ROSE TREE MEDIA SCHOOL DISTRICT MEDIA, PENNSYLVANIA AUDIT REPORT

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1 MEDIA, PENNSYLVANIA AUDIT REPORT JUNE 30, 2012

2 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Entity-wide Financial Statements: - Statement of Net Assets - Statement of Activities Fund Financial Statements: - Balance Sheet - Governmental Funds - Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Assets - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds -Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds to Statement of Activities - Budgetary Comparison Statement - General Fund - Statement of Net Assets - Proprietary Fund - Statement of Revenues, Expenses and Changes in Fund Net Assets- Proprietary Fund - Statement of Cash Flows - Proprietary Fund - Statement of Net Assets - Fiduciary Funds - Statement of Changes in Net Assets - Fiduciary Funds NOTES TO FINANCIAL STATEMENTS

3 TABLE OF CONTENTS SINGLE AUDIT 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 with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards and Certain State Grants Notes to Schedule of Expenditures of Federal Awards and Certain State Grants Schedule of Findings and Recommendations

4 INDEPENDENT AUDITORS' REPORT Barbacane, Thornton & Company LLP 200 Springer Building Silverside Road Wilmington, Delaware November 8, 2012 T F Board of School Directors Rose Tree Media School District Media, Pennsylvania 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 Rose Tree Media School District (the "District"), Media, Pennsylvania, as of and for the year ended June 30, 2012, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Rose Tree Media School District's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year summarized comparative information has been derived from the District's 2011 financial statements and, in our report dated October 31, 2011, we expressed unqualified opinions on the respective financial statements of the governmental activities. the business-type activities, each major fund and the aggregate remaining fund information. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 Rose Tree Media School District, Media, Pennsylvania, as of June 30, 2012, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparisons for the general fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 8, 2012, on our consideration of Rose Tree Media School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit BARBAO\NE 1HORNfON &CDMPANY CERTIFIED PUBLIC ACCOUNTMTS

5 Board of School Directors Rose Tree Media School District Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which 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. Our audit was conducted for the sole purpose of forming opinions on the financial statements that collectively comprise Rose Tree Media School District's financial statements as a whole. The accompanying schedule of expenditures of federal awards and certain state grants is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments and Nonprofit Organizations," and is not a required part of the financial statements. The schedule of expenditures of federal awards and certain state grants is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information 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 as a whole. ;j~~1l'7 BARBACANE, TH~RNTON & COMPANY LL~ LLP - 2 -

6 Management's Discussion and Analysis (MD&A) - Unaudited JUNE 30, 2012 Management's Discussion and Analysis ("MD&A") of Rose Tree Media School District's financial performance provides an overall review of the District's financial activities for the fiscal year ended June 30, The intent of the MD&A is to look at the District's financial performance as a whole; readers also should review the transmittal letter, notes to the basic financial statements and financial statements to enhance their understanding of the District's financial performance. FINANCIAL HIGHLIGHTS The District's total net assets increased in the amount of $3.4 million. The current year increase was due to an increase in the collection of interim and delinquent taxes as well as the restoration of state funding for retirement reimbursement and other state grants. The increase is also due to the fact that expenditures were less than anticipated as a result of a reduction in maintenance expenditures due to mild weather conditions. Program revenues accounted for $12.1 million, or 15.2 percent, of total revenues of $79.7 million, and general revenues accounted for $67.6 million, or 84.8 percent. The General Fund completed the fiscal year with a positive fund balance of $14.1 million, or 17.5 percent of the $80.3 million operating budget. A portion of fund balance was used to balance the budget against revenues which resulted in a decrease in fund balance of $1.1 million. The instructional programs (including special education, vocational education, summer school, homebound instruction, adjudicated programs and Delaware County Community College) cost $43.1 million for salaries, benefits, technical services, tuition for private and approved private schools, supplies and equipment. The cost of the instructional programs was supported by 55.4 percent of total revenue. The support services programs (including pupil services, guidance, psychological services, home and school visitor, child accounting, curriculum and assessment, school and central office administration, school board of director services, tax collection, legal services, community relations, student health services, operation and maintenance of plant services and student transportation) cost $23.3 million for salaries, benefits, supplies, utilities, diesel fuel and gasoline, the insurance program and equipment. The cost of the support programs was supported by 30.0 percent of total revenue. The operation of noninstructional services programs (including student activities, athletics and support for public libraries) cost $1.3 million for salaries, supplemental contracts, dues, fees for officials, supplies and equipment. The cost of the noninstructional services programs was supported by 1. 7 percent of total revenue. The other expenditures and financing uses (including debt service, refund of prior years' revenue and capital funds transfer) cost $11.2 million for interest and principal payments and for transfer to the capital account. The cost of the other financing uses was supported by 14.3 percent of total revenue. Pennsylvania's Special Session Act 1 of 2006 provides property tax relief for homestead and farmstead owners through gaming revenue. Approved homestead/farmstead property owners received approximately $207 per property in property tax relief for the fiscal year. The District received approximately $1.6 million dollars from state sources to distribute tax relief to approved property owners. -3-

7 Management's Discussion and Analysis - Unaudited (cont'd) JUNE REPORTING THE DISTRICT AS A WHOLE Statement of Net Assets end Statement of Activities The Statement of Net Assets and the Statement of Activities report information about the District as a whole and about its overall activities. These statements include all the assets and liabilities of the District (except for fiduciary funds held in trust for student purposes), using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year's revenues and expenses are taken into consideration regardless of when cash is received or paid. These two statements report the District's net assets and changes in them during the fiscal year. The change in net assets provides the reader a tool to assist in determining whether the District's financial health is improving or deteriorating. The reader will need to consider other nonfinancial factors such as the District's property tax base, current property tax laws, student enrollment and facility conditions in arriving at a conclusion regarding the overall health of the District. Entity-wide Financial Analysis Net assets may serve over time as a useful indicator of a government's financial position. In the case of the District. assets exceeded liabilities by $46.1 million at the close of the most recent fiscal year. In the prior year, assets exceeded liabilities by $42.7 million. A portion of the District's total net assets (59.4 percent) reflects its investment in capital assets, net of related debt. The District uses capital assets to provide services; consequently, these assets are not available for future spending. Although the District's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A comparative analysis of fiscal year 2012 to 2011 follows: Statement of Net Assets June 30, 2012 and 2011 ASSETS: Current and other assets Capital assets Governmental Activities Business-type Activities $ 35,028,786 95,723,640 $ 39,472,702 $ 847,555 $ 953,566 85,605, , ,523 Totals $ 35,876,341 95,906,581 $ 40,426,268 85,726,956 TOTAL ASSETS $130,752,426 $125,078,135 $ 1,030,496 $ 1,075,089 $131,782,922 $1 26,153,224 LIABILITIES AND NET ASSETS: Liabilities: Current liabilities Long-term liabilities Total Liabilities $ 11,446,246 74,050,940 85,497,186 $ 12,068,131 71,169,010 83,237,141 $ 228,821 $ 223, , ,047 $ 11,675,067 74,050,940 85,726,007 $ 12,291,178 71,169,010 83,460,

8 Management's Discussion and Analysis - Unaudited (cont'd) JUNE Statement of Net Assets June 30, 2012 and 2011 Governmental Activities Business-type Activities Totals (cont'd) Net Assets: Invested in capital assets, net of debt 27,192,292 28,048, , ,523 27,375,233 28,170,335 Unrestricted 18,062,948 13,792, , ,519 18,681,682 14,522,701 Total Net Assets 45,255,240 41,840, , ,042 46,056,915 42,693,036 TOTAL LIABILITIES AND NET ASSETS $130,752,426 $125,078,135 $ 1,030,496 $ 1,075,089 $131,782,922 $126,153,224 The District's net assets invested in capital assets, net of related debt decreased $0.8 million due to the issuance of new debt for the Springton Lake Middle School Project. The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. The table below reflects the cost of program services and the net cost of those services after taking into account the program revenues for the governmental and businesstype activities Total Cost Net Cost Total Cost Net Cost of Services of Services of Services of Services PROGRAM EXPENSES Governmental Activities: Instruction $ 46,076,548 $ (38,793,545) $ 45,319,257 $ (37,608,530) Support services: Instructional student support 7,084,179 (6,598,494) 7,549,508 (7,112,542) Administration 5,939,118 (5,717,956) 5,645,026 (5,450, 175) Maintenance 6,465,316 (6,210,744) 6,658,226 (6,411,794) Pupil transportation 4,694,753 (3,325,011) 4,560,375 (3, 175,825) Student activities 1,464,886 (1,31 2,180) 1,449,886 (1,349,119) Community services 87,649 1,205 85,118 (887) Interest and fiscal charges 2,776,800 (2,204, 118) 2,149,662 (1,887,246) Total Governmental Activities $ 74,589,249 $ (64,160,843) $ 73,417,058 $ (62,996,118) Business-type Activities: Food service $ 1,706,345 $ (50,551) $ 1,579,600 $ 11,631 Total Business-type Activities $ 1,706,345 $ ~ 50,551} $ 1,579,600 $ 11,631 The increases in net cost of services for instruction are due to contracted increases in salaries for employees of the District

9 Managements Discussion and Analysis - Unaudited (confd) JUNE Statement of Changes in Net Assets Fiscal Years Ended June 30, 2012 and 2011 Governmental Activities Business-t~~e Activities Totals REVENUES Program Revenues: Charges for services $ 2,847,812 $ 2,223,934 $1,281,694 $1,234,576 $ 4,129,506 $ 3,458,510 Operating grants 7,580,594 8,197, , ,655 7,954,694 8,553,661 Total Program Revenues 10,428,406 10,420,940 1,655,794 1,591,231 12,084,200 12,012,171 General Revenues: Property taxes 61,816,176 61,130,809 61,816,176 61,130,809 Other taxes 1,220,831 1,180,704 1,220,831 1,180,704 Grants and entitlements 4,287,836 3,896,618 4,287,836 3,896,618 Investment earnings 98, , , ,308 Miscellaneous 151, , , ,337 Total General Revenues 67,575,089 66,560, ,575,273 66,560,776 TOTAL REVENUES 78,003,495 76,981,354 1,655,978 1,591,593 79,659,473 78,572,947 EXPENSES Program Expenses: Instruction 46,076,548 45,319,257 46,076,546 45,319,257 Support services: Instructional staff support 7,084,179 7,549,508 7,006,030 7,549,508 Administration 5,939,118 5,645,026 5,939,118 5,645,026 Maintenance 6,465,316 6,658,226 6,543,465 6,658,226 Pupil transportation 4,694,753 4,560,375 4,694,753 4,560,375 Student activities 1,464,886 1,449,886 1,464,886 1,449,886 Community services 87,649 85, ,649 85,118 Interest and fiscal charges 2,776,800 2,149,662 2,776,800 2,149,662 Food service 1,706,345 1,579,600 1,706,345 1,579,600 TOTAL EXPENSES 74,589,249 73,417,058 1,706,345 1,579,600 76,295,594 74,996,658 CHANGE IN NET ASSETS $ 3,414,246 $ 3,564,296 $ ~5 0,367~ $ 11,993 $ 3,363,879 $ 3,576,289 Property tax revenue is up $0.7 million due to an increase collection of interim taxes and assessment increases. Interest earnings decreased from the previous year based on the current economic environment's decline in investment interest rates. Instruction program expenses and support services expenses increased due to increases in salaries and benefits, especially due to an increase in the retirement rate from 5.64 percent in 2011 to 8.65 percent in Reporting the District's Most Significant Funds Governmental Funds - Most of the District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end available for spending in future periods. These funds include Fund 10 (General Fund), Funds 32 through 38 (Capital Projects funded with General Obligation Bond funds and General Fund transfers) and Fund 40 (Debt Service Fund). These funds are reported using the modified accrual accounting method, which - 6-

10 Managemenrs Discussion and Analysis - Unaudited (confd) JUNE measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services provided. Governmental fund information helps the reader determine whether there are more or fewer financial resources available to spend in the near future to finance the District's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds Is reconciled in the basic financial statements. Proprietary Funds - Proprietary funds use the accrual basis of accounting, the same as on the entitywide statements; therefore, the statements will essentially match the business-type activities portion of the entity-wide statements. The only proprietary fund is the food service fund. Fiduciary Funds - The District is the trustee, or fiduciary, for its scholarship program and other items listed as private-purpose trust. In addition, the District is the agent for funds held on behalf of students of the District. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Assets and Changes in Fiduciary Net Assets. Fiduciary funds include a scholarship fund, student activity funds and escheat funds. These assets are excluded from the District's other financial statements because the assets cannot be utilized by the District to finance its operations. Fund Financial Statements The fund financial statements of the District's major funds provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State statute, while many other funds are established by the District to help manage money for particular purposes and compliance with various grant provisions. The District's three types of funds, governmental, proprietary and fiduciary, use different accounting approaches as further described in the notes to the financial statements. The District's governmental funds reported a combined fund balance of $28.1 million, which is below last year's total of $31.9 million. This decrease was expected due to the use of fund balance to balance the budget. The capital projects fund balance decreased due to the completion of various capital projects throughout the District. Other funds increased due to transfers that were made from the General Fund to the Capital Reserve Fund. The schedule below indicates the fund balance and the total change in fund balances as of June 30, 2012 and Fund Balance Fund Balance Increase June 30, 2012 June 30, 2011 (Decrease) General Fund $ 14,086,271 $ 15,195,094 $ (1 '1 08,823) Capital Projects Funds 7,754,000 11,448,504 (3,694,504) Capital Reserve Fund 5,610,039 4,522,282 1,087,757 Other Fund 691, , Total $ 28,142,304 $ 31,857,722 $ (3,715,418) - 7-

11 Management's Discussion and Analysis - Unaudited (cont'd) JUNE General Fund The District's reliance upon tax revenues is demonstrated by the graph below that indicates 77 percent of total revenues for government activities come from local taxes. 0% Taxes Investment earnings lntergovenmental Other revenue The tables that follow assist in illustrating the financial activities and balance of the general fund. Dollar Percent Change Change General Fund Revenue: Taxes $ 60,316,635 $ 59,700,605 $ 616, % Investment earnings 69, ,312 (61,355) % Intergovernmental 11,309,364 10,803, , % Other revenue 6,145,532 6,248,771 (1 03,239) -1.65% Total $ 77,841,488 $ 76,883,916 $ 957, % Real estate tax revenue increased $0.6 million due to an increase collection of interim taxes. Investment earnings decreased due to market conditions. Intergovernmental revenue increased due to the increase in social security and retirement reimbursement. The retirement rate increased from 5.64 percent to 8.65 percent. The District is reimbursed fifty percent of retirement and social security expense from the State, which resulted in increased revenue. Other revenue decreased due to a decrease in miscellaneous revenue. - 8-

12 Managemenfs Discussion and Analysis - Unaudited (confd) JUNE Other Funds The Capital Project Funds had a decrease in fund balance due to the completion of capital projects. There is also a major ongoing renovation project at the Springton Lake Middle School. The capital projects funds are used to keep the District's facilities in optimal operational condition to avoid more costly repairs in the future. The District has been following a five-year capital project plan. The Capital Reserve Fund increased because the General Fund was able to transfer funds for future capital purposes. The appropriation from the General Fund was consistent with Board Policy #603. Other governmental funds consist of the Debt Service Fund. This fund was established for the purpose of paying down debt. Business-type Activities The only business-type activity includes the food service program. This program had a decrease in net assets of $50 thousand for the fiscal year. The District purchased equipment that was necessary for the Food Service program. General Fund Budget Information The District keeps its books and prepares its financial reports on a modified accrual basis. Major accrual items are payroll taxes and pension fund contributions payable, loans receivable from other funds and revenues receivable from other governmental units. The District's financial statements are audited annually by a firm of independent certified public accountants, as required by Commonwealth Law. The District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and Director of Management Services and submitted to the Board of School Directors for approval prior to the beginning of the fiscal year on July 1 each year. The most significant budgeted fund is the General Fund. Spending Review The final budget for expenditures reflects required Board-approved budgetary transfers in function categories due to spending patterns. Function Original Final Dollar Percentage Code Budget Budget Difference Difference Instructional Services: Regular programs 1100 $ 29,313,223 $ 29,385,107 $ 71, % Special programs ,664,607 11,393,478 (271,129) -2.32% Vocational programs , ,148 (14,275) -1.83% Other instructional programs ,694,846 1,579,846 (115,000) -6.79% Community college , , % Total Instructional Services 44,353,330 44,024,811 (328,519) -7.40% - 9 -

13 Management's Discussion and Analysis - Unaudited (cont'd) JUNE Function Original Final Dollar Code Budget Budget Difference (cont'd) Support Services: Pupil services ,458,144 2,477,797 19,653 Instructional staff services ,048,442 3,903,072 {145,370) Administrative services ,295,964 3,561, ,084 Pupil health , ,998 1,701 Business services ,058,158 1,058,158 Operation and maintenance ,526,512 6,859,479 (667,033) Student transportation services ,900,550 4,600,550 (300,000) Central support services , ,839 (68,301) Other support services , ,0842 (75,000} Total Support Services 25,067,291 24,098,025 (969,266} Noninstructional Services: Student activities ,308,413 1,264,913 (43,500) Community services ,400 93,400 (10,000} Total Noninstructional Services 1,411,813 1,358,313 (53,500} Debt Service and Transfers: Debt service/refund of prior year receipts ,955,350 8,301,408 (653,942) lnterfund transfers ,000 2,855,227 2,255,227 Budgetary reserve ,000 (250,000} Total Debt Service and Transfers 9,805,350 11,156,635 1,351,285 TOTAL EXPENDITURES $ 80,637,784 $ 80,637,784 $ Percentage Difference 0.80% -3.59% 8.04% 0.28% 0.00% -8.86% -6.12% -7.44% % -3.87% -3.32% -9.67% -3.79% -7.30% % % 13.78% 0.00% Using spending variances in excess of $1 0,000 and using five percent as a spending tolerance, the most significant changes in the District's original vs. final budgeted expenditures were: Function Original Final Dollar Percentage Code Budget Budget Difference Difference Other instructional programs ,694,846 1,579,846 (115,000) -6.79% Administrative services ,295,964 3,561, , % Operation and maintenance ,526,512 6,859,479 (667,033) -8.86% Student transportation services ,900,550 4,600,550 (300,000) % Central support services , ,839 (68,301) -7.44% Other support services , ,084 (75,000) % Debt service ,955,350 8,301,408 (653,942) -7.30% lnterfund transfers ,000 2,855,227 2,255, % Budgetary reserve ,000 (250,000) % - 10-

14 Management's Discussion and Analysis - Unaudited (cont'd) JUNE The variance for the instructional programs is due to a decrease in the need for homebound instruction. Administrative services increased due to the negotiation of seven labor contracts which required additional legal services. The maintenance and operations budget decreased as a result in lower utilities, repairs and maintenance, communication and professional services due to the delayed opening of the pool at Springton Lake Middle School. The variance in the transportation budget is due to a decrease in bus runs. The variance in central support services was due to decreases in advertising and support staff substitutes. The decrease in other support services is a lower than anticipated fair share payment for the Delaware County Intermediate Unit. The debt service budget decreased due to the interest being lower on the 2007 variable rate bond and the timing of the issuance of a bond for the Springton Lake Middle School project. The increase in interfund transfers was due to the District complying with Board Policy # 603. Budgetary reserve was not needed: however, those funds were transferred to the capital projects funds in accordance with Board Policy #603. As the graph below illustrates, the largest portions of General Fund expenditures are for salaries and benefits. The District is a n educational, service entity and as such is labor-intensive. salaries Benefits Purchased services supplies Equipment M iscellanecus Debt/transfers/prior Increase (Decrease} General Fund: Salaries $ 38,207,976 $ 37,969,362 $ 238,614 Benefits 14,218,768 13,473, ,270 Purchased services 6,198,368 6,810,440 (612,072) Supplies 8,291,798 8,800,991 (509,193) Equipment 632, ,158 3,876 Miscellaneous 244, ,254 (9,522) DebUtransfers/prior 11 ' 156,635 10,784, ,784 TOTAL EXPENDITURES BY OBJECT $ 78,950,311 $ 78,721,554 $ 228,757 - l l -

15 Management's Discussion and Analysis - Unaudited (cont'd) JUNE Expenditures increased $229 thousand, or 0.3 percent, over the p rior year. The increase was partially due to an increase in salary and benefits. The retirement rate increased from 5.64 percent in 2011 to 8.65 percent in The District is mandated to fund the retirement program for its employees. Debt increased due to the issuance of the 2011 Bond for the Springton Lake Middle School Project. That Is the final bond that is necessary to complete the project for the 2013 fiscal year. CAPITAL ASSETS At June 30, 2012, the District's governmental activities had $95,723,640, net of depreciation, invested in a broad range of capital assets, including land, buildings, and furniture and equipment. Business-type activities owned $182,941 worth of net capital assets. These assets consist of movable equipment that will be depreciated in future years. Land Construction-in-progress Land improvements Buildings Furniture and equipment 2012 $ 6,253,838 32,315,024 1,997,307 48,478,708 6,861,704 $ 95,906, $ 6,253,838 20,908,556 1,330,787 50,457,709 6,776,066 $ 85,726,956 More detailed information about the District's capital assets is presented in Notes 1 and 5 to the financial statements. DEBT ADMINISTRATION As of July 1, 2011, the District had total outstanding debt of $72,405,000. Total debt outstanding as of June 30, 2012 was $75,230,000. Outstanding Debt General Obligation Notes/Bonds - Bonds, Series of 2011 $ 8,295,000 $ - Bonds, Series AA of ,785,000 3,790,000 - Bonds, Series A of ,685,000 14,770,000 - Bonds, Series AA of ,760,000 5,545,000 - Bonds, Series A of ,300,000 17,490,000 - Bonds, Series A of , ,000 - Bonds, Series B of ,455,000 14,455,000 - Bonds, Series A of ,710,000 14,71 5,000 - Bonds, Series of ,320,000 TOTAL $ 75,230,000 $ 72,405,

16 Management's Discussion and Analysis - Unaudited (cont'd) JUNE ECONOMIC FACTORS EXPECTED TO HAVE A SIGNIFICANT EFFECT ON FUTURE OPERATIONS The District's general obligation bond rating was a Standard & Poor's AA/Stable. Standards cited that the AA/Stable rating reflected the District's stable financial performance, limited tax base and manageable debt position. The District's fiscal performance and position have historically been sound. The District's remaining borrowing capacity is $83.4 million. The District's bonds payable total as of June 30, 2012 is $75.2 million. Rose Tree Media School District is listed as a beneficiary in the amount of $240 thousand on a life insurance policy that was provided to a former Superintendent. The economy continues to be a concern for the School District. While the housing market is a major factor in the economic environment, the District has maintained a stable tax base. The District continues to perform well academically and attract homeowners. A new fifty-one home development will be completed in the near future. Investment earnings are down as a result of the current economic environment. However, interest rates for General Obligation bonds are at historic lows. The District completed the final portion of its financing for the Springton lake Middle School project at those low rates. The District will continue to benefit from the lower interest rate over the next 12 years for the life of the bond. The District offered an Early Retirement Incentive program for employees, which resulted in savings of approximately $1 million. The District took steps to plan for the significant increases in the Pennsylvania School Employees' Retirement System by assigning a portion of fund balance for a portion of future increases. The District continues to improve efficiencies and reduce expenditures to maintain our current programs. CONTACTING THE DISTRICT'S FINANCIAl MANAGEMENT The District's financial report is designed to provide citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the monies it receives. If you have questions about this report or wish to request additional financial information, please contact Grace Eves, Director of Management Services and Board Secretary, Rose Tree Media School District, 308 North Olive Street, Media, Pennsylvania , (61 0)

17 STATEMENT OF NET ASSETS JUNE 30, 2012 (With Summarized Comparative Data for June 30, 2011) ASSETS: Cash and cash equivalents Investments Taxes receivable Due from other governments Internal balance Other receivables Inventories Bond issuance costs Land and improvements Construction-in-progress Buildings and improvements Furniture and equipment Accumulated depreciation Governmental Activities $ 11,604,054 18,158,263 1, 892,93~ 1,323,800 34,647 1,633, ,441 9,358,885 32,315,024 94,660,648 28,938,920 (69,549,837) Business-type Activities $ 813,301 42,379 (34,647) 6,850 19, ,251 (241,31 0) 2012 $ 12,417,355 18,158,263 1,892,939 1,366,179 1,640,492 19, ,441 9,358,885 32,315,024 94,660,648 29,363,171 (69,791 '147) Totals 2011 $ 14,803,931 21,299,330 1,815,345 1 '120, ,194 30, ,895 8,592,529 20,908,556 93,953,304 29,709,306 (67,436, 739) TOTAL ASSETS $ 130,752,426 $1,030,496 $ 131,782,922 $ 126,153,224 LIABILITIES AND NET ASSETS: LIABILITIES Accounts payable Accrued salaries and benefits Other liabilities Accrued interest Deferred revenue Long-term liabilities Portion due or payable within one year: Bonds payable in future years Bond premiums Less: Deferred amount on refunding Less: Bond discount Capital lease payable Accumulated compensated absences/ early retirement incentives Portion due or payable after one year: Bonds payable in future years Bond premiums Less: Deferred amount on refunding Less: Bond discount Capital lease payable Accumulated compensated absences/ early retirement incentives Other post-employment benefits TOTAL LIABILITIES $ 1,573,667 1,665, , , ,157 5,710, ,348 (15,381) (41,975) 168, ,488 69,520,000 1,262,961 (128, 175) (354,202) 337,475 2,666, ,918 85,497,186 $ 193,078 35, ,821 $ 1,766,745 1,665, , , ,157 5,710, ,348 (15,381) (41,975) 168, ,488 69,520,000 1,262,961 (128,175) (354,202) 337,475 2,666, ,918 85,726,007 $ 3,119,430 1,134, , , ,608 5,470, ,171 (15,381) (35,353) 114, ,488 66,935,000 1,378,539 (143,556) (329,957) 343,379 2,365, ,315 83,460,188 NET ASSETS Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS 27,192,292 18,062,948 45,255, , , ,675 27,375,233 18,681,682 46,056,915 28,1 70,335 14,522,701 42,693,036 TOTAL LIABILITIES AND NET ASSETS $ 130,752,426 $1,030,496 $131,782,922 $ 126,153,224 The accompanying notes are an integral part of these financial statements

18 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 (With Summarized Comparative Data for the Year Ended June 30, 2011) GOVERNMENTAL ACTIVITIES: Instruction Instructional student support Administrative and financial support services Operation and maintenance of plant services Pupil transportation Student activities Community services Interest on long-term debt TOTAL GOVERNMENTAL ACTIVITIES Expenses $ 46,076,548 7,084,179 5,939,118 6,465,316 4,694,753 1,464,886 87,649 2,776,800 74,589,249 Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions $2,659,197 $ 4,623,806 $ - 485, ' ,572 1,369, ,226 49,480-85,389 3, ,682-2,847,812 7,580,594 Net( Expense} Revenue and Changes in Net Assets Business- Governmental type Totals Activities Activities $ (38, 793,545) $ - $ (38,793,545) $ (37,608,530) (6,598,494) (6,598,494) (7, 112,542) (5,717,956) (5, 717,956) (5,450, 175) (6,210,744) (6,210,744) (6,411,794) (3,325,01 1) (3,325,011 ) (3, 175,825) (1,312,180) (1,312,180) (1,349, 119) 1,205-1,205 (887) {2,204, 118l {2,204, 118} {1,887,246} (64,160,843} (64,160,843} (62,996,118) BUSINESS-TYPE ACTIVITIES: Food service TOTAL BUSINESS-TYPE ACTIVITIES 1,706,345 1,706,345 1,281, ,281, {50,551} {50,551} (50,551} {50,551} TOTAL PRIMARY GOVERNMENT $ 76,295,594 $ $ $ (64, 160,843} {50,551} ~211,394) (62,984,487) GENERAL REVENUES Property taxes, levied for general purposes Taxes levied for specific purposes Grants and entitlements not restricted to specific programs Investment earnings Miscellaneous TOTAL GENERAL REVENUES 61,816,176 61,816,176 61,130,809 1,220,831-1,220,831 1,180,704 4,287,836 4,287,836 3,896,618 98, , , , , ,337 67,575, ,575,273 66,560,776 CHANGE IN NET ASSETS 3,414,246 (50,367) 3,363,879 3,576,289 NET ASSETS, BEGINNING OF YEAR 41,840, ,042 42,693,036 39,116,747 - NET ASSETS, END OF YEAR $ 45, $ 801,675 $ 46,056,915 $ 42,693,036 The accompanying notes are an integral part of these financial statements

19 Totals 2011 $ 13,865,473 21,299,330 1,815, ,614 1,103, ,819 $ $ 2,930,749 68,744 1 '134, ,123 1,889, ,488 7,295,829 15,970, ,842 4,636,276 1,500, ,437 19,212 13,596 8,540,573 31,857,722 $ ROSE TREE MEDIA SCHOOL DISTRICT BALANCE SHEET- GOVERNMENTAL FUNDS JUNE 30, 2012 (With Summarized Comparative Data for June 30, 2011) ASSETS Cash and cash equivalents Investments Taxes receivable Due from other funds Due from other governments Other receivables General Fund $ 5,325,523 9,563,933 1,892,939 34,056 1,323,800 1,633,642 Capital Projects Fund $ 434,740 8,594,330 Capital Reserve Fund $ 5,151, ,975 Debt Service Fund $ 691, $ 11,604,054 18,158,263 1,892, ,031 1,323,800 1,633,642 TOTAL ASSETS $ 19,773,893 $ 9,029,070 $ 5,812,772 $ $ 35,307,729 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable Due to other funds Accrued salaries and benefits Other current liabilities Deferred revenues Accumulated compensated absences TOTAL LIABILITIES $ 756,248 1,665, ,916 2,227, ,488 5,687,622 $ 614, ,384-1,275,070 $ 202, ,733 $ - - $ 1,573, ,384 1,665, ,916 2,227, ,488 7,165,425 FUND BALANCES Restricted for capital projects Assigned for debt service Assigned for future expenditures Assigned for capital projects Assigned for future benefits funding Assigned for ERG Assigned - Summer School Assigned - GW helping GW Unassigned TOTAL FUND BALANCES 2,099,139 4,500,000 1,140,337 19,212 5, ,321,094 14,086,271 7,754, ,754,000 5,610, ,610, , ,994 13,364, ,994 2,099,139 4,500,000 1,140,337 19,212 5, ,321,094 28,142,304 TOTAL LIABILITIES AND FUND BALANCES $ 19, $ $ $ $ The accompanying notes are an integral part of these financial statements

20 RECONCILIATION OF BALANCE SHEET GOVERNMENTAL FUNDS TO STATEMENT OF NET ASSETS JUNE 30, 2012 TOTAL GOVERNMENTAL FUND BALANCES $ 28,142,304 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land and improvements Buildings and improvements Furniture and equipment Construction-in-progress Accumulated depreciation $ 9,358,885 94,660,648 28,938,920 32,315,024 (69,549,837) 95,723,640 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Bonds payable in future years Capital lease payable in future years Accumulated compensated absences/early retirement incentives Accrued interest Other post-employment benefits (75,230,000) (506,213) (2,666,963) (542,470) (745,918) (79,691,564) Refunded debt resulted in deferred charges which will be amortized over the life of new debt but do not represent current rights. Some of the District's revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. (549, 135) 1,629,995 NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 45,255,240 The accompanying notes are an integral part of these financial statements

21 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2012 (With Summarized Comparative Data for the Year Ended June 30, 2011) EXPENDITURES Current: Instruction 43,117, ,117,943 43,192,287 Support services 23,336, ,975 79,485-23,749,935 23,574,095 Operation of noninstructional services 1,339,258-1,339,258 1,327,568 Capital outlays - 11,932,252 1,577,435-13,509,687 18,201,366 Debt service 8,301, ,460-8,415, ,874 TOTAL EXPENDITURES 76,095,084 12,266,227 1,771,380 ~132,691 94,187,190 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,746,404 (12,239,721) (1,767,470) 152 (12,260,635) (17,210,522) OTHER FINANCING SOURCES (USES) Proceeds of bond - 8,300, ,300,000 18,640,000 Proceeds of extended term financing - 217, , ,299 Bond refunding payment (3,880,000) Premium on bond issuance - 100, , ,018 Bond Discount - (72,842) - - (72,842) (388,878) Refund of prior year revenues (293,581) lnterfund transfers (2,855,227) - 2,855,227 Refund of prior year expenditures ,808 TOTAL OTHER FINANCING SOURCES (USES) (2,855,227} 8,545,217 2,855,227 8,545,217 14,873,666 NET CHANGES IN FUND BALANCES ( 1 '1 08,823) (3,694,504) 1,087, (3, 715,418) (2,336,856) FUND BALANCES, BEGINNING OF YEAR 15,195,094 11,448,504 4,522, ,842 31,857,722 34,194,578 FUND BALANCES, END OF YEAR $14.086,271 $ $ 5, $ $ $ Capital Capital Debt General Projects Reserve Service Totals Fund ~nd Fund Fund REVENUES Local sources $65,974,675 $ 24,889 $ 3,910 $ 152 $ 66,003,626 $ 64,860,971 State sources 10,715,018 1,617-10,71 6,635 10,119,642 Federal sources 1,151, '151,795 1,996,055 TOTAL REVENUES 77,841,488 26,506 3, ,872,056 76,976,668 The accompanying notes are an integral part of these financial statements

22 RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 NET CHANGE IN FUND BALANCES- GOVERNMENTAL FUNDS $ (3,715,418} 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 capital outlays ($14,279,377) exceeded depreciation expense ($4,161,170) in the period. Because some revenues will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred revenues increased by this amount this year. The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences. Governmental funds report issuance costs and bond discounts as other financing uses and deferred bond refunding option proceeds and bond premiums as other financing sources. However, these amounts are reported on the statement of net assets as deferred charges and credits and are amortized over the life of the debt. The incurrence of a capital lease agreement provides current financial resources to governmental funds, while the repayment of the principal of capital lease consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences. In the statement of activities, certain operating expenses--compensated absences (vacations and sick leave) and special termination benefits (early retirement)--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). Other post-employment benefits include post-employment healthcare benefits and all postemployment benefits provided separately from a pension plan, excluding benefits defined as termination offers and benefits. The annual cost represents the employer's contribution to the plan which includes the implicit rate subsidy. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amount actually paid). Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES 10,118, ,439 (2,825,000) 115,433 (48,374) (301,673) (125,603) 65,235 $ The accompanying notes are an integral part of these financial statements

23 BUDGETARY COMPARISON STATEMENT GENERAL FUND FOR THE YEAR ENDED JUNE 30,2012 Budgeted Amounts Actual Original Final {GAAP Basis) REVENU ES Local sources $65,145,897 $65,145,897 $65,974,675 State sources 9,923,162 9,923,162 10,715,018 Federal sources 932, ,449 1,151,795 TOTAL REVENUES 76,001,508 76,001,508 77,841,488 EXPENDITURES Instruction: Regular programs 29,313,223 29,385,107 28,865,620 Special programs 11,664,607 11,393,478 11,047,758 Vocational programs 779, , ,336 Other instructional programs 1,694,846 1,579,846 1,543,997 Community college 901, , ,232 Total Instruction 44,353,330 44,024,811 43,117,943 Support senices: Pupil personnel senices 2,458,144 2,477,797 2,477,797 Instructional staff senices 4,048,442 3,903,072 3,872,005 Administrative senices 3,295,964 3,561,048 3,561,048 Pupil health 609, , ,342 Business senices 1,058,158 1,058,158 1,051,298 Operation and maintenance of plant senices 7,526,512 6,859,479 6,439,488 Student transportation senices 4,900,550 4,600,550 4,353,493 Data processing senices 918, , ,736 Other Support SeNices 252, , Total Support SeNices 25,067,291 24,098,025 23,336,475 Operation of Noninstructional Activities: Student activities 1,308,413 1,264,913 1,251,609 Community senices 103,400 93,400 87,649 Total Operation of Noninstructional SeNices 1,411,813 1,358,313 1,339,258 DebtseNice 8,955,350 8,301,408 8,301,408 TOTAL EXPENDITURES 79,787,784 77,782,557 76,095,084 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES {3. 786,276) {1,781,049) 1,746,404 Variance with Final Budget Positive {Negative) $ 828, , ,346 1,839, , ,720 5,812 35, ,868 31,067 11,656 6, , ,057 43,103 1, ,550 13,304 5,751 19,055 1,687,473 3,527,453 OTHER FINANCING USES Budgetary resene (250,000) Transfers out (600,000) {2,855,227) {2,855,227) TOTAL OTHER FINANCING USES (850,000) (2,855,227) (2,855,227) NET CHANGE IN FUND BALANCE (4,636,276) (4,636,276) ( 1 '1 08,823} FUND BALANCE, BEGINNING OF YEAR {3.289,608) (3,289,608) 15,195,094 FUND BALANCE, END OF YEAR ~ (7,925,884) ~ (7,925,884) ~ 14,086,271 3,527,453 18,484,702 P2,012,155 The accompanying notes are an integral part of these financial statements

24 STATEMENT OF NET ASSETS- PROPRIETARY FUND JUNE 30, 2012 (With Comparative Data for June 30, 2011) 2012 Major Enterprise Fund Food Service Fund ASSETS CURRENT ASSETS: Cash and cash equivalents $ 813,301 $ Due from other governments 42,379 Accounts receivable 6,850 Inventories 19,672 Total Current Assets 882,202 PROPERTY AND EQUIPMENT: Furniture and equipment 424,251 Accumulated depreciation (241,310) Net Property and Equipment 182,941 TOTAL ASSETS $ 1,065,143 $ LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 193,078 $ Due to other funds 34,647 Deferred revenue 35,743 Total Current Liabilities 263,468 NET ASSETS: Invested in capital assets, net of related debt 182,941 Unrestricted 618,734 Total Net Assets 801,675 TOTAL LIABILITIES AND NET ASSETS $ 1,065,143 $ ,458 16,291 6,328 30, , ,565 {489,042} 121,523 1,112, ,681 37,823 34, , , , ,042 1,112,912 The accompanying notes are an integral part of these financial statements

25 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2012 (With Comparative Data for the Year Ended June 30, 2011) OPERATING REVENUES Food service revenues TOTAL OPERATING REVENUES 2012 $ 1,281,694 1,281,694 Major Enterprise Fund Food Service Fund 2011 $ 1,234,576 1,234,576 OPERATING EXPENSES Salaries Employee benefits Purchased professional and technical services Purchased property services Supplies Depreciation TOTAL OPERATING EXPENSES OPERATING LOSS 376, , ,158 72, ,709 40,527 1,706,345 (424,651) 373, , ,238 78, ,968 39,269 1,579,600 (345,024) NONOPERATING REVENUES Earnings on investments State sources Federal sources TOTAL NONOPERATING REVENUES CHANGE IN NET ASSETS NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR , , ,284 (50,367) 852,042 $ 801, , , ,017 11, ,049 $ 852,042 The accompanying notes are an integral part of these financial statements

26 STATEMENT OF CASH FLOWS- PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30,2012 (With Comparative Data for the Year Ended June 30, 2011) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users Payments to suppliers Payments to employees NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State sources Federal sources NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Equipment acquisition NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Earnings on investments NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR Major Enterprise Fund Food Service Fund $1,282,549 $1,238,042 (1,034,734) (765,811) {545,629} {490,417} (297,814) {18,186) 65,390 65, , , , ,208 {101,945} p 7,554} {101,945) {17,554) (125, 157) 254, , ,628 ~ 813,301 $ 938,458 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM OPERATING ACTIVITIES: Operating loss Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation Donated commodities (Increase) Decrease in: Accounts receivable Inventories Increase (Decrease) in: Accounts payable Due to other funds Deferred revenue NET CASH USED BY OPERATING ACTIVITIES SUPPLEMENTAL DISCLOSURE: NONCASH NONCAPITAL FINANCING ACTIVITY: USDA donated commodities $ (424,651) $ (345,024) 40,527 39,269 73,595 67,301 (522) 5,392 10,640 6,714 4, ,698 (3, 176) 24,390 1,376 {1,926} $ ( ~ $ {18,186~ $ 73,595 $ 67,301 The accompanying notes are an integral part of these financial statements. -23-

27 STATEMENT OF NET ASSETS- FIDUCIARY FUNDS JUNE 30, 2012 ASSETS Private- Purpose Trust Student Activities Agency Fund Escheat Funds Cash Due from other funds $ 16,167 $ 129,576 $ 355 TOTAL ASSETS $ $ 129,576 $ 355 LIABILITIES AND NET ASSETS LIABILITIES: Due to escheat funds $ 355 $ Other current liabilties , ,576 NET ASSETS: Reserved for trust 15,765 $ TOTAL LIABILITIES AND NET ASSETS $ $ 129,576 $ 355 The accompanying notes are an integral part of these financial statements

28 STATEMENT OF CHANGES IN NET ASSETS- FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2012 (With Comparative Data for the Year Ended June 30, 2011) ADDITIONS 2012 Private-Purpose Trust 2011 Local contributions $ 11,288 $ TOTAL ADDITIONS 11,288 10,296 10,296 DEDUCTIONS Fees paid and scholarships awarded 14,550 TOTAL DEDUCTIONS 14,550 CHANGE IN NET ASSETS (3,262) NET ASSETS, BEGINNING OF YEAR 19,027 NET ASSETS, END OF YEAR $ $ 12,650 12,650 (2,354) 21, The accompanying notes are an integral part of these financial statements

29 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rose Tree Media School District (the "District") operates four elementary schools, one middle school and one senior high school to provide education and related services to the residents of Edgmont, Middletown and Upper Providence Townships and the Borough of Media. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School Laws of Pennsylvania as a school district of the second class. The District operates under a locally elected nine-member Board form of government. The financial statements of Rose Tree Media School District have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. The more significant of these accounting policies are as follows: Reporting Entity GASB Statement No. 14, "The Financial Reporting Entity," as amended by GASB Statement No. 39, established the criteria for determining the activities, organization and functions of government to be included in the financial statements of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's financial accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are financial accountability and the nature and significance of the relationship. Rose Tree Media School District is considered to be an independent reporting entity and has no component units. Basis of Presentation Entity-wide Financial Statements The statement of net assets and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type. These statements include the financial activities of the primary government, except for fiduciary funds. The entity-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under proprietary funds below. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include reconciliation with brief explanations to better identify the relationship between the entity-wide statements and the statements of governmental funds. -26-

30 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The entity-wide statement of activities presents a comparison between expenses and program revenues for each function of the business-type activities of the District and for each governmental function. Expenses are those that are specifically associated with a service or program and are, therefore, clearly identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each function is self-financing or draws from the general revenues of the District. Except for interfund activity and balances between the funds that underlie governmental activities and the funds that underlie business-type activities, which are reported as transfers and internal balances, the effect of interfund activity has been removed from these statements. The entity-wide financial statements report net assets in one of three components. Invested in net assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of borrowing attributable to acquiring, constructing or improving those assets. Net assets are reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Those restrictions affect net assets arising from special revenue and capital projects funds. Unrestricted net assets consist of net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted." Fund Financial statements During the school year, the District segregates transactions related to certain District functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Fiduciary fund financial statements are presented by fund type. Governmental Funds All governmental funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. The District reports the following major governmental funds: The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund

31 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The Capital Projects Fund is used to account for the acquisition, construction and renovation of major capital facilities and their related capital assets. The Capital Reserve Fund is used to accumulate resources for future capital needs of the District. The Debt Service Fund is used to account for funds segregated to pay for future debt service payments. Revenue Recognition In applying the "susceptible to accrual concept" under the modified accrual basis, revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers tax revenue to be available if collected within 60 days of the end of the fiscal period. Revenue from federal, state and other grants designated for payment of specific District expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are reported as deferred revenues until earned. Other revenues, including certain other charges for services and miscellaneous revenues, are recorded as revenue when received in cash because they generally are not measurable until actually received. Expenditure Recognition The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures are measurable and are recorded when the related fund liability is incurred. However, principal and interest on general long-term debt which has not matured are recognized when paid. Liabilities for compensated absences and special termination benefits are recognized as fund liabilities to the extent they mature each period. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds. Proprietary Funds The proprietary fund is accounted for using the accrual basis of accounting. This fund accounts for operations that are financed primarily by user charges. The economic resource focus concerns determining costs as a means of maintaining the capital investment and management control. Revenues are recognized when they are earned and expenses are recognized when they are incurred. Allocations of certain costs, such as depreciation, are recorded in the proprietary fund. The District does not attempt to allocate all "building-wide costs" to the proprietary fund. However, the food service department does partially refund these costs to the general fund. Similarly, the proprietary fund does not recognize a cost for the building space it occupies. This fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary fund's principal ongoing operations. The principal operating revenues of the District's proprietary fund are food service charges. Operating -28-

32 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) expenses for the District's proprietary fund include salaries and benefits, food production costs, supplies and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 are followed in both the entity-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict the guidance of GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The District has elected not to follow subsequent private-sector guidance. Fiduciary Funds Fiduciary funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or governmental units and are, therefore, not available to support the District's own programs. The District accounts for these assets in a private-purpose trust and agency fund. The private-purpose trust fund accounts for activities in various scholarship accounts, whose sole purpose is to provide annual scholarships to particular students as described by donor stipulations. The agency fund accounts for funds held on behalf of students of the District, and escheat funds. The measurement focus and basis of accounting for the private-purpose trust is the same as for proprietary funds, while the agency fund is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the entity-wide financial statements as "internal balances." The District does not record an allowance for uncollectible taxes because it is considered to be immaterial. Property Taxes Property taxes attach as an enforceable lien on property as of July 1. Taxes are levied on July 1 and are payable in the following periods: July 1 - August 31 September 1 - October 31 November 1 to collection February 28 - Discount period, 2% of gross levy - Face Period - Penalty Period, 10% of gross levy - Lien Date - 29-

33 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Real estate taxes for the District are collected from the Townships of Edgmont, Middletown and Upper Providence and the Borough of Media. The tax on real estate in those municipalities for public school purposes for fiscal was mills ($22.25 per $1,000 of assessed valuation) as levied by the Board of School Directors. Assessed valuations of property are determined by the Delaware County Board of Assessment. Prepaid Items and Inventories Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both entity-wide and fund financial statements. All inventories are valued at the lower of cost (first-in, first-out method) or market. Capital Assets Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the entity-wide and proprietary fund financial statements. Capital assets are defined by the District as assets with an initial, individual cost of more than $1,500 or $1 0,000 in the aggregate and an estimated useful life in excess of one year. Such assets are recorded at historical cost if purchased or constructed. Purchased equipment at less than $1,500 yet deemed critical to inventory control will be recorded at its original cost. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed, inclusive of ancillary costs. Property, plant and equipment of the District are depreciated using the straight-line method over the following estimated useful lives: School buildings Site improvements Furniture and equipment Vehicles 40 years 20 years 5-20 years 8 years Compensated Absences District policies permit employees to accumulate earned but unused vacation, personal and sick days as stipulated In each bargaining unit's contract. The liability for these compensated absences is recorded as long-term debt in the entity-wide financial statements. The current portion of this debt is estimated based on historical trends. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available financial resources. -30-

34 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Long-term Obligations In the entity-wide financial statements and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond issuance costs, bond premiums, bond discounts and deferred amounts on refunding are reported as deferred charges and amortized over the term of the related debt. All amounts are amortized using the straight-line method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received and discounts paid on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures, except for refundings paid from proceeds which are reported as other financing uses. Fund Eguitv In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. The proprietary funds report the same three components of net assets as do the entity-wide financial statements. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds and, finally, unassigned funds, as needed, unless the Board has provided otherwise in its commitment or assignment actions. As of June 30, 2012, fund balances of the governmental funds are classified, if applicable, as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed- amounts that can be used only for specific purposes determined by formal action of the Board of Directors. The Board is the highest level of decision-making authority for the District. Commitments may be established, modified or rescinded only through resolutions approved by the Board of Directors

35 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Assigned- amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. The Finance Committee or Director of Management Services may assign amounts for specific purposes. Unassigned- all other spendable amounts. Comparative Data Comparative totals for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the District's financial position and operations. However, presentation of prior year totals by fund and activity type have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Summarized comparative information should be read in conjunction with the District's financial statements for the year ended June 30, 2011, from which the summarized information was derived. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information An annual budget is adopted prior to the beginning of each year for the general fund on the modified accrual basis of accounting. The general fund is the only fund for which a budget is legally required, although project-length financial plans are adopted for all capital projects funds. The District is required to publish notice by advertisement at least once in two newspapers of general circulation in the municipalities in which it is located, and within 15 days of final action, that the proposed budget has been prepared and is available for public inspection at the administrative offices of the District. Notice that public hearings will be held on the proposed operating budget must be included in the advertisement; such hearings are required to be scheduled at least 10 days prior to the date final action on adoption is taken by the Board. Legal budgetary control is maintained at the sub-function/major object level. The Board of School Directors may make transfers of funds appropriated to any particular item of expenditure by legislative action in accordance with the Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without Board approval. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments. -32-

36 NOTES TO FINANCIAL STATEMENTS NOTE 3 DEPOSITS AND INVESTMENTS Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the government's deposits may not be returned. At June 30, 2012, the carrying amount of the District's deposits was $12,563,098 and the bank balance was $14,251,130. The cash deposits of the District are in the Pennsylvania School District Liquid Asset Fund ("PSDLAF"). Although not registered with the Securities and Exchange Commission and not subject to regulatory oversight, PSDLAF acts like a money market mutual fund in that its objective is to maintain a stable net asset value of $1 per share, is rated by a nationally recognized statistical rating organization and is subject to an independent annual audit. Investments Statutes authorize the District to invest in U.S. Treasury bills, time or share accounts of institutions insured by the Federal Deposit Insurance Corporation or in certificates of deposit when they are secured by proper bond or collateral, repurchase agreements, State Treasurer's investment pools or mutual funds. As of June 30, 2012, the District had the following investments: Certificates of deposit due within one year - collateral held by pledging bank's agent in the District's name $ 18,158,263 Interest Rate Risk The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from Increasing interest rates. Credit Risk The District has no investment policy that would limit its investment choices to those with certain credit ratings. As of June 30, 2012, PSDLAF was rated as AAA by a nationally recognized statistical rating organization. Concentration Risk The District places no limit on the amount it may invest in any one issuer

37 NOTES TO FINANCIAL STATEMENTS NOTE 4 DEFERRED REVENUES Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition of resources that have been received, but not yet earned. At the end of the current fiscal year, deferred revenue reported in the governmental funds resulted from delinquent property taxes receivable, federal grants received that have not satisfied eligibility requirements and revenue received but not yet earned. Deferred revenue in the proprietary funds and the entity-wide financial statements represents resources that have been received but not yet earned. NOTE 5 CAPITAL ASSETS Capital asset activity for the year ended June 30, 2012 was as follows: Beginning Ending Balance Increases Decreases Balance GOVERNMENTAL ACTIVITIES: Capital assets not being depreciated: Land $ 6,253,838 $ $ $ 6,253,838 Construction-in-progress 20,908,556 11,596, ,224 32,315,024 Total Capital Assets Not Being Depreciated 27,162,394 11,596, ,224 38,568,862 Capital assets being depreciated: Land improvements 2,338, ,356 3,105,047 Buildings and improvements 93,953, ,344 94,660,648 Furniture and equipment 29,098,741 1,399,209 1,559,030 28,938,920 Total Capital Assets Being Depreciated 125,390,736 2,872,909 1,559, ,704,615 Less accumulated depreciation for: Land improvements 1,007,904 99,836 1,107,740 Buildings and improvements 43,495,595 2,686,345 46,181,940 Furniture and equipment 22,444,198 1,374,989 1,559,030 22,260,157 Total accumulated depreciation 66,947,697 4,161,170 1,559,030 69,549,837 Total Capital Assets Being Depreciated, Net 58,443,039 (1,288,261) 57,154,778 GOVERNMENTAL ACTIVITIES ASSETS, NET $ 85,605,433 $10,308,431 $ 190,224 $ 95,723,640 BUSINESS-TYPE ACTIVITIES: Capital assets being depreciated: Machinery and equipment $ 610,565 $ 101,945 $ (288,259) $ 424,251 Less accumulated depreciation (489,042) (40,527) 288,259 (241,31 0) BUSINESS-TYPE ACTIVITIES, NET $ 121,523 $ 61,418 $ $ 182,

38 NOTES TO FINANCIAL STATEMENTS NOTE 5 CAPITAL ASSETS (cont'd) Depreciation expense was charged to functions/programs of the District as follows: Governmental Activities: Instruction Instructional student support Administrative and financial support services Operation and maintenance of plant services Pupil transportation Student activities Total Governmental Activities Business-type Activities - food service $ 2,795, ,298 28,248 90, , J 793 $ 4,161 J 170 $ 40,527 NOTE 6 INTERNAL RECEIVABLES, PAYABLE$ AND TRANSFERS The composition of interfund balances as of June 30, 2012 is as follows: Due From Amount Due To Capital Reserve $ 660,975 Capital Projects General Fund 34,056 Food Service Fund Capital Projects 591 Food Service Fund Total $ 695,622 Amount $ 660,975 34, $ 695,622 lnterfund balances between funds represent temporary loans recorded at year end subsequent to a final allocation of expenses. The balances generally are paid shortly after year end. lnterfund Transfers: Transfer Out: Transfers In: General Fund $ 2,855,227 Capital Reserve Fund $ 2,855,227 Transfers represent funds set aside for the anticipation of future capital needs. -35-

39 NOTES TO FINANCIAL STATEMENTS NOTE 7 GENERAL LONG-TERM DEBT The following summarizes the changes in the long-term liabilities of governmental activities for the year ended June 30, 2012: Balance July 1, 2011 Additions Reductions Bonds payable $ 72,405,000 $ 8,300,000 $ (5,475,000) Bond premiums 1,576, ,947 (207,348) Deferred amount on refunding (158,937) 15,381 Bond discount (365,310) (72,842) 41,975 Capital lease payable 457, ,112 (168,738) Accumulated compensated absences/early retirement incentive 2,884, ,990 (542,317) TOTALS $ 76,800,080 $ 9,079,207 $ (6,336,047) Balance June 30, 2012 $ 75,230,000 1,470,309 (143,556) (396,177) 506,213 2,876,451 $ 79,543,240 Payments of long-term debt are expected to be funded by the general fund. General Obligation Bonds Series of 2004A, maturing through February 2, 2019, bearing interest ranging from 1.65% to 5.25%, interest payable semiannually on February 15 and August 15. Series of 2007A, maturing through January 25, 2017, bearing interest at a variable rate never to exceed 15%. Series of 2007B, maturing through January 25, 2022, bearing interest at a variable rate never to exceed 15%. Series of 2009A, maturing through February 15, 201 7, bearing interest ranging from 2.75% to 4%, interest payable semiannually on February 15 and August 15. Series of 2009AA, maturing through February 15, 2018, bearing interest ranging from 2.25% to 5%, interest payable semiannually on February 15 and August 15. Series of 201 OA, maturing through February 1, 2022, bearing interest ranging from 0.45% to 3%, interest payable semiannually on February 1 and August 1. $ 14,710, ,000 14,455,000 14,300,000 4,760,000 14,685,

40 NOTES TO FINANCIAL STATEMENTS NOTE 7 GENERAL LONG-TERM DEBT (cont'd) Series of 201 OAA, maturing through May 1, 2016, bearing interest ranging from 0.8% to 3%, interest payable semiannually on May 1 and November 1. Series of 2011, maturing through Feb 1, 2023, bearing interest Ranging from 1% to 4%, interest payable semi-annually on February 1 and August 1. 3,785,000 8,295,000 TOTAL $75,230,000 Presented below is a summary of debt service to maturity by years: Principal Interest Year Ending June 30, Maturities Maturities 2013 $ 5,710,000 $ 2,587, ,925,000 2,375, ,900,000 2,185, ,175,000 1,827, ,445,000 1,539, ,830,000 4,208, ,245, ,800 $ 75,230,000 $ 15,053,106 Total Maturities $ 8,297,331 8,300,628 8,085,088 8,002,383 7,984,733 41,038,143 8,574,800 $ 90,283,106 NOTE 8 PENSION PLAN Plan DescriQtion The District contributes to the Public School Employees' Retirement System ("PSERS"), a governmental cost-sharing multiple-employer defined benefit pension plan administered by the Commonwealth of Pennsylvania Public School Employees' Retirement System. The PSERS provides retirement and disability, legislatively mandated ad hoc cost-of-living adjustments and certain health care insurance premium assistance to plan members and beneficiaries. The Public School Employees' Retirement Code (Act No. 96, of October 2, 1975, as amended) provides the authority to establish and amend benefit provisions. The PSERS issues a comprehensive annual financial report that includes financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to Public School Employees' Retirement System, P.O. Box 125, Harrisburg, PA ; or by accessing its website at us/publications/cafr/index. htm. -37-

41 NOTES TO FINANCIAL STATEMENTS NOTE 8 PENSION PLAN (cont'd) Funding Policy The contribution policy is established in the Public School Employees' Retirement Code and requires contributions by active members, employers and the Commonwealth. Individual employees contribute between 5.25 and 7.5 percent of salary depending on their membership status. Contributions required of employers are based upon an actuarial valuation. For fiscal year ended June 30, 2012, the rate of employer contribution was 8.65 percent of covered payroll. The District's contributions to PSERS for the years ended June 30, 2010, 2011 and 2012 were $1,747,740, $2,148,751 and $3,273,546, respectively, equal to the required contribution for each year. The Commonwealth contributes to PSERS by reimbursing the District 50 percent of its contribution each year. NOTE 9 OPERATING LEASES The District currently is obligated under operating lease agreements for various office equipment. The following is a summary of the minimum rental costs for the remaining terms: Year Ending June 30, 2013 $ 36, , , , ,924 Total $ 175,834 Rental expense for the year ended June 30, 2012 was $106,856. NOTE 1 0 CAPITAL LEASES - LESSEE The District has entered into lease agreements as a lessee for financing the acquisition of equipment used for the network throughout the District. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of future minimum lease payments as of the inception date. The assets acquired through the capital leases are as follows: ASSET Equipment - Corporate Networking Inc. Equipment - Apple Inc. Less: Accumulated depreciation Total $ 572, ,112 (283,198) $ 506,

42 NOTES TO FINANCIAL STATEMENTS NOTE 10 CAPITAL LEASES- LESSEE (cont'd) The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2012 were as follows: Year Ending June 30, 2013 $ 168, ,738' ,737 Total $ 506,213 NOTE 11 JOINT VENTURES The District participates in a joint venture with the other school districts of Delaware County, Pennsylvania in the operation of a Vocational-Technical School Authority ("DCVTSA"). The DCVTSA is governed by seven members. Each member must be a citizen of a school district where the DCVTSA leases a project. The DCVTSA oversees acquiring, holding, constructing, improving and maintaining the public area vocational-technical school buildings. The financial statements of the Vocational-Technical School Authority are available from the DCVTSA located at 200 Yale Avenue, Morton, Pennsylvania The District also participates in a joint venture with other school districts of Delaware County, Pennsylvania to support the Delaware County Community College. The financial statements of the Delaware County Community College Authority ("DCCCA") are available from the DCCCA located at 901 South Media line Road, Media, Pennsylvania The District has entered into lease agreements with the Delaware County Community College Authority and the Delaware County Vocational Technical School Authority to provide rental payments to retire the Authority's outstanding debt obligations. The lease agreements generally provide that in the event the individual Authorities either retire all of their outstanding obligations which were issued to finance school facilities construction or acquisition, or accumulate sufficient reserves to cover such obligations prior to the expiration of the applicable schedules, there will be no subsequently scheduled rental payments made. Inasmuch as the annual rentals include reserve funds which either are invested by Authorities or used for advance retirement of obligations, it is anticipated that less than scheduled rentals will eventually be paid. Future Authority rental payments are: Year Ending June 2013 $ Total Less: Interest requirements Outstanding rental payments $ DCCC A 231, , , , ,639 2,175,062 3,244,514 (977,644) 2,266,870 DCVTSA $ 34,567 34,567 (521) $ 32,

43 NOTES TO FINANCIAL STATEMENTS NOTE 12 SPECIAL TERMINATION BENEFITS The District from time to time offers additional retirement incentives, known as early retirement incentive plans ("ERIPs"} to senior professional staff and administrators contemplating retirement. These special termination benefits are formally approved by Schoof Board action in the year an ERIP plan is implemented. In order for an employee to retire and participate in a District-sponsored ERIP, the District must first decide whether or not to offer a special termination plan in the year the employee is retiring; the retiring employee must meet certain age and District service year requirements; a specified minimum number of employees must opt into the ERIP; and the retiring employee must be eligible to receive other pension benefits provided through the PSERS, described in Note 8. The District's various ERIP plans can provide for the payment of specific annuity amounts to the participating retiree or the payment of specified dollar amounts to be applied toward participating retiree heafthcare premiums for a limited number of years. As of June 30, 2012, the District had five ERIP plans in effect. The number of participants and the present value of those benefits as of June 30, 2012 are summarized below: ERIP Heafthcare Began Participants Total Premium July 1, $ 31 '158 $ 31 '158 July 1, , ,426 July 1, , ,000 July 1, 2008 l 5,000 5,000 July 1, , ,000 $ 687,584 $ 687,584 During the year ended June 30, 2012, the cost of these benefits was $519,488. NOTE 13 COMMITMENTS AND CONTINGENCIES Government Grants and Awards The District participates in both state and federally assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The District is potentially liable for any expenditures which may be disallowed pursuant to the terms of these grant programs. Management is not aware of any material items of noncompliance which would result in the disallowance of program expenditures. -40-

44 NOTES TO FINANCIAL STATEMENTS NOTE 13 COMMITMENTS AND CONTINGENCIES (cont'd) Litigation Certain litigation claims are pending against the District. In the opinion of District management and legal counsel, the potential losses, if any, on such claims are not yet determinable. Capital Improvement Commitments As of June 30, 2012, the District was in the process of several capital projects. Construction commitments completed to date are as follows: Project Contract Amount Completed 6/30/2012 Commitment Glenwood Elementary School Boilers and Associated Equipment Sealant Replacement and Masonry Repairs Repaving Stage Curtain Painting Springton Lake Middle School Project Sanitary Sewer Permits Modular Classrooms Asbestos Abatement Construction Testing Phasing Allowance Professional Services General Contractor Electrical Contractor Mechanical Contractor Plumbing Contractor Utility Connection/Municipal Fees Architect Asbestos (Eagle) HVAC Testing Indian Lane Repaving Media HVAC Emergency Roof Repairs ESCo Johnson Controls $ 547,788 30,050 15,504 9,109 1, ; , , ,224 90, ,073 1,130,160 14,024,108 5,139,652 6,509,361 2,083, ,000 2,534, ,475 77,900 35, ,690 75,000 9,840,967 $ 544,064 3, , , , ,505 81, ,264 1,025,407 11,977,717 4,596,455 5,626,275 1,879, ,932 1,678, ,584 51,093 64,665 47, ,975 $ 3,724 26,800 15,504 9,109 1,850 25, , , ,719 8, , ,753 2,046, , , , , ,089 62,891 26,807 35, ,025 27,410 9,179,992 $45,544,134 $30,921,820 $14,622,314 In addition, the District has incurred costs in the amount of $1,393,204 for other projects that were not under a formal construction commitment as of June 30,

45 NOTES TO FINANCIAL STATEMENTS NOTE 14 RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all major programs except for workers' compensation, for which the District retains risk of loss. For insured programs, there were no significant reductions in insurance coverages during the year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. NOTE 15 POST-EMPLOYMENT HEALTHCARE PLAN Plan Description Effective for the fiscal year, the District adheres to Governmental Accounting Standards Board Statement No. 45, "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions," for certain post-employment healthcare benefits and life insurance benefits provided by the District. This Statement generally provides for prospective implementation - i.e., that employers set the beginning net OPEB obligation at zero as of the beginning of the initial year. Accordingly, for financial reporting purposes, no liability is reported for the post-employment benefits liability at the date of transition. The District's post-employment healthcare plan is a single-employer defined benefit healthcare plan. The plan provides medical insurance benefits to eligible retirees and their spouses. The Board of School Directors has the authority to establish and amend benefit provisions through the collective bargaining process with members of the professional and support staff, an agreement with administrative employees, and individual employment contracts with certain employees. The plan does not issue any financial report and is not included in the report of any public employee retirement system or any other entity. Funding Policy The contribution requirements of plan members are established and may be amended by the Board of School Directors. The required contribution is based on projected pay-as-you-go financing requirements, with any additional amount to prefund as determined annually by the Board of School Directors. For fiscal year 2012, plan members receiving benefits contributed $320,730, or approximately 100 percent of total premiums, through their required monthly contributions. Annual OPEB Cost and Net OPEB Obligation The District's annual other post-employment benefit cost (expense) is calculated based on the annual required contribution of the employer ("ARC"), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed

46 NOTES TO FINANCIAL STATEMENTS NOTE 15 POST-EMPLOYMENT HEALTHCARE PLAN (conf'd) years. The following table shows the components of the District's OPEB cost for the year, the amount actually contributed to the plan and changes in the District's net OPEB obligation to the plan. Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year $ 456,501 27,914 (38,082) 446,333 (320,730) 125, ,315 $ 745,918 This amount represents the cost of medical expenses for retirees. Funded Status and Funding Progress The schedule of funding progress of OPEB is as follows: Actuarial Accrued Actuarial Liability Unfunded Actuarial Value of (AAL)- AAL Funded Valuation Assets Entry Age (UAAL) Ratio Date (a) (b) (b-a) (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll [(b-a)/c] 7/1/2010 $ $3,522,969 $3,522, % 1/1/2008 $ $4,066,104 $4,066, % $34,522, % $30,779, % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations

47 NOTES TO FINANCIAL STATEMENTS NOTE 15 POST-EMPLOYMENT HEALTHCARE PLAN (cont'd) In the July 1, 2010 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.50 percent investment rate of return and an annual healthcare cost trend rate of 7.5 percent in 2010, reduced by decrements to an ultimate rate of 5.5 percent in 2014 or later. The UML is being amortized based on the level dollar, 30-year open period. The remaining amortization period at June 30, 2012 was 26 years. NOTE 16 FUND BALANCES As of June 30, 2012, fund balances are composed of the following: Capital Capital Debt Total General Projects Reserve Service Governmental Fund Fund Fund Fund Funds Restricted: Capital projects $ $ 7,754,000 $ 5,610,039 $ $ 13,364,039 Assigned: Debt service 691, ,994 Future expenditures 2,099,139 2,099,139 Capital projects 4,500,000 4,500,000 Future benefits funding 1,140,337 1,140,337 ERC 19,212 19,212 Summer School 5,974 5,974 GW helping GW Unassigned 6,321,094 6,321,094 Total Fund Balances $ $ 7,754,000 $5, $ 691,994 $ ,304 When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds and, finally, unassigned funds, as needed, unless the Board has provided otherwise in its commitment or assignment actions. NOTE 1 7 SUBSEQUENT EVENTS On July 30, 2012, the District issued $9,250,000 of General Obligation Bonds for the purpose of financing an ESCo (energy service company) project. The ESCo provides a broad range of comprehensive energy solutions including designs and implementation of energy savings projects and energy conservation

48 NOTES TO FINANCIAL STATEMENTS NOTE 17 SUBSEQUENT EVENTS (cont'd) The District has evaluated all subsequent events through November 8, 2012, the date the financial statements were available to be issued

49 SINGLE AUDIT

50 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 Barbacane, Thornton & Company LLP 200 Springer Building 3411 Silverside Road Wilmington, Delaware T F November 8, 2012 To the Board of School Directors Rose Tree Media School District Media, Pennsylvania We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Rose Tree Media School District, Media, Pennsylvania as of and for the year ended June 30, 2012, which collectively comprise the Rose Tree Media School District's basic financial statements, and have issued our report thereon dated November 8, 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. Internal Control Over Financial Reporting Management of Rose Tree Media School District is responsible for establishing and maintaining effective control over financial reporting. In planning and performing our audit, we considered Rose Tree Media School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Rose Tree Media School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. as defined above BARBAO\NE TI-IORNION &COMPANY CERT!FlED PUBLIC ACCOUNTANTS

51 To the Board of School Directors Rose Tree Media School District Compliance and Other Matters As part of obtaining reasonable assurance about whether Rose Tree Media School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted a matter that we reported to management of Rose Tree Media School District in a separate letter dated November 8, This report is intended solely for the information and use of the Board of School Directors, management and federal awarding agencies and pass-through entities; and is not intended to be and should not be used by anyone other than these specified parties. /J~~~~7 BARBACANE, TH;RNTON & COMPANY l~ LLP

52 Barbacane, Thornton & Company LLP REPORT ON COMPLIANCE 200 Springer Building 3411 Silverside Road WITH REQUIREMENTS THAT COULD HAVE A Wilmington, Delaware DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL T F OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 November 8, 2012 To the Board of School Directors Rose Tree Media School District Media, Pennsylvania Compliance We have audited the compliance of Rose Tree Media School District, Media, Pennsylvania, with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, Rose Tree Media School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and recommendations. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of Rose Tree Media School District's management. Our responsibility is to express an opinion on Rose Tree Media School District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, ':A.udits of States, Local Governments, and Nonprofit Organizations." Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Rose Tree Media School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Rose Tree Media School District's compliance with those requirements. In our opinion, Rose Tree Media School District complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of Rose Tree Media School District, Media, Pennsylvania, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we BARBAO\NE TI-IORNfON &COMPANY CERTIFIED PUBLIC ACCOUNTANTS