Document Fernley_doc_adb949d47f

Comprehensive Annual Financial Report City of Fernley, Nevada For the Fiscal Year Ended June 30, 2007 Prepared by: Finance Department Bonnie Duke CPA Finance Director City Treasurer ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2007 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal i-v GFOA Certificate of Achievement vi Organization Chart vii List of Principal Officials viii FINANCIAL SECTION Independent Auditor’s Report 1-2 Management’s Discussion and Analysis (required supplementary information) 3A-3M Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets 4 Statement of Activities 5 Fund Financial Statements: Balance Sheet – Governmental Funds 6 Reconciliation of the Balance Sheet to the Statement of Net Assets – Governmental Funds 7 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 8 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities – Governmental Funds 9 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the General Fund 10-12 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the Residential Construction Tax District #1 Special Revenue Fund 13 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the Streets and Storm Drains Special Revenue Fund 14 Statement of Net Assets – Proprietary Funds 15 Statement of Revenues, Expenses and Changes in Net Assets – Proprietary Funds 16 Statement of Cash Flows – Proprietary Funds 17 Statement of Fiduciary Assets and Liabilities 18 Notes to Financial Statements 19-39 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2007 TABLE OF CONTENTS (Continued) Combining and Individual Fund Statements and Schedules: Governmental Funds: Nonmajor Special Revenue Funds Combining Balance Sheet 40 Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances 41 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Municipal Court Administrative Fees Special Revenue Fund 42 Municipal Court Facilities Fees Special Revenue Fund 43 Residential Construction Tax District #2 Special Revenue Fund 44 Grants Special Revenue Fund 45 Private Sector Community Support Special Revenue Fund 46 Capital Projects Fund 47 Proprietary Funds: Schedule of Revenues, Expenses and Changes in Net Assets – Budget and Actual: Water Utility Enterprise Fund 48 Sewer Utility Enterprise Fund 49 Non-Potable Water Enterprise Fund 50 Fiduciary Funds: Municipal Trust Fund Statement of Changes in Assets and Liabilities 51 Schedule No. Page STATISTICAL SECTION Financial Trends Information: Net Assets by Component 1 52 Change in Net Assets 2 53-54 Fund Balances, Governmental Funds 3 55 Changes in Fund Balances, Governmental Funds 4 56 Revenue Capacity Information: Assessed and Estimated Actual Value of Taxable Property 5 57 Property Tax Rates - Direct and Overlapping Governments (Per $100 of Assessed Value) 6 58 Principal Property Owners 7 59 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2007 TABLE OF CONTENTS (Continued) Schedule No. Page Water User Fees 8 60 Principal Water Users 9 61 Debt Capacity Information Ratios of Outstanding Debt by Type 10 62 Ratios of General Bonded Debt Outstanding 11 63 Computation of General Obligation Direct and Overlapping Debt 12 64 Computation of Legal Debt Margin 13 65 Water and Sewer Funds Revenue Bond Coverage 14 66 Demographic and Economic Information: Demographic Statistics 15 67 Major Employers 16 68 Operating Information: Full-time Equivalent City Government Employees by Function – Last Six Fiscal Years 17 69 Operating Indicators by Function – Last Six Fiscal Years 18 70 Capital Asset Statistics by Function – Last Six Fiscal Years 19 71 AUDITOR’S COMMENTS Statute Compliance 72 Progress on Prior Year Statute Compliance 72 Prior Year Recommendations 72 Current Year Recommendations 72 Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 Limitation of Fees for Business Licenses 73 Independent Accountant’s Report on NRS 354.6241 74 ---PAGE BREAK--- INTRODUCTORY SECTION ---PAGE BREAK--- City of Fernley Finance Department Utility Billing Accounting Budgeting Treasury 595 Silver Lace Blvd. Fernley NV 89408 Telephone: (775) 784-9843 Fax: (775) 784-9999 November 12, 2007 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Fernley Nevada: The comprehensive annual financial report (CAFR) for the City of Fernley for the fiscal year ended June 30, 2007 is hereby submitted. State law requires that local governments provide for an annual audit by independent certified public accountants of its financial statements in accordance with auditing standards generally accepted in the United States of America. This report consists of management’s representations concerning the finances of the City of Fernley. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in the report. To provide a reasonable basis for making these representations, management of the City of Fernley has established a comprehensive internal control framework that is designed both to protect the City’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Fernley’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Fernley’ comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Fernley’s financial statements have been audited by Kafoury, & Co., a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Fernley for the fiscal year ended June 30, 2007 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Fernley’s financial statements for the fiscal year ended June 30, 2007, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. ---PAGE BREAK--- City of Fernley Finance Department ii Because the City of Fernley did not expend more that $500,000 in federal financial assistance during the fiscal year ended June 30, 2007, the City of Fernley was not required to have the federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements would have required the independent auditors to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. Because a Single Audit was not required, a Single Audit Report is not available. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basis financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Fernley’s MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City of Fernley, incorporated in 2001, is located in western Nevada and is experiencing rapid growth. The City of Fernley currently occupies a land area of 160 square miles and serves a population of approximately 20,000. The City of Fernley is empowered to levy a property tax on both real and personal properties located within its boundaries. The City of Fernley is also empowered by state statute to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the City Council. The City of Fernley operates under the council-manager form of government. Policy- making and legislative authority are vested in a governing council consisting of the mayor and five City Council members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and establishing the organizational structure of the City. Pursuant to state statutes, the Mayor is the Chief Executive Officer of the City. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for supervising the heads of various departments. The City Manager is the Chief Administrative Officer of the City. The City Council members are elected to serve four year staggered terms. The mayor is elected to serve a four-year term. The City of Fernley provides a wide range of services, including construction and maintenance of streets and infrastructure; water and sewer services; recreational activities and events; vector and animal control; community development services and general administrative services. The City of Fernley contracts with the Lyon County Sheriff for police protection services. The City contracts with Lyon County for animal shelter services. Fire protection services are provided through the legally separate North Lyon ---PAGE BREAK--- City of Fernley Finance Department iii County Fire Protection District and through a separate Volunteer Fire Department. Ambulance service is provided by the Volunteer Fire Department. A separate legal entity, the Fernley Swimming Pool District, operates a swimming pool in Fernley. Lyon County and the Lyon County School District also provide services in Fernley. The annual budget serves as the foundation for the City of Fernley’s financial planning and control. All departments of the City of Fernley are required to submit requests for appropriation to the City Manager in February of each year. The City Manager uses these requests as the starting point for developing a proposed budget. The City Manager then presents this proposed budget to the City Council for review and a series of City Council workshops are held to discuss the budget. The City Council is required to hold a public hearing on the proposed budget and adopt a final budget by no later than June 1 of each year. The appropriated budget is prepared by fund, function, and department. Department heads may make transfers of appropriations within a department. Transfers of appropriations between departments, however, require the special approval of the City Council. Budget-to actual comparisons are provided in this report for each individual governmental fund for which an appropriated budget has been adopted. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Fernley operates. Local economy: The City of Fernley currently enjoys a favorable economic environment and is the fastest growing city (in percentage terms) in Nevada. Connections to the water and sewer system and population have more than doubled in the last six years. Fernley experienced growth due to its location near the Reno-Sparks metropolitan area and its excellent transportation systems that provide access to west coast markets. Fernley is situated on Interstate 80, approximately 28 miles east of Reno, and at the intersection of U. S. Highways 40, 50, and alternate 95. Fernley also has rail (freight) access. Northern and Central California markets are reached overnight, while Los Angeles, San Francisco, Portland, Salt Lake City, and Las Vegas are all within a 500 mile radius. The growth led to increased demand for services as residential development increased in response to the industrial development. Several companies have located facilities in Fernley, benefiting the community and leading the way into the future. Companies that have recently moved to, or opened facilities in Fernley include, Amazon.com, Trex Inc., Quebecor Printing, MSC Industrial Supply, Allied Signal, UPS Worldwide Logistics (Honeywell), ARE Campers, Johns Manville, Sherwin Williams, and Feldmeir Corporation, just to name a few. New retail development is occurring as a result of the increase in population and industrial development. Lowe’s opened in October 2007 and Wal Mart will be opening in Fernley ---PAGE BREAK--- City of Fernley Finance Department iv within the next three to six months. Several new casinos/restaurants, and additional food and beverage locations have opened or are under construction. During FY07, the City of Fernley had a tax rate of $0.3481 per $100 of assessed valuation. This property tax had remained unchanged for the past several years and was one of the lowest in the State of Nevada. In the FY07 budget, the City increased the tax rate to the maximum allowed under state law even though the revenue to the City will not increase by a corresponding amount due to property tax limitation legislation. In other words, the legislation limits the amount of revenue the City will receive from property tax in most instances regardless of changes in assessed value and tax rate. Therefore, it is logical to levy the maximum allowed tax rate. Long-term financial planning: The City of Fernley has many long range plans. These plans include the following: • Development of at least three parks utilizing proceeds from the recently enacted Residential Construction Tax • Completion of expansion of the sewer treatment plant • Construction of a water treatment plant that can treat both groundwater and surface water to enable use of surface water rights • Development of an alternative water system to deliver non-potable water for irrigation (thus conserving treated water) • Development of a community center • Continuing to invest in technology to enhance service delivery to customers • Improving streets and storm drains • Enhancing record management policies and developing record management systems • Analyzing and financing the operation and maintenance costs of expanded services The City of Fernley annually updates the Capital Improvement Plan required by state statutes and continues to prepare the necessary facilities plans for ultimate development of a more comprehensive Capital Improvement Plan. The City also established a Capital Improvements Advisory Committee to more thoroughly review facility plans and examine funding alternatives for both construction and operation and maintenance of needed facilities. Cash Management Policies and Practices. Cash temporarily idle during the year was invested in money market accounts and two State Treasurer’s investment pools. The average yield on investments was approximately 5.5%. ---PAGE BREAK--- City of Fernley Finance Department v The City’s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. The City’s bank deposits are covered by FDIC insurance and collateralized by the Office of the State Treasurer/Nevada Collateral Pool. The preparation of this report could not have been accomplished without the efficient and dedicated staff of the Finance Department. Our auditors, Kafoury, & Co. provided the expert support and guidance that made the preparation of this report possible. I would also like to express my thanks to the City Manager, the department heads and employees of the City of Fernley, and the citizens of Fernley whose continued cooperation, support, and assistance have contributed greatly to the financial stability of the City of Fernley. The Government Finance Officers Association of the United States and Canada (GFOA) awarded the Certificate of Achievement for Excellence in Financial Reporting to the City of Fernley for its comprehensive annual financial report for the fiscal year ended June 30, 2006. This was the second consecutive year that the City of Fernley has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Respectfully submitted, Bonnie Duke CPA City Treasurer Finance Director ---PAGE BREAK--- ---PAGE BREAK--- vii City of Fernley Organizational Chart Voters of Fernley Mayor/City Council Municipal Court Judge City Manager City Attorney Planning Commission Office of the City Clerk Finance Dept Community Dev. Dept Public Works Dept Office of the City Manager Elections Business License Records Accounting &Budgeting Utility Billing Investments Financial Reporting Building Insp./Permits Planning Code Enforcement Economic Development Plan Review Water Utility Sewer Utility Engineering / GIS Administration Risk Management Human Resources Police (Lyon Co.) Contracts Parks/ Rec Dept Park Development Park Mainteance Minutes/Agendas Municipal Court Administration Assistant PW Director Vector Control Animal Control Streets and Storm Drains Quality Assurance Alternative Water ---PAGE BREAK--- viii City of Fernley List of Principal Officials City Council: The Fernley City Council meets in regular session the first and third Wednesday of each month in the Council Chambers located at 595 Silver Lace Boulevard. Mayor Ward #1 Council Member Ward #2 Council Member Ward #3 Council Member Ward #4 Council Member Ward #5 Council Member Todd Cutler Charles Shepperd Joe Mortensen Monte Martin Curt Chaffin Ralph Menke Appointed Officials: City Attorney Jeff McGowan City Manager Gary Bacock City Clerk Patricia Norman City Treasurer and Finance Director Bonnie Duke Chief of Police Allen Veil Lyon County Sheriff Community Development Director Robert “Terry” Gilbert Municipal Court Judge Daniel Bauer Parks and Recreation Director Keith Penner Public Works Director Lowell Patton ---PAGE BREAK--- FINANCIAL SECTION ---PAGE BREAK--- Independent Auditor's Report To the Honorable City Council of City of Fernley, Nevada We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, (the "City") as of and for the year ended June 30, 2007, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2007, and the respective changes in financial position and where applicable, cash flows thereof and the respective budgetary comparisons for the General Fund, Residential Construction Tax District #1 Special Revenue Fund and the Streets and Storm Drains Special Revenue Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management’s discussion and analysis on pages 3A through 3M is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consist principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fernley, Nevada’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements have been subjected to the auditing procedures applied in the ---PAGE BREAK--- audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Fallon, Nevada November 12, 2007 ---PAGE BREAK--- 3-A Management’s Discussion and Analysis As management of the City of Fernley, we offer readers of the City of Fernley’s financial statements this narrative overview and analysis of the financial activities of the City of Fernley for the fiscal year ended June 30, 2007. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i through v of this report. Financial Highlights • The assets of the City of Fernley exceeded its liabilities at the close of the most recent fiscal year by $131,125,409 (net assets). Of this amount, $65,081,075 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. • The government’s total net assets increased by $24,880,405. The increase is attributable primarily to capital grants and contributions. • As of the close of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $4,584,334, a decrease of $5,791,456 in comparison with the prior year. Approximately $6 million was used for construction of the City Hall Expansion Project in FY07. Of the $4,584,334, approximately $1 million is committed for additional expenditures for the City Hall Project. The remaining amounts (approximately $3.6 million) are available for spending at the government’s discretion. • At the end of the current fiscal year, unreserved fund balance for the general fund was $588,946 or 17 % of general fund expenditures. This ending fund balance is in line with the targeted ending fund balance of 8% to 17% of general fund expenditures. • The City of Fernley’s total bonded debt increased by $49,722,498 during the fiscal year, primarily due to issuance of $50 million in debt for water and sewer projects. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Fernley’s basic financial statements. The City of Fernley’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Fernley’s finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City of Fernley’s assets and liabilities, with the differences between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Fernley is improving or deteriorating. ---PAGE BREAK--- 3-B The Statement of Activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Fernley that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fernley include general government, judicial, public works, culture and recreation, community development, and health. The business- type activities of the City of Fernley are water and sewer operations. The government-wide financial statements can be found on pages 4 through 5 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fernley, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fernley can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government- wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fernley maintains nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund and the three funds, which are considered major funds. Data for the other five governmental funds are combined into a single, aggregated presentation. Individual fund data for each of ---PAGE BREAK--- 3-C these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Fernley adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 6 through 14 of this report. Proprietary funds. The City of Fernley maintains three proprietary funds as enterprise funds to account for its potable water, non-potable (alternative) water, and sewer (wastewater) operations. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water, sewer and non-potable water (alternative water) operations. The Water Fund and Sewer Fund are considered to be major funds of the City of Fernley. The basic enterprise fund financial statements can be found on pages 15 through 17 of this report Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fernley’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 18 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 19 through 39 of this report Other Information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the notes to the financial statements. Combining and individual fund statements and schedules can be found on pages 40 through 51 of this report. ---PAGE BREAK--- 3-D Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fernley, assets exceeded liabilities by $131,125,409 at the close of the most recent fiscal year. A large portion of the City of Fernley’s net assets (35%) reflects its investment in capital assets land, buildings, machinery, and equipment); net of any related outstanding debt used to acquire those assets. The City of Fernley uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fernley’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Fernley’s Net Assets Governmental Activities Business-type Activities Totals FY07 FY06 FY07 FY06 FY07 FY06 Current & other assets $5,950,705 $11,871,446 $64,315,362 $19,877,496 $70,266,067 $31,748,942 Capital 35,534,157 24,608,748 87,129,484 59,178,986 122,663,641 83,787,734 Total Assets 41,484,862 36,480,194 151,444,846 79,056,482 192,929,708 115,536,676 Long-term liabilities 4,752,359 4,919,944 51,461,804 1,357,749 56,214,163 6,277,693 Other liabilities 1,461,993 1,416,179 4,128,143 1,597,800 5,443,271 3,013,979 Total liabilities 6,214,352 6,336,123 55,589,947 2,955,549 61,657,434 9,291,672 Net assets: Invested in capital assets, net of related debt 30,692,157 24,608,748 35,352,177 57,581,522 66,044,334 82,190,270 Restricted - - - 579,560 - 579,560 Unrestricted 4,578,353 5,535,323 60,502,722 17,939,851 65,081,075 23,475,174 Total net assets $35,270,510 $30,144,071 $95,854,899 $76,100,933 $131,125,409 $106,245,004 Unrestricted net assets 65,081,075 may be used to meet the government’s ongoing obligations to citizens and creditors. Approximately $50 million of this amount is going to be used for water and sewer projects during FY2008. At the end of the current fiscal year, the City of Fernley is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. ---PAGE BREAK--- 3-E The government’s net assets increased $24,880,405 during the current fiscal year. The increase is primarily due to capital grants and contributions that were greater than the related program expenses. Net Assets Invested in Capital Assets, net of related debt, declined about $11 million due to the $50 million increase in debt, partially offset by capital assets contributed and acquired. Governmental activities. Governmental activities increased the City of Fernley’s net assets by $5,126,439, thereby accounting for 21% of the total growth in net assets of the City of Fernley. Key elements of this increase are donated (dedicated) infrastructure and purchased infrastructure for streets and storm drains. Property tax rates increased 128% between FY06 and FY07 and assessed value of property increased 35.32%; however the increased revenue from property taxes was only 57% due to property tax limitation legislation. The City also transferred money into its Streets and Storm Drains fund that resulted in an increase in fund balance of that fund. The following table summarizes the change in net assets for the current fiscal year: Governmental Activities Business-Type Activities Total FY07 FY06 FY07 FY06 FY07 FY06 Revenues: Program revenues: Charges for services $1,988,793 $ 2,378,981 $4,061,013 $3,888,017 $6,049,806 $6,266,998 Operating grants and contributions 60,000 348,627 - - 60,000 348,627 Capital grants and contributions 6,052,749 7,531,080 19,015,855 18,729,430 25,068,604 26,260,510 General revenues: Property taxes 925,297 591,082 - - 925,297 591,082 Shared revenues 546,484 513,970 - - 546,484 513,970 Other revenues 361,411 718,960 1,557,688 762,222 1,919,099 1,481,182 Total revenues 9,934,734 12,082,700 24,634,556 23,379,669 34,569,290 35,462,369 Expenses: General government 1,084,095 796,403 - - 1,084,095 796,403 Judicial 194,353 170,479 - - 194,353 170,479 Public works 1,547,750 954,419 - - 1,547,750 954,419 Culture & recreation 838,674 646,259 - - 838,674 646,259 Community develop. 848,010 875,056 - - 848,010 875,056 Health 295,413 263,919 - - 295,413 263,919 Water - - 3,058,605 2,422,583 3,058,605 2,422,583 Sewer - - 1,812,645 1,530,898 1,812,645 1,530,898 Other - - 9,340 700 9,340 700 Total expenses 4,808,295 3,706,535 4,880,590 3,954,181 4,880,590 7,660,716 Increase in net assets 5,126,439 8,376,165 19,753,966 19,425,488 24,880,405 27,801,653 Net assets, July 1 30,144,071 21,767,906 76,100,933 56,675,445 106,245,004 78,443,351 Net assets, June 30 $35,270,510 $30,144,071 $95,854,899 $76,100,933 $131,125,409 $106,245,004 ---PAGE BREAK--- 3-F FY07 Program Revenues and Expenses- Governmental Activities 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 General Govt Revenue General Govt Expenses Judicial Revenues Judicial Expenses Public Works Revenues Public Works Expenses Culture & Rec Revenues Culture & Rec Expenses Comm. Dev. Revenues Comm Dev Expenses Health Expenses Program $ in thousands Program Expenses Capital Grants and Contributions Operating G&C Charges for services The major sources of program revenues for general government activities are business licenses and public utility license/franchise fees. The program expenses associated with general government activities include the operations of the Office of the City Manager, the Office of the City Clerk, Mayor and City Council activities and a portion of the expense for the Finance Department. The sources of program revenue for judicial activities include fines and fees (unrestricted) as well as administrative assessment and court facility fees (restricted). The program expenses associated with judicial activities include expenses for the Judge, City Prosecutor, Public Defender, direct court costs, and a portion of the costs of the Finance Department. Overhead costs are not allocated. The major sources of program revenues for public works activities are dedications (non- cash transactions) of streets and storm drain systems from developers, regional transportation commission distributions, fuel taxes, and shared county property tax revenues. The program expenses associated with public works activities are operating costs and depreciation related to streets and storm drain activities as well as the City Hall Expansion Project. Overhead costs are not allocated. The major sources of program revenues for culture and recreation activities include grants, dedications of park property and improvements, and residential construction tax. The program expenses associated with culture and recreation activities include the operating costs in the general fund parks budget and depreciation related to two residential construction tax funds for which the Parks Department is responsible. Overhead costs are not allocated. ---PAGE BREAK--- 3-G The major source of program revenues for community development activities is building permits and fees. Planning fees are also included in program revenues. The program expenses associated with these revenues include the operations of the Community Development Department. Overhead costs are not allocated. The health operations of the City include animal control and vector control activities. Neither of these activities produces significant revenue. The program revenue consists of animal license fees and donations. The major sources of general revenues (revenues that are not specifically allocated to a particular program) are property taxes, consolidated taxes, fuel taxes and interest earnings. FY07 Revenues by Source - Governmental Activities (in thousands of Charges for Serv., $1,989 , 20% Oper. Grants & Contr., $60 , 1% Shared Revenues, $546 , 5% Other, $361 , 4% Capital Grants & Cont., $6,052 , 61% Property Tax, $925 , 9% The Charges for Services category includes primarily fees, fines, and licenses. The Capital Grants and Contributions primarily includes donated (dedicated) infrastructure (streets and storm drains). The Shared Revenue category includes primarily consolidated tax, fuel tax and gaming licenses. The Other category includes interest income and other miscellaneous sources of revenue. For the most part, increases in operating expenses closely paralleled inflation and growth in demand for services. Capital projects and donated (dedicated) infrastructure represent the largest part of the increase. Business-type activities. Business-type activities increased the City of Fernley’s net assets by $19,753,966 accounting for 79% of the total growth in the government’s net assets. Key elements of this increase are higher revenues for water and sewer use fees, donated (dedicated) infrastructure and connection fees. • Charges for services for business-type activities increased by $172,996 or 4% due to a greater number of customers. User rates were not increased during FY07. User rates were increased approximately 50% effective July 1, 2007. ---PAGE BREAK--- 3-H • Capital contributions increased by $286,425 or 1.5%, primarily as a result of acceptance of subdivision improvements. • Investment earnings increased due to higher interest rates and higher levels of cash available for investment. FY07 Program Revenues and Expenses Business-type Activities 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Water Revenues Water Expenses Non- Potable Water Non- Potable Water Expenses Sewer Revenue Sewer Expenses Program $ in thousands Expenses Capital Grants and Contributions Operating Grants & Contributions Charges for Serv. Revenues include both cash and non-cash capital contributions in the “Capital Grants and Contributions” section. ---PAGE BREAK--- 3-I FY07 Revenue by Source Business Type Activities (in thousands of Unrestricted Interest Income, $1,511 , 6% Capital Grants & Contr., $19,016 , 78% Charges for Serv., $4,061 , 16% Other, $46 , 0% Financial Analysis of the Government’s Funds As noted earlier, the City of Fernley uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City of Fernley’s governmental funds is to provide information on the near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Fernley’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $4,584,334, a decrease of $5,791,456 in comparison with the prior year. Approximately $6 million was spent during FY07 for the construction of the City Hall Expansion Project. The remaining amount (approximately $3.4 million) is available for spending at the government’s discretion. The general fund is the chief operating fund of the City of Fernley. At the end of the current fiscal year, unreserved, undesignated fund balance of the general fund was $582,237, while total fund balance reached $588,946. As a measure of the general fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total general fund expenditures. Unreserved, undesignated fund balance represents 17% of total general fund expenditures, while total fund balance also represents about 17% of that same amount. The fund balance of the City of Fernley’s general fund decreased by $356,050 during the current fiscal year. Key factors in this decrease are as follows: ---PAGE BREAK--- 3-J • Increased appropriations in various cost centers in the general fund to provide services to more people • Increased debt service for the City Hall Expansion Project • Transfers out of the general fund to other funds Expenditures exceeded estimates in several cost centers in the general fund. The general government cost center exceeded estimated due to additional wages and supplies for the new City Hall building. The parks cost center exceeded estimates due to use of parks employees for special events. The community development cost center exceeded estimates (based on a revised final budget) due to anticipated lower costs from unfilled positions, although expenditures were significantly less than planned in the original budget. The Residential Construction Tax District #1 Fund is used to account for the receipt and use of a special tax that is dedicated to specific purposes of construction of parks in accordance with the Park Plan. At the end of the current fiscal year, unreserved, undesignated fund balance of the fund was $(9,000). Revenues in this fund are significantly lower than originally projected due to the slow down in the residential housing market. No projects are planned for this fund during FY08. Amounts were collected during the first quarter of FY08 to bring the fund balance out of the negative ending position. The Streets and Storm Drains Fund is used to account for gas taxes that must be used for street maintenance and capital expenditures as well as other revenues that may be used for projects associated with street and storm drains. At the end of the current fiscal year, unreserved, undesignated fund balance of the fund was $444,108. Unreserved, undesignated fund balance represents 19% of total fund expenditures, while total fund balance also represents about 19% of that same amount. The City is currently considering the implementation of impact fees for streets to provide the necessary funding for street construction projects. The Capital Projects Fund is used to accrue funds under a “pay as you go” program to provide funding for future projects involving replacement of equipment and buildings or new facilities and equipment. The largest project accounted for in this fund during FY07 is the City Hall Expansion Project. The total project cost for the City Hall Expansion project is $7 million of which $5 million is funded through the issuance of debt and $2 million from the money in the Capital Fund. At the end of the current fiscal year fund balance of the Capital Fund was $2,426,800. Approximately $1 million of this fund balance will be used in FY08 to complete the City Hall Expansion Project. Smaller projects planned for FY08 include purchase of vehicles, technology upgrades and replacements, and records management equipment and facilities. ---PAGE BREAK--- 3-K Proprietary funds. The City of Fernley’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Water Fund at the end of the year amounted to $50,188,079; those for the Sewer Fund amounted to $9,194,273; and those of the Non-Potable Water Fund amounts to $1,120,370 resulting in total unrestricted net assets of $59,908,266. The total growth in net assets for these funds was $16,952,293, $2,404,587, and $397,086, respectively. These amounts are available, primarily for capital replacements, capital expansion, and water rights acquisition. Other factors concerning the finances of these three funds have already been addressed in the discussion of the City of Fernley’s business- type activities. General Fund Budgetary Highlights During the year there was a $456,500 decrease in revenues between the original and final amended budget, primarily due to decreased building permit revenue from a slow down in the residential development market. There was a $446,340 increase in appropriations between the original and final amended budget. Following are the main components of the increase: • Appropriations were reduced in the Community Development to reflect unfilled positions during the year. • Appropriation for the General Government, Judicial, Culture and Recreation, and Health were increased due to higher than estimated costs for services to the growing customer base. • Fund Balance for the prior year was higher than expected which provided funds for the increased appropriations. Capital Asset and Debt Administration Capital assets. The City of Fernley’s investment in capital assets for its governmental and business-type activities as of June 20, 2007 amounts to $122,663,641 (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings, improvements, machinery and equipment, infrastructure (streets and bridges), and other capital assets. The total increase in the City of Fernley’s investment in capital assets for the current fiscal year was 46% (a 44% increase for governmental activities and a 47% increase for business-type activities). Major capital asset events during the current fiscal year included the following: • Donation of capital assets from developers • Construction of the City Hall Expansion Project • Design costs for the planned water treatment plant • Sewer interceptor improvements • Well improvements • Street improvements ---PAGE BREAK--- 3-L City of Fernley Capital Assets (net of depreciation) Governmental activities Business-type activities Totals FY07 FY06 FY07 FY06 FY07 FY06 Land $3,909,624 $3,789,274 $677,677 $ 268,810 $4,587,301 $4,058,084 Water rights - - 33,278,836 18,798,981 33,278,836 18,798,981 Construction in progress 6,469,314 730,876 13,322,319 3,281,172 19,791,633 4,012,048 Buildings 676,050 882,648 3,662 4,661 679,712 887,309 Improvements other than buildings 5,758,849 3,938,635 38,366,458 35,500,087 44,125,307 39,438,722 Machinery & Equipment 423,386 409,161 287,234 67,387 710,620 476,548 Infrastructure 18,326,224 14,858,154 - - 18,326,224 14,858,154 Other capital assets - - 1,193,298 1,257,888 1,193,298 1,257,888 TOTAL $35,563,447 $24,608,748 $87,129,484 $59,178,986 $122,692,931 $83,787,734 Additional information on the City of Fernley’s capital assets can be found in note 4 of this report. Long-term debt. At the end of the current fiscal year, the City of Fernley had total bonded debt outstanding of $51,282,780 and lease-purchase debt of $4,842,000. All of the debt is backed by the full faith and credit of the government. Governmental activities Business-type activities Totals 7/1/07 7/1/06 7/1/07 7/1/06 7/1/07 7/1/06 General obligation/revenue bonds - - $51,282,780 $1,560,282 $51,282,780 $1,560,282 Lease/Purchase Debt $4,842,000 $5,000,000 - - 4,842,000 5,000,000 Unamortized bond premium - - 494,527 37,181 494,527 37,181 Compensated absences 94,359 77,944 41,308 37,789 135,667 115,733 TOTAL $4,936,359 $5,077,944 $51,818,615 $1,635,252 $56,754,974 $6,713,196 The City of Fernley’s total debt increased by $50,041,778 during the current fiscal year. The key factor in this increase was issuance of $50 million in debt for construction of water and sewer projects. ---PAGE BREAK--- 3-M State statutes limit the amount of general obligation debt a city may issue to 30% of its total assessed valuation. The current debt limitation for the City of Fernley is approximately $153 million, which is significantly in excess of the City of Fernley’s outstanding general obligation debt of $51,282,780. Additional information of the City of Fernley’s long-term debt can be found in note 7 on pages 36 through 37 of this report. Economic Factors and Next Year’s Budget and Rates Both water rates and sewer rates were increased effective July 1, 2007 to pay for operating expenses, capital replacements and capital expansion. • Several new businesses are starting or are planned for Fernley which will result in growth in jobs. • The City of Fernley is the fastest growing City in Nevada and has doubled in population in the last five years. • Inflationary trends in the region compare favorably to national indices. • Residential development has slowed significantly but commercial development has increased All of these factors were considered in preparing the City of Fernley budget for FY08. During the current fiscal year, unreserved, undesignated fund balance in the general fund decreased to $582,237. The FY08 General Fund budget assumes a beginning fund balance of $575,149. Very little of the current fiscal year ending fund balance is used for FY08 costs. The rates for the enterprise funds went up effective July 1, 2007 to provide the necessary funds to operate the water and sewer utility funds. Additional increases are scheduled to be implemented on July 1 each subsequent four years. Requests for Information This financial report is designed to provide a general overview of the City of Fernley’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City Treasurer/Finance Director, 595 Silver Lace Blvd, Fernley NV 89408. ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- BUSINESS- GOVERNMENTAL TYPE ACTIVITIES ACTIVITIES TOTAL Current assets: Cash and investments 5,398,685 $ 62,444,951 $ 67,843,636 $ Cash held for customer deposits - 594,456 594,456 Interest receivable 20,638 231,545 252,183 Taxes receivable 15,211 - 15,211 Accounts receivable, net 229,903 421,730 651,633 Accounts receivable, other 83,144 85,484 168,628 Due from other governments 196,415 - 196,415 Inventories - 151,461 151,461 Prepaid expenses 6,709 5,000 11,709 Total Current Assets 5,950,705 63,934,627 69,885,332 Noncurrent assets: Deferred charges - 380,735 380,735 Capital assets: Land and construction in progress 10,378,938 47,278,832 57,657,770 Other capital assets, net of depreciation 25,184,509 39,850,652 65,035,161 Total Capital Assets 35,563,447 87,129,484 122,692,931 Total Noncurrent Assets 35,563,447 87,510,219 123,073,666 Total Assets 41,514,152 151,444,846 192,958,998 Current liabilities: Accounts payable and accrued expenses 688,242 2,587,261 3,275,503 Accrued interest - 589,615 589,615 Refundable deposits - 594,456 594,456 Due to developers 392,395 - 392,395 Due to other governments 146,865 - 146,865 Due within one year 184,000 356,811 540,811 Unearned revenue 79,781 - 79,781 Total Current Liabilities 1,491,283 4,128,143 5,619,426 Noncurrent liabilities: Due in more than one year 4,752,359 51,461,804 56,214,163 Total Liabilities 6,243,642 55,589,947 61,833,589 NET ASSETS Invested in capital assets, net of related debt 30,721,447 35,352,177 66,073,624 Unrestricted 4,549,063 60,502,722 65,051,785 Total Net Assets 35,270,510 $ 95,854,899 $ 131,125,409 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS JUNE 30, 2007 See accompanying notes. 4 ---PAGE BREAK--- CHARGES OPERATING CAPITAL BUSINESS- FOR GRANTS AND GRANTS AND GOVERNMENTAL TYPE FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL Governmental Activities: General government 1,173,360 $ 1,137,510 $ - $ - $ (35,850) $ - $ (35,850) $ Judicial 194,353 89,248 - - (105,105) - (105,105) Public works 1,547,750 29,754 - 5,851,177 4,333,181 - 4,333,181 Culture and recreation 838,674 48,355 60,000 201,572 (528,747) - (528,747) Community development 848,010 679,608 - - (168,402) - (168,402) Health 295,413 4,318 - - (291,095) - (291,095) Total Governmental Activities 4,897,560 1,988,793 60,000 6,052,749 3,203,982 - 3,203,982 Business-type Activities: Water 3,058,553 2,306,193 - 16,610,645 - 15,858,285 15,858,285 Sewer 1,812,583 1,754,820 - 2,047,468 - 1,989,705 1,989,705 Other 9,340 - - 357,743 - 348,403 348,403 Total Business- type Activities 4,880,476 4,061,013 - 19,015,856 - 18,196,393 18,196,393 Total 9,778,036 $ 6,049,806 $ 60,000 $ 25,068,605 $ 3,203,982 18,196,393 21,400,375 General Revenues: Property taxes 925,297 - 925,297 Consolidated taxes 188,128 - 188,128 Fuel taxes 259,603 - 259,603 Unrestricted gaming licenses 98,753 - 98,753 Unrestricted interest income 361,301 1,511,286 1,872,587 Miscellaneous revenue 89,375 46,287 135,662 Total General Revenues 1,922,457 1,557,573 3,480,030 Change in Net Assets 5,126,439 19,753,966 24,880,405 NET ASSETS, July 1 30,144,071 76,100,933 106,245,004 NET ASSETS, June 30 35,270,510 $ 95,854,899 $ 131,125,409 $ PROGRAM REVENUES AND CHANGES IN NET ASSETS CITY OF FERNLEY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 NET (EXPENSE) REVENUES See accompanying notes. 5 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS Cash and investments 979,360 $ - $ 472,613 $ 2,703,620 $ 1,243,092 $ 5,398,685 $ Interest receivable 4,778 - 517 11,218 4,125 20,638 Accounts receivable 232,292 - - - 7,588 239,880 Due from other governments 92,720 - 103,695 - - 196,415 Prepaid items 6,709 - - - - 6,709 Total Assets 1,315,859 $ - $ 576,825 $ 2,714,838 $ 1,254,805 $ 5,862,327 $ Liabilities: Accounts payable and accrued liabilities 227,872 $ - $ 132,717 $ 317,328 $ 10,325 $ 688,242 $ Due to developers 272,395 9,000 - - 111,000 392,395 Due to other governments 146,865 - - - - 146,865 Deferred revenue 79,781 - - - - 79,781 Total Liabilities 726,913 9,000 132,717 317,328 121,325 1,307,283 Fund Balance: Reserved for prepaid items 6,709 - - - - 6,709 Unreserved - reported in: General Fund 582,237 - - - - 582,237 Special revenue funds - (9,000) 444,108 - 1,133,480 1,568,588 Capital projects funds - - - 2,397,510 - 2,397,510 Total Fund Balance 588,946 (9,000) 444,108 2,397,510 1,133,480 4,555,044 Total Liabilities and Fund Balance 1,315,859 $ - $ 576,825 $ 2,714,838 $ 1,254,805 $ 5,862,327 $ BALANCE LIABILITIES AND FUND ASSETS CITY OF FERNLEY GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2007 See accompanying notes. 6 ---PAGE BREAK--- Total Fund Balances - Governmental Funds 4,555,044 $ Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds: Capital assets 38,475,266 Less: Accumulated depreciation 2,911,819 35,563,447 Revenues in the statement of activities that do not provide current financial 88,378 resources are not reported as revenues in the fund. Certain liabilities are not reported in the governmental funds because they are not due and payable in the current period: Bonds payable (4,842,000) Compensated absences (94,359) (4,936,359) Total Net Assets - Governmental Activities 35,270,510 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 See accompanying notes. 7 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS REVENUES Taxes 929,276 $ 6,000 $ - $ - $ 52,780 $ 988,056 $ Licenses and permits 1,920,189 - 29,758 - - 1,949,947 Intergovernmental 248,128 - 2,025,205 - 60,000 2,333,333 Fines and forfeits 199,723 - - - 34,630 234,353 Miscellaneous 256,871 4,641 2,235 258,076 60,010 581,833 Total Revenues 3,554,187 10,641 2,057,198 258,076 207,420 6,087,522 EXPENDITURES Current: General government 1,025,295 - - - - 1,025,295 Judicial 192,468 - - - 2,050 194,518 Public works - - 515,394 - - 515,394 Culture and recreation 646,383 - - - 1,159 647,542 Community development 800,700 - - - 33,803 834,503 Health 275,905 - - - - 275,905 Total Current 2,940,751 - 515,394 - 37,012 3,493,157 Debt service: Principal 158,000 - - - - 158,000 Interest 221,032 - - - - 221,032 Total Debt Service 379,032 - - - - 379,032 Capital outlay: Public works - - 1,827,862 - - 1,827,862 Culture and recreation 6,700 - - - 157,269 163,969 Community development 16,741 - - 6,027,811 - 6,044,552 Health 61,146 - - - - 61,146 Total Capital Outlay 84,587 - 1,827,862 6,027,811 157,269 8,097,529 Total Expenditures 3,404,370 - 2,343,256 6,027,811 194,281 11,969,718 Excess (Deficiency) of Revenues over (under) Expenditures 149,817 10,641 (286,058) (5,769,735) 13,139 (5,882,196) OTHER FINANCING SOURCES (USES) Transfers out (567,317) (144,395) - - - (711,712) Transfers in - - 550,000 134,766 26,946 711,712 Proceeds from Sale of Capital Assets 61,450 - - - - 61,450 Total Other Financing Sources (Uses) (505,867) (144,395) 550,000 134,766 26,946 61,450 Net Change in Fund Balance (356,050) (133,754) 263,942 (5,634,969) 40,085 (5,820,746) FUND BALANCE, JULY 1 944,996 124,754 180,166 8,032,479 1,093,395 10,375,790 FUND BALANCE, JUNE 30 588,946 $ (9,000) $ 444,108 $ 2,397,510 $ 1,133,480 $ 4,555,044 $ CITY OF FERNLEY GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2007 See accompanying notes. 8 ---PAGE BREAK--- Net Change if Fund Balances - Governmental Funds (5,820,746) $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures and the proceeds from the sale of assets as other financing sources. However, in the statement of activities, the cost of those assets is depreciated over their useful lives and only the gain or loss is recorded when assets are sold. Expenditures for capital assets 8,085,908 $ Less: Current year depreciation 1,059,479 Sale/disposition of assets 157,305 6,869,124 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental fund statements: Donated capital assets 4,085,575 Fine and forfeitures (149,098) The issuance of long-term debt (i.e. bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. 158,000 Generally expenditures recognized in the fund financial statements are limited to only those that use current financial resources but expenses are recognized in the statement of activities when incurred: Change in long-term compensated absences payable (16,416) Change in Net Assets - Governmental Activities 5,126,439 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, FOR THE YEAR ENDED JUNE 30, 2007 EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES See accompanying notes. 9 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Ad valorem 888,000 $ 934,000 $ 929,276 $ 46,000 $ (4,724) $ Licenses and permits: Business licenses 120,000 140,000 123,382 20,000 (16,618) Franchise fees 850,000 850,000 968,650 - 118,650 Liquor licenses 27,000 32,000 27,736 5,000 (4,264) City gaming licenses 82,000 92,000 98,753 10,000 6,753 Building permits and fees 1,400,000 815,000 614,080 (585,000) (200,920) Planning and zoning permits and fees 100,000 65,000 65,528 (35,000) 528 Other permits 12,000 14,500 22,060 2,500 7,560 2,591,000 2,008,500 1,920,189 (582,500) (88,311) Intergovernmental revenues: Consolidated tax distribution 215,345 215,345 188,128 - (27,217) Fernley park agreement 60,000 60,000 60,000 - - 275,345 275,345 248,128 - (27,217) Fines and forfeits: Municipal court fines 120,000 120,000 174,971 - 54,971 Municipal court fees 18,500 20,500 24,752 2,000 4,252 138,500 140,500 199,723 2,000 59,223 Miscellaneous: Interest 65,000 65,000 40,234 - (24,766) Building rental 20,000 20,000 20,000 - - Park development 1,000 3,500 48,355 2,500 44,855 Developer agreements - 55,500 55,414 55,500 (86) Miscellaneous 25,000 35,000 92,868 10,000 57,868 111,000 179,000 256,871 68,000 77,871 Total Revenues 4,003,845 3,537,345 3,554,187 (466,500) 16,842 EXPENDITURES General government: Administration: Salaries and wages 266,500 266,500 296,960 - (30,460) Employee benefits 113,000 113,000 112,929 - 71 Services and supplies 401,400 427,950 445,916 (26,550) (17,966) Total Administration 780,900 807,450 855,805 (26,550) (48,355) BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 (Page 1 of 3) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND See accompanying notes. 10 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL Finance: Salaries and wages 91,700 $ 83,700 $ 80,529 $ 8,000 $ 3,171 $ Employee benefits 44,700 42,700 35,393 2,000 7,307 Services and supplies 46,200 56,200 53,568 (10,000) 2,632 Total Finance 182,600 182,600 169,490 - 13,110 Total General Government 963,500 990,050 1,025,295 (26,550) (35,245) Judicial: Municipal court: Salaries and wages 81,000 89,000 93,473 (8,000) (4,473) Employee benefits 32,400 40,300 27,142 (7,900) 13,158 Services and supplies 78,000 72,250 71,853 5,750 397 Total Judicial 191,400 201,550 192,468 (10,150) 9,082 Culture and Recreation: Parks: Salaries and wages 246,100 265,500 301,049 (19,400) (35,549) Employee benefits 155,800 118,000 97,844 37,800 20,156 Services and supplies 222,060 248,520 247,490 (26,460) 1,030 Capital outlay 13,000 13,000 6,700 - 6,300 Total Culture and Recreation 636,960 645,020 653,083 (8,060) (8,063) Community development: Building and planning: Salaries and wages 611,000 378,000 439,229 233,000 (61,229) Employee benefits 316,900 183,600 157,412 133,300 26,188 Services and supplies 257,400 174,900 204,059 82,500 (29,159) Capital Outlay 15,000 16,800 16,741 (1,800) 59 Total Community Development 1,200,300 753,300 817,441 447,000 (64,141) Health: Animal control: Salaries and wages 61,600 49,600 48,643 12,000 957 Employee benefits 32,800 30,100 17,084 2,700 13,016 Services and supplies 24,250 47,250 39,585 (23,000) 7,665 Capital outlay - 25,100 25,044 (25,100) 56 Total Animal Control 118,650 152,050 130,356 (33,400) 21,694 Vector control: Salaries and wages 55,800 55,800 38,380 - 17,420 Employee benefits 26,700 26,700 16,103 - 10,597 Services and supplies 93,900 126,400 116,110 (32,500) 10,290 Capital outlay 39,200 39,200 36,102 - 3,098 Total Vector Control 215,600 248,100 206,695 (32,500) 41,405 Total Health 334,250 400,150 337,051 (65,900) 63,099 CITY OF FERNLEY GENERAL FUND BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2007 (Page 2 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 11 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Residential construction tax 200,000 $ 46,000 $ 6,000 $ (154,000) $ (40,000) $ Miscellaneous: Interest 1,000 5,000 4,641 4,000 (359) Excess (Deficiency) of Revenues Over (Under) Expenditures 201,000 51,000 10,641 (150,000) (40,359) OTHER FINANCING SOURCES (USES) Transfers in (out:) Residential construction tax district #2 - 175,000 (144,395) 175,000 (319,395) Net Change in Fund Balance 201,000 226,000 (133,754) 25,000 (359,754) FUND BALANCE, July 1 21 124,754 124,754 124,733 - FUND BALANCE, June 30 201,021 $ 350,754 $ (9,000) $ 149,733 $ (359,754) $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL RESIDENTIAL CONSTRUCTION TAX DISTRICT #1 FUND See accompanying notes. 13 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL Debt service: Principal 158,000 $ 158,000 $ 158,000 $ - $ - $ Interest 220,400 220,400 221,032 - (632) Total Debt Service 378,400 378,400 379,032 - (632) Total Expenditures 3,704,810 3,368,470 3,404,370 336,340 (35,900) Excess of Revenues Over Expenditures 299,035 168,875 149,817 (130,160) (19,058) OTHER FINANCING SOURCES (USES) Contingency (155,000) (155,000) - - 155,000 Transfer out: Capital Projects Fund (250,000) (565,000) (567,317) (315,000) (2,317) Proceeds from Sale of Capital Assets - - 61,450 - 61,450 Total Other Financing Sources (Uses) (405,000) (720,000) (505,867) (315,000) 214,133 Net Change in Fund Balance (105,965) (551,125) (356,050) (445,160) 195,075 FUND BALANCE, July 1 489,161 944,996 944,996 455,835 - FUND BALANCE, June 30 383,196 $ 393,871 $ 588,946 $ 10,675 $ 195,075 $ CITY OF FERNLEY GENERAL FUND BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2007 (Page 3 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 12 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Licenses and permits: Public works fees 34,000 $ 16,000 $ 29,758 $ (18,000) $ 13,758 $ Intergovernmental revenues: Motor vehicle fuel tax 273,348 273,348 259,603 - (13,745) Regional transportation commission 1,133,000 1,800,000 1,765,602 667,000 (34,398) 1,406,348 2,073,348 2,025,205 667,000 (48,143) Miscellaneous: Interest 30,000 - 2,235 (30,000) 2,235 Total Revenues 1,470,348 2,089,348 2,057,198 619,000 (32,150) EXPENDITURES Public works: Salaries and wages 102,200 122,200 132,565 (20,000) (10,365) Employee benefits 53,245 41,595 49,825 11,650 (8,230) Services and supplies 430,100 357,100 333,004 73,000 24,096 Capital outlay 1,516,500 1,620,000 1,827,862 (103,500) (207,862) Total Expenditures 2,102,045 2,140,895 2,343,256 (38,850) (202,361) Excess (Deficiency) of Revenues Over (Under) Expenditures (631,697) (51,547) (286,058) 580,150 (234,511) OTHER FINANCING SOURCES (USES) Transfers in: General Fund 250,000 550,000 550,000 300,000 - Net Change in Fund Balance (381,697) 498,453 263,942 880,150 (234,511) FUND BALANCE, July 1 1,083,679 180,166 180,166 (903,513) - FUND BALANCE, June 30 701,982 $ 678,619 $ 444,108 $ (23,363) $ (234,511) $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL STREETS AND STORM DRAINS FUND See accompanying notes. 14 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Current assets: Cash and cash equivalents 51,260,441 $ 10,068,161 $ 1,116,349 $ 62,444,951 $ Cash - refundable deposits 284,066 310,390 - 594,456 Interest receivable 188,443 39,081 4,021 231,545 Accounts receivable, net 259,098 162,632 - 421,730 Accounts receivable, other 70,032 15,452 - 85,484 Inventories 145,144 6,317 - 151,461 Prepaid expenses 5,000 - - 5,000 Total Current Assets 52,212,224 10,602,033 1,120,370 63,934,627 Noncurrent assets: Deferred charges 340,308 40,427 - 380,735 Capital assets: Not being depreciated 38,981,622 8,194,993 102,217 47,278,832 Depreciable assets 28,458,098 22,255,446 571,478 51,285,022 67,439,720 30,450,439 673,695 98,563,854 Less: Accumulated depreciation 6,380,651 5,043,799 9,920 11,434,370 Total Capital Assets 61,059,069 25,406,640 663,775 87,129,484 Total Noncurrent Assets 61,399,377 25,447,067 663,775 87,510,219 Total Assets 113,611,601 36,049,100 1,784,145 151,444,846 Current liabilities: Accounts payable and accrued liabilities 1,548,238 1,039,023 - 2,587,261 Accrued interest 511,495 78,120 - 589,615 Refundable deposits 284,066 310,390 - 594,456 Debt due within one year 206,984 149,827 - 356,811 Total Current Liabilities 2,550,783 1,577,360 - 4,128,143 Noncurrent liabilities: Bonds payable, due after one year 45,271,526 6,190,278 - 51,461,804 Total Noncurrent Liabilities 45,271,526 6,190,278 - 51,461,804 Total Liabilities 47,822,309 7,767,638 - 55,589,947 NET ASSETS Invested in capital assets, net of related debt 15,601,213 19,087,189 663,775 35,352,177 Unrestricted 50,188,079 9,194,273 1,120,370 60,502,722 Total Net Assets 65,789,292 $ 28,281,462 $ 1,784,145 $ 95,854,899 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS See accompanying notes. 15 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS User fees 2,306,193 $ 1,754,820 $ - $ 4,061,013 $ Salaries and wages 392,176 379,598 - 771,774 Employee benefits 157,984 155,831 - 313,815 Services and supplies 1,146,095 641,523 - 1,787,618 Depreciation 836,132 540,918 (9,340) 1,367,710 Total Operating Expenses 2,532,387 1,717,870 (9,340) 4,240,917 Operating Income (Loss) (226,194) 36,950 (9,340) (179,904) Interest earned on investments 1,047,914 414,689 48,683 1,511,286 In lieu of water rights fees 307,160 - - 307,160 Miscellaneous 46,094 193 - 46,287 Interest expense (526,166) (94,713) - (620,879) Total Nonoperating Revenue (Expense) 875,002 320,169 48,683 1,243,854 Income (Loss) Before Capital Contributions 648,808 357,119 39,343 1,063,950 Customer connection fees 362,051 497,034 105,301 964,386 Developer agreements 48,562 4,410 - 52,972 Developer contributed infrastructure 1,520,734 1,546,024 252,442 3,319,200 Developer contributed water rights 14,372,138 - - 14,372,138 Total Capital Contributions 16,303,485 2,047,468 357,743 18,708,696 Change in Net Assets 16,952,293 2,404,587 397,086 19,772,646 NET ASSETS, July 1 48,836,999 25,876,875 1,387,059 76,100,933 NET ASSETS, June 30 65,789,292 $ 28,281,462 $ 1,784,145 $ 95,873,579 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS OPERATING EXPENSES See accompanying notes. 16 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Cash received from customers 2,330,586 $ 1,741,523 $ - $ 4,072,109 $ Cash paid for employees services (389,122) (376,508) - (765,630) Cash paid to vendors for services and supplies (1,305,438) (1,304,270) (120) (2,609,828) Net Cash Provided (Used) by Operating Activities 636,026 60,745 (120) 696,651 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Principal payments on debt (167,394) (122,502) - (289,896) Interest paid on debt (19,638) (34,398) - (54,036) Deferred charges (321,986) (40,427) - (362,413) In lieu of water rights fees 307,160 - - 307,160 Acquisition of capital assets (5,602,388) (5,940,945) (102,217) (11,645,550) Developer agreements 48,562 4,410 - 52,972 Connection fees 362,051 497,034 105,301 964,386 Proceeds from short-term trade accounts used to finance equipment acquisition 1,414,106 970,931 - 2,385,037 Proceeds from issuance of debt 44,918,068 5,551,671 - 50,469,739 Net Cash Provided (Used) by Capital and Related Financing Activities 40,938,541 885,774 3,084 41,827,399 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received on investments 910,903 428,923 50,689 1,390,515 Net Increase (Decrease) in Cash and Cash Equivalents 42,485,470 1,375,442 53,653 43,914,565 9,059,037 9,003,109 1,062,696 19,124,842 51,544,507 $ 10,378,551 $ 1,116,349 $ 63,039,407 $ REPRESENTED BY: Cash and cash equivalents 51,260,441 $ 10,068,161 $ 1,116,349 $ 62,444,951 $ Cash - refundable deposits 284,066 310,390 - 594,456 51,544,507 $ 10,378,551 $ 1,116,349 $ 63,039,407 $ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) (226,194) $ 36,950 $ (9,340) $ (198,584) $ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation 836,132 540,918 9,340 1,386,390 Miscellaneous Revenues 46,128 159 46,287 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable, net (32,749) (13,713) - (46,462) Accounts receivable, other 5,281 - - 5,281 Due from other funds 5,733 255 - 5,988 Inventories (4,268) (656) - (4,924) Increase (decrease) in: Accounts payable (640) (541,125) (120) (541,885) Accrued liabilities 3,054 23,090 - 26,144 Compensated absences payable 1,760 1,760 - 3,520 Refundable deposits 1,789 13,107 - 14,896 Total Adjustments 862,220 23,795 9,220 895,235 Net Cash Provided (Used) by Operating Activities 636,026 $ 60,745 $ (120) $ 696,651 $ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND CAPITAL AND RELATED FINANCING ACTIVITIES Contribution of capital assets from developers 17,306,978 $ 2,516,955 $ 252,442 $ 20,076,375 $ CASH AND CASH EQUIVALENTS, June 30 CASH FLOWS FROM OPERATING ACTIVITIES: CASH AND CASH EQUIVALENTS, July 1 CITY OF FERNLEY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS See accompanying notes. 17 ---PAGE BREAK--- AGENCY FUND Cash and cash equivalents 9,433 $ Bail bond deposits held for others 9,433 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUND JUNE 30, 2007 See accompanying notes. 18 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 19 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements of the City of Fernley, Nevada (“the City”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as applied to governmental units. The Government Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. A summary of the more significant accounting policies consistently applied in the preparation of the accompanying general purpose financial statements follows. A. Reporting Entity: The City of Fernley, Nevada was incorporated on July 1, 2001. The City operates under a Council-Manager form of government and provides the following services as authorized by law: water and sewer utilities, streets, culture and recreation, planning and zoning, animal control, and general administrative services. Prior to July 1, 2001, the entity was organized as an unincorporated town in accordance with Nevada Revised Statutes 269. The financial statements present the financial position and results of operations and changes in fund balances for those funds under the direct jurisdiction of the Mayor and City Council of the City of Fernley for which the Mayor and City Council are financially accountable. B. Government-wide and Fund Financial Statements: The government-wide financial statements report information on all of the non- fiduciary activities of the City of Fernley, Nevada. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or business-type activities are offset by program revenues. Direct expenses are those that are specifically associated with a specific function or business-type activity. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or business-type activity and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or business-type activity. Taxes and other items properly not included among program revenues are reported instead as general revenues. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 20 The fund financial statements provide information about the City’s funds, including its fiduciary funds. Separate statements for each fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation: The government-wide financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting, as are the proprietary funds and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when liabilities are incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be measurable when the amount of the transaction can be determined and available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. When revenues are due, but will not be collected within this 60 day period, the receivable is recorded and an offsetting deferred revenue account is established. Deferred revenues also arise when the government receives resources before it has legal claim to them, and thus in subsequent periods, when both revenues recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed and revenue is recognized. Expenditures generally are recorded when liabilities are incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgment are recorded only when payment is due. Property taxes, consolidated tax revenue (sales tax, cigarette taxes, business services tax, liquor taxes), gaming taxes, gasoline taxes, grants and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives cash. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 21 In accordance with GASB Statement No. 20 “Accounting and Financial Reporting for Proprietary Funds and other Governmental Entities That Use Proprietary Fund Accounting”, the City applied all applicable FASB pronouncements issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements. The City has elected not to apply FASB pronouncements issued after November 30, 1989. As a general rule, the effect of interfund activity has been eliminated from the government-side financial statements. Exceptions to this general rule are interfund services provided and used and other charges between the City’s business-type activities and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from an exchange transaction such as providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. Nonoperating revenues and nonoperating expenses result from nonexchange transactions and ancillary services. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, and then unrestricted resources as they are needed. The City reports the following major governmental funds: The General Fund is the City’s general operating fund and is used to account for all financial resources except those required to be accounted for in other funds. The Residential Construction Tax District #1 Special Revenue Fund is used to account for a tax to be used for park development in the District #1 identified in the City of Fernley park plan. The Streets and Storm Drains Special Revenue Fund is used to account for gas taxes that must be used for street maintenance and capital expenditures as well as other revenues that may be used for projects associated with streets and storm drains. The Capital Projects Fund is used to accrue funds under a “pay as you go” program to provide funding for future projects involving replacement of equipment or buildings or new facilities and equipment. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 22 The City reports the following major enterprise funds: The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for the provision of sewer services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. Additionally, the City reports the following fund types: Agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. These funds are excluded from the government-wide financial statements. D. Assets, Liabilities and Net Assets or Equity: Cash and Investments: Cash resources of the individual funds are combined to form a pool of cash and investments, which is managed by the City Treasurer. The City invests in the State of Nevada Local Government Pooled Investment Fund, which is reported at fair value. Interest income earned is distributed to the appropriate funds based on each fund’s equity in the investment. Pursuant to NRS 355 and NRS 355.170, the City of Fernley may only invest in the following types of securities: • Certain “A rated notes and bonds purchased by a registered broker-dealer that are issued by corporations organized and operating in the United States and that mature within five years from the date of purchase; asset-backed securities and collateralized mortgage obligations rated “AAA” or higher by a nationally recognized rating service. These investments must not, in the aggregate, exceed 20 percent of the total portfolio at the time of purchase, nor include notes and bonds issued by any one corporation in excess of 25 percent of such investments • United States bonds and debentures maturing within ten (10) years from the date of purchase • Certain farm loan bonds • Bills and notes of the United States Treasury, maturing within ten (10) years from the date of purchase ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 23 • Obligations of an agency of the United States or a corporation sponsored by the government, maturing within ten (10) years from the date of purchase • Obligations of state and local governments if, the interest is exempt for federal income tax purposes and the obligations have been rated or higher by a nationally recognized bond credit rating agency • Negotiable and nonnegotiable certificates of deposit from commercial banks and insured savings and loan associations • State of Nevada Local Government Pooled Investment Fund • Certain securities issued by local governments of the State of Nevada • Certain bankers’ acceptances • Certain short-term paper issued by a corporation organized and operating in the United States • Other securities expressly provided by other statutes, including repurchase agreements • Certain “AAA” rated mutual funds that invest in securities issued by the Federal Government or agencies of the Federal Government, Master, bank notes or other short-term commercial paper rates as “A-1” or “P-1” issued by a corporation or depository institution organized, licensed and operating in the United States and/or Repurchase agreements that are fully collateralized by and above. Cash Equivalents: Cash equivalents include short-term highly liquid investments (with maturities of 3 months or less when purchased) that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk in changes in value. Based on the nature of the investment policies, all amounts are available on demand and are, therefore, classified as cash equivalents on the Statements of Cash Flows. Receivables and Payables: Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds.” Any residual balances outstanding between governmental activities and business- type activities are reported in the government-wide financial statements as “internal balances.” Significant receivable balances not expected to be collected within one year are classified as notes receivable on the government-wide financial statements. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 24 Real property taxes result in a lien on the property and attach on July 1 (the levy date) of the year for which the taxes are levied. Taxes may be paid in four installments payable on the third Monday in August, and the first Mondays in October, January and March to the County Clerk/Treasurer of Lyon County in which the City of Fernley is located. Penalties are assessed if a taxpayer fails to pay an installment within ten days of the installment due date. After a two year waiting period, if taxes remain unpaid, a tax deed is issued conveying the property to Lyon County with a lien for back taxes and accumulated charges. Redemption may be made by the owner and such persons as described by statute by paying all back taxes and accumulated penalties, interest and costs before sale. As such, real property taxes receivable reflect only those taxes receivable from the delinquent roll years, and current taxes collected within 60 days of year end and delinquent taxes from all roll years prior to 2003-2004 have been written off. No provision for uncollectible accounts has been established, as management does not anticipate any material collection losses with respect to the remaining balances. Taxes on personal property are collected currently. Personal property declarations are mailed out annually and the tax is computed using percentages of taxable values established by the Department of Taxation at the tax rates described above. Receivables in proprietary fund types have arisen in the ordinary course of business, and are shown net of an allowance for uncollectible accounts, if applicable. Inventories and Prepaids: All inventories are valued at cost using the first in/first out (FIFO) method. Inventories of governmental funds in the fund financial statements are considered consumable supplies and as such are recorded as expenditures at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Restricted Assets: City policy requires that certain resources be set aside for various purposes in the City’s water and sewer utility funds. These amounts are reported as restricted assets. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 25 Capital Assets: Capital assets, which include land, construction in progress, water rights, property, plant, equipment and infrastructure, are capitalized and reported in the applicable governmental activities and business-type activities columns of the government- wide financial statements. For governmental fund types, outlays for capital assets are expensed during the current period. The City defines capital assets as assets with an initial, individual cost of more than $5,000 for non-infrastructure assets and $100,000 for infrastructure assets and an estimated useful life in excess of two years. Water rights are considered real property. A water right can be conveyed or transferred. Water rights, however, are appurtenant to the land and are conveyed by deed with the land unless the seller specifically reserves the water right in the deed. Water rights are not depreciable or amortizable. Capital assets are recorded at cost for purchased or constructed assets. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Donated capital assets are recorded at estimated fair value at the date of donation. Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 25-40 years Improvements other than buildings 10-20 years Machinery and equipment 5-10 years Other capital assets 25-40 years Infrastructure 20-40 years GASB Statement No. 34 requires the City to report and depreciate new infrastructure assets effective fiscal year June 30, 2004, the initial year of implementation. Infrastructure assets include roads, bridges, underground pipe (other then related to utilities), traffic signals, etc. These infrastructure assets are likely to be the largest asset class of the City. Neither their historical cost nor related depreciation has been reported in prior years’ financial statements. The retroactive reporting of infrastructure is subject to an extended implementation period and is first effective for fiscal years ending June 30, 2008. The City will implement the retroactive infrastructure provisions for major assets acquired between July 1, 1980 and June 30, 2003, by or before fiscal year ending June 30, 2008. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 26 Long-Term Liabilities: In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long-term liabilities are reported as liabilities in the applicable government activities, business-type activities, or proprietary fund type statement of net assets. It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. The liability for compensated absences is calculated under the provisions of GASB Statement No. 16, “Accounting for Compensated Absences.” All vacation and sick pay is accrued when incurred in the government-wide and proprietary fund statements. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. For current and advance refundings resulting in a defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is deferred and amortized as a component of interest expense using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. A liability for compensated absences is reported in the governmental funds, primarily the General Fund, only if they have matured as a result of employee resignations, terminations and retirements. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. The face amount of bonds is reported as other financing sources, as are bond premiums. Bond discounts are recorded as other financing uses. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 27 Equity Classification: In the government-wide financial statements, equity is classified as net assets and displayed in three components: • Invested in Capital Assets, Net of Related Debt – Consists of capital assets, net of accumulated depreciation and reduced by outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction or improvement of those assets. • Restricted Net Assets – Consists of net assets with constraints placed on their use either by external groups such as creditors, grantors, contributors, or laws and regulations or other governments; law through constitutional provisions or enabling legislation. • Unrestricted Net Assets – All other net assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.” In the fund financial statements, governmental fund equity is reported as fund balances and is displayed as reserved, unreserved/designated and unreserved/undesignated. Reservations of fund balance are established for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Unreserved/designated fund balance represents amounts that are designated by management for a specific purpose. NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: A. Budgetary Information: The City of Fernley adheres to the Local Government Budget and Finance Act (Act) incorporated within the statutes of the State of Nevada, in which annual budgets are legally adopted for all funds except Agency funds. The Act and City policy include the following procedures to establish the budgetary data, which is reflected in these financial statements: 1. On or before April 15, the City Manager submits to the Fernley City Council a tentative budget for the fiscal year commencing the following July 1, to be filed with the Nevada Department of Taxation. 2. Public hearings on the tentative budget are held on the third Tuesday in May to obtain taxpayer comments. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 28 3. Prior to June 1, at a public hearing, the Council indicates changes, if any, to be made to the tentative budget and adopts a final budget by the favorable vote of a majority of the members of the Council. The final budget must then be forwarded to the Nevada Tax Commission for final approval. 4. The City may not amend the budget without approval by the City Council. The City Manager is authorized to transfer appropriations between accounts within any department, with notification to the City Council. Any revisions that alter the total appropriations of a function or fund must be approved in advance by the City Council. Formal budgetary integration in the financial records of all funds is employed to enhance management control during the year. The City does not use the encumbrance method of accounting. 5. Budgets for all fund types are adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP). Appropriations lapse at year end. 6. In accordance with State statute, actual expenditures may not exceed budgeted appropriations of the various governmental functions of the General, Special Revenue, and Capital Project Funds. Per NRS 354.626, expenditures over budgeted appropriations are allowed for bond repayments, medium term obligation repayments, and other long-term contracts expressly authorized by law. The sum of operating and nonoperating expenses in Proprietary Funds also may not exceed total appropriations. The budget reflected in the financial statements has been amended from the original budget amounts in accordance with State statute. Such amendments included augmentations for prior obligations, as well as supplemental appropriations needed for grants, contingencies, and other uses. B. Excess of Expenditures/Expenses Over Appropriations: The City conformed to all significant statutory constraints on its financial administration during the year with the following possible exceptions: • Actual expenditures exceeded appropriations in the General Government function of the General Fund by $35,254. This is an apparent violation of NRS 354.626. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 29 • Actual expenditures exceeded appropriations in the Culture and Recreation function of the General Fund by $8,063. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Community Development function of the General Fund by $64,141. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Debt Service function of the General Fund by $632. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Culture and Recreation function of the Private Sector Community Support Special Revenue Fund by $4,662. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Community Development function of the Capital Projects Fund by $198,521. This is an apparent violation of NRS 354.626. • Actual operating and nonoperating expenses exceeded appropriations in the Water Utility Enterprise Fund by $69,043. This is an apparent violation of NRS 354.626. • Actual operating and nonoperating expenses exceeded appropriations in the Sewer Utility Enterprise Fund by $22,383. This is an apparent violation of NRS 354.626. • Actual operating expenses exceeded appropriations in the Non-Potable Water Enterprise Fund by $9,340. This is an apparent violation of NRS 354.626. NOTE 3 – CASH AND INVESTMENTS: A summary schedule of cash and investments for the City of Fernley at June 30, 2007 is as follows: Cash Balances Held by: Governmental Funds $ 5,398,685 Fiduciary Funds 9,433 Proprietary Funds Unrestricted 62,444,951 Restricted 594,456* Total Cash and Investments $ 68,447,525 *Restricted cash in the Proprietary Funds consists of refundable customer deposits. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 30 Balances Classified by: On hand $ 400 Wells Fargo Bank: Checking 236,994 NVEST 10,648,701 Local Government Investment Pool 57,561,430 Total Cash and Investments $ 68,447,525 As of June 30, 2007, the City of Fernley had the following investments and maturities: Investment Maturities (in Years) Investment Type Fair Value Less Than 1 1-5 6-10 More Than 10 U.S. Treasuries $ 890,156 $ 890,156 $ - $ - $ - U.S. Agencies 3,263,859 - 3,263,859 - - Mortgage-Backed 1,902,339 - 1,316,192 586,147 Corporate Bonds 3,808,387 710,446 3,097,941 - - Money Market Fund 783,960 383,335 400,625 - - State of Nevada Local Government Investment Pool 57,561,430 57,561,430* - - - Total $68,210,131 $59,545,367 $8,078,617 $586,147 $ - * represents average weighted maturity The City is a voluntary participant in the State of Nevada Local Government Investment Pool (LGIP), which has regulatory oversight from the Board of Finance of the State of Nevada. The City’s investment in the LGIP is equal to its original investment plus allocation of interest income, and realized and unrealized gains and losses, which is the same as the value of the pool shares. The City’s investment in the LGIP is reported at fair value. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 31 Nevada Revised Statutes (NRS 355.170) set forth acceptable investments for Nevada local governments. The City has not adopted a formal investment policy that would further limit its investment choices nor further limit its exposure to certain risks as set forth below. Interest Rate Risk. Interest rate risk is the risk of possible reduction in the value of a security, especially a bond, resulting from a rise in interest rates. As noted above, the City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates beyond those specified in the statute. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation and is a function of the credit quality ratings of its investments. As of June 30, 2007, the City’s investments in Mortgage-Backed securities were rated AAA by Standard and Poor’s and Aaa by Moody’s Investors Service. Of the City’s investments in corporate bonds, $2,283,823 was rated AAA/Aaa, $1,133,276 was rated AA/Aa, and $391,288 was rated A. The State of Nevada Local Government Investment Pool is an unrated external investment pool. As noted above, the City does not have a formal investment policy that specifies minimum acceptable credit ratings. Custodial Credit Risk- Deposits. Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned. All of the bank balance was covered by FDIC insurance or collateralized by the Office of the State Treasurer/ Nevada Collateral Pool. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 32 NOTE 4 – CAPITAL ASSETS: Capital asset activity for the year ended June 30, 2007 was as follows: Balance July 1, 2006 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2007 Governmental Activities: Capital assets, not being depreciated Land $ 3,789,274 $ 120,350 $ - $ - $ 3,909,624 Construction in progress 730,876 7,806,745 - (2,068,307) 6,469,314 Total capital assets, not being depreciated 4,520,150 7,927,095 - (2,068,307) 10,378,938 Capital assets, being depreciated Buildings 1,395,144 - (168,983) - 1,226,161 Improvements other than buildings 4,135,320 2,056,488 - - 6,191,808 Machinery and Equipment 709,769 170,632 (11,313) - 869,088 Infrastructure 15,723,696 4,085,575 - - 19,809,271 Total capital assets, being depreciated 21,963,929 6,312,695 (180,296) - 28,096,328 Less accumulated depreciation for: Buildings (512,496) (55,883) 18,268 - (550,111) Improvements other than buildings (196,685) (236,274) - - (432,959) Machinery and Equipment (300,608) (149,817) 4,723 - (445,702) Infrastructure (865,542) (617,505) - - (1,483,047) Total accumulated depreciation (1,875,331) (1,059,479) 22,991 - (2,911,819) Total capital assets, being depreciated, net 20,088,598 5,253,216 (157,305) - 25,184,509 Governmental activities capital assets, net $ 24,608,748 $ 13,180,311 $ (157,305) $ (2,068,307) $ 35,563,447 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 33 Balance July 1, 2006 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2007 Business-Type Activities: Capital assets, not being depreciated Land $ 268,810 $ 408,867 $ - $ - $ 677,677 Water rights 18,798,981 14,479,855 - - 33,278,836 Construction in progress 3,281,172 11,034,780 (16,035) (977,598) 13,322,319 Total capital assets, not being depreciated 22,348,963 25,923,502 (16,035) (977,598) 47,278,832 Capital assets, being depreciated Buildings 17,530 - - - 17,530 Improvements other than buildings 44,390,965 4,131,092 - - 48,522,057 Machinery and Equipment 813,944 259,861 - - 1,073,805 Other capital assets 1,655,564 16,066 - - 1,671,630 Total capital assets, being depreciated 46,878,003 4,407,019 - - 51,285,022 Less accumulated depreciation for: Buildings (12,869) (999) - - (13,868) Improvements other than buildings (8,890,878) (1,264,721) - - (10,155,599) Machinery and Equipment (746,557) (40,014) - - (786,571) Other capital assets (397,676) (80,656) - - (478,332) Total accumulated depreciation (10,047,980) (1,386,390) - - (11,434,370) Total capital assets, being depreciated, net 36,830,023 3,020,629 - - 39,850,652 Business-type activities capital assets, net $ 59,178,986 $ 28,944,131 $ (16,035) $ (977,598) $ 87,129,484 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 34 Depreciation expense was charged to functions/programs of the City as follows: Governmental Activities: General government $ 50,886 Public works 797,860 Culture and recreation 158,373 Health 15,131 Community development 37,229 Total depreciation expense – governmental activities $ 1,059,479 Business-type Activities: Water $ 836,132 Sewer 540,918 Non Potable 9,340 Total depreciation expense – business-type activities $ 1,386,390 NOTE 5 – DEFINED BENEFIT PENSION PLAN: Plan Description. The City of Fernley contributes to the Public Employees Retirement System of the State of Nevada (PERS), a cost sharing, multiple employer, defined benefit plan administered by the Public Employees Retirement System of the State of Nevada. PERS provides retirement benefits, disability benefits, and death benefits, including annual cost of living adjustments, to plan members and their beneficiaries. Chapter 286 of the Nevada Revised Statutes establishes the benefit provisions provided to the participants of PERS. These benefit provisions may only be amended through legislation. The Public Employees Retirement System of the State of Nevada issues a publicly available financial report that includes financial statements and required supplementary information for PERS. That report may be obtained by writing to the Public Employees Retirement System of the State of Nevada, 693 West Nye Lane, Carson City, NV 89703-1599 or by calling (775) 687-4200. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 35 Funding Policy. Benefits for plan members are funded under one of two methods; the employer (ER) pay contribution plan or the employer/employee (ER/EE) paid contribution plan. Under the ER contribution plan, the City is required to contribute all amounts due under the plan. Under the ER/EE contribution plan, employees are required to contribute a percentage of their compensation to the plan, while the City is required to match that contribution. The contribution requirements of the City are established by Chapter 286 of Nevada Revised Statutes. The funding mechanism may only be amended through legislation. The City's contribution rates and amounts contributed (equal to the required contributions for the year) for the last three years are as follows: Fiscal Year Contribution Rate ER Contribution Rate ER/EE Total Contribution 2006-07 20.50% 10.50% $203,027 2005-06 19.75% 10.50% $194,978 2004-05 20.25% 10.50% $271,684 NOTE 6 – INTERFUND TRANSFERS: The composition of interfund transfers as of June 30, 2007, is as follows: Transfer In: Transfer Out: Capital Projects Fund Streets and Storm Drains Fund Other Governmental Funds Total General Fund $ - $ 550,000 $ 17,317 $ 567,317 Residential Const. Tax District # 1 Fund 134,766 - 9,629 144,395 Total $ 134,766 $ 550,000 $ 26,946 $ 711,712 Transfers were used to move fund revenues to finance capital projects in the current year. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 36 NOTE 7 – LONG TERM DEBT: A. The City was, in accordance with Nevada Revised Statutes, within the legal debt limit at June 30, 2007. B. The bonded following schedule summarizes the changes in long-term debt: Issue Date Interest Rate Maturity Date Authorized and Issued Outstanding July 1, 2006 Additions (Deletions) Outstanding June 30, 2007 Due in 2007-2008 Governmental Activities: Compensated absences payable - - - - $ 77,944 $ 35,259 $ (18,844) $ 94,359 $ 19,000 City Hall Expansion Bonds 12/29/05 4.49% 12/01/2025 $ 5,000,000 5,000,000 - (158,000) 4,842,000 165,000 Total governmental activities 5,077,944 35,259 (176,844) 4,936,359 184,000 Business-type Activities: State Water Pollution Control Revolving Fund 10/28/92 4.00% 6/30/2012 $ 2,000,000 890,282 - (122,502) 767,780 127,451 2003 Refunding Bonds 11/25/03 3% - 5% 5/01/2010 $ 950,000 670,000 - (155,000) 515,000 160,000 2007 Water/Sewer Bonds 3/28/07 4% - 5% 2/1/2037 $50,000,000 - 50,000,000 - 50,000,000 - 1,560,282 50,000,000 (277,502) 51,282,780 287,451 Unamortized Bond Premium 37,181 469,739 (12,393) 494,527 28,052 Compensated Absences payable 37,789 78,479 (74,960) 41,308 41,308 Total business-type activities 1,635,252 50,548,218 (364,855) 51,818,615 356,811 Total Long Term Debt $ 6,713,196 $50,583,477 $ (541,699) $ 56,754,974 $ 540,811 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 37 The following schedule reflects debt service requirements to maturity of the City's long-term debt: Debt Supported by General Obligation Debt Supported by Sewer Fund Revenues Debt Supported by Water Fund Revenues Total Requirements to Maturity Fiscal Year Principal Interest Principal Interest Principal* Interest* Principal Interest 2008 $ 165,000 $ 213,702 $ 127,451 $ 235,053 $ 160,000 $ 1,681,577 $ 452,451 $ 2,130,332 2009 173,000 206,113 222,800 268,583 899,800 1,986,268 1,295,600 2,460,964 2010 181,000 198,166 232,557 259,392 950,400 1,948,226 1,363,957 2,405,784 2011 189,000 189,860 241,981 249,917 796,550 1,913,878 1,227,531 2,353,655 2012 198,000 181,172 252,729 240,180 836,600 1,882,016 1,287,329 2,303,368 2013- 2017 1,132,000 761,055 672,562 1,097,311 4,819,350 8,865,802 6,623,912 10,724,168 2018- 2022 1,417,000 476,097 760,650 938,094 6,154,350 7,590,031 8,332,000 9,004,222 2023- 2027 1,387,000 127,987 970,200 738,026 7,849,800 5,971,305 10,207,000 6,837,318 2028- 2032 - - 1,235,850 505,562 9,999,150 4,090,457 11,235,000 4,596,019 2033- 2037 - - 1,551,000 203,713 12,549,000 1,648,224 14,100,000 1,851,937 Total $ 4,842,000 $ 2,354,152 $ 6,267,780 $ 4,735,831 $ 45,015,000 $ 37,577,784 $ 56,124,780 $ 44,667,767 * Exclusive of unamortized premium and issuance costs. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 38 The liability for compensated absences is included in noncurrent liabilities on the government- wide Statement of Net Assets. The liability will be liquidated primarily by the General Fund for governmental activities and the Water and Sewer Funds for business-type activities. NOTE 8 – RISK MANAGEMENT: The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Pool Insurance (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years. NOTE 9 – COMMITMENTS AND CONTINGENGIES: There are lawsuits and unresolved disputes involving the city or its employees in which the City is represented by outside counsel. However, in the opinion of the outside counsel, these actions will not, in aggregate, have a material adverse effect upon the operations or financial position of the City. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 39 The City has entered into a construction contract for $6,719,910 to build an expansion of the City Hall. At June 30, 2007, $6,263,421 has been billed by the contractor related to the original contract. The project is expected to be completed by August 2007. NOTE 10 – SUBSEQUENT EVENTS: In July 2007, the City began the process to authorize up to $50 million of General Obligation Water and Sewer Bonds for the purpose of providing infrastructure for the City’s water and sewer system. The Lyon County Debt Management Commission approved the authorization process in August 2007. A public hearing on the bond issue was held in November 2007. The City anticipates that the bond authorization process, including a required 90 day petition period, will be completed on January 3, 2008. The City intends to issue bonds in all or part of the authorized amount between February and April 2008. Effective July 1, 2007 new water and sewer rates will go into effect, primarily due to the increasing debt service demands. On average, the water rate increase is approximately 50%, and the sewer rates are 2.5%. These amounts are consistent with the rate study completed during fiscal year 2007, which suggested the rates increase 200% over the next five years. ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES ---PAGE BREAK--- MUNICIPAL RESIDENTIAL PRIVATE MUNICIPAL COURT COURT CONSTRUCTION SECTOR ADMINISTRATIVE FACILITIES TAX DISTRICT GRANTS COMMUNITY FEES FUND FEES FUND #2 FUND FUND SUPPORT FUND TOTAL Cash and investments 3,907 $ - $ 693,311 $ 545,589 $ 285 $ 1,243,092 $ Interest receivable 174 - 1,980 1,971 - 4,125 Accounts receivable 3,171 4,417 - - - 7,588 Total Assets 7,252 $ 4,417 $ 695,291 $ 547,560 $ 285 $ 1,254,805 $ Liabilities: Accounts payable 924 $ - $ 8,490 $ - $ 911 $ 10,325 $ Due to developers - - 111,000 - - 111,000 Total Liabilities 924 - 119,490 - 911 121,325 Fund Balance: Designated for subsequent year's expenditures 6,328 - 575,801 - - 582,129 Undesignated - 4,417 - 547,560 (626) 551,351 Total Fund Balance 6,328 4,417 575,801 547,560 (626) 1,133,480 Total Liabilities and Fund Balance 7,252 $ 4,417 $ 695,291 $ 547,560 $ 285 $ 1,254,805 $ ASSETS LIABILITIES AND FUND BALANCE CITY OF FERNLEY NONMAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET JUNE 30, 2007 40 ---PAGE BREAK--- MUNICIPAL RESIDENTIAL PRIVATE MUNICIPAL COURT COURT CONSTRUCTION SECTOR ADMINISTRATIVE FACILITIES TAX DISTRICT GRANTS COMMUNITY FEES FUND FEES FUND #2 FUND FUND SUPPORT FUND TOTAL REVENUES Taxes: Residential construction tax - $ - $ 52,780 $ - $ - $ 52,780 $ Intergovernmental Grant - - 60,000 - - 60,000 Fines and forfeits: Municipal administrative fees 13,810 20,820 - - - 34,630 Miscellaneous: Interest earnings 1,943 3,345 24,846 25,939 42 56,115 Other - - - - 3,895 3,895 Total Revenues 15,753 24,165 137,626 25,939 3,937 207,420 EXPENDITURES Services and supplies: Judicial 2,050 - - - - 2,050 Culture and recreation - - 1,159 - - 1,159 Community development - - - 1,141 32,662 33,803 Total Services and supplies 2,050 - 1,159 1,141 32,662 37,012 Capital outlay: Culture and recreation - - 157,269 - - 157,269 Total Expenditures 2,050 - 158,428 1,141 32,662 194,281 Excess (Deficiency) of Revenues over (under) Expenditures 13,703 24,165 (20,802) 24,798 (28,725) 13,139 OTHER FINANCING SOURCES (USES) Transfers in (out) (45,000) (89,766) 144,395 - 17,317 26,946 Net Change in Fund Balance (31,297) (65,601) 123,593 24,798 (11,408) 40,085 FUND BALANCE, JULY 1 37,625 70,018 452,208 522,762 10,782 1,093,395 FUND BALANCE, JUNE 30 6,328 $ 4,417 $ 575,801 $ 547,560 $ (626) $ 1,133,480 $ CITY OF FERNLEY NONMAJOR SPECIAL REVENUE FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2007 41 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Fines and forfeits: Municipal administrative fees 15,000 $ 13,810 $ (1,190) $ Miscellaneous: Interest earnings 1,500 1,943 443 Total Revenues 16,500 15,753 (747) EXPENDITURES Judicial Services and supplies 5,000 2,050 2,950 Excess (Deficiency) of Revenue Over Expenditures 11,500 13,703 2,203 OTHER FINANCING SOURCES (USES) Transfers out (45,000) (45,000) - Net Change in Fund Balance (33,500) (31,297) 2,203 FUND BALANCE, July 1 37,625 37,625 - FUND BALANCE, June 30 4,125 $ 6,328 $ 2,203 $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL MUNICIPAL COURT ADMINISTRATIVE FEES FUND 42 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Fines and forfeits: Municipal administrative fees 21,000 $ 20,820 $ (180) $ Miscellaneous: Interest earnings 2,500 3,345 845 Total Revenues 23,500 24,165 665 OTHER FINANCING SOURCES (USES) Transfers out (90,000) (89,766) 234 Net Change in Fund Balance (66,500) (65,601) 899 FUND BALANCE, July 1 70,018 70,018 - FUND BALANCE, June 30 3,518 $ 4,417 $ 899 $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL MUNICIPAL COURT FACILITY FEES FUND 43 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Taxes: Residential construction tax 130,000 $ 52,780 $ (77,220) $ Intergovernmental: Grant 60,000 60,000 - Miscellaneous: Interest earnings 23,000 24,846 1,846 Total Revenues 213,000 137,626 (75,374) EXPENDITURES Culture and recreation: Services and supplies - 1,159 (1,159) Capital outlay 170,000 157,269 12,731 Total Expenditures 170,000 158,428 11,572 Excess (Deficiency) of Revenue Over Expenditures 43,000 (20,802) (86,946) OTHER FINANCING SOURCES Transfers in 175,000 144,395 (30,605) Net Change in Fund Balance 218,000 123,593 (117,551) FUND BALANCE, July 1 452,208 452,208 - FUND BALANCE, June 30 670,208 $ 575,801 $ (117,551) $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL RESIDENTIAL CONSTRUCTION TAX DISTRICT #2 FUND 44 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Miscellaneous: Interest earnings 20,200 $ 25,939 $ 5,739 $ EXPENDITURES Community Development: Services and supplies 5,000 1,141 3,859 Excess (Deficiency) of Revenues Over Expenditures 15,200 24,798 9,598 FUND BALANCE, July 1 522,762 522,762 - FUND BALANCE, June 30 537,962 $ 547,560 $ 9,598 $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL GRANTS FUND 45 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Miscellaneous: Interest earnings - $ 42 $ 42 $ Other 3,000 3,895 895 Total Revenues 3,000 3,937 937 EXPENDITURES Culture and Recreation: Capital outlay 28,000 32,662 (4,662) Excess (Deficiency) of Revenues Over Expenditures (25,000) (28,725) (3,725) OTHER FINANCING SOURCES Transfers in: 15,000 17,317 2,317 Net Change in Fund Balance (10,000) (11,408) (1,408) FUND BALANCE, July 1 10,782 10,782 - FUND BALANCE, June 30 782 $ (626) $ (1,408) $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY PRIVATE SECTOR COMMUNITY SUPPORT FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL 46 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Miscellaneous: Interest earnings 300,000 $ 258,076 $ (41,924) $ EXPENDITURES Community development: Capital outlay 5,800,000 6,027,811 (227,811) Excess (Deficiency) of Revenues Over Expenditures (5,500,000) (5,769,735) (269,735) OTHER FINANCING SOURCES Transfers in: General Fund 135,000 134,766 (234) Net Change in Fund Balance (5,365,000) (5,634,969) (269,969) FUND BALANCE, July 1 8,032,479 8,032,479 - FUND BALANCE, June 30 2,667,479 $ 2,397,510 $ (269,969) $ FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL CAPITAL PROJECTS FUND 47 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE User fees 2,540,000 $ 2,306,193 $ (233,807) $ Salaries and wages 392,000 392,176 (176) Employee benefits 187,100 157,984 29,116 Services and supplies 1,125,400 1,146,095 (20,695) Depreciation 750,000 836,132 (86,132) Total Operating Expenses 2,454,500 2,532,387 (77,887) Operating Income (Loss) 85,500 (226,194) (311,694) Interest earned on investments 860,000 1,047,914 187,914 In lieu of water rights fees 350,000 307,160 (42,840) Miscellaneous 35,000 46,094 11,094 Interest expense (535,000) (526,166) 8,834 Total Nonoperating Revenue (Expense) 710,000 875,002 165,002 Income (Loss) Before Capital Contributions 795,500 648,808 (146,692) Customer connection fees 750,000 362,051 (387,949) Developer agreements 50,000 48,562 (1,438) Developer contributed infrastructure 5,000,000 1,520,734 (3,479,266) Developer contributed water rights 10,000,000 14,372,138 4,372,138 Total Capital Contributions 15,800,000 16,303,485 503,485 Change in Net Assets 16,595,500 16,952,293 356,793 NET ASSETS, July 1 48,836,999 48,836,999 - NET ASSETS, June 30 65,432,499 $ 65,789,292 $ 356,793 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL WATER UTILITY FUND FOR THE YEAR ENDED JUNE 30, 2007 OPERATING EXPENSES 48 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE User fees 1,660,500 $ 1,754,820 $ 94,320 $ Salaries and wages 394,900 379,598 15,302 Employee benefits 139,100 155,831 (16,731) Services and supplies 575,200 641,525 (66,325) Depreciation 580,000 540,916 39,084 Total Operating Expenses 1,689,200 1,717,870 (28,670) Operating Income (Loss) (28,700) 36,950 65,650 Interest earned on investments 410,000 414,689 4,689 Miscellaneous 1,000 193 (807) Interest expense (101,000) (94,713) 6,287 Total Nonoperating Revenue (Expense) 310,000 320,169 10,169 Income (Loss) Before Capital Contributions 281,300 357,119 75,819 Customer connection fees 924,000 497,034 (426,966) Developer agreements 97,000 4,410 (92,590) Developer contributed infrastructure 5,095,000 1,546,024 (3,548,976) Total Capital Contributions 6,116,000 2,047,468 (4,068,532) Change in Net Assets 6,397,300 2,404,587 (3,992,713) NET ASSETS, July 1 25,876,875 25,876,875 - NET ASSETS, June 30 32,274,175 $ 28,281,462 $ (3,992,713) $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL SEWER UTILITY FUND FOR THE YEAR ENDED JUNE 30, 2007 OPERATING EXPENSES 49 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE OPERATING EXPENSES Depreciation - $ (9,340) $ (9,340) $ Operating Income (Loss) - (9,340) (9,340) Interest earned on investments 40,000 48,683 8,683 Customer connection fees 130,000 105,301 (24,699) Developer contributed infastracture 300,000 252,442 (47,558) Total Capital Contributions 430,000 357,743 (72,257) Change in Net Assets 470,000 397,086 (72,914) NET ASSETS, July 1 1,387,059 1,387,059 (72,914) NET ASSETS, June 30 1,857,059 $ 1,784,145 $ (72,914) $ CAPITAL CONTRIBUTIONS NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY NON-POTABLE WATER ENTERPRISE FUND SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2007 50 ---PAGE BREAK--- BALANCE BALANCE JULY 1, 2006 ADDITIONS DELETIONS JUNE 30, 2007 Cash and cash equivalents 9,014 $ 65,926 $ 65,507 $ 9,433 $ Bail bond deposits held for others 9,014 $ 65,926 $ 65,507 $ 9,433 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND - MUNICIPAL TRUST FUND FOR THE YEAR ENDED JUNE 30, 2007 51 ---PAGE BREAK--- STATISTICAL SECTION ---PAGE BREAK--- This part of the City of Fernley'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 City's overall financial health. Section Contents Schedule # Financial Trends 1 - 4 These schedules contain trend information to help the reader understand how the City's financial performance and well being have changed over time. Revenue Capacity 5 - 9 These schedules contain information to help the reader assess the factors affecting the City's ability to generate its property and sales taxes. Debt Capacity 10 - 14 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt, and its ability to issue additional future debt. Demographic and Economic Information 15 - 16 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place and to help make comparisons over time and with other governments. Operating Information 17 - 19 These schedules contain information about the City's operations and resources to help the reader understand how the City's financial information relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from comprehensive annual financial reports for the relevant year. The city implemented GASB 34 in 2003, and schedules presenting government-wide information include information beginning in that year. CITY OF FERNLEY, NEVADA STATISTICAL SECTION ---PAGE BREAK--- SCHEDULE 1 2004 2005 2006 2007 GOVERNMENTAL ACTIVITIES Invested in capital assets, net of related debt $ 11,913,896 $ 15,883,001 $ 24,608,748 $ 30,721,447 Restricted - - - - Unrestricted 3,927,329 5,884,904 5,535,323 4,549,063 Total Governmental Activities Net Assets $ 15,841,225 $ 21,767,905 $ 30,144,071 $ 35,270,510 BUSINESS-TYPE ACTIVITIES Invested in capital assets, net of related debt $ 32,471,737 $ 39,238,863 $ 57,581,522 $ 35,352,177 Restricted - 535,237 579,560 - Unrestricted 12,780,664 16,901,342 17,939,851 60,502,722 Total Business-type Activities Net Assets $ 45,252,401 $ 56,675,442 $ 76,100,933 $ 95,854,899 PRIMARY GOVERNMENT Invested in capital assets, net of related debt $ 44,385,633 $ 55,121,864 $ 82,190,270 $ 66,073,624 Restricted - 535,237 579,560 - Unrestricted 16,707,993 22,786,246 23,475,174 65,051,785 Total Primary Government Net Assets $ 61,093,626 $ 78,443,347 $ 106,245,004 $ 131,125,409 Trend data is only available for the last four years due to implementation of GASB 34. CITY OF FERNLEY, NEVADA NET ASSETS BY COMPONENT LAST FOUR FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 52 ---PAGE BREAK--- SCHEDULE 2 2004 2005 2006 2007 EXPENSES Governmental Activities: General government $ 587,873 $ 595,912 $ 796,403 $ 1,173,360 Judicial 156,796 173,804 170,479 194,353 Public works 463,188 642,480 954,419 1,547,750 Culture and recreation 362,983 458,828 646,259 838,674 Community development 434,627 861,555 875,056 848,010 Health 50,560 102,768 263,919 295,413 Total Governmental Activities Expenses 2,056,027 2,835,347 3,706,535 4,897,560 Business-type Activities: Water 2,035,646 2,134,429 2,422,583 3,058,553 Sewer 1,347,388 1,509,433 1,530,898 1,812,583 Other - - 700 9,340 Total Business-type Activities Expenses 3,383,034 3,643,862 3,954,181 4,880,476 Total Primary Government Expenses $ 5,439,061 $ 6,479,209 $ 7,660,716 $ 9,778,036 PROGRAM REVENUES Governmental Activities: Charges for Services: General government $ 731,510 $ 887,827 $ 1,008,662 $ 1,137,510 Judicial 170,835 423,178 196,249 89,248 Public works 10,901 31,278 40,071 29,754 Culture and recreation 16,950 13,400 8,150 48,355 Community development 1,422,438 1,804,978 1,123,508 679,608 Health 1,766 1,611 2,341 4,318 Operating Grants and Contributions 276,701 268,632 348,627 60,000 Capital Grants and Contributions 8,112,137 4,232,398 7,531,080 6,052,749 Total Governmental Activities Program Revenues 10,743,238 7,663,302 10,258,688 8,101,542 Business-type Activities: Charges for Services: Water 1,794,430 1,975,451 2,201,916 2,306,193 Sewer 1,187,212 1,441,455 1,686,101 1,754,820 Other - 131,300 - - Capital Grants and Contributions: 10,829,870 11,157,733 18,729,430 19,015,856 Total Business-type Activities Program Revenues 13,811,512 14,705,939 22,617,447 23,076,869 Total Primary Government Program Revenue $ 24,554,750 $ 22,369,241 $ 32,876,135 $ 31,178,411 NET (EXPENSE)/REVENUE Governmental Activities $ 8,687,211 $ 4,827,956 $ 6,552,153 $ 3,203,982 Business-type Activities 10,428,478 11,062,077 18,663,266 18,196,393 Total Primary Government Net (Expense)/Revenue $ 19,115,689 $ 15,890,033 $ 25,215,419 $ 21,400,375 CITY OF FERNLEY, NEVADA CHANGE IN NET ASSETS LAST FOUR FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 53 ---PAGE BREAK--- SCHEDULE 2 GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities: Taxes: Property $ 427,738 $ 496,207 $ 591,082 $ 925,297 Consolidated 137,610 163,429 189,158 188,128 Fuel 216,736 233,448 227,691 259,603 Gaming licenses 75,015 71,271 97,121 98,753 Unrestriced interest income 22,441 97,729 329,341 361,301 Miscellaneous revenue 35,660 36,640 389,619 89,378 Total Governemental Activities 915,200 1,098,724 1,824,012 1,922,460 Business-type Activities: Unrestricted interest income 86,972 295,730 702,781 1,511,286 Miscellaneous revenue 37,142 65,234 59,441 46,287 Total Business-type Activities 124,114 360,964 762,222 1,557,573 Total Primary Government General Revenues $ 1,039,314 $ 1,459,688 $ 2,586,234 $ 3,480,033 CHANGE IN NET ASSETS Governmental activities $ 9,602,411 $ 5,926,680 $ 8,376,165 $ 5,126,439 Business-type activities 10,552,592 11,423,041 19,425,488 19,753,966 Total Primary Government Change in Net Assets $ 20,155,003 $ 17,349,721 $ 27,801,653 $ 24,880,405 Trend data is only available for the last four years due to implementation of GASB 34. 54 CONTINUED CITY OF FERNLEY, NEVADA CHANGE IN NET ASSETS LAST FOUR FISCAL YEARS ---PAGE BREAK--- SCHEDULE 3 2004 2005 2006 2007 General fund Reserved $ 1,330 $ 5,205 $ 6,239 $ 6,709 Unreserved 790,990 869,817 938,757 582,237 Total general fund $ 792,320 $ 875,022 $ 944,996 $ 588,946 All other governmental funds Unreserved, reported in: Residential construction tax district #1 fund $ 4,091 $ 178,421 $ 124,754 $ -9,000 Streets and storm drains fund 858,436 1,224,841 180,166 444,108 Capital projects fund 1,499,182 2,502,129 8,032,479 2,397,510 Other governmental funds 825,599 899,710 1,093,395 1,133,480 Total all other govenmental funds $ 3,187,308 $ 4,805,101 $ 9,430,794 $ 3,966,098 Trend data is only available for the last four years due to implementation of GASB 34. CITY OF FERNLEY, NEVADA FUND BALANCES OF GOVERNMENTAL FUNDS FISCAL YEAR ENDED JUNE 30, LAST FOUR FISCAL YEARS 55 ---PAGE BREAK--- SCHEDULE 4 2004 2005 2006 2007 REVENUES Taxes $ 1,190,598 $ 1,316,826 $ 1,787,949 $ 988,056 Licenses and permits 2,241,629 2,796,965 2,271,703 1,949,947 Intergovernmental 1,415,460 1,354,521 1,231,732 2,333,333 Fines and forfeits 170,836 175,167 228,424 234,353 Miscellaneous 199,081 192,613 794,352 581,833 Total revenues 5,217,604 5,836,092 6,314,160 6,087,522 EXPENDITURES General government 528,906 595,297 717,355 1,025,295 Judicial 154,514 171,868 169,163 194,518 Public works 331,318 420,500 376,571 515,394 Culture and recreation 324,629 381,962 508,797 647,542 Community development 405,298 669,105 810,965 834,503 Health 48,395 96,876 256,738 275,905 Debt service: Principal - - - 158,000 Interest - - 94,789 221,032 Capital outlay 1,499,163 1,799,989 3,684,115 8,097,529 Total expenditures 3,292,223 4,135,597 6,618,493 11,969,718 Excess (deficiency) of revenues over expenditures 1,925,381 1,700,495 (304,333) (5,882,196) OTHER FINANCING SOURCES (USES) Transfers out (1,931,030) (1,690,000) (1,050,000) (711,712) Transfers in 1,931,030 1,690,000 1,050,000 711,712 General obligations bonds issued - - 5,000,000 - Sale of capital assets 4,277 - - 61,450 Total other financing sources (uses) 4,277 - 5,000,000 61,450 Net change in fund balance $ 1,929,658 $ 1,700,495 $ 4,695,667 $ (5,820,746) Debt service as a percentage of noncapital expenditures 0.0% 0.0% 3.3% 10.9% Trend data is only available for the last four years due to implementation of GASB 34. CITY OF FERNLEY, NEVADA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST FOUR FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 56 ---PAGE BREAK--- SCHEDULE 5 Ratio of Total Total Assessed To Total Estimated Estimated Fiscal Assessed Actual Actual Year Value Value Value 2002* 233,552,164 667,291,897 35.0 2003 246,640,476 704,687,074 35.0 2004 279,452,986 798,437,103 35.0 2005 303,180,006 866,228,589 35.0 2006 377,743,200 1,079,266,286 35.0 2007 511,154,623 1,460,441,780 35.0 Source: State of NV Department of Taxation's "Local Government Finance Redbook" *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST SIX FISCAL YEARS* 57 ---PAGE BREAK--- SCHEDULE 6 CITY OF FERNLEY, NEVADA PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $100 OF ASSESSED VALUE) Fiscal City of State of School Special Year Fernley Nevada District County Districts Total 2002* 0.1528 0.1500 1.3367 0.7577 0.3431 2.7403 2003 0.1528 0.1500 1.3367 0.7839 0.3544 2.7778 2004 0.1528 0.1700 1.3367 0.8350 0.3627 2.8572 2005 0.1528 0.1700 1.3367 0.8644 0.3726 2.8965 2006 0.1528 0.1700 1.3367 0.8644 0.3736 2.8975 2007 0.3481 0.1700 1.3367 0.8644 0.0274 2.7466 Source: State of NV Department of Taxation's "Local Government Finance Redbook" *Information presented from City incorporation on July 1, 2001 forward LAST SIX FISCAL YEARS* 58 ---PAGE BREAK--- SCHEDULE 7 CITY OF FERNLEY, NEVADA PRINCIPAL PROPERTY OWNERS* June 30, 2007 Taxable Approximate Estimated Taxable Percentage of Appraised Assessed Taxable Assessed Taxpayer Product/Service Value Value Valuation Amazon.com Electronic Shopping $ 45,692,423 $ 15,992,348 3.129% BMO Leasing US, Inc. (Quebecor) Printing 40,514,734 14,180,157 2.774% TREX Company Wood Product Manufacturer 23,210,054 8,123,519 1.589% Nevada Cement Company Cement Manufacturer 22,698,257 7,944,390 1.554% MSC Industrial Direct Co. Inc. Machinery Merchant Wholesale 18,821,794 6,587,628 1.289% Reynen & Bardis Paint Manufacturer 17,706,454 6,197,259 1.212% Sonterra Development Co. Inc. Electronic Manufacturer 12,088,514 4,230,980 0.828% Sherwin-Williams Acceptance Corp Product Manufacturer 11,306,243 3,957,185 0.774% John Manville International Inc. Motor Vehicle Body Manufacturer 10,766,266 3,768,193 0.737% Paramount-Nevada Asphalt Co. LLC Siding/Roofing Manufacturer 5,619,943 1,966,980 0.385% Totals Asphalt $ 208,424,683 $ 72,948,639 14.270% Source: Lyon County Assessor's Office Note: Estimated appraised value is based on assessed value at 35% of appraised value *Nine year period not available as date of incorporation is July 1, 2001 59 ---PAGE BREAK--- SCHEDULE 8 2002 2003 2004 2005 2006 2007 WATER UTILITY Number of Customers 3,309 3,966 4,980 6,083 6,634 6,816 Annual Average Day Demand per customer 750 750 750 750 750 750 Gallons of water used (in thousands) 905,839 1,085,693 1,363,275 1,665,221 1,816,058 1,865,880 Direct rater per 1000 gallons $ 0.95 $ 0.95 $ 0.95 $ 0.95 $ 0.95 $ 0.95 Source: City of Fernley *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA WATER USER FEES FISCAL YEAR ENDED JUNE 30, LAST SIX FISCAL YEARS* 60 ---PAGE BREAK--- SCHEDULE 9 User User Employer Fees Rank Fees Rank Trex Manufacturing Company $ 65,584 1 $ 42,141 1 Quebecor World MS #2 36,771 2 31,703 2 Hollywood Investments 19,122 3 18,076 3 Veterans Cemetery 16,038 4 15,059 4 Fernley High School 11,679 5 11,081 7 Trails End Mobile Home Park 8,976 6 12,016 5 Rewana Mobile Home Park 8,880 7 5,708 10 Fernley Intermediate School 8,774 8 6,318 9 Blue Beacon Wash 8,518 9 7,413 8 Green Valley Park 7,443 10 11,957 6 Source: City of Fernley * Earliest year information available is 2004 due to change in tracking system. . CITY OF FERNLEY, NEVADA PRINCIPLE WATER USERS JUNE 30, 2007 2004* 61 ---PAGE BREAK--- SCHEDULE 10 Governmental Activities General Total Percentage Fiscal Obligation Water Sewer Primary of Personal Per Year Bonds Bonds Bonds Government Income Capita 2002 $ 90,314 $ - $ - $ 90,314 0.04% $ 9 2003 - - - - 0.00% - 2004 - - - - 0.00% - 2005 - - - - 0.00% - 2006 5,000,000 670,000 890,282 6,560,282 1.64% 401 2007 4,842,000 45,015,000 6,267,780 56,124,780 12.20% 2,977 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. *Information presented from City incorporation on July 1, 2001 forward See the Schedule of Demographic Statistics on page 65 for personal income and population data. Business-Type Activities CITY OF FERNLEY, NEVADA RATIOS OF OUTSTANDING DEBT BY TYPE LAST SIX FISCAL YEARS* 62 ---PAGE BREAK--- SCHEDULE 11 Percentage General of Actual Fiscal Obligation Property Per Year Bonds Total Value Capita 2002 90,314 $ 90,314 $ 0.014% 9.48 2003 - - - - 2004 - - - - 2005 - - - - 2006 5,000,000 5,000,000 0.46% 305.68 2007 4,842,000 4,842,000 0.33% 256.87 Note: See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property for property value data. Population can be found in the Schedule of Demographic Statitstics page 65. *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST SIX FISCAL YEARS* 63 ---PAGE BREAK--- SCHEDULE 12 CITY OF FERNLEY, NEVADA COMPUTATION OF GENERAL OBLIGATION DIRECT AND OVERLAPPING DEBT June 30, 2007 Total Presently General Self-Supporting Obligation General Net Debt % Applicable Debt Obligation Debt Outstanding Net Debt Direct: City of Fernley $ 56,124,780 $ 51,282,780 $ 4,842,000 100.00% $ 4,842,000 Overlapping: State of Nevada 2,954,015 878,257 2,075,758 0.44% 9,133 Lyon County 77,924,035 77,059,057 864,978 35.88% 310,354 Lyon County School District 60,440,000 - 60,440,000 35.88% 21,685,872 Total Overlapping debt 22,005,359 Total Direct and Overlapping Debt $ 26,847,359 Source: State of Nevada Lyon County Lyon County School District Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Fernley This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. Applicable 64 ---PAGE BREAK--- SCHEDULE 13 CITY OF FERNLEY, NEVADA COMPUTATION OF LEGAL DEBT MARGIN June 30, 2007 Estimated Assessed Value $ 511,154,623 Debt Limit - 30 Percent of Total Assessed Value 153,346,387 Total Amount of Debt Applicable to Debt Limit 56,124,780 Legal Debt Margin $ 102,063,607 Note: Legal debt margin as set forth in NRS 266.600 65 ---PAGE BREAK--- SCHEDULE 14 CITY OF FERNLEY, NEVADA WATER AND SEWER FUNDS REVENUE BOND COVERAGE - COMBINED LAST SIX FISCAL YEARS* Net Revenue Available Debt Service Requirements Fiscal Operating Operating For Debt Year Revenue Expenses(1) Service Principal Interest Total Coverage 2002 2,201,361 1,645,441 555,920 283,405 107,847 391,252 142% 2003 2,501,125 1,815,858 685,267 243,778 97,428 341,206 201% 2004 2,981,642 2,096,056 885,586 248,173 84,152 332,325 266% 2005 3,416,906 2,338,729 1,078,177 262,745 72,580 335,325 322% 2006 3,888,017 2,647,912 1,240,105 277,502 60,323 337,825 367% 2007 4,061,013 2,873,207 1,187,806 287,451 620,879 908,330 131% Note: Total operating expenses exclusive of depreciation *Information presented from City incorporation on July 1, 2001 forward 66 ---PAGE BREAK--- SCHEDULE 15 Fiscal Total Personal Per Capita Unemployment Year Population Income Personal Income Rate 2002 9,529 $217,089,678 $22,782 5.60% 2003 10,440 $243,617,400 $23,335 5.40% 2004 11,718 $285,380,172 $24,354 5.20% 2005 13,775 $336,110,000 $24,400 5.00% 2006 16,357 $399,110,800 $24,400 4.70% 2007 18,850 $459,940,000 $24,400 7.30% Sources: Nevada Demographer's Office Bureau of Economic Analysis Nevada Employment Security Department- Lyon County Data *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA DEMOGRAPHIC STATISTICS LAST SIX FISCAL YEARS* 67 ---PAGE BREAK--- SCHEDULE 16 Percentage Percentage of Total County of Total County Employer Employees Rank Employment Employees Rank Employment Amazon.com 800-899 1 6.71% 700-799 1 6.14% BMO Leasing US Inc (Quebecor) 200-299 2 1.97% 200-299 2 2.05% MSC Industrial Supply Co. 200-299 3 1.97% 100-199 3 1.23% TREX Company 100-199 4 1.18% 100-199 4 1.23% Nevada Cement Company 100-199 5 1.18% 100-199 6 1.23% Scolaris Warehouse Markets, Inc. 100-199 6 1.18% 90-99 9 0.78% Silverado Casino 100-199 7 1.18% 90-99 7 0.78% Manpower Temporary Services 90-99 8 0.75% 90-99 8 0.78% Fernley Pioneers, LLC. 90-99 9 0.75% Valley Joist Inc. 80-89 10 0.67% A.R.E. Inc. 100-199 5 1.23% Fernley Truck Inn 90-99 10 0.78% Total employment statistics are for the Lyon County area, as information not available at the City level. * Information presented from 2005, the first year the Comprehensive Annual Financial Report was prepared. CITY OF FERNLEY, NEVADA MAJOR EMPLOYERS JUNE 30, . Source: Nevada Department of Employment, Training and Rehabilitation 2007 2005* 68 ---PAGE BREAK--- SCHEDULE 17 2002 2003 2004 2005 2006 2007 FUNCTION/PROGRAM General government 11.9 14.3 14.7 15.5 12.1 18.6 Judicial 1.7 1.7 1.9 1.9 2.0 1.9 Public works 1.2 1.2 1.3 1.3 2.0 1.5 Culture and recreation 3.5 4.5 4.5 7.5 7.5 10.9 Community development 4.5 7.0 7.0 12.0 15.5 16.0 Health - - - 2.0 3.9 2.9 Water 5.4 5.4 5.6 5.9 8.6 6.8 Sewer 5.4 5.4 5.6 5.9 9.1 6.8 Total 33.6 39.5 40.6 51.9 60.7 65.4 Source: City of Fernley, Nevada FY 2006/2007 Annual Budget *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA FULL-TIME EQUIVALENT CITY OF FERNLEY, NEVADA EMPLOYEES BY FUNCTION/PROGRAM LAST SIX FISCAL YEARS* FISCAL YEAR ENDED JUNE 30, 69 ---PAGE BREAK--- SCHEDULE 18 2003 2004 2005 2006 2007 Function/Program Judicial: Municipal Court Cases Filed: Drug 55 33 34 68 35 Driving Under Influence 82 71 75 91 81 Domestic Violence 37 48 65 45 5 Traffic 1,979 2,132 2,410 2,530 1,829 Non-Traffic 160 309 314 326 319 Other 5 0 1 0 0 Public Safety: Calls for Service: Criminal 2,292 2,760 3,072 3,382 3,866 Non-Criminal 948 828 924 1,028 1,180 Domestic Violence 312 432 684 678 866 Follow-up 1,044 1,488 1,404 1,630 1,439 Traffic Stops 1,080 672 876 1,026 1,450 Civil Papers 2,028 1,596 2,028 2,232 2,136 Animal 132 192 168 102 156 Death/Coroner 36 36 36 42 33 Public Service 1,536 1,440 1,044 1,250 927 Assist other Agencies 612 600 684 732 625 Alarms 216 252 276 346 383 Property Damage Accident 72 120 132 92 120 Injury Accident 12 12 24 24 20 Private Property Accident 60 48 48 48 73 Administrative 2,016 2,316 2,196 2,304 2,761 Total Calls for Service 12,372 12,792 13,572 15,076 16,035 Total Reports Written 1,788 1,740 1,704 1,756 2,298 Arrests: Felony 84 72 60 90 123 Gross Misdemeanor 12 12 24 16 17 Misdemeanor 192 168 120 112 143 Driving Under the Influence 48 48 36 48 84 Domestic Violence 48 48 72 52 71 Mental Health 12 12 12 8 12 Total Arrests 396 360 312 326 450 Citations: Traffic 444 240 228 274 593 Non-Traffic 240 132 168 162 209 Total Citation 684 372 408 436 802 Water Utility Customer Count 3,966 4,980 6,083 6,634 6,816 New Connections 657 1,014 1,103 551 182 Sewer Utility Customer Count 3,950 4,957 6,049 6,600 6,782 New Connections 649 1,007 1,092 551 182 Building 868 1,492 1,445 897 500 Number of Inspection Performed 7,042 15,929 19,108 13,302 5,838 Planning Number of applications processed 144 195 211 238 223 Sources: City of Fernley *Information presented for fiscal years as available FISCAL YEAR ENDED JUNE 30, CITY OF FERNLEY, NEVADA OPERATING INDICATORS BY FUNCTION/PROGRAM LAST FIVE FISCAL YEARS* 70 ---PAGE BREAK--- SCHEDULE 19 2002 2003 2004 2005 2006 2007 Function/Program Streets Public Road Mileage 89.5 92.03 95.45 104.12 106.64 116.96 Parks and Recreation: Park and Open Space 56.9 68 68.3 85.3 150 155 Developed Parks 5 7 7 8 11 11 Tennis Courts 1 1 1 1 1 1 Rodeo Arena 1 1 1 1 2 2 Playing Fields 6 6 7 8 10 19 Pavilions 1 1 1 2 2 2 Skate Park 1 1 1 1 1 1 Water Utility: Water lines (miles) 73.5 79.4 85.7 92.6 105 115.2 Fire Hydrants 700 775 [PHONE REDACTED] 1033 Sewer Utility: Sanitary Sewer lines (miles) 63.0 68.0 73.5 79.4 90.0 93.6 Sanitary Sewer Manhole Count [PHONE REDACTED] 1362 1510 1600 Sources: City of Fernley *Information presented from City incorporation on July 1, 2001 forward FISCAL YEAR ENDED JUNE 30, CITY OF FERNLEY, NEVADA CAPITAL ASSETS STATISTICS BY FUNCTION/PROGRAM LAST SIX FISCAL YEARS* 71 ---PAGE BREAK--- AUDITOR’S COMMENTS ---PAGE BREAK--- 72 AUDITOR'S COMMENTS June 30, 2007 Statute Compliance The required disclosure on compliance with Nevada Revised Statutes and the Nevada Administrative Code is contained in Note 2 to the financial statements. Progress on Prior Year Statute Compliance The City monitored expenditures during the current year in order to prevent over expenditures; however, refer to Note 2 to the financial statements. Prior Year Recommendations There were no specific recommendations made in the audit report for the fiscal year ended June 30, 2006. Current Year Recommendations We did not find any financial weaknesses of a magnitude to justify inclusion within our audit report. ---PAGE BREAK--- 73 Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 – Limitation of Fees for Business Licenses Flat Fixed Fees: Business license revenue for the year ended June 30, 2006 $111,075 Adjustment to Base: Base year: 1. Percentage increase in population of the local government 43.0% 2. Percentage increase in the Consumer Price Index for the year ending on December 31, next preceding the year for which the limit is being calculated 2.5% Adjusted Base at June 30, 2007 45.5% 161,614 Actual Revenue 140,000 Actual Amount over (under) Allowable Amount $(21,614) Fee calculated on a Percentage of Gross Revenue: Adjusted base at June 30, 2006 $863,449 Percentage change in CPI 1.025 Adjust base at June 30, 2007 885,035 Actual Revenue 850,000 Actual Amount over (under) Allowable Amount $(35,035) ---PAGE BREAK--- 74 Independent Accountant’s Report on Nevada Revised Statute 354.6241 To the Honorable Mayor and City Council of the City of Fernley, Nevada We have reviewed the assertion provided by management in accordance with Nevada Revised Statute 354.624(5)(a): • The identified funds are being used expressly for the purposes for which they were created, • The funds are administered in accordance with accounting principles generally accepted in the United State of America • The reserved fund balances/net asset in the funds were reasonable and necessary to carry out the purposes of the funds at June 30, 2007 (based on the interpretation of reasonable and necessary provided by the Legislative Counsel Bureau), • The sources of revenues, including transfers, available for the funds are as noted in the financial statements, • The funds conform to significant statutory and regulatory constraints on their financial administration during the fiscal year ended June 30, 2007 (except as previously noted under statute compliance in Note 2 to the financial statements), • The balance and net assets of the funds are as noted in the financial statements. This assertion is the responsibility of the management of the City of Fernley, Nevada. Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. A review is substantially less in scope that an examination, the objective of which is the expression of an opinion on the assertion. Accordingly, we do not express such an opinion. Based on our review, nothing came to our attention that caused us to believe that the assertion provided by management referred to above is not fairly stated in all material respects. Fallon, Nevada November 12, 2007