GREENBELT HOMES, INC. Consolidated Financial Statements ... · part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic,

GREENBELT HOMES, INC.

Consolidated Financial Statements and Supplementary Information with

Independent Auditors' Report

For the Years Ended December 31, 2016 and 2015

CONTENTS

Independent Auditors’ Report …………………………………………………………………… 1-2 Consolidated Balance Sheets …………………………………………………………………….. 3-4 Consolidated Statements of Revenues and Expenses ……………………………………………. 5 Consolidated Statements of Members’ Equity …………………………………………………… 6 Consolidated Statements of Cash Flows …………………………………………………………. 7 Notes to Consolidated Financial Statements ……………………………………………………... 8 Supplementary Information on Future Major Repairs and Replacements (Unaudited) …………. 22

INDEPENDENT AUDITORS’ REPORT The Board of Directors Greenbelt Homes, Inc. Greenbelt, Maryland Report on the Financial Statements We have audited the accompanying consolidated financial statements of Greenbelt Homes, Inc., which comprise the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of revenues and expenses, changes in members’ equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. A consolidated 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 consolidated 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 consolidated 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. 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Greenbelt Homes, Inc. Independent Auditors’ Report (Continued)

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Greenbelt Homes, Inc. as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Prior Period Consolidated Financial Statements The consolidated financial statements of Greenbelt Homes, Inc. as of December 31, 2015, were audited by other auditors whose report, dated April 15, 2016, expressed an unmodified opinion on those statements. Disclaimer of Opinion on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the supplementary information on future major repairs and replacements on page 22 be presented to supplement the consolidated financial statements. Such information, although not a part of the consolidated financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the consolidated 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 consolidated financial statements, and other knowledge we obtained during our audit of the consolidated 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.

DeLeon and Stang, CPAs and Advisors DeLeon & Stang, CPAs Gaithersburg, Maryland April 14, 2017, except for Note 14, as to which the date is August 29, 2017

See Accompanying Notes to the Consolidated Financial Statements Page 3

2016 2015

Current Assets

Cash and cash equivalents 5,837,254$ 662,578$ Accounts receivable (net of allowance for doubtful accounts of $19,817 in 2016 and $17,155 in 2015) 804,132 244,024 Inventory 68,730 48,110 Prepaid taxes 5,880 5,880 Prepaid expenses 12,209 23,673 Current portion of notes receivable 6,678 4,268

Total Current Assets 6,734,883 988,533

Other Assets

Accounts receivable - noncurrent 55,684 54,370 Notes receivable - less current portion 38,391 44,573 Investments 10,882,612 17,349,501 Investment in National Cooperative Bank 885,137 885,137 Homes for sale 256,342 137,451 Property and equipment (net of accumulated depreciation of $28,754,117 in 2016 and $28,357,406 in 2015) 8,216,486 5,024,412

Total Other Assets 20,334,652 23,495,444

TOTAL ASSETS 27,069,535$ 24,483,977$

(Continued)

December 31, 2016 and 2015

ASSETS

GREENBELT HOMES, INC.Consolidated Balance Sheets


2016 2015

Current Liabilities

Accounts payable 284,552$ 134,095$ Accounts payable - other 342,807 - Income taxes payable 3,515 1,353 Deposits and deferred revenue 235,338 250,594 Prepaid rents 5,687 10,332 Accrued expenses 396,927 374,305

Total Current Liabilities 1,268,826 770,679

Other Liabilities

Escrow of former member equity 52,467 52,467 Deferred taxes 65,000 33,000

Total Liabilities 1,386,293 856,146

Members' EquityReplacement reserve 11,469,352 13,410,539 Contingency reserve 909,789 909,789 Addition maintenance reserve 1,339,970 1,253,981 Working capital 1,541,275 1,504,769 Property and equipment 8,216,486 5,024,412 Unreserved operating fund 2,206,370 1,595,543 Unrealized loss on investments - (71,202)

Total Members' Equity 25,683,242 23,627,831

TOTAL LIABILITIES AND MEMBERS' EQUITY 27,069,535$ 24,483,977$

LIABILITIES AND MEMBERS' EQUITY

GREENBELT HOMES, INC.Consolidated Balance SheetsDecember 31, 2016 and 2015


2016 2015Revenues:Member charges 9,747,844$ 9,286,596$ Less: Contributions to reserves (1,733,719) (1,628,400) Apartment rental income 574,454 551,281 Fee for service 125,726 278,766 Garage income 227,855 224,091 Contract processing 151,724 131,781 Investment income 594,853 512,949 Home improvement program 834,720 - Miscellaneous 158,083 82,339

Total Revenues 10,681,540 9,439,403

Operating Expenses:Maintenance 3,996,490 3,205,040 Real estate taxes 3,572,484 3,376,826 Administrative 1,355,083 1,344,213 Trash collection 441,633 443,849 Insurance 439,263 490,614 Depreciation on operating assets 83,407 113,421 Member services 24,560 23,429

Total Operating Expenses 9,912,920 8,997,392

Net Income Before Depreciation and Income Taxes 768,620 442,011

Depreciation on Members' Units 518,233 652,300

Net Income (Loss) Before Income Taxes 250,387 (210,289)

Provision for Income Taxes 36,403 (58,647)

Net Income (Loss) 213,984$ (151,642)$

GREENBELT HOMES, INC.Consolidated Statements of Revenues and ExpensesFor the Years Ended December 31, 2016 and 2015


Addition Working Property Unreserved UnrealizedReplacement Contingency Maintenance Capital and Operations Operating Gain (Loss) on

Reserve Reserve Reserve Fund Equipment Reserve Fund Investments Total

Balance at January 1, 2015 12,211,658$ 909,789$ 1,109,209$ 1,493,490$ 4,967,838$ 60,000$ 1,459,012$ (50,640)$ 22,160,356$

Additions: Net loss - - - - - - (151,642) - (151,642) Other comprehensive income - - - - - - - (20,562) (20,562) Member capitalizations of replacement reserve 1,499,835 - 128,565 - - - - - 1,628,400 Interest income 354,137 - 32,167 - - - (386,304) - - Net additions to working capital account - - - 11,279 - - - - 11,279

Deductions: Crawlspace improvements - - - - 42,569 - (42,569) - - Transfers - - - - 14,005 (60,000) 45,995 - - Replacement reserve utilization (655,091) - (15,960) - - - 671,051 - -

Balance at December 31, 2015 13,410,539 909,789 1,253,981 1,504,769 5,024,412 - 1,595,543 (71,202) 23,627,831

Additions: Net Income - - - - - - 213,984 - 213,984 Other comprehensive income - - - - - - - 71,202 71,202 Member capitalizations of replacement reserve 1,594,219 - 139,500 - - - - - 1,733,719 Interest income 291,380 - 30,380 - - - (321,760) - - Net additions to working capital account - - - 36,506 - - - - 36,506

Deductions: Transfers - - - - 3,192,074 - (3,192,074) - - Replacement reserve utilization (3,826,786) - (83,891) - - - 3,910,677 - -

Balance at December 31, 2016 11,469,352$ 909,789$ 1,339,970$ 1,541,275$ 8,216,486$ -$ 2,206,370$ -$ 25,683,242$

GREENBELT HOMES, INC.Consolidated Statements of Members' Equity



2016 2015Cash Flows From Operating Activities:Net income (loss) 213,984$ (151,642)$

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:Depreciation 601,640 765,721 Amortization of bond premiums and discounts 153,000 129,780 Bad debts 3,031 8,306 Realized (gain) loss on investments (12,994) 51,645 Deferred taxes 32,000 (60,000) (Increase) decrease in: Accounts receivable (564,453) (32,492) Inventory (20,620) 2,801 Prepaid taxes - 5,880 Prepaid expenses 11,464 158,445 Homes for sale (118,891) 33,782 Increase (decrease) in: Accounts payable 150,457 (155,811) Accounts payable - other 342,807 - Income taxes payable 2,162 - Deposits and deferred revenue (15,256) 46,022 Prepaid rents (4,645) (1,578) Accrued expenses 22,622 27,124

Net Cash Provided by Operating Activities 796,308 827,983

Cash Flows From Investing Activities: Issuance of notes receivable (2,410) (45,268) Collections on notes receivable 6,182 2,044 Purchases of property and equipment (3,793,714) (822,295) Purchases of investments (3,673) (5,981,877) Proceeds from sales of investments 6,401,758 4,562,312

Net Cash Provided by (Used in) Investing Activities 2,608,143 (2,285,084)

Cash Flows From Financing Activities: Member capitalizations of replacement and addition maintenance reserve 1,733,719 1,628,400 Member additions to working capital account 120,947 86,393 Member redemptions from working capital account (84,441) (75,114)

Net Cash Provided by Financing Activities 1,770,225 1,639,679

Net Increase in Cash and Cash Equivalents 5,174,676 182,578

Cash and Cash Equivalents, Beginning of Year 662,578 480,000

Cash and Cash Equivalents, End of Year 5,837,254$ 662,578$

GREENBELT HOMES, INC.Consolidated Statements of Cash Flows


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GREENBELT HOMES, INC. Notes to the Consolidated Financial Statements

December 31, 2016 and 2015 NOTE 1 - NATURE OF ORGANIZATION

Greenbelt Homes, Inc. (Cooperative), a non-stock housing cooperative, was incorporated in Maryland in 1949. The purpose of the Cooperative is to provide community facilities, services and benefits for the welfare of its members and the usefulness of the community. Each of its 1,600 members has entered into a Mutual Ownership Contract with the Cooperative, which in turn entitles the member to occupy, as a principal residence, a dwelling unit in the buildings owned by the Cooperative, which are located in Greenbelt, Maryland. Greenbelt Development Corporation (GDC), a wholly-owned subsidiary of Greenbelt Homes, Inc., owns and operates 60 apartment units and 52 garages, also located in Greenbelt, Maryland.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the major accounting policies followed by the Cooperative is set forth below:

Basis of Accounting

The Cooperative maintains its records on the accrual basis of accounting. Basis of Consolidation

The consolidated financial statements include the accounts of Greenbelt Homes, Inc. and its wholly-owned subsidiary, Greenbelt Development Corporation. All material intercompany accounts and transactions have been eliminated in the consolidation. Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

GREENBELT HOMES, INC. Notes to the Consolidated Financial Statements (Continued) December 31, 2016 and 2015

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash Equivalents

The Cooperative considers all cash demand balances and all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Inventory

Inventory, which consists of items for repair and replacement of buildings and improvements, is valued at the lower of cost or market determined using the first-in, first-out (FIFO) method. Investments

All “held-to-maturity” securities are reported at amortized cost with realized gains and losses included in earnings. The cost of securities sold is determined by the specific identification method. All “available-for-sale” securities are reported at aggregate fair value with unrealized gains and losses excluded from earnings and reported as a separate component of the Cooperative’s equity. Property and Equipment

Purchases of property and equipment are recorded at cost. Depreciation is provided using the straight-line method over 5 to 35 years, the estimated useful lives of the assets. Contributions to Reserves

The Cooperative treats the component of member charges designated for capital expenditures and major repairs and maintenance as contributions to members’ equity. These amounts are deducted from member charges in the consolidated statements of revenues and expenses.

This space is intentionally left blank.


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Member Charges

Cooperative members are subject to monthly member charges to provide funds for the Cooperative's operating expenses, future capital acquisitions, and major repairs and replacements. Member charges are recorded as revenue when billed. The Cooperative recognizes penalties and interest in revenues when assessed against the respective member. Accounts receivable at the balance sheet dates represent unpaid member charges, penalties and interest due from members. An allowance for bad debts has been established as the Cooperative currently anticipates a loss. The Cooperative uses the allowance method to account for uncollectible receivable balances. The allowance is based on management’s estimate of potential uncollectible receivable amounts. When accounts become uncollectible, they are charged to the allowance reserve. As of December 31, 2016 and 2015, the allowance for doubtful accounts was $19,817 and $17,155, respectively. Income Tax Status

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will be taxable when the assets and liabilities are settled. The Cooperative files income tax returns in the U.S. Federal jurisdiction and the State of Maryland jurisdiction.



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Members’ Equity The Cooperative designates members’ equity into the following reserve funds: Replacement Reserve – The replacement reserve is used to account for funds accumulated for capital expenditures and major repairs and replacement of property. Amounts received by the replacement reserve are derived from periodic member collections and allocations of budgetary surpluses as determined by the Board of Directors, as well as interest earned on investment of reserve assets. Contingency Reserve – The contingency reserve is used to account for unplanned major expenditures, unbudgeted expenses, and operating deficits. Amounts received by this reserve result from surpluses from operations unless otherwise directed by the Board of Directors. Addition Maintenance Reserve – The addition maintenance reserve is used to account for major repair and maintenance expenditures associated specifically to added structures made to members’ homes. Amounts received by this reserve are derived from collections from members who are part of the addition maintenance program as well as interest earned on investment of reserve assets. Working Capital Fund – In 1952, the Cooperative established a working capital requirement in the amount of 3% of the purchase price of each unit to provide sufficient financial resources to operate the Cooperative and meet acquisition costs. In 1994, the Board of Directors reduced the working capital collected with the purchase of a unit to 1%. In 2010, the Board of Directors eliminated the collection of working capital in an attempt to stimulate the purchases of Cooperative homes. For purchases beginning April 1, 2015, the Board of Directors reinstated the collection of 1% of the purchase price of each unit as a contribution to the working capital fund. Unreserved Operating Fund – The unreserved operating fund is used to account for the day-to-day activities of the Cooperative, including the general management and upkeep of the common property. Amounts received by this fund are derived from the periodic member collections as determined by the Board of Directors. This fund accounts for any surpluses and deficits not otherwise accounted for in the Cooperative’s equity.


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Members’ Equity Transactions Member capitalizations in the consolidated statements of members’ equity reflect the members’ contributions to the various reserve accounts. Transfers reflect the allocations among accounts that were approved by the Board of Directors of the Cooperative. Other comprehensive income/loss represents unrealized gains and losses in “available-for-sale” securities held by the Cooperative. Reclassification Certain accounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. Subsequent Events The Cooperative has evaluated the consolidated financial statements for subsequent events recording or disclosure through April 14, 2017, except for Note 14, as to which the date is August 29, 2017, the date the financial statements were available for issuance.

NOTE 3 - CASH AND CASH EQUIVALENTS

As of December 31, 2016 and 2015, the Cooperative’s cash accounts consisted of the following:

2016 2015

North State Bank - Operating cash 246,435$ 403,582$ National Cooperative Bank 100,000 100,000 Lafayette - Cash sweep 157,357 33 Vanguard - Money market 5,174,020 - Greenbelt Federal Credit Union - Savings 135 3,058 Greenbelt Federal Credit Union - Money market 25 25 North State Bank - Trustee cash 34,269 30,906 North State Bank - Security deposit escrow 29,934 29,904 Lafayette - Repurchase escrow 95,079 95,070

Total cash and cash equivalents 5,837,254$ 662,578$


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NOTE 4 - CONCENTRATIONS OF CREDIT RISK

The Cooperative maintains its cash balances at several financial institutions located in Greenbelt, Maryland and Raleigh, North Carolina. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, which is the maximum amount the FDIC insures per depositor. As of December 31, 2016 and 2015, the Cooperative’s uninsured cash balances at the North State Bank and Lafayette brokerage firm aggregated approximately 91,000 and $183,000. These uninsured deposits present a potential for losses to the Cooperative in the event of institutional failure. In addition, the Cooperative’s mutual funds money market and bonds in the amounts of $5,174,020 and $133,785, respectively, held at Vanguard brokerage firm are not insured by FDIC or Securities Investor Protection Corporation (SIPC). Thus, this involves a potential loss of principal.

NOTE 5 - ACCOUNTS RECEIVABLE – NONCURRENT

Prior to January 1, 1999, the Cooperative performed rehabilitation projects that were funded by loans from the U.S. Department of Housing and Urban Development (HUD) and National Cooperative Bank (NCB). Members who met predetermined qualifications were allowed to participate in the Rehabilitation Loan Deferral Program (RLDP) whereby they could defer the increases in monthly charges. Participants were required to be recertified annually. Simple interest is assessed at 3% on the unpaid principal balance. The entire balance consisting of principal and interest is due when participants terminate their memberships. As of December 31, 2016 and 2015, the RLDP accounts receivable balance was $43,225 and $42,469, respectively. In 1988, the Cooperative established a Fee Increased Deferral Program (FIDP), which allowed members who met predetermined qualifications to defer increases in their monthly charges. Participants were required to be recertified annually. Simple interest is assessed at a rate of 2% less than the last NCB rehab loan rate on the amount deferred until the money is repaid. As of December 31, 2016 and 2015, the FIDP accounts receivable balance was $12,161 and $11,901, respectively. The Cooperative’s Board of Directors voted to discontinue the member deferral programs described above effective January 1, 1999. In November 2015, the Cooperative’s Board of Directors voted to start a new Fee Deferral Program (FDP) in April of 2016. The purpose of this FDP was to assist members of a certain income level to defer payments associated with the crawlspace charge through 2025, if desired. The interest rate is 4.5% compound interest, which will reset every five years.


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NOTE 6 - INVESTMENTS

The following summarizes the information relating to investments as of December 31:

2016 2015

HELD-TO-MATURITY Face value, corporate and foreign bonds 10,439,000$ 11,580,000$ Unamortized premiums 343,097 502,780 Unamortized discounts (33,269) (39,953)

Amortized cost 10,748,828 12,042,827

AVAILABLE-FOR-SALE Cost, mutual fund bonds 133,784 5,377,876 Unrealized loss - (71,202)

Fair value 133,784 5,306,674

Investments 10,882,612$ 17,349,501$ The investments are uninsured and are subject to changes in economic market conditions. The Cooperative’s investment policy attempts to minimize market risk through portfolio diversification. Investment return for 2016 and 2015 consisted of the following:

2016 2015

Interest and dividend income 581,859$ 564,594$ Net realized gain (loss) 12,994 (51,645)

Investment return 594,853$ 512,949$


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NOTE 6 - INVESTMENTS (Continued)

Gross GrossYear Ending Interest Amortized Fair Unrealized Unrealized December 31, Rate Cost Value Gain LossCorporate Bonds (Held-to-Maturity):

2017 2.375% - 8.125% 2,066,081$ 1,923,723$ 1,759$ (144,117)$ 2018 2.375% - 9.700% 1,237,072 1,203,156 8,203 (42,119) 2019 2.150% - 9.250% 1,665,838 1,613,566 5,284 (57,556) 2020 2.350% - 5.150% 1,424,047 1,459,553 35,909 (403) 2021 3.500% - 6.375% 1,934,303 1,935,279 17,794 (16,818) 2022 2.250% - 5.500% 1,600,709 1,582,712 10,074 (28,071) 2023 2.80% 186,907 191,378 4,471 -

Total Corporate Bonds 10,114,957 9,909,367 83,494 (289,084)

Foreign Bonds (Held-to-Maturity):2018 6.800% 374,970 322,602 - (52,368) 2019 6.950% 354,744 328,704 - (26,040) 2022 3.125% 301,737 304,746 3,009 -

Total Foreign Bonds 1,031,451 956,052 3,009 (78,408)

Total held-to-maturity securities 11,146,408 10,865,419 86,503 (367,492)

Mutual Funds (Available-for Sale):Vanguard Mutual Fund Bond n/a 133,785 133,785 - -

Total Investments 11,280,193$ 10,999,204$ 86,503$ (367,492)$

2016

NOTE 7 - INVESTMENT IN NATIONAL COOPERATIVE BANK

Under the terms of its former loan with the National Cooperative Bank (NCB), the Cooperative was required to purchase stock in NCB, which served as additional collateral for the mortgage. The stock, in the amount of $885,137, is carried at the cost of the purchased shares. The investment in NCB has not been increased nor have dividends been recorded for any stock dividend received in 2016 and 2015.

NOTE 8 - HOMES FOR SALE

Homes for sale represents units of housing from former members that the Cooperative now controls. The units are being held for resale. The Cooperative recognizes these assets held for sale at the historical costs the Cooperative has expended on each unit.


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NOTE 9 - PROPERTY AND EQUIPMENT

As of December 31, 2016 and 2015, property and equipment consisted of the following:

2016 2015

Land 26,573$ 26,573$ Equipment 872,738 953,179 Buildings and improvements 35,528,431 31,757,961 Vehicles and operating equipment 542,861 644,105

Property and equipment 36,970,603 33,381,818 Less: Accumulated depreciation (28,754,117) (28,357,406)

Net property and equipment 8,216,486$ 5,024,412$ Depreciation expense for 2016 and 2015 was $601,640 and $765,721, respectively.

NOTE 10 - ESCROW OF FORMER MEMBER EQUITY

During 2003, the Board of Directors authorized the establishment of a purchase escrow liability account for the purpose of holding the net proceeds from the sale of occupancy rights and equity interest of former member units. The purchase escrow account was $52,467 as of December 31, 2016 and 2015.

NOTE 11 - FUTURE MAJOR REPAIRS AND REPLACEMENTS, CONTINGENCY RESERVE AND ADDITION MAINTENANCE RESERVE

The Cooperative’s Board of Directors requires that funds be accumulated for future major repairs, replacements and contingencies. The funds are not maintained in separate bank accounts. Instead, these amounts are reserves of the Cooperative’s members’ equity. DMA Interactive Reserve Management conducted a Level II replacement reserve study in 2013 to estimate the remaining useful lives and the replacement costs of the components of common property. The addition maintenance reserve study was conducted in 2008. The table included in the Unaudited Supplementary Information on Future Major Repairs and Replacements is based on the replacement reserve study.


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NOTE 11 - FUTURE MAJOR REPAIRS AND REPLACEMENTS, CONTINGENCY RESERVE

AND ADDITION MAINTENANCE RESERVE (Continued) The Cooperative is funding for such major repairs and replacements over the estimated remaining useful lives of the components based on the study’s estimates of current replacement costs and considering amounts previously accumulated in the replacement reserve fund. Accordingly, the replacement reserve funding requirements of $1,594,219 and $1,499,835 were included in the 2016 and 2015 financial statements, respectively, and contributed to the replacement reserve fund in those years. In addition, the Cooperative budgeted and contributed $139,500 and $128,565 to the addition maintenance reserve in 2016 and 2015, respectively. Actual expenditures and investment income may vary from the estimated amounts, and the variations may be material. Therefore, amounts accumulated in the replacement reserve fund may or may not be adequate to meet all future needs for major repairs and replacements. The reserved amounts as of December 31, 2016 and 2015 were as follows:

2016 2015

Replacement reserve fund 11,469,352$ 13,410,539$ Contigency reserve fund 909,789 909,789 Addition maintenance reserve fund 1,339,970 1,253,981

Total reserves 13,719,111$ 15,574,309$ Reserves are created when the Board of Directors allocates equity for specific purposes. The contingency reserve and the replacement reserve were established by the Board of Directors in 1987. In 1995, the Board of Directors established the addition maintenance reserve.



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NOTE 12 - LEASING ARRANGEMENTS

The Cooperative leases apartment units to tenants through its wholly-owned subsidiary, Greenbelt Development Corporation (GDC). Lease terms are typically for one year. The Cooperative collects a security deposit from each tenant that may be retained due to nonpayment of rent and damages to the leased premises in excess of ordinary wear and tear. Apartment rental income was $574,454 and $551,281 at December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, property and equipment held for leasing purposes consisted of the following:

2016 2015

Land 26,573$ 26,573$ Equipment 622,464 622,464 Buildings and improvements 866,103 866,103

Property and equipment 1,515,140 1,515,140 Less: Accumulated depreciation (1,220,520) (1,174,440)

Net property and equipment 294,620$ 340,700$

NOTE 13 - PENSION PLAN

The Cooperative sponsors a 401(k) pension plan. All employees of the Cooperative who have completed one year of service and have attained age 21 are eligible to participate in the plan. Eligible employees may defer up to 90% of their compensation not to exceed IRS limitations. Employer contributions to the plan are based on a predetermined formula as set forth in the plan document. Pension expense was $75,566 and $81,656 for 2016 and 2015, respectively.



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NOTE 14 - INCOME TAXES

The Cooperative files a consolidated federal income tax return with its wholly-owned subsidiary, Greenbelt Development Corporation (GDC). The Cooperative and GDC file separate income tax returns with the State of Maryland. GDC’s net income is subject to taxation at the normal corporation rates. The Cooperative’s deferred tax asset and liability as of December 31, 2016 and 2015 consisted of the following:

2016 2015

Total deferred tax asset 84,000$ 196,000$ Total deferred tax liability (149,000) (229,000)

Net deferred tax liability (65,000)$ (33,000)$

The deferred tax asset relates primarily to federal and state net operating loss carryforwards, which totaled approximately $327,800 at December 31, 2015. There were no operating loss carryforwards at December 31, 2016. The loss carryforwards begin to expire in 2026. The Cooperative did not record a valuation allowance at December 31, 2016 and 2015. The deferred tax liability relates primarily to differences in depreciation methods utilized for income tax and financial statement reporting purposes.

The provision for income taxes for 2016 or 2015 consisted of the following:

2016 2015

Federal income tax - current year -$ -$ Maryland income tax - current year 4,403 1,353 Deferred tax expense (benefit) 32,000 (60,000)

Provision for income taxes 36,403$ (58,647)$


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NOTE 15 - COMMITMENTS

The Cooperative has entered into numerous contracts to receive various repair and maintenance services for its properties over multiple years at fixed prices.

NOTE 16 - SUBSEQUENT EVENT – ASBESTOS IN CRAWLSPACES

During the February 16, 2017 board meeting, the Cooperative’s staff informed the Board of Directors that asbestos debris was observed on abandoned heating and hot water pipes in the crawlspaces of the frame homes when workers were removing the pipes in preparation for the planned 2017 Home Improvement Project (HIP) work. As soon as the discovery was made, the Cooperative’s staff stopped all work in the crawlspaces of the frame homes, except for emergency situations. The Cooperative is in the process of developing a plan to remove the asbestos and determine the cost of its removal. An asbestos remediation project is not covered by the Cooperative’s insurance. Hence, this situation could be a major liability for the Cooperative.

Supplementary Information

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GREENBELT HOMES, INC. Supplementary Information on Future Major Repairs and Replacements

December 31, 2016 (Unaudited)

In 2013, an independent professional advisor conducted a comprehensive opinion on the Cooperative’s reserve plan to estimate the remaining useful lives and the replacement costs of the components of common property. The following information is based on that analysis and presents significant information about the components of common property.

EstimatedRemaining

Useful Frame Masonry Larger

Component: Life (Years) Homes Homes Homes

Administration building 15-40 175,224$ 102,308$ 5,087$ Attached garages 25 - 166,360 - Baseboard heater 32 902,720 526,890 - Ceiling heater 25 178,560 103,320 - Copper gutters 60 - - - Electrical systems and wiring 90 3,805,312 2,452,065 139,200 Entrance doors 35-50 1,378,880 797,860 52,200 HVAC, larger 20 - - 230,550 Parking lots 25 593,553 346,558 17,233 Playgrounds 25 86,800 50,680 2,520 Plumbing 75-85 3,897,193 2,477,862 192,096 Porch roofs, masonry 25 - 455,544 - Proch stoops, frame 25 358,810 - - Roofs (main and porch), frame 25 2,562,238 - - Roofs, larger 20-25 - - 126,375 Roofs, masonry 20 - 1,020,979 - Rental garages 20-25 325,888 190,277 9,461 Siding, vinyl 35-40 3,502,329 172,121 71,993 Slate roofs 75 - 4,649,796 - Sump pumps 20 51,975 49,287 - Townhome draingage systems 20-30 - - 244,900 Underground sewer 75 9,315,809 5,439,230 270,459 Vehicles 10-25 532,988 311,197 15,474 Water heaters 15 471,200 273,363 14,500

Window sets 35-40 3,821,184 2,400,907 201,439

TOTAL 31,960,663$ 21,986,604$ 1,593,487$

Estimated Future Repair and Replacement Costs

Documents

GREENBELT HOMES, INC. Consolidated Financial Statements ... · part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic,