Orange County Sanitation District Third Quarter Financial Report for the period ended March 31, 2014
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Executive Summary………………………………………………………………………..…….………1
Budget Review
Section 1 – Budget Review Summary ...... 1
Section 2 – Operating Budget Review
Chart of the Cost per Million Gallons by Department – Budget and Actual ...... 1 Chart of the Net Expenses by Major Category – Budget and Actual...... 1 Divisional Contributions to Cost Per Million Gallons ...... 2 Comparison of Expenses by Department ...... 3 Summary of Collection, Treatment, and Disposal Expenses by Major Category ..... 4 Summary of District-Wide Revenues ...... 5 Summary of Collection, Treatment and Disposal Revenues ...... 5 Summary of Collection, Treatment, and Disposal Expenses by Line Item ...... 6 Summary of Collection, Treatment, and Disposal Expenses by Process...... 8 Chart of Staffing Trends ...... 9
Section 3 – Capital Improvement Program Budget Review
Capital Improvement Program Graphs by Type and Funding Source ...... 1 Summary of Capital Improvement Construction Requirements - Current Year ...... 2 Summary of Capital Improvement Construction Requirements - Project Life ...... 6
Section 4 – Capital Assets Schedule & Debt Service Budget Review
Capital Assets Schedule ...... 1 Debt Service Budget Review ...... 1
Section 5 – Self Insurance Budget Review
General Liability and Property Fund Budget Review ...... 1 Workers’ Compensation Fund Budget Review ...... 2
Quarterly Treasurer’s Report…………………………………………………………………………….1
Quarterly COP Report…………………………………………………………………………………....1
FY 2013-14 Third Quarter Financial Report
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Executive Summary
Consolidated Financial Reports For the Third Quarter Ended March 31, 2014
Included in this consolidated report are the following quarterly financial reports for the period ended March 31, 2014:
Third Quarter Budget Review: The Budget Review Summary provides the Directors, staff, and the general public with a comprehensive overview of the financial results of the Sanitation District through the third quarter ended March 31, 2014.
Contained within this Budget Review is the budget-to-actual status of the Collections, Treatment & Disposal Operations, the Capital Improvement Program, the Self-Insurance Program, and Debt Service Outlays. Also included is a Capital Assets Schedule as of March 31, 2014.
Various detail information can be found in this report. In summary:
a) Most major expense categories are anticipated to be at or below budget.
b) Total revenues are at 92.9 percent mainly due to the receipts of $132.0 million from the issuance of Revenue Refunding Certificate Anticipation Notes, Series 2013A during the fiscal year. The 2013A Anticipation Notes were used to refund Revenue Refunding Certificate Anticipation Notes, Series 2012C. Excluding debt financing proceeds, total revenues are at 61.1 percent of the budget. Except for Capital Assessments, Capital Facilities Capacity Charges, Sludge Disposal, Interest Earnings, Grant Revenue, CNG Sales, and Other Sales, all other major revenue sources are currently tracking close to or exceeding revenue estimates. Overall, total revenues are projected to exceed budget at year-end. More detailed information on District revenues is provided within Section 1 – Pages 3 through 5.
c) Collection, Treatment and Disposal Costs: As indicated within the Budget Review Summary of this report, the net operating requirements through the third quarter of $104.7 million is currently tracking at 70.1 percent of the $149.3 million budget. In addition, net operating expenses have increased $318,000 or 0.3 percent in comparison with the same period last year. Overall, staff expects the total operating costs to remain at or below budget throughout the remainder of the year. More detailed information on District operating expenses is provided within Section 1- Pages 1 through 3.
The total cost per million gallons is approximately $1,926 based on flows of 198.4 million gallons per day. A further description of these costs and
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benchmarking with other agencies is contained within Section 1 – Pages 6 through 8.
d) The total projected capital outlay cash flow of the Capital Improvement Program (CIP) for FY 2013-14 has been revised to $92.7 million, or 65.2 percent of the board approved cash outlay of $142.1 million. The actual cash outlay spending through the third quarter is $62.9 million, or 44.2 percent of the total budgeted outlay. More detailed information on the CIP budget review can be found in Section 3.
Quarterly Treasurer’s Report; This section reports on financial portfolio performance with respect to the Sanitation District’s funds. Both Long-Term and Liquid Operating Monies Portfolios are summarized. A performance summary table can be found on page 2 of this section. The report also contains information on the national economic outlook from the Sanitation District’s money manager (PIMCO).
PIMCO reported that the Long-Term Portfolio returned 0.71 percent over the quarter, outperforming the Merrill Lynch 1-5 year Government Corporate Index by 27 basis points, while the Liquid Operating Monies Portfolio returned 0.01 percent over the quarter, performing in line with the three-month Treasury Bill index.
PIMCO further notes that the quarter both uncertainty and volatility increased at the start of 2014. Equity markets swung wildly during the quarter— initially suffering from geopolitical tensions and weather‐weakened data, before rebounding strongly toward quarter‐end. Bond markets rallied early in the quarter due to the somewhat uncertain pace of economic expansion and mostly held on to gains as the crisis in Ukraine led a general flight to quality. An uncharacteristically cold winter took a toll on economic data in the U.S., with most major indicators showing signs of weakness. Yet markets largely ignored the data, trusting instead that a spring bounce back is likely. Similarly undeterred, the Federal Reserve (Fed) continued tapering its asset purchases and remains on track to eliminate these purchases by year‐end. The Fed also took considerable steps to strengthen its forward guidance on the policy rate. In Fed Chair Janet Yellen's first statement in March, the Fed dropped references to a 6.5% unemployment target and placed greater emphasis on inflation and other “measures of labor market conditions” as more appropriate barometers for determining the timing of the first interest rate hike. Elsewhere in the world, European economies continued to stabilize but concerns rose in Asia, especially over China’s economic health. In addition to weaker economic data, China experienced its first‐ever corporate default during the quarter, exposing cracks in the country’s vast and overleveraged shadow banking system. Weaker data also weighed on the Japanese equity market, making it one of the worst performing markets globally. Finally, geopolitical tensions between Russia and Ukraine evolved into a diplomatic crisis after Russia moved to annex the Crimea region. This move represents the largest potential redrawing of European borders since
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World War II, eliciting a harsh response from both Europe and the U.S., while stoking memories of the Cold War. Despite the intense media attention, market reaction has been limited to Ukrainian and Russian assets.
The following summarizes fixed income sector returns during the first quarter of 2014:
. U.S. Treasuries returned 1.34%, underperforming most other developed sovereign bond markets on a hedged basis during the first quarter, despite relatively strong positive returns. Weather related economic weakness, concerns about declining global liquidity, weakness in China, and uncertainty surrounding Ukraine contributed to a bid for safe‐haven assets during the quarter. Treasuries gave back some gains in March, however, as markets reacted to comments made by Fed Chair Janet Yellen regarding the timing of future federal funds rate hikes. The 10‐year U.S. Treasury yield fell 31 basis points to 2.72% during the quarter and the yield curve flattened, as the 2‐year U.S Treasury rose 4 basis points to 0.42%, while the 30‐year U.S. Treasury fell 41 basis points to 3.56%.
. Agency mortgage‐backed securities (MBS) returned 1.60%1, underperforming like‐duration Treasuries during the quarter, as the market digested the prospects for a less accommodative Fed and increasing issuance during the spring and summer months. The Fed continued to taper MBS purchases and will conduct $25 billion in net MBS purchases in April, relative to $40 billion per month in 2013. Non‐agency MBS performance was strong during the quarter, as the sector continued to benefit from improving housing fundamentals and limited outstanding supply. The sector is now $782 billion outstanding, relative to $2.1 trillion at the peak.
. U.S. investment grade credit returned 2.91%, outperforming like‐duration Treasuries by 0.75% during the first quarter, as measured by the Barclays U.S. Credit Index. Spreads narrowed to 103 basis points, the lowest level since the global financial crisis began, amid improving global growth fundamentals and continued easy monetary policy. The high yield sector returned 2.98%, benefitting from an idyllic mix of robust inflows and light new supply during the quarter. Bank loans, although trailing high yield for the quarter, posted relatively healthy returns as investor demand for less interest rate sensitive assets remained strong.
. Treasury Inflation‐Protected Securities (TIPS) returned 1.95% for the first quarter (based on the Barclays U.S. TIPS Index), underperforming nominal Treasuries. Although inflation is expected to move higher as the economy improves, core inflation still remains exceptionally low by historical standards. Shorter maturity TIPS lagged late in the quarter as the markets priced in a faster‐than expected pace of Fed tapering.
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. Tax‐exempt municipals returned 3.32% during the first quarter, based on the Barclays Municipal Bond Index. Taxable municipals also posted positive returns of 5.98% in the first quarter, according to the Barclays Municipal Taxable Index. Municipal market strength was driven by positive technical conditions of limited primary new issue supply and modest municipal mutual fund inflows. Primary new issue supply declined 23% from the fourth quarter of 2013 to $62 billion, and was down 26% year‐over‐year. Weekly‐reporting municipal mutual funds reported over $1.1 billion of net inflows, following approximately $63 billion of redemptions from the municipal fund universe in 2013. Longer duration and higher yielding segments outperformed as market liquidity improved during the quarter.
Quarterly Certificates of Participation (COP) Report The report includes various comparative charts illustrating the COP rate history.
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Third Quarter Financial Report March 31, 2014
Financial Management is pleased to present the FY 2013-14 third quarter financial report. This report provides a comprehensive overview of the financial condition of the Sanitation District and reports on the status of all capital projects in progress. A summary of the sections contained within this report is provided below.
Operating Budget Review: This section reports on collection, treatment and disposal net operating requirements. At March 31, 2014, 70.1 percent, or $104.7 million of the FY 2013-14 revised net operating budget of $149.3 million has been expended. Net operating expenses increased from the same period last year by $318,000, or 0.3 percent, mainly due to an increase of $28,000 in Salaries and Benefits, $5,000 in Printing and Publication, $172,000 in Training and Meetings, $330,000 in Contractual Services, $192,000 in Professional Services, $200,000 in Utilities, $15,000 in Other Non-Operating expenses and a decrease of $1.2 million in indirect costs allocated out to capital projects. These cost increases have been partially offset by decreases of $250,000 in Administrative Expenses, $946,000 in Operating Materials and Supplies, $215,000 in Research and Monitoring, $268,000 in Repairs and Maintenance, and $106,000 in Other Operating Supplies. These and other variances that factor into this net increase in expenses are discussed in more detail below. Overall, staff expects the total operating costs to remain at or below budget throughout the remainder of the year.
Significant operating results as of March 31, 2014 include the following:
Salaries, Wages and Benefits – Personnel costs of $69.4 million are slightly below target at 70.8 percent of budget through the third quarter of FY 2013-14. Although the budget is based on a 3 percent vacancy factor, staffing is 44 full-time equivalents (FTE’s), or 7.0 percent below the total 626 FTE’s approved in the FY 2013-14 budget. Salary and benefit costs are 0.04 percent, or $28,000 higher than the $69.3 million incurred in the same period last year mainly due to the increase of retirement costs offset by a decrease in salaries and wages. Net operating personnel costs are expected to approximate budget throughout the remainder of the year.
Administrative Expenses – Administrative Expenses totaled $891,000, or 71.6 percent of the $1.2 million budget through March 31. These costs are $250,000 or 21.9 percent lower at March 31 in comparison with the prior year mainly due to postage for Prop 18 notifications mailed and additional desktops and licenses purchased in the prior year partially offset by the timing of membership payments. It is anticipated that the administrative costs will approximate budget at year- end.
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Printing and Publication Expenses – Printing and Publication Expenses totaled $218,000, or 55.5 percent of the $394,000 budget through March 31. These costs are $5,000 or 2.5 percent higher at March 31 in comparison with the prior year mainly due to an increase in job postings for open positions, offset by cost reductions in the managed copy center and consumption of paper and toner used in flyers and publications. It is anticipated that the printing and publication costs will be below budget at year-end
Training and Meetings – Training and meetings of $544,000 are below target at 45.3 percent of the $1.2 million budget. This account is lower than the proportionate budget due to the timing of training throughout the year. These costs have increased over the same period last year by $172,000 or 46.2 percent, primarily due to increases in safety and electrical maintenance training. Total training and meeting costs are anticipated to be below budget at year-end.
Operating Materials and Supplies – Operating materials and supplies of $11.4 million is below target at 67.5 percent of budget through March 31. Operating Materials and Supplies have declined from the prior year by $946,000 or 7.7 percent, primarily due to decreases in Chemical Coagulants of $292,000, Odor Control of $205,000, Disinfection of $344,000, and Gas, Diesel & Oil of $100,000. The decreases are mainly brought about by chemical optimization and decreased disinfection requirements. Based on current processes, operating materials and supplies are anticipated to be at or below budget at year-end.
Contractual Services – Overall costs for contractual services are below target at approximately $16.4 million or 70.3 percent of budget through March 31. Solids Removal costs, budgeted at $17.9 million, comprise the majority of this expense category. With an increase of $25,000, or 0.2 percent higher than the prior year, solids removal costs totaled $13.0 million, or 72.7 percent of budget at March 31. The District is now operating its secondary treatment facilities at full capacity, which results in more biosolids in comparison with the prior year. Additional increases include $61,000 in Oxygen Plant, $52,000 in Security Services, and $156,000 in Other Contractual Services. Overall, Contractual Services is higher by $330,000 or 2.0 percent, over the same period last year. Total contractual services costs are anticipated to approximate budget at year-end.
Professional Services – Professional services costs totaled $2.0 million or 56.8 percent of the $3.6 million budget through March 31. Most professional service costs, such as Audit and Accounting, Engineering, Environmental Consulting, Software Program Consulting Services, Advocacy Efforts, Industrial Hygiene Services, Labor Negotiation, and Other Services, are proportionately low through March 31 due to a variety of factors such as services being in the planning or request for proposal stage, services not being needed until later in the fiscal year, or the need for the service is being re-evaluated. These costs are $192,000 or 10.5 percent higher at March 31 in comparison with the prior year mainly due to timing of
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services performed. It is anticipated that the costs for this category will be below budget at year-end.
Research & Monitoring – Research and monitoring costs totaled $579,000, or 66.2 percent of the $874,000 budget through March 31. These costs are $215,000, or 27.1 percent lower at March 31 in comparison with the prior year, primarily due to a change in recording contributions to the Southern California Coastal Water Research Project. In the current period, expenses are recorded based on amounts paid, while in the prior year, expenses were based on adjustments to a joint powers agency equity interest, resulting in $187,000 lower costs in the current period. Total Research & Monitoring costs are anticipated to approximate budget at year-end.
Repairs and Maintenance – Repair and maintenance costs totaled $6.8 million, or 60.8 percent of the $11.2 million budget through March 31. These costs are $268,000, or 3.8 percent lower at March 31 in comparison with the prior year mainly due to service repairs and maintenance agreements, such as overhaul of Cen-Gen #2 engine incurred in the prior year. It is anticipated that the costs for this category will be at or below budget at year-end.
Utilities – Utilities costs totaled $5.0 million, or 64.8 percent of the $7.7 million budget through March 31. These costs are $200,000 or 4.2 percent higher at March 31 in comparison with the prior year, primarily due to an increase in electricity charges at P1 for facility improvements on Edison substations. The overall operating philosophy of the Central Generation facilities is to purchase electricity for power production rather than to purchase natural gas as a supplement to the digester gas needed to run the Central Generation facilities. This operating philosophy allows the Central Generation facilities to meet air emission requirements. It is anticipated that the costs will be at or below budget at year-end.
Other Operating Supplies – Other operating supplies costs totaled $1.6 million, or 62.8 percent of the $2.5 million budget through March 31. These costs are $106,000 or 6.4 percent lower at March 31 in comparison with the prior year. It is anticipated that the costs will be below budget at year-end.
Other Non-Operating Expenses – Other Non-Operating costs totaled $39,000, or 40.1 percent of the $97,000 budget through March 31. These costs are $15,000 or 64.3 percent higher at March 31 in comparison with the prior year mainly due to additional costs related to the health fair and Plant 2 gym opening. It is anticipated that the costs will be at or below budget at year-end
Revenues – Service Fees & Property Taxes – Through March 31, revenues from service fees are at $170.6 million, or 60.0 percent of budget and Property taxes are $44.7 million, or 60.7 percent of budget. These items comprise the majority of the Sanitation District’s revenues and are mostly collected by the County through the property tax roll and distributed to the Sanitation District throughout the year based
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on a set distribution schedule that begins in November of each year. These revenues are expected to approximate budget at year-end.
Revenues – Permittee User Fees – Permittee User Fees are at $9.5 million, or 84.4 percent of the $11.3 million budget. The number of permittees fluctuates from year to year as businesses are established or close their operations. The revenues through the third quarter are $2.2 million or 29.4 percent higher in comparison with the same period last year due to an increase in amount of discharge from the permittees. It is estimated that the permittee user charges will exceed budget at year-end.
Revenues – Inter District Sewer Use - SAWPA – Inter District Sewer revenues- SAWPA are at $1.8 million, or 60.5 percent of the $2.9 million budget. This revenue is derived from charges to the Santa Ana Watershed Protection Agency (SAWPA) for treatment of flows. These revenues are expected to be below budget at year-end.
Revenues – Intra District Sewer Use – IRWD – Intra District Sewer revenues- IRWD are at $1.5 million, or 71.5 percent of the $2.1 million budget. This revenue is derived from charges to the Irvine Ranch Water District (IRWD) for treatment of flows. The revenues through the third quarter are higher than the same period last year by $348,000 or 29.6 percent mainly due to fluctuation of interest earnings of $286,000 allocated to IRWD. These revenues are expected to approximate budget at year-end.
Revenues - Sludge Disposal- IRWD - Sludge Disposal fees-IRWD are at $3.5 million, or 34.9 percent of the $10.2 million budget. The revenue is derived and fluctuated from flows discharged from IRWD to Sanitation District for the handling, treatment and disposal of solids. These revenues are expected to be below budget at year-end.
Revenues – Capital Assessments- IRWD – Capital Assessments-IRWD are at $8.4 million, or 399.6 percent of the $2.1 million budget. The revenues through the third quarter are higher than the same period last year by $13.6 million or 262.7 percent mainly due to prior period credit adjustment made to equity. It is estimated that the capital assessments will be higher than the budget at year-end.
Revenues – Capital Facilities, Capacity Charges (CFCC) – CFCC are at $8.8 million, or 89.9 percent of the $9.8 million budget. The revenues through the third quarter are higher than the same period last year by $332,000 or 3.9 percent due to an increase in construction activity in the current year. These revenues are expected to exceed the budget at year-end.
Revenues – Interest Earnings – Interest Earnings are at $3.1 million or 18.7 percent of the $16.4 million budget. The revenues through the third quarter are lower than the proportionate budget due to the total return of the Sanitation District’s
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liquid and long-term operating investments being less than what was anticipated. It is estimated that the interest earnings will be below the budget amount at year-end.
Revenues – Wastehauler – Wastehauler revenues are at $492,000 or 75.7 percent of the $650,000 budget. This revenue is derived from fees charged to wastehaulers allowing them to dump waste into our system. These revenues are expected to approximate budget at year-end.
Revenues - Other – Other non-operating revenues are at $728,000 or 182.0 percent of the $400,000 budget. These revenues consist of charges to Sunset Beach Sanitary District for treatment of flows and other miscellaneous revenues. The revenues in the third quarter are higher than the proportionate budget and are higher by $353,000, or 94.3 percent in comparison with the same period last year mainly due to the sale of AQMD emission reduction credits for $345,000. These revenues are expected to exceed budget at year-end.
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Comparison of Third Quarter Cost per Million Gallon Results with Budget Last Five Years
As demonstrated in the preceding graph for each of the last four fiscal years, the cost per million gallons at the end of the third quarter has been 2.0 percent to 8.4 percent lower than the annual budget. The 2013-14 third quarter continues with this trend with 2.1 percent lower when compared with this year’s budget. Staff believes that overall operating costs will be below budget at year-end.
The total cost per million gallons at March 31 is $1,926.4 based on flows of 198.4 million gallons per day. This is $40.6 or 2.1 percent lower than the budgeted cost per million gallons of $1,967.0. There is an inverse relationship between the amount of flows and the cost per unit of collection, treatment, and disposal. Consequently, the lower cost per million gallons is due to net expenses being 6.5 percent less than the proportionate budget through March 31, which is partially offset by flows of 198.4 million gallons per day being 4.6 percent lower than the budgeted flow of 208 million gallons per day.
More detailed information on operating revenues, costs, and related information is provided within Section 2.
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Following are data tables showing the last five years of Single Family Residential User Fees (SFR) and the cost per MG to collect, treat, and dispose of wastewater for OCSD and for similar agencies. The agencies used in the table were determined to be those that most closely resembled OCSD in terms of services provided and treatment levels. The summaries demonstrate that OCSD’s SFR and cost per million gallons are each one of the lowest in their respective group.
Benchmark Study Five-Year Single Family Rate
Rates as of July 2009 2010 2011 2012 2013 Agency SFR SFR SFR SFR SFR Notes San Francisco$ 548.46 $ 613.44 $ 636.00 $ 667.92 $ 701.40 City of San Diego$ 568.20 $ 608.04 $ 608.04 $ 572.58 $ 572.58 Vallejo Sanitation/Flood Control District$ 446.64 $ 464.52 $ 483.12 $ 495.12 $ 507.48 City of Los Angeles$ 359.64 $ 359.64 $ 358.66 $ 391.56 $ 409.20 Note 1 Central Contra Costa Sanitary District$ 311.00 $ 311.00 $ 341.00 $ 371.00 $ 405.00 Dublin San Ramon Services District$ 294.42 $ 299.46 $ 345.06 $ 355.44 $ 355.44 Union Sanitary District$ 276.04 $ 289.84 $ 304.33 $ 319.55 $ 337.76 East Bay MUD$ 258.80 $ 271.84 $ 287.98 $ 305.10 $ 331.10 City of Hayward$ 293.76 $ 308.40 $ 317.64 $ 327.24 $ 327.24 Note 2 Sacramento County$ 237.00 $ 240.00 $ 264.00 $ 288.00 $ 312.00 City of Fresno$ 299.76 $ 299.76 $ 299.76 $ 309.00 $ 309.00 Note 3 Orange County Sanitation District$ 221.00 $ 244.00 $ 267.00 $ 294.00 $ 308.00 Los Angeles County$ 128.00 $ 141.00 $ 143.00 $ 149.00 $ 230.00 Irvine Ranch Water District$ 199.20 $ 199.80 $ 202.80 $ 206.40 $ 220.80 Note 4 Oro Loma Sanitary District$ 178.00 $ 178.00 $ 183.00 $ 189.00 $ 195.00
Notes: (1) - Data is for the typical SFR customer rate and is not the average rate. (2) - Effective October 1, 2013 (no changes) (3) - Effective September 1, 2013 (4) - Data represents the maximum SFR rate and is not the average rate.
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Benchmark Study Five-Year Cost per MG
FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13 Agency Svc. Trt. Cost/MG Cost/MG Cost/MG Cost/MG Cost/MG Notes
Vallejo Sanitation/Flood Control District B 3 $4,865.00 $4,911.00 $4,536.00 $5,176.00 $5,435.00 San Francisco B 3 $3,994.34 $4,339.32 $3,857.80 $4,778.96 $5,006.74 Note 3 Central Contra Costa Sanitary District B 4 $3,874.06 $4,136.89 $3,929.80 $4,203.43 $4,621.84 Union Sanitary District B 3 $2,832.52 $2,964.94 $3,206.10 $3,267.06 $3,805.40 City of San Diego B 2 $3,060.41 $3,583.70 $3,208.48 $3,242.30 $ 3,340.35 Note 5 East Bay MUD T 4 $2,081.36 $1,856.65 $2,000.31 $2,320.02 $2,359.40 Dublin San Ramon Services District B 3 $2,039.79 $1,905.99 $1,964.64 $2,009.57 $2,159.49 Sacramento County T 3 $1,791.44 $1,638.91 $1,591.75 $3,312.50 $2,143.16 Note 6 City of Los Angeles B 4 $1,904.00 $1,880.00 $1,836.00 $1,935.00 $2,062.00 Note 1 Orange County Sanitation District B 2 $1,576.67 $1,588.72 $1,816.62 $1,871.47 $ 1,906.01 City of Fresno B 3 $1,227.68 $1,207.20 $1,263.50 $1,383.60 $ 1,411.89 Los Angeles County $1,096.00 $1,117.00 $1,078.00 $1,156.00 $1,008.00 Note 2 Irvine Ranch Water District $1,935.45 $1,962.02 N/A N/A N/A Note 4
Legend for Service Provided and Treatment Level: B - Agency operates both collection and tretment facilities T - Agency provides treatment services but not collection 2 - Advanced primary or primary with some secondary treatment 3 - Secondary treatment 4 - Advanced secondary or secondary with some tertiary treatment
Notes: (1) - In FY 2003-04 the City applied Engineers and Architects Association (EAA) COLA, which covered multiple years. (2) - Does not include source control or overhead costs. (3) - New dataset represents wastwater flows from finalized publicly available audited documents. (4) - Cost of Wastewater Treatment, including Collections, Treatment, and General/Administrative Costs minus reclaimed water expenses. (5) - Beginning in Fiscal Year 2008-09, cost per mg includes the Point Loma Wastewater Treament Plant and South Bay Water Reclamation Plant. (6) - Miles of sewers number changed in 2012 to include parallel force main pipes per the 2011 State of the District Report.
N/A - Not currently available.
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Capital Outlay Review:
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0 3/31/14 Actual Capital Projected 2013-14 Capital 2013-14 Capital Outlay Outlay $62,884,842 Outlay $92,652,600 Cashflow Budget $142,136,000
As depicted by the preceding chart, Capital Outlays totaled $62,884,842 or 44.2 percent of the capital outlay cash flow budget for FY 2013-14 as of March 31, 2014. Costs are proportionately low through the third quarter as some projects are still in the design phase or have experienced various delays. Examples as of March 31 are the Sludge Dewatering and Odor Control at Plant 1 which has a budget of $27.3 million but actual costs of $14.7 million. Another example is the Gisler-Redhill System Improvements, which has a budget of $4.6 million but actual costs of $69,000. Overall, the capital outlay costs of the capital improvement program are expected to approximate $92.7 million, or 65.2 percent of the capital outlay cash flow budget at year-end.
More detailed information on the capital improvement program is provided within Section 3.
Capital Assets Schedule & Debt Service Budget Review: Section 4 is the Capital Assets Schedule and Debt Service Section. This section shows the cost value of the Sanitation District’s capital facilities at March 31, 2014, as well as the debt service costs resulting from the need to provide funding for the construction of capital facilities.
Except for the 2012C Certificate of Anticipation Notes (CANs) refunded in October 2013, the majority of principal payments on debt issues are due in August during the first quarter, and in February during the third quarter of each fiscal year. As of March 31 2014, 100.0 percent of the principal payments have been made through the end of the
Section 1 - Page 9 FY 2013-14 Third Quarter Report third quarter. Total principal payments are expected to approximate budget at year-end. Interest costs are expensed ratably throughout the fiscal year. Interest expense is anticipated to approximate budget at year-end.
Self-Insurance Budget Reviews: Section 5 is the Self-Insurance Section. Through March 31, the Self-Insurance Fund revenues totaled $1.1 million, 81.5 percent of the budget, while expenses were $1.6 million, 72.2 percent of the budget.
Separate fund accounting is used for recording the revenue and expenses incurred in managing these liability claims. The revenues to these funds represent charges to operating divisions. Expenses to these funds include actual claims paid, claims administration, and excess loss policies.
Section 1 - Page 10 Operating Budget Review
Cost per Million Gallons by Department Budget and Actual March 31, 2014
$1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Engineering Services Maintenance Operations & Facilities Support Human resources
Budget Actual Administrative Services Administrative Executive Management Executive
Collection, Treatment, & Disposal Expenses by Major Category Budget and Actual (in thousands) March 31, 2014
$70,000 $65,000 $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Utilities Salary & Wages & Salary & Svcs Employee Benefits Operating Expenses Training & Meetings & Training Contractual Services Printing & Publication Professional Services Research & Monitoring Repairs & Maintenance Administrative Expenses
Budget Actual Other Materials, Supplies,
Section 2 - Page 1
2013-14 Third Quarter Report Divisional Contributions to Cost Per Million Gallons For the Nine Months Ended March 31, 2014
2013-14 3/31/12 3/31/13 Annual 3/31/14 Actual Actual Budget Actual Flow in Million Gallons 54,855.00 54,738.00 75,920.00 54,358.30 Flow in Million Gallons per Day 199.47 199.77 208.00 198.38 Executive Management Department General Management Administration $ 20.20 $ 24.47 $ 30.71 $ 31.88 Board Services 4.03 8.01 9.69 8.69 Public Affairs 17.91 12.49 8.61 7.65 Subtotal 42.14 44.97 49.01 48.22 Human Resources Department Human Resources 45.62 51.19 65.33 48.85 Subtotal 45.62 51.19 65.33 48.85
Administrative Services Department Administrative Services 11.50 8.80 8.13 9.09 Financial Management 37.48 43.60 47.22 39.17 Contracts, Purchasing, & Materials Mgmt. 55.10 55.57 61.69 58.29 Information Technology 130.33 126.78 134.61 127.01 Risk Management 50.98 50.89 61.04 49.86 Subtotal 285.39 285.64 312.69 283.42 Facilities Support Services Department Facilities Support Administration 7.47 8.25 8.80 8.95 Facilities Support - 8.53 6.44 6.83 Equipment Rebuild 54.78 21.21 20.46 16.53 Fleet Services - 24.63 25.42 25.19 Facilities Engineering 64.30 72.59 53.35 45.23 Collection Facilities 187.21 - - - NPDES Source Inspection - 34.61 33.89 36.86 Odor and Corrosion Control - 90.75 94.42 90.22 Collection Facilities O & M - 52.46 52.44 48.51 Subtotal 313.76 313.03 295.22 278.32 Engineering Department Engineering Administration 6.11 6.39 5.59 5.99 Planning 47.15 41.18 47.36 49.13 Project Management Office 39.48 46.84 44.89 46.81 Engineering and Construction 121.86 120.55 118.76 120.92 Environmental Compliance 82.74 93.52 91.62 92.99 Subtotal 297.34 308.48 308.22 315.84 Operations & Maintenance Department Operations & Maintenance Administration 8.06 15.78 11.91 11.43 Plant No. 1 Operations 339.38 339.62 353.18 345.64 Plant No. 2 Operations 321.66 287.63 297.78 289.94 Mechanical and Reliability Maintenance 150.20 165.34 194.34 182.84 Instrumentation & Electrical Maintenance 204.59 191.90 209.57 201.11 Environmental Laboratory & Ocean Monitoring 101.02 109.53 109.71 106.72 Subtotal 1,124.91 1,109.80 1,176.49 1,137.68 Total Operating Expenses 2,109.16 2,113.11 2,206.96 2,112.33 Cost Allocation (227.92) (205.90) (240.01) (185.94) Net Operating Requirements $ 1,881.24 $ 1,907.21 $ 1,966.95 $ 1,926.39
Section 2 - Page 2
Operating Budget Review
Comparison of Expenses by Department For the Nine Months Ended March 31, 2014
2013-14 3/31/12 3/31/13 Year to Date Budget % Department and Division Actual Actual Budget 3/31/14 Realized Executive Management Department General Management Administration$ 1,108,190 $ 1,339,178 $ 2,331,400 $ 1,732,860 74.33% Board Services 221,164 438,715 735,420 472,493 64.25% Public Affairs 982,333 683,562 653,470 415,675 63.61% Subtotal 2,311,687 2,461,455 3,720,290 2,621,028 70.45% Human Resources Department Human Resources 2,502,538 2,801,930 4,960,050 2,655,630 53.54% Subtotal 2,502,538 2,801,930 4,960,050 2,655,630 53.54%
Administrative Services Department Administrative Services 631,050 481,647 616,960 494,345 80.13% Financial Management 2,055,902 2,386,501 3,584,640 2,129,032 59.39% Contracts, Purchasing, & Materials Mgmt. 3,022,513 3,042,051 4,683,490 3,168,754 67.66% Information Technology 7,149,163 6,939,438 10,219,430 6,903,862 67.56% Risk Management 2,796,283 2,785,721 4,634,030 2,710,300 58.49% Subtotal 15,654,911 15,635,358 23,738,550 15,406,293 64.90%
Facilities Support Services Department Facilities Support Administration 409,892 451,360 667,830 486,761 72.89% Facilities Support - 467,045 488,820 371,438 75.99% Equipment Rebuild 3,005,187 1,161,213 1,553,330 898,753 57.86% Fleet Services - 1,348,071 1,930,110 1,369,540 70.96% Facilities Engineering 3,527,434 3,973,457 4,050,070 2,458,572 60.70% Collection Facilities 10,269,309 - - - 0.00% NPDES Source Inspection - 1,894,369 2,572,870 2,003,911 77.89% Odor and Corrosion Control - 4,967,610 7,168,130 4,904,150 68.42% Collection Facilities O & M - 2,871,376 3,981,260 2,637,060 66.24% Subtotal 17,211,822 17,134,501 22,412,420 15,130,185 67.51% Engineering Department Engineering Administration 335,423 349,941 424,090 325,849 76.83% Planning 2,586,332 2,254,013 3,595,640 2,670,700 74.28% Project Management Office 2,165,527 2,563,997 3,407,850 2,544,325 74.66% Engineering and Construction 6,684,406 6,598,849 9,015,970 6,573,064 72.90% Environmental Compliance 4,538,760 5,119,190 6,956,050 5,054,855 72.67% Subtotal 16,310,448 16,885,990 23,399,600 17,168,793 73.37% Operations & Maintenance Department Operations & Maintenance Administration 442,037 863,744 904,110 621,267 68.72% Plant No. 1 Operations 18,616,922 18,590,072 26,813,270 18,788,343 70.07% Plant No. 2 Operations 17,644,806 15,744,185 22,607,420 15,760,824 69.72% Mechanical and Reliability Maintenance 8,239,261 9,050,430 14,754,219 9,938,616 67.36% Instrumentation & Electrical Maintenance 11,222,616 10,504,017 15,910,391 10,932,195 68.71% Environmental Laboratory & Ocean Monitoring 5,542,543 5,994,796 8,330,870 5,800,639 69.63% Subtotal 61,708,185 60,747,244 89,320,280 61,841,884 69.24% Total Operating Expenses 115,699,591 115,666,478 167,551,190 114,823,813 68.53% Cost Allocation (12,504,171) (11,269,438) (18,220,200) (10,108,348) 55.48% Net Operating Requirements $ 103,195,420 $ 104,397,040 $ 149,330,990 $ 104,715,465 70.12%
Section 2 - Page 3 2013-14 Third Quarter Report
Summary of Collection, Treatment, & Disposal Expenses by Major Category For the Nine Months Ended March 31, 2014
Expense Expense Increase Increase Percent Budget Through Through (Decrease) (Decrease) Budget Remaining Description 2013-14 3/31/14 3/31/13 $ % Realized Budget Salary & Wages$ 65,431,700 46,753,001 47,228,241 $ (475,240) -1.01% 71.45%$ 18,678,699
Employee Benefits 32,563,600 22,604,281 22,100,876 503,405 2.28% 69.42% 9,959,319
Administrative Expenses 1,244,400 890,747 1,140,670 (249,923) -21.91% 71.58% 353,653
Printing & Publication 393,590 218,389 213,067 5,322 2.50% 55.49% 175,201
Training & Meetings 1,200,940 543,657 371,789 171,868 46.23% 45.27% 657,283
Operating Materials & Supplies 16,912,330 11,423,095 12,369,443 (946,348) -7.65% 67.54% 5,489,235
Contractual Services 23,401,960 16,439,190 16,109,273 329,917 2.05% 70.25% 6,962,770
Professional Services 3,551,290 2,015,285 1,823,255 192,030 10.53% 56.75% 1,536,005
Research & Monitoring 874,000 578,882 794,297 (215,415) -27.12% 66.23% 295,118
Repairs & Maintenance 11,166,290 6,786,056 7,054,128 (268,072) -3.80% 60.77% 4,380,234
Utilities 7,676,470 4,970,290 4,769,797 200,493 4.20% 64.75% 2,706,180
Other Materials, Supplies, and Services 3,134,620 1,600,940 1,691,642 (90,702) -5.36% 51.07% 1,533,680
Net Cost Allocation (18,220,200) (10,108,348) (11,269,438) 1,161,090 -10.30% 55.48% (8,111,852)
Net Operating Requirements 149,330,990 104,715,465 104,397,040 318,425 0.31% 70.12% 44,615,525
Gallonage Flow (MG) 75,920.00 54,358.30 54,738.00 (379.70) -0.69%
Gallonage Flow (MGD) 208.00 198.38 199.77 (1.39) -0.70%
Gallonage Flow ($'s /MG) $1,966.95 $1,926.39 $1,907.21 $19.18 1.01%
Section 2 - Page 4 Operating Budget Review
Summary of Revenues For the Nine Months Ended March 31, 2014
Revenue Percent Revenue Increase Increase Budget Through Budget Remaining Through (Decrease) (Decrease) Description 2013-14 3/31/14 Realized Budget 3/31/13 $ % Service Fees$ 284,331,000 $ 170,565,648 59.99%$ 113,765,352 $ 161,402,719 $ 9,162,929 5.68% User Fees (Permits) 11,291,000 9,525,964 84.37% 1,765,036 7,364,613 2,161,351 29.35% Inter District Sewer Use-SAWPA 2,938,000 1,776,531 60.47% 1,161,469 2,392,262 (615,731) -25.74% Intra District Sewer Use-IRWD 2,129,800 1,523,183 71.52% 606,617 1,175,478 347,705 29.58% Sludge Disposal-IRWD 10,150,000 3,541,293 34.89% 6,608,707 6,300,282 (2,758,989) -43.79% Capital Assessments-IRWD 2,107,000 8,419,935 399.62% (6,312,935) (5,175,907) 13,595,842 262.68% Capital Facilities Capacity Charges 9,761,000 8,777,897 89.93% 983,103 8,445,628 332,269 3.93% Debt Proceeds - 131,991,953 N/A (131,991,953) 216,412,196 (84,420,243) -39.01% Property Taxes 73,699,000 44,697,515 60.65% 29,001,485 44,505,711 191,804 0.43% Interest Earnings 16,372,000 3,059,623 18.69% 13,312,377 5,312,823 (2,253,200) -42.41% Wastehauler 650,000 492,131 75.71% 157,869 458,757 33,374 7.27% Grant Revenue 496,000 - 0.00% 496,000 - - 0.00% CNG Sales 536,000 241,892 45.13% 294,108 392,124 (150,232) -38.31% Rents & Leases 248,000 184,798 74.52% 63,202 143,052 41,746 29.18% Other 400,000 727,796 181.95% (327,796) 374,555 353,241 94.31% Power Sales - 2,755 N/A (2,755) 204 2,551 1250.49% Other Sales 9,000 4,297 47.74% 4,703 11,965 (7,668) -64.09%
Total Revenues $ 415,117,800 $ 385,533,211 92.87%$ 29,584,589 $ 449,516,462 $ (63,983,251) -14.23%
Section 2 - Page 5 2013-14 Third Quarter Report Summary of Collection, Treatment, & Disposal Expenses by Line Item For the Nine Months Ended March 31, 2014
Expense Percent Expense Increase Increase Budget Through Budget Remaining Through (Decrease) (Decrease) Description 2013-14 3/31/14 Expensed Budget 3/31/13 $ % Salaries, Wages & Benefits Salaries & Wages $ 65,431,700 $ 46,753,001 71.45%$ 18,678,699 $ 47,228,241 $ (475,240) -1.01% Employee Benefits Retirement 21,725,300 15,553,480 71.59% 6,171,820 14,760,540 792,940 5.37% Group Insurances 9,875,200 6,324,774 64.05% 3,550,426 6,341,087 (16,313) -0.26% Tuition & Certification Reimb 155,000 122,649 79.13% 32,351 118,597 4,052 3.42% Edu. degrees, Cert. & Lic. 275,900 214,145 77.62% 61,755 209,710 4,435 2.11% Uniform Rental 42,100 40,232 95.56% 1,868 39,354 878 2.23% Workers' Compensation 455,100 303,332 66.65% 151,768 597,001 (293,669) -49.19% Unemployment Insurance 27,000 40,220 148.96% (13,220) 17,269 22,951 132.90% EMT Supplemental Benefits 8,000 5,449 68.11% 2,551 17,318 (11,869) -68.54% Total Benefits 32,563,600 22,604,281 69.42% 9,959,319 22,100,876 503,405 2.28% Salaries, Wages & Benefits 97,995,300 69,357,282 70.78% 28,638,018 69,329,117 28,165 0.04% Matl, Supply, & Services Administrative Expenses Memberships 531,670 447,416 84.15% 84,254 414,772 32,644 7.87% Office Exp - Supplies 82,220 40,176 48.86% 42,044 37,860 2,316 6.12% Postage 48,120 21,818 45.34% 26,302 250,567 (228,749) -91.29% Books & Publications 45,200 21,560 47.70% 23,640 14,705 6,855 46.62% Forms 1,290 615 47.67% 675 782 (167) -21.36% Small Computer Items 438,000 311,394 71.09% 126,606 376,749 (65,355) -17.35% Minor Furniture & Fixtures 97,900 47,768 48.79% 50,132 45,235 2,533 5.60% Subtotal 1,244,400 890,747 71.58% 353,653 1,140,670 (249,923) -21.91% Printing & Publication Repro-In-House 261,560 174,147 66.58% 87,413 170,495 3,652 2.14% Printing-Outside 114,080 22,132 19.40% 91,948 35,056 (12,924) -36.87% Notices & Ads 15,140 21,976 145.15% (6,836) 6,382 15,594 244.34% Photo Processing 2,810 134 4.77% 2,676 1,134 (1,000) -88.18% Subtotal 393,590 218,389 55.49% 175,201 213,067 5,322 2.50% Training & Meetings Meetings 227,560 100,948 44.36% 126,612 99,853 1,095 1.10% Training 973,380 442,709 45.48% 530,671 271,936 170,773 62.80% Subtotal 1,200,940 543,657 45.27% 657,283 371,789 171,868 46.23% Operating Mat'ls & Supplies Chemical Coagulants 6,273,700 4,318,511 68.84% 1,955,189 4,610,572 (292,061) -6.33% Odor Control 7,516,720 5,070,168 67.45% 2,446,552 5,275,155 (204,987) -3.89% Disinfection 451,000 229,894 50.97% 221,106 574,116 (344,222) -59.96% Chemicals - Misc & Cogen 65,620 29,934 45.62% 35,686 34,261 (4,327) -12.63% Gasoline, Diesel & Oil 642,870 412,543 64.17% 230,327 512,774 (100,231) -19.55% Tools 364,120 247,022 67.84% 117,098 239,053 7,969 3.33% Safety equipment/tools 653,720 521,733 79.81% 131,987 496,772 24,961 5.02% Solv, Paints & Jan. Supplies 113,920 61,106 53.64% 52,814 72,657 (11,551) -15.90% Lab Chemicals & Supplies 664,040 439,637 66.21% 224,403 436,999 2,638 0.60% Other Operating Supplies 149,490 106,090 70.97% 43,400 101,403 4,687 4.62% Property Tax Fees 17,130 (13,543) -79.06% 30,673 15,681 (29,224) -186.37% Subtotal 16,912,330 11,423,095 67.54% 5,489,235 12,369,443 (946,348) -7.65% Contractual Services Solids Removal 17,940,000 13,043,381 72.71% 4,896,619 13,018,776 24,605 0.19% Other Waste Disposal 932,240 609,941 65.43% 322,299 606,468 3,473 0.57% Groundskeeping 210,080 151,768 72.24% 58,312 157,138 (5,370) -3.42% Janitorial 440,000 345,214 78.46% 94,786 330,796 14,418 4.36% Outside Lab Services 226,600 154,770 68.30% 71,830 132,446 22,324 16.86% Oxygen Plant Oper 572,800 499,077 87.13% 73,723 438,371 60,706 13.85% County Service Fee 582,180 57,494 9.88% 524,686 32,733 24,761 75.65% Temporary Services 505,610 226,668 44.83% 278,942 249,523 (22,855) -9.16% Security Services 400,400 293,731 73.36% 106,669 241,473 52,258 21.64% Other 1,592,050 1,057,146 66.40% 534,904 901,549 155,597 17.26% Subtotal 23,401,960 16,439,190 70.25% 6,962,770 16,109,273 329,917 2.05%
(Continued) Section 2 - Page 6 Operating Budget Review Summary of Expenses by Line Item For the Nine Months Ended March 31, 2014
ExpensePercent Expense Increase Increase Budget ThroughBudget Remaining Through (Decrease) (Decrease) Description 2013-14 3/31/14 Expensed Budget 3/31/13 $ % Continued: Professional Services Legal 1,242,210 1,063,961 85.65% 178,249 896,851 167,110 18.63% Audit & Accounting 351,760 144,508 41.08% 207,252 82,383 62,125 75.41% Engineering 311,200 196,924 63.28% 114,276 96,573 100,351 103.91% Enviro Scientific Consulting 185,200 28,610 15.45% 156,590 38,150 (9,540) -25.01% Software Prgm Consulting 340,000 210,844 62.01% 129,156 143,799 67,045 46.62% Advocacy Efforts 179,000 113,883 63.62% 65,117 140,963 (27,080) -19.21% Industrial Hygiene Services 120,000 23,881 19.90% 96,119 29,279 (5,398) -18.44% Labor Negotiation Services 119,080 39,710 33.35% 79,370 - 39,710 N/A Other 702,840 192,964 27.45% 509,876 395,257 (202,293) -51.18% Subtotal 3,551,290 2,015,285 56.75% 1,536,005 1,823,255 192,030 10.53% Research & Monitoring Environmental Monitoring 352,000 203,284 57.75% 148,716 221,825 (18,541) -8.36% Air Quality Monitoring 85,000 70,598 83.06% 14,402 85,224 (14,626) -17.16% Research 437,000 305,000 69.79% 132,000 487,248 (182,248) -37.40% Subtotal 874,000 578,882 66.23% 295,118 794,297 (215,415) -27.12% Repairs & Maintenance Materials & Services 9,101,910 5,606,118 61.59% 3,495,792 5,769,761 (163,643) -2.84% Svc. Mtc. Agreements 2,064,380 1,179,938 57.16% 884,442 1,284,367 (104,429) -8.13% Subtotal 11,166,290 6,786,056 60.77% 4,380,234 7,054,128 (268,072) -3.80% Utilities Telephone 300,000 185,773 61.92% 114,227 188,375 (2,602) -1.38% Diesel For Generators 20,000 11,910 59.55% 8,090 8,041 3,869 48.12% Natural Gas 440,000 339,428 77.14% 100,572 246,093 93,335 37.93% Power 5,775,190 3,847,593 66.62% 1,927,597 3,554,187 293,406 8.26% Water 1,141,280 585,586 51.31% 555,694 773,101 (187,515) -24.25% Subtotal 7,676,470 4,970,290 64.75% 2,706,180 4,769,797 200,493 4.20% Other Operating Supplies Outside Equip Rental 5,770 4,847 84.00% 923 3,426 1,421 41.48% Insurance Premiums 32,600 31,862 97.74% 738 31,197 665 2.13% Prop & Gen Liab Insurance 1,400,000 681,750 48.70% 718,250 811,575 (129,825) -16.00% Freight 74,660 47,713 63.91% 26,947 46,522 1,191 2.56% Misc. Operating Expense 258,700 130,197 50.33% 128,503 152,844 (22,647) -14.82% Regulatory Operating Fees 715,000 665,722 93.11% 49,278 622,438 43,284 6.95% Subtotal 2,486,730 1,562,091 62.82% 924,639 1,668,002 (105,911) -6.35% General Mgr Contingency & Reappropriations 551,000 - 0.00% 551,000 - - N/A
Other Non-Oper Expense Others 96,890 38,849 40.10% 58,041 23,640 15,209 64.34% Subtotal 96,890 38,849 40.10% 58,041 23,640 15,209 64.34%
Total Materials, Supplies & Services 69,555,890 45,466,531 65.37% 24,089,359 46,337,361 (870,830) -1.88%
Total Expenditures 167,551,190 114,823,813 68.53% 52,727,377 115,666,478 (842,665) -0.73%
Cost Allocation (18,220,200) (10,108,348) 55.48% (8,111,852) (11,269,438) 1,161,090 -10.30% Net Operating Requirements $ 149,330,990 $ 104,715,465 70.12%$ 44,615,525 $ 104,397,040 $ 318,425 0.31%
Section 2 - Page 7 2013-14 Third Quarter Report
Summary of Collection, Treatment, & Disposal Expenses by Process For the Nine Months Ended March 31, 2014
Increase Increase Actual Actual (Decrease) (Decrease) 3/31/14 3/31/13 $ % Process:
Preliminary Treatment $ 6,515,509 $ 6,584,839 $ (69,330) -1.05%
Primary Treatment 9,591,555 10,430,389 (838,834) -8.04%
Secondary Treatment 6,573,923 5,106,893 1,467,030 28.73%
Cryogenic Plant (Plant 2) 1,056,358 917,305 139,053 15.16%
Effluent Disposal 537,063 540,587 (3,524) -0.65%
Solids Handling 34,964,431 34,318,480 645,951 1.88%
Cogeneration 10,166,746 11,252,548 (1,085,802) -9.65%
Utilities 2,238,219 2,695,485 (457,266) -16.96%
Electrical Distribution 1,793,184 1,786,586 6,598 0.37%
Miscellaneous Buildings 5,328,420 5,076,593 251,827 4.96%
External Location 1,722 17,984 (16,262) -90.42%
Nerissa Vessel 21,361 114,314 (92,953) -81.31%
North County Yard 11 8,884 (8,873) -99.88%
Laboratory 9,257,763 9,403,625 (145,862) -1.55%
Collections 16,669,200 16,142,528 526,672 3.26%
Net Operating Requirements $ 104,715,465 $ 104,397,040 $ 318,425 0.31%
Section 2 - Page 8 Operating Budget Review
Staffing Trends Full Time Equivalents March 31, 2014
700
641 641 637 628 650 626
47 50 49 40 600 44
550
594 591 588 588 582 500
450 6/30/10 6/30/11 6/30/12 6/30/13 3/31/14
Actual Vacant
At March 31, 2014, the total head count was 596 employees, or a full time equivalency of 582.
Section 2 - Page 9 2013-14 Third Quarter Report
This Page Intentionally Left Blank
Section 2 - Page 10 CIP Budget Review
Capital Improvement Program By Type and Funding Source For the Nine Months Ended March 31, 2014
Collections Facilities: 19.0% Headworks: 1.7% Primary Treatment: 1.1% Secondary Treatment: 1.3% Solids Handling & Digestion: 55.2% Ocean Outfall Systems: 1.8% Utility Systems: 5.3% Odor Control Projects: 2.3% Process Related Special Projects: 1.4% Plant Automation & Computerization: 2.4% Miscellaneous & Support Projects: 6.7% Water Management Projects: 0.0% Strategic & Master Planning: 0.5% Research & Development: 0.2% Prior Year Treatment Projects: 0.1% Capital Equipment Purchases: 1.0%
Total Capital Improvement Outlays - $62,884,842
Replacement/Rehabilitation: 54% Improved Treatment: 29% Additional Capacity: 12% Support: 5%
Total Capital Improvement Outlays - $62,884,842
Section 3 - Page 1 FY 2013-14 Third Quarter Report
Summary of Capital Improvement Construction Requirements - Current Year For the Nine Months Ended March 31, 2014
2013-14 2013-14 2013-14 Cashflow Actual at Projected Budget 3/31/14 Outlay Collection System Improvement Projects Collections Facilities Santa Ana Trunk Sewer Rehab.$ 470,000 $ 364,321 $ 444,100 Santa Ana River Interceptor Realignment and Protec. 813,000 248,956 574,300 Santa Ana River Interceptor (SARI) Inspection and Mitigation 616,000 (2,417) 94,100 SARI Rock Stabilizers Removal 1,404,000 10,389 85,600 Newhope-Placentia & Cypress Trunk Replacements 3,074,000 83,563 95,700 Lakeview Grade Separation Project 52,000 941 29,400 Tustin Rose OCTA Grade Separation Project 1,475,000 24,780 95,500 Orangethorpe OCTA Grade Separation Project 1,131,000 87,428 246,500 Rehabilitation of Magnolia Trunk Sewer 249,000 68,438 246,200 Balboa Trunk Sewer Rehabilitation 5,878,000 2,692,728 4,050,000 Replacement of the Bitter Point Pump Station 58,000 62,620 81,000 Replacement of the Rocky Point Pump Station 70,000 39,257 115,000 Bitter Point Force Main Rehabilitation 4,706,000 1,691,076 2,243,400 Newport Force Main Condition Assessment 2,038,000 953,121 1,278,200 Dover Drive Trunk Sewer Relief 7,936,000 4,858,434 5,989,500 District 6 Trunk Sewer Relief 412,000 231,476 421,000 Southwest Costa Mesa Trunk 974,000 333,668 603,200 Gisler-Redhill System Improvements, Reach B 4,593,000 68,968 122,500 Wintersburg Channel Siphon Protection Project 24,000 37,633 39,800 Facilities Engineering Projects-Collections 916,000 115,089 185,900 Bay Bridge Pump Station and Forcemains Rehabilitation Study 142,000 - 14,900 Revenue Area 3 Asset Management Study 360,000 - - Revenue Area 7 Asset Management Study 282,000 - - Additional Charges to CIP Closed at 6/30/13 - 2,038 2,100 Subtotal - Collections Facilities 37,673,000 11,972,507 17,228,800
Revenue Area 14 Additional Charges to CIP Closed at 6/30/13 - - - Subtotal - Revenue Area 14 - - - Total Collection System Improvement Projects 37,673,000 11,972,507 17,228,800
(Continued)
Section 3 - Page 2 CIP Budget Review
Summary of Capital Improvement Construction Requirements - Current Year For the Nine Months Ended March 31, 2014
2013-14 2013-14 2013-14 Cashflow Actual at Projected Budget 3/31/14 Outlay Treatment & Disposal Projects Headworks Headworks Rehabilitation and Expansion at Plant No. 1 307,000 - 88,800 Plant No. 1 Headworks & Bypass Asset Management Plan 76,000 274,303 325,200 Headworks Improvements at Plant No. 2 1,641,000 782,032 842,300 Subtotal - Headworks 2,024,000 1,056,335 1,256,300
Primary Treatment Joint GWRS Microfiltration Backwash Redirection Project 145,000 94,213 113,700 Primary Treatment Area Rehabilitation Study 719,000 82,304 166,400 Plant No. 1 Primary Treatment Upgrades 702,000 525,652 658,400 Subtotal - Primary Treatment 1,566,000 702,169 938,500
Secondary Treatment New Secondary Treatment System at Plant No. 1 1,287,000 632,638 1,072,600 Oxygen Plant Rehabilitation at Plant No. 2 307,000 207,159 235,000 Plant No. 1 Secondary Treatment Asset Management Plan 180,000 - 5,100 Plant No. 2 Secondary Oxygen Plant Asset Management Plan 180,000 - - Subtotal - Secondary Treatment 1,954,000 839,797 1,312,700
Solids Handling & Digestion Sludge Digester Rehabilitation at Plant 1 6,976,000 5,942,056 7,098,300 Sludge Dewatering and Odor Control at Plant 1 27,259,000 14,699,805 23,181,600 Digester Ferric Chloride System Rehabilitation 1,884,000 1,438,261 1,788,900 Demolition of Digesters A and B 407,000 44,985 134,900 Solids Thickening and Processing Upgrades 12,881,000 11,104,803 12,411,200 Sludge Dewatering and Odor Control at Plant 2 2,847,000 1,508,251 2,614,600 Plant No. 2 Digesters and Boilers Plant Asset Management 180,000 11 10,000 Subtotal - Solids Handling & Digestion 52,434,000 34,738,172 47,239,500
Ocean Outfall Systems Final Effluent Sampler and Building Area Upgrades 1,085,000 (233,550) 257,300 Outfall Land Section and OOBS Piping Rehabilitation 1,677,000 1,305,455 1,337,800 Ocean Outfall Booster Station Rehabilitation (Mechanical) 98,000 - 321,400 Outfall Beach Box Rehabilitation Evaluation 28,000 - - Plant No. 2 Outfall Systems Asset Management Plan 256,000 67,593 297,300 Subtotal - Ocean Outfall Systems 3,144,000 1,139,498 2,213,800
Utility Systems Interplant Gas Line Rehabilitation 1,128,000 88,824 292,200 Cengen Cooling Water System Replacement 1,520,000 1,081,496 1,262,100 Cengen Emissions Control Project 1,513,000 764,629 989,900 Plant Water System Rehabilitation at Plant No. 1 2,587,000 683,289 1,125,600 Plant Water System Rehabilitation at Plant No. 2 1,564,000 483,227 750,900 15 kv Upgrades at Plant 2 561,000 36,739 47,200 Digester Gas Facilities Assessment 668,000 215,211 533,600 Utility Water Systems Study 573,000 - - Plant Air System Master Plan - - 13,000 Sidestream Pumping System and Water Characterization Study 90,000 - - Subtotal - Utility Systems 10,204,000 3,353,415 5,014,500
(Continued)
Section 3 - Page 3 FY 2013-14 Third Quarter Report
Summary of Capital Improvement Construction Requirements - Current Year For the Nine Months Ended March 31, 2014
2013-14 2013-14 2013-14 Cashflow Actual at Projected Budget 3/31/14 Outlay Odor Control Related Projects Trunk Line Odor Control Improvements 832,000 365,860 711,300 P 2 Scrubber Conversion and Piping System Improvements 1,474,000 428,221 708,700 Odor Control Master Plan 1,055,000 637,352 656,300 Collection System Odor Control Systems Study 50,000 - - Subtotal - Odor Control Related Projects 3,411,000 1,431,433 2,076,300
Process Related Special Projects Corrosion Management 5,000,000 882,745 882,800 Subtotal - Process Related Special Projects 5,000,000 882,745 882,800
Plant Automation & Computerization Power Monitoring and Control Systems 1,474,000 865,164 1,120,700 Programmable Control Panel Upgrade 300,000 - 45,900 Strategic Information Architecture (SIA) 445,000 211,194 211,200 Internet/Intranet Development 300,000 - - Geographic Information System 364,000 130,113 205,200 Network Equipment Upgrade 346,000 12,749 412,800 CMMS System Replacement 2,752,000 216,036 591,100 PDS2D Software Replacement 275,000 47,888 82,900 Subtotal - Plant Automation & Computerization 6,256,000 1,483,144 2,669,800
Miscellaneous & Support Projects Facilities Engineering Projects - Joint 265,000 170,352 199,600 Facilities Engineering Projects - Plant 1 1,353,000 309,178 617,500 Facilities Engineering Projects - Plant 2 1,230,000 688,455 882,300 Operations Center Entrance/Building Repairs 217,000 106,472 112,100 Fall Protection Improvements at Plants Nos. 1 and 2 588,000 317,558 349,300 Title 24 Access Compliance Improvements at Plant No. 1 1,532,778 357,156 1,610,800 Plant No.2 Landscaping Project 686,000 2,021 49,000 Software and Computer Equipment Replacement Project 2,262,000 337,682 387,700 Land Records Information System 40,000 - - Facility Assets Assessment 221,000 1,145 1,200 Stormwater Master Plan 236,000 - - Public Address System Study 8,000 - - Plant No. 2 Tunnels Systems Asset Management Plan 137,000 - - Small Cap. Equip. Replacement Project 4,200,000 1,914,540 4,864,600 Asset Management Program 100,000 1,637 6,700 Subtotal - Miscellaneous & Support Projects 13,075,778 4,206,196 9,080,800
Water Management Projects Effluent Reuse Study - - 28,400 Subtotal - Water Management Projects - - 28,400
Strategic & Master Planning Facilities-Wide Safety Assessment 473,000 311,808 343,700 Landscape Master Plan 118,000 - - Climate Change Impact Study 100,000 - - Treatment Plant Hydraulic Assessment - - 18,700 Plant No. 1 Effluent & Interplant Piping Asset Management Plan 135,000 - - Plant No. 2 Administrative Buildings Master Plan 300,000 - - Subtotal - Strategic & Master Planning 1,126,000 311,808 362,400
(Continued)
Section 3 - Page 4 CIP Budget Review
Summary of Capital Improvement Construction Requirements - Current Year For the Nine Months Ended March 31, 2014
2013-14 2013-14 2013-14 Cashflow Actual at Projected Budget 3/31/14 Outlay
Others Operational Research Projects (annual allocation) 1,340,000 113,689 163,700 Process SCADA Link to Pump Stations 156,000 13,434 45,500 Information Technology Master Plan 252,000 - - Administrative Facilities Implementation Planning 800,000 16,355 96,300 Subtotal - Others 2,548,000 143,478 305,500
Additional Charges to CIP Completed at 6/30/13 - 22,466 322,500
Total Treatment and Disposal Projects 102,742,778 50,310,656 73,703,800
Capital Equipment Purchases 1,720,000 601,679 1,720,000
Total Collection, Treatment and Disposal Projects and Capital Equipment Purchases $ 142,135,778 $ 62,884,842 $ 92,652,600
Section 3 - Page 5 FY 2013-14 Third Quarter Report
Summary of Capital Improvement Construction Requirements - Project Life For the Nine Months Ended March 31, 2014
Current Total Approved June 30, 2013 Year Projected Remaining Project Accumulated Projected Cost at Future Budget Cost Cost June 30, 2014 Budget Collection System Improvement Projects Collections Facilities Santa Ana Trunk Sewer Rehab. 7,519,000 2,719,337 444,100 3,163,437 4,355,563 Raitt and Bristol Street Sewer Extension 9,906,000 259,075 - 259,075 9,646,925 Santa Ana River Interceptor Realignment and Protec. 11,404,000 4,950,658 574,300 5,524,958 5,879,042 Santa Ana River Interceptor (SARI) Inspection and Mitigation 1,217,000 193,766 94,100 287,866 929,134 SARI Rock Stabilizers Removal 3,092,000 9,705 85,600 95,305 2,996,695 Taft Branch Improvements 3,143,000 12,083 - 12,083 3,130,917 Newhope-Placentia & Cypress Trunk Replacements 6,685,000 454,694 95,700 550,394 6,134,606 Newhope-Placentia Trunk Replacement 66,696,000 - 170,900 170,900 66,525,100 Yorba Linda Pumping Station Abandonment 9,566,000 - - - 9,566,000 Coyote Hills Golf Course Odor Control Station 8,365,000 - - - 8,365,000 Lakeview Grade Separation Project 330,000 3,201 29,400 32,601 297,399 Tustin Rose OCTA Grade Separation Project 1,483,000 10,667 95,500 106,167 1,376,833 Orangethorpe OCTA Grade Separation Project 3,900,000 1,420 246,500 247,920 3,652,080 Westside Relief Interceptor/Los Alamitos MH Rehab 26,482,000 - - - 26,482,000 Rehabilitation of Magnolia Trunk Sewer 19,812,000 19,565,705 246,200 19,811,905 95 Miller-Holder Trunk Sewer Relief 17,324,000 - - - 17,324,000 Beach Trunk/Knott interceptor Sewer Relief 25,055,000 - - - 25,055,000 Miller-Holder and Knott Trunks Odor Control Project 1,795,000 - - - 1,795,000 Seal Beach Pumping Station Upgrade and Rehabilitation 26,356,000 - - - 26,356,000 Rehabilitation of 3-6, 3-8, and 3-21-1 Sewers 88,720,000 - - - 88,720,000 Balboa Trunk Sewer Rehabilitation 10,622,000 1,776,144 4,050,000 5,826,144 4,795,856 Replacement of the Bitter Point Pump Station 32,095,000 32,010,445 81,000 32,091,445 3,555 Replacement of the Rocky Point Pump Station 22,678,000 19,911,693 115,000 20,026,693 2,651,307 Bitter Point Force Main Rehabilitation 46,219,000 35,518,684 2,243,400 37,762,084 8,456,916 Newport Force Main Condition Assessment 51,719,000 4,188,737 1,278,200 5,466,937 46,252,063 Dover Drive Trunk Sewer Relief 13,751,000 2,763,082 5,989,500 8,752,582 4,998,418 Crystal Cove Pumping Station Upgrade and Rehabilitation 7,379,000 - - - 7,379,000 Bay Bridge Pumping Station Upgrade and Rehabilitation 46,852,000 - - - 46,852,000 District 6 Trunk Sewer Relief 5,638,000 299,077 421,000 720,077 4,917,923 Southwest Costa Mesa Trunk 14,993,000 937,962 603,200 1,541,162 13,451,838 Gisler-Redhill System Improvements, Reach B 11,814,000 3,260,452 122,500 3,382,952 8,431,048 Browning Subtrunk Sewer Relief 12,663,000 - - - 12,663,000 Von Karman Trunk Sewer Relief 433,000 - - - 433,000 MacArthur Pumping Station Upgrade and Rehabilitation 7,028,000 - - - 7,028,000 Edinger/Bolsa Chica Trunk Improvements 6,030,000 - - - 6,030,000 Wintersburg Channel Siphon Protection Project 75,000 35,119 39,800 74,919 81 Edinger Pumping Station Upgrade and Rehabilitation 11,474,000 - - - 11,474,000 Facilities Engineering Projects-Collections 8,250,000 455,440 185,900 641,340 7,608,660 Bay Bridge Pump Station and Forcemains Rehabilitation Study 150,000 - 14,900 14,900 135,100 Revenue Area 3 Asset Management Study 400,000 - - - 400,000 Revenue Area 7 Asset Management Study 300,000 - - - 300,000 Additional Charges to CIP Closed at 6/30/13 - - 2,100 2,100 (2,100) Subtotal - Collections Facilities 649,413,000 129,337,146 17,228,800 146,565,946 502,847,054
Revenue Area 14: Additional Charges to CIP Closed at 6/30/13 - - - - - Subtotal - Revenue Area 14 - - - - - Total Collection System Improvement Projects 649,413,000 129,337,146 17,228,800 146,565,946 502,847,054
(Continued)
Section 3 - Page 6 CIP Budget Review
Summary of Capital Improvement Construction Requirements - Project Life For the Nine Months Ended March 31, 2014
Current Total Approved June 30, 2013 Year Projected Remaining Project Accumulated Projected Cost at Future Budget Cost Cost June 30, 2014 Budget Treatment & Disposal Projects Headworks Headworks Rehabilitation and Expansion at Plant No. 1 72,058,000 - 88,800 88,800 71,969,200 Headworks Expansion 222,804,000 - - - 222,804,000 Plant No. 1 Headworks & Bypass Asset Management Plan 400,000 74,755 325,200 399,955 45 Headworks Improvements at Plant No. 2 259,124,000 257,327,625 842,300 258,169,925 954,075 Subtotal - Headworks 554,386,000 257,402,380 1,256,300 258,658,680 295,727,320
Primary Treatment Joint GWRS Microfiltration Backwash Redirection Project 522,000 263,303 113,700 377,003 144,997 Primary Treatment Area Rehabilitation Study 848,000 73,950 166,400 240,350 607,650 Primary Effluent Pipeline Joint Repairs 3,246,000 - - - 3,246,000 Plant No. 1 Primary Treatment Upgrades 11,535,000 324,476 658,400 982,876 10,552,124 Subtotal - Primary Treatment 16,151,000 661,729 938,500 1,600,229 14,550,771
Secondary Treatment New Secondary Treatment System at Plant No. 1 255,471,000 253,973,352 1,072,600 255,045,952 425,048 Oxygen Plant Rehabilitation at Plant No. 2 2,300,000 273,763 235,000 508,763 1,791,237 Plant No. 1 Secondary Treatment Asset Management Plan 200,000 - 5,100 5,100 194,900 Plant No. 2 Secondary Oxygen Plant Asset Management Plan 200,000 - - - 200,000 Subtotal - Secondary Treatment 258,171,000 254,247,115 1,312,700 255,559,815 2,611,185
Solids Handling & Digestion Sludge Digester Rehabilitation at Plant 1 57,641,000 38,046,335 7,098,300 45,144,635 12,496,365 Sludge Dewatering and Odor Control at Plant 1 171,978,000 26,682,277 23,181,600 49,863,877 122,114,123 Digester Ferric Chloride System Rehabilitation 4,178,000 2,118,854 1,788,900 3,907,754 270,246 Demolition of Digesters A and B 29,409,000 - 134,900 134,900 29,274,100 Solids Storage Silo Rehabilitation 37,604,000 - - - 37,604,000 Solids Thickening and Processing Upgrades 48,146,000 17,408,174 12,411,200 29,819,374 18,326,626 Digester Rehabilitation at Plant No.2 47,600,000 152,343 - 152,343 47,447,657 Sludge Dewatering and Odor Control at Plant 2 71,860,000 6,735,244 2,614,600 9,349,844 62,510,156 Plant No. 2 Digesters and Boilers Plant Asset Management 300,000 6,239 10,000 16,239 283,761 Subtotal - Solids Handling & Digestion 468,716,000 91,149,466 47,239,500 138,388,966 330,327,034
Ocean Outfall Systems Final Effluent Sampler and Building Area Upgrades 14,064,000 2,239,690 257,300 2,496,990 11,567,010 Outfall Land Section and OOBS Piping Rehabilitation 20,939,000 18,299,279 1,337,800 19,637,079 1,301,921 66-inch Interplant Effluent Pipeline Rehabilitation 72,517,000 - - - 72,517,000 Ocean Outfall Booster Station Rehabilitation (Mechanical) 15,402,000 - 321,400 321,400 15,080,600 Outfall Beach Box Rehabilitation Evaluation 385,000 357,489 - 357,489 27,511 Alternative Effluent Disinfection Study 100,000 - - - 100,000 Plant No. 2 Outfall Systems Asset Management Plan 300,000 2,687 297,300 299,987 13 Subtotal - Ocean Outfall Systems 123,707,000 20,899,145 2,213,800 23,112,945 100,594,055
Utility Systems Interplant Gas Line Rehabilitation 5,634,000 4,644,933 292,200 4,937,133 696,867 Cengen Cooling Water System Replacement 11,454,000 10,044,893 1,262,100 11,306,993 147,007 Cengen Emissions Control Project 29,000,000 2,204,502 989,900 3,194,402 25,805,598 UPS System Upgrades 13,012,000 - - - 13,012,000 Digester Gas Compressor Improvements 55,385,000 - - - 55,385,000 Electrical Power Distribution System Improvements 12,791,000 - - - 12,791,000 Plant Water System Rehabilitation at Plant No. 1 9,094,000 1,377,654 1,125,600 2,503,254 6,590,746 Plant Water System Rehabilitation at Plant No. 2 4,484,000 866,651 750,900 1,617,551 2,866,449
(Continued)
Section 3 - Page 7 FY 2013-14 Third Quarter Report
Summary of Capital Improvement Construction Requirements - Project Life For the Nine Months Ended March 31, 2014
Current Total Approved June 30, 2013 Year Projected Remaining Project Accumulated Projected Cost at Future Budget Cost Cost June 30, 2014 Budget Utility Systems 15 kv Upgrades at Plant 2 4,658,000 4,117,643 47,200 4,164,843 493,157 SCE Feed Reliability Improvements 22,490,000 - - - 22,490,000 Secondary Area Cable Tray Upgrades 2,154,000 - - - 2,154,000 Headworks Area Cable Tray Upgrades 3,015,000 - - - 3,015,000 Digester Gas Facilities Assessment 700,000 24,342 533,600 557,942 142,058 Utility Water Systems Study 800,000 - - - 800,000 Plant Air System Master Plan 340,000 - 13,000 13,000 327,000 Electrical System Base Map 250,000 - - - 250,000 Sidestream Pumping System and Water Characterization 246,000 - - - 246,000 Standby Power Generation Study 400,000 - - - 400,000 Power Outage Recovery Plan 100,000 - - - 100,000 Portable Water Quality Study 50,000 - - - 50,000 Subtotal - Utility Systems 176,057,000 23,280,618 5,014,500 28,295,118 147,761,882
Odor Control Related Projects Primary Scrubber Rehabilitation at Plant 1 50,708,000 - - - 50,708,000 Trunk Line Odor Control Improvements 10,016,000 224,909 711,300 936,209 9,079,791 P 2 Scrubber Conversion and Piping System Improvemen 2,906,000 368,207 708,700 1,076,907 1,829,093 Primary Treatment Odor Control Upgrades 43,210,000 - - - 43,210,000 Odor Control Master Plan 1,200,000 - 656,300 656,300 543,700 Collection System Odor Control Systems Study 500,000 - - - 500,000 Subtotal - Odor Control Related Projects 108,540,000 593,116 2,076,300 2,669,416 105,870,584
Process Related Special Projects Corrosion Management 37,603,000 7,622,667 882,800 8,505,467 29,097,533 Subtotal - Process Related Special Projects 37,603,000 7,622,667 882,800 8,505,467 29,097,533
Plant Automation & Computerization Process SCADA Replacement 24,680,000 - - - 24,680,000 Programmable Control Panel Upgrade 2,942,000 - 45,900 45,900 2,896,100 Power Monitoring and Control Systems 12,327,000 8,973,338 1,120,700 10,094,038 2,232,962 SCADA System and Network Upgrades 27,839,000 - - - 27,839,000 Strategic Information Architecture (SIA) 1,995,000 905,694 211,200 1,116,894 878,106 Internet/Intranet Development 650,000 42,062 - 42,062 607,938 Geographic Information System 4,047,000 1,233,944 205,200 1,439,144 2,607,856 Network Equipment Upgrade 1,427,000 2,838,783 412,800 3,251,583 (1,824,583) CMMS System Replacement 6,500,000 3,313,065 591,100 3,904,165 2,595,835 PDS2D Software Replacement 500,000 237,100 82,900 320,000 180,000 Subtotal - Plant Automation & Computerization 82,907,000 17,543,986 2,669,800 20,213,786 62,693,214
Miscellaneous & Support Projects Facilities Engineering Projects - Joint 23,910,000 2,889,891 199,600 3,089,491 20,820,509 Facilities Engineering Projects - Plant 1 20,910,000 9,115,873 617,500 9,733,373 11,176,627 Facilities Engineering Projects - Plant 2 20,910,000 7,412,391 882,300 8,294,691 12,615,309 Emergency Operation Center 160,000 - - - 160,000 Contracts and Purchasing Building Extension 3,589,000 - - - 3,589,000 Operations Center Entrance/Building Repairs 2,648,000 413,129 112,100 525,229 2,122,771 Fall Protection Improvements at Plants Nos. 1 and 2 2,967,000 2,275,213 349,300 2,624,513 342,487 Title 24 Access Compliance Improvements at Plant No. 1 31,982,778 2,949,937 1,610,800 4,560,737 27,422,041 Plant No.2 Landscaping Project 2,077,000 190,164 49,000 239,164 1,837,836 Software and Computer Equipment Replacement Project 5,050,000 883,362 387,700 1,271,062 3,778,938
(Continued)
Section 3 - Page 8 CIP Budget Review Summary of Capital Improvement Construction Requirements - Project Life For the Nine Months Ended March 31, 2014
Current Total Approved June 30, 2013 Year Projected Remaining Project Accumulated Projected Cost at Future Budget Cost Cost June 30, 2014 Budget Miscellaneous & Support Projects Land Records Information System 410,000 373,951 - 373,951 36,049 Facility Assets Assessment 2,960,000 156,918 1,200 158,118 2,801,882 Plant 2 WSSPS Motor Location 72,000 - - - 72,000 Stormwater Master Plan 300,000 - - - 300,000 Information Technology Workroom Replacements 2,566,000 - - - 2,566,000 Public Address System Study 75,000 - - - 75,000 Plant No. 2 Tunnels Systems Asset Management Plan 200,000 - - - 200,000 Small Cap. Equip. Replacement Project 37,200,000 14,066,424 4,864,600 18,931,024 18,268,976 Asset Management Program 4,800,000 2,776,091 6,700 2,782,791 2,017,209 Subtotal - Miscellaneous & Support Projects 162,786,778 43,503,344 9,080,800 52,584,144 110,202,634
Water Management Projects Effluent Reuse Study 60,000 - 28,400 28,400 31,600 Subtotal - Water Management Projects 60,000 - 28,400 28,400 31,600
Strategic & Master Planning Facilities-Wide Safety Assessment 930,000 388,739 343,700 732,439 197,561 Landscape Master Plan 150,000 - - - 150,000 Climate Change Impact Study 100,000 - - - 100,000 Treatment Plant Hydraulic Assessment 300,000 - 18,700 18,700 281,300 Plant No. 2 Soil Liquefaction Study 173,000 - - - 173,000 Plant No. 1 Effluent & Interplant Piping Asset Management Plan 200,000 - - - 200,000 Plant No. 2 Administrative Buildings Master Plan 300,000 - - - 300,000 Subtotal - Strategic & Master Planning 2,153,000 388,739 362,400 751,139 1,401,861
Others Operational Research Projects (annual allocation) 10,440,000 1,366,852 163,700 1,530,552 8,909,448 Process SCADA Link to Pump Stations 271,000 - 45,500 45,500 225,500 Information Technology Data Center Replacements 180,000 - - - 180,000 Information Technology Master Plan 500,000 - - - 500,000 Administrative Facilities Implementation Planning 800,000 - 96,300 96,300 703,700 Subtotal - Others 12,191,000 1,366,852 305,500 1,672,352 10,518,648
Additional Charges to CIP Completed at 6/30/13 - - 322,500 322,500 (322,500)
Total Treatment and Disposal Projects 2,003,428,778 718,659,157 73,703,800 792,362,957 1,211,065,821
Capital Equipment Purchases 16,000,000 2,824,361 1,720,000 4,544,361 11,455,639
Total Collection, Treatment and Disposal Projects and Capital Equipment Purchases $ 2,668,841,778 $850,820,664 $92,652,600 $943,473,264 $1,725,368,514
Section 3 - Page 9 FY 2013-14 Third Quarter Report
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Section 3 - Page 10 Capital Assets Schedule & Debt Service Budget Review
Capital Assets Schedule For the Nine Months Ended March 31, 2014
Capital Facilities Budget Review Balance Year-to-Date Balance 07/01/13 Additions 03/31/14 CONSTRUCTION IN PROGRESS: Treatment Plant$ 1,068,132,393 $ 50,912,335 $ 1,119,044,728 Collection System 129,644,930 11,972,507 141,617,437 Subtotal 1,197,777,323 62,884,842 1,260,662,165
PROPERTY, PLANT & EQUIPMENT (at cost): Land and Property Rights 15,959,559 - 15,959,559 Collection Lines and Pump Stations 634,548,135 - 634,548,135 Treatment Facilities 1,315,220,114 - 1,315,220,114 Effluent disposal facilities 97,014,820 - 97,014,820 Solids disposal facilities 3,463,236 - 3,463,236 General and administrative facilities 219,801,240 - 219,801,240 Excess purchase price over book value on acquired assets 19,979,000 - 19,979,000 Subtotal 2,305,986,104 - 2,305,986,104 Total Property, Plant & Equipment & CIP $ 3,503,763,427 $ 62,884,842 $ 3,566,648,269
Debt Service Budget Review
2013-14 Year-to-Date Remaining Budget Payments % of Budget Budget Principal Payments by Debt Issue: 2007A COP 235,000 235,000 100.00% - 2007B COP 6,145,000 6,145,000 100.00% - 2008A COP 19,195,000 19,195,000 100.00% - 2008B COP 490,000 490,000 100.00% - 2009A COP 3,675,000 3,675,000 100.00% - 2010A BABs - - N/A - 2010C BABs - - N/A - 2011A RRO 9,850,000 9,850,000 100.00% - 2012A RRO - - N/A - 2012B RRO - - N/A - 2012C CANs 2,255,037 2,075,000 92.02% 180,037 2013A CANs - - N/A - Subtotal Principal Payments 41,845,037 41,665,000 99.57% 180,037
Interest Expense by Debt Issue: 2007A COP 4,133,761 3,312,078 80.12% 821,683 2007B COP 13,476,567 10,228,388 75.90% 3,248,179 2008A COP 47,188 52,426 111.10% (5,238) 2008B COP 754,110 564,810 74.90% 189,300 2009A COP 9,109,425 6,890,225 75.64% 2,219,200 2010A BABs 2,897,639 1,907,180 65.82% 990,459 2010C BABs 6,523,780 4,302,642 65.95% 2,221,138 2011A RRO 6,154,300 4,529,500 73.60% 1,624,800 2012A RRO 3,735,900 2,802,000 75.00% 933,900 2012B RRO 3,187,400 2,416,900 75.83% 770,500 2012C CANs 2,195,000 2,445,515 111.41% (250,515) 2013A CANs 4,390,000 1,448,662 33.00% 2,941,338 Subtotal Interest Expense 56,605,070 40,900,326 72.26% 15,704,744 Total Debt Service $ 98,450,107 $ 82,565,326 83.87%$ 15,884,781
Section 4 - Page 1 2013-14 Third Quarter Report
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Section 4 - Page 2 Self Insurance Budget Review
General Liability and Property Fund Budget Review For the Nine Months Ended March 31, 2014
Percent Actualof Budget Remaining Actual 2013-14 ThroughThrough 2013-14 Through Increase Budget 3/31/143/31/14 Budget 3/31/13 (Decrease)
Revenues:
In-Lieu Premiums$ 908,800 $ 681,750 75.02%$ 227,050 $ 811,575 $ (129,825)
Miscellaneous Other Revenue - 129,808 N/A - 7,082 122,726
Service Department Allocations 24,100 13,122 54.45% 10,978 13,122 -
Total Revenues 932,900 824,680 88.40% 238,028 831,779 (7,099)
Expenses:
Benefits/Claims 100,000 60,285 60.29% 39,715 5,702 54,583
Contractual Services 1,200 - 0.00% 1,200 900 (900)
Legal Services 75,000 5,016 6.69% 69,984 4,362 654
Professional Services 5,000 - 0.00% 5,000 - -
Subtotal 181,200 65,301 36.04% 115,899 10,964 54,337
Policy Premium Expense 1,331,000 817,044 61.39% 513,956 683,186 133,858
Total Expenses 1,512,200 882,345 58.35% 629,855 694,150 188,195
Excess Revenue (Expense) (579,300) (57,665) $ (391,827) 137,629 (195,294)
Beginning Reserves 55,579,300 56,904,863 56,141,274 763,589
Ending Reserves $ 55,000,000 $ 56,847,198 $ 56,278,903 $ 568,295
Section 5 - Page 1 FY 2013-14 Third Quarter Report
Workers' Compensation Fund Budget Review For the Nine Months Ended March 31, 2014
Percent Actualof Budget Remaining Actual 2013-14 ThroughThrough 9/30/13 Through Increase Budget 3/31/14 3/31/14Budget 3/31/13 (Decrease)
Revenues:
In-Lieu Premiums$ 455,000 $ 303,333 66.67%$ 151,667 $ 597,000 $ (293,667)
Miscellaneous Other Revenue - 3,648 N/A (3,648) 9,026 (5,378)
Service Department Allocations - - N/A - - -
Total Revenues 455,000 306,981 67.47% 148,019 606,026 (299,045)
Expenses:
Benefits/Claims 320,000 428,827 134.01% (108,827) 128,192 300,635
Contractual Services 25,000 - 0.00% 25,000 9,590 (9,590)
Legal Services 75,000 61,820 82.43% 13,180 45,500 16,320
Professional Services 40,000 33,167 82.92% 6,833 35,416 (2,249)
Subtotal 460,000 523,814 113.87% (63,814) 218,698 305,116
Policy Premium Expense 180,000 148,400 82.44% 31,600 125,469 22,931
Total Expenses 640,000 672,214 105.03% (32,214) 344,167 328,047
Excess Revenue (Expense) (185,000) (365,233) $ 180,233 261,859 (627,092)
Beginning Reserves 2,185,840 2,238,580 1,872,843 365,737
Ending Reserves $ 2,000,840 $ 1,873,347 $ 2,134,702 $ (261,355)
Section 5 - Page 2
May 7, 2014
STAFF REPORT
Quarterly Treasurer’s Report For the Three Months Ended March 31, 2014
SUMMARY
Section 15.0 of the District's Investment Policy includes quarterly reporting requirements for the District's two investment portfolios. These two funds, the "Liquid Operating Monies," and the "Long-Term Operating Monies" are managed by PIMCO, the District's external money manager.
The ongoing monitoring of the District's investment program by staff and Callan Associates, the District's independent investment advisor, indicates that the District's investments are in compliance with the District's adopted Investment Policy and the California Government Code, and that overall performance has tracked with benchmark indices. In addition, sufficient liquidity and anticipated revenues are available for the District to meet budgeted expenditures for the next six months. The District's portfolios do not include any reverse repurchase agreements or derivative securities.
ADDITIONAL INFORMATION
Performance Reports The Quarterly Strategy Review, prepared by PIMCO, and the Investment Measurement Service Quarterly Review, prepared by Callan Associates, are attached for reference. Also attached are Long-Term and Liquid Operating Monies Summary of Performance Data and Portfolio Statistics charts that depict the performance results, estimated yield and duration, credit quality, and sector diversification of the District's portfolios, as of December 31, 2013 and March 31, 2014. The Liquid Operating Monies portfolio, with an average maturity of 22 days, consists entirely of cash equivalent investments such as U.S. Treasuries and corporate discount notes.
Portfolio Performance Summary The following table presents a performance summary of the District's portfolios as compared to their benchmarks for the period January 1 through March 31, 2014.
OCSD ♦ P.O. Box 8127 ♦ Fountain Valley, CA 92728-8127 ♦ (714) 962-2411
Quarterly Treasurer’s Report For the Three Months Ended March 31, 2014 Page 2 of 3
Portfolio Performance Summary Quarter Ended March 31, 2014 Liquid Operating Monies (%) Long-Term Operating Monies (%) Total Rate Total Rate of (1) (1) of Return Benchmark Return Benchmark 3 Months 0.01 0.01 0.71 0.44 6 Months 0.01 0.02 0.33 0.58 9 Months 0.15 0.06 -1.92 0.01 12 Months 0.08 0.05 -1.22 0.45
Since inception 30 Sept. 95 3.06 2.71 4.96 4.74
Market Value $50.9M $439.2M Average Quality “AAA” “AA+” Current Yield (%) 0.0 1.4 Estimated Yield to Maturity (%) 0.0 1.0 Quarterly Deposits (Withdrawals) -$25.0M -$25.0M
Estimated Annual Income $0.0M $6.0M
(1) Benchmarks: . Liquid Operating Portfolio: 3-Month Treasury Bill Index . Long-Term Operating Portfolio: Merrill Lynch Corp/Govt. 1-5 Year Bond Index
Portfolio Market Values Comparative marked-to-market quarter-end portfolio values are shown in the following table, and in the attached bar chart.
Liquid Long-Term Quarter Operating Operating Ending Monies ($M) Monies ($M)
30 Jun. 13 71.0 441.4
30 Sep. 13 46.1 367.4
31 Dec. 13 75.9 460.9
31 Mar. 14 50.9 439.2
District’s Investment Account Balances as of March 31, 2014
Book Balances Estimated Investment Accounts March 31, 2014 Yield (%)
State of Calif. LAIF $ 28,204,604 0.24 Union Bank Checking Account 64,592 0.01 Union Bank Overnight Sweep Account 1,233,000 0.00 INTERCARE W/C Checking 0 0.00 Union Bank W/C Checking 22,038 0.00 PIMCO – Short-term Portfolio 50,873,509 0.02 PIMCO - Long-term Portfolio 437,561,966 1.01 Petty Cash 3,000 N/A BNY Mellon OCIP Reserve 3,609,078 0.00 TOTAL $521,571,787 0.86
Debt Service Reserves w/Trustees $ 45,260,146 1.26
Quarterly Treasurer’s Report For the Three Months Ended March 31, 2014 Page 3 of 3
District’s Cost of Funds on Debt Issues as of March 31, 2014
Annual Cost of Funds Outstanding Interest Issue Description COP Balance Rate (%)
2007A Fixed $92,385,000 4.50 2007B Fixed 267,255,000 4.71 2008B Fixed 25,585,000 2.96 2009A Fixed 184,090,000 4.72 2010A Fixed 80,000,000 3.68 2010C Fixed 157,000,000 4.11 2011A Fixed 130,345,000 2.61 2012A Fixed 100,645,000 3.54 2012B Fixed 66,395,000 1.50 2013A Fixed 129,625,000 0.17
TOTAL $1,233,325,000
Weighted Avg. Cost of Funds 3.55
ATTACHMENTS
1. Historical Yield Curve Graph 2. PIMCO Quarterly Report 3. Quarter End Portfolio Market Value Bar Chart 4. Summary of Performance Data and Portfolio Statistics – Liquid Operating Monies 5. Summary of Performance Data and Portfolio Statistics – L-T Operating Monies 6. Investment Transactions and Balances in LAIF 7. Asset Summary by Asset Type – Liquid Operating Portfolio 8. Asset Summary by Asset Type – Long Term Portfolio 9. Asset Summary by Asset Type – Owner Controlled Insurance Program Escrow Account 10. Investment Listing (Yield Analysis Report). 11. Asset Detail – Consolidated 12. Custody Transaction History -- Consolidated 13. Callan Quarterly Review 14. PIMCO Quarterly Review 15. Rating Agency Comparisons Prepared by Finance, 5/7/2014, 3:24 PM
HISTORICAL YIELD CURVE
5.50 5.25 5.00 4.75 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 YIELD (%) 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 1 yr 2 yr 3 yr 4 yr 5 yr 7 yr 10 yr 20 yr 30 yr 3 mo 6 mo
30-Sep-13 31-Dec-13 31-Mar-14
G:\excel.dta\fin\2220\geggi\Finance\HistoricalTREASURYyieldcurve
840 Newport Center Drive Newport Beach, CA 92660 Tel: 949.720.6000 Fax: 949.720.1376 May 6, 2014
Mr. Mike White, CPA Controller Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, CA 92708‐7018
Dear Mike:
The following is a description of events in the bond markets during the first quarter of 2014 in addition to an analysis of the strategies undertaken in the Orange County Sanitation District’s Long‐Term and Liquid portfolios over the period. We have also included a section on strategies to be pursued in your portfolios during the coming months.
Bond Market Recap
Both uncertainty and volatility increased at the start of 2014. Equity markets swung wildly during the quarter— initially suffering from geopolitical tensions and weather‐weakened data, before rebounding strongly toward quarter‐end. Bond markets rallied early in the quarter due to the somewhat uncertain pace of economic expansion and mostly held on to gains as the crisis in Ukraine led a general flight to quality.
An uncharacteristically cold winter took a toll on economic data in the U.S., with most major indicators showing signs of weakness. Yet markets largely ignored the data, trusting instead that a spring bounceback is likely. Similarly undeterred, the Federal Reserve (Fed) continued tapering its asset purchases and remains on track to eliminate these purchases by year‐end. The Fed also took considerable steps to strengthen its forward guidance on the policy rate. In Fed Chair Janet Yellen's first statement in March, the Fed dropped references to a 6.5% unemployment target and placed greater emphasis on inflation and other “measures of labor market conditions” as more appropriate barometers for determining the timing of the first interest rate hike.
Elsewhere in the world, European economies continued to stabilize but concerns rose in Asia, especially over China’s economic health. In addition to weaker economic data, China experienced its first‐ever corporate default during the quarter, exposing cracks in the country’s vast and overleveraged shadow banking system. Weaker data also weighed on the Japanese equity market, making it one of the worst‐ performing markets globally. Finally, geopolitical tensions between Russia and Ukraine evolved into a diplomatic crisis after Russia moved to annex the Crimea region. This move represents the largest potential redrawing of European borders since World War II, eliciting a harsh response from both Europe and the U.S., while stoking memories of the Cold War. Despite the intense media attention, market reaction has been limited to Ukrainian and Russian assets.
Bonds Posted Strong Returns as Yields Declined
The following summarizes fixed income sector returns during the first quarter of 2014:
Mr. Mike White, CPA May 6, 2014 Orange County Sanitation District Page 2
. U.S. Treasuries returned 1.34%1, underperforming most other developed sovereign bond markets on a hedged basis during the first quarter, despite relatively strong positive returns. Weather‐ related economic weakness, concerns about declining global liquidity, weakness in China, and uncertainty surrounding Ukraine contributed to a bid for safe‐haven assets during the quarter. Treasuries gave back some gains in March, however, as markets reacted to comments made by Fed Chair Janet Yellen regarding the timing of future federal funds rate hikes. The 10‐year U.S. Treasury yield fell 31 basis points to 2.72% during the quarter and the yield curve flattened, as the 2‐year U.S. Treasury rose 4 basis points to 0.42%, while the 30‐year U.S. Treasury fell 41 basis points to 3.56%.
. Agency mortgage‐backed securities (MBS) returned 1.60%1, underperforming like‐duration Treasuries during the quarter, as the market digested the prospects for a less accommodative Fed and increasing issuance during the spring and summer months. The Fed continued to taper MBS purchases and will conduct $25 billion in net MBS purchases in April, relative to $40 billion per month in 2013. Non‐agency MBS performance was strong during the quarter, as the sector continued to benefit from improving housing fundamentals and limited outstanding supply. The sector is now $782 billion outstanding, relative to $2.1 trillion at the peak.
. U.S. investment grade credit returned 2.91%, outperforming like‐duration Treasuries by 0.75% during the first quarter, as measured by the Barclays U.S. Credit Index. Spreads narrowed to 103 basis points, the lowest level since the global financial crisis began, amid improving global growth fundamentals and continued easy monetary policy. The high yield sector returned 2.98%1, benefitting from an idyllic mix of robust inflows and light new supply during the quarter. Bank loans, although trailing high yield for the quarter, posted relatively healthy returns as investor demand for less interest rate sensitive assets remained strong.
. Treasury Inflation‐Protected Securities (TIPS) returned 1.95% for the first quarter (based on the Barclays U.S. TIPS Index), underperforming nominal Treasuries. Although inflation is expected to move higher as the economy improves, core inflation still remains exceptionally low by historical standards. Shorter maturity TIPS lagged late in the quarter as the markets priced in a faster‐than‐ expected expected pace of Fed tapering.
. Tax‐exempt municipals returned 3.32% during the first quarter, based on the Barclays Municipal Bond Index. Taxable municipals also posted positive returns of 5.98% in the first quarter, according to the Barclays Municipal Taxable Index. Municipal market strength was driven by positive technical conditions of limited primary new issue supply and modest municipal mutual fund inflows. Primary new issue supply declined 23% from the fourth quarter of 2013 to $62 billion, and was down 26% year‐over‐year. Weekly‐reporting municipal mutual funds reported over $1.1 billion of net inflows, following approximately $63 billion of redemptions from the municipal fund universe in 2013. Longer duration and higher yielding segments outperformed as market liquidity improved during the quarter.
Performance Attribution
Long‐Term Portfolio
1 As represented by Barclays Mr. Mike White, CPA May 6, 2014 Orange County Sanitation District Page 3
The Long‐Term portfolio that PIMCO manages on behalf of Orange County Sanitation District returned ‐ 0.71 percent over the quarter, outperforming the Merrill Lynch 1‐5 year Government Corporate Index by 27 basis points. The following points summarize returns for the quarter ended March 31, 2014.
. The portfolio outperformed its benchmark for the quarter . The following strategies were positive for the quarter: An underweight to U.S. duration at the 2 to 3 year part of the U.S. yield curve as these yields increased Municipal bonds holdings, which benefited from investor demand for attractive yields . The following strategies were negative or neutral for returns: An underweight to investment‐grade corporate bonds which outperformed like‐duration Treasuries
Liquid Portfolio
The Liquid portfolio that PIMCO manages on behalf of Orange County Sanitation District returned 0.01 percent over the quarter, performing in line with its benchmark, the 3‐month Treasury Bill Index. The following points summarize returns for the period ending March 31, 2014.
. The portfolio performed in line with the benchmark for the quarter . The following strategies were positive for the quarter: Use of higher yielding securities with slightly longer maturities
Economic Outlook
Brighter Global Growth Outlook PIMCO has become modestly more optimistic about the outlook for global growth, expecting 2.5‐3.0% next year. Many of the challenges faced during 2013 have faded, yielding a brighter outlook for global growth. But while headwinds have abated, unwinding unprecedented monetary policies could prove challenging. Persistent output gaps, high unemployment and below‐potential demand suggest inflation will remain contained.
In the U.S. we expect growth to accelerate toward 2.5‐3.0%. Our slightly upgraded U.S. growth forecast is due to a diminishing drag from fiscal policy, steady improvements in employment and higher asset valuations that encourage consumer spending through the “wealth effect”. While our outlook is similar to consensus, we recognize upside potential given the notable improvement in corporate and household balance sheets. On the consumer front, we expect job gains, higher asset prices, and gradually easing credit conditions will lead to faster consumption growth. While we expect a small lift to business investment, pent‐up demand and cheap financing could prove more supportive than we expect.
On the downside, a lack of quality job creation could delay the growth rate in household formation and slow the growth of residential investment and home prices. A cautious Federal Reserve (Fed) will continue to provide support through a low policy rate and forward guidance, while it slowly winds down its asset purchase program. While this approach is likely to provide a firm anchor to shorter‐maturity yields in the near term, the Fed’s inherent ‘data‐dependency’ will likely be a source of market volatility.
Mr. Mike White, CPA May 6, 2014 Orange County Sanitation District Page 4
Strategy
The following list highlights the strategies that will be used in the Long Term portfolio in the coming months:
. Concentrate exposure on short‐to‐intermediate maturities while maintaining a curve steepening position . Gradually add exposure to short‐dated credit; focus on issuers within housing, finance, and energy . Within Agency MBS, focus on security selection to capitalize on relative value opportunities within the coupon stack . Respect market technicals, which will exert increasing influence on asset prices and market dynamics
The following list highlights the strategies that will be used in the Liquid Portfolio in the coming months:
. Concentrate on maturities just outside the money market space that offer better potential for price appreciation and “roll down” given the suppression of yields on shorter maturities
Compliance Issues
Long‐Term Portfolio
. January 2014: None . February 2014: None . March 2014: None
Defaulted bonds
The account continues to hold $2 million face value of LEHMAN BROS HLDGS FRN 2008 (cusip 52517PC58) that was purchased on 10/24/2005, which has had its rating withdrawn by S&P and Moody's as a result of Lehman's bankruptcy on 09/15/2008. The account also holds $600,000 face value of LEHMAN BROS HLDGS SR UNSEC (cusip 5252M0BZ9) that was purchased on 01/15/2008, which has had its rating withdrawn by S&P and Moody's as a result of Lehman's bankruptcy.
The account received an initial partial payment of claims against Lehman in the amount of $36,267.83 and $120,464.84. The amount and timing of subsequent payments remains uncertain. Ultimate recovery value will depend upon how fast and when their remaining assets are liquidated. We are monitoring the situation closely and expect to get more clarity as Lehman continues moving through the bankruptcy process.
Ratings
The account holds approximately $10.7 million face value of mortgage backed securities and pass‐ throughs that were purchased following a coding error in our compliance system.
Mr. Mike White, CPA May 6, 2014 Orange County Sanitation District Page 5
Your Investment Policy Statement requires that Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government and asset‐backed securities be rated “Aaa” by Moody’s AND “AAA” by S&P.
Currently, there are three securities that are not rated by both Moody's and S&P, one of which is rated below AA+ by S&P and unrated by Moody's, violating both rules. Thirteen securities have minimum ratings from S&P and Moody's below AAA. All securities were compliant at the time of purchase.
On 11/16/2012, S&P lowered its rating on certain classes of RMBS transactions from AAA to A+. The affected holding (cusip #83611MGS1) represents approximately 0.2% of the portfolio's total market value. We believe the position remains attractive despite the downgrade. Only 35% of the principal remains outstanding and the security does not have a history of delinquent or defaulted payments. We plan to hold the position unless directed otherwise.
On 1/18/2013, S&P lowered its rating on certain classes of RMBS transactions from AAA to AA+. The affected holding (cusip #03215PFN4) represents approximately 0.03% of the portfolio's total market value. Only 1% of the principal remains outstanding and the security does not have a history of delinquent or defaulted payments. We plan to hold the position unless directed otherwise.
On 2/20/2013, Moody's removed its rating from a student loan ABS held in the account (cusip #83715AAK5). The affected holding represents approximately 0.08% of the portfolio's total market value. The security continues to be rated AA+ by S&P. We plan to hold the position unless directed otherwise.
On 11/14/2013, Moody's downgraded the senior unsecured debt of Goldman Sachs from A3 to Baa1 (cusip 38141GeG5 and 38141GFG4), and the senior unsecured debt of Morgan Stanley from Baa1 to Baa2 (cusip 61747YCE3). The downgrades came after the company concluded their comprehensive review of eight U.S. banks that began in August. The affected securities represent approximately 0.93% of the total market value of the portfolio. We plan to retain the positions unless directed otherwise.
Liquid Portfolio
. January 2014: None . February 2014: None . March 2014: None
We look forward to discussing these and other topics with you in the near future.
Best Regards,
/s/ /s/
Stephanie King, CFA Todd Staley, CFA Executive Vice President, Account Manager Vice President, Account Manager OCSD Investment Management Program Quarter End Portfolio Values (Marked-to-Market)
$500,000,000
$450,000,000
$400,000,000
$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0 31 Dec 12 31 Mar 13 30 Jun 13 30 Sep 13 31 Dec 13 31 Mar 14
Liquid Operating Monies Long-Term Operating Monies Summary of Performance Data and Portfolio Statistics Orange County Sanitation District Liquid Operating Portfolio 10-Year Return vs. Standard Deviation 13 Performance Since 11 Periods Ended 3/31/2014 9/30/1995 10 yrs 5 yrs 3 yrs 1 yr 9 mos 6 mos 3 mos 1 Total Portfolio 9 Citigroup 10- Yr. Strip Before Fees (%) 3.06 1.81 0.22 0.15 0.08 0.15 0.01 0.01 7 After Fees (%) 2.90 1.64 0.07 -0.01 -0.09 0.05 -0.08 -0.03 5 2 BofA ML 1-3 Citi 3-Month Treasury Bill Index (%) 2.71 1.56 0.09 0.06 0.05 0.06 0.02 0.01 Yr. Treasury 3
Annualized Return (%) Annualized Return 1 Portfolio Index -1
-3 -3-1135791113
Standard Deviation of Return2 (%)
% of Market Value Duration in Yrs Summary Information 12/31/2013 3/31/2014 Sector Allocation 12/31/2013 3/31/2014 12/31/2013 3/31/2014 Total Market Value (USD in millions) 75.9 50.9 Government-Related 75 97 0.07 0.06 Quarterly Contributions (USD in millions) 29.8 -25.0 Mortgage 0 0 0.00 0.00 Estimated Annual Income (USD in millions) 0.0 0.0 Invest. Grade Credit 0 0 0.00 0.00 Estimated Yield to Maturity (%) 0.0 0.0 High Yield Credit 0 0 0.00 0.00 Effective Duration (yrs) 0.1 0.1 Non U.S. Developed 0 0 0.00 0.00 Effective Maturity (yrs) 0.1 0.1 Emerging Markets 0 0 0.00 0.00 Average Quality AAA AAA Municipal 0 0 0.00 0.00 Average Coupon (%) 0.0 0.0 Other 0 0 0.00 0.00 3 Net Currency Exposure (%) 0.0 0.0 Net Cash Equivalents: 25 3 0.01 0.00 Tracking Error (10 yrs, %)4* 0.1 0.1 Commercial Paper / STIF 5 3 0.00 0.00 Information Ratio (10 yrs)4* 2.9 2.8 ST Government-Related 0 0 0.00 0.00 * See example of tracking error / information ratio on Certificates of Deposit 0 0 0.00 0.00 footnote page of the Appendix. U.S. Money Mkt Futures/Options 0 0 0.00 0.00 Non-U.S. Money Market Futures 0 0 0.00 0.00 Other 40 0 0.00 0.00 Less: Liabilities -20 0 0.00 0.00 Total 100 100 0.08 0.06 Government-Related may include nominal and inflation-protected Treasuries, agencies, interest rate swaps, See footnotes in Appendix. Treasury futures and options, and FDIC-guaranteed corporate securities.
2 Summary of Performance Data and Portfolio Statistics Orange County Sanitation District Long Term Portfolio 10-Year Return vs. Standard Deviation 6 Performance Since Periods Ended 3/31/2014 9/7/1995 10 yrs 5 yrs 3 yrs 1 yr 9 mos 6 mos 3 mos Barclays Capital U.S. 1 Total Portfolio Aggregate 4 Before Fees (%) 4.96 3.65 3.23 2.02 -1.22 -1.92 0.33 0.71 Portfolio After Fees (%) 4.80 3.49 3.08 1.87 -1.37 -2.03 0.26 0.68 Index BofA Merrill Lynch U.S. Corporate/Government 1-5 Year Bond Index 2 CitiGroup 3- 2 (%) Annualized Return (%) 4.74 3.26 2.92 1.91 0.45 0.01 0.58 0.44 Mo
0 0246 Standard Deviation of Return2 (%)
% of Market Value % of Duration Summary Information 12/31/2013 3/31/2014 Sector Allocation 12/31/2013 3/31/2014 12/31/2013 3/31/2014 Total Market Value (USD in millions) 460.9 439.2 Government-Related 30 76 63 74 Quarterly Contributions (USD in millions) 95.0 -25.0 Mortgage 7 2 15 2 Estimated Annual Income (USD in millions) 5.6 6.0 Invest. Grade Credit 8 9 8 9 Estimated Yield to Maturity (%) 1.2 1.0 High Yield Credit 0 0 0 0 Effective Duration (yrs) 2.7 2.8 Non U.S. Developed 0 0 0 0 Benchmark Duration (yrs) 2.7 2.7 Emerging Markets 0 0 0 0 Effective Maturity (yrs) 3.4 3.2 Municipal/Other 4 4 13 14 Average Quality AA+ AA+ Net Cash Equivalents:3 51 9 1 1 Average Coupon (%) 1.2 1.4 Commercial Paper / STIF 6 1 0 0 Net Currency Exposure (%) 0.0 0.0 ST Government-Related 28 5 1 1 Tracking Error (10 yrs, %) 3* 0.8 0.8 ST Mortgage 1 1 0 0 Information Ratio (10 yrs)3* 0.4 0.5 ST Credit 1 1 0 0 * See example of tracking error / information ratio on footnote U.S. Money Market Futures/Options 0 0 0 0 page of the Appendix. Non U.S. Money Market Futures 0 0 0 0 Other 34 1 0 0 Less: Liabilities -19 0 0 0 Total 100 100 100 100
Government-Related may include nominal and inflation-protected Treasuries, agencies, interest rate swaps, Treasury futures and options, and FDIC-guaranteed corporate securities. See footnotes in Appendix.
2 Orange County Sanitation District Investment Transactions and Balances in the State of California Local Agency Investment Fund March 31, 2014
Par Value Book Value Market Value Rate Yield
Balance March 1, 2014 $26,104,604 $26,104,604 $26,104,604 0.24 0.24
Deposits:
3/13/2014 19,900,000 19,900,000 19,900,000 0.24 0.24
Total Deposits 19,900,000 19,900,000 19,900,000 0.24 0.24
Withdrawals:
3/5/2014 (6,400,000) (6,400,000) (6,400,000) 0.24 0.24 3/19/2014 (3,900,000) (3,900,000) (3,900,000) 0.24 0.24 3/27/2014 (7,500,000) (7,500,000) (7,500,000) 0.24 0.24
Total Withdrawals (17,800,000) (17,800,000) (17,800,000) 0.24 0.24 Balance March 31, 2014 $28,204,604 $28,204,604 $28,204,604 0.24 0.24 - . ( !"#$ ) *+$, %&% & '
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Report ID: GL8251 Asset Summary Base Currency: USD by Asset Type with Sectors Alternate Base Currency: Exchange Rate: ESCROW ACCOUNT - OCSF07555502 3/31/2014 Status: FINAL
Net Unrealized Cost Market Value % of Gain/Loss Description Shares Par Base Base Total Base FIXED INCOME SECURITIES U.S. DOLLAR US GOVERNMENTS 3,610,000.000 3,707,867.10 3,610,000.00 100.00% -97,867.10
TOTAL ASSETS - BASE: 3,610,000.000 3,707,867.10 3,610,000.00 100.00% -97,867.10
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March 31, 2014 Orange County Sanitation District
Investment Measurement Service Quarterly Review
The following report was prepared by Callan Associates Inc. ("CAI") using information from sources that include the following: fund trustee(s); fund custodian(s); investment manager(s); CAI computer software; CAI investment manager and fund sponsor database; third party data vendors; and other outside sources as directed by the client. CAI assumes no responsibility for the accuracy or completeness of the information provided, or methodologies employed, by any information providers external to CAI. Reasonable care has been taken to assure the accuracy of the CAI database and computer software. In preparing the following report, CAI has not reviewed the risks of individual security holdings or the compliance/non-compliance of individual security holdings with investment policies and guidelines of a fund sponsor, nor has it assumed any responsibility to do so. Copyright 2014 by Callan Associates Inc. Table of Contents March 31, 2014
Capital Market Review 1
Active Management Overview Market Overview 9 Domestic Fixed Income 10
Asset Allocation Investment Manager Asset Allocation 12 Investment Manager Returns 13 Asset Class Risk and Return 17
Manager Analysis PIMCO-Long Term Operating Fund 19 PIMCO-Liquid Operating Money 23
Callan Research/Education 25
Definitions 31
Disclosures 36 Orange County Sanitation District Executive Summary for Period Ending March 31, 2014
Asset Allocation
Performance
Last Last Last Last Last 3 5 7 Quarter Year Years Years Years Domestic Fixed Income Long Term Operating Fund 0.71% (1.22%) 2.01% 3.25% 3.91% Barclay s Gov t/Cred 1-5 Year Idx 0.40% 0.42% 1.92% 2.83% 3.63% ML 1-5 Govt/Corp 0.44% 0.45% 2.00% 2.97% 3.65%
Liquid Operating Monies 0.01% 0.09% 0.15% 0.24% 1.09% Citigroup 3-Month Treasury Bill 0.01% 0.04% 0.06% 0.09% 0.81%
Total Fund 0.61% (1.03%) 1.68% 2.72% 3.37% Target* 0.36% 0.37% 1.61% 2.39% 3.08%
*Current quarter target = 80.0% ML 1-5 Govt/Corp and 20% 3-month T-Bills
Recent Developments x During the quarter, $50.0 million was removed from the total portfolio. $25.0 million came from the Long Term Operating Fund and $25.0 million from the Liquid Operating Fund.
Organizational Issues x In January 2014, Pacific Investment Management Company (“PIMCO”) announced that Mohamed El-Erian, Chief Executive Officer and Co-Chief Investment Officer, planned to resign from the firm effective mid-March 2014. He departed as planned. El-Erian remains an advisor to PIMCO’s parent company, Allianz, and will remain a member of the International Executive Committee at Allianz. El-Erian has announced no further plans, outside of a desire to start his “third career” outside of investment management. Doug Hodge replaced El-Erian as Chief Executive Officer. Hodge was the firm’s Chief Operating Officer and a member of the firm’s Executive Committee. He is a 24-year PIMCO veteran, and previously served as a senior account manager, global product manager, and led PIMCO’s Asia Pacific region from 2002 until 2009. In addition, Jay Jacobs has been appointed President, working alongside Hodge. Jacobs currently leads the firm’s talent management division, and has been with PIMCO since 1998. It is worth noting that the changes return PIMCO to a structure where the business management and investment functions are run by separate professionals, a structure used prior to El-Erian’s appointment to CEO in 2008. Orange County Sanitation District April 28, 2014 2
Mohamed El-Erian, was not directly involved in the management of your portfolios. We will monitor the situation closely and inform you of any relevant news as necessary.
Manager Performance x Over the course of the quarter, the yield on the 10-year U.S. Treasury Note dropped 31 bps, from a 29-month high of 3.04% at year-end to 2.73% as of March 31. However, the bigger story was in the flattening of the yield curve. Yields on 30-year U.S. Treasury Bonds fell 40 bps while the 2-year U.S. Treasury Note yield climbed 6 bps. The short end of the curve sold off sharply in March in response to Fed comments suggesting that rates might be hiked sooner than expected. For the full quarter, longer maturity bonds sharply outperformed short and intermediate maturities due both to falling interest rates and the reshaping of the yield curve. The Long Term Operating Portfolio returned 0.71% in the 1st quarter, outperforming the ML 1-5 Gov/Corp Index return of 0.44%. Longer term results are favorable against the benchmark and peers.
The Portfolio had less than 30% invested in credit and less than the 20% permitted invested in the combination of asset-backed securities, mortgages, and CMOs as of March 31, 2014 (see page 22).
x The Liquid Operating Portfolio returned -0.03% (after fees) in the quarter, which was less than the return of the 3-Month Treasury Bill (+0.01%). Interest rates remain very low on the short end of the yield curve. The Portfolio returned -0.06% (after fees) for the year.
Items Outstanding NA
Gordon M. Weightman, CFA Vice President Capital Market Review Capital Market Review Capital Market &$//$1 ,19(670(176 ,167,787( &05 3UHYLHZ
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Certain information herein has been compiled by Callan and is based on information provided by a variety of sources believed to be reliable for which Callan has not necessarily verified the accuracy or completeness of or updated. This report is for informational pur- poses only and should not be construed as legal or tax advice on any matter. Any investment decision you make on the basis of this report is your sole responsibility. You should consult with legal and tax advisers before applying any of this information to your particular situation. Reference in this report to any product, service or entity should not be construed as a recommendation, approval, affiliation or endorsement of such product, service or entity by Callan. Past performance is no guarantee of future results. This report may consist of statements of opinion, which are made as of the date they are expressed and are not statements of fact. The Callan Investments Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to subsidiaries or parents, or post on internal web sites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business. Active Management Overview Management Overview Active Market Overview Active Management vs Index Returns Market Overview The charts below illustrate the range of returns across managers in Callan’s Separate Account database over the most recent one quarter and one year time periods. The database is broken down by asset class to illustrate the difference in returns across those asset classes. An appropriate index is also shown for each asset class for comparison purposes. As an example, the first bar in the upper chart illustrates the range of returns for domestic equity managers over the last quarter. The triangle represents the S&P 500 return. The number next to the triangle represents the ranking of the S&P 500 in the domestic equity manager database. Range of Separate Account Manager Returns by Asset Class One Quarter Ended March 31, 2014 6% 5% 4% (65) 3% (42) 2% (52) (56) 1% (49) Returns 0% (98) (1%) (2%) (3%) Domestic Non-US Domestic Non-US Real Cash Equity Equity Fixed Income Fixed Income Estate Equivalents vs vs vs vs vs vs S&P 500 MSCI EAFE Barclays Aggr Bd Citi Non-US Gov NCREIF Index 3 Mon T-Bills 10th Percentile 3.99 2.86 3.75 4.84 3.55 0.42 25th Percentile 2.88 1.47 2.83 3.54 3.08 0.33 Median 1.84 0.61 1.95 3.27 2.45 0.10 75th Percentile 0.79 (0.50) 1.20 2.85 2.02 0.05 90th Percentile (0.54) (1.29) 0.61 2.25 1.40 0.02 Index 1.81 0.66 1.84 3.22 2.74 0.01 Range of Separate Account Manager Returns by Asset Class One Year Ended March 31, 2014 40% 35% 30% 25% (72) 20% (52) 15% Returns (66) 10% 5% (45) 0% (80) (96) (5%) Domestic Non-US Domestic Non-US Real Cash Equity Equity Fixed Income Fixed Income Estate Equivalents vs vs vs vs vs vs S&P 500 MSCI EAFE Barclays Aggr Bd Citi Non-US Gov NCREIF Index 3 Mon T-Bills 10th Percentile 31.23 24.42 6.99 4.50 19.50 0.95 25th Percentile 27.35 21.04 2.60 3.80 14.89 0.74 Median 24.03 17.82 0.79 2.20 12.97 0.38 75th Percentile 21.60 14.58 0.06 0.79 10.32 0.21 90th Percentile 18.65 11.24 (0.59) (0.23) 7.56 0.10 Index 21.86 17.56 (0.10) 2.43 11.17 0.07 Orange County Sanitation District 9 Domestic Fixed Income Active Management Overview Active vs. the Index Interest rates fell in the 1st quarter with the largest drop occurring in January in response to disappointing economic data and a spate of troubles around the world. Over the quarter, the yield on the 10-year U.S. Treasury Note dropped 31 bps. However, the bigger story was in the flattening of the yield curve. Yields on 30-year U.S. Treasury Bonds fell 40 bps while the 2-year U.S. Treasury Note yield climbed 6 bps. The short end of the curve sold off sharply in March in response to Fed comments suggesting that rates might be hiked sooner than expected. For the full quarter, longer maturity bonds sharply outperformed short and intermediate maturities due both to falling interest rates and the reshaping of the yield curve. From a sector perspective, corporate bonds posted the best returns while returns from mortgages were essentially flat, relative to U.S. Treasuries. Investment grade corporates outperformed like-duration Treasuries by 70 bps for the quarter, with the Baa rated tier performing best. For the quarter ended March 31, 2014, the median Core Bond manager returned 2.1% and the median Core Plus manager returned 2.3%, both outperforming the Barclays Aggregate Index (+1.8%). Intermediate vs. Long Duration Longer duration managers outperformed intermediate duration managers in the 1st quarter. The median Extended Maturity manager returned an impressive 6.5% while the median Intermediate manager posted a 1.1% return. Barclays Universal: 1.95% Barclays Aggregate: 1.84% Barclays Govt/Credit: 1.98% Separate Account Style Group Median Returns Barclays Mortgage: 1.59% for Quarter Ended March 31, 2014 Barclays High Yield: 2.98% Barclays US TIPS: 1.95% 10% 8% 6.47% 6% Returns 4% 3.09% 2.06% 2.25% 2% 1.73% 1.50% 1.14% 0.34% 0.36% 0% Active Defensive Intermed Core Core Extended Active Mortgage High Cash Bond Plus Maturity Duration Backed Yield Barclays Universal: 0.50% Barclays Aggregate: (0.10%) Barclays Govt/Credit: (0.26%) Separate Account Style Group Median Returns Barclays Mortgage: 0.20% for One Year Ended March 31, 2014 Barclays High Yield: 7.54% Barclays US TIPS: (6.49%) 10% 8% 7.62% 6% 4% Returns 2% 1.17% 0.72% 0.69% 0.55% 0.27% 0.38% 0.21% 0% (0.09%) (2%) Active Defensive Intermed Core Core Extended Active Mortgage High Cash Bond Plus Maturity Duration Backed Yield Orange County Sanitation District 10 Asset Allocation Allocation Asset Investment Manager Asset Allocation The table below contrasts the distribution of assets across the Fund’s investment managers as of March 31, 2014, with the distribution as of December 31, 2013. The change in asset distribution is broken down into the dollar change due to Net New Investment and the dollar change due to Investment Return. Asset Distribution Across Investment Managers March 31, 2014 December 31, 2013 Market Value Weight Net New Inv. Inv. Return Market Value Weight Domestic Fixed Income Long Term Operating Fund 439,017,727 89.61% (25,000,000) 3,294,068 460,723,658 85.86% Liquid Operating Monies 50,875,566 10.39% (25,000,000) 7,128 75,868,438 14.14% Total Fund $489,893,293 100.0% $(50,000,000) $3,301,197 $536,592,096 100.0% Orange County Sanitation District 12 Investment Manager Returns The table below details the rates of return for the Sponsor’s investment managers over various time periods ended March 31, 2014. Negative returns are shown in red, positive returns in black. Returns for one year or greater are annualized. The first set of returns for each asset class represents the composite returns for all the fund’s accounts for that asset class. Returns for Periods Ended March 31, 2014 Last Last Last Last Last 3 5 7 Quarter Year Years Years Years Domestic Fixed Income Long Term Operating Fund 0.71% (1.22%) 2.01% 3.25% 3.91% Barclays Govt/Cred 1-5 Year Idx 0.40% 0.42% 1.92% 2.83% 3.63% ML 1-5 Govt/Corp 0.44% 0.45% 2.00% 2.97% 3.65% Liquid Operating Monies 0.01% 0.09% 0.15% 0.24% 1.09% Citigroup 3-Month Treasury Bill 0.01% 0.04% 0.06% 0.09% 0.81% Total Fund 0.61% (1.03%) 1.68% 2.72% 3.37% Target* 0.36% 0.37% 1.61% 2.39% 3.08% * Current Quarter Target = 80.0% ML 1-5 Govt/Corp and 20.0% 3mo T-Bills. Orange County Sanitation District 13 Investment Manager Returns The table below details the rates of return for the Sponsor’s investment managers over various time periods ended March 31, 2014. Negative returns are shown in red, positive returns in black. Returns for one year or greater are annualized. The first set of returns for each asset class represents the composite returns for all the fund’s accounts for that asset class. Returns for Periods Ended March 31, 2014 Last Last Last 10 15 18-1/2 Years Years Years Domestic Fixed Income Long Term Operating Fund 3.65% 4.51% 4.95% Barclays Govt/Cred 1-5 Year Idx 3.27% 4.38% 4.73% ML 1-5 Govt/Corp 3.29% 4.34% 4.75% Liquid Operating Monies 1.82% 2.48% 3.06% Citigroup 3-Month Treasury Bill 1.56% 2.15% 2.71% Total Fund 3.30% 4.18% 4.66% Target* 2.95% 3.90% 4.34% * Current Quarter Target = 80.0% ML 1-5 Govt/Corp and 20.0% 3mo T-Bills. Orange County Sanitation District 14 Investment Manager Returns The table below details the rates of return for the Sponsor’s investment managers over various time periods. Negative returns are shown in red, positive returns in black. Returns for one year or greater are annualized. The first set of returns for each asset class represents the composite returns for all the fund’s accounts for that asset class. 12/2013- 3/2014 2013 2012 2011 2010 Domestic Fixed Income Long Term Operating Fund 0.71% (1.77%) 3.06% 4.59% 4.42% Barclays Govt/Cred 1-5 Year Idx 0.40% 0.28% 2.24% 3.14% 4.08% ML 1-5 Govt/Corp 0.44% 0.32% 2.47% 3.10% 4.17% Liquid Operating Monies 0.01% 0.13% 0.17% 0.24% 0.25% Citigroup 3-Month Treasury Bill 0.01% 0.05% 0.07% 0.08% 0.13% Total Fund 0.61% (1.49%) 2.70% 3.70% 3.68% Target* 0.36% 0.26% 1.99% 2.49% 3.36% * Current Quarter Target = 80.0% ML 1-5 Govt/Corp and 20.0% 3mo T-Bills. Orange County Sanitation District 15 Investment Manager Returns The table below details the rates of return for the Sponsor’s investment managers over various time periods. Negative returns are shown in red, positive returns in black. Returns for one year or greater are annualized. The first set of returns for each asset class represents the composite returns for all the fund’s accounts for that asset class. 2009 2008 2007 2006 2005 Domestic Fixed Income Long Term Operating Fund 5.52% 5.37% 7.21% 4.41% 2.47% Barclays Govt/Cred 1-5 Year Idx 4.62% 5.12% 7.27% 4.22% 1.44% ML 1-5 Govt/Corp 4.88% 4.65% 7.27% 4.26% 1.43% Liquid Operating Monies 0.58% 2.40% 5.25% 5.05% 3.21% Citigroup 3-Month Treasury Bill 0.16% 1.80% 4.74% 4.76% 3.00% Total Fund 4.65% 4.61% 6.84% 4.60% 2.59% Target* 3.93% 4.08% 6.76% 4.36% 1.75% * Current Quarter Target = 80.0% ML 1-5 Govt/Corp and 20.0% 3mo T-Bills. Orange County Sanitation District 16 Asset Class Risk and Return The charts below show the seven year annualized risk and return for each asset class component of the Total Fund. The first graph contrasts these values with those of the appropriate index for each asset class. The second chart contrasts them with the risk and return of the median portfolio in each of the appropriate CAI comparative databases. In each case, the crosshairs on the chart represent the return and risk of the Total Fund. Seven Year Annualized Risk vs Return Asset Classes vs Benchmark Indices 4.0% Barclays Govt/Cred 1-5 Ye ML 1-5 Govt/Corp 3.5% Total Fund Total Fund Target 3.0% 2.5% Returns 2.0% 1.5% 1.0% 3mo T-Bills 0.5% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Standard Deviation Seven Year Annualized Risk vs Return Asset Classes vs Asset Class Median 4.0% 3.5% Total Fund CAI Defensive F-I Style 3.0% 2.5% Returns 2.0% 1.5% 1.0% Money Market Fds DB 0.5% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Standard Deviation Orange County Sanitation District 17 Manager Analysis Analysis Manager PIMCO-Long Term Operating Fund Period Ended March 31, 2014 Investment Philosophy PIMCO emphasizes adding value by rotating through the major sectors of the domestic and international bond markets while avoiding significant swings in duration. Quarterly Summary and Highlights Quarterly Asset Growth PIMCO-Long Term Operating Fund’s portfolio posted a Beginning Market Value $460,723,658 0.71% return for the quarter placing it in the 8 percentile of Net New Investment $-25,000,000 the CAI Defensive Fixed-Inc Style group for the quarter and in the 100 percentile for the last year. Investment Gains/(Losses) $3,294,068 PIMCO-Long Term Operating Fund’s portfolio outperformed Ending Market Value $439,017,727 the ML 1-5 Govt/Corp by 0.27% for the quarter and underperformed the ML 1-5 Govt/Corp for the year by 1.68%. Performance vs CAI Defensive Fixed-Inc Style (Gross) 6% 5% A(5) A(11)(23) B(23) (23) B(19) 4% A(8) (17) B(18) A(7) A(26) (29) B(31) 3% (33) B(36) (15) A(15) 2% B(23) 1% A(8) (27) B(34)(76) B(84) 0% (1%) A(100) (2%) Last Quarter Last Last 3 Years Last 5 Years Last 7 Years Last 10 Years Last 15 Years Last 18-1/2 Year Years 10th Percentile 0.67 1.36 2.21 4.38 3.77 3.57 4.52 4.85 25th Percentile 0.45 0.95 1.89 3.30 3.50 3.37 4.29 4.65 Median 0.36 0.69 1.49 2.32 3.13 3.08 3.99 4.43 75th Percentile 0.24 0.46 1.21 1.85 2.79 2.86 3.81 4.23 90th Percentile 0.19 0.37 1.00 1.49 2.55 2.60 3.59 4.10 PIMCO-Long Term Operating Fund A 0.71 (1.22) 2.01 3.25 3.91 3.65 4.51 4.95 Barclays Govt/Cred 1-5 Year Idx B 0.40 0.42 1.92 2.83 3.63 3.27 4.38 4.73 ML 1-5 Govt/Corp 0.44 0.45 2.00 2.97 3.65 3.29 4.34 4.75 CAI Defensive Fixed-Inc Style (Gross) Relative Return vs ML 1-5 Govt/Corp Annualized Seven Year Risk vs Return 2.0% 5.0% 1.5% 4.5% PIMCO-Long Term Operating Fund 1.0% 4.0% 0.5% ML 1-5 Govt/Corp Returns 3.5% 0.0% Barclays Govt/Cred 1-5 Year Idx Returns 3.0% Relative (0.5%) (1.0%) 2.5% (1.5%) 2.0% 2007 2008 2009 2010 2011 2012 2013 14 0 1 2 3 4 5 6 Standard Deviation PIMCO-Long Term Operating Fund Orange County Sanitation District 19 PIMCO-Long Term Operating Fund Return Analysis Summary Return Analysis The graphs below analyze the manager’s return on both a risk-adjusted and unadjusted basis. The first chart illustrates the manager’s ranking over different periods versus the appropriate style group. The second chart shows the historical quarterly and cumulative manager returns versus the appropriate market benchmark. The last two charts illustrate the manager’s ranking relative to their style using various risk-adjusted return measures. Performance vs CAI Defensive Fixed-Inc Style (Gross) 20% 15% 10% B(5) A(57) A(28)5 5% A(21) A(1)16 A(14)62 37 A(6)95 A(81) A(8) 27 4 B(4) B(20) B(62) B(30) B(96) A(18) 0% 27 89 B(90) B(38) 98 B(98) B(34) A(100) (5%) (10%) 12/13- 3/14 2013 2012 2011 2010 2009 2008 2007 2006 2005 10th Percentile 0.67 1.23 4.46 2.72 4.69 13.74 6.63 7.03 5.11 2.61 25th Percentile 0.45 0.82 2.60 2.28 4.01 9.30 5.64 6.88 4.84 2.40 Median 0.36 0.65 1.81 1.85 3.18 5.91 3.75 6.39 4.64 2.16 75th Percentile 0.24 0.41 1.46 1.62 2.73 2.53 (0.17) 5.42 4.46 1.97 90th Percentile 0.19 0.29 0.92 1.44 2.42 1.82 (3.47) 3.75 4.32 1.84 PIMCO-Long Term Operating Fund A 0.71 (1.77) 3.06 4.59 4.42 5.52 5.37 7.21 4.41 2.47 Barclays Govt/Cred 1-5 Year Idx B 0.40 0.28 2.24 3.14 4.08 4.62 5.12 7.27 4.22 1.44 ML 1-5 Govt/Corp 0.44 0.32 2.47 3.10 4.17 4.88 4.65 7.27 4.26 1.43 Cumulative and Quarterly Relative Return vs ML 1-5 Govt/Corp 8% 6% 4% 2% Returns 0% (2%) Relative (4%) (6%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 PIMCO-Long Term Operating Fund Barclays Govt/Cred 1-5 Year Idx CAI Defensive F-I Style Risk Adjusted Return Measures vs ML 1-5 Govt/Corp Rankings Against CAI Defensive Fixed-Inc Style (Gross) Seven Years Ended March 31, 2014 7 2.0 6 1.5 5 B(52) 4 1.0 A(65) 0.5 3 B(91) A(5) 2 A(97) 0.0 B(25) A(99) 1 (0.5) 0 B(92) B(100) (1) A(100) (1.0) (2) (1.5) Alpha Treynor Information Sharpe Excess Return Ratio Ratio Ratio Ratio 10th Percentile 1.19 5.39 10th Percentile 1.28 1.59 0.08 25th Percentile 0.76 4.05 25th Percentile 0.77 1.41 (0.08) Median 0.49 3.46 Median 0.43 1.22 (0.40) 75th Percentile 0.16 3.02 75th Percentile 0.18 1.02 (0.64) 90th Percentile (0.01) 2.73 90th Percentile 0.00 0.93 (0.82) PIMCO-Long Term PIMCO-Long Term Operating Fund A (0.41) 2.41 Operating Fund A (0.45) 1.10 0.24 Barclays Govt/Cred Barclays Govt/Cred 1-5 Year Idx B (0.14) 2.61 1-5 Year Idx B (0.58) 1.21 (0.08) Orange County Sanitation District 20 PIMCO-Long Term Operating Fund Bond Characteristics Analysis Summary Portfolio Characteristics This graph compares the manager’s portfolio characteristics with the range of characteristics for the portfolios which make up the manager’s style group. This analysis illustrates whether the manager’s current holdings are consistent with other managers employing the same style. Fixed Income Portfolio Characteristics Rankings Against CAI Defensive Fixed-Inc Style as of March 31, 2014 5 4 (3) 3 (2) (2) (7) (28) 2 (78) 1 (35) (37) 0 (9) (9) (1) Average Effective Coupon OA Duration Life Yield Rate Convexity 10th Percentile 2.20 2.52 2.85 3.70 0.07 25th Percentile 1.93 2.10 1.07 2.46 0.04 Median 1.81 1.92 0.87 1.76 0.02 75th Percentile 1.64 1.85 0.78 1.45 (0.04) 90th Percentile 1.41 1.58 0.59 1.29 (0.29) PIMCO-Long Term Operating Fund 2.82 3.26 1.00 1.38 0.07 Barclays Govt/Cred 1-5 Ye 2.69 2.81 1.02 2.23 0.07 Sector Allocation and Quality Ratings The first graph compares the manager’s sector allocation with the average allocation across all the members of the manager’s style. The second graph compares the manager’s weighted average quality rating with the range of quality ratings for the style. Sector Allocation Quality Ratings MV March 31, 2014 vs CAI Defensive Fixed-Inc Style 50% Trsy Mgr 76.0% US Trsy 35.4% 60.1% MV AAA 9.0% 50% Cash 0.9% Mgr AA+ (42) 9.0% US $ Corp 34.8% (44) 24.3% 4.0% AA US Muni 2.0% AA- US RMBS 3.7% A+ US ABS 15.4% Weighted Average Quality Rating US $ Govt Related 6.9% 10th Percentile AAA 15.6% 25th Percentile AAA Median AA 75th Percentile AA- US CMBS 2.9% 90th Percentile AA- PIMCO-Long Term 0% 20% 40% 60% 80% 100% Operating Fund AA+ PIMCO-Long Term Operating Fund CAI Defensive Fixed-Inc Style Barclays Barclays Govt/Cred 1-5 Ye Govt/Cred 1-5 Ye AA+ Orange County Sanitation District 21 PIMCO-Long Term Operating Fund Portfolio Characteristics Summary As of March 31, 2014 Portfolio Structure Comparison The charts below compare the structure of the portfolio to that of the index from the three perspectives that have the greatest influence on return. The first chart compares the two portfolios across sector weights. The second chart compares the portfolios based on duration, duration distribution, duration "dispersion" (degree of "barbellness"), and sector weights within duration ranges. The last chart compares the distributions across quality ratings. Sector Allocation US Trsy US Trsy 76% 60% US RMBS US $ Govt Related Cash 2% US $ Corp 16% 9% US Muni US $ Corp 24% 4% 9% PIMCO-Long Term Operating Fund Barclays Govt/Credit 1-5 Year Duration Distribution Weighted Average: Duration 100% PIMCO-Long Term Operating Fund: 2.82 Barclays Govt/Credit 1-5 Year: 2.69 80% 75.0% 60% Portfolio of 40% 37.1% 32.4% 30.0% 20% Percent 7.0% 6.0% 4.0% 6.0% 0.0% 0.0% 0.0% 0.5% 2.0% 0.0% 0.0% 0.0% 0% <0 0-1 1-2 2-3 3-5 5-7 7-10 >10 Years Duration Quality Distribution Weighted Average: Quality 120% PIMCO-Long Term Operating Fund: AA+ Barclays Govt/Credit 1-5 Year: AA+ 100% 86.0% 80% 71.0% Portfolio 60% of 40% 20% 12.5% Percent 6.9% 9.0% 9.6% 4.0% 1.0% 0% AAA AA A BBB Quality Rating Orange County Sanitation District 22 PIMCO-Liquid Operating Money Net Period Ended March 31, 2014 Investment Philosophy PIMCO utilizes a core investment philosophy in managing its short term portfolios, similar to all PIMCO’s fixed income accounts. Key to the short term approach, where client objectives permit, is to often extend maturities beyond three months. Moving to slightly longer securities also greatly expands the opportunity set of investments, allowing PIMCO to effectively utilize its analytical capabilities to identify value without significantly differing the variability of returns. In particular, the value added in their short term accounts is enhanced by their ability to use non-traditional, short-term instruments, including floating rate securities, high coupon mortgages, short tranche CMO’s, and callable corporate bonds. These can trade for extended time periods as essentially short term securities, while providing high yields. They emphasize extremely high credit quality in their short term accounts. Their view is that the reward for taking additional credit risk on a short term security is low, while the potential for loss, in the event of an issuer default, is significant. Quarterly Summary and Highlights Quarterly Asset Growth PIMCO-Liquid Operating Money Net’s portfolio posted a Beginning Market Value $75,868,438 (0.03)% return for the quarter placing it in the 100 percentile Net New Investment $-25,000,000 of the MF - Money Market Funds Database group for the quarter and in the 99 percentile for the last year. Investment Gains/(Losses) $7,128 PIMCO-Liquid Operating Money Net’s portfolio Ending Market Value $50,875,566 underperformed the Citigroup 3-Month Treasury Bill by 0.04% for the quarter and underperformed the Citigroup 3-Month Treasury Bill for the year by 0.10%. Performance vs MF - Money Market Funds Database (Net) 3.5% 3.0% (37) (12) 2.5% (11) 2.0% (31) (23) 1.5% (38) 1.0% (55) (28) 0.5% 0.0% (13) (100)(14) (99)(16) (77)(17) (18) (0.5%) Last Quarter Last Last 3 Years Last 5 Years Last 7 Years Last 10 Years Last 15 Years Last 18-1/2 Year Years 10th Percentile 0.02 0.08 0.11 0.16 1.09 1.80 2.34 2.93 25th Percentile 0.00 0.02 0.02 0.05 0.95 1.65 2.19 2.78 Median 0.00 0.01 0.01 0.02 0.84 1.50 2.03 2.61 75th Percentile 0.00 0.00 0.01 0.01 0.71 1.35 1.87 2.46 90th Percentile 0.00 0.00 0.00 0.00 0.61 1.21 1.69 2.29 PIMCO-Liquid Operating Money Net (0.03) (0.06) 0.00 0.09 0.94 1.67 2.33 2.90 Citigroup 3-Month Treasury Bill 0.01 0.04 0.06 0.09 0.81 1.56 2.15 2.71 Relative Returns vs Cumulative Returns vs Citigroup 3-Month Treasury Bill Citigroup 3-Month Treasury Bill 0.25% 1.2% PIMCO-Liquid Operating Money Net 0.20% 1.0% Money Market Fds DB 0.8% 0.15% Returns 0.6% 0.10% Returns 0.4% Relative 0.05% 0.2% Relative 0.00% 0.0% (0.05%) Cumulative (0.2%) (0.10%) (0.4%) 2007 2008 2009 2010 2011 2012 2013 14 2007 2008 2009 2010 2011 2012 2013 14 PIMCO-Liquid Operating Money Net Orange County Sanitation District 23 PIMCO-Liquid Operating Money Net Return Analysis Summary Return Analysis The graphs below analyze the manager’s return on both a risk-adjusted and unadjusted basis. The first chart illustrates the manager’s ranking over different periods versus the appropriate style group. The second chart shows the historical quarterly and cumulative manager returns versus the appropriate market benchmark. The last two charts illustrate the manager’s ranking relative to their style using various risk-adjusted return measures. Performance vs MF - Money Market Funds Database (Net) 6% 18 5% 50 27 15 4% 3% 15 11 38 2% 60 1% 14 0% 13 10016 99 19 34 11 10 12 15 42 (1%) 12/13- 3/14 2013 2012 2011 2010 2009 2008 2007 2006 2005 10th Percentile 0.02 0.09 0.19 0.08 0.15 0.53 2.78 5.22 4.95 3.07 25th Percentile 0.00 0.02 0.03 0.03 0.05 0.29 2.46 5.01 4.79 2.88 Median 0.00 0.01 0.01 0.01 0.01 0.12 2.03 4.73 4.53 2.65 75th Percentile 0.00 0.00 0.00 0.00 0.01 0.03 1.46 4.39 4.23 2.38 90th Percentile 0.00 0.00 0.00 0.00 0.00 0.01 1.08 3.99 3.87 2.03 PIMCO-Liquid Operating Money Net (0.03) (0.02) 0.02 0.09 0.10 0.43 2.25 5.09 4.89 3.06 Citigroup 3-Month Treasury Bill 0.01 0.05 0.07 0.08 0.13 0.16 1.80 4.74 4.76 3.00 Cumulative and Quarterly Relative Return vs Citigroup 3-Month Treasury Bill 2% 1% Returns 0% (1%) Relative (2%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 PIMCO-Liquid Operating Money Net Money Market Fds DB Risk Adjusted Return Measures vs Citigroup 3-Month Treasury Bill Rankings Against MF - Money Market Funds Database (Net) Seven Years Ended March 31, 2014 0.40 2.0 0.30 1.5 1.0 (14) 0.20 (16) 0.5 0.10 (28) (28) (27) 0.0 0.00 (0.5) (1.0) (0.10) (1.5) (0.20) (2.0) (0.30) (2.5) Alpha Treynor Information Sharpe Excess Return Ratio Ratio Ratio Ratio 10th Percentile 0.24 0.33 10th Percentile 0.98 0.21 1.16 25th Percentile 0.10 0.07 25th Percentile 0.54 0.06 0.73 Median 0.00 (0.09) Median 0.04 (0.09) 0.19 75th Percentile (0.09) (0.17) 75th Percentile (1.14) (0.27) (1.26) 90th Percentile (0.15) (0.19) 90th Percentile (1.56) (0.45) (1.74) PIMCO-Liquid PIMCO-Liquid Operating Money Net 0.08 0.05 Operating Money Net 0.74 0.04 0.99 Orange County Sanitation District 24 Callan Research/Education Research/Education Callan &$//$1 ,19(670(176 ,167,787( ),567475 (GXFDWLRQ 5HVHDUFKDQG(GXFDWLRQDO3URJUDPV 7KH&DOODQ,QYHVWPHQWV,QVWLWXWHSURYLGHVUHVHDUFKWKDWNHHSVFOLHQWVXSGDWHGRQWKHODWHVWLQGXVWU\WUHQGVZKLOH 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7XLWLRQIRUWKH,QWURGXFWRU\³&DOODQ&ROOHJH´VHVVLRQLVSHUSHUVRQ7XLWLRQLQFOXGHVLQVWUXFWLRQDOOPDWHULDOV EUHDNIDVWDQGOXQFKRQHDFKGD\DQGGLQQHURQWKH¿UVWHYHQLQJZLWKWKHLQVWUXFWRUV &XVWRPL]HG6HVVLRQV $XQLTXHIHDWXUHRIWKH³&DOODQ&ROOHJH´LVLWVDELOLW\WRHGXFDWHRQDVSHFLDOL]HGOHYHOWKURXJKLWVFXVWRPL]HGVHVVLRQV 7KHVHVHVVLRQVDUHWDLORUHGWRPHHWWKHWUDLQLQJDQGHGXFDWLRQDOQHHGVRIWKHSDUWLFLSDQWVZKHWKHU\RXDUHDSODQ VSRQVRURU\RXSURYLGHVHUYLFHVWRLQVWLWXWLRQDOWD[H[HPSWSODQV3DVWFXVWRPL]HG³&DOODQ&ROOHJH´VHVVLRQVKDYH FRYHUHGWRSLFVVXFKDV FXVWRG\LQGXVWU\WUHQGVVDOHVDQGPDUNHWLQJFOLHQWVHUYLFHLQWHUQDWLRQDO¿[HGLQFRPHDQG PDQDJLQJWKH5)3SURFHVV,QVWUXFWLRQFDQEHWDLORUHGWREHEDVLFRUDGYDQFHG )RUPRUHLQIRUPDWLRQSOHDVHFRQWDFW.DWKOHHQ&XQQLHDW RUFXQQLH#FDOODQFRP ³&DOODQ&ROOHJH´ Definitions Definitions Risk/Reward Statistics The risk statistics used in this report examine performance characteristics of a manager or a portfolio relative to a benchmark (market indicator) which assumes to represent overall movements in the asset class being considered. The main unit of analysis is the excess return, which is the portfolio return minus the return on a risk free asset (3 month T-Bill). Alpha measures a portfolio’s return in excess of the market return adjusted for risk. It is a measure of the manager’s contribution to performance with reference to security selection. A positive alpha indicates that a portfolio was positively rewarded for the residual risk which was taken for that level of market exposure. Beta measures the sensitivity of rates of portfolio returns to movements in the market index. A portfolio’s beta measures the expected change in return per 1% change in the return on the market. If a beta of a portfolio is 1.5, a 1 percent increase in the return on the market will result, on average, in a 1.5 percent increase in the return on the portfolio. The converse would also be true. Downside Risk stems from the desire to differentiate between "good risk" (upside volatility) and "bad risk" (downside volatility). Whereas standard deviation punishes both upside and downside volatility, downside risk measures only the standard deviation of returns below the target. Returns above the target are assigned a deviation of zero. Both the frequency and magnitude of underperformance affect the amount of downside risk. Excess Return Ratio is a measure of risk adjusted relative return. This ratio captures the amount of active management performance (value added relative to an index) per unit of active management risk (tracking error against the index.) It is calculated by dividing the manager’s annualized cumulative excess return relative to the index by the standard deviation of the individual quarterly excess returns. The Excess Return Ratio can be interpreted as the manager’s active risk/reward tradeoff for diverging from the index when the index is mandated to be the "riskless" market position. Information Ratio measures the manager’s market risk-adjusted excess return per unit of residual risk relative to a benchmark. It is computed by dividing alpha by the residual risk over a given time period. Assuming all other factors being equal, managers with lower residual risk achieve higher values in the information ratio. Managers with higher information ratios will add value relative to the benchmark more reliably and consistently. R-Squared indicates the extent to which the variability of the portfolio returns are explained by market action. It can also be thought of as measuring the diversification relative to the appropriate benchmark. An r-squared value of .75 indicates that 75% of the fluctuation in a portfolio return is explained by market action. An r-squared of 1.0 indicates that a portfolio’s returns are entirely related to the market and it is not influenced by other factors. An r-squared of zero indicates that no relationship exists between the portfolio’s return and the market. Relative Standard Deviation is a simple measure of a manager’s risk (volatility) relative to a benchmark. It is calculated by dividing the manager’s standard deviation of returns by the benchmark’s standard deviation of returns. A relative standard deviation of 1.20, for example, means the manager has exhibited 20% more risk than the benchmark over that time period. A ratio of .80 would imply 20% less risk. This ratio is especially useful when analyzing the risk of investment grade fixed-income products where actual historical durations are not available. By using this relative risk measure over rolling time periods one can illustrate the "implied" historical duration patterns of the portfolio versus the benchmark. Residual Portfolio Risk is the unsystematic risk of a fund, the portion of the total risk unique to the fund (manager) itself and not related to the overall market. This reflects the "bets" which the manager places in that particular asset market. These bets may reflect emphasis in particular sectors, maturities (for bonds), or other issue specific factors which the manager considers a good investment opportunity. Diversification of the portfolio will reduce or eliminate the residual risk of that portfolio. 32 Risk/Reward Statistics Sharpe Ratio is a commonly used measure of risk-adjusted return. It is calculated by subtracting the "risk-free" return (usually 3 Month Treasury Bill) from the portfolio return and dividing the resulting "excess return" by the portfolio’s risk level (standard deviation). The result is a measure of return gained per unit of risk taken. Sortino Ratio is a downside risk-adjusted measure of value-added. It measures excess return over a benchmark divided by downside risk. The natural appeal is that it identifies value-added per unit of truly bad risk. The danger of interpretation, however, lies in these two areas: (1) the statistical significance of the denominator, and (2) its reliance on the persistence of skewness in return distributions. Standard Deviation is a statistical measure of portfolio risk. It reflects the average deviation of the observations from their sample mean. Standard deviation is used as an estimate of risk since it measures how wide the range of returns typically is. The wider the typical range of returns, the higher the standard deviation of returns, and the higher the portfolio risk. If returns are normally distributed (ie. has a bell shaped curve distribution) then approximately 2/3 of the returns would occur within plus or minus one standard deviation from the sample mean. Total Portfolio Risk is a measure of the volatility of the quarterly excess returns of an asset. Total risk is composed of two measures of risk: market (non-diversifiable or systematic) risk and residual (diversifiable or unsystematic) risk. The purpose of portfolio diversification is to reduce the residual risk of the portfolio. Tracking Error is a statistical measure of a portfolio’s risk relative to an index. It reflects the standard deviation of a portfolio’s individual quarterly or monthly returns from the index’s returns. Typically, the lower the Tracking Error, the more "index-like" the portfolio. Treynor Ratio represents the portfolio’s average excess return over a specified period divided by the beta relative to its benchmark over that same period. This measure reflects the reward over the risk-free rate relative to the systematic risk assumed. Note: Alpha, Total Risk, and Residual Risk are annualized. 33 Fixed Income Portfolio Characteristics All Portfolio Characteristics are derived by first calculating the characteristics for each security, and then calculating the market value weighted average of these values for the portfolio. Allocation by Sector - Sector allocation is one of the tools which managers often use to add value without impacting the duration of the portfolio. The sector weights exhibit can be used to contrast a portfolio’s weights with those of the index to identify any significant sector bets. Average Coupon - The average coupon is the market value weighted average coupon of all securities in the portfolio. The total portfolio coupon payments per year are divided by the total portfolio par value. Average Moody’s Rating for Total Portfolio - A measure of the credit quality as determined by the individual security ratings. The ratings for each security, from Moody’s Investor Service, are compiled into a composite rating for the whole portfolio. Quality symbols range from Aaa+ (highest investment quality - lowest credit risk) to C (lowest investment quality - highest credit risk). Average Option Adjusted (Effective) Convexity - Convexity is a measure of the portfolio’s exposure to interest rate risk. It is a measure of how much the duration of the portfolio will change given a change in interest rates. Generally, securities with negative convexities are considered to be risky in that changes in interest rates will result in disadvantageous changes in duration. When a security’s duration changes it indicates that the stream of expected future cash-flows has changed, generally having a significant impact on the value of the security. The option adjusted convexity for each security in the portfolio is calculated using models developed by Lehman Brothers and Salomon Brothers which determine the expected stream of cash-flows for the security based on various interest rate scenarios. Expected cash-flows take into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. Average Option Adjusted (Effective) Duration - Duration is one measure of the portfolio’s exposure to interest rate risk. Generally, the higher a portfolio’s duration, the more that its value will change in response to interest rate changes. The option adjusted duration for each security in the portfolio is calculated using models developed by Lehman Brothers and Salomon Brothers which determine the expected stream of cash-flows for the security based on various interest rate scenarios. Expected cash-flows take into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. Average Price - The average price is equal to the portfolio market value divided by the number of securities in the portfolio. Portfolios with an average price above par will tend to generate more current income than those with an average price below par. Average Years to Expected Maturity - This is a measure of the market-value-weighted average of the years to expected maturity across all of the securities in the portfolio. Expected years to maturity takes into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. Average Years to Stated Maturity - The average years to stated maturity is the market value weighted average time to stated maturity for all securities in the portfolio. This measure does not take into account imbedded options, sinking fund paydowns, or prepayments. Current Yield - The current yield is the current annual income generated by the total portfolio market value. It is equal to the total portfolio coupon payments per year divided by the current total portfolio market value. 34 Fixed Income Portfolio Characteristics Duration Dispersion - Duration dispersion is the market-value weighted standard deviation of the portfolio’s individual security durations around the total portfolio duration. The higher the dispersion, the more variable the security durations relative to the total portfolio duration ("barbellness"), and the smaller the dispersion, the more concentrated the holdings’ durations around the overall portfolio’s ("bulletness"). The purpose of this statistic is to gauge the "bulletness" or "barbellness" of a portfolio relative to its total duration and to that of its benchmark index. Effective Yield - The effective yield is the actual total annualized return that would be realized if all securities in the portfolio were held to their expected maturities. Effective yield is calculated as the internal rate of return, using the current market value and all expected future interest and principal cash flows. This measure incorporates sinking fund paydowns, expected mortgage principal prepayments, and the exercise of any "in-the-money" imbedded put or call options. Weighted Average Life - The weighted average life of a security is the weighted average time to payment of all remaining principal. It is calculated by multiplying each expected future principal payment amount by the time left to the payment. This amount is then divided by the total amount of principal remaining. Weighted average life is commonly used as a measure of the investment life for pass-through security types for comparison to non-pass-through securities. 35 Disclosures Disclosures Quarterly List as of March 31, 2014 List of Managers That Do Business with Callan Associates Inc. Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 03/31/14, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer. Manager Name Educational Services Consulting Services 1607 Capital Partners, LLC Y Aberdeen Asset Management Y Y Abacus Capital Management Y Acadian Asset Management, Inc. Y Advisory Research Y Affiliated Managers Group Y AllianceBernstein Y Allianz Global Investors U.S. LLC Y Y Allianz Life Insurance Company of North America Y American Century Investment Management Y Apollo Global Management Y AQR Capital Management Y Ares Management Y Ariel Investments Y Aristotle Capital Management Y Aronson + Johnson + Ortiz Y Artisan Holdings Y Atlanta Capital Management Co., L.L.C. Y Y AXA Rosenberg Investment Management Y Babson Capital Management LLC Y Baillie Gifford International LLC Y Y Baird Advisors Y Y Bank of America Y Baring Asset Management Y Barrow, Hanley, Mewhinney & Strauss, Inc. Y Y BlackRock Y BMO Asset Management Y BNP Paribas Investment Partners Y BNY Mellon Asset Management Y Y Boston Company Asset Management, LLC (The) Y Y Brandes Investment Partners, L.P. Y Y Brandywine Global Investment Management, LLC Y Brown Brothers Harriman & Company Y Cadence Capital Management Y Capital Group Y Knowledge. Experience. Integrity. 1 List of Managers That Do Business with Callan Associates Inc. (continued) Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 03/31/14, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer. CastleArk Management, LLC Y Causeway Capital Management Y Central Plains Advisors, Inc. Y Chartwell Investment Partners Y ClearBridge Investments, LLC (fka ClearBridge Advisors) Y Cohen & Steers Y Columbia Management Investment Advisors, LLC Y Y Columbus Circle Investors Y Y Corbin Capital Partners Y Cornerstone Capital Management Holdings (fka Madison Square) Y Cramer Rosenthal McGlynn, LLC Y Crawford Investment Council Y Credit Suisse Asset Management Y Crestline Investors Y Y Cutwater Asset Management Y DB Advisors Y Y D.B. Fitzpatrick & Company, Inc. Y Delaware Investments Y Y DePrince, Race & Zollo, Inc. Y Y Deutsche Asset & Wealth Management Y Y Diamond Hill Investments Y DSM Capital Partners Y Duff & Phelps Investment Mgmt. Y Y Eagle Asset Management, Inc. Y EARNEST Partners, LLC Y Eaton Vance Management Y Y Epoch Investment Partners Y Fayez Sarofim & Company Y Federated Investors Y Fidelity Investments Y First Eagle Investment Management Y First Quadrant Y First State Investments Y Fisher Investments Y Franklin Templeton Y Y Fred Alger Management Co., Inc. Y Fuller & Thaler Asset Management Y GAM (USA) Inc. Y GE Asset Management Y Y Geneva Capital Management Y Goldman Sachs Asset Management Y Y Grand-Jean Capital Management Y Y GMO (fka Grantham, Mayo, Van Otterloo & Co., LLC) Y Great Lakes Advisors, Inc. Y The Guardian Life Insurance Company of America Y Guggenheim Investments Asset Management (fka Security Global) Y Knowledge. Experience. Integrity. 2 List of Managers That Do Business with Callan Associates Inc. (continued) Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 03/31/14, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer. Harbor Capital Y Hartford Investment Management Co. Y Y Henderson Global Investors Y Y HGK Asset Management, Inc. Y Hotchkis & Wiley Y Income Research & Management Y ING Investment Management Y Y Institutional Capital LLC Y INTECH Investment Management Y Invesco Y Y Investec Asset Management Y Janus Capital Group (fka Janus Capital Management, LLC) Y Y Jensen Investment Management Y J.M. Hartwell Y J.P. Morgan Asset Management Y Y KeyCorp Y Lazard Asset Management Y Y Lee Munder Capital Group Y Lincoln National Corporation Y Logan Circle Partners, L.P. Y Longview Partners Y Loomis, Sayles & Company, L.P. Y Y Lord Abbett & Company Y Y Los Angeles Capital Management Y LSV Asset Management Y Lyrical Partners Y MacKay Shields LLC Y Y Man Investments Y Manulife Asset Management Y Martin Currie Y Marvin & Palmer Associates, Inc. Y Mesirow Financial Investment Management Y Metropolitan West Capital Management, LLC Y Y MFS Investment Management Y Y Mondrian Investment Partners Limited Y Y Montag & Caldwell, Inc. Y Y Morgan Stanley Alternative Investment Partners Y Morgan Stanley Investment Management Y Y Mountain Lake Investment Management LLC Y National Investment Services, Inc. Y Neuberger Berman, LLC (fka, Lehman Brothers) Y Y Newton Capital Management Y Northern Lights Capital Group Y Northern Trust Global Investment Services Y Y Nuveen Investments Institutional Services Group LLC Y Old Mutual Asset Management Y Y Knowledge. Experience. Integrity. 3 List of Managers That Do Business with Callan Associates Inc. (continued) Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 03/31/14, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer. OppenheimerFunds, Inc. Y Pacific Investment Management Company Y Palisade Capital Management LLC Y Parametric Portfolio Associates Y Peregrine Capital Management, Inc. Y Y Philadelphia International Advisors, LP Y PineBridge Investments (formerly AIG) Y Pinnacle Asset Management Y Pioneer Investment Management, Inc. Y PNC Capital Advisors (fka Allegiant Asset Mgmt) Y Y Post Advisory Y Principal Global Investors Y Y Private Advisors Y Prudential Fixed Income Management Y Prudential Investment Management, Inc. Y Y Prudential Real Estate Y Putnam Investments, LLC Y Y Pyramis Global Advisors Y Rainier Investment Management Y RBC Global Asset Management (U.S.) Inc. Y Regions Financial Corporation Y RCM Y Robeco Investment Management Y Y Rothschild Asset Management, Inc. Y Y Russell Investment Management Y Santander Global Facilities Y Schroder Investment Management North America Inc. Y Y Scout Investments Y SEI Investments Y SEIX Investment Advisors, Inc. Y Select Equity Group Y Smith Graham and Company Y Smith Group Asset Management Y Standard Life Investments Y Standish (fka, Standish Mellon Asset Management) Y State Street Global Advisors Y Stone Harbor Investment Partners, L.P. Y Strategic Global Advisors Y Systematic Financial Management Y T. Rowe Price Associates, Inc. Y Y Taplin, Canida & Habacht Y TCW Asset Management Company Y Thompson, Siegel & Walmsley LLC Y UBS Y Y Union Bank of California Y Knowledge. Experience. Integrity. 4 List of Managers That Do Business with Callan Associates Inc. (continued) Confidential – For Callan Client Use Only Callan Associates takes its fiduciary and disclosure responsibilities to clients very seriously. The list below is compiled and updated quarterly because we believe our fund sponsor clients should have a clear understanding of the investment management organizations that do business with our firm. As of 03/31/14, Callan provided educational, consulting, software, database, or reporting services to this list of managers through one or more of the following business units: Institutional Consulting Group, Independent Adviser Group, Fund Sponsor Consulting, the Callan Investments Institute and the “Callan College.” Per strict policy these manager relationships do not affect the outcome or process by which any of Callan’s services are conducted. Fund sponsor clients may request a copy of this list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by the managers employed by their fund. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department. Clients should also be aware that Callan maintains an asset management division, the Trust Advisory Group (TAG). TAG specializes in the design, implementation and on-going management of multi-manager portfolios for institutional investors. Currently TAG serves as the sponsor and advisor to a multi-manager small cap equity fund and as the non-discretionary adviser to a series of Target Maturity Funds known as the Callan GlidePath® Funds. We are happy to provide clients with more specific information regarding TAG, including detail on the portfolios that it oversees. Per company policy these requests are handled by TAG’s Chief Investment Officer. Van Eck Y Victory Capital Management Inc. Y Vulcan Value Partners, LLC Y Y Waddell & Reed Asset Management Group Y Y WCM Investment Management Y WEDGE Capital Management Y Weitz Funds Y Wellington Management Company, LLP Y Wells Capital Management Y Western Asset Management Company Y William Blair & Co., Inc. Y Y Knowledge. Experience. Integrity. 5 Strategy review Orange County Sanitation District 1 May 2014 For professional use only. Client-specific update – not for public distribution. Disclosures PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. The Morningstar Fixed-Income Fund Manager of the Year award (PIMCO Income, 2013) is based on the strength of the manager, performance, strategy and firm’s stewardship. Morningstar Awards 2013©. Morningstar, Inc. All Rights Reserved. Awarded to Dan Ivascyn and Alfred Murata for U.S. Fixed Income Fund Manager of the Year. Your Global Investment Authority pg 1 Biographical information Stephanie L. King, CFA Ms. King is an executive vice president and account manager in the Newport Beach office, focusing on U.S. institutional investors within the public client practice. Previously at PIMCO, she worked with a variety of institutional client types and co-headed the U.S. corporate client practice. Additionally, she led the firm’s global recruiting function as part of PIMCO’s business management group and worked on a variety of talent management initiatives. She currently serves on the steering committee for PIMCO’s global inclusion, diversity and culture initiative. Prior to joining PIMCO in 2001, she was with Morgan Stanley, Blue Capital Management and Bain & Company. She has 15 years of investment experience and holds an MBA from Stanford University Graduate School of Business and an undergraduate degree from the Wharton School of the University of Pennsylvania. Todd A. Staley, CFA Mr. Staley is a vice president and account manager in the Newport Beach office, focusing on U.S. institutional investors within the public client practice. Prior to joining PIMCO in 2011, he worked as a structured finance associate on the non-mortgage asset backed securitization team at Bank of America. He has seven years of investment experience and holds an MBA from the Kenan-Flagler Business School at the University of North Carolina as well as an undergraduate degree from the University of Cincinnati. Your Global Investment Authority pg 2 Agenda 1. Market review and performance 2. Outlook and strategy 3. PIMCO update 4. Appendix Your Global Investment Authority 203_cover pg 3 Falling yields and modest spread tightening supported returns U.S. Treasury curve Dec '13 Mar '14 Treasury curve flattened, pricing in an 4.0 earlier-than-expected rate hike 3.5 3.0 ° Safe-haven bonds outperformed early on 2.5 geopolitical and emerging market uncertainty 2.0 ° More FOMC participants targeted a fed funds rate of (%) Yield 1.5 1% by the end of 2015 1.0 0.5 0.0 6m 1y 2y 3y 5y 7y 10y 15y 20y 30y Spreads to Treasuries by sector Q1 '14 change Spread sectors generally tightened 30 ° Spreads compressed after widening in January 20 10 ° Investor demand and stable fundamentals buoyed credit markets 0 -10 Basis points Basis (bps) -20 -30 IGC Industrials IGC Utilities IGC Financials U.S. MBS U.S. Corp HY As of 31 March 2014 SOURCE: Bloomberg, Barclays, Federal Reserve Barclays U.S. Corporate Index and subindex components Barclays U.S. MBS Index, Barclays U.S. Corporate High Yield Index Your Global Investment Authority 1cs_TR_review_01 pg 4 Global interest rates dropped as equity markets diverged Q1 '14 yield changes and equity returns Geopolitical risks overshadowed stronger data 100 20 75 15 ° Yields fell following turmoil in eastern Europe 50 10 returnPrice (%) 25 5 ° Peripherals seem to be unaffected, outperforming on 0 0 expectations of a gradual recovery -25 -5 Change(bps) ° Japanese export growth has slowed while import prices have -50 -10 increased on yen depreciation -75 -15 -100 -20 Italy U.K. U.K. Italy Japan Japan Spain Spain Germany Germany 10y bonds Equities Onset of taper brings EM liquidity concerns Q1 '14 emerging market performance Local External Equity ° Countries with funding deficits, political 105 unrest, underperformed ° Fall in U.S. yields buffered external EM bonds 100 95 Normalized start start = Normalized 100 90 Dec '13 Jan '14 Feb '14 Mar '14 As of 31 March 2014 SOURCE: Bloomberg, JPMorgan FTSE 100; DAX; FTSE MIB; IBEX 35; Nikkei 225; JPMorgan EMBI Global; JPMorgan GBI-EM Global Diversified (Unhedged); MSCI EM Your Global Investment Authority 1cs_TR_review_02 pg 5 Q1 2014 saw increased volatility and moderated returns Option 2 Core fixed income Non -core fixed income Global fixed income and currency Equity and commodity 36 Q1 '14 2013 32 28 24 20 16 12 8 Returns in USD Returns (%) USD in 4 0 -4 -8 -12 U.S. MTG IGC Treasuries Munis TIPS HY CMBS Global EM EM ($) USD ($) Global U.S. EM Commodities bonds local equities equities equities ° Yields fell on disappointing ° Robust investor demand ° EM local bonds recovered late ° Developed market returns economic data supported returns in high yield in Q1 diverged on policy, fundamentals ° IGC outperformed, benefitting ° Inflation expectations rose on ° Bonds in the Eurozone’s from improved fundamentals gains in commodity prices periphery outperformed ° Diminished growth prospects and policy challenges weighed on EM stocks As of 31 March 2014 SOURCE: Barclays, Bloomberg, Federal Reserve, JPMorgan, PIMCO Barclays U.S. Aggregate; Barclays MBS Fixed Rate Mortgage; Barclays Investment Grade Credit; Barclays U.S. Treasury; Barclays Municipal Bond; Barclays U.S. TIPS; BofA Merrill Lynch U.S. High Yield BB-B Rated; Barclays CMBS ERISA-Eligible; JPMorgan EMBI Global; JPMorgan GBI Global ex-U.S. USD Hedged Index, JPMorgan GBI-EM Global Diversified (Unhedged); Dollar Index Spot; MSCI World; S&P 500; MSCI EM; DJ-UBS Commodity USD ($) measured relative to basket of seven currencies on a trade-weighted basis Your Global Investment Authority 1cs_TR_review_03a pg 6 Performance review Orange County Sanitation District – Long Term portfolio Market value as of Mar '13 $ 360,305,427 Contributions/Withdrawals $ 85,000,000 Net Investment Earnings $ -6,154,198 Market value as of Mar '14 $ 439,151,229 Performance Portfolio (before fees) Benchmark 10 8 6 4 2 Returns Returns (%) 0 -2 -4 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 YTD '14 Orange County Sanitation District – Long Term portfolio Since # inception # 30 Sep '95 10 yrs. 5 yrs. 3 yrs. 2 yrs. 1 yr. 9 mos. 6 mos. 3 mos. # Before fees (%) 5.0 3.7 3.2 2.0 0.8 -1.2 0.7 0.3 0.7 # After fees (%) 4.8 3.5 3.1 1.9 0.7 -1.4 0.6 0.3 0.7 # Benchmark (%) 4.7 3.3 2.9 1.9 1.2 0.5 1.3 0.6 0.4 # As of 31 March 2014 All periods longer than one year are annualized Benchmark: BofA Merrill 1-5 Year Gov t/Corp. prior, Performance Holiday from COB 12/19/2012 to COB 01/01/2013, BofA Merrill 1-5 Year Gov t/Corp. from 01/01/2013 Your Global Investment Authority 203_perf_sep pg 7 Performance review Orange County Sanitation District – Liquid Operating portfolio Market value as of Mar '13 $ 70,949,457 Contributions/Withdrawals $ -20,123,288 Net Investment Earnings $ 49,929 Market value as of Mar '14 $ 50,876,099 Performance Portfolio (before fees) Benchmark 8 7 6 5 4 Returns Returns (%) 3 2 1 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 YTD '14 Orange County Sanitation District – Liquid Operating portfolio Since # inception # 30 Sep '95 10 yrs. 5 yrs. 3 yrs. 2 yrs. 1 yr. 9 mos. 6 mos. 3 mos. # Before fees (%) 3.1 1.8 0.2 0.2 0.1 0.1 0.1 0.0 0.0 # After fees (%) 2.9 1.6 0.1 0.0 0.0 -0.1 -0.1 -0.1 0.0 # Benchmark (%) 2.7 1.6 0.1 0.1 0.1 0.1 0.0 0.0 0.0 # As of 31 March 2014 All periods longer than one year are annualized Benchmark: Citi 3-Month Treasury Bill Index Your Global Investment Authority 603_perf_sep pg 8 Portfolio positioning Orange County Sanitation District – Long Term portfolio Orange County Sanitation District – Liquid Operating portfolio CHARACTERISTICS 30 Sep '13 31 Dec '13 31 Mar '14 CHARACTERISTICS 30 Sep '13 31 Dec '13 31 Mar '14 Portfolio 3.2 2.7 2.8 Portfolio 0.3 0.1 0.1 Effective duration 1 (yrs.) Effective duration 1 (yrs.) Index 2.7 2.7 2.7 Index 0.2 0.2 0.2 Yield to maturity (%) 1.2 1.2 1.0 Yield to maturity (%) 0.0 0.0 0.0 Total curve duration²: -0.1 Total curve duration²: 0.0 30 Sep '13 31 Dec '13 30 Sep '13 31 Dec '13 Sector allocations – duration weighted 31 Mar '14 Benchmark Sector allocations – duration weighted 31 Mar '14 Benchmark 3.0 1.0 0.9 2.5 0.8 2.1 1.9 1.9 0.7 2.0 1.7 0.6 1.5 0.5 Years Years 0.4 1.0 0.3 0.3 0.7 0.2 0.4 0.5 0.2 0.5 0.4 0.4 0.4 0.3 0.2 0.3 0.1 0.1 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government Mortgage Credit Muni/Other Government Related* Net Cash Equivalents/ MM Related* Futures** NOTE: “Other” is comprised of municipals, convertibles, euro/yankees, preferred stock ¹ In November 2011 PIMCO modified its duration calculation to account for the potential that holders of securities subject to credit risk may, in the event of default, recover a portion of their investment prior to maturity. The duration reflects the revised calculation. ² Measures a portfolio’s price sensitivity relative to the benchmark to changes in the slope of the yield curve, measured between the 2–30 year government yields, holding the 7-year yield constant. For every one basis point of steepening (flattening), a portfolio with curve duration of one year will rise (fall) in price by one basis point relative to the benchmark. Your Global Investment Authority 203_LD_Attrib_01 pg 9 Economic outlook: Improving conditions in U.S. and Europe = Above New Normal growth Eurozone CYCLICAL: RISKS: BALANCED = New Normal growth ° ECB policy framework supports improved = Below New Normal growth valuations and rising aggregate demand ° Lower borrowing costs in periphery suggest rising aggregate demand ° Strong euro may weaken external competitiveness United CYCLICAL: CYCLICAL: States RISKS: BALANCED Japan RISKS: BALANCED ° Handoff from policy to fundamentals may ° Abenomics honeymoon fades on anticipation increase volatility of tax hikes and reduced spending ° Diminished fiscal drag clears path for ° Yen depreciation may be insufficient to increased growth maintain growth if real imports increase ° Corporations may begin to transition ° Demographics remain challenging from cash retention to capex spending Emerging CYCLICAL: economies RISKS: DOWNSIDE ° China slowdown may yield sub-7% growth, weighing on global economy ° Geopolitical factors continue to impact near-term outlook ° Latam regional outlook more robust due to domestic policy choices and stronger ties to U.S. growth As of 31 March 2014 Your Global Investment Authority 1cs_pimco_outlook_01 pg 10 Global central banks embark on different policy paths U.S. core inflation * Fed to focus on inflation 3.0 ° The unemployment rate is on target, but inflation 2.5 is still trending below 2% Fed 2% target 2.0 ° Timing of first rate hike dependent on a wider range of labor market metrics, not just the 1.5 unemployment rate YoYchange % 1.0 0.5 2007 2008 2009 2010 2011 2012 2013 2014 Central bank policy rates Mar '13 Mar '14 Global interest rates are diverging 12 ° Most developed market central banks are biased 10 towards monetary accommodation 8 ° Higher interest rates in emerging markets are 6 needed to stem capital outflows and stabilize Percent currencies 4 2 0 U.S. U.K. India Brazil Russia Turkey Canada Australia Eurozone Indonesia South Africa South As of 31 March 2014 SOURCE: Haver Emerging markets Developed markets * Year-over-year percentage change in the core personal consumption expenditure deflator Your Global Investment Authority 1cs_pimco_outlook_02 pg 11 Optimism over U.S. growth prospects Student Loans Credit Cards Household deleveraging trend is ending Autos Mortgages U.S. household debt Household Credit Growth 15 ° Household mortgage debt outstanding has stopped contracting; credit growth is improving 10 ° Falling unemployment may put upward pressure on wages and facilitate new borrowing 5 YoY%change 0 -5 2006 2007 2008 2009 2010 2011 2012 2013 Corporate investment expected to increase Corporate capex* ° Rising consumer confidence and diminished policy uncertainty 60 creates favorable environment for investing 40 ° Higher investment may lead to new hiring and reinforce consumer spending growth 20 0 YoYchange % -20 -40 2005 2006 2007 2008 2009 2010 2011 2012 2013 As of 31 March 2014 SOURCE: Federal Reserve, BEA, PIMCO * Real capital expenditures of the nonfinancial corporate sector Your Global Investment Authority 1cs_pimco_outlook_03 pg 12 Global growth is improving, but questions remain over its sustainability Italy Spain European competitiveness France Germany European outlook more positive, but uneven 135 ° ECB has stabilized growth prospects and dramatically reduced 125 breakup risk 115 ° But some major economies (Italy and France) have made Competitiveness gap limited progress in boosting competitiveness 105 Germany (Q1-2000=100) Germany Unit Labor Costs Relative to to Labor Unit CostsRelative 95 2000 2002 2003 2004 2006 2007 2009 2010 2011 2013 Japanese core CPI Progress in Japan is balanced by risks 4 ° Central bank stimulus has pushed inflation into positive territory for the first time in over a decade 2 ° Upcoming VAT increase and rising energy imports may 0 diminish growth momentum YoYChange % -2 1990 1993 1996 1999 2002 2005 2008 2011 2014 Chinese domestic credit Wider range of growth outcomes in China 220 ° Policymakers are reining in credit as they transition away from 200 an investment-led growth model 180 160 ° A well-managed, gradual increase in default rates will signal the economy’s improving robustness ofGDP % 140 120 As of 31 March 2014 100 SOURCE: Haver 2005 2006 2007 2008 2009 2010 2011 2012 2013 Your Global Investment Authority 1cs_pimco_outlook_04 pg 13 Portfolio strategy: Focus on quality and liquidity in an uncertain environment Interest rate strategies Continue to emphasize the 1–5 year portion of the curve to reduce volatility from interest rate Target front end maturities movements while gaining carry as short-term yields remain anchored Non-U.S. duration Focus on short-dated sovereign debt and interest rate positions in select non-U.S. countries, such as Mexico, Italy, and Spain Strategic positioning 1) Limit exposure to agency MBS as the sector is rich at current levels and may experience Mortgage-backed security holdings spread widening in coming months due to reduced Fed purchases and increased issuance 2) Continue holding non-agency MBS as valuations are fair on a liquidity-adjusted basis 1) Maintain low overall exposure to the financial sector Limit investment grade credit 2) Retain up-in-quality bias across investment grade corporate sectors Tactical positioning Limit exposure to non-USD currencies due to increased market volatility; favor USD over other Low currency exposure developed currencies where central banks are more active As of 31 March 2014 Your Global Investment Authority 1cs_Low_Dur_Strat_01 pg 14 PIMCO cyclical forum economic forecasts REAL GDP HEADLINE INFLATION PIMCO FORECAST PIMCO FORECAST CURRENT 1 CURRENT 1 Q1 ’14 – Q1 ’15 Q1 ’14 – Q1 ’15 U.S. 2.5% 2.5% to 3.0% 1.5% 1.75% to 2.25% Eurozone 0.5% 1.0% to 1.5% 0.8% 0.75% to 1.25% U.K. 2.7% 2.5% to 3.0% 2.0% 1.75% to 2.25% Japan 2.7% 0.5% to 1.0% 1.1% 0.75% to 1.25% China 7.7% 6.5% to 7.5% 3.0% 2.5% to 3.5% BRIM 2 2.3% 2.5% to 3.5% 6.8% 5.5% to 6.5% World 3 2.9% 2.5% to 3.0% 2.4% 2.25% to 2.75% As of 10 March 2014 SOURCE: Bloomberg, PIMCO calculations 1 Current data for real GDP growth and inflation is actual and represents four quarters ending Q4 2013 2 Brazil/Russia/India/Mexico 3 World is weighted average sum of countries listed in table above Your Global Investment Authority 1cs_pimco_outlook_10 pg 15 PIMCO snapshot History People Global presence Investment ° Founded in 1971 Employees 2,454 Offices Professionals ° Investment solutions include fixed ° Investment professionals 737 Amsterdam 2 income, active equities, alternatives and Hong Kong 14 ° Technical and support 1,717 asset allocation London 134 Highly experienced Avg Yrs Avg Yrs Milan 3 ° Assets under management: $1.93 trillion Experience at PIMCO Munich 61 – $1.53 trillion in third-party ° All investment New York 120 professionals 13 6 client assets Newport Beach 335 – Full complement of vehicles to meet ° Senior professionals 19 10 Rio de Janeiro 6 client needs (mutual funds, separate Singapore 12 accounts, LPs, ETFs) Sydney 12 Tokyo 28 Toronto 4 Zurich 6 As of 31 March 2014 Effective 31 March 2012, PIMCO began reporting the assets managed on behalf of its parent’s affiliated companies as part of its assets under management Your Global Investment Authority 1cs_pimco_update_04 pg 16 Assets under management by strategy Alternatives Billions ($) Liquid Absolute Return Unconstrained bond strategies, credit absolute return, other absolute return strategies 36.74 Hedge Funds Global macro, long/short credit, multi-asset volatility arbitrage strategies, relative value commodities 16.09 Opportunistic/Distressed Opportunistic strategies focusing on real estate related assets (residential, commercial), corporate credit 5.60 Asset Allocation Asset Allocation Strategies Global Multi Asset, All Asset, EM Multi Asset, Real Retirement, Inflation-Response Multi Asset, DRA 80.80 Equities ® StocksPLUS Combines derivatives-based equity exposure with active bond management 19.67 Active Equities Pathfinder, Emerging Markets, Dividend, Global Long/Short 4.52 Real Return Inflation-Linked Bonds U.S., Global 66.57 Commodities Actively managed commodity exposure enhanced with actively managed collateral portfolios 21.87 Real Estate Real-estate linked exposure enhanced with actively managed collateral portfolios 0.94 Fixed Income Intermediate* Total Return, Moderate Duration 497.53 Credit Investment Grade Corporates, Bank Loans, High Yield Corporates, Convertibles 185.02 Cash Management* Money Market, Short-Term, Low Duration 130.23 Long Duration Focus on long-term bonds; asset liability management 131.90 Global Non-U.S. and global multiple currency formats 122.06 Emerging Markets Local debt, external debt, currency 64.31 Mortgages Agency MBS, structured credit (non-Agency MBS, CMBS, and ABS) 46.70 Income Income-oriented, insurance income 56.31 Diversified Income Global credit combining corporate and emerging markets debt 28.54 Municipals Tax-efficient total return management 12.60 Other 10.18 Total assets under management $ 1,538.17 B C$ 1,699.68 B Stable Value* Stable income with emphasis on principal stability 30.71 Tail-Risk Hedging** Pooled and customized portfolios of actively managed tail-risk hedges 44.64 As of 31 March 2014 SOURCE: PIMCO Assets reflect those managed on behalf of third-party clients and exclude affiliated assets. Fund of funds assets have been netted from each strategy. Potential differences in asset totals are due to rounding. Represents assets of strategy group in dedicated and non-dedicated portfolios. * Stable value assets have not been netted from U.S. Total Return, U.S. Moderate Duration and U.S. Low Duration assets ** Tail-risk hedging assets reflect total notional value of dedicated mandates and are not counted towards PIMCO total assets under management Your Global Investment Authority 4cs_pimco_orga_assets_01 pg 17 Rating Agency Comparisons A summary of investment grade ratings are listed below. More complete descriptions of Moody's and Standard & Poor's ratings are included in the following pages. Quality/Grade Moody’s Standard & Fitch Poor’s Best Quality Aaa AAA AAA High Quality Aa1 AA+ AA+ Aa2 AA AA Aa3 AA- AA- Upper Medium Grade A1 A+ A+ A2 A A A3 A- A- Medium Grade Baa1 BBB+ BBB+ Baa2 BBB BBB Baa3 BBB- BBB- Moody's - Investment Grade "Aaa" - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. "Aa" - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in Aaa securities. "A" - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. "Baa" • Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds in the Aa, A. and Baa are also assigned "1", "2" or "3" based on the strength of the issue within each category. Accordingly, "A1" would be the strongest group of A securities and "A3" would be the weakest A securities. Ba, B, Caa, Ca, and C Bonds that possess one of these ratings provide questionable protection of interest and principal ("Ba" indicates some speculative elements; "B" indicates a general lack of characteristics of desirable investment; "Caa" represents a poor standing; "Ca" represents obligations which are speculative in a high degree; and •c• represents the lowest rated class of bonds). "Caa,• "Ca" and •c• bonds may be in default. Standard and Poor's - Investment Grade AAA . Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal Is extremely strong. AA .Debt rated •AA• has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A . Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB • Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Standard and Poor's - Speculative Grade Rating Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. "BB" indicates the least degree of speculation and "C" the highest. While such debt will likely have some quality and protective characteristics these are outweighed by major uncertainties or major exposures to adverse conditions. BB - Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB" rating. B ·Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB" rating. CCC .Debt rated "CCC" has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business. financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B" rating. cc .The rating "CC" typically is applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" debt rating. C The rating “C” typically is applied to debt subordinated to senior debt which is assigned an actual or implied “CCC” debt rating. The “C” rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. Cl . The rating "Cl" is reserved for income bonds on which no interest is being paid. D .Debt rated •o• is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The •o• rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR - Indicates no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. ORANGE COUNTY SANITATION DISTRICT FINANCIAL MANAGEMENT DIVISION 10844 Ellis Avenue Fountain Valley, California 92708-7018 714.962.2411 www.ocsewers.com 03/31/14