CITY OF FARRELL MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013

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1 MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 TOGETHER WITH INDEPENDENT AUDITORS' REPORT AND SUPPLEMENTAL INFORMATION

2 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Frank J. Nagy, CPA, CGFM, CGMA Alice F. Mattocks, CPA 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 Brandon J. Mirizio, CPA Jack F. Kuchcinski, CPA TO WHOM IT MAY CONCERN: The distribution of the City of Farrell, Pennsylvania, financial statements consists of the following: City of Farrell Members of Council City Manager City Clerk Electronically Filed Electronically Filed - Federal Audit Clearinghouse 1201 East 10th Street Jeffersonville, Indiana Bureau of Audits Forum Place - 8th Floor 555 Walnut Street Harrisburg, Pennsylvania Sharon, Pennsylvania June 19, 2014 Member AICPA Private Companies Practice Section

3 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Frank J. Nagy, CPA, CGFM, CGMA Alice F. Mattocks, CPA 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 Brandon J. Mirizio, CPA Jack F. Kuchcinski, CPA To the City Manager and Members of Council: We have performed the single audit of the City of Farrell, Pennsylvania, for the year ended December 31, 2013, and have enclosed the single audit reporting package. The single audit was done to fulfill the requirements described in the "U.S. Office of Management and Budget" (OMB) Circular A-133. It entailed: (1) an audit of the financial statements and our opinion thereon; (2) a review of compliance based on an audit of the financial statements and on internal control over financial reporting; audit of the financial assistance programs; (3) an audit of the schedule of expenditures of federal awards and our opinion thereon; (4) a study and evaluation of internal controls based on a study and evaluation of the federal financial assistance programs. We have issued a management letter for the year ended December 31, Sharon, Pennsylvania June 19, 2014 Member AICPA Private Companies Practice Section

4 TABLE OF CONTENTS PAGE NUMBER INDEPENDENT AUDITORS' REPORT 1-3 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 17 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) - GOVERNMENTAL FUNDS RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTIVITIES STATEMENT OF NET POSITION - PROPRIETARY FUND 22 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - PROPRIETARY FUND 23 STATEMENT OF CASH FLOWS - PROPRIETARY FUND 24 STATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUNDS 25 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION - FIDUCIARY FUNDS 26 NOTES TO THE FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION - SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND - (UNAUDITED) 54 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - REVOLVING LOAN COMMUNITY DEVELOPMENT FUND - (UNAUDITED) 55 PENSION PLAN - REQUIRED SUPPLEMENTARY INFORMATION - (UNAUDITED) SCHEDULE OF FUNDING PROGRESS FOR OTHER POST-EMPLOYMENT BENEFITS PLAN REQUIRED SUPPLEMENTARY INFORMATION - (UNAUDITED) 59

5 TABLE OF CONTENTS PAGE NUMBER SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 60 SUPPLEMENTAL LETTERS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH "GOVERNMENT AUDITING STANDARDS" REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS EXHIBIT "A" COMBINING BALANCE SHEETS - ALL NON-MAJOR FUNDS 70 EXHIBIT "B" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) - ALL NON-MAJOR FUNDS 71 EXHIBIT "C" COMBINING SCHEDULE OF PLAN NET ASSETS - PMRS PENSION PLANS - (UNAUDITED) 72 EXHIBIT "D" COMBINING SCHEDULE OF CHANGES IN PLAN NET ASSETS - PMRS PENSION PLANS - (UNAUDITED) 73 EXHIBIT "E" COMBINING SCHEDULE OF AGENCY FUNDS 74 EXHIBIT "F" STATEMENT OF NET POSITION - PRIVATE PURPOSE TRUST FUNDS 75 EXHIBIT "G" STATEMENT OF CHANGES IN NET POSITION - PRIVATE PURPOSE TRUST FUNDS 76 EXHIBIT "H" SCHEDULE OF REVENUES - GENERAL FUND - BUDGET AND ACTUAL - FUND BASIS - (UNAUDITED) 77-79

6 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Frank J. Nagy, CPA, CGFM, CGMA Alice F. Mattocks, CPA 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 Brandon J. Mirizio, CPA Jack F. Kuchcinski, CPA To the Mayor and Members of Council City of Farrell Farrell, Pennsylvania REPORT ON THE FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT 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 City of Farrell, Pennsylvania, as of December 31, 2013, and for the year then ended, and the related notes to the financial statements, which collectively comprise the City'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. AUDITORS' 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 and the standards applicable to financial audits contained in "Government Auditing Standards" issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 auditors' 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 auditors consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design Member AICPA Private Companies Practice Section

7 City of Farrell audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well 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 City of Farrell, Pennsylvania, as of December 31, 2013, 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. OTHER MATTERS REQUIRED SUPPLEMENTARY INFORMATION Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparisons, pension plan information, and retiree health plan information on pages 4 to 12, 54 to 55, 56 to 58, and 59, 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 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. OTHER INFORMATION Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Farrell, Pennsylvania's, basic - 2 -

8 City of Farrell financial statements. The accompanying schedule of expenditures of federal awards as required by U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations" and the supplemental schedules and related information identified in the table of contents as supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedules discussed in the preceding paragraph 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 in Exhibits "C" and "D", and general fund budget and actual in Exhibit "H", 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 information is fairly stated in all material respects in relation to the financial statements taken as a whole. The Exhibits "C", "D", and "H" have 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 it. OTHER REPORTING REQUIRED BY "GOVERNMENT AUDITING STANDARDS" In accordance with "Government Auditing Standards", we have also issued our report dated June 19, 2014, on our consideration of the City of Farrell, Pennsylvania, internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulation, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with "Government Auditing Standards" in considering City of Farrell, Pennsylvania, internal control over financial reporting and compliance. Sharon, Pennsylvania June 19,

9 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED The discussion and analysis of the City of Farrell's 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. FINANCIAL HIGHLIGHTS Key financial highlights for 2013 are as follows: In total, net position decreased $ 201 thousand. Net position of governmental activities decreased by $ 334 thousand and business-type activities increased by $ 133 thousand. The decrease in governmental activities is primarily the result of decrease in operating and capital grants and contributions. The increase in business-type activities is primarily the result of increases in charges for services. Total revenues and other sources were $ 5.2 million. General revenues accounted for $ 2.7 million of revenue or 52 percent of all revenues. Program revenues in the form of charges for services, fees, fines and forfeitures, and grants accounted for $ 2.5 million or 48 percent of total revenues. Governmental activities revenue totalled $ 4.1 million. The City had $ 4.4 million in expenses related to governmental activities, $ 1.4 million of these expenses were offset by program revenues consisting of program charges for services and both operating and capital grants and contributions. General revenues (primarily taxes) of $ 2.7 million were not sufficient to cover the remainder of the expenses; and there was a decrease in net position of $ 334 thousand. At the end of the current fiscal year, the unassigned fund balance of the general fund was $ 563 thousand. CITY HIGHLIGHTS The demolition of blighted property continues to be a priority and completed with Community Development Block Grant dollars will see additional money allotted for this effort. A $ 250,000 DCED HOMES Grant is being managed by Lawrence County Social Services. This grant provides qualified homeowners with home rehabilitation to correct code violations. The grant is capped at $ 20,000 per property. A $ 50,000 Façade grant from DCED is being managed by the City to provide qualified homeowners with façade improvements of up to $ 5,000 per home. In 2013, the City saw completion of the Farrell Choice Homes project that constructed a 33-unit apartment building on Roemer Boulevard, as well as 10 single-family homes in the southwest area of town. All units are now occupied. In 2013, the City approved its first ever loan ($ 325,000 from the Revolving Loan Fund) to a company located outside of Farrell. The company, Noise Solutions, - 4 -

10 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED Inc. is located in Sharon. It is thought to be beneficial to the entire region and Farrell residents. Income tax collections appear to remain strong with the third party collector, Berkheimer, performing well. During 2013, DCED appointed a new Act 47 coordinator, the Novak Consulting Group, to replace the retiring Dr. Michael Weir. 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 City of Farrell, Pennsylvania, 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 Farrell, the General Fund is by far the most significant fund. REPORTING THE CITY AS A WHOLE GOVERNMENT-WIDE FINANCIAL STATEMENTS Statement of Net Position and the Statement of Activities - While this document contains the large number of 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 2013?". The Statement of Net Position and the Statement of Activities answer that 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 (2) 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, whether 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 and other factors. In the Statement of Net Position and the Statement of Activities, the City is divided into two (2) kinds of activities: - 5 -

11 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED Governmental Activities - Most of the City's programs and services are reported here including operations and support services. 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 City's water and sewer operation is reported as business activities. The Governmental Funds Balance Sheet can be found on page 16 of this report. REPORTING THE CITY'S MOST SIGNIFICANT FUNDS FUND FINANCIAL STATEMENTS The analysis of the City's major funds begins 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, Community Development Block Grant, E.D.P., Capital Projects, and Revolving Loan Community Development. 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 programs. The relationships (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the financial statements on pages 17 and 20 to 21, 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. 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 2013 compared to 2012 is as follows: - 6 -

12 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL ASSETS:- Cash and Cash Equivalents... $ 2,519 $ 3,470 $ 66 $ 48 $ 2,585 $ 3,518 Cash and Cash Equivalents - Restricted Grants Receivable Service Charges Receivables Taxes Receivable, Net of Allowances.. 1,136 1,060 1,136 1,060 Internal Balances ( 97) 0 0 Notes Receivable, Net of Allowance... 1,420 1,020 1,420 1,020 Loan Receivable Capital Assets, Net of Depreciation... 1,328 1,456 2,857 3,026 4,185 4,482 Prepaid Expense TOTAL ASSETS:- $ 6,665 $ 7,171 $ 3,160 $ 3,173 $ 9,825 $ 10,344 DEFERRED OUTFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 6,665 $ 7,171 $ 3,160 $ 3,173 $ 9,825 $ 10,344 LIABILITIES:- Accrued Payroll and Withholdings...$ 57 $ 37 $ 8 $ 6 $ 65 $ 43 Accounts Payable Compensated Absences Other Post-Employment Benefits Costs Reserve for Restricted Cash and Cash Equivalents Accrued Interest Bonds and Notes Payable ,258 1,422 2,102 2,359 TOTAL LIABILITIES:- $ 1,158 $ 1,329 $ 1,322 $ 1,468 $ 2,480 $ 2,797 DEFERRED INFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0-7 -

13 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL NET POSITION:- Net Investment in Capital Assets...$ 1,287 $ 1,403 $ 1,599 $ 1,605 $ 2,886 $ 3,008 Restricted for Specific Use... 2,437 3, ,488 3,157 Unrestricted... 1,783 1, ,971 1,382 TOTAL NET POSITION:- $ 5,507 $ 5,842 $ 1,838 $ 1,705 $ 7,345 $ 7,547 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 6,665 $ 7,171 $ 3,160 $ 3,173 $ 9,825 $ 10,344 Total assets and deferred outflows decreased $ 519 thousand, primarily the result of a reduction in capital assets, net of depreciation of $ 297 thousand, cash and cash equivalents of $ 933 thousand, offset primarily by an increase in notes receivable of $ 400 thousand, grants receivable of $ 132 thousand, loan receivable of $ 56 thousand, service charges receivable of $ 37 thousand, and taxes receivable of $ 76 thousand. Total liabilities and deferred inflows decreased $ 317 thousand, primarily as a result of the payments made on bonds and notes payable of $ 257 thousand and a decrease in accounts payable of $ 74 thousand. A comparison of the City's revenues, expenses, and changes in net position for 2013 compared to 2012 is as follows: NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL REVENUES AND OTHER SOURCES:- Program Revenues - Operating Grants and Contributions...$ 562 $ 365 $ $ $ 562 $ 365 Capital Grants and Contributions Charges for Services ,152 1,030 1,398 1,268 General Revenues - Property Taxes, Earned, Local Service, and Other Taxes... 2,304 2,186 2,304 2,

14 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL License and Permits Unrestricted Investment Earnings Rents Miscellaneous Transfers In Sale of Land Proceeds from Sale of Fixed Assets TOTAL REVENUES AND OTHER SOURCES:- $ 4,060 $ 3,551 $ 1,152 $ 1,030 $ 5,212 $ 4,581 PROGRAM EXPENSES AND OTHER USES:- Operations - General Government..$ 1,143 $ 1,067 $ $ $ 1,143 $ 1,067 Public Safety - Police... 1,275 1,288 1,275 1,288 Public Safety - Fire Health and Human Services Public Works - Maintenance and Sanitation Highways and Streets Sewer Services Support Services - Culture and Recreation Library Community Development Intergovernmental Community Interest on Long-Term Debt Depreciation Transfers Out TOTAL PROGRAM EXPENSES AND OTHER USES:- $ 4,394 $ 3,841 $ 1,019 $ 1,116 $ 5,413 $ 4,957 CHANGES IN NET POSITION:- ($ 334) ($ 290) $ 133 ($ 86) ($ 201) ($ 376) - 9 -

15 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED GOVERNMENTAL ACTIVITIES Governmental activities for 2013 resulted in a decrease in net position of $ 334 thousand. The decrease is primarily the result of public safety, police expenses, and the use of funds for various non-capitalizable projects in the Revolving Loans Community Development Fund and Capital Projects Fund projects, as well as Special Highway Fund Operations costs, offset by transfers and property taxes, earned, local service, and other taxes. The City's revenues consist of: local (taxes and other) 67 percent; grants and contributions 27 percent; charges for services (general government) 6 percent. The City's program expenses are 74 percent for operations and public works, 22 percent for support services, and 4 percent for other expenses. The City's reliance on state, federal, and local revenues is apparent. A decrease in state and federal funding in subsidies and grants would have a severe impact on the City. A decrease would require a substantial increase in local revenue to meet the City's needs. BUSINESS-TYPE ACTIVITIES Business-type activities is the sewer operation. The operation had revenues of $ 1.2 million and expenses of $ 1.0 million (including transfers out of $ 144 thousand). The program does not receive local support from tax revenues. THE CITY'S FUNDS Financial information related to the City's governmental funds starts on page 16. These funds are accounted for using the modified accrual basis of accounting. All governmental funds had total revenues of $ 4.0 million and expenditures of $ 5.0 million. The total net other financing sources was $ 181 thousand. The net decrease of $ 840 thousand in fund balances was primarily due to the deficit for the year for the general, capital, E.D.P., and Revolving Loan Community Development Funds (including loans disbursed from the E.D.P. fund as well of $ 556 thousand), offset by operating excess in the various non-major funds. GENERAL FUND BUDGET HIGHLIGHTS The City is required to pass a budget by December 31 of each year for the upcoming calendar year. The most significant fund is the general fund. The revenue and other financing sources budget for the general fund was $ 2.9 million. Actual revenue and other sources were over budgeted amounts by $ 57 thousand. This was primarily the result of other revenues and operating

16 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED transfers under budget by $ 100 thousand, offset by taxes over budget by $ 162 thousand (net). The expenditure and other financing uses budget was $ 3.0 million. Actual expenditures and other financing sources were over budgeted amounts by $ 100 thousand. This was primarily the result of operating transfers out over budget by $ 133 thousand. CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At the end of 2013, the City's governmental activities reported $ 1.3 million invested in land, buildings, and equipment (cost $ 4.1 million, less accumulated depreciation of $ 2.8 million). No new capital investment purchases were made in At the end of 2013, the City's business-type activities reported $ 2.9 million invested in land, buildings, and equipment (cost $ 7.8 million, less accumulated depreciation of $ 4.9 million). The business-type activities receive low interest loans from PENNVEST to install capital improvements. The total outstanding loan balance at December 31, 2013, was $ 1.3 million. No new capital investment purchases were made in DEBT ADMINISTRATION At December 31, 2013, the City's governmental activities had $ 784 thousand in bonds outstanding; $ 54 thousand is due within one (1) year. Also, at December 31, 2013, the City's governmental activities had $ 60 thousand in notes outstanding, $ 27 thousand is due within one (1) year. At December 31, 2013, the City's business-type activities had $ 1.3 million in notes outstanding; $ 169 thousand is due within one (1) year. FOR THE FUTURE The financial outlook for the City is a concern. The City was able to add to the general fund balance only in one (1) of the last five (5) years. The City relies heavily on the local taxpayers and on state and federal subsidies and grants. The City of Farrell's economy continues to be challenged by recession and volatility; like the majority of the cities in Mercer County and across the country. The cost of operations is anticipated to increase, which will be funded by local, state, and federal revenue. Any excess revenue will be used to increase the fund balance to enable the City to maintain operations in future years

17 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2013 UNAUDITED 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 the City of Farrell, Administrative Office, 500 Roemer Boulevard, Farrell, Pennsylvania

18 STATEMENT OF NET POSITION AS OF DECEMBER 31, 2013 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL ASSETS:- CURRENT ASSETS:- Cash and Cash Equivalents...$ 2,518,701 $ 65,459 $ 2,584,160 Cash and Cash Equivalents - Restricted Grant Receivable , ,734 Service Charges Receivables... 73,485 73,485 Sewer Fees Receivable, Net , ,045 Taxes Receivable, Net of Allowances... 1,135,859 1,135,859 Current Portion of Notes Receivables , ,193 Loan Receivable... 26,644 26,644 Prepaid Expense... 10,033 10,033 TOTAL CURRENT ASSETS:- $ 4,155,549 $ 302,537 $ 4,458,086 NON-CURRENT ASSETS:- CAPITAL ASSETS:- Land...$ 144,968 $ 123,800 $ 268,768 Buildings and Improvements, Net of Accumulated Depreciation ,371 2,713,878 3,652,249 Vehicles, Net of Accumulated Depreciation ,742 16, ,542 Furniture, Equipment, and Other Fixed Assets, Net of Accumulated Depreciation ,702 2, ,683 TOTAL CAPITAL ASSETS:- $ 1,327,783 $ 2,857,459 $ 4,185,242 OTHER ASSETS:- Notes Receivable, Net of Current Portion and Allowances for Uncollectable...$ 1,152,710 $ $ 1,152,710 Loan Receivable, Net of Current Portion... 29,156 29,156 TOTAL OTHER ASSETS:- $ 1,181,866 $ 0 $ 1,181,866 TOTAL ASSETS:- $ 6,665,198 $ 3,159,996 $ 9,825,194 DEFERRED OUTFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 6,665,198 $ 3,159,996 $ 9,825,194 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL LIABILITIES:- CURRENT LIABILITIES:- Current Portion of Bonds and Notes Payable...$ 80,963 $ 169,128 $ 250,091 Accrued Payroll and Withholdings... 57,270 6,715 63,985 Accounts Payable... 65,677 19,097 84,774 Reserve for Restricted Cash and Cash Equivalents Accrued Interest Expense... 16,494 3,436 19,930 TOTAL CURRENT LIABILITIES:- $ 221,337 $ 198,376 $ 419,713 NON-CURRENT LIABILITIES:- Compensated Absences...$ 117,556 $ 30,915 $ 148,471 Other Post-Employment Benefits... 56,045 3,264 59,309 Notes Payable, Net of Current Portion... 32,992 1,089,007 1,121,999 Bonds Payable, Net of Current Portion , ,000 Commitments and Contingencies... 0 TOTAL NON-CURRENT LIABILITIES:- $ 936,593 $ 1,123,186 $ 2,059,779 TOTAL LIABILITIES:- $ 1,157,930 $ 1,321,562 $ 2,479,492 DEFERRED INFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 NET POSITION:- Net Investment in Capital Assets...$ 1,286,989 $ 1,599,324 $ 2,886,313 Restricted for Specific Use... 2,436,956 50,773 2,487,729 Unrestricted... 1,783, ,337 1,971,660 TOTAL NET POSITION:- $ 5,507,268 $ 1,838,434 $ 7,345,702 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 6,665,198 $ 3,159,996 $ 9,825,194 The Accompanying Notes are an Integral Part of These Statements

19 PAGE 1 OF 2 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 PROGRAM REVENUES NET (EXPENSE) REVENUES AND CHANGES IN NET POSITION OPERATING CAPITAL TOTAL CHARGES FOR GRANTS AND GRANTS AND GOVERNMENTAL BUSINESS-TYPE (MEMORANDUM EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES ONLY) GOVERNMENTAL ACTIVITIES:- OPERATIONS - General Government...$ 1,142,674 $ 238,691 $ 152,582 $ ($ 751,401) $ ($ 751,401) Public Safety - Police... 1,275,031 7,681 ( 1,267,350) ( 1,267,350) Public Safety - Fire ,946 ( 327,946) ( 327,946) Health and Human Services ,879 ( 115,879) ( 115,879) Public Works - Maintenance and Sanitation... 35,099 ( 35,099) ( 35,099) Highways and Streets , ,372 ( 235,998) ( 235,998) TOTAL OPERATIONS:- $ 3,266,999 $ 246,372 $ 286,954 $ 0 ($ 2,733,673) $ 0 ($ 2,733,673) SUPPORT SERVICES - Culture and Recreation...$ 26,546 $ $ 50 $ ($ 26,496) $ ($ 26,496) Library ,847 30,313 ( 79,534) ( 79,534) Community Development , , ,643 ( 11,373) ( 11,373) Intergovernmental Community... 18,933 ( 18,933) ( 18,933) TOTAL SUPPORT SERVICES:- $ 956,628 $ 0 $ 274,649 $ 545,643 ($ 136,336) $ 0 ($ 136,336) UNALLOCATED EXPENSES - Interest on Long-Term Debt...$ 42,212 $ $ $ ($ 42,212) $ ($ 42,212) Depreciation ,246 ( 128,246) ( 128,246) TOTAL UNALLOCATED EXPENSES:- $ 170,458 $ 0 $ 0 $ 0 ($ 170,458) $ 0 ($ 170,458) TOTAL GOVERNMENTAL ACTIVITIES:- $ 4,394,085 $ 246,372 $ 561,603 $ 545,643 ($ 3,040,467) $ 0 ($ 3,040,467) BUSINESS-TYPE ACTIVITIES:- Sewer Services...$ 874,619 $ 1,151,500 $ 0 $ 0 $ 0 $ 276,881 $ 276,881 TOTAL PRIMARY GOVERNMENT:- $ 5,268,704 $ 1,397,872 $ 561,603 $ 545,643 ($ 3,040,467) $ 276,881 ($ 2,763,586) GENERAL REVENUES:- TAXES - Property Taxes, Levied for General Purposes...$ 963,389 $ $ 963,389 Earned Income... 1,176,189 1,176,189 Local Services Tax , ,682 Real Estate Transfer Taxes... 52,784 52,784 Licenses and Permits... 91,489 91,489 Unrestricted Investment Earnings... 33, ,371 Rents... 39,650 39,650 The Accompanying Notes are an Integral Part of These Statements

20 PAGE 2 OF 2 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 NET (EXPENSE) REVENUES AND CHANGES IN NET POSITION TOTAL GOVERNMENTAL BUSINESS-TYPE (MEMORANDUM ACTIVITIES ACTIVITIES ONLY) Miscellaneous... 56,779 56,779 Transfers ,668 ( 143,468) 13,200 Sale of Land... 24,500 24,500 TOTAL GENERAL REVENUES:- $ 2,706,490 ($ 143,457) $ 2,563,033 CHANGES IN NET POSITION:- ($ 333,977) $ 133,424 ($ 200,553) NET POSITION AT BEGINNING OF YEAR:- 5,841,245 1,705,010 7,546,255 NET POSITION AT END OF YEAR:- $ 5,507,268 $ 1,838,434 $ 7,345,702 The Accompanying Notes are an Integral Part of These Statements

21 BALANCE SHEET GOVERNMENTAL FUNDS AS OF DECEMBER 31, 2013 MAJOR FUNDS COMMUNITY REVOLVING LOAN TOTAL DEVELOPMENT CAPITAL COMMUNITY NON-MAJOR GOVERNMENTAL GENERAL FUND BLOCK GRANT E.D.P. PROJECTS DEVELOPMENT FUNDS FUNDS ASSETS:- Cash and Cash Equivalents...$ 86,387 $ $ 1,577,412 $ 32,884 $ 744,678 $ 77,340 $ 2,518,701 Cash and Cash Equivalents - Restricted Taxes Receivable , ,697 Grant Receivables ,780 16, ,734 Service Charges Receivables... 47,011 26,474 73,485 Notes Receivables , ,978 5,917 1,420,903 Loan Receivables... 55,800 55,800 Due from Other Funds ,805 8,509 25, ,373 TOTAL ASSETS:- $ 1,497,900 $ 115,393 $ 2,474,929 $ 88,684 $ 1,312,669 $ 110,051 $ 5,599,626 DEFERRED OUTFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 1,497,900 $ 115,393 $ 2,474,929 $ 88,684 $ 1,312,669 $ 110,051 $ 5,599,626 LIABILITIES:- Payroll Payable and Withholdings...$ 40,958 $ $ $ $ 16,312 $ $ 57,270 Accounts Payable... 42,519 9,810 13,348 65,677 Due to Other Funds , , ,373 Reserve for Unpaid Taxes , ,697 Restricted Cash and Cash Equivalents Reserves for Notes Receivables , ,978 5,917 1,420,903 Reserves for Loan Receivables... 55,801 55,801 TOTAL LIABILITIES:- $ 935,174 $ 115,393 $ 889,008 $ 487,394 $ 552,100 $ 19,585 $ 2,998,654 DEFERRED INFLOWS OF RESOURCES:- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 935,174 $ 115,393 $ 889,008 $ 487,394 $ 552,100 $ 19,585 $ 2,998,654 FUND EQUITIES:- FUND BALANCES (DEFICITS):- Fund Balance - Restricted - DCNR Grant...$ $ $ $ $ $ 13,100 $ 13,100 Emergency Shelter E.D.P... 1,585,921 1,585,921 Library... 12,131 12,131 Revolving Loan Community Development Projects , ,569 Farrell Recreation... 2,062 2,062 Revolving Loan Rehabilitation... 5,995 5,995 Gasoline Program... 36,063 36,063 Redevelopment Authority - Little League Special Highway... 20,264 20,264 Fund Balance - Unassigned ,726 ( 398,710) 164,016 TOTAL FUND BALANCES (DEFICITS):- $ 562,726 $ 0 $ 1,585,921 ($ 398,710) $ 760,569 $ 90,466 $ 2,600,972 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND EQUITIES:- $ 1,497,900 $ 115,393 $ 2,474,929 $ 88,684 $ 1,312,669 $ 110,051 $ 5,599,626 The Accompanying Notes are an Integral Part of These Statements

22 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2013 TOTAL FUND EQUITY - GOVERNMENTAL FUNDS:- $ 2,600,972 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 the Capital Assets was $ 4,118,202 and Accumulated Depreciation is $ 2,790,418. 1,327,784 Real Estate Transfer, Earned Income, and Local Service Taxes Receivable will be Collected Next Year, but are Not "Available" Soon Enough to Pay for the Current Period's Expenditures. The Real Estate Portion is Deferred in the Governmental Funds Statement. 284,162 Loan Receivable will Not be Collected Soon Enough to Pay for the Current Period's Expenditures and Therefore, Not Recorded in the Funds. 55,800 Reserved for Taxes Not Recognized in the Governmental Activities Financial Statements. 851,697 Reserved for Economic Development Notes Not Recognized in Governmental Activities Financial Statements. 1,420,903 Current Liabilities from Long-Term Debt, Including Bonds Payable, are Not Due and Payable in the Current Period and, Therefore, are Not Reported as Liabilities in Governmental Funds Financial Statements. Current Liabilities from Long-Term Debt at Year-End Consist of: Accrued Interest...($ 16,494) Bonds and Notes Payable..( 80,963) ( 97,457) Long-Term Liabilities from Long-Term Debt, 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: Other Post-Employment Benefits...($ 56,045) Bonds and Notes Payable..( 762,992) Compensated Absences...( 117,556) ( 936,593) TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES:- $ 5,507,268 The Accompanying Notes are an Integral Part of These Statements

23 PAGE 1 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2013 MAJOR FUNDS COMMUNITY REVOLVING LOAN TOTAL DEVELOPMENT CAPITAL COMMUNITY NON-MAJOR GOVERNMENTAL GENERAL FUND BLOCK GRANT E.D.P. PROJECTS DEVELOPMENT FUNDS FUNDS REVENUES:- Taxes...$ 2,284,668 $ $ $ $ $ $ 2,284,668 Payments in Lieu of Taxes and Contributions... 57,382 16,697 10,316 84,395 Licenses and Permits... 91,489 91,489 Rents... 27,500 12,150 39,650 Interest , , ,360 Grants... 98, , , ,682 1,022,851 Charges for Services... 51, , ,372 Loan Repayments... 67, , ,458 Lease Repayments... 9,113 9,113 Other Revenues... 27,369 24,199 4, ,739 TOTAL REVENUES:- $ 2,638,407 $ 467,333 $ 87,110 $ 41,541 $ 578,438 $ 418,266 $ 4,231,095 EXPENDITURES:- Operations - General Government...$ 977,540 $ $ $ $ $ 177,734 $ 1,155,274 Public Safety - Police... 1,204,161 80,000 1,284,161 Public Safety - Fire , ,024 Health and Human Services... 55,327 60, ,879 Public Works - Maintenance and Sanitation... 16,042 19,057 35,099 Highways and Streets , , ,370 Culture and Recreation... 19,833 6,713 26,546 Library... 96,951 12, ,847 Community Development , , ,750 5,000 1,672,166 Intergovernmental Community... 18,933 18,933 Debt Service - Principal... 54,000 38,722 92,722 Interest and Other Charges... 40,710 2,495 43,205 TOTAL EXPENDITURES:- $ 2,973,053 $ 369,234 $ 750,892 $ 140,274 $ 641,750 $ 377,023 $ 5,252,226 REVENUES OVER (UNDER) EXPENDITURES:- ($ 334,646) $ 98,099 ($ 663,782) ($ 98,733) ($ 63,312) $ 41,243 ($ 1,021,131) OTHER FINANCING SOURCES (USES):- Operating Transfers - In...$ 313,449 $ $ 8,509 $ $ $ 133,583 $ 455,541 Operating Transfers - Out...( 133,483) ( 132,881) ( 8,509) ( 24,000) ( 298,873) Sale of Land... 24,500 24,500 TOTAL OTHER FINANCING SOURCES (USES):- $ 179,966 ($ 132,881) $ 8,509 $ 0 ($ 8,509) $ 134,083 $ 181,168 The Accompanying Notes are an Integral Part of These Statements

24 PAGE 2 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2013 MAJOR FUNDS COMMUNITY REVOLVING LOAN TOTAL DEVELOPMENT CAPITAL COMMUNITY NON-MAJOR GOVERNMENTAL GENERAL FUND BLOCK GRANT E.D.P. PROJECTS DEVELOPMENT FUNDS FUNDS REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND (USES):- ($ 154,680) ($ 34,782) ($ 655,273) ($ 98,733) ($ 71,821) $ 175,326 ($ 839,963) FUND BALANCES (DEFICITS) - BEGINNING OF YEAR:- 717,406 34,782 2,241,194 ( 299,977) 832,390 ( 84,860) 3,440,935 FUND BALANCES (DEFICITS) - END OF YEAR:- $ 562,726 $ 0 $ 1,585,921 ($ 398,710) $ 760,569 $ 90,466 $ 2,600,972 The Accompanying Notes are an Integral Part of These Statements

25 PAGE 1 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 TOTAL NET CHANGES IN FUND BALANCES (DEFICITS) - GOVERNMENTAL FUNDS:- ($ 839,963) 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. The Amount of Capital Outlays in $ 0 The Amount of Depreciation Expense for ( 128,246) ( 128,246) Because Some Real Estate and Real Estate Transfer, Earned Income, and Local Service Taxes will Not be Collected for Several Months After the City's Fiscal Year End, They are Not Considered "Available" Revenues and are Deferred in the Governmental Funds. The Change in Taxes to be Collected in the Statement of Net Position. 76,379 Small Business Notes Issued and Repayments Received are Expenditures and Revenues in the Governmental Funds. However, These Disbursements and Receipts Increase and Decrease Notes Receivable Balances in the Statement of Net Position. During 2013, Notes Issued are $ 556,259 and Repayments Received Net are $ 154, ,507 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 2013, Loans Issued are $ 80,000 and Repayments Received Net are $ 24, ,800 Disbursement of Note Payable Principal is an Expenditure in the Governmental Funds, but the Principal Payments Made Reduces Long-Term Liabilities in the Statement of Net Position. 92,722 Amounts Accrued for Interest Expense Payable is Not Recorded in the Governmental Funds, but the Expense is Recorded as a Liability in the Statement of Net Position. Decrease in Accrued Interest Expense. 993 Termination Benefits are Measured by the Amounts Earned During the Year. In the Governmental Funds, However, Expenditures for these Items are Measured by the Amount of Financial Resources Used (Essentially, the Amounts Actually Paid). Decrease in Compensated Absences. 6,672 The Accompanying Notes are an Integral Part of These Statements

26 PAGE 2 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES (DEFICITS) TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 The Unfunded Annual Cost for Other Post-Employment Benefits is not Recorded in the Governmental Funds, but the Cost is Recorded as a Liability in the Statement of Net Position. Decrease in Other Post-Employment Benefits. 159 CHANGES IN NET POSITION - GOVERNMENTAL ACTIVITIES:- ($ 333,977) The Accompanying Notes are an Integral Part of These Statements

27 STATEMENT OF NET POSITION PROPRIETARY FUND AS OF DECEMBER 31, 2013 BUSINESS-TYPE ACTIVITIES MAJOR FUND SEWER SYSTEM ASSETS:- CURRENT ASSETS:- Cash and Cash Equivalents...$ 65,459 Sewer Fees Receivable, Net ,045 Prepaid Expense... 10,033 TOTAL CURRENT ASSETS:- $ 302,537 CAPITAL ASSETS:- Land...$ 123,800 Buildings and Improvements, Net of Accumulated Depreciation... 2,713,878 Vehicles, Net of Accumulated Depreciation... 16,800 Furniture, Equipment, and Other Fixed Assets, Net of Accumulated Depreciation... 2,981 BUSINESS-TYPE ACTIVITIES MAJOR FUND SEWER SYSTEM LIABILITIES:- CURRENT LIABILITIES:- Current Portion of Notes Payable...$ 169,128 Accrued Payroll and Withholdings... 6,715 Accounts Payable... 19,097 Accrued Interest Expense... 3,436 TOTAL CURRENT LIABILITIES:- $ 198,376 NON-CURRENT LIABILITIES:- Compensated Absences...$ 30,915 Other Post-Employment Benefits... 3,264 Notes Payable, Net of Current Portion... 1,089,007 TOTAL NON-CURRENT LIABILITIES:- $ 1,123,186 TOTAL LIABILITIES:- $ 1,321,562 DEFERRED INFLOWS OF RESOURCES:- $ 0 TOTAL CAPITAL ASSETS:- $ 2,857,459 TOTAL ASSETS:- $ 3,159,996 DEFERRED OUTFLOWS OF RESOURCES:- $ 0 NET POSITION:- Net Investment in Capital Assets...$ 1,599,324 Unrestricted ,337 Restricted for Sewer Capital Improvements... 50,773 TOTAL NET POSITION:- $ 1,838,434 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 3,159,996 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 3,159,996 The Accompanying Notes are an Integral Part of These Statements

28 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND FOR THE YEAR ENDED DECEMBER 31, 2013 BUSINESS-TYPE ACTIVITIES MAJOR FUND SEWER SYSTEM OPERATING REVENUES:- Sewer Fees, Net of Allowances for Doubtful Accounts, Pledged as Security for Revenue Bonds...$ 1,151,500 OPERATING EXPENSES:- Salaries...$ 177,879 Employee Benefits... 74,821 Utilities and Telephone ,915 Supplies... 14,642 Plant Operations ,664 Contracted Services... 47,527 Bad Debts... 2,607 Depreciation ,726 TOTAL OPERATING EXPENSES:- $ 804,781 OPERATING INCOME:- $ 346,719 NON-OPERATING REVENUES (EXPENSES):- Earnings on Investments...$ 11 Interest Expense...( 42,853) Miscellaneous Expense...( 26,985) TOTAL NON-OPERATING REVENUES (EXPENSES):- ($ 69,827) INCOME BEFORE TRANSFERS:- $ 276,892 TRANSFERS TO GENERAL FUND:- ( 143,468) CHANGES IN NET POSITION:- $ 133,424 NET POSITION AT BEGINNING OF YEAR:- 1,705,010 NET POSITION AT END OF YEAR:- $ 1,838,434 The Accompanying Notes are an Integral Part of These Statements

29 STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED DECEMBER 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES - Received from User Charges...$ 1,120,509 Payments to Employees for Wages and Benefits...( 252,281) Payments to Suppliers for Goods and Services...( 470,589) NET CASH FROM OPERATING ACTIVITIES:- $ 397,639 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES - Payments on Long-Term Debt...($ 163,417) Payments on Interest Expense...( 43,232) NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- ($ 206,649) CASH FLOWS FROM NON-OPERATING AND INVESTING ACTIVITIES - Transfers Out...($ 143,468) Bad Debts...( 2,607) Earnings on Investments Other Non-Operating Expense...( 26,985) NET CASH FROM NON-OPERATING AND INVESTING ACTIVITIES:- ($ 173,049) NET (DECREASE) IN CASH AND CASH EQUIVALENTS:- $ 17,941 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:- 47,518 CASH AND CASH EQUIVALENTS AT END OF YEAR:- $ 65,459 RECONCILIATION OF OPERATING (LOSS) TO NET CASH FROM OPERATING ACTIVITIES:- Operating Income...$ 346,719 Adjustments to Reconcile Operating Income to Net Cash From Operating Activities - Depreciation ,726 Revenues Reduced for Uncollectable Accounts... 2,607 (Increase) Decrease in - Accounts Receivable, Net of Allowances...( 30,991) Prepaid Expense...( 10,033) Increase (Decrease) in - Accrued Payroll and Benefits Accounts Payable... 17,463 Interfund Payables...( 97,271) Other Post-Employment Benefits...( 7) Compensated Absences...( 238) NET CASH FROM OPERATING ACTIVITIES:- $ 397,639 The Accompanying Notes are an Integral Part of These Statements