BAWA Annual Financial Report 2013 by Patti Jett

ANNUAL FINANCIAL REPORT of the

BAYTOVVI1i AREA WATER AUTHORITY (A Component Unit of the City of Baytown, Texas) For the Year Ended September 30, 2013

Prepared by the

CITY OF BAYTOWN, TEXAS FINANCE DEPARTMENT

GENERAL MANAGER Robert D. Leiper

PLANT MANAGER Darryl Fourte

DIRECTOR OF FINANCE Louise Richman, CPA

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BAYTOWN AREA WATER AUTHORITY TABLE OF CONTENTS

September 30, 2013 Page Transmittal Letter

Independent Auditors' Report

Independent Auditors' Report on Internal Control Over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

Management's Discussion and Analysis (Required Supplementary Information)

BASIC FINANCIAL STATEMENTS Statement of Net Position - Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Fund Statement of Cash Flows - Proprietary Fund

15 17

Notes to Financial Statements

REQUIRED SUPPLEMENTARY INFORMATION Budget to Actual (Budget Basis) Comparison

TEXAS SUPPLEMENTARY INFORMATION Services and Rates Schedule of Operating Expenses Schedule of Temporary Investments Long-Term Debt Service Requirements by Years (All Bonded Debt Services) Changes in Long-Tenn Bonded Debt Comparative Schedule of Revenues and Expenses Board Members and Administrative Personnel

Schedules TSI - 1 TSI - 2 TSI - 3

35 36 37

TSI - 5 TSI - 6 TSI - 7 TSI - 8

38 40 42 45

OTHER SUPPLEMENTARY INFORMATION Analysis of Changes in Property, Plant, and Equipment Revenue Bond Coverage

48 49

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BAYTOWN AREA WATER AUTHORITY 7425 Thompson Road, Baytown, Texas 77521-1056 (281) 426-3517

FAX (281) 426-3519

Transmittal Letter

To the President and Members of the Baytown Area Water Authority Board, Baytown Area Water Authority, and Citizens of Baytown, Texas: The financial statements of the Baytown Area Water Authority (the "Authority") for the year ended September 30, 2013 are hereby submitted. The Authority is presented as a discrete component unit of the City of Baytown (the "City") in the City's Comprehensive Annual Financial Report. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with management. We believe the information, as presented, is accurate in all material respects. It is presented in a manner designed to set forth fairly, in all material respects, the financial position and results of operations of the Authority as measured and reported by its financial activity. All disclosures necessary to enable the reader to gain an adequate understanding of the Authority's financial affairs have been included. Belt Harris Pechacek, LLLP has audited the financial records of the Authority for the fiscal year ended September 30, 2013, and their opinion is included in this report. The financial statements are the responsibility of the Authority. The responsibility of the independent public accountant is to express an opinion on the Authority's financial statements based on their audit. An audit is conducted in accordance with generally accepted auditing standards. Those standards require that the audit be planned and performed in a manner to obtain reasonable assurance as to whether the financial statements are free of material misstatements. The timely preparation of this report could not have been accomplished without the efforts and dedication of the staff. We would like to express our appreciation to our staff and other personnel who assisted in its preparation. In addition, we would like to thank the Board of Directors for their interest and support in planning and conducting the financial operations of the Authority in a responsible and progressive manner. Respectfully submitted,

Robert D. Leiper General Manager

Louise Richman, CPA Director of Finance

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors of the Baytown Area Water Authority of the City of Baytown, Texas: Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Baytown Area Water Authority (the "Authority"), a component unit of the City of Baytown, Texas, as of and for the year ended September 30, 2013, and the related notes to the financial statements, which collectively The prior year comprise the Authority's basic financial statements as listed in the table of contents. comparative information has been derived from the Authority's 2012 financial statements and, in our report dated November 29, 2012, we expressed an unqualified opinion on the respective financial statements of the business-type activities. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility 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 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the fmancial statements. 1 Partners Robert Belt, CPA Stephanie E.llarris, CPA Nathan. Krupkc,CPA

Houston 3210 Bing-le Rd., Ste. 300 Houston, TX 77055 713.263.1123

Renville 1304 South Front St. Bcllvillc,TX 77418 979.8653169

Austin 100 Congress Ave., Ste. 2000 Austin, TX 78701 512.381.0222

All Offices www.texasauditors.com info@taauditors.com 713.263.1550 fax

Governmental Audit Quality Center

MIR

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Authority as of September 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and budgetary comparison information, identified as Required Supplementary Information on the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority's basic financial statements. The transmittal letter, Texas Supplementary Information, and other supplementary information are presented for purposes of additional analysis and are not required parts of the financial statements. They have not been subjected to auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2013 on our consideration of the Authority's 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance.

Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas December 18, 2013 2

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERI\'MENT AUDITING STANDARDS December 18, 2013 To the Board of Directors of the Baytown Area Water Authority of the City of Baytown, Texas: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the accompanying financial statements of the business-type activities of the Baytown Area Water Authority (the "Authority"), a component unit of the City of Baytown, Texas, as of and for the year ended September 30, 2013, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents and have issued our report thereon dated December 18, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Authority's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

3 Partners Robert Belt, CPA Stephanie L. Ha -is, CPA Nathan Krupke, CPA

Houston 3210 Bingle Rd., Ste. 300 I louston, TX 77 055 713.26.3.1123

Bellville 1304 South Front St. Bellville, TX 77418 979.865.3169

Austin 100 Congress Ave., Ste. 2000 Austin, TX 78701 512.381.0222

All Offices ttsvwti.texasauditors.com infoi nsauditors.com 713263.1550 fax

Governmental Audit Quality Center =ID

Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

ARMS

ECHACEK, i.^

Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas

MANAGEMENT'S DISCUSSION AND ANALYSIS

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BAYTOWItii

AREA WATER AUTHORITY

MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended September 30, 2013

The purpose of the Management's Discussion and Analysis (MD&A) is to give the readers an objective and easily readable analysis of the Baytown Area Water Authority's (the "Authority") financial activities for the year. The analysis is based on currently known facts, decisions, or economic conditions. It presents short and long-term analysis of the Authority's activities, compares current year results with those of the prior year, and discusses the positive and negative aspects of that comparison. Please read the MD&A in conjunction with the Authority's financial statements, which follow this section. THE STRUCTURE OF OUR ANNUAL REPORT Components of the Financial Section

Management's Discussion and Analysis

Independent Auditors' Report

Statement of Net Position

Basic Financial Statements

Statement of Revenues, Expenses, and Changes in Net Position

Summary

Required Supplementary Information

Statement of Cash Flows

Notes to the Financial Statements

Detail

The Authority's basic financial statements include the statement of net position; statement of revenues, expenses, and changes in net position; statement of cash flows; and notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Basic Financial Statements The basic financial statements report information for the Authority as a whole. These statements include transactions and balances relating to all assets, including infrastructure capital assets. These statements are designed to provide information about cost of services, operating results, and financial position of the Authority as an economic entity. The statement of net position and the statement of revenues, expenses, and changes in net position, which appear first in the Authority's financial statements, report information on the Authority's activities that enable the reader to understand the financial condition of the Authority. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account even if cash has not yet changed hands. The statement of net position presents information on all of the Authority's assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. Other nonfinancial factors, such as the Authority's customer base and the condition of the Authority's infrastructure, need to be considered to assess the overall health of the Authority.

BAYTOWN AREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013

The statement of revenues, expenses, and changes in net position presents information showing how the Authority's net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows - the accrual method. The statement of cash flows presents information about the Authority's cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes are the last section of the basic financial statements. The basic financial statements can be found after the MD&A within this report. Other Information In addition to the financial statements, this MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI) concerning the Authority's budgetary comparison schedule. The RSI can be found after the notes to the financial statements within this report. FINANCIAL ANALYSIS OF THE AUTHORITY As noted earlier, net position may serve over time as a useful indicator of the Authority's financial position. The Authority's total net position increased from $28,036,688 to $31,167,205 (11.17 percent). Key elements of this increase are as follows: â&#x20AC;˘

Operating revenues increased $435,422 or 4.06 percent due to an increase in water usage rates.

Unrestricted net position increased by $2,124,442 from a balance of $3,352,671 to $5,477,113 (63.37 percent) at the end of this year. Unrestricted net position can be used to finance day-to-day operations without constraints established by debt covenants and enabling legislation.

BAYTOWN AREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013

Condensed Statement of Net Position: Dollar Change 2,001,978 353,328 (1,435,198) 920,108

Percent Change 53.1% 3.9% (1.6%) 1.9%

Total Assets

2013 5,772,592 9,326,691 35,320,953 50,420,236

Deferred charge on refunding Total Deferred Outflows of Resources

115,995

136,949

(20,954)

(15.3%)

Current liabilities Current liabilities - restricted Noncurrent liabilities Total Liabilities

295,479 2,109,700 16,963,847 19,369,026

417,943 2,356,515 18,825,931 21,600,389

(122,464) (246,815) (1,862,084) (2,231,363)

(29.3%) (10.5%) (9.9%) (10.3%)

16,613,101

16,277,169

335,932

5,210,729 3,866,262 5,477,113 31,167,205

4,168,821 4,238,027 3,352,671 28,036,688

1,041,908 (371,765) 2,124,442 3,130,517

Current and other assets Restricted assets Capital assets, net

Net investment in capital assets Restricted for: Capital projects Debt service Unrestricted Total Net Position

2012 3,770,614 8,973,363 36,756,151 49,500,128

2.1% 25.0% (8.8%) 63.4% ' 11.2%

Condensed Statement of Revenues, Expenses, and Changes in Net Position:

2013 Operating revenues Nonoperating revenues Contirbutions Total Revenues

11,165,765 74,152

2012 $

Percent Change 4.1% 6.4% 100.0% 3.2%

11,239,917

10,730,343 79,225 2,834,000 13,643,568

Depreciation expense Operating expenses Nonoperating expenses Total Expenses

1,827,405 5,649,987 632,008 8,109,400

883,640 5,881,318 623,438 7,388,396

943,765 (231,331) 8,570 721,004

106.8% (3.9%) 1.4% (1.5%)

Change in net position Beginning net position Ending Net Position

3,130,517 28,036,688 31,167,205

6,255,172 21,781,516 28,036,688

(3,124,655) 6,255,172 3,130,517

(36.6%) 28.7% 11.2%

Dollar Change 435,422 (5,073) (2,834,000) 430,349

BAYTOWN AREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013

BUDGETARY HIGHLIGHTS •

Operating revenues were $639,931 over the budget estimate due to greater than expected water sales.

•

Other operating expenses were $65,061 under budget due primarily to less than anticipated costs for services.

•

Nonoperating expenses were $1,765,265 under budget due primarily to capital projects that were not started but were budgeted.

CAPITAL ASSETS The Authority's plant operates at an average of 12.3 million gallons per day (MGD). The average capacity of the plant is 22.2 MGD and the peak capacity is 26 MGD. During the past 30 years, there has not been an interruption in service. The Authority is in compliance with all rules and regulations of the Environmental Protection Agency (EPA), Texas Commission on Environmental Quality (TCEQ), and Texas Department of State Health Services applicable to surface water treatment, analysis, and operations. At year end, the Authority had invested in $35,320,953 in capital assets net of accumulated depreciation. More detailed information about the Authority's capital assets is presented in the Note 5 to the financial statements. LONG-TERM DEBT

The Authority has sufficient reserves established for debt service requirements. The Authority's revenue bonds carry the rating of "A2" with Moody's Investors Service and "A" with Standard & Poor's. At year end, the Authority had $18,780,000 in revenue bonds outstanding versus $20,570,000 last year. More detailed information about the Authority's long-term liabilities is presented in Note 6 to the financial statements. ECONOMIC FACTORS The 2012-2013 budget projected sales of $10,525,834 for 12.25 MGD based upon an average rainfall year. A 9.5 percent rate increase, effective October 1, 2012, has been factored into sales projections. Fluctuations to average rainfall can significantly impact actual sales. The current rate structure is $2.53 per 1,000 gallons for the City of Baytown and $2.57 per 1,000 gallons for the customers outside the City of Baytown to cover the increased cost of operations including the purchase of untreated water. Since inception of the Authority's plant in 1981, there have been rate increases in 1988, 1993, 1999, 2007, 2009, 2010, 2011, and 2013. The Authority received a notice of a 1.9 percent increase from 0.56470 to 0.57540 effective April 1, 2011. The Authority received a notice of a 3.3 percent increase from 0.57540 to 0.59439 effective April 1, 2012. The City of Houston adjusts its rates by the amount of the Producers Price Index (PPI) for the prior year with the new rates taking effect April 1 of each year. In addition, a surcharge for additional water purchased over the 15.8 MGD average of the month is five percent. CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the Authority's finances and to show the Authority's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Baytown Finance Department, 2401 Market Street, Baytown, Texas 77522. A copy of the budget is available to the public at the Sterling Municipal Library and at the City of Baytown's city clerk office.

BASIC FINANCIAL STATEMENTS

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BAYTOWINN AREA WATER AUTHORITY STATEMENTS OF NET POSITION PROPRIETARY FUND September 30, 2013 Business-Type Activities Enterprise Fund 2013 2012 Assets Current Assets Cash and cash equivalents Receivables Total Current Assets

5,658,923 113,669 5,772,592

Restricted Assets Cash and cash equivalents - debt service Cash and cash equivalents - capital improvements Total Restricted Assets

4,102,567 5,224,124 9,326,691

4,504,582 4,468,781 8,973,363

264,321 871,909

264,321 6,418,293

Noncurrent Assets Nondepreciable capital assets: Land Construction in progress Depreciable capital assets: Plant and equipment Less accumulated depreciation Total Capital Assets, Net of Depreciation Total Noncurrent Assets Total Assets Deferred Outflows of Resources Deferred charge on refunding

51,357,435 (17,172,712) 35,320,953 35,320,953 50,420,236

Liabilities Current Liabilities Payable from Unrestricted Assets Accounts payable - unrestricted Due to primary government Total Current Liabilities Payable From Unrestricted Assets

Total Liabilities Net Position Net investment in capital assets Restricted for: Capital projects Debt service Unrestricted See Notes to Financial Statements. 13

115,995

136,949

295,479

282,733 135,210 417,943

236,305 13,395

Noncurrent Liabilities Bonds payable due in more than one year

3,589,658 180,956 3,770,614

45,418,844 (15,345,307) 36,756,151 36,756,151 49,500,128

295,479

Current Liabilities Payable from Restricted Assets Accrued interest payable Accounts payable - restricted Retainage payable Bonds payable due within one year Total Current Liabilities Payable From Restricted Assets Total Current Liabilities

Total Net Position

1,860,000 2,109,700 2,405,179

266,555 180,318 119,642 1,790,000 2,356,515 2,774,458

16,963,847 19,369,026

18,825,931 21,600,389

16,613,101

16,277,169

5,210,729 3,866,262 5,477,113 31,167,205

4,168,821 4,238,027 3,352,671 28,036,688

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BAYTOWN AREA WATER AUTHORITY STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2013

Business-Type Activities Enterprise Fund 2013 2012 Operating Revenues Sale of treated water: City of Baytown Municipal utility districts

Total Operating Revenues

9,816,742 1,349,023 11,165,765

Operating Expenses Raw water purchases and other supplies Contract personnel costs Maintenance Services Depreciation Total Operating Expenses

3,459,509 958,011 530,396 702,071 1,827,405 7,477,392

3,658,658 933,711 473,000 815,949 883,640 6,764,958

Operating Income

3,688,373

3,965,385

Non-operating Revenues (Expenses) Interest income Interest expense and fiscal agent fees Rents and royalties Miscellaneous Total Non-operating (Expenses)

10,956 (632,008) 2,158 61,038 (557,856)

Income Before Capital Contributions Capital contributions Change in Net Position Beginning net position Ending Net Position See Notes to Financial Statements.

9,448,646 1,281,697 10,730,343

12,951 (623,438) 4,136 62,138 (544,213)

3,130,517

3,421,172

2,834,000

3,130,517

6,255,172

28,036,688

21,781,516

31,167,205

28,036,688

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BAYTOWN AREA WATER AUTHORITY STATEMENTS OF CASH FLOWS PROPRIETARY FUND For the Year Ended September 30, 2013 Business-Type Activities Enterprise Fund 2013 2012 Cash Flows from Operating Activities Cash received from customers for sale of treated water Cash payments to suppliers for goods and services Cash payments to contract personnel for services Net Cash Provided by Operating Activities

Cash Flows from Noncapital Financing Activities Rents and royalties received Miscellaneous revenues received Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Construction of capital assets Principal paid on capital debt Proceeds from issuance of capital debt Interest and fiscal agent fees paid Cash Provided (Used) by Capital and Related Financing Activities

Net Increase in Cash and Cash Equivalents

Unrestricted cash and cash equivalents Restricted cash and cash equivalents Ending Cash and Cash Equivalents Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Changes in Operating Assets and Liabilities: (Increase) Decrease in: Receivables, net Increase (Decrease) in: Accounts payable Restricted payables Due to primary government Net Cash Provided by Operating Activities See Notes to Financial Statements.

$ $

10,656,748 (4,425,836) (933,711) 5,297,201

2,158 61,038 63,196

4,136 62,138 66,274

(392,207) (1,790,000)

(2,774,533) (3,665,000) 8,315,000 (712,446) 1,163,021

(613,138) (2,795,345)

Cash Flows from Investing Activities Interest received

Beginning cash and cash equivalents Ending Cash and Cash Equivalents

11,097,842 (4,996,045) (958,011) 5,143,786

10,956

12,951

2,422,593

6,539,447

12,563,021 14,985,614

6,023,574 12,563,021

5,658,923 9,326,691 14,985,614

3,589,658 8,973,363 12,563,021

3,688,373

3,965,385

1,827,405

883,640

67,287

(3,152)

12,746 (316,815) (135,210) 5,143,786

194,510 327,261 (70,443) 5,297,201

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BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS For the Year Ended September 30, 2013

NOTE 1- CREATION OF AUTHORITY The Baytown Area Water Authority ("the Authority") was created by House Bill No. 967 of the Texas Legislature on June 15, 1973. The Authority was created to purchase and distribute surface and/or underground water supplies to persons, corporations, municipal corporations, political subdivisions, and others. The boundaries of the Authority include all of Baytown, Texas and most of Baytown's extraterritorial jurisdiction in East Harris County, Texas. Presently, the Authority provides water to eight municipal entities which in turn service a total population area of 81,000 people. Administration of the Authority is vested in the Board of Directors, which held its first meeting on September 20, 1973. The Board of Directors is appointed by the City Council. The first Authority bonds were sold in May 1977. The water treatment plant and a portion of the water transmission lines were completed in 1981 and actual operations and sale of treated water began in April 1981. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements and accounting policies of the Authority are prepared in conformity with generally accepted accounting principles for local governmental units as prescribed by the Governmental Accounting Standards Board (GASB), which is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Authority's significant accounting policies are described below. A. Reporting Entity The City of Baytown, Texas (the "City") exercises significant influence over the operations of the Authority and, as a result, the Authority is a discretely presented component unit of the City. The Authority's financial statements are included as a discrete component unit in the government-wide financial statements of the City. The Authority has no component units and is presented on a standalone basis. The accounting policies of the Authority conform to generally accepted accounting principles as applicable to governmental entities and are presented as a proprietary fund type. The Authority has no employees. Personnel employed by the City are responsible for the physical operation and maintenance of the water treatment plant. The City's personnel perform the purchasing and accounting functions of the Authority. The Authority reimburses the City for payroll costs and related fringe benefits of personnel assigned to the water treatment plant operations and for goods and services purchased on its behalf B. Basis of Presentation - Fund Financial Statements The fund financial statements provide information about the Authority's funds. Separate statements for each fund category, proprietary, are presented. The emphasis of fund financial statements is on major enterprise funds, each displayed in a separate column. The Authority reports the following enterprise fund: Enterprise Fund The enterprise fund is used to account for water operations. The services are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses including depreciation) of providing goods or services to the general public on a continuing basis will be financed or recovered primarily through user charges. The enterprise fund is considered a major fund for reporting purposes. 19

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

C. Measurement Focus and Basis of Accounting The accounting and fmancial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. D. Budget The general manager for the Authority formulates a budget for the Authority's fiscal year beginning on October 1 and ending on September 30. Both the Authority Board and the City Connell approve the annual budget. E. Deposits and Investments The Authority's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-tenu investments with original maturities of three months or less from the date of acquisition. For the purpose of the statement of cash flows, the proprietary fund types consider temporary investments with maturity of three months or less when purchased to be cash equivalents. In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the Authority reports all investments at fair value, except for "money market investments" and "2a7-like pools." Money market investments, which are shortterm, highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool, are reported using the pools' share price. The Authority has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, Texas Government Code. In summary, the Authority is authorized to invest in the following: • • • • F.

Direct obligations of the U.S. government Fully collateralized certificates of deposit Mutual funds of specific type Statewide investment pools

Comparative Data Comparative total data for the prior year have been presented in selected sections of the accompanying fmancial statements in order to provide an understanding of the changes in the Authority's financial position and operations.

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 G. Receivables and Pavables All receivables are shown at full value and are expected to be 100 percent collected. The Authority reports payables as obligations that are expected to be financed with current available financial resources. H. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., water lines) have been recorded at cost. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. The costs of mil al maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Property, plant, and equipment of the Authority are depreciated using the straight-line method over the following estimated useful years: Estimated Useful Life 20 to 50 years 3 to 10 years

Asset Description Buildings, plant, and equipment Vehicles and office furniture I. Deferred Outflows/Inflows of Resources

In addition to assets, the statement of fmancial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the Statement of Net Position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has no items that qualify for reporting in this category. J. Long-Term Obligations The Authority reports long-term debt as a liability on the Statement of Net Position. Bond premiums and discounts are amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. K. Net Position Flow Assumption Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to 21

BAYTOWIsi

AREA WATER AUTHORITY

NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

report as restricted-net position and unrestricted-net position in the proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority's policy to consider restricted-net position to have been depleted before unrestricted-net position is applied. L.

Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates.

Proprietary Fund Operating and Nonoperating Revenues Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for sales and services. The enterprise fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for the enterprise fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

NOTE 3 - DEPOSITS AND INVESTMENTS Deposits - State statutes require that all deposits in financial institutions be fully collateralized by

U.S. government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a market value of not less than the principal amount of the deposits. The Authority's deposits were fully insured or collateralized as required by the state statutes at year end. The Authority also has $65,061 within the City's pooled bank account. The City consolidates cash to maximize investment earnings and streamline operations. The City's deposits were fully insured or collateralized as required by state statutes at year end. Investments - The Authority's Board has adopted a written investment policy regarding the

investment of its funds as defined by the Public Funds Investment Act (Chapter 2256 of the Texas Government Code). The investments of the Authority are in compliance with the Board's investment policy. The Authority is authorized to invest in U.S. government obligations and government pools. Investment Type Government Pool (TexPool) Government Pool (TexStar)

Fair Value $

12,045,152

2,459,180

Total

Portfolio Weighted Average Maturity

Weighted Average (Days) N/A N/A

Credit Risk AAAm AAAm

14,504,332

N/A

Interest Rate Risk - In compliance with the Authority's investment policy and as of year-end, the

Authority minimized the interest rate risk related to the decline in market value of securities due to rising interest rates in the portfolio by: limiting the weighted average of maturity not to exceed five years; structuring the investment portfolio so that securities matured to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the secondary market prior to 22

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

maturity; monitoring credit ratings of portfolio positions to ensure compliance with rating requirements imposed by the Public Funds Investment Act; and investing operating funds primarily in shorter term securities or similar government investment pools. Credit Risk - As of year end and in compliance with the Authority's investment policy, the Authority minimized credit risk losses due to default of a security issuer or backer by: limiting investments to the safest types of securities; prequalifying the financial institutions, brokers/dealers, intermediaries, and advisers with which the Authority will do business; and diversifying the investment portfolio so that potential losses on individual securities were minimized. The Authority invests in TexPool and the Texas Short Teim Asset Reserve Fund (TexStar). TexPool was established as a trust company with the Treasurer of the State of Texas as trustee, segregated from all other trustees, investments, and activities of the trust company. The State Comptroller of Public Accounts exercises oversight responsibility over TexPool. Oversight includes the ability to significantly influence operations, designation of management, and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool. The advisory board members review the investment policy and management fee structure. Finally, Standard & Poor's rates TexPool "AAAm". As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poor's, as well as to the office of the Comptroller of Public Accounts, for review. TexSTAR is a local government investment pool organized under the authority of the Interlocal Cooperation Act, Chapter 791, Texas Government Code, and the Public funds Investment Act, Chapter 2256, Texas Government Code. TexSTAR was created in April 2002 by contract among its participating governmental units and is governed by a board of directors. JPMorgan Fleming Asset Management (USA), Inc. and First Southwest Asset Management, Inc. act as co-administrators, providing investment management services, participant ser vices, and marketing, respectively. JPMorgan Chase Bank and/or its subsidiary, J.P. Morgan Investor Services, Inc., provide custodial, transfer agency, fund accounting, and depository services. TexPool and TexSTAR operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. TexPool and TexSTAR use amortized cost rather than fair value to report net assets to compute share prices. Accordingly, the fair values of the positions in TexPool and TexSTAR are the same as the values of TexPool and TexSTAR shares. NOTE 4 - RESTRICTED CASH AND CASH EQUIVALENTS Restricted cash and cash equivalents include proceeds from the sale of bonds issued for construction and reserves held to satisfy the debt service reserve requirements of the Authority's bond ordinances. The restricted cash and cash equivalents at year end are as follows: Bond construction funds Bond reserve funds

$ 5,224,124 $

4,102,567 9,326,691

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

NOTE 5 - CAPITAL ASSETS A summary of changes in capital assets for the year ended is as follows: Beginning Balance Capital assets, not being depreciated: Land Construction in progress Total Capital Assets Not Being Depreciated

264,321 6,418,293 6,682,614

381,523 381,523

Capital assets, being depreciated: Buildings Improvements other than buildings Machinery and equipment Total Capital Assets Being Depreciated Total Capital Assets

1,021,268 40,435,437 3,962,139 45,418,844 52,101,458

5,927,907 10,684 5,938,591 6,320,114

Less accumulated depreciation for: Buildings Improvements other than buildings Machinery and equipment Total Accumulated Depreciation Total Capital Assets Being Depreciated, Net

(573,902) (11,454,632) (3,316,773) (15,345,307) 30,073,537

(23,640) (1,237,808) (565,957) (1,827,405) 4,111,186

Business-Type Activities Capital Assets, Net

36,756,151

4,492,709

Ending Balance

(Decreases)

Increases $

$ (5,927,907) (5,927,907)

264,321 871,909 1,136,230

1,021,268 46,363,344 3,972,823 51,357,435 52,493,665

(5,927,907)

(597,542) (12,692,440) (3,882,730) (17,172,712) 34,184,723 $

(5,927,907)

35,320,953

NOTE 6 - REVENUE BONDS PAYABLE Outstanding bonds are payable using revenues generated from the sale of treated water to the City and other entities. The City also guarantees payment of bonds and such bonds may be redeemed prior to their scheduled maturity. The Authority is in compliance with all bond resolutions. The resolutions provide that reserves are sufficient to pay the current portion of the principal and interest payment. Redemption Provisions: 2006 Series Baytown Area Water Authority Water Supply Contract Revenue Bonds issued for $13,290,000. Of that amount, $10,953,934 has been drawn. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2017, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on May 1, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. 2007 Series Baytown Area Water Authority Water Supply Contract Revenue Refunding Bonds issued for $6,505,000. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2016, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on May 1, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. 2012 Series Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds issued for $8,315,000. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2023, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on May 1, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. 24

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

The following is a summary of changes in bonds payable for the year ended:

Beginning Balance Series 2006 2007 2012 Total Bonds

6,615,000 5,640,000 8,315,000 20,570,000

Less net (discount) and premium

Additions

Reductions

$ -

(590,000) (715,000) (485,000) (1,790,000)

45,932

Total Business-Type Activities

$ 20,615,932

6,025,000 4,925,000 7,830;000 18,780,000

(2,085) $

Amounts Due Within One Year

Ending Balance $

605,000 745,000 510,000 1,860,000

1,860,000

43,847

(1,792,085)

18,823,847 * $

Long term debt payable in more than one year

16,963,847

Less deferred charge on refunding from associated debt Long term debt related to capital assets

(115,995) $

18,707,852 *

As of year end, the debt service requirements on bonds outstanding for the next five years and thereafter are as follows: Year 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2032 Total

Principal 1,860,000 1,915,000 1,980,000 2,030,000 2,090,000 5,765,000 1,630,000 1,510,000 $ 18,780,000 $

Interest 567,132 511,402 453,570 393,392 331,180 866,597 412,051 132,400 3,667,724

Total 2,427,132 2,426,402 2,433,570 2,423,392 2,421,180 6,631,597 2,042,051 1,642,400 22,447,724

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 NOTE 7 - NET POSITION The Authority's net position has been reported net of related outstanding debt and unspent bond proceeds. The four components of net position: net investment in capital assets, restricted net position for capital projects, restricted net position for debt service, and unrestricted net position are detailed below: 2013

Net investment in capital assets: Capital assets, net of accumulated depreciation Outstanding debt that applies to capital assets Net Investment in Capital Assets

35,320,953 (18,707,852) 16,613,101

2012 $

36,756,151 (20,478,982) 16,277,169

Restricted for capital projects: Capital projects restricted assets Current liabilities from capital projects Restricted Net Position for Capital Projects

5,224,124 (13,395) 5,210,729

4,468,781 (299,960) 4,168,821

Restricted for debt service: Debt service restricted assets Accrued interest Restricted Net Position for Debt Service

4,102,567 (236,305) 3,866,262

4,504,582 (266,555) 4,238,027

5,772,592 (295,479) 5,477,113 31,167,205

3,770,614 (417,943) 3,352,671 28,036,688

Unrestricted net position: Current assets Current liabilities Unrestricted Net Position Total Net Position

NOTE 8 - RISK MANAGEMENT The Authority 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 Authority cooperatively purchases commercial insurance and participates in a public entity risk pool with the City of Baytown. The Authority and the City participate along with 2,596 other entities in the Texas Municipal League's Intergovernmental Risk Pool (the "Pool"). The Pool purchases commercial insurance at group rates for participants in the Pool. The Authority has no additional risk or responsibility to the Pool, outside of the payment of insurance premiums. The Authority has not significantly reduced insurance coverage or had settlements that exceeded coverage amounts for the past three fiscal years. NOTE 9 - CONTINGENT LIABILITIES The Tax Reform Act of 1986 instituted certain arbitrage restrictions consisting of complex regulations with respect to issuance of tax-exempt bonds after August 31, 1986. Arbitrage regulations deal with the investment of tax-exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebates are not reported and paid to. the Internal Revenue Service at least every five years for applicable bond issues.

BAYTOWN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013

NOTE 10 - COMMITMENTS AND CONTIGENCIES On October 24, 1994, the Authority entered into a 26-year agreement with the City of Houston to purchase raw water for treatment. The agreement was amended in January 2005 to increase the maximum obligation of the City of Houston to provide water from 11.9 MGD to 15.8 MGD and to extend the termination date to December 31, 2040. The Authority may reserve additional monthly quantities of untreated water by giving 30 days' notice to the City of Houston. Should the consumption exceed the contract quantity by ten percent, a five percent surcharge shall be charged against that portion of the consumption that exceeds the contract quantity. The Authority is contractually obligated to provide treated water to the City of Baytown. As with the City of Houston contract, the Authority increased the maximum obligation to provide treated water to the City of Baytown from 10.71 MGD to 14.22 MGD and extended the term of the contract through calendar year 2040. The Authority is also obligated to provide 1.58 MGD to other municipal entities making the total obligation 15.8 MGD. NOTE 11- RELATED PARTIES, CONCENTRATIONS, AND ECONOMIC DEPENDENCY The Authority is a discretely presented component unit of the City. In addition, approximately 90 percent of the Authority's operating revenues are attributable to the sale of treated water to the City. NOTE 12 - RESTATEMENT OF NET POSITION Beginning net position has been restated for governmental activities due to the implementation of GASB Statement 65, Items Previously Reported as Assets and Liabilities. This new standard requires bond issuance costs to be expensed when incurred rather than deferring and amortizing the costs over the life of the bonds. Accordingly, the beginning net position for governmental activities has decreased by $236,186. Business-Type Activities Prior year ending net position as reported Reduction for debt issuance costs Restated beginning net position

$ $

28,272,874 (236,186) 28,036,688

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REQUIRED SUPPLEMENTARY INFORMATION

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BAYTOWN AREA WATER AUTHORITY BUDGET TO ACTUAL (BUDGET BASIS) COMPARISON For the Year Ended September 30, 2013

Original and Final Budget Operating Revenues Sale of treated water: City of Baytown Municipal utility districts Total Operating Revenues

9,426,673 1,099,161 10,525,834

Operating Expenses Raw water purchase and other supplies Contract personnel costs Maintenance Services Total Operating Expenses

3,402,186 994,839 213,800 854,223 5,465,048

Nonoperating Revenue (Expenses) Interest income Interest expense and other expenses Rents and royalties Miscellaneous income Total Nonoperating (Expenses)

4,000 (4,579,480) 61,038 (4,514,442)

Changes in Net Position - Budgetary Basis

2013 (Budget Basis)

9,816,742 1,349,023 11,165,765

390,069 249,862 639,931

3,459,509 958,011 280,396 702,071 5,399,987

(57,323) 36,828 (66,596) 152,152 65,061

9,245 * (2,814,215) 2,158 61,038 (2,741,774)

546,344

Reconciliation of Budget Basis to GAAP Depreciation Principal payments Interest income from restricted bonds Capital purchases Adjustment to remove net effect of combined funds Change in Net Position

Variance Positive (Negative)

3,024,004

5,245 1,765,265 2,158 1,772,668 $

2,477,660

(1,827,405) 1,790,000 1,711 392,207 (250,000) 3,130,517

* Interest income does not include restricted interest income on bond funds. Notes to Required Supplementary Information 1. Annual budget is adopted on a basis consistent with generally accepted accounting principles (GAAP) with the exception of reconciling items noted above.

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TEXAS SUPPLEMENTARY INFORMATION

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BAYTOWN AREA WATER AUTHORITY TSI-I SERVICES AND RATES For the Year Ended September 30, 2013 1.

Services Provided by the Authority:

2. a. Retail Rates Based on 5/8" Meter:

WATER: City of Baytown Other districts

Wholesale Water Retail Rates Not Applicable

Minimum Charge

Minimum Usage

Flat Rate Y/N

Rate per 1000 Gallons over Minimum

$2.53 per 1000 gallons $2.57 per 1000 gallons

N/A N/A

N N

N/A N/A

Usage Levels N/A N/A

SURCHARGE: City of Baytown Other districts

5 percent on that portion that exceeds contract quantity Surcharge varies per municipal entity

b. Retail Service Providers: Number of wholesale water connections within the Authority as of the fiscal year end. Provide actual numbers and single family equivalents (ESFC) as noted: Inactive Connections Active Connections Active ESFC (ESFC) Wholesale Cities and MUD's 8 Total 8 3.

Total Water Consumption During the Fiscal Year: Gallons pumped into system: Gallons billed to customers:

4,859,325,480 4,781,020,607

Water Accountability Ratio: 0.984

Standby 4. Fees: Does the Authority assess standby fees? No Location of Authority: 5. Counties in which the Authority is located: Harris and Chambers Counties Is the Authority located entirely within one county? No Is the Authority located within a city? Partially City in which Authority is located: Baytown Is the Authority located within a city's extra territorial jurisdiction (ETJ)? Partly ETJs in which the Authority is located: Baytown Is the general membership of the Board appointed by an office outside the Authority? Yes If Yes, by whom? City of Baytown City Council

BAYTOWN AREA WATER AUTHORITY TSI-2 SCHEDULE OF OPERATING EXPENSES For the Year Ended September 30, 2013

Professional Fees: Auditing

Other Services

11,483 206,808

Purchases of Raw Water

2,773,503

Contracted Personnel Services

958,011

Utilities

483,780

Repairs and Maintenance

530,396

Chemicals

554,072

Administrative Expenses

131,934

Depreciation Total Expenses

1,827,405 7,477,392

The Authority has no employees; however, 15 full-time City of Baytown employees are contracted to the Authority.

BAYTOWN AREA WATER AUTHORITY TSI-3 SCHEDULE OF TEMPORARY INVESTMENTS For the Year Ended September 30, 2013

7PMorgan Chase TexPool TexStar Pooled cash and investments

Identification or Certificate Number Checking Acct N/A N/A N/A

Interest Rate Maturity Date 0.00% N/A 0.21% N/A 0.17% N/A 0.30% N/A Total Cash and Investments

Balance at End of Year $ 5,000 12,045,152 2,459,180 476,282 $ 14,985,614

Accrued Interest Receivable at End of Year N/A N/A N/A N/A

BAYTOWN AREA WATER AUTHORITY TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS (ALL BONDED DEBT SER VICES) For the Year Ended September 30, 2013

Due During Fiscal Year Ending 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Due During Fiscal Year Ending 2014 2015 2016 2017 2018 2019 2020 2021 2022

Principal Due 5/01 1,860,000 1,915,000 1,980,000 2,030,000 2,090,000 2,165,000 1,290,000 1,025,000 985,000 300,000 310,000 315,000 325,000 335,000 345,000 360,000 370,000 385,000 395,000 18,780,000

Annual Requirements for All Series Interest Interest Due 5/01 Due 11/01 $ 283,566 $ 283,566 255,701 255,701 226,785 226,785 196,696 196,696 165,590 165,590 132,259 132,259 97,530 97,530 81,435 81,435 67,877 67,877 54,197 54,197 50,447 50,447 46,185 46,185 41,460 41,460 36,585 36,585 31,350 31,350 25,744 25,744 19,894 19,894 13,650 13,650 6,913 6,913 $ 1,833,862 $ 1,833,862

Principal Due 5/01 605,000 620,000 640,000 655,000 675,000 695,000 710,000 735,000 690,000 6,025,000

Series 2006 Interest ' Interest Due 5/01 Due 11/01 84,210 $ 84,210 76,345 76,345 68,129 68,129 59,490 59,490 50,484 50,484 41,034 41,034 31,130 31,130 20,835 20,835 10,177 10,177 441,834 $ 441,834

Total 2,427,132 2,426,402 2,433,570 2,423,392 2,421,180 2,429,518 1,485,060 1,187,870 1,120,754 408,394 410,894 407,369 407,919 408,169 407,700 411,488 409,788 412,300 408,825 22,447,724

Total 773,420 772,690 776,258 773,980 775,968 777,068 772,260 776,670 710,354 6,908,668

BAYTOWN AREA WATER AUTHORITY TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS (ALL BONDED DEBT SERVICES) (Continued) For the Year Ended September 30, 2013

Due During Fiscal Year Ending 2014 2015 2016 2017 2018 2019

Due During Fiscal Year Ending 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Principal Due 5/01 745,000 775,000 805,000 835,000 865,000 900,000 4,925,000

Principal Due 5/01 510,000 520,000 535,000 540,000 550,000 570,000 580,000 290,000 295,000 300,000 310,000 315,000 325,000 335,000 345,000 360,000 370,000 385,000 395,000 7,830,000

Series 2007 Interest Interest Due 5/01 Due 11/01 100,706 $ 100,706 85,806 85,806 70,306 70,306 54,206 54,206 37,506 37,506 19,125 19,125 367,655 $ 367,655

Series 2012 Interest Interest Due 5/01 Due 11/01 98,650 $ 98,650 93,550 93,550 88,350 88,350 83,000 83,000 77,600 77,600 72,100 72,100 66,400 66,400 60,600 60,600 57,700 57,700 54,197 54,197 50,447 50,447 46,185 46,185 41,460 41,460 36,585 36,585 31,350 31,350 25,744 25,744 19,894 19,894 13,650 13,650 6,913 6,913 1,024,373 1,024,373 $

Total 946,412 946,612 945,612 943,412 940,012 938,250 5,660,310

Total 707,300 707,100 711,700 706,000 705,200 714,200 712,800 411,200 410,400 408,394 410,894 407,369 407,919 408,169 407,700 411,488 409,788 412,300 408,825 9,878,746

BAYTOWN AREA WATER AUTHORITY TSI-6 CHANGES IN LONG-TERM BONDED DEBT For the Year Ended September 30, 2013

Revenue Bonds Series 2006* Series 2007 Series 2012

Interest Rate 2.250 - 2.900% 4.000 - 4.250% 2.000 - 4.000%

Amount of Issue 13,290,000 $ 6,505,000 $ $ 8,315,000

Bonds Outstanding October 2012 $ 6,615,000 5,640,000 8,315,000 $ 20,570,000

Requirements Fiscal Year 2012-2013 Principal Due Interest Due 05/01 05/01 $ 590,000 $ 91,585 715,000 115,006 485,000 113,275 $ 1,790,000 $ 319,866

*As of September 30, 2013, $10,953,933 of the authorized total of $13,290,000 has been drawn. Paying Agent's Name & City: Series 2006 Bank of New York Mellon Trust Company, Dallas, Texas Series 2007 Bank of New York Mellon Trust Company, Dallas, Texas Series 2012 Bank of New York Mellon Trust Company, Dallas, Texas Debt service cash and investment balances as of September 30, 2013

$ 4,102,567

Average annual debt service payment (principal & interest) for remaining term of all debt

$ 1,181,459

Requirements Fiscal Year 2012-2013 Interest Due 11/01 Total $ 773,170 $ 91,585 945,012 115,006 711,550 113,275 $ 319,866 2,429,732 $

Bonds Outstanding September 2013 $ 6,025,000 4,925,000 7,830,000 $ 18,780,000

BAYTOWN AREA WATER AUTHORITY TSI- 7 COMPARATIVE SCHEDULE OF REVENUES AND EXPENSES For the Year Ended September 30, 2013

2013 Operating Revenues: Sale of treated water: City of Baytown Municipal utility districts Total Operating Revenues

Operating Expenses: Raw water purchases Contract personnel costs Supplies Maintenance Services Depreciation Total Operating Expenses

2012

9,816,742 1,349,023 11,165,765

3,459,509 958,011 530,396 702,071 1,827,405 7,477,392

10,956

2011

9,448,646 1,281,697 10,730,343

3,658,658 933,711

2010

8,808,195 1,117,353 9,925,548

2009

6,516,980 819,710 7,336,690

6,022,370 717,160 6,739,530

473,000 815,949 883,640 6,764,958

2,737,234 930,510 582,039 324,734 833,578 870,012 6,278,107

2,278,941 789,820 564,723 328,495 869,738 845,503 5,677,220

1,970,760 826,575 947,266 498,449 777,094 717,467 5,737,611

12,951

5,366

8,131

53,098

Nonoperating Revenues (Expenses): Interest income Interest expense and fiscal agent fees Mineral royalties Intergovernmental Miscellaneous

(632,008) 2,158 61,038

(623,438) 4,136 62,138

(600,645) 11,354 116,209 58,100

(690,917) 2,012 68,000

(753,846) 410 53,079 68,000

Total Nonoperating (Expenses)

(557,856)

(544,213)

(409,616)

(612,774)

(579,259)

Income Before Capital Contributions

3,130,517

Capital contributions Change in Net Assets Total Active Wholesale Water Connections

3,421,172

3,237,825

1,046,696

2,834,000

3,130,517

6,255,172

422,660

3,237,825

1,046,696

422,660

2012

2013

2009

2010

2011

87.9% 12.1% 100.0%

88.1% 11.9% 100.0%

88.7% 11.3% 100.0%

88.8% 11.2% 100.0%

89.4% 10.6% 100.0%

31.0% 8.6% 0.0% 4.8% 6.3% 16.4% 67.0%

34.1% 8.7% 0.0% 4.4% 7.6% 8.2% 63.0%

27.6% 9.4% 5.9% 3.3% 8.4% 8.8% 63.3%

31.1% 10.8% 7.7% 4.5% 11.9% 11.5% 77.4%

29.2% 12.3% 14.1% 7.4% 11.5% 10.6% 85.1%

0.1%

0.8%

(5.7%) 0.0% 0.0% 0.5%

(5.8%) 0.0% 0.0% 0.6%

(6.1%) 0.1% 1.2% 0.6%

(9.4%) 0.0% 0.0% 0.9%

(11.2%) 0.0% 0.8% 1.0%

(5.0%)

(5.1%)

(4.1%)

(8.4%)

(8.6%)

28.0%

31.9%

32.6%

14.3%

6.3%

0.0%

26.4%

0.0%

28.0%

58.3%

32.6%

14.3%

6.3%

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BAYTOWN AREA WATER AUTHORITY TSI-8 BOARD MEMBERS AND ADMINISTRATIVE PERSONNEL For the Year Ended September 30, 2013 Complete Authority Mailing Address: Authority Business Telephone Number: Submission Date of the Most Recent Authority Registration Form (TWC Sections 36.054 and 49.054): Limit on Fees of Office that a Director May Receive During a Year:

2401 Market Street, Baytown, Texas, 77522 (281) 426-3517 Not Applicable Not Applicable

Term of Office or Date Hired

Elected/ Appointed

Fees of Office Paid 09/30/13

Expenses Reimbursed 09/30/13

Board Members: Brenda Bradley-Smith

9/1/12-8/31/14

Appointed

N/A

President

Dan M. Mundinger

9/1/13-8/31/15

Appointed

N/A

Vice President

Wayne Baldwin

9/1/11-8/31/15

Appointed

NIA

N/A

Secretary

Brandon Benoit

9/1/12-8/31/14

Appointed

N/A

Director

Mike Wilson

9/1/13-8/31/15

Appointed

N/A

Director

Title at Year End

Note: No Board member is disqualified from serving on this Board under the Texas Water Code. The Board members do not receive any form of compensation for their services. Key Administration (contracted through the City of Baytown): Robert Leiper

02/12/99

N/A

NIA

Darryl Fourte

02/09/09

NIA

N/A

Plant Manager

Ignacio Ramirez, Sr.

05/24/91

N/A

City Attorney

Louise Richman, CPA

04/01/11

N/A

Belt Harris Pechacek, LLLP

10/01/04

N/A

11,483

Auditor

Malcolm Pirnie

05/04/04

N/A

$ 306,759

Consulting Engineer

General Manager

Finance

Consultants:

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OTHER SUPPLEMENTARY INFORMATION

BAYTOWN AREA WATER AUTHORITY ANALYSIS OF CHANGES IN PROPERTY, PLANT, AND EQUIPMENT For the Year Ended September 30, 2013

Beginning Balances Physical Facilities: Land Building Basins Pump station Mixing chamber Distribution system Office furniture and equipment Machinery and implements Motor vehicles Radio and testing equipment Other Total Physical Facilities

264,321 1,021,268 3,273,380 1,866,987 915,630 31,789,123 602,809 3,258,560 98,840 1,930 966,172 44,059,020

Capitalized interest

1,624,145

Construction in progress Total Property, Plant, and Equipment

6,418,293

Amounts Provided By: Revenue bond proceeds Revenues Grants Total Amounts Provided

Additions $

Deletions and Reclassifications

Ending Balances $

5,927,907 10,684

5,938,591

264,321 1,021,268 3,273,380 1,866,987 915,630 37,717 ;030 602,809 3,269,244 98,840 1,930 966,172 49,997,611 1,624,145

381,523

(5,927,907)

871,909

52,101,458

6,320,114

(5,927,907)

52,493,665

47,578,050 4,493,008 30,400 52,101,458

381,523 5,938,591

6,320,114

(5,927,907) (5,927,907)

47,959,573 4,503,692 30,400 52,493,665

BAYTOWN AREA WATER AUTHORITY REVENUE BOND CO VERA GE For the Last Ten Years Fiscal Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gross Revenues $ 5,982,695 $ 6,240,064 $ 5,939,840 $ 5,664,561 $ 6,258,279 $ 6,861,038 $ 7,414,833 $ 10,116,577 $ 10,809,568 $ 11,239,917

Operating Expenses (1) $ 3,528,325 $ 3,765,808 $ 4,228,035 $ 4,102,370 $ 4,412,254 $ 5,020,144 $ 4,831,717 $ 5,408,095 $ 5,881,318 $ 5,649,987

Available for Debt Service $ 2,454,370 $ 2,474,256 $ 1,711,805 $ 1,562,191 $ 1,846,025 $ 1,840,894 $ 2,583,116 $ 4,708,482 $ 4,928,250 $ 5,589,930

$ $ $ $ $ $ $ $ $ $

Principal 565,000 595,000 630,000 1,255,000 1,270,000 1,320,000 1,375,000 1,425,000 3,665,000 1,790,000

(1) Total operating expenses do not include depreciation expense.

49.

$ $ $ $ $ $ $ $ $ $

Interest 744 ;224 723,032 689,190 540,741 732,358 717,467 678,930 631,364 519,608 639,732

$ $ $ $ $ $ $ $ $ $

Total 1,309,224 1,318,032 1,319,190 1,795,741 2,002,358 2,037,467 2,053,930 2,056,364 4,184,608 2,429,732

Coverage 1.87 1.88 1.30 0.87 0.92 0.90 1.26 2.29 1.18 2.30

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