be used atthe City's discretion to meetongoing obligations to citizens and creditors and for future operations.

The assets of our business-type activities exceeded liabilities by $17.2 million at September30,2012.

Net assets invested in capital assets of $1 1,915,243 reflect the business{ype activitiesinvestment in capital assets (e.g., land, infrastructure, buildings, improvements other thanbuildings, fixtures, furniture, equipment and transportation equipment), less accumulateddepreciation and debt related to the acquisition of the assets. This portion of net assets is notavailable for future spending or funding of operations.

Restricted net assets in the amount of $2,028,046 represents net assets restricted fordebt repayment and impact fees. Unrestricted net assets of $3,222,276 may be used at theCity's discretion to meet ongoing obligations to citizens and creditors and for future operations.

Analysis of the Gity of Pell Gity's Operating ResultsThe results of this fiscal year's operations as a whole are reported in detail in the Statementof Activities on page 14. Table 2 on the next page condenses the results of operations for thefiscal year into a format where the reader can easily see the total revenues of the City for theyear. lt also shows the impact that operations had on changes in net assets as of September30,2012.

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Table 2Ghanges in Net Assets (in Millions)



TotalPrimary

Government

Program revenues:Charges for servicesOperating grants/contributionsCapital grants/contributions

General revenuesTaxeslnvestment earningsMiscellaneousDonations

Total Revenues

Program Expenses:General governmentPublic safetyPublic worksCultural and recreationallnterest on longterm debtTransfers to Board of EduacationDonationsWater and sewer

Total expensesExcess (deficency)before transfers

Transfers

lncrease in net assets

2012 2011 na$ 5,099

2011 2012 2011

$ 7,215

123

tq,iaa116980

$ 3,218

481

14,92272

586

$ 2,618

123

14,166113965

17,985

$ 4,597 $ 8,317

481

tq,ezz75

590J

15J

4

19,279 5J 06 4,615 24,385 22,600

2,5735,91'l1 ,7102,3891,2903,253

194

2,5735,9111,7102,3891,2903,253

1945,567

22,887

1,498

1,8945,9621,5532,0081,1762,896

1605,157

20,806

1,794

1,8945,9621,5532,0081,1762,896

160

--@ 1s^649

1,959 2,336

$ 1,959 $ 2,336 $ 1,498 $ 1,794

5,5675,567

(461)

$ (461)

5,1575,157

(542)

$ (542)

The City's total revenues increased by 7.9 percent ($1,785,000). The total cost of all programsand services increased 10 percent ($2,081 ,000). Our analysis below separately considers theoperations of governmental and busrness-fyp e activities.

Governmental ActivitiesRevenues for the City's governmental activities increased by 7.2 percent $1,294,000, while totalexpenses increased 10.7 percent ($1,671,000).

The cost of all governmental activities this year was $17.3 million compared to $15.6 million lastyear.

Table 3 is a condensed statementtaken from the Statement of Activities on page 14 showing thetotal cost for providing services for five major City activities. Total cost of services is compared tothe net cost of providing these services. The net cost of services is the remaining cost ofservices after subtracting grants and charges for services that the City used to offset theprogram's total cost. ln other words, the net cost shows the financial burden that was placed onall taxpayers for each of these activities. This information allows citizens to consider the cost ofeach program in comparison to the benefits provided.

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Table 3: Net Gost of Government-Wide ActivitiesFiscal Year Ended

September 30,2012(dollars in thousands)

Total CostServices

General government adm inistrationPublic safetyPublic worksCultural and recreationallnterest on long-term debtTotal

2,5735,9111,7102,3891,290

Net Costsof Services$ (52e)

5,4231 ,7102,2811,290

$ '10,17513,873

Busi ness-type ActivitiesRevenues of the City's business-type activities (see Table 2) increased $502,721 andexpenses increased $410,833 or 8 percent.

Performance of Gity FundsAs noted earlier, the City uses fund accounting to control and manage resources in orderto ensure compliance with finance-related legal and internal requirements. Using funds toaccount for resources for particular purposes helps the reader to determine the City'saccountability for these resources whether provided by taxpayers and other entities, and to helpto provide more insight into the City's overall financial health. The following analysis of theCity's funds should be read in reference to the fund financial statemenfs that begin on page 15.

Governmental Funds - The focus of the City's governmental funds is to provide information onnear-term inflows, outflows, and balances of available resources. Such information is useful inassessing the City's financial requirements (Note: the reconciliation statement between the fundfinancial statements and the government-wide financial statements are presented on pages 16and 19). At the end of the fiscal year, the City's governmental funds reported a combined fundbalance of $ t1.6 million, which includes $3,416,977 in reserved fund balance and $ 8 million ofunreserved general fund balance which is available for future operations.

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Budgetary Highlights of the General FundOn or before October 1 of each year, the Mayor prepares and submits an annual budget tobe adopted by the City Council. The comparison of general fund budget to the actual resultsis detailed in the "Statement of Revenues, Expenditures and Changes in Fund Balances -Budget and Actual" on page 40. The City's actual results as compared to the City's budgetcan be briefly summarized as follows:

n Actual revenues for the General Fund were over budget by approximately gg71,000 or5.4o/o.

! Actual expenditures for the General Fund were over budget by $2.+ million or 34 percent.

CAPITAL ASSET AND DEBT ADMINISTRATION

GapitalAssetsAt the end of 2012, the City had $59 million invested in a broad range of capital assets, includingpolice and fire equipment, buildings, park facilities, roads, bridges, and water and sewer lines.(See Table 4 below.) This amount represents a net increase (including additions and deductions)of $ .6 million, or 1 percent, over last year.

Table 4Gapital Assets (net of accumulated depreciation)

(in thousands)


BusinesstypeActivities Total

2012 2011 2012 2011 2012 2011T-TAe m4e T '1185 fT/85 T- 1p34 T-1"ffi4

4,419 11,780 4,419

Land

Construction in ProgressBuildingsOther improvementsEquipment

Vehicles and motorized equipmentlnfrastructureWater and sewer distribution systemsCapital assets, net of depreciation

9,213 9,9581,491 1,420

448 6001,075 1,1742,649 2,423

435 479 1,510

11,7809,5601,420

6001,650

2,649 2,423

: 37,408 29,062 37,408 29,062$ 15,225 $ 15,924 $ 43,749 $ 42,808 $ 58,974 $ 5E329

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DebtAt year-end, the City had $ 63.3 million in bonds and notes outstanding versus $ 60.3 millionlast year-an increase of 5 percent-as shown in Table 5.

Table 5Outstanding Debt at Year-end (in thousands)


Business-typeActivities Primary

Total

2012 2011 2012 2011 2012 2011

Bondsandnotespayabte m- @ 81256 -$30.006 W F248Capital leases 40 83 576 751 616 834Compensated absences 327 196 25 18 352 214

rotars ffi-il TZ5sz W Tmlzs T6q3a2 -S60'296-

While the $ 62.4 million of General Obligation Bonds are a legal obligation of the City, it isimportant to note that due to a funding agreement with the City of Pell City, Board ofEducation, the City is obligated for future debt service on only $ 40.9 million of this debt.

A favorable bond rating facilitates the City's ability to meet financial obligations.Standards and Poor's Rating Service assigned the City of Pell City a rating of AA in March2012.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

The City's elected and appointed officials considered many factors when setting the fiscal-year 2012 budget, tax rates, and fees that will be charged for the business-type activities. Oneof those factors is the economy.

The City's unemployment rate now stands at7.5 percent versus 8.2 percent a year ago. Thiscompares with the State's unemployment rate of 8,7 percent.

The economy in the area continues to gradually improve. The local Hospital Authority has builta new facility and the Veterans Administration has also built a veterans retirement facilitylocated in Pell City.

Goals for 2013:

The City's management has implemented the new accounting software called INCODE. Thissoftware will include Police, Court, Revenue, Planning & Zoning, Utility, Street, Park andRecreation and Accounting with the expectations of alleviating unnecessary accountingentries, strengthening internal controls, and providing opportunity for growth. Management willcontinue to convert their systems to the new computer software during the year.

The City is also involved in a continuing project to repair and upgrade its waste watersewer system and hopes these projects will be substantially completed by fiscal yearSeptember 2013.

andend

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CONTAGTING THE CITY'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, and investors and

creditors with a general overview of the City's finances and to show the City's accountability forthe money it receives. lf you have questions about this report or nee! additional financialinformation, contact the City of Pell City's City Manager's Office, 1905 1ot Avenue North, Pell

City, AL 35125.

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September 30,2012


Government-wide Statement of Net Assets

Governmental Business-tyPeActivities Activities Total

AssetsCashCertificate of depositAccounts receivable, netNotes receivableAccrued interest receivableOther receivablelnventory and other assetslnternal receivableRestricted assetsUnamortized bond costs

$ 15,247,0081,836,0751,'194,051

20,984,6021,571

93,512

srg,izz

$ (1,023,723)

380,352

gg+,ogs

238,0783,047,6782,028,046

618,852

$ 14,223,2851,836,0751,574,403

20,984,6021,571

394,095331,590

3,047,6782,547,473

665,728 1,284,58040,541,974

-

5,683,378 46,225,352Capitalassets

Construction in progressLand 348,773 1,484,942Capital assets, net of accumulated depreciation 14,876,570 42,262,137

1 ,833,71557,138,707

Total capitalassets 15,225,343 43,747,079 58,972,422Total assets 55.767.317 49.430,457 105,197,774

LiabilitiesBank overdraftAccounts payablelnternal payableCourt payables and bonds heldSalaries and benefits payableTaxes payableDeposits from othersAccrued interest payableLong-term Iiabilities:

Portion due or payable within on year:

Bonds and notest payableCapital leasesCompensated absences

Portion due or payable after one year:Bonds and notes payableLoss on defeasement of bondsCapital leasesCompensated absences

787,8473,047,678

42,156320,900

172,078

1,829,82031,992

228,953

29,287,867(486,835)

8,21298, I 23

rcz,i_o+

29,80542,114

264,205237,322

474,570287,931

17,569

30,781,404(332,792)287,931

7,529

955, 1 5'1

3,047,67842,156

350,70542,114

264,205409,400

2,304,390319,923246,522

60,069,271(819,627)296,143105,652

Total Liabilities 35,368,791 32,264,892 67.6!!,6!3Net assets

lnvested in capital assets, net of related debtNonspendable:

lnventoryRestricted for:

Road projectsOther purposes

5,052,054

93,512

628,8555,792,131

11,915,243 16,967,297

- 93,512

2,028,046628,855

7,820,177Unrestricted 8,831,974 3,222,276 12,054,250

See notes to financial statements.-1 3-


Government-wide Statement of Activities

Year ended September 30, 2012 Program Revenues

Program ActivitiesGharges for Operating Grants and

Expenses Services and Contributions ContributionsPrimary governmentGovernmental activities:

General governmentPublic safetyPublic worksCultural and recreationallnterest on longterm debt

2,572,603 2,646,8915,91 1,295 488,5291,709,9762,389,279 82,2491,289,536

454,6_09

25,799

Total governmental activities '13,872,689 3,217,669 480,408Business-type activities:

Utility fund 5,567,569 5.099.227Total businesstype activities 5,567,569 5,099,227 - -

Total 19,440,258 8,316,896 - 480,408

General revenues:

Taxes:Ad Valorem(real and personal property)Sales and useOther taxes

lnvestment earningsMiscellaneous revenuesTransfers to Board ofEducationDonations

Total general revenuesGhange in net assets

Net assets - beginningNet assets - ending

See notes to financial statements.

Net (Expense)Revenue andChange in Net

Assets

Net (Expense)Revenue andGhanges inFund NetAssets

Governmental Business-TypeActivities Activities Total

528,897(5,422,766)(1,709,976)(2,281,231)(1,289,536)

528,897(5,422,766)(1,709,976)(2,281,231)(1,289.536)

(10,174,612) (10,174,612\

(468,342\ u68.342\

rc

741,69413,516,077

664,14572,015

586,1 1 5

(3,252,714)(193,s58)

2,9154,085

741,69413,516,077

664,14574,930

590,200

(3,252,714)(193,558)

12,133,774 7,000 12,140,7741 ,959,162 (461 ,342) ,497,820

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18,439,364 17,626,907 36,066,27120,398,526 17,165,565 37,564,091

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Balance Sheet - Governmental Funds

General andSewer Governmental GovernmentalFund Fund Funds Funds

AssetsCashCertificates of depositRestricted assetsAccounts receivableslnternal receivablesAccrued interest receivables

$ 8,052,758 $1,836,075

1 ,194,051

1,571

73,790 $

506,761

7,120,460 $

12,666

15,247,0081,836,075

519,4271,194,051

1,57193,512lnventory and other assets 93,512

Total aesets 11,177,967 580,551 7,133,126 18,891,644

Liabilities and fund balancesLiabilities

Bank overdraftsAccounts payableslnternal payablesAccrued liabilitiesOther current liabilities

zqg,iza264,113320,900

1,881,086

ge,eog

4,000,000

42,155

zaz,iqz6,1 45,1 99

320,90042,155

Total liabilities 1,334,491 1,881,086 4,080,524 7,296,101

Fund balancesNonspendable:

lnventoryRestricted for:

Road surface repairsDebt serviceOther capital projectsOther purposes

Unassioned:otalfund balance

Total liabilities

93,5'12

628,85512,666

592,3691,818,712

1,300,5359.843.476 1.300,535 3,052.602 '1 '1,595,543

11,177 ,967 580,551 7,133,126 18,891,644

270,8639,479,101

93,512

628,85512,666

592,3692,089,5758,178,566

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Reconciliation of the Governmental Funds Balance Sheetto the Statement of Net Assets

Year ended September 30, 2012

Fund balance - total governmental funds

Amounts reported for governmental activities in thestatement of net assets are different because:

Long-term receivables are not due and payable in the currentperiod and therefore are not reported in the balance sheet.

$ '11,595,543

Due from Pell City Board of Education 20,984,602

Deferred items related to debt issuance used in governmentalactivities are not current financial resources and therefore arenot reported in the governmental funds balance sheet.

Unamortized bond issuance costs 665,728

Capital assets used in governmental activities are not currentfinancial resources and therefore are not reported in thegovernmental funds balance sheet.

Governmental capital assetsAccum ulated depreciation

Long-term liabilities are not due and payable in the current period andtherefore are not reported in the governmental funds balance sheet.

Warrants, notes and capital leases payableCompensated absencesAccrued interest payableDeferred loss on defeasence of bondslnternal balances

Net assets of governmental activities

See notes to financial statements.-1 6-

25,462,164(10,236,821) 15,225,343

(31 ,157,8e1)(327,076)(172,078)486,835

3,097,520 (28,072,690)

$ 20,398,526

Statement of Revenues, Expenditures and


Changes in Fund Balances- Governmental Funds

Year ended September 30,2012General

Fund

2006Bridge andSewer Fund

NonmajorGovernmental

Funds

TotalGovernmental

Funds

RevenuesTaxesLicenses and permitsFines and forfeituresCharges for servicesI ntergovernmental revenueGrantsOther revenues

14,921,916 $322,856

1,68682,249

1,869,438

624,003 5,768

$$

486,843

qsq,iez480,408

28,359

14,921,916322,856488,529

82,2492,324,035

480,408658, I 30

Total revenues 17,822,148 5,768 1,450,207 19,278,123

ExpendituresAdm inistrative and generalShop and streetCourtPoliceFireParks and recreationLibraryPlanningRevenueSenior citizensDebt service:

Principallnterest

1,378,4441 ,441 ,771

278,0552,825,7252,728,5091,212,398

291,548178,077214,869104,304

9,033,'1961,274,128

48,470 8,730

200,1 00

sz,iaq

362,351

.

67,28715,408

1,435,6441 ,441 ,771

478,1552,825,7252,780,9931,212,398

653,899178,077214,869104,304

9,100,4831,289,536

Capitaloutlay 929,321 - 923_,U1_

Excess of revenuesover expenditures (4,068,197)$ (42,702)$ 743,847 $ (3,367,052)

(Continued on the following page.)See notes to the financial statements.

-17-


Statement of Revenues, Expenditures and Changes in Fund BalancesGovernmental Funds (continued)

Year ended September 30, 201 1

2006 Nonmajor TotalGeneral Bridge and Governmental GovernmentalFund SewerFund Funds Funds

Other financing sources (uses)Transfer to Board of EducationReceived by City for debt repaymentProceeds from long{erm debtDonations received

$ (4,101,6s3) $1,448,9397,430,843

17,047

- $ (4,101 ,653)- 1,448,939- 7,430,843- 17,047

Donations made (210,605) - - (210,605)

sources (uses) 4,584.571 - 4,584,571

Excess of revenues and other financingsources over (under) expenditures andother financing uses 516,374 (42,702) 743,847 1,217,519

Fund balance 9,327,102 1,257,9,843,476 $

2.308,7551,300,535) $ 0s2,602 $ 11,595,543

024

See notes to financialstatements.-1 8-


Reconciliation of the Statement of Revenues, Expenditures and Changesln Fund Balances of Governmental Funds to Statement of Activities

Year ended September 30,2012

Net change in fund balances - total governmental funds

Amounts reported for governmental activities in the statementof activities are different because:

Capital outlay, reported as expeditures in governmental funds,is shown as capital assets in the staement of activities.

Depreciation expense on governmentalcapital assets included in

the governmental activities in the statement of activities.

Governmental funds report the effect of issuance costs, premiums, discounts,and similar items when debt is first amortized in the statement of activities.

Amortizatron

The issuance of long-term debt provides current financial resources to governmental

funds, but the issuance of this debt increases long-term liabilities in thegovernment-wide statements of net assets.

Repayment of bond principal and other long-term debt is an expenditure in thegovernmental funds, but the repayment reduces long-term liabilities in thestatement of net assets.

General obligation warrants, notes payable and capital leases

Principal payments on warrants piad by the Board of Education are reported as

revenue in the governmental funds, but are reductions of notes receivable in thegovern mental-wide statement of activities.

Some expenses reported in the government-wide statement of activities do not

require the use of current financial resources and therefore are not reported as

expenditures in governmental funds.Compensated absencesAccrued interest

Ghange in net assets of governmental activities

See notes to financial statements.,1 9-

$ 1,217,519

929,321

(1,175,583)

(136,5e1)

(7,430,843)

9,100,483

(512,673)

(131,226)98,755

$ 1 ,959,162


Statement of Fund Net Assets - Proprietary Fund

Year ended September 30,2012 Utility Fund

AssetsCurrent assets

CashReceivables, netOther receivableslnventoryBond issuance costslnterfund balances

$ (1,023,723)380,352394,095238,078618,852

3,047,678

Total current assets 3,655,332Noncurrent assets

Restricted cash and investmentsCapital assets:Construction in progressLandCapital assets, net of accumulated depreciation

2,028,046

4,418,9091,484,942

37,843,228Total noncurrent assets 45,775,125

TotalAssets $ 49,430,457


Utilitv Fund

LiabilitiesGurrent liabilities

Accounts payableSalaries and benefits payableUtility tax payableDeposits from othersAccrued interest payableBonds, notes payable and capital leases

Bonds, notes payable and capital leases, netDeferred Loss on Defeasance

Compensated absences 17,569Totalcurrent liablilities '1 ,520,820

Noncurrent liabilities

$ 167,30429,80542,114

264,205237,322762,501

31,069,335(332,792)

Compensated absences 7,529Total noncurrent liabilities 30,744,072

Total liabilities 32,264,892Net assets

Unrestricted 15,137,519Temporarily restricted 2,028,046

Total net assets $ 17,165,565

-20-


Statement of Revenues, Expenses and Changes in Fund Net Assets- Proprietary Fund

Year ended September 30.2012revenues

Charges for servicesConnection feeCut-on and read-out feesSewer dump and leachate disposalGarbage billing feePenaltiesMiscellaneous

4,932,26854,7872,235

30020,13689,5014,085

Total operating revenues 5,103,312

Operating expensesPersonnel expensesMaterials and suppliesOther expensesDepreciation expense

647,039694,713

1 ,958,1061,535,679

Total operating expenses 4,835,537

Operatlng lncome 267,775

Non operating revenuelnterest income 2,915lnterest expense (732,032)

Net nonoperating revenue 029,117\Change in net assets (461,342)

17,626,90717,165,565

See notes to financial statements.-21-


Statement of Cash Flows - Proprietary Fund

Year ended September 30,2012 Utilitv Fund

Operating actlvitiesReceipts from customersPayments to suppliersPaynents to employees

$ 5,273,939(2,720,445)

(634,134)Net cash flows provided by operating activlties 1,919,360

lnvestlng actlvltieslnterest and dividends 2.915

Net 9ash flows (used by) capital and related financlng activlties 2,915

Capital and related financlng activitiesPurchases and construction of capital assetsPrincipal paid on capital debtlnterest paid on capital debtProceeds from capital and financing activities

(2,474,719)(517,247)(703,46e)

3,302,295Cost of capital and financing activities (428,470)

Net cash flows (used by) capltal and related flnancing actlvities (821,610)

Noncapital fi nanclng activltleslncrease in due from other funds (902,1 51 )Net cash flows provided by noncapital financing activities (902,151)

Net (decrease) in cash and cash equlvalents 198,514Gash - beginnlng of year 805,809

Cash -end ofyear 1,004,323

Displayed as:CashRestricted cash and investments

(1,023,723)2.028,0461,004,323

Reconciliation of operating income to net cash flowsOperating activities

Operating income

Adjustment to reconcile operating income tonet cash provided by operating activities:

Depreciation expenseDecrease (increase) in current assets:

Receivables, netlnventory

lncrease (decrease) in current liabilities:Accounts payable

Accrued expensesAccrued salaries and benefits

267,775

1,535,679

188,729(105,681)

36,0831,972

12,905Customer meter


-22-



NOTE 1 - SUMMARY OF SIGNTFIGANT ACGOUNTING POLICIES

The City of Pell City, Alabama (the "City") was incorporated in 1887, As of November sth, 2012, the Cityoperates under a Council-Manager form of government organized to comply with the provisions ofTitle 11, Chapter 43A, of the Code of Alabama 1975, as amended. The City Council is composed offive officials elected at-large for concurrent four year terms. The Mayor is elected at the same timeas Council members and has no voting rights as mandated by law due to the most recent census. Theterms of the current administration are scheduled to expire October 31,2016. The City Manager ishired by the Council.

The City complies with generally accepted accounting principles (GAAP). GAAP includes all relevantGovernmental Accounting Standards Board (GASB) pronouncements. ln the government-wide financialstatements, Financial Accounting Standards Board (FASB) pronouncements and Accounting PrinciplesBoard (APB) opinions issued on or before November 30, 1989, have been applied unless thosepronouncements conflict with or contradict GASB pronouncements, in which case GASB prevails. Theaccounting and reporting framework and the more significant account policies are discussed in

subsequent subsections of this note.

A. Reporting entityThe accompanying financial statements are those of the City's primary government. There are nocomponent units that are required to be presented in the financial statements.

B. Government-wide and fund financial statementsThe basic financial statements consist of the government-wide financial statements and fundfinancial statements. Both sets of statements distinguish between governmental and businesstypeactivities. Government-wide financial statements are comprised of the statement of net assets andthe statement of activities and report information on all of the non-fiduciary activities of the primarygovernment. lnterfund activity has been removed from these statements. Governmental activities,which normally are supported by the taxes and intergovernmental revenues, are reportedseparately from business-type activities, which rely to a significant extent on fees and charges forsupport.

The Statement of Activities demonstrates the degree to which the direct expenses of a givenfunction or segment is offset by program revenues. Direct expenses are those that are clearlyidentifiable with a specific function or segment. Program revenues are classified into threecategories: charges for services, operating grants and contributions, and capital grants andcontributions. Charges for services refer to direct recovery from customers for services rendered.Grants and contributions refer to revenues restricted for specific programs whose use may berestricted further to operational or capital items. The general revenues section displays revenuecollected that helps support all functions of government and contribute to the change in the netassets for the fiscal year.

The fund financial statements follow and report additional and detailed information about operationsfor major funds individually and nonmajor funds in the aggregate for governmental and fiduciaryfunds. A reconciliation is provided that converts the results of governmental fund accounting to thegovernment-wide presentations.

-23-



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. Measurement focus, basis of accountingn and financial statement presentationThe government-wide financial statements are reported using the "economic resources,,measurement focus and the accrual basis of accounting, as are the proprietary fund financialstatements. Revenues are recorded when earned and eipenses are recorded when a liability isincurred, regardless of the timing of related cash flows. Property taxes are recognized as revenuesin the year received or when an enforceable legal claim exists, whichever comes first. Grants andsimilar items are recognized as revenue as soon as all eligibility requirements imposed by providerhave 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 assoon as they are both measurable and available. Revenues are considered to be avaitjble whenthey are collectible within sixty days for property taxes and ninety days for all other revenue.Expenditures generally are recorded when a liability is incurred,

-as uhOer accrual accounting.

However, debt service expenditures, as well as expenditures related to compensated absences andclaims and judgments, are recorded only when payment is due.

Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscalperiod are all considered to be susceptible to accrual and have been recognized as revenues of thecurrent fiscal period. All other revenue items are considered to be measurable and available onlywhen cash is received by the City.

The following are reported as major governmentalfunds:

General Fund - This is the City's primary operating fund. lt accounts for all financial resources ofthe general government, except those required to be accounted for in another fund.

2006 Bridge and Sewer Fund (Capital Projects Fund) - Accounts for the construction ofinfrastructure.

The City reports the following major proprietary fund:

Utility Fund - Accounts for operations for the City-owned water and sewer business.

Proprietary funds distinguish operating revenues and expenses from non-operating items.Operating revenues and expenses generally result from providing services and produ-ing anddelivering goods in connection with a proprietary fund's principal ongoing operations. The pri-ncipaloperating revenues of the proprietary funds are charges to customers for sales and services.Operating expenses for the enterprise fund include the cost of sales and services, administrativeexpenses, and depreciation on capital assets. All revenue and expenses not meeting this definitionare reported as non-operating revenues and expenses,

When both restricted and unrestricted resources are available for use, it is the government's policyto use restricted resources first, and then unrestricted resources as they are needed.

-24-



NOTE 1 - SUMMARY OF S|GNTFTCANT ACCOUNTTNG POLTCTES (CONTTNUED)

D. Gash and cash equivalentsCash and cash equivalents are considered to be cash on hand, demand deposits and short-terminvestments with original maturities of three months or less from the date of acquisition.

E. ReceivablesActivity between funds that are representative of lending/borrowing arrangements outstanding atthe end of the fiscal year are referred to as either interfund receivables or interfund payables. Anyresidual balances outstanding between the governmental activities and business-type activities arereported in the government-wide financial statements as "internal balances".

All trade and property tax receivables are shown net of any applicable allowance for uncollectibles.

City property taxes are levied by the County Commission at its first regular meeting in February ofeach year based on the property on record as of the preceding October 1. The taxes are due thefollowing October 1 and delinquent after December 31. ln accordance with the non-exchangetransactions provision of GASB Statement No. 33, a receivable for taxes is recorded when an

enforceable legal claim has arisen or when resources are received, whichever is first.

F. lnventorylnventories are stated at cost using the average cost method. lnventories of governmentalfunds arerecorded as expenditures when consumed rather than when purchased. An equivalent fundbalance is reserved for inventories indicating that it does not constitute "available expendableresources" even though it is a component of net current assets. lnventories are summarized asfollows:


(Utilifu Fund) TotalGovernmental

ActivitiesFuels and lubricants $ 29,568 $ - $ 29,568

Materials and supplies 63,944 238,078 302,0??tot"t

G. Equity claesificationsG ov e rn m e nt-w id e State m e ntsEquity is classified as net assets and displayed in three components:

a. lnvested in capital assets, net of related debt - Consists of capital assets including restrictedcapital assets, net of accumulated depreciation and reduced by the outstanding balances of anybonds, mortgages, notes, or other borrowings that are attributable to the acquisition,construction, or improvement of those assets.

b, Restricted net assets - Consists of net assets with constraints placed on the use either by (1)

external groups such as creditors, grantors, contributors, or laws or regulations of othergovernments; or (2) law through constitutional provisions or enabling legislation.

-25-



NOTE 1 - SU|r|MARY OF StcNtFtcANT AGCOUNTTNG pOLtCtES (CONTTNUED)

G. Equity classifications (continued)Government-wide Statements (continuedlc. Unrestricted net assets - All other net assets that do not meet the definition of "restricted" or"invested in capital assets, net of related debt".

Fund StatementsGovernmental fund equity is classified as fund balance. Fund balance is further classified asrestricted for and unassigned,

The unassigned fund balances for governmental funds represent amounts that have not beenassigned to other funds, and that have not been restricted, committed, or assigned to specificpurposes within the general fund. The restricted fund balances for governmental funds representamounts that are constrained either externally by creditors, grantors, contributors or laws andregulations of other governments or by law, through constitutional provisions or enabling legislation.

A deficit unassigned fund balance of $1,300,535 exists in the 2006 Bridge and Sewer Fund. TheUtility fund provides transfers to cover deficit balances, however this is done when cash is neededrather than when accruals occur.

H. Long-term obligationsln the government-wide financial statements, and proprietary fund types in the fund financialstatements, long-term debt and other longterm obligations are reported as liabilities in theapplicable governmental activities, business{ype activities, or proprietary fund type statement of netassets. Bond premiums and discounts are deferred and amortized over the life of the bond. Bondspayable are reported net of the applicable bond premium or discount. Bond issuance costs arereported as deferred charges and amortized over the term of related debt.

ln the fund financial statements, governmental fund types recognize bond premiums and discounts,as well as bond issuance costs, during the current period. The face amount of the debt issued isreported as other financing sources. Premiums received on debt issuances are reported as otherfinancing sources while discounts on debt issuances are reported as other financing uses. lssuancecosts, whether or not withheld from the actual debt proceed.s received, are reported as debt serviceexpenditures.

l. Lease obligationsCapital lease obligations are stated at the original fair value of leased assets capitalized, lesspayments since the inception of the lease discounted at the implicit rate of interest in the lease.Also, in the year an asset is acquired by capital lease, the expenditure for the asset and theoffsetting amount of the financing source are reflected in the Fund Financial Statements in theStatement of Revenues, Expenditures and Changes in Fund Balances. Capital lease obligations ofproprietary funds and governmental activities in the government-wide financial statements and thecost of assets so acquired are reflected in the accounts of those funds and statements.

-26-



NOTE 1 - SUMMARY OF StcNtFtCANT ACCOUNTTNG pOLtCtES (CONTTNUED)

J. Fixed assetsG ove rn m e nt-w i de State m e ntsln the government-wide financial statements, fixed assets with initial individual costs of more than$5,000 and an estimated useful life in excess of one year are accounted for as capital assets. Allfixed assets are valued at historical cost or estimated historical costs if actual is unavailable, exceptfor donated fixed assets which are recorded at their estimated fair value at the date of donation.Historical cost was used to value the majority of the assets.

Depreciation of all exhaustible fixed assets is recorded as an allocated expense in the Statement ofActivities, with accumulated depreciation reflected in the Statement of Net Assets. Depreciation isprovided over the assets' estimated useful lives using the straight-line method of depreciation. Therange of estimated useful lives by type of asset is as follows:

lnfrastructure 30Buildings 50lmprovements 15Vehicles 10Furniture and equipment 10Computer equipment 5

Fund Financial Statementsln the fund financial statements, fixed assets used in governmental fund operations are accountedfor as capital outlay expenditures upon acquisition.

P ro p ri eta rv/E nte rp ri se F u nd sAdditions to the utility plant in service are recorded at cost or, if contributed property, at theirestimated fair value at time of contribution. Repairs and maintenance are recorded as expenses;renewals and betterments are capitalized. The sale or disposal of fixed assets is recorded byremoving cost and accumulated depreciation from the accounts and charging the resulting gain orloss to income.

Depreciation has been calculated on each class of depreciable property using the straight-linemethod. Estimated useful lives are 30-50 years for all system additions, extensions and buildings,15 years for improvements, and 5-10 years for all other equipment.

K. EncumbrancesEncumbrance accounting, under which purchase orders, contracts and other commitments for theexpenditure of monies are recorded in order to reserve that portion of the applicable appropriation,is employed as an extension of formal budgetary integration. Any encumbrances outstanding atyear-end are reported as reservations of fund balance and do not constitute expenditures orliabilities because the commitments will be honored during the subsequent year.

-27-



NOTE 1 - SUMMARY OF S|GNTFICANT ACCOUNTTNG pOLtCtES (CONTTNUED)

L. GompensatedabsencesFull-time, permanent employees are granted vacation benefits in varying amounts to specifiedmaximums depending on tenure with the City. Employees who are required to work on an observedholiday are granted a work day of leave. Sick leave accrues to fulltime, permanent employees tospecified maximums. Upon termination, employees are entitled to accrued vacation leave. Accruedsick leave is cancelled at separation but may be paid to a retiring employee. All vacation pay isaccrued when incurred in the government-wide financial statements. A liability for these amounts isreported in the governmental funds only if they have matured, for example, as a result of employeeresig nations and retirements.

M. lnterfund and internal transactionsDuring the course of normal operations, the City incurs numerous transactions between funds toprovide services, construct assets, service debt, etc. These transactions are generally reported asoperating transfers except in instances where the transfer represents the reimbursement to a fundfor expenditures incurred for the benefit of another fund. Remaining fund balances in discontinuedfunds and non-recurring, non-routine transfers are accounted for as residual equity transfers.Receivables and payables between governmental funds and the proprietary fund are referred to asinternal receivables or internal payables.

Details of current internal receivables and internal payables are as follows:

Receivable Fund Payable Fund AmountUtilityUtilityUtilityDebt Service Fund

General2006 Bridge and Sewer2012 Bond FundUtility Fund

$ 264,4411,881,0864,000,0003,097,849

lnterfund receivables and payables and transfers between funds within governmental activities areeliminated in the Statement of Net Assets and the Statement of Activities.

N. Statement of cash flowsFor the purposes of the Statement of Cash Flows, highly liquid investments with a maturity of threemonths or less when purchased are considered to be cash equivalents.

O. Management estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities, contingent liabilities and the reported amount of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates.

-28-



NOTE 1 - SUMMARY OF StcNtFtCANT AccOUNTtNG pOLtctES (CONTTNUED)

P. Other Post Employment BenefitsUnder the requirements of GASB 43 and 45, the City has no other post employment benefitsliabilities.

Q. Subsequent EventsSubsequent events were evaluated through the date the financial statements were issued.

NOTE 2 - CASH AND INVESTMENTS

At September 30, 2012, all of the bank balance of the City's deposits and certificates of deposit wereeither covered by federal depository insurance or secured by collateral through the Alabama StateTreasury's Security for Alabama Funds Enhancement (SAFE) Program. Under the SAFE program, theCity's funds are protected through a collateral pool administered by the Alabama State Treasury.Certain banks holding deposits belonging to the state, counties, cities, or agencies of any of theseentities must pledge securities as collateral against these deposits. ln the event of the failure of a bank,securities pledged by that bank would be liquidated by the State Treasurer to replace the publicdeposits. lf the securities pledged failed to produce adequate funds for that purpose, every bankparticipating in the pool would share the liability for the remaining balance. At September 30, 2012, allthe City's depositories are participating in the SAFE program.

NOTE 3 - RECEIVABLES

Receivables related to the City's major and nonmajor funds are deemed fully collectible bymanagement and have no allowance for doubtful accounts provision. The City's managementdetermined the need for an allowance for doubtful accounts provision of $316,386 for the proprietaryfund accounts receivable balance of $697,210. Receivables as of year-end for the government'sindividual major fund, nonmajor funds, and proprietary fund are recorded at net realizable value asfollows:

NonmajorGovernmental

FundsGeneral

FundUtilityFund

Taxes receivable $Customer accounts receivable (net)

Grants receivableOther receivables

1,174,3-99 $

19,651

380,352

Total receivables 380,3521 ,194,050

-29-



NOTE 4 - NOTES RECEIVABLE

The series 2004, and $2,230,000 of the series 2003 along with g14,g25,ooo of the series 2006General Obligation Warrants (Warrants) were issued by the City for the benefit of the Board ofEducation of the City of Pell City (the "Board"). The proceeds of these Warrants were used by theBoard to refund prior bond issues of the Board as well as various construction projects. While this debtis a legal obligation of the City, a funding agreement exists between the City and the Board whereby!p loard is obligated to pay the debt service of these Warrants. Due to the funding agreement,$20,984,602 is recorded as a note receivable (which includes accrued interest in the amount of$94,602) due from the Board in the government-wide financial statements. on July 1't, 2010 the Cityissued Series 2010 General Obligation Refunding Warrants that provided for the advanced refunding ofthe Series 2002 Warrants.

NOTES-CAPITALASSETS

Primary GovernmentCapital asset activity for the primary government for the year ended September 30,2012, was asfollows:

BeginningBalances lncreases Decreases

EndingBalances

Governmental activities:Capital assets not being depreciated:

Land $ 348,773 348,773Total capital assets not being depreciated

Capital assets being depreciated:BuildingsOther improvements

EquipmentVehicles and motorized equipment

lnfrastructure

13,750,0812,665,9422,019,2973,401,617

170,573

165,827

580,1 55

(429,293)

13,750,0812,836,5152,019,2973,1 38,1 51

3,369,3472,789.19224,626,129 916,555 429.293 25,1 13,391

Less accumulated deprecation for:BuildingsOther improvements

Equipment

Vehicles and motorized equipmentlnfrastructure

4,'191 ,8181,245,8831,41g,ggg2,231,063

344,809100,058126,101250,246354,369

(3e2,33e)

4,536,6271,345,9411,544,9992,088,970

720,284365,915Total accumulated depreciation 9.453.577 1 .175.583 392,339 10,236,821

,028 36,954 14,876,570Total capital assets

Total governmental activities15,172.552

$ 1s,521,325tal assets, net

-30-

$ (259,028 $ (36,e54 $ 15,225,343



NOTE 5 - CAP|TAL ASSETS (CONTTNUED)

Depreciation expense was charged to functions/programs of the primary government as follows:

General GovernmentPoliceFireStreetLibraryPark and recreational

283,944117,103106,793273,886

5,704388.1 53

Total depreciation expense 1,175,583

Business-Type Activities

Capital asset activity for the Utility fund for the year ended September 30, 2012, was as follows:

BeginningBalances Increases

EndingDecreases Balances

Governmental activities:Capital assets not being depreciated:

Land $ 1,484,942 $Construction progess 11,779,733 2,408,394 (9,769,2'16)

$ 1,484,9424,418,911

Total capitalassets not being depreclated 13.264.675 2.408.394 (9,769,216) 5,903,853

Capital assets being depreciated:BuildingsVehicles and equipment

47,9661,502,440 so,oao

9.787,499(76,129)

47,9661,476,351

52,437,759Water and sewer distribution svstems 42,650,260Total capital assets being depreciated 44.200.666 9,837,539 06,129\ 53,962,076

Less accumulated deprecation for:BuildingsVehicles and equipmentWater and sewer distribution

45,546890,509

13,721,247

20087,806

1,447,673(76,129)

45,746902,1 86

1 5,168,920Total accum ulated depreciation 14,657,302 1,535,679 (76,129) '16,116,852

Total capital assets being depreciated, net 29,543,364 8,301,860 37,845,224Total governmental actlvitiescapitalassets, net $ 42,808,039 $ 10,710,254 $ (9,769,216) $ 43,749,077

-31-



NOTE6-LONG.TERMDEBT

Long-term debt payable at september 30, 2012 is comprised of the following:

Governmental FundsGeneral Obligation warrantsThe City issues general obligation warrants providing for the acquisition and construction of majorcapital facilities. General obligation warrants are direct obligations and pledge the full faith and credit ofthe City. The original amount of general obligation warrants issued was $35,570,935 with currentoutstanding balances as follows:

$3,820,000 General Obligation Warrants, Series 2004, issued June 1 ,2004, with principaldue in

annual installments beginning in 2006 ranging from $145,000 to $285,000 through February 2024',interest rates from 2.100/o to 4.75%, payable semiannually

$4,859,844 General Obligation Refunding Warrants, Series 2004, issued December 1, 2004, withprincipal due in annual installments beginning in 2005 ranging from $304,523 to $446,355 throughJune 2018; interest rates from 2.OOo/o to 3.90%, payablesemiannually

$'15,236,091 GeneralObligation Warrants, Series 2006, issued June 1, 2006, with principal due inannual installments beginning in 2007 ranging from $11,078 to $1,152,112 through August 2020;interest rates from 4.00o/o to 4.50o/o

$2,275,000 GeneralObligation Refunding Warrant, Series 20'10, issued July 1,2010, With principaldue in annual installments beginning in 201 1 ranging from $230,000 to $310,000 throughFebruary 2018; interest rates from 2.000/o to 2.75o/o

During 2000, the City entered into an agreement whereby the City, along with eight Alabamamunicipalities and four Alabama counties agreed to fund $15,475,000, which represents theprincipal amount of the Special Obligation Bonds, Series 2000 (the "series 2000 Bonds") for the EastCentral Alabama lndustrial Development Authority (the Authority). The Series 2000 Bonds were used tofinance the industrial site used by the Honda Motor Co. The City's share of the Series 2000 Bonds totaled$850,000. The City's share of the outstanding balance at September 30, 2011 is

$2,045,000 General Obligation Warrants, Series 2006, transferred from the Utility Fund as parl. of 2012debt defeasance, with principaldue in annual installments ranging from $275,000 to $310,000 through201 8, interest rates f rom 4.00o/o lo 4 .50o/o

$5,470,000 General Obligation Warrants, Series 2012-8, issued April 25, 2012, wilh principal due inannual installments ranging from $275,000 to $580,000 through June2024, interest rates from 2.00% to4.00o/o

$1,865,000 General Obligation Warrants, Series 2012-C, issued April 25, 2012, with principal due inannual installments ranging from $310,000 to $335,000 through August 2017',interest rates from 0.40%

1 ,190,00(

3,355,00(

14,825,00C

1,770,00c

223,829

2,350,00(

5,195,00C

to '1.85%

Total warrants at

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20111.600.00c



NOTE 6 - LONG-TERM DEBT (CONTTNUED)

Notes payable

$494,933 Note payable secured by equipment; interest rate of 4.25o/o payable inmonthly installments of $1763 through July 15, 2013$27 ,292 Note payable secured by equipment; interest rate of 4.6250/o payable inmonthly installments of $1,762 through March 19, 2013$44,735 Note payable secured by a vehicle; interest rate of 3.95% payable in annualinstallment of $10,051 through March 2, 2014$200,075 Note payable secured by equipment, interest rate of 3.68% payable in monthlyinstallments of $5,887 through June 3, 2010$59,064 Note payable secured by equipment; interest rate of 2.75o/o payable in

monthly installments of $1,056 through February 19,2016$7,783 Note payable secured by equipment; interest rate of 3.25o/o payable in monthlyinstallments of $173 through February 18, 2015$500,075 Note payable secured by a fire truck; interest rate of 3.95% payable in

annual installments of $61,076 through March 1,2021

$ 18,973

3,601

18,970

52,184

41,262

4,827

455,155

$22,163 Note payable secured by equipment; interest rate of 2.7o/o palable in monthlyinstallments of $396 throuoh November 23, 2015 13,886

Total notes payable at September 30, 2011 608,858

Proprietary FundGeneral Obligation Warrants

$12,268,909 General Obligation Warrants, Series 2006, issued June 1, 2006, with principal duein annual installments beginning in 2Q07 ranging from $8,922 to $927,888 through August2020; interest rates lrom 4.Q0o/o lo 4.50% $

The Utility fund of the City was indebted on a note to the State Revolving Fund originated on

September 15, 2009, with proceeds being lent as invoices for work are presented, but with amaximum loan value of $11,960,000. Principaldue in annualinstallments beginning in2012ranging from $420,000 to $820,000 through August 2031. The interest rate on this debt is 3.50%.

$12,830,000 GeneralObligation Warrants, Series 2012, issued January 31,2012, with principal

due in annual installments beginning in 2014 ranging from $35,000 to $'1,960,000 throughDecember 2039; interest rates trom 2.00o/o to 4.125%

8,450,000

10,190,000

12,830,000Total general obligation warrants at September 30, 2011 31,470,000

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The annual requirements to amortize all debt outstanding as of September 30, 2012 are as follows:

Governmental Fund Warrantsand Notes Payable

Year ending September 30, Principal lnterest Total20132014201520162017

2018-20222023-20272028-2032

1,869,3901,868,8381,902,8241,933,7531,995,1558,747,7295,740,0007,060,000

$ 1,190,867 $1,141,9181,090,6641,034,368

973,4733,742,7952,348,263

865,906

3,060,2573,010,7562,993,4882,968,1212,968,627

12,490,5248,088,2637,925,906

31 ,1 17,688 12,388,254 $ 43,505,942

Utility Fund Warrantsand Notes Payablo

Year ending September 30, Principal lnterest Total20132014201520162017

2018-20222023-20272028-20322033-20372038-2040

165,000270,000575,000800,000

4,470,0005,460,0006,640,0008,275,0004,815,000

$ 1,259,303 $1,257,6531,253,3031,249,5911,225,7765,655,8704,708,9873,530,2811,908,385

260,596

1,259,3031,422,6531,523,3031,824,5912,025,776

10,125,87010,168,98710,170,28110,183,3855,075,596

1,470,000 22,309,743 $ 53,779,743

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Capital lease obligation

The City has entered into lease agreements as lessee for financing the acquisition of property andequipment. These lease agreements qualify as capital leases for accounting purposes and, therefore,have been recorded at the present value of their future minimum lease payments as of the inception date.

The future minimum lease obligations and the net present value of these minimum lease payments as ofSeptember 30, 2012, were as follows:

Governmental UtilityFunds Fund

Year ending September 3020132014

Total minimum lease paymentsLess amount representing interest

33,1 968,299

41,4951,291

298,76074,69A

373,4501 1 ,615

Total 40,204 $ 361,835


The following is a summary of debt transactions of the City for the fiscal year ended September 30,2012:

BeginningBalance Additione

Ending Due WithinReductions Balance One Year

Governmental activities:General obligation warrants $ 28,475,766 $ 10,102,155 $ 8,069,092 $ 30,508,829 $ 1,735,856

Less deferred amountsFor issuance disco

warrants payable

Capital leasesNotes payable

28,413,343 10,349,837 $ 8,050,516 $30,217,300 $ 1,735,856

Compensated absences 195,850 131,226 - 327,076 228,953Governmental activitylong-term liabilities $ 29,458,101 $ 10,481 ,063 $ 8,250,361 $ 31 ,193,439 $ 2,130,33s

83,502765,406

- 43,298- 156,547

40,204608,859

3'1,992133,534

Business{ype activities:General obligation warrants

Capital leases30,005,349 12,830,000 1 1,365,349 31,470,000 474,570

751 ,510 - 389,675 361,835 287,931Notes payableCompensated absences 17,998 7,100 - 25,098 '17,569

Business-type activitylong-tenn liabilit

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NOTET-PENSIONPLAN

A. Plan descriptionThe City contributes to the Employees' Retirement System of Alabama, an agent multiple-employerpublic employee retirement system that acts as a common investment and administrative agent for thevarious state agencies and departments.

Substantially all employees are members of the Employees' Retirement System of Alabama (RSA).Membership is mandatory for covered or eligible employees of the City. Benefits vest after 10 years ofcreditable service. Vested employees may retire with full benefits at age 60 or after 25 years of service.Retirement benefits are calculated by two methods with the retiree receiving payment under themethod that yields the highest monthly benefit. The methods are (1) Minimum guaranteed, and (2)

Formula, of which the Formula method usually produces the highest monthly benefit. Under this method,retirees are allowed 2.0125% of their average final salary (best three of the last ten years) for each yearof service. Disability retirement benefits are calculated in the same manner. Pre-retirement deathbenefits in the amount of the annual salary for the fiscal year preceding death are provided to plan

members with more than ten years of creditable service or $5,000 for those with less than ten years ofservice.

The Employees' Retirement System was established as of October 1, 1945, under the provisions of Act515 of Alabama in 1945, for the purpose of providing retirement allowances and other specified benefitsfor State employees, State police, and on an elective basis to all cities, counties, towns, and quasi-public organizations. The responsibility for general administration and operation of the Employees'Retirement System is vested in the Board of Control. Benefit provisions are established by the Code ofAtabama 7925, Sections 36-27-1 through 36-27-103, as amended, Sections 36-27-120 through 36-27-139, as amended, and Sections 36-278-1 through Sections 36-278-6. Authority to amend the plan

rests with the Legislature of Alabama. However, the Legislature has granted the Board of Controlauthority to accept or reject various Cost-Of-Living-Adjustments (COLAs) granted to retirees.

The Retirement System issues a publicly available financial report that includes financial statements andrequired supplementary information for the Retirement System. That report may be obtained by writingto The Retirement System of Alabama, P.O. Box 302150, Montgomery, Alabama 36130-2150.

B. FundingParticipating employees are required to contribute 5olo of their annual covered salary. Effective January1, 2001, the member contribution rate for certified full-time firefighters and certified full-time lawenforcement officers increased to 6% of employee's compensation. Regular member contributionsremain at 5o/o of employee compensation. The City is required to contribute at an actuarially determinedrate; the rate for the period beginning October 1,2012was9.34o/o of annual covered payroll, this ratechanges to 8.46% for the period beginning October 1,2013.

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NOTE 7 - PENSTON PLAN (CONTTNUED)

C. Annual pension costBoth the City and the covered employees made the required contributions, amounting to $420,916(9.34o/o,5.02% normal cost plus 3.99% to amortize the unfunded actuarial liability) for the City. Therequired contribution was determined as part of the actuarial valuation using the entry age actuarial costmethod. The actuarial assumptions included (a) 8.00% investment rate of return (net of administrativeexpenses), (b) projected salary increases ranging from 3.75o/o to 7.25o/o per year, and (c) no cost-of-living adjustments. Both (a) and (b) included an inflation component of 3o/o.

The actuarial value of the assets was determined using techniques that smooth the effects of short- termvolatility in the market value of investments over a five-year period. The unfunded actuarial accruedliability is amortized as a level percentage of projected payroll on an open basis. The remainingamortization period at September 30, 2011 was 30 years. Since the previous valuation, there have beenno changes in the actuarial cost method and there have been no amendments to the System affectingthe valuation. There were no related party transactions.

Latest Three-Year Trend I nformation

FiscalYear EndingAnnual Pension

Cost (APC)Percentage of

APC ContributedNet Pension

ObliqationSeptember 30, 2009September 30, 2010September 30, 2011

483,559453,509482,030

100.0%100.0%100.0%

Latest Schedule of Funding Progress

ActuarialValuatlon

ActuarialValue ofAssets *

ActuarialAccrued Liability(AAL) Entry Age

(b)l

UnfundedAAL

(UAAL)(b-a)Date (a)

FundedRatio(a/b)

CoveredPayroll

(c)

UAAL as a %of Govered

Payroll((b-a)/c)

9/30/20069t30t20079/30/20089/30/20099t30t2010 3

9t3012010 3,4

9t30t2011 3

9t30t2011 4,5

10,730,36911,479,70711,946,22412,170,59512,223,39112,223,39112,315,26812,315,268

12,603,629'13,375,439

14,972,89516,340,35116,479,41416,543,26416,585,61416,635,685

1,873,2601,895,7323,026,6714,169,7564,256,0234,319,8734,270,3464,320,417

85.10/o

85.8%79.8o/o

74.50/o

74.20k73.9o/o

74.3o/o

7 4.0o/o

5,327,1735,518,9395,662,0555,673,1625,506,8745,506,8745,472,6195,472,619

35.2%34.3%53.5%73.5%77.3%78.4%78.0%78.9o/o

1 Reflects liability for cost of living benefit increases granted on or after october 1 , 197g

2 Reflects changes in acluarial assumptions.

3 Reflects the impact of Acl2011-27, which closes ihe DROP program to new applicants after March 24,2011.4 Reflects the impact ol Acl2011-27 as well as Act 2011-676, which increases the member contribution rates by 2.25% beginning

October 1,201'1 and by an additional 0.25% beginning October 1,20125 Reflects changes in actuarial assumptions.

" Market Value of Assets as of September 30, 2011: $10,597,431. lnformation obtained from Actuarial Valuation as of Sept. 30,2011

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NOTES-SALESTAX

Ordinance 81-570 was adopted by the City Council on October 22, 1981. This ordinance imposed anadditional 1% sales tax earmarked for the City school system. Disbursement of these funds is includedin expenditures to other boards and agencies in the General Fund.

The City approved Ordinance 2010-3033 increasing the sales taxlok effective May 1,2010. The CitySchool System will receive 50% of the revenues through September 30,2014. Starting October 1,

2014, the City will split the revenues 70%/30% with the School System until the School System sets upits own tax district and the agreement will be revised at that time.

NOTE 9. COMMITMENTS AND CONTINGENCIES

The City is a defendant in various pending and threatened litigation at September 30, 2012. The City'sinsurance carrier has retained legal counsel to defend these actions on behalf of the City. At this timethe likelihood of an unfavorable outcome is not known, nor is there any estimate of potential loss, but itis believed that insurance will cover any losses that may ultimately result from these actions. The Citypays annual premiums for insurance coverage to provide protection against possible claims. Noaccruals have been included in these financial statements for these claims.

The City participates in several federal and state-assisted programs. These grants are subject to auditsby or on behalf of the grantors to assure compliance with grant provisions. Such audits could result in arequest for reimbursement of expenditures disallowed by the grantor agency under the grantprovisions. City management does not believe disallowances, if any, will be material.

The Utility fund has standing commitments to purchase and sale certain amounts of water from/to areawater authorities. Management feels that these commitments will be adequately fulfilled based onnormal water consumption by the Utility fund's customers.

NOTE 10 - WATER DISTRIBUTION SYSTEM

Effective March 22,2010, the City has entered into a service agreement with SWWC Services, lnc. tooperate, maintain and manage its Water Distribution System. As part of the agreement S\ A/t/C,Services, lnc. will provide the staffing, supervision, basic services including day to day operations, andshall perform all routine maintenance, servicing, sampling, and analysis as required. The City maintainsownership of all assets such as vehicles, equipment and facilities. As of March 31, 2012, the City hastaken over operations of its Water Distribution System and cancelled its contract with SWWC Services,lnc.

NOTE 11 . DEFEASED DEBT

On April 25,2012 the City of Pell City issued Series 2012-8 with interest rates from 2.00% to 2.75o/o andSeries 2012-C with interest rates from .400% to 1.850% General Obligation Warrants of $5,470,000 and$1,865,000 respectively,

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NOTE 11 - DEFEASED DEBT (CONTTNUED)

Proceeds from the issuance of Series 2012lr- were used to current refund Series 20028 ($620,000),2003 ($3,130,000) and a portion of 2004 ($1,540,000) General Obligation Warrants. Proceeds from theissuance of Series 2012-C were used to current refund Series 2002 ($1,750,000) General ObligationWarrants.

On January 31, 2012 the Utility Fund (Proprietary) issued Series 2012 with interest rates from 2.250o/oto 4.125o/o General Obligation Capital Outlay and Refunding Warrants of $12,830,000. The proceedsfrom the issuance of Series 2012were used to current refund Series 2002-SRF ($5,115,000), a portionof Series 2006 ($1,145,000), a portion of Series 2009-SRF ($1,770,000) and to provide $4,000,000 forcapital outlays.

Legal requirements are met and debt is defeased when debt holders are paid at maturity or at a calldate stipulated in the debt agreement. When debt is paid before its maturity date (at a call date orretired by repurchasing the debt in a secondary market) and the retirement is financed by issuing newdebt, the process is referred to as a current refunding of debt. The current refunding met the legalrequirements for debt defeasance and the warrants were removed from the City's Government-WideFinancial Statements.

ln a current refunding the difference between the reacquisition price and the carrying amount of the olddebt usually results from one or more factors, all related to the old debt: call premium, unamortizedpremium or discount and unamortized issuance costs because the new bonds effectively incorporatethose factors into their pricing structure.

As a result of the current refunding, the City increased its total debt service requirements by $295,000which resulted in a deferred loss on defeasance of debt of $402,032 and $148,788 respectively. Thesedeferred losses are amortized over the remaining life of the old debt or the life of the new debtwhichever is shorter. The remaining unamortized deferred loss on defeasance of debt is reported in theCity's Government-Wide Financial Statements as a contra liability,

As a result of the current refunding, the proprietary fund increased its total debt service requirements by$4,800,000 which resulted in a deferred loss on defeasance of debt of $345,773. These deferredlosses are amortized over the remaining life of the old debt or the life of the new debt whichever isshorter. The remaining unamortized deferred loss on defeasance of debt is reported in the ProprietaryFunds Financial Statements as a contra liability.

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Documents

2012 Financial Statement