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Home My WebLink About20061999 TM TRANSMITTAL MEMORANDUM Northwest Parkway Public Highway Authority 3701 Northwest Parkway,Broomfield,Colorado 80020 iill@nwpkv.org Phone: 303-533-1200 Fax: 303-404-3049 TO: NWP Investors FROM: Jill Lamoureux CC: DATE: Wednesday July 5, 2006 SUBJECT: Northwest Parkway 2005 Audited Financial Statements Enclosed is the Northwest Parkway 2005 Audited Financial Statements. The PDF file can also be found on the Investor's section of our website (www.nwpkv.org). Please feel free to contact me if you have any questions or concerns. 2006-1999 00 �� r�rnuitti�FYl,�rl5 , Pt ., KPMG .. -. NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Basic Financial Statements December 31, 2005 and 2004 (With Independent Auditors' Report Thereon) r• .. ►. NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Basic Financial Statements Table of Contents Page Management's Discussion and Analysis 1-6 Independent Auditors' Report 7 Basic Financial Statements Statements of Net Deficit 8 Statements of Revenue, Expenses, and Changes in Net Deficit 9 Statements of Cash Flows 10 _, Notes to Basic Financial Statements 11-25 NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 As management of the Northwest Parkway Public Highway Authority (the Authority), we offer readers of the Authority's financial statements this narrative overview and analysis of the financial activities of the Authority as - of and for the years ended December 31, 2005 and 2004. This overview and analysis is required by accounting principles generally accepted in the United States of America (GAAP) as prescribed by Governmental Accounting Standard Board Statement No. 34, Basic Financial Statements and Management's Discussion and _. Analysis —for State and Local Governments (GASB 34). GASB 34 requires that this overview and analysis provide prior-year comparative data. This discussion and analysis is designed to assist the reader in focusing on significant financial issues and activities and to identify any significant changes in financial position. Please read it in conjunction with the financial statements, which immediately follow this section. .• Financial Highlights • 2005 represented the second full-year of operations for the Northwest Parkway toll road (Northwest Parkway). • The Northwest Parkway opened the new Sheridan Interchange and maintenance yard in November 2005 on time and within budget. • • Toll revenues increased approximately 34% over 2004 growing from $4.2 million in 2004 to $5.6 million in 2005. • Total transactions on the Northwest Parkway grew 35% over 2004, while total operating costs grew 0.4%. Summary of Operations The Northwest Parkway opened to traffic on November 24, 2003. All drivers drove the Parkway free of charge until December 8, 2003 when a period of trial cash collection began to permit system testing and to encourage EXpress Toll usage. Toll collection from all users officially started as of January 1, 2004. Northwest Parkway toll revenues for 2005 were $5,625,589, an increase over 2004 revenues of $4,216,492. Traffic on Northwest Parkway for the year ended December 31, 2005 was approximately 11,437 average daily transactions, with over 64% collected electronically by Express Toll transponders. 1 (Continued) • NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 Total Monthly Transactions a 2004 400,000 ■ 2005 300.000 r 200,000 � � Y I { I q 100,000 I (i ' q®® 99 t Y H i i 1 Total operating expenses excluding depreciation expense of$16,312,713 for 2005 were $6,473,700, representing a 24% increase over 2004 expenses which were $5,204,477 before depreciation of$17,491,489. This increase is primarily due to a 35% increase over 2004 transactions on the Northwest Parkway due to the addition of a new interchange and maintenance facility and expenses relating to an attempted debt restructuring. Revenue bond _ interest payments in 2005 were $12,897,310. Interest payments on revenue bonds outstanding for the Northwest Parkway continue to be paid from bond proceeds until June 15, 2006. The revenue covenant relating to debt service coverage does not become operative until the first day of the third full fiscal year immediately following the date on which tolls are first collected. 2 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 2005 Financial Results and Analysis Net Assets 2005 2004 Current assets $ 29,085,408 16,565,746 ..• Noncurrent assets: Capital assets, net of accumulated depreciation 352,599,684 360,588,009 Other noncurrent assets 81,458,418 111,561,409 Total noncurrent assets 434,058,102 472,149,418 Total assets 463,143,510 488,715,164 Current liabilities 2,070,456 849,052 Noncurrent liabilities 548,043,960 533,628,710 Total liabilities 550,114,416 534,477,762 Net assets: Invested in capital assets, net of related debt (33,572,617) (3,921,370) Unrestricted (53,398,289) (41,841,228) Total net deficit (86,970,906) (45,762,598) Total liabilities and net assets $ 463,143,510 488,715,164 Revenue,Expenses,and Changes in Net Assets 2005 2004 Operating revenue—vehicle tolls and other revenue $ 5,671,630 4,586,457 —• Less operating expenses: Toll road maintenance 3,889,277 3,291,097 Other 2,584,423 1,913,380 Depreciation expense 16,312,713 17,491,489 Total operating expenses 22,786,413 22,695,966 _ Operating loss (17,114,783) (18,109,509) Nonoperating revenue (expenses) (24,093,525) (22,431,898) Change in net assets (41,208,308) (40,541,407) Net deficit,beginning of year (45,762,598) (5,221,191) Net deficit, end of year $ (86,970,906) (45,762,598) The largest portion of the Authority's assets, over 93% in 2005, are noncurrent. Current assets total $29,085,408 in 2005, representing approximately 7% of total assets. The majority of the increase over current assets of $16,565,746 in 2004 is due to an investment funds reclassification from non-current to current based on maturity 3 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 dates reached in 2005. Approximately eighty-one percent (81%) of the noncurrent assets in 2005 are capital assets (e.g., right-of-way, roads, bridges, buildings, toll equipment), net of accumulated depreciation. Additions - of capital assets in 2005 include the new Sheridan Interchange, associated toll system equipment, and a new maintenance yard. The Authority uses these capital assets to provide service and, consequently, these assets are not available for liquidating liabilities or other spending. However, in the event that the Authority cannot make a debt service payment, restricted assets will be liquidated in accordance with the bond indenture. The acquisition of capital assets was primarily financed from revenue bond proceeds. Revenue bonds payable are approximately 86% of noncurrent liabilities. —' Total current liabilities are $2,070,456 at the end of 2005. Over 25% of the total is interest payable related to outstanding bonds, the remaining is comprised of accounts payable and other current liabilities. Accounts payable increased over 2004 by $1.2 million due to outstanding construction invoices for the Sheridan - Interchange. Accrued interest payable did not change from 2004. Current liabilities are to be paid from current assets. Toll revenues in 2005 were $5,625,589, a 34% increase over 2004 toll revenues of $4,216,492. Traffic and revenue projections completed for the Northwest Parkway by Vollmer Associates in June 2001 projected toll revenue for 2005 to be $10,414,000, actual revenues were 54% less than projected. In August 2005, Vollmer ✓ completed a review of original projections and concluded that a regional economic contraction following 9/11 (the Denver region flipped from positive job growth rates of 3% per year, to several years of negative growth at minus 0.8% annually) and to the technology downturn that impacted the Study Corridor particularly heavily. Traffic at Denver International Airport was also dramatically affected by 9/11 and forecasts for airport traffic • remain well below prior forecasts used in the June 2001 traffic and revenue study. Additionally, a major development in the Northwest Parkway corridor, Anthem (previously known as Prebble Creek), broke ground four years later than expected. The Authority has plans to complete a new traffic and revenue study and —• subsequently a refinancing of outstanding debt in 2006, bringing future projections and debt service coverage ratios in line with current conditions. Toll revenue accounted for 56% of total revenue in 2005. Ninety-eight percent(98%) of all other revenue is interest earnings. Monthly Toll Revenue ®20041 $600,000 ■2005i $500,000 e _ $400,000 j7 t <ap $30O000 ; � �' $200,000 III $100,000 ( I rr LL2 Q Q 2 (n O Z 4 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 Total revenues for 2005 were $10,012,907, a 2% increase over 2004 total revenues of$9,772,168. Total operating expenses before depreciation for 2005 were $6,473,700 representing a 24% increase over 2004 expenses of $5,204,477. The increase is primarily due to the costs associated with increased transactions, the addition of a new interchange and maintenance facility and the expenses associated with a refinancing attempt. The net deficit increased during 2005 from a deficit of $45,762,598 at the beginning of the year to a deficit of $86,970,906 at the end of 2005. The primary reason for the increase was attributable to depreciation expense and interest expense.The net deficit will continue to grow in the short-term as the Authority incurs increasing interest —' expenses coupled with depreciation expenses that will not be offset by any major additional capital assets. The Authority plans to reduce the unrestricted net asset deficit in future years from increased traffic and revenue for the toll road. In 2005, the Authority increased net cash provided by operating activities by over $1.1 million. This increase is largely attributable to the increase in toll revenues. The net cash used in capital and related financing activities increased slightly from 2004 totals due to capital outlays on the Sheridan Interchange and the new maintenance facility. Net cash provided by investing activities decreased by over $47 million due to large purchases of investments, declining proceeds from prior investments including the capitalized interest fund and declining interest receipts due to decreasing fund balances. Capital Assets and Long-Term Debt Total gross land, property, and equipment totaled $386,445,763 in 2005. Accumulated depreciation reduced the 2005 year-end land, property, and equipment balances by $33,846,079. Construction in progress was reduced to $0 due to the Sheridan Interchange and new maintenance facility going into service during 2005. For a further understanding of capital asset amounts and activity, see note 3 to the basic financial statements. Total interest expense for 2005 was $27,312,562 compared to $26,528,284 in 2004. Interest paid on bond debt in 2005 was $12,897,310, with the majority of the remaining interest expense accreting to bond principal. Current �. interest paid on outstanding bonds did not change from 2004 amounts. All of the rating agencies changed their underlying investment grade ratings for the Authority bonds during 2005. Moody's Investors Service downgraded the underlying rating on the senior bonds from Baa3 to B1. Moody's also downgraded the subordinate bond rating from Baal to B3. Standard and Poor's announced the underlying rating on the senior bonds was downgraded from BBB- to B-. S&P also downgraded the rating on the subordinate bonds from BB+ to CCC. Fitch Ratings downgraded the senior bonds from BBB-to BB-. All of the —' existing senior debt is insured by AMBAC and FSA and consequently carries the highest and most secure rating of the rating agencies. Senior Bonds Rating agency Rating Outlook Moody's Aaa Stable Standard & Poors AAA Stable Fitch AAA Negative 5 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Management's Discussion and Analysis December 31, 2005 and 2004 Subordinate Bonds Rating agency Rating Outlook Moody's B3 Stable Standard &Poors CCC Stable Debt Administration Northwest Parkway Revenue Bonds —' December 31, 2005: Senior Current Interest Bonds—Series 2001A $ 175,720,000 Senior Capital Appreciation Bonds—Series 2001B 413,045,000 Senior Convertible Capital Appreciation Bonds—Series 2001C 189,175,000 Subordinate Current Interest Bonds—Series 2001D 52,465,000 Discounts (original issue and future accretion) (360,922,108) Total $ 469,482,892 Other Debt December 31, 2005: Intergovernmental $ 20,000,000 Reimbursements 55,872,040 _. Total $ 75,872,040 _ Debt levels increased over debt reported at year-end 2004 due to the amortization of discounts and accretion of interest. No changes in the debt structure took place in 2005. Interest payments funded by bond proceeds end on June 15, 2006. After that time, interest payments are scheduled to be paid from cash from operations. In the event that the Authority cannot make a debt service payment, restricted assets will be liquidated to make payments per the bond indenture. Additionally, the senior bonds are fully insured. Principal repayment on the bonds begins June 15, 2008 and ends June 15, 2041. For a further understanding of long-term debt amounts and activity, see notes 4 and 5 to the basic financial statements. Contacting Northwest Parkway's Financial Management This financial report is designed to provide an overview of information to our bondholders, customers, and other interested parties. Should you have any questions about this report, contact the Northwest Parkway Public Highway Authority, 3701 Northwest Parkway, Broomfield, Colorado 80020—303/533-1200. 6 KPMG KPMG LLP Suite 2700 707 Seventeenth Street Denver, CO 80202 Independent Auditors' Report The Board of Directors Northwest Parkway Public Highway Authority: We have audited the accompanying basic financial statements of the Northwest Parkway Public Highway Authority (the Authority) as of and for the years ended December 31, 2005 and 2004, as listed in the table of contents. These basic financial statements are the responsibility of the Authority's management. Our —• responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Northwest Parkway Public Highway Authority as of December 31, 2005 and 2004, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. As discussed in note 1(c)to the basic financial statements, effective January 1, 2005, the Authority adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements. The Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. 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. ?CRAIG LIP June 22, 2006 7 KPMG LLP,a US.limited liability partnership,is the U S_ member firm of KPMG International,a Swiss cooperative NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Statements of Net Deficit December 31, 2005 and 2004 Assets 2005 2004 Current assets: Unrestricted cash and cash equivalents $ 5,913,467 3,194,265 Restricted cash and cash equivalents 9,255,318 Restricted investments 13,554,647 12,819,207 Restricted accrued interest receivable 134,421 154,241 —• Accounts receivable 155,351 370,677 Prepaid and other expenses 72,204 27,356 Total current assets 29,085,408 16,565,746 Noncurrent assets: Restricted cash and cash equivalents — 29,389,427 Restricted investments 50,608,864 50,200,188 Capital assets (net of accumulated depreciation of$33,846,080 and $17,563,430, respectively) 352,599,684 360,588,009 Bond issuance costs (net of accumulated amortization — of$4,681,199 and $3,558,959, respectively) 30,849,554 31,971,794 Total noncurrent assets 434,058,102 472,149,418 —, Total assets $ 463,143,510 488,715,164 Liabilities and Net Deficit Current liabilities: Accounts payable and other liabilities $ 1,533,068 311,665 Accrued bond interest payable from restricted assets 537,388 537,387 Total current liabilities 2,070,456 849,052 Noncurrent liabilities: Revenue bonds payable 469,482,892 455,499,742 Intergovernmental payable 20,000,000 20,000,000 Reimbursements payable 55,872,040 55,872,040 Accrued interest on reimbursements payable 2,689,028 2,256,928 Total noncurrent liabilities 548,043,960 533,628,710 Total liabilities 550,114,416 534,477,762 Net deficit: Invested in capital assets, net of related debt (33,572,617) (3,921,370) Unrestricted deficit (53,398,289) (41,841,228) -- Total net deficit (86,970,906) (45,762,598) Total liabilities and net deficit $ 463,143,510 488,715,164 See accompanying notes to basic financial statements. r 8 r• NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Statements of Revenue, Expenses, and Changes in Net Deficit Years ended December 31, 2005 and 2004 2005 2004 Operating revenue: Toll revenue $ 5,625,589 4,216,492 Other revenue 46,041 369,965 Total operating revenue 5,671,630 4,586,457 r• Operating expenses: Salaries and benefits 1,101,633 964,974 Professional fees 390,495 213,728 Toll road maintenance 3,889,277 3,291,097 General and administrative expenses 1,092,295 734,678 Depreciation 16,312,713 17,491,489 Total operating expenses 22,786,413 22,695,966 Operating loss (17,114,783) (18,109,509) Nonoperating revenues (expenses): Interest income 4,341,277 5,185,711 Amortization expense for bond issuance costs (1,122,240) (1,089,325) Interest expense (27,312,562) (26,528,284) Total nonoperating revenues (expenses) (24,093,525) (22,431,898) Change in net assets (41,208,308) (40,541,407) Net deficit,beginning of year (45,762,598) (5,221,191) Net deficit, end of year $ (86,970,906) (45,762,598) See accompanying notes to basic financial statements. 9 7-- NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Statements of Cash Flows Years ended December 31,2005 and 2004 2005 2004 Cash flows from operating activities: Receipts of tolls $ 5,503,811 4,209,258 Receipts from other revenue sources 383,145 201,005 Payments to employees (1,101,633) (964,974) Payments to suppliers (4,195,512) (4,042,156) Net cash provided by(used in)operating activities 589,811 (596,867) Cash flows from capital and related financing activities: Interest paid (12,897,310) (12,897,309) Purchase of capital assets (8,324,388) (7,960,442) Net cash used in capital and related financing activities (21,221,698) (20,857,751) Cash flows from investing activities: -- Purchase of investments (15,038,014) (5,154,707) Proceeds from sale/maturity of investments 13,893,898 53,641,853 Interest received 4,361,096 5,284,425 Net cash provided by investing activities 3,216,980 53,771,571 Net increase(decrease)in cash and cash equivalents (17,414,907) 32,316,953 Cash and cash equivalents, beginning of year 32,583,692 266,739 Cash and cash equivalents,end of year $ 15,168,785 32,583,692 Reconciliation of cash and cash equivalents to the statement of net assets: Cash and cash equivalents—current assets, unrestricted $ 5,913,467 3,194,265 Cash and cash equivalents, restricted 9,255,318 — Cash and cash equivalents—noncurrent assets,restricted 29,389,427 Cash and cash equivalents,end of year $ 15,168,785 32,583,692 Reconciliation of operating loss to net cash provided by(used in) operating activities: Operating loss $ (17,114,783) (18,109,509) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 16,312,713 17,491,489 Loss on disposal of property and equipment 4,319 Changes in assets and liabilities: Decrease(increase)in accounts receivable 215,326 (176,194) Increase in prepaid expenses (44,848) (3,262) Increase in accounts payable and other liabilities 1,221,403 196,290 Net cash provided by (used in) operating activities $ 589,811 (596,867) Noncash investing and financing activities: Amortization of bond issuance costs $ 1,122,240 1,089,325 Amortization of bond discount 148,954 148,955 Accretion of capital appreciation bonds 13,834,196 13,049,917 See accompanying notes to basic financial statements. 10 NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (1) Summary of Significant Accounting Policies _ The Northwest Parkway Public Highway Authority (the Authority) was formed by an intergovernmental agreement on June 2, 1999, among the City and County of Broomfield, the County of Weld, and the City of Lafayette (the Governmental Unit(s)). The purpose of the agreement was to finance, construct, operate and/or maintain the Northwest Parkway. In November 2003, the toll road was opened for trial cash collection and system testing. Toll collection officially began on January 1, 2004, but the Authority did not grant final acceptance to the design-build contract until June 30, 2004. It is the Authority's intent to serve as an enterprise, as such term is defined in the Colorado Constitution, Article X, Section 20(2)(d), and in furtherance thereof, to serve as a government-owned business, engaged in the business venture of providing roadway transportation in exchange for the payment of toll fees. (a) Reporting Entity The Authority is a separate stand-alone governmental entity. Each member of the Governmental Unit appoints a representative to the Authority board of directors. The State of Colorado may join in the Authority, pursuant to the Colorado Constitution. In the event the State of Colorado joins in the Authority, the State shall have one director on the board. The State of Colorado had not joined the Authority as of December 31, 2005. The Authority follows Governmental Accounting Standards Board (GASB) accounting pronouncements, which provide guidance for determining which governmental activities, _ organizations, and functions should be included within the financial reporting entity. GASB pronouncements set forth the financial accountability of a governmental organization's elected governing body as the basic criterion for including a possible component governmental organization in a primary government's legal entity. Financial accountability includes, but is not limited to, appointment of a voting majority of the organization's governing body, ability to impose its will on the organization, a potential for the organization to provide specific financial benefits or burdens and fiscal dependency. The Authority is not financially accountable for any other organization, nor is the Authority a component unit of any other primary governmental entity. (b) Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Enterprise funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Enterprise funds are used to account for business-type entities whose operations are financed with debt that is secured by a pledge of net revenues from fees and charges. The Authority applies all applicable GASB pronouncements, as well as Financial Accounting Standards Board (FASB) pronouncements, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements.The Authority has elected not to apply FASB pronouncements issued after November 30, 1989. 11 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (c) Changes in Accounting Principles Effective January 1, 2005, the Authority implemented GASB Statement No.40, Deposit and Investment Risk Disclosures—an amendment of GASB Statement No. 3. This statement establishes financial reporting and disclosure standards for all state and local governments and related entities. The impact of this statement relates to common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk; however, the application of this statement had no impact on total net assets. The investment risk disclosures are not comparable as obtaining the prior year's information is not practical. (d) Investments and Cash Equivalents The Authority's investments consist of non-negotiable guaranteed investment contracts, money —' market funds, and amounts invested in the Colorado Government Liquid Assets Trust (COLOTRUST). The guaranteed investment contracts cannot be traded; therefore, they are reported using a cost-based measurement. Money market funds and COLOTRUST are highly liquid instruments and are considered cash equivalents for financial reporting purposes. Due to the highly liquid nature of these investments, they are reported using a cost-based measurement. Investments with maturities of one year or less are also recorded at cost. (e) Capital Assets Capital assets are defined as assets with an initial cost of more than $5,000 and an estimated useful —• life in excess of one year. Such assets are recorded at historical cost. Donated capital assets are recorded at estimated market value at the date of transfer. Capital assets subject to depreciation are depreciated using the straight-line method over the following estimated useful lives: Years Assets: Furniture, vehicles, and equipment 3 —7 Buildings 30 Bridges 30 Roadway 20 U) Net Deficit Net deficit amounts reported in the Authority's statements of net deficit consist of two categories: net assets invested in capital assets, net of related debt and unrestricted net assets. Invested in capital assets net of related debt consist of all capital assets, net of accumulated depreciation, and reduced — by outstanding borrowings, and the costs associated with those borrowings, to acquire or construct the capital assets. Unrestricted net assets are net deficit are available to fund any obligation of the Authority. The net deficit will continue to grow in the short-term as the Authority incurs increasing interest expense coupled with depreciation expenses that will not be offset by any major additional capital assets. The Authority plans to reduce the unrestricted net deficit in future years from increased traffic and revenue for the toll road. 12 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (g) Bond Discounts/Issuance Costs Bond discounts and costs related to the issuance of bonds are amortized over the remaining term of the bonds using a modified effective interest method. (h) Operating Activity The Authority's statements of revenue, expenses, and changes in net assets distinguish between operating and nonoperating revenue and expenses. Operating revenue results primarily from vehicle _ tolls associated with the operation of the Authority's toll road. The Authority recognizes toll operating revenue when earned. Operating expenses include costs incurred to provide for maintenance and administration of the toll road. Nonoperating revenue and expenses consist of investment income, interest on debt, and amortization of bond issuance costs. _• (i) Statements of Cash Flows The financial statements include statements of cash flows which presents unrestricted and restricted cash and cash equivalents provided and used by operating, investing, and financing activities. The —• Authority considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. (j) Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the —• reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (k) Income Taxes The income derived by the Authority is exempt from federal income tax under the provisions of the Internal Revenue Code 115. Accordingly, no provision for the payment or refund of income taxes has been made in the accompanying financial statements. (2) Deposits and Investments The Colorado Public Deposit Protection Act (PDPA) requires that all units of local government deposit cash in eligible public depositories. Eligibility is determined by state regulators. Amounts on deposit in excess of federal insurance levels must be collateralized. The eligible collateral is specified by the PDPA. The PDPA allows the institution to create a single collateral pool for all public funds. The pool is to be maintained by another institution or held in trust for all the uninsured public deposits as a group. The State — Regulatory Commission for banks and savings and loan associations is required by statute to monitor the naming of eligible depositories and reporting of the uninsured deposits and assets maintained in the collateral pools. 13 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 At December 31, 2005 and 2004, the Authority's cash deposits had a book balance of $15,168,785 and $32,583,692 and a corresponding bank balance of $15,320,186 and $32,766,008, respectively. The —• difference between the book and bank balances is due to outstanding checks and deposits not yet processed by the banks. The Authority had no uncollateralized accounts at December 31, 2005 and 2004. As of December 31, 2005 and 2004, the Authority's book balances are classified as follows: 2005 Deposits Investments Total Unrestricted cash and cash equivalents $ 5,913,467 — 5,913,467 Restricted cash and cash equivalents 9,255,318 — 9,255,318 Restricted investments 64,163,511 64,163,511 $ 15,168,785 64,163,511 79,332,296 _ 2004 Deposits Investments Total Unrestricted cash and cash equivalents $ 29,389,427 — 29,389,427 Restricted cash and cash equivalents 3,194,265 — 3,194,265 Restricted investments — 63,019,395 63,019,395 $ 32,583,692 63,019,395 95,603,087 The Authority's investments at December 31, 2005 and 2004, at fair value, consisted of the following amounts: December 31 2005 2004 Restricted by trustee under bond agreement $ 64,163,511 63,019,395 The following is a summary of the Authority's investments at fair value: December 31 _ 2005 2004 U.S. government agency $ 10,484,560 — Guaranteed investment contracts 53,678,951 63,019,395 $ 64,163,511 63,019,395 14 (Continued) r• NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (a) Credit Risk Colorado statutes specify the following investment instruments that meet defined rating and risk criteria in which local government entities may invest: • Obligations of the United States and certain U.S. government agency securities • Certain international investments • Bonds of certain Colorado government entities • Banker's acceptances of certain banks • Commercial paper with a certain rating • Written repurchase agreements collateralized by certain authorized securities • Certain money market mutual funds • Guaranteed investment contracts • Local government investment pools The Authority may invest or deposit any funds in the manner provided by law for political subdivisions of the state. In addition, the Authority may direct a corporate trustee which holds funds of the Authority to invest or deposit such funds in investments or deposits other than those specified by law for political subdivisions of the state if the board of directors determines, by resolution, that (1) such investment or deposit meets the standard established in the Colorado Revised Statutes, (2)the income is at least comparable to income available on investments or deposits specified by law for political subdivisions of the state, and (3) such investments will assist the Authority in the financing, construction, maintenance, or operation of public highways. The bond documents impose additional restrictions on investments as to type and level of risk of investments that may be invested in. The following is a summary of the Authority's investments at December 31, 2005 with credit ratings based on the Moody's ratings scale: Rating Investment Fair value Unrated Grade AAA U.S. government agency: $ Federal Home Loan Bank System 2,984,676 — 2,984,676 Federal National Mortgage Association 6,994,353 6,994,353 Federal Farm Credit Banks 505,531 505,531 Guaranteed investment contract 53,678,951 53,678,951 — Total investments $ 64,163,511 53,678,951 10,484,560 15 (Continued) r• NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 Guaranteed investment contracts are generally not exposed to credit risk and are therefore shown as unrated. (b) Interest Rate Risk The Authority employs two professional money management firms to manage its investments. The funds are all "laddered" so that investments do not mature all at once. All the government agency investments have maturities of less than one year. The guaranteed investment contracts have maturities of 16 years or less. As of December 31, 2005, the Authority held the following investments. Fair value Less than 1 1 to 5 5 to 10 10 to 15 U.S.government agency $ 10,484,560 10,484,560 — — — Guaranteed investment contract: AIG Matched Funding Corp. Investment Agreement 3,070,087 3,070,087 — Trinity Funding Company Investment Agreement 9,369,213 — 9,369,213 — Bayerische Hypo and Vereinsbank AG Investment Agreement 36,161,406 36,161,406 Lehman Brothers Inc. Investment Agreement 5,078,245 5,078,245 Total investments $ 64,163,511 13,554,647 9,369,213 41,239,651 16 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (3) Capital Assets A summary of changes in capital assets at December 31, 2005 is as follows: Balance, Balance, January 1, December 31, 2005 Increases Decreases Transfers 2005 Capital assets not being depreciated: Construction in progress $ 109,143 — — (109,143) — Land—right-of-way 39,577,078 22,878 — — 39,599,956 Total capital assets not being depreciated 39,686,221 22,878 (109,143) 39,599,956 Capital assets being depreciated: Furniture,vehicles,and equipment 2,096,189 1,598,769 (30,063) 3,664,895 Buildings 12,375,494 1,715,255 26,060 14,116,809 Bridges 51,175,392 — 51,175,392 Roadway 272,818,143 4,987,486 — 83,083 277,888,712 Total capital assets being depreciated 338,465,218 8,301,510 (30,063) 109,143 346,845,808 �,. Less accumulated depreciation for: Furniture,vehicles,and equipment (490,328) (502,667) 30,063 (962,932) Buildings (446,893) (422,190) (869,083) Bridges (1,848,560) (1,705,324) — (3,553,884) Roadway (14,777,649) (13,682,532) (28,460,181) Total accumulated depreciation (17,563,430) (16,312,713) 30,063 (33,846,080) Capital assets being depreciated,net 320,901,788 (8,011,203) — 109,143 312,999,728 Total capital assets $ 360,588,009 (7,988,325) 352,599,684 17 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 Balance, Balance, January 1, December 31, 2004 Increases Decreases Transfers 2004 Capital assets not being depreciated: Construction in progress $ 335,048,704 1,339,319 (336,278,880) 109,143 Land—right-of-way 35,117,826 4,459,252 — 39,577,078 Total capital assets not being depreciated 370,166,530 5,798,571 — (336,278,880) 39,686,221 Capital assets being depreciated: Furniture,vehicles,and equipment 411,713 1,695,993 (11,517) 2,096,189 Buildings 12,375,494 12,375,494 Bridges 51,175,392 51,175,392 Roadway — 90,149 — 272,727,994 272,818,143 Total capital assets being depreciated 411,713 1,786,142 (11,517) 336,278,880 338,465,218 Less accumulated depreciation for: Furniture,vehicles,and equipment (79,139) (418,387) 7,198 — (490,328) Buildings — (446,893) (446,893) Bridges — (1,848,560) (1,848,560) Roadway (14,777,649) (14,777,649) Total accumulated depreciation (79,139) (17,491,489) 7,198 — (17,563,430) Capital assets being depreciated,net 332,574 (15,705,347) (4,319) 336,278,880 320,901,788 Total capital assets $ 370,499,104 (9,906,776) (4,319) — 360,588,(()9 (a) Construction Contractor On June 22, 2001, the Authority entered into a design/build contract with Northwest Parkway Constructors (the Contractor) to construct the Authority's toll road. The original contract price to be —• paid to Northwest Parkway Constructors was $187,637,528. The contract includes provisions for change orders, guarantees, liquidated damages for delay and early completion bonuses. As of December 31, 2004, there have been 81 authorized contract changes, which have increased the contract price to $191,615,337. The original design/build contract achieved final acceptance in June 2004. A subsequent work order was added in November 2004 for work related to the Sheridan Interchange. The original Authority plan included construction of an interchange at Sheridan Boulevard by 2010. Activities in that area indicated that it would be beneficial to the Authority to open that interchange as soon as possible. As a result, the Authority entered into an agreement with SEMA Construction, Inc. for interchange construction that was completed in November 2005. The total contract price including change orders was $4,430,812. I8 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (b) Project Oversight The Authority has a contract for$5,300,000 with Carter& Burgess, Inc. to serve as project oversight engineer. This contract expired in July 2004 and was extended to December 31, 2006. The Authority entered into a second contract with Carter & Burgess, Inc. for design work and project oversight related to the Sheridan Interchange in the amount of$890,000 that expired December 31, 2005 and was extended to December 31, 2006. (4) Revenue Bonds Payable The detail of the Authority's long-term obligations is as follows: $175,720,000 Series 2001A Senior Current Interest Bonds, $175,720,000 Revenue Bonds mature June 15, 2041. Annual principal payments ranging from $1,175,000 to $10,025,000 commence on June 15, 2008 and continue through June 15, 2041. Interest is due semiannually on June 15 and December 15 at rates ranging from 4.0% to 5.5%. $79,865,792 Series 20018 Senior Capital Appreciation Bonds, $413,045,000 Revenue Bonds with maturity values ranging from $6,725,000 to $38,750,000 are payable on respective maturity dates commencing June 15, 2018 and continuing through June 15, 2034. The Series 2001B Bonds accrete in value from date issued through maturity or any earlier redemption date, compounded on June 15 and December 15 of each year at yields to maturity ranging from 5.90% to 6.31%. $108,371,280 Series 2001C Senior Convertible Capital Appreciation Bonds, $189,175,000 Revenue Bonds with maturity values ranging from $995,000 to $92,245,000, are payable on respective maturity dates commencing on June 15, 2012 and continuing through June 15, 2025. The Series 2001C Bonds accrete in value from date issued through conversion date, December 15, 2011, compounded on June 15 and December 15 of each year at yields to conversion date ranging from 5.00% to 5.80%. Commencing on December 15, 2011, interest is due semiannually on June 15 and December 15 at rates ranging from 5.00% to 5.80%. $52,465,000 Series 2001D First Tier Subordinate Current Interest Bonds, $52,465,000 Revenue Bonds mature June 15, 2041. Annual mandatory sinking fund requirements commence on June 15, 2008 and continue through June 15, 2041 in increasing amounts from $400,000 to $3,860,000. Interest is due semiannually on June 15 and December 15 at a rate of 7.125%. The 2001 bonds are secured principally from cash flows from current and future revenues and a debt service reserve account. The revenue covenant relating to debt service coverage becomes operative in fiscal year 2006. The Authority anticipates following a transfer of cash reserves to debt service in 2006 that revenue receipts will be sufficient to meet debt service coverage ratios. t, 19 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31,2005 and 2004 A summary of changes in long-term revenue bonds payable at December 31, 2005 is as follows: Balance, Balance, Amount January 1, Accretion December 31, due in Description 2005 Additions of discounts 2005 one year Senior Current Interest Bonds siiii 2001A(CIB)-A $ 175,720,000 — — 175,720,000 Discount on Senior CIB 2001A(original issue) (2,037,948) — 89,724 (1,948,224) — Senior Capital Appreciation Bonds 2001B(CAB)-B 413,045,000 — 413,045,000 — Discount on Senior CAB 2001B(accretion) (314,047,475) — 6,253,325 (307,794,150) — Senior Convertible Capital Appreciation Bonds 2001C(CCAB)-C 189,175,000 — 189,175,000 — Discount Senior CCAB —, 2001C(CCAB)-C (57,338,672) — 7,580,869 (49,757,803) — Subordinate Current Interest Bonds 2001D(CIB)-D 52,465,000 — — 52,465,000 — Discount Subordinated CIB 2001D(original issue) (1,481,163) — 59,232 (1,421,931) — Total $ 455,499,742 — 13,983,150 469,482,892 A summary of changes in long-term revenue bonds payable at December 31, 2004 is as follows: Balance, Balance, Amount January 1, Accretion December 31, due in Description 2004 Additions of discounts 2004 one year .. Senior Current Interest Bonds 2001A(CIB)-A $ 175,720,000 — 175,720,000 — Discount on Senior CIB 2001A(original issue) (2,127,672) 89,724 (2,037,948) — •—• Senior Capital Appreciation Bonds 2001B(CAB)-B 413,045,000 — 413,045,000 — Discount on Senior CAB 2001B(accretion) (319,929,150) — 5,881,675 (314,047,475) — „' Senior Convertible Capital Appreciation Bonds 200IC(CCAB)-C 189,175,000 — 189,175,000 Discount Senior CCAB 2001C(accretion) (64,506,914) 7,168,242 (57,338,672) — Subordinate Current Interest Bonds 200ID(CIB)-D 52,465,000 — — 52,465,000 — , Discount Subordinated CIB 2001D(original issue) (1,540,394) — 59,231 (1,481,163) — Total $ 442,300,870 — 13,198,872 455,499,742 20 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 The aggregate future principal maturities and interest payments for all bonds at December 31, 2005 are: Year ending December 31 Principal Interest Total 2006 $ - 12,897,310 12,897,310 2007 - 12,897,310 12,897,310 2008 1,575,000 12,859,560 14,434,560 2009 3,925,000 12,710,419 16,635,419 2010-2015 40,240,000 118,023,561 158,263,561 2016-2020 108,080,000 95,697,084 203,777,084 2021 -2025 193,300,000 64,724,924 258,024,924 2026-2030 217,700,000 38,599,275 256,299,275 2031 -2035 192,820,000 27,598,969 220,418,969 2036-2040 58,880,000 12,860,513 71,740,513 2041 13,885,000 400,669 14,285,669 830,405,000 409,269,594 1,239,674,594 Less net(discount) (3,370,155) (3,370,155) Total scheduled payments 827,034,845 $ 409,269,594 1,236,304,439 Less future years' accretion (357,551,953) Total bonds payable $ 469,482,892 (5) Reimbursements Payable (a) Intergovernmental Agreements On February 18, 1999, an intergovernmental agreement was entered into between the City and County of Broomfield, City of Lafayette, City of Louisville, and the County of Boulder for the purpose of regulating land uses regarding the construction of the toll road. Certain sections of this agreement were amended on January 16, 2001, and the Authority was added as a signatory. Per the agreement, the Authority will pay the following: a total of $12,000,000 for Dillon Road improvements, of which $1,000,000 was paid to the City of Lafayette during 2001 and the other $11,000,000 was included in the design/build contract; $12,000,000 for West Midway Boulevard improvements to the City and County of Broomfield, of which $2,000,000 was paid during 2001 and —• $10,000,000 is recorded as a liability at December 31, 2004; $5,000,000 each to the City of Louisville and the City and County of Broomfield for open space and conservation easement allocation, which was paid during 2001; $3,000,000 each to the City and County of Broomfield, City of Louisville, and Boulder County, and $1,000,000 to the City of Lafayette for acquisition of permanent open space located within the Plan area, of which the total $10,000,000 is recorded as a liability at December 31, 2004. No amounts are due within one year at December 31, 2005. The permanent open space payments are to be paid by December 31,2008. No additional amounts related to intergovernmental agreements were agreed to during 2005 and no amounts were paid during 2005. Outstanding amounts related to the intergovernmental agreements bear no interest. 21 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements a. December 31, 2005 and 2004 (b) Reimbursement Agreements The Authority entered into reimbursement agreements with the following entities, Interlocken Ltd., Interlocken Consolidated Metropolitan District (ICMD), and the City of Broomfield. The Authority agreed to reimburse the following costs at such time as the Authority has funds —• available. Interlocken Ltd. incurred costs with respect to the planning, financing design and/or construction of Interlocken Loop in the amount of$1,995,904. ICMD incurred costs with respect to planning, financing, design, and construction of Interlocken Loop in the amount of$5,205,813. Both of these commitments are recorded as a liability and bear interest at the rate of 6% per annum from the date of the agreements until they are paid in full. These entities will be reimbursed at such time as the Authority has funds available. No amounts are due within one year at December 31, 2005. At December 31, 2005 and 2004, the Authority has recorded accrued interest of $2,689,029 and $2,256,928, respectively, for these commitments. The Authority agreed to reimburse the City and County of Broomfield for the portion of its expenditures that benefit or are incorporated into the toll road. The City of and County of Broomfield incurred initial expenditures and secondary expenditures, which were recorded as a capital asset and liability by the Authority. The determination of whether any of these amounts can be reimbursed from the initial funding shall be solely the determination of the Authority. If reimbursement of the unpaid expenditures is not made from the initial funding, the amounts shall be reimbursed at such time the Authority has funds available from financings or revenues, if any. The unpaid expenditures bear no interest. The Authority reimbursed the City and County of Broomfield for their initial expenditures during 2001, and the secondary expenditures of$48,670,323 are recorded as a liability at December 31, 2005 and 2004. No amounts are due within one year at December 31, 2005. No additional principal amounts related to reimbursement agreements were agreed to during 2005 and no amounts were paid during 2005. (6) Retirement Plans The Authority has a single employer defined contribution plan in which all employees are eligible to participate upon their first day of employment. This plan is administered by ICMA Retirement Corporation, an outside trustee. The plan is in lieu of social security and the Authority contributes 16.5% of each participant's compensation to the plan for full-time employees and 6.5% for part-time employees. All participants are required to contribute 6.5% of their compensation. Participants vest immediately 100% in all contributions. The Authority contributed $103,824 and $114,014 to this plan for the years ended December 31, 2005 and 2004, respectively. The Authority's total payroll for the years ended December 31, 2005 and 2004 were $841,515 and $729,885, respectively. Fringe benefit amounts paid to employees are not included as compensation for this plan. In addition to the defined contribution plan, the Authority has a defined contribution retirement health savings plan that the Authority contributes $1,000 per year per full-time employee. This plan is also administered by ICMA. Employees can contribute to this plan pretax, up to 25% of their salary. The plan allows for tax-free withdrawals after retirement (age 59 1/2) for medical costs. The Authority contributed $9,000 and $8,000 to this plan for the years ended December 31, 2005 and 2004, respectively. Employees _ contributed $2,433 and $724 to this plan for the year ended December 31,2005 and 2004, respectively. 22 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 The Authority's board of directors establishes all retirement plans and amends them as necessary. (7) Deferred Compensation As of September 2001, the Authority offered all regular employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan permits participants to defer a portion of their salary until future years. This plan is also administered by ICMA. The employees' voluntary contributions are made to the 457 plan. No employer contributions are made to this plan. Employees can contribute a maximum of $14,000 per year. Deferred compensation is available for withdrawal any time after the participant reaches age 59-1/2, and must begin at age 70. Withdrawals can also be made upon termination of employment, death, or unforeseeable emergency. Such withdrawals may be subject to the IRS penalties for early withdrawal. Withdrawals can also be made upon termination of the plan. An independent trustee administers funds in the plan. The trustee provides participants with quarterly statements of contributions, withdrawals, and earnings. Employee contributions made for the year ended December 31, 2005 were$45,275. The Authority's board of directors establishes all deferred compensation plans and amends them as necessary. (8) TABOR In November 1992, the voters of Colorado-approved Amendment 1, commonly known as the Taxpayer's Bill of Rights (TABOR), which adds a new Section 20 to Article X of the Colorado Constitution. TABOR _ contains tax, spending, revenue and debt limitations, which apply to the State of Colorado and all local governments. Enterprises, defined as government-owned businesses authorized to issue revenue bonds and receiving less than 10% of annual revenue in grants from all state and local governments combined, are excluded from the provisions of TABOR. During the January to May 1996 session, the Colorado General Assembly enacted S.B. 96 173, which was signed into law by the governor on March 18, 1996. The General Assembly declared its intention that public highway authorities be permitted to qualify as enterprises under Section 20 of Article X of the Colorado Constitution; therefore,TABOR is not applicable to the Authority. 23 (Continued) NORTHWEST PARKWAY PUBLIC HIGHWAY AUTHORITY Notes to Basic Financial Statements December 31, 2005 and 2004 (9) Risk Management The Authority is exposed to various risks of losses, including general liability, property damage, and employee life, medical, dental, and accidental benefits. The Authority has a risk management program, which includes commercial property insurance for catastrophic losses, including floods and earthquakes, for the entity. The Authority also carries commercial insurance for employee life, health, accident, and workers' compensation. The Authority has various set limits on their commercial insurance coverage and has not exceeded the coverage since inception. The Authority is not a part of a public entity risk pool. (10) Litigation The Authority is from time to time involved in various legal proceedings characterized as normally incidental to the business of the Authority. Management does not believe that the outcome of any legal proceedings will have a materially adverse impact on the financial position or results of operations of the Authority. —• The Authority is a petitioner in various right-of-way valuation lawsuits that could require additional payments for rights-of-way. Although the outcome of these lawsuits is not presently determinable, the Authority's management and legal counsel believe the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Authority. Legislation passed in 2000 by the Colorado Legislature amends certain right-of-way acquisition procedures. The interpretation of these procedures has had no effect on the Authority's operations. 24 Hello