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SDWD - 2014 San Dieguito Water District Encinitas, California Annual Financial Report and Independent Auditors' Reports For the Years Ended June 30, 2014 and 2013 F?M PUN & McGEADY San Dieguito Water District TABLE OF CONTENTS Pape FINANCIAL SECTION Independent Auditors' Report................................................................................................................... 1-3 Report on Internal Control over Financial Reporting And on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.................................................. 5-6 Management's Discussion and Analysis (Required Supplementary Information - Unaudited)........ 7-10 Basic Financial Statements: Statementsof Net Position .......................................................................................................................... 12 Statements of Revenues, Expenses and Changes in Net Position............................................................. 13 Statementsof Cash Flows............................................................................................................................ 14 Notes to Financial Statements.................................................................................................................17-34 Required Supplementary Information: Other Postemployment Employee Benefits Schedule of Funding Progress...........................................37 SELECTED STATISTICAL INFORMATION SECTION Historical Debt Service Coverage...........................................................................................................42 Scheduleof Water Rates........................................................................................................................44 Bi-Monthly Meter Service Availability Charges .......................................................................................44 Historic Potable Water System Revenues..............................................................................................45 Historic Recycled Water System Revenues............................................................................................45 Summary of Water Production by Source...............................................................................................46 Summary of Water Deliveries by Source ................................................................................................46 TenLargest Customers ..........................................................................................................................47 Total Service Connections by Category..................................................................................................47 FINANCIAL SECTION San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 6265 Greenwich Drive Suite 220 San Diego, California 92122 PUN & McGEAI3Y Phone: (858) 242-5100 Fax: (858) 242-5150 www.pm-llp.com INDEPENDENT AUDITORS' REPORT To the Board of Directors San Dieguito Water District Encinitas, California Report on Financial Statements We have audited the accompanying financial statements of the San Dieguito Water District (the "District") a component unit of the City of Encinitas, California (the "City"), which comprise the statement of net position as of June 30, 2014 and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. Investments in R.E. Badger Filtration Plant We did not audit the financial statements of the R.E. Badger Filtration Plant which represents 28 percent, 39 percent and 11 percent of the assets, net position, and expenses, respectively, of the District. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. Investments in R.E. Badger Water Facilities Financing Authority We did not audit the financial statements of the R.E. Badger Water Facilities Financing Authority which represents 1 percent, 2 percent and 5 percent of the assets, net position, and expenses, respectively, of the District. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, in so far as it relates to the amounts included for the Investments in R.E. Filtration Plant, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audit and the report of others auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the District as of June 30, 2014, and the changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and the schedules of funding progress on pages 7-10 and 37 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements. The statistical section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The statistical section has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 2 To the Board of Directors of the San Dieguito Water District Encinitas, California Page 3 Report on 2013 Financial Statements The District's financial statements for the year ended June 30, 2013 were audited by other auditors whose report thereon dated December 5, 2013, expressed an unmodified opinion on the respective financial position of the District as of June 30, 2013, and changes in its financial positions and cash flows for the year ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2014, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering District's internal control over financial reporting and compliance. �� �k( -&4� IF> San Diego, California December 5, 2014 3 6265 Greenwich Drive Suite 220 San Diego, California 92122 PUN & McGEADY Phone: (858) 242-5100 Fax: (858) 242-5150 www.pm-llp.com REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Independent Auditors'Report To the Board of Directors of the San Dieguito Water District Encinitas, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the San Dieguito Water District (the "District"), a component unit of the City of Encinitas, California (the "City"), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated December 5, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting ("internal control") to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. To the Board of Directors of the San Dieguito Water District Encinitas, California Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. �� �k( -&4� IF> San Diego, California December 5, 2014 6 SAN DIEGUITO WATER DISTRICT Management Discussion & Analysis (Unaudited) This section of the San Dieguito Water District (the "District") Annual Financial Report presents Management's Discussion and Analysis of the District's financial position and performance for fiscal year 2013-14. Please read it in conjunction with the District's Basic Financial Statements, which include explanatory footnotes and required supplementary information. FINANCIAL HIGHLIGHTS Table 1 Summarized Statement of Net Position (amounts expressed in millions of dollars) Fiscal Fiscal Dollar Percent Fiscal Dollar Percent Year 2014 Year2013 Change Change Year2012 Change Change Current assets $ 20.1 $ 17.4 $ 2.7 15.5% $ 15.6 $ 1.8 11.5% Restricted assets 1.0 1.0 0.0 0.0% 1.0 0.0 0.0% Other noncurrent assets 0.3 0.4 (0.1) -25.0% 0.1 0.3 300.0% Investments in joint ventures 18.3 18.6 (0.3) -1.6% 19.7 (1.1) -5.6% Capital assets(net) 22.0 21.6 0.4 1.9% 20.2 1.4 6.9% Total Assets 61.7 59.0 2.7 4.6% 56.6 2.4 4.2% Current liabilities 2.9 1.8 1.1 61.1% 1.6 0.2 12.5% Current portion of long-term debt 1.1 1.0 0.1 10.0% 1.0 0.0 0.0% Long-term debt 12.6 13.6 (1.0) -7.4% 14.7 (1.1) -7.5% Total Liabilities 16.6 16.4 0.2 1.2% 17.3 (0.9) -5.2% Net Position: Net investment in capital assets 26.6 25.5 1.1 4.3% 5.6 19.9 355.4% Restricted 1.0 1.0 0.0 0.0% 0.0 1.0 100.0% Unrestricted 17.5 16.1 1.4 8.7% 33.7 (17.6) -52.2% Total Net Position $ 45.1 $ 42.6 $ 2.5 5.9% $ 39.3 $ 3.3 8.4% NOTE:Certain accounts have been reclassified in the fiscal year 2013 and 2012 presentation above. The District's net position improved by $2.5 million, or 6%, from 2013 to 2014 and $3.3 million from 2012 to 2013. The majority of the 2014 improvement over 2013 was in current assets; specifically, cash and investments. The District had positive cash flows from operations in 2014, after factoring in debt service payments of $1.6 million. Average water rates were increased by 8.5%, effective September 1, 2013.. That increase, combined with slightly higher sales volume, translated into an increase of 12% in operating revenues. The excess cash generated by operations is transferred to the capital project fund, which has the effect of increasing the District's capital reserve balance. Average water rates did not increase from 2012 to 2013. Changes in Net Position are affected by revenues and operating expenses, which are summarized below in Table 2. 7 SAN DIEGUITO WATER DISTRICT Management Discussion & Analysis (Continued) (Unaudited) Table 2 Summarized Statement of Revenues, Expenses and Changes in Net Position (amounts expressed in millions of dollars) Fiscal Fiscal Dollar Percent Fiscal Dollar Percent Year2014 Year2013 Change Change Year 2012 Change Change Operating revenues $ 15.4 $ 13.7 $ 1.7 12.3% $ 12.9 $ 0.8 6.2% Operating expenses: Source of supply 6.4 3.8 2.6 68.4% 3.8 - 0.0% General operations&maintenance 2.3 2.4 (0.1) -2.4% 2.5 (0.1) -4.0% Facility operations&maintenance 1.5 2.1 (0.6) -29.1% 2.3 (0.2) -8.7% General and administrative 1.8 1.7 0.1 5.9% 1.8 (0.1) -5.6% Depreciation and amortization 1.5 1.5 - 0.0% 1.3 0.2 15.4% Total operating expenses 13.5 11.5 2.0 17.7% 11.7 (0.2) -1.7% Operating income 1.8 2.2 (0.4) -16.0% 1.2 1.0 83.3% Nonoperating revenues 0.8 0.9 (0.1) -11.1% 0.8 0.1 12.5% Nonoperating(expenses) (0.6) (0.7) 0.1 -14.3% (0.7) - 0.0% Income before transfers and capital contributions 2.0 2.4 (0.4) -14.6% 1.3 1.1 84.6% Transfers in from City of Encinitas 0.0 0.0 0.0 0.0% 0.5 (0.5) -100.0% Capital contributions 0.5 0.9 (0.4) -44.4% 0.4 0.5 125.0% Change in net position 2.5 3.3 (0.8) -22.8% 2.2 0.1 4.5% Net position,beginning 42.6 39.3 3.3 8.4% 37.1 2.2 5.9% Net position,ending $ 45.1 $ 42.6 $ 2.5 6.0% $ 39.3 $ 3.3 8.4% Revenues - Operating revenues increased $1.7 million from 2013 to 2014 and $800,000 from 2012 to 2013. The 2014 increase was mainly due to the September rate increase and slightly higher sales volume for the year, while the 2013 increase was due mainly to increase in customer demand for potable water. Non-operating revenues were essentially flat from both 2013 to 2014 and 2012 to 2013. In 2014, an increase in connection fees was offset to some degree by lower investment earnings. Expenses -Operating expenses increased by $2.0 million from 2013 to 2014 and decreased $200,000 from 2012 to 2013. The 2014 increase in source of supply (water purchases) of$2.6 million was primarily driven by the ratio of water purchased from the San Diego County Water Authority (imported water) compared to the amount of local water utilized. The District purchased a higher percentage of imported water this fiscal year, which is significantly more expensive than local water. However, since less local water was utilized, the costs for treatment ("facility operations & maintenance") were lower in 2014. Other operating expenses were comparable to prior year amounts in both 2013 and 2014. 8 SAN DIEGUITO WATER DISTRICT Management Discussion & Analysis (Continued) (Unaudited) Capital contributions were lower in 2014, mainly due to the level of development activity and the timing of donated infrastructure. Other donated assets (easements) exhibited lower levels of activity this year, as well. Connection fees paid by applicants were higher due to an increase in the number of hookups, year- over-year. CAPITAL ASSETS AND CAPITAL IMPROVEMENT PROGRAMS The District has an ongoing capital improvement program and publishes a capital budget every year. The District's capital budget includes funding for both infrastructure and various large consulting projects, such as capital master plans and water rate studies. The District generally capitalizes infrastructure and expenses consulting studies in the accompanying Basic Financial Statements. Capital expenditures for infrastructure are accounted in the accompanying financial statements either as: (1) additions to Capital Assets, or (2) additions to Investments in Joint Ventures. Additions to Capital Assets totaled approximately $975,000, which is principally replacement or improvements to the water distribution system and purchases of vehicles and equipment. The District also capitalized approximately $500,000 of capital improvement costs paid for the R.E. Badger Joint Facilities. The overall budget of the District for capital improvements averages about $2.5 million per year over the next six years. Table 3 Capital Assets, Net of Accumulated Depreciation (amounts expressed in millions of dollars) 2014 2013 2012 Land easements $ 3.0 $ 2.9 $ 2.7 Public works facility right-of-use 3.4 3.4 3.4 Construction in progress 0.8 0.9 0.7 Capacity rights 0.2 0.2 0.2 Utility, plant and equipment 14.6 14.2 13.2 Total $ 22.0 $ 21.6 $ 20.2 DEBT ADMINISTRATION Table 4 Long-Term Debt The District's total long-term debt outstanding at June 30 consisted of: 2014 2013 2012 2004 Water Revenue Refunding Bonds $ 8,110,000 $ 8,750,000 $ 9,365,000 2007 Note Payable to R.E. Badger Water Facilities Financing Authority 5,535,000 5,920,000 6,295,000 Total $ 13,645,000 $ 14,670,000 $ 15,660,000 9 SAN DIEGUITO WATER DISTRICT Management Discussion & Analysis (Continued) (Unaudited) The 2004 Water Revenue Refunding Bonds were issued to refinance a previous 1993 bond issue. The outstanding amount of $8,110,000 was refinanced on September 30, 2014 in a current refunding transaction. The District will save approximately $250,000 per year over the life of the 2014 bonds, which have a final maturity in 2024. The Note Payable represents the District's obligation to pay principal and interest on the Financing Authority's 2007 Water Revenue Refunding Bonds. The debt service payments on these two obligations will total approximately $1.40 million annually, going forward. The District has covenanted to maintain debt service coverage of at least 115% of annual debt service each fiscal year. The District was in compliance with its debt service coverage requirement for the fiscal year 2013-14, and is projected to be in compliance in fiscal year 2014-15. There are no current plans to issue additional debt. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The District adopted its two-year operating budget and capital budget in May of 2013. Under this system, funds are only appropriated for the first fiscal year. The District returns to the Board one year later to present its "second-year revise" budget, which may or may not be consistent with the originally published figures for the second year. The second year revise operating budget anticipates total revenues of $16.0 million, an increase of about $600,000 over the prior year. Water rates and meter service charges were increased an average of 4.5% on July 1, 2014, following an increase of 8.5% on September 1, 2013. The July 2014 increase was lower than the previously approved (maximum allowable) increase of 8.5%. Staff determined that the maximum increase would not be necessary due to healthy reserve balances and the District's continuing commitment to cost containment. Operating expenses for FY 2014-15 are budgeted at or near FY 2013-14 levels, with some variations by category. The cost of water is expected to decrease and the costs of treatment are expected to increase, as a result of the projection of more local water usage. The second-year revise capital budget anticipates capital costs at $2.0 million, which is slightly below the average for the next six years. This includes $500,000 for District capital improvements and $1.5 million for capital contributions to the R.E. Badger Joint Facilities. Overall, the District expects to end the next fiscal year with an available fund balance of $10.8 million, based on its internal projections. This balance is slightly higher than the original estimate of $10.6 million, and reflects the successful implementation of the water rate increases and efficiencies in the District's operations. This projected fund balance is expected to increase in the next cycle, due to pending updates to the audited ending fund balances for FY 2013-14. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT If you have questions about this report or need additional information, please contact the City of Encinitas Finance Department or the San Dieguito Water District General Manager's office. 10 BASIC FINANCIAL STATEMENTS San Dieguito Water District, 505 S Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 11 San Dieguito Water District Statements of Net Position June 30, 2014 and 2013 2014 2013 ASSETS Current assets: Cash and investments $ 17,152,589 $ 14,793,223 Accounts receivables, net 2,790,244 2,492,708 Inventories 143,164 142,577 Total current assets 20,085,997 17,428,508 Noncurrent assets: Cash and investments with fiscal agents 1,039,739 1,040,197 Prepaid pension assets, net 294,459 392,611 Investments in joint ventures 18,321,553 18,594,413 Capital assets, net 21,946,660 21,590,466 Total noncurrent assets 41,602,411 41,617,687 Total assets 61,688,408 59,046,195 LIABILITIES Current liabilities: Acounts payable and accrued liabiliites 2,309,554 1,063,336 Accrued interest payable 150,371 160,669 Deposits 352,400 430,609 Compensated absences -due within one year 140,665 154,219 Long-term debt-due within one year 1,070,000 1,025,000 Total current liabilities 4,022,990 2,833,833 Noncurrent liabilities: Long-term debt-due in more than one year 12,575,000 13,645,000 Total noncurrent liabilities 12,575,000 13,645,000 Total liabilities 16,597,990 16,478,833 NET POSITION Net investment in capital assets 26,623,213 25,514,879 Restricted 1,039,739 1,040,197 Unrestricted 17,427,466 16,012,286 Total net position $ 45,090,418 $ 42,567,362 See accompanying Notes to Financial Statements 12 San Dieguito Water District Statements of Revenues, Expenses, and Changes in Net Position For the Years Ended June 30, 2014 and 2013 2014 2013 OPERATING REVENUES Charges for services $ 15,166,038 $ 13,509,376 Interfund revenues 41,444 27,099 Other revenue 180,733 150,681 Total operating revenues 15,388,215 13,687,156 OPERATING EXPENSES Source of supply 6,403,037 3,815,390 General operations and maintenance 2,342,857 2,348,194 Facility operations and maintenance 1,489,420 2,121,251 General and administrative 1,820,835 1,713,045 Depreciation of capital assets 622,435 604,382 Amortization of prepaid pension asset 98,152 98,152 Amortization of investment in joint ventures 770,219 773,510 Other 5,907 68,544 Total operating expenses 13,552,862 11,542,468 NET OPERATING INCOME (LOSS) 1,835,353 2,144,688 NONOPERATING REVENUES (EXPENSES) Property taxes 787,242 749,378 Investment earnings 32,789 117,072 Gain on sale of capital assets 7,645 3,118 Interest expense (611,775) (657,963) Total nonoperating revenues (expenses) 215,901 211,605 INCOME BEFORE CAPITAL CONTRIBUTIONS 2,051,254 2,356,293 CAPITAL CONTRIBUTIONS Contribution of capital assets: Donation 22,971 553,960 Easements 121,471 211,583 Connection fees 327,360 102,480 Total capital contributions 471,802 868,023 CHANGES IN NET POSITION 2,523,056 3,224,316 NET POSITION: Beginning of year 42,567,362 39,343,046 End of year $ 45,090,418 $ 42,567,362 See accompanying notes to financial statements 13 San Dieguito Water District Statements of Cash Flows For the Years Ended June 30, 2014 and 2013 2014 2013 Cash flows from operating activities: Receipts from users $ 15,032,766 $ 12,951,303 Receipts from interfund charges 41,444 27,099 Payments to employees and suppliers for goods and services (10,894,634) (9,922,880) Other operating revenues 16,469 150,681 Net cash provided by operating activities 4,196,045 3,206,203 Cash flows from noncapital financing activities: Transfers in - - Receipts from property taxes 787,242 749,378 Net cash provided by noncapital and related financing activities 787,242 749,378 Cash flows from capital and related financing activities: Acquisition of capital assets (834,187) (1,007,509) Capital contributions - connection fees 327,360 102,480 Payments on advance from City of Encinitas - (95,000) Interest payments on advance from City of Encinitas - (3,800) Principal payments on bonds and note payable (1,038,554) (990,000) Interest payments on bonds and note payable (622,073) (665,650) Capital related payments to R.E. Badger Filtration Plant (497,359) (59,561) Proceeds from sale of capital assets 7,645 3,118 Net cash used by capital and related financing activities (2,657,168) (2,715,922) Cash flows from investing activities: Investment income received 32,789 94,128 Net cash provided by investing activities 32,789 94,128 Net increase in cash and cash equivalents 2,358,908 1,333,787 Cash and cash equivalents, beginning 15,833,420 14,499,633 Cash and cash equivalents, ending $ 18,192,328 $ 15,833,420 Reconciliation of cash and cash equivalents to the Statement of Net Position: Current assets: Cash and investments 17,152,589 14,793,223 Noncurrent restricted assets: Cash and investments with fiscal agents 1,039,739 1,040,197 Total cash and cash equivalents $ 18,192,328 $ 15,833,420 See accompanying notes to financial statements 14 San Dieguito Water District Statements of Cash Flows (Continued) For the Years Ended June 30, 2014 and 2013 2014 2013 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 1,835,353 $ 2,144,688 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 1,490,806 1,476,044 Change in net assets and liabilities: Accounts receivable (297,536) (558,073) Inventory and prepaid items (587) 22,612 Accounts payable and accrued liabilities 1,246,218 204,362 Deposits (78,209) (90,791) Compensated absences - 7,361 Net cash provided by operating activities $ 4,196,045 $ 3,206,203 Noncash capital and related financing activities: Contribution of capital assets $ 144,442 $ 765,543 Acquisition of capital assets included in accounts payable - 187,885 Capital related payment to R.E. Badger Filtration Plant included in accounts payable - 60,408 See accompanying notes to financial statements 15 San Dieguito Water District Notes to Financial Statements For the Years Ended June 30, 2014 and 2013 Note 1 — Reporting Entity San Dieguito Water District (the "District") was formed in 1922 under the laws of the State of California to supply irrigation and potable water services to the central western portion of San Diego County. The District became a subsidiary district of the City of Encinitas, California (the "City") on October 1, 1986, pursuant to an election approving the San Dieguito Reorganization and the incorporation of the City. The District is considered a component unit on the City, based on the provisions of Governmental Accounting Standards Board ("GASB") Statement No. 61, The Financial Reporting Entity: Omnibus - An Amendment of GASB Statement No. 14 and No. 34. Note 2—Summary of Significant Accounting Policies Basis of Presentation Financial statement presentation follows the recommendations promulgated by the Governmental Accounting Standards Board ("GASB") commonly referred to as accounting principles generally accepted in the United States of America ("U.S. GAAP"). GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting standards. Measurement Focus, Basis of Accounting and Financial Statements Presentation The Financial Statements (i.e., the statement of net position, the statement of revenues, expenses and changes in net position, and statement of cash flows) report information on all of the activities of the District. The Financial Statements are reported using the "economic resources"measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Interest associated with the current fiscal period is considered to be susceptible to accrual and so has been recognized as revenue of the current fiscal period. In accordance with GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, the Statement of Net Position reports separate sections for Deferred Outflows of Resources, and Deferred Inflows of Resources, when applicable. Deferred Outflows of Resources represent outflows of resources (consumption of net position) that apply to future periods and that, therefore, will not be recognized as an expense until that time. Deferred Inflows of Resources represent inflows of resources (acquisition of net position) that apply to future periods and that, therefore, are not recognized as revenue until that time. Operating revenues are those revenues that are generated from the primary operations of the District. The District reports a measure of operations by presenting the change in net position from operations as "operating income" in the statement of revenues, expenses, and changes in net position. Operating activities are defined by the District as all activities other than financing and investing activities (interest expense and investment income), and other infrequently occurring transaction of a non-operating nature. Operating expenses are those expenses that are essential to the primary operations of the District. All other expenses are reported as non-operating expenses. 17 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 2—Summary of Significant Accounting Policies (Continued) Cash and Investments Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less and are carried at cost, which approximates fair value. The majority of the District's cash and investments is invested in the City's pooled investment fund (the "City Pool"). The District does not own any specifically identifiable securities or investments in the City Pool. As a participant in the City Pool, the District has rights to its ratable share of the pooled cash and investments in the City Pool, on a dollar-for-dollar basis. The District's ratable share of investment income from the City Pool is calculated and distributed on a monthly basis. Investment income is reported as nonoperating revenue in the Statement of Revenues, Expenses and Changes in Net Position. Since all amounts invested in the City Pool are available upon demand, the District considers all amounts invested in the City Pool to be cash equivalents. Certain disclosure requirements, if applicable for deposit and investment risk, are specified for the following areas: • Interest Rate Risk • Credit Risk — Overall — Custodial Credit Risk — Concentration of Credit Risk • Foreign Currency Risk Restricted Cash and Investments Cash and investments with fiscal agents are restricted due to limitations on their use by bond covenants or donor limitations. Fiscal agents acting on behalf of the District hold investment funds arising from the proceeds of long-term debt issuances. The funds may be used for specific capital outlays or for the payment of certain bonds, and have been invested only as permitted by specific State statutes or applicable District ordinance, resolution or bond indenture. Receivables and Unbilled Revenues Customer accounts receivable consist of amounts owed by private individuals and organizations for services rendered in the regular course of business operations. Receivables are shown net of allowances for doubtful accounts, if any. The District also accrues an estimated amount for services that have been provided, but not yet billed. Federal and State grants accrued as revenue when all eligibility requirements have been met. Amount earned but outstanding at year end are reported as accounts receivable. Inventory of Materials Inventories consist primarily of materials used in the construction and repair of the District's plant and equipment and on-site supplies such as water meters. Inventory is stated at cost using average-cost basis. Prepaid Pension Assets The District's defined-benefit pension plan, which has less than 100 active members, was required to enroll in a CalPERS risk-sharing pool in 2003. As part of that enrollment process, CalPERS calculated the funded status of the Plan and compared that amount to the funded status of the risk pool at inception, and a "side fund liability" was created. The difference was being financed by CalPERS over a 17 year period at the assumed rate of return of the CalPERS pooled investment fund (7.75%). The District elected to prepay the full amount of$981,523 in fiscal year 2007 and has capitalized this amount in the Statement of Net Position. This amount is being amortized over ten (10) years on a straight-line basis. 18 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 2—Summary of Significant Accounting Policies (Continued) Investment in R.E. Badger Filtration Plant (the "Joint Facilities") The District's investment in the Joint Facilities is accounted for using the equity method of accounting. The District makes periodic contributions to cover its share of capital and operating costs. Contributions for capital are accounted for as an increase in the District's investment account. Contributions for operations are accounted for as operating expenses under the classification: facility operations and maintenance. Depreciation expense on plant operations that is charged to the District is accounted for as an operating expense. Investment in R.E. Badger Water Facilities Financing Authority (the "Financing Authority") The District's investment in the Financing Authority is accounted for using the equity method of accounting. The equity interest is comprised primarily of bond reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. Changes in the investment account result primarily from interest revenues on reserve funds and amortization expense on the bond discounts and issuance costs. These items are classified as nonoperating revenues and expenses in the accompanying Statement of Revenues, Expenses and Changes in Net Position. Capital Assets Capital assets consist of land easements, the perpetual right-of-use of the City's Public Works facility, structure and improvements, machinery and equipment, distribution system, and capacity rights. Capital assets are valued at historical cost, or estimated historical cost, if actual historical cost was not available. Donated capital assets are valued at their estimated fair market value on the date donated. The District policy has set the capitalization threshold for reporting capital assets at $5,000 for non-infrastructure assets and $100,000 for infrastructure assets, all of which must have an estimated useful life in excess of one year. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows: Structures and improvements 20-45 years Equipment, machinery and vehicles 5-20 years Collection and distribution system 50 years Capacity rights 50 years Major outlays for capital assets are capitalized as projects, once constructed, and repairs and maintenance costs are expensed. Interest accrued during capital assets construction, if any, is capitalized as part of the asset cost, net of interest income on construction bond proceeds. Deposits Deposits consist of cash amounts that the District has collected from customers related to on-going construction work being performed by the applicant. It can either be a "job deposit," which is an amount collected to cover the expected costs to the District related to the project, or a "security deposit" which is meant to help guarantee that the work required of the applicant will be completed to the satisfaction of the District. 19 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 2—Summary of Significant Accounting Policies (Continued) Compensated Absences The District's policy permits its employees to accumulate not more than one and one half of their current annual vacation. The District participates in the City's IPP Program which provides employees with protection against loss of income due to illness or disability. Employees do not earn any number of hours of sick leave and thus, no provision has been made for sick leave liability under the account for compensated absences. The unused vacation pay will be paid to employee or his/her beneficiary upon leaving the District's employment. The amount due will be determined using salary/wage rate in effect at the time of separation. Long-Term Debt Debt premiums and discounts are deferred and amortized over the life of the debt using the straight-line method. Long-term debt is reported net of the applicable bond premium or discount. Debt issuance costs are expensed when incurred. Arbitrage Rebate Requirement The District is subject to the Internal Revenue Code ("IRC") Section 148(f), related to its tax exempt revenue bonds. The IRC requires that investment earnings on gross proceeds of any revenue bonds that are in excess of the amount prescribed will be surrendered to the Internal Revenue Service. The District had no rebate liability for arbitrage as of June 30, 2014 and 2013. Net Position Net position represents the difference between all other elements in the statement of net position and should be displayed in the following three components: Net Investment in Capital Assets — This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted — This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Unrestricted — This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. Property Taxes Property taxes are levied on March 1 and are payable in two installments: November 1 and February 1 of each year. Property taxes become delinquent on December 10 and April 10, for the first and second installments, respectively. The lien date is March 1. The County of San Diego, California ("County") bills and collects property taxes and remits them to the District according to a payment schedule established by the County. The County is permitted by State law to levy on properties at 1% of full market value (at time of purchase) and can increase the property tax rate at no more than 2% per year. The District receives a share of this basic tax levy proportionate to what it received during the years 1976-1978. Property taxes are recognized in the fiscal year for which the taxes have been levied. No allowance for doubtful accounts was considered necessary. 20 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 2—Summary of Significant Accounting Policies (Continued) Use of Restricted/Unrestricted Assets When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Note 3—Cash and Investments At June 30, cash and investments are reported in the accompanying statement of net position as follows: 2014 2013 Cash and investments $ 17,152,589 $ 14,793,223 Cash and investments with fiscal agent 1,039,739 1,040,197 Total cash and investements $ 18,192,328 $ 15,833,420 At June 30, cash and investments consisted of the following: 2014 2013 Cash on hand $ 300 $ 300 City of Encinitas pooled investments fund 17,152,289 14,792,923 Money market mutual funds 1,039,739 1,040,197 Total cash and investements $ 18,192,328 $ 15,833,420 Authorized Investment The District's investments are managed by the City. All of the District's cash, except investments held by fiscal agents, are invested in the City Pool. The District has an equity interest in the City Pool equal to its proportionate share of invested cash. The District does not have a separate investment policy; its cash are invested according to the City of Encinitas' adopted investment policy. The table below identifies the allowable investment types authorized by the California Government Code (the "Gov't Code") and the City's adopted Investment Policy (the "Investment Policy"). The table also identifies certain restrictions related to interest rate risk and concentration of credit risk. The Investment Policy restricts the City Treasurer to investing in only the types of investments listed herein, which is more restrictive than the Gov't Code, as the City's policy does not allow certain investments to be purchased which are permitted under the Gov't Code. 21 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 3—Cash and Investments (Continued) Authorized Investments (Continued) Authorized Maximum Maximum by Investment Maximum Percentage of Investment in Authorized Investment Type Policy Maturity Portfolio One Issuer Repurchased Agreements-Overnight "Sweep" Yes 1 Year No Limit No Limit Local Agency Investment Fund (LAIF) Yes N/A No Limit No Limit Local Agency Bonds No 5 Years None None Other Governmental Managed Investment Pools Yes N/A No Limit No Limit Money Market Mutual Funds Yes N/A 20% 10% Certificates of Deposit Yes 5 Years No Limit No Limit Negotiable Certificates of Deposit Yes 5 Years 30% No Limit Bankers'Acceptances Yes 180 Days 40% 30% U.S. Treasury Bills, Notes and Bonds Yes 5 Years No Limit No Limit U.S. Government Sponsored Enterprises Yes 5 Years No Limit No Limit Commercial Paper Yes 270 Days 25% 10% Commercial Medium-Term Notes Yes 5 Years 30% No Limit Investments Authorized and Utilized under Debt Agreements The investment of the proceeds of debt issues (the 2004 Revenue Bond debt reserve fund) is governed by the provisions of the 2004 Bond Indenture. Although there are several authorized investment instruments, the District's reserve fund is currently invested 100% in a Money Market Mutual Fund. Disclosures Related to Interest Rate Risk The District invests all of its excess cash in the City Pool. As a participant, the District has immediate access to its funds on a dollar-for-dollar basis. The allocation of investment income is made to the District based on the book value of its investment (which approximates fair market value). As a result, the District is not exposed to interest rate risk, as it would be if it owned direct securities for its own account. The District's investment with fiscal agents consists of an institutional money market mutual fund. This Fund has a stable net asset value of$1.00 and the funds can be withdrawn at any time without prior notice. Any changes to the fair value of this money market mutual fund are allocated on a monthly basis to each participant, as a part of their monthly distribution. Disclosures Relating to Credit Risk Credit risk is defined as the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical organization. Presented below is the minimum rating required by (where applicable) the Gov't Code, the Investment Policy, or the debt agreements, and the actual rating as of year-end for each investment type. 22 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 3—Cash and Investments (Continued) Disclosures Relating to Credit Risk (Continued) Credit ratings as of June, 30, 2014 were as follows: Minimum Rating as of Year End Legal AAA/ Investment Type Totals Rating Aaa Not Rated Investment in City Pool $ 17,152,289 N/A $ - $ 17,152,289 Held by Fiscal Agent: Money Market Mutual Funds 1,039,739 AAA 1,039,739 - Total investments $ 18,192,028 $ 1,039,739 $ 17,152,289 Credit ratings as of June, 30, 2013 were as follows: Minimum Rating as of Year End Legal AAA/ Investment Type Totals Rating Aaa Not Rated Investment in City Pool $ 14,792,923 N/A $ - $ 14,792,923 Held by Fiscal Agent: Money Market Mutual Funds 1,040,197 AAA 1,040,197 - Total investments $ 15,833,120 $ 1,040,197 $ 14,792,923 The investment policy contains no limitations on the amount that can be invested in any one issuer beyond that stipulated in the Gov't Code. GASB Statement No. 40 requires disclosure by amount and issuer, of investments in any one issuer that represent 5% or more of total investments. As of June 30, 2014 and 2013, both the investment in the City Pool and the Money Market Fund exceeded 5% of the District's total cash and investments. Disclosures Relating to Custodial Credit Risk The District is exposed to custodial credit risk indirectly via its investment in the City Pool. Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, an entity may not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, an entity may not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Government Code and the Investment Policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provisions for deposits: The Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging qualifying securities in an undivided collateral pool held by a depository regulated under State Law. The market value of the qualifying pledged securities must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. At June 30, 2014 and 2013 the District had no deposits with financial institutions or any other parties that would subject the District to custodial credit risk. 23 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 4— Investment Other Agencies At June 30, investment in other agencies consisted of the following: 2014 2013 R.E. Badger Filtration Plant $ 17,557,363 $ 17,777,594 R.E. Badger Water Facilities Financing Authority 764,190 816,819 Total investment in other agencies $ 18,321,553 $ 18,594,413 R.E. Badger Filtration Plant In 1967, the District entered into an agreement with the Santa Fe Irrigation District (Santa Fe) for the joint ownership, maintenance, operation, and use of a water treatment plant and various facilities for the storage and delivery of potable water. During the ensuing years, the parties have added various facilities and improvements, which are owned in different percentages depending on the type of facility and the agreements in place. The ownership percentages of the Joint Facilities are described below: San Dieguito Santa Fe Facilities Water District Irrigation District Filtration Plant 45% 55% Filtered Water Reservior (13 million gallons) 31% 69% Joint Pipeline 39% 61% San Dieguito Reservoir 42% 68% Santa Fe is responsible for the operations, maintenance, and construction of capital improvements of the Joint Facilities, as well as the related administration. For the years ended June 30, 2014 and 2013, the District made capital contributions of $497,359 and $264,009, respectively and recorded its share of depreciation and other allocated charges, as well as a true-up charge affecting the prior fiscal year. The investment balance at June 30, 2014 and 2013 was $17,557,363 and $17,777,594, respectively. Operations and maintenance costs are allocated monthly on the basis of the water used by each district, and administrative costs are allocated based on an agreed-upon cost allocation plan. For the years ended June 30, 2014 and 2013, the District's share of operations and maintenance costs for the Joint Facilities was $1,489,420 and $2,121,250, respectively. R.E Badger Water Facilities Financing Authority In 1999, the District and Santa Fe entered into a joint exercise of powers agreement and formed the Financing Authority, to provide financing for the acquisition and construction of capital improvements related to the Joint Facilities. The Financing Authority subsequently issued revenue bonds for the purpose of funding those capital improvements. Each district is obligated under an Installment Purchase Agreement to repay their proportionate share of the costs of the long-term financing. The investment in the Financing Authority consists primarily of a share of the debt reserve funds held by a fiscal agent and unamortized bond discounts and issuance costs. The investment balance at June 30, 2014 and 2013 was $764,190 and $816,819, respectively. 24 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 5—Capital Assets Summary of changes in capital assets for the year ended June 30, 2014 is as follows: Balance Balance July 1, 2013 Additions Deletions Transfers June 30, 2014 Capital assets, not depreciated Land easements $ 2,925,679 $ 121,472 $ - $ - $ 3,047,151 Public works facilities right of use 3,378,700 - - - 3,378,700 Construction in progress 898,920 530,982 - (653,405) 776,497 Total capital assets, not depreciated 7,203,299 652,454 - (653,405) 7,202,348 Capital assets, being depreciated Structures and improvements 11,007 - - - 11,007 Machinery and equipment 2,260,917 303,204 (120,071) - 2,444,050 Distribution system 37,176,582 22,971 - 653,405 37,852,958 Capacity rights 323,190 - - - 323,190 Total capital assets, being depreciated 39,771,696 326,175 (120,071) 653,405 40,631,205 Less accumulated depreciation Structures and improvements (1,193) (1,101) - - (2,294) Machinery and equipment (1,902,114) (220,655) 120,071 - (2,002,698) Distribution system (23,368,644) (394,215) - - (23,762,859) Capacity rights (112,578) (6,464) - - (119,042) Total accumulated depreciation (25,384,529) (622,435) 120,071 - (25,886,893) Total capital assets, being depreciated, net 14,387,167 (296,260) - 653,405 14,744,312 Total capital assets, net $ 21,590,466 $ 356,194 $ - $ - $ 21,946,660 25 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 5—Capital Assets (Continued) Summary of changes in capital assets for the year ended June 30, 2013 is as follows: July 1, 2012 Additions Deletions Transfers June 30, 2013 Capital assets, not depreciated Land easements $ 2,714,096 $ 211,583 $ - $ - $ 2,925,679 Public works facilities right of use 3,378,700 - - - 3,378,700 Construction in progress 700,299 1,141,635 (943,014) - 898,920 Total capital assets, not depreciated 6,793,095 1,353,218 (943,014) - 7,203,299 Capital assets, being depreciated Structures and improvements 107,414 - (5) (96,402) 11,007 Machinery and equipment 2,226,797 53,759 (19,639) - 2,260,917 Distribution system 35,583,206 1,496,974 - 96,402 37,176,582 Capacity rights 323,190 - - - 323,190 Total capital assets, being depreciated 38,240,607 1,550,733 (19,644) - 39,771,696 Less accumulated depreciation Structures and improvements (97) (1,101) 5 - (1,193) Machinery and equipment (1,700,773) (220,980) 19,639 - (1,902,114) Distribution system (22,992,807) (375,837) - - (23,368,644) Capacity rights (106,114) (6,464) - - (112,578) Total accumulated depreciation (24,799,791) (604,382) 19,644 - (25,384,529) Total capital assets, being depreciated, net 13,440,816 946,351 - - 14,387,167 Total capital assets, net $ 20,233,911 $ 2,299,569 $ (943,014) $ - $ 21,590,466 Note 6—Compensated Absences Summary of changes in compensated absences for the years ended June 30, 2014 and 2013 is as follows: Beginning Ending Due within Due in More Fiscal Year Balance Additions Deletions Balance One Year Than One Year 2013-2014 $ 154,219 $ 127,923 $ (141,477) $ 140,665 $ 140,665 $ - 2012-2013 146,858 154,219 (146,858) 154,219 154,219 - Compensated absences represent the dollar value of employee vacation leave earned (up to the specified maximum amount of hours) but unused as of June 30, 2014 and 2013. The balance outstanding of $140,665 and $154,219 at June 30, 2014 and 2013, respectively, are classified as a current liability because there are no restrictions on when employees may make use of their accrued vacation. 26 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 7— Long-Term Debt Summary of changes in long-term debt for the year ended June 30, 2014, is as follows: Balance Balance Due within Due In More July 1, 2013 Additions Deletion June 30, 2014 One Year Than One Year 2004 Water Revenue Refunding Bond, $ 8,750,000 $ - $ (640,000) $ 8,110,000 $ 665,000 $ 7,445,000 2007 Note Payable to R.E. Badger Water Facilities Financing Authority 5,920,000 - (385,000) 5,535,000 405,000 5,130,000 Total long-term obligation $14,670,000 $ - $(1,025,000) $13,645,000 $ 1,070,000 $ 12,575,000 Summary of changes in long-term debt for the year ended June 30, 2013, is as follows: Balance Balance Due within Due In More July 1, 2012 Additions Deletion June 30, 2013 One Year Than One Year 2004 Water Revenue Refunding Bond, $ 9,365,000 $ - $ (615,000) $ 8,750,000 $ 640,000 $ 8,110,000 2007 Note Payable to R.E. Badger Water Facilities Financing Authority 6,295,000 - (375,000) 5,920,000 385,000 5,535,000 Total long-term debt 15,660,000 - (990,000) 14,670,000 1,025,000 13,645,000 Advance payavble to City of Encinitas 95,000 - (95,000) - - - Total long-term obligation $15,755,000 $ - $(1,085,000) $14,670,000 $ 1,025,000 $ 13,645,000 2004 Water Revenue Refunding Bonds On January 22, 2004, the District issued $13,845,000 of Water Revenue Refunding Bonds, Series 2004, to redeem all of the outstanding 1993 Water Revenue Refunding Bonds. The bonds consist of$10,170,000 of serial bonds maturing from 2004 through 2019 in annual installments of$505,000 to $820,000 and one term bond of $3,675,000 maturing on October 1, 2023. The term bond is subject to sinking fund requirements. Interest is payable semi-annually at rates ranging from 2.5% to 5.0%. The bonds maturing on or after October 1, 2015 are subject to optional redemption at a redemption price equal to the principal amount of the bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Annual debt service requirement for the 2004 Water Revenue Refunding Bonds outstanding at June 30, 2014 are as follows: Year Ending June 30 Principal Interest Total 2015 $ 665,000 $ 354,631 $ 1,019,631 2016 695,000 327,461 1,022,461 2017 720,000 299,131 1,019,131 2018 750,000 267,856 1,017,856 2019 785,000 234,791 1,019,791 2020-2024 4,495,000 580,300 5,075,300 Total $ 8,110,000 $ 2,064,170 $10,174,170 27 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 7— Long-Term Debt (Continued) 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority On November 20, 2007, the R.E. Badger Water Facilities Financing Authority issued $20,685,000 of 2007 Water Revenue Refunding Bonds while concurrently redeeming all of its outstanding 1999 Water Revenue Bonds, on behalf of its member agencies, the Santa Fe Irrigation District and the San Dieguito Water District. The transaction was a current refunding intended to save the member agencies future interest costs due to lower market interest rates. New Installment Purchase Agreements were executed. The overall bond issue consists of$20,685,000 of serial bonds maturing from 2008 through 2024. The District's portion of the refinancing totaled $7,705,000. Principal is due and payable annually in amounts ranging from $335,000 to $620,000. Interest is due and payable semi-annually at rates ranging from 3.5% to 4.5%. The District accounts for its share of the bonds as a Note payable to the Financing Authority. Annual debt service requirement for the 2007 Note Payable to the R.E. Badger Water Facilities Financing Authority outstanding at June 30, 2014 are as follows: Year Ending June 30 Principal Interest Total 2015 $ 405,000 $ 227,844 $ 632,844 2016 415,000 211,144 626,144 2017 440,000 191,244 631,244 2018 455,000 171,619 626,619 2019 475,000 152,919 627,919 2020-2024 2,725,000 441,438 3,166,438 2025 620,000 13,950 633,950 Total $ 5,535,000 $ 1,410,158 $ 6,945,158 Pledged Revenues The District has pledged its net revenues (as defined) to pay the annual debt service on the Bonds and Note described above. The District has covenanted to set rates and charges in order to produce net revenues of at least 115% of annual debt service. During the year, principal and interest paid was $1,647,075 and net revenues available for debt service were $4,625,639, resulting in a debt service coverage ratio of 279%. Note 8— Risk Management Risk management programs and support for the District are provided by the City risk management department. The District is a member of the Association of California Water Agencies - Joint Powers Insurance Authority (JPIA), which provides coverage for general liability, property and casualty, and workers' compensation. Self-insured retention levels ranges from $10,000 to $25,000. As of June 30, 2014 and 2013, in the opinion of the District's management and general counsel, there were no material claims which would require accrual in the accompanying financial statements. Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no self-insurance reserve is required. 28 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 9— Public Employees Retirement System —CaIPERS Plan Description The San Dieguito Water District has entered into a contract for a defined benefit pension plan for miscellaneous employees with CalPERS (the "Plan"). The Plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to members and beneficiaries and is administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements is established by State statutes within the Public Employees' Retirement Law. The District selects optional benefit provisions from the benefit menu by contract and adopts those benefits through local ordinances. CalPERS issues a separate comprehensive annual financial report, which can be obtained from the CalPERS Executive Office, Lincoln Plaza North —400 Q Street— Sacramento, CA 95811. The Plan is a cost-sharing multiple employer defined benefit plan, in which the District participates with other public agencies that share the same benefit formula and have less than 100 active members. The Plan provides employees hired before October 13, 2012 with a Tier 1 benefit equal to 2.7% at 55 years of age, calculated based on the single highest year of qualifying compensation. As of October 13, 2012, the Board of Directors imposed new terms and conditions which created a new benefit formula for employees hired after the effective date of the change (the "Tier 2 Plan.") Employees hired under the Tier 2 Plan receive a lower benefit formula, referred to as the 2% at 60 year of age formula. In addition, legislation enacted by the State of California applying to all local units of government, which became effective on January 1, 2013, created yet another benefit formula for new hires with no experience or prior service credit with CalPERS. In the case of SDWD, this will constitute a "Tier 3 Plan" which provides a retirement benefit, referred to as the 2% at 62 years of age formula. The actual retirement benefit for Tier 2 and Tier 3 employees will be calculated using the average of the highest 36 consecutive months of qualifying compensation. Funding Policy Employee contributions: Active members in the Tier 1 Plan are required to contribute 8% of their annual covered salary (the "employee contribution"). Effective October 13, 2012, all Tier 1 members contribute the full 8%, which is credited to their individual accounts. Members receiving the Tier 2 or Tier 3 benefits are required to contribute 7% of their annual covered salary. The employee contribution requirements are established by State statute. Employer contributions: The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members (the "employer contributions"). The employer contribution rate for fiscal year 2013- 2014 was approximately 15.69%. The employer contribution rates are calculated and established annually by CalPERS, based on the actuarial methods and assumptions as adopted by the CalPERS Board of Administration. 29 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 9— Public Employees Retirement System —CalPERS (Continued) Annual Pension Costs For the year ended June 30, 2014 and 2013, the District's Miscellaneous Plan annual pension costs were $252,831 and $252,408, respectively, which is equivalent to the actual employer contributions made to CalPERS, based on the actuarially determined rates in effect for that fiscal year. These amounts do not include any payments by the employer of behalf of the employees for employee contributions. The required contribution rate for the fiscal year ended June 30, 2014 and 2013 was determined as part of June 30, 2011 and 2010, respectively, actuarial valuation using entry age normal actuarial cost method with the contributions determined as a percentage of pay. The actuarial assumptions included (a) 7.50% investment rate of return (net of administrative expenses); (b) projected salary increases that vary depending on age, service, and type of employment from 3.00% to 14.20%; (c) inflation of 2.75%; and (d) payroll growth of 3.00%. The actuarial value of the Plan's assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a fifteen-year period (smoothed market value). CalPERS' unfunded actuarial accrued liabilities (or excess assets) are being amortized as a level percentage of projected payroll on a closed basis, depending on the size of investment gains and/or losses. Based on the actuarial valuation dated June 30, 2012, the remaining average amortization period was 30 years for the Miscellaneous Plan. A summary of the annual pension costs and the percentage of the required APC contributed for the last three fiscal years are presented below: Three-Year Trend Information Annual Pension Percentage of Net Pension Fiscal Year Cost (APC) APC Contributed Obligation June 30, 2012 $ 202,637 100% $ - June 30, 2013 252,408 100% - June 30, 2014 252,831 100% - 30 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 10— Other Postemployment Benefits The District maintains a separate plan to provide for post-retirement health care benefits. An actuarial report is prepared every two years to update plan information and assumptions (when required). The latest actuarial valuation was prepared as of June 30, 2013, and applies to fiscal years 2013-14 and 2014-15. Plan Description The District provides OPEB benefits (postretirement health care) through the CaIPERS healthcare program (PEMHCA), to eligible employees who retire directly from the District. Retirees receive the PEMHCA minimum benefit as determined by CaIPERS. The District does not provide any retiree benefits for dental, vision, or life insurance. The District's OPEB plan does not issue a separate stand-alone report. The District has elected to join the California Employers' Retiree Benefit Trust (the "Trust"), which provides a means to fully fund the annual OPEB cost, referred to as the Annual Required Contribution (ARC). The District makes its annual contribution to the Trust, pays benefits either directly to retirees or through PEMHCA during the year, and then seeks reimbursement for these "pay-as-you-go expenses" from the Trust. Funding Policy and Actuarial Methods and Assumption It is the District's Policy to fully fund the ARC each fiscal year. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood between the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and the plan members at that point. The actuarial methods and assumptions used include techniques designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of plan assets, consistent with the long—term perspective of the calculations. 31 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 10— Other Postemployment Benefits (Continued) Funding Policy and Actuarial Methods and Assumption (Continued) The following key assumptions were utilized in developing the June 30, 2013 actuarial valuation: 1) The actuarial cost method used to determine the benefit obligations is the Entry Age Normal cost method. 2) The ARC is comprised of the present value of benefits in the current fiscal year (normal cost with interest) plus a 26-year amortization (on a level-percentage of basis) of the unfunded actuarial accrued liability. 3) The valuation reflects updated census and premium information, as well as changes to the demographic tables, reflecting the recent experience study published by CalPERS. 4) The investment return assumption by the Trust is 7.61%. 5) The expected future medical price inflation trend ranges from 5.0 to 7.5%. 6) Core inflation rate of 3.0%. 7) Payroll increases of 3.0% per annum, in aggregate. 8) Projected salary increase is based on merit increase data from the most recent CalPERS Pension Plan Study. 9) Levels of Participation — participation levels for safety personnel eligible of lifetime medical benefits is assumed to be 100%, while participation levels for miscellaneous employees who receive the CalPERS minimum required contribution is 50%, based on experience. Annual Required Contribution (ARC) and OPEB Cost Summary The ARC for fiscal years June 30, 2014 and 2013 of $31,000 and $31,000, respectively, represents a level of funding that, if paid on an on-going basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liability over a maximum of 30 years. The annual OPEB costs, the percentage of annual OPEB cost contributed, and the resulting net OPEB obligation for the preceding four years were as follows: Percentage of Annual Annual OPEB Cost Net OPEB Fiscal Year OPEB Cost APC Contributed Obligation June 30, 2012 $ 25,000 100% $ - June 30, 2013 31,000 100% - June 30, 2014 31,000 100% - 32 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 10— Other Postemployment Benefits (Continued) Annual Required Contribution (ARC) and OPEB Cost Summary (Continued) Funding Status and Funding Progress As of June 30, 2013, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $332,472, and the actuarial value of assets was $68,176, resulting in an unfunded actuarial liability ("UAAL") of $264,296 and a funded ratio (actuarial value of assets as a percentage of the actuarial liability) of 20.51%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about the future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Estimated Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2013 $ 68,176 $ 332,472 $ 264,296 20.51% $ 1,886,000 14.01% The schedule of funding progress for the Plan is presented as Required Supplementary Information following the Notes to the Financial Statements. These schedules show multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Note 11 — Commitments and Contingencies Risk management programs and support for the District are provided by the City of Encinitas Risk Management Department, for which the District pays the City an annual fee (charge for those services.) The District is a member of the Association of California Water Agencies - Joint Powers Insurance Authority (JPIA), which provides coverage for general liability, property and casualty, and workers' compensation. Self-insured retention levels ranges from $10,000 to $25,000. As of June 30, 2014, in the opinion of the District's management and general counsel, there were no material claims which would require accrual in the accompanying financial statements. Management has determined, based on modest self-insurance retention levels and favorable claims experience, that no self-insurance liabilities were necessary. The District has no outstanding claims as of June 30, 2014, and did not pay any claims during the fiscal year. 33 San Dieguito Water District Notes to Financial Statements (Continued) For the Years Ended June 30, 2014 and 2013 Note 12— Subsequent Events GASB Statement No. 68, Accounting and Financial Reporting for Pension Plans In June 2012, GASB issued Statement No. 68, Accounting and Financial Reporting for Pension Plans (an amendment of GASB Statement No. 27). This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures of pension plans. This statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Management is evaluating the impact of the adoption of this standard on the financial statements and believes that its impact, when adopted, may be substantial to the District. GASB Statement No. 68 will be implemented effective with the fiscal year 2014-2015 financial statements. Issuance of Debt In September 2014, the District issued its Water Revenue Refunding Bonds, Series 2014 (the "2014 Bonds"). The 2014 Bonds were issued via a competitive process, and the proceeds were used to accomplish a full refunding of the District's 2004 Water Revenue Refunding Bonds. The purpose of the refunding was to obtain lower interest rates, and thus, save the District money on future interest costs. None of the terms or conditions of the original 2004 Bonds changed; all previous covenants are still in place, and the original final stated maturity of 2024 was not modified. The District retired $8,110,000 principal amount of bonds, and replaced them with $5,870,000 principal amount of the 2014 Bonds. The reason(s) for the reduction in principal amount are: (1) elimination of the previous debt service reserve fund, and (2) the opportunity to issue premium bonds. The District achieved net present value savings or 13.5% on the refunded bonds, which translates to annual debt service savings of approximately $250,000, and a new payment (principal and interest) of about $770,000 per year for the next ten years. The transaction was a pure current refunding, which did not raise any additional funds for the District's capital program. 34 REQUIRED SUPPLEMENTARY INFORMATION San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 35 San Dieguito Water District Required Supplementary Information For the Year Ended June 30, 2014 Note 1 —Other Postemployment Employee Benefits Schedule of Funding Progress Schedule of Funding Progress Unfunded Actuarial Entry Age Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Estimated Percentage of Valuation Assets Accrued Accrued Funded Covered Covered Date Value Liability Liability Ratio Payroll Payroll June 30, 2009 $ 13,000 $ 302,000 $ 289,000 4.30% $ 1,049,000 27.55% June 30, 2011 65,000 343,000 278,000 18.95% 1,230,000 22.60% June 30, 2013 68,176 332,472 264,296 20.51% 1,886,000 14.01% 37 STATISTICAL SECTION San Dieguito Water District, 505 So. Vulcan Ave., Encinitas, CA. 92024 www.encinitasca.gov 39 San Dieguito Water District Summary of Operational Data The following tables are being presented as supplementary information based on requirements for bonds issued by SDWD for continuing bond disclosure certificate. 41 SAN DIEGUITO WATER DISTRICT Historical Debt Service Coverage Last Five Fiscal Years 2010 2011 2012 Revenues: Operating revenues-including connection fees $ 11,267,684 $ 12,574,450 $ 13,170,422 Non-operating revenues 879,477 817,872 813,610 Gross Revenues 12,147,161 13,392,322 13,984,032 Total Operating &Non-Operating Expenses 11,634,347 11,614,631 12,448,911 Net Income 512,814 1,777,691 1,535,121 Add back: Interest expense and other 749,704 725,936 698,908 Depreciation and amortization expense 1,213,640 1,196,007 1,294,904 Net Revenues Available for Debt Service $ 2,476,158 $ 3,699,634 $ 3,528,933 Less: Debt Service 2004 Water Revenue Refunding Bonds- Interest Charges $ 469,269 $ 452,244 $ 433,950 2004 Water Revenue Refunding Bonds-Principal Payments 560,000 575,000 595,000 2007 Note Payble to Financing Authority- Interest Charges 265,157 281,494 270,352 2007 Note Payble to Financing Authority-Principal Payments 335,000 350,000 365,000 Total Debt Service $ 1,629,426 $ 1,658,738 $ 1,664,302 Coverage by Net Revenues Available for Debt Service 152% 223% 212% 42 SAN DIEGUITO WATER DISTRICT Historical Debt Service Coverage Last Five Fiscal Years (Continued) 2013 2014 Revenues: Operating revenues-including connection fees $ 13,789,636 $ 15,715,575 Non-operating revenues 869,568 827,676 Gross Revenues 14,659,204 16,543,251 Total Operating &Non-Operating Expenses 12,198,228 14,066,485 Net Income 2,460,976 2,476,766 Add back: Interest expense and other 657,963 622,075 Depreciation and amortization expense 1,476,044 1,490,806 Net Revenues Available for Debt Service $ 4,594,983 $ 4,589,647 Less: Debt Service 2004 Water Revenue Refunding Bonds- Interest Charges $ 408,906 $ 380,731 2004 Water Revenue Refunding Bonds-Principal Payments 615,000 640,000 2007 Note Payble to Financing Authority- Interest Charges 256,744 241,344 2007 Note Payble to Financing Authority-Principal Payments 375,000 385,000 Total Debt Service $ 1,655,650 $ 1,647,075 Coverage by Net Revenues Available for Debt Service 278% 279% 43 TABLE 1 SAN DIEGUITO WATER DISTRICT Schedule of Water Rates As of June 30, 2014 Rate (footnote 1) Customer Class Residential Rate Tier Potable Recycled Single-family residential 0-12 units $ 2.52 13-20 units 3.76 21-40 units 4.44 41+ units 5.62 Multi-family residential (per dwelling) 0-8 units 2.52 9-12 units 3.76 13-16 units 4.44 17+ units 5.62 Agriculture 3.13 $ 2.66 Commercial 3.53 3.00 Government / Public 3.53 3.00 Landscaping 4.44 3.77 Construction 4.44 3.77 Source: San Dieguito Water District (1) Per Unit (one hundred cubic feet or 748 gallons) TABLE 2 SAN DIEGUITO WATER DISTRICT Bi-Monthly Meter Service Availability Charges As of June 30, 2014 Water Meter Service Infrastructure Fire Meter Service Availability Access Availability Meter Size Charge Charge Charge 5/8" & 3/4" $ 33.54 $ 5.30 N/A 1" 53.33 8.48 $ 7.05 1-1/2" 102.82 15.90 13.15 2" 162.20 27.56 23.66 3" 300.77 50.08 61.41 4" 498.70 86.92 126.51 6" 993.56 159.00 360.16 8" 1,587.39 275.60 763.17 Source: San Dieguito Water District (2) San Dieguito charges a bi-monthly service availability charge, which covers the costs for the maintenance of meters, water lines, and storage facilities, to ensure that water is available upon demand. This charge also covers customer service costs for meter reading and billing. The infrastructure access charge is levied by the San Diego County Water Authority, and is collected from the customer by the District. 44 TABLE 3 SAN DIEGUITO WATER DISTRICT Historic Potable Water System Revenues Last Ten Fiscal Years Meter Fiscal Potable Percent Availability Percent Year Water Sales Change (2) Charges Change (2) 2005 $ 5,252,235 8.0% $ 1,877,863 10.5% 2006 6,465,975 23.1% 2,061,454 9.8% 2007 7,579,205 17.2% 2,251,011 9.2% 2008 7,717,818 1.8% 2,404,547 6.8% 2009 7,525,927 -2.5% 2,453,075 2.0% 2010 7,146,854 -5.0% 2,501,264 2.0% 2011 8,205,876 14.8% 3,007,127 20.2% 2012 8,528,418 3.9% 3,196,605 6.3% 2013 9,236,462 8.3% 3,087,794 -3.4% 2014 10,649,157 15.3% 3,227,823 4.5% Source: San Dieguito Water District (3) Due to the varying number of billing cycles in a fiscal year, changes year-over-year may of be exactly comparable. TABLE 4 SAN DIEGUITO WATER DISTRICT Historic Recycled Water System Revenues Last Ten Fiscal Years Meter Fiscal Recycled Percent Availability Percent Year Water Sales Change Charges (4) Change 2005 $ 387,607 -8.0% $ - N/A 2006 454,145 17.2% - N/A 2007 596,299 31.3% - N/A 2008 600,401 0.7% - N/A 2009 663,036 10.4% - N/A 2010 537,654 -18.9% - N/A 2011 523,397 -2.7% - N/A 2012 422,925 -19.2% - N/A 2013 400,244 -5.4% - N/A 2014 460,383 15.0% 60,048 N/A Source: San Dieguito Water District (4) The District first implemented a meter availability charge for recycled customers on September 1, 2013. 45 TABLE 5 SAN DIEGUITO WATER DISTRICT Summary of Water Production by Source Last Ten Fiscal Years Potable Production (5) Fiscal Local Imported Total Recycled Total Year Water Water Potable Water Production 2005 1,705 5,602 7,307 595 7,902 2006 2,765 5,093 7,858 600 8,458 2007 2,706 5,692 8,398 708 9,106 2008 3,539 3,753 7,292 676 7,968 2009 3,869 3,369 7,237 694 7,931 2010 4,399 2,156 6,555 498 7,053 2011 4,434 1,901 6,335 511 6,846 2012 3,719 2,663 6,382 578 (6) 6,960 2013 4,200 2,395 6,595 678 (6) 7,273 2014 1,136 5,593 6,729 692 7,421 Source: San Dieguito Water District (5) Water Production is defined as water either produced locally or purchased (expressed in acre-feet) TABLE 6 SAN DIEGUITO WATER DISTRICT Summary of Water Deliveries by Source Last Ten Fiscal Years Fiscal Percent Percent Year Potable Change Recycled Change 2005 6,719 -6.8% 595 -16.3% 2006 7,281 8.4% 600 0.8% 2007 7,592 4.3% 708 18.0% 2008 6,753 -11.1% 676 -4.5% 2009 6,463 -4.3% 694 2.7% 2010 5,649 -12.6% 498 -28.2% 2011 5,425 -4.0% 511 2.6% 2012 5,957 9.8% 578 (6) 13.1% 2013 6,284 5.5% 678 (6) 17.3% 2014 6,449 2.6% 692 2.1% Source: San Dieguito Water District (6) 2012 and 2013 Recycled Water Production and Delivery figures revised to now include water provided to the Encinitas Ranch Golf Course (ERGA). Beginning in 2012, the San Elijo Joint Powers Authority (SEJPA) began directly providing recycled water to ERGA and the District ceased selling recycled water to ERGA. The recycled water provided to ERGA credits towards the Districts production and delivery as ERGA falls within the District's sphere of influence. The differences between potable water production and deliveries represents water loss in the distribution system and/or water pumped or used through the fire distribution system. 46 TABLE 7 SAN DIEGUITO WATER DISTRICT Ten Largest Customers As of June 30, 2014 Acre-Feet Percent of Customer Description Sold Water Sold City of Encinitas 124 1.9% Park Place Bluffs 80 1.2% Cardiff by the Sea Apartments 62 1.0% Scripps Memorial Hospital 56 0.9% Leucadia Seabluff Village 48 0.7% Encinitas Ranch Community Association 47 0.7% Skyloft Homeowners 45 0.7% LF Encinitas Properties, LLC 44 0.7% Seacrest Village 43 0.7% Cal West Enterprises 38 0.6% Subtotal - Top 10 Customers 587 9.1% Total Sold 6,449 Source: San Dieguito Water District TABLE 8 SAN DIEGUITO WATER DISTRICT Total Service Connections by Category Last Ten Fiscal Years Fiscal Percent Percent Year Potable Change Recycled Change 2005 11,268 0.9% 49 11.4% 2006 11,275 0.1% 55 12.2% 2007 11,338 0.6% 56 1.8% 2008 11,364 0.2% 59 5.4% 2009 11,370 0.1% 68 15.3% 2010 11,388 0.2% 73 7.4% 2011 11,397 0.1% 72 -1.4% 2012 11,476 0.7% 74 2.8% 2013 11,502 0.2% 77 4.1% 2014 11,610 0.9% 77 0.0% Source: San Dieguito Water District (8) The decline of one connection in 2011 reflects the change in the contract arrangement with the Encinitas Ranch Golf Course. 47