MC MUD #46 FINANCIAL INFO Audit 2014

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Montgomery CountyMunicipal Utility District No. 46

MONTGOMERY COUNTY, TEXAS

FINANCIAL REPORT

September 30, 2014





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C O N T E N T S

Exhibits PageFINANCIAL SECTION

Independent Auditors’ Report 1-2

Management’s Discussion and Analysis 3-8

Basic Financial StatementsGovernment-wide and Fund Financial Statements

Statement of Net Position and Governmental Funds BalanceSheet B(1) 10-11Statement of Activities and Governmental Funds Revenues,Expenditures and Changes in Fund Balance B(2) 12-13

Notes to Financial Statements B(3) 15-32

Required Supplementary InformationSchedule of Revenues, Expenditures and Changes in Fund Balance

- Budget and Actual - General Fund C(1) 34

SchedulesTEXAS SUPPLEMENTARY INFORMATIONSchedule of Services and Rates TSI-1 36-37Schedule of General Fund Expenditures TSI-2 38Schedule of Temporary Investments TSI-3 39

Analysis of Taxes Levied and Receivable TSI-4 41Long-Term Debt Service Requirements by Years TSI-5 42-44

Analysis of Changes in Long-Term Bonded Debt TSI-6 46-47Comparative Schedule of Revenues and Expenditures - Generaland Debt Service Funds TSI-7 48-49Board Members, Key Personnel, and Consultants TSI-8 50-51

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Independent Auditors’ Report

Board of DirectorsMontgomery County Municipal Utility District No. 46Montgomery County, Texas

We have audited the accompanying financial statements of the governmental activities andeach major fund of Montgomery County Municipal Utility District No. 46 (the “District”) as ofand for the year ended September 30, 2014, and the related notes to the financial statements,which collectively comprise the District’s basic financial statements as listed in the table of

contents.Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financialstatements in accordance with accounting principles generally accepted in the United States of

America; this includes the design, implementation, and maintenance of internal control relevantto the preparation and fair presentation of financial statements that are free from materialmisstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. Weconducted our audit in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’s

judgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. Accordingly, we express no such opinion. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of significantaccounting estimates made by management, as well as evaluating the overall presentation ofthe financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinions.



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Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects,the respective financial position of the governmental activities and each major fund ofMontgomery County Municipal Utility District No. 46 as of September 30, 2014, and therespective changes in financial position for the year then ended in accordance with accountingprinciples generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that themanagement’s discussion and analysis and budgetary comparison information on pages 3through 8 and 34, respectively, be presented to supplement the basic financial statements.Such information, although not a part of the basic financial statements, is required by theGovernmental Accounting Standards Board, who considers it to be an essential part of financial

reporting for placing the basic financial statements in an appropriate operational, economic, orhistorical context. We have applied certain limited procedures to the required supplementaryinformation in accordance with auditing standards generally accepted in the United States of

America, which consisted of inquiries of management about the methods of preparing theinformation and comparing the information for consistency with management’s responses to ourinquiries, the basic financial statements, and other knowledge we obtained during our audit ofthe basic financial statements. We do not express an opinion or provide any assurance on theinformation because the limited procedures do not provide us with sufficient evidence toexpress an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements thatcollectively comprise the District’s basic financial statements. The Texas SupplementaryInformation (TSI) listed in the table of contents is presented for purposes of additional analysisand is not a required part of the financial statements. This information has been subjected tothe auditing procedures applied in the audit of the financial statements and certain additionalprocedures, including comparing and reconciling such information directly to the underlyingaccounting and other records used to prepare the financial statements or to the financialstatements themselves, and other additional procedures in accordance with auditing standardsgenerally accepted in the United States of America. In our opinion, the information is fairlystated in all material respects in relation to the financial statements as a whole.

Sugar Land, TexasJanuary 7, 2015



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Management’s Discussion and Analysis

As management of Montgomery County Municipal Utility District No. 46 (the District), we offerreaders of the District’s financial statements this narrative overview and analysis of the financialactivities of the District for the year ended September 30, 2014.

FINANCIAL HIGHLIGHTS

The liabilities of the District exceeded its assets at the close of the most recent fiscalyear by $4,522,511 (net position).

As of September 30, 2014, the District’s governmental funds reported an endingfund balance of $15,703,792.

The District’s cash balance at September 30, 2014 was $15,676,199, representing anincrease of $936,150 from September 30, 2013.

The District had general revenues of $18,107,166 and program revenues, net ofexpenses, of $2,620,853 for the year ended September 30, 2014.

At the end of the fiscal year, unrestricted and unassigned fund balance for the

General Fund was $4,237,687, or 46 percent of total General Fund expenditures.

OVERVIEW OF THE FINANCIAL STATEMENTS

The discussion and analysis is intended to serve as an introduction to the District’s basicfinancial statements. The District’s basic financial statements include three components: 1)government-wide financial statements, 2) fund financial statements, and 3) notes to thefinancial statements.

GOVERNMENT-WIDE FINANCIAL STATEMENTS

The government-wide financial statements are designed to provide readers with a broadoverview of the District’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all of the District’s assets and liabilities,with the difference between the two reported as net position. Over time, increases ordecreases in net position may serve as a useful indicator of whether the financial position of theDistrict is improving or deteriorating.

The statement of activities presents information showing how the District’s net position changedduring the most recent fiscal year. All changes in net position are reported as soon as theunderlying event giving rise to the change occurs, regardless of the timing of related cashflows. Thus, revenues and expenses are reported in this statement for some items that will

only result in cash flows in future fiscal periods (e.g., depreciation).

The government-wide financial statements present functions of the District that are providedfrom funding sources (governmental activities). The government-wide financial statements canbe found on pages 10-13 of this report.



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FUND FINANCIAL STATEMENTS

A fund is a grouping of related accounts that is used to maintain control over resources thathave been segregated for specific activities or objectives. The District, like other state and localgovernments, uses fund accounting to ensure and demonstrate compliance with finance-relatedlegal requirements. The funds of the District consist solely of governmental funds (the GeneralFund, Debt Service Fund and Capital Projects Fund).

Governmental Funds - Governmental funds are used to account for essentially the same

function reported as governmental activities in the government-wide financial statements.However, unlike the government-wide financial statements, governmental fund financialstatements focus on near-term inflows and outflows of spendable resources, as well as onbalances of spendable resources available at the end of the fiscal year. Such information maybe useful in evaluating a government’s near-term financing requirements.

Because the focus of the governmental funds is narrower than that of the government-widefinancial statements, it is useful to compare the information presented in the governmental

funds with similar information presented for governmental activities in the government-widefinancial statements. By doing so, readers may better understand the long-term impact of thegovernment’s near-term financial decisions. Both the governmental funds balance sheet andthe governmental funds statement of revenues, expenditures, and changes in fund balancesprovide an adjustments column to facilitate this comparison between the governmental fundsand governmental activities . The basic governmental fund financial statements can be found onpages 10-13 of this report.

NOTES TO THE FINANCIAL STATEMENTS

The notes to the financial statements provide additional information that is essential to a fullunderstanding of the data provided in the government-wide and fund financial statements. Thenotes to the financial statements can be found on pages 15 through 32 of this report.

OTHER INFORMATION

In addition to the basic financial statements and accompanying notes, this report also presentscertain required supplementary information concerning the District’s General Fund budget.Required supplementary information can be found on page 34 of this report.

GOVERNMENT-WIDE FINANCIAL ANALYSIS

As noted earlier, net position may serve over time as a useful indicator of a government’s

financial position. In the case of the District, liabilities exceeded assets by $4,522,511 as ofSeptember 30, 2014.

The largest portion of the District’s net position reflects its investment in capital assets (e.g.land and infrastructure), less any related debt used to acquire those assets that is stilloutstanding. The District uses these capital assets to provide services to the individuals weserve; consequently, these assets are not available for future spending.



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Additionally, a portion of the District’s net position represents unrestricted financial resourcesavailable for future operations. See Note 1K in the notes to financial statements for anexplanation of the deficit in investment in capital assets.

Current and other assets $ 17,429,434 $ 16,448,804

Capital assets, net 83,046,487 85,550,146

Total Assets 100,475,921 101,998,950

Long-term liabilities 103,309,049 107,176,202

Other liabilities 1,689,383 1,966,112

Total Liabilities 104,998,432 109,142,314

Net Position:

Net investment in capital assets (19,962,001) (21,732,440)

Restricted 11,149,415 8,208,352

Unrestricted 4,290,075 6,380,724

Total Net Position $ (4,522,511) $ (7,143,364)

SUMMARY OF STATEMENT OF NET POSITION

As of September 30, 2014 and 2013

Governmental Activities

2014 2013



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Net position of the District, all of which relate to governmental activities, increased by$2,620,853. Key elements of the changes are as follows:

Revenues

Program revenues:

Water and sewer charges $ 8,553,040 $ 8,709,911

Property taxes, penalties and interest 8,263,682 8,289,871

Tap connection fees 65,500 106,245

Investment income and other 1,224,944 135,047

Total Revenues 18,107,166 17,241,074

Expenses

Purchased water and sewer 6,995,074 6,697,871

Professional fees, contracted services and other 1,422,347 1,372,761

Interest on long-term debt 4,038,236 4,585,680

Depreciation and amortization 3,030,656 3,080,425

Total Expenses 15,486,313 15,736,737

Change in Net Position 2,620,853 1,504,337

Net Position, beginning (7,143,364) (8,647,701)

Net Position, Ending $ (4,522,511) $ (7,143,364)

CHANGES IN NET POSITION

For the Fiscal Years Ended September 30, 2014 and 2013

2014 2013

Governmental Activities

2014 REVENUESInvestment

and other

7%

Water and

sewer charges

47%

Property taxes

46%

Tap

connection

fees

0%



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FINANCIAL ANALYSIS OF THE DISTRICT’S FUNDS

As previously noted, the District uses fund accounting to ensure and demonstrate compliancewith finance-related legal requirements. The District’s governmental funds are discussed below:

Governmental Funds - The focus of the District’s governmental funds is to provideinformation on near-term inflows, outflows, and balances of spendable resources. Suchinformation is useful in assessing the District’s financing requirements. In particular, fundbalances may serve as a useful measure of a government’s net resources available for spendingfor program purposes at the end of the fiscal year.

As of September 30, 2014, the District’s governmental funds, which consist of a general fund,debt service fund and capital projects fund reported an ending fund balance of $15,703,792,which is an increase of $824,920 from last year’s total of $14,878,872. As a measure of thegeneral fund’s liquidity, it may be useful to compare unreserved fund balance to total fundexpenditures. Unrestricted and unassigned fund balance represents 46 percent of total generalfund expenditures.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets - The District’s investment in capital assets as of September 30, 2014 amountsto $83,046,487 (net of accumulated depreciation). This investment in capital assets includesland and infrastructure.

Land $ 740,554

Capacity rights 17,404,381

Water system 20,685,124

Wastewater system 24,407,071

Drainage system 45,273,660

Engineering 7,139,449

Less: accumulated depreciation (32,603,752)

Total Capital Assets, Net $ 83,046,487

CAPITAL ASSETS SCHEDULE

(net of depreciation)

Additional information on the District’s capital assets can be found in Note 7 in the notes tofinancial statements.

LONG-TERM DEBT

As of September 30, 2014, the District has a total bonded debt outstanding of $96,470,000.Interest expense for the year totaled $3,735,162 for the 2014 fiscal year on this bonded debt.These outstanding bonds have maturities ranging from 2015 to 2030. Additional information onthe District’s long-term debt can be found in Note 8 in the notes to the financial statements.



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ECONOMIC FACTORS

Unrestricted and unassigned fund balance in the General Fund decreased to $4,237,687. A planned increase of fund balance of $629,245 was projected.

REQUESTS FOR INFORMATION

The financial report is designed to provide a general overview of Montgomery County MunicipalUtility District No. 46’s finances for all those with an interest in the District’s finances. Questionsconcerning any of the information provided in this report or requests for additional financialinformation should be addressed to Montgomery County Municipal Utility District No. 46: TheWoodlands Joint Powers Agency, P.O. Box 7580, The Woodlands, Texas 77380.



FINANCIAL STATEMENTS

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Cash and temporary investments $ 4,029,206 $ 10,583,892 $ 1,063,101 $ 15,676,199

Receivables:

Property taxes 4,787 31,472 36,259

Customer service accounts 1,400,286 1,400,286

Internal receivables 321,993 321,993

Investment in joint venture 316,690 316,690

Capital assets, net of accumulated depreciation:

Land and capacity rightsInfrastructure

$ 6,072,962 $ 10,615,364 $ 1,063,101 $ 17,751,427

Liabilities, Deferred Inflows and Fund Balances/Net Position

Liabilities

Accounts payable and accrued liabilities $ 1,157,868 $ 175,585 $ $ 1,333,453

Customer deposits 355,930 355,930

Internal payables 573 321,420 321,993

Accrued interest payable

Long-term liabilities:

Unamortized bond premium or (discount)

Due within one yearDue after one year

1,513,798 176,158 321,420 2,011,376

Deferred Inflows of Resources

Unavailable revenue - property taxes 4,787 31,472 36,259

Fund Balances/Net Position

Fund Balances:

Nonspendable investment in joint venture 316,690 316,690

Restricted for debt service 10,407,734 10,407,734

Restricted for capital projects 741,681 741,681

Unrestricted and unassigned 4,237,687 4,237,6874,554,377 10,407,734 741,681 15,703,792

$ 6,072,962 $ 10,615,364 $ 1,063,101 $ 17,751,427

Net Position:

Net investment in capital assets

Restricted for debt service

Restricted for capital projects

Unrestricted

See Notes to Financial Statements.

Montgomery County Municipal Utility District No. 46

STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS

September 30, 2014

BALANCE SHEET

Total

Total Assets

Total Fund Balances

Assets

Total Net Position

Total Liabilities

Debt

General Service

Capital

Projects

Total Liabilities and Fund Balances

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Exhibit B(1)

$ $ 15,676,199

36,259

1,400,286

(321,993)

316,690

18,144,935 18,144,93564,901,552 64,901,55282,724,494 $ 100,475,921

$ $ 1,333,453

355,930

(321,993)

300,561 300,561

102,971 102,971

4,417,062 4,417,06298,488,455 98,488,455

102,987,056 104,998,432

(36,259)

(316,690)

(10,407,734)

(741,681)

(4,237,687)(15,703,792)

(19,962,001) (19,962,001)

10,407,734 10,407,734

741,681 741,681

4,290,075 4,290,075$ (4,522,511) $ (4,522,511)

(Note 2)

Statement of

Net Position

Adjustments

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Revenues

Water service charges $ 6,905,803 $ $ $ 6,905,803

Sewer service charges 1,647,237 1,647,237

Property taxes 1,196,582 7,009,012 8,205,594

Penalties and interest 43,897 43,897

Tap connection fees 65,500 65,500

Investment earnings 2,473 2,968 380 5,821

Other 1,219,123 1,219,123

11,036,718 7,055,877 380 18,092,975Expenditures/Expenses

Current:

Purchased water and sewer service 6,995,074 6,995,074

Purchased services from joint venture 1,029,726 66,848 1,096,574

Professional fees 44,877 44,877

Other 225,635 65,081 1,390 292,106

Capital Outlay 62,710 530,410 593,120

Debt Service:

Principal retirement 515,685 3,755,000 4,270,685

Interest and fiscal charges 303,074 3,746,465 4,049,539

Bond issuance costs

Depreciation and amortization

9,176,781 7,633,394 531,800 17,341,975

1,859,937 (577,517) (531,420) 751,000

Other Financing Sources (Uses)

Transfers (4,050,000) 4,050,000

Equity in net income (loss) of joint venture 73,920 73,920

(3,976,080) 4,050,000 73,920

(2,116,143) 3,472,483 (531,420) 824,920

Fund Balances/Net Position - Beginning 6,670,520 6,935,251 1,273,101 14,878,872

$ 4,554,377 $ 10,407,734 $ 741,681 $ 15,703,792

See Notes to Financial Statements.


STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS

REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

Year Ended September 30, 2014

Capital

Projects

Debt

General Service

Excess (Deficiency) of Revenues

Total Expenditures/Expenses

Total Revenues

Total

Over (Under) Expenditures

Total Other Financing Sources (Uses)

Fund Balances/Net Position - Ending

Financing Sources Over (Under)

Expenditures and Other Financing (Uses)

Change in Net Position

Excess (Deficiency) of Revenues and Other

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Exhibit B(2)

$ $ 6,905,803

1,647,237

14,191 8,219,785

43,897

65,500

5,821

1,219,123

14,191 18,107,166

6,995,074

(11,210) 1,085,364

44,877

292,106

(593,120)

(4,270,685)

(11,303) 4,038,236

3,030,656 3,030,656

(1,855,662) 15,486,313

1,869,853

(73,920)

(73,920)

(824,920)

2,620,853 2,620,853

(22,022,236) (7,143,364)

$ (20,226,303) $ (4,522,511)

Adjustments

(Note 2) Activities

Statement of

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(This Page Intentionally Left Blank)

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Montgomery County Municipal Utility District No. 46Exhibit B(3)

NOTES TO FINANCIAL STATEMENTS

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the District conform with generally accepted accounting principles.The following is a summary of the most significant policies:

A. Reporting Entity

Montgomery County Municipal Utility District No. 46 (the “District”) was created pursuantto an order of the Texas Commission on Environmental Quality dated March 17, 1981.The District operates under the terms and provisions of Chapters 49 and 54 of the TexasWater Code. The Board of Directors held its first meeting on April 4, 1981. The firstbonds were sold on January 26, 1984.

The District has contracted with various consultants to provide services to operate and

administer the affairs of the District. The District has no employees or related payrollcosts. The District is empowered, among other things, to purchase, construct, operateand maintain all works, improvements, facilities and plants necessary for the supply ofwater; the collection, transportation and treatment of wastewater; and the control anddiversion of storm water.

The District is a political subdivision of the State of Texas governed by an elected fivemember board and is considered a primary government. As required by generallyaccepted accounting principles, these general purpose financial statements have beenprepared based on considerations regarding the potential for inclusion of other entities,organizations, or functions as part of the District's financial reporting entity. Based on

these considerations, no other entities, organizations, or functions have been included inthe District's financial reporting entity. Additionally, as the District is considered a primarygovernment for financial reporting purposes, its activities are not considered a part of anyother governmental or other type of reporting entity.

Considerations regarding the potential for inclusion of other entities, organizations, orfunctions in the District's financial reporting entity are based on criteria prescribed bygenerally accepted accounting principles. These same criteria are evaluated inconsidering whether the District is a part of any other governmental or other type ofreporting entity. The overriding elements associated with prescribed criteria considered ifdetermining that the District's financial reporting entity status is that of a primarygovernment are that it has a separately elected governing body; it is legally separate; and

it is fiscally independent of other state and local governments. Although not consideredsignificant in the District's reporting entity evaluation, other prescribed criteria undergenerally accepted accounting principles include considerations pertaining to organizationsfor which the primary government is financially accountable; and considerations pertainingto other organizations for which the nature and significance of their relationship with theprimary government are such that exclusion would cause the reporting entity's financialstatements to be misleading or incomplete. The District participates in a joint venture





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with other area municipal utility districts as more fully described in Note 9 of thesefinancial statements.

The District's primary activities include construction, maintenance, and operation of waterand sewer system facilities and debt service on bonds issued to construct the facilities.

As noted above, the District participates in a joint venture with other area municipal utilitydistricts (collectively the “Participating Districts”). As provided in interlocal contracts byand among the Participating Districts, an independently governed agency known as TheWoodlands Joint Powers Agency (the “Agency”) provides administrative services and utilitysystem maintenance and operating services for the Participating Districts. The Agency isgoverned by a Board of Trustees made up of members appointed by the governing Boardsof the Participating Districts. The District records and accounts for its interest in the

Agency in its General Fund by the equity method, as do all of the Participating Districts,

with a portion of General Fund equity reserved in the amount of the District’s equityinterest. See Note 9 for additional disclosures regarding the Agency’s operations.

B. Financial Statement Presentation

In June 1999, GASB issued Statement No. 34, Basic Financial Statements – andManagement’s Discussion and Analysis – for State and Local Governments. Thisstatement, known as the “Reporting Model” statement, affects the way the Districtprepares and presents financial information. State and local governments traditionallyhave used a financial reporting model substantially different from the one used to prepareprivate-sector financial information.

GASB Statement No. 34 establishes new requirements and a new reporting model for theannual financial reports of state and local governments. The Statement was developed tomake annual reports easier to understand and more useful to the people who usegovernmental financial information to make decisions.

Some of the significant changes of GASB Statement No. 34 include the following:

Management’s Discussion and Analysis - GASB Statement No. 34 requires thatfinancial statements be accompanied by a narrative introduction and analytical overview ofthe government’s financial activities in the form of “management’s discussion andanalysis” (MD&A). This analysis is similar to the analysis that private sector companies

provide in their annual reports.

Government-wide Financial Statements - The reporting model includes financialstatements prepared using full accrual accounting for all of the government’s activities.This approach includes not just current assets and liabilities, but also capital assets andlong-term liabilities (such as buildings and infrastructure and general obligation debt).

Accrual accounting reports all of the revenues and costs of providing services each year,not just those received or paid in the current or soon thereafter, as is the case with the





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modified accrual basis of accounting. Governments report all capital assets, includinginfrastructure, in the government-wide Statement of Net position and report related

depreciation expense, the cost of “using up” capital assets, in the Statement of Activities.The net position of a government are broken down into three categories: 1) invested incapital assets, net of related debt; 2) restricted; and 3) unrestricted.

Fund Financial Statements - These statements focus on the District’s major funds andare prepared using the modified accrual basis of accounting.

C. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e. the statement of net position and thestatement of activities) report information on all the non-fiduciary activities of the primarygovernment and its component units, as applicable. The effect of interfund activity has

been removed from these statements. Governmental activities , which normally aresupported by taxes and intergovernmental revenues, are reported separately frombusiness-type activities , which rely to a significant extent on fees and charges for support.Likewise, the primary government is reported separately from certain legally separatecomponent units for which the primary government is financially accountable. The Districthad no business-type activities or component units as of and for the year endedSeptember 30, 2014.

The governmental funds financial statements consist of the balance sheet and statementof revenues, expenditures and changes in fund balance. These financial statements havebeen adjusted to arrive at the government-wide financial statement balances (statement

of net position and statement of activities). Major individual governmental funds arereported as separate columns in the fund financial statements.

D. Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resourcesmeasurement focus and the accrual basis of accounting . Revenues are recorded whenearned and expenses are recorded when a liability is incurred, regardless of the timing ofrelated cash flows.

Governmental funds financial statements are reported using the current financialresources measurement focus and the modified accrual basis of accounting . Revenues

are recognized as soon as they are both measurable and available. Revenues areconsidered to be available when they are collectible within the current period or soonenough thereafter to pay liabilities of the current period. For this purpose, thegovernment considers revenue to be available if collected within 60 days of the end of thecurrent fiscal period. Revenues accrued include interest earned on investments andincome from District operations. Expenditures generally are recorded when a liability isincurred, as under accrual accounting. However, debt service requirements, as well asexpenditures related to compensated absences and claims and judgments, are recorded





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only when payment is due.

The Governmental Accounting Standards Board has issued Statement No. 54, FundBalance Reporting and Governmental Fund Type Definitions (GASB 54). This Statementdefines the different types of fund balances that a governmental entity must use forfinancial reporting purposes. GASB 54 requires the fund balance amounts to be properlyreported within one of the following fund balance categories:

Nonspendable:To indicate fund balance associated with inventories, prepaids, long-term loans and notesreceivable and property held for resale (unless the proceeds are restricted, committed orassigned).

Restricted:To indicate fund balance that can be spent only for the specific purposes stipulated by

constitution, external resource providers or through enabling legislation.

Committed:To indicate fund balance that can be used only for the specific purposes determined by aformal action of the Board of Directors (the District’s highest level of decision-makingauthority).

Assigned:To indicate fund balance to be used for specific purposes but do meet the criteria to beclassified as restricted or committed.

Unassigned:

To indicate the residual classification of fund balance in the General Fund and includes allspendable amounts not contained in the other classifications.

In circumstances where an expenditure is made for a purpose for which amounts areavailable in multiple fund balance classifications, fund balance is generally depleted inthe order of restricted, committed, assigned and unassigned.

GASB 54 requires disclosure of any formally adopted minimum fund balance policies.The District does not currently have any such policies.

The accounting system is organized on a fund basis. A fund is defined as a fiscal andaccounting entity with a self-balancing set of accounts, which comprise its assets,

liabilities, fund equity or deficit, revenues and expenditures.

The District reports the following governmental funds:

General FundThe General Fund is used to account for the operations of the District's water andsewer system and all other financial transactions not properly includable in otherfunds. The principal sources of revenue are related to water and sewer service





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operations. Expenditures include all costs associated with the daily operations of theDistrict.

Debt Service FundThe Debt Service Fund is used to account for the payment of interest and principal onthe District's general long-term debt. The primary source of revenue for debt serviceis property taxes pursuant to requirements of the District's bond resolutions.Expenditures include costs incurred in assessing and collecting these taxes.

Capital Projects FundThe Capital Projects Fund is used to account for the expenditure of bond proceeds forthe construction of the District’s water and sewer facilities.

E. Deferred Inflows of Resources

Deferred inflows of resources represent an acquisition of net position that applies to afuture period(s) and so will not be recognized as an inflow of resources (revenue) untilthat time. Deferred inflows of resources consist of unearned tax revenues.

F. Budget

An unappropriated budget is adopted for the General Fund. The budget is prepared usingthe same method of accounting as for financial reporting and serves as a planning tool.Encumbrance accounting is not utilized.

G. Investments

The District classifies investments that have a remaining maturity of one year or less atthe date of purchase as “money market investments” in accordance with Governmental

Accounting Standards Board Statement No. 31, “Accounting and Reporting for CertainInvestments and External Investment Pools” (Statement No. 31). Statement No. 31defines “money market investments” as short-term, highly liquid debt instrumentsincluding commercial paper, banker’s acceptances and U.S. Treasury and agencyobligations. The District values its “money market investments” at cost, which isconsidered to approximate market value. The District’s certificates of deposit, if any, arerecorded at cost in accordance with Statement No. 31.

H. Short-Term Internal Receivables/Payables

During the course of operations, transactions occur between individual funds for specifiedpurposes. These receivables and payables are classified as internal receivables andpayables on the combined balance sheet. These amounts are eliminated for government-wide presentation.





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I. Unamortized Bond Premium or (Discount)

Included within long term liabilities are the unamortized bond premium or (discount).They are being amortized over the life of the related obligation on the straight-linemethod. Results obtained are not materially different from the interest method.

J. Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets arereported in the government-wide financial statements. Capital assets, other thaninfrastructure items, are defined by the government as assets with an initial, individualcost of more than $5,000 and an estimated useful life in excess of one year. Such assetsare recorded at historical cost or estimated historical cost if purchased or constructed.Donated capital assets are recorded at estimated fair market value at the date of

donation.

Property, plant, and equipment of the primary government, as well as the componentunits, is depreciated using the straight-line method over the following estimated usefullives:

Asset DescriptionEstimatedUseful Life

Land N/A Capacity rights N/A Water system 30 years

Wastewater system 30 yearsDrainage system 30-50 yearsEngineering 30 years

K. Long-Term Obligations

In the government-wide financial statements, long-term debt and other long-termobligations are reported as liabilities in the governmental activities statement of netposition. Bond premiums or discounts, as well as issuance costs, are deferred andamortized over the life of the bonds. Bonds payable are reported net of any applicablebond premium or discount.

In the fund financial statements, governmental fund types recognize bond premiums ordiscounts, as well as bond issuance costs, during the current period. The face amount ofnew debt issued is reported as other financing sources. Premiums are reported as otherfinancing uses. Issuance costs, whether or not withheld from the actual debt proceedsreceived, are reported as debt service expenditures.





21

L. Fund Equity

Reserved/restricted equity balances represent those portions of fund balance/net positionnot appropriable for expenditures/expenses or legally segregated for a specific future use.Designated fund balances represent tentative plans for future use of financial resources.Undesignated/unrestricted fund balances/net position represent available balances for theDistrict's future use.

Invested in capital assets, net of related debt has a deficit balance as of September 30,2014. As all of the capital assets were financed with general obligation debt, timingdifferences generally arise related to the straight line depreciation of the capital assets ascompared to the level principal and interest payment structure of the debt, which yieldslower principal retirement in the early years of the debt. As bond principal retirementincreases over time, the deficit will be eliminated.

M. Date of Management’s Review

Subsequent events have been evaluated through January 7, 2015, which is the date thefinancial statements were available to be issued.

NOTE 2 – RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

A. Explanation of certain differences between the governmental fund balancesheet and the government-wide statement of net position

The governmental fund balance sheet includes an adjustments column to arrive at thegovernment-wide statement of net position balances. Amounts reported in the statementof net position are different because:

Total fund balances - governmental funds $ 15,703,792

Capital assets used in governmental activities

are not financial resources and are not reported in the funds. 83,046,487

Other long-term assets are not available to pay for current

period expenditures and, therefore, are deferred in the funds. 36,259

Long-term liabilities, including bonds payable, are not due and

payable in the current period, and therefore are not reported

in the funds. (103,309,049)

Net Position of Governmental Activities $ (4,522,511)





22

B. Explanation of certain differences between the governmental fund statementof revenues, expenditures and changes in fund balances and the government-

wide statement of activities

The governmental fund statement of revenues, expenditures and changes in fundbalances includes an adjustments column to arrive at changes in net position as reportedin the government-wide statement of activities. Amounts reported in the statement ofactivities are different because:

Net change in fund balances - total governmental funds $ 824,920

Governmental funds report capital outlays as expenditures.

However, in the statement of activities, the cost of those assets

is allocated over their estimated lives and reported as depreciation

expense. This is the amount by which depreciation and amortization

exceeded capital outlays in the current period. (2,500,246)

Repayment of bond principal is reported as an expenditure and bond

proceeds are reported as other sources in the governmental funds,

but the repayment reduces and sales increase long-term

liabilities in the Statement of Net Position. 4,281,988

Revenue in the statement of activities that do not provide current

financial resources are not reported as revenues in the funds. 14,191

Change in Net Position of Governmental Activities $ 2,620,853

NOTE 3 - CASH AND TEMPORARY INVESTMENTS

Cash consists of interest bearing checking accounts and temporary investments consist ofTexpool, Texstar and certificates of deposit.

The carrying amounts for cash and temporary investment balances, which approximate fairvalues, by fund at September 30, 2014, are as follows:

General $ 299,331 $ 1,034,361 $ 2,438,375 $ 257,139 $ 4,029,206

Debt Service 6,608 5,044,495 5,532,789 10,583,892

Capital Projects 5,648 1,057,453 1,063,101

$ 311,587 $ 7,136,309 $ 7,971,164 $ 257,139 $ 15,676,199

TotalChecking Texpool Texstar Cert of Dep

Investment PoliciesThe District has adopted a written investment policy regarding the investment of its funds asdefined in the Public Funds Investment Act, Chapter 2256, Texas Government Code. Theinvestments of the District are in compliance with its investment policy.





23

Applicable state laws and regulations allow the District to invest its funds in direct or indirectobligations of the United States, the State, or any county, city, school district, or other

political subdivision of the State. Funds may also be placed in certificates of deposit of stateor national banks or savings and loan associations (depository institutions) domiciled withinthe State. Related state statutes and provisions included in the District's bond resolutionsrequire that all funds invested in depository institutions be guaranteed by federal depositoryinsurance and/or be secured in the manner provided by law for the security of public funds.Balances in checking accounts in depository institutions were entirely guaranteed by federaldepository insurance or security as provided by statutes and bond provisions at September30, 2014.

Investment PoolsThe State Comptroller of Public Accounts exercises oversight responsibility of Texpool, theTexas Local Government Investment Pool. Oversight includes the ability to significantly

influence operations, designation of management and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of bothparticipants in Texpool and other persons who do not have a business relationship withTexpool. The advisory board members review the investment policy and management feestructure. Texpool is rated AAAm by Standard & Poors. Texpool operates in a mannerconsistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940.

Texstar operates as a pool in accordance with the SEC’s Rule 2a7 of the Investment Company Act of 1940.

Both Texpool and Texstar use amortized cost rather than market value to report net position

to compute share prices. Accordingly, the fair value of the position of each pool is the sameas the value of the underlying shares.

Interest Rate Risk In accordance with its investment policy, the District manages its exposure to declines in fairvalues by limiting the weighted average maturity of its investment portfolio to less than twoyears to meet cash requirements for ongoing operation.

Credit Risk – InvestmentsIn accordance with its investment policy, the District minimized credit risk losses due todefault of a security issuer or backer, by limiting investments to the safest types of securities.

As the District’s investments are in investment pools, the District is not exposed to custodial

credit risk.

NOTE 4 - PROPERTY TAXES

The voters of the District have authorized the District's Board of Directors to levy maintenancetaxes annually for use in financing general operations limited to $0.25 per $100 of assessedvalue. The District's bond resolution requires that ad valorem taxes be levied for use in





24

paying interest and principal on long-term debt and for use in paying the cost of assessingand collecting taxes. Taxes levied for debt service requirements are without limitation as to

rate or amount.

All property values are determined by the Montgomery County Appraisal District. A tax lienattaches to all properties within the District on January 1st of each year. Taxes are generallylevied on October 1 and are due upon receipt of the tax bill by the property owner. Penaltiesand interest are charged if taxes are not paid by the succeeding January 31st. There is anadditional twenty percent penalty charged on accounts delinquent after July 1st of each yearwhich generally is payable to the District's delinquent tax attorney.

Property taxes are prorated between operations and debt service based on the respectiverates adopted for the year of the levy. For the current year, the District levied a combinedrate of $0.24 per $100 of assessed valuation of which $0.035 was allocated to maintenance

and operations and $0.205 was allocated to debt service. The resulting tax levy was$8,210,417 on the adjusted taxable valuation of $3,421,006,962 for the 2013 tax year.

Property taxes receivable at September 30, 2014, consisted of the following:

2013 Levy $ 1,980 $ 11,595 $ 13,575

2012 Levy 191 1,668 1,859

2011 Levy 1,637 10,756 12,393

2010 Levy 357 2,445 2,802

2009 and prior 622 5,008 5,630

$ 4,787 $ 31,472 $ 36,259

Total

General

Fund

Debt

Service

Fund

NOTE 5 - RECEIVABLES

Receivables as of year-end for the government’s individual major funds are as follows:

Receivables:

Taxes $ 4,787 $ 31,472 $ 36,259

Accounts 1,400,286 1,400,286

$ 1,405,073 $ 31,472 $ 1,436,545 Total Receivables

TotalGeneral

Debt

Service

Governmental funds report deferred revenue in connection with receivables for revenues thatare not considered to be available to liquidate liabilities of the current period. At the end ofthe current fiscal year, the various components of deferred revenue reported in thegovernmental funds were as follows:





25

Delinquent property taxes receivable - general fund $ 4,787 $

Delinquent property taxes receivable - debt service fund 31,472 Total Deferred Revenue for Governmental Funds $ 36,259 $

Unavailable Unearned

NOTE 6 – UNAMORTIZED BOND PREMIUM OR (DISCOUNT)

A summary of changes in unamortized bond premium or (discount) follows:

Unlimited Tax Bonds:

Series 2005 (995,579) (637,171) (39,823) (597,348)

Series 2006 (501,747) (100,349) (50,175) (50,174)Series 2007 (254,395) (176,970) (11,061) (165,909)

Series 2008 Refunding 101,229 65,501 5,955 59,546

Series 2009 (195,900) (149,257) (9,329) (139,928)




Series 2012 Refunding (306,400) (288,376) (18,024) (270,352)

$ (378,332) $ 106,384 $ 3,413 $ 102,971

Original

(Discount) Oct. 1, 2013

Total

Balance at

Sept 30, 2014 Amortization

Bond Premium Balance at Current Year

NOTE 7 - CAPITAL ASSETS

A summary of changes in capital assets for the year ended September 30, 2014, follows:

Governmental Activities:Non-depreciable Assets:

Land $ 740,554 $ $ $ 740,554Capacity rights 16,873,971 530,410 17,404,381Total Non-depreciable Assets 17,614,525 530,410 18,144,935

Depreciable Assets:Water system 20,685,124 20,685,124Wastewater system 24,407,071 24,407,071Drainage system 45,273,660 45,273,660

Engineering 7,139,449 7,139,449Total Depreciable Assets 97,505,304 97,505,304

Less Accumulated Depreciation (29,569,683) (3,034,069) (32,603,752)

$ 85,550,146 $ (2,503,659) $ $ 83,046,487Totals

Balance BalanceSept 30, 2014Oct 1, 2013 Increases (Decreases)

Depreciation expense for the year ended September 30, 2014, totaled $3,034,069.





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NOTE 8 - LONG-TERM DEBT

Long-term debt consists of bonds payable. Payments of principal and interest on the bondsare to be provided from tax levies on properties within the District. Investment incomerealized by the Debt Service Fund from investment of funds will be used to pay outstandingbond principal and interest.

The following is a summary of changes in bonds payable for the year ended September 30,2014:

Bonds payable, October 1, 2013 $ 100,225,000

Bonds retired (3,755,000)

Bonds payable, Sept. 30, 2014 $ 96,470,000

Bonds payable at September 30, 2014, are comprised of the following individual issues:

AmountsOutstanding

InterestRate

DateSerially

Begin/End

MaturityInterest

DatesCallable

Date

2005R

$13,020,000 3.50–5.00%

March 1,2011/2030

March 1/Sept. 1

March 1,2014*

2006 $ 485,000 4.00–4.75%

March 1,2011/2030

March 1/Sept. 1

March 1,2014*

2007 $ 7,185,000 4.0-4.3%

March 1,2011/2030

March 1/Sept. 1

March 1,2015*

2008R

$ 4,690,000 3.0-4.5%

March 1,2011/2025

March 1/Sept. 1

March 1,2017*

2009 $ 5,625,000 3.0-4.5%

March 1,2011/2030

March 1/Sept. 1

March 1,2017*

2010R

$23,085,000 2.0-4.0%

March 1,2011/2028

March 1/Sept. 1

March 1,2019*

2011R

$ 8,425,000 2.0-4.0%

March 1,2012/2022

March 1/Sept. 1

March 1,2020*

2012R $ 9,475,000 2.0-4.0% March 1,2014/2029 March 1/Sept. 1 March 1,2020*

2013R

$24,480,000 2.0-5.0%

March 1,2014/2030

March 1/Sept. 1

March 1,2022*

* Or any interest payment date thereafter in accordance with redemption provisions of thebond resolution.





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As of September 30, 2014, the debt service requirements on bonds outstanding for the nextfive fiscal years and thereafter through 2030 are as follow:

ear2015 $ 3,880,000 $ 3,606,731 $ 7,486,731

2016 4,010,000 3,469,187 7,479,187

2017 4,160,000 3,327,543 7,487,543

2018 4,305,000 3,180,036 7,485,036

2019 4,455,000 3,026,961 7,481,961

2020-2024 28,580,000 12,235,806 40,815,806

2025-2029 38,305,000 5,331,213 43,636,213

2030 8,775,000 155,313 8,930,313

$ 96,470,000 $ 34,332,790 $ 130,802,790

Principal Interest Total

At September 30, 2014, the District had voted and unissued tax bonds in the amount of

$9,100,000.

The Debt Service Fund has $10,407,734 available to service the above bonds.

The District is in compliance with all significant bond requirements and restrictions containedin the bond resolutions.

NOTE 9 – JOINT VENTURE – THE WOODLANDS JOINT POWERS AGENCY

The District has entered into interlocal contracts with other area municipal utility districts(collectively the “Participating Districts”) to create the Woodlands Joint Powers Agency (the

“Agency”). The contracts provide for the Agency to purchase certain equipment and supplies,to install taps and connections to the Participating District’s water and sewer systems, toperform required repair and maintenance work on these systems and to provide certainadministrative services for the Participating Districts.

Each Board of the Participating Districts appoints one of its members to the Agency’s Board ofTrustees annually. The Agency’s Board of Trustees controls the operations of the Agency,which includes adopting operating and capital budgets.

The Agency’s summary financial position at September 30, 2014 is presented below:

Total Assets $ 3,155,821Total Liabilities 181,277

$ 2,974,544

The Participating Districts account for their share of the Agency’s net position on the equitymethod in their General Funds. Each Participating Districts’ respective shares are determinedbased on their proportionate share of cash contributions and all other cash payments andcontributions made to the Agency on a cumulative basis.





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At September 30, 2014, the Agency’s net position are allocated among the ParticipatingDistricts as follows:

The Woodlands MUD No. 2 $ 65,791Montgomery County MUD No. 6 367,950

Montgomery County MUD No. 7 458,655








The Woodlands Metro Center MUD 66,145

$ 2,974,544

Each Participating District’s share of participants’ equity at September 30, 2014 includes aninitial contribution of $7,500, which will not be refunded except on withdrawal from the

Agency or termination of the interlocal contracts.

The Agency’s summary operating results for the year ended September 30, 2014 arepresented below along with the District’s related share:

Total Revenues $ 5,428,816 $ 1,166,398

Total Expenses 5,084,767 1,092,478

Revenues Over (Under) Expenses 344,049 73,920

Participant distributions (333,536) (79,600)

Participants' Equity - Beginning 2,964,031 322,370

Participants' Equity - Ending $ 2,974,544 $ 316,690

Agency District





29

Charges for the Agency’s operating costs are based on the Participating District’s number ofmonthly water and sewer billings, tap connections and direct costs incurred. During the year

ended September 30, 2014, the District’s contribution for the Agency’s costs was made up ofthe following charges:

Tax administration $ 66,848

Administration 517,512

Engineering 44,391

Meter reading 84,088

Water repair and maintenance 80,044

Sewer repair and maintenance 18,085

Billing income 25,865

Large ditch repair and maintenance 119,967

Storm sewer repair and maintenance 60,767Postage 31,978

Other 22,939

Capital budget contribution 24,090

Water tap installation 32,300

Inspections and connections 19,400

Culverts 11,010

$ 1,159,284

NOTE 10 – FINANCING AGREEMENTS WITH SAN JACINTO RIVER AUTHORITY

The District has entered into a series of financing agreements with the San Jacinto River Authority (SJRA). The agreements are for design, construction and other improvements toThe Woodlands Waste Disposal System Project and The Woodlands Water Supply SystemProject. The agreements include provisions for advances to be made by the District in theinitial stages of the project under certain circumstances. The District has made no advancesin the fiscal year ended September 30, 2014.

The District’s financing agreements with the SJRA also provide for the allocation of pro ratashares of SJRA revenue bond principal and interest to the District proportionate to theDistrict’s interest in the portion of project financed.

The District’s proportionate share of the total revenue bond obligations of the SJRA varies byproject. During the year ended September 30, 2014, the District funded $818,759 from theGeneral Fund relating to the obligations of which $515,685 was for principal and $303,074was for interest.





30

The following reflects the District’s portion of existing debt of the SJRA for both the WasteDisposal System Project and the Water Supply System Project. The debt bears interest at

varying rates and matures in 2030.

Year

2015 $ 537,062 $ 280,458 $ 817,520

2016 334,952 261,862 596,814

2017 318,223 248,738 566,961

2018 329,272 235,666 564,938

2019 343,397 221,731 565,128

2020-2024 1,820,824 874,282 2,695,106

2025-2029 2,241,011 398,317 2,639,328

2030 510,776 12,131 522,907

$ 6,435,517 $ 2,533,185 $ 8,968,702


NOTE 11 – CONTRACT WITH SAN JACINTO RIVER AUTHORITY

The District has contracted with the SJRA to provide its customers with water and sewerutility services through planning, construction, operation and maintenance of central watersupply and waste disposal facilities. The initial contract was entered into on September 27,1983, and continues in full force and effect unless terminated by mutual agreement of theDistrict and the SJRA. Thereafter, the District retains a proportionate and equitableownership interest in such central facilities.

Under the terms of the agreement, the District pays its proportionate share of capital andoperating costs for reserved capacity in the water supply and waste disposal facilities. Capitalpayments have come from the proceeds of bonds issued by the District and are included ascapital assets. Operating costs are recorded as current expenditures in the District’s GeneralFund. During the year ended September 30, 2014, the District paid $6,995,074 for its shareof operating costs. Pursuant to the agreement and a resolution approved by the SJRA on

August 28, 2014, the SJRA maintains reserve funds for operation of the water supply andwaste disposal facilities to cover cash flow needs year round in an amount ranging betweentwo and three months of total operating costs, excluding costs related to the payment ofgroundwater reduction plan fees. This operating reserve changes during the year based onavailable funds and changes in operating conditions. No amounts have been recorded on the

District's financial statements to reflect the District's share of this reserve. The SJRA alsomaintains reserve funds in accordance with the agreement and resolution for the plannedrepair and replacement of water supply and waste disposal facilities having a significantreplacement value and a relatively long useful life (generally in excess of ten years). Theamount of such reserve varies from year to year based upon a five year capital improvementand construction plan developed, maintained and annually updated by the SJRA. No amountshave been recorded on the District's financial statements to reflect the District's share of thisreserve.





31

Pursuant to the agreement and the resolution, the SJRA also maintains an emergency reserve

for purpose of providing funding for unexpected catastrophic events. The emergency reserveis funded periodically by the District and other participating districts from available sources.The amount of such reserve varies from year to year pursuant to the resolution. No amountshave been recorded on the District's financial statements to reflect the District's share of thisreserve.

The relationship between the SJRA and its customer districts is purely contractual. The SJRAis a separate functioning governmental entity whose management and Board of Directors arenot subject to the control of the customer districts. The District, together with other areamunicipal utility districts with similar contracts with the SJRA (collectively the “CustomerDistricts”), contracts directly with the SJRA for required facilities and does not have a contractwith other Customer Districts. The SJRA is not a participating facility user.

The SJRA serves as the sponsor and common provider to each of its Customer Districts offacilities and related services and has full legal title and ownership to facilities, subject only tothe contractual rights of the Customer Districts to receive services.

The SJRA invests its own capital funds in the construction and acquisition of the requiredfacilities. Each Customer District makes a payment to the SJRA to defray the costs ofconstruction of capital facilities proportionate to the contractual rights of use (or capacityrights) of such customer pursuant to its contract with the SJRA. Thus, each Customer Districthas invested from its bond proceeds capital funds in the acquisition of such contract rights;however, no Customer District owns nor has legal title to all or any portion of the physical

facilities providing such services.

Under these circumstances, the District’s relationship with the SJRA is not considered toconstitute either a shared facilities agreement or a joint venture arrangement. Disclosure hasbeen made that a substantial portion of water and sewer facility costs in the District’s generalfixed assets consist of the District’s investment in the acquisition of contractual rights of use,rather than ownership of facilities.

NOTE 12 – RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to and

destruction of assets, errors and omissions; and natural disasters for which the District carriescommercial insurance. The District has not significantly reduced insurance coverage or hadsettlements which exceeded coverage amounts for the past three fiscal years.





32

NOTE 13 – ANNEXATION DEFERRAL AGREEMENT

The District and the adjacent Woodlands Municipal Utility Districts (the “Woodlands Districts”)are located entirely within The Woodlands Township, a political subdivision of the State of

Texas which overlaps substantially all of The Woodlands. The Township has recently

concluded agreements with the City of Houston and the City of Conroe pursuant to which the

area of the Township, including the Woodlands Districts, may not be annexed for fifty (50)

years, and the area of the Township may, on or after May 29, 2014, and on request by the

Township, be excluded from the extraterritorial jurisdiction of either or both cities, and may

thereafter be incorporated as a municipality or may adopt a new form of local government.

In the event of incorporation of the Township, the Township must dissolve the Woodlands

Districts and assume the assets, obligations and liabilities of the Woodlands Districts.



REQUIRED SUPPLEMENTARY INFORMATION

33



Exhibit C(1)

Revenues

Water service $ 7,415,079 $ 7,415,079 $ 6,905,803 $ (509,276)

Sewer service 1,743,694 1,743,694 1,647,237 (96,457)

Property taxes 1,135,918 1,135,918 1,196,582 60,664

Tap connection fees 23,820 23,820 65,500 41,680

Interest on investments 4,606 4,606 2,473 (2,133)

Other 1,219,123 1,219,123

10,323,117 10,323,117 11,036,718 713,601

Expenditures

Current:

Purchased water and sewer 7,263,760 7,263,760 6,995,074 (268,686)

Purchased services 1,081,192 1,081,192 1,029,726 (51,466)

Professional fees 37,000 37,000 44,877 7,877

Other 165,308 165,308 225,635 60,327

Capital Outlay 20,994 20,994 62,710 41,716

Debt Service:Principal retirement 372,937 372,937 515,685 142,748

Interest and fiscal charges 452,681 452,681 303,074 (149,607)

9,393,872 9,393,872 9,176,781 (217,091)

929,245 929,245 1,859,937 930,692

Other Financing Sources (Uses)

Transfers (300,000) (300,000) (4,050,000) (3,750,000)

Equity in net income (loss) of JV 73,920 73,920

Total Other Fin. Sources (Uses) (300,000) (300,000) (3,976,080) (3,676,080)

629,245 629,245 (2,116,143) (2,745,388)

Fund Balances - Beginning 6,670,520 6,670,520 6,670,520

$ 7,299,765 $ 7,299,765 $ 4,554,377 $ (2,745,388)


SCHEDULE OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -

GENERAL FUND

xcess (Deficiency) of Revenue

xcess (Deficiency) of Revenue

Fund Balances - Ending

(Under)

Total Expenditures

Over (Under) Expenditures

Actual

and Other Financing Sources

and Other Financing (Uses)

Variance

Total Revenues

Budgeted Amounts


Original

Over

Over (Under Expenditures

Final

34



ADDITIONAL INFORMATION

35



1. Services provided by the District:

X Retail Water Wholesale Water X DrainageX Retail Sewer Wholesale Sewer Irrigation

Parks/Recreation Fire Protection Security

Solid Waste/Garbage Flood Control Roads

X

Other (specify):

2. Retail rates based on 5/8" meter Retail rates not applicable

The most prevalent type of meter (if not a 5/8"):

Flat Rate per 1,000

Minimum Minimum Rate Gallons Over

Charge Usage /N Minimum Usage LevelsWater $ 5.00 N 1,000 - 3,000

Water N 4,000 - 15,000

Water N 16,000 - 30,000

Water N 31,000 - >

Waste $10.35 N per 1,000

Surcharge $ 1.75 Per 1,000 Groundwater Reduction Plan Fee

District employs winter averaging for wastewater usage? Yes X No

Total water and sewer charges per 10,000 gallons usage

(including surcharges)

3. Retail Service Providers: Number of retail water and/or wastewater*

connections within the District as of the fiscal year end. Provide actualnumbers and single family equivalents (ESFC) as noted:

Active Active Inactive

Single Family 49

Multi-Family 6

Commercial 84 1

Other - recreational centers,

government & VFD 258

TOTAL 50

* Number of connections relates to water service, if provided. Otherwise,

the number of wastewater connections should be provided.

** "Inactive" means that water and wastewater connections were made, but

service is not being provided.

4. Total Water Consumption (In Thousands) During the Fiscal Year:

Gallons pumped into system:

Gallons billed to customers:

Percent of gallons billed to pumped


SCHEDULE OF SERVICES AND RATES


Connections ESFC

$ 1.38

3,000

$ 2.75

$ 4.15

7,908 10,084

7,560 7,560

348

1,088

$ 5.50

N/A

N/A

Connections**

$93.21

1,325,989

Participates in joint venture, regional system and/or wastewater service

(other than emergency interconnect)

1,088

$ 3.45

36



TSI-1

5. Standby Fees: Does the District assess standby fees?

For the most recent full fiscal year:Debt Service: Total levy $

Total collected $

Percentage collected %

Operation & Maintenance Total levy $

Total collected $

Percentage collected %

constituting a lien on property? Yes ___ No ___

6. Location of District:

County in which District is located. Montgomery

Is the District located entirely within one county? Yes _X_ No ___ Is the District located within a city? Entirely ___ Partly ___ Not at all X

City in which District is located.

Is the District located within a city's extra territorial jurisdiction (ETJ)?

Entirely _ X _ Partly ___ Not at all ___

ETJ's in which District is located. Houston

Is the general membership of the Board appointed by an office outside the District?

Yes ___ No _X_

If yes, by whom?

Have standby fees been levied in accordance with Water Code Section 49.231, thereby

Yes ___ No_X_

37



TSI-2

Current

Purchased Water and Sewer Services from SJRA $ 6,995,074 $ 6,697,871

Purchased Services from Joint Venture 1,029,726 1,009,847

Professional Fees:

Auditing 7,000 7,000

Engineering

Legal 37,877 39,477

44,877 46,477

Other Current Expenditures:

Directors' fees 12,000 12,900

Regulatory assessment 49,037 50,569

Bank charges 84,568 79,696

Bear Branch 64,704 783

Insurance 2,700 2,600

Miscellaneous 12,626 24,900

225,635 171,448

Capital Outlay 62,710 96,390

Debt Service:

Principal 515,685 495,505

Interest and fiscal charges 303,074 330,013

818,759 825,518

$ 9,176,781 $ 8,847,551

Number of employees employed by the District: Full-timePart-time

Total Expenditures

2014 2013


SCHEDULE OF GENERAL FUND EXPENDITURES

Years Ended September 30, 2014 and 2013

38



TSI-3

Balances at

Interest Maturity September 30, AccruedFunds Rate (%) Date Interest

General Fund

Checking N/A N/A $ 299,331 $

Texpool Variable N/A 1,034,361

Texstar Variable N/A 2,438,375

Certificate of deposit 0.15 5/10/2015 257,139

Total General Fund 4,029,206

Debt Service Fund

Checking N/A N/A 6,608


Texstar Variable N/A 5,532,789

Total Debt Service Fund 10,583,892

Capital Projects Fund

Checking N/A N/A 5,648


Texstar Variable N/A

Total Capital Projects Fund 1,063,101

Total - All Funds $ 15,676,199 $

SCHEDULE OF CASH AND TEMPORARY INVESTMENTS


2014


39




40



TSI-4

Debt

General ServiceFund Fund Total

Taxes Receivable - October 01, 2013 $ 2,897 $ 19,171 $ 22,068

2013 Original Tax Roll 1,197,352 7,013,063 8,210,415

Additions and corrections 1,120 8,250 9,370

Adjusted tax roll 1,198,472 7,021,313 8,219,785

Total to be Accounted for 1,201,369 7,040,484 8,241,853

Tax Collections

Current year 1,195,373 7,001,469 8,196,842

Prior years 1,209 7,543 8,752

Total Collections 1,196,582 7,009,012 8,205,594

Taxes Receivable - September 30, 2014 $ 4,787 $ 31,472 $ 36,259

Taxes Receivable - By Year

2013 $ 1,980 $ 11,595 $ 13,575

2012 191 1,668 1,859

2011 1,637 10,756 12,393

2010 357 2,445 2,802

2009 and prior 622 5,008 5,630

Taxes Receivable - September 30, 2014 $ 4,787 $ 31,472 $ 36,259

Assessed

Property Valuations

Land, improvementsand personal

property $ 3,421,006,962 $ 3,238,204,454 $ 3,121,949,230 $ 3,005,197,221 $ 2,921,765,116

$ 3,421,006,962 $ 3,238,204,454 $ 3,121,949,230 $ 3,005,197,221 $ 2,921,765,116

Tax Rates Per $100

Valuations

Debt service $ 0.205 $ 0.220 $ 0.230 $ 0.240 $ 0.245

General operations 0.035 0.035 0.035 0.035 0.040

Total Tax Rate per

$100 Valuation $ 0.240 $ 0.255 $ 0.265 $ 0.275 $ 0.285

Adjusted Tax Levy $ 8,210,417 $ 8,257,421 $ 8,273,165 $ 8,264,292 $ 8,327,031

For the Year Ended September 30, 2014 All TaxesPercent of current taxes collected to current taxes levied (as adjusted) 99.7%

Percent of current and delinquent taxes collected to current levied

(as adjusted) and delinquent taxes outstanding at the beginning of

the year (as adjusted) 99.6%


ANALYSIS OF TAXES LEVIED AND RECEIVABLE


20092013 2012 2011 2010

41



Due During

Fiscal Year End

September 30

2015 $ 3,880,000 $ 3,606,731 $ 7,486,731 $ 1,155,000 $ 497,700 $ 1,652,700

2016 4,010,000 3,469,187 7,479,187 474,600 474,600

2017 4,160,000 3,327,543 7,487,543 474,600 474,600

2018 4,305,000 3,180,036 7,485,036 474,600 474,600

2019 4,455,000 3,026,961 7,481,961 474,600 474,600

2020 4,615,000 2,865,711 7,480,711 474,600 474,600

2021 4,800,000 2,688,606 7,488,606 474,600 474,600

2022 6,085,000 2,485,242 8,570,242 474,600 474,600

2023 6,395,000 2,238,974 8,633,974 474,600 474,600

2024 6,685,000 1,957,273 8,642,273 474,600 474,600

2025 7,010,000 1,661,070 8,671,070 474,600 474,600

2026 7,330,000 1,364,769 8,694,769 2,120,000 432,200 2,552,200

2027 7,635,000 1,071,571 8,706,571 2,240,000 345,000 2,585,000

2028 7,955,000 769,960 8,724,960 2,365,000 252,900 2,617,900

2029 8,375,000 463,843 8,838,843 2,500,000 155,600 2,655,600

2030 8,775,000 155,313 8,930,313 2,640,000 52,800 2,692,800

Total $ 96,470,000 $ 34,332,790 $ 130,802,790 $ 13,020,000 $ 6,482,200 $ 19,502,200

Due During

Fiscal Year End

September 30

2015 $ 425,000 $ 180,213 $ 605,213 $ 215,000 $ 225,764 $ 440,764

2016 435,000 162,988 597,988 230,000 216,326 446,326

2017 460,000 144,000 604,000 245,000 207,010 452,010

2018 485,000 125,100 610,100 260,000 197,224 457,2242019 500,000 105,400 605,400 275,000 186,723 461,723

2020 520,000 85,000 605,000 290,000 175,491 465,491

2021 545,000 63,700 608,700 310,000 163,491 473,491

2022 575,000 41,300 616,300 330,000 150,691 480,691

2023 235,000 25,100 260,100 350,000 137,091 487,091

2024 250,000 15,400 265,400 370,000 122,691 492,691

2025 260,000 5,200 265,200 395,000 107,144 502,144

2026 415,000 90,386 505,386

2027 440,000 72,645 512,645

2028 470,000 53,645 523,645

2029 500,000 33,150 533,150

2030 530,000 11,263 541,263

Total $ 4,690,000 $ 953,401 $ 5,643,401 $ 5,625,000 $ 2,150,735 $ 7,775,735

Interest Total


GENERAL LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS

September 30, 2014

All Series Series 2005R

Principal Total

Series 2008R

Principal


Series 2009


Interest

42



TSI-5

Page 1 of 2

Due During

Fiscal Year End

September 30

2015 $ 255,000 $ 15,034 $ 270,034 $ 305,000 $ 296,320 $ 601,320

2016 230,000 4,888 234,888 320,000 283,660 603,660

2017 335,000 270,233 605,233

2018 355,000 256,087 611,087

2019 370,000 241,225 611,225

2020 390,000 225,645 615,645

2021 410,000 209,040 619,040

2022 430,000 191,400 621,400

2023 450,000 172,808 622,808

2024 470,000 153,257 623,257

2025 495,000 132,751 627,751

2026 520,000 111,183 631,183

2027 545,000 88,551 633,551

2028 570,000 64,715 634,715

2029 595,000 39,668 634,668

2030 625,000 13,437 638,437

Total $ 485,000 $ 19,922 $ 504,922 $ 7,185,000 $ 2,749,980 $ 9,934,980

Due During

Fiscal Year End

September 30

2015 $ 590,000 $ 908,650 $ 1,498,650 $ 790,000 $ 287,225 $ 1,077,225

2016 620,000 887,400 1,507,400 820,000 263,075 1,083,075

2017 650,000 862,000 1,512,000 865,000 233,475 1,098,475

2018 395,000 841,100 1,236,100 910,000 197,975 1,107,9752019 420,000 824,800 1,244,800 965,000 160,475 1,125,475

2020 440,000 807,600 1,247,600 1,015,000 120,875 1,135,875

2021 1,530,000 768,200 2,298,200 1,605,000 68,475 1,673,475

2022 2,705,000 683,500 3,388,500 1,455,000 18,188 1,473,188

2023 3,185,000 565,700 3,750,700

2024 3,340,000 435,200 3,775,200

2025 3,500,000 298,400 3,798,400

2026 2,265,000 183,100 2,448,100

2027 1,940,000 99,000 2,039,000

2028 1,505,000 30,100 1,535,100

2029

2030

Total $ 23,085,000 $ 8,194,750 $ 31,279,750 $ 8,425,000 $ 1,349,763 $ 9,774,763

Series 2007


Series 2006


Interest Total

Series 2010R Series 2011R

Principal Interest Total Principal

43



TSI-5

Page 2 of 2

Due During

Fiscal Year End

September 30

2015 $ 45,000 $ 335,700 $ 380,700 $ 100,000 $ 860,125 $ 960,125

2016 440,000 330,850 770,850 915,000 845,400 1,760,400

2017 435,000 322,100 757,100 1,170,000 814,125 1,984,125

2018 425,000 313,500 738,500 1,475,000 774,450 2,249,450

2019 415,000 304,063 719,063 1,510,000 729,675 2,239,675

2020 410,000 292,725 702,725 1,550,000 683,775 2,233,775

2021 290,000 282,225 572,225 110,000 658,875 768,875

2022 275,000 273,063 548,063 315,000 652,500 967,500

2023 270,000 263,525 533,525 1,905,000 600,150 2,505,150

2024 235,000 254,100 489,100 2,020,000 502,025 2,522,025

2025 210,000 245,200 455,200 2,150,000 397,775 2,547,775

2026 1,395,000 213,100 1,608,100 615,000 334,800 949,800

2027 1,470,000 155,800 1,625,800 1,000,000 310,575 1,310,575

2028 1,540,000 95,600 1,635,600 1,505,000 273,000 1,778,000

2029 1,620,000 32,400 1,652,400 3,160,000 203,025 3,363,025

2030 4,980,000 77,813 5,057,813

Total $ 9,475,000 $ 3,713,951 $ 13,188,951 $ 24,480,000 $ 8,718,088 $ 33,198,088



GENERAL LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS

September 30, 2014

Series 2013R Series 2012R


44




45



Interest rate

Dates interest payable

Maturity dates

Original issue amount $ 33,780,000 $ 16,850,000 $ 8,900,000 $ 5,570,000

Bonds payable at beginning of year $ 14,115,000 $ 785,000 $ 7,480,000 $ 4,865,000

Bonds sold

Bonds refunded

Principal retirements (1,095,000) (300,000) (295,000) (175,000)

Bonds Payable at End of Year $ 13,020,000 $ 485,000 $ 7,185,000 $ 4,690,000

Interest Retirements $ 542,700 $ 26,481 $ 308,320 $ 190,713

Paying Agent/Registrar

All Series Bank of New York

Bond Authority

Amount authorized by voters $ 139,690,000

Amount issued $ 124,060,000Remaining $ 15,630,000

Debt Service Fund Cash and Temporary Investment Balances at End of Year $ 10,583,892

Average Annual Debt Service Payment for Remaining Term of all Debt $ 8,175,174

Tax Bonds

9/1;3/1 9/1;3/1

3/1/08-3/1/11- 3/1/07-

9/1;3/1

3/1/30

9/1;3/1

3/1/30

3.50-5.00%

2006 2007 2008R

4.00-4.75% 4.00-4.30% 3.00-4.50%


ANALYSIS OF CHANGES IN GENERAL LONG-TERM DEBT


2005

3/1/11-

3/1/30 3/1/25

46



TSI-6

Bond Issue

$ 6,530,000 $ 25,015,000 $ 9,265,000 $ 9,520,000 $ 24,575,000

$ 5,830,000 $ 23,880,000 $ 9,175,000 $ 9,520,000 $ 24,575,000 $ 100,225,000

(205,000) (795,000) (750,000) (45,000) (95,000) (3,755,000)

$ 5,625,000 $ 23,085,000 $ 8,425,000 $ 9,475,000 $ 24,480,000 $ 96,470,000

$ 235,726 $ 929,425 $ 310,325 $ 336,600 $ 862,075 $ 3,742,365

3.00-4.50%

2009 2010R

9/1;3/1

3/1/10-

3/1/30

9/1;3/1

3/1/12-

9/1;3/1

3/1/28

3/1/14-

9/1;3/1

Total2012R

2.00-5.00%

3/1/22

2.00-4.00% 2.00-4.00%

2011R

3/1/29

3/1/14-

2.00-4.00%

9/1;3/1

2013R

3/1/11-

3/1/30

47



General Fund Revenues

Water and sewer service $ 8,553,040 $ 8,709,911 $ 8,018,006 $ 7,769,307 $ 4,931,741

Property taxes 1,196,582 1,132,687 1,095,607 1,050,699 1,170,517

Tap connections & culverts 65,500 106,245 120,555 222,595 227,970

Interest and other 1,221,596 20,600 31,575 29,081 19,341

Total Revenues 11,036,718 9,969,443 9,265,743 9,071,682 6,349,569

General Fund ExpendituresCurrent 8,295,312 7,925,643 7,269,156 6,994,345 4,712,927

Capital outlay 62,710 96,390 95,200 574,936 173,770

Debt service 818,759 825,518 824,330 866,037 815,224

Total Expenditures 9,176,781 8,847,551 8,188,686 8,435,318 5,701,921

Revenues Over (Under)

Expenditures $ 1,859,937 $ 1,121,892 $ 1,077,057 $ 636,364 $ 647,648

Debt Service Fund Revenues

Property taxes $ 7,009,012 $ 7,120,382 $ 7,198,955 $ 7,204,436 $ 7,170,158

Penalty and interest 43,897 36,057 33,236 34,233 53,427Interest and other 2,968 112,934 10,605 43,254 33,356

Total Revenues 7,055,877 7,269,373 7,242,796 7,281,923 7,256,941

Debt Service Fund Expenditures

Tax collection 131,929 101,956 94,901 97,889 96,671

Debt service 7,501,465 7,001,956 7,601,212 8,252,298 8,063,333

Total Expenditures 7,633,394 7,103,912 7,696,113 8,350,187 8,160,004

Revenues Over (Under)

Expenditures $ (577,517) $ 165,461 $ (453,317) $ (1,068,264) $ (903,063)

20132014


COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES -

Last Five Fiscal Years

GENERAL AND DEBT SERVICE FUNDS

Amounts

2011 20102012

48



TSI-7

77.5 % 87.4 % 86.5 % 85.6 % 77.7 %

10.8 11.4 11.8 11.6 18.4

0.6 1.1 1.3 2.5 3.6

11.1 0.1 0.4 0.3 0.3

100.0 100.0 100.0 100.0 100.0

75.2 79.5 78.5 77.1 74.2

0.6 1.0 1.0 6.3 2.7

7.4 8.3 8.9 9.5 12.8

83.2 88.8 88.4 92.9 89.7

16.8 % 11.2 % 11.6 % 7.1 % 10.3 %

99.3 % 98.0 % 99.4 % 98.9 % 98.8 %

0.6 0.5 0.5 0.5 0.70.1 1.5 0.1 0.6 0.5

100.0 100.0 100.0 100.0 100.0

1.9 1.4 1.3 1.3 1.3

106.3 96.3 104.9 113.3 111.1

108.2 97.7 106.2 114.6 112.4

(8.2) % 2.3 % (6.2) % (14.6) % (12.4) %

2011 2010

Percent of Total Fund Revenues

2014 2013 2012

49



District's Mailing Address: 2455 Lake Robbins DriveP.O. Box 7580

The Woodlands, Texas 77387

District's Business Telephone Number: (281) 367-1271

Resident

Name Term Title of District?

Board Members

Mark E. Vonderau 5/14- $ 3,300 $ 53 President No

5/18 JPA Trustee

Marjorie Podzielinski 5/14- 1,950 Vice- Yes

5/18 President

H. Wilson McCoy 5/12- 2,700 1,915 Assistant Yes

5/16 Vice

President

Felicia Poe 5/14- 2,250 Secretary/ Yes

5/18 Treasurer

Jeanne Underwood 5/12- 1,800 Assistant No

5/16 Secretary/

Treasurer

Note: No director is disqualified from serving on this board under the Texas Water Code.


BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS

September 30, 2014

Fees Expenses

50



TSI-8

Date Resident

Name and Address Hired Title of District?

Key Administrative Personnel

Jim Stinson 7/94 $ 175,990 * General No

42 Gallant Oak Place Manager

The Woodlands, Texas 77381 Woodlands JPA

Consultants

Schwartz, Page & Harding, L.L.P. 3/1/88 22,362 Attorney No

1300 Post Oak Boulevard, Suite 1400

Houston, Texas 77056

Montgomery County Appraisal District 10/1/84 60,675 Central No

109 Gladstell Appraisal

Conroe, Texas 77301 District

Sandersen Knox & Co., L.L.P. 8/1/01 6,500 Independent No

130 Industrial Blvd., Suite 130 Auditor

Sugar Land, Texas 77478

RBC Capital Markets 11/13/89 0 Financial No

1001 Fannin, Suite 500 Advisor

Houston, Texas 77002

* Represents the General Manager's salary paid by the JPA.

Salaries

and Fees

51



Documents

MC MUD #46 FINANCIAL INFO Audit 2014