Audit report, State Tollway Authority, a component unit of the state of Georgia, year ended June 30, 1997

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AUDIT REPORT STATE TOLLWAY AUTHORITY
A COMPONENT UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 1997

STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASHINGTON STREET
ATLANTA, GEORGIA 30334-8400

STATE TOLLWAY AUTHORITY - TABLE OF CONTENTS-

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXIllBITS

FINANCIAL STATEMENTS

A COMBINED BALANCE SHEET

ALL FUND TYPES

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN

RETAINED EARNINGS

PROPRIETARY FUND TYPE - ENTERPRISE FUND

4

C STATEMENT OF CASH FLOWS

PROPRIETARY FUND TYPE - ENTERPRISE FUND

5

D NOTES TO THE FINANCIAL STATEMENTS

6

SUPPLEMENTARY INFORMATION

PROPRIETARY FUND TYPE - ENTERPRISE FUND

E

COMBINING BALANCE SHEET

18

F

COMBINING STATEMENT OF REVENUES, EXPENSES AND

CHANGES IN RETAINED EARNINGS

20

G

COMBINING STATEMENT OF CASH FLOWS

22

H FIDUCIARY FUND TYPE - AGENCY FUND

STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

23

SCHEDULES

1 CASH AND CASH EQUIVALENTS

24

2 INVESTMENTS

25

3 ANALYSIS OF CONSTRUCTION IN PROGRESS

26

4 SCHEDULE OF OTHER OPERATING EXPENSES

27

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
December 17, 1997

Honorable Zell Miller, Governor Members of the General Assembly of Georgia Members ofthe State Tollway Authority
and Honorable Billy F. Sharp, Secretary-Treasurer
INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements (Exhibits A through D) of the State Tollway Authority as of and for the year ended June 30, 1997. These fmancial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the fmancial statements referred to above present fairly, in all material respects, the financial position of the State Tollway Authority as of June 30, 1997, and the results of its operations and the cash flows of its proprietary fund type for the year then ended, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Exhibits E through H and Schedules 1 through 4) is presented for purposes of additional analysis and is not a required part of the financial statements of the State Tollway Authority. Such information has been subjected to the auditing procedures applied in the audit of the

97ARL-IX

financial statements and, in our opinion, is fairly presented in all material respects in relation to the fmancial statements taken as a whole.
Respectfully submitted,
~~
Claude 1. Vickers State Auditor
CLV:gp 97ARL-IX

FINANCIAL STATEMENTS - 1-

STATE TOLLWAY AUTHORITY COMBINED BALANCE SHEET
ALL FUND TYPES JUNE 30,1997

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents (See Schedule) Restricted Revenue Fund Resurfacing Fund Debt Retirement Fund Customer Deposits Unrestricted
Total Cash and Cash Equivalents
Investments (See Schedule) Restricted Revenue Fund Sinking Fund Interest Account Principal Account Operating and Maintenance Fund Resurfacing Fund Debt Retirement Fund Unrestricted
Total Investments
Interest Receivable Unrestricted
Accounts Receivable
Prepaid Items
Estate for Years (Note 1)
Fixed Assets Building Less: Accumulated Depreciation Improvements Other than Building Less: Accumulated Depreciation Equipment Less: Accumulated Depreciation Construction in Progress (See Schedule)
Total Fixed Assets (Net of Accumulated Depreciation)

PROPRIETARY FUND TYPE ENTERPRISE

FIDUCIARY FUND TYPE
AGENCY

TOTALS

(Memorandum Only)

JUNE 30, 1997

JUNE 30,1996

$ 2,466,724.49
806.93 2,989.34 110,460.00
10,309,004.48 $
$ 12,889,985.24 $

$
74,732.25
74,732.25 $

2,466,724.49 $
806.93 2,989.34 110,460.00 10,383,736.73
12,964,717.49 $

3,346,276.48 134,987.60 0.00 68,005.00
6,729,195.70
10,278,464.78

$

692,302.72

2,937,358.76 3,720,000.00 1,213,312.84 2,424,538.15 5,885,971.88 7,999,631.37

$ 24,873,115.72

$

8,892.11

$

91,540.96

$

2,011.20

$ 62,731,527.97

$ 4,904,480.21 -1,102,340.18 2,710,490.14 -802,533.01 4,153,221.97 -2,251,186.98 460,191.27

$ 8,072,323.42

$

692,302.72 $

1,432,335.64

2,937,358.76 3,720,000.00 1,213,312.84 2,424,538.15 5,885,971.88 7,999,631.37

3,046,890.01 3,504,999.99
447,417.28 1,513,305.08 4,583,910.21 6,662,361.92

$ 24,873,115.72 $ 21,191,220.13

$

8,892.11 $

8,696.86

$

91,540.96 $

46,187.24

$

2,011.20 $

4,017.04

$ 62,731,527.97 $ 65,193,585.03

$

4,904,480.21 $

4,904,480.21

-1,102,340.18

-830,535.32

2,710,490.14

2,709,612.12

-802,533.01

-658,189.07

4,153,221.97

3,445,611.28

-2,251,186.98

-1,097,599.54

460,191.27

411,302.85

$

8,072,323.42 $

8,884,682.53

Total Assets

$ 108,669,396.62 $

74,732.25 $ 108,744,128.87 $ 105,606,853.61

The notes to the financial statements are an integral part of this statement. -2-

STATE TOLLWAY AUTHORITY COMBINED BALANCE SHEET
ALL FUND TYPES JUNE 30,1997

EXHIBIT "A"

LIABILITIES AND FUND EQUITY
Liabilities Accounts Payable Contracts Payable Payroll Withholdings Deferred Revenue Customer Deposits Payable Guaranteed Revenue Bonds Payable Less: Unamortized Discount on Guaranteed Revenue Bonds Accrued Interest Payable Funds Held for Others
Total Liabilities
Fund Equity Retained Eamings Unreserved Designated for Maintenance Undesignated
Total Fund Equity

PROPRIETARY FUND TYPE ENTERPRISE

FIDUCIARY FUND TYPE
AGENCY

TOTALS

(Memorandum Only)

JUNE 30,1997

JUNE 30, 1996

$ 1,080,667,92 258,897,68 0.00
1,788,375.70 110,460.00
89,305,000.00
-668,2n.12 2,937,358.25
$
$ 94,812,482.43 $

$
74,732.25 74,732.25 $

1,080,667,92 $ 258,897.68 0.00
1,788,375.70 110,460,00
89,305,000.00
-668,277.12 2,937,358.25
74,732.25
94,887,214.68 $

432,314.48 435,112.76
68,85 1,563,857.70
68,005.00 92,810,000.00
-716,011.20 3,046,890.00
97,442.00
97,737,679.59

$ 3,565,573.00 10,291,341.19
$ 13,856,914.19

$ 3,565,573.00 $ 10,291,341.19
$ 13,856,914.19 $

3,052,000.00 4,817,174.02
7,869,174.02

Total Liabilities and Fund Equity

$ 108,669,396.62 $

74,732.25 $ 108,744,128.87 $ 105,606,853.61

The notes to the financial statements are an integral part of this statement. -3-

STATE TOLLWAY AUTHORITY STATEMENT OF REVENUES. EXPENSES AND CHANGES IN RETAINED EARNINGS
PROPRIETARY FUND TYPE - ENTERPRISE FUND YEAR ENDED JUNE 30. 1997

EXHIBIT "B"

RETAINED EARNINGS - JUNE 30

$

13,856,914.19 $ =======7=,=8=6=9=,=1=7=4=.0=2=

The notes to the financial statements are an integral part of this statement. -4-

STATE TOLLWAY AUTHORITY STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPE - ENTERPRISE FUND
YEAR ENDED JUNE 30.1997

EXHIBITC

CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers cash Paid to Vendors and Employees
Net Cash Provided by Operating Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Interest Paid on Guaranteed Revenue Bonds Principal Paid on Guaranteed Revenue Bonds Acquisition and Construction of Capital Assets
Net Cash Used in Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investment Securities Proceeds from Sale and Maturity of Investments Interest on Investments
Net Cash Used in Investing Activities
Net Increase in Cash and Cash Equivalents
CASH AND CASH EQUIVALENTS - JULY 1

TOTALS

YEAR ENDED

JUNE 30, 1997

JUNE 30, 1996

$ 20.172.672.61 $ 18.935.388.45

-4.872.692,42

-4.825,539.66

$ 15.299.980.19 $ 14.109.848.79

$ -5.984,248.75 $ -3.505.000.00 -801,381.11
$ -10.290,629.86 $

-6,196,748.75 -3,295,000.00
-433,795.02
-9.925,543.77

$ -48,201,307.05 $ -75,506.757.22

44,519,411.46

73,134.529.91

1,381,507.72

1,190,716.95

$ -2,300.387.87 $ -1,181,510.36

$ 2,708,962.46 $ 3,002,794.66

10,181,022.78

7,178,228.12

CASH AND CASH EqUIVALENTS - JUNE 30

$ 12,889,985.24 $ 10,181,022.78

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating Income
Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Amortization of Estate for Years Changes in Assets and Liabilities: Increase in Accounts Receivable (Increase) Decrease in Prepaid Items Increase (Decrease) in Liabilities (Other than Customer Deposits) Increase in Customer Deposits Payable Increase in Deferred Revenues
Total Adjustments
Net Cash Provided by Operating Activities

$ 10,565,361.99 $ 10,910,601.19

$

1,576,866.51 $

744,949.61

2,462,057.06

2,314,544.37

-45.353.72 2,005.84
472,069.51 42,455.00 224,518.00

-27,441.30 -1,447.54
-160,857.59 20,380.00 309,120.05

$ 4,734,618.20 $ 3,199,247.60

$ 15,299,980.19 $ 14,109,848.79

NONCASH CAPITAL AND RELATED FINANCING ACTIVITY Disposal of Fixed Asset
The notes to the financial statements are an integral part of this statement. -5-

$

44,003.98 $

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STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The State Tollway Authority was established as an instrumentality of the State of Georgia and a public corporation to finance the construction of toll highways and bridges in Georgia. The Authority consists of three (3) ex-officio members: the Governor, Commissioner ofthe Department ofTransportation and Director of the Office of Planning and Budget. Administrative services are provided to the Authority by the Department ofTransportation. The State Tollway Authority is considered a component unit ofthe State of Georgia and is included within the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational and financial relationships with the State of Georgia. These reporting entity relationships are defined in Section 2100 of the GovernmentalAccounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.
FUND ACCOUNTING The State Tollway Authority uses funds to report on its fmancial position and the results of its operations determined in conformity with generally accepted accounting principles. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Funds presented in the accompanying financial statements are as follows:
PROPRIETARY FUND TYPE
ENTERPRISE FUND - The fund used to account for operations that are fmanced and operated in a manner similar to private business enterprises, where the intent is that costs of providing goods or services to the general public on a continuing basis are fmanced or recovered primarily through user charges or that periodic measurement of revenues earned and expenses incurred are appropriate for capital maintenance, public policy, accountability and other purposes.
FIDUCIARY FUND TYPE
AGENCY FUND - The fund used to account for assets held for use by other funds, governments, or individuals.
BASIS OF ACCOUNTING MEASUREMENT FOCUS
The accounting and fmancial reporting treatment applied to a fund is determined by its measurement focus. Proprietary fund types should be accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities are included on the balance sheet. Operating statements of these funds present increases, (i.e., revenues) and decreases, (i.e., expenses) in net total assets. This measurement focus emphasizes the determination of net income.

- 6-

STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING PROPRIETARY FUND TYPE ENTERPRISE FUND
The State Tollway Authority maintains its Enterprise Fund on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized in the accounting period in which they are earned, and expenses are recognized when incurred.
FIDUCIARY FUND TYPE AGENCY FUND
The Agency Fund is custodial in nature and does not measure results of operations or have a measurement focus. The modified accrual basis of accounting is utilized for recognizing assets and liabilities.
BUDGET An internal operations budget for management purposes is prepared by the State Tollway Authority. The budget is not subject to review or approval by the Legislature of the State of Georgia and therefore, is a nonappropriated budget.
ASSETS, LIABILITIES AND FUND EQUITY CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents include currency on hand, demand deposits with banks and other financial institutions, and cash management pools that have the general characteristics of demand deposit accounts in that the Authority may deposit additional cash at any time and also may withdraw cash at any time without prior notice or penalty. Funds of the Georgia 400 Project on deposit with the Trustee for the purpose of continual investment are reflected as Investments regardless of the term of the investments. The aforementioned definitions were applied for the preparation of the Statement of Cash Flows.
INVESTMENTS Investments are defmed as those financial instruments with terms in excess of three months from the date of purchase, funds ofthe Georgia 400 Project on deposit with the Trustee ofthe Series 1991 Revenue Bonds and certain other securities held for the production of revenue. Investments are stated at cost. Accrued interest purchased, premiums or discounts on securities are reflected as part of cost and not amortized over the remaining life of the security. In accordance with the Series 1991 Revenue Bond covenants, the Authority is limited to the following forms of investments for the Georgi~ 400 Project:
(1) Obligations issued by the United States government.
(2) Obligations of any corporation of the United States government fully guaranteed by the United States government.
(3) Obligations ofthe Federal Land Bank, Federal Home Loan Bank, Federal Intermediate Credit Bank or the Central Bank for Cooperatives.
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STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30.1997

EXHIBITflDfl

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ASSETS, LIABILITIES AND FUND EQUITY INVESTMENTS
(4) Repurchase agreements.
In addition, funds ofthe Sinking Fund may be invested only in United States government obligations.
The Georgia 400 Project Fund ofthe Authority participates in an investment pool managed by the State of Georgia's Office of Treasury and Fiscal Services (OTFS) referred to as the "Georgia Fund 1fl. The Authority does not have any risk exposure related to investments in derivatives or similar investments in Georgia Fund 1 as the investment policy of OTFS does not provide for investments in derivatives or similar investments through the Georgia Fund 1.
INTEREST RECEIVABLE Interest receivable consists of interest earned which has not been received at year end.
ACCOUNTS RECEIVABLE Accounts receivable arising from operations are reported at gross value. Based on management's evaluation that amounts uncollectible are not material, no provision has been made for such amounts.
PREPAID ITEMS Payments made to vendors for services that will benefit periods beyond June 30, 1997, are recorded as prepaid items.
ESTATE FOR YEARS On July 10, 1991, the State of Georgia Department of Transportation granted to the State Tollway Authority an "Estate for Years" in return for a portion ofthe proceeds ofthe sale ofthe Series 1991 Guaranteed Revenue Bonds in the amount of $67,508,129.40. This "Estate" entitles the State Tollway Authority the right to possess and operate the Georgia 400 Project. Upon payment in full of the Series 1991 Guaranteed Revenue Bonds by the Authority, all rights, title and interest acquired by this agreement shall revert to the State of Georgia Department of Transportation.
The asset "Estate for Years" is amortized over the payoff period of the revenue bonds. The amortization expense each year is based on the percentage of revenue bonds redeemed in that year to total bonds issued multiplied by the original asset amount of $67,508,129.40. This amortization method corresponds to the revenue stream projected during the payoff period of the revenue bonds. The amortization expense recognized for the fiscal year 1997 was $2,462,057.06, which reduced the "Estate for Years" to $62,731,527.97 as of June 30,1997.

-8-

STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ASSETS, LIABILITIES AND FUND EQUITY FIXED ASSETS
Fixed assets are recorded at cost. Donated fixed assets are recorded at fair market value on the date donated and disposals are deleted at recorded cost. Depreciable assets are depreciated over the estimated useful lives of the assets using the straight-line method of depreciation.
The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not included in the Fixed Assets. Material improvements adding to the value or useful life of the assets are included in Fixed Assets.
During the year under review, additional contractual payments were made towards the Georgia 400 construction project and are reflected in the Construction in Progress Account.
RESTRICTED ASSETS Specific portions of the Authority's Cash and Cash Equivalents and Investments are classified as restricted assets on the Combined Balance Sheet. Certain revenue bond proceeds recorded in the Enterprise Fund, as well as certain resources set aside for their repayment, are reflected as restricted assets on the Combined Balance Sheet because their use is limited by applicable bond covenants. The "Revenue Fund" is used to record deposits of all Pledged Revenues as defmed in the Trust Indenture. Funds in the "Revenue Fund" are distributed monthly by the Trustee to other funds and accounts as set forth in the Trust Indenture. The "Sinking Fund" is comprised ofthe "Interest Account" which is used for the payment of interest on the Series 1991 Guaranteed Revenue Bonds and the "Principal Account" which is used for the payment of principal or redemption price on the Series 1991 Guaranteed Revenue Bonds. The "Operating and Maintenance Fund" is used to pay the operating and maintenance expenses. The "Resurfacing Fund" is used to pay the costs of the next scheduled major resurfacing of the Project. The "Debt Retirement Fund" is used for restoring any deficiency in funding of the aforementioned funds and accounts.
In addition, Restricted Assets include customer deposits paid to the Authority.
LONG-TERM OBLIGATIONS Long-term debt is recognized as a liability ofproprietary fund types when those liabilities are expected to be financed from proprietary fund operations. (See Note 6)
UNAMORTIZED DISCOUNT ON REVENUE BONDS PAYABLE The original issue discount on the Series 1991 Guaranteed Revenue Bonds (Georgia 400 Project) is to be amortized over the term of the bonds using the straight-line method. The unamortized bond discount is recorded as an offset to the principal amount of the revenue bonds outstanding.
FUND EQUITY Designations of Unreserved Retained Earnings represent tentative managerial plans or intent for financial resource utilization in a future period.
-9-

STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MEMORANDUM ONLY - TOTAL COLUMNS Total columns on the Combined Balance Sheet are captioned "Memorandum Only" because they do not represent consolidated financial information 'and are presented only to facilitate fmancial analysis. The columns do not present information that reflects financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data.
COMPARATIVE DATA Comparative total data for the prior year have been presented in the accompanying fmancial statements in order to provide an understanding of the changes in the Authority's financial position and operations.
NOTE 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
COMPLUNCE~THGU~EEDREVENUEBONDCOVENANTS
The Authority is subject to certain covenants with regard to the issuance of the Series 1991 Guaranteed Revenue Bonds (Georgia 400 Project). The following violations of these covenants occurred during fiscal year 1997:
Section 7.01 of the revenue bond covenants provides for moneys held in trust funds by the revenue bond Trustee be invested in permitted investments as defined by such covenants. Section 7.02 states that moneys held in the Debt Service Fund shall be invested and reinvested by the Trustee in Government Obligations. During the year under review, the Trustee had invested moneys held in the trust funds in open-end mutual funds. The prospectus of these mutual funds provide for investments beyond the permitted investments as defined by the bond covenants. Prior to June 30, 1997, the Authority discontinued these type of investments.
Section 7.02 of the revenue bond covenants state that funds of the Sinking Fund may be invested only in United States government obligations. During fiscal year 1997, the Authority invested funds of the Sinking Fund in repurchase agreements which were backed by United States government obligations.
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds of the State of Georgia cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral anyone or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
(1) Bonds, bills, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
(2) Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.

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STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES (3) Bonds of any public authority created by the laws ofthe State of Georgia, providing that the statute that created the authority authorized the use ofthe bonds for this purpose.
(4) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia.
(5) Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
(6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
As authorized in the Official Code of Georgia Annotated Section 45-8-11, the State Tollway Authority has the option of exempting demand deposits from the collateral requirements.
NOTE 3: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS
CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 1997, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.
Included on Schedule "I" of this report is an amount of $74,732.25 for Contractors' Retainage Escrow Deposits which have not been included in the custodial credit risk categorization as these amounts are held in the name of the individual contractors (See Note 7).
Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Authority or by its agep.t in the Authority's name.
Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Authority's name.
Category 3 - Amounts collateralized with securities (at market value) held by the pledging financial institution or by its trust department or agent, but not in the Authority's name, and amounts uncollateralized.

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STATE TOLLWAY AUTHORITY
NOTESTOTHEFmANC~STATEMrnNTS
JUNE 30, 1997

EXHlBIT"D"

NOTE 3: CUSTOD~ CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF DEPOSITS

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 1020193629 $ 10 194,064 29 $ 40000000 $ 1,969350,56 $ 7824,71373

CATEGORIZATION OF INVESTMENTS For purposes of analysis of custodial credit risk, investments consist of U. S. Government securities and repurchase agreements. Investments are stated at cost, and are summarized and classified as to custodial credit risk within the categories described below:

Category 1 - Insured or registered, or securities held by the Authority or its agent in the Authority's name.

Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the Authority's name.

Category 3 - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the Authority's name.

The carrying amounts ofinvestment balances as ofJune 30, 1997, are categorized below. These amounts also include amounts maintained in an investment pool by the Office of Treasury and Fiscal Services which are not subject to risk categorization.

Type of Investment
U, S. Government Securities Repurchase Agreements
Total
State Investment Pool

Risk Categories 2

$ 14,643,072,06 $ 8,564.340,02

0,00 $

$ 23,207 412,08 $

000 $

Carrying

Market

3

Amount

Value

0,00 $ 14,620,533, I9 $ 14,643,072.06 8,562,974.32 8,564.340.02

0,00 $ 23,183,507,51 $ 23,207,412,08

4.3 I0,552.44 4.310.552.44

$ 27.494 059 95 $ 27,517 964 52

NOTE 4: OPERATmG LEASES

LESSEE AGREEMENTS The State Tollway Authority has entered into certain agreements to lease real property and equipment which are classified as operating leases. These leases generally contain provisions that, at the expiration date of the original term ofthe lease, the Authority has the option of renewing the lease on a year-to-year basis. Future

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STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 4: OPERATING LEASES

LESSEE AGREEMENTS minimum commitments for operating leases as of June 30, 1997, are $135,184.04. This amount represents the fiscal year 1998 commitment which an option to renew has been exercised.

In addition, under a contractual agreement with the State of Georgia Department of Transportation, the Authority operates the F. J. Torras Causeway. The Causeway is owned by the Department of Transportation and leased to the State Tollway Authority in order to collect tolls for the purpose of earning sufficient revenues to make possible the maintenance, repair and improvements to the Causeway. Terms of the lease, as revised, call for payments to the Department of $413,000.00 per year to the expiration of the lease on December 31, 2021. The lease may be terminated at anytime by mutual agreement between the Department and the Authority.

Expenditures for rental of real property and equipment under operating leases for the year ended June 30, 1997, totaled $510,359.33.

LESSOR AGREEMENTS The State Tollway Authority leases certain parcels ofland for use by others for varying terms. The leases are accounted for as operating leases and revenues are recorded when earned. Revenue derived from these leases during fiscal year 1997 amounted to $16,846.17. Minimum future rentals to be received under operating leases as of June 30, 1997, are as follows:

Fiscal Year Ending June 30

1998 1999 2000 2001 2002 Thereafter

$ 46,128.00 46,128.00 46,128.00 38,628.00 37,128.00 3,000.00

$ 217,140.00

NOTE 5: FIXED ASSETS

In fiscal year 1997, the State Tollway Authority reduced the estimated useful life of the plaza host computer, readers and antennas. As a result of reducing the life, fiscal year 1997 depreciation expense was $817,262.92 more than in fiscal year 1996.

- 13-

STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXlllBIT "D"

NOTE 6: LONG-TERM DEBT
GUARANTEED REVENUE BONDS PAYABLE
The State Tollway Authority issued State of Georgia Guaranteed Revenue Bonds (Georgia 400 Project), Series 1991, for the purpose of financing a portion ofthe costs of acquiring, constructing and maintaining the Georgia 400 Project. These bonds are secured by the toll revenues to be generated from the usage of the Georgia 400 Extension. Further, the State of Georgia has guaranteed the full payment of the bonds and the interest thereon in accordance with the Constitution of the State of Georgia and has reserved $9,599,040.00 in the State of Georgia Guaranteed Revenue Debt Common Reserve Fund which is on deposit at the Office of Treasury and Fiscal Services. Guaranteed revenue bonds outstanding at June 30, 1997, are as follows:

Purpose

Interest Rates

Amount

Georgia 400 Project

6.250-6.80%

$89,305,000.00

Guaranteed revenue bond debt service requirements to maturity are as follows:

Fiscal Year Ending June 30

Total Debt

Interest

Principal

1998 1999 2000 2001 2002 Thereafter

$ 6,541,108.75 $ 2,821,108.75 9,473,623.75 5,518,623.75 9,463,780.00 5,263,780.00 9,457,998.75 4,992,998.75 9,450,186.25 4,705,186.25 93,689,877.50 25,469,877.50

$ 3,720,000.00 3,955,000.00 4,200,000.00 4,465,000.00 4,745,000.00 68,220,000.00

$138,076,575.00 $48,771.575.00 $89.305,000.00

Interest due on July 1, 1997, in the amount $2,937,358.25 was recorded as an expense ofthe Enterprise Fund for the year ended June 30, 1997.

NOTE 7: CONTRACTORS' RETAINAGE ESCROW DEPOSITS

The State Tollway Authority, in accordance with the Official Code of Georgia Annotated Section (O.C.G.A.) 32-2-76, has provided for the maintenance of escrow accounts in an amount equal to at least the amount of the retainage authorized in contracts for the purpose of constructing, improving or maintaining any road, highway or bridge. These. accounts have been established in lieu of the retained amounts provided for in O.C.G.A. Section 32-2-75. These accounts are maintained in the name of the contractor and are in the form of certificates of deposits with the bank designated by the contractor, subject to the Authority's approval. As interest on the certificates of deposits held in escrow becomes due, it is collected by the escrow agent and paid to the contractor. After certification by the State Highway Engineer that the work has been satisfactorily completed and is accepted in accordance with the contract plans and specifications, the funds are withdrawn from the escrow account by the Authority, based on written approval of the Authority's Treasurer, and paid

- 14-

STATE TOLLWAY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"D"

NOTE 7: CONTRACTORS' RETAINAGE ESCROW DEPOSITS

to the contractor. In the event of a failure of the escrow agent to perform under the escrow agreement, the

State Tollway Authority or the State of Georgia shall not be liable to the contractor in accordance with

O.C.G.A. Section 32-2-77.

.

Due to the historically low probability of a contractor default and subsequent collection of deposited funds by the State Tollway Authority, all activity regarding the contractors' retainage deposits is reflected on Exhibit "H", "Statement of Changes in Assets and Liabilities - Fiduciary Fund Type - Agency Fund".

NOTE 8: RELATEDPARTffiS

The Georgia Department of Transportation and the State Tollway Authority are considered to be related parties due to certain common management personnel. The Commissioner of the Department of Transportation serves as one of three members of the State Tollway Authority and the Treasurer of the Department of Transportation also serves as the Secretary-Treasurer of the Authority.

NOTE 9: RISK MANAGEMENT

Other Risk Management

The Department ofAdministrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The State Tollway Authority is part ofthe State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.

NOTE 10: CONTINGENCffiS

Litigation, claims and assessments filed against the State Tollway Authority, if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1997.

- 15 -

SUPPLEMENTARY INFORMATION - 17 -

STATE TOLLWAY AUTHORITY COMBINING BALANCE SHEET PROPRIETARY FUND TYPE - ENTERPRISE FUND
JUNE 30.1997

EXHIBIT"E"

ASSETS
Cash and Cash Equivalents Restricted Revenue Fund Resurfacing Fund Debt Retirement Fund Customer Deposits Unrestricted
Total Cash and Cash Equivalents
Investments Restricted Revenue Fund Sinking Fund Interest Account Principal Account Operating and Maintenance Fund Resurfacing Fund Debt Retirement Fund Unrestricted
Total Investments
Interest Receivable Unrestricted
Accounts Receivable
Prepaid Items
Estate for Years
Fixed Assets Building Less: Accumulated Depreciation Improvements Other than Building Less: Accumulated Depreciation Equipment Less: Accumulated Depreciation Construction in Progress
Total Fixed Assets (Net of Accumulated Depreciation)

F. J. TORRAS
CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$
$ 4,992,665.19 $ 4,992,665.19 $

2,466,724.49 $
806.93 2,989.34 110,460.00 5,316,339.29

2,466,724.49 806.93
2,989.34 110,460.00 10,309,004.48

7,897,320.05 $ 12,889,985.24

$

692,302.72 $

692,302.72

$ 1,689,608.21

2,937,358.76 3,720,000.00 1,213,312.84 2,424,538.15 5,885,971.88 6,310,023.16

2,937,358.76 3,720,000.00 1,213,312.84 2,424,538.15 5,885,971.88 7,999,631.37

$ 1,689,608.21 $ 23,183,507.51 $ 24,873,115.72

$

8,892.11

$

8,892.11

$

2,738.19 $

88,802.77 $

91,540.96

$

2,011.20 $

2,011.20

$ 62,731,527.97 $ 62,731,527.97

$

143,880.00 $ 4,760,600.21 $

4,904,480.21

-68,343.00

-1,033,997.18

-1,102,340.18

354,672.80

2,355,817.34

2,710,490.14

-298,907.76

-503,625.25

-802,533.01

229,627.81

3,923,594.16

4,153,221.97

-218,238.43

-2,032,948.55

-2,251,186.98

460,191.27

460,191.27

$

142,691.42 $

7,929,632.00 $

8,072,323.42

Total Assets See notes to the financial statements.

$ 6,836,595.12 $ 101,832,801.50 $ 108,669,396.62

STATE TOLLWAY AUTHORITY COMBINING BALANCE SHEET PROPRIETARY FUND TYPE - ENTERPRISE FUND
JUNE 30, 1997

EXHIBIT"E"

LIABILITIES AND FUND EQUITY
Liabilities Accounts Payable Contracts Payable Deferred Revenue Customer Deposits Payable Guaranteed Revenue Bonds Payable Less: Unamortized Discount on Guaranteed Revenue Bonds Accrued Interest Payable
Total Liabilities
Fund Equity Retained Earnings Unreserved Designated for Maintenance Undesignated
Total Fund Equity

F. J, TORRAS CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$

236,942,70 $

843,725,22 $ 1,080,667.92

79,850,75

179,046,93

258,897.68

205,451,00

1,582,924,70

1,788,375.70

110,460,00

110,460.00

89,305,000,00

89,305,000,00

-668,2n.12

-668,2n.12

2,937,358.25

2,937,358,25

$

522,244.45 $ 94,290,237.98 $ 94,812,482,43

$ 3,565,573,00 2,748,7n,67 $
$ 6,314,350,67 $

$ 7,542,563,52

3,565,573,00 10,291,341.19

7,542,563.52 $ 13,856,914,19

Total Liabilities and Fund Equity

$ 6,836,595,12 $ 101,832,801.50 $ 108,669,396.62

See notes to the financial statements.

-19-

STATE TOLLWAY AUTHORITY

EXHIBIT "F"

COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS

PROPRIETARY FUND TYPE - ENTERPRISE FUND

YEAR ENDED JUNE 30,1997

OPERATING REVENUES
Administrative Fees Rental Income Toll Fees
Annual Toll Decals Cash Tolls Cruise Cards Tokens
Total Operating Revenues
OPERATING EXPENSES
PERSONAL SERVICES Salaries and Wages Employers Contribution for: F,I.CA
REGULAR OPERATING EXPENSES Supplies and Materials Repairs and Maintenance Rents (Other than Real Estate) Insurance and Bonding Other Operating Expenses (See Schedule) Publications and Printing
EQUIPMENT Equipment Purchases
REAL ESTATE RENTALS
TELECOMMUNICATIONS
PER DIEM, FEES AND CONTRACTS Per Diem and Fees Contracts

F. J. TORRAS CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$ 1,017,821.55 $ 1,017,821.55

16,846,77

16,846.77

$ 430,244.00 937,097.37
50,120.70

12,177,721.14 5,363,656.80

430,244.00 13,114,818.51
5,363,656.80 50,120.70

$ 1,417,462,07 $ 18,576,046.26 $ 19,993,508.33

$

1,350,00

103.32

$

1,453,32

$

1,350.00

103,32

$

1,453,32

$

13,822.22 $

33,884,35

80.00

4,917.38

6,257.18

2,802.99

838,167,73 $ 736,036.14
14,233.61 55,050.62 283,828.00 92,122.49

851,989.95 769,920.49
14,313,61 59,968.00 290,085.18 94,925.48

$

61,764.12 $ 2,019,438,59 $ 2,081 ,202.71

$

1,750.00 $

$ 413,000.00 $

$

50,037.83 $ 83,045.72 $ 43,207.41 $

51,787.83 496,045.72
43,207.41

$

154,370.17 $

154,370.17

$ 478,642.68

2,082,512.93

2,561 ,155.61

$ 478,642.68 $ 2,236,883.10 $ 2,715,525.78

See notes to the financial statements.

-20 -

STATE TOLLWAY AUTHORITY

EXHIBIT "F"

COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS

PROPRIETARY FUND TYPE - ENTERPRISE FUND

YEAR ENDED JUNE 30,1997

OPERATING EXPENSES DEPRECIATION AMORTIZATION OF ESTATE FOR YEARS Total Operating Expenses Operating Income
NONOPERATING REVENUES (EXPENSES) Interest Income Loss on Disposal of Fixed Assets Guaranteed Revenue Bond Interest Expense Total Nonoperating Revenues (Expenses) Net Income
RETAINED EARNINGS - JULY 1

F, J. TORRAS CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$ 32,174.16 $ 1,544.692,35 $ 1.576,866.51 $ 2,462,057,06 $ 2,462,057,06
$ 988.784,28 $ 8,439,362.06 $ 9,428,146,34 $ 428,677.79 $ 10,136,684.20 $ 10,565,361,99

$ 260,361.47 $ 1,121,341,50 $ 1,381,702,97

-36.873.71

-36,873.71

-5,922,451.08

-5,922,451.08

$ 260,361.47 $ -4,837,983.29 $ -4,577,621.82

$ 689,039,26 $ 5,298,700.91 $ 5,987,740.17

5,625,311.41

2,243,862.61

7,869,174.02

RETAINED EARNINGS - JUNE 30

$ 6,314,350.67 $ 7,542,563.52 $ 13,856,914.19

See notes to the financial statements.

- 21 -

STATE TOLLWAY AUTHORITY COMBINING STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPE - ENTERPRISE FUND
YEAR ENDED JUNE 30, 1997

EXHIBIT-G-

CASH FLOWS FROM OPERATING ACTIVITIES
cash Received from Customers Cash Paid to Vendors and Employees
Net Cash Provided by Operating Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Interest Paid on Guaranteed Revenue Bonds Principal Paid on Guaranteed Revenue Bonds Acquisition and Construction of Capital Assets
Net Cash Used in Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investment Securities Proceeds from Sale and Maturity of Investments Interest on Investments
Net Cash Provided by (Used in) Investing Activities
Net Increase in Cash and Cash Equivalents
CASH AND CASH EQUIVALENTS - JULY 1

F.J. TORRAS CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$ 1,419,513.07 $ 18,753,159.54 $ 20,172,672.61

-971,202.30

-3,901,490.12

-4,872,692.42

$ 448,310.77 $ 14,851,669.42 $ 15,299,980.19

$ -5,984,248.75 $ -5,984,248.75

-3,505,000.00

-3,505,000.00

$

-6,270.00

-795,111.11

-801,381.11

$

-6,270.00 $ -10,284,359,86 $ -10,290,629.86

$ -2,842,305.93 $ -45,359,001.12 $ -48,201,307.05

3,126,556.15

41,392,855.31

44,519,411.46

260,166.22

1,121,341.50

1,381,507.72

$ 544,416.44 $ -2,844,804.31 $ -2,300,387.87

$ 986,457.21 $ 1,722,505.25 $ 2,708,962.46

4,006,207.98

6,174,814.80

10,181,022.78

CASH AND CASH EQUIVALENTS - JUNE 30

$ 4,992,665.19 $ 7,897,320.05 $ 12,889,985.24

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating Income
Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Amortization of Estate for Years Changes in Assets and Liabilities: Increase in Accounts Receivable Decrease in Prepaid Items Increase (Decrease) in Liabilities (Other than Customer Deposits) Increase in Customer Deposits Payable Increase in Deferred Revenues
Total Adjustments
Net Cash Provided by Operating Activities

$ 428,677.79 $ 10,136,684.20 $ 10,565,361.99

$

32,174.16 $ 1,544,692.35 $ 1,576,866.51

2,462,057.06

2,462,057.06

-14,592.18 2,051.00

-45,353.72 2,005.84
486,661.69 42,455.00 222,467.00

-45,353.72 2,005.84
472,069.51 42,455.00 224,518.00

$

19,632.98 $ 4,714,985.22 $ 4,734,618.20

$ 448,310.77 $ 14,851,669.42 $ 15,299,980.19

NONCASH CAPITAL AND RELATED FINANCING ACTIVITY Disposal of Fixed Asset
See notes to the financial statements.

- 22-

$

44,003.98 $

44,003.98

STATE TOLLWAY AUTHORITY STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
FIDUCIARY FUND TYPE - AGENCY FUND YEAR ENDED JUNE 30,1997

EXHIBIT"H"

Contractors' Retainage Escrow Deposits

ASSETS! LIABILITIES JULY 1,1996

ADDITIONS

DELETIONS

ASSETS! LIABILITIES JUNE 30,1997

$

97,442,00 $ _ _.....0....0..".'=0 $ 22,709.75 $ _ _..7..4.,.7.3...2,.;;;;;.2,:,,5

See notes to the financial statements,

- 23-

STATE TOLLWAY AUTHORITY CASH AND CASH EQUIVALENTS
JUNE 30. 1997

SCHEDULE "1"

NONINTEREST BEARING ACCOUNTS
Nations Bank of Georgia, NA, Atlanta, Georgia
Suntrust Bank, Southeast Georgia, NA, Brunswick, Georgia
INTEREST BEARING ACCOUNTS
The Bank of New York, Atlanta, Georgia
Suntrust Bank, Southeast Georgia, NA, Brunswick, Georgia
Certificate of Deposit No. 21951091
Contractors' Retainage Escrow Deposits (List on File)
Funds on Deposit with Office of Treasury and Fiscal Services State Investment Pool
OTHER
Cash on Hand

$ 7,832,465.84 279,138.01 $ 8,111,603.85

$

8,257.08

392,467.15 74,732.25

4,310,552.44

4,786,008.92

67,104.72 $ 12,964,717.49

See notes to the financial statements.

- 24-

STATE TOLLWAY AUTHORITY INVESTMENTS JUNE 3D. 1997

SCHEDULE "2"

STATE TOLLWAY AUTHORITY ANALYSIS OF CONSTRUCTION IN PROGRESS
YEAR ENDED JUNE 30.1997
BALANCE - JULY 1 CHARGES IN DURING FISCAL YEAR
Per Diem, Fees and Contracts Contracts
BALANCE - JUNE 30

SCHEDULE "3"
$ 411,302.85 48,888.42
$ 460,191.27

See notes to the financial statements.

-26 -

STATE TOLLWAY AUTHORITY SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30, 1997

SCHEDULE "4"

OTHER OPERATING EXPENSES
Regular Operating Expenses Bank Charges Check Charges Credit Card Charges Freight Registration Fees Uniforms

F. J. TORRAS CAUSEWAY

GEORGIA 400 PROJECT

TOTAL

$

352,28 $

78,482,33 $ 78,834.61

313.50

313.50

192,551.12

192,551.12

207.90

1,579.91

1,787.81

7,552.00

7,552.00

5,697.00

3,349.14

9,046.14

$

6,257.18 $

283,828.00 $ 290,085.18

See notes to the financial statements.

- 27-

SECTIONll AUDlTEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

STATE TOLLWAY AUTHORITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 1997

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL l\""UMBER AND STATUS

927-96-01

Previously Reported Corrective Action Implemented