ROSE TREE MEDIA SCHOOL DISTRICT MEDIA, PENNSYLVANIA AUDIT REPORT JUNE 30, 2011

Transcription

1 MEDIA, PENNSYLVANIA AUDIT REPORT JUNE 30, 2011

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 Srringer Bui!Jmg 3411 Si!verside Road Wllmington, Dela\v"re October 31,2011 T F l 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, 2011, 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 financial statements and, in our report dated January 6, 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 stafements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activifies, each major fund and the aggregate remaining fund information of Rose Tree Media School District, Media, Pennsylvania, as of June 30, 2011, 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 October 31, 2011, 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 mailers, 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, BARBACANE ThORNTON &CDMPANY CERTIFIED PUBLIC ACCOUNTANTS

5 Board of School Directors Rose Tree Media School District The management's discussion and analysis on pages 3-13 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Rose Tree Media School District's basic financial statements. 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 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ;J~~1L'7 BARBACANE, THORNTON & COMPANY LL:? LLP -2-

6 Managemenfs Discussion and Analysis (MD&A) - Unaudited JUNE 30, 2011 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 tinancial statements to enhance their understanding of the District's financial performance. FINANCIAL HIGHLIGHTS The District's total net assets increased in the amount of $3.6 million. The current year increase was due to higher tax rates; the American Recovery and Reinvestment Act of 2009; and the fact that expenditures were less than anticipated partially as a result of lower benefit costs. Program revenues accounted for $12.0 million, or 15.3 percent, of total revenues of $78.6 million, and general revenues accounted for $66.6 million, or 84.7 percent. The General Fund completed the fiscal year with a positive fund balance of $15.2 million, or 18.9 percent of the $80.6 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 $1.8 million. The instructional programs (including special education, vocational education, summer school, homebound instruction, adjudicated programs and Delaware County Community College) cost $43.2 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 56.2 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 $23.4 million for salaries, benefits, supplies, utilities, diesel fuel and gasoline, the insurance program and equipment. The cost of the support programs was supported by 30.5 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 non instructional 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 $10.7 million for interest and principal payments and for transfer to the capital account. The cost of the other financing uses was supported by 13.9 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 $206 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

7 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 REPORTING THE DISTRICT AS A WHOLE Statement of Net Assets and 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 $42.7 million at the close of the most recent fiscal year. In the prior year, assets exceeded liabilities by $39.1 million. A portion of the District's total net assets (65.98 percent) reflects its investment in capital assets, net of related debt. The District uses capital assets to provide services; consequenlly, 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 2011 to 2010 follows: Statement of Net Assets June 30, 2011 and 2010 ASSETS: Current and other Assets Capital assets Governmental Activities $ 39,472,702 85,605,433 $ 40,570,609 70,291,292 Business-type Activities $ 953,566 $ 736, , ,238 Totals $ 40,426,268 85,726,956 $ 41,306,695 70,434,530 TOTAL ASSETS $125,078,135 $110,861,901 $ 1,075,089 $ 879,324 $ ,224 $111,741,225 LIABILITIES AND NET ASSETS: Liabilities: Current liabilities Long-term!iabilities Total Liabilities $ 12,068,131 71,169, ,141 $ 10, $ 223,047 $ 39,275 62,024,208 72,585, ,047 36,275 $ 12,291,178 71,169,010 83,460,188 $ 10,600,270 62,024,208 72,624,478-4-

8 Managements Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 Statement of Net Assets June 30, 2011 and 2010 (continued) Governmental Activities Business-type Activities Totals Net Assets: Invested in capita! assets, net of debt Unrestricted Total Net Assets 28,048,812 13,792,182 41,840,994 23,303,039 14,973,659 38,276, , , , , , ,049 28,170,335 14,522,701 42,693,036 23,446,277 15,670,470 39,116,747 TOTAL LIABILITIES AND NET ASSETS $125,078,135 $110,861,901 $ 1,075,089 $ 879,324 $126,153,224 $111,741,225 The District's net assets invested in capital assets, net of related debt increased $4,7 million due to 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 tor 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 $ 45,319,257 $ (37,608,530) $ 44,429,447 $ (36,049,030) Support services: Instructional student support 7,549,508 (7,112,542) 7,295,922 (6,959,007) Administration 5,645,026 (5,450,175) 5,529,739 (5,351,731) Maintenance 6,658,226 (6,411,794) 6,660,372 (6,435,241 ) Pupil transportation 4,560,375 (3,175,825) 4,428,095 (2,982,979) Student activities 1,449,886 (1,349,119) 1,433,808 (1,336,242) Community services 85,118 (887) 85,415 15,857 Interest and fiscal Charges 2,149,662 (1,887,246) 2,456,257 (2,279,981 ) Total Governmental Activities $ 73,417,058 $ (62,996,118) $ 72,319,055 $ (61,378,354) Business-type Activities: Food service $ 1,579,600 $ 11,631 $ 1,619,670 $ (59,618) Total Business-type Activities $ 1,579,600 $ 11,631 $ 1,619,670 $ (59,618) The increases in net cost of services for instruction are due to contracted increases in salaries for employees of the District, -5-

9 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 3D, 2011 Statement of Changes In Net Assets Fiscal Years Ended June 3D, 2011 and Governmental Activities Business-tyee Activities Totals REVENUES Program Revenues: Charges for services $ 2,223,934 $ 2,871,138 $1,234,576 $1,234,605 $ 3,458,510 $ 4,105,743 Operating grants 8,197,006 8,069, , ,447 8,553,661 8,395,010 Tota! Program Revenues 10,420,940 10,940,701 1,591,231 1,560,052 12,012,171 12,500,753 General Revenues: Property taxes 61,130,809 60,270,643 61,130,809 60,270,643 Other taxes 1,180,704 1,235,194 1,180,704 1,235,194 Grants and entitlements 3,896,618 4,012,085 3,896,618 4,012,085 Investment earnings 223, , , , ,451 Miscellaneous 128, , , ,745 Tota! Genera! Revenues 66,560,414 66,095, ,793 66,560,776 66,097,118 TOTAL REVENUES 76,981,354 77,036,026 1,591,593 1,561,845 78,572,947 78,597,871 EXPENSES Program Expenses: Instruction 45,319,257 44,429,447 45,319,257 44,429,447 Support services: Instructional staff support 7,549,508 7,295,922 7,549,508 7,295,922 Administration 5,645,026 5,529,739 5,645,026 5,529,739 Maintenance 6,658,226 6,660,372 6,658,226 6,660,372 Pupil transportation 4,560,375 4,428,095 4,560,375 4,428,095 Student activities 1,449,886 1,433,808 1,449,886 1,433,808 Community services 85,118 85,415 85,118 85,415 Interest and fiscal charges 2,149,662 2,456,257 2,149,662 2,456,257 Food service 1,579,600 1,619,670 1,579,600 1,619,670 TOTAL EXPENSES 73,417,058 72,319,055 1,579,600 1,619,670 74,996,658 73,938,725 CHANGE IN NET ASSETS $ 3,564,296 $ 4,716,971 $ 11,993 $ (57,825) $ 3,576,289 $ 4,659,146 Property tax revenue is up $0.9 million due to a tax rate increase of 2.9 percent, which is the Act 1 Index. The assessment value was down in 2010/2011 due to tax appeals. 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. 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 tronsfers) and Fund 40 (Debt Service Fund). These funds are reported using the modified accrual accounting method, which 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 -6-

10 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 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 tund, 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 Districl 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 $31. 9 million. which is below last year's total of $34.2 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 and the Debt Service Fund. The schedule below indicates the fund balance and the total change in fund balances as of June 30, 2011 and Fund Balance Fund Balance Increase June 30, 2011 June 30, 2010 (Decrease) General Fund $ 15,195,094 $ 16,965,915 $ (1,770,821) Capital Projects Funds 11,448,504 13,798,989 (2.350,485) Capital Reserve Fund 4,522,282 3,237,950 1,284,332 Other Funds 691, , ,118 Total $ 31,857,722 $ 34,194,578 $ (2,336,856) - 7 -

11 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 General Fund The District's reliance upon tax revenues is demonstrated by the graph below that indicates 78 percent of total revenues for government activities come from local taxes, T~x S 0 " w lnter";ojernmental The tables that follow assist in illustrating the financial activities and balance of the general fund, Dollar Percent Change Change General Fund Revenue: Taxes $ 59,700,605 $ 58,651,472 $ 1,049,133 1,79% Investment earnings 131, ,808 (139,496) -51,51% Intergovernmental 10,803,228 10,972,745 (169,517) -1,54% Other revenue 6,248,771 6,983,546 (734,775) -10,52% Total $ 76,883,916 $ 76,878,571 $ 5,345 0,01% Real estate tax revenue increased $1 million due to an increase in millage rate (2,9 percent), Intergovernmental revenue decreased due to the decrease in ARRA funds received by the District in versus the fiscal year, Other revenue decreased due to fewer transfers, interim taxes and delinquent taxes, - 8 -

12 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 other Funds The Capital Project Funds (32 through 38) 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 appropriation from the General Fund was two percent as required by Board Policy #603. The Capital Reserve Fund increased because the General Fund was able to transfer funds for future capital purposes. Other governmental funds consist of the Debt Service Fund (40). This fund was established for the purpose of paying down debt. Due to savings on the 2007 variable rate debt, the District was able to transfer $500,000 from the General Fund to this fund for future debt payments. Business-type Activities The only business-type activity includes the food service program. This program had an Increase in net assets of $12 thousand for the fiscal year. The District did increase lunch prices by $0.20 and therefore increased sales. Participation in full meal sales increased; however, a la carte sales decreased. The overall affect was an increase in subsidies due to the increase in full meal lunches. 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 $ 29,429,050 $ 29,351,284 $ (77,766) -0.26% Special programs ,537,571 11,539,439 1, % Vocational programs , , % Other instructional programs ,584,516 1,584, % Community college , ,317 29, % Total Instructional Services 44,332,354 44,286,281 (46,073) 0.10% -9-

13 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 ( continued) Function Original Final Dollar Code Budget Budget Difference Support Services: Pupil services ,676,262 2,673,981 (2,281 ) Instructional staff services ,332,507 4,332, Administrative services ,479,849 3,480, Pupil health , ,930 Business services ,108,263 1,108,262 (1 ) Operation and maintenance ,010,649 7,305,643 (705,006) Student transportation services ,964,818 4,763,918 (200,900) Central support services , ,674 Other support services , ,742 Total Support Services 26,282,694 25,374,941 (907,753) Noninstructional Services: Student activities ,210,565 1,259,007 48,442 Community services , ,500 Total Noninstructional Services 1,316,065 1,364,507 48,442 Debt Service and Transfers: Debt service/refund of prior year receipts ,779,568 8,071,097 (708,471 ) Interfund transfers ,000 2,713,855 2,113,855 Budgetary reserve ,000 (500,000) Total Debt Service and Transfers 9,879,568 10,784, ,384 TOTAL EXPENDITURES $ 81,810,681 $ 81,810,681 $ Percentage Difference -0.09% 0.01% 0.01% 0.00% 0.00% -8.80% -4.05% 0.00% 0.00% -3.45% 4.00% 0.00% 3.68% -8.07% % % 9.16% 0.00% Using spending variances in excess of $10,000 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 Operation and maintenance ,010,649 7,305,643 (705,006) -8.80% Debt service ,779,568 8,071,097 (708,471 ) -8.07% Interfund transfers ,000 2,713,855 2,113, % Budgetary reserve ,000 (500,000) % The variance for the operation and maintenance budget is due to decreases in utility, repairs and maintenance, communication and property insurance cosls. The debl service budgel decreased due 10 Ihe inleresl being lower on the 2007 variable rale bond and Ihe liming 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 for the transfer out to the capital projects funds so that the District could be in compliance with Board Policy #

14 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 As the graph below illustrates, the largest portions of General Fund expenditures are for salaries and benefits. The District is an educational, service entity and as such is labor-intensive. 0% Salaries Benefits Purchased services Supplies Equiprnen t Miscellaneous Debt/transfers/prior Increase (Decrease) General Fund: Salaries $ $ $ 1,439,489 Benefits 13,473,498 12,607, ,923 Purchased services 6,810,440 7,135,626 (325,186) Supplies 8,800,991 8,962,121 (161,130) Equipment 628, ,466 14,692 Miscellaneous 254, ,714 (21,460) DebUtransfers!prior 10,784,851 8,279,983 2,504,868 TOTAL EXPENDITURES BY OBJECT $ 78,721,554 $ 74,404,358 $ 4,317,196 Expenditures increased $4.3 million or 5.8 percent over the prior year. The increase was partially due to an increase in salary and benefits and partially due to the transfer to the capital projects fund in accordance with Board Policy #603. CAPITAL ASSETS At June 30, 2011, the District's governmental activities had $85,605,433, net of depreciation, invested in a broad range of capital assets, including land, buildings and furniture and equipment. Business-type activities owned $121,523 worth of net capital assets. These assets consist of movable equipment that will be depreciated in future years

15 Management's Discussion and Analysis - UnaudHed (cont'd) JUNE 30, 2011 Land Construction-in-progress Land improvements Buildings Furniture and equipment 2011 $ 6,253,838 20,908,556 1,330,787 50,457,709 6,776,066 $ 85,726, $ 6,250,968 4,448,867 1,393,653 52,033,141 6,307,901 $ 70,434,530 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 1,2010, the District had total outstanding debt of $62,895,000. Total debt outstanding as of June 30, 2011 was $72,405,000. Outstanding Debt General Obligation Notes/Bonds - Bond Series AA of2010 $ 3,790,000 $ - Bonds Series A of ,770,000 - Bonds, Series AA of ,545,000 6,310,000 - Bonds, Series A of ,490,000 20,560,000 - Bonds, Series A of , ,000 - Bonds, Series B of ,455,000 14,455,000 - Bonds, Series A of ,715,000 14,720,000 - Bonds, Series of ,320,000 2,575,000 - Bonds, Series of ,880,000 TOTAL $ 72,405,000 $ 62,895,000 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 $89 million. The District's bonds payable total as of June 30, 2011 is $72 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

16 Management's Discussion and Analysis - Unaudited (cont'd) JUNE 30, 2011 The economy continues to be a concern for the School District. The housing market is a major factor in the economic environment. Investments earnings are also down as a result of the current economic environment. However, interest rates for General Obligation bonds are at historic lows. The District benefited by refinancing the 2003 bond, which resulted in a savings of approximately $267,000. The District also issued $14,850,000 General Obligation bonds for the Springton lake Middle School project at a historic 60-year rate low of 2.87 percent. The District will continue to benefit from the lower interest rate over the next 10 years for the life of the bond. The District took steps to plan for the significant increases in the Pennsylvania School Employee Retirement System by assigning a portion of fund balance for a portion of future increases. Healthcare costs to the District were somewhat lower due to a change in the base healthcare plan. The American Recovery and Reinvestment Act of 2009 was enacted in February of The District received approximately one million dollars over the past two fiscal years. These funds provide temporary relief for state and local school districts and include IDEA, the Individuals with Disabilities Act and Tille I. They must be used for special education and school improvement for Tille I schools. The District used the remaining funds from ARRA in the 2010/2011 fiscal year. The funds will not be available in the 2011/2012 fiscal year. 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 , (610)

17 STATEMENT OF NET ASSETS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 2010) ASSETS: Cash and cash equivalents Investments Taxes receivable Due from other governments Internal balance Other receivables Inventories Prepaid expenses Bond issuance costs Land and improvements Construction-tn-progress Buildings and improvements Furniture and equipment Accumulated depreciation Governmental Activities $ 13,865,473 21,299,330 1,815,345 1,103,970 37, , ,895 8,592,529 20,908,556 93,953,304 29,098,741 (66,947,697) Business-type Activities $ 938,458 t6,291 (37,823) 6,328 30, ,565 (489,042) 2011 $ 14,803,93t 21,299,330 1,815,345 1, t20, ,194 30, ,895 8,592,529 20,908,556 93,953,304 29,709,306 (67,436,739) Totals 2010 $ 21,332,501 t4,987,000 1,855, ,687 1,740,260 37, ,037 8,579,692 4,448,867 92,808,220 28,940,034 (64,342,283) TOTAL ASSETS $125,078,135 $1,075,089 $126,153,224 $111,741,225 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 $ 2,930,749 1, t34, , , ,608 5,470, ,t71 (15,381) (35,353) 114, ,488 66,935,000 1,378,539 (143,556) (329,957) 343,379 2,365, ,3t5 83,237,141 $ 188,681 34, ,047 $ 3,t19,430 1,t34, , , ,608 5,470, ,171 (15,38t) (35,353) 114, ,488 66,935,000 1,378,539 (143,556) (329,957) 343,379 2,365, ,315 83,460,188 $ 2,326,740 1,002, , , ,003 5,180, ,171 (21,295) 304,886 57,7t5,000 1,48t,951 (130,598) 2,514, ,098 72,624,478 NET ASSETS Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS 28,048,8t2 13,792, t82 4t,840, , , ,042 28,170,335 14,522,701 42,693,036 23,446,277 15,670,470 39,t16,747 TOTAL LIABILITIES AND NET ASSETS $ t25,078,135 $1,075,089 $126,153,224 $111,741,225 The accompanying notes are an integral part of these financial statements,,14,

18 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 (With Summarized Comparative Data for the Year Ended June 30, 2010) GOVERNMENTAL ACTIVITIES, Instruction Instructiona! 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 $ 45,319,257 7,549,508 5,645,026 6,658,226 4,560,375 1,449,886 85,118 2,149,662 73,417,058 Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions $2,086,876 $5,623,851 $ 436, , ,432 1,384,550 55,961 44,806 81,097 3, ,416 2,223,934 8,197,006 Net (Expense) Revenue and Changes in Net Assets Business- Governmental type Totals Activities Activities $ (37,608,530) $ $ (37,608,530) $ (36,049,030) (7,112,542) (7,112,542) (6,959,007) (5,450,175) (5,450,175) (5,351,731 ) (6,411,794) (6,411,794) (6,435,241) (3,175,825) (3,175,825) (2,982,979) (1,349,119) (1,349,119) (1,336,242) (887) (887) 15,857 (1,887,246) (1,887,246) (2,279,981) (62,996,118) (62,996,118) (61,378,354) BUSINESS-TYPE ACTIVITIES, Food service TOTAL BUSINESS-TYPE ACTIVITIES 1,579,600 1,579,600 1,234, ,655 1,234, ,655 11,631 11,631 (59,618) 11,631 11,631 (59,618) TOTAL PRIMARY GOVERNMENT $ 74, $3458,510 $8,553,661 $ (62,996,118) 11,631 (62,984,487) (61,437,972) 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 61,130,809 61,130,809 60,270,643 1,180,704 1,180,704 1,235,194 3,896,618 3,896,618 4,012, , , , , , ,745 66,560, ,560,776 ~097,118 CHANGE IN NET ASSETS 3,564,296 11,993 3,576,289 4,659,146 NET ASSETS, BEGINNING OF YEAR 38,276, ,049 39,116, !457,601 NET ASSETS, END OF YEAR ~ 41,840,994~ i8_52m2 $ 42,693,036 $ 39,116,747 The accompanying notes are an integral part of these financial statements

19 BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 2010) Capital Capital Debt General Projects Reserve Service Totals Fund Fund Fund Fund ASSETS Cash and cash equivalents $ 7,193,340 $ 1,499,867 $ 4,480,424 $ 691,842 $ 13,865,473 $ 20,648,873 Investments 9,215,000 12,084,330 21,299,330 14,987,000 Taxes receivable 1,815,345 1,815,345 1,855,484 Due from other funds 37,870 68, ,614 13,433 Due from other governments 1,103,970 1,103, ,542 Other receivables 962, ,819 1,728,540 Prepaid expenses 700 TOTAL ASSETS $ 20,328,344 $ 13,584,197 $ 4,549,168 $ 691,842 $ 39,153,551 $ 40,172,572 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 836,914 $ 2,066,949 $ 26,886 $ $ 2,930,749 $ 2,323,757 Due to other funds 68,744 68,744 2,417 Accrued salaries and benefits 1,134,561 1,134,561 1,002,218 Other current liabilities 753, , ,916 Deferred revenues 1,889,164 1,889,164 1,715,800 Accumulated compensated absences 519, , ,886 TOTAL LIABILITIES 5,133,250 2,135,693 26,886 7,295,829 5,977,994 FUND BALANCES Restricted for capital projects 11,448,504 4,522,282 15,970,786 18,536,939 Assigned for debt service 691, , ,724 Assigned for future expenditures 4,636,276 4,636,276 4,973,887 Assigned for capital projects 1,500,000 1,500,000 Assigned for future benefits funding 485, ,437 Assigned for ERG 19,212 19,212 Assigned - Summer School 13,596 13,596 18,573 Unassigned 8,540,573 8,540,573 10,473,455 TOTAL FUND BALANCES 15,195,094 11,448,504 4,522, ,842 31,857,722 34,194,578 TOTAL LIABILITIES AND FUND BALANCES $ 20,328,344 $ 13,584,197 $ 4,549,168 $ 691,842 $ 39,153,551 $ 40,172,572 The accompanying notes are an integral part of these financial statements, - 16-

20 RECONCILIATION OF BALANCE SHEET - GOVERNMENTAL FUNDS TO STATEMENT OF NET ASSETS JUNE 30, 2011 TOTAL GOVERNMENTAL FUND BALANCES $ 31,857,722 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 $ 8,592,529 93,953,304 29,098,741 20,908,556 (66,947,697) 85,605,433 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 Accrued interest Other post-employment benefits (72,405,000) (457,839) (2,365,290) (607,705) (620,315) (76,456,149) Refunded debt resulted in deferred charges which will be amortized over the life of new debt but do not represent current rights. (664,568) 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. 1,498,556 NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 41,840,994 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, 2011 (With Summarized Comparative Data for the Year Ended June 30, 2010) Capital Capital Debt General Projects Reserve Service Totals Fund Fund Fund Fund REVENUES Local sources $64,768,219 $ 87,275 $ 5,359 $ 118 $ 64,860,971 $ 64,951,592 State sources 10,119,642 10,119,642 10,085,086 Federal sources 1,996,055 1,996,055 1,968,393 TOTAL REVENUES 76,883,916 87,275 5, ,976,668 77,005,071 EXPENDITURES Current: Instruction 43,192,287 43,192,287 41,793,699 Support services 23,416, ,246 23,574,095 23,211,017 Operation of non instructional services 1,327,568 1,327,568 1,306,960 Capital outlays 17,380, ,422 18,201,366 5,214,464 Debt service 7,777, ,460 7,891,874 5,330,017 TOTAL EXPENDITURES 75,714, , ,882 94,187,190 76,856,157 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,169,798 (17,450,915) (929,523) 118 _(17,210,522) 148,914 OTHER FINANCING SOURCES (USES) Proceeds of bond 18,640,000 18,640,000 Proceeds of extended term financing 572, ,299 Bond refunding payment (3,880,000) (3,880,000) Premium on bond issuance 207, ,018 (59,676) Bond Discount (388,878) (388,878) Refund of prior year revenues (293,581 ) (293,581) Interfund transfers (2,647,038) (66,817) 2,213, ,000 Insurance refunds 349 Refund of prior year expenditures 16,808 16,808 TOTAL OTHER FINANCING SOURCES (USES) (2,940,619) 15,100,430 2,213, L OOO 14,873,666 (59,327) NET CHANGES IN FUND BALANCES (1,770,821) (2,350,485) 1,284, ,118 (2,336,856) 89,587 FUND BALANCES, BEGINNING OF YEAR 16,965,915 13,798,989 3,237, ,724 34,194,578 34,104,991 FUND BALANCES, END OF YEAR $15,195,094 $ 11,44,504 $ 4,52VS2 :>_ 691,842 _$_31,857, '-22 _$ 34,194,578 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 NET CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS $ (2,336,856) 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 ($19,339,362) exceeded depreciation expense ($4,025,221) 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. 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. 15,314,141 26,759 (9,967,839) 465, ,467 (177,217) 90,217 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 3.564,296 The accompanying notes are an integral part of these financial statements

23 BUDGETARY COMPARISON STATEMENT - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2011 Variance with Final Budget Budgeted Amounts Actual Positive Original Final (GAAP Basis) (Negative) REVENUES Local sources $65,368,067 $65,368,067 $64,768,219 $ (599,848) State sources 11,093,727 11,093,727 10,119,642 (974,085) Federal sources 375, ,000 1,621,055 TOTAL REVENUES 76,836,794 76,836,794 47,122 EXPENDITURES Instruction: Regular programs 29,429,050 29,351,284 28,511, ,762 Special programs 11,537,571 11,539,439 11,403, ,076 Vocational programs 913, , ,317 2,408 Other instructional programs 1,584,516 1,584,516 1,468, ,748 Community college 867, , ,317 Total Instruction 44,332,354 44,286,281 43,192,287 1,093,994 Support services: Pupil personnel services 2,676,262 2,673,981 2,568, ,735 Instructional staff services 4,332,507 4,332,741 3,909, ,094 Administrative services 3,479,849 3,480,050 3,365, ,397 Pupil health 595, , ,599 35,331 Business services 1,108,263 1,108,262 1,049,462 58,800 Operation and maintenance of plant services 8,010,649 7,305,643 6,653, ,490 Student transportation services 4,964,818 4,763,918 4,249, ,818 Data processing services 869, , ,138 40,536 Other Support Services 244, , ,851 12,891 Total Support Services 26,282,694 25,374,941 23,416,849 1,958,092 Operation of Noninstructional Activities: Student activities 1,210,565 1,259,007 1,242,450 16,557 Community services 105, ,500 85,118 20,382 Total Operation of Noninstructional Services 1,316,065 1,364,507 1,327,568 36,939 Debt service 8,779,568 8,071,097 7,777, ,683 TOTAL EXPENDITURES 80,710,681 79,096,826 75,714,118 3,382,708 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (3,873,887) (2,260,032) 1,169,798 3,429,830 OTHER FINANCING SOURCES (USES) Budgetary reserve (500,000) Refund of prior year revenues (293,581) 293,581 Transfer In 66,817 66,817 Transfers out (600,000) (2,713,855) TOTAL OTHER FINANCING SOURCES (USES) (1,100,000) (2,940,619) 360,398 NET CHANGE IN FUND BALANCE (4,973,887) (4,973,887) (1,770,821) 3,203,066 FUND BALANCE, BEGINNING OF YEAR 1,684,274 1,684,279 16,965,915 15,281,636 FUND BALANCE, END OF YEAR ~ ( ) ~ (3,289,608) ~15,195,094 ~18,484,702 The accompanying notes are an integral part of these financial statements

24 STATEMENT OF NET ASSETS - PROPRIETARY FUND JUNE 30, 2011 (With Comparative Data for June 30, 2010) Major Enterprise Fund Food Service Fund 2011 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 938,458 $ Due from other governments 16,291 Accounts receivable 6,328 Inventories 30,312 Total Current Assets 991,389 PROPERTY AND EQUIPMENT: Furniture and equipment 610,565 Accumulated depreciation (489,042) Net Property and Equipment 121,523 TOTAL ASSETS $ 1,112,912 $ LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 188,681 $ Due to other funds 37,823 Deferred revenue 34,366 Total Current Liabilities 260,870 NET ASSETS: Invested in capital assets, net of related debt 121,523 Unrestricted 730,519 Total Net Assets 852,042 TOTAL LIABILITIES AND NET ASSETS $ 1,112,912 $ ,628 17,145 11,720 37, , ,011 (449,773) 143, ,757 2,983 13,433 36,292 52, , , , ,757 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, 2011 (With Comparative Data for the Year Ended June 30, 2010) Major Enterprise Fund Food Service Fund OPERATING REVENUES Food service revenues $ 1,234,576 $ 1,234,605 TOTAL OPERATING REVENUES 1,234,576 1,234,605 OPERATING EXPENSES Salaries 373, ,449 Employee benefits 141, ,576 Purchased professional and technical services 245, ,794 Purchased property services 78,318 80,504 Supplies 701, ,274 Depreciation 39,269 34,073 TOTAL OPERATING EXPENSES 1,579,600 1,619,670 OPERATING LOSS (345,024) (385,065) NONOPERATING REVENUES Earnings on investments 362 1,793 State sources 65,409 63,871 Federal sources 291, ,576 TOTAL NONOPERATING REVENUES 357, ,240 CHANGE IN NET ASSETS 11,993 (57,825) NET ASSETS, BEGINNING OF YEAR 840, ,874 NET ASSETS, END OF YEAR $ 852,042 $ 840,049 The accompanying notes are an integral part of these financial statements

26 STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2011 (With Comparative Data for the Year Ended June 30, 2010) 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 SelViee Fund $1,238,042 $1,226,097 (765,811 ) (955,199) (490,417) (615,544) (18,186) (344,646) 65,776 67, , , , ,829 (17,554) (10,288) (17,554) (10,288) 362 1, , ,830 (68,312) 683, ,940 ~ 938,458 $ 683,628 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 $ (345,024) $ (385,065) 39,269 34,073 67,301 60,681 5,392 (11,720) 6,714 (7,175) 185,698 (133) 24,390 (38,519) (1,926) 3,212 $ (18,186) $ (344,646) $ 67,301 $ 60,681 The accompanying notes are an integral part of these financial statements

27 STATEMENT OF NET ASSETS - FIDUCIARY FUNDS JUNE 30, 2011 ASSETS Private- Purpose Trust Student Activities Agency Fund Escheat Funds Cash Due from other funds $ 19,429 $ 136,934 $ 412 TOTAL ASSETS $ 19,429 $ 136,934 $ 412 LIABILITIES AND NET ASSETS LIABILITIES: Due to escheat funds $ 355 $ 57 Other current liabilties , ,934 NET ASSETS: Reserved for trust 19,027 $ TOTAL LIABILITIES AND NET ASSETS $ 19,429 $ 136,934 $ 412 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, 2011 (With Comparative Data for the Year Ended June 30, 2010) ADDITIONS 2011 Private-Purpose Trust 2010 Local contributions $ 10,296 $ TOTAL ADDITIONS 10,296 11,118 11,118 DEDUCTIONS Fees paid and scholarships awarded 12,650 TOTAL DEDUCTIONS 12,650 CHANGE IN NET ASSETS (2,354) NET ASSETS, BEGINNING OF YEAR 21,381 NET ASSETS, END OF YEAR $ 19,027 $ 23,489 23,489 (12,371) 33,752 21,381 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-selting 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 mayor 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 belter identify the relationship between the entity-wide statements and the statements of governmental funds

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 eldent 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