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Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Statement of Governmental Fund Revenues, Expenditures and Changes in Fund Balance/Statement of Activities Year Ended June 30, 2007 General Fund Adjustments Revenues Property taxes Fines, fees and other Investment income State aid Federal and state grants $ (400,227) $ (142,867) — — 37,622,692 810,118 2,766,533 277,331 25,845 42,045,613 (543,094) 41,502,519 20,120,860 9,356,416 5,690,605 3,888,266 — (6,715) (6,458,031) (3,539,668) (859,145) 6,830,465 20,114,145 2,898,385 2,150,937 3,029,121 6,830,465 39,056,147 (4,033,094) 35,023,053 Excess of Revenues over Expenses 2,989,466 3,490,000 6,479,466 Other Financing Sources Bond proceeds 9,984,016 (9,984,016) — Change in Net Assets 12,973,482 (6,494,016) 6,479,466 Fund Balance – Net Assets, Beginning of Year 41,824,984 54,089,210 95,914,194 Fund Balance – Net Assets, End of Year $ 54,798,466 $ 47,595,194 $ 102,393,660 Total revenues Expenditures/Expenses Salaries and benefits Periodicals and other library materials Occupancy expense General and administrative Depreciation Total expenditures/expenses See Notes to Financial Statements $ 37,622,692 1,210,345 2,909,400 277,331 25,845 Statement of Activities $ 8 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Reconciliation of the Statement of Activities with Governmental Fund Revenues, Expenditures and Changes in Fund Balance Year Ended June 30, 2007 Net change in fund balances – total governmental funds $ Amounts reported for governmental activities in the statement of activities are different because governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays ($10,478,947) exceeded depreciation ($6,830,465). 12,973,482 3,648,482 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds: • • • This is the amount by which noncurrent early retirement benefits increased during the period. (6,715) The issuance of long-term debt provides current financial resources to governmental funds; however, it has no effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and other similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. (9,875,207) In the statement of activities, gain or loss from the sale of capital assets is reported, whereas on the governmental funds, only the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of capital assets sold. (260,576) Change in net assets in governmental activities See Notes to Financial Statements $ 6,479,466 9 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations The Library District, organized under the Revised Statutes of the State of Missouri, provides library services to portions of Clay, Platte and Jackson counties, which district excludes the area serviced by the Kansas City Public Library District and the North Kansas City Public Library. The District currently operates 30 branches, with its main offices and distribution center in Independence, Missouri. Accounting Method Fund Accounting The accounts of the Library are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts, which comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses. As the Library’s sole purpose is the operation of its library system, the Library maintains only a general fund. Government-wide and Fund Financial Statements The government-wide financial statements are presented on the economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the Library’s assets and liabilities, including capital assets as well as long-term liabilities, are included in the accompanying statement of net assets. The statement of activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements report using the current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues and receivables are recognized when measurable and available for payment of current liabilities. The Library considers revenues to be available if they are anticipated to be collected within 60 days of the end of the fiscal year. Expenditures are recorded when the related fund liability is incurred. Certain revenues are recorded when cash is received because they are generally not measurable until actually received. Interest is recorded when earned since it is measurable and available. 10 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 The general fund is used to account for all financial transactions that are a part of the Library’s annual operating budget and are primarily funded through property tax revenues. Property Tax Revenues Valuations are established as of January 1, and tax bills are due November 1 and become delinquent on the following January 1. Substantially all tax revenues applicable to the proceeding calendar year are received by the District by each June 30. Property taxes are recognized as revenue in the period for which the taxes are levied. The Library received approximately 97% of its financial support (exclusive of investment income) from property taxes during the year ended June 30, 2007. Cash Equivalents The Library considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2007, cash equivalents consisted of a money market account. Investments Investments in nonnegotiable certificates of deposit are carried at amortized cost. All other investments are carried at fair value. Fair value is determined using quoted market prices for all investments carried at fair value other than collateralized mortgage obligations. Fair value of collateralized mortgage obligations is estimated using a published pricing service. Investment income includes interest income and the net change for the year in the fair value of investments carried at fair value. Investment income is assigned to the fund with which the related investment asset is associated. Net Assets Reserves are reported in the governmental fund statements to indicate that a portion of the fund balance is restricted by law or contract for a specific purpose. Designated net assets remain under control of the Library’s Board of Directors, which, at its discretion, can use the funds for other purposes. Of the $45,788,755 in unrestricted net assets reported at June 30, 2007, $28,661,638 (consisting of investments, cash and interest receivable) has been designated by the Library’s Board of Directors for capital additions. 11 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 In the government-wide statements, equity is classified as net assets and displayed in three components: • Invested in Capital Assets, Net of Related Debt – consists of capital assets, including restricted capital assets, net of accumulated depreciation and capitalized debt issuance costs, reduced by the net outstanding balances of any bonds, mortgages, 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 by either (1) external groups such as creditors, grantors, contributors or laws or regulations of other governments or (2) 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.” Prepaid Subscriptions The costs incurred in the purchase of subscriptions to periodicals and books are amortized over the terms of the subscriptions. Subscription terms are usually one year or less. Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair value at the date of donation if acquired by gift. Depreciation is computed using the straight-line method over the estimated useful life of each asset. (Also see Note 4) Compensated Absences Library policies permit most employees to accumulate vacation and sick leave benefits that may be realized as paid time off or, in limited circumstances, as a cash payment. Expense and the related liability are recognized as vacation benefits are earned whether the employee is expected to realize the benefit as time off or in cash. Expense and the related liability for sick leave benefits are recognized when earned to the extent the employee is expected to realize the benefit in cash determined using the termination payment method. Sick leave benefits expected to be realized as paid time off are recognized as expense when the time off occurs and no liability is accrued for such benefits employees have earned but not yet realized. Compensated absence liabilities are computed using the regular pay and termination pay rates in effect at the statement of net assets date. 12 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 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 contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Risk Management The Library is exposed to various risks of loss from torts; theft of, damage to and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental and accident benefits. Commercial insurance coverage is purchased for claims arising from such matters. Settled claims have not exceeded this commercial coverage in any of the three preceding years. Note 2: Pension Plans Multi-Employer Plan Plan Description The Mid-Continent Public Library participates in the Missouri Local Government Employees Retirement System (LAGERS), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for local government entities in Missouri. LAGERS is a defined benefit pension plan which provides retirement, disability and death benefits to plan members and beneficiaries. LAGERS was created and is governed by statute, Section RSMo. 70.600 – 70.755. As such, it is the system’s responsibility to administer the law in accordance with the expressed intent of the General Assembly. The plan is qualified under the Internal Revenue Code Section 401(a) and is tax exempt. The Missouri Local Government Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to LAGERS, P. O. Box 1665, Jefferson City, Missouri 65102, or by calling 1-800-447-4334. Funding Status The Mid-Continent Public Library’s salaried employees do not contribute to the pension plan. The political subdivision is required by state statute to contribute at an actuarially determined rate; the current rate is 16.8% of annual covered payroll. The contribution requirements of plan members are determined by the governing body of the political subdivision. The contribution provisions of the political subdivision are established by state statute. 13 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 Annual Pension Cost For 2007, the political subdivision’s annual pension cost of $1,980,706 was equal to the required and actual contributions. The required contribution was determined as part of the February 28, 2005 and/or February 28, 2006 annual actuarial valuation using the entry age actuarial cost method. The actuarial assumptions as of February 28, 2007 included (a) a rate of return on the investment of present and future assets of 7.5% per year, compounded annually, (b) projected salary increases of 4.0% per year, compounded annually, attributable to inflation, (c) additional projected salary increases ranging from 0.0% to 6.0% per year, depending on age and division, attributable to seniority/merit, (d) pre-retirement mortality based on the RP-2000 Combined Healthy Table set back 0 years for men and 0 years for women and (e) post-retirement mortality based on the 1971 Group Annuity Mortality Table projected to 2000 set back one (1) year for men and seven (7) years for women. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The amortization period at February 28, 2007 was 15 years. Annual Pension Cost Three Year Trend Information Fiscal Year Ended June 30, 2005 June 30, 2006 June 30, 2007 Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation $ 1,776,857 $ 1,892,574 $ 1,980,706 100% 100% 100% $0 $0 $0 Tax Deferred Annuity Plan During 1994, in order to provide additional retirement benefits for eligible employees, the Library adopted a tax deferred annuity plan underwritten by The Variable Annuity Life Insurance Company. The tax deferred annuity plan is a voluntary plan in which all full or part-time employees are eligible to contribute a portion of their gross salary into a tax-deferred annuity. The Library does not contribute to this plan. 14 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 Note 3: Deposits, Investments and Investment Income Deposits Custodial credit risk is the risk that, in the event of a bank failure, a government’s deposits may not be returned to it. The Library’s deposit policy for custodial credit risk requires compliance with the provisions of state law. State law requires collateralization of all deposits with federal depository insurance; bonds and other obligations of the U.S. Treasury, U.S. agencies or instrumentalities or the state of Missouri; bonds of any city, county, school district or special road district of the state of Missouri; bonds of any state; or a surety bond having an aggregate value at least equal to the amount of the deposits. The Library had no bank balances exposed to custodial credit risk at June 30, 2007. Investments The Library may legally invest in direct obligations of and other obligations guaranteed as to the principal by the U.S. Treasury, certain U.S. agencies and instrumentalities, states and certain other political subdivisions. At June 30, 2007, the Library had the following investments and maturities: Maturities in Years Type U.S. agency and instrumentality obligations Repurchase agreements Money market funds Fair Value Less than 1 1-5 More than 10 $46,087,338 2,497,549 1,321,574 $33,860,872 2,497,549 1,321,574 $12,226,466 — — $ — — — $ — — — $49,906,461 $37,679,995 $12,226,466 $ 0 $ 0 6-10 Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Library’s investment policy states no funds shall be invested in obligations which are to mature beyond the date that the funds are needed for purposes for which they were received by the Consolidated Public Library District. Credit Risk. Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. The Library’s investment policy does not address credit risk. At June 30, 2007, the Library’s investments in U.S. agencies obligations not directly guaranteed by the U.S. government were rated AAA by Standard & Poor’s. Repurchase agreements and money market investments are unrated. 15 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 Concentration of Credit Risk. The Library places no limit on the amount that may be invested in any one issuer. At June 30, 2007, the Library’s investment in collateralized mortgage obligations issued by the U.S. government agencies, repurchase agreements and money market funds are as follows: Federal Home Loan Mortgage Corporation Federal National Mortgage Association Federal Home Loan Bank UMB Bank, N.A. Other 39% 28% 27% 5% 1% 100% Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Library will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. All of the underlying securities for the Library’s investments in repurchase agreements at June 30, 2007 are held by the counterparties in the Library’s name. The Library’s investment policy does not address how securities underlying repurchase agreements are to be held. The Library’s policy is to collateralize the demand deposits and repurchase agreements with securities held by the financial institution’s agent and in the Library’s name. Because security investments were held by the financial institution and in the Library’s name, none of the Library’s deposits or investments was exposed to custodial credit risk as of June 30, 2007. Summary of Carrying Values The carrying values of deposits and investments shown above are included in the statement of net assets at June 30, 2007 as follows: Carrying value Deposits Investments $ 6,368,581 49,906,461 $ 56,275,042 16 Consolidated Public Library District No. 3 Known As Mid-Continent Public Library Notes to Financial Statements June 30, 2007 Included in the following statement of net assets captions: Cash and cash equivalents Cash and cash equivalents—designated $ 6,368,581 3,819,123 10,187,704 Investments Investments—designated 21,421,783 24,665,555 46,087,338 $ 56,275,042 Investment Income Investment income for the year ended June 30, 2007 consisted of: Interest Net decrease in fair value of investments Note 4: $ 3,121,832 (212,432) $ 2,909,400 Changes in Capital Assets Capital Assets A summary of the Library’s capital assets activity for the year ended June 30, 2007 is as follows: Balance June 30, 2006 Buildings Library collection Furniture and equipment Land improvements Vehicles Accumulated depreciation Net depreciable assets Construction in progress Land Total $ Increases 25,429,585 $ 1,623,176 110,712,298 6,458,031 8,587,107 278,747 196,946 — 263,293 71,238 (98,013,669) 241,436 47,175,560 2,873,050 4,218,797 8,672,628 479,209 1,649,702 $ 54,267,407 $10,801,539 Decreases $ Transfers 438,045 $ 2,873,050 — — — — — — 18,405 — (6,830,465) — (6,374,015) — 45,562 $(6,328,453) $ 2,873,050 (2,873,050) — 0 Balance June 30, 2007 Useful Life $ 29,487,766 35 years 117,170,329 10 years 8,865,854 5-10 years 196,946 5-7 years 316,126 5 years (104,602,698) 51,434,323 479,209 5,822,937 $ 57,736,469 17