AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY …

AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

MUNICIPAL UTILITIES BOARD OF THE CITY OF ALBERTVILLE WATER SYSTEM ALBERTVILLE, ALABAMA

June 30, 2018 and 2017

TABLE OF CONTENTS

INDEPENDENT AUDITORS' REPORT ............................................................................ MANAGEMENT'S DISCUSSION AND ANALYSIS........................................................ FINANCIAL STATEMENTS:

Statements of Net Position ................................................................................................ Statements of Revenues, Expenses and Changes in Net Position ..................................... Statements of Cash Flows .................................................................................................

NOTES TO FINANCIAL STATEMENTS .......................................................................... REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A

Schedule of Proportionate Share of the Net Pension Liability ............................................ Schedule of Employer Contributions .................................................................................. Schedule of Proportionate Share of the Net OPEB Liability .............................................. SUPPLEMENTARY INFORMATION Schedules of Operating Expense ........................................................................................ Schedules of Operating Statistics ........................................................................................ Schedules of Debt Service Requirements to Maturity.........................................................

PAGE 1 3

11 13 14

16

38 39 40

42 43 45

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3?10 and the pension schedules on pages 38-40 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Municipal Utilities Board of the City of Albertville ? Water System's basic financial statements. The schedules of operating expense and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The schedules of operating expense and debt service to maturity are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedules of operating expense are fairly stated in all material respects in relation to the basic financial statements as a whole.

The statistical section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

Emphasis of Matter

As discussed in Note 1, the financial statements of the Municipal Utilities Board of the City of Albertville ? Water System, are intended to present the financial position, the changes in financial position and cash flows of only that portion of the business-type activities attributable to the transactions of the Water System. These financial statements do not purport to, and do not present fairly the financial position of the Municipal Utilities Board of the City of Albertville, as a whole, as of June 30, 2018 and 2017, the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Johnson, Feigley, Newton & Brand, LLP

October 26, 2018

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

The MD&A represents management's examination and analysis of the Water System's financial condition and performance for the years ending June 30, 2018 and June 30, 2017. This information should be read in conjunction with the financial statements.

USING THIS ANNUAL REPORT

This annual report consists of a series of financial statements. These financial statements report information about the Water System using full accrual accounting methods.

The Municipal Utilities Board (MUB) was reorganized and incorporated on May 15, 2013, under Article 9, Chapter 50; Title 11 (Sections 11-50-310 et seq.) of the Code of Alabama (1975). Prior to May 2013, MUB operated within the confines of an Act of the Alabama Legislature passed in 1943. While operating under the 1943 Act, MUB was organized as an entity of the City of Albertville and the City had to issue all debt for MUB. The new form of organization allows MUB to issue its own debt. The three-member Board of Directors of MUB (appointed by the City Council of Albertville) was given complete control of the public utilities in the City of Albertville. In addition to the Water System, the Board also governs the Electric and Waste Water Systems of the City.

Even though MUB is a municipal entity, the financial statements are presented more similar to a private business entity because a majority of the revenues in the Electric, Water and Waste Water Systems are generated from user fees, not any type of public tax. The Governmental Accounting Standards Board requires that these types of municipal entities follow accounting procedures more similar to those of private business. However, the mission of the Board is not to be a profitable entity, unlike a private system, but is to be able to finance all or most of its activities through user fees and reinvest assets in improving and maintaining the system.

The financial statements include a statement of net position; a statement of revenues, expenses and changes in net position; a statement of cash flows; and notes to the financial statements.

The statement of net position presents the financial position of the Water System and all its assets and liabilities, with the difference reported as net position. Over time, increases or decreases in the System's net assets are one indicator of whether the System's financial position is improving or deteriorating.

The statement of revenues, expenses, and changes in net position presents the results of the System's activities over the course of the fiscal year. This statement also provides information about the System's recovery of costs. Rate setting policies vary, however, the primary objective of any rate model is to improve equity among customer classes and ensure that capital costs are allocated on the basis of long-term capacity needs, ensuring that growth pays for growth.

The statement of cash flows presents changes in cash and cash equivalents, resulting from operations, financing and investing activities. This statement presents cash inflows and cash outflows for the fiscal year.

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The notes to the financial statements provide required disclosures and other information vital to obtaining a full understanding of the System's financial statements. The notes present information about the System's accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any. Supplementary information, providing additional financial detail, is also provided. The financial statements were prepared by the Board's accounting staff from the detailed books and records of the System. The financial statements were then audited and adjusted, if necessary, during the independent external audit process.

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Financial Analysis

The following comparative condensed financial statements serve as the key financial data and indicators for management, monitoring and planning. The financial statements are studied in depth to detect trends, project growth and prepare budgets for the upcoming year.

Municipal Utilities Board of the City of Albertville - Water System Condensed Financial Statements Fiscal Year Ending June 30, 2018

Condensed Statements of Net Position

2018

2017

Variance

Dollars

Percent

Utility Plant Less Accumulated Depreciation Utility Plant Net of Depreciation Restricted Assets Current Assets & Other Assets Deferred Outflows of Resources

Total Assets and Deferred Outflows

Current Liabilities Long Term Liabilities Deferred Inflows of Resources

Total Liabilities and Deferred Inflows

Net Position:

Net Invested in Capital Assets Unrestricted

Total Net Position

Total Liabilities, Deferred Inflows and Net Position

$69,724,988 $68,260,857

($38,889,926) ($36,949,279)

$30,835,062 $31,311,578

$65

$10

$5,291,767 $5,456,609

$726,538 $441,623

$36,853,432 $37,209,820

$1,775,241 $1,184,748

$15,982,458 $17,032,940

$234,016

$0

$17,991,715 $18,217,688

$1,464,131 ($1,940,647)

($476,516) $55

($164,842) $284,915

($356,388)

$590,493 ($1,050,482)

$234,016

($225,973)

2.14% 5.25% -1.52% 550.00% -3.02% 64.52%

-0.96%

49.84% -6.17% 100.00%

-1.24%

$17,793,420 $1,068,297 $18,861,717 $36,853,432

$18,101,626 $890,506

$18,992,132 $37,209,820

($308,206) $177,791 ($130,415) ($356,388)

-1.70% 19.97% -0.69% -0.96%

Condensed Statements of Revenues, Expenses, and Changes in Net Assets

Revenues: Water Sales Revenue Other Revenue

2018 Actual

2018 Budget

$7,663,242 $7,775,000 $119,978 $131,000

Total Operating Revenue $7,783,220 $7,906,000

Expenses: Operating Expense

$7,640,048 $7,215,000

Operating Income Non-Operating Income and Expense-Net

$143,172 $691,000 ($299,448) ($325,000)

Income (Loss) Before Capital Contributions and Transfers ($156,276) $366,000

Capital Contributions

$60,966

$0

2017 Actual

$7,644,747 $118,372

$7,763,119

$7,276,411 $486,708

($320,626)

$166,082 $17,450

Variance of 2018 Actual Data to:

2018 Budget

2017 Actual

Dollars

Percent

Dollars Percent

($111,758) ($11,022)

($122,780)

-1.44% -8.41%

-1.55%

$18,495 $1,606

$20,101

0.24% 1.36%

0.26%

$425,048 ($547,828)

$25,552

5.89% $363,637 5.00% -79.28% ($343,536) -70.58%

-7.86% $21,178 -6.61%

($522,276) $60,966

-142.70% ($322,358) -194.10%

n/a

$43,516 249.38%

Increase (Decrease) in Net Position ($95,310) $366,000 $183,532 -5-

($461,310)

-126.04% ($278,842) -151.93%

FINANCIAL POSITION

Statement of Net Position

For the fiscal year ending June 30, 2018, total assets and deferred outflows decreased $356,388 with Net Water Plant (assets less depreciation) decreasing $476,516 due to fewer capital improvements in the Water System and increased depreciation. Current and other assets decreased $164,842 mostly due to decreased cash and cash equivalents. Total liabilities and deferred inflows decreased $225,973, a 1.24% decrease mostly due to principal payments made to the 2010 Series, 2012 Series and 2016 Series SRF Water Revenue Bonds.

Total net position (total assets and deferred outflows less total liabilities and deferred inflows) of $18,861,717 reflects a decrease of $130,415, a .69% decrease. $17,793,420 of this amount is invested in net capital assets while $1,068,297 represents the non-restricted portion.

For the fiscal year ending June 30, 2017, total assets and deferred outflows increased $1,215 with Net Water Plant (assets less depreciation) decreasing $1,340,585 due to fewer capital improvements in the Water System. Current and other assets increased $1,342,859 mostly due to increased cash and cash equivalents. Total liabilities decreased $182,317, a 1% decrease mostly due to principal payments made to the 2010 Series, 2012 Series and 2016 Series SRF Water Revenue Bonds.

Total net position (total assets and deferred outflows less total liabilities) of $18,992,132 reflects an increase of $183,532, a .97% increase. $18,101,626 of this amount is invested in net capital assets while $890,506 represents the non-restricted portion.

Results of Operations

The majority of the Water System's operating revenues derive from sales of water. The volume of water sold was 3.01 billion gallons in 2018. Other revenue consists of forfeited discounts, system development charges, service fees, and collection charges.

The Water System has five classes of sales: residential, commercial, industrial, private fire protection, and sales to other distributors. Total sales revenue for 2018 increased $18,495 or .24%. Sales to other distributors decreased $11,344 or .55%. Residential sales increased 1.02% or $29,989 and commercial and industrial sales decreased $2,492.

Total operating expense increased $363,637 in 2018, or 5%. Transmission and distribution expense increased $201,572 due to an increase in labor costs. Purification expense increased $97,212 due to an increase in chemicals used. Depreciation increased $81,453 or 4.13%. Power and pumping cost increased $31,685 due to increases in utility costs and payroll. Customer accounts expense increased $27,761 mostly due to the set-up of the new prepay system. Source of Supply cost increased $22,045 due to increased operator payroll. Administrative and general expense decreased $98,091 due to the recording of pension expense per GASB68 and other post-employment benefit expense per GASB75.

Total sales revenue for 2017 increased $692,046 or 9.95%. Sales to other distributors increased $85,142 or 4.35%. Commercial and industrial sales increased $264,971 or 11.09% and residential sales increased 13.13% or $341,942.

Total operating expense increased $114,281 in 2017, or 1.6%. Source of Supply cost increased $64,985 due to increased operator payroll. Power and pumping cost increased $56,282 due to increased utility costs. Administrative and general expense increased $54,524 due to the recording of pension expense per GASB68. Purification expense increased $21,003 due to an increase in lab supplies. Customer accounts expense increased $2,447 due to an increase in meter reading payroll. Depreciation decreased $1,454 or .07%. Transmission and distribution expense decreased $83,506 mostly due to a decline in water tank and water line maintenance.

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