The URL can be used to link to this page

Home My WebLink AboutFY06 financials TOWN OF NORTH ANDOVER, MASSACHUSETTS INDEPENDENT A U D I T O RS-REPO RT ON BASIC FINANCIAL STATEMENTSAND REQUIRED SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, 2006 TOWN OF NORTH ANDOVER, MASSACHUSETTS I N D EPEN D EN T AU DI TORS-:-REPORT ON BASIC FINANCIAL STATEM EN TS AND REQU I RED SU PPLEM EN TARY I N FORM ATI ON FOR T H E FISCAL YEAR EN D ED JUN E 30, 2006 TABLE OF CON TENTS Page IndependentAuditors=Report................................................................................................................................................1 M anagement-s Discussion and Analysis...............................................................................................................................4 BasicFinancial Statements.....................................................................................................................................................14 Statementof net assets.......................................................................................................................................................15 Statementof activities........................................................................................................................................................16 Governmental funds—balance sheet...............................................................................................................................18 Governmental funds—statement of revenues,expenditures and changes in fund balances..................................20 Reconciliation of governmental funds balancesheet total fund balancesto the statement of net assets...............22 Reconciliation of thestatement of revenues, expenditures and changes in fund balances of governmental funds tothe statement of activities..............................................................................................................................................23 General fund statement of revenues, expenditures and changes in fund balance—budget and actual..............24 Proprietary funds—statement of fund net assets...........................................................................................................25 Proprietary funds-statement of revenues, expensesand changesin fund net assets..............................................26 Proprietary funds—statement of cash flows...................................................................................................................27 Fiduciary funds—statement of fiduciary net assets.......................................................................................................28 Fiduciary funds—statement of changes in fiduciary net assets...................................................................................29 Notesto basicfinancial statements...................................................................................................................................30 AdditionalInformation..........................................................................................................................................................57 Enterprise funds--scheduleof revenues, expensesand changesin fund net assets—budgetary basis—budget andactual.............................................................................................................................................................................58 This page left intentionally blank. I ndependent Audi torck-.LReport 1 I I I E E p SULLIVAN, ROGERS & COMPANY, LLC I Corporate Place 1,Suite 204 • 99 South Bedford Street E Burlington,Massachusetts 01803 P•781-229-5600 F•781-229-5610 www.sullivan-rogers.com Certified Public Accountants l I 3 Independent Auditors'Report To the Honorable Board of Selectmen Town of North Andover,Massachusetts We have audited the accompanying financial statements of the governmental activities,the business-type activities,each major fund,and the aggregate remaining fund information of the Town of North Andover, Massachusetts,as of and for the fiscal year ended June 30,2006,which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town of North Andover,Massachusetts'management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by I the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit ` includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions, i In our opinion,the financial statements referred to above present fairly,in all material respects,the respective financial position of the governmental activities,the business-type activities,each major fund,and the aggregate remaining fund information of the Town of North Andover,Massachusetts as of June 30,2006,and the respective changes in financial position and cash flows,where applicable,thereof and the budgetary comparison for the general fund for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. I I In accordance with Government Auditing Standards,we have also issued our report dated November 9,2006,on our consideration of the Town of North Andover,Massachusetts'internal control over financial reporting and 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 the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the I results of our audit. i The management's discussion and analysis,located on pages 4 through 13,is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures,which consisted principally of I inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However,we did not audit the information and express no opinion on it. I i E I 2 Ef E i Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town of North Andover,Massachusetts' basic financial statements. The additional information on pages 57 through 59 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated in all material respects in relation to the basic financial statements taken as a whole. i LLC, � I i November 9,2006 i i i I I 3 jj I 3 i i f 3 3 f ] 1 1 �I 1{� 1 I 1 ] i 3 Management-s Discussion and Analysis 4 M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 As management of the Town of N ort h Andover, M assach u setts(Town),we offer readers of these financial statementsthis narrative overview and analysis of the Town-s financial activities for the fiscal year ended June 30, 2006. Financial Highlights ➢ The assets of the Town exceeded its liabilities at the dose of the most recent fiscal year by $134,583,037 (net assets). Of thisamount, $19,907,746(unrestricted net assets) may be used to meet the govern ment-s ongoing obligationsto citizensand creditors. ➢ The Tow n-s total net assets i ncreased by $5,513,289. ➢ As of the dose of the fiscal year,the Tow n-s governmental funds reported a combined ending fund totaling $4,826,830; an increase of$28,824,980 in comparison with the prior year. Approximately $11,010,000 represents unreserved fund balance of the general fund,special revenue, nonmajor capital projects and permanent funds. The school construction capital projects fund (major fund) deficit totaling $7,625,745will befunded by intergovernmental revenuesand bond proceedsin futurefiscal years. The school construction capital projectsfund iscurrently funded viashort-term debt. ➢ At the end of the fiscal year, undesignated fund balance for the general fund totaled $4,074,811, or 5.8 percent of total general fund expenditures. In theprioryear, undesignated fund balance for the general fund totaled $990,869. ➢ TheTown-stotal grossbonded debt decreased by $8,251,773 during the fiscal year; $900,OOOof new debt was i ssu ed. Overview of the Basic Financial Statements This discussion and analysis is intended to serve as an introduction to the basicfinancial statements,which consists of thefollowing three components: 1. Government-wide financial statements 2. Fund financial statements 3. Notesto the basicfinancial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of theTown-s finances, in a manner similar to a private-sector business. Thestatementof net assets presents information on all of theTown-s non-fiduciary assetsand liabilities,with the difference between thetwo reported as net assets. Overtime, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Town isimproving or deteriorating. Thestatement of activities presents information showing how the govern ment-s net assetschanged during the most recent fiscal year. All changes in net assets are reported assoon asthe underlying event giving riseto the changeoccurs, regardlessofthetiming of related cash flows. Thus, revenuesand expenses are reported in this statement for some items that will only result in cash flows in futurefiscal periods(e.g., uncollected taxes, earned but unused vacation leave,etc.). Town of North Andover,Massachusetts 5 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Both of the government-wide financial statements distinguish functions of the Town that are principally supported by taxes and intergovernmental revenues(governmental activities)from other functionsthat are intended to recover all or a significant portion of their costs through user fees and charges(business-typeactivities). Governmental activities include general government, publicsafety, education, publicworks, health and human services, culture and recreation and debt service(interest). Business-type activities includethe Town-swater, sewer and Osgood Hill Estate operations. The government-wide financial statements can be found on pages 15-17 of this report. Fund financial statements A fund is a grouping of related accountsthat is used to maintain control over resourcesthat have been segregated for specific activities or objectives. The Town, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds can be divided into thefollowing categoriesand aredescribed below: 1. Governmental funds 2. Proprietary funds 3. Fiduciary funds Governmental Funds Governmental funds are used to account for essentially the same functions reported asgovernmental activities in the govern ment-w ide fi nancial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflowsand outflowsof expendable resources, aswell as on balances of expendable resources available at the end of the fiscal year. Bch information may be useful in evaluating a govern ment-s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental fundswith similar information presented for governmental activitiesin the government-wide financial statements. By doing so, readersmay better understand the long-term effect of the government-s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town maintains 33 individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures,and changes in fund balances for the general,stabilization (special revenue), community preservation (special revenue), and school construction (capital project)funds, each of which are considered to be major funds. Data from the other 29 governmental funds are combined into a single, aggregated presentation titled nonmajor governmental funds. The Town adopts an annual appropriated budget for the general fund. A budgetary comparison statement has been provided to demonstrate compliance with the fiscal year 2006 budget. The basic governmental fund financial statements can be found on pages 18-24 of this report. Proprietary funds The Town maintains two types of proprietary funds. Enterprisefunds are used to report the same functions presented as busi ness-type activities in the government- wide financial statements. The Town uses enterprise funds to account for its water,sewer and Osgood Hill Estate operations,all of which are considered to be major funds. Town of North Andover,Massachusetts 6 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Internal servioefundsarean accounting device used to accumulate and allocate costs internally among the Town-S various functions. The Town uses an internal service fund to account for its employees—health insurance risk- financing activities. Becausethese services predominantly benefit governmental rather than business-type functions,they have been included within governmental activities in the government-wide financial statements but are combined into a single, aggregated presentation in the proprietary fund financial statements. The basic proprietary fund financial statements can be found on pages 25-27 of this report. Fiduciary funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Town-s programs. The accounting used for fiduciary funds is similar to that used for proprietary funds. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in thefiduciary fund financial statements under the captions"private purposetrust funds` and "agency funds` , respectively. The basicfiduciary fund financial statementscan befound on pages28-29 of this report. N otes to the basi c fi nancial statements The notes provide additional information that isessential to afull understanding of thedata provided in the government-wide and fund financial statements. The notes to the financial statementscan befound on pages30- 56 of this report. Other information In addition to the basicfinancial statements and accompanying notes,this report also presents additional information concerning budgetary comparisons of the enterprise funds on the budgetary basis of accounting. This additional information can be found on pages 57-59 of this report. Government-Wide Financial Analysis The following tables present current and prior year data on the government-wide financial statements. N et Assets As noted earlier, net assets may serve over time as a useful indicator of a government-s financial position. The Tow n-s assets exceed ed I iabi I ities by $134,583,037 at the d ose of the fiscal year and are su mmarized asfollows: Town of North Andover,Massachusetts 7 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Governmental Activities Business-Type Activities Total 2006 2005 2006 2005 2006 2005 Assets Current assets......................... $ 25,477,871 $ 53,559,865 $ 8,155,263 $ 9,151,921 $ 33,633,134 $ 62,711,786 Noncurrent assets(excluding capital assets).................... 20,787,725 21,968,451 1,331,170 1,226,486 22,118,895 23,194,937 Capital assets(net)................... 133,684,238 136,748,610 50,997,938 50,174,130 184,682,176 186,922,740 Total assets....................... 179,949,834 212,276,926 60,484,371 60,552,537 240,434,205 272,829,463 Liabilities Current liabilities (excluding debt)................. 6,312,992 6,382,508 751,599 560,996 7,064,591 6,943,504 Noncurrent liabilities (excluding debt)................. 1,240,098 1,156,665 224,000 280,000 1,464,098 1,436,665 Current debt........................... 17,480,404 46,641,726 3,291,883 3,285,419 20,772,287 49,927,145 Noncurrent debt...................... 49,974,986 55,990,312 26,575,206 29,462,089 76,550,192 85,452,401 Total liabilities.................. 75,008,480 110,171,211 30,842,638 33,588,504 105,851,168 143,759,715 N et Assets Invested in capital assets (net of related debt)............ 88,197,300 83,953,156 22,554,318 18,706,981 110,751,618 102,660,137 Restricted.............................. 3,923,673 1,406,105 - - 3,923,673 1,406,105 Unrestricted........................... 12,820,381 16,746,454 7,087,365 8,257,052 19,907,746 25,003,506 Total net assets.................. $ 104,941,354 $ 102,105,715 $ 29,641,683 $ 26,964,033 $ 134,583,037 $ 129,069,748 A portion of the Town-s net assets(82.3%) is its investment in capital assets(i.e., land, construction in progress, land improvements, buildings and improvements, machinery and equipment, library books,vehicles,treatment plants, pump stations, reservoirs and infrastructure); less any related outstanding debt used to acquirethose assets. These capital assets are used to provide servicesto citizens;consequently,these assets are not available for future spending. Although the investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources,since the capital assets themselves cannot be used to liquidatethese liabilities. The governmental activities investment in capital assets includes$21,740,209 of state school construction assistance which will be received in subsequent fiscal years as described in Note on page 43 of this report. An additional portion of the Town-s net assets(2.9%) represents resourcesthat are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets(14.8%or$19,907,746) may be used to meet the Town-s ongoing obligationsto citizens and creditors. Of this amount, $12,820,381 may be used to support governmental activities and $7,087,365 may by used to support business-type activities. At the end of the current fiscal year,the Town reports positive balances in all three categories of net assets, both for the government asawhole, aswell as for its separate governmental and business-type activities. Changes in Net Assets For the fiscal year ended June 30,2006,the Town-stotal net assets increased by $5,513,289 compared to an increase of$39,516,372 in the prior fiscal year. These amounts are summarized as follows: Town of North Andover,Massachusetts 8 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Governmental Activities Business-Type Activities Total 2006 2005 2006 2005 2006 2005 Revenues Program Re/enue'a Chargesfor services.................................... $ 7,583,604 $ 6,519,778 $ 9,311,476 $ 8,581,275 $ 16,895,080 $ 15,101,053 Operating grants and contributions................ 12,817,007 12,916,425 414,429 272,260 13,231,436 13,188,685 Capital grantsand contributions.................... 86,308 35,018,129 - - 86,308 35,018,129 General Re/enuea Real estate and personal property taxes........... 47,687,495 45,446,613 47,687,495 45,446,613 Motor vehicleand other excisetaxes............... 4,076,385 3,829,751 4,076,385 3,829,751 Tax and utility liens.................................... 365,140 342,485 365,140 342,485 Penaltiesand interest on taxes....................... 410,394 230,649 410,394 230,649 Payments in lieu of taxes............................. 1,441,209 1,291,432 1,441,209 1,291,432 Community preservation surcharges.............. 1,196,950 1,076,634 1,196,950 1,076,634 Grantsand contributions not restricted to specific programs.................................. 3,297,899 3,345,265 3,297,899 3,345,265 Unrestricted investment income.................... 880,381 367,927 880,381 367,927 Total revenues..................................... 79,842,772 110,385,088 9,725,905 8,853,535 89,568,677 119,238,623 Expenses General government........................................ 2,779,374 2,622,386 - - 2,779,374 2,622,386 Publicsafety................................................... 12,011,224 11,147,327 12,011,224 11,147,327 Education...................................................... 50,523,956 46,457,274 50,523,956 46,457,274 Publicworks.................................................. 4,466,922 6,566,414 4,466,922 6,566,414 Health and human services................................ 1,617,246 1,491,158 1,617,246 1,491,158 Cultureand recreation...................................... 2,494,159 2,172,150 2,494,159 2,172,150 Debtservice-interest....................................... 3,636,270 3,264,870 3,636,270 3,264,870 Water........................................................... - - 2,946,719 2,761,393 2,946,719 2,761,393 Sewer........................................................... 3,076,592 2,822,651 3,076,592 2,822,651 Osgood Hill................................................... 502,926 416,628 502,926 416,628 Total expenses.......................................... 77,529,151 73,721,579 6,526,237 6,000,672 84,055,388 79,722,251 Change in net assets before transfers......................... 2,313,621 36,663,509 3,199,668 2,852,863 5,513,289 39,516,372 Transfers,net....................................................... 522,018 896,724 (522,018) (896,724) - - Change in net assets.............................................. 2,835,639 37,560,233 2,677,650 1,956,139 5,513,289 39,516,372 Net assets-beginning of year.................................. 102,105,715 64,545,482 26,964,033 25,007,894 129,069,748 89,553,376 Net assets-end of year.......................................... $ 104,941,354 $ 102,105,715 $ 29,641,683 $ 26,964,033 $ 134,583,037 $ 129,069,748 Governmental activities increased the Town-s net assets by $2,835,639, accounting for 51.4%of the total growth in net assets. In the prior year,governmental activities increased the Tow n-s net assets by $37,560,233. The key element of this change is the prior year accrual of$34,618,264 in intergovernmental revenue from the Massachusetts School Building Authority (MSBA) for school construction assistance. Business-type activities increased the Tow n-s net assets by $2,677,650, accounting for 48.6%of the total growth in net assets. In the prior year, business-type activities increased the Town-s net assets by $1,956,139. The key element of this change is an increase in charges for services of approximately $730,000 primarily due to an increase in water consumption. Town of North Andover,Massachusetts 9 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Fund Financial Statement Analysis As noted earlier,the Town usesfund accounting to ensure and demonstrate compliancewith finance-related legal requirements. Governmental funds Thefocusofthegovernmental fundsisto provide information on near-term inflows, outflows,and balancesof expendable resources. Such information isuseful in assessing the Tow n-s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a govern ment-s net resources available for spending at the end of the fiscal year. At the end of the current fiscal year,thegovernmental funds reported combined ending fund balances totaling $4,826,830, an increase of$28,824,980 in comparison with the prior year. Approximately $10,495,000 represents undesignated fund balance of the general fund,special revenue funds, nonmajor capital projects funds and permanent funds. The school construction capital projects fund (major fund) deficit totaling $7,625,745 will be funded by intergovernmental revenues and bond proceeds in future fiscal years. The remainder of fund balance is designated or reserved to indicatethat it is not available for new spending because it has already been committed to: ➢ Liquidate contracts and purchase orders of the prior period ($239,040) ➢ Debt service($776,905) ➢ Perpetual permanent funds($27,582) ➢ Other specific purposes($399,195) ➢ Funding a portion of the fiscal year 2007 budget ($515,267) The general fund isthe chief operating fund of the Town. At the end of the current fiscal year, undesignated fund balance of the general fund totaled $4,074,811,whiletotal fund balancewas$5,606,023. As a measure of the general fund-s liquidity, it may be useful to compare both undesignated fund balance and total fund balance to total general fund expenditures. Undesignated fund balance represents 5.8%of total general fund expenditures, while total fund balance represents 8.0%of that same amount. The balance of the Town-s general fund increased by $1,853,576 during fiscal year 2006. The Town recognized an approximate$4,214,000 budgetary surplus(budget vs. actual activity),while approximately $1,862,000 of reserves was utilized for spending during fiscal year 2006. Financial highlights of the Tow n-s other major governmental funds are as follows: The fund balance of the stabilization fund (special revenue) increased by $815,466 during the current fiscal year. This is primarily attributable to atransfer from the general fund totaling $787,811. The fund balance of the community preservation fund (special revenue) increased by $1,657,948 during the current fiscal year. This is primarily attributableto a decrease in capital expenditures. The fund balance of the school construction capital projects fund increased by $25,109,820 during the current fiscal year. This is primarily attributable to the receipt of funds from the MSBA. Proprietary funds TheTown-s proprietary funds provide the same type of information found in the government-wide financial statements, but in moredetail. Town of North Andover,Massachusetts 10 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Unrestricted net assets of thewater,sewer and Osgood Hill enterprise funds at the end of the year amounted to $1,962,713,$4,945,108 and $179,544, respectively. The water,sewer and Osgood H ill enterprise funds had increases in net assetsfor the year totaling $1,820,830,$639,343 and $217,477, respectively. Other factors concerning the finances of these three funds have already been addressed in the discussion of the Town-s business-type activities. General Fund Budgetary Highlights The original general fund budget of$67,219,103 was increased by $1,310,422(1.9%)during the fiscal year. The following table summarizesthe increase: Purpose of Increase/ Decrease Amount Funding Source Transfer to stabilization fund.................................... 787,811 Tax levy and NESWC reimbursement Debt service interest................................................ 427,074 Tax levy Transfer to receipts reserved for appropriation fund..... 100,000 Overlay surplus Various departmental decreases................................ (4,463) Tax levy Total increase......................................................... $ 1,310,422 During theyear,general fund revenues exceeded budgetary estimatesand other financing sourcesand expend itu res were less, resulting in an actual increase in fund balancethat exceeded thefinal amended budget amount by approximately $4,214,000. Encumbrances at June 30,2006,total approximately $239,000. Capital Asset and Debt Administration Capital assets The Tow n-s investment in capital assets for its governmental and business type activities at the end of the fiscal year totaled $184,682,176(net of accumulated depreciation). This investment in capital assets includes land, land improvements, buildingsand improvements, machinery and equipment, library books,vehicles,treatment plants, pump stations, reservoirsand infrastructure. Thetotal decrease in the investment in capital assetsfor the current fiscal year totaled $2,240,564, or 1.2%(a 1.6%decrease for governmental activities and a 0.4%increase for business-type activities). Major capital asset eventsthat occurred during the current fiscal year includethefollowing: ➢ Construction in progress-town hall renovations($205,000) ➢ School buildings($892,000) ➢ Education equipment ($144,000) ➢ Pu bl i c safety veh i d es($139,000) ➢ Continued reconstruction of roadways and sidewalks($355,000) ➢ Continued upgrades of thewater and sewer infrastructure($1,224,000) Town of North Andover,Massachusetts 11 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 The following table summarizes the Town-s capital assets(net of accumulated depreciation): Governmental Activities Business-Type Activities Total 2006 2005 2006 2005 2006 2005 Land.................................... $ 16,253,510 $ 16,203,510 $ 6,097,262 $ 6,097,262 $ 22,350,772 $ 22,300,772 Land improvements................ 1,216,112 1,351,987 162,771 171,818 1,378,883 1,523,805 Buildingsand improvements..... 87,015,491 89,122,083 1,446,973 1,213,414 88,462,464 90,335,497 Machinery and equipment........ 2,661,986 2,850,595 991,055 893,092 3,653,041 3,743,687 Library books......................... 408,949 517,854 - - 408,949 517,854 Vehicles................................ 940,320 1,126,749 164,154 179,844 1,104,474 1,306,593 Pump stations........................ - 1,448,566 1,564,223 1,448,566 1,564,223 Treatment plants..................... 8,973,460 9,425,718 8,973,460 9,425,718 Reservoirs............................. - - 601,720 654,041 601,720 654,041 Infrastructure......................... 19,184,907 19,872,477 29,505,464 28,922,746 48,690,371 48,795,223 Construction in progress........... 6,002,963 5,703,355 1,606,513 1,051,972 7,609,476 6,755,327 Total capital assets.................. $ 133,684,238 $ 136,748,610 $ 50,997,938 $ 50,174,130 $ 184,682,176 $ 186,922,740 Additional information on the Town-s capital assets can be found in Note5on pages 44-46 of this report. Long-Term Debt At the end of the current fiscal year,total gross bonded debt outstanding was$87,407,469,which is backed by the full faith and credit of the Town, and issummarized asfollows: Governmental Activities Business-TypeActivities Total 2006 2005 2006 2005 2006 2005 General obligation bonds........ $ 57,036,769 $ 62,326,700 $ 24,238,231 $ 26,820,303 $ 81,275,000 $ 89,147,003 MWPAT notes..................... - - 6,132,469 6,512,239 6,132,469 6,512,239 Total bondsand notes............ $ 57,036,769 $ 62,326,700 $ 30,370,700 $ 33,332,542 $ 87,407,469 $ 95,659,242 The Tow n-s total gross bonded debt decreased by $8,251,773 (8.6%) during the current fiscal year, with $900,000 of new debt issuances. The Town has A 1 rating from M oody-s Investors Services and A+from Standard and Poor-S. Additional information on the Town-s long-term debt can befound in Note8on pages48-53 of this report. Town of North Andover,Massachusetts 12 Basic Financial Statements M anagement-s Discussion and Analysis For the Fiscal Year Ended June 30,2006 Economic Factors and Next Yearis Budgets and Rates The fiscal year 2007 general fund operating budget will result in the continuation of service reductionsthat began in fiscal year 2004. Reasons for this include: The I i mitati ons of Proposition 23/,which I i mits the Tow n-s major sou rce of revenues, property taxes(71%of total revenues),to an annual increase of 2'h% plus a factor for new construction, unless the voters at an election approve an increase for operating expenses or debt service for a specific project. As a result of this limitation, excl usive of previously approved debt excl usions, property taxes in fiscal year 2007 are antici pated to increase by $2,001,523 or 4.5%over the previous year. Labor and employee benefits costs are rising at a higher rate then provided for under proposition 2'h. Employee benefits alone,which makeup 16.2%of the Tow n-s operating expenses, are anticipated to increase by $937,349 over fiscal year 2007, or 13.6%. StateAid,which makes up 13.7%of the Town-s operating revenues, is expected to have aslight increase in Lottery Aid and Chapter 90 in funding from fiscal year 2006 to fiscal year 2007. This is disturbing in light state and federal mandates, especially in the area of education, being imposed on municipalities. In order to partially mitigate these factors,the budget recommends,where appropriate,setting user charges at Ievelsto recoup the full costs of providing a particular service and more outside fund raising activities by the Library,Youth Services and Elder Services. However, even with the revenue enhancement initiatives,service and work force reductionswill be necessary to balance the fiscal year 2007 Budget. Recognizing the need to build a structurally balanced budget as a foundation towards long term financial stability, aswell asto increase reserves, the fiscal year 2006 budget transferred $787,811 from one time only revenues into the Stabilization fund providing a balance of$1,141,436 in this reserve fund. None of the Stabilization fund was useto balance the fiscal year 2007 Budget. Requests for I nformat ion This financial report is designed to provide a general overview of the Town-s finances for all thosewith an interest in its finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Budget Director/ Town Accountant,Town Hall, 120 Main Street, North Andover, Massachusetts 01845. Townof North Andover,Massachusetts 13 Basic Financial Statements Basic Financial Statements 14 STATEMENT OF NET ASSETS JJ N E 30,2006 Primary Government Governmental Business-type ASSETS Activities Activities Total Current assets: Cash and cash equivalents............................................................. $ 13,693,113 $ 2,259,106 $ 15,952,219 Restricted cash and cash equivalents................................................ 6,354,138 4,237,595 10,591,733 Investments................................................................................ 139,519 - 139,519 Receivables,net of al lowance for u nool lecti ble amounts: Real estate and personal property taxes....................................... 674,261 - 674,261 Tax and utility liens................................................................. 1,218,260 26,720 1,244,980 M otor vehicle and other excise taxes........................................... 313,045 - 313,045 Community preservation surcharges........................................... 8,000 - 8,000 User charges........................................................................... - 1,539,543 1,539,543 Departmental and other............................................................ 298,121 - 298,121 Intergovernmental................................................................... 2,456,803 92,299 2,549,102 Other assets................................................................................ 146 - 146 Prepaid expenses......................................................................... 5,875 5,875 Tax foreclosu res.......................................................................... 228,647 228,647 Working capital depost................................................................ 87,943 - 87,943 Total current assets............................................................. 25,477,871 8,155,263 33,633,134 Noncurrent assets: Receivables,net of al lowance for u ncol lecti ble amounts: Intergovernmental................................................................... 20,787,725 1,331,170 22,118,895 Capital assets not being depreciated................................................ 22,256,473 7,703,775 29,960,248 Capital assets,net of accumulated depreciation.................................. 111,427,765 43,294,163 154,721,928 Total noncurrent assets........................................................ 154,471,963 52,329,108 206,801,071 Total assets............................................................... 179,949,834 60,484,371 240,434,205 LIABILITIES Current liabilities: Warrants payable........................................................................ 795,031 362,078 1,157,109 Accrued payroll........................................................................... 2,209,844 - 2,209,844 Tax refu n d s payabl e..................................................................... 470,300 470,300 Other liabilities........................................................................... 259,143 259,143 Liabilities due depositors............................................................... 106,160 - 106,160 Accrued interest.......................................................................... 1,193,911 333,521 1,527,432 Accrued health claimspayable....................................................... 1,140,814 - 1,140,814 Courtjudgments.......................................................................... - 56,000 56,000 Compensated absences................................................................. 137,789 - 137,789 Short-term notes payable............................................................... 10,970,078 - 10,970,078 Long-term bondsand notespayable................................................ 6,510,326 3,291,883 9,802,209 Total current liabilities......................................................... 23,793,396 4,043,482 27,836,878 Noncurrent liabilities: Courtjudgments.......................................................................... - 224,000 224,000 Compensated absences................................................................. 1,240,098 - 1,240,098 Long-term bondsand notespayable................................................ 49,974,986 26,575,206 76,550,192 Total noncurrent liabilities.................................................... 51,215,084 26,799,206 78,014,290 Total liabilities.......................................................... 75,008,480 30,842,688 105,851,168 NET ASSETS Invested in capital assets,net of related debt...................................... 88,197,300 22,554,318 110,751,618 Restricted for Debt service........................................................................... 776,905 - 776,905 Community preservation.......................................................... 2,293,380 2,293,380 Permanent funds: Expendable....................................................................... 426,611 426,611 N on expen d abl e.................................................................. 27,582 27,582 Other specific purposes............................................................ 399,195 - 399,195 Unrestricted................................................................................ 12,820,381 7,087,365 19,907,746 Total net assets............................................................................ $ 104,941,354 $ 29,641,683 $ 134,583,037 lee notesto basicfinancial statements. Town of North Andover,Massachusetts 15 Basic Financial Statements STATEMENT OF ACTIVITIES FORTH E FISCAL YEAR ENDED JUNE30,2006 Program Revenues Operating Capital Net Chargesfor Grantsand Grantsand (Expense)/ Functions/Programs Expenses Services Contributions Contributions Revenue Primary government: Governmental activities: General government....................... $ 2,779,374 $ 399,486 $ 34,601 $ $ (2,345,287) Publicsafety................................. 12,011,224 3,527,254 338,815 (8,145,155) Education..................................... 50,523,956 2,366,543 10,938,343 (37,219,070) Publicworks................................. 4,466,922 131,403 150,894 86,308 (4,098,317) Health and human services.............. 1,617,246 347,883 66,896 - (1,202,467) Culture and recreation.................... 2,494,159 811,035 185,898 (1,497,226) Debtservice-interest..................... 3,636,270 - 1,101,560 - (2,534,710) Total governmental activities....... 77,529,151 7,583,604 12,817,007 86,308 (57,042,232)' Business-type activities: Water.......................................... 2,946,719 5,267,016 - - 2,320,297 Sewer.......................................... 3,076,592 3,536,767 414,429 874,604 Osgood Hill.................................. 502,926 507,693 - 4,767 Total business-type activities....... 6,526,237 9,311,476 414,429 - 3;199,668-' Total primary government........................ $ 84,055,388 $ 16,895,080 $ 13,231,436 $ 86,308 $ (53;842,564)' See notesto basic financial statements. Tow n of North Andover,Massachusetts 16 Basic Financial Statements STATEMENT OF ACT IV IT I ES(Continued) FORTH E FISCAL YEAR ENDED UN E 30,2006 Primary Government Governmental Business-type Activities Activities Total Changes in net assets: Net(expense)/ revenue(from previouspage)................ $ (57,042;232) $ 3,195,668 $ (53,842,564)+ General revenues: Real estate and personal property taxes................... 47,687,495 - 47,687,495 Motor vehicleand other excisetaxes....................... 4,076,385 - 4,076,385 Tax I i ens........................................................... 365,140 - 365,140 Penalties and interest on taxes............................... 410,394 - 410,394 Pay mentsin lieu of taxes...................................... 1,441,209 - 1,441,209 Community preservation surcharges...................... 1,196,950 - 1,196,950 Grants and contributions not restricted to specific programs.............................................. 3,297,899 - 3,297,899 Unrestricted investment income............................ 880,381 - 880,381 Transfers, net.......................................................... 522,018 (522,018) - Total general revenues and transfers........................... 59,877,871 (522,018) 59,355,853 Change in net assets............................................ 2,835,639 2,677,650 5,513,289 Net assets-beginning of year.................................... 102,105,715 26,964,033 129,069,748 Net assets-end of year............................................. $ 104,941,354 $ 29,641,683 $ 134,583,037 Town of North Andover, Massachusetts 17 Basic Financial Statements GOVERNMENTAL FUNDS BA LA N CE SH EET JU N E 30,2006 Community ASSETS General Stabilization Preservation Cash and cash equivalents................................................................ $ 9,406,450 $ 1,141,436 $ Investments................................................................................... - - Receivables,net of allowance for uncollectible amounts: Real estate and personal property taxes.......................................... 674,261 Tax liens................................................................................... 1,218,260 Motor vehide and other excisetaxes.............................................. 313,045 - Community preservation surcharges............................................. - 8,000 Departmental and other.............................................................. 200,640 - Intergovernmental..................................................................... 14,379,161 1,125,960 Otherassets................................................................................... 146 - Prepaid expenditures...................................................................... 5,875 Tax foreclosures............................................................................. 228,647 - Restricted assets: Cash and cash equivalents............................................................ - - 2,523,084 TOTAL ASSETS............................................................................. $ 26,426,485 $ 1,141,436 $ 3,657,044 LIABILITIESAND FUND BALANCES LIABILITIES: Warrants payable....................................................................... $ 667,522 $ $ 3,419 Accrued payroll......................................................................... 2,209,844 - Tax refunds payable................................................................... 470,300 - Other liabilities.......................................................................... 258,077 1,066 Liabilities due depositors............................................................. 106,160 - Deferred revenue....................................................................... 16,786,212 1,133,960 Accrued short-term interest.......................................................... 322,347 - Short-term notes payable............................................................. - 1,359,179 TOTAL LIABILITIES....................................................................... 20,820,462 2,497,624 FUND BALANCES: Reserved for: Encumbrancesand continuing appropriations............................. 239,040 Debt service......................................................................... 776,905 Perpetual permanent funds..................................................... - Other specific purposes........................................................... - Unreserved: Designated for subsequent year's expenditures............................ 515,267 Undesignated,reported in: General fund.................................................................... 4,074,811 - Special revenue funds........................................................ - 1,141,436 1,159,420 Capital projectsfunds........................................................ - - Permanent funds............................................................... - - TOTAL FUND BALANCES.............................................................. 5,606,023 1,141,436 1,159,420 TOTAL LIABILITIESAND FUND BALANCES.................................... $ 26,426,485 $ 1,141,436 $ 3,657,044 See notesto basicfinancial statements. Town of North Andover,Massachusetts 18 Basic Financial Statements School Nonmajor Total Construction Governmental Governmental Project Funds Funds $ $ 2,496,688 $ 13,044,574 139,519 139,519 - 674,261 1,218,260 313,045 - 8,000 97,481 298,121 7,649,209 90,198 23,244,528 - - 146 5,875 - - 228,647 2,019,691 1,811,363 6,354,138 $ 9,668,900 $ 4,635,249 $ 45,529,114 $ 34,537 $ 89,553 $ 795,031 - - 2,209,844 470,300 259,143 - 106,160 7,649,209 25,569,381 - 322,347 9,610,899 10,970,078 17,294,645 89,553 40,702,284 - - 239,040 - 776,905 27,582 27,582 399,195 399,195 - 515,267 - 4,074,811 1,900,191 4,201,047 (7,625,745) 1,792,117 (5,833,628) 426,611 426,611 (7,625,745) 4,545,696 4,826,830 $ 9,668,900 $ 4,635,249 $ 45,529,114 Town of North Andover,Massachusetts 19 Basic Financial Statements GOVERNMENTAL FUNDS STATEMENT OF REVENUES,EXPEND ITU RES AN D CHANGES IN FUND BALANCES FORTH E FISCAL YEAR ENDED JUNE 30,2006 Community General Stabilization Preservation REV EN U ES Real estate and personal property taxes....................................................... $ 47,835,561 $ $ Motor vehicleand other excisetaxes........................................................... 4,010,270 Tax and utility liens................................................................................. 393,770 Pay mentsin lieu of taxes.......................................................................... 1,401,504 - Community preservation surcharges.......................................................... - 1,128,331 Charges for services................................................................................ 770,526 - Intergovernmental ................................................................................. 13,940,898 1,051,237 Penalties and interest on taxes................................................................... 410,394 - Licenses,permitsand fees........................................................................ 1,771,187 Finesand forfeitures................................................................................ 120,993 Departmental......................................................................................... 503,197 Contributions......................................................................................... - - Investment income.................................................................................. 849,810 27,655 77,322 TOTAL REVENUES....................................................................... 72,008,110 27,655 2,256,890 EXPENDITURES Current: General government........................................................................... 2,214,520 - - Pu b l i c safety...................................................................................... 7,917,432 Ed u cat i on......................................................................................... 31,605,215 Pu bl i c w orks..................................................................................... 2,558,203 Health and human services.................................................................. 710,325 - Culture and recreation........................................................................ 711,554 198,403 Pension benefits................................................................................. 6,544,692 - Employee benefits.............................................................................. 6,842,992 Property and liability insurance............................................................ 340,145 State and county charges.......................................................................... 1,508,576 Debt service: Principal........................................................................................... 5,784,931 - Interest............................................................................................. 3,389,448 137,168 TOTAL EXPENDITURES................................................................ 70,128,033 - 335,571 EXCESS(D EFI CI EN CY)OF REV EN LIES OVER EXPEN DITURES........................................................................... 1,880,077 27,655 1,921,319 OTHER FINANCING SOURCES(USES) Transfers in........................................................................................... 799,728 787,811 - Proceedsof bondsand notes..................................................................... - - - Premium from issuance of bonds and notes.................................................. 61,582 14,339 Transfers out.......................................................................................... (887,811) (277,710) TOTALOTHERFINANCING SOU RCES(USES)................................. (26,501) 787,811 (263,371) NETCHANGEIN FUND BALANCES............................................................ 1,853,576 815,466 1,657,948 FUN D BALANCESAT BEGIN N ING OFYEAR................................................. 3,752,447 325,970 (498,528) FUND BALANCESAT END OFYEAR............................................................ $ 5,606,023 $ 1,141,436 $ 1,159,420 See notes to basic financial statements. Town of North Andover,Massachusetts 20 Basic Financial Statements School N onmajor Total Construction Governmental Governmental Project Funds Funds $ $ $ 47,835,561 4,010,270 393,770 39,705 1,441,209 - 1,128,331 3,353,016 4,123,542 25,963,698 2,791,448 43,747,281 - - 410,394 989,545 2,760,732 - 120,993 51,208 554,405 122,104 122,104 - 49,634 1,004,421 25,963,698 7,396,660 107,653,013 - 222,480 2,437,000 - 1,213,933 9,131,365 1,131,683 4,856,777 37,593,675 - 549,786 3,107,989 385,686 1,096,011 1,097,023 2,006,980 - 6,544,692 6,842,992 340,145 1,508,576 5,784,931 - - 3,526,616 1,131,683 8,325,685 79,920,972 24,832,015 (929,025) 27,732,041 - 100,000 1,687,539 277,805 217,195 495,000 - - 75,921 - - (1,165,521) 277,805 317,195 1,092,939 25,109,820 (611,830) 28,824,980 (32,735,565) 5,157,526 (23,998,150) $ (7,625,745) $ 4,545,696 $ 4,826,830 Town of North Andover,Massachusetts 21 Basic Financial Statements RECONCILIATION OFTHEGOVERNM ENTAIL FUNDS BALANCESHEET TOTALFUND BALANCES TOTH E STATEMENT OF NET ASSETS FOR THE FISCAL YEAR ENDED JUNE 30,2006 Total governmental fund balances(page 19).......................................................................................... $ 4,826,830 Capital assets(net of accumulated depreciation)used in governmental activities are not financial resources and,therefore,are not reported in the governmental funds.................................... 133,684,238 Other assets are not availableto pay for current period expenditures and, therefore,are deferred in the governmental funds......................................................................... 25,569,381 In the statement of activities,interest is accrued on outstanding long-term debt, whereas in the governmental funds interest is not reported until due................................................ (871,564) Long-term liabilities are not due and payable in the current period and, therefore,are not reported in the governmental funds. Bonds and notes payable,net of unamortized premiums and deferred losses on refundings.............. (56,485,312) Compensated absences....................................................................................................... (1,377,887) Internal servicefundsare used by management to account for health insurance activities.The assetsand Iiabilitiesof the internal servicefundsare reported asgovernmental activitiesin thestatement of net assets..................................................... (404,332) Net assetsof governmental activities(page 15)...................................................................................... $ 104,941,354 See notesto basicfinancial statements. Town of North Andover,Massachusetts 22 Basic Fi nand al Statements RECONCILIATION OF THE STATEMENT OF REV ENUES,EXPENDITURESAND CHANGESIN FUND BALANCES OF GOVERN MENTAL FUNDS TO THESTATEM ENT OFACTIVITIES FO R T H E FISCAL YEAR ENDED JU N E 30,2006 Net changein fund balances-total governmental funds(page 21).................................................... $ 28,824,980 Governmental funds report capital outlays as expenditures. However,in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. These amounts represent the related activity of the current period. Capitaloutlays......................................................................................................... 2,009,735 Depreciation............................................................................................................ (5,018,090) In thestatement of activities,only theloss on thedisposal of capital assets is reported, whereasin thegovernmental funds the transaction isnot reported sincethereisno useof financial resources. Asa result,thechangein net assets differs from thechange in fund balance by the net book value of the capital asset disposed of........................................... (56,017) Revenuesin thestatement of activitiesthat do not providecurrent financial resources arefully deferred in thestatement of revenues,expendituresand changes in fund balances. Therefore,therecognition of revenuefor varioustypesof accounts receivable (i.e.,real estateand personal property,motor vehicleexcise,etc.)differ between the two statements. Thisamount represents the net changein deferred revenue.............................. (27,886,162) Theissuanceof long-term debt(e.g.,bondsand leases)providescurrent financial resources to governmental funds,whilethe repayment of the principal of long-term debt consumes thefinancial resourcesof governmental funds. Neither transaction,however,hasany impact on net assets. Also,governmental funds report the effect of issuance costs, premiums,discounts,and similar itemswhen debt isfirst issued,whereasthese amounts aredeferred and amortized in thestatement of activities. These amounts represent the related activity of the current period. Bondmaturities........................................................................................................ 5,784,931 Amortization of deferred Iosseson refundings................................................................ (65,205) In thestatement of activities,interest isaccrued on outstanding long-term debt, whereasin thegovernmental fundsinterest isnot reported until due. Thisamount representsthe net change in accrued interest payable............................................................ (44,449) Some expenses reported in thestatement of activitiesdo not requirethe use of current financial resourcesand,therefore,are not reported in the governmental funds. Thisamount represent the net change in long-term liabilities: Compensated absences............................................................................................... (92,704) Internal servicefundsare used by management to account for health insurance The net activity of the internal servicefundsisreported with governmental activities................. (126,380) Changes in net assets of governmental activities(page 17)............................................................... $ 2,835,639 See notesto basicfinancial statements. Town of North Andover,Massachusetts 23 Basic Finandal Statements GENERAL FUN D STATEMENT OF REVENUES,EXPEND ITURESAND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FORTH E FISCAL YEAR ENDED JUN E 30,2006 Variance Original Final Positive/ Budget Budget Actual (Negative) REVENUES Real estate and personal property taxes.................................. $ 47,099,338 $ 47,809,760 $ 48,181,724 $ 371,964 M otor vehicle and other excise taxes...................................... 3,892,000 3,892,000 4,010,270 118,270 Tax liens........................................................................ - - 393,770 393,770 Payments in lieu of taxes..................................................... 1,424,900 1,424,900 1,401,504 (23,396) Chargesfor services............................................................ 635,000 635,000 770,526 135,526 Intergovernmental ............................................................ 8,684,465 8,684,465 9,478,898 794,433 Penaltiesand interest on taxes.............................................. 251,200 251,200 410,394 159,194 Licenses,permits and fees.................................................... 1,130,600 1,130,600 1,771,187 640,587 Fi n es an d forfeitures........................................................... 107,000 107,000 120,993 13,993 Departmental.................................................................... 283,856 283,856 503,197 219,341 Investment income............................................................. 350,000 350,000 849,810 499,810 N ES1NC Reimbursement..................................................... 400,000 900,000 1,646,312 746,312 TOTAL REVENUES.................................................. 64,258,359 65,468,781 69,538,585 4,069,804 EXPENDITURES Current: General government...................................................... 2,393,945 2,375,382 2,214,520 160,862 Publicsafety................................................................. 7,970,477 8,008,608 7,917,432 91,176 Education.................................................................... 31,543,809 31,620,765 31,605,215 15,550 Publicworks................................................................ 3,671,309 3,681,525 3,605,225 76,300 Health and human services............................................. 692,578 717,972 710,325 7,647 Culture and recreation................................................... 733,896 716,632 711,554 5,078 Pension benefits............................................................ 2,093,553 2,093,553 2,082,692 10,861 Employee benefits......................................................... 6,949,010 6,863,602 6,842,992 20,610 Property and liability insurance....................................... 374,247 340,145 340,145 - State and county charges..................................................... 1,601,718 1,601,718 1,508,576 93,142 Debt service: Principal...................................................................... 5,813,572 5,813,572 5,784,929 28,643 Interest........................................................................ 3,380,989 3,808,240 3,836,705 (28,465) TOTAL EXPENDITURES........................................... 67,219,103 67,641,714 67,160,310 481,404 EXCESS(D EFICI EN CY)OF REV EN U ES OVER EXPEN DITURES...................................................... (2,960,744) (2,172,933) 2,378,275 4,551,208 OTHER FINANCING SOURCES(USES) Transfers in...................................................................... 798,456 798,456 799,728 1,272 Premium from issuance of bonds and notes............................. 400,000 400,000 61,582 (338,418) Transfers out..................................................................... - (887,811) (887,811) TOTALOTHERFINANCING SOU RCES(USES)............ 1,198,456 310,645 (26,501) (337,146) NETCHANGEIN FUND BALANCE......................................... (1,762,288) (1,862,288) 2,351,774 4,214,062 FUN D BALANCEAT BEGIN N ING OFYEAR............................. 3,879,014 3,879,014 3,879,014 - FUND BALANCEAT END OFYEAR........................................ $ 2,116,726 $ 2,016,726 $ 6,230,788 $ 4,214,062 See notesto basicfinancial statements. Town of N ort h Andover,M assachusetts 24 Basi c Fi nanci al Statements PRO PRI ETA RY FU N D S SFA T EM EN T OF FUND NET ASSETS JJ N E 30,2006 Business-TypeActivities-Enterprise Funds Governmental Activities- Internal Osgood Service ASSETS Water Sewer Hill Total Funds Current assets: Cash and cash equivalents.................................................. $ 67,671 $ 1,995,024 $ 196,411 $ 2,259,106 $ 648,539 Restricted cash and cash equivalents..................................... 1,508,259 2,729,336 - 4,237,595 - Receivables,net of allowancefor uncollectibleamounts: User charges................................................................ 821,594 717,949 1,539,543 Utility liens................................................................. 26,497 223 26,720 Intergovernmental........................................................ - 92,299 92,299 - Working capital deposit...................................................... - - 87,943 Total current assets................................................... 2,424,021 5,534,831 196,411 8,155,263 736,482 Noncurrent assets: Receivables,net of allowancefor uncollectibleamounts: Intergovernmental........................................................ - 1,331,170 - 1,331,170 - Capital assets not being depreciated...................................... 152,387 3,462,302 4,089,086 7,703,775 Capital assets,net of accumulated depreciation....................... 22,989,098 18,688,749 1,616,316 43,294,163 Total noncurrent assets............................................. 23,141,485 23,482,221 5,705,402 52,329,108 - Total assets.................................................... 25,565,506 29,017,052 5,901,813 60,484,371 736,482 LIABILITIES Current liabilities: Warrantspayable.............................................................. 331,867 13,344 16,867 362,078 - Accrued interest............................................................... 129,441 204,080 - 333,521 - Accrued health claims payable............................................. - - - 1,140,814 Court judgments............................................................... - 56,000 56,000 - Long-term bonds and notes payable...................................... 1,957,712 1,334,171 - 3,291,883 - Total current liabilities.............................................. 2,419,020 1,607,595 16,867 4,043,482 1,140,814 Noncurrent liabilities: Court judgments............................................................... - 224,000 - 224,000 - Long-term bonds and notes payable...................................... 10,898,583 15,676,623 26,575,206 Total noncurrent liabilities......................................... 10,898,583 15,900,623 - 26,799,206 - Total liabilities................................................ 13,317,603 17,508,218 16,867 30,842,688 1,140,814 FU N D N ET ASSETS Invested in capital assets,net of related debt........................... 10,285,190 6,563,726 5,705,402 22,554,318 - Unrestricted..................................................................... 1,962,713 4,945,108 179,544 7,087,365 (404,332) Total fund net assets.......................................................... $ 12,247,903 $ 11,508,834 $ 5,884,946 $ 29,641,683 $ (404,332) Seenotesto basicfinancial statements. Town of North Andover,Massachusetts 25 Basic Financial Statements PRO PRI ETA RY FU N D S STATEMENT OF REVENUES,EX PEN SES A N D CH A N G ES I N FUND NET ASSETS FO R T H E FISCAL YEAR ENDED JJ N E 30,2006 Business-TypeActivities-Enterprise Funds Governmental Activities- Internal Osgood Sery i ce Water Sewer Hill Total Funds OPERATING REVENUES Chargesfor services................................................................. $ 5,117,029 $ 3,371,297 $ 507,693 $ 8,996,019 $ Utility liens............................................................................ 125,433 143,951 - 269,384 Penaltiesand interest............................................................... 24,554 21,519 46,073 - Employer contributions............................................................ - - - 6,365,235 Employee contributions............................................................ - 1,360,755 TOTAL OPERATING REVENUES.......................................... 5,267,016 3,536,767 507,693 9,311,476 7,725,990 OPERATING EXPENSES Cost of serviceand administration.............................................. 1,656,150 469,363 429,632 2,555,145 - GLSD assessment.................................................................... - 948,815 - 948,815 Repairsand maintenance.......................................................... 85,429 30,440 6,321 122,190 Depreciation........................................................................... 570,547 834,428 66,973 1,471,948 - Employee benefits................................................................... - - - - 7,881,436 TOTAL OPERATING EXPENSES........................................... 2,312,126 2,283,046 502,926 5,098,098 7,881,436 OPERATING INCOME(LOSS).............................................. 2,954,890 1,253,721 4,767 4,213,378 (155,446) NONOPERATING REVENUES(EXPENSES) Intergovernmental................................................................... - 413,209 - 413,209 - Investment income.................................................................. 1,220 1,220 29,066 Interest expense...................................................................... (634,593) (793,546) (1,428,139) - TOTAL NONOPERATING REVENUES(EXPENSES),NET......... (634,593) (379,117) - (1,013,710) 29,066 INCOME(LOSS)BEFORETRANSFERS.................................. 2,320,297 874,604 4,767 3,199,668 (126,380) TRANSFERS Transfers in............................................................................ - - 277,710 277,710 Transfers out.......................................................................... (499,467) (235,261) (65,000) (799,728) TOTA L T RAN SFERS........................................................... (499,467) (235,261) 212,710 (522,018) CHANGE IN FUNDNETASSEfS.................................................. 1,820,830 639,343 217,477 2,677,650 (126,380) FUND NEfASSETSAT BEGINNING OFYEAR................................ 10,427,073 10,869,491 5,657,469 26,964,033 (277,952) FUNDNEfASSETSATENDOF YEA R........................................... $ 12,247,903 $ 11,508,834 $ 5,884,946 $ 29,641,683 $ (404,332) See notesto basicfinancial statements. Town of North Andover,M assachusetts 26 Basic Financial Statements PROPRIETARY FUNDS STATEMENT OF CAS-i FLOWS FORTH E FI SCA L YEAR ENDED JJ N E 30,2006 Business-Type A ctivities-Enterprise Funds Governmental Act ivities- I nternal Osgood Service Water Sewer Hill Total Funds CASH FLOWS FROM OPERATING ACTIVITIES Receiptsfrom customersand users................................................................. $ 5,257,734 $ 3,637,240 $ 507,693 $ 9,402,667 $ 1,360,755 Receiptsfrom interfund services provided....................................................... - - - - 6,365,235 Paymentsto vendors.................................................................................... (1,177,976) (1,234,866) (268,445) (2,681,287) (7,836,289) Paymentsto employees................................................................................ (690,651) (273,018) (173,419) (1,137,088) NETCAS-I FROM OPERATING ACTIVITIES.............................................. 3,389,107 2,129,356 65,829 5,584,292 (110,299) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in................................................................................................ - - 277,710 277,710 Transfersout.............................................................................................. (499,467) (235,261) (65,000) (799,728) NETCAS-I FROM NONCAPITAL FINANCING ACTIVITIES........................ (499,467) (235,261) 212,710 (522,018) CASH FLOWSFROM CAPITALAND RELATED FINANCING ACTIVITIES Proceeds from the i ssu ance of bonds and notes.................................................. 305,000 100,000 - 405,000 Acquisition and construction of capital assets................................................... (1,394,142) (377,133) (290,904) (2,062,179) Principal paymentson bondsand notes........................................................... (1,982,709) (1,325,254) (3,307,963) I nterest expense.......................................................................................... (589,242) (574,832) (1,164,074) NET CAS-i FROM CAPITAL AND RELATED FINANCING ACTIVITIES......... (3,661,093) (2,177,219) (290,904) (6,129,216) CASH FLOWS FROM INVESTING ACTIVITIES Investment income...................................................................................... 1,220 1,220 29,066 NET CHANGE IN CASH AND CAS-i EQUIVALENTS.......................................... (771,453) (281,904) (12,365) (1,065,722) (81,233) CASH AND CAS-i EQUIVALENTSAT BEGINNING OF YEAR (I ncludes$2,347,383 and$3,011,239 reported as restricted in the water and sever enterprise funds,respectively)......................................................... 2,347,383 5,006,264 208,776 7,562,423 729,772 CASH AND CAS-i EQUIVALENTSAT END OFYEAR (Includes$1,508,259and$2,729,336 reported asrestricted in the water and sever enterprisefunds,respectively)................................................ $ 1,575,930 $ 4,724,360 $ 196,411 $ 6,496,701 $ 648,539 RECONCILIATION OFOPERATING INCOME(LOSS)TO NET CASH FROM OPERATING ACTIVITIES Operating income(loss)................................................................................ $ 2,954,890 $ 1,253,721 $ 4,767 $ 4,213,378 $ (155,446) Adjustmentsto reconcile operating income(loss)to net cash from operating activities: Depreciation.......................................................................................... 570,547 834,428 66,973 1,471,948 Changes in assetsand liabilities: Accounts receivable............................................................................ (9,282) 100,473 - 91,191 Working capital depost....................................................................... - - - (9,566) Warrants payable............................................................................... 23,394 (3,266) (5,911) 14,217 - Accrued health claimspayable.............................................................. - - 54,713 Courtjudgments................................................................................ (56,000) (56,000) - Dueto other funds............................................................................. (150,442) (150,442) - Total adjustments.......................................................................... 434,217 875,635 61,062 1,370,914 45,147 NETCAS-I FROM OPERATING ACTIVITIES $ 3,389,107 $ 2,129,356 $ 65,829 $ 5,584,292 $ (110,299) NONCASH INVESTING,CAPITAL AND FINANCING ACTIVITIES Intergovernmental debt subsidies(MWPAT).................................................... $ - $ 298,712 $ $ 298,712 $ Net amortization of deferred charges.............................................................. 74,671 6,752 81,423 leenotesto basicfinancial statements. Town of North Andover,Massachusetts 27 Basic Financial Statements FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JU N E 30,2006 Private Purpose Agency ASSETS Trust Funds Funds Cash and cash equivalents......................................................... $ 68,149 $ 4,760,929 LIABILITIES Warrantspayable................................................................ - 3,437 Liabilities due depositors...................................................... - 4,757,492 Total liabilities............................................................... - 4,760,929 N ET ASSETS Held in trust for other purposes.............................................. $ 68,149 $ - See n otes to basi c fi n an ci al statements. Town of North Andover,Massachusetts 28 Basic Fi nand al Statements FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FORTH E FISCAL YEAR ENDED JUN E 30,2006 Private Purpose Trust Funds ADDITIONS Net investment income: Interest.................................................................................. $ 1,124 N ET A SSETS A T BEGINNING O F YEAR.......................................... 67,025 NETASSETSAT END OF YEAR..................................................... $ 68,149 See notesto basicfinancial statements. Town of North Andover Massachusetts 29 Basic Financial Statements Notes to Basic Financial Statements For the Fiscal Year Ended�lune 30,2006 N OTE 1 —SU M M A RY O F SI G N I Fl CANT ACCOUNTING POLICIES A. General The basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America(GAAP). The Governmental Accounting Standards Board(GASB)is the standard- setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. B. Reporting Entity The Town of North Andover,Massachusetts(Town)is a municipal corporation that is governed by an elected Board of Selectmen. For financial reporting purposes,the basic financial statements include all funds,organizations,agencies,boards, commissions and institutions that are not legally separate from the Town. The Town has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and//or significance of their relationship with the Town are such that exclusion would cau se t h e Town-s basic financial statements to be misleading or incomplete. It has been determined that there are no component units that require inclusion in the basic financial statements. Jbint Venture A joint Venture is an organization(resulting from a contractual arrangement)that is owned, operated or governed by two or more participants as a separate and specific activity subject to joint control in which the participants retain an ongoing financial interest or ongoing financial responsibility. �loint control means that no single participant has the ability to unilaterally control the financial or operating policies of the joint Venture. The Town participates in the following joint Ventures with other municipalities to pool resources and share the costs,risks and rewards of providing goods and services to venture participants directly,or for the benefit of the general public or specified recipients. Greater Laurence Sanitary District(GLSD) GLSD operates a wastewater treatment plant for five member communities and is located within the Town. The GLSD is governed by a seven member board consisting of one appointed representative from the Town. The Town is i nd i rectly I i abl e for the GLSD-s d ebt and other expend itu res and is assessed an n u al ly for its share of operating and capital costs. For the fiscal year ended June 30,2006,the Tow n-s assessment w as approxi mately $949000. Separate financial statements may be obtained by writing to the Treasurer of the GLSD at 240 Charles Street,North Andover,MA 01845. Greater LawwenceRegional Technical Vocational School(GLRTVS) The GLRTVS is governed by a seven member school committee consisting of one elected representative from the Town. The Town is indirectly liable for the GLRTVSrdebtand other expenditures and is assessed annually for its share of operating and capital costs. For the fiscal year ended June30,2006,the Tow n-s assessment was approximately $150,500. Separate financial statements may be obtained by writing to the Treasurer of the GLRTVS at 57 River Road,Andover,MA 01801. Town 0 North Andover,Massachusetts 30 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 C. Government-Wideand Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements(statement of net assets and the statement of activities) report information on all non-fiduciary activities of the primary government and its component units. Governmental activities,which are primarily supported by taxes and intergovernmental revenues, are reported separately from businessrtypeactivities,which are primarily supported by user fees. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds,and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Internal service funds and fiduciary funds are reported by fund type. D. Measurement Focus, Basis of Accounting and Basis of Presentation Government-Wide and Fund Financial Statements The govern ment-w id e and enterprisefund financial statementsapply all applicable Financial Accounting Standards Board (FASB) pronouncements issued on or prior to November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstratesthedegreeto which the direct expenses of a function or segment are offset by program revenues. Direct expenses are those that areclearly identifiable with aspecificfunction or segment. Program revenues includethe following: ➢ Charges to customers or applicants who purchase, use, or directly benefit from goods,services, or privileges provided by a given function or segment. ➢ Grants and contributions that are restricted to meeting the operational requirements of a specificfunction or segment. ➢ Grants and contributions that are restricted to meeting the capital requirements of a specific function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. Except for charges between the general fund and enterprise funds,the effect of interfund activity has been eliminated from the government-wide financial statements. Elimination of these chargeswould distort the direct costs and program revenues reported for the functions affected. Town of North Andover,Massachusetts 31 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Fund Financial Statement Governmental fundsfinancial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptibleto accrual (i.e., measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgmentswhich are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60-days after the end ofthefiscal year. Investment income issusceptibleto accrual. Other receiptsand tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at thetime of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenuewhen the qualifying expenditures are incurred and all other grant requirements are met. Thefollowing major governmental funds are reported: Thegeneral fund isthe primary operating fund. It is used to account for all financial resources,except those required to be accounted for in another fund. Thestabilization fund is a special revenuefund used to account for the accumulation of resourcesto provide general and/ or capital reserves. Use of thisfund issubject to Town Meeting approval. The community preservation fund is a special revenue fund used to account for the 3% local real estatetax surcharge on nonexempt property (and matching statetrust fund distribution)that can be used for open space, historic resource and affordable housing purposes. Property exempt from the surcharge consists of the first $100,000 of all residential property and also property owned by low income or seniorswith a low or moderate income as defined by Massachusetts Department of Revenue(DOR)guidelines. Disbursements from thisfund must originatefrom the Community Preservation Committee and be approved by Town Meeting. Theschool oonstruction project fund is a capital projectsfund used to account for financial resourcesto expand and upgrade the school facilities. The non major governmental funds consist of other special revenue, capital projects and permanent fundsthat are aggregated and presented in the non major governmental fundscolumn on thegovernmental fundsfinancial statements. Thefollowing describes the general useofthesefund types: The special revenuefund is used to account for the proceeds of specific revenue sources(other than capital projects funds or permanent funds)that are restricted by law or administrative action to expenditures for specified purposes. The capital projectsfund is used to account for financial resourcesto be used for the acquisition or construction of major capital facilities(other than thosefinanced by enterprise funds). The permanent fund is used to account for financial resourcesthat are legally restricted to the extent that only earnings,and not principal, may be used for purposesthat support governmental programs. Proprietary fundsfinancial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting,whereby revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Town of North Andover,Massachusetts 32 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Proprietary funds distinguish operating revenuesand expensesfrom nonoperating items. Operating revenues and expenses generally result from providing servicesand producing and delivering goods in connection with theproprietary fundsprincipal ongoing operations. All revenuesand expensesnot meeting thisdefinition are reported as nonoperating revenues and expenses. Thefollowing major proprietary funds are reported: Thewater enterprisefund is used to account for thewater activities. Thesewer enterprisefund is used to account for thesewer activities. The Osgood Hill enterprisefund is used to account for the operation of Osgood Hill Estate activities. Additionally,thefollowing proprietary fund type is reported: The internal servioefund is used to account for the financing of services provided by one department to other departments or governmental units. Thisfund is used to account for risk financing activities related to employees—health insurance. Fiduciary funds fi nancial statements are reported using the flow of economic resources measurement focus and usetheaccrual basisof accounting. Fiduciary fundsareused to account for assetsheld in a trustee capacity for othersthat cannot be used to support the govern ment-s programs. Thefollowing fiduciary fund typesare reported: The private-pu rposet rust fund is used to account for trust arrangements, other than those properly reported in the permanent fund, underwhich principal and investment income exclusively benefits individuals, private organizations, or other governments. The agency fund is used to account for assets held in a custodial capacity. Such assets consist primarily of performance bonds and bid deposits. Agency funds do not present the results of operations or have a measurement focus. E. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand,demand deposits and short-term investmentswith an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. F. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and fund financial statements are reported under the accrual basis of accounting and the modified accrual basis of accounting, respectively. Real Estate Taxes, Personal Property Taxes and Tax Liens Real estate and personal property taxes are levied and based on values assessed on January 1st of every year. Assessed values are established by the Board of Assessor-sfor 100%of the estimated fair market value. Taxes are dueon August 1st, November 1st, February 1st and May 1st and aresubject to penaltiesand interest if they are not paid by the respective due date. Town of North Andover,Massachusetts 33 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Real estatetax liens are processed approximately one-year after the dose of the valuation year on delinquent properties and are recorded as receivables in the fiscal year they are processed. M otor V eh i cl a Exci se Taxes Motor vehicle excise taxes are assessed annually for each vehicle registered in the Town and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles to the Tow n. The tax calculation is the fair value of the vehicle multiplied by $25 per$1,000 of value. Community Preservation Surcharges Community preservation surcharges are levied annually and at a rate of 3%of residents—real estatetax billswith exemptions for the first $100,000 of residential property and property owned by qualified personswith low income and seniors(60+)with low or moderate income as defined by DOR guidelines. The surcharge isduewith the real estatetax on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Overdue surcharges are included on thetax liens processed on delinquent real estate taxes. Surcharges are recorded as receivables in the fiscal year of the levy. Water and Sewer User Chargesand Utility Liens User fees are levied monthly based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Water and sewer liens are processed approximately six months after the end of the fiscal year and are included as a lien on the property owner-s tax bill. Water and sewer charges and liens are recorded as receivables in the fiscal year of the levy. Departmental and Other Departmental and other receivables primarily consist primarily of amounts due from ambulance charges and police details. These receivables are recorded when the applicable service has been performed. I ntergovern mental Various state and federal operating and capital grants are applied for and received annually. For non- expenditure driven grants, revenue is recognized as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, revenue is recognized when the qualifying expenditures are incurred and all other grant requirements are met. G. Allowance for U ncol lecti ble Amounts The allowance for uncollectible amounts is estimated based on historical trends and specific account analysis for the following accounts receivable: ➢ Personal property taxes ➢ Motor vehicle and other excise taxes ➢ Departmental and other Thefollowing typesof accounts receivable are secured viathe lien processand are considered 100%collectible. Accordingly, an allowancefor uncollectible amounts is not reported. ➢ Real estate taxes ➢ Tax and utility liens ➢ Community preservation surcharges ➢ User charges Town of North Andover,Massachusetts 34 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Intergovernmental receivables are considered 100%collectible. H. Inventories Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Such inventories are not material in total to the government-wide and fund financial statements and therefore are not reported. I. Restricted Assets Government-Wide and Fund Financial Statements Assets are reported as restricted when limitations on their use change the nature of the availability of the asset. Such constraints are either externally imposed by creditors,contributors,grantors, or laws of other governments, or are imposed bylaw through constitutional provisions or enabling legislation. J. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets,which consist of land, land improvements, buildings and improvements, machinery and equipment, library books,vehicles,treatment plants, pump stations, reservoirs, infrastructure(e.g., roads,water mains,sewer mains,and similar items) and construction-in-progress, are reported in the applicable governmental or business-type activities column of the government-wide financial statements. Capital assets are recorded at historical cost or at estimated historical cost if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for capital assets of thegovernmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of$10,000 are capitalized at the date of acquisition or construction, respectively,with expected useful lives of greater than oneyear. Capital assets(excluding land) aredepreciated on astraight-line basis. The estimated useful lives of capital assets are as fol I ows: Estimated Useful Life Capital Asset Type (in years) Land improvements.............................. 20-30 Buildings and improvements.................. 7-50 Machinery and equipment..................... 3-20 Library books...................................... 10 Vehicles.............................................. 5 Treatment plants.................................. 10-40 Pump stations...................................... 20-40 Reservoirs........................................... 20-40 Infrastructure...................................... 20-60 Town of North Andover,Massachusetts 35 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 The cost of normal maintenance and repairsthat do not add to the value of the assets or materially extend asset lives are not capitalized and aretreated asexpenseswhen incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the fiscal year of the purchase. K. Interfund Receivables and Payables During the course of its operations,transactions occur between and within fundsthat may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/ seller nature between and within governmental funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net assets as"internal balances` . Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivablesand payables resulting from these transactions are classified as"Duefromotherfunds` or"Dueto other funds` on the balance sheet. L. I nterfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. Government-Wide Financial Statements Transfers between and within governmental funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between thegovernmental activitiesand business- type activities are reported in thestatement of activities as"Transfers, net` . Fund Financial Statements Transfers between and within fundsarenot eliminated from the individual fund statementsand arereported as transfers in and transfers out. M. Deferred Revenue Deferred revenue at the fund financial statement level represents billed receivablesthat do not meet the available criterion in accordancewith thecurrent financial resources measurement focusand the modified accrual basisof accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide financial statements(full accrual). N. Net Assets and Fund Equity Government-Wide Financial Statements(Net Assets) Net assets are reported as restricted when amounts are restricted by outside parties for a specificfuture use. Town of North Andover,Massachusetts 36 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Net assets have been "rest ricted` fo r t h e fol I ow i n g: "Debt service` represents amounts accumulated from the M assachusetts School Building Authority (MSBA)to reduce school construction excluded debt service costs over the next three fiscal years. "Community preservation` represents amounts restricted for the purpose of acquiring land for conservation, recreational, and affordable housing purposes. "Permanentfunds—expendable` represents amounts held in trust for which the expenditures are restricted by varioustrust agreements. "Permanent funds—nonexpendable` represents amounts held in trust for which only investment earnings may be expended. "Other specific purposes` represents restrictions placed on assets from outside parties. Fund Financial Statements(Fund Balances) Fund balances are reserved for amountsthat are not available for appropriation or are legally restricted by outside parties for a speclficfuture use. Designations of fund balance represent tentative management plansthat are subject to change. Fund balances have been "reserved for` the following: "Encumbrances and continuing appropriations` represents amounts obligated under purchase orders, contracts and other commitments for expenditures that are being carried over to the ensuing fiscal year. "Debt service` represents amounts accumulated from the M assachusetts School Building Authority (MSBA)to reduce school construction excluded debt service costs over the next three fiscal years. "Perpetual permanent funds` represents amounts held in trust for which only investment earnings may be expended. "Other specific purposes` represents restrictions placed on assets from outside parties. Fund balances have been "designated for` thefollowing: "Subsequent year-s expenditures` represents amounts appropriated for the fiscal year 2007 operating budget. O. Longterm Debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statements of net assets. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the straight- line method. Bonds payable are reported net of the applicable bond premium or discount. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sourceswhen the debt is issued. Bond premiums and discounts, aswell as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs,whether or not withheld from the actual bond proceeds received,are reported as general government expenditures. Town of North Andover,Massachusetts 37 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 P. Investment Income Excluding the permanent funds, investment income derived from major and nonmajor governmental funds is legally assigned tothegeneral fund unless otherwise directed by Massachusetts General Law (MGL). Q. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave,which will be liquidated with expendable available financial resources, arereported as expenditures and fund liabilitiesupon employee retirements and resignations. R. Post Retirement Benefits Government-Wide and Fund Financial Statements In addition to providing pension benefits, health insurance coverage is provided (on a pay-as-you-go basis)for retired employeesand their survivorsin accordancewith MGL Chapter 32. Thesecostsare recognized by recording the employer-s65%share of insurance premiums in thegeneral fund in thefiscal year paid. Forthe fiscal year ended June30,2006,this expenditure totaled approximately $371,000. There were approximately 144 participants eligible to receive ben efits at June 30,2006. S. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basicfinancial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amountsof assetsand Iiabilitiesand disclosurefor contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/ expensesduring thefiscal year. Actual resultscould vary from estimatesthat were used. T. Total Column Government-Wide Financial Statements Thetotal column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements Thetotal column presented on thefund financial statements is presented only to facilitatefinancial analysis. Data in this column is not the equivalent of consolidated financial information. Town of North Andover,Massachusetts 38 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 N OTE 2—STEWARDSH I P,COMPLIANCEAND ACCOUNTABILITY A. Budgetary Information Municipal Law requiresthe adoption of a balanced budget that is approved by Town Meeting vote. The Finance Committee presents an annual budget to Town Meeting,which includes estimates of revenues and other financing sources and recommendations of expenditures and other financing uses. Town Meeting,which hasfull authority to amend and/ or reject the budget or any line item, adopts the expenditure budget by majority vote. Increases or transfers between and within departments subsequent to the approval of the annual budget, requires majority approval via Special Town Meeting and are included in the final budget. The majority of appropriationsare non-continuing which lapse at the end of each fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal year-s original budget. Generally, expenditures may not exceed the level of spending (salaries, expenses and capital) authorized for an appropriation account. However,the Town is statutorily required to pay debt service, regardless of whether such amounts are appropriated. An annual budget is adopted for the general fund inconformity with the guidelines described above. The original fiscal year 2006 approved budget for the general fund authorized $67,219,103 in appropriations, prior year encumbrances and other amounts to be raised. During fiscal year 2006,supplemental appropriations totaling $1,310,422 were authorized. The A ccou ntant-s off i ce has the responsibility to ensurethat budgetary control is maintained. Budgetary control is exercised through the accounting system. B. Budgetary—GAAP Reconciliation For budgetary financial reporting purposes,the Uniform Massachusetts Accounting System basis of accounting (established by the Commonwealth) is followed,which differs from the GAAP basis of accounting. A reconciliation of budgetary-basisto GAAP-basis results for the general fund for the fiscal year ended June 30, 2006, is presented below: Revenues Expenditures Budgetary basis as reported on the statement of revenues, expenditures and changes in fund balance-budget and actual....................................... $ 69,538,585 $ 67,160,310 Adjustments N et change i n record ng 60-d ay recei pts...................... (84,113) - Net change in recording tax refunds payable................ (262,050) - N et change i n recordi ng i nvestment i n N ESWC............ (1,646,312) (1,047,022) To record activity for MTRSon-behalf payments........... 4,462,000 4,462,000 Net change in recording short-term interest accrual....... - (447,255) GAAP basis as reported on the statement of revenues, expendituresand changesin fund balances.................. $ 72,008,110 $ 70,128,033 Town of North Andover,Massachusetts 39 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 C. Fund Deficits At June 30,2006,the following fund deficits exist: Fund Amount Funding Source School construction capital project(major fund)...... $ (7,625,745) Issuance of long-term debt and M SBA revenues Health insurance internal service fund................... (404,332) Employer contributions School cafeteria revolving special revenue.............. (312,214) User chargesand availablefunds Highway Improvements Fund............................. (192,702) Availablefunds Alternative high school special revenue................. (39,339) Federal grant Building permits GLSD special revenue................. (28,460) Availablefunds Title special revenue........................................ (15,125) Federal grant Drug freeschool special revenue.......................... (15,075) State grant Extra stipends special revenue............................. (11,342) Availablefunds SPED program special revenue............................ (10,603) Federal grant Teachers trai ni ng math/sciencespecial revenue...... (10,203) Federal grant Partnership award special revenue........................ (3,767) State grant Athletic association special revenue...................... (3,218) Availablefunds COA elder service special revenue........................ (3,000) State grant Fire- MDPH special revenue............................... (2,898) State grant D. Excess of Expenditures Over Appropriations During the fiscal year ended June 30,2006, expenditures exceeded appropriations for debt service interest. This over-expenditure will be funded by taxes during fiscal year 2007. NOTE 3—DEPOSITS AND INVESTMENTS Themunicipal finance laws of the Commonwealth authorize the Town to invest temporarily idle cash in bank term depositsand certificates of deposits, and treasury and agency obligations of the United States government, with maturities of one year or less; U.S.treasury or agency repurchase agreements with maturitiesof not more than 90 days; money market accounts; and thestatetreasurer-s investment pool –4he Massachusetts Municipal Depository Trust (M MDT). The M MDT meetsthe criteria of an external investment pool and operatesin accordance with applicable state laws and regulations. The Treasurer of the Commonwealth serves as Trustee. The reported value of the pool is the same asthe fair value of pool shares. A cash and investment pool is maintained that is available for use by all fundswith unrestricted cash and investments. The deposits and investments of permanent and private purpose trust funds are held separately from other Town funds. Deposits-Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of a bank failure,the Tow n-s d eposits may not be recovered. The Town does not have a policy for custodial credit risk of deposits.As of June 30,2006, $18,270,404 of the Town-s bank balance of$18,768,848 was uninsured and uncollateralized. Town of North Andover,Massachusetts 40 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Investments Summary The Town-s investments at June 30,2006 are presented below. All investments are presented by investment type, with debt securities presented by maturity. I nvestment M aturities Fair Less Than Investment Type Value 1 Year Debt Securities: Money market mutual funds......... $ 254,100 $ 254,100 Other Investments: External investment pools............. 14,673,314 Equity mutual funds.................... 139,519 Total other investments............... 14,812,833 Total investments........................ $ 15,066,933 Investments- Interest Rate Risk of Debt Securities Interest rate risk for debt securities isthe risk that changes in interest rates of debt securitieswill adversely affect thefair value of an investment. The Town does not have a policy for interest rate risk of debt securities. Investments-Custodial Credit Risk Custodial credit risk for investments isthe risk that, in the event of thefailure of the counterparty,the Town will not be ableto recover the value of its investments or collateral securities that are in the possession of an outside party. The Town does not have a policy for custodial credit risk of investments. As of June 30,2006, $393,619 of the Tow n-s investments of$15,066,933 was uninsured, not registered in thenameoftheTown, held by counterparty and exposed to custodial credit risk asfollows: Fai r Investment Type Value Money market mutual funds......... $ 254,100 Equity mutual funds.................... 139,519 Total.......................................... $ 393,619 Investments-Credit Risk of Debt Securities Credit risk for debt securities isthe risk that an issuer or other counterparty to a debt security will not fulfill its obligations. The Town does not have policy for credit risk of debt securities. As of June 30,2006,the credit quality ratings of the Tow n-s debt securities areas follows: Town of North Andover,Massachusetts 41 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Quality Rati ngs Fai r Investment Type Value AAA Money market mutual funds........ $ 254,100 $ 254,100 *Per the rating scale of Standard and Poor-s(a national credit rating organization) N 0 T 4—4CCOUN TS RECEIVABLE At June30,2006, recei vabl es for t h e individual major governmental fundsand nonmajor governmental, internal service, and fiduciary funds in the aggregate, including the applicable allowances for uncollectible amounts, are as fol I ow s: Allowance Gross for Net Amount Uncollectibles Amount Receivables: Real estate and personal property taxes......... $ 674,261 $ - $ 674,261 Tax liens................................................... 1,218,260 - 1,218,260 Motor vehicleand other excisetaxes.............. 544,157 (231,112) 313,045 Community preservation surcharges............. 8,000 - 8,000 Departmental and other.............................. 524,752 (226,631) 298,121 Intergovernmental..................................... 23,244,528 - 23,244,528 $ 26,213,958 $ (457,743) $ 25,756,215 At Ju ne 30,2006, receivables for the water and sewer enterprise funds consist of the follow ing: Allowance Gross for Net Amount Uncollectibles Amount Receivables: User charges............................................. $ 1,539,543 $ - $ 1,539,543 Utility liens............................................... 26,720 - 26,720 Intergovernmental..................................... 1,423,469 - 1,423,469 $ 2,989,732 $ - $ 2,989,732 Governmental funds report deferred revenue in connection with receivables and other assets(tax foreclosures) for revenues that are not considered to be available to liquidate I iabilities of the current period. Thefollowing identifies the various components of deferred revenue reported in the governmental funds: Town of North Andover,Massachusetts 42 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Community School General Preservation Construction Fund Fund (Major) Fund (Major) Total Receivable type: Real estate and personal property taxes................ $ 506,377 $ - $ - $ 506,377 Tax liens......................................................... 1,218,260 - - 1,218,260 M otor vehicle and other excise taxes.................... 313,045 - - 313,045 Community preservation surcharges.................... - 8,000 - 8,000 Departmental and other..................................... 200,640 - - 200,640 Intergovernmental (stateschool construction)........ 14,319,243 - 7,649,209 21,968,452 Intergovernmental (CPA state match).................. - 1,125,960 - 1,125,960 Tax foreclosures............................................... 228,647 - - 228,647 Total............................................................. $ 16,786,212 $ 1,133,960 $ 7,649,209 $ 25,569,381 The Commonwealth has approved school construction assistance. The assistance program,which is administered by the MSBA, provides resources for future debt service of previously issued general obligation school bonds outstanding. During fiscal year 2006, approximately $1,925,000 of such assistancewas received. Approximately $18,910,000 will be received in future fiscal years. Of this amount, approximately $4,819,000 represents reimbursement of long-term interest costs, and approximately $14,091,000 represents reimbursement of approved construction costs. Accordingly, a$14,090,791 intergovernmental receivable and corresponding deferred revenue have been reported in thegovernmental fundsfinancial statements. Thedeferred revenue has been recognized as revenue in the conversion to the government-wide financial statements. During fiscal year 2006,the MSBA authorized a partial reimbursement (totaling $26,740,603) of theschool building assistance award for the North Andover High School Project. Of this amount, $25,963,698 represents reimbursement of approved construction costs,which were used to retire outstanding bond anticipation notes, and $776,905 represents reimbursement of approved short-term interest costs,which were credited to the general fund and set aside to reduce related debt service costs over the next three fiscal years. The balance of the award is payableto theTown upon final audit of project costs. The remaining reimbursement is estimated to be$7,649,209 for approved construction costs and $228,452 for approved short-term interest costs. Accordingly, an intergovernmental receivable and corresponding deferred revenue have been recorded in the School Construction Project (Major Fund) and General Fund, respectively. Town of North Andover,Massachusetts 43 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 NOTE 5—CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30,2006,was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: Land........................................................... $ 16,203,510 $ 50,000 $ - $ 16,253,510 Construction in progress................................. 5,703,355 299,608 - 6,002,963 Total capital assets not being depreciated...... 21,906,865 349,608 - 22,256,473 Capital assets being depredated: Land improvements....................................... 2,717,500 - - 2,717,500 Buildingsand improvements........................... 115,303,639 891,703 - 116,195,342 Machinery and equipment.............................. 7,619,358 275,206 - 7,894,564 Library books................................................ 3,586,350 - - 3,586,350 V eh i d es...................................................... 2,524,772 138,478 (114,668) 2,548,582 Infrastructure............................................... 30,175,007 354,740 - 30,529,747 Total capital assets being depredated........... 161,926,626 1,660,127 (114,668) 163,472,085 Less accumulated depredation for: Land improvements....................................... (1,365,513) (135,875) - (1,501,388) Buildingsand improvements........................... (26,181,556) (2,998,295) - (29,179,851) Machinery and equipment.............................. (4,768,762) (463,816) - (5,232,578) Library books................................................ (3,068,496) (108,905) - (3,177,401) Vehides...................................................... (1,398,024) (268,889) 58,651 (1,608,262) Infrastructure............................................... (10,302,530) (1,042,310) - (11,344,840) Total accumulated depredation................... (47,084,881) (5,018,090) 58,651 (52,044,320) Total capital assets being depreciated, net............... 114,841,745 (3,357,963) (56,017) 111,427,765 Total governmental activities capital assets, net........ $ 136,748,610 $ (3,008,355) $ (56,017) $ 133,684,238 Town of North Andover,Massachusetts 44 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Beginning Ending Balance Increases Decreases Balance Business-Type Activities: Capital assets not being depreciated: Land........................................................... $ 6,097,262 $ - $ - $ 6,097,262 Construction in progress................................. 1,051,972 554,541 - 1,606,513 Total capital assets not being depreciated...... 7,149,234 554,541 - 7,703,775 Capital assets being depredated: Land improvements....................................... 216,259 - - 216,259 Buildingsand improvements........................... 1,541,440 290,904 - 1,832,344 Machinery and equipment.............................. 1,463,088 198,222 - 1,661,310 V eh i d es...................................................... 378,083 28,205 - 406,288 Treatment plants........................................... 16,573,234 - - 16,573,234 Pump stations............................................... 2,966,257 - - 2,966,257 Reservoirs.................................................... 1,477,296 - - 1,477,296 Infrastructure............................................... 37,246,076 1,223,884 - 38,469,960 Total capital assets being depredated........... 61,861,733 1,741,215 - 63,602,948 Less accumulated depredation for: Land improvements....................................... (44,441) (9,047) - (53,488) Buildingsand improvements........................... (328,026) (57,345) - (385,371) Machinery and equipment.............................. (569,996) (100,259) - (670,255) V eh i d es...................................................... (198,239) (43,895) - (242,134) Treatment plants........................................... (7,147,516) (452,258) - (7,599,774) Pump stations............................................... (1,402,034) (115,657) - (1,517,691) Reservoirs.................................................... (823,255) (52,321) - (875,576) Infrastructure............................................... (8,323,330) (641,166) - (8,964,496) Total accumulated depredation................... (18,836,837) (1,471,948) - (20,308,785) Total capital assets being depreciated, net............... 43,024,896 269,267 - 43,294,163 Total business-type activities capital assets, net........ $ 50,174,130 $ 823,808 $ - $ 50,997,938 Town of North Andover,Massachusetts 45 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Depreciation expensewas charged to functions/ programs of the primary government as follows: Governmental Activities: General government.................................................... $ 34,385 Pu bl i c safety............................................................... 392,772 Ed u cati on.................................................................. 2,930,296 Pu bl i c w orks............................................................... 1,228,341 Health and human services........................................... 125,964 Culture and recreation................................................. 306,332 Total depreciation expense-governmental activities.............. $ 5,018,090 Business-Type Activities: Water........................................................................ $ 570,547 Sewer........................................................................ 834,428 Osgood...................................................................... 66,973 Total depredation expense-business-typeactivities.............. $ 1,471,948 NOTE6-4NTERFUND TRANSFERS Interfund transfers for the fiscal yearended June 30,2006, are summarized asfollows: Transfers In: Nonmajor Osgood Hill General Stabilization Governmental Enterprise Transfers Out: Fund Fund Funds Fund Total General Fund............................ $ - $ 787,811 $ 100,000 $ - $ 887,811 (1) Community Preservation Fund.... - - - 277,710 277,710 (2) Water Enterprise Fund................ 499,467 - - - 499,467 (3) Sewer Enterprise Fund................ 235,261 - - - 235,261 (3) Osgood Hill Enterprise Fund........ 65,000 - - - 65,000 (3) $ 799,728 $ 787,811 $ 100,000 $ 277,710 $ 1,965,249 1) Represents budgeted transfers to the stabilization fund ($787,811) and receipts reserved for appropriation special revenuefund ($100,000) for litigation expenses associated with pending appeals. 2) Represents transfer to fund Osgood Hill capital outlay. 3) Represents budgeted transfer for indirect costs. Town of North Andover,Massachusetts 46 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 NOTE 7—SHORT-TERM FINANCING Short-term debt may beauthorized and issued to fund the following: • Current operating costs prior to the collection of revenuesthrough issuance of revenue anticipation notes (RAN) or tax anticipation notes(TAN). • Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes(BAN) or grant anticipation notes(GAN). Short-term loansaregeneral obligationsand carry maturity datesthat are limited by statute. Interest expenditures/ expenses for short-term borrowings are accounted for in the general fund, community preservation fund and enterprise funds. Details related to the short-term debt activity for the fiscal year ended June 30,2006, is as follows: Notes Payable—Governmental Funds Origination Maturity Interest Balance at Balance at Type Description Date Date Rate 6/30/2005 Increases Decreases 6/30/2006 BAN High School Construction............................. 10/7/04 10/7/05 3.00% $ 36,350,917 $ $ (36,350,917) $ BAN Land Acquisition/CPA............................... 10/7/04 10/7/05 3.00% 4,571,083 (4,571,083) BAN High School Construction............................. 10/5/05 10/5/06 4.00% - 9,610,899 9,610,899 BAN Land Acquisition/CPA............................... 10/5/05 10/5/06 4.00% 1,359,179 1,359,179 BAN Sargent School Ventilation........................... 6/27/06 10/5/06 3.87% 72,805 (72,805) - BAN School System Technology Improvements....... 6/27/06 1015/06 3.87% 205,000 (205,000) BAN Roadwork................................................ 6/27/06 10/5/06 3.87% 217,195 (217,195) - Total....................................................... $ 40,922,000 $ 11,465,078 $ (41,417,000) $ 10,970,078 Notes Payable—Enterprise Funds Origination Maturity Interest Balance at Balance at Type Description Date Date Rate 6/30/2005 Increases Decreases 6/30/2006 BAN Water Supply System Security....................... 6/27/06 1015/06 3.87% $ $ 135,000 $ (135,000) $ BAN Bear H ill Water Tank.................................. 6/27/06 1015/06 3.87% 95,000 (95,000) BAN Sutton H ill Water Tank............................... 6/27/06 1015/06 3.87% 75,000 (75,000) BAN Sewer Extension........................................ 6/27/06 1015/06 3.87% 100,000 (100,000) Total....................................................... $ $ 405,000 $ (405,000) $ Subsequent Events On October 1,2006,the Town issued $2,339,000 of general obligation bonds. $900,000 of proceeds of the bonds were used to retire sargent school ventilation,school system technology improvements, roadwork,water supply system security,water tanks and sewer extension BAN-s outstanding as of June 30,2006. Accordingly,the $900,000 of general obligation bonds issued subsequent to year-end is included as long-term debt at June 30,2006. On October 4,2006,the Town issued BAN-s in theamount of 11,214,445 maturing on April 4,2007, at an interest rate of 4.00%. The BAN-s renew, in part, $9,610,899 of high school construction and $1,359,179 of land acquisition BAN-sthat matured on October 5,2006. NOTE 8—LON G-TERM DEBT Town of North Andover,Massachusetts 47 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Chapter 44, Section 10, of the M GL authorizes indebtedness up to a limit of 5%of the equalized valuation. Debt issued in accordance with thissection of the law is designated as being "inside the debt limit` . However,debt may be authorized in excess of that limit for specific purposes. Such debt,when issued, is designated as being ,,outside the debt limit` . The Town hasat various times entered into advance refunding transactions related to certain general obligation bonds. A portion oftheproceedsof bondswereplaced in an irrevocable trust to providefor all futuredebt service payments ontherefunded bonds. Accordingly,the trust account-s assets and liabilities for the defeased bonds are not included in the basic financial statements. At June 30,2006, $5,925,000 of bonds outstanding from advance refundings is considered defeased. Details related to the outstanding indebtedness at June 30,2006, and the debt service requirements areas follows: Bonds and Notes Payable—Governmental Funds Outstanding Outstanding Interest at June 30, at June 30, Project Rate 2005 Additions Reductions 2006 Municipal PurposeLoan of 1997...... 4.8-5.5% $ 1,093,000 $ - $ (534,000) $ 559,000 Land Acquisition - Public Domain.... 4.3-6.0% 3,485,000 - (195,000) 3,290,000 Municipal PurposeLoan 1998.......... 4.3-5.4% 14,950,000 - (840,000) 14,110,000 Municipal PurposeLoan 1998.......... 4.3-6.0% 7,545,000 - (575,000) 6,970,000 Municipal PurposeLoan of 2001...... 4.0-4.2% 575,000 - (150,000) 425,000 Municipal PurposeLoan of 2002...... 4.0-4.5% 10,032,500 - (2,092,500) 7,940,000 Municipal PurposeLoan of 2003...... 2.3-4.0% 865,245 - (121,125) 744,120 Municipal PurposeLoan of 2004...... 2.0-5.0% 7,220,000 - (985,000) 6,235,000 Refunding Bonds of 2004................ 2.0-4.2% 5,355,694 - (61,794) 5,293,900 M u n ci pal Pu rpose Loan of 2005...... 3.0-4.0% 1,562,000 - (230,512) 1,331,488 Municipal Pur pose Loan of 2005...... 3.0-4.0% 6,643,261 - - 6,643,261 High School Construction............... 3.3-5.0% 3,000,000 - - 3,000,000 Sargent School Ventilation............... 3.6-4.5% - 72,805 - 72,805 School System Technology.............. 3.6-4.5% - 205,000 - 205,000 Roadwork.................................... 3.6-4.5% - 217,195 - 217,195 Sub-total...................................... 62,326,700 495,000 (5,784,931) 57,036,769 Deferred Iosson refundings............. (616,662) - 65,205 (551,457) Total governmental funds, net......... $ 61,710,038 $ 495,000 $ (5,719,726) $ 56,485,312 Town of North Andover,Massachusetts 48 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Debt service requirements for principal and interest for governmental bonds and notes payable in future fiscal years are as follows: Fiscal Year Prindpal Interest Total 2007........... $ 6,575,531 $ 2,365,985 $ 8,941,516 2008........... 6,081,528 2,103,980 8,185,508 2009........... 6,140,223 1,852,371 7,992,594 2010........... 5,264,986 1,614,408 6,879,394 2011........... 5,191,242 1,402,706 6,593,948 2012........... 5,152,285 1,191,842 6,344,127 2013........... 4,058,798 976,530 5,035,328 2014........... 4,086,792 804,909 4,891,701 2015........... 2,928,396 642,708 3,571,104 2016........... 2,677,004 506,360 3,183,364 2017........... 2,715,000 382,432 3,097,432 2018........... 2,835,000 252,690 3,087,690 2019........... 1,010,000 117,462 1,127,462 2020........... 370,000 86,662 456,662 2021........... 370,000 71,862 441,862 2022........... 365,000 57,162 422,162 2023........... 355,000 42,762 397,762 2024........... 355,000 28,340 383,340 2025........... 354,984 13,696 368,680 2026........... 150,000 3,187 153,187 Total.......... $ 57,036,769 $ 14,518,054 $ 71,554,823 Town of North Andover,Massachusetts 49 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Bondsand Notes Payable-Water Enterprise Fund Outstanding Outstanding Interest at June 30, at June 30, Project Rate 2005 Additions Reductions 2006 Municipal PurposeLoan of 1996...... 4.0-5.2% $ 1,892,425 $ - $ (356,291) $ 1,536,134 Municipal PurposeLoan of 1997...... 4.8-5.5% 202,000 - (101,000) 101,000 Municipal PurposeLoan of 1998...... 4.5-5.4% 2,860,600 - (345,500) 2,515,100 Municipal PurposeLoan of 2001...... 4.0-4.2% 400,000 - (75,000) 325,000 Municipal PurposeLoan of 2002...... 4.0-4.5% 2,007,500 - (402,500) 1,605,000 Municipal PurposeLoan of 2003...... 2.3-4.0% 3,725,954 - (446,011) 3,279,943 Refunding Bonds of 2004............... 2.0-4.2% 964,307 - (13,207) 951,100 Municipal PurposeLoan of 2005...... 3.0-4.0% 2,432,000 - (243,200) 2,188,800 Municipal PurposeLoan of 2005...... 3.0-4.0% 510,000 - - 510,000 Water Supply System Security........ 3.6-4.5% - 135,000 - 135,000 Bear H i l l Water Tank..................... 3.6-4.5% - 95,000 - 95,000 Sutton H i I I Water Tank.................. 3.6-4.5% - 75,000 - 75,000 Sub-total..................................... 14,994,786 305,000 (1,982,709) 13,317,077 Deferred Iosson refundings............ (535,453) - 74,671 (460,782) Total water enterprise fund, net...... $ 14,459,333 $ 305,000 $ (1,908,038) $ 12,856,295 Debt service requirements for principal and interest for water enterprisefund bonds and notes payable in future fiscal years are as follows: Fiscal Year Pri nd pal Interest Total 2007...........$ 2,032,383 $ 511,793 $ 2,544,176 2008........... 1,917,371 432,620 2,349,991 2009........... 1,851,035 359,113 2,210,148 2010........... 1,789,138 285,384 2,074,522 2011........... 1,780,411 212,490 1,992,901 2012........... 1,312,282 152,155 1,464,437 2013........... 1,160,853 101,735 1,262,588 2014........... 598,137 56,071 654,208 2015........... 587,536 34,235 621,771 2016........... 207,931 11,330 219,261 2017........... 40,000 3,800 43,800 2018........... 40,000 1,900 41,900 Total.......... $ 13,317,077 $ 2,162,626 $ 15,479,703 Town of North Andover,Massachusetts 50 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Bondsand Notes Payable—Sewer Enterprise Fund Outstanding Outstanding I nterest at June 30, at Ju ne 30, Project Rate 2005 Additions Reductions 2006 •WPAT...................................... 3.7-5.4% $ 484,963 $ - $ (37,256) $ 447,707 •WPAT...................................... 3.4-5.4% 420,242 - (32,284) 387,958 •WPAT...................................... 3.4-5.4% 598,224 - (45,958) 552,266 Munici pal Purpose Loan of 1996...... 4.0-5.2% 387,575 - (63,710) 323,865 Munici pal Purpose Loan of 1998...... 4.3-5.4% 429,400 - (49,500) 379,900 Munici pal Purpose Loan of 1998...... 4.3-6.0% 505,000 - (40,000) 465,000 •WPAT...................................... 2.8-3.4% 871,849 - (47,862) 823,987 •WPAT...................................... 2.8-3.4% 325,266 - (18,103) 307,163 MWPAT...................................... 2.8-3.4% 1,172,226 - (64,083) 1,108,143 •WPAT...................................... 2.8-3.5% 223,081 - (11,972) 211,109 •WPAT...................................... 2.8-3.5% 182,521 - (9,980) 172,541 •WPAT...................................... 2.8-3.5% 133,707 - (6,381) 127,326 •WPAT...................................... 2.6-2.8% 2,100,160 - (105,891) 1,994,269 Munici pal Purpose Loan of2001...... 4.0-4.8% 1,085,000 - (160,000) 925,000 Munici pal Purpose Loan of2002...... 4.0-5.1% 3,880,000 - (230,000) 3,650,000 Munici pal Purpose Loan of2003...... 2.3-3.7% 3,558,803 - (292,865) 3,265,938 Munici pal Purpose Loan of2005...... 3.0-4.0% 1,633,000 - (168,288) 1,464,712 Munici pal Purpose Loan of2005...... 3.0-4.0% 346,739 - - 346,739 Sewer Extension............................ 3.6-4.5% - 100,000 - 100,000 Sub-total...................................... 18,337,756 100,000 (1,384,133) 17,053,623 Deferred loss on refundings............ (49,581) - 6,752 (42,829) Total sewer enterprise fund, net....... $ 18,288,175 $ 100,000 $ (1,377,381) $ 17,010,794 Town of North Andover,Massachusetts 51 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Debt service requirements for principal and interest for sewer enterprise fund bonds and notes payable in future fiscal years are as follows: Fiscal Year Pri nd pal I nterest Total 2007..........$ 1,340,923 $ 750,236 $ 2,091,159 2008.......... 1,358,730 699,444 2,058,174 2009.......... 1,371,172 639,391 2,010,563 2010.......... 1,398,348 586,387 1,984,735 2011.......... 1,406,717 512,559 1,919,276 2012.......... 1,376,216 457,386 1,833,602 2013.......... 1,385,336 396,985 1,782,321 2014.......... 1,394,085 340,967 1,735,052 2015.......... 1,418,362 273,318 1,691,680 2016.......... 1,028,734 211,245 1,239,979 2017.......... 850,000 164,397 1,014,397 2018.......... 860,000 122,513 982,513 2019.......... 650,000 82,867 732,867 2020.......... 625,000 52,322 677,322 2021.......... 375,000 26,240 401,240 2022.......... 215,000 11,018 226,018 Total......... $ 17,053,623 $ 5,327,275 $ 22,380,898 During fiscal year 2006,the Town issued $900,000 in general obligation bonds for school ventilation,school system technology improvements, roadwork,water and sewer projects. The Town receivessubsidy assistancefrom the Massachusetts Water Pollution Abatement Trust (MWPAT). Principal and interest on the outstanding bondsfor M WPAT issubsidized over the life of the bondsto assist the Town in the repayment of thisfuturedebt. During fiscal year 2006,the Town-ssubsidy totaled approximately $299,000. Future subsidiestotal approximately $2,998,000. The amount of MWPAT bonds outstanding at June 30, 2006,totaled $6,132,469. The Town issubject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30,2006,the Town had the following authorized and unissued debt: Purpose Amount High school construction.............................. $ 9,610,899 Publicsafety projects................................... 1,977 Publicworks projects................................... 698,195 * Education projects...................................... 330,000 * Community preservation (land acquisition)..... 1,359,179 Other general governmental projects.............. 32,000 Water projects............................................ 995,000 * Sewer projects............................................ 720,200 * Total............................................... $ 13,747,450 * $2,339,000 issued subsequent to year-end. Town of North Andover,Massachusetts 52 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Changes in Long-Term Liabilities During the fiscal year ended June 30,2006,the following changes occurred in long-term liabilities: Balance Balance June 30, June 30, Current 2005 I n cr eases D ecr eases 2006 Portion Governmental Activities: Bonds and notes payable,gross..... $ 62,326,700 $ 495,000 $ (5,784,931) $ 57,036,769 $ 6,575,531 Unamortized deferred loss on refu nd i ngs........................... (616,662) - 65,205 (551,457) 65,205 Bonds and notes payable, net........ 61,710,038 495,000 (5,719,726) 56,485,312 6,510,326 Compensated absences................ 1,285,183 - 92,704 1,377,887 137,789 Total......................................... $ 62,995,221 $ 495,000 $ (5,786,588) $ 57,703,633 $ 6,648,115 Business-type Activities: Bonds and notes payable,gross..... $ 33,332,542 $ 405,000 $ (3,366,842) $ 30,370,700 $ 3,373,306 Unamortized deferred loss on refundings........................... (585,034) - 81,423 (503,611) 81,423 Bonds and notes payable, net........ 32,747,508 405,000 (3,285,419) 29,867,089 3,291,883 Court judgments........................ 336,000 - (56,000) 280,000 56,000 Total......................................... $ 33,083,508 $ 405,000 $ (3,341,419) $ 30,147,089 $ 3,347,883 The governmental activities long-term liabilities are generally liquidated by the general fund,except for bond principal and interest costs related to the community preservation fund (major fund). NOTE9-RISK FINANCING The Town is exposed to various risks of loss related to torts;theft of,damage to and destruction of assets; errors and omissions;and natural disasters for which the Town carries commercial insurance. The Town participatesin a premium-based workers-compensation plan for itsactiveand retired employees. The Town isself-insured for itshealth insurance activities. These activities are accounted for in theinternal servicefund where revenues are recorded when earned and expenses are recorded when incurred. Town of North Andover,Massachusetts 53 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 Health Insurance The estimated "Incurred But Not Reported (IBNR)` claims is based on atwo month claims paid average. The liability at June 30,2006 totaled $1,140,814. Changes in the reported liability since July 1,2004, areasfollows: Current Year Balance at Claims and Balance at Beginning of Changes in Claims Fiscal Fiscal Year Estimate Payments Year-end Fiscal year 2005............... $ 913,514 $ 6,539,421 $ (6,366,834) $ 1,086,101 Fiscal year 2006............... $ 1,086,101 $ 7,881,436 $ (7,826,723) $ 1,140,814 NOTE10—PENSION PLAN Plan Description—The Town contributes to the Essex Retirement System (System),a cost-sharing multiple- employer defined benefit pension plan administered by the Essex County Retirement Board. Substantially all employees of the Town are members of the System, except for public schoolteachers and certain administrators who are members of the Massachusetts Teachers Retirement System (MTRS),to which the Town does not contribute. Pension benefits and administrative expenses paid by the Teachers Retirement Board arethe legal responsibility of the Commonwealth. The amount of these on-behalf paymentstotaled approximately $4,462,000 for the fiscal year ended June 30,2006, and, accordingly, are reported in the general fund as intergovernmental revenuesand pension expenditures. The System provides retirement,disability and death benefitsto plan members and beneficiaries. Chapter 32 of the M GL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increases in other benefits imposed by the Commonwealth-s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be authorized by the Essex County Retirement Board and are borne by the System. The System issues a publicly available report in accordance with guidelines established bythe Commonwealth-s Public Employee Retirement Administration Commission. That report may be obtained by contacting the System located at 36 Federal Street, Salem, Massachusetts, 01970. Funding Policy—Plan members are required to contributeto the System at rates ranging from 5%to 11%of annual covered compensation. The Town is required to pay into the System its share of the system-wide actuarial determined contribution that is apportioned among the employers based on active current payroll. Chapter 32 of MGL governsthe contributions of plan members. The Town-s contributionsto the System for the fiscal years ended June 30,2006,2005, and 2004 were$2,082,692, $1,947,643, and $1,693,461, respectively,which equaled its required contribution for each fiscal year. NOTE 11 —COM M ITM ENTS The Town is currently in the process of constructing a new H igh School. At June 30,2006,approximately $58,917,000 has been spent on the project,which is expected to be completed during fiscal year 2007. The Town has entered into contracts totaling approximately $2,422,000 for various school projects, publicsafety projects, publicworks projects, land acquisition and other governmental projects. The Town has entered into, or is planning to enter into, contracts totaling approximately $1,715,000 for improvement projects of itswater and sewer distribution systems. Town of North Andover,Massachusetts 54 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 The Town has entered into an agreement with Wheelabrator, Inc.to dispose a minimum tonnage of solid waste and make certain minimum payments for such disposal at Wheelabrator, Inc.-s facility located within the Town. These payments are unconditionally obligated without regard to any tonnage at the facility and whether or not the facility continues in operation. The Town-s cost under the agreement totaled approximately $470,000 for the fiscal year ended June 30,2006. As host community of the waste-to-energy facility (owned and operated by WNAI),the Town receives "Payment in Lieu of Taxes(PILOT)` that is equal to$2.05 for each ton of waste processed. This amount is adjusted annually for changes in the Boston consumer price index and totaled approximately $1,250,000 during fiscal year 2006. N OTE 12—NORTH EAST SOLI D WASTE COM M I TTEE(N ESWC) The Town previously participated in the NESWCjoint venture,which represented 23 communities in all matters related to solid waste disposal at a regional waste-facility located within the Town. During fiscal year 2006,the service agreement amongst the communities terminated pursuant to its terms. Accordingly,each of the communities-equity interest in N ESWC was returned to the communities. During fiscal year 2006,the Town received $1,646,312 as a return of their equity interest. NOTE 13—CONTINGENCIES Various legal actions and claims are pending against the Town. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any,at June 30,2006, cannot be ascertained, management believes any resulting liability should not materially affect the financial position of the Town at June 30,2006. The Town participates in a number of federal award programs. Although the grant programs have been audited in accordance with the provisions of the Single Audit Act Amendments of 1996 through June 30,2006,these programs are still subject to financial and compliance audits. The amount, if any,of expenditureswhich maybe disallowed by the granting agencies cannot be determined at this time, although the Town expects such amounts, if any,to be immaterial. NOTE 14-4MPLEMENTATION OFGASB PRONOUNCEMENTS During fiscal year 2006,the Town implemented the following GASB pronouncements: ➢ Statement#42,Aocounting and Financial Reporting for Impairment of Capital Assets and for Insuranoe Recoveries. ➢ Statement#46, Net Assets Restricted by Enabling Legislation, an amendment of GASB Statement No. 34. ➢ Statement#47,Aocounting for Termination Benefits. The implementation of these pronouncements had no impact on beginning net assets or beginning fund balances. Town of North Andover,Massachusetts 55 Basic Financial Statements N otesto Basic Financial Statements For the Fiscal Year Ended June 30,2006 NOTE 15—FUTURE IMPLEMENTATION OFGASBPRONOUCEMENTS The GASB has issued the following statements: ➢ Statement#43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,which is required to be implemented during fiscal year2008. This Statement will not impact the Tow n-s basic financial statements. ➢ Statement#45,A000unting and Financial Reporting by Employersfor Postemployment Benefits Other Than Pensions,which is required to be implemented during fiscal year 2009. The Town is currently evaluating the effect that this Statement will have on its basic financial statements. These pronouncements will be implemented by the required year of implementation. Town of North Andover,Massachusetts 56 Basic Financial Statements Additional I nformat i on 57 EN TERPRI SE FU N DS SCHEDULEOFREVENUES, EXPENSESAN D CHANGES IN FUND NETASSETS BUDGETARY BASIS-BUDGET AND ACTUAL FORTH E FISCAL YEAR ENDED JUNE 30,20D6 Water Fund Variance Original Rnal Positive/ Budget Budget Actual (Negative) OPERATING REVENUES Charges for services............................................................ $ 5,054,266 $ 5,054,266 $ 5,289,757 $ 235,491 Utility liens....................................................................... - - 125,267 125,267 Penaltiesand interest........................................................... 18,000 18,000 24,554 6,554 TOTAL OPERATING REVENUES................................ 5,072,266 5,072,266 5,439,578 367,312 OPERATING EXPENSES Cost of service and administration......................................... 1,843,954 1,843,954 1,741,579 102,375 GLSD assessment............................................................... - - - - Debtservice-principal........................................................ 2,190,032 2,190,032 1,982,708 207,324 TOTAL OPERATING EXPENDITURES......................... 4,033,986 4,033,986 3,724,287 309,699 EXCESS(D EFICI EN CY)OF REV EN U ES OPERATING INCOME(LOSS).................................... 1,038,280 1,038,280 1,715,291 677,011 N ON O PERATI N G REVENUES(EXPENSES) Interest expense................................................................. (573,285) (573,285) (589,244) (15,959) TOTAL N ON OPERATI N G REVENUES(EXPENSE),NET (573,285) (573,285) (589,244) (15,959) INCOME(LOSS)BEFORE TRANSFERS........................ 464,995 464,995 1,126,047 661,052 TRAN SFERS Transfers out..................................................................... (499,467) (499,467) (499,467) - CHANGE IN FUND N ET ASSETS............................................. (34,472) (34,472) 626,580 661,052 FUND N ETASSETSAT BEGIN NING OFYEAR........................... 211,342 211,342 211,342 - FU N D N ET ASSETS AT EN D OF YEA R...................................... $ 176,870 $ 176,870 $ 837,922 $ 661,052 Town of North Andover,Massachusetts 58 Additional I nformat ion Sewer Fund Osgood Hill Fund Variance Variance Original Final Positive/ Original Final Positive/ Budget Budget Actual (Negative) Budget Budget Actual (Negative) $ 3,103,193 $ 3,103,193 $ 3,476,434 $ 373,241 $ 415,871 $ 465,871 $ 507,693 $ 41,822 - - 163,232 163,232 - - - - 10,000 10,000 21,519 11,519 - - 3,113,193 3,113,193 3,661,185 547,992 415,871 465,871 507,693 41,822 609,669 609,669 555,805 53,864 352,143 455,915 435,953 19,962 1,264,982 1,264,982 948,815 316,167 - - - - 1,347,687 1,347,687 1,325,253 22,434 - - 3,222,338 3,222,338 2,829,873 392,465 352,143 455,915 435,953 19,962 (109,145) (109,145) 831,312 940,457 63,728 9,956 71,740 61,784 (554,666) (554,666) (574,832) (20,166) - - - - (554,666) (554,666) (574,832) (20,166) - - - (663,811) (663,811) 256,480 920,291 63,728 9,956 71,740 61,784 (235,261) (235,261) (235,261) - (63,728) (65,000) (65,000) - (899,072) (899,072) 21,219 920,291 - (55,044) 6,740 61,784 2,410,038 2,410,038 2,410,038 - 63,916 63,916 63,916 - $ 1,510,966 $ 1,510,966 $ 2,431,257 $ 920,291 $ 63,916 $ 8,872 $ 70,656 $ 61,784 Town of North Andover,Massachusetts 59 Additional I nformat ion