NEW CASTLE SANITATION AUTHORITY

Transcription

1 NEW CASTLE SANITATION AUTHORITY ~ ~ ~ ~ ~ FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

2 NEW CASTLE SANITATION AUTHORITY NEW CASTLE, PENNSYLVANIA FINANCIAL STATEMENTS WITH REPORT BY CERTIFIED PUBLIC ACCOUNTANT FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

3 NEW CASTLE, PENNSYLVANIA TABLE OF CONTENTS PAGE Independent Auditor's Report... i-ii Management s Discussion and Analysis.... iii-vii Exhibit A Statement of Net Position... 1 Exhibit B - Statement of Revenues, Expenses and Changes in Net Position Exhibit C - Statement of Cash Flows... 3 Notes to Financial Statements Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios...20 Schedule of Actuarially Determined Pension Contribution and Related Ratios Schedule of Funding Progress and Contributions from Employer Schedule of Annual Money-Weighted Rate of Return Supplementary Information: Schedule 1 Schedule of Budget and Actual Revenues and Expenses Schedule 2 Detail Schedule of Operating Expenses... 25

4 Mark C. Turnley Certified Public Accountant rd Avenue New Brighton, Pennsylvania (724) FAX (724) Management and Board of Directors New Castle Sanitation Authority New Castle, Pennsylvania Independent Auditor's Report Report on Financial Statements I have audited the accompanying basic financial statements of the New Castle Sanitation Authority (the Authority) as of and for the years ended December 31, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. i American Institute of Certified Public Accountants Pennsylvania Institute of Certified Public Accountants

5 Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the New Castle Sanitation Authority, Lawrence County, Pennsylvania as of December 31, 2015 and 2014 and the respective changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages iii-vii and the defined benefit pension plan information on pages be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. I have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to my inquiries, the basic financial statements, and other knowledge I obtained during my audit of the basic financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information My audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise New Castle Sanitation Authority s basic financial statements. The supplementary information (Schedule 1 and 2) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information (Schedule 1 and 2) is the responsibility of management and was derived from and relate directly to the underlying accounting and other records use to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. June 27, 2016 New Brighton, Pennsylvania Mark C. Turnley, CPA ii

6 LAWRENCE COUNTY, PENNSYLVANIA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) December 31, 2015 The discussion and analysis of the New Castle Sanitation Authority s (NCSA s) financial performance provides an overall review of the Authority s financial activities for the year ended December 31, The intent of this discussion and analysis is to look at the Authority s financial performance as a whole; readers should also review the financial statements and notes to the financial statements to enhance their understanding of the Authority s financial performance. The Management Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments issued June Certain comparative information between the current year and the prior year is required to be presented in the MD&A. FINANCIAL HIGHLIGHTS Key financial highlights for 2015 are as follows: Net position increased by $938,803 in 2015 from operations. A prior period adjustment was made for $144,699 as a result of the implementation of GASB Statement No. 68. The net effect was an increase in net position from 2014 of $1,083,502. Total operating revenues were $6,636,852 in 2015, an increase of $592,596 from Total operating expenses increased by $539,490 in 2015 to $4,888,670. Accordingly, the net operating income increased by $53,106 to $1,748,182 for There were several areas in operating expenses that increased from 2014 including salaries and wages, employee benefits, chemicals, utilities and maintenance. The Authority adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions - for calendar year The Authority is now required to recognize an actuarially determined net pension liability or asset on their statement of net position, along with deferred outflows and inflows related to their pension as a result of their employee pension plan. As of January 1, 2015, the net pension asset was $209,934. USING THE ANNUAL FINANCIAL REPORT (GASB 34) The Annual Financial Report consists of the Management Discussion and Analysis (this section), basic financial statements, notes to those statements and a supplemental schedule detailing operating expenses. These statements compare the financial position, results of operations and cash flows of NCSA for the years 2015 and The primary purposes of New Castle Sanitation Authority s basic financial statements are as follows: Exhibit A Statement of Net Position Provides a view of the financial condition of the Authority including its liquidity, capital assets, long-term debt obligations and net position. Over time, increases or decreases in the Authority s net position are an indication of whether its financial health is improving or deteriorating. To assess the overall health of the Authority, you need to consider additional non-financial factors, such as changes in the Authority s customer base and the condition of the Authority s infrastructure (water treatment plant & distribution system). iii

7 LAWRENCE COUNTY, PENNSYLVANIA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) December 31, 2015 USING THE ANNUAL FINANCIAL REPORT (GASB 34) Exhibit B Statement of Revenues, Expenses and Changes in Net position Provides information with regard to the types of revenues earned and expenses incurred by the Authority on an annual basis. In addition, this statement indicates whether charges for services to customers were sufficient to meet the current operating costs, and potentially certain capital costs, necessary to operate the Authority or whether the Authority had to draw on prior net asset reserves to meet its obligations. Exhibit C Statement of Cash Flows Provides relevant information about the cash receipts and cash payments of NCSA during the year, specifically, how much cash was generated for operating needs and the amount of cash required for capital needs and debt service obligations. FINANCIAL ANALYSIS OF THE AUTHORITY A breakdown of the assets, liabilities and net position of the Authority for the years 2015 and 2014 is as follows: INCREASE <DECREASE> Current Assets $ 6,109,558 $ 6,129,819 $ (20,261) Restricted Assets 3,067,029 3,252,136 (185,107) Non-Current Assets 35,144,232 34,510, ,706 Deferred Outflow of Resources - Pension 28,069-28,069 TOTAL ASSETS & DEFERRED OUTFLOWS OF RESOURCES $ 44,348,888 $ 43,892,481 $ 456,407 Current Liabilities $ 1,434,530 $ 1,509,194 $ (74,664) Long-term Liabilities 31,363,680 32,009,415 (645,735) Deferred Inflow of Resources - Pension 93,294-93,294 TOTAL LIABILITIES & DEFERRED INFLOWS OF RESOURCES $ 32,891,504 $ 33,518,609 $ (627,105) Net Investment in Capital Assets $ 3,884,359 $ 3,515,806 $ 368,553 Restricted 3,067,029 3,252,136 (185,107) Unrestricted 4,505,986 3,605, ,056 TOTAL NET POSITION $ 11,457,374 $ 10,373,872 $ 1,083,502 The increase in current assets was due mainly to monies received from operations. The increase in capital assets was due to capital purchases and construction exceeding the depreciation expense for the year. Longterm liabilities decreased due to the payment of bond issues. The percentage of net position invested in capital assets (buildings, land, equipment and infrastructure), as compared to total net position, increased by approximately.10% due to the decrease in the debt balances. The remaining net position is unrestricted. iv

8 LAWRENCE COUNTY, PENNSYLVANIA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) December 31, 2015 FINANCIAL ANALYSIS OF THE AUTHORITY (Continued) A comparison of the Authority s revenues, expenses and changes in net position for the years 2014 and 2013 is as follows: INCREASE <DECREASE> Operating Revenues $ 6,636,852 $ 6,044,256 $ 592,596 Operating Expenses 4,888,670 4,349, ,490 NET OPERATING INCOME <LOSS> $ 1,748,182 $ 1,695,076 $ 53,106 NonOperating Revenues $ 452,886 $ 717,682 $ (264,796) NonOperating Expenses 1,262,265 1,533,647 (271,382) NET NONOPERATING REVENUE $ (809,379) $ (815,965) $ 6,586 Extraordinary Expense $ - $ 228,130 $ (228,130) CHANGE IN NET POSITION $ 938,803 $ 650,981 $ 287,822 As reflected in Exhibit B (page 2) and Schedule 2 (page 25), most expense areas increased from Wages increased by approximately $148,951, employee benefits increased by approximately $30,749, and depreciation expense increased by $114,140 due to the addition of fixed assets for The one-time extraordinary expense in 2014 was a contribution to the non-bargained employee pension plan. CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At December 31, 2015, the Authority had $34,934,298 invested in capital assets, including sewage plant and equipment, sewer lines, and office building. This amount represents a net increase (including additions, deletions and depreciation) of $423,772, or approximately.1% from the prior year. The Authority had approximately $1,429,192 in capital additions during the 2015 year, the most significant of which were $1,086,195 for the equalization tank, $303,252 for the tank digester and plant expansion engineering and $134,833 for engineering related to sewer lines. A summary of the Authority s capital assets net of accumulated depreciation for the past two years is as follows: INCREASE <DECREASE> Sewage Plant and Equipment $ 25,137,665 $ 23,874,203 $ 1,263,462 Sewer Lines 22,341,272 22,206, ,833 Office Building 614, ,140 30,897 $ 48,092,974 $ 46,663,782 $ 1,429,192 Accumulated Depreciation (13,158,676) (12,153,256) (1,005,420) $ 34,934,298 $ 34,510,526 $ 423,772 v

9 LAWRENCE COUNTY, PENNSYLVANIA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) December 31, 2015 DEBT ADMINISTRATION As of December 31, 2015 the Authority had total Sewer Revenue Bond principal indebtedness outstanding of $32,765,000. The Authority s debt obligations are comprised of four Sewer Revenue Bond Issues (2010A, 2010B, 2010C, and 2014) as follows: On June 17, 2010, the Authority issued Sewer Revenue Bonds Series A of 2010 in the amount of $18,920,000. The purpose of the bond issue was to 1) acquire certain sanitary sewer lines, manholes, service connections, real property, rights-of-way, and equipment situated within the geographical jurisdiction and under control and ownership of the City of New Castle, Pennsylvania and fund certain improvements and repairs to such sanitary sewer lines, 2) fund the debt service reserve requirement as provided for in the Trust Indenture, and 3) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 1.842% and 6.506% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after June 1, 2020, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1, On June 17, 2010, the Authority issued Sewer Revenue Bonds Series B of 2010 in the amount of $12,310,000. The purpose of the bond issue was to 1) currently refund the Authority s Sewer Revenue Bonds, Series of 2005, and 2) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 2.0% and 4.125% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after December 1, 2015, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1, On June 17, 2010, the Authority issued Sewer Revenue Bonds Series C of 2010 in the amount of $440,000. The purpose of the bond issue was to 1) pay the insurance premium for the policy insuring the Series A Bonds and the Series C Bonds, and 2) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 1.942% and 3.812% to be paid semi-annually on June 1 and December 1. The bonds are not subject to optional redemption and are scheduled to mature on June 1, On April 10, 2014, the Authority issued Sewer Revenue Bonds Series of 2014 in the amount of $5,210,000. The purpose of the bond issue was to 1) expand the Authority s Sanitary Sewer System by the purchase and acquisition of certain sanitary sewer collection lines, real property, rights-of-way, and equipment from each of the Townships of Shenango and Union and to fund certain improvements and repairs to such sanitary sewer lines, 2) purchase equipment and fund certain improvements to existing system, 3) fund a portion of the debt service reserve requirement as provided for in the Trust Indenture, and 4) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 2.0% and 3.625% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after June 1, 2020, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1, The Authority is scheduled to make principal and interest payments on their sewer revenue bond issues of $1,523,928 during vi

10 LAWRENCE COUNTY, PENNSYLVANIA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) December 31, 2015 ORGANIZATIONAL SUMMARY The New Castle Sanitation Authority (the Authority ) was organized on August 3, 1964 under the laws of the Commonwealth of Pennsylvania as a body corporate and politic pursuant to the Municipalities Authority Act of 1945, as amended and supplemented. By it s Articles of Incorporation, it is authorized to acquire, hold, construct, improve, maintain, and operate a sewage treatment works. The governing body of the Authority is a Board consisting of seven members appointed by the City of New Castle governing body. The terms of the Board have been staggered so that the term of one or more members expires annually. The Authority does not have taxing power; ongoing operations are funded from customer revenues. The acquisition and construction of capital assets are funded from customer revenue, federal and state grants and loans, municipal securities offerings and other financing. The Authority s customer base consisted of approximately 15,500 residential and 826 commercial customers. Wastewater services are provided and include sanitary sewer services and industrial pretreatment programs. CONTACTING THE AUTHORITY FINANCIAL MANAGEMENT Our financial report is designed to provide our customers, investors and creditors with a general overview of the Authority s finances and to show the Board of Directors' accountability for the money they administer on behalf of the communities served by the New Castle Sanitation Authority. If you have questions about this report or wish to request additional financial information, please contact the New Castle Sanitation Authority offices at 102 E. Washington Street, New Castle, PA 16101, (724) vii

11 EXHIBIT A ASSETS: NEW CASTLE SANITATION AUTHORITY STATEMENT OF NET POSITION DECEMBER 31, CURRENT ASSETS Cash and Cash Equivalents $ 2,844,413 $ 2,770,074 Cash and Cash Equivalents - Reserved (Capital Projects) 1,438,741 1,014,695 Accounts Receivable (Net of Allowance for Doubtful Accounts) 1,728,223 1,662,871 Accounts Receivable - Other - 8,275 Grant Receivable - 619,130 Prepaid Expenses 98,181 54,774 TOTAL CURRENT ASSETS $ 6,109,558 $ 6,129,819 RESTRICTED ASSETS Cash and Cash Equivalents - Sewer Maintenance Fund $ 748,753 $ 938,469 Cash and Cash Equivalents - Debt Service Funds 2,318,276 2,313,667 TOTAL RESTRICTED ASSETS $ 3,067,029 $ 3,252,136 NON-CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT: Sewage Plant and Equipment $ 25,137,665 $ 23,874,203 Sewer Lines 22,341,272 22,206,439 Office Building 614, ,140 $ 48,092,974 $ 46,663,782 Less Accumulated Depreciation (13,158,676) (12,153,256) NET PROPERTY, PLANT, AND EQUIPMENT $ 34,934,298 $ 34,510,526 Net Pension Asset $ 209,934 $ - TOTAL NON-CURRENT ASSETS $ 35,144,232 $ 34,510,526 DEFERRED OUTFLOW OF RESOURCES Deferred Outflows Related to Pension $ 28,059 $ - TOTAL DEFERRED OUTFLOW OF RESOURCES $ 28,059 $ - LIABILITIES: TOTAL ASSETS AND DEFERRED OUTFLOW OF RESOURCES $ 44,348,878 $ 43,892,481 CURRENT LIABILITIES Accounts Payable - Operating $ 208,391 $ 278,312 Accrued Payroll and Withholdings 58,767 40,861 Intergovernmental Payable 42, ,021 Bonds Payable - Current portion 1,125,000 1,030,000 TOTAL CURRENT LIABILITIES $ 1,434,530 $ 1,509,194 LONG-TERM LIABILITIES Bonds Payable - Long Term Portion (Net) $ 32,488,680 $ 33,039,415 Less: Current Portion (1,125,000) (1,030,000) TOTAL LONG-TERM LIABILITIES $ 31,363,680 $ 32,009,415 TOTAL LIABILITIES $ 32,798,210 $ 33,518,609 DEFERRED INFLOW OF RESOURCES: Deferred Inflows Related to Pension $ 93,294 $ - TOTAL DEFERRED INFLOW OF RESOURCES $ 93,294 $ - NET POSITION: Net Investment in Capital Assets $ 3,884,359 $ 3,515,806 Restricted 3,067,029 3,252,136 Unrestricted 4,505,986 3,605,930 TOTAL NET POSITION $ 11,457,374 $ 10,373,872 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION $ 44,348,878 $ 43,892,481 The accompanying notes are an integral part of these financial statements 1

12 EXHIBIT B NEW CASTLE SANITATION AUTHORITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED DECEMBER 31, OPERATING REVENUES Sewer Rentals $ 5,225,976 $ 4,451,538 Sewer Conveyance 1,410,876 1,592,718 TOTAL OPERATING REVENUES $ 6,636,852 $ 6,044,256 OPERATING EXPENSES Sewage Treatment and Conveyance $ 2,283,749 $ 1,906,978 General and Administrative 1,599,500 1,550,921 Depreciation 1,005, ,281 TOTAL OPERATING EXPENSES $ 4,888,670 $ 4,349,180 OPERATING INCOME $ 1,748,182 $ 1,695,076 NON-OPERATING REVENUE AND <EXPENSE> Interest Income $ 1,059 $ 3,647 Sewer Maintenance Income 70,957 94,905 Grant - Commonwealth Financing Authority 380, ,130 Interest Expense (1,131,696) (1,240,337) Bond Issuance Costs (130,569) (293,310) TOTAL NON-OPERATING REVENUE AND <EXPENSE> $ (809,379) $ (815,965) NET INCOME BEFORE EXTRAORDINARY ITEMS $ 938,803 $ 879,111 EXTRAORDINARY ITEM: Pension Expense - Non-Union Professional Staff $ - $ (228,130) TOTAL EXTRAORDINARY ITEM $ - $ (228,130) NET INCOME $ 938,803 $ 650,981 NET POSITION - JANUARY 1, 2015 (Restated) NET POSITION - DECEMBER 31, ,518,571 9,722,891 $ 11,457,374 $ 10,373,872 The accompanying notes are an integral part of these financial statements 2

13 EXHIBIT C NEW CASTLE SANITATION AUTHORITY STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received From Sewer Charges $ 6,579,775 $ 6,116,275 Cash Payments to Suppliers and Employees for Services (4,051,488) (3,580,133) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,528,287 $ 2,536,142 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Sewer Maintenance Income (Municipalities) $ 70,957 $ 94,905 Principal Payments on Debt (9,830,000) (995,000) Bond Proceeds ,365,000 5,210,000 Bond Issue Costs 2015 (130,569) (293,310) Proceeds from Grant 1,000,000 - Interest Expense (1,262,264) (1,223,096) Additions to Property, Plant, and Equipment (1,429,192) (7,408,061) NET CASH <USED IN> CAPITAL AND RELATED FINANCING ACTIVITIES $ (2,216,068) $ (4,614,562) CASH FLOWS FROM INVESTING ACTIVITIES: Earnings on Investments $ 1,059 $ 3,647 NET CASH PROVIDED BY INVESTING ACTIVITIES $ 1,059 $ 3,647 NET INCREASE <DECREASE> IN CASH AND CASH EQUIVALENTS $ 313,278 $ (2,074,773) CASH AND CASH EQUIVALENTS - JANUARY 1, $ 7,036,905 $ 9,111,678 CASH AND CASH EQUIVALENTS - DECEMBER 31, $ 7,350,183 $ 7,036,905 RECONCILIATION OF OPERATING INCOME TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net Operating Income $ 1,748,182 $ 1,695,076 Depreciation and Amortization 1,005, ,281 Change in Assets and Liabilities <Increase> Decrease in Accounts Receivable (57,077) (256,126) <Increase> Decrease in Prepaid Insurance 43,407 (30,865) Increase <Decrease> in Current Liabilities (211,646) 236,776 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,528,287 $ 2,536,142 The accompanying notes are an integral part of these financial statements 3

14 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The New Castle Sanitation Authority was created on August 3, 1964 under the laws of the Commonwealth of Pennsylvania as a body corporate and politic pursuant to the Municipalities Authorities Act of 1945, as amended and supplemented. The purpose of the Authority is to acquire, hold, construct, improve, maintain, and operate a sewage treatment works. The Authority Board of Directors consists of seven members who are appointed by members of the City of New Castle governing body. The terms of the Board have been staggered so that the term of one or more members expires annually. The Authority provides wastewater treatment services to the City of New Castle and the surrounding region, including, Hickory, Neshannock, North Beaver, Shenango, Taylor and Union Townships, and South New Castle Borough. Revenue or other cash received must be disbursed for specific purposes in accordance with provisions of the Trust Indentures securing the Sewer Revenue Bonds Series A of 2010, Sewer Revenue Bonds Series of 2014 and Sewer Revenue Bonds Series of The financial statements of the New Castle Sanitation Authority have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental enterprise (proprietary) funds. The focus of proprietary fund measurement is upon determination of operating income, changes in net position, financial position, and cash flows. The generally accepted accounting principles applicable are those similar to businesses in the private sector. The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). During the 2015 calendar year, the Authority adopted the provisions of GASB Statement No. 67 Financial Reporting for Pension Plans, an Amendment of GASB Statement No. 25, GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and GASB Statement No. 71, Pension Transition for Contributions made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68. The more significant accounting policies established in GAAP and used by the Authority are discussed below. REPORTING ENTITY A reporting entity is comprised of the primary government, component units and other organizations that are included to ensure the financial statements are not misleading. The primary government of the New Castle Sanitation Authority consists of all funds, departments, boards and agencies that are not legally separate from the Authority. As defined by GASB No. 14, component units are legally separate entities that are included in the Authority s reporting entity because of the significance of their operating or financial relationships with the Authority. Based on the application of these criteria, the New Castle Sanitation Authority has no component units. BUDGETARY ACCOUNTING Management submits a proposed budget to the Authority Board of Directors annually prepared consistent with accounting principles generally accepted in the United States of America. The budget is used by management and the Board of Directors for internal reporting purposes to monitor and control the finances of the Authority. All unexpended and unencumbered appropriations in the operating budget lapse at yearend. For further clarity in regards to SCHEDULE 1 found on page 16, it is important to note that the BUDGET figure found under the Debt Principal line item in the amount of $1,030,000 represents principal included in the Authority s budget each year to ensure that adequate cash is available to meet these obligations. The ACTUAL expense represents interest payments only, with the corresponding principal payments reflected as a decrease in the long-term liabilities found on the balance sheet. 4

15 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) BASIS OF ACCOUNTING The Authority is considered a proprietary (enterprise) fund type. Proprietary funds are used to account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the cost of providing goods or services to the general public be financed or recovered primarily through user charges. Accordingly, the Authority utilizes the accrual method of accounting. Under this method, revenues are recognized when earned rather than when cash is received, and expenses are recognized when an obligation is incurred rather than when cash is actually paid. CASH AND CASH EQUIVALENTS For the purposes of the Statement of Cash Flows, cash and cash equivalents include amounts in demand deposit accounts, and any other short-term highly liquid assets with original maturity terms of less than three months. INVESTMENTS Investments are made pursuant to Section 7.1 of the Municipal Authorities Act and can include the following: I. U.S. Treasury Bills II. Obligations of the U.S. Government and Federal Agencies III. Certificates of Deposit, Checking and Savings Accounts insured by the FDIC or National Credit Union Share Insurance Fund (NCUSIF) IV. General obligation bonds of the federal government, Commonwealth of Pennsylvania or any state agency V. Shares of Mutual Funds whose investments are restricted to the aforementioned investments In addition, the Board of Directors can invest the Authority s sinking funds as authorized for local governments in the Local government Unit Debt Act, 53 Pa.C.S The Authority is in compliance with the Municipal Authorities Act investment restrictions as of December 31, RESTRICTED ASSETS Cash and cash equivalents Sewer Maintenance Fund was established between the Authority and the participating municipalities for the purpose of receiving Township transportation charge receipts. These monies are to be expended for the sole purpose of maintaining the present as well as future sewer line facilities and Sewage Treatment Plant. The activity and balance in this fund as of December 31, 2015 and 2014 is as follows: Participating Municipality Balance 1/1/2015 Receipts Disbursements Balance 12/31/2015 Neshannock Township $ 585,092 $ 45,246 $ (214,806) $ 415,532 Union Township Shennago Township South New Castle Borough 57,788 3,234 (13,328) 47,694 Taylor Township 185,665 12,056 (666) 197,054 Hickory Township 89,006 5,437 (23,859) 70,585 North Beaver Township 20,918 2,078 (8,108) 14,888 $ 938,469 $ 68,051 $ (260,767) $ 745,753 5

16 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) RESTRICTED ASSETS (Continued) Participating Municipality Balance 1/1/2014 Receipts Disbursements Balance 12/31/2014 Neshannock Township $ 537,486 $ 47,606 $ - $ 585,092 Union Township 483,505 13,100 (496,605) - Shennago Township 287,416 11,023 (298,439) - South New Castle Borough 54,548 3,240-57,788 Taylor Township 176,636 9, ,665 Hickory Township 80,029 8,977-89,006 North Beaver Township 18,839 2,079-20,918 $ 1,638,459 $ 95,054 $ (795,044) $ 938,469 In accordance with the provisions of the Trust Indentures, by and between the Bank of New York Mellon and the New Castle Sanitation Authority, which secure the Sewer Revenue Bonds Series A of 2010, Sewer Revenue Bonds Series of 2014, and Sewer Revenue Bonds Series of 2015 the Authority is obligated to restrict certain funds to pay for certain administrative and capital related expenditures and to meet debt service requirements. The total of these funds is reflected in Exhibit A as 'cash and cash equivalents debt service funds' and is comprised of the following at December 31, 2015 and 2014: 12/31/ /31/2014 Debt Service Funds $ 33,356 $ 30,098 Debt Service Reserve Funds 2,284,920 2,283,569 $ 2,318,276 $ 2,313,667 The Authority is in compliance with the aforementioned Trust Indentures as of December 31, ACCOUNTS RECEIVABLE Accounts receivable are stated at net realizable value. The Authority uses the allowance method for charging potential uncollectible accounts receivable to operations based on management estimates and prior collection experience. Accounts receivable is comprised of the following as of December 31, 2015 and 2014: 12/31/ /31/2014 Sewer Rental $ 817,983 $ 839,626 Sewer Rental - Reserve for Bad Debt (312,353) (250,313) Travel Charge 1,132,419 1,211,706 Travel Charge - Reserve for Bad Debt (312,801) (352,551) Union Township 82,378 43,764 Shenango Township 189,479 96,188 Dumpers 55,723 53,757 Townships 40,938 20,694 Penalties 34,457 - $ 1,728,223 $ 1,662,871 6

17 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INVENTORY MATERIALS AND SUPPLIES The Authority does not maintain a physical inventory. Management estimates that inventory values during the year are minimal for cost control purposes. Accordingly, management is of the opinion that any value that existed at December 31, 2015 and 2014 would not materially affect the financial position of the Authority. UNEARNED REVENUE Unearned revenue arises when the Authority receives resources before it has legal claim to them. This occurs when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the Authority has a legal claim to the resources, the unearned revenue liability is removed and revenue is recognized. LONG-TERM DEBT FINANCING COSTS Bond issuance costs are recorded as expenditures in the year paid. During the 2015 calendar year, the Authority paid $130,569 in bond issuance costs as reflected in Exhibit B. DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES In addition to assets and liabilities, the statement of net position will sometimes report a separate section for deferred outflows and/or inflows of resources. These separate financial statement elements represent a decrease and/or increase in net position that applies to a future period and so will not be recognized as an outflow and/or inflow of resources (expenses/expenditures or income/revenue) in the current period. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost, or estimated historical cost, and include major betterments which extend the economic useful life of the assets concerned. Contributed service lines are recorded at their estimated historical construction cost. Routine repair and maintenance costs are charged to operations as incurred. Property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets as follows: Sewage Treatment Plant 50 years Sewer Conveyance System 50 years Office Building 10 years Depreciation expense for the years ended December 31, 2015 and December 31, 2014 was $1,005,421 and $891,281 respectively. 7

18 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NET POSITION Net Position is classified into three categories according to external donor or legal restrictions or availability of assets to satisfy Authority obligations. Net Position is classified as follows: Net Investment in Capital Assets This component of Net Position consists of capital assets net of accumulated depreciation, and reduced by the outstanding balances of debt that is attributable to the acquisition, construction and improvement of the capital assets, plus deferred outflows of resources less deferred inflows of resources related to those assets. Restricted Net Position This component of Net Position consists of restricted assets reduced by liabilities and deferred inflows related to those assets. Unrestricted Consists of all other Net Position that does not meet the definition of restricted or net investment in capital assets. When an expense is incurred that can be paid using either restricted or unrestricted resources (net position), the Authority s policy is to first apply the expense toward restricted resources and then toward unrestricted resources. OPERATING REVENUES AND EXPENSES Operating revenues are those revenues that are generated directly from the primary activity of the Authority. For the New Castle Sanitation Authority, these revenues are sewer user and transportation charges. Operating expenses are the necessary costs incurred to operate the Authority. Non-operating revenues of the Authority consist of interest income, grant income, and other miscellaneous revenue. Non-operating expenses consist of interest on long-term debt and bond issuance costs. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the Authority's management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - CASH DEPOSITS The New Castle Sanitation Authority had the following bank balances and carrying values on its cash and cash equivalent accounts at December 31, 2015 and 2014: 8

19 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 2 - CASH DEPOSITS (Continued) ~~December 31, 2015~~ ~~December 31, 2014~~ Bank Balance Carrying Value Bank Balance Carrying Value First Merit Bank $ 1,138,400 $ 1,138,400 $ 1,072,451 $ 1,072,451 First National Bank 2,924,554 3,026,102 1,462,972 1,429,816 First National Bank (Restricted) 751, , , ,469 Huntington National Bank - - 1,165,973 1,165,973 PNC Bank 115, , , ,729 Petty Cash 2,000 2, $ 4,932,351 $ 5,031,907 $ 4,755,594 $ 4,723,238 The difference between the bank balance and carrying value amounts shown above represents reconciling items such as deposits in transit and outstanding checks. The Federal Deposit Insurance Corporation (FDIC) coverage threshold for government accounts is $250,000 per official custodian. This coverage includes checking and savings accounts, money market deposits accounts, and certificates of deposit. Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned to it. The Authority does not have a deposit policy for custodial credit risk. As of December 31, 2015 and 2014, $4,316,499 and $4,005,594 respectively of the Authority s bank balance totals is exposed to custodial credit risk. The amount exposed to custodial credit risk represents uninsured deposits collateralized with securities held by the pledging financial institution or by its trust department or agent, but not in the Authority s name. In accordance with Act Number Session of the Commonwealth of Pennsylvania, the aforementioned deposits, in excess of $250,000 for interest bearing accounts, are collateralized by securities pledged to a pooled public funds account with the Federal Reserve System. NOTE 3 - PROPERTY, PLANT AND EQUIPMENT A summary of the changes in the Authority's property, plant and equipment during the calendar year ended December 31, 2015 and 2014 respectively is as follows: 12/31/2014 Additions <Deletions> 12/31/2015 Sewage Plant & Equipment $ 23,874,203 $ 1,263,462 $ 25,137,665 Sewer Lines 22,206, ,833 22,341,272 Office Building 583,140 30, ,038 Less: $ 46,663,782 $ 1,429,193 $ 48,092,975 Accumulated Depreciation (12,153,256) (1,005,421) (13,158,677) $ 34,510,526 $ 423,772 $ 34,934,298 9

20 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 3 - PROPERTY, PLANT AND EQUIPMENT (Continued) 12/31/2013 Additions <Deletions> 12/31/2014 Sewage Plant & Equipment $ 21,028,559 $ 2,845,644 $ 23,874,203 Sewer Lines 18,066,439 4,140,000 22,206,439 Office Building 160, , ,140 Less: $ 39,255,721 $ 7,408,061 $ 46,663,782 Accumulated Depreciation (11,261,975) (891,281) (12,153,256) $ 27,993,746 $ 6,516,780 $ 34,510,526 NOTE 4 LONG TERM DEBT SEWER REVENUE BONDS SERIES A OF 2010 On June 17, 2010, the Authority issued Sewer Revenue Bonds Series A of 2010 in the amount of $18,920,000. The purpose of the bond issue was to 1) acquire certain sanitary sewer lines, manholes, service connections, real property, rights-of-way, and equipment situated within the geographical jurisdiction and under control and ownership of the City of New Castle, Pennsylvania and fund certain improvements and repairs to such sanitary sewer lines, 2) fund the debt service reserve requirement as provided for in the Trust Indenture, and 3) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 1.842% and 6.506% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after June 1, 2020, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1, SEWER REVENUE BONDS SERIES OF 2014 On April 10, 2014, the Authority issued Sewer Revenue Bonds Series of 2014 in the amount of $5,210,000. The purpose of the bond issue was to 1) expand the Authority s Sanitary Sewer System by the purchase and acquisition of certain sanitary sewer collection lines, real property, rights-of-way, and equipment from each of the Townships of Shenango and Union, and to fund certain improvements and repairs to such sanitary sewer lines, 2) purchase equipment and fund certain improvements to existing system, 3) fund a portion of the debt service reserve requirement as provided for in the Trust Indenture, and 4) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 2.0% and 3.625% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after June 1, 2020, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1, SEWER REVENUE BONDS SERIES A OF 2015 On September 17, 2015, the Authority issued Sewer Revenue Bonds Series of 2015 in the amount of $9,430,000. The purpose of the bond issue was to 1) currently refund the Authority s Series B of 2010 bonds, 2) fund certain improvements and repairs to the sewer systems, 3) and fund the debt service reserve requirement as provided for in the Trust Indenture, and 3) pay the costs and expenses related to the issuance of the bonds. Bonds were issued in denominations of $5,000 with interest rates ranging between 2% and 3% to be paid semi-annually on June 1 and December 1. The bonds provide for early redemption features on or after June 1, 2021, as detailed in the official statement of issue. The bonds are scheduled to mature on June 1,

21 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 4 LONG TERM DEBT (Continued) A summary of the debt service requirements on the Authority s bond issues as of December 31, 2015 is as follows: SERIES A SERIES A SERIES SERIES SERIES SERIES Dec. 31 PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST 2016 $ 405,000 $ 697,209 $ 10,000 $ 178,021 $ 65,000 $ 168, , ,054 10, , , , , ,807 10, , , , , ,364 5, , , , ,450,000 3,052,280 40, ,300 4,265, , ,000,000 2,499,199 2,105, ,110 2,855, , ,690,000 1,808,330 3,020, , ,555, , ,110,000 90, $ 17,490,000 $ 11,111,527 $ 5,200,000 $ 2,542,223 $ 9,430,000 $ 1,879,625 TOTAL TOTAL Dec. 31 PRINCIPAL INTEREST 2016 $ 480,000 $ 1,043, ,145,000 1,137, ,185,000 1,110, ,220,000 1,074, ,755,000 4,707, ,960,000 3,479, ,710,000 1,945, ,555, , ,110,000 90,076 $ 32,120,000 $ 15,533,375 In connection with the issuance of aforementioned bond issues, the Authority paid approximately $275,455 in bond discount costs. These costs are amortized over the life of the bond issue and are recognized as component of the Authority s interest expense. For the calendar year 2015, the Authority amortized $17,241 in bond discount expense. 11

22 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 4 LONG TERM DEBT (Continued) The following represents the changes in the Authority's debt obligations during 2015 and 2014: Balance 1/1/15 Additions Deletions Balance 12/31/15 Due Within One Year Sewer Revenue Bonds $ 33,230,000 $ 9,365,000 $ 9,830,000 $ 32,765,000 $ 1,125,000 Balance 1/1/14 Additions Deletions Balance 12/31/14 Due Within One Year Sewer Revenue Bonds $ 29,015,000 $ 5,210,000 $ 995,000 $ 33,230,000 $ 1,030,000 NOTE 5 COMPENSATED ABSENCES In accordance with the terms of the collective bargaining agreement between the Authority and Local No. 964 of the Laborers International Union, all regular full-time employees are entitled to accumulate up to a maximum of 50 sick days at the individual s hourly rate at the time of retirement. The accompanying financial statements do not provide for an accumulated compensated absences liability as management is of the opinion that any value that existed at December 31, 2015 and 2014 would not materially affect the financial position of the Authority. NOTE 6 - AUTHORITY PENSION PLANS DEFINED CONTRIBUTION PLAN Based on an agreement between the Laborers International Union of North America, Local 964 AFL -CIO, the Authority is required to contribute $ per week for each plant and clerical employee into the Laborers International Union of North America Pension Fund for 2015 and The agreement makes no provisions for eligibility or for benefits to employees, and requires no supervision or participation by Authority Management. DEFINED BENEFIT PLAN The New Castle Sanitation Authority s Non-Bargained Employees Retirement Plan (the Plan ), established on January 1, 2011, as amended on June 10, 2014, is a single employer defined benefit pension plan established to provide retirement and death benefits to non-bargained employees under the provisions of Act 205 of 1984, as amended, of the Commonwealth of Pennsylvania. The Plan is governed by the board members of the New Castle Sanitation Authority who are responsible for the management of plan assets. Council has delegated the authority to manager certain plan assets to Athene Annuity and Life Assurance Company and American Equity Investment Life Insurance Company Plan membership consisted of the following as of January 1, 2015: Active plan members 2 Retirees and beneficiaries currently receiving benefits 0 Terminated employees entitled to benefits but not yet receiving them 0 Total 2 12

23 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 6 - AUTHORITY PENSION PLANS (Continued) DEFINED BENEFIT PLAN (Continued) A summary of the plan s provisions is as follows: Participation Requirement: Any person employed as a non-bargained employees on a full-time basis by the Authority Normal Retirement: Age 65 and 20 years of service Monthly Benefit: Monthly benefit equals 30% of average monthly salary over the last 36 months of employment multiplied by years of service Retirement Benefits: Death Benefits: Disability Benefit: Vesting Benefit: Employee Contributions: Employer Contributions: A monthly benefit equal to 30% of average monthly salary (salary averaged over the last 36 months of employment) multiplied by years of service. Formula for benefit will increase 6.67% each full year after attained age 65 and 20 years credited service, not to exceed 50%. The benefit shall be reduced by monthly benefits from Authority contributions to another retirement plan. The pre-retirement death benefit is payable to the spouse of a participant. The benefit is a lump sum or life income equal to the actuarial present value of accrued benefit at time of death of the participant. A participant who completed 10 years credit service is eligible for a disability retirement benefit on the date the participant is eligible for social security disability. The participant will receive an amount equal to their normal retirement benefit. Benefit is the normal retirement benefit based upon average monthly compensation and years of service actually completed at date of termination multiplied by the vesting percentage. Benefit is paid in lieu of the return of member contributions. Plan members are not required to contribute to the Plan. The Authority follows the funding policy prescribed by Act 205 of 1984 (as amended), which requires that annual contributions be based upon the Minimum Municipal Obligation (MMO) using the plan s most recent biennial actuarial valuation. The MMO includes the normal cost, estimated administrative expenses and an amortization contribution of the unfunded actuarial accrued liability, less estimated member contribution and a credit equal to 10% of the excess (if any) of the actuarial value of assets over the actuarial accrued liability. Any financial requirement established by the MMO which exceeds contributions must be funded by the employer. Employer pension expense for the year ended December 31, 2014 was $228,130. There was no contribution required to made in 2015 as the plan was overfunded. 13