CITY OF HERMITAGE MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS DECEMBER 31, 2015

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1 MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR'S REPORT AND SUPPLEMENTARY INFORMATION

2 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Alice F. Mattocks, CPA, CGMA Gregory J. Koch, CPA Alan J. Porsch, CPA Nancy J. Black, CPA Ruth Ann Sholler, CPA Jason E. Tomko, CPA, CGMA Brenda L. McCall, CPA Jack F. Kuchcinski, CPA Patty L. Ryser, CPA Todd M. Davies, CPA Norbert F. Dietrich, Jr., CPA TO WHOM IT MAY CONCERN: The distribution of the City of Hermitage, Pennsylvania, financial statements consists of the following: City of Hermitage Board of Commissioners City Manager Assistant City Manager City Finance Director City Solicitor (5 Copies) (1 Copy) (1 Copy) (1 Copy) (1 Copy) Sharon, Pennsylvania June 28, 2016 Member AICPA Private Companies Practice Section

3 TABLE OF CONTENTS PAGE NUMBER INDEPENDENT AUDITOR'S REPORT 1-3 MANAGEMENT'S DISCUSSION AND ANALYSIS - REQUIRED SUPPLEMENTARY INFORMATION - (UNAUDITED) 4-12 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 13 STATEMENT OF ACTIVITIES BALANCE SHEET - GOVERNMENTAL FUNDS 16 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES STATEMENT OF NET POSITION - PROPRIETARY FUNDS 23 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - PROPRIETARY FUNDS 24 STATEMENT OF CASH FLOWS - PROPRIETARY FUND TYPES - BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS 25 STATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUNDS 26 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION - FIDUCIARY FUNDS 27 NOTES TO THE FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) - STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND PENSION PLAN - (UNAUDITED) RETIREE HEALTH PLAN - (UNAUDITED) 78 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - NON-UNIFORM 79 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - POLICE 80

4 TABLE OF CONTENTS PAGE NUMBER SCHEDULES OF EMPLOYER CONTRIBUTIONS - ALL PENSION PLANS 81 SCHEDULES OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - ALL PENSION PLANS 82 NOTES TO THE SCHEDULES OF EMPLOYER CONTRIBUTIONS AND CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY 83 SUPPLEMENTARY INFORMATION - EXHIBIT "A" COMBINING BALANCE SHEET - CAPITAL PROJECTS FUND TYPES 84 EXHIBIT "B" EXHIBIT "C" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - CAPITAL PROJECTS FUND TYPES - BUDGET AND ACTUAL 85 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE CONSTRUCTION FUND 86 EXHIBIT "D" BALANCE SHEETS - COMMUNITY DEVELOPMENT DEPARTMENT 87 EXHIBIT "E" EXHIBIT "F" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - COMMUNITY DEVELOPMENT DEPARTMENT STATEMENT OF SOURCE AND STATUS OF FUNDS - C.D.B.G. PROGRAM YEAR EXHIBIT "G" STATEMENT OF PROGRAM COSTS - C.D.B.G. PROGRAM YEAR EXHIBIT "H" STATEMENT OF SOURCE AND STATUS OF FUNDS - C.D.B.G. PROGRAM YEAR EXHIBIT "I" STATEMENT OF PROGRAM COSTS - C.D.B.G. PROGRAM YEAR EXHIBIT "J" EXHIBIT "K" EXHIBIT "L" STATEMENT OF SOURCE AND STATUS OF FUNDS - HOME INVESTMENT PARTNERSHIP PROGRAM GRANT - PROGRAM YEAR STATEMENT OF PROGRAM COSTS - HOME INVESTMENT PARTNERSHIP PROGRAM GRANT - PROGRAM YEAR STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - REVOLVING LOAN FUNDS 97 EXHIBIT "M" COMBINING BALANCE SHEET - ALL NON-MAJOR GOVERNMENTAL FUNDS 98

5 TABLE OF CONTENTS PAGE NUMBER EXHIBIT "N" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - ALL NON-MAJOR GOVERNMENTAL FUNDS - BUDGET AND ACTUAL 99 EXHIBIT "O" COMBINING BALANCE SHEET - DEBT SERVICE FUND TYPES 100 EXHIBIT "P" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - DEBT SERVICE FUND TYPES - BUDGET AND ACTUAL 101 EXHIBIT "Q" COMBINING STATEMENT OF NET POSITION - SEWER SYSTEM FUND 102 EXHIBIT "R" COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - SEWER SYSTEM FUND 103 EXHIBIT "S" STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS - POLICE PENSION FUND 104 EXHIBIT "T" STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - POLICE PENSION FUND 105

6 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Alice F. Mattocks, CPA, CGMA Gregory J. Koch, CPA Alan J. Porsch, CPA Nancy J. Black, CPA Ruth Ann Sholler, CPA Jason E. Tomko, CPA, CGMA Brenda L. McCall, CPA Jack F. Kuchcinski, CPA Patty L. Ryser, CPA Todd M. Davies, CPA Norbert F. Dietrich, Jr., CPA INDEPENDENT AUDITOR'S REPORT Board of Commissioners City of Hermitage Hermitage, Pennsylvania REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hermitage, Pennsylvania, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City of Hermitage, Pennsylvania'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 Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 entity'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 entity's internal control. Member AICPA Private Companies Practice Section

7 City of Hermitage Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. OPINIONS In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hermitage, Pennsylvania, as of December 31, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. EMPHASIS OF MATTER - CHANGE IN ACCOUNTING PRINCIPLE As discussed in Note "2" to the financial statements, the City of Hermitage, Pennsylvania, adopted Governmental Accounting Standards Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 and GASB Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB Statement No. 68, which requires the City of Hermitage to record its net pension liability and related items on the government-wide financial statements. As a result, net position as of January 1, 2015, has been restated. Our opinions are not modified with respect to this matter. OTHER MATTERS REQUIRED SUPPLEMENTARY INFORMATION Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, pension plan information, and retiree health plan information on pages 4 to 12, 74 to 75, 76 to 77, 78, and 79 to 83, respectively, 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. We 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 our - 2 -

8 City of Hermitage inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We 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. SUPPLEMENTARY INFORMATION Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Hermitage, Pennsylvania's basic financial statements. The accompanying supplementary schedules identified in the table of contents as supplementary information, such as the combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The information, except for the employees' pension plan information on pages 76 to 77 and 79 to 83, and general fund budget and actual on pages 74 to 75, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are fairly stated in all material respects in relation to the financial statements taken as a whole. The information on pages 74 to 83 has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion or provide any assurance on them. Sharon, Pennsylvania June 28,

9 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED The discussion and analysis of the City of Hermitage's (City) financial performance provides an overall review of the City's financial activities for the year ended December 31, The intent of the discussion and analysis is to look at the City's financial performance as a whole. Readers should also review the financial statements and notes to enhance their understanding of the City's financial performance. The financial statements also include Hermitage Municipal Authority as a blended component unit of the sewer fund. Hermitage Municipal Authority also issues separate financial statements as of December 31, FINANCIAL HIGHLIGHTS Key financial highlights for 2015 are as follows: In total, net position decreased $ 1.5 million. Net position of governmental activities decreased by $.8 million, and net position of business-type activities increased by $.7 million. The decrease in governmental activities is primarily the result of decreased capital grants related to community development. The decrease in business-type activities is primarily the result of additional depreciation expense now that the system is complete and in use. Total revenues were $ 18.2 million. General revenues accounted for $ 10.1 million of revenue or 56 percent of all revenues. Program specific revenues in the form of charges for services, fees, fines and forfeitures, and grants accounted for $ 8.1 million or 44 percent of total revenues. The City had $ 12.8 million in expenses related to governmental activities, $ 2.0 million of these expenses were offset by program specific charges for services and grants. General revenue (primarily taxes) of $ 10.0 million was insufficient to cover the remainder of the expenses, resulting in a decrease in net position of $.8 million. At the end of the current year, the unassigned fund balance of the general fund was $ USING THE ANNUAL REPORT This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the City of Hermitage as a financial whole, an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. The Statement of Net Position and Statement of Activities provide information about the activities of the whole City, presenting both an aggregate view of the City's finances and longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term, as well as what remains for future spending. The fund financial statements also look at the City's most significant funds. In the case of the City of Hermitage, the General Fund, the Capital Projects Fund, the Community Development Department, and the Sewer System Fund are the most significant funds

10 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED As described in Note "2" to the financial statement, "Adoption of New Accounting Pronouncement", the City has adopted the provisions of Governmental Accounting Standards Board (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 - as Amended of GASB Statement No. 68 for the year ended December 31, The adoption of this principle resulted in a restatement for the City's opening net position as of January 1, 2015, in the amount of $ 117,126. Prior year balances reflected in the management's discussion and analysis have been updated, for comparison purposes, to reflect the change. REPORTING THE CITY AS A WHOLE GOVERNMENT-WIDE FINANCIAL STATEMENTS Statement of Net Position and the Statement of Activities - While this document contains the various funds used by the City to provide programs and activities, the view of the City as a whole looks at all financial transactions and asks the question, "How did we do financially during 2015?" The Statement of Net Position and the Statement of Activities answer the question. These statements include all assets, deferred outflows of resources, liabilities, and deferred inflows of resources using the accrual basis of accounting similar to the accounting used by most private sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the City's net position and changes in that position. This change in net position is important because it tells the reader that, for the City as a whole, the financial position of the City has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the City's property tax base, facility conditions, required services, and other factors. In the Statement of Net Position and the Statement of Activities, the City is divided into two (2) distinct kinds of activities: Governmental Activities - Most of the City's programs and services are reported here including general government, protection to persons and property, public works, culture and recreation, conservation and development, health and welfare, debt service, and employee payroll taxes, benefits, and insurance. Business-Type Activities - These services are provided on a charge for goods or services basis to recover the expenses of the goods or services provided. The sewer operating fund is reported as business activity. The Governmental Funds Balance Sheet can be found on page 16 of this report

11 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED REPORTING THE CITY'S MOST SIGNIFICANT FUNDS FUND FINANCIAL STATEMENTS The analysis of the City's major funds begin on page 16. Fund financial reports provide detailed information about the City's major funds. The City uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the City's most significant funds. The City's major governmental funds are the General Fund, the Capital Projects Fund, and the Community Development Department Fund. GOVERNMENTAL FUNDS Most of the City's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balance left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental funds statements provide a detailed short-term view of the City's general governmental operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance local government services. The relationships (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and the governmental funds is reconciled in the financial statements on pages 17 through 18 and 21 through 22, respectively. PROPRIETARY FUNDS Proprietary funds use the same basis of accounting as business-type activities; therefore, these fund financial statements will essentially match the government-wide financial statements except for the inclusion of the proprietary funds share of the internal service fund. THE CITY AS A WHOLE The Statement of Net Position provides the perspective of the City as a whole. A comparison of the City's net position for 2015 compared to 2014 is as follows: NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL ASSETS:- Cash and Cash Equivalents $ 3,441 $ 5,393 $ 2,768 $ 2,979 $ 6,209 $ 8,372 Taxes Receivable, Net Net Sewer Fee and Assessments Receivable Due from Other Governments

12 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL Loans Receivable Other Receivables Consumable Supplies Inventory of Land Held for Sale 1,064 1,064 1,064 1,064 Net Capital Assets 18,418 18,995 57,442 59,051 75,860 78,046 Long-Term Portion - Assessments Receivable Internal Balances ( 90) ( 91) Prepaid Expenses Net Pension Asset - Police 229 1, ,444 TOTAL ASSETS:- $ 24,823 $ 28,290 $ 61,752 $ 63,578 $ 86,575 $ 91,868 DEFERRED OUTFLOWS OF RESOURCES:- Pensions $ 1,748 $ 0 $ 0 $ 0 $ 1,748 $ 0 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 26,571 $ 28,290 $ 61,752 $ 63,578 $ 88,323 $ 91,868 LIABILITIES:- Current Portion Debt $ 695 $ 695 $ 10,585 $ 1,944 $ 11,280 $ 2,639 Accounts Payable Retainage Payable Accrued Salaries and Benefits Accrued Interest Bonds Payable 8,245 8,895 23,874 32,379 32,119 41,274 Notes Payable 2,180 2,225 11,226 11,871 13,406 14,096 Special Termination Benefits Unearned Revenue Other Post-Employment Benefits 1,290 1, ,492 1,406 Net Pension Liability (PMRS) 1,050 1,043 1,050 1,043 TOTAL LIABILITIES:- $ 14,500 $ 15,647 $ 47,425 $ 48,420 $ 61,925 $ 64,

13 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL DEFERRED INFLOWS OF RESOURCES - Current Portion Deferred Refunding ($ 5) ($ 5) $ $ ($ 5) ($ 5) Current Portion Unamortized Bond Discount ( 9) ( 9) ( 9) ( 9) Unamortized Bond Discount ( 205) ( 214) ( 205) ( 214) Deferred Amount on Refunding ( 8) ( 13) ( 540) ( 443) ( 548) ( 456) Pensions TOTAL DEFERRED INFLOWS OF RESOURCES:- $ 256 $ 43 ($ 540) ($ 443) ($ 284) ($ 400) TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 14,756 $ 15,690 $ 46,885 $ 47,977 $ 61,641 $ 63,667 NET POSITION:- Net Investment in Capital Assets $ 7,960 $ 7,962 $ 11,891 $ 12,857 $ 19,851 $ 20,819 Restricted ,467 Unrestricted 3,337 3,949 2,598 1,966 5,935 5,915 TOTAL NET POSITION:- $ 11,815 $ 12,600 $ 14,867 $ 15,601 $ 26,682 $ 28,201 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET ASSETS:- $ 26,571 $ 28,290 $ 61,752 $ 63,578 $ 88,323 $ 91,868 Total assets and deferred outflows of resources decreased $ 3.5 million, primarily the result of decreases in cash and equivalents and investments of $ 2.2 million net capital assets of $ 2.2 million due to a mix of continued work on capital projects, offset by current year depreciation, offset by $.5 million increase in net pension asset and the deferred outflows of resources related to pensions. Total liabilities and deferred inflows decreased $ 2.0 million, primarily as a result of the $ 1.2 million decrease in bonds and notes payable, a - 8 -

14 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED $.8 million decrease in payables and retainage in total, offset by a $.2 million increase in net pension liability and the deferred inflows of resources related to pensions. Various other small increases and decreases netted each other out. The following table shows the revenues, expenses, and changes in net position for 2015 and 2014: (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL REVENUES AND OTHER SOURCES:- Program Revenues - Charges for Services, Fees, Fines, and Forfeitures $ 623 $ 641 $ 6,030 $ 5,976 $ 6,653 $ 6,617 Operating Grants and Contributions 1,022 1, ,094 1,062 Capital Grants and Contributions General Revenues - Property, Per Capita, Earned, Other Taxes 9,125 9,079 9,125 9,079 Unrestricted Grants, Subsidies and Contributions Investment Earnings Licenses and Permits Other Sale of Fixed Assets TOTAL REVENUES AND OTHER SOURCES:- $ 11,969 $ 12,774 $ 6,225 $ 6,096 $ 18,194 $ 18,870 PROGRAM EXPENSES AND OTHER USES:- General Government - Administration $ 830 $ 927 $ $ $ 830 $ 927 Tax Collection Legal Services

15 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL General Government Buildings and Plant Protection to Persons and Property - Police 2,689 2,531 2,689 2,531 Fire Protective Inspection Planning and Zoning Public Works - Storm Sewers Highways and Streets 2,625 3,097 2,625 3,097 Other Culture and Recreation - Parks and Recreation Libraries Conservation and Development - 1,275 1,476 1,275 1,476 Unallocated Depreciation Interest on Debt Employee Payroll Taxes, Benefits, and Insurance - 1,813 1,938 1,813 1,938 Sanitary Sewer Operations - 6,958 5,422 6,958 5,422 TOTAL EXPENSES AND OTHER USES:- $ 12,755 $ 13,644 $ 6,958 $ 5,422 $ 19,713 $ 19,066 INCREASE (DECREASE) IN NET POSITION:- ($ 786) ($ 870) ($ 733) $ 674 ($ 1,519) ($ 196) GOVERNMENTAL ACTIVITIES Governmental activities for 2015 resulted in a decrease in net position of $.8 million. The decrease is primarily the result of decreased grant funding on conservation and development projects. The City's revenues consist of: local (taxes, fees, and other) 85 percent; and state and federal revenues (subsidies and grants) 15 percent

16 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED The City's program expenses are 11 percent general government, 30 percent protection to persons and property, 22 percent public works, 3 percent culture and recreation, 10 percent conservation and development, 10 percent debt service and depreciation, and 14 percent employee payroll, taxes, benefits, and insurance. The City's reliance on state and federal grants and local tax revenues is apparent. A decrease in state and federal revenues would have a direct impact on the level of local revenue needed to meet program expenses. BUSINESS-TYPE ACTIVITIES Business-type activities consist only of sanitary sewer operations. This program had revenue of $ 6.2 million and expenses of $ 7.0 million. This activity receives no support from tax revenue. THE CITY'S FUNDS Financial information related to the City's major funds starts on page 16. These funds are accounted for using the modified accrual basis of accounting. All governmental funds had total revenues of approximately $ 12.2 million, and expenditures of approximately $ 13.1 million. The decrease in fund balance of $ 1.0 million mainly resulted from a decrease in grant funding related to conservation and development projects. The general fund accounts for 84 percent of total revenues (not including long-term debt proceeds) and 70 percent of total expenditures. GENERAL FUND BUDGET HIGHLIGHTS The City's budget is prepared on the modified accrual basis of accounting. The most significant budgeted fund is the general fund. There were no budget transfers made during The revenue and other financing sources budget was approximately $ 10.6 million. The actual revenue and other financing sources was $ 10.7 million. The actual 2015 revenue was slightly over budget; however, the City has experienced volatility in revenues since the recession, due to the dependency on earned income tax as the major source of revenue. As of the date of this report, there are no new conditions that would significantly impact the projected tax revenues of the City. The expenditure and other financing uses budget was approximately $ 11.4 million compared to actual expenditures and other financing uses of $ 10.7 million. A review of budget to actual expenditures indicates that each major area was under budget for the fiscal year 2015, with the exception of operating transfers out, legal services, workers' compensation expense, street lighting, and pension contributions

17 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At the end of fiscal year 2015, the City had $ 75.9 million invested in land, buildings, sewer system, and equipment (cost $ million, less accumulated depreciation of $ 40.2 million). DEBT ADMINISTRATION At December 31, 2015, the City (including the blended component unit) had approximately $ 56.0 million in net bonds and note payable obligations outstanding, with approximately $ 11.3 million due within one (1) year. For additional information on bonds and notes, see Notes "2" and "4" to the financial statements. At December 31, 2015, the City's non-electoral limit for debt (250 percent of borrowing base) was approximately $ 25.9 million, excluding existing and self-liquidating debt. FOR THE FUTURE The financial outlook for the City continues to be stable; however, there is always a concern for state fiscal issues and economic restraints. As the preceding information shows, the City depends on its taxpayers and grant funding. The City anticipates that volatility in the Mercer County area, as well as the entire nation makes the amount of future tax requirements uncertain. As of the date of this report, no new conditions are expected that would significantly impact the financial status of the City. Of course, stability and growth depend upon the general economic conditions, including the unemployment rate of the City's taxpayers. Mercer County's economy, like the entire economy of the United States of America, continues to be challenged by volatility. The cost of operations is anticipated to continue to increase, which will be funded with both taxes and state and federal grants. CONTACTING THE CITY'S FINANCIAL MANAGEMENT The financial report is designed to provide our citizens, taxpayers, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Gary Hinkson, City Manager, at the City of Hermitage, 800 North Hermitage Road, Hermitage, Pennsylvania

18 STATEMENT OF NET POSITION GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL CURRENT ASSETS:- Cash and Cash Equivalents $ 3,440,929 $ 2,768,117 $ 6,209,046 Taxes Receivable, Net 635, ,307 Net Sewer Fee and Assessments Receivable 800, ,135 Due from Other Governments 449, ,972 Other Receivables 126, ,130 Loans Receivable 235, ,000 Consumable Supplies 25,000 10,000 35,000 Inventory of Land Held for Sale 1,064,175 1,064,175 Internal Balances ( 90,526) 90,526 0 Prepaid Expenses 1,144 1,144 TOTAL CURRENT ASSETS:- $ 5,885,987 $ 3,669,922 $ 9,555,909 NON-CURRENT ASSETS:- Capital Assets - Land $ 785,027 $ 64,000 $ 849,027 Land and Site Improvements 5,564,729 5,564,729 Building and Building Improvements 17,440,502 1,021,702 18,462,204 Vehicles, Furniture, Fixtures, and Equipment 8,317,447 1,779,001 10,096,448 Sewer System 80,249,248 80,249,248 Construction-in-Progress 857, ,321 $ 32,107,705 $ 83,971,272 $ 116,078,977 Accumulated Depreciation ( 13,690,046) ( 26,529,108) ( 40,219,154) NET CAPITAL ASSETS:- $ 18,417,659 $ 57,442,164 $ 75,859,823 Other Assets - Loans Receivable 290, ,392 Assessments Receivable 621, ,106 Prepaid Expenses 19,300 19,300 Net Pension Asset - Police 229, ,352 TOTAL NON-CURRENT ASSETS:- $ 18,937,403 $ 58,082,570 $ 77,019,973 DEFERRED OUTFLOWS OF RESOURCES:- Pensions $ 1,747,749 $ 0 $ 1,747,749 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 26,571,139 $ 61,752,492 $ 88,323,631 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL CURRENT LIABILITIES:- Current Portion of Long-Term Debt $ 695,000 $ 10,584,561 $ 11,279,561 Accounts Payable 349, , ,370 Retainage Payable 151, ,090 Accrued Interest Expense 115, , ,269 Accrued Salaries, Benefits, and Withholdings 70,629 13,194 83,823 TOTAL CURRENT LIABILITIES:- $ 1,230,520 $ 11,501,593 $ 12,732,113 NON-CURRENT LIABILITIES:- Bonds Payable $ 8,245,000 $ 23,874,344 $ 32,119,344 Notes Payable 2,180,000 11,225,649 13,405,649 Unearned Revenue 199, , ,274 Special Termination Benefits 306, ,292 Other Post-Employment Benefits 1,289, ,130 1,491,753 Net Pension Liability - PMRS 1,050,174 1,050,174 Commitments and Contingencies 0 TOTAL NON-CURRENT LIABILITIES:- $ 13,270,257 $ 35,923,229 $ 49,193,486 TOTAL LIABILITIES:- $ 14,500,777 $ 47,424,822 $ 61,925,599 DEFERRED INFLOWS OF RESOURCES:- Unamortized Bond Discount ($ 213,466) $ ($ 213,466) Deferred Amount on Refunding ( 13,357) ( 539,629) ( 552,986) Amounts Related to Pensions 482, ,771 TOTAL DEFERRED INFLOWS OF RESOURCES:- $ 255,948 ($ 539,629) ($ 283,681) TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 14,756,725 $ 46,885,193 $ 61,641,918 NET POSITION:- Net Investment in Capital Assets $ 7,959,751 $ 11,890,961 $ 19,850,712 Restricted 518, , ,781 Unrestricted 3,336,647 2,598,573 5,935,220 TOTAL NET POSITION:- $ 11,814,414 $ 14,867,299 $ 26,681,713 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 26,571,139 $ 61,752,492 $ 88,323,631 The Accompanying Notes are an Integral Part of These Statements

19 PAGE 1 OF 2 STATEMENT OF ACTIVITIES YEAR ENDED PROGRAM REVENUES CHARGES FOR SERVICES, FEES, OPERATING CAPITAL NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION FINES, AND GRANTS AND GRANTS AND GOVERNMENTAL BUSINESS-TYPE EXPENSES FORFEITURES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL GOVERNMENTAL ACTIVITIES:- GENERAL GOVERNMENT - Administration $ 829,742 $ 275 $ $ ($ 829,467) $ ($ 829,467) Tax Collection 155, ,632 ( 30,503) ( 30,503) Legal Services 56,735 ( 56,735) ( 56,735) General Government Buildings and Plant 368,720 21,319 ( 347,401) ( 347,401) TOTAL GENERAL GOVERNMENT:- $ 1,410,332 $ 146,226 $ 0 $ 0 ($ 1,264,106) $ 0 ($ 1,264,106) PROTECTION TO PERSONS AND PROPERTY - Police $ 2,689,003 $ 166,282 $ 123,432 $ ($ 2,399,289) $ ($ 2,399,289) Fire 477,958 ( 477,958) ( 477,958) Protective Inspection 301, ,923 ( 169,597) ( 169,597) Planning and Zoning 368,059 ( 368,059) ( 368,059) TOTAL PROTECTION TO PERSONS AND PROPERTY:- $ 3,836,540 $ 298,205 $ 123,432 $ 0 ($ 3,414,903) $ 0 ($ 3,414,903) PUBLIC WORKS - Highways and Streets $ 2,625,258 $ $ 480,858 $ 280,000 ($ 1,864,400) $ ($ 1,864,400) Storm Sewers 111,620 ( 111,620) ( 111,620) Other 22,108 26,627 4,519 4,519 TOTAL PUBLIC WORKS:- $ 2,758,986 $ 0 $ 507,485 $ 280,000 ($ 1,971,501) $ 0 ($ 1,971,501) CULTURE AND RECREATION - Parks and Recreation $ 292,501 $ 48,113 $ $ 33,400 ($ 210,988) $ ($ 210,988) Libraries 100,000 ( 100,000) ( 100,000) TOTAL CULTURE AND RECREATION:- $ 392,501 $ 48,113 $ 0 $ 33,400 ($ 310,988) $ 0 ($ 310,988) CONSERVATION AND DEVELOPMENT - $ 1,275,000 $ 130,081 $ 0 $ 0 ($ 1,145,019) $ 0 ($ 1,145,019) UNALLOCATED EXPENSES - Depreciation $ 937,702 $ $ $ ($ 937,702) $ ($ 937,702) Interest on Debt 330,803 ( 330,803) ( 330,803) TOTAL UNALLOCATED EXPENSES:- $ 1,268,505 $ 0 $ 0 $ 0 ($ 1,268,505) $ 0 ($ 1,268,505) EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE - Payroll Taxes and Fringe Benefits $ 416,676 $ $ 390,623 $ ($ 26,053) $ ($ 26,053) Insurance Premiums 1,395,871 ( 1,395,871) ( 1,395,871) TOTAL EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE:- $ 1,812,547 $ 0 $ 390,623 $ 0 ($ 1,421,924) $ 0 ($ 1,421,924) TOTAL GOVERNMENTAL ACTIVITIES:- $ 12,754,511 $ 622,625 $ 1,021,540 $ 313,400 ($ 10,796,946) $ 0 ($ 10,796,946) The Accompanying Notes are an Integral Part of These Statements

20 PAGE 2 OF 2 STATEMENT OF ACTIVITIES YEAR ENDED PROGRAM REVENUES CHARGES FOR SERVICES, FEES, OPERATING CAPITAL NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION FINES, AND GRANTS AND GRANTS AND GOVERNMENTAL BUSINESS-TYPE EXPENSES FORFEITURES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL BUSINESS-TYPE ACTIVITIES:- Sewer Operations $ 6,958,788 $ 6,030,717 $ 72,036 $ 0 $ 0 ($ 856,035) ($ 856,035) TOTAL:- $ 19,713,299 $ 6,653,342 $ 1,093,576 $ 313,400 ($ 10,796,946) ($ 856,035) ($ 11,652,981) GENERAL REVENUES AND SPECIAL ITEMS:- TAXES - Property Taxes, Levied for General Purposes, Net $ 1,297,914 $ $ 1,297,914 Public Utility Realty, Earned Income and Other Taxes Levied for General Purposes, Net 7,827,084 7,827,084 Grants, Subsidies, and Contributions Not Restricted 476, ,387 Investment Earnings 11, ,540 Miscellaneous Income 111, ,586 Licenses and Permits 286, , ,532 TOTAL GENERAL REVENUES AND SPECIAL ITEMS:- $ 10,010,978 $ 122,065 $ 10,133,043 CHANGE IN NET POSITION:- ($ 785,968) ($ 733,970) ($ 1,519,938) NET POSITION - BEGINNING AS ORIGINALLY STATED:- $ 12,483,256 $ 15,601,269 $ 28,084,525 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:- 117, ,126 NET POSITION AT BEGINNING OF YEAR, AS RESTATED:- $ 12,600,382 $ 15,601,269 $ 28,201,651 NET POSITION - ENDING:- $ 11,814,414 $ 14,867,299 $ 26,681,713 The Accompanying Notes are an Integral Part of These Statements

21 BALANCE SHEET GOVERNMENTAL FUNDS COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS ASSETS:- Cash and Cash Equivalents $ 834,028 $ 939,062 $ 1,020,686 $ 387,015 $ 3,180,791 Receivables - Taxes, Net 92,028 92,028 Due from Other Governmental Units 118, , ,972 Loans Receivable 575, ,392 Other 125,000 1, ,130 Due from Other Funds 5,240 17,601 22,841 Consumable Supplies 25,000 25,000 TOTAL ASSETS:- $ 1,199,706 $ 939,062 $ 1,946,371 $ 387,015 $ 4,472,154 LIABILITIES:- Accounts Payable $ 81,146 $ 111,091 $ 140,136 $ $ 332,373 Accrued Salaries and Benefits 68,815 1,814 70,629 Due to Other Funds 107,616 17,601 5, ,457 Unearned Revenue 575, ,392 TOTAL LIABILITIES:- $ 257,577 $ 128,692 $ 722,582 $ 0 $ 1,108,851 DEFERRED INFLOWS OF RESOURCES:- Unearned Revenue - Taxes $ 92,028 $ 0 $ 0 $ 0 $ 92,028 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 349,605 $ 128,692 $ 722,582 $ 0 $ 1,200,879 FUND BALANCES:- Nonspendable - Consumable Supplies $ 25,000 $ $ $ $ 25,000 Restricted - 0 8, ,745 42, ,016 Assigned - 825, , , ,081 2,728,259 TOTAL FUND BALANCES:- $ 850,101 $ 810,370 $ 1,223,789 $ 387,015 $ 3,271,275 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES:- $ 1,199,706 $ 939,062 $ 1,946,371 $ 387,015 $ 4,472,154 The Accompanying Notes are an Integral Part of These Statements

22 PAGE 1 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION TOTAL FUND EQUITY - GOVERNMENTAL FUNDS:- $ 3,271,275 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital Assets Used in Governmental Activities are not Financial Resources and, Therefore, are not Reported as Assets in Governmental Funds. The Cost of Assets is $ 32,107,705, and the Accumulated Depreciation is $ 13,690, ,417,659 Property Taxes and Wage Taxes Receivable will be Collected Next Year, but are not Available Soon Enough to Pay for the Current Period's Expenditures and, Therefore, are Unearned or not Recorded in the Funds. 635,307 Balances of the Wage Tax Agency Fund that is Available but will not be Turned Over to the City Soon Enough to Pay for the Current Period's Expenditures and, Therefore, not Recorded in the Funds. 260,138 Cost of Inventory of Land Held for Sale Not Recorded in the Governmental Funds. 1,064,175 Net Economic Development Loans Receivable that will be Collected in Future Years that are not Available Soon Enough to Pay for the Current Period's Expenditures. Deferred Balance $ 376,224 Less $ 50,000 Reserve for Uncollectable Loans. 326,224 Unamortized Bond Discount is Reported as Expenditures in the Governmental Funds. The Original Balance is $ 283,931 and Accumulated Amortization is $ 70, ,466 Deferred Outflows of Resources Related to Pensions are Applicable to Future Periods and Therefore, are not Reported in the Funds. 327,030 Long-Term Liabilities, Including Bonds Payable, are not Due and Payable in the Current Period and, Therefore, are not Reported as Liabilities in the Funds. Long-Term Liabilities at Year-End Consist of: The Accompanying Notes are an Integral Part of These Statements

23 PAGE 2 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Bonds Payable ($ 8,895,000) Notes Payable ( 2,225,000) Special Termination Benefits ( 306,292) Deferred Amount on Refunding 13,357 Accrued Interest on Debt ( 115,428) Other Post-Employment Benefits ( 1,289,623) Deferred Outflows of Resources Related to Pension, Net 937,948 Net Pension Liability, Net ( 820,822) ( 12,700,860) TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES:- $ 11,814,414 The Accompanying Notes are an Integral Part of These Statements

24 PAGE 1 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS REVENUES:- Taxes $ 8,830,340 $ 521,872 $ $ $ 9,352,212 Licenses and Permits 286, ,969 Fines, Forfeits, and Costs 124, ,337 Interest, Rents, and Royalties 600 1,736 15,994 22,427 40,757 Grants and Gifts 532, , ,858 1,811,327 Departmental Earnings and Assessments 346, , ,416 Miscellaneous 81,426 30, ,586 TOTAL REVENUES:- $ 10,203,231 $ 553,608 $ 914,480 $ 503,285 $ 12,174,604 EXPENDITURES:- General Government - Administration $ 575,924 $ 53,251 $ 196,166 $ 1,631 $ 826,972 Tax Collection 155, ,135 Legal Services 56,735 56,735 General Government Buildings and Plant 352,726 71, ,324 TOTAL GENERAL GOVERNMENT:- $ 1,140,520 $ 124,849 $ 196,166 $ 1,631 $ 1,463,166 Protection to Persons and Property - Police $ 2,681,915 $ 134,072 $ $ $ 2,815,987 Fire 413,365 64, ,958 Protective Inspection 301, ,520 Planning and Zoning 368, ,059 TOTAL PROTECTION TO PERSONS AND PROPERTY:- $ 3,764,859 $ 134,072 $ 0 $ 64,593 $ 3,963,524 Public Works - Highways and Streets $ 1,698,651 $ 519,359 $ 457,708 $ $ 2,675,718 Storm Sewers 82,985 28, ,620 Other 45 6,200 6,245 Public Safety 36,863 36,863 TOTAL PUBLIC WORKS:- $ 1,698,651 $ 602,344 $ 523,251 $ 6,200 $ 2,830,446 Culture and Recreation - Parks and Recreation $ 278,999 $ 26,578 $ 79,271 $ $ 384,848 Libraries 100, ,000 TOTAL CULTURE AND RECREATION:- $ 378,999 $ 26,578 $ 79,271 $ 0 $ 484,848 Conservation and Development - $ 0 $ 593,879 $ 608,471 $ 64,000 $ 1,266,350 The Accompanying Notes are an Integral Part of These Statements

25 PAGE 2 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS Employee Payroll Taxes, Benefits, and Insurance - Payroll Taxes and Fringe Benefits $ 743,706 $ $ $ $ 743,706 Insurance Premiums 1,321,431 1,321,431 TOTAL EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE:- $ 2,065,137 $ 0 $ 0 $ 0 $ 2,065,137 Debt Service - $ 0 $ 1,011,955 $ 0 $ 4,409 $ 1,016,364 TOTAL EXPENDITURES:- $ 9,048,166 $ 2,493,677 $ 1,407,159 $ 140,833 $ 13,089,835 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES:- $ 1,155,065 ($ 1,940,069) ($ 492,679) $ 362,452 ($ 915,231) OTHER FINANCING SOURCES (USES):- Operating Transfers In $ 514,200 $ 1,795,503 $ 379,834 $ $ 2,689,537 Operating Transfers Out ( 1,658,565) ( 546,374) ( 398) ( 484,200) ( 2,689,537) TOTAL OTHER FINANCING SOURCES (USES):- ($ 1,144,365) $ 1,249,129 $ 379,436 ($ 484,200) $ 0 REVENUES AND OTHER SOURCES (UNDER) EXPENDITURES AND OTHER (USES):- $ 10,700 ($ 690,940) ($ 113,243) ($ 121,748) ($ 915,231) BEGINNING FUND BALANCE:- 839,401 1,501,310 1,337, ,763 4,186,506 ENDING FUND BALANCE:- $ 850,101 $ 810,370 $ 1,223,789 $ 387,015 $ 3,271,275 The Accompanying Notes are an Integral Part of These Statements

26 PAGE 1 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES YEAR ENDED TOTAL NET CHANGE IN FUND BALANCE - GOVERNMENTAL FUNDS:- ($ 915,231) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital Outlays are Reported in Governmental Funds as Expenditures. However, in the Statement of Activities, the Cost of Those Assets is Allocated Over Their Estimated Useful Lives as Depreciation Expense. This is the Amount by Which Depreciation Expense Outlays Exceed Capital Outlays and Net Book Value of Disposed Assets in the Period. Capital Outlays $ 360,787 Depreciation Expense ( 937,702) ( 576,915) Because Some Property Taxes will not be Collected for Several Months After the City's Fiscal Year Ends, They are not Considered as "Available" Revenues in the Governmental Funds. Unearned Tax Revenues Decreased by this Amount this Year. 37,419 Repayment of Debt is an Expenditure in the Governmental Funds, but the Repayment Reduces Long-Term Liabilities in the Statement of Net Position. 694,803 Economic Development Loans Issued and Repayments Received are Expenditures and Revenues in the Governmental Funds. However, these Disbursements and Receipts Increase and Decrease Loan Receivable Balances in the Statement of Net Position. During 2015, Loans Issued are $ 150,000 and Repayments Received are $ 100,178. ( 49,822) In the Statement of Activities, Pension Benefits are Measured by the Amounts Incurred During the Year. In the Governmental Funds, However, Expenditures for this Item are Measured by the Amount of Financial Resources Paid. This Amount Represents the Difference Between the Amount Incurred Versus the Amount Paid. 327,030 The Following Amounts Represent Changes in Balances from the Prior Year: Amortization of Deferred Amount on Refunding ($ 5,172) Amortization of Bond Discount ( 9,138) The Accompanying Notes are an Integral Part of These Statements

27 PAGE 2 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES YEAR ENDED Accrued Interest Expense 5,068 Special Termination Benefits ( 17,162) Wage Tax Receivable 8,569 Unclaimed Wage Taxes ( 210,977) Other Post-Employment Benefits ( 74,440) ( 303,252) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES:- ($ 785,968) The Accompanying Notes are an Integral Part of These Statements

28 STATEMENT OF NET POSITION PROPRIETARY FUNDS BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND CURRENT ASSETS:- Cash and Cash Equivalents $ 2,768,117 $ Sewer Fees and Assessments Receivable 800,135 Consumable Supply Inventory 10,000 Internal Balances 90,526 Prepaid Expenses 1,144 17,090 TOTAL CURRENT ASSETS:- $ 3,669,922 $ 17,090 NON-CURRENT ASSETS:- Capital Assets - Land $ 64,000 $ Buildings 1,021,702 Vehicles, Furniture, Fixtures, and Equipment 1,779,001 Sewer System 80,249,248 Construction-in-Progress 857,321 $ 83,971,272 $ 0 Accumulated Depreciation ( 26,529,108) 0 NET CAPITAL ASSETS:- $ 57,442,164 $ 0 OTHER ASSETS:- Delayed Assessments Receivable 621,106 Prepaid Expenses 19,300 TOTAL NON-CURRENT ASSETS:- $ 58,082,570 $ 0 CURRENT LIABILITIES:- Current Portion of Long-Term Debt $ 10,584,561 $ Accounts Payable 306,907 17,090 Retainage Payable 151,090 Accrued Salaries, Benefits, and Withholdings 13,194 Accrued Interest Payable 445,841 TOTAL CURRENT LIABILITIES:- $ 11,501,593 $ 17,090 NON-CURRENT LIABILITIES:- Bonds Payable $ 23,874,344 $ Notes Payable 11,225,649 Unearned Revenue 621,106 Other Post-Employment Benefits 202,130 TOTAL NON-CURRENT LIABILITIES:- $ 35,923,229 $ 0 TOTAL LIABILITIES:- $ 47,424,822 $ 17,090 DEFERRED INFLOWS OF RESOURCES:- Deferred Amount on Refunding ($ 539,629) $ 0 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 46,885,193 $ 17,090 NET POSITION:- Net Investment in Capital Assets $ 11,890,961 $ Restricted 377,765 Unrestricted 2,598,573 TOTAL NET POSITION:- $ 14,867,299 $ 0 TOTAL ASSETS:- $ 61,752,492 $ 17,090 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 61,752,492 $ 17,090 The Accompanying Notes are an Integral Part of These Statements

29 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS YEAR ENDED BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND OPERATING REVENUES:- Departmental Earnings and Assessments $ 6,030,717 $ 1,389,556 Licenses and Other 121,563 Grants and Gifts 72,036 TOTAL OPERATING REVENUES:- $ 6,224,316 $ 1,389,556 OPERATING EXPENSES:- Collection $ 520,375 $ Treatment 1,312,562 Administration 664,173 Special Services 323,733 Professional Services 291,423 Other Operating 16,279 Payroll Taxes, Benefits, and Insurance 496,095 1,389,556 Depreciation 1,901,380 Bond Issue Costs 159,100 TOTAL OPERATING EXPENSES:- $ 5,685,120 $ 1,389,556 OPERATING INCOME:- $ 539,196 $ 0 NON-OPERATING REVENUES (EXPENSES):- Investment Income $ 502 $ Interest Expense ( 1,273,668) TOTAL NON-OPERATING REVENUES (EXPENSES):- ($ 1,273,166) $ 0 INCOME BEFORE OPERATING TRANSFERS:- ($ 733,970) $ 0 OPERATING TRANSFERS IN (OUT):- 0 0 CHANGES IN NET POSITION:- ($ 733,970) $ 0 NET POSITION - BEGINNING OF YEAR:- 15,601,269 0 NET POSITION - END OF YEAR:- $ 14,867,299 $ 0 The Accompanying Notes are an Integral Part of These Statements

30 STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPES BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS YEAR ENDED BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND CASH FLOWS FROM OPERATING ACTIVITIES:- Cash Received from Customers $ 6,053,058 $ 1,392,752 Other Revenue Received 193,599 CASH PROVIDED BY OPERATING ACTIVITIES:- $ 6,246,657 $ 1,392,752 Cash Paid for Operating Expenses ( 2,114,218) ( 1,392,752) Cash Paid for Personnel Expenses ( 1,500,533) NET CASH FLOWS FROM OPERATING ACTIVITIES:- $ 2,631,906 $ 0 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- Proceeds from Long-Term Debt, Net of Issuance Discounts $ 9,762,686 $ Acquisition and Construction of Fixed Assets ( 863,538) Cash Paid for Long-Term Debt ( 10,397,772) Cash Paid for Interest Expense ( 1,344,388) NET CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- ($ 2,843,012) $ 0 CASH FLOWS FROM INVESTING ACTIVITIES:- Interest Earnings $ 502 $ 0 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:- ($ 210,604) $ 0 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:- 2,978,721 0 CASH AND CASH EQUIVALENTS AT END OF YEAR:- $ 2,768,117 $ 0 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:- Operating Income $ 539,196 $ (Increase) Decrease in Receivables 22,341 ( 3,196) Increase in Payables 187,853 3,196 Increase in Other Post-Employment Benefits 11,668 (Decrease) in Accrued Payroll and Taxes ( 31,333) Depreciation Expense 1,901,380 Decrease in Internal Balances 801 NET CASH FLOWS FROM OPERATING ACTIVITIES:- $ 2,631,906 $ 0 The Accompanying Notes are an Integral Part of These Statements