Oklahoma Development Finance Authority and Credit Enhancement Reserve Fund

              COLE+REED p.c.
CERTIFIED PUBLIC ACCOUNTANTS
OKLAHOMA DEVELOPMENT
FINANCE AUTHORITY
AND
CREDIT ENHANCEMENT
RESERVE FUND
June 30, 2008
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS i
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report 1
Statement of Net Assets 3
Statement of Revenues, Expenses and Changes in Net Assets 4
Statement of Cash Flows 5
Notes to Financial Statements 7
REPORT REQUIRED BY GOVERNMENT AUDITING STANDARDS
Independent Auditors' Report on Compliance and Other Matters
and on Internal Control Over Financial Reporting Based on an
Audit of Financial Statements Performed in Accordance
With Government Auditing Standards 16
SUPPLEMENTAL INFORMATION
Schedule of Net Assets - Quality Jobs Investment Program 18
Schedule of Revenues, Expenses and Changes in Net
Assets - Quality Jobs Investment Program 19
Schedule of Net Assets - Tax-Exempt Guaranty Pool.. 20
Schedule of Revenues, Expenses and Changes in Net
Assets - Tax-Exempt Guaranty Pool 21
Management's Discussion and Analysis
THE OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
This section of the Oklahoma Development Finance Authority's (the Authority's) annual
financial report presents a discussion and analysis of its financial performance for the year
ended June 30, 2008. Please read it in conjunction with the financial statements which follow
this section. The following table summarizes the financial position and results of operations of
the Authority for 2008 and 2007.
Assets: 2008 2007
Current assets $ 12,096,718 $ 11,268,469
Capital assets 588,068 601,391
Other non-current assets 1,507,882 2,322,354
Total Assets 14,192,668 14,192,214
Liabilities:
Current liabilities 41,941 42,615
Other non-current liabilties 32,728
Bonds payable 9,999,000 9,999,000
Total Liabilities 10,040,941 10,074,343
Net Assets:
Invested in capital assets 588,068 601,391
Unrestricted 3,563,659 3,516,480
Total Net Assets $ 4,151,727 $ 4,117,871
Operating Revenues:
Fee revenue $ 714,282 $ 682,590
Interest and Investment income 501,552 580,225
Other 37,422 37,422
Total Operating Revenues 1,253,256 1,300,237
Operating Expenses:
Interest expense 412,727 537,688
Other operating expenses 806,673 679,151
Total Operating Expenses 1,219,400 1,216,839
Change in net assets 33,856 83,398
Total net assets, beginning of the year 4,117,871 4,034,473
Total net assets, end of the year $ 4,151,727 $ 4,117,871
Management's Discussion and Analysis
THE OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
OVERVIEW OF THE FINANCIAL STATEMENTS
The three financial statements presented within the financial statements are as follows:
• Statement of Net Assets - This statement presents information reflecting the Authority's
assets, liabilities and net assets. Net assets represent the amount of total assets less total
liabilities. The statement of net assets is categorized as to current and non-current assets
and liabilities. For purposes of the financial statements, current assets and liabilities are
those assets and liabilities with immediate liquidity or which are collectible or becoming
due within 12 months of the statement date. The Authority's investment balances are
considered current assets, as the Authority has historically experienced a high portfolio
turnover rate.
• Statement of Revenues, Expenses and Changes in Net Assets - This statement reflects
the operating revenues and expenses, as well as non-operating revenues and expenses
during the operating year. Major sources of operating revenues are administrative fee
income and major sources of operating expenses being personnel and interest expense.
The change in net assets for an enterprise fund is similar to net profit or loss for any
other business enterprise.
• Statement of Cash Flows - The statement of cash flows is presented on the direct method
of reporting which reflects cash flows from operating, financial and investing activities.
Cash collections and payments are reflected in this statement to arrive at the net increase
or decrease in cash for the calendar year.
FINANCIAL HIGHLIGHTS
• The Authority's total assets at June 30, 2008 increased by approximately $500 which is
very consistent with the prior year.
• Total liabilities decreased for the year. The approximately $33,400decrease in liabilities
compared to the prior year is primarily due to a decrease in unearned revenue.
• The decrease in total operating revenues of approximately $47,000 in 2008 is due to
increased fee revenues of approximately $31,700, and a net decrease in interest and
investment income of approximately $78,700.
• The increase in total operating expenses of approximately $2,500 in 2008 compared to
the prior year is due to a decrease of interest expense of approximately $125,000and an
approximate increase of other general expenses of $127,500.
• Total net assets increased by approximately $33,900between July I, 2007 and June 30,
2008.
11
Management's Discussion and Analysis
THE OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
OVERVIEW OF THE FINANCIAL STATEMENTS
CAPITAL ASSETS
As of June 30, 2008, the Authority had invested approximately $809,000 in capital assets,
including land, buildings, automobiles, furniture and equipment. Net of accumulated
depreciation, the Authority's net capital assets at June 30, 2008 total approximately $588,000.
The Authority's net capital assets at June 30, 2007 totaled approximately $601,000.
DEBT ADMINISTRATION
As of June 30, 2008, the Authority had approximately $1.6 billion of conduit debt (non-recourse
debt to the Authority that is repaid solely from revenues derived from the related facilities)
outstanding. This is an approximate $100 million increase from June 30, 2007. The Authority
also had outstanding as of June 30, 2008 and 2007, $9,999,000 of bonds related to the Oklahoma
Quality Jobs Investment Program, a designated fund within the Authority.
CONTACTING THE AUTHORITY'S MANAGEMENT
This financial report is designed to provide patrons and interested parties with a general
overview of the Authority's finances and to demonstrate the Authority's accountability for its
finances. If you have questions about this report or need additional financial information,
contact:
James G. Fulmer, President
The Oklahoma Development Finance Authority
5900 N Classen Court
Oklahoma City, Oklahoma 73118
Telephone: 405-842-1145
III
Independent Auditors' Report
The Board of Directors
The Oklahoma Development Finance Authority
We have audited the statement of net assets of the Oklahoma Development Finance Authority
("ODFA"), a component unit of the state of Oklahoma, as of June 30, 2008, and the related
statements of revenues, expenses and changes in net assets and cash flows for the year then
ended. We have also audited the financial statements of ODFA's discretely presented
component unit, the Credit Enhancement Reserve Fund (lithe Fund"). Collectively, ODFA and
the Fund are referred to as the II Authority". These financial statements are the responsibility of
the Authority's management. Our responsibility is to express an opinion on the Authority's
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Authority's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Authority and its discretely presented component unit as of June 30,
2008, and the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis is not a required part of the basic financial statements
but is supplementary information required by the Governmental Accounting Standards Board.
We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurements and presentation of the supplementary
information. However, we did not audit the information and express no opinion on it.
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531 Couch Dr. Suite 200
Oklahoma City, OK
73102-2251
TEL 405.239.7961
FAX 405.235.0042
WEB www.coleandreed.com
RSM McGladrey Network
An Independently Owned Member
In accordance with Government Auditing Standards, we have also issued our report dated October
17,2008, on our consideration of the Authority's internal control over financial reporting and our
tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements and other matters. The purpose of that report is to describe the scope of our testing of
internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on the internal control over financial reporting and compliance. That report is
an integral part of an audit performed in accordance with Government Auditing Standards and
should be considered in assessing the results of our audit.
Our audit was made for the purpose of forming an opinion on the basic financial statements of
the Authority, taken as a whole. The supplementary information is presented for purposes of
additional analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Oklahoma City, Oklahoma
October 17,2008
2
STATEMENT OF NET ASSETS
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
Component Unit
Total (Credit
Primary Enhancement
Government Reserve Fund)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,219,710 $ 214,755
Interest receivable 79,137 2,204
Fees receivable and other current assets 375,866 25,300
Notes receivable 202,690
Investments 10,219,315 891,553
TOTAL CURRENT ASSETS 12,096,718 1,133,812
NONCURRENT ASSETS
Notes receivable, net of allowance for uncollectible loans
of $226,660 1,357,882
Capital assets, net of accumulated depreciation of $221,043 588,068
Other assets 150,000
TOTAL NONCURRENT ASSETS 2,095,950
TOTAL ASSETS 14,192,668 1,133,812
LIABILITIES
CURRENT LIABILITIES
Accounts payable 9,213
Deferred revenue 32,728 24,068
TOTAL CURRENT LIABILITIES 41,941 24,068
NONCURRENT LIABILITIES
Bonds payable 9,999,000
Deferred revenue 247,388
Reserve for losses 51,371
TOTAL NONCURRENT LIABILITIES 9,999,000 298,759
TOTAL LIABILITIES 10,040,941 322,827
NET ASSETS
Invested in capital assets 588,068
Unrestricted 3,563,659 810,985
TOTAL NET ASSETS $ 4,151,727 $ 810,985
See accompanying notes to financial statements.
3
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
Year Ended June 30, 2008
Component Unit
Total (Credit
Primary Enhancement
Government Reserve Fund)
OPERATING REVENUES
Fee revenue $ 714,282 $
Insurance premiums 56,878
Interest and investment income 501,552 36,763
Other 37A22
TOTAL OPERATING REVENUES 1,253,256 93,641
OPERATING EXPENSES
Personnel services 526,595
Professional services 52,520 1,801
Administrative 58,319 3,500
Program expenses 55)15
Depreciation 32,572
Interest expense 412,727
Other 81,552
TOTAL OPERATING EXPENSES 1,219AOO 5,301
OPERATING INCOME 33,856 88,340
NET ASSETS AT BEGINNING OF YEAR 4)17,871 722,645
NET ASSETS AT END OF YEAR $ 4)51,727 $ 810,985
See accompanying notes to financial statements.
4
STATEMENT OF CASH FLOWS
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
Year Ended June 30,2008
Component Unit
Total (Credit
Primary Enhancement
Government Reserve Fund)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received for fees and insurance premiums $ 623,934 $ 57,092
Cash paid to suppliers and employees (774,775) (6,491)
Interest and investment income received 626,070 42,336
Interest paid (412,727)
Other receipts 38,394
NET CASH PROVIDED BYOPERATING ACTIVITIES 100,896 92,937
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payment for acquisition of capital assets (27,587)
Sale of capital assets 8,338
NET CASH USED IN CAPITAL AND
RELATED FINANCING ACTIVITIES (19,249)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (12,444,988) (1,775,609)
Proceeds from sale of investments 12,086,617 1,762,519
Payments received on notes receivable 1,165,664
Advances on notes receivable (375,000)
NET CASH USED PROVIDED BY (USED IN) INVESTING ACTIVITIES 432,293 (13,090)
NET INCREASE IN CASH AND CASH EQUIVALENTS 513,940 79,847
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 705,770 134,908
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,219,710 $ 214,755
(Continued)
See accompanying notes to financial statements.
5
STATEMENT OF CASH FLOW5--Continued
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
Year Ended June 3D, 2008
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
Provision for uncollectible loans
Depreciation
Change in assets and liabilities:
Fees receivable and other current assets
Interest receivable
Accounts payable
Deferred revenue and reserve for losses
NET CASH PROVIDED BY OPERATING ACTIVITIES
See accompanying notes to financial statements.
6
Total
Primary
Government
Component Unit
(Credit
Enhancement
Reserve Fund)
$ 33,856 $ 88,340
50,000
32,572
(56,648) (18,975)
74,518 5,573
(674) (1,190)
(32,728) 19,189
$ 100,896 $ 92,937
NOTESTO FINANCIAL STATEMENTS
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE A--SUMMARYOF SIGNIFICANTACCOUNTING POLICIES
Reporting Entity: The financial reporting entity consists of the primary government,
organizations for which the primary government is financially accountable, and other
organizations for which the nature and significance of their relationship with the primary
government are such that exclusion could cause the financial statements to be misleading or
incomplete.
The Oklahoma Development Finance Authority (the" Authority") is a tax-exempt public trust
organized under the laws of the state of Oklahoma (the "State") by Declaration of Trust dated
November I, 1974. The Authority (previously the Oklahoma Development Authority)
amended its Declaration of Trust and changed its name to the Oklahoma Development Finance
Authority in 1988. The beneficiary of the Authority is the State.
The Authority was established to provide financing for both public and private entities in the
State. The Authority obtains funds through the issuance of bonds and notes. Private entities
qualifying for Authority financing are generally agricultural, civic, educational, health care,
industrial, or manufacturing enterprises. Financing is also provided to governmental agencies
and instrumentalities of the State. For public programs, bond and note proceeds are deposited
into trust funds to be loaned out to qualifying program participants. Interest from the trust
investments and the loans is used to pay interest on the bonds and notes issued by the
Authority.
The Authority is a component unit of the State and is combined with other similar funds to
comprise the Proprietary Component Units of the State. In evaluating how to define the
Authority, for financial reporting purposes, management has determined that there is one entity
over which the Authority exercises significant influence. Significant influence or accountability
is based primarily on operational or financial relationships with the Authority. The Authority
exercises significant influence or accountability over the Oklahoma Credit Enhancement
Reserve Fund (the "Fund").
Under Oklahoma statutes, the Credit Enhancement Reserve Fund Act (the "Act") created the
Fund to be managed, administered, and utilized by the Authority solely to secure the payment
of interest, principal, and premium, if any, on the revenue bonds and other financial obligations
issued by the Authority for the purpose of enhancing and supporting the credit of such
obligations.
In addition, the Act authorizes the Fund to issue bonds which are the direct and general
obligations of the State (to which the full faith and credit of the State is pledged) in a total
principal amount not to exceed $100,000,000for the purpose of generating monies to be
deposited to the Fund.
The Fund is a discretely presented component unit of the Authority and is reported as an
enterprise fund. The Fund does not prepare separately issued financial statements.
Collectively, the Authority and the Fund are also referred to as the Authority.
7
NOTESTO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE A--SUMMARYOF SIGNIFICANTACCOUNTING POLICIES--Continued
Nature of Activities: The Authority administers a broad mix of programs, as noted below, to
meet the various economic needs of the State.
Conduit Lending Program: The Conduit Lending Program is completed through the
authorization and sale of revenue bonds, notes, certificates of participation, or other
evidence of indebtedness. Funds generated by such sale are then available for loans to
qualified borrowers. The Authority does not guarantee such obligations.
First-Time Farmer Loan Program: The First-Time Farmer Loan Program is administered
in conjunction with the Oklahoma Department of Agriculture and was established
during 1994. This program is administered by the Authority using federal and state tax-exempt
bond financing to reduce a farmer's interest rate for capital purchases. This
program is structured so that a direct loan can be made between a borrower and a
lender or between a buyer and a seller.
Small Business Financing Program: The Small Business Financing Program continues its
efforts to provide additional funds and financing opportunities to Oklahoma's small
business community. The Authority has assisted Rural Enterprises, Inc. ("REI") of
Durant, Oklahoma, with the development of their SBA Micro Loan Program by
furnishing seed money for the program.
Quality TobsInvestment Program: The Quality Jobs Investment Program encourages the
growth of equity and near equity capital for Oklahoma businesses. Under this program,
the Authority can match dollar for dollar an investment enterprise's private capital for
helping new and expanding businesses. The Program was created by the Authority and
funded through a bond issuance in the amount of $9,999,000in 1997with the proceeds
restricted to fund the program.
Tax-Exempt Guaranty Pool: The Tax-Exempt Guaranty Pool (the "Pool") is designed to
assist the Oklahoma Industrial Finance Authority (the "OIFA") in issuing tax-exempt
bonds. The Pool acts as a private credit enhancement reserve fund to guarantee any loss
after all resources of the OIFA have been exhausted. The guarantee is limited to the
resources of the Pool. The program was created by the Authority and funded through a
transfer of $500,000from the Authority's unrestricted net assets.
The Public Facilities Financing Program: The Public Facilities Financing Program is
designed to provide low-cost financing to an applying governmental entity for
practically any need of the entity. In order to qualify, the govern...-rnentaelntity's project
must contribute to the economic viability or attractiveness of the area impacted by the
project, demonstrate strong public support, and the governmental entity must
demonstrate the ability to repay borrowed funds.
8
NOTESTO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENTFINANCEAUTHORITY
June 30,2008
NOTE A--SUMMARYOF SIGNIFICANTACCOUNTING POLICIES--Continued
The Fund administers the following program:
Credit Enhancement Reserve Fund ("CERF") Lending Program - The Authority is
concentrating on CERF lending activities involving municipal or other
governmentally supported obligations, primarily through the Public Facilities
Financing Program.
Basis of Accounting: The operations of the Authority and the Fund are accounted for as
enterprise funds on an accrual basis in order to recognize the flow of economic resources.
Under this basis, revenues are recognized in the period in which they are earned, and expenses
are recognized in the period in which they are incurred.
Balances classified as operating revenues and expenses are those which comprise the
Authority's principal ongoing operations. Since the Authority's operations consist of
administering economic development through the issuance of bonds and notes, most revenues
and expenses are considered operating.
The Authority applies Financial Accounting Standards Board ("FASB") pronouncements and
Accounting Principles Board opinions issued on or before November 30, 1989, unless those
pronouncements conflict with or contradict GASB pronouncements, in which case GASB
prevails.
Use of Estimates: Accounting principles generally accepted in the United States of America
require management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash and Cash Equivalents: The Authority and the Fund, for purposes of reporting cash flows,
consider all highly liquid investments with an original maturity of three months or less to be
cash equivalents.
Fees Receivable and Other Current Assets: The majority of the fees receivable and other current
assets consist of fees receivable. Fees receivable include amounts billed for administrative fees
as of June 30, 2008. Fees receivable are accrued based on the annual fee as stipulated in the
various bond indentures.
Investments: The Authority is currently invested in various SBA Loan Pools, certificates of
deposit and us. Treasury Bills. The SBALoan Pools are recorded at fair value based on the
average of two bids from independent brokers. U.S. Treasury Bills and certificates of deposit
are recorded at cost which approximates fair value. Unrealized gains and losses and interest
income are included in investment income.
9
NOTES TO FINANCIAL STATEMENTS---Continued
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE A--SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES---Continued
Capital Assets: Capital assets are stated at cost, net of accumulated depreciation. Depreciation
is computed on the straight-line method over an estimated useful life of 39 years for the
building and five years for automobiles, furniture, and equipment.
Reserve for Losses: The reserve for losses is an estimate based on management's evaluation of
the loan portfolio (those obligations guaranteed by the Fund) giving consideration to general
economic conditions, the nature and volume of the loan portfolio, and the historic loan loss
experience of the Fund. It is maintained at a level that management considers adequate to
absorb potential losses in the loan portfolio.
Deferred Revenue: On certain debt financing which the Fund is guaranteeing, the Fund will
receive all of its insurance premiums in advance. These premiums are deferred and recognized
as revenue over the life of the various debt obligations on a straight-line basis.
Income Taxes: The Authority, as an integral part of the State, is exempt from federal and state
income taxes.
NOTE B--DEPOSITSAND INVESTMENTS
Custodial Credit Risk - Deposits: Custodial credit risk is the risk that in the event of a bank failure,
the government's deposits may not be returned to it. The Authority's deposit policy for
custodial credit risk is described as follows:
The Authority requires that balances on deposit with financial institutions, including
trustees related to the Authority's bonds, be insured by Federal Deposit Insurance or
collateralized by securities held by the cognizant Federal Reserve Bank, or invested in
U.S. Government obligations, in the Authority's name.
Interest Rate Risk: The Authority does not have a formal policy that limits investment maturities
as a means of managing its exposure to fair value losses arising from increasing interest rates.
Concentration of Credit Risk: The Authority places no limit on the amount the Authority may
invest in anyone issuer. More than 5% of the Authority's investments are in SBALoan Pools,
certificates of deposit and U.S. Treasury Bills. These investments comprise 100% of the
Authority's total investments.
10
NOTES TO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
NOTE B--DEPOSITSAND INVESTMENTS--Continued
The Authority's and the Fund's deposits and investments consisted of the following at June 30,
2008:
Type Carrying Value
Deposits: Authority Fund
Demand $ 1,219,710 $ 214,755
Investments:
Certificateof deposit $ 4,645,201 $
SBALoan Pools 2,299,047
USTreasury Bills 3,275,067 891,553
$ 10,219,315 $ 891,553
Deposits: At June 30, 2008, the bank balances of the Authority's and the Fund's cash deposits
were $1,219,710and $214,755, respectively. All bank balances were covered by Federal Deposit
Insurance or collateralized with securities held by the Authority's or Fund's agent in the
Authority's or Fund's name.
Investments: The Authority's investments in SBA Loan Pools of $2,299,047 are not evidenced
by securities; therefore, these investments are not subject to risk categorization. The Authority's
and the Fund's investments in US Treasury Bills of $3,275,067are backed by the full faith and
credit of the U. S. Government. The Authority's certificates of deposit totaling $4,645,201have
original maturity dates exceeding three months and therefore are classified as investments.
Investment Maturities (in Years)
Fair Less One to Six to More
Investment Type Value Than One Five Ten Than Ten
Certificate of deposit $ M45)01 $ 4M5)01 $ - $ - $
Authority's SBA Loan Pools 2,299,047 252,833 2,046)14
Authority's U.s. Treasury Bills 3,275,067 3,275,067
$ 10)19)15 $ 7,920)68 $ - $ 252,833 $ 2,046,214
Fund's U'S. Treasury Bills $ 891,553 $ 891,553 $ - $ - $
11
NOTES TO FINANCIAL STATEMENT5--Continued
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
NOTE C--NOTES RECEIVABLE
At June 30, 2008, the Authority's Quality Job Investment Program has various notes receivable
from four entities totaling $1,664,517. The Authority has provided an allowance for loan losses
of $226,660 due to uncertainties of collection in connection with one of the notes; however, the
Authority believes that the remaining balances are collectible. The Authority's Operating Fund
has a note receivable from one entity totaling $122,715 as of June 30, 2008. The notes bear
interest at variable interest rates ranging from the national prime rate to national prime plus 300
basis points. Interest is compounded monthly, quarterly or annually, as defined in each note
agreement. The notes mature from January 2009 to October 2014 and are unsecured.
NOTE D--CAPITAL ASSETS
Capital assets activity for the year ended June 30, 2008, was as follows:
Estimated
Useful Life June 30, June 30,
(Years) 2007 Additions Reductions 2008
N/A Land $ 100,000 $ $ $ 100,000
39 Buildings 563,185 563,185
5 Automobiles 79,823 26,092 (26,334) 79,581
5 Furniture and equipment 64,850 1,495 66,345
807,858 27,587 (26,334) 809,111
Accumulated depreciation (206,467) (32,572) 17,996 (221,043)
$ 601,391 $ (4,985) $ (8,338) $ 588,068
12
NOTESTO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE E--NONRECOURSEDEBT,NOTES RECEIVABLE,AND FUNDS IN TRUST (Conduit
Debt)
Certain financing agreements are structured such that the debt is to be repaid solely from the
revenues derived from the related facilities leased or acquired with proceeds of the debt
obligations, or from the disposition of collateral. The Authority does not hold these notes
receivable or trust investments in amounts equal to the long-term financings. As of June 30,
2008,the Authority had 266 series of debt outstanding totaling approximately $2.0billion in the
original amount of issuance with approximately $1.6 billion outstanding for all public and
private programs. Of this amount, the Authority had 218 series of debt outstanding for non-state
entities totaling approximately $1.5 billion in the original amount of issuance with
approximately $1.3billion outstanding.
The financings are not the general obligations of the Authority, and it is the opinion of the
Authority's management and its legal counsel that, in the event of default by the borrower(s),
the Authority has no responsibility for repayment of such financings.
Accordingly, the nonrecourse debt and the related notes receivables and trust investments have
been excluded from the financial statements.
NOTE F--THE OKLAHOMA CREDITENHANCEMENT RESERVEFUND
Under the constitution of the State, the Fund may issue bonds of the State, to be known as the
Oklahoma Credit Enhancement Reserve General Obligation Bonds, in a total principal amount
of $100,000,000for the sole purpose of generating monies to be deposited to the Fund if there
are insufficient assets to meet insurance obligations. The Fund is managed, administered, and
utilized by the Authority solely to secure the payment of principal and interest on revenue
bonds and other financial obligations issued by the Authority for the specific purpose of
enhancing and supporting the credit of such obligations.
As of June 30, 2008, there were approximately $45 million of outstanding financial obligations
insured by the Fund. The Authority has accrued a reserve for losses of approximately $51,000
as of June 30, 2008, to cover potential losses from the outstanding financial obligations insured
by the Fund. Through June 30, 2008, Oklahoma Credit Enhancement Reserve Fund General
Obligation Bonds have not been issued since it is the intention of the Authority to utilize
existing assets to meet obligations arising from losses reserved by the Fund.
13
NOTESTO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE G--TAX-EXEMPTGUARANTYPOOL
In August 1995, the Authority's Board of Directors created the Pool to assist the OIFA in
obtaining tax-exempt financing on OIFA projects. The Pool was funded in fiscal year 1998 with
$500,000 of unrestricted monies held by the Authority. The Pool sets up a private credit
enhancement reserve fund to guarantee a portion of any loss up to the amount in the Pool after
all other resources to collect by OIFA have been exhausted. At no time will the liability of the
Pool be greater than the $500,000 funding plus any premiums retained by the Pool.
At June 30, 2008, there were approximately $6.1 million of outstanding financial obligations
insured by the Pool. All obligations are making payments in a timely manner.
NOTE H--RELATEDPARTIES
On July I, 1992, the Authority entered into an agreement with OIFA. Under this agreement,
OIFA will provide the Authority with staff support and administrative services. The Authority
has agreed to pay OIFA its proportionate costs of OIFA employees including related benefits,
taxes, and other costs. Based on this agreement, the Authority does not accrue annual vacation
or sick leave. The Authority paid OIFA approximately $465,000 during the year ended June 30,
2008, to cover its share of the aforementioned expenses. The current agreement is in effect on a
month-to-month basis.
NOTE I--BONDSPAYABLE
The Authority has issued revenue bonds to fund loans to various investment enterprises in
connection with the Quality Jobs Investment Program.
Revenue bonds outstanding at June 30, 2008, are as follows:
Oklahoma Development Finance Authority Oklahoma Quality
Jobs Investment Program Revenue Bond, Series 1996, due April 1,
2031 $ 9,999,000
The registered owner of the bonds is the OIFA, a related party. There were no additions or
retirements of revenue bonds during the year ended June 30, 2008. The original maturity date
of the bond was April I, 2006. However, on April I, 2006 the Authority and OIFA signed an
agreement to extend the maturity date to April 1, 2031.
14
NOTESTO FINANCIAL STATEMENTS--Continued
OKLAHOMA DEVELOPMENTFINANCE AUTHORITY
June 30, 2008
NOTE I--BONDSPAYABLE--Continued
Interest rates are variable with payments due quarterly with principal and all unpaid interest
due at maturity. The variable rate of interest is equal to the OIFA's cost of funds on its
outstanding variable rate bond issues. The interest rate at June 30, 2008 was 2.5%.
The bonds are payable solely from and secured by (1) revenues derived by the Quality Job
Investment Program from loan repayments, (2) funds in the Quality Job Investment Program
fund established by the Authority to support this bond and (3) a Credit Enhancement Reserve
Fund guarantee insurance policy issued to the Oklahoma Industrial Finance Authority.
Neither the State nor any political subdivision is obligated to pay principal or interest on the
bonds. The Authority does not have any taxing authority.
The annual debt service requirements to pay principal and interest on the Quality Jobs
Investment Program Revenue Bond, Series 1996, are as follows:
Year Ending
Tune30, Principal Interest
2009 $ $ 249,975
2010 249,975
2011 249,975
2012 249,975
2013 249,975
2014-2018 1,249,875
2019-2023 1,249,875
2024-2028 1,249,875
2029-2031 9,999,000 687,430
Total $ 9,999,000 $ 5,686,930
Interest requirements for the variable rate debt were determined by using the rate in effect at
June 30, 2008.
NOTE J--LEASEOBLIGATrONS
The Authority leased a portion of its office space to the OIFA and the State Bond Advisor.
Rental income from leases for the year ended June 30, 2008, was approximately $37,000.
15
Independent Auditors' Report on Compliance and Other Matters and on
Internal Control Over Financial Reporting Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards
The Board of Directors
The Oklahoma Development Finance Authority
We have audited the financial statements of the Oklahoma Development Finance Authority and
the Credit Enhancement Reserve Fund, collectively referred to as the "Authority", as of and for
the year ended June 30, 2008, and have issued our report thereon dated October 17, 2008. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Authority's financial statements
are free of material misstatements, we performed tests of its compliance with certain provisions
of laws and regulations, noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not
express such an opinion. The results of our tests disclosed no instances of noncompliance or
other matters that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Authority's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of
expressing our opinion on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Authority's internal control over financial reporting.
Accordingly, we do not express an opinion on the effectiveness of the Authority's internal
control over financial reporting
A control deficiency exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent or detect misstatements on a timely basis.
16
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
531 Couch Dr. Suite 200
Oklahoma City, OK
73102·2251
TEL 405.239.7961
FAX 405.235.0042
WEB www.coleandreed.com
RSM McGladrey Network
An Independently Owned Member
A significant deficiency is a control deficiency, or combination of control deficiencies, that
adversely affects the entity's ability to initiate, authorize, record, process, or report financial
data reliably in accordance with generally accepted accounting principles such that there is
more than a remote likelihood that a misstatement of the entity's financial statements that is
more than inconsequential will not be prevented or detected by the entity's internal control.
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the entity's internal control.
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily identify all
deficiencies in internal control that might be significant deficiencies or material weaknesses. We
did not identify any deficiencies in internal control over financial reporting that we consider to
be material weaknesses, as defined above.
This report is intended solely for the information and use of management and the Board of
Directors and is not intended to be and should not be used by anyone other than these specified
parties.
Oklahoma City, Oklahoma
October 17, 2008
17
SCHEDULE OF NET ASSETS - QUALITY JOBS INVESTMENT PROGRAM
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Interest receivable
Notes receivable
Investments
TOTAL CURRENT ASSETS
NONCURRENT ASSETS
Notes receivable, net of allowance for uncollectible loans of $226,660
TOTAL ASSETS
LIABILITIES
LONG- TERM LIABILITIES
Bonds payable
TOTAL LIABILITIES
NET ASSETS (DEFICIT)
TOTAL NET ASSETS (DEFICIT)
18
$ 336,845
71,874
187,105
7,190,993
7,786,817
1,250,752
9,037,569
9,999,000
9,999,000
(961,431)
$ (961,431)
SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - QUALITY
JOBS INVESTMENT PROGRAM
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
Year Ended June 30, 2008
OPERATING REVENUES
Investment income $ 280,042
Interest income on projects 55,222
TOTAL OPERATING REVENUES 335,264
OPERATING EXPENSES
Professional services 8,850
Interest expense 412,667
Other 53,201
TOTAL OPERATING EXPENSES 474,718
CHANGE IN NET ASSETS (139,454)
TOTAL NET ASSETS (DEFICIT) AT BEGINNING OF YEAR (821,977)
TOTAL NET ASSETS (DEFICIT) AT END OF YEAR $ (961,431)
19
SCHEDULE OF NET ASSETS - TAX-EXEMPT GUARANTY POOL
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
June 30, 2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Interest receivable
Investments
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
TOTAL NET ASSETS
20
$ 52)87
697
668,269
721)53
721)53
$ 721)53
SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - TAX-EXEMPT
GUARANTY POOL
OKLAHOMA DEVELOPMENT FINANCE AUTHORITY
Year Ended June 30, 2008
OPERA TING REVENUES
Fee revenue $ 22,076
Investment income 23,894
45,970
OPERATING EXPENSES
Guaranty obligation 46,740
Investment expense 60
46,800
CHANGE IN NET ASSETS (830)
TOTAL NET ASSETS AT BEGINNING OF YEAR 721,983
TOTAL NET ASSETS AT END OF YEAR $ 721,153
21
MAY 20 7011
-.
531 Couch Drive, Suite 200
Oklahoma City, OK
73102-2251
TEL 405.239.7961
FAX 405.235.0042
WEB www.coleandreed.com
RSM McGladrey Network
An Independently Owned Member