MC MUD 39 Audit 2014

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Montgomery CountyMunicipal Utility District No. 39

MONTGOMERY COUNTY, TEXAS

FINANCIAL REPORT

September 30, 2014

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Independent Auditors’ Report

Board of DirectorsMontgomery County Municipal Utility District No. 39Montgomery County, Texas

We have audited the accompanying financial statements of the governmental activities andeach major fund of Montgomery County Municipal Utility District No. 39 (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 ofcontents.

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 the

financial statements in order to design audit procedures that are appropriate in thecircumstances, 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. 39 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. 39 (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 $1,971,667 (net position) (See Note 1K of the Notes to FinancialStatements).

As of September 30, 2014, the District’s governmental funds reported an endingfund balance of $1,676,865.

The District’s cash balance at September 30, 2014 was $1,722,212, representing adecrease of $1,202,815 from September 30, 2013.

The District had general revenues of $3,150,843 and program revenues, net ofexpenses, of $602,570 for the year ended September 30, 2014.

At the end of the fiscal year, unrestricted and unassigned fund balance for theGeneral Fund was $842,721, or 41 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 cash

flows. Thus, revenues and expenses are reported in this statement for some items that willonly 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 $1,971,667 as ofSeptember 30, 2014 (See Note 1K of the Notes to Financial Statements).

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 invested in capital assets, net of related debt.

Current and other assets $ 1,997,617 $ 3,250,103

Capital assets, net 11,691,751 11,189,930

Total Assets 13,689,368 14,440,033

Long-term liabilities 15,319,672 16,694,272

Other liabilities 341,363 319,998

Total Liabilities 15,661,035 17,014,270

Net Position:

Net investment in capital assets (3,627,921) (5,504,342)

Restricted 771,977 1,708,815

Unrestricted 884,277 1,221,290

Total Net Position $ (1,971,667) $ (2,574,237)

SUMMARY OF STATEMENT OF NET POSITION

As of September 30, 2014 and 2013

2014 2013

Governmental Activities

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Net position of the District, all of which relate to governmental activities, increased by$602,570. Key elements of the changes are as follows:

Revenues

Program revenues:

Water and sewer charges $ 1,264,130 $ 1,273,778

Property taxes, penalties and interest 1,781,167 1,672,993

Investment income and other 105,546 176,362

Total Revenues 3,150,843 3,123,133

Expenses

Purchased water and sewer 1,102,318 1,009,432

Professional fees, contracted services and other 404,969 340,677

Interest on long-term debt 613,141 817,716

Depreciation and amortization 427,845 431,277

Total Expenses 2,548,273 2,599,102

Change in Net Position 602,570 524,031

Net position, beginning (2,574,237) (3,098,268)

Net Position, Ending (Note 1K) $ (1,971,667) $ (2,574,237)

CHANGES IN NET POSITION

For the Fiscal Year Ended September 30, 2014 and 2013

Governmental Activities

2014 2013

2014 REVENUES

Water and

sewer charges

40%Property taxes

57%

Investment

and other

3%

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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 $1,676,865,which is a decrease of $1,281,184 from last year’s total of $2,958,049. As a measure of thegeneral fund’s liquidity, it may be useful to compare unrestricted and unassigned fund balanceto total fund expenditures. Unreserved fund balance represents 41 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 $11,691,751 (net of accumulated depreciation). This investment in capital assets includesland and infrastructure.

Land $ 122,918

Capacity rights 2,764,706

Water system 4,633,032

Wastewater system 3,965,917

Drainage system 6,327,229

Engineering 1,348,367

Less: accumulated depreciation (7,470,418)

Total Capital Assets, Net $ 11,691,751

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 $12,990,000.Interest expense for the year totaled $524,937 for the 2014 fiscal year on this bonded debt.These outstanding bonds have maturities ranging from 2015 to 2026. 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

Unreserved fund balance in the General Fund decreased to $842,721. A planneddecrease of fund balance of $249,001 was projected.

REQUESTS FOR INFORMATION

The financial report is designed to provide a general overview of Montgomery County MunicipalUtility District No. 39’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. 39: TheWoodlands Joint Powers Agency, P.O. Box 7580, The Woodlands, Texas 77380.

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FINANCIAL STATEMENTS

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Cash and temporary investments $ 914,402 $ 807,810 $ $ 1,722,212

Receivables:

Property taxes 2,198 17,308 19,506

Customer service accounts 193,732 193,732

Internal receivables 274 274

Investment in joint venture 62,167 62,167

Capital assets, net of accumulated depreciation:

Land and capacity rightsInfrastructure

$ 1,172,773 $ 825,118 $ $ 1,997,891

Liabilities, Deferred Inflows and Fund Balances/Net Position

Liabilities

Accounts payable and accrued liabilities $ 189,137 $ 35,559 $ $ 224,696

Customer deposits 76,550 76,550

Internal payables 274 274

Accrued interest payable

Long-term liabilities:

Unamortized bond premium or (discount)

Due within one yearDue after one year

265,687 35,833 301,520

Deferred Inflows of Resources

Unavailable revenue - property taxes 2,198 17,308 19,506

Fund Balances/Net Position

Fund Balances:

Nonspendable investment in joint venture 62,167 62,167

Restricted for debt service 771,977 771,977

Unrestricted and unassigned 842,721 842,721

904,888 771,977 1,676,865$ 1,172,773 $ 825,118 $ $ 1,997,891

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. 39

STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS

September 30, 2014

BALANCE SHEET

TotalGeneral Service

Debt Capital

Projects

Total Fund Balances

Assets

Total Net Position

Total Liabilities

Total Liabilities and Fund Balances

Total Assets

10

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Exhibit B(1)

$ $ 1,722,212

19,506

193,732

(274)

62,167

2,887,624 2,887,6248,804,127 8,804,127

11,691,477 $ 13,689,368

$ $ 224,696

76,550

(274)

40,117 40,117

447,429 447,429

1,379,604 1,379,60413,492,639 13,492,639

15,359,515 15,661,035

(19,506)

(62,167)

(771,977)

(842,721)

(1,676,865)

(3,627,921) (3,627,921)

771,977 771,977

884,277 884,277$ (1,971,667) $ (1,971,667)

Adjustments

(Note 2)

Statement of

Net Position

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Revenues

Water service charges $ 922,616 $ $ $ 922,616

Sewer service charges 341,514 341,514

Property taxes 341,407 1,431,358 1,772,765

Penalties and interest 4,867 4,867

Tap connection and inspection fees 27,635 27,635

Investment earnings 610 605 22 1,237

Other 76,674 76,674

1,710,456 1,436,830 22 3,147,308Expenditures/Expenses

Current:

Purchased water and sewer service 1,102,318 1,102,318

Purchased services from joint venture 244,685 13,142 257,827

Professional fees 22,280 22,280

Other 47,505 14,557 72 62,134

Capital Outlay 438,037 612,184 1,050,221

Debt Service:

Principal retirement 129,182 1,205,000 1,334,182

Interest and fiscal charges 88,204 528,735 616,939

Depreciation and amortization

2,072,211 1,761,434 612,256 4,445,901

(361,755) (324,604) (612,234) (1,298,593)

Other Financing Sources (Uses)

Equity in net income (loss) of joint venture 17,409 17,409

17,409 17,409

(344,346) (324,604) (612,234) (1,281,184)

Fund Balances/Net Position - Beginning 1,249,234 1,096,581 612,234 2,958,049

$ 904,888 $ 771,977 $ $ 1,676,865

See Notes to Financial Statements.


STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS

REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

Year Ended September 30, 2014

Capital

Excess (Deficiency) of Revenues

Total Expenditures/Expenses

Total Revenues

TotalProjects

Debt

General Service

Over (Under) Expenditures

Total Other Financing Sources (Uses)

Excess (Deficiency) of Revenues and Other

Fund Balances/Net Position - Ending

inancing Sources Over (Under) Expenditure

and Other Financing (Uses)

Change in Net Position

12

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Exhibit B(2)

$ $ 922,616

341,514

3,535 1,776,300

4,867

27,635

1,237

76,674

3,535 3,150,843

1,102,318

(2,209) 255,618

22,280

64,937 127,071

(1,050,221)

(1,334,182)

(3,798) 613,141

427,845 427,845

(1,897,628) 2,548,273

1,901,163

(17,409)

(17,409)

1,281,184

602,570 602,570

(5,532,286) (2,574,237)

$ (3,648,532) $ (1,971,667)

Activities

Statement of Adjustments

(Note 2)

13

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(This Page Intentionally Left Blank)

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Montgomery County Municipal Utility District No. 39Exhibit 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. 39 (the “District”) was created pursuantto an order of the Texas Water Rights Commission adopted on December 20, 1976 andconfirmed at an election held on January 15, 1977. The Board of Directors held its firstmeeting on December 28, 1976. The first bonds were sold on November 22, 1977. TheDistrict operates under the regulations of the Texas Commission on Environmental Quality.

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.

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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 serviceoperations. 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. 31

defines “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.

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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.

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 ofdonation.

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

lives:

Asset DescriptionEstimatedUseful Life

Land N/A Capacity rights N/A Water system 30 yearsWastewater 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 of

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new debt issued is reported as other financing sources. Premiums are reported as otherfinancing uses. Issuance costs, whether or not withheld from the actual debt proceeds

received, are reported as debt service expenditures.

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 30,2011. As all of the capital assets were financed with general obligation debt, timing

differences 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 positionThe 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 $ 1,676,865

Capital assets used in governmental activities

are not financial resources and are not reported in the funds. 11,691,751

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

period expenditures and, therefore, are deferred in the funds. 19,506

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

payable in the current period, and therefore are not reported

in the funds. (15,359,789)

Net Position of Governmental Activities $ (1,971,667)

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Investment PoliciesThe District has adopted a written investment policy regarding the investment of its funds as

defined in the Public Funds Investment Act, Chapter 2256, Texas Government Code. Theinvestments of the District are in compliance with its investment policy.

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 otherpolitical 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 September

30, 2014.

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

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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 inpaying 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 torate 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 year

which 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 $0.415 per $100 of assessed valuation of which $0.08 was allocated to maintenanceand operations and $0.335 was allocated to debt service. The resulting tax levy was$1,776,503 on the adjusted taxable valuation of $428,072,949 for the 2013 tax year.

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

2013 Levy $ 1,287 $ 5,391 $ 6,678

2012 Levy 190 2,092 2,282

2011 Levy 111 1,438 1,549

2010 Levy 258 3,439 3,697

2009 and prior 352 4,948 5,300

$ 2,198 $ 17,308 $ 19,506

TotalGeneralFund

Debt

ServiceFund

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NOTE 5 - RECEIVABLES

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

Receivables:

Taxes $ 2,198 $ 17,308 $ 19,506

Accounts 193,732 193,732

$ 195,930 $ 17,308 $ 213,238Total 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 of

the current fiscal year, the various components of deferred revenue reported in thegovernmental funds were as follows:

Delinquent property taxes receivable - general fund $ 2,198 $

Delinquent property taxes receivable - debt service fund 17,308

Total Deferred Revenue for Governmental Funds $ 19,506 $

Unavailable Unearned

NOTE 6 – UNAMORTIZED BOND PREMIUM OR (DISCOUNT)

A summary of changes in debt issuance costs – net follows:

Unlimited Tax Bonds:

Series 2009 Refunding $ 118,568 $ 76,222 $ 8,469 $ 67,753

Series 2011 Refunding 451,691 366,999 28,231 338,768

Series 2013 Refunding 48,344 44,626 3,718 40,908

$ 618,603 $ 487,847 $ 40,418 $ 447,429

Original

(Discount) Oct. 1, 2013

Total

Balance at

Sept 30, 2014 Amortization

Bond Premium Balance at Current Year

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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 $ 122,918 $ $ $ 122,918Capacity rights 1,794,622 970,084 2,764,706Total Non-depreciable Assets 1,917,540 970,084 2,887,624

Depreciable Assets:Water system 4,633,032 4,633,032Wastewater system 3,965,917 3,965,917Drainage system 6,327,229 6,327,229Engineering 1,348,367 1,348,367

Total Depreciable Assets 16,274,545 16,274,545

Less Accumulated Depreciation (7,002,155) (468,263) (7,470,418)

$ 11,189,930 $ 501,821 $ $ 11,691,751Totals

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

Depreciation expense for the year ended September 30, 2014, totaled $468,263.

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 income

realized 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 $ 14,195,000

Bonds retired (1,205,000)

Bonds payable, Sept. 30, 2014 $ 12,990,000

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

AmountsOutstanding

InterestRate

DateSerially

Begin/End

MaturityInterest

DatesCallable

Date

2009R

$3,320,000 3.00 –4.125%

Sept. 12011/2022

Sept. 1/March 1

Sept. 1,2018*

2011R

$4,785,000 2.00 –4.00%

Sept. 12012/2026

Sept. 1/March 1

Sept. 1,2020*

2013R

$4,885,000 2.00 –4.00%

Sept. 12014/2026

Sept. 1/March 1

Sept. 1,2022*

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

As of September 30, 2014, the debt service requirements on bonds outstanding for the nextfive fiscal years and thereafter through 2026 are as follow:

ear

2015 $ 1,245,000 $ 481,400 $ 1,726,400

2016 1,300,000 441,800 1,741,800

2017 990,000 398,950 1,388,950

2018 890,000 364,200 1,254,200

2019 915,000 331,925 1,246,925

2020-2024 5,220,000 1,109,193 6,329,193

2025-2026 2,430,000 147,000 2,577,000

$ 12,990,000 $ 3,274,468 $ 16,264,468

Principal Interest Total

At September 30, 2014, the District had voted and unissued tax bonds in the amount of$11,785,000.

The Debt Service Fund has $771,977 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.

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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 $ 3,155,821

Total 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 and

contributions made to the Agency on a cumulative basis.

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

The Woodlands MUD No. 2 $ 65,791

Montgomery County MUD No. 6 367,950





Montgomery County MUD No. 46 316,690Montgomery County MUD No. 47 444,292



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.

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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 $ 274,700

Total Expenses 5,084,767 257,291

Revenues Over (Under) Expenses 344,049 17,409

Participant distributions (333,536) (14,104)

Participants' Equity - Beginning 2,964,031 58,862

Participants' Equity - Ending $ 2,974,544 $ 62,167

Agency District

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

Tax administration $ 13,142

Administration 91,788

Engineering 7,052

Meter reading 14,900Water repair and maintenance 20,639

Sewer repair and maintenance 4,448

Billing income 5,501

Large ditch repair and maintenance 64,228

Storm sewer repair and maintenance 12,990

Postage 5,890

Other 9,224

Inspections and connections 15,200

Capital budget contribution 8,025

$ 273,027

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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 by

project. During the year ended September 30, 2014, the District funded $217,386 from theGeneral Fund relating to the obligations of which $129,182 was for principal and $88,204 wasfor interest.

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 atvarying rates and matures in 2030.

Year

2015 $ 134,604 $ 82,444 $ 217,048

2016 93,789 77,638 171,427

2017 89,071 73,980 163,0512018 92,228 70,355 162,583

2019 96,202 66,527 162,729

2020-2024 542,957 264,840 807,797

2025-2029 678,667 120,589 799,256

2030 154,725 3,675 158,400

$ 1,882,243 $ 760,048 $ 2,642,291

Interest TotalPrincipal

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.

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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. Capital

payments 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 $1,102,318 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 theDistrict'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 significant

replacement 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.

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

reserve.

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 physicalfacilities providing such services.

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REQUIRED SUPPLEMENTARY INFORMATION

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Exhibit C(1)

Revenues

Water service $ 1,092,770 $ 1,092,770 $ 922,616 $ (170,154)

Sewer service 397,674 397,674 341,514 (56,160)

Property taxes 343,806 343,806 341,407 (2,399)

Interest on investments 1,282 1,282 610 (672)

Other 114,153 114,153 104,309 (9,844)

1,949,685 1,949,685 1,710,456 (239,229)

Expenditures

Current:

Purchased water and sewer 1,192,018 1,192,018 1,102,318 (89,700)

Purchased services 293,092 293,092 244,685 (48,407)

Professional fees 23,400 23,400 22,280 (1,120)

Other 47,792 47,792 47,505 (287)

Capital Outlay 423,091 423,091 438,037 14,946

Debt Service:

Principal retirement 123,272 123,272 129,182 5,910Interest and fiscal charges 96,021 96,021 88,204 (7,817)

2,198,686 2,198,686 2,072,211 (126,475)


(249,001) (249,001) (361,755) (112,754)

Other Financing Sources (Uses)

Equity in net income (loss) of JV 17,409 17,409

Total Other Fin. Sources (Uses) 17,409 17,409


(249,001) (249,001) (344,346) (95,345)

Fund Balances - Beginning 1,249,234 1,249,234 1,249,234

$ 1,000,233 $ 1,000,233 $ 904,888 $ (95,345)


SCHEDULE OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - BUDGET AND ACTUAL -

GENERAL FUND

and Other Financing (Uses)


Original

Over

Variance

Budgeted Amounts

Fund Balances - Ending

(Under)

Total Expenditures

Over (Under) Expenditures

Actual

Over (Under Expenditures

Final

and Other Financing Sources

Total Revenues

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ADDITIONAL INFORMATION

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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 10

Multi-Family

Commercial 26 6

Other - recreational centers,

government & VFD 32 236

TOTAL 16

* 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 N/A

N/A

Connections**

$93.21

189,071

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

(other than emergency interconnect)

$ 3.45

1,393 1,763

1,335 1,335

192

Connections ESFC


SCHEDULE OF SERVICES AND RATES


$ 1.38

3,000

$ 2.75

$ 5.50

$ 4.15

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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. Conroe

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

Yes ___ No _X_

If yes, by whom?

Yes ___ No_X_

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

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TSI-2

Current

Purchased Water and Sewer Services from SJRA $ 1,102,318 $ 1,009,432

Purchased Services from Joint Venture 244,685 252,304

Professional Fees:

Auditing 3,400 3,400

Legal 18,880 24,456

22,280 27,856

Other Current Expenditures:

Directors' fees 13,050 11,250

Regulatory assessment 9,279 9,411

Bank charges 13,910 12,605

Insurance 2,700 2,600

Miscellaneous 8,566 12,503

47,505 48,369

Capital Outlay 438,037 1,500

Debt Service:

Principal 129,182 123,954

Interest and fiscal charges 88,204 94,875

217,386 218,829

$ 2,072,211 $ 1,558,290

Number of employees employed by the District: Full-time

Part-time

Total Expenditures

2014 2013


SCHEDULE OF GENERAL FUND EXPENDITURES

Years Ended September 30, 2014 and 2013

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TSI-3

Balances at

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

General Fund

Checking N/A N/A $ 59,761 $

Texpool Variable N/A 234,264

Texstar Variable N/A 363,238

Certficate of Deposit 0.15 5/10/2015 257,139

Total General Fund 914,402

Debt Service Fund

Checking N/A N/A 6,981

Texpool Variable N/A 324,187

Texstar Variable N/A 476,642

Total Debt Service Fund 807,810

Total - All Funds $ 1,722,212 $

SCHEDULE OF CASH AND TEMPORARY INVESTMENTS


2014


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(This Page Intentionally Left Blank)

40

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TSI-4

Debt

General ServiceFund Fund Total

Taxes Receivable - October 01, 2013 $ 1,170 $ 14,801 $ 15,971

2013 Original Tax Roll 343,720 1,439,326 1,783,046

Additions and corrections (1,178) (5,461) (6,639)

Adjusted tax roll 342,542 1,433,865 1,776,407

Total to be Accounted for 343,712 1,448,666 1,792,378

Tax Collections

Current year 341,171 1,428,654 1,769,825

Prior years 343 2,704 3,047

Total Collections 341,514 1,431,358 1,772,872

Taxes Receivable - September 30, 2014 $ 2,198 $ 17,308 $ 19,506

Taxes Receivable - By Year

2013 $ 1,287 $ 5,391 $ 6,678

2012 190 2,092 2,282

2011 111 1,438 1,549

2010 258 3,439 3,697

2009 and prior 352 4,948 5,300

Taxes Receivable - September 30, 2014 $ 2,198 $ 17,308 $ 19,506

Assessed

Property Valuations

Land, improvementsand personal

property $ 428,072,949 $ 397,531,469 $ 407,947,464 $ 384,361,870 $ 379,911,491

$ 428,072,949 $ 397,531,469 $ 407,947,464 $ 384,361,870 $ 379,911,491

Tax Rates Per $100

aluations

Debt service $ 0.335 $ 0.385 $ 0.390 $ 0.400 $ 0.410

General operations 0.080 0.035 0.030 0.030 0.020

Total Tax Rate per

$100 Valuation $ 0.415 $ 0.420 $ 0.420 $ 0.430 $ 0.430

Adjusted Tax Levy $ 1,776,503 $ 1,669,632 $ 1,713,379 $ 1,652,756 $ 1,633,619

ear Ended September 30, 2014 All TaxesPercent of current taxes collected to current taxes levied (as adjusted) 99.6%

Percent of current and delinquent taxes collected to current levied

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

the year (as adjusted) 98.9%


ANALYSIS OF TAXES LEVIED AND RECEIVABLE


20092013 2012 2011 2010

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TSI-5

Due During

Fiscal Year End

September 30

2015 $ 1,245,000 $ 481,400 $ 1,726,400 $ 735,000 $ 130,325 $ 865,325

2016 1,300,000 441,800 1,741,800 715,000 100,925 815,925

2017 990,000 398,950 1,388,950 505,000 72,325 577,325

2018 890,000 364,200 1,254,200 245,000 52,125 297,125

2019 915,000 331,925 1,246,925 255,000 43,550 298,550

2020 955,000 297,931 1,252,931 270,000 34,306 304,306

2021 995,000 261,531 1,256,531 290,000 24,181 314,181

2022 1,030,000 222,906 1,252,906 305,000 12,581 317,581

2023 1,100,000 184,025 1,284,025

2024 1,140,000 142,800 1,282,800

2025 1,185,000 97,200 1,282,2002026 1,245,000 49,800 1,294,800

Total $ 12,990,000 $ 3,274,468 $ 16,264,468 $ 3,320,000 $ 470,318 $ 3,790,318

Due During

Fiscal Year End

September 30

2015 $ 140,000 $ 185,650 $ 325,650 $ 370,000 $ 165,425 $ 535,425

2016 145,000 182,850 327,850 440,000 158,025 598,025

2017 150,000 178,500 328,500 335,000 148,125 483,125

2018 435,000 174,000 609,000 210,000 138,075 348,075

2019 440,000 156,600 596,600 220,000 131,775 351,7752020 460,000 139,000 599,000 225,000 124,625 349,625

2021 470,000 120,600 590,600 235,000 116,750 351,750

2022 185,000 101,800 286,800 540,000 108,525 648,525

2023 545,000 94,400 639,400 555,000 89,625 644,625

2024 575,000 72,600 647,600 565,000 70,200 635,200

2025 605,000 49,600 654,600 580,000 47,600 627,600

2026 635,000 25,400 660,400 610,000 24,400 634,400

Total $ 4,785,000 $ 1,481,000 $ 6,266,000 $ 4,885,000 $ 1,323,150 $ 6,208,150

Total

Series 2011R Series 2013R

Principal Interest Total Principal Interest Total


GENERAL LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS

September 30, 2014

All Series

Principal Interest Total

Series 2009R

Principal Interest

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TSI-6

Interest rate

Dates interest payable

Maturity dates

Original issue amount $ 5,955,000 $ 4,995,000 $ 5,245,000

Bonds payable at beginning of year $ 4,030,000 $ 4,920,000 $ 5,245,000 $ 14,195,000

Bonds sold

Bonds refunded

Principal retirements (710,000) (135,000) (360,000) (1,205,000)

Bonds Payable at End of Year $ 3,320,000 $ 4,785,000 $ 4,885,000 $ 12,990,000

Interest Retirements $ 151,625 $ 188,350 $ 187,010 $ 526,985

Paying Agent/Registrar

All Series Bank of New York

Bond Authority

Amount authorized by voters $ 33,650,000 $ $

Amount issued $ 21,865,000 $ $Remaining $ 11,785,000 $ $

Debt Service Fund Cash and Temporary Investment Balances at End of Year $ 807,810

Average Annual Debt Service Payment for Remaining Term of all Debt $ 1,355,372

Tax Bonds

9/1/14-

Bonds

Other Refunding

Bonds

9/1/26


ANALYSIS OF CHANGES IN GENERAL LONG-TERM DEBT


3.00-4.125%

2009R Total2011R

2.00-4.00%

2013R

9/1/22

9/1/12-9/1/10-

9/1;3/1

Bond Issue

9/1;3/1

9/1/26

9/1;3/1

2.00-4.00%

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General Fund Revenues

Water and sewer service $ 1,264,130 $ 1,273,778 $ 1,251,480 $ 1,170,467 $ 746,214

Property taxes 341,407 138,852 122,219 115,117 76,045

Tap connections & culverts 27,635 1,575 18,275

Interest and other 77,284 81,414 78,094 156,698 7,451

Total Revenues 1,710,456 1,495,619 1,470,068 1,442,282 829,710

General Fund ExpendituresCurrent 1,416,788 1,337,961 1,304,318 1,177,344 814,060

Capital outlay 438,037 1,500 15,950

Debt service 217,386 218,829 218,697 227,096 216,530

Total Expenditures 2,072,211 1,558,290 1,538,965 1,404,440 1,030,590

Revenues Over (Under)

Expenditures $ (361,755) $ (62,671) $ (68,897) $ 37,842 $ (200,880)

Debt Service Fund Revenues

Property taxes $ 1,431,358 $ 1,527,644 $ 1,589,104 $ 1,536,723 $ 1,558,156

Penalty and interest 4,867 4,147 4,391 11,428 7,924Interest 605 92,777 2,548 2,931 4,648

Total Revenues 1,436,830 1,624,568 1,596,043 1,551,082 1,570,728

Debt Service Fund Expenditures

Tax collection 27,699 20,094 18,743 20,142 18,773

Debt service 1,733,735 1,633,036 1,733,692 1,759,541 1,761,597

Total Expenditures 1,761,434 1,653,130 1,752,435 1,779,683 1,780,370

Revenues Over (Under)

Expenditures $ (324,604) $ (28,562) $ (156,392) $ (228,601) $ (209,642)

Amounts

2011 2010201220132014


COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES -

Last Five Fiscal Years

GENERAL AND DEBT SERVICE FUNDS

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8/20/2019 MC MUD 39 Audit 2014


TSI-7

73.9 % 85.2 % 85.1 % 81.2 % 89.9 %

20.0 9.3 8.3 8.0 9.2

1.6 0.1 1.2

4.5 5.4 5.4 10.8 0.9

100.0 100.0 100.0 100.0 100.0

82.8 89.5 88.7 81.6 98.1

25.6 0.1 1.1

12.7 14.6 14.9 15.7 26.1

121.1 104.2 104.7 97.3 124.2

(21.1) % (4.2) % (4.7) % 2.7 % (24.2) %

99.6 % 94.0 % 99.6 % 99.1 % 99.2 %

0.3 0.3 0.3 0.7 0.50.1 5.7 0.1 0.2 0.3

100.0 100.0 100.0 100.0 100.0

1.9 1.2 1.2 1.3 1.2

120.7 100.5 108.6 113.4 112.2

122.6 101.7 109.8 114.7 113.4

(22.6) % (1.7) % (9.8) % (14.7) % (13.4) %

2011 2010

Percent of Total Fund Revenues

2014 2013 2012

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8/20/2019 MC MUD 39 Audit 2014


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

The Woodlands, Texas 77380

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

Resident

Name Term Title of District?

Board Members

Erik Berglund 5/14- $ 1,800 $ President No

5/18

Dr. Ronnie B. Rogers 5/12- 1,650 Vice- No

5/16 President

Eric Hird 5/14- 5,850 Assistant Yes

5/18 Vice-Pres

WJPA Trustee

Troy James Matthews 5/12- 1,650 Secretary/ No

5/16 Treasurer

Gail Carney 5/12- 2,100 674 Assistant Yes

5/16 Secretary/

Treasurer


BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS

September 30, 2014

Fees Expenses

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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 15,441 Attorney No

1300 Post Oak Boulevard, Suite 1400

Houston, Texas 77056

Montgomery County Appraisal District 10/1/84 12,156 Central No

109 Gladstell Appraisal

Conroe, Texas 77301 District

Sandersen Knox & Co., L.L.P. 8/1/01 2,900 Independent No

130 Industrial Blvd., Suite 130 Auditor

Sugar Land, Texas 77478

RBC Capital Markets 11/13/89 625 Financial No

1001 Fannin, Suite 500 Advisor

Houston, Texas 77002

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

Salaries

and Fees

47

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