FY 2011

COMPREHENSIVE ANNUAL

FINANCIAL REPORT

Year Ended June 30, 2011

Asheville, North Carolina

Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2011

For

Metropolitan Sewerage District of Buncombe County, North Carolina Asheville, North Carolina

Prepared By ‐ Finance Department W. Scott Powell, Director of Finance

Published December 14, 2011

Table of Contents

Page No.

Introductory Section Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting (GFOA) Map of District Boundary Principal Officials Organizational Chart

1‐7 8 9 10 11

Financial Section Independent Auditor’s Report Management’s Discussion and Analysis

Basic Financial Statements: Statement of Net Assets Statement of Revenues, Expenses and Changes in Net Assets Statement of Cash Flows Notes to Basic Financial Statements

Required Supplemental Information: Other Post‐Employment Benefits – Schedule of Funding Progress Other Post‐Employment Benefits – Employer Contributions and Notes to the Required Schedules

Supplemental Financial Data: Comparative Statement of Net Assets Comparative Statements of Revenues, Expenses and Changes in Net Assets Schedules of Revenues and Expenditures – Budget and Actual (Non‐GAAP): Enterprise Fund Combining Statement of Net Assets, All Funds (Non‐GAAP) Combining Schedule of Revenues, Expenses and Changes in Net Assets, All Funds – (Non‐GAAP)

13‐14 15‐22

23 24 25 26‐51

53 54

56 57 58‐59 60 61

Statistical Section Introduction Net Assets by Component Changes in Net Assets General Revenues by Source Expenses by Function Sewer Charge Revenue by Customer Type Customers by Member Agency Residential Sewer Rates Principal Commercial Users

63 64 65 66 67 68 69 70 71

Table of Contents

Page No.

Statistical Section (continued) Ratio of Outstanding Debt Revenue Bond Coverage Demographic & Economic Statistics Personal Income by Industry Principal Employers Employees by Division Operating Indicators by Division

72 73‐74 75 76 77 78‐80 81‐83

Compliance Section 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

85‐86

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Introductory SecƟon

INTRODUCTORY SECTION

December 1 14, 2011

To the Metrropolitan Sew werage District of Buncomb be County, Noorth Carolina Board of Dirrectors, Bondholders, and Customers

We are pleaased to present the Comprrehensive Annual Financiaal Report (CAFFR) of the Meetropolitan Seewerage District of Buncombe County, North C Carolina (MSD D or District) for the fiscall year ended June 30, 201 11. State law requiress local govern nments to publish within ssix months of f the close of each fiscal yeear a complette set of financial staatements pre esented in co onformity with generallyy accepted a ccounting prrinciples (GAA AP) and audited in accordance wiith auditing sttandards generally acceptted in the Uniited States off America by aa firm of licensed certified public accountants. MSD’s Bond B Order requires rellease of succh audited ffinancial statements within seven months of o the close of the fiscaal year. This CAFR preseents MSD’s ffinancial statements, and adds thiis transmittall letter and sttatistical dataa to assist thee reader in an nalyzing our ffinancial statements.

This report cconsists of m management’ss representattions concernning the finan nces of the Diistrict. Consequently, managemen nt assumes full f responsib bility for the e completeneess and reliaability of all of the info ormation presented in this repo ort. To provvide a reaso onable basis for makingg these representations,, MSD’s managemen nt established d an internal control framework that iss designed bo oth to protectt the District’’s assets from loss, theft, t or misu use and to compile c sufficcient reliablee information n for the preparation of ffinancial statements in conformitty with GAA AP. Because the cost of internal con ntrols should not outweiggh their benefits, MSD’s framew work of interrnal controls has been ddesigned to provide reassonable rath her than absolute asssurance that the financial statements will be free ffrom materiaal misstatemeent. As managgement, we assert th hat, to the be est of our knowledge and d belief, this ffinancial repo ort is compleete and reliab ble in all material respects.

Cherry, Bekaert & Hollan nd, L.L.P., a firm f of licenssed certified public accou untants, has aaudited the ffinancial statements. The goal of the independent audit was w to providee reasonablee but not absolute assuran nce that MSD’s finan ncial statemen nts for the fiscal year end ded June 30, 2011, are freee of materiaal misstatemeent. The independent audit involvved examinin ng, on a test basis, eviden ce supportin g the amoun nts and disclo osures in the financiaal statements; assessing the accountting principlees used and d significant estimates m made by managemen nt; and evaluating the overall finan ncial statemeent presentaation. The independent auditor concluded, b based upon the audit, thatt there was aa reasonable bbasis for rend dering an unq qualified opin nion that MSD’s finan ncial statemen nts for the fiscal year end ded June 30, 2011, are fairly presented in conform mity with GAAP. The iindependent auditor’s rep port is presen nted as the fiirst componeent of the financial section n of this report.

Accounting standards (G GASB No. 34) require thatt managemennt provide a narrative introduction, ovverview, and analysiss to accompany the basiic financial statements inn the form o of Managemeent’s Discusssion and Analysis (M MD&A). This letter of traansmittal is designed too complemen nt the MD& &A, which iss placed immediatelyy following th he report of th he independe ent auditors, aand should be read in con njunction with h it.

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Accounting standard (GASB No. 44) calls for revised statistical reports designed to increase assistance to the reader in assessing the financial situation and condition of the District. Readers may note some changes in report formats from prior years. In addition, new schedules for which there is no information prior to implementation of GASB No. 34 may have less than the otherwise required ten years of comparative data.

Financial trend information is presented to assist readers in understanding and assessing how a government’s financial position has changed over time. Revenue capacity information is intended to assist users in understanding and assessing the factors affecting a government’s ability to generate revenues.

Debt capacity information is designed to assist users in understanding and assessing a government’s debt burden and its ability to issue additional debt. Demographic and economic information is intended to (1) assist users in understanding the socioeconomic environment within which a government operates and (2) provide information that facilitates comparisons of financial statement information over time and among governments. Operating information should provide contextual information about a government’s operations and resources to assist readers in using financial statement information to understand and assess a government’s economic condition.

Profile of the District Overview The District was created by the state of North Carolina in 1962 to provide a wastewater treatment plant serving the City of Asheville and surrounding communities, including Biltmore Forest, Weaverville, Black Mountain, Montreat, Woodfin, the Woodfin Sanitary Water & Sewer District, and certain other unincorporated areas of Buncombe County. Through separate contractual arrangements, the District also serves customers in the Cane Creek Water and Sewer District in northern Henderson County and in the Avery Creek Sanitary Sewer District in southern Buncombe County. The collection system has been extended over the years as a result of expansion and development, and now collects wastewater through approximately 977 miles of sewer line with 28,000 manholes and serves over 50,000 residential and commercial customers. The wastewater treated by the District is gathered in the collector sewer systems located primarily within the boundaries of the municipalities and other political subdivisions comprising the District and conveyed to the wastewater treatment plant through large sewer lines called interceptors that generally run parallel to the French Broad River, the Swannanoa River or one of their primary and secondary tributaries. Included in the system are remote pumping stations that pump wastewater through force mains where gravity flow is not feasible.

With the Sewer Consolidation, which was signed in 1990, the District agreed to take possession of and to operate, maintain, and repair or replace, as necessary, the various collector sewer systems, which were simultaneously deeded to MSD by these same political subdivisions. Many of the collector sewer systems were undersized, deteriorated, and inadequately maintained. Since taking over the sewer systems, the District has developed and implemented, with input from its member political subdivisions, an ongoing Capital Improvement Program (the “CIP”). Approximately 872,000 feet of existing sewer line have been replaced since consolidation, representing over 17% of the entire collection system. In addition, the District expects to replace another 250,000 feet of existing sewer lines over the next five years as mandated by our Collection System Permit. The District also has an aggressive program in effect for systematic preventative maintenance of collector sewers. The lines are first cleaned using water under high pressure and then are videotaped. The cleaning reduces line blockages and overflows, and the videotapes enable the District to locate and repair problems in the lines. The District cleans and inspects by videotaping between 15% and 20% of its system each year.

Introductory Section |

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

The District also owns,, operates, an nd maintainss a 40 millionn gallon per d day (MGD) wastewater treeatment plant to treat t raw sew wage and industrial wasttewater as w well as a hyd droelectric faacility, which is used primarily tto generate p power for the e wastewaterr treatment pplant, but also o provides eleectricity for sale back to the locaal utility.

Member aagencies provviding water sservice includ de the sewer fees on their water bills and provide cu ustomer service an nd collection services to th he District for a negotiateed fee. However, the Distrrict direct bills about 410 customers, predom minantly local industries and private re sidences servved by wells, yet are conneected to the sewer system.

Budget The annual budget serves as the foundation f fo or the Districct’s financial planning and control. Th he Bond Order requires that the e District ado opt its final bu udget on or bbefore June 15 of each yeaar after a preliminary budget he earing no morre than 30 daays prior to ad doption. Nortth Carolina G General Statuttes call for an n annual balanced budget ordinance based u upon expecte ed revenues, aalong with a budget message, to be prresented to the govverning board d no later thaan June 1. Du uring the sprring, District d departmental staff work w with the Board’s Finance and Pe ersonnel Com mmittees to d develop an opperational bu udget by funcction (adminisstration, system se ervices, plant operation, etc.), and Disttrict engineerrs work with the Board’s Planning and d Capital Improvem ment Plan Com mmittees on aa capital budgget. After thee Board appro oves the budgget, it is administered

by Departtment heads who may maake transfers of appropriattions within aa department and by the General Manager who may maake transfers between dep partments. B Budget to actual comparissons of financcial data for the year ended June 30, 2011 m may be found in the suppleemental information follow wing the notees to the financial sstatements.

Factors A Affectingg Financiaal Condition The informaation presente ed in the finaancial stateme ents is perhapps best underrstood when it is considerred from the broader perspective of the specific environmen nt within whi ch the Districct operates.

Local Ecconomy The Ashe eville‐Buncom mbe County area in which the Distrrict is locateed possessess a combinaation of characteriistics that help protect it in the current economic climate. Theey consist of a re‐emergin ng more technologgically advancced industrial base, a stron ng tourism poosition, conceentrated healthcare emplo oyment, Introd ductory Secttion |

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

manufacturing diversity, and positive population in‐migration. These factors are discussed in further detail in the Management’s Discussion and Analysis (MD&A).

Local economic development initiatives and various private/public programs have arisen in response to these recent developments designed to strengthen the local economy. Industrial recruitment, workforce development, urban revitalization, broadband access, and improvements to interstate highways are examples of active and pending projects. Area leaders realize the importance of cooperation and action to maintain a healthy, diverse, and sustainable economy.

While industrial usage is declining, residential and commercial expansion has resulted in a higher demand for MSD services, as evidenced by growth in overall revenue, and especially by facility and tap fees directly resulting from new development. The majority of new residents being District customers result from emphasis on in‐fill development by local communities and large new subdivisions with developer‐donated sewer infrastructure.

Long‐Term Financial Planning In 2001, the District completed a twenty‐year Wastewater System Master Plan to identify system improvements needed to handle structural problems and wet‐weather flow conditions, to improve the performance at the Water Reclamation Facility (WRF), and to prepare the system to handle expected future wastewater flows. In 2007, the District completed a Facility Plan, which specifically focused on the equipment and processes within the WRF. This plan established a methodology for prioritizing rehabilitation efforts at the plant.

In November 2008, the District’s Collection System Master Plan was completed. This plan focuses on the orderly growth of the collection system into future service areas. As the sewer system grows over time, this plan will ensure that extensions of the system are made in an orderly fashion, in accordance with the planning policies of the District’s member agencies.

Using these plans as guides, District engineers developed a ten‐year Capital Improvement Program (CIP), which is updated annually. The capital budgeting process begins with considering projects identified in these plans, as well as those recommended by various departments to deal with recurring wastewater collection and treatment problems. Engineering staff prioritize such projects, preparing cost estimates and a suggested timetable for construction. The CIP Committee, consisting of representatives from the District’s member agencies, meets to review the program and to make recommendations to the Board concerning the CIP’s adoption as part of the annual budget.

The CIP continues to have the largest impact on the District’s current and future financial position. In connection with the long‐term CIP, the District prepares a ten‐year cash flow projection, which integrates revenue and expenditure projections with planned capital expenditures to anticipate rate increases and timing of debt issuance.

Introductory Section |

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Major In nitiatives and Acco omplishm ments Lake Jullian Interce eptor Rehabilitation n The Distrrict recently completed aa major rehaabilitation p roject in Sou uthern Bunccombe Coun nty. This four‐phasse effort haas rehabilitated the largge intercepttor lines dirrectly surrou unding Lakee Julian.

These lines serve large resideential neighb borhoods as well as com mmercial aareas alongg the Hen ndersonvillee Road corridor. The ffour phases totaled oveer 22,700 feeet; and the total amoount reinvessted to reh habilitate theese old sewer lines waas approxim mately $5.8 m million.

Final Microsscreen Rep placementt Project Th he District iss well into tthe construcction phase for the rep placement off its Final Miccroscreen pro ocess at the W WRF. The ne ew process w will use “micro o‐filters” to rremove fine p particles fro m the treate ed Lakke Julian Interceptor Project Ma ap wasttewater. Thhis $10.2 million project w will help to further improve e MSD efflueent quality to well‐above p permit standaards, prior to final dischargge into the Frrench Broad R River.

Morris SStreet @ T Talmadge C Court Project The Distriict parttners witth locaal agencies oon projjects wheneever Inteerior of Final Miicroscreen Build ding, under Reenovation possible. This not onlyy reduces ooverall costs, but also h helps to reduce the num mber of timees that a neighborhood w will be distu urbed to rehaabilitate old iinfrastructuree.

In th his example, the District aand the City o of Asheville paartnered to rrehabilitate thhe water & seewer systemss, and the strreets ‐ all of o which neeeded Morris Strreet @ Talmadgge Court Project Map rehabilitation inn this area. TThe sewer po ortion alone ttotaled over 3 3,300 feet.

Significa ant Reducttion of San nitary Sew wer Overflow ws Reduction n of Sanitary Sewer Overfllows (SSO’s) is one of thee District’s p primary goalss related to the collection system. Thiss has been accomplished by aggre essive rehabilitation andd preventative maintenance (line cleaaning) programs. Over thee past eleven years, th he District has h realized a significantt reduction of SSO’s – fro om 289 in FY2 2000 to 24 in FY2011.

EExample of Streaam Crossing

Introd ductory Secttion |

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Excellen nce in Man nagement Recognitio on Program m Award On Februaary 4, 2009, TThe District w was one of four honorees nationwide sselected to reeceive the Excellence in Manage ement Recogn nition award from the Nattional Associaation of Clean n Water Agencies (NACWA A).

NACWA haas established d the Excelleence in Manaagement Recognitionn Program tto recognize public clean n water utilities thhat implem ment progreessive manaagement initiatives aand thereby advance thee goals of th he Clean Water Act. NACWA is ccommitted to o clean wateer and a healthy ennvironment aand strives tto help ensu ure that member aagencies have e the tools the ey need to meet these objjectives.

Improve ed Custom mer Service e Response e The System ms Services D Department reclassified a managementt position to tthat of a first responder to o handle emergenccy calls betwe een 4:00 p.m m. and 11:30 p.m. as well as holidays, which reduceed average response time from 90 minutes in FY2006 to 3 36 minutes in n FY2011.

Environmental Re egulations Compliance The Districct received faavorable regu ulatory reportts from the N orth Carolinaa Departmentt of Environm ment and Natural Resources R forr wastewater discharge, pretreatmennt, collectionss system, an nd air qualityy permits. In n addition, t he District maintained m ISO 14000 Environmenttal complian ce certificatio on. The Collection C Systems S permit requirres replaceme ent or rehabilitation of at least 250,000 linear feet of sewer main every five years. In FY2 2011, the Disttrict completeed in excess of 49,099 linear feet, over o 20,493 of which w was performed d by District forces. Ove er the past four f years, thhe District haas rehabilitate ed a total of 2 208,973 lineaar feet of sew wer main.

Another requirement o of the annual Collection SSystems perm mit View w of the RBC's & & Incinerator Bu uilding is to perfform preventtative mainte enance on at a least 500, 000 linear feett of sewer line e. During the current yearr, the District cleaned overr 614,543 lineear feet.

Continuing Disclo osure Obligation 2009. In The District issued reven nue bonds ass well as reve enue refundinng bond mosst recently in September 2 accordance with the requ uirements of the Securitie es Exchange CCommission R Rule 15C‐12, aas amended, and the North Carolina Local Govvernment Commission, the District wil l provide con ntinuing disclosure inform mation to recognized municipal security inform mation repositories. This w will include tthe audited ffinancial stattements, historical net revenues and debt coverage, c futture rate in creases and listing of tthe District’s largest commercial and industriaal customers.

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Financia al Awardss The Government Finance e Officers Asssociation of th he United Staates and Canaada (GFOA) aawarded a Ceertificate ment for Excelllence in Financial Reportin ng to Metroppolitan Sewerrage District o of Buncombe County, of Achievem North Carolina for its com mprehensive annual finan ncial report (CCAFR) for thee fiscal year eended June 30, 2010.

This was the sixteenth consecutive c year y that the e District has achieved this prestigiouss award. In o order to receive a Ce ertificate of Achievement A award, a go overnment m must publish aan easily readable and effficiently organized comprehensiv c ve annual financial repo ort. This re port must ssatisfy both generally aaccepted accounting p principles and d applicable le egal requirem ments.

A Certificatte of Achievvement is vaalid for a period of on e year onlyy. We believve that our current Comprehenssive Annual Financial Re eport continu ues to meett the Certificate of Achievement Prrogram’s requirementts and we are e submitting it to the GFOA A to determinne its eligibilitty for anotheer certificate.

In addition, the District also received d the GFOA’ss Distinguisheed Budget Presentation A Award for itss annual 2011 budge et document. In order to qualify for th he Distinguishhed Budget PPresentation Award, the D District’s budget docu ument was judged proficcient in severral categoriess, including aas a policy document, a ffinancial plan, an ope erations guide e, and a comm munications d device.

Acknowledgments The preparaation of this report could d not have be een accompl ished withou ut the dedicaated services of staff throughout the District and a the Distrrict’s indepen ndent auditorr, Cherry, Beekaert & Hollaand L.L.P. We would like to ackn nowledge the e hard work and dedicatiion of Cheryyl Rice, the D District’s Acco ounting Man nager. In addition, a sspecial thankks to Teresa G Gilbert who aassembled thee CAFR documents and prepared man ny of the graphs and to Asheville Chamber of Commerce for f current eeconomic datta and insigh htful identification of business trends.

We also wo ould like to thank the members m of the Finance Committee and Board ffor their sup pport of maintaining high standarrds of fiscal acccountability and responsiibility for the District.

Respecttfully Submittted,

Thomas E. Hartye

e, P.E.

W. Scott Powell,, CLGFO Ge eneral Managger D Director of Fin nance

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Certificate of Achievement

Introductory Section |

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C arolina

FY En nding June 30, 2011

Map of D District B Boundary

Introd ductory Secttion |

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Principal Officials

Board Members Steven T. Aceto Terry Bellamy Jackie W. Bryson Jon E. Creighton Max L. Haner E. Glenn Kelly Esther Manheimer Al Root Bill Russell Bill Stanley M. Jerry VeHaun Robert C. Watts

Legal Counsel Roberts & Stevens, P.A.

Representative of Town of Montreat City of Asheville Woodfin Sanitary Water & Sewer District County of Buncombe County of Buncombe Town of Biltmore Forest City of Asheville Town of Weaverville City of Asheville County of Buncombe Town of Woodfin Town of Black Mountain

Auditing Firm Cherry, Bekaert & Holland, L.L.P.

General Manager Thomas E. Hartye, P.E.

Engineer of Record McGill & Associates

Director of Finance W. Scott Powell, CLGFO

Introductory Section | P a g e | 10

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Organizational Chart

MSD Board Committees CIP Finance Personnel Planning Right of Way

Legal Counsel

Auditing Firm

Engineer of Record

General Manager Thomas E. Hartye, P.E.

# of employees = 2

Executive Secretary Sondra Honeycutt

Administrative Services

Capital Improvement

Financial Services

Human Resources

Planning & Development

System Services

Water Reclamation Facility

Director Peter Weed

Director Ed Bradford, P.E.

Director W. Scott Powell, CLGFO

Director Jim Hemphill

Director Stan Boyd, P.E.

Director Mike Stamey, P.E.

Director John Kiviniemi

Accounting Investments Cash Flow Mgmt Finance & Budget Purchasing Warehouse

# of employees = 8

Human Resources Payroll Employee Benefits

# of employees = 4

Financial Forecasting Environmental

Health & Safety Fleet Maintenance IT MIS

# of employees = 12

Project Mgmt Design & Drafting Construction Right‐of‐Way GIS

# of employees = 20

Planning & Development

# of employees = 8

Director Ken Stines Construction Pipeline Mtce.

Technical Services

# of employees = 57

Operations Maintenance Electrical Structural Mtce.

Industrial Waste

# of employees = 39

Number of Employees: 150

Employee/Representative

Contractors

Introductory Section | P a g e | 11

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

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Introductory Section | P a g e | 12

FINANCIAL SECTION Financial SecƟon

Inde ependent Auditorrs' Reportt

The Board o of Directors Metropolitan Sewerage D District of Bun ncombe Coun nty, North Ca rolina Asheville, No orth Carolina

We have au udited the acccompanying financial staatements of M Metropolitan n Sewerage D District of Buncombe County, Norrth Carolina ((the “District””) as of and ffor the year eended June 330, 2011, as listed in the table of contents. Th hese financiall statements are the respo onsibility of thhe District’s m management. Our responssibility is to express an opinion on these financial statementts based on o ur audit.

We conductted our auditt in accordan nce with audiiting standardds generally accepted in the United SStates of America and d the standards applicable e to financial aaudits contai ned in Goverrnment Auditiing Standardss, issued by the Comp ptroller General of the United States. TThose standarrds require th hat we plan and perform the audit to obtain re easonable asssurance abou ut whether th he financial sttatements arre free of maaterial misstaatement.

An audit includes examin ning, on a testt basis, eviden nce supportinng the amoun nts and disclo osures in the ffinancial statements. An audit also includes asssessing the aaccounting p rinciples used and significcant estimatees made by managem ment, as well as evaluatingg the overall ffinancial stateement presen ntation. We b believe that o our audit provides a re easonable baasis for our op pinion.

In our opinio on, the financcial statemen nts referred to o above preseent fairly, in aall material reespects, the ffinancial position of tthe District ass of June 30, 2 2011, and the e respective cchanges in fin nancial positio on and cash fflows for the year the en ended in conformity with w accountting principlees generally aaccepted in tthe United SStates of America.

In accordancce with Goveernment Auditting Standard ds, we have aalso issued ou ur report dateed October 24, 2011, on our con nsideration of the District's internal control c over financial reeporting and on our testts of its compliance with certain provisions off laws, regulaations, contraacts and gran nt agreementts and other m matters.

The purpose e of that repo ort is to describe the scop pe of our testting of internaal control oveer financial reeporting and compliaance and the results of th hat testing, and not to proovide an opinion on the internal conttrol over financial rep porting or on compliance. That report iss an integral part of an au udit performeed in accordan nce with Governmentt Auditing Sta andards and sshould be con nsidered in asssessing the rresults of our audit.

Managemen nt’s Discussio on and Analyssis and the Re equired Suppplemental Infformation as listed in the table of contents arre not a required part of o the basic financial stattements but are supplem mentary info ormation required byy the Governmental Accounting Standards Board. We have applied certain limited proccedures, which consisted princip pally of inquiries of man nagement reegarding the methods off measuremeent and n of the required supplemental information. How wever, we did d not audit tthe informattion and presentation accordingly, express no o opinion on it.

Finan ncial Section

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Our audit was w conducte ed for the pu urpose of forming an oppinion on thee basic financial statemen nts. The Introductoryy Section, Sup pplemental Financial Data, and Statisticcal Tables as listed in the ttable of contents are presented fo or purposes of additional analysis and d are not a reequired part o of the basic ffinancial statements.

The Supplem mental Financcial Data have e been subjected to the aauditing proceedures applieed in the audit of the basic financial statementts, and in our opinion, are fairly stated in all materiaal respects in relation to the basic financial statements take en as whole. TThe Introducttory Section aand Statisticaal Tables havee not been su ubjected to the auditing procedures applied in the audit of tthe basic finaancial statements and, acccordingly, we express no opinion o on them.

Charlotte, N North Carolinaa October 24, 2011

Finan ncial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Management’s Discussion and Analysis As management of the Metropolitan Sewerage District of Buncombe County (District), we offer readers of the District’s financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, 2011.

Financial Highlights  Net assets—Net assets are defined as the value of all assets less all liabilities, and net restricted assets

are those assets restricted by law, bond covenant, or other contractual arrangement, less debt incurred for these restricted assets. The financial well‐being of a government is reflected to a large degree in the growth of net assets.

 The District’s net assets total $299.2 million and reflect a $9.3 million or 3.2% increase from the prior year. The income and expense items affecting this improvement will be discussed in greater detail in the section below titled Financial Analysis of the District.

 The $9.3 million increase attributable to the District’s normal operations includes contributed capital assets from developers and member agencies of $2.2 million.

 Net assets invested in capital assets, net of related debt increased by $16.3 million or 6.9%, evidencing the District’s aggressive rehabilitation of infrastructure as well as an increase in developer and member agency donated sewer lines and pump stations.

 Outstanding debt:

 After a principal repayment of $4.6 million, the District’s has approximately $101.5 million of outstanding debt exclusive of related unamortized discounts and premiums.

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements. The District’s basic financial statements are comprised of two components: 1) the financial statements and 2) notes to the financial statements that explain in more detail some of the information in the financial statements. After the notes, supplemental information is provided to show details about the District’s fund structure as set forth in the Bond Order. Budgetary information required by the North Carolina General Statutes also can be found in this part of the statements.

Basic Financial Statements The financial statements of the District report information about the District using accounting methods similar to those used by private‐sector companies. There are three required statements, which provide both long‐term and short‐term information about the District’s overall financial status.

The Statement of Net Assets presents information on all of the District’s assets and liabilities, with the difference between the two reported as net assets. This statement provides information about the types and amounts of resources (assets) and the obligations to District creditors (liabilities) and may be used to measure the financial health of the District by providing the basis for evaluating the capital structure of the District and assessing liquidity and financial flexibility.

The Statement of Revenues, Expenses, and Changes in Net Assets presents the current year’s results of operations and can be used to determine how successful the District has been in collecting revenues, controlling expenses, and recovering costs through user fees and charges.

Financial Section

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

The final rrequired finan ncial stateme ent is the Stattement of Cassh Flows. Thiss statement rreports cash rreceipts, cash paym ments, and ne et changes in n cash resultiing from opeerating, investting, and finaancing activitties, and may be used to determine how caash originated, what thatt cash was ussed for, and how these aactivities n the change to cash balan nce during the e year. resulted in

These finaancial statements should be evaluated d with other eexternal factors such as eeconomic con nditions, statistics, an regional employment e nd population n growth forr a more co omplete analyysis of the D District’s current an nd future financial conditio on.

Financial Analysis o of the Distrrict Net Assets As previously noted, net assets may m serve ovver time as one useful iindicator of an entity’s ffinancial condition.. The Districct’s assets exxceeded liab bilities by $2299.2 million at June 30 0, 2011. The largest proportion n of the Disttrict’s net asssets, approximately 84.1% %, reflects th he District’s investment in n capital assets (e.gg. land, buildiings, intercep ptor and colle ector sewer liines, treatmeent facilities, eequipment, eetc.) less any related d debt outsstanding that wass issued to acquire these iteems. As thesee assets are req quired to provide wastewater collectio on and treatmen nt services, these resources are not aavailable for futuree spending. A Although the District’s investm ment in its capitaal assets is rreported net of the outsstanding related d debt, the reesources needed to repay that debt must be provided b by other sources aas the capitaal assets cannot b be used to liquidate these liabilities. An ad dditional $8.7 million n or 2.9% of the District’s net assets aree funds restricted by the Bond Order to be held in reserve r for eeither debt sservice or for emergencyy capital equipmen nt repair or re eplacement. TThe District aalso has $0.6 million net aassets restrictted for rehab bilitation of the Ave ery’s Creek Sanitary Distriict. The remaaining balanc e of $38.2 m million is unreestricted and may be used to fund f pay‐as‐yyou go capittal projects, medical or workers com mpensation claims, replaacement reserves, o or any other legal purpose e.

The Districct’s overall financial position improved d during the ffiscal year en nded June 30 0, 2011 as oveerall net assets gre ew by 3.2%. TThe District’s financial straategy is to seet rates at a level sufficien nt to cover op perating and debt service expen nses as well aas to provide about half oof the fundingg for pay‐as‐yyou‐go infrastructure pproach is vissible in the coontinuing growth of Districct net assets. Current rehabilitattion. The succcess of this ap assets willl decrease graadually as cassh and investments are us ed to rehabilitate infrastru ucture, until tthe next planned re evenue bond issuance.

Finan ncial Section

| P a g e | 16

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Table 1 – Condensed Summary of Net Assets

Restated FY 2009

FY 2011

FY 2010

$ 56,484,271

$ 63,221,296

Capital Assets, net

351,722,014

Total Assets

408,206,285

Current and Other Assets

% Increase (Decrease) 2011 versus 2010

$

43,378,629

(10.66%)

340,276,663

337,585,832

3.36%

403,497,959

380,964,461

1.17%

Long‐Term Liabilities Outstanding Other Liabilities Total Liabilities

99,491,444

105,549,731

88,318,800

(5.74%)

9,494,496

8,032,399

7,906,235

18.20%

108,985,940

113,582,130

96,225,035

(4.05%)

Invested in Capital Assets, Net of Related Debt

251,754,578

235,471,938

244,675,790

6.91%

7,849,253

7,093,201

8,688,327

10.66%

Restricted under Bond Covenant

824,822

812,454

805,170

1.52%

Restricted for Avery’s Creek Sanitary District

620,880

‐

‐

‐

1,343,058

‐

(100.00%)

38,170,812

45,195,178

30,570,139

(15.54%)

Restricted for Debt Service

Restricted for Capital Projects Unrestricted

100.00%

Total Net Assets

$ 299,220,345 $ 289,915,829

$ 284,739,426

Financial Section

3.21%

| P a g e | 17

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Table 2 – Condensed Summary of Revenues, Expenses, and Changes in Net Assets

Operating Revenues: Sewer Charges Facility and Tap Fees Miscellaneous Total Operating Revenues

Operating Expenses: Salaries and Employee Benefits Contractual Services Utilities Repairs and Maintenance Other Supplies and Expenses Insurance Claims and Expenses Depreciation Total Operating Expenses

Operating Income

Nonoperating Revenues (Expenses): Interest Income Interest Expense Less Capitalized Interest Amortization of Bond Issuance Costs Gain (Loss) on Sale of Surplus Property Total Nonoperating Revenues (Expenses)

Income before other transactions

Capital Contribution Special item – Avery’s Creek Sanitary District asset contribution from Buncombe County

Change in Net Assets

Total Net Assets, beginning of year As previously reported Cumulative affect of accounting change As restated

Total Net Assets, end of year

FY 2011

FY 2010

% Increase (Decrease) 2011 versus 2010

Restated FY 2009

$

26,894,894 $ 25,369,818 $ 24,290,719 2,238,171 1,654,010 2,959,115 612,721 770,389 509,239 29,745,786 27,794,217 27,759,073

6,536,352 6,303,951 6,181,775 1,337,258 1,240,175 1,387,098 1,234,810 1,111,644 1,298,053 927,655 851,966 877,124 1,344,307 1,468,655 1,337,610 2,142,086 1,778,336 1,726,689 7,520,744 8,556,365 8,520,993 21,043,212 21,311,092 21,329,342

8,702,574 6,483,125 6,429,731

493,002 578,302 1,047,587 (3,042,912) (3,113,366) (3,545,226) 423,881 178,386 341,821 (156,120) (145,827) (73,887) 42,232 67,099 22,150 (2,239,917) (2,435,406) (2,207,555)

6,462,657 4,047,719 4,222,176

742,770 1,128,684 5,856,798

2,099,089 ‐ ‐

9,304,516 5,176,403 10,078,974

289,915,829 ‐ 289,915,829 $ 299,220,345

284,739,426 ‐ 284,739,426

274,532,352 128,100 274,660,452

$ 289,915,829 $ 284,739,426

6.01% 35.32% (20.47%) 7.02%

3.69% 7.83% 11.08% 8.88% (8.47%) 20.45% (12.10%) (1.26%) 34.23%

(14.75%) (2.26%) 137.62% 7.06% (37.06%) (8.03%) 59.66% (34.19%)

79.75%

1.82% 3.21%

The Condensed Summary of Revenues, Expenses, and Changes in Net Assets shown in Table 2 above provides information concerning what contributed to the net changes reported in Table 1. The section below discusses significant factors contributing to the District’s 3.2% increase in net assets from $289.9 million to $299.2 million.

Financial Section

| P a g e | 18

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

 Operating Revenues:

 Sewer revenues increased 6.0%. The District had raised domestic sewer rates by 3.5% at the beginning of the fiscal year and experienced a consumption increase due to a dry spring and summer.

 Facility and tap fees received increased 35.3% from the previous year reflecting a rebound in development in the area.

 Miscellaneous Income decreased 20.5%. This was due to the recognition of the “principal forgiveness” pertaining to a revolving fund loan received from the Department of Environmental and Natural Resources in the prior year.

 Operating expenses were kept fairly flat with the exception of:

 Insurance claims and expense—The District experienced a 20.5% increase due to a number of high dollar claims.

 Utilities expense—a decrease in internally generated hydroelectric power due to a repair attributed to the 11.1% increase in the current year.

 Interest income—Decreasing short‐term interest rates resulted in the 14.8% decrease in the District’s

interest income.

 Interest expense—Interest expense decreased due to reduction in short term rates paid on the District’s variable rate debt in the current year.

 Capitalized interest—Interest capitalized on rehabilitated infrastructure is computed based on construction‐in‐progress beginning balances plus additions during the year. Current year additions were up 67.3% as compared to FY 2010, which attributed to the 137.6% increase in capitalized interest.

 Capital Contribution—The amounts reported as capital contributions represent the estimated fair market value of donated sewer collection lines by developers and member agencies. The District has no direct control over the amount of contributions received. These amounts are reflected as equal income and capital expenditures in the financial statements.

Capital Asset and Debt Administration Capital Assets The District owns capital assets with a historical cost of $483,619,289. These assets consist of land (including easements), land improvements including a hydroelectric dam, buildings, collector sewer lines, interceptor lines (large pipelines into which collector sewers feed), construction equipment and machinery, service vehicles, office machines, and computer hardware and software. The District has begun several projects expected to cost $35.5 million to complete, and at June 30, 2011, was committed to contracts expected to cost $5 million.

Major capital asset transactions during the year include:  Rehabilitation of over 50,000 feet of sewer line including:

 Morris Street at Talmadge

 Town Branch Interceptor  Lake Julian Wet Weather Interceptor

 Intermediate Pump replacement  Secondary Microscreen replacement  Various equipment & building renovations

Financial Section

| P a g e | 19

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Table 3 – Capital Assets

FY 2011

FY 2010

Restated FY2009

Land $ 2,515,666 $ 2,515,666 $ 2,515,666 Easements 6,061,191 5,689,498 5,369,875 Land Improvements 4,149,044 3,803,650 3,662,906 Buildings 49,041,068 49,057,309 49,087,449 Machinery and Equipment 55,507,672 53,544,930 53,907,560 Interceptor Sewer Lines 108,621,465 102,296,341 101,771,854 Collector Sewer Lines 252,904,769 242,739,098 235,608,941 Construction in Progress

4,818,414 5,478,752 3,005,453 Subtotal 483,619,289 465,125,244 454,929,704

Less: Accumulated Depreciation

(131,897,275) (124,848,581) (117,343,872)

Net Property, Plant and Equipment $ 351,722,014 $ 340,276,663 $ 337,585,832

More detailed information on the District’s capital assets is presented in Note 5 to the financial statements.

Debt Administration At June 30, 2011, the District had $101,533,665 in par value of outstanding revenue bonds. Unlike cities and counties, the District does not have a debt limit. However, the District’s Bond Order requires that user rates be set to achieve a minimum debt service coverage ratio of 1.2 annually. This means that in any year, after the District pays all current operating expenses, the net revenues remaining must be at least 120% of that year’s principal and interest payments.

The District holds an Aa2 rating from Moody’s Investor Service, an AA rating from Standard & Poor’s, and an AA+ rating from Fitch. These high ratings allow the District to pay a lower rate of interest than other entities with less favorable ratings.

Further details on long‐term debt are provided in Note 3 and 4 to the financial statements.

Economic Factors and Next Year’s Budget and Rates The District, located in Buncombe County within the Asheville Metropolitan Area, has been in a better economic position than many other communities in the state and the nation due to several key factors.

 Unemployment—From 2003 through 2011, Asheville’s unemployment rate has been among the lowest

compared to the other ten metropolitan areas in North Carolina. As of June 2011, Asheville’s unemployment rate was 8.3%. This holds well below the state and national averages of 10.4% and 9.3% respectively. Over the past year, about 1,170 jobs have been added to the economy increasing current employment to 190,223.  Balanced economic growth—The Asheville metropolitan area has developed a unique and balanced

economy based on several key drivers. Actions of each driver can overlap and support other drivers in the local economy. History has also shown that a period of weakness for one driver can lead to the expansion of another.

Financial Section

| P a g e | 20

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Key drivers include:

 Specialized health care industry  Stable tourism activity  Growing professional services sector  Resilient housing market  Baby‐boom fueled population growth  Restructured manufacturing sector



Local healthcare employment—At over 31,000 workers, health services are now the largest industry sector in the Asheville metropolitan area. Ambulatory health services are the chief source of the new jobs. Strong gains in well‐paying health services had softened earlier losses in the traditional manufacturing sector. As of June 2011, stable growth in local healthcare services continued at an annual rate of 2% to 4% due to the concentration of tertiary care facilities and the in‐migration of baby‐boomers and retirees. Future growth in local healthcare services is expected to be at a more moderate rate due to the national economic downturn.



Consistent tourism destination—The tourism market experienced a 7.7% increase over the previous year. Evidence of a slow recovering economy having an impact on travel patterns.



Reduction of manufacturing jobs—Recent economic indicators suggest job loss in manufacturing has been impacted by the current recession. The industry lost approximately 200 jobs during the current year. With 18,000 workers, the industry continues to be transformed into a high‐skilled sector restructured around an advanced group of machinery, plastics, and electronics manufacturers.



Continued moderate population growth—Population growth remains a consistent and stable contributor to the local economy. Estimates indicate moderate growth patterns will continue between 1.5% and 2.0% per year. More than 95% of local population growth is from in‐ migration, with the remaining from births over deaths.



Residential building—Asheville is seeing a downturn in the residential market. Currently, homes sales are down 10.4% with the average price decreases over 6.0%. In addition, nearly 572 new residential building permits were issued in 2011. This is an 18.3% decrease over the previous year.



Professional and business sector—The confluence of retiring baby boomers, local quality of life, and economic growth has resulted in the emergence of a growing professional and business services sector. This sector includes many highly technical and well‐paid services such as engineering and computer design, and temporary employment services.

The major economic challenge facing the District is the decline of traditional industry in the area, especially textiles. However, the loss in industrial sewer revenues is expected to be offset from growing numbers of domestic customers and increased consumption rates.

Based on the District’s projections for residential, commercial, and industrial sewer use, sewer rates will increase by 3.00% for the fiscal year ending June 30, 2012 to provide adequate funding for operations, debt service, and the District’s long‐term Capital Improvement Program.

Financial Section

| P a g e | 21

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Requests for Additional Information This report is designed to provide an overview of the District’s finances for those with an interest in this area. Questions concerning any of the information found in this report or requests for additional information should be directed to W. Scott Powell, Director of Finance, Metropolitan Sewerage District, 2028 Riverside Drive, Asheville, NC 28804, (828)‐255‐8211, or spowell@msdbc.org.

Financial Section

| P a g e | 22

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Statement of Net Assets June 30, 2011

Assets: Current assets: Cash and cash equivalents Restricted cash and cash equivalents Receivables (net): Accounts Sales Employee Interest Inventories Prepaid expenses Total current assets

$

35,574,345 6,938,290 4,548,059 385,565 21,521 236,912 293,362 2,500 48,000,554

Noncurrent assets: Restricted cash and cash equivalents Restricted Investments Total restricted assets

3,309,083 180,615 3,489,698

Deferred bond issuance costs-net

1,443,733

Deferred outflow of resources

3,550,286

Capital Assets: Land Easements Plant and equipment Construction in progress Less: accumulated depreciation Total property and equipment

2,515,666 6,061,191 470,224,018 4,818,414 (131,897,275) 351,722,014

Total noncurrent assets

360,205,731

Total assets

408,206,285

Liabilities and Net Assets: Current liabilities: Payments from current assets: Accounts payable and accrued expenses Current portion of compensated absences payable Payments from restricted cash and cash equivalents: Bond interest payable Current portion of long term obligations Total current liabilities

3,007,888 28,750 1,133,033 5,324,825 9,494,496

Noncurrent liabilities: Compensated absences, net of current portion Other post-employment benefits Derivative liability Deferred Revenue Long-term obligations, net of current maturities Total noncurrent liabilities

685,347 607,700 3,550,286 5,500 94,642,611 99,491,444

Total liabilities

108,985,940

Net assets: Invested in capital assets, net of related debt Restricted for Avery's Creek Sanitry District Restricted for debt service Restricted under bond covenant Unrestricted Total net assets

251,754,578 620,880 7,849,253 824,822 38,170,812 299,220,345

$

The accompanying notes are an integral part of the financial statements.

Financial Section

| P a g e | 23

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2011

Operating revenues: Sewer charges Facility and tap fees Miscellaneous Total operating revenues Operating expenses: Salaries and employee benefits Contractual services Utilities Repairs and maintenance Other supplies and expenses Insurance claims and expenses Depreciation Total operating expenses Operating income

$

26,894,894 2,238,171 612,721 29,745,786 6,536,352 1,337,258 1,234,810 927,655 1,344,307 2,142,086 7,520,744 21,043,212 8,702,574

Nonoperating revenues (expenses): Interest income Interest expense Amortization of bond issuance costs Gain (Loss) on disposal of surplus property Total nonoperating revenues (expenses) Income before contributions

493,002 (2,619,031) (156,120) 42,232 (2,239,917) 6,462,657

Capital contribution

2,841,859

Change in net assets

9,304,516

Total Net Assets, beginning of year

289,915,829

Total Net Assets, end of year

$ 299,220,345

The accompanying notes are an integral part of the financial statements.

Financial Section

| P a g e | 24

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Statement of Cash Flows For the Year Ended June 30, 2011

Cash flows from operating activities: Cash received from customers Sales tax paid Cash paid to employees for services Cash paid for goods and services Other operating revenue Net cash provided by operating activities

$

Cash flows from capital and related financing activities Acquisition and construction of capital assets Proceeds from sale of surplus property Proceeds from Buncombe County in Avery's Creek Sewerage District asset contribution Principal paid on bond maturities Interest paid on bond maturities Net cash used by capital and related financing activities

29,019,235 (119,277) (5,259,456) (8,046,356) 733,289 16,327,435

(13,476,416) 77,325 (1,435,851) (4,636,825) (3,292,443) (22,764,210)

Cash flows from investing activities: Proceeds from sale of Investments Purchases of investments Interest on investments Net cash provided by investing activities

1,220,000 (1,400,000) 427,656 247,656

Net increase (decrease) in cash and cash equivalents

(6,189,119)

Cash and cash equivalents, July 1 Cash and cash equivalents, June 30

$

52,010,837 45,821,718

Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Changes in assets and liabilities: (Increase) in receivables (Increase) in inventory Decrease in prepaid items (Decrease) in accounts payable and accrued expenses Increase in other post-employment benefits Increase in accrued compensated absences Total adjustments

$

8,702,574

Net cash provided by operating activities

$

Reconciliation of operating income to net cash provided by operating activities:

7,520,744 (112,539) (24,763) 450 (17) 182,000 58,986 7,624,861 16,327,435

Noncash investing, capital, and financing activities:

1.

At various times during the year ended June 30, 2011 the District received contribution of sewer lines constructed by developers with a reported estimated fair value of $742,770.

2.

During the year ended June 30, 2011, the District received the assets of the Avery's Creek Sewerage District from Buncombe County with a reported estimated fair value of $1,435,851.

The accompanying notes are an integral part of the financial statements.

Financial Section

| P a g e | 25

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Notes to Basic Financial Statements June 30, 2011 Note 1 ‐ Summary of Significant Accounting Policies The accounting policies of the Metropolitan Sewerage District of Buncombe County, North Carolina (District) conform to generally accepted accounting principles as applicable to enterprise‐type governments. The following is a summary of the more significant accounting policies:

A. Reporting Entity The District is a public body and body politic and corporate of the State of North Carolina, created pursuant to the North Carolina Metropolitan Sewerage Districts Act (Article 5, Chapter 162A of the General Statutes of North Carolina, as amended). The District was established in 1962 by the North Carolina State Stream Sanitation Committee for the purpose of constructing and operating facilities for sewage treatment within the political subdivisions serviced by the District as listed below.

City of Asheville

Beaverdam Water and Sewer District Town of Biltmore Forest

Town of Black Mountain

Busbee Sanitary Sewer District

Caney Valley Sanitary Sewer District Crescent Hill Sanitary Sewer District Woodfin Sanitary Water and Sewer District

Town of Montreat Enka‐Candler Water and Sewer District Fairview Sanitary Sewer District Skyland Sanitary Sewer District Swannanoa Water and Sewer District Town of Weaverville Venable Sanitary District

Under the North Carolina Metropolitan Sewerage Districts Act, the District is authorized, among other things, to: (a) acquire, construct, improve, extend, maintain, and operate any sewerage system or part thereof (including facilities for the generation and transmission of electric power and energy) within or without the District; (b) to issue revenue bonds to pay the costs of any of the foregoing; and (c) to set and collect rents, rates, fees and other charges for provision of sewerage services and the use of any District facilities.

The District Board consists of twelve members appointed as follows: three from the County of Buncombe, three from the City of Asheville, and one each from Woodfin Sanitary Water & Sewer District, and the Towns of Biltmore Forest, Black Mountain, Montreat, Woodfin, and Weaverville.

The District owns, operates, and maintains a wastewater treatment plant as well as the related network of collector and interceptor sewers. The treatment plant has a capacity to treat up to 40 million gallons per day, but currently receives an average of 18.5 million gallons per day from approximately 50,000 residential and commercial customers transported through approximately 960 miles of collector sewers.

The District’s basic financial statements include all transactions of the District for which the District is financially accountable. Financial accountability is defined as appointment of a majority of a component unit’s board and either the ability to impose the will of the District or the possibility that the component unit will provide a financial benefit to or impose a financial burden on the District.

Based on these criteria, the District has determined that there are no component units, which come under the criteria for inclusion. The District is not a component unit of any other governmental entity.

Financial Section

| P a g e | 26

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

B. Basis of Presentation ‐ Fund Accounting The accounts of the District are organized and operated on the basis of funds in accordance with the District’s Bond Order. A Fund is an independent fiscal and accounting entity with a self‐balancing set of accounts comprised of assets, liabilities, fund equity, revenues, and expenditures or expenses as appropriate. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance‐related legal and contractual provisions. The minimum number of funds is maintained consistent with legal and managerial requirements.

The District presents the basic financial statements on an enterprise fund basis. The Enterprise Fund accounts for those operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that the periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, and other purposes.

C. Measurement Focus and Basis of Accounting The proprietary fund is accounted for on the flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the balance sheet. Proprietary Funds are presented in the financial statements on the accrual basis of accounting. Under this basis, revenues are recognized in the accounting period when earned and expenses are recognized in the period they are incurred.

As permitted by generally accepted accounting principles, the District has elected to apply only applicable FASB Statements and Interpretations issued before November 30, 1989 that do not contradict GASB pronouncements in its accounting and reporting practices for its enterprise operations.

D. Budgetary Data Budgets are adopted as required by state statute and in compliance with the Bond Order. All annual appropriations lapse at fiscal year‐end. The budget is prepared using the modified accrual basis of accounting, which is consistent with the accounting system used to record transactions during the fiscal year. Expenditures may not legally exceed appropriations at the functional level. Management is authorized to transfer appropriations within a department; however, any revisions that alter total expenditures of any function must be approved by the governing board. There were no budget amendments.

As required by North Carolina state law (G.S. 159‐26(d)), the District maintains encumbrance accounts, which are considered to be “budgetary accounts.” Encumbrances outstanding at year‐end represent the estimated amounts of the expenditures ultimately to result if unperformed contracts in progress at year‐end are completed. Encumbrances outstanding at year‐end do not constitute expenditures or liabilities.

E. Deposits and Investments All deposits of the District are made in board‐designated official depositories and are secured as required by State law [G.S. 159‐31]. The District may designate as an official depository any bank or savings and loan association whose principal office is located in North Carolina. In addition, the Board may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates of deposit.

Financial Section

| P a g e | 27

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

State law [G.S. 159‐30(c)] authorizes the District to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina, (the “State”); bonds and notes of any North Carolina local government or public authority; obligations of certain non‐guaranteed federal agencies; certain high quality issues of commercial paper and bankers’ acceptances and the North Carolina Capital Management Trust (NCCMT).

The District’s Bond Order limits investments to: a. government obligations; b. obligations of the following agencies: Federal Financing Bank, Federal Home Loan Banks; Federal Home Loan Mortgage Corporation (except for stripped mortgage securities which are purchased at prices exceeding their principal amounts), The Federal National Mortgage Association (except for stripped mortgage securities which are purchased at prices exceeding their principal amounts), the Government National Mortgage Association, the Federal Housing Administration and the Farmers Home Administration; c. direct general obligations of the State secured by the full faith and credit and taxing power of the State rated in one of the two highest rating categories by Moody’s and S&P; d. bonds and notes of any North Carolina local government or public authority (other than the District), subject to such restrictions as the Secretary of the Local Government Commission may impose, provided such bonds or notes are rated in one of the two highest rating categories by Moody’s and S&P; e. savings certificates or certificates of deposit issued by any commercial bank or savings and loans association organized under the laws of the State or in any federal bank or savings and loan association having its principal office in the State; provided, however, that any principal amount of such certificates in excess of the amount insured by the federal government or any agency thereof; or by a mutual deposit guaranty association authorized by the Administrator of the Savings Institutions Division of the Department of Commerce of the State, be fully collateralized by obligations reserved by financial institution; f.

prime quality commercial paper (having original maturities of not more than 270 days) bearing the highest rating of Moody’s and S&P and not bearing a rating below the highest by any nationally recognized rating service which rates the particular obligation;

g. Participating shares in the cash portfolio of North Carolina Capital Management Trust, provided that the investments of such fund are limited to those qualifying for investment under this definition and that said fund is certified by the Local Government Commission; h. A commingled investment pool established and administered by the State Treasurer pursuant to G. S. 147‐69.3; i.

Repurchase agreements with respect to Government Obligations if entered into with certain restrictions;

j.

Any other investment now or hereafter permitted for investment of funds by the District by the General Statutes of North Carolina, including, without limitation, Section 159‐30 of the General Statutes of North Carolina.

The District’s investments with a maturity of more than one year at acquisition and non‐money market investments are reported at fair value as determined by quoted market prices. The securities of the NCCMT Cash Portfolio, a SEC‐registered (2a – 7) money market mutual fund, are valued at fair value, which is the NCCMT’s share price. Money market investments that have a remaining maturity at the Financial Section

| P a g e | 28

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

time of purchase of one year or less are reported at amortized cost. Non‐participating interest earnings and investment contracts are reported at cost.

F. Restricted Assets and Liabilities Any unexpended bond proceeds from the revenue bonds issued by the District are classified as restricted assets because their use is completely restricted to the purpose for which the bonds were originally issued. Cash and investments included in the District’s bond service and debt service reserve accounts are classified as restricted because their use is completely restricted for reserves and debt service of the outstanding bonds. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available.

Any amounts payable from restricted assets are considered restricted liabilities. At June 30, 2011, the bond interest payable of $1,133,033 and the current portion of long‐term debt $5,324,825 represents total restricted liabilities of the District.

G. Allowance for Doubtful Accounts All receivables that historically experience uncollectible accounts are shown net of an allowance for doubtful accounts. This amount is estimated based on the percentage of receivables that were written off in prior years. The allowance was $555,098 as of June 30, 2011.

H. Inventories Inventories consist of materials and supplies held for consumption and expensed as used. Inventories are valued at the lower of cost (first‐in, first‐out) or market.

I. Capital Assets

Capital assets, primarily property and equipment, are recorded at original cost at the time of acquisition or constructed. Donated assets are recorded at the estimated fair market value at the date of donation. Any interest incurred during the construction phase of capital assets is reflected in the capitalized value of the assets constructed. Assets costing at least $15,000 and with a useful life of over one year are capitalized. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Depreciation is computed on the straight‐ line basis. Assets are depreciated based on useful life estimated by District engineers as follows: See Note 5 for further details.

Buildings and Waste Treatment Plants

50 years Improvements other than Buildings

10‐50 years Waste Treatment and Pumping Stations Machinery

10‐15 years Interceptor Sewer Lines

50‐100 years

50‐100 years Collector Sewer Lines Office Furniture and Fixtures

10 years Lab Equipment

5‐10 years Maintenance Equipment

5‐10 years Automobiles and Trucks

5‐10 years Communication Equipment

5‐10 years Computer equipment and software

3‐5 years Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

J. Deferred Bond Issuance Costs Costs incurred in issuing the Series 1992A revenue refunding bonds, Series 1992B revenue bonds, Series 1999 revenue bonds, Series 2001 revenue bonds, Series 2003 refunding revenue bonds, Series 2008A refunding revenue bonds, Series 2008B refunding revenue bonds, Series 2009A revenue bonds, and Series 2009B refunding revenue bonds have been deferred and are being amortized over the term of the bonds using an effective interest method of amortization.

K. Compensated Absences The vacation policy of the District provides for the accumulation of up to forty (40) days earned vacation leave with such leave being fully vested when earned. Accordingly, an expense and a liability for compensated absences and any salary‐related payments such as retirement contributions and payroll taxes are recorded. Accumulated earned vacation at June 30, 2011 is $714,097 and is included in accrued expenses. See Note 3D for further details.

The District's sick leave policy provides for an unlimited accumulation of earned sick leave.

Accumulated sick leave at June 30, 2011 amounts to approximately $2.2 million. Sick leave does not vest but any unused sick leave accumulated at the time of retirement may be used in the determination of length of service for retirement benefit purposes. Since the District has no obligation for the accumulated sick leave until it is actually taken, no accrual for sick leave has been made.

L. Cash Equivalents For the purposes of the statement of cash flows, the District considers all highly liquid investments (including restricted assets) with an original maturity of three months or less when purchased to be cash equivalents.

M. New Pronouncements The Governmental Accounting Standards Board (GASB) has issued several statements not yet implemented by the District. Those statements which may have future impact on the District include:

Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, will be effective for the District beginning after December 15, 2011. The objective of this Statement is provide financial reporting guidance for deferred outflows of resources and deferred inflows of resources. The requirements of this Statement will improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources and their effects on a government’s net position. It alleviates uncertainty about reporting those financial statement elements by providing guidance where none previously existed. Management is currently evaluating the impact of this statement will have on the District’s financial statements.

Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions—an amendment of GASB Statement No. 53 will be effective for the District beginning after June 15, 2011. The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty’s credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied as a component of investment income. The requirements of this Statement enhance comparability and improve financial reporting by clarifying the circumstances in which hedge accounting should continue when a swap counterparty, or a swap counterparty’s credit support provider, is replaced. Management is currently evaluating the impact of this statement will have on the District’s financial statements.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

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

O. Operating and Nonoperating Revenues and Expenses The District defines operating revenue and expenses as those directly received and incurred in the process of providing wastewater collection and treatment. Nonoperating revenues and expenses are those resulting from incidental functions such as investment income, interest expense on long‐term debt, and sale of surplus equipment.

P. Deferred Revenue From time to time, the District may receive grants, cost‐sharing or other revenue with respect to future periods. Such funds are classified as deferred revenue and recognized in the period when the requisite activities and conditions are completed.

Note 2 ‐ Deposits and Investments A. Deposits All of the District’s deposits are either insured or collateralized by using the Pooling Method. Under the Pooling Method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the state treasurer’s agent in the name of the state treasurer. Since the state treasurer is acting in a fiduciary capacity for the District, these deposits are considered to be held by the District’s agent in the District’s name. The amount of the pledged collateral is based on an approved averaging method for non‐interest‐bearing deposits and the actual current balance for interest‐bearing deposits.

Depositories using the Pooling Method report to the state treasurer the adequacy of their pooled collateral covering uninsured deposits. The state treasurer does not confirm this information with the District or the escrow agent. Because of the inability to measure the exact amount of collateral pledged for the District under the pooling method, the potential exists for under collateralization, and this risk may increase in periods of high cash flows.

However, the state treasurer enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method and the District relies on the State Treasurer to monitor those financial institutions. The District’s formally adopted investment policy attempts to mitigate custodial credit risk for deposits by pre‐qualifying the financial institutions receiving funds.

The District also complies with the provisions of G.S. 159‐31 when designating official depositories and verifying that deposits are properly secured.

At June 30, 2011, the District’s deposits had a carrying amount of $36,347,393 and a bank balance of $36,429,860. Of the bank balance, $750,000 was covered by federal depository insurance and $35,679,860 in interest‐bearing deposits was covered by collateral held under the pooling method.

At June 30, 2011, the District had a cash balance of $1,325,794, which was held by a bank trustee under various escrow agreements with collateralization agreements as determined sufficient by the respective bond attorneys. The cash resulted from several investments, which had recently matured.

The amount was reinvested on July 1, 2011. At June 30, 2011, the District had $350 cash on hand.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

B. Investments As of June 30, 2011, the District had the following investments and maturities.

Investment Type US Government Agencies NC Capital Management Trust – Cash Total

Fair Value $ 1,324,615 $ 7,004,181 $ 8,328,796

Less Than 6 Months $ 1,144,000 N/A $ 1,144,000

6 to 12 Months N/A N/A N/A

1 to 2 Years

3 to 5 Years

N/A $ N/A N/A $

180,615 N/A 180,615

Interest Rate Risk—As a means of limiting its exposure to changes in fair value arising from rising interest rates, the District’s formally adopted investment policy calls for structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations and/or scheduled debt service, thereby avoiding the need to sell securities on the open market prior to maturity. In addition, the District invests operating funds primarily in shorter‐term securities.

Credit Risk—Credit risk is the risk of loss due to the failure of the security issuer or backer. The District’s formally adopted investment policy mitigates credit risk by limiting investments to the safest types of securities and restricts the purchase of securities to the highest possible ratings whenever particular types of securities are rated. The District’s investments in the NC Capital Management Trust Cash Portfolio carried a credit rating of AAAm by Standard & Poor’s as of June 30, 2011. The District’s investments in US Agencies (such as and the Federal Home Loan Bank) is rated AAA by Standard & Poor’s and Aaa by Moody’s Investors Service as of June 30, 2011.

Custodial Credit Risk—For an investment, custodial credit risk is the risk that in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The District’s formally adopted investment policy requires all transactions to be conducted on a delivery‐versus‐payment (DVP) basis and to be held by a contracted third party custodian and evidenced by safekeeping receipts. At June 30, 2011, the District did not have any investments exposed to custodial credit risk.

Concentration of Credit Risk—The District’s investment policy mitigates concentration of credit risk, that is, the risk from the failure of any one entity or industry, by limiting the maximum amount of the District’s portfolio that may be invested in Bankers’ Acceptances and Commercial Paper to 20% each. In addition, the District’s formally adopted policy limits investment in any single issue of a non‐ governmental entity to the greater of $500,000 or 1% of the entire portfolio. The District had 15.9% invested in two Federal Home Loan Bank securities.

C. Forward Delivery Agreement Objective—In connection with the debt service reserve funds for the 2001 Bonds, the District entered into Forward Delivery Agreement (FDA) under which it has received a guarantee of the rate of return it will receive during the term of the agreement on amounts held in the reserve funds. Because this agreement is not held as an investment, its fair value is not included in the financial statements.

However, all investments acquired under the terms of the agreement are presented at fair value.

Terms—Under this agreement, the Provider agrees to sell the District qualifying investments bearing a certain rate of interest and maturing at times when cash is needed for debt service requirements. The agreement entered into for the Series 2001 bonds with Salomon Brothers Holding Company Inc. matures July 1, 2021. The guaranteed rate of return is 5.38% and covers approximately $1.1 million of debt service reserve funds.

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Interest Rate Risk—The FDA minimized the risk of loss resulting from fluctuations in interest rates during the term of the contract, but the District has also foregone the possibility of receiving greater returns on debt service reserve funds from such fluctuations. At June 30, 2011, the District has approximately $1.1 million of investments held under the remaining contract.

Credit Risk—Credit risk is the risk of loss due to the failure of the security issuer or backer. The GIC agreement provides for additional collateral or other remedies in the event the providing institution suffers a serious downgrade by one or more of the major investment rating firms. Currently Citigroup, of which Salomon Brothers is a subsidiary, is rated A3 by Moody’s Investors Service, A by Standard & Poor’s Ratings Services, and A+ by Fitch Ratings.

Custodial Credit Risk—These investments are not subject to custodial risk because they are not evidenced by securities that exist in physical or book entry form.

Termination Risk—In the event the District desires to terminate the agreement, the provider will compute the value of the contract based on prevailing interest rates. If the amount is positive, the District will pay the amount to the provider, or if negative, the provider will pay such amount to the District. Due to current interest rates being below those of the guaranteed rates, the District does not believe any termination risk exists at this time. The provider has no option to terminate the contract.

D. Hedging Derivative Instrument At June 30, 2011, the District had the following hedging derivative instrument:

Type Objective Cash Flow Hedge: Pay‐ Fixed Interest Rate Swap

Hedge of changes in cash flows on the 2005/2008A Series Revenue Refunding Bonds

Fair Value June 30, 2011

Changes in Fair Value Notional Amount

$33,280,000

Classification Amount

Deferred Outflow of Resources

$773,984

Effective Date

Maturity Date

Classification

Amount

1/6/2005

7/1/2031

Debt

$(3,550,286)

The mark‐to‐market valuation was established by market quotations from the counterparty representing estimates of the amounts that would be paid for replacement transactions. Because the coupons on the District’s variable‐rate bonds adjust to changing interest rates, the bonds do not have a corresponding fair value increase.

Objective—As a means to lower its borrowing costs, when compared against fixed‐rate bonds at the time of issuance in January 2005, the District issued variable interest rate debt and entered into an interest rate exchange agreement (swap) in connection with its variable rate $33,915,000 Series 2005 Revenue Refunding Bonds. The intention of the swap was to effectively change the District’s variable interest rate on the bonds to a synthetic fixed rate of 3.4175%. In April 2008, the District issued $33,635,000 Revenue Refunding Bonds Series 2008A to currently refund the Series 2005 Revenue Refunding Bonds. The swap described above now applies to the Series 2008A Revenue Refunding Bonds.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Terms—Under the terms of the swap, the District pays the counterparty a fixed payment of 3.4175% and receives a variable payment computed as 59% of the one‐month London Interbank Offered Rate (LIBOR) plus 35 basis points. The swap had an initial notional amount equal to the associated Series 2005 variable rate bond principal amount of $33,915,000. The swap was entered into at the same time the Series 2005 bonds were issued in January of 2005. Starting in fiscal year 2006, the notional value of the swap and the principal amount of the associated debt declined in equal amounts. As the swap now applies to the Series 2008A bonds, the remaining notional value of the swap is correlated to the variable rate bond principal amount of $33,635,000. Starting in fiscal year 2010, the notional value of the swap and the principal amount associated debt decline in similar amounts until the debt is completely retired. The notional amount outstanding is $33,280,000 as of June 30, 2011. The bonds’ variable rate coupons are determined by the remarketing agent based on prevailing market conditions.

This usually approximates The Securities Industry and Financial Markets Association (SIFMA). The bonds and the related swap agreement both mature on July 1, 2031.

Credit risk—As of June 30, 2011, the District was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap becomes positive, the District would be exposed to credit risk in the amount of the swap’s fair value. The swap counterparty was rated Aa3 by Moody’s and A+ by Standard & Poor’s, and Fitch Ratings as of June 30, 2011. To mitigate the potential credit risk, if the counterparty’s credit quality falls below Baa3 (Moody’s) and BBB‐(S&P), the value of the swap may be fully collateralized by the counterparty or by several other means specified in the International Swap Dealers association (ISDA) Master Agreement and Counterparty Schedule.

Interest Rate/Basis Risk—As noted above, the swap exposes the District to basis risk should the relationship between LIBOR and SIFMA diverge, changing the synthetic rate on the bonds. The effect of this difference in basis is indicated by the difference between the intended synthetic rate of 3.4175% and the actual synthetic rate for the period ending June 30, 2011 of 3.15%. As of June 30, 2011 the rate on the District’s bonds was .07% whereas 59% of one‐month LIBOR plus 35 basis points was .4595%. If a change occurs that results in the rates’ moving in a direction unfavorable to the District, the expected cost savings may not be realized.

Termination Risk—The interest rate exchange contract uses the International Swap Dealers Association (ISDA) Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The ISDA Schedule to the Master Agreement includes an “additional termination event.” That is, the swap may be terminated by the District if the counterparty’s credit quality rating falls below Baa3 (Moody’s) and BBB‐(S&P). The District or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap were terminated, the variable‐rate bonds would no longer carry a synthetic interest rate. In addition, if at the time of termination the swap has a negative fair value, the District would be liable to the counterparty for a payment equal to the swap’s fair value.

Market Access Risk/Rollover Risk—The District’s interest rate exchange contract is for the term (maturity) of the bonds and therefore there is no market‐access risk or rollover risk.

Financial Section

| P a g e | 34

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Note 3 ‐ Long‐Term Debt Obligations A. Long‐Term Debt The District issues debt to help finance the cost of rehabilitation of wastewater interceptor and collection infrastructure, and treatment plant facilities. Unlike cities and counties, the District has no legal debt limit. However, the District must comply with the legal requirements contained in its Bond Order as described in Note 11.

The District’s borrowings are subject to federal arbitrage regulations; however, management does not anticipate any material liability for arbitrage from any of these debt issues.

The District currently has the following issues outstanding:

Original Issue Amount

Revenue Bonds: Series 1992A, Revenue Refunding Bonds Series 1992B, Revenue Bonds Series 1993A, Revenue Refunding Bonds Series 1999, Revenue Bonds Series 2001, Revenue Bonds Series 2003, Revenue Refunding Bonds Series 2008A, Revenue Refunding Bonds Series 2008B, Revenue Refunding Bonds Series 2009A, Revenue Bonds Series 2009B, Revenue Refunding Bonds

$

20,845,000 22,500,000 33,130,000 31,815,000 21,020,000 26,970,000 33,635,000 22,165,000 17,205,000 13,360,000

672,980

State Revolving Fund: 2009 North Carolina Water Pollution Control Revolving Fund

The following is a summary of changes in the Districts’ long‐term debt for the fiscal year ended June 30, 2011:

Balance July 1, 2010

Additions

Retirements

Balance June 30, 2011

Revenue refunding bonds (Series 1992A) issued for the defeasance of Series 1986A revenue bonds:

6.60% term bonds issued April 1, 1992, at 100%,

due July 1, 2007 through 2010, interest payable ‐ $ 25,000 $ semi‐annually. $ 25,000 $

Revenue bonds (Series 1992B) issued for construction costs during the final phase of the sewer wastewater treatment plant and improvements to selected interceptor sewers:

6.60% term bonds issued April 1, 1992, at 100%,

due July 1, 2007 through 2010; interest payable ‐ 25,000 semi‐annually.

25,000

Revenue Bonds:

Financial Section

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| P a g e | 35

Metropolitan Sewerage District of Buncombe County, North Carolina

Balance July 1, 2010

FY Ending June 30, 2011

Additions

Retirements

Balance June 30, 2011

Revenue bonds (Series 2001) issued for construction costs of a portion of the construction costs of a five‐year capital improvement plan adopted by the District:

2.80% to 4.50% serial bonds issued December

13, 2001, with maturities on each July 1, 2004

through 2013 varying from $250,000 to 1,535,000 ‐ 1,045,000 490,000 $555,000; interest payable semi‐annually

Enka‐Candler Water and Sewer District Bonds liability assumed by the District on July 2, 1990 as stated in the sewer consolidation agreement:

5.00% serial bonds assumed July 2, 1990 with

maturities on each June 1, through 2024 varying

from $19,000 to $64,000, interest payable semi‐ ‐ 759,000 50,000 annually

809,000

Revenue refunding bonds (Series 2003) issued for the defeasance of a portion of the Series 1992A and 1992B revenue refunding bonds, and Series 1993A revenue bonds

2% to 5.25% serial bonds issued April 3, 2003,

with maturities on each July 1, 2004 through

2022 varying from $205,000 to $2,730,000; 14,205,000 ‐ ‐ 14,205,000 interest payable semi‐annually 4% term bonds issued April 3, 2003, at 100% due July 1, 2014; interest payable semi‐annually

1,915,000

5,000

‐

1,910,000

4% term bonds issued April 3, 2003, at 99.09% ‐ 1,825,000 25,000 July 1, 2014; interest payable semi‐annually 1,850,000 Total ‐ Series 2003 Bonds 17,970,000 ‐ 30,000 17,940,000

Revenue Refunding Bonds (Series 2008A) issued to currently refund the Series 2005 Revenue Refunding Bonds:

Interest at variable rates in the weekly mode, ‐ 180,000 33,280,000 payable monthly, due serially until 2031 33,460,000

Revenue Refunding Bonds (Series 2008B) issued to currently refund the Series 2005 Revenue Refunding Bonds Interest at variable rates in the weekly mode,

‐ payable monthly, due serially until 2031 21,445,000 740,000 20,705,000 2.0% to 5.00% serial bonds issued October 7, 2009, with maturities on each July 1, 2010 through 2024 varying from $400,000 to $700,000; interest payable semi‐annually.

7,920,000

5.00% term bonds issued October 7, 2009, at 109.001%, due July 1, 2029; interest payable semi‐annually.

2.0% to 5.00% serial bonds issued 5.00% term bonds issued October 7, 2009, at 107.240%, due July 1, 2034; interest payable semi‐annually.

Total ‐ Series 2009A Bonds

4,065,000

‐

400,000

7,520,000

‐

‐

4,065,000

5,220,000 16,805,000

5,220,000

‐

‐

17,205,000

‐

400,000

Financial Section

| P a g e | 36

Metropolitan Sewerage District of Buncombe County, North Carolina Balance July 1, 2010

FY Ending June 30, 2011

Additions

Revenue Refunding Bonds (Series 2009B) used to refund portions of Series 1999 2.0% to 5.00% serial bonds issued October 7, 2009, with maturities on each July 1, 2010 through 2019 varying from $595,000 to ‐ $3,100,000; interest payable semi‐annually 13,360,000 Total Revenue Bonds 105,834,000 ‐

State Revolving Fund:

Balance June 30, 2011

Retirements

2,680,000 10,680,000 4,620,000 101,214,000

2009 North Carolina Water Pollution Control Revolving Fund used to construct certain sewerage projects

$672,980 revolving loan issued August 18, 2009

unpaid principal sum is reduced by one‐half as

"Principal Forgiveness", interest accrues at 0%, ‐ 16,825 20 annual installments May 1, 2011 to 2030.

336,490 Total State Revolving Fund 336,490 ‐ 16,825 Total Long‐Term Obligations Less net of unamortized discounts and premiums

Series 1992A Series 1992B Series 2001 Series 2003 Series 2008A Series 2008B Series 2009A Series 2009B 2009 State Revolving Fund Enka‐Candler

106,170,490 (1,365,765) 104,804,725

‐

‐

4,636,825

101,533,665

200,464

25,000 25,000 490,000 30,000 180,000 740,000 400,000 2,680,000 16,825 50,000 (4,636,825) $100,167,900

319,665 319,665

(1,566,229) 99,967,436

‐ ‐ 1,045,000 30,000 185,000 770,000 415,000 2,810,000 16,825

53,000 (5,324,825) $94,642,611

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Metropolitan Sewerage District of Buncombe County, North Carolina

Maturities of long‐term debt are as follows:

Principal

Serial and Mandatory Year Ending Term Sinking Fund June 30: Maturity Requirements (Term Bonds) 2012 2013 2014 2015 2016

FY Ending June 30, 2011

Total

Interest

$ 5,294,825 $ 4,386,825 5,184,824 2,157,824 6,020,824 23,045,122

30,000 35,000 35,000 3,635,000 ‐ 3,735,000

$ 5,324,825 4,421,825 5,219,824 5,792,824 6,020,824 26,780,122

$ 3,904,137 3,702,901 3,494,039 3,287,196 3,049,444 17,437,717

Five Years Ending June 30: 2021 21,074,122 2026 23,952,123 2031 22,172,298 2035 5,560,000

$ 95,803,665 $

1,995,000 ‐ ‐ ‐ 5,730,000

23,069,122 23,952,123 22,172,298 5,560,000 $101,533,665

12,256,223 7,548,725 3,202,454

462,652 $ 40,907,771

The mandatory sinking fund requirements for the term bonds set forth above assume sufficient cash flow to provide for the sinking fund requirements. To the extent the sinking fund does not fully redeem the term bonds, the Series 1992A and 1992B bonds are payable in full at maturity on July 1, 2012, the Series 1999 bonds are payable in full at maturity on July 1, 2019, and the Series 2003 bonds are payable in full at maturity on July 1, 2014.

The revenue bonds are secured by and payable solely from all sewer revenues of the District after provisions for operating expenses and from certain reserves and other monies of the District, as described in the bond order. Additional remittance requirements to the trustee for a sinking fund to redeem the term bonds, subordinated indebtedness outstanding, if any, and other purposes are set forth in the bond order.

Commencing on or after July 1, 2013, the District may redeem in whole or in part, any of the Series 2003 bonds maturing on or after July 1, 2014, at 0% premium.

Interest costs of $423,881 have been capitalized in the cost of construction for the year ended June 30, 2011. Net interest expense not capitalized in 2011 was $2,619,031.

B. Variable Debt Interest rates—Interest rates for variable debt change weekly as determined by the responsible remarketing agent based on competitive municipal bond rates in the secondary market.

Liquidity Agreement—The District has entered into a remarketing agreement with the Bank of America to perform various functions in connection with the Series 2008A and Series 2008B variable debt. The Remarketing Agent’s major responsibilities include (i) soliciting of purchases of Bonds from qualified investors, (ii) processing and recordkeeping for such purchases, (iii) billing and receiving payment for Financial Section

| P a g e | 38

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Bonds purchased, and (iv) determining the interest rate on the Bonds as provided in the Series Resolution.

C. Hedging Derivative and Associated Hedged Debt As of June 30, 2011, debt service requirements of the variable‐rate debt and net swap payments, assuming current interest rates remain the same for their term were as follows. As rates vary, variable‐ rate bond interest payments and net swap payments will vary.

Fiscal Year Ending June 30 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

Variable Rate Bonds Principal Interest $

185,000 $ 170,000 740,000 765,000 790,000 825,000 855,000 885,000 920,000 2,075,000 2,160,000 2,235,000 2,320,000 2,400,000 2,485,000 2,585,000 2,685,000 2,785,000 2,890,000 1,240,000 1,285,000 $ 33,280,000 $

23,296 $ 23,167 23,048 22,530 21,994 21,441 20,864 20,265 19,646 19,002 17,549 16,037 14,473 12,849 11,169 9,429 7,620 5,740 3,791 1,768 900 316,578 $

Interest Rate Swap, Net 984,421 $ 978,949 973,920 952,031 929,402 906,034 881,631 856,340 830,162 802,948 741,570 677,677 611,566 542,940 471,948 398,442 321,978 242,556 160,176 74,689 38,010 13,377,390 $

Total

1,192,717 1,172,116 1,736,968 1,739,561 1,741,396 1,752,475 1,757,495 1,761,605 1,769,808 2,896,950 2,919,119 2,928,714 2,946,039 2,955,789 2,968,117 2,992,871 3,014,598 3,033,296 3,053,967 1,316,457 1,323,910 46,973,968

Financial Section

| P a g e | 39

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

The computations above are based on the following interest assumptions.

Terms Interest Rate Swap:

Fixed Payment to Counterparty Fixed Variable Payment from Counterparty 59% of LIBOR plus 35 Basis Points Net Interest Rate Swap Payments

Variable‐rate Bond Coupon Payments Remarketed Rate Synthetic Interest Rate on Bonds

Rates at 6/30/2011

3.4175% (.4595%)

2.9580%

.0700%

3.0280%

D. Compensated Absences Changes to the liability for compensated absences were as follows:

Balance June 30, 2010 $ Additions

Withdrawals

Balance June 30, 2011 $

655,111 586,670 (527,684) 714,097

The District accounts for compensated absences on a LIFO basis, assuming that employees are taking leave time as it is earned. For the year ended June 30, 2011, the District estimates that $28,750 is the current portion of this liability.

Note 4 ‐ Defeasance of Bonds 1999 Refunding On April 12, 1999, the District deposited with an escrow agent sufficient funds to purchase Treasury obligations maturing as to principal and interest at such times and in such amounts as shall be sufficient to pay the principal and interest on a portion of the Series 1992A, Series 1992B, and Series 1993A bonds as follows:

1992A Revenue Refunding Term Bonds $ 3,545,000 1992B Revenue Refunding Term Bonds 2,395,000 1993A Revenue Serial Bonds 975,000 1993A Revenue Term Bonds 6,685,000 Total

$ 13,600,000

2003 Refunding On April 3, 2003, the District issued $26,970,000 of revenue advance refunding bonds to provide resources to purchase U.S. Government securities that were placed in an irrevocable trust for the purpose of general resources for all future debt service payments of $26,890,000 of 1992A, 1992B, and 1993A revenue bonds redeemed July 1, 2003. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $1,900,825. This amount is being netted against the new debt and amortized over the life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to reduce total debt service payments over the next 20 years by $3,591,700 and resulted in an economic gain of $2,026,796.

Financial Section

| P a g e | 40

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

2005 Refunding On January 6, 2005, the District issued $33,915,000 of revenue advance refunding bonds to provide resources to purchase U.S. Government securities that were placed in an irrevocable trust for the purpose of general resources for all future debt service payments for $14,125,000 of 1999 bonds to be redeemed on July 1, 2009, and for $17,030,000 of 2001 bonds to be redeemed on July 1, 2011. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $2,760,000. This amount is being netted against the new debt and amortized over the life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to reduce total debt service payments over the next 25 years by $4,009,602 and resulted in an economic gain of $2,501,941.

Summary Depositing these funds amounted to a defeasance of a portion of the 1992A, 1992B, 1993A, 1999 and 2001 series bonds. These liabilities, as well as the funds held by the escrow agent, were removed from the District’s financial statements.

The defeased bonds at June 30, 2011 had the following outstanding balances:

1992A 1992B 1993A 2001

June 30, 2010 $

$

New

3,525,000 $ 2,375,000 6,685,000 17,030,000

Retired

29,615,000 $

June 30, 2011

‐ $ ‐ ‐ ‐

1,085,000 $ 725,000 1,025,000 ‐

2,440,000 1,650,000 5,660,000 17,030,000

‐ $

2,835,000

26,780,000

$

Outstanding amounts will be redeemed as follows:

1992A 1992B 1993A 2001

July 1, 2011 $

$

1,180,000 $ 800,000 1,080,000 17,030,000 20,090,000 $

July 1, 2012

July 1, 2013

1,260,000 $ 850,000 1,140,000

‐ 3,250,000 $

‐ ‐ 3,440,000

‐ 3,440,000

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Note 5 ‐ Capital Assets A summary of changes in capital assets follows below.

Capital Assets Not Being Depreciated Land Easements Buildings not currently in service Construction In Progress Total Capital Assets Not Being Depreciated

Capital Assets Being Depreciated Buildings & Waste Treatment Plants Improvements & Other than Bldgs.

Machinery & Equipment Interceptor Sewer Lines Collector Lines Automobiles and Trucks Computer Equipment Office Furniture & Equipment Total Capital Assets Being Depreciated

Less Accumulated Depreciation Buildings & Waste Treatment Plants Improvements & Other than Bldgs.

Machinery & Equipment Interceptor Sewer Lines Collector Lines Automobiles and Trucks Computer Equipment Office Furniture & Equipment Total Accumulated Depreciation

Total Capital Assets Being Depreciated, Net

Balance 6/30/10

$ 2,515,666 5,689,498 1,159,908 5,478,752

Additions $

‐ ‐ ‐ 16,290,942

Disposals $

14,843,824 16,290,942

47,897,401 3,803,650 48,447,147 102,296,341 242,739,098 3,991,747 521,894

584,142

‐ 26,521 178,991 ‐ 2,804,280 245,028 76,048 ‐

450,281,420

3,330,868

(16,840,251) (2,462,996) (40,569,310) (15,875,708) (45,248,601) (2,889,840) (402,839)

(559,036) (124,848,581)

(957,396) (160,993) (860,904) (1,169,090) (4,589,810) (318,793) (62,540) (21,840) (8,141,366)

325,432,839 (4,810,498) $ 340,276,663 $ 11,480,444 $

Balance 6/30/11

Transfers ‐ ‐ ‐ ‐

$

‐ 371,693 ‐ (16,951,280)

‐ (16,579,587)

(16,241) ‐ (13,276) 332,149 (761,235) 2,405,953 (26,866) 6,351,990 (128,104) 7,489,495 (156,992) ‐ (25,051) ‐ ‐ ‐

(1,127,765) 16,579,587

12,997 ‐ 10,621 ‐ 732,041 ‐ 26,866 ‐ 128,104 ‐ 156,992 ‐ 25,051 ‐ ‐ ‐ 1,092,672 ‐

(35,093) ‐ (35,093) $ ‐

$

2,515,666 6,061,191 1,159,908 4,818,414

14,555,179

47,881,160 4,149,044 50,270,856 108,621,465 252,904,769 4,079,783 572,891 584,142 469,064,110

(17,784,650) (2,613,368) (40,698,173) (17,017,932) (49,710,307) (3,051,641) (440,328) (580,876) (131,897,275)

337,166,835 $ 351,722,014

Fully depreciated assets—The District currently has fully depreciated capital assets still in service with a historical cost of approximately $41.8 million, consisting primarily of sewer collector and interceptor lines, wastewater treatment plant facilities, and various machinery and equipment.

Buildings not being depreciated—In January of 1999, the District modified its sewage treatment process, which resulted in retiring the digester equipment. However, the building in which it had been housed is still suitable for use, and accordingly, depreciation will not be charged until it is placed back in service.

Contributed infrastructure—The District’s responsibility is to maintain existing collector and interceptor sewer lines as well as to provide wastewater treatment. The majority of sewer lines added Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

to the District are constructed by member agencies or developers and donated to the District.

Occasionally, owners of private lines will petition the District to take over their sewer lines as well. This infrastructure must meet minimum District engineering standards, and when accepted by Board action, the District assumes all responsibility for future maintenance and rehabilitation. During the year ended June 30, 2011, the District accepted capital assets with an estimated fair market value of $742,770.

As of July 1, 2010, Buncombe County transferred the operations of the Avery’s Creek Sanitary District (ACSD) to the District. All remaining assets of ACSD were transferred to the District. This included $663,238 in restricted cash as well as $2,056,471 in capital assets with accumulated depreciation of $620,620. The restricted cash is to be used for maintenance of the transferred capital assets. As of June 30, 2011, the District incurred $42,358 in maintenance cost for ACSD.

Easements—The District acquires right‐of‐way easements in the course of sewer line rehabilitation projects. These easements have an indefinite useful life and are recorded at cost.

Note 6 ‐ Pension Plan Obligation A. North Carolina Local Governmental Employees' Retirement System Plan Description—The District contributes to the statewide Local Governmental Employees’ Retirement System (LGERS), a cost‐sharing multiple‐employer defined benefit pension plan administered by the State of North Carolina. LGERS provides retirement and disability benefits to plan members and beneficiaries. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Local Governmental Employees’ Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State’s CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699‐1410, or by calling (919) 981‐5454.

Funding Policy— Plan members are required to contribute six percent of their annual covered salary.

The District is required to contribute at an actuarially determined rate. For the District, the current rate for employees is 6.35% of annual covered payroll. The contribution requirements of members of the District are established and may be amended by the North Carolina General Assembly. The District’s contributions to LGERS for the years ended June 30, 2011, 2010 and 2009 were $468,731, $349,086, and $349,101 respectively. The contributions made by the District equaled the required contributions for each year.

B. Supplemental Retirement Income Plan for Non‐Law Enforcement Officers 401(k) Plan Plan Description—The District contributes to the Supplemental Retirement Income Plan of North Carolina, often referred to as the State’s 401(k) Plan, a defined contribution pension plan administered by the Department of State Treasurer and a Board of Trustees. The Plan provides retirement benefits to employees of the District who are members of the Local Government Employees’ Retirement System. Article 5 of G.S. Chapter 135 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly.

Funding Policy—Employee contributions are voluntary and must conform to applicable IRS limits. The District has a graduated matching contribution plan as follows: if an employee contributes 1%, 2% or 3%, the District will contribute 2%, 4%, or 5%, respectively, of their salary to either the 401(k) plan or the 457 plan described below. The District Board has the authority to establish and amend contribution Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

requirements. During the year ended June 30, 2011, a total of $279,652 and $278,720 were contributed by the District and employees, respectively.

C. Deferred Compensation Plan Plan Description—The District also offers its employees a deferred compensation plan, another type of defined contribution plan, established under the Internal Revenue Code Section 457. The plan allows employees to defer receipt and taxation of a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The plan is administered by a third party administrator who establishes and amends benefit provisions within the provisions of the Internal Revenue Code Section 457.

All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, and rights (until paid or made available to the employee or other beneficiary) are held in trust for the exclusive benefit of participants and their beneficiaries. As such, these assets and the related obligations are not reported in these financial statements.

Funding Policy—Employee contributions are voluntary and must conform to applicable IRS limits. The District has a graduated matching contribution plan as follows: if an employee contributes 1%, 2% or 3%, the District will contribute 2%, 4%, or 5%, respectively, of their salary to either the 401(k) plan described above or the 457 plan. The District Board has the authority to establish and amend contribution requirements. During the year ended June 30, 2011, $28,385 and $31,487 were contributed by the District and employees, respectively, to the deferred compensation plan.

Note 7 ‐ Other Employment Benefit Death Benefits—The District has elected to provide death benefits to employees through the Death Benefit Plan for Members of the Local Governmental Employees' Retirement System (Death Benefit Plan), a multiple‐employer State‐administered cost‐sharing plan funded on a one‐year term cost basis.

The beneficiaries of those employees who die in active service after one year of contributing membership in the System, or who die within 180 days after retirement or termination of service and have at least one year of contributing membership service in the System at the time of death are eligible for death benefits. Lump sum death benefit payments to beneficiaries are equal to the employee's 12 highest months’ salary in a row during the 24 months prior to his/her death, but the benefit may not be below $25,000 or exceed $50,000. All death benefit payments are made from the Death Benefit Plan. The District has no liability beyond the payment of monthly contributions.

Contributions are determined as a percentage of monthly payroll, based upon rates established annually by the State. Because the benefit payments are made by the Death Benefit Plan and not by the District, the District does not determine the number of eligible participants. For the fiscal year ended June 30, 2011, the District made contributions of $7,382 to the State to provide death benefits.

The District's required contributions for employees represented 0.10% of covered payroll. The contributions to the Death Benefit Plan cannot be separated between the post‐employment benefit amount and the other benefit amount.

Note 8 ‐ Other Post‐Employment Benefits Healthcare Benefits Plan Description—Under terms of a District resolution, the District administers a single‐employer defined benefit group health and dental insurance plan (the GHD Plan). As of May 14, 2008, the plan allow retirees to continue coverage under the Districts' self‐insured group health and dental insurance Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

plan until the earlier of (1) reaching age 65; or (2) becoming covered under another group medical plan; or (3) failing to timely pay any required premium for such coverage.

The District will pay the premium cost for the eligible retired employee as follows:

Years of Service

Subsidy Vesting %

30 years at any age

100%

25 years at 55 years of age

90%

20 years at 55 years of age

80%

15 years at 55 years of age

65%

10 years at 55 years of age

55% ‐ Existing Employees 50% ‐ Employees hired after 7/1/08

5 years at 55 years of age

50% ‐ Existing Employees

In addition, the District’s retirees can purchase coverage for their spouse at full actuarial cost. The District’s Board may amend the benefit provisions.

Membership in the District’s GHD Plan consisted of the following at July 1, 2010, the date of the latest actuarial valuation:

Employees

Retirees Receiving Benefits Active Plan Members Total

1

148

149

Funding Policy—The District pays the full cost of coverage for the healthcare benefits provided to qualified retirees under the plan. The District has chosen to fund the healthcare benefits on a pay as you go basis. Funding for these costs is included in budgeted appropriations in the annual budget. For the current year, the District contributed 18,600 or .3% of annual covered payroll. The current ARC rate is 2.8% of annual covered payroll. The District had two participating retiree who contributed $7,340.

Summary of Significant Accounting Policies— Postemployment expenditures are made from the Post employment account, which is maintained on the accrual basis of accounting. Expenditures are paid as they come due.

The District’s board has agreed to set aside funds on an annual basis equivalent to the annual ARC requirement as determined by the District’s actuarial consultants. As of June 30, 2011, the District set aside $636,243. These funds are to be used to meet the District’s future post‐employment obligation.

Annual OPEB Cost and Net OPEB Obligation—The District‘s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation for the healthcare benefits:

Annual Required Contribution $ 200,200 Interest on Net OPEB Obligation

17,000 Adjustment to Annual Required Contribution

16,600 Annual OPEB Cost (Expense)

200,600 Contributions Made

18,600 Increase (Decrease) in Net OPEB Obligation

182,000 Net OPEB Obligation, beginning of year

425,700 NET OPEB Obligation, end of year $ 607,700

The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2011, 2010, and 2009 were as follows:

Percentage of For the Year Net OPEB Annual OPEB Cost Annual OPEB Cost Ended June 30 Obligation Contributed 2009 $ 212,000 0.0% $ 212,000 2010 $ 221,400 3.5% $ 425,700 2011 $ 200,600 9.3% $ 607,700

Funded Status and Funding Progress—As of July 1, 2010 the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits and, thus, the unfunded actuarial accrued liability (UAAL) was $1,678,300. The covered payroll (annual payroll of active employees covered by the plan) was $7,147,000 and the ratio of the UAAL to the covered payroll was 23.5%.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions—Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members at that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short‐term volatility in actuarial accrued liabilities and the actuarial value assets, consistent with the long‐term perspective of the calculations.

In the July 1, 2010 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 4.0% investment rate of return (net of administrative expenses), which is the expected long‐term investment returns on the employer’s own investments calculated Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

based on the funded level of the plan at the valuation date, and an annual medical cost trend increase of 9.0% to 5.0% annually. The investment rate included a 3.0% inflation assumption. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at July 1, 2010 was 30 years.

Note 9 ‐ Risk Management The District has established a self‐insured group health and dental insurance program, which provides medical coverage up to a maximum of $50,000 per employee, and approximately $1,000,000 in the aggregate. The District purchases commercial insurance for claims in excess of coverage.

All employees participate in the program and are responsible for premium and co‐payment amounts as determined by the District. Charges to the Enterprise Fund are adjusted annually so that the Program revenues and expenses are approximately equal and there is an adequate amount in reserves in the event the District decides to discontinue the plan. The accrued self‐insurance claims liability of $136,435 reported at June 30, 2011 represents estimated claims liabilities, including incurred but not reported losses, at the estimated ultimate cost of settling the claims using historical experience as determined by the Third Party Administrator (TPA).

Changes since inception in the claims liability amount are as follows:

Current Year Fiscal Year Beginning of Claims & Claim Balances at Ending Fiscal Year Changes in Payments Fiscal Year End June 30 Liability Estimates 1995 $ 72,152 $ 530,786 $ 540,818 $ 62,120 1996 62,120 775,891 702,688 135,323 1997 135,323 381,338 433,163 83,498 1998 83,498 304,519 352,603 35,414 1999 35,414 484,512 451,556 68,370 2000 68,370 635,222 659,136 44,456 2001 44,456 610,882 577,655 77,683 2002 77,683 543,810 495,395 126,098 2003 126,098 783,630 818,228 91,500 2004 91,500 772,527 742,557 121,470 2005 121,470 1,030,787 1,036,715 115,542 2006 115,542 1,134,973 1,084,686 165,829 2007 165,829 1,092,881 1,147,691 111,019 2008 111,019 1,129,645 1,126,860 113,804 2009 113,804 1,217,628 1,278,376 53,056 2010 53,056 1,378,101 1,320,028 111,129 2011 111,129 1,622,029 1,596,723 136,435

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District participates in two self‐funded risk‐financing pools administered by the North Carolina League of Municipalities.

Through these pools, the District obtains general liability and auto liability coverage, property coverage up to the total insurance values of the property policy, and workers’ compensation coverage up to statutory limits. The pools are reinsured through commercial companies for single occurrence claims Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

against general liability, auto liability, and property in excess of $500,000 and $300,000 up to statutory limits for workers’ compensation. The property liability pool has an aggregate limit for the total property losses in a single year, with the reinsurance limit based upon a percentage of the total insurance values.

The District carries commercial coverage for all other risks of loss. There have been no significant reductions in insurance coverage in the prior year, and settled claims have not exceeded coverage in any of the past three fiscal years.

The District carries flood insurance through the National Flood Insurance Plan (NFIP). Because the District’s structures, situated adjacent to the French Broad River, are in an “A” area designated by the Federal Emergency Management Agency, the District has purchased coverage in the maximum amount of $500,000 through the NFIP for each eligible structure. Management believes this will be adequate to remediate flood damage to exposed buildings and their contents.

In accordance with G.S. 159‐29, the District has adopted a system of blanket faithful performance bonds for all employees and has purchased coverage of $100,000 from a commercial insurance carrier.

The Finance Officer is individually bonded for $250,000.

Note 10 ‐ Construction in Progress and Future Expansion Plans During the year ended June 30, 2002, consulting engineers finalized a comprehensive twenty‐year Wastewater System Master Plan to guide the District in reducing sanitary sewer overflows (SSOs) as well as keeping up with the maintenance and management of its infrastructure. The plan estimated that the District would need to spend approximately $257 million over a twenty‐year period. Portions of this Master Plan are periodically updated as required to meet the needs identified by engineering staff for the Water Reclamation Facility and the collector and interceptor sewer lines. The District uses these plans, along with other resources including representatives from the member agencies, to develop a ten‐year Capital Improvement Plan projected to spend an average of $14.9 million annually.

The District expects to fund these costs out of user charges along with the issuance of additional bonds.

As of June 30, 2011, the District had begun sewer projects expected to incur future costs of approximately $35.5 million, and the District is committed under various contracts encumbered for sewer construction and rehabilitation estimated to cost $5 million to complete. The majority of encumbered contracts are expected to be completed within the next fiscal year, and the projects currently under construction are scheduled to be completed within the next two to five years.

Note 11 ‐ Bond Covenants The District is subject to the 1999 Amended Bond Order, which contains several operational directives including internal accounting fund structure, disclosure of financial records, and setting rates. The District was in compliance with all requirements of the Bond Order during the year ended June 30, 2011. A copy of the Bond Order may be obtained by contacting the Director of Finance.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

The District is required by the 1999 Amended Bond Order to set rates as summarized by the following: The District covenants to set rates and charges so that the Income Available for Debt Service (defined as the excess of “Revenues” over “Current Expenses”) will not be less than the greater of (i) one hundred twenty percent (120%) of the Long‐Term Debt Service Requirement for Parity Indebtedness only for such Fiscal Year and (ii) one hundred percent (100%) of the Long‐Term Debt Service Requirement for Parity Indebtedness and Subordinated Indebtedness for such Fiscal Year.

The definition of revenues for this purpose does not include grants, contributions, investment income credited to non‐operating funds, or tap and connection fees. However, tap and connection fees may be considered revenues upon a resolution duly passed by the Board. Current expenditures include operating expenses other than additions to reserve funds, depreciation or amortization, or debt service payments. Long‐Term Debt Service Requirement means the aggregate of the required deposits to be made in respect of principal and interest. The various Bond Series Resolutions require either monthly or semi‐annual deposits of the upcoming principal and interest payments to be received by the Trustee at least one day prior to the payment date. In other words, during the fiscal year ended June 30, 2011, the Long‐Term Debt Service Requirement equaled principal and interest due on January 1, 2011 and July 1, 2011.

The District does not currently have any subordinated indebtedness, so the computation of the current fiscal year’s compliance with this covenant is based solely on 120% of the debt service requirement as follows:

Operating Revenues $ 29,745,786 Interest and Non‐Operating Revenues 1,198,472

Adjustments to Revenues:

Interest Income allocable to Non‐Operating Funds (263,744) Donation (663,238) Facility, Tap, and Other Fees (2,320,276) (Gain) on Disposal of Property

(42,232) Adjusted Revenues

27,654,768

Less: Operating Expenses (21,043,212) Add back Depreciation

7,520,744 Adjusted Current Expenditures

(13,522,468)

Income Available for Debt Service $ 14,132,300

Long Term Debt Service Requirement Minimum Required Percentage Minimum Required Income

$

8,565,201 120% 10,278,241

Therefore, the District is in compliance with the rate covenant as income available for debt service is in excess of 120% of the annual required debt service. The actual coverage ratio is 165%.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Note 12 ‐ Hydroelectric Power The District operates a hydroelectric generation facility on the French Broad River in proximity to the wastewater treatment plant. In some years with above average rainfall, sufficient quantities of electricity are produced to supply all of the plant’s needs with excess electricity generated being sold to Progress Energy. During the year ended June 30, 2011, the District generated power used by the plant, which was estimated to have a net cost after deducting expenditures to generate such power of approximately $311,000 if purchased. An immaterial amount was sold to Progress Energy. This is considerably lower than in prior years due to rainfall that was significantly below average levels.

Note 13 ‐ Operating Leases Rental Income The District has entered into a cancelable agreement expiring in 2016 with an optional two‐year renewal, with Pace Analytical Services Inc. (Pace) which leases a portion of a building in the Wastewater Treatment Plant facilities along with laboratory equipment. In lieu of direct cash payments to the District for rent, Pace performs certain water sampling and analytical services required under the terms and conditions of the District’s NPDES Permit and its Industrial Waste Pretreatment Program.

In the event that the fair market value of services rendered is less than the rent payment, Pace will remit funds for the deficit to the District. Conversely, if the fair market value of the laboratory services rendered exceeds the rental amount, the District will pay Pace for the difference. This agreement had an annual value of $60,000, and this amount is accordingly reflected as rental income and operating expense in these financial statements.

The District has also entered in to a cancelable lease expiring in 2015 with an optional two‐year renewal, with Buncombe County Partnership for Children to lease the old Administration Building at an annual rent of $51,312.

The final cancelable, renewable agreement entered into by the District is with a private company to lease land upon which the private company has placed a cell tower. The lease may be renewed indefinitely for five‐year terms with 15% increases upon each renewal, and will provide $19,044 annually until the next scheduled increase in 2015.

Following are the carrying values of leased assets, along with current year depreciation and total accumulated depreciation at June 30, 2011. The value of the land leased for a cell tower is not included as it is immaterial and not otherwise useful to the District in current operations.

Accumulated Leased Asset Cost Book Value Depreciation Portion of Plant Building (estimate) Laboratory Equipment Old Administration Building Office Equipment & Fixtures

$

426,000 $ 14,251 467,008 16,742

331,004 $ ‐ 202,312 ‐

95,026 14,251 204,696 16,742

Lease Expense The District leases certain office equipment under operating leases. Lease expenditures for these and other rental agreements during the year ended June 30, 2011 totaled $24,819.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Future minimum lease payments are as follows:

Year Ended June 30 2012 2013 2014 2015 2016 Total

Amount $

S

20,660 19,617 14,651 11,800 2,244 68,972

Note 14 ‐ Claims and Judgments The District may be a party to lawsuits arising from the ordinary conduct of business. In the opinion of management, settlement of actual or possible litigation, if any, will not have a material effect on the financial position of the District.

Note 15 – Subsequent Events The District has evaluated subsequent events through October 24, 2011, which is the date the financial statements were available to be issued.

Financial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

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REQUIRED SUPPLEMENTAL INFORMATION

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Other Post‐Employment Benefits Required Supplement Information Schedule of Funding Progress

Actuarial Valuation Date

Actuarial Value of Assets

(a)

7/1/2008 7/1/2010

$

Actuarial Accrued Liability Entry Age (b)

‐ $ 1,801,000 ‐

1,678,300

Unfunded AAL (UAAL)

Funded Ratio

Covered Payroll

% of Covered Payroll

(b‐a)

(a/b)

( c )

((b‐a) / c)

$1,801,000 1,678,300

0.0% $ 6,532,000

27.6%

0.0%

23.5%

7,147,000

Financial Section

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Other Post‐Em mployment Benefits Requiired Supp plement IInformatiion Employer Contribu ution and Notes to o the Req quired Sch hedules

Year Ended June 30 0, 2009

Annu ual Required d Co ontribution $

P Percentage C Contributed

212,0000

0.0%

2010

221,5000

3.5%

2011

200,2000

9.3%

Notes to the e Required Scchedules ‐ This information presented in the requireed supplemen ntary schedules was determined as part of the e actuarial vaaluations at th he dates indiccated. Additio onal informattion as of the latest actuarial valluation follow ws:

Valuation Dat V te

• 7/1/2010

Actuarial Cost Metho od

• Entry Age N Normal

od Amortizaation Metho

• Level Perce entage of Paay, Open

Remainin ng Amortiization Perio od

• 30 Years • Investment Rate of Reeturn • Inflation Assumption • Healthcare e Cost Trend Rate

Actuarial Assumption ns

‐ ‐ ‐

4.0% % 3.0% % 9% in nitial, 5% ulttimate

Finan ncial Section

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

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SUPPLEMENTAL FINANCIAL DATA

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Comparative Statement of Net Assets June 30, 2011 and 2010

2011 Assets: Current assets: Cash and cash equivalents Restricted cash and cash equivalents Receivables (net): Accounts Sales Employee Interest Due for State Agency Inventories Prepaid expenses Total current assets

$

35,574,345 6,938,290

2010

$

41,580,024 7,021,092

4,548,059 385,565 21,521 236,912 293,362 2,500 48,000,554

4,434,229 266,288 15,690 172,181 126,399 268,599 2,950 53,887,452

3,309,083 180,615 3,489,698

3,409,721 3,409,721

Deferred bond issuance costs-net

1,443,733

1,599,853

Deferred outflow of resources

3,550,286

4,324,270

Noncurrent assets: Restricted cash and cash equivalents Restricted Investments Total restricted assets

Capital Assets: Land Easements Plant and equipment Construction in progress Less: accumulated depreciation Total property and equipment Total noncurrent assets Total assets Liabilities and Net Assets: Current liabilities: Payments from current assets: Accounts payable and accrued expenses Current portion of compensated absences payable Payments from restricted cash and cash equivalents: Bond interest payable Current portion of long term debt Total current liabilities Noncurrent liabilities: Compensated absences, net of current portion Other post-employment benefit Derivative liability Deferred Revenue Bonds payable, net of current maturities Total noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted for debt service Restricted for Avery's Creek Sanitary District Restricted for capital projects Restricted under bond covenant Unrestricted Total net assets

$

2,515,666 6,061,191 470,224,018 4,818,414 (131,897,275) 351,722,014

2,515,666 5,689,498 451,441,328 5,478,752 (124,848,581) 340,276,663

360,205,731

349,610,507

408,206,285

403,497,959

3,007,888 28,750

2,184,724 28,750

1,133,033 5,324,825 9,494,496

1,182,100 4,636,825 8,032,399

685,347 607,700 3,550,286 5,500 94,642,611 99,491,444

626,361 425,700 4,324,270 5,500 100,167,900 105,549,731

108,985,940

113,582,130

251,754,578 7,849,253 620,880 824,822 38,170,812 299,220,345

235,471,938 7,093,201 1,343,058 812,454 45,195,178 289,915,829

$

Financial Section

| P a g e | 56

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Comparative Statement of Revenue, Expenses, and Changes in Net Assets For the Years Ended June 20, 2011 and 2010

2011 Operating revenues: Sewer charges Facility and tap fees Miscellaneous Total operating revenues Operating expenses: Salaries and employee benefits Contractual services Utilities Repairs and maintenance Other supplies and expenses Insurance claims and expenses Depreciation Total operating expenses Operating income

$

Nonoperating revenues (expenses): Interest income Interest expense Amortization of bond issuance costs Gain (Loss) on disposal of surplus property Total nonoperating expenses Income before contributions Capital contribution Change in net assets

Total Net Assets, beginning of year Total Net Assets, end of year

26,894,894 2,238,171 612,721 29,745,786

2010 $

25,369,818 1,654,010 770,389 27,794,217

6,536,352 1,337,258 1,234,810 927,655 1,344,307 2,142,086 7,520,744 21,043,212 8,702,574

6,303,951 1,240,175 1,111,644 851,966 1,468,655 1,778,336 8,556,365 21,311,092 6,483,125

493,002 (2,619,031) (156,120) 42,232 (2,239,917) 6,462,657

578,302 (2,934,980) (145,827) 67,099 (2,435,406) 4,047,719

2,841,859

1,128,684

9,304,516

5,176,403

289,915,829

284,739,426

$ 299,220,345

$ 289,915,829

Financial Section

| P a g e | 57

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Schedule of Revenues and Expenditures – Budget and Actual (NON‐GAAP) For the Year Ended June 30, 2011

Budget Revenues: Operating revenues: Sewer charges (net): Domestic users Industrial users Billings and collections

$

Facility and tap fees City of Asheville(Enka Bonds) Rental Income Miscellaneous Total operating revenues Nonoperating revenues: Interest income Total nonoperating revenues Total revenues

Expenses: Operating expenses: Salaries and employee benefits Contractual services Utilities Repairs and maintenance Other supplies and expenses Insurance claims and expenses Total operating expenses Capital Projects: Equipment Infrastructure Total capital projects Debt service Principal Interest Total debt service Total Expenses Revenues over (under) expenses

Revenues and other financing sources over (under) expenditures and other financing uses

Actual

23,654,586 1,562,644 645,243 25,862,473

$

$

1,031,642 2,758 (1,979) 1,032,421

2,238,171 37,085 20,507 555,129 29,745,786

869,201 869,201

493,002 493,002

28,117,345

30,238,788

2,121,443

13,926,160

6,536,352 1,337,258 1,234,810 927,655 1,344,307 2,142,086 13,522,468

403,692

22,916,471

457,576 16,082,779 16,540,355

6,376,116

8,577,769

5,324,825 2,891,515 8,216,340

361,429

45,420,400

38,279,163

7,141,237

(8,040,375)

9,262,680

-

1,334,421 85 3,947 126,768 2,497,642

(376,199) (376,199)

-

17,303,055 17,303,055

$

24,686,228 1,565,402 643,264 26,894,894

903,750 37,000 16,560 428,361 27,248,144

(17,303,055)

Other Financing Sources: Use of available funds

Variance Favorable (Unfavorable)

$

(8,040,375)

(17,303,055) (17,303,055)

$

(8,040,375)

Financial Section

| P a g e | 58

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Schedule of Revenues and Expenditures – Budget and Actual (NON‐GAAP) For the Year Ended June 30, 2011

Actual Reconciliation from budgetary basis (modified accrual) to full accrual: Revenues and other financing sources over (under) expenditures and other financing uses

$

Reconciling items: Interest expense capitalized Change in accrued interest expense Unamortized discount recognized in interest expense Debt principal payments Capital project transfers Contributed assets Avery's Creek assets contributed by Buncombe County Depreciation Gain (Loss) on disposal of surplus property Amortization of bond issuance cost

(8,040,375)

423,881 49,067 (200,464) 5,324,825 16,540,355 2,841,859 (7,520,744) 42,232 (156,120)

Total reconciling items

17,344,891

Change in net assets

$

9,304,516

Financial Section

| P a g e | 59

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Combining Statement of Net Assets, All Funds (NON‐GAAP) June 30, 2011

Capital Reserve Account

Enterprise Acccount Assets: Current assets: Cash and cash equivalents Investments Restricted cash and cash equivalents Restricted investments Receivables (net): Accounts Sales Tax Employee Interest Inventories Prepaid expenses Total current assets

4,548,059 229,884 21,521 874 293,362 2,500 27,235,415

-

Noncurrent assets: Restricted cash and cash equivalents Restricted investments Total restricted assets

-

Deferred bond issuance costs-net

$

-

$

6,317,410 -

$

Construction Account

General Account

Capital Account

Total

- $ -

4,648,714 $ -

7,970,822 620,880 -

815,594 $ -

35,574,345 6,938,290 -

6,317,410

-

151,598 4,800,312

236,038 8,827,740

4,083 819,677

4,548,059 385,565 21,521 236,912 293,362 2,500 48,000,554

824,822 824,822

-

2,484,261 180,615 2,664,876

-

-

-

3,309,083 180,615 3,489,698

-

-

-

-

-

-

1,443,733

1,443,733

Deferred outflow of resources

-

-

-

-

-

-

3,550,286

3,550,286

Capital Assets: Land Easements Plant and equipment Construction in progress Less accumulated depreciation Total property and equipment

-

-

-

-

-

-

27,235,415

824,822 824,822

6,317,410

2,664,876 2,664,876

4,800,312

Total noncurrent assets Total assets

22,139,215 -

Debt Service Reserve Account

Bond Service Account

2,515,666 6,061,191 470,224,018 4,818,414 (131,897,275) 351,722,014

2,515,666 6,061,191 470,224,018 4,818,414 (131,897,275) 351,722,014

8,827,740

356,716,033 357,535,710

360,205,731 408,206,285

General Account

Capital Account

Enterprise Account Liabilities and Net Assets: Current liabilities: Payments from current assets: Accounts payable and accrued expenses Current portion of compensated absences payable Payments from restricted cash and cash equivalents: Bond interest payable Current portion of long-term obligation Total current liabilities Noncurrent liabilities: Compensated absences, net of current portion Other post-employment benefits Derivative Liability Deferred Revenue Long-term obligations, net of current maturities Total noncurrent liabilities Total liabilities Net assets: Net assets

$

Capital Reserve Account

Debt Service Reserve Account

Bond Service Account

Construction Account

Total

1,259,446 28,750

-

-

-

1,679,102 -

12,640 -

56,700 -

3,007,888 28,750

1,288,196

-

1,133,033 1,133,033

-

1,679,102

12,640

5,324,825 5,381,525

1,133,033 5,324,825 9,494,496

685,347 607,700 5,500 1,298,547

-

-

-

-

-

3,550,286 94,642,611 98,192,897

685,347 607,700 3,550,286 5,500 94,642,611 99,491,444

2,586,743

-

1,133,033

-

1,679,102

12,640

103,574,422

108,985,940

253,961,288 $

299,220,345

24,648,672 $

824,822 $

5,184,377 $

2,664,876 $

3,121,210 $

8,815,100 $

Financial Section

| P a g e | 60

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Combining Schedule of Revenues, Expenses, and Changes in Net Assets – All Funds (NON‐GAAP) For the Year Ended June 30, 2010

Enterprise Account Operating revenues: Sewer charges (refunds) Facility and tap fees Miscellaneous Total operating revenues

Capital Reserve Account

$ 26,894,894 $ 517,006 27,411,900

Debt Service Reserve Account

Bond Service Account

- $ -

-

-

$

Construction Account

- $ -

Operating expenses: Operations Depreciation Total operating expenses Operating income (loss)

13,397,738 13,397,738 14,014,162

-

Nonoperating revenues (expenses): Interest income Interest expense Less capitalized interest Amortization of bond issuance costs Gain (Loss) on disposal of surplus property Miscellaneous expense Total nonoperating revenues (expenses) Income (loss) before other transactions

229,258 77,325 306,583 14,320,745

12,368 12,368 12,368

60 (3,042,912) 423,881 (2,618,971) (2,618,971)

67,609 67,609 67,609

-

8,368,120 (423,881)

-

1,399,424

12,368

(4,636,825) 688,443

67,609

23,249,248

812,454

4,495,934

Capital contribution Operating transfers Purchase of and transfer capital assets Payment of debt: Principal Change in net assets

Total Net Assets, beginning of year Total Net Assets, end of year

(12,463,745) (457,576)

-

2,597,267

General Account

- $ - $ 2,238,171 95,715 2,333,886

Capital Account

Total

-

$ 26,894,894 2,238,171 612,721 29,745,786

19,167 19,167 (19,167)

2,333,886

105,563 7,520,744 7,626,307 (7,626,307)

13,522,468 7,520,744 21,043,212 8,702,574

105,205 105,205 86,038

70,021 70,021 2,403,907

8,481 (156,120) (35,093) (182,732) (7,809,039)

493,002 (3,042,912) 423,881 (156,120) 42,232 (2,239,917) 6,462,657

2,841,859 4,215,871 (370,710) (16,082,779) (2,183,659)

250,464 19,147,895

2,841,859 -

(11,780,870)

2,691,397

4,636,825 16,226,145

9,304,516

14,902,080

6,123,703

237,735,143

289,915,829

$ 24,648,672 $ 824,822 $ 5,184,377 $ 2,664,876 $ 3,121,210 $ 8,815,100 $ 253,961,288 $ 299,220,345

Financial Section

| P a g e | 61

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

This page intentionally left blank.

Financial Section

| P a g e | 62

STATISTICAL SECTION

StaƟsƟcal SecƟon

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Introduction This part of MSD’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health.

Financial Trends These schedules contain trend information to help the reader understand how the District’s financial performance and well‐being have changed over time.

   

Net Assets by Component Changes in Net Assets General Revenue by Source Expenses by Function

Revenue Capacity These schedules contain information to help the reader assess the District’s most significant revenue sources.

  

Sewer Charge Revenue by Type of Customer Residential Sewer Rates Principal Commercial Users

Debt Capacity These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt in the future.

 

Ratios of Outstanding Debt Revenue Bond Coverage

Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place.

  

Demographic & Economic Statistics Personal Income by Industry Principal Employers

Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the District’s financial report relates to the services the District provides and the activities it performs.

 

Operating Indicators by Division Employees by Division

Source: Unless otherwise noted, the information in theses schedules is derived from the comprehensive annual financial reports for the relevant year. The District implemented GASB Statement 34 in the year ended June 30, 2003, therefore certain schedules do not contain information prior to this year.

Statistical Section

| P a g e | 63

Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

Net Asse ets by Componentt

FY En nding June 30, 2011

FY 20 003 to FY Y 2011

Fisscal Ye ear End ded June e 30

Invested in Capiital Assets, N Net of Related Debt

Resstricted

Unrestrictted

TTotal Net Assets

20 003

$ 188,888,1 144

$ 8,930,265 8

$ 26,071,210

$ 223,889,619 2 9

20 004

200,997,2 207

9,156,422 9

22,071,391

232,225,020 2 0

20 005

190,156,0 068

11 1,404,911

38,055,205

239,616,184 2 4

20 006

197,656,0 088

9,446,269 9

38,041,0 095

245,143,452 2 2

20 007

214,808,6 683

9,447,494 9

36,699,672

260,955,849 2 9

20 008

231,678,0 011

8,886,108 8

33,968,233

274,532,352 2 2

20 009

244,875,7 790

9,493,497 9

30,570,139

284,939,426 2 6

20 010

235,471,9 938

9,248,713 9

45,195,178

289,915,829 2 9

20 011

251,754,5 578

9,294,955 9

38,170,8 812

299,220,345 2

Note: MSD D implemente ed GASB Stattements 34 aand 35 in FY 22003. In the future, up to o nine (9) prior years will be presented with the cu urrent year to illustrate t he District’s financial performance ovver time. neral Revenu ues by Sourcee and Expensses by Function on the fo ollowing The reader may refer to Gen page es containingg detailed com mparisons ove er the past teen years.

Statisstical Section n

| P a g e | 64

Miscellaneous

796,882 761,655 1,667,717 8,297,106

Repairs and maintenance

Other supplies and expenses

Insurance claims and expenses

Depreciation

24,791,169

18,488,479

17,446,973

4,994,835

Income before contributions & special items 2,187,732

Statistical Section $ 6,284,330

$ 7,391,164

‐

$ 8,335,401

3,053,623 ‐

3,340,566

4,184,135

$ 5,527,268

(2,678,176)

$ 15,812,397

‐

8,404,343

7,408,054

(1,828,865)

(13,698)

(80,684)

(3,924,737)

2,190,254

9,236,919

19,783,776

7,806,535

1,759,923

1,320,107

945,091

1,384,603

1,194,932

5,372,585

29,020,695

1,194,643

3,054,950

$ 24,771,102

FY 2007

$ 13,576,503

‐

6,244,304

7,332,199

(2,135,509)

(49,926)

(91,286)

(3,736,405)

1,742,108

9,467,708

19,135,947

7,065,752

1,753,911

1,288,061

877,634

1,265,901

1,167,260

5,717,428

28,603,655

702,777

3,005,184

$ 24,895,694

FY 2008

$ 10,078,974

‐

5,856,798

4,222,176

(2,549,376)

22,150

(73,887)

(3,545,226)

1,047,587

6,429,731

21,329,342

8,520,993

1,726,689

1,337,610

877,124

1,298,053

1,387,098

6,181,775

27,759,073

509,239

2,959,115

$ 24,290,719

FY 2009

$ 5,176,403

‐

1,128,684

4,047,719

(2,613,792)

67,099

(145,827)

(3,113,366)

578,302

6,483,125

21,311,092

8,556,365

1,778,336

1,468,655

851,966

1,111,644

1,240,175

6,303,951

27,794,217

770,389

1,654,010

$ 25,369,818

FY 2010

$ 9,304,516

‐

2,841,859

6,462,657

(2,663,798)

42,232

(156,120)

(3,042,912)

493,002

8,702,574

21,043,222

7,520,744

2,142,086

1,344,307

927,665

1,234,810

1,337,258

6,536,352

29,745,786

612,721

2,238,171

$ 26,894,894

FY 2011

Note: MSD implemented GASB Statements 34 and 35 in FY 2003. In the future, up to nine (9) prior years will be presented with the current year to illustrate the District’s financial performance over time. The reader may refer to General Revenues by Source and Expenses by Function on the following pages containing detailed comparisons over the past ten years.

Increase in net assets

4,096,598 ‐

Capital contribution

4,021,309

(2,413,103)

(101,491)

(81,306)

(4,152,308)

1,922,002

6,434,412

19,553,799

7,700,136

1,712,310

1,233,017

888,423

1,319,915

1,062,093

5,637,905

25,988,211

525,392

2,481,850

$ 22,980,969

FY 2006

Changes in Net Assets (Accrual Basis of Accounting)

Special items

4,337,541

60,985 (2,204,305)

‐ (2,349,361)

Total nonoperating revenues (expenses)

(2,060,141)

54,230

Gain (loss) on sale of surplus property

(67,760)

(3,482,174)

1,284,644

(93,432)

(2,703,836)

(2,757,040) (99,610)

Interest expense

447,907

6,541,846

7,319,331

7,344,196

1,649,369

1,443,927

1,225,679

907,881

943,951

1,041,397

6,871,100

962,080

772,187

1,153,457

1,067,585

5,400,871

1,091,124 25,030,325

594,118

5,176,637

1,769,620

$ 22,169,581

FY 2005

2,050,380

$ 22,146,671

FY 2004

742,279

4,247,873

Amortization of bond issuance costs

Interest income

Nonoperating revenues (expenses):

Operating income

19,095,715

1,154,367

Utilities

Total operating expenses

5,502,176 915,812

Salaries & employee benefits

Contractual services

Operating expenses:

23,343,588

502,172

Facility and tap fees

Total operating revenues

$ 21,283,426 1,557,990

Sewer charges

Operating revenues:

FY 2003

Metropolitan Sewerage District of Buncombe County, North Carolina FY Ending June 30, 2011

FY 2003 to FY 2011

| P a g e | 65

Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

General Revenue es by Source

FY En nding June 30, 2011

FY 20 002 to FY Y 2011

Fiscal Year Ended 0 June 30 2002

Industtrial Sewe er Chargges

Domestic Sewer C Charges

Facility & & Tap Feess

Misce ellaneous

Total

2,539 9,868

17 7,848,396

1,518,94 40

1,042,874 1

22,950,0 078

2003

3,169 9,870

18 8,113,556

1,557,99 90

1,298,681 1

24,140,0 097

2004

2,858 8,675

19 9,287,996

2,050,38 80

1,042,025 1

25,239,0 076

2005

2,912 2,188

19 9,257,393

1,769,62 20

2,436,753 2

26,375,9 954

2006

2,617 7,298

20 0,363,671

2,481,85 50

2,447,394 2

27,910,2 213

2007

2,693 3,328

22 2,077,774

3,054,95 50

3,384,897 3

31,210,9 949

2008

1,510 0,669

23 3,385,025

3,005,18 84

2,444,885 2

30,345,7 763

2009

1,386 6,132

22 2,904,587

2,959,11 15

1,578,976 1

28,828,8 810

2010

1,498 8,529

23 3,871,289

1,654,01 10

1,348,691 1

28,372,5 519

2011

1,565 5,402

25 5,329,492

2,238,17 71

1,147,955 1

30,281,0 020

Note: Doe es not include e Capital Conttributions.

Statisstical Section n

| P a g e | 66

Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

Expense es by Funcction

FY En nding June 30, 2011

FY 20 002 to FY Y 2011

Fiscal Year Ended June 30

Operatingg Expenses

(1 1)

Cap pital Improvement

Capital Contributions

(2)

(3)

Debtt Service (3)

Totaal

2002

10,647,19 93

12 2,553,858

2,874 4,738

5,497,793 31,57 73,582

2003

10,798,60 09

8 8,441,950

4,924 4,338

4,691,040 28,85 55,937

2004

10,575,87 73

11 1,816,018

3,340 0,566

4,754,836 30,48 87,293

2005

11,169,14 48

14 4,055,591

3,053 3,623

6,179,174 34,45 57,536

2006

11,853,66 63

11 1,213,052

4,184 4,135

7,071,308 34,32 22,158

2007

11,977,24 41

12 2,574,902

8,404 4,343

7,650,737 40,60 07,223

2008

12,070,19 95

12 2,471,794

6,244 4,304

8,419,405 39,20 05,698

2009

12,808,34 49

12 2,447,791

5,856 6,798

6,413,405 37,52 26,343

2010

12,754,72 27

9 9,173,231

1,128 8,684

7,212,980 29,14 40,938

2011

13,522,46 68

16 6,226,145

2,841 1,859

7,255,856 37,00 04,469

Note: (1) Includess general operations

(2) Excludess depreciation expense.

(3) This includes collectio on system inffrastructure ccontributed bby developerss.

(4) Includess Bond Principal Expense and Bond Intterest Less CCapitalized Intterest Portion and exclud des early retireme ent of long‐te erm debt.

Statisstical Section n

| P a g e | 67

Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Sewer Charge Re evenue byy Custom mer Type

FY 20 003 to FY Y 2011

FY 2003

FYY 2004

FY 20005

FY 2006

FY 2007

FY 2008

FY 20099

FY 2010

FY 2011

Asheville

$ 14,108,130

$ 155,256,447

$ 15,284,4448

$ 15,933,744

$ 17,083,346

$ 17,,979,548

$ 17,930,8555

$ 18,669,278

$ 19,638,890

Biltmore Forest

266,354

252,008

248,6609

268,993

266,318

288,205

282,6556

275,621

286,574

Black Mountain

719,448

726,796

704,4476

764,964

857,251

819,685

888,3668

905,930

921,612

Henderson County

595,780

679,790

445,2217

570,818

762,702

1,,133,375

925,7444

813,927

1,044,736

Montreat

186,002

185,604

209,9974

192,327

263,354

278,131

207,0887

242,821

233,859

Weaverville

464,927

505,419

547,4485

528,099

598,764

661,716

602,2332

611,983

608,323

Water & Sewer District Woodfin Sanitary W

678,807

597,993

656,3303

759,633

848,640

842,717

758,2994

803,368

924,567

Other

1,094,108

1,083,939 1

1,160,8881

1,345,093

1,397,399

1,,381,648

1,309,3551

1,548,361

1,670,931

3,169,870

2,858,675 2

2,912,1188

2,617,298

2,693,328

1,,510,669

1,386,1332

1,498,529

1,565,402

$ 21,283,426

$ 222,146,671

$ 22,169,5581

$ 22,980,969

$ 24,771,102

$ 24,,895,694

$ 24,290,719

$ 25,369,818

$ 26,894,894

Domestic Users

Industrial Users Tootal

D implemente ed GASB Stattements 34 aand 35 in FY 22003. In the future, up to o nine (9) prior years Note: MSD will be presented d with the currrent year to illustrate the District’s finaancial perform mance over time.

Mun nicipalities include sewer charges on w water bills. "O Other" represents sewer charges billed directly

by M MSD to domestic users on wells and to septage haul ers.

Statisstical Section n

| P a g e | 68

Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

Custome ers by Me ember Aggency

FY 20 003 to FY Y 2011

FY 2003 Asheville Woodfin Sanitary W Water & Sewer Districtt

FYY 2004

FY 20005

FY 2006

FY 2007

FY 2008

FY 20099

FY 2010

FY 2011

33,400 2,300

34,300 2,300

355,000 2 2,330

35,900 2,330

36,700 2,330

37,582 2,374

37,8878 2,5579

37,878 2,306

38,906 2,317

Black Mountain

2,300

2,350

2 2,375

2,400

2,479

2,519

2,5579

2,559

2,572

Weaverville

1,270

1,300

1 1,390

1,400

1,403

1,488

1,5503

2,246

2,281

Henderson County

1,611

1,817

2 2,106

2,237

2,574

2,957

3,0073

3,165

3,182

Biltmore Forest

624

631

637

642

637

633

6 636

644

639

Montreat

620

647

642

642

653

651

6 652

656

667

42,125

43,345

444,480

45,551

46,776

48,204

48,9900

49,454

50,564

Total

Note: MSD D implemente ed GASB Stattements 34 aand 35 in FY 22003. In the future, up to o nine (9) prior years will be presented d with the currrent year to illustrate the District’s finaancial perform mance over time.

Source: Member Agenc M cies

Statisstical Section n

| P a g e | 69

Metropolitan Sewerage District of Buncombe County, North Carolina

Residential Sewer Rates

FY Ending June 30, 2011

FY 2002 to FY 2011

Fiscal Year Ended June 30

Monthly Base Rate

Rate Per 1,000 Gallons

Average Monthly Billing

2002

$ 4.40

$ 3.82

$ 19.48

2003

4.51

3.92

20.04

2004

4.60

4.00

20.43

2005

4.69

4.06

20.83

2006

4.83

4.20

21.45

2007

5.05

4.39

22.41

2008

5.25

4.56

23.28

2009

5.41

4.69

23.99

2010

5.61

4.87

24.84

2011

5.81

5.04

25.72

Note: Rates are based on 5/8" meter, which is the standard household meter size. The District charges a higher base rate for larger meters. Each municipality will set its own water rates.

Statistical Section

| P a g e | 70

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Principal Commercial Users

FY 2002 & FY 2011

2002 Commercial User

Type of Business

Total Charges

2011

Percentage Rank of Total Charges

Rank

$ 507,417

1

Percentage of Total Charges

Milkco, Inc.

Dairy Products & Juices

$ 420,433

3

Mission Health System

Health & Emergency Services

153,341

5

0.75 243,939

2

0.91

Ridgecrest Baptist Conference Center

Christian Conference Center

‐

‐

‐

168,202

3

0.63

Givens Estates

Retirement Community

‐

‐

‐

130,550

4

0.49

Jacob Holms Industries

Textile Manufacturing

‐

‐

‐

118,375

5

0.44

VA Medical Center ‐ Asheville Department of Veterans Affairs

Veterans Hospital

97,612

7

0.48 116,196

6

0.43

Colbond, Inc.

Chemical Manufacturer

‐

‐

‐

101,740

7

0.38

Day International

Textile Machine Parts

28,279

10

0.14 99,335

8

0.37

Arcadia Dairy Farm

Dairy Products & Juices

‐

‐

‐

73,876

9

0.27

The Biltmore Company

Tourist Attraction/Winery/Resort Services

‐

‐

‐

64,574

10

0.24

Lustar Dyeing & Finishing

Textile Manufacturing

706,850

1

3.47 ‐

‐

‐

Anvil Kintwear ‐ (formerly Asheville Dyeing & Finishing)

Textile Manufacturing

429,980

2

2.11

‐

‐

Owen Manufacturing Company, Inc.

Textile Manufacturing

217,216

4

1.07 ‐ ‐

‐

Grove Park Inn

Resort/Spa/Convention Services

129,507

6

0.64

‐

‐

‐

Beacon Blankets

Textile Manufacturing

44,914

9

0.22

‐

‐

‐

Uniform Rental Service

Uniform Rental

50,091

8

0.25

‐

‐

‐

TOTAL

$ 2,278,223

2.06%

Total Charges

11.17%

‐

$ 1,624,204

Source: District Billing Records

Statistical Section

1.89%

6.04%

| P a g e | 71

Metropolitan Sewerage District of Buncombe County, North Carolina

Ratio of Outstanding Debt

FY Ending June 30, 2011

FY 2003 to FY 2011

Fiscal Year

Revenue Bonds 1

Debt Per Capita 2

Per Capita Income 3

Percentage of Personal Income

2003

$ 85,751,666

$ 883

$ 27,770

3.18%

2004

83,788,169

843

29,932

2.82%

2005

102,182,133

1,127

31,166

3.62%

2006

98,689,233

1,076

33,293

3.23%

2007

95,098,097

968

34,838

2.78%

2008

91,539,395

912

35,721

2.55%

2009

87,481,237

887

34,774

2.55%

2010

100,167,900

1,002

Unavailable

‐

2011

94,642,611

832

Unavailable

‐

1

Details of the District's outstanding debt can be found in Note 3 to the Financial Statements.

2

This ratio was calculated by using the number of domestic accounts and multiplying by Buncombe County census average of 2.3 persons per household to get the number of users in the District. This information is not available for prior years.

3

Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce

Note: MSD implemented GASB Statements 34 and 35 in FY 2003. In the future, up to nine (9) prior years will be presented with the current year to illustrate the District’s financial performance over time.

See Personal Income by Industry on page 76 to assess economic base of the County.

Statistical Section

| P a g e | 72

Metropolitan Sewerage District of Buncombe County, North Carolina

Revenue Bond Coverage

FY Ending June 30, 2011

FY 2002 to FY 2011

Fiscal Year Ended June 30

Revenues from Sewerage Rates

Direct Operating Expenses (A)

Required Deposits for Debt Service

120% Principal and Interest

Higher of Amount in Previous Two Columns

Sum of Expenses & Higher Debt Service

2002

20,701,237

10,647,193

6,030,929

7,237,115

7,237,115

17,884,308

Excess of Revenues over Expenses & Debt Service 2,816,929

(A) Includes all operation and maintenance expenses, except depreciation.

(B) Excludes early retirement of long‐term debt.

From 1985 to 2002, the District was subject to Section 501 of the 1985 Bond Order which covenants that the District will set rates to produce sufficient revenues, together with any other available funds, including the amounts transferred by the District from the General Fund to the Revenue Fund, to permit the deposit and transfer to the credit of the Revenue Fund in the then current fiscal year of a sum at least equal to the total of the following:

1. the current expenses of the Sewerage System for the current fiscal year, and 2. to provide for the higher of either:

a. the amounts needed for making the required cash deposits in each fiscal year to the credit of the several accounts in the Bond Service Fund and to the credit of the Subordinated Indebtedness Service Fund, the Debt Service Reserve Fund and the Maintenance Reserve Fund, or

b. one hundred twenty per centum (120%) of the amount of the principal and interest requirements for the current fiscal year on account of the indebtedness then outstanding excluding principal and interest requirements on account of indebtedness incurred to finance improvements or additional improvements which have not been completed as of the beginning of such fiscal year.

However, with the issuance of refunding bonds on April 3, 2003, a sufficient amount of debt subject to the 1985 bond order was defeased allowing application of the 1999 Amended Bond Order whose rate covenant is summarized in the following paragraph.

The District covenants to set rates and charges so that the Income Available for Debt Service (defined as the excess of “Revenues” over “Current Expenses”) will not be less than the greater of (i) one hundred twenty percent (120%) of the Long‐Term Debt Service Requirement for Parity Indebtedness only for such Fiscal Year and (ii) one hundred percent (100%) of the Long‐Term Debt Service Requirement for Parity Indebtedness and Subordinated Indebtedness for such Fiscal Year. The definition of revenues for this purpose does not include grants, contributions, investment income credited to non‐operating funds, or tap and connection fees. Current expenditures include operating expenses other than additions to reserve funds, depreciation or amortization, or debt service payments.

Statistical Section

| P a g e | 73

Metropolitan Sewerage District of Buncombe County, North Carolina

Revenue Bond Coverage (continued)

FY Ending June 30, 2011

FY 2002 to FY 2011

The District does not currently have any subordinated indebtedness, so the computation of the current fiscal year’s compliance with this covenant is based solely on 120% of the debt service requirement. Long‐Term Debt Service Requirement is defined as interest and principal required to be remitted to the Trustee, except that interest shall be excluded from the determination of Long Term Debt Service Requirement to the extent the same is provided from the proceeds of the Long Term Indebtedness. The coverage ratio is computed on the basis of 100% of required debt service.

Excess of Income Available for Debt over Debt Service

Coverage Ratio

$ 6,611,230

$ 5,800,489

2.05

6,603,923

7,924,708

5,748,201

1.87

12,393,123

6,946,701

8,336,041

5,446,422

1.78

11,853,663

12,106,031

7,866,765

9,440,118

4,239,266

1.54

26,092,369

11,977,241

14,115,128

8,066,669

9,780,000

6,048,459

1.75

2008

26,104,746

12,070,195

14,034,551

8,074,031

9,831,535

5,960,520

1.74

2009

25,374,157

12,808,349

12,565,808

7,600,385

9,120,462

4,965,423

1.65

2010

26,268,075

12,754,727

13,513,348

7,855,989

9,427,187

5,657,359

1.72

2011

27,654,768

13,522,468

14,132,300

8,565,201

10,278,241

5,567,099

1.65

Principal and 120% Interest Principal Payable and Interest During Year Payable

Fiscal Year Ended June 30

Adjusted Revenues (B)

Current Expenses (A)

Income Available for Debt Service

2003

$ 22,108,456

$ 10,798,609

$ 11,309,847

$ 5,509,358

2004

22,927,997

10,575,873

12,352,124

2005

23,562,271

11,169,148

2006

23,959,694

2007

(A) (B)

Includes all operation and maintenance expenses, except depreciation.

Does not include tap and connection fees, grants, contributions, investment income allocated to non‐operating funds.

Statistical Section

| P a g e | 74

Metropolitan Sewerage District of Buncombe County, North Carolina

Demographic & Economic Statistics

FY Ending June 30, 2011

FY 2002 to FY 2011

Population Estimates

1

Per Capita Income

2

Median Age 1

Employed

Civilian Labor Force 3 Unemployment Unemployed Rate

2002

210,717

27,798

39.44

105,733

6,023

5.4%

2003

213,210

27,770

39.70

108,133

6,038

5.3%

2004

215,867

29,932

39.96

109,231

5,249

4.6%

2005

218,684

31,166

40.23

109,666

5,454

4.7%

2006

223,012

33,293

40.39

114,899

4,751

4.0%

2007

226,823

34,838

40.49

116,997

4,510

3.7%

2008

229,373

35,721

40.65

118,235

5,849

4.7%

2009

231,452

34,774

40.84

108,177

10,944

9.2%

2010

239,179

Unavailable

41.01

110,464

10,032

8.3%

2011

242,509

Unavailable

Unavailable

111,161

9,882

8.2%

Note: The information above is for Buncombe County, N.C. The District believes that the above information is representative of the entire service area, which extends over approximately 80% of the County.

Sources: 1 North Carolina Office of State Budget and Management 2 Regional Economic Information System, Bureau of Economic Analysis, U.S. Dept. of Commerce 3 North Carolina Employment Security Commission

Statistical Section

| P a g e | 75

2011

641,153 683,390 682,236 676,173 684,925 701,404 711,251 688,933 ‐ ‐ 413,948 458,716 468,405 469,289 480,697 503,211 ‐ ‐ ‐ ‐

Construction

Manufacturing Durable goods

377,195 394,919 401,801 437,437 467,334 488,065 483,030 459,639 ‐ ‐ 151,936 148,825 172,527 193,901 208,566 215,009 219,406 ‐ ‐ ‐ 2,042,215 2,140,454 2,295,341 2,435,897 2,635,671 2,805,666 2,877,462 2,801,705 ‐ ‐

Retail Trade

Transportation and public utilities

Services

475,883 490,470 510,733 541,319 578,117 615,536 660,008 661,770 ‐ ‐

18,812 24,851 25,748 28,937 29,097 29,480 31,948 34,194 ‐ ‐

Personal Income by Industry

Note: The above data is for Buncombe County, North Carolina. MSD believes the data is representative of the entire service area.

Growth in personal income over time may be compared to average monthly billing to evaluate the affordability of sewer rates for customers.

Source: Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce

State and local

Military

Government and government enterprises 688,528 740,100 787,875 819,960 877,039 927,574 999,418 1,026,250 ‐ ‐ Federal, civilian 193,833 224,779 251,394 249,704 269,825 282,558 307,462 330,286 ‐ ‐

172,078 181,376 185,996 198,137 218,119 222,557 223,158 199,712 ‐ ‐

Wholesale trade

227,205 224,674 213,831 206,884 204,228 198,193 ‐ ‐ ‐ ‐

350,557 345,662 388,736 428,903 450,945 481,664 446,215 355,541 ‐ ‐

Mining

Nondurable goods

2,089 2,034 2,260 2,539 ‐ 3,071 3,310 3,523 ‐ ‐ 4,750 4,262 5,280 5,777 ‐ 6,038 5,851 6,221 ‐ ‐

Agricultural services, forestry, fishing

3,741,973 3,900,922 4,134,177 4,378,764 4,674,393 4,923,474 4,969,683 4,730,744 ‐ ‐

2010

$ 5,771,804 Unavailable Unavailable

2009

Private earnings

$ 5,982,712

2008

4,430,501 4,641,022 4,922,052 5,198,724 5,551,432 5,851,048 5,969,101 5,756,994 ‐ ‐

2007

Nonfarm earnings

2006

4,657 10,073 20,165 29,122 32,930 14,517 13,611 14,810 ‐ ‐

2005

Farm earnings

2004

$ 4,435,158 $ 4,651,095 $ 4,942,217 $ 5,227,846 $ 5,584,362 $ 5,865,565

2003

Total Personal Income

2002

Calendar Year

Metropolitan Sewerage District of Buncombe County, North Carolina FY Ending June 30, 2011

CY 2002 to CY 2011

Statistical Section

| P a g e | 76

Metropolitan Sewerage District of Buncombe County, North Carolina

Principal Employers

FY Ending June 30, 2011

FY 2002 to FY 2011

FY 2002

FY 2011

Employees

Rank

% of Total County Employment

Employees

Rank

% of Total County Employment

Mission Health System & Hospitals

5,125

1

4.85%

6,994

1

6.29%

Buncombe County Public Schools

3,650

2

3.45%

4,000

2

3.60%

Buncombe County Government

1,835

3

1.74%

1,673

3

1.51%

The Biltmore Company

900

7

0.85%

1,583

4

1.42%

VA Medical Center ‐ Asheville

991

6

0.94%

1,139

5

1.02%

Ingles Markets, Inc.

900

8

0.85%

1,137

6

1.02%

The Grove Park Inn Resort & Spa

891

9

0.84%

1,100

7

0.99%

1,010

8

0.91%

Employer

Eaton Corporation ‐ Electrical Division City of Asheville

1,237

4

1.17%

1,000

9

0.90%

CarePartners

1,200

5

1.13%

917

10

0.82%

830

10

0.78%

Sonopress, LLC Total for Principal Employers

17,559

16.61%

20,553

18.49%

Statistical Section

| P a g e | 77

Note: The information above is for Buncombe County, N.C. The District believes that the above information is representative of the entire service area, which extends over approximately 80% of the County.

Source: Asheville Area Chamber of Commerce, Economic Development Department

& NC Employment Security Commission

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Employees by Division

FY 2002 to FY 2011

FY 2002

FY 2003

FY 2004

FY 2005

Office of the General Manager Office Support

2

1

1

1

1

Human Resources Department Human Resource Environmental, Health & Safety

2 0

2 0

2 0

2 0

2 0

Administrative Services Department Office Support IT & MIS Environmental, Health & Safety Fleet Maintenance

0 6 2 4

0 9 2 4

0 9 2 4

1 8 2 4

1 7 2 4

Financial Services Department Finance & Budget Accounting, Investments & Cash Flow Mgmt.

Purchasing & Warehouse

1 4 6

1 3 4

1 3 4

1 3 3

1 3 3

Water Reclamation Facility Office Support Plant Operations Laboratory Industrial Waste Mechanical Maintenance Electrical Maintenance/Hydro Structural Maintenance

1 16 1 4 10 6 8

2 15 0 4 9 7 5

1 15 0 4 9 7 5

1 15 0 4 9 7 5

0 15 0 4 9 7 5

System Services Department Office Support System Services

3 54

3 53

3 53

Engineering Services Department Planning and Development

9

9

9

Capital Improvement Department Office Support Right of Way Construction Administration Design and Drafting Engineers Geographic Information Systems

1 3 7 3 4 0

1 3 7 3 4 0

1 3 6 3 3 0

Management Division Heads General Manager

5 1

6 1

6 1

6 1

6 1

163

158

155

152

150

Division

FY 2006

Total

3 51

Statistical Section

8 1 3 7 3 3 0

4 52

7 1 3 6 3 3 0

| P a g e | 78

Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

Employees by Division (continued)

FY 2002 to FY 2011

Division Office of the General Manager Office Support

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

1

1

1

1

1

3 0

3 2

Human Resources Department Human Resource

Environmental, Health & Safety

Administrative Services Department Office Support

IT & MIS

Environmental, Health & Safety Fleet Maintenance

Financial Services Department Finance & Budget

Accounting, Investments & Cash Flow Mgmt.

Purchasing & Warehouse

3 0

3 0

3 0

0 8 2 4

0 5 2 4

0 5 2 4

0 5 2 4

0 5 2 4 1 3 3

2 3 3

1 3 3

1 3 3

1 3 3

Water Reclamation Facility Office Support Plant Operations Laboratory Industrial Waste Mechanical Maintenance Electrical Maintenance/Hydro Structural Maintenance

0 14 0 4 8 8 5

0 13 0 4 8 8 5

0 13 0 4 8 8 5

0 13 0 4 8 8 5

0 11 0 4

System Services Department Office Support System Services

4 52

4 52

4 52

4 52

4 51

8 8

5

Engineering Services Department Planning and Development

Capital Improvement Department Office Support Right of Way Construction Administration Design and Drafting Engineers Geographic Information Systems

Management Division Heads

General Manager

7

7

7

7

7

1 3 5 3 3 4

1 3 5 3 3 4

1 3 5 3 3 4

7 1

7 1

8

1 3 5 3 3 0

1 3 5 3 3 4

6 1

7 1

1

Total 150 150 150 150 150

Note: All employees are considered full time based on 2080 hours worked per year. Above numbers represent budgeted positions and may include vacancies at year‐end.

Statistical Section

| P a g e | 79

Metropolita an Sewerage District of Bu uncombe Cou unty, North C arolina

Employe ees by Divvision (conntinued)

FY En nding June 30, 2011

FY 20 002 to FY Y 2011

Source: Disttrict Personne el Records

Statisstical Section n

| P a g e | 80

114

18

Sanitary Sewer Overflows

Water Reclamation Facility Pump Stations

Statistical Section 16 1.30

552

10 1.32

650

88% 23

$ 84

59.75% $ 526

63.6

8,723.50 23.9

890

21

78

485

636 305

510,187

0.66

60,330

65,484

114

1,597

FY 2005

8 2.00

680

90% 24

$ 143

52.5% $ 621

51.0

7,665.00 21.0

900

23

55

483

602 294

638,683

0.71

59,459

76,056

115

1,236

FY 2006

11 3.00

710

90% 20

$ 178

45.5% $ 786

47.9

6,643.00 18.2

900

31

52

406

542 308

662,245

0.57

51,272

129,025

123

1,339

4 2.56

995

92% 23

$ 184

39.5% $ 873

33.2

5,767.00 15.8

930

31

41

411

513 260

893,206

0.53

69,249

78,451

123

1,145

11 3.00

890

91% 24

$ 179

41.3% $ 877

40.7

6,022.50 16.5

920

31

23

458

528 211

920,525

0.49

45,175

77,572

101

983

FY 2007 FY 2008 FY 2009

11 3.00

846

90% 18

$ 114

53.3% $ 721

57.8

7,774.50 21.3

960

31

34

461

445 225

1,019,852

0.52

45,450

10,400

47

1,094

FY 2010

2 1.33

606

93% 19

$ 163

45.0% $ 826

56.8

6,570.00 18.0

977

32

24

404

486 196

614,543

0.59

49,099

52,856

37

925

FY 2011

Note: MSD implemented GASB Statements 34 and 35 in FY 2003. In the future, up to nine (9) prior years will be presented with the current year to illustrate the District’s financial performance over time.

Source: District Departmental Data

Number of workforce injuries Lost Work Rate per 100 employees

16 1.82

203

Restaurant inspections for Grease Reduction Compliance

91% 28

$ 116

54.75% $ 558

57.7

7,993.50 21.9

875

18

78

531

614 211

565,257

0.65

56,938

61,688

119

1,079

FY 2004

Operating Indicators by Division

Administrative Services Department

93% 28

$ 111

Total suspended solids (TSS) removal efficiency (percentage) Inspection of Significant Industrial Users

Energy cost per millions of gallons treated

63.1 54.5% $ 570

Maximum daily flow treated (millions of gallons daily)

Percentage of plant capacity used Cost per millions of gallons treated

7,957.00 21.8

Treatment Provided (millions of gallons) Daily (average) flow treated (millions of gallons daily)

860

535

Manhole Repairs

Sanitary Sewers (approximate miles)

677 251

456,315

0.66

63,596

30,304

133

2,025

FY 2003

Construction Repairs to Sewer Lines Taps Installed

Lines Washed (lineal feet) ‐ in‐house only

System Services Department Average Response Time to sewer problem (hours)

Linear Feet of rehabilitated Sewer Systems

Capital Improvement Department

Linear Feet of Accepted Sewer Systems

Plans Reviewed

Engineering Services Department Sewer Tap Applications

Division

Metropolitan Sewerage District of Buncombe County, North Carolina FY Ending June 30, 2011

FY 2003 to FY 2011

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

Operatin ng Indicators by D Division (continued)

FY En nding June 30, 2011

FY 20 002 to FY Y 2011

Statisstical Section n

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

Operatin ng Indicators by D Division (continued)

FY En nding June 30, 2011

FY 20 002 to FY Y 2011

Note: MSD iimplemented d GASB Statem ments 34 and 35 in FY 200 3. In the futu ure, up to ninee (9) prior yeaars will

be presented with the cu urrent year to o illustrate the e District’s finnancial perforrmance over ttime.

Source: Disttrict Operational Records

Statisstical Section n

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Metropolitan Sewerage District of Buncombe County, North Carolina

FY Ending June 30, 2011

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Statistical Section

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COMPLIANCE SECTION

Compliance SecƟon

REEPORT ON N INTERN NAL CONTTROL OVEER FINAN NCIAL REP PORTING AN ND ON CO OMPLIAN NCE AND O OTHER M MATTERS BASEED ON AN N AUDIT O OF FINAN NCIAL STA ATEMENTTS PERFO ORMED IN N ACCORD DANCE W WITH GOVERN NMENT A AUDITING G STANDA ARDS

To the Board d of Directorss Metropolitan Sewerage D District of Bun ncombe Coun nty, North Ca rolina Asheville, No orth Carolina

We have audited the finaancial statements of the M Metropolitan Sewerage Disstrict of Bunccombe County, North Carolina (the e “District”) aas of and for tthe year ende ed June 30, 2 011 and havee issued our rreport thereo on dated October 24, 2011.

We conductted our auditts in accordan nce with aud diting standarrds generally accepted in the United SStates of America and d the standards applicable e to financial aaudits contai ned in Goverrnment Auditiing Standardss, issued by the Comp ptroller General of the Uniited States.

Internal Co ontrol Over Financial Reporting In planning and performiing our audit,, we considerred the Districct’s internal ccontrol over ffinancial repo orting as a basis for designing our auditing prrocedures forr the purposee of expressiing our opiniions on the ffinancial statements, but not for the purpose of expressingg an opinion on the effecctiveness of tthe District’s internal control overr financial rep porting.

Accordingly,, we do not e express an opinion on the e effectivenesss of the District’s internal ccontrol over ffinancial reporting. A A deficiency in internal co ontrol exists when w the dessign or operaation of a control does no ot allow managemen nt or employyees, in the normal n coursse of perform ming their asssigned functtions, to prevvent, or detect and ccorrect missttatements on n a timely bassis. A materiaal weakness iis a deficienccy, or combin nation of deficiencies,, in internal control, such tthat there is aa reasonable possibility th hat a material misstatemen nt of the entity’s financial stateme ents will not b be prevented,, or detected and correcteed on a timelyy basis.

Our conside eration of internal controll over financiial reporting was for the limited purpose described in the first paragraaph of this section s and was w not designed to ide ntify all defiiciencies in internal control over financial rep porting that might be defficiencies, siggnificant deficciencies, or m material weaknesses. We did not material identify anyy deficiencies in internal control over financial reporting th hat we consider to be m weaknesses, as defined aabove.

Compliancce and Othe er Matters As part of obtaining reaasonable assurance abou ut whether thhe District's financial statements are free of material misstatement, we w performe ed tests of itss compliancee with certain n provisions of laws, regu ulations, Comp pliance Sectio on

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Metropolita an Sewerage District of Bu uncombe Cou unty, North C Carolina

FY En nding June 30, 2011

contracts, and grant agre eements, non ncompliance with which ccould have a direct and m material effectt on the determination of financiial statementt amounts. However, H prooviding an op pinion on compliance witth those provisions w was not an ob bjective of our audit, and aaccordingly, w we do not exp press such an n opinion. Thee results of our tests disclosed no instances of noncomplian nce or other m matters that aare required tto be reporteed under Governmentt Auditing Staandards.

This report is intended solely for the information and use of m management, Board of Directors, otherrs within the entity, and a federal and a State aw warding agenccies and passs‐through enttities, is not intended to be, and should not b be used by an nyone other than these spe ecified partiees.

Charlotte, N North Carolinaa October 24, 2011

Comp pliance Sectio on

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