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HomeMy WebLinkAbout2017 Revenues & Expensesw w w w an W WASTE MANAOEMEM Waste Management, Inc. of Florida STATEMENT OF REVENUES AND EXPENSES FOR THE FRANCHISE AGREEMENT WITH THE CITY OF SEBASTIAN, FLORIDA For The Year Ended December 31, 2017 w w w w w w w w w Carr, Riggs & Ingram, LLC C A R R 215 Bayne Drive CRI R I G G S& Melbourne, Florida 32940 .. INGRAM CPAs and Advisors (321) 255-0088 (321) 259-8648 (fax) www.cricpa:com ^ ^ INDEPENDENT AUDITORS' REPORT To the Management of Waste Management, Inc. of Florida We have audited the accompanying statement of revenues and expenses for the Franchise Agreement between the City of Sebastian, Florida and Waste Management, Inc. of Florida for the year ended .. December 31, 2017, and the related notes to the financial statement. Management's Responsibility for the Statement of Revenues and Expenses ^ Management is responsible for the preparation and fair presentation of the statement of revenues and expenses in accordance with accounting principles generally accepted in the United States of America; ^ this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenues and expenses that is free from material misstatement, whether due to fraud or error. ^ Auditors' Responsibility ^ Our responsibility is to express an opinion on the statement of revenues and expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United ^ States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and expenses is free from material misstatement. ^ An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues and expenses. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the statement of revenues and expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the statement of revenues and expenses in order to design audit procedures that are appropriate in the circumstances, but not for .� the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well .n as evaluating the overall presentation of the statement of revenues and expenses. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for on our audit opinion. a.. ^ Opinion .. In our opinion, the statement of revenues and expenses referred to above presents fairly, in all material respects, the results of the operations of the City of Sebastian, Florida's, Franchise Agreement with Waste Management, Inc. of Florida for the year ended December 31, 2017, in accordance with ., accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note 4 to the financial statement, the accompanying statement of revenues and expenses is prepared for complying with the Solid Waste and Recycling Collection Agreement with the City of Sebastian, Florida and is not intended to be a complete presentation of the Company's revenues and expenses. Our opinion is not modified with respect to that matter. Melbourne, Florida April 26, 2018 M M OR No M M W -2- Waste Management, Inc. of Florida Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida For the Year Ended December 31, 2017 Revenues Services $ 1,535,536 Otherrevenues 26,051 Gain on sale of disposal 55 Total revenues 1,561,642 Expenses Operating: Salaries and wages 587,254 Truck — fixed 292,950 Truck —variable 455,776 Container — fixed 70,158 Container —variable 57,583 Operations support 262,199 Disposal 22,452 Franchise fees 89,157 Subcontractor costs and other 2,321 Total operating expenses 1,839,850 Selling, general and administrative expenses: Sales expenses - shared services 85,790 General and administrative - shared services 113,151 Total selling, general and administrative expenses 198,941 Total expenses 2,038,791 Expenses in excess of revenues before income taxes (477,149) Income tax benefit 120,957 Expenses in excess of revenues after income taxes $ (356,192) The accompanying notes are an integral part of this statement. -3- Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida NOTE 1: NATURE OF OPERATIONS ., Waste Management Inc. of Florida (the "Company") is a subsidiary of Waste Management Holdings, Inc. (a Delaware corporation). The parent is Waste Management, Inc. ("WMI") (a Delaware corporation). The Company is operated by the local district office located in Vero Beach, Florida, �+ which oversees the contract. In June 2013, Waste Management, Inc. of Florida entered into a Franchise Agreement (the "Agreement") with the City of Sebastian, Florida, to provide residential solid waste collection service, residential recycling collection service, commercial collection service and certain construction and demolition debris service, for a term of five years. This agreement began July 1, 2013, and automatically renews for an additional term ending June 30, 2023. On May 10, 2017 the automatic renewal was agreed upon and the agreement will expire June 30, 2023. The .� accompanying statement includes only those revenues and expenses applicable to the Agreement (see Note 4). The Company is allocated certain corporate expenses and receives certain corporate services from WMI. The Company's financial position might be different if it operated as a stand-alone entity. Beginning June 1, 2015, there was a change to the District's operations. The District previously encompassed Melbourne, Vero Beach and Indian River County, but now only encompasses Indian River County and covers the entire County instead of part of it. Certain expenses such as insurance premiums and property taxes were lower in 2016 due to the timing of the split. The expenses in 2017 represent a full year of insurance premiums and property taxes allocated to the Agreement. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statement was prepared for the purpose of complying with Article 13.2 of the Agreement. The accompanying statement has been prepared in accordance with accounting principles generally accepted in the United States of America. Revenue Recognition Fees for collection services for certain customers are billed in advance. Other customers are billed _ after the service has been rendered. All fees are recognized as revenues when earned. The Company's receivables are recorded when billed or accrued and represent claims against third _ parties that will be settled in cash. The carrying value of the Company's receivables, net of allowance for doubtful accounts, represents their estimated net realizable value. M -4- Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ." Revenue Recognition (Continued) The Company estimates its allowance for doubtful accounts based on historical collection trends, �+ type of customer, such as municipal or non -municipal, the age of outstanding receivables and existing economic conditions. For the year ended December 31, 2017, there was no bad debt expense to allocate to the Agreement. Use of Estimates The preparation of the statement of revenues and expenses in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation go Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives range as follows: no Years Land improvements 5-20 dW Buildings and improvements 5-25 Vehicles 3-10 Machinery and equipment 3-10 .. Furniture and fixtures 5-10 Containers and compactors 4-12 _ Depreciation expense totaled $346,703 for the year ended December 31, 2017 and is included in the Truck Fixed, Container Fixed and Operations Support expenses in the accompanying statement of revenues and expenses. MR Income Taxes Operating results of the Company are included in the consolidated federal income tax return of WMI. WMI files a combined state income tax return in Florida. Income taxes are allocated by WMI to the Company at the combined tax rate for 2017 of 25.35%. Deferred tax assets and liabilities (including any valuation allowance) are determined in accordance with the provisions of the FASB ASC 740, Income Taxes, and are recognized and maintained on a corporate -wide basis by WMI. For the year ended December 31, 2017, the net amount of income tax allocated to the Agreement for standalone financial statement purposes resulted in a $120,957 income tax benefit. Subsequent Events Subsequent events have been reviewed through the date of the auditors' report, which is the date the statement of revenues and expenses was available to be issued. .. -5- Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida NOTE 3: PARENT COMPANY ALLOCATIONS •. WMI allocates shared services to the Company based on routes serviced under the Agreement to the total routes serviced. Charges allocated to the Agreement were $198,941 for the year ended December 31, 2017, and are included in selling, general and administrative expenses in the accompanying statement of revenues and expenses. In some cases, selling, general and administrative expenses are accumulated by WMI and are not allocated to the local business unit. Although some of these costs may be applicable to the local unit, to streamline the Company's accounting procedures, these costs are not being allocated. WMI provides liability insurance coverage to the Company. The premium and deductible costs are allocated to the Company by WMI based on its revenues, property and other financial information, and are specifically identified by occurrence. The Company also participates in the WMI group insurance policy. NOTE 4: BASIS OF DETERMINING REVENUES AND EXPENSES APPLICABLE TO THE AGREEMENT The accompanying statement of revenues and expenses includes only those revenues and expenses applicable to the Agreement. Revenues under the Agreement have been specifically identified. The Company reports its operating expenses on a specific profit center basis (residential and recycling, commercial and roll -off serviced commercial). As a result, the Company has other waste collection .n operations, which are combined with the Agreement into the various profit centers for accounting purposes. Accordingly, certain allocations of specific profit center expenses were necessary to estimate expenses applicable to the Agreement. • Residential and recycling expenses are allocated based on the percentage of customers serviced under the Agreement to total customers serviced by the residential and recycling profit centers. All expenses, except sales and general and administrative expenses, listed on the statement of revenues and expenses include residential and recycling expenses allocated in this manner. • Roll -off expenses are allocated based on the percentage of the City of Sebastian's roll -off revenue, compared to total roll -off revenue of the Company. All expenses, except sales and general and administrative expenses, listed on the statement of revenues and expenses include .. roll -off expenses allocated in this manner. _ • Commercial expenses are allocated based on the percentage of yardage of the containers serviced under the Agreement to the total yardage serviced by the commercial profit center. All expenses, except sales and general and administrative expenses, listed on the statement of ,,,, revenues and expenses include commercial expenses allocated in this manner -6- Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida NOTE 4: BASIS OF DETERMINING REVENUES AND EXPENSES APPLICABLE TO THE AGREEMENT (Continued) The various profit centers used by the Company classify expenses consistent with various expense classifications as disclosed on the statement of revenues and expenses. Accordingly, once the individual profit centers' expenses applicable to the Agreement were determined using the above allocations, the amounts were totaled to arrive at the amounts disclosed on the statement of revenues and expenses. NOTE 5: FRANCHISE FEES EXPENSE As part of the Agreement between the Company and the City of Sebastian, Florida, franchise fees in the amount of 6% of gross revenues collected shall be paid to the City of Sebastian, Florida on a monthly basis for all services billed by the Company. As of December 31, 2017, the Company had billed $1,535,536 and had collected $1,485,945 in gross revenues. The franchise fees due and paid to the City of Sebastian, Florida based on collections as of December 31, 2017 totaled $89,157. NOTE 6: ACCOUNTING FOR UNCERTAIN TAX POSITIONS WMI has implemented the accounting guidance for uncertainty in income taxes using the —. provisions of Financial Accounting Standards Board (FASB) ASC 740, Income Taxes. Using that guidance, tax positions initially need to be recognized in the statement of revenues and expenses when it is more -likely -than -not the position will be sustained upon examination by the tax authority. As of December 31, 2017, any reserves recorded by WMI for uncertain tax positions are not allocated to the Company and are maintained at the corporate level. -7-