Paris Economic Development Corp. FY 2005-06
Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Independent Auditors' Report
and Financial Statements
For the Year Ended September 30, 2006
Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Table of Contents
September 30, 2006
Independent Auditors' Report
Financial Statements:
Governmental Funds Balance Sheet/Statement of Net Assets
2
Statement of Revenues, Expenditures, and Changes in Fund Balances/
Statement of Activity
3
Notes to Financial Statements
4
Required Supplementary Information - Budgetary Comparison Schedule -
General Fund
8
Notes to Required Supplementary Information
9
Continuing Disclosure Information (Unaudited)
10
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MCCLANAHAN AND HOLMES, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Independent Auditors' Report
228 SIXTH STREET, S.E.
PARIS, TEXAS 75460
903.784-4316
FAX 903-784-4310
304 WEST CHESTNUT
DENISON, TEXAS 75020
903-465.6070
FAX 903.465.6093
1400 WEST RUSSELL
BONHAM, TEXAS 75418
903.583.5574
FAX 903-583-9453
R. FRANK RAY, CPA
R. E. BOSTWICK, CPA
STEVEN W. MOHUNDRO, CPA
GEORGE H. STRUVE, CPA
ANDREW B. REICH, CPA
Board of Directors
Paris Economic Development Corporation
Paris, Texas
We have audited the accompanying financial statements of Paris Economic Development Corporation (PEDe), a
component unit of the City of Paris, Texas, as of and for the year ended September 30, 2006, as listed in the table of
contents. These [mancial statements are the responsibility ofPEDC's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall fmancial statement
presentation. We believe that our audit provides us with a reasonable basis for our opinion.
PEDC has not provided a valuation allowance for a note receivable which may not be fully collectable. In our
opinion such allowance should be provided in order to conform with accounting principles generally accepted in the
United States of America. This matter is further discussed in note 5 to the financial statements.
In our opinion, except for the effects of not providing a valuation allowance as discussed above, the financial
statements referred to above present fairly, in all material respects, the financial position of Paris Economic
Development Corporation as of September 30, 2006, and the results of its activities for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The
Continuing Disclosure Information is presented for purposes of additional analysis and is not a required part of the
financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the
financial statements, and accordingly, we express no opinion on it.
The budgetary comparison information on Page 8 is not a required part of the financial statements but is
supplementary information required by accounting principles generally accepted in the United States of America.
We have applied certain limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary information. However, we did not audit
the information and express no opinion on it.
PEDC has not presented Management's Discussion and Analysis which accounting principles generally accepted in
the United States has determined is necessary to supplement, although not required to be part of, the financial
statements.
rhdLcww~ owl /I~, (LI
Certified Public Accountants
January 4, 2007
Paris, Texas
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
I Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
I Governmental Funds Balance Sheet/Statement of Net Assets
September 30, 2006
I General Debt Service Governmental
Fund Fund Total Adjustrnents* Activities
I ASSETS
Cash and Cash Equivalents $ 793,565 $ $ 793,565 $ $ 793,565
Investments 483,332 483,332 483,332
Accounts Receivable -
Sales Tax 185,574 185,574 185,574
Accrued Interest Receivable 11,059 11,059 11,059
Restricted Assets
Bond Debt Service Fund
Cash and Cash Equivalents 56,218 56,218 56,218
Bond Reserve Fund
Cash and Cash Equivalents 428,807 428,807 428,807
Notes Receivable 4,259,090 4,259,090 4,259,090
Land Development Costs 1,275,215 1,275,215 1,275,215
Total Assets $ 7,007,835 $ 485,025 $ 7,492,860 $ $ 7,492,860
LIABILITIES
Liabilities Payable
from Restricted Assets
Current Portion of Bonds Payable $ $ $ $ (180,000) $ (180,000)
Accrued Interest Payable (17,286) (17,286)
Notes Payable -
Due Within One Year (406,322) (406,322)
Notes Payab1e-
Net of Current Portion ( 642,890) ( 642,890)
Bonds Payable -
Net of Current Portion (2,950,000) (2,950,000)
Total Liabilities (4,196,498) (4,196,498)
FUND BALANCES/NET ASSETS
Fund Balances:
Reserved for
Long-term Notes Receivable 4,069,211 4,069,211 4,069,211
Reserved for Land Development Costs 1,275,215 1,275,215 1,275,215
Reserved for Debt Service 287,739 287,739 287,739
Umeserved 1,663,409 197,286 1,860,695 1,860,695
Total Fund Balances 7,007,835 485,025 7,492,860 7,492,860
Total Liabilities and Fund Balances $ 7,007,835 $ 485,025 $ 7,492,860
Net Assets:
Restricted for Debt Service (287,739) 287,739
Unrestricted (3,008,623) 3,008,623
Total Net Assets $ $ 3,296,362
*Primari1y long-term liabilities not reported in the funds
See accompanying notes to fmancial statements.
2
J Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Statement of Revenues, Expenditures, and Changes in Fund Balances/Statement of Activity
For the Year Ended September 30, 2006
j Debt Statement
General Service of
Fund Fund Total Adjustments * Activities
Revenues:
Sales Tax $ 1,080,270 $ $1,080,270 $ $1,080,270
Investment Earnings 250,424 19,249 269,673 269,673
Total Revenues 1,330,694 19,249 1,349,943 1,349,943
Expenditures:
Industrial Support and Incentives 107,725 107,725 107,725
Office Supplies and Postage 5,855 5,855 5,855
Commuications 1,878 1,878 1,878
Special Service Fees 15,772 15,772 15,772
Travel Expenses 28,965 28,965 28,965
Public Notices 505 505 505
Furniture and Fixtures 5,892 5,892 5,892
Contractual Associations 3,606 3,606 3,606
Promotional Advertising 53,276 53,276 53,276
Administration Fee 10,000 10,000 10,000
Personnel Compensation 118,079 118,079 118,079
Legal and Accounting 4,150 4,150 4,150
Debt Service
Principal 389,255 165,000 554,255 (554,255)
Interest 56,882 221,224 278,106 (1,066) 277,040
Total Expenditures 801,840 386,224 1,188,064 (555,321) 632,743
Excess of Revenues
Over Expenditures 528,854 (366,975) 161,879 555,321 717,200
Other Financing SourceslUses:
Transfers - Internal Activities (412,000) 412,000
Excess of Revenues and Other Sources
Over Expenditures and Other Uses 116,854 45,025 161,879 555,321 717,200
Fund BalanceslNet Assets:
Beginning of the Year 6,890,981 440,000 7,330,981 (4,751,819) 2,579,162
End of the Year $ 7,007,835 $ 485,025 $7,492,860 $ (4,196,498) $ 3,296,362
*Primarily long-tenn liabilities not reported in the funds
See accompanying notes to fmancia1 statem~nts.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Notes to Financial Statements
September 30, 2006
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Note 1: Organization
I
The Paris Economic Development Corporation (PEDe) is a governmental non-profit corporation
established July 19, 1993, funded by a quarter percent sales tax. PEDC was organized exclusively
for the purpose of benefiting and accomplishing public purposes of the City of Paris, Texas, by
promoting, assisting, and enhancing economic development activities for the City as provided by the
Development Corporation Act of 1979. PEDC is a component unit of the City of Paris, Texas, and
the business and affairs are managed by a five-member board of directors appointed by the governing
body of the City of Paris, Texas.
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Note 2: Summary of Significant Accounting Policies
A. Measurement Focus, Basis of Accounting, and Basis of Presentation
I
The accounting policies of PEDC conform to accounting principles generally accepted in the United
States of America as applicable to governments. The following is a summary of the more significant
accounting policies:
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Financial Statements - Combined Governmental Funds and Government-wide Statements
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PEDC's financial statements include both government-wide (reporting the unit as a whole) and
fund fmancial statements (reporting PEDC's major funds).
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In the Statement of Net Assets, the governmental activities column is reported on a full accrual,
economic resource basis, which recognizes all long-term assets and receivables as well as long-
term debt and obligations, if any. Net assets are reported in two parts - restricted for debt expense
and unrestricted net assets.
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The Statement of Activities reports both the gross and net cost of PEDC's function (economic
development), Economic development is supported by general government revenues (sales tax,
interest on investments, etc.).
)
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The fmancia1 transactions of PEDC are reported in two individual funds in the combined fmancial
statements. These funds are accounted for by providing a separate set of self-balancing accounts
that comprise their assets, liabilities, fund equity, revenues, and expenditures/expenses. The focus
of the governmental funds' measurement (in the fund statements column) is upon determination of
financial position and changes in financial position (sources, uses, and balances of financial
resources) rather than upon net income. The following is a description of the governmental funds
ofPEDC:
I
General Fund - The General Fund is the general operating fund and is used to account for all
financial resources except those required to be accounted for in another fund.
Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources
for, and the payment of, general long-term debt.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Notes to Financial Statements (Continued)
September 30, 2006
Note 2: summary of Significant Accounting Policies (Continued)
B. Assets, Liabilities, and Net Assets
1) Deposits and Investments
Cash and cash equivalents are considered to be cash on hand, demand deposits, and short-
term investments with original maturities of three months or less from the date of
acquisition,
Investments are stated at market value.
2) Restricted Assets and Fund Balance Reserves
]
Certain resources set aside for repayment of revenue bonds and related interest are
classified as restricted assets on the balance sheet because their use is limited by applicable
bond covenants. The Debt Service Fund is used to accumulate resources for debt service
payments over the next twelve months. Governmental funds report reservations of fund
balances for amounts that are not considered a current fmancial resource,
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The Reserve Fund is accumulated for the purpose of retiring the last of any bonds as they
become due or for debt service when the Debt Service Funds are insufficient.
3) Land Development Cost - Industrial Park
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PEDC has acquired land and added improvements to develop an industrial park which is to
be divided and sold to businesses wanting to locate their facilities in such an area.
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4) Use of Estimates
fi
The preparation of fmancia1 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 at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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Note 3: Deposits and Investments
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PEDC maintains accounts in several fmancia1 institutions. At September 30, 2006, the carrying
amount of demand deposits and certificates of deposit was $790,806 and the bank balance was
$854,787 which was covered by federal depository insurance in the amount of $675,800 leaving
$178,987 which was exposed to custodial credit risk since all deposits were not insured.
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Note 4: Public Funds Investment Pools
Public funds investment pools in Texas (Pools) are established under authority of the Interlocal
Cooperation Act, Chapter 79 of the Texas Government Code, and are subject to the provisions of the
Public Funds Investment Act (the Act), Chapter 2256 of the Texas Government Code. In addition to
other provisions of the Act designed to promote liquidity and safety of principal, the Act requires
Pools to: I) have an advisory board composed of participants in the Pool and other persons who do
not have a business relationship with the Pool and are qualified to advise the Pool; 2) maintain a
continuous rating of no lower than AAA or AAA-m or an equivalent rating by at least one nationally
recognized rating service;' and 3) maintain the market value of its underlying investment portfolio
within one-half of one percent of the values of its shares.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Notes to Financial Statements (Continued)
September 30, 2006
Note 4: Public Funds Investment Pools (Continued)
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PEDC's investments in Pools are reported at an amount determined by the fair value per share of the
Pool's underlying portfolio, unless the Pool is 2a7-like, in which case they are reported at share
value. A 2a7-like Pool is one which is not registered with the Securities and Exchange Commission
(SEe) as an investment company, but nevertheless has a policy that it will, and does, operate in a
manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940,
Temporary investments at September 30, 2006, are invested in Lone Star Investments ($392,557)
(Texas Political Subdivisions Investment Pool) and MBIA Municipal Investors Service Corp.
($578,559). These investments are reported with the bank accounts as Cash and Cash Equivalents.
Note 5: Notes Receivable
PEDC has a note receivable bearing interest at 7.00% from a corporation located in Paris, Texas, to
assist with the purchase of an existing business, The note is due in monthly installments of principal
and interest of $32,000 through April 15, 2017, at which time the remaining principal is due. This
note is secured by a security agreement, which lists PEDC as having a subordinate interest in all
respects to the [mancial institution involved and to other individuals as listed in the security
agreement. The balance of this note at September 30,2006, was $2,859,090.
PEDC has a second non-interest bearing note receivable from a Minnesota corporation to assist with
plans to create and operate a computer services business in Paris, Texas. The note is due in annual
installments of $100,000 beginning June 15, 2005, with the provision that the corporation shall
receive credits against the annual principal installments equal to $1 for every $10 in salaries which
the corporation pays during the preceding year to all new employees working for the corporation in
Paris, Texas. The balance of this note at September 30, 2006, was $1,400,000. The maximum
amount of the credit allowed in any twelve month period shall not exceed the annual loan payment.
At year end, the loan was not in compliance with the agreement and PEDC has been furnished
information indicating that recovery may not be according to contractual terms. The amount which
may not be collected cannot be reasonably determined at this time.
Note 6: Notes and Bonds Payable
PEDC has executed a note payable to fund an incentive agreement with a corporation planning to
create and operate a computer services business in Paris, Texas. The note bears interest at a rate of
3.692% with principal and interest payments due on a monthly basis. The note is secured by a tax
assignment and security agreement. It also contains, to the extent permitted by law, a right of setoff
in all accounts PEDC has with the lender. The balance of the note at September 30, 2006, was
$371,360.
A second note has also been executed to fund this incentive agreement and funding for an industrial
park. This note bears interest at a rate of 4.942% with principal and interest payments due on a
monthly basis. The note is secured by a tax assignment and security agreement. It also contains, to
the extend permitted by law, a right of setoff in all accounts PEDC has with the lender. The balance
of the note at September 30,2006, was $677,852.
PEDC has outstanding Paris Economic Development Corporation Taxable Sales Tax Revenue
Bonds, Series 1998 originally issued at $4,200,000, bearing interest at 6.625% to 7.75%. Principal
payments are due serially in varying annual amounts to September 1, 2018, from $180,000 to
$365,000.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Notes to Financial Statements (Continued)
September 30, 2006
Note 6: Notes and Bonds Payable (Continued)
Sales and Use Taxes (one-quarter of one percent) levied by the City of Paris, Texas, within its
boundaries under the Development Corporation Act of 1979, are pledged for payment of bonds and
interest. The resolution authorizing the issuance of the bonds requires that monthly deposits be made
to the Debt Service Fund in an amount sufficient to pay the next maturing bonds and interest.
A Reserve Fund is required to be maintained with a balance of at least $388,708, the average annual
principal and interest requirements of the bonds. At September 30, 2006, the balances in the Debt
Service Fund and Reserve Fund are $56,218 and $428,807, respectively,
Debt Service requirements related to these bonds and the note are as follows:
Year Ending Bonded Debt Requirements Note Payable Note Payable
September 30, Principal Interest Principal Interest Principal Interest Total
2007 $ 180,000 $ 207,436 $ 209,299 $ 10,340 $ 197,023 $ 29,477 $ 833,575
2008 190,000 193,486 162,061 2,549 207,058 19,442 774,596
2009 200,000 178,761 217,733 8,767 605,261
2010 215,000 166,261 56,038 473 437,772
2011 230,000 152,716 382,716
2012-2016 1,410,000 520,261 1,930,261
2017-2018 705,000 70,888 775,888
$ 3,130,000 $ 1,489,809 $ 371,360 $ 12,889 $ 677,852 $ 58,159 $ 5,740,069
I A summary oflong-term liability transactions for the year ended September 30, 2006 follows:
Balance Balance
September 30, September 30,
2005 Additions Reductions 2006
I Bonded Debt $ 3,295,000 $ $ 165,000 $ 3,130,000
Note Payable 573,083 201,723 371,360
Note Payable 865,384 187,532 677,852
Total $ 4,733,467 $ $ 554,255 $ 4,179,212
Note 7: Commitments
There are currently no outstanding incentive agreements by PEDC except the one discussed in Note
5.
Note 8: Risk Management
PEDC is exposed to various risks of loss and has obtained insurance related to general liability, loan
enforcement liability, errors and omissions liability, and automobile liability.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Required Supplementary Information
Budgetary Comparison Schedule - General Fund
For the Year Ended September 30, 2006
i
Variance with
Final Budget
Budgeted Amounts Actual Positive
Original Final Amounts (Negative )
Revenues:
Sales Tax $ 970,000 $ 970,000 $ 1,080,270 $ 110,270
Investment Earnings 5,000 5,000 250,424 245,424
Total Revenues 975,000 975,000 1,330,694 355,694
l Expenditures:
Industrial Support and Incentives 722,544 722,544 107,725 614,819
l Office Supplies and Postage 14,500 , 14,500 5,855 8,645
Commuications 1,300 1,300 1,878 (578)
Special Service Fees 3,000 3,000 15,772 (12,772)
Furniture and Fixtures 5,100 5,100 5,892 (792)
) Travel Expenses 29,000 29,000 28,965 35
Public Notices 500 500 505 (5)
Miscellaneous 1,000 1,000 1,000
I Contractual Associations 4,000 4,000 3,606 394
Promotional Advertising 40,000 40,000 53,276 (13,276)
Administration Fee 10,000 10,000 10,000
I Personnel Compensation 115,289 115,289 118,079 (2,790)
Legal and Accounting 3,750 3,750 4,150 (400)
Contingency 1,000 1,000 1,000
Debt Service
Principal 446,138 446,138 389,255 56,883
Interest 56,882 (56,882)
Total Expenditures 1,397,121 1,397,121 801,840 595,281
Excess of Revenues
Over Expenditures (422,121) (422,121) 528,854 950,975
Other Financing SourceslUses:
Transfer to Debt Service Fund (387,000) (387,000) (412,000) (25,000)
Total Other Financing SourceslUses (387,000) (387,000) (412,000) (25,000)
Net Change in Fund Balances (809,121) (809,121) 116,854 925,975
Fund BalanceslBeginning of the Year 6,890,981 6,890,981 6,890,981
End of the Year $ 6,081,860 $ 6,081,860 $ 7,007,835 $ 925,975
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Notes to Required Supplementary Information
September 30, 2006
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Budgetary Data
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PEDC's fiscal year commences October 1 and ends September 30. A budget for the forth coming
fiscal year shall be submitted to, and approved by the Board in June and delivered to the City on or
before June 30. After Board approval, the budget on appropriate forms is submitted to the City
Manager for inclusion in the annual budget of the City of Paris. The budget is to include projected
operating expenses and such other budgetary information as shall be useful to or appropriate for the
Board and the City.
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The proposed budget shall contain such classifications and shall be in such form as may be
prescribed from time to time by the Council of the City of Paris. The budget shall not be effective
until it has been approved by the City Council.
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The Budgetary Comparison Schedule presented as Required Supplementary Information for the
General Fund is presented to provide a meaningful comparison of actual results with the budget. For
the year ended September 30, 2006, expenditures exceeded budgeted amounts in the General Fund in
Communications, Special Service Fees, Furniture and Fixtures, Public Notices, Promotional
Advertising, Personnel Compensation, Legal and Accounting, Interest and Transfer to Debt Service.
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Paris Economic Development Corporation
(A Component Unit of the City of Paris, Texas)
Continuing Disclosure Information
(Unaudited)
Sales Tax Collections
The following table shows Sales Tax Collections for the Paris Economic Development Corporation's 1/4%
sales tax for the five years ended September 30, 2006:
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2005-06 2004-05 2003-04 2002-03 2001-02
October $ 78,521.27 $ 70,285.42 $ 65,923.96 $ 68,571.50 $ 45,155.74
November 101,335.94 100,256.78 94,123.54 103,503.28 93,197.03
December 78,925.11 67,281.60 70,572.68 67,994.97 71,448.97
January 76,474.78 72,957.02 65,910.92 67,958.27 60,777.95
February 122,263. 65 118,587.03 108,397.88 104,726.44 123,239.11
March 77,196.42 69,789.83 69,157.00 62,995.32 56,620.80
April 62,161.14 68,029.22 65,462.23 60,076.19 61,840.09
May 110,259.06 101,310.24 99,416.34 92,500.48 88,392.63
June 87,009.11 73,271.56 70,797.62 70,048.21 69,311.76
July 82,354.41 77,849.58 73,846.17 76,369.23 68,869.33
August 109,883.37 100,414.56 101,302.10 86,326.04 90,410.02
September 87,089.96 80,952.28 78,887.97 75,461.24 73,235.34
Totals $1,073,474.22 $ 1,000,985.12 $ 963,798.41 $ 936,531.17 $ 902,498.77
Pro Forma Bonded Debt Service Coverage
Maximum Annual Debt Service Requirement (2018) $ 389,181
Projected Annual Sales Tax Receipts 2006-07 $ 1,000,000
(Pledged Revenues are gross 1/4 cent sales tax)
Estimated Pro Forma Coverage 2.57
Average Annual Remaining Debt Service at September 30, 2006 $ 384,984
Projected Annual Sales Tax Receipts 2006-07
(Pledged Revenues are gross 1/4 cent sales tax) $ 1,000,000
Estimated Pro Forma Coverage 2.60
Condensed Corporation Operating Statement
Fiscal Year Ended September 30
2006 2005 2004 2003 2002
Operating Revenues:
Sales Taxes $ 1,080,270 $ 1,013,371 $ 958,941 $ 945,281 $ 914,999
*Other Income (Loss) (7,367) ( 43,268) (47,377) 6,280 16,469
Total Revenues 1,072,903 970,103 911,564 951,561 931,468
Operating Expenses:
Projects 107,725 464,422 221,204 575,561 612,253
Administration and
Promotion 247,977 209,611 204,713 271,819 246,458
Total Expenditures 355,702 674,033 425,917 847,380 858,711
Net Available for Additional
Economic Incentives or
Debt Service $ 717,201 $ 296,070 $ 485,647 $ 104,181 $ 72,757
Source: Information received from the Issuer.
* The net of interest income, interest expense, and gain or loss on the sale of assets.
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