PENN-TRAFFORD SCHOOL DISTRICT

Transcription

1 HARRISON CITY, PENNSYLVANIA FINANCIAL STATEMENTS YEAR ENDED

2 CONTENTS Other Supplemental Information Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds Required Supplemental Information Budgetary Comparison Schedule - General Fund Schedule of Funding Progress for Postemployment Benefits Other Than Pensions Schedule of District's Proportionate Share of the Net Pension Liability - Last 1 O Years Schedule of District's Contributions- Last 10 years Notes to the Financial Statements Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Net Position - Proprietary Fund Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund Statement of Cash Flows - Proprietary Fund Statement of Fiduciary Net Position - Fiduciary Funds Government-wide Financial Statements Statement of Net Position Statement of Activities Basic Financial Statements Management's Discussion and Analysis Independent Auditor's Report YEAR ENDED

3 Members of the Board Penn-Trafford School District Harrison City, Pennsylvania Report on the Financial Statements Zelenkofske Axelrod LLC Independent Auditor's Report We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the PENN-TRAFFORD SCHOOL DISTRICT as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the 's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the as of June 30, 2017, and the respective changes in the financial position and cash flows, where applicable, thereof for the year then ended in accordance with the accounting principles generally accepted in the United States of America. Harrisburg P/1iladelp/1ia Pittsburgh Gree11sb11rg 830 Sir Thomas Court, Suite /00 Harrisburg, PA 17/09 7/7 (,C / 0"1/1 r;- 7/7 (,</ 0.,/1., 2370 l'ork Rood. S1111e A-5 Jam1so11, Pa / ( 01(1??77,:,.,.. -, I ( ,1/l? 3800 McK11iglt1 E. Dri, e, Suire 3805 P111sb11rgl1. PA /5237,,.,,,~7 7 ln~ t:',.....,,,,., a~'1 '7IIU 210 Toi/gall! H,/1 Road Greensburg, PA /560/ /.215 J Fa:c 72./ 83./ 5969

4 Members of the Board Penn-Trafford School District Page 2 Adoption of GASB Statements Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the s basic financial statements. The combining nonmajor fund financial statements on pages 59 through 60 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Other Supplementary Information Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of funding progress for postemployment benefits other than pensions, budgetary comparison, schedule of district's proportionate share of the net pension liability- last 10 years, and schedule of district's contributions - last 10 years information on pages 4 through 16 and 54 through 57 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. As described in Note 1 to the financial statements, in 2017 the adopted new guidance, Governmental Accounting Standards Board Statement No. 73, "Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68", GASB Statement No. 74, "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans", GASB Statement No. 76, "Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans", GASB Statement No. 79, "Certain External Investment Pools and Pool Participants", GASB Statement No. 80, "Blending Requirements for Certain Component Units - an Amendment of GASB Statement No. 14", GASB Statement No. 81, "Irrevocable Split-Interest Agreements", and GASB Statement No. 82, "Pension Issues - an Amendment of GASB Statements No. 67, No. 68, and No. 73". Our opinion is not modified with respect to these matters. Zelenkofske Axelrod LLC

5 Members of the Board Penn-Trafford School District Page3 February 28, 2018 Pittsburgh, Pennsylvania ~-~ Alllft' t.-j.e ZELENKOFSKE AXELROD LLC Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 28, 2018 on our consideration of the s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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. The combining nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Zelenkofske Axelrod LLC p

6 MANAGEMENT'S DISCUSSION AND ANALYSIS Page4, hereafter referred to as the "SCHOOL DISTRICr, is pleased to present its financial statements developed in conformance with Statement of Governmental Accounting Standard Statement No. 34, entitled "Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments (hereafter "GASB 34"), and related standards. GASB 34 enhances information provided to the users of its financial statements. This section of the financial reporting package presents our discussion and analysis of the SCHOOL DISTRICT's financial performance during the year that ended on June 30, Please read this Management Discussion and Analysis in conjunction with the SCHOOL DISTRICT'S financial statements that follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS This report consists of the following four parts: Management's discussion and analysis (this section) Basic financial statements (including notes} Required supplementary information Other supplementary information Management's discussion and analysis is a guide to reading the financial statements and provides related information to help the reader to better understand the SCHOOL DISTRICT's government. The basic financial statements include notes that provide additional information essential to a full understanding of the financial data provided in the government-wide and fund financial statements. Required supplementary information is provided on the SCHOOL DISTRICT's budget to actual figures for the general fund, the SCHOOL DISTRICT's retirement plan, and the SCHOOL DISTRICT's postemployment benefits other than pensions. The basic financial statements present two different views of the SCHOOL DISTRICT. Government-wide financial statements, the first two statements, provide information about the SCHOOL DISTRICTS overall financial status. Fund financial statements, the remaining statements, focus on individual parts of the SCHOOL DISTRICT's government. They provide more detail on operations than the government-wide statements. There are three types of fund financial statements: o o o Governmental funds statements show how services such as instruction, support services, and non-instructional services are financed in the short term, as well as what remains for future spending. Proprietary fund statements offer short-term and long-term financial information about the activities the SCHOOL DISTRICT operates like a business, like the Food Service Fund. Fiduciary funds statements reflect activities involving resources that are held by the SCHOOL DISTRICT as a trustee or agent for the benefit of others. Fiduciary funds are not reflected in the government-wide and government fund statements because the resources cannot be used to support the SCHOOL DISTRICT'S programs.

7 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE Pages Table A-1: Organization of the School District's annual financial report Required Components of the Annual Financial Statements I I I Management's Basic Required Discussion and Financial Supplementary Analysis Statements Information I I Fund I Government-wide Financial Notes to I Financial Statements Financial Statements Statements. s_um_m_a_ry.l I... o_e_ta_n,

8 MANAGEMENT'S DISCUSSION AND ANALYSIS Page 6 Table A-2 summarizes the major features of the SCHOOL DISTRICT's financial statements, including the area of the SCHOOL DISTRICT's activities they cover and the types of information they contain. Table A-2: Major features of the government-wide and fund financial statements Fund Financial Statements Government-wide Statements Governmental Proprietary Fiduciary Entire entity (except The day-to-day The activities of the Instances in which the Scope fiduciary funds) operating activities SCHOOL SCHOOL DISTRICT of the SCHOOL DISTRICT, such as administers resources DISTRICT, such as the Food Service on behalf of others instruction and Fund support services. -Statement of Net -Balance Sheet -Statement of Net -Statement of Required Position Position Fiduciary Net Position Financial -Statement of -Statement of Statements -Statement of Revenues, Revenues, -Statement of Activities Expenditures and Expenses and Changes in Fiduciary Changes in Fund Changes in Net Net Position Balances Position -Statement of Cash Flows Accounting basis Accrual Modified Accrual Accrual accounting Accrual accounting and measurement and economic and economic focus resources focus resources focus All assets and Current assets and All assets and All assets and liabilities, short-term liabilities that come liabilities, short-term liabilities, short-term Type of asset and long-term due during the year and long-term and long-term and liability information or soon thereafter; no capital assets or long-term liabilities included All revenues and Revenue for which All revenues and All additions and expenses during cash is received expenses during deductions during the Type of inflow year, regardless of during the year or year, regardless of year, regardless of and outflow when cash is soon thereafter; when cash is when cash is received information received or paid expenditures when received or paid or paid goods or services have been received and the related liability is due and payable

9 MANAGEMENT'S DISCUSSION AND ANALYSIS Page 7 The remainder of the overview explains the structure and contents of the government-wide and fund financial statements. Government-wide financial statements Government-wide financial statements report information about the SCHOOL DISTRICT as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all the SCHOOL DISTRICT's assets and liabilities, except fiduciary funds, with the differeace between the two reported as Net Position. This statement serves a purpose similar to that of the balance sheet of a private-sector business. The Statement of Activities focuses on how the SCHOOL DISTRICT's Net Position changed during the year. Because it separates program revenue (revenue generated by specific programs through charges for services, grants and contributions) from general revenue (revenue provided by taxes and other sources not tied to a particular program), it shows to what extent each program has to rely on local taxes for funding. All changes to Net Position are reported using the economic resources measurement focus and the accrual basis of accounting, which requires that revenues be reported when they are earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flow. Net Position is one way to measure the SCHOOL DISTRICT's financial position. Over time, increases or decreases in the SCHOOL DISTRICT's Net Position are one indicator of whether the SCHOOL DISTRICT's financial position is improving or deteriorating. However, other non-financial factors such as changes in the SCHOOL DISTRICT's property tax base and general economic conditions must be considered to assess the overall position of the SCHOOL DISTRICT. There are two categories of activities for the primary government: Governmental activities include the SCHOOL DISTRICT's basic services such as instruction, support services, and non-instructional services. Business-type activities such as the Cafeteria Fund charge a fee to customers to help cover the costs of services. Net Position of the governmental activities differ from the governmental fund balances because governmental fund level statements only report transactions using or providing current financial resources. Also, capital assets in the fund level statements are reported as expenditures when financial resources (money) are expended to purchase or build assets. Likewise, the financial resources that may have been borrowed are considered revenue when they are received. The principal and interest payments are both considered revenue when they are received. The principal and interest payments are both considered expenditures when paid. Depreciation is not calculated as it does not provide or reduce current financial resources. Finally, capital assets and long-term debt do not affect fund balances.

10 MANAGEMENT'S DISCUSSION AND ANALYSIS Page 8 Government-wide statements are reported on the accrual basis of accounting that involves the following steps to format the Statement of Net Position: Capitalize current outlays for capital assets Report long-term debt as a liability Depreciate capital assets and allocate the depreciation to the proper program/activities Allocate net position balances as follows: o o o Net Investment in Capital Assets Restricted Net Position are those with constraints placed on the use by external sources (creditors, granters, contributors, or laws or regulations of governments) or imposed by law through constitutional provisions or enabling legislation Unrestricted Net Position is Net Position that does not meet any of the above restrictions Fund Financial Statements Fund financial statements provide more detailed information on the SCHOOL DISTRICT's most significant funds, not the SCHOOL DISTRICT as a whole. Funds are accounting devices, i.e., a group of related accounts, the SCHOOL DISTRICT uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by state law. Other funds are established to control and manage resources designated for specific purposes. Fund financial statements are reported using the modified accrual basis of accounting. The SCHOOL DISTRICT has three kinds of funds: Governmental funds include most of the SCHOOL DISTRICT'S basic services and focus on: (1) the flow in and out of cash and other financial assets that can readily be converted into cash, and: (2) the balances left at year-end that are available for spending. These funds are reported using the modified accrual basis of accounting. The relationship between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is described in reconciliations that follow the governmental fund financial statements. The SCHOOL DISTRICT adopts an annual budget for the general fund, as required by state law. A budgetary comparison of the SCHOOL DISTRICT's general fund is presented as required supplementary information. Proprietary Funds report business-type programs and activities that charge fees designed to recover the cost of providing services. The proprietary funds report using the accrual basis of accounting. Fiduciary Funds are funds for which the SCHOOL DISTRICT is the trustee or fiduciary. These include certain agency funds, or clearing accounts for assets held by the SCHOOL DISTRICT in its role as custodian until the funds are allocated to the private parties, organizations or government agencies to which they belong. The SCHOOL DISTRICT is responsible to ensure the assets reported in these funds are used for their intended purposes. This fiduciary activity is reported in a separate statement of fiduciary Net Position. These funds are excluded from the SCHOOL DISTRICT's government-wide financial statements because the SCHOOL DISTRICT cannot use these assets to finance its operations. The fiduciary funds are reported using the accrual basis of accounting.

11 MANAGEMENT'S DISCUSSION AND ANALYSIS Page9 GOVERNMENT-WIDE FINANCIAL STATEMENTS Net Position The SCHOOL DISTRJCT's total assets were $82,902,078 at June 30, Of this amount, $63,783,505 was capital assets. GASB No. 34 requires that all capital assets, including infrastructure, be valued and reported within the governmental activities column of the government-wide financial statements, but allow infrastructure to be added over several years. The SCHOOL DISTRICT adopted the provisions of GASB 34 related to infrastructure on the retroactive basis. Condensed Statement of Net Position Governmental Business-Type Activities Activities Totals Capital Assets S 63, S 59,633,607 $ 9,811 $ 17,199 S 63,783,505 S 59,650,806 Other Assets 19,091,335 16,218,624 27,238 89,235 19,118,573 16,307,859 Total Assets S 82,865,029 S 75, s 37,049 s 106,434 S 82,902,078 S 75,958,665 Deferred Outnows of Resources s 14,965,252 s 9,545,589 s - s $ 14,965,252 s 9,545,589 Current liabilities 10,550,663 9,666, , ,352 10,787,253 9,958,711 Noncurrent Liabilities 128,585, ,206, ,585, ,206,029 Total liabilities S139,135,872 S 120,872,388 s 236,590 s 292,352 S 139,372,462 S121,164,740 Deferred Inflows of Resources s 550,011 s 2,822,002 s - s s 550,011 s 2,822,002 Net Investment in Capital Assets 28,512,496 29,158,066 9,811 17,199 28,522,307 29,175,265 Restricted Net Position 4,550,497 4,161,667 4,550,497 4,161,667 Unrestricted Net Position (74, ) (71, ) (209,352) ( ) ( ) (71, ) Total Net Position S (41,855,602) S (38,296,570) S (199,541) S (185,918) S (42, ) S (38, )

12 MANAGEMENT'S DISCUSSION AND ANALYSIS Page 10 Change in Net Position The following statement of activities represents the change in Net Position for the years ended June 30, 2017 and It shows revenues by source and expenses by function for governmental activities, business-type activities and the government as a whole. Condensed Statement of Activities Governmental Governmental Business-type Business-type Activities Activities Activities Activities Total Total Program Revenues: Charges for Services $ $ $ 901,826 $ 762,901 $ 901,826 $ 762,901 Grants and Contributions 11,940,658 9,523, , ,141 12,344,974 9,975,792 General Revenues: Property Taxes 23,485,275 22,494,141 23,485,275 22,494,141 Other Taxes 4,608,491 4,499,196 4,608,491 4,499,196 Unrestricted grants 15,150,045 14,960,266 15,150,045 14,960,266 Investment Earnings 68,644 31, ,725 31,164 Sale of Fixed Assets 415, ,334 Miscellaneous Revenue 14,186 24,721 14,186 24,721 Total Revenues 55,682,633 51,533,071 1,306,223 1,215,110 56,988,856 52,748,181 Expenses: Instruction 33,655,508 31,631,719 33,655,508 31,631,719 Support Services 18,055,901 17,363,377 1,319,846 1,284,988 19,375,747 18,648,365 Noninstructional Services 2,020,917 1,903,962 2,020,917 1,903,962 Pension 4,721, ,856 4,721, Interest on Long-Term Debt 788, , , ,281 Total Expenses 59,241,665 52,557,195 1,319,846 1,284,988 60,561,511 53,842,183 Change in Net Position (3,559,032) (1,024,124) (13,623) (69,878) (3,572,655) (1,094,002) Net Position - Beginning (38,296,570) (37,272,446) (185,918) (116,040) (38,482,488) (37,388,486) Net Position- Ending $ {41,855,602) $ {38,296,570) $ (199,541) $ (185,918) $ (42,055,143) $ {38,482,488)

13 MANAGEMENT DISCUSSION AND ANALYSIS Page 11 Net Program Expenses Net program expenses indicate the amount of support required from taxes and other general revenues for a program of the government. In 2017, taxes brought in $28,093,766. Net Cost of Governmental and Business-type Activities Total Cost Total Cost Net Cost Net Cost of Services of Services of Services of Services Program: Instructional $ 33,655,508 $ 31,631,719 $ 26,138,345 $ 24,768,738 Support Services 18,055,901 17,363,377 15,348,849 14,842,726 Non-instructional services 2,020,917 1,903,962 1,857,929 1,763,943 Pension 4,721, ,856 4,721, ,856 Interest on Long-Term Debt 788, ,281 (765,201) 796,281 Food Service 1,319,846 1,284, ,946 Total $60,561,511 $53,842,183 $ 47,314,711 $ 43,103,490 The SCHOOL DISTRICT relied on property taxes and other general revenues to fund 78% of its governmental and business-type activities in See page 14 for a discussion on the increases/decreases in revenues and expenditures.

14 Capital Assets MANAGEMENT DISCUSSION AND ANALYSIS Page 12 The SCHOOL DISTRICT's investment in capital assets in its Governmental Activities at June 30, 2017, net of accumulated depreciation, was $63,773,694. Capital assets consist primarily of land, buildings, and equipment. The following is a summary of capital assets at June 30, 2017: Beginning Ending GOVERNMENTAL ACTIVITIES Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ 54,814 $ $ $ 54,814 Construction in Progress 28,375,375 6,216,389 (33,587,761) 1,004,003 Total Capital Assets, Not Being Depreciated 28,430,189 6,216,389 (33,587,761) 1,058,817 Capital Assets, Being Depreciated: Land Improvements 3,027,025 3,027,025 Building and Building Improvements 59,967,828 33,605,081 93,572,909 Furniture, Vehicles, and Equipment 8,569, ,211 (1,061,410) 8,454,617 Total Capital Assets, Being Depreciated 71,564,669 34,551,292 (1,061,410) 105,054,551 Less Accumulated Depreciation For. Land Improvements (2,253,845) (48,082) (2,301,927) Building and Building Equipment (31,344,421) (2,040,417) (33,384,838} Furniture, Vehicles, and Equipment (6,762,985) (643,598) 753,674 (6,652,909) Total Accumulated Depreciation (40,361,251) (2,732,097) 753,674 (42,339,674) Total Capital Assets, Being Depreciated, Net 31,203,418 31,819,195 (307,736) 62,714,877 Governmental Activities Capital Assets, Net $ 59,633,607 $ 38,035,584 $ (33,895,497) $ 63,773,694 Beginning Ending BUSINESS TYPE ACTIVITIES Balance Increases Decreases Balance Capital Assets, Being Depreciated: Furniture, Vehicles, and Equipment $ 365,531 $ $ $ 365,531 Total Capital Assets, Being Depreciated 365, ,531 Less Accumulated Depreciation (348,332) (7,388) (355,720) Total Capital Assets, Being Depreciated, Net 17,199 (7,388) 9,811 Business Type Activities Capital Assets, Net $ 17,199 $ (7,388) $ $ 9,811 Detailed information about the SCHOOL DISTRICT's capital assets can be found in Note 4, Notes to the Financial Statements.

15 Debt Administration MANAGEMENT DISCUSSION AND ANALYSIS Page 13 At June 30, 2017, the SCHOOL DISTRICT had $131,353,776 of long-term liabilities outstanding. Longterm liabilities increased 15.5% from the previous year. The following is a summary of long-term liabilities for the 2017 year: Governmental Activities: Bonds and Notes payable: General obligation bonds Total bonds and notes payable Other Liabilities: Other poslemployment benefits Compensated absences Lease Payable Pension Total Other Liabilities Governmental Activities Long-Term Liabilities Amounts Beginning Ending Due Within Balance Additions Reductions Balance One Year $ 29,945,000 $ 6,415,000 $ (1,875,000) $ 34,485,000 $ 2,000,000 29,945,000 6,415,000 (1,875,000) 34,485,000 2,000,000 3,007, ,348 3,356,498 1,409,197 66,418 1,475, , , ,114 (531,543) 703, ,008 78,920,493 12,412,739 91,333,232 83,776,700 13,623,619 (531,543) 96,868, ,961 $ 113,721,700 $ 20,038,619 $ (2,406,543) $ 131,353,776 $ 2,858,961 Detailed information on the SCHOOL DISTRICT'S debt can be found in Note 6, Notes to the financial statements. GOVERNMENTAL FUNDS The SCHOOL DISTRICT uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. The focus of governmental funds is to provide information on inflows, outflows, and balances of spendable resources. Such information is useful in assessing the SCHOOL DISTRICT's financing requirements. In particular, unreserved/undesignated fund balance may serve as a useful measure of the SCHOOL DISTRICT's net resources available for spending at the end of the year. The SCHOOL DISTRICT's governmental funds include the general fund, the capital projects fund, the capital projects (construction) fund, the building improvement fund, and the capital reserve fund. The general fund is the chief operating fund for the SCHOOL DISTRICT. Capital reserve fund funds are restricted to specific legislated use.

16 MANAGEMENT DISCUSSION AND ANALYSIS GOVERNMENTAL FUND REVENUES Page 14 Governmental fund revenues by source at June 30, 2017 and 2016 were as follows: Revenues: Local Sources $ 28,822,563 State Sources 26,079,701 Federal Sources 386,921 $ 27,629,184 23,405, Total revenues $55,289, 185 $51,511,584 There are several factors relating to increases/decreases in revenues from 2016 to Local revenues increased due to the increased Real Estate Tax millage rate. State revenues increased due to an increase in state subsidy revenue. GOVERNMENTAL FUND EXPENDITURES Governmental fund expenditures by function at June 30, 2017 and 2016 were as follows: Expenditures: Instruction $ 32,019,133 $ 30,766,506 Support Services 16,896,361 16,744,691 Non-instructional Services 1,892,776 1,802,814 Capital Outlay 7,179,920 13,640,229 Debt Service 2,681,169 2,683,922 Total expenditures $60,669,359 $65,638,162 Instruction expenditures increased as a result of increased salary and benefit expenditures. Capital Outlay expenditures decreased as a result of the Penn Trafford High School renovation project being completed.

17 MANAGEMENT DISCUSSION AND ANALYSIS Page 15 GOVERNMENTAL FUND BALANCES AND PROPRIETARY FUND NET POSITION Ending fund balances for major governmental funds and Net Position for proprietary funds at June 30, 2017 and 2016 were as follows: Governmental Governmental Proprietary Proprietary Fund Funds Funds Funds Funds General Fund $5,910,554 $4,054,110 $ $ Capital Projects Fund 4,533,663 Nonmajor Funds 16,834 4,161,667 Food Service Fund (199,541) (185,918) Total $10,461,051 $8,215,777 $!199,541) $ {185,918) The reasons for the changes in governmental fund balances are explained above in the governmental funds revenues and expenditures sections.

18 MANAGEMENT DISCUSSION AND ANALYSIS BUDGETARY HIGHLIGHTS Page 16 The SCHOOL DISTRICT adopts an annual appropriated budget for its general fund. Detailed information about the SCHOOL DISTRICT's 2017 general fund budget can be found in Required Supplemental Information. Overall the SCHOOL DISTRICT had a positive variance of $2,389,048 for actual results in comparison to budget. Numerous factors went in to these results. Revenue had a positive variance of $1,941,856 which resulted from more state subsidies revenue being received than was budgeted. Expenditures had a negative variance of $723,458 for actual results in comparison to budget, largely resulting from salary expenditures that were higher than the budget. ECONOMIC CONDITIONS AND NEXT YEAR'S BUDGET Current difficult economic conditions have affected the SCHOOL DISTRICT's financial position due largely in part by increased pension and healthcare costs. SCHOOL DISTRICT management has worked on lowering expenses and increasing revenues other than taxes. CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with a general overview of the SCHOOL DISTRICT'S finances and to demonstrate the SCHOOL DISTRICT's accountability. Questions concerning this financial information or requests for additional information should be directed to: Penn-Trafford School District 1006 Harrison City/ Export Road PO Box 530 Harrison City, PA Phone:

19 STATEMENT OF NET POSITION Page 17 Prima01 Government Governmental Business-type Activities Activities Total Assets Cash and Cash Equivalents $ 16,181,867 $ 1,138 $ 16,183,005 Accounts Receivable Taxes Receivable (Net) 925, ,821 Intergovernmental Receivable 1,836,136 1,836,136 Unamortized Bond Insurance Costs 11,325 11,325 Bond Discount, Net 136, ,186 Inventory 25,669 25,669 Capital Assets: Non-depreciable 1,058,817 1,058,817 Depreciable (Net) ,724,688 Total Assets , ,902,078 Deferred Outflows of Resources Deferred Contributions Subsequent to the Measurement Date 7,248,075 7,248,075 Deferred Difference Between Actual and Expected Investment Earnings 4,235,962 4,235,962 Deferred Changes In Assumptions 2,472,699 2,472,699 Deferred Changes In Proportion 1, , Total Deferred Outflows of Resources ,965,252 Liabilities Current Liabilities: Accounts Payable 1,734,819 1,734,819 Accrued Expenses 5,826, ,279 6, Accrued Interest Payable on Debt 129, ,884 Unearned Revenues 39,311 39,311 Current Portions of Long-Term Liabilities: Bonds and Notes Payable 2,000,000 2,000,000 Capital Lease Payable 372, ,008 Compensated Absences 486, ,953 Non-Current Portions of Long-Term Liabilities: Bonds and Notes Payable 32,485,000 32,485,000 Bond Premium 90,394 90,394 Capital Lease Payable 331, ,423 Other Postemployment Benefits 3,356,498 3,356,498 Compensated Absences 988, ,662 Net Pension Liability 91,333,232 91,333,232 Total Llabllilles 139,135, , , Deferred lnnows of Resources Deferred Difference Between Actual and Experience ,011 Total Deferred Inflows of Resources ,011 Net Position (Deficit} Nel Investment In Capital Assets 28,512,496 9,811 28,522,307 Restricted for Capital Improvement 4,550,497 4,550,497 Unrestricted (74,918,595) (209,352) (75,127,947) Total Net Position (Deficit) $ (41,855,602) $ (199,541) $ (42, ) The accompanying notes are an integral part of the financial statements.

20 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Page 18 Net (Expense) Revenue and P[Qgram Revenues Changes in Net Position Prima!I Government Charges Operating Grants Capital Grants Governmental Business-Type Functions/Programs Expenses for Services and Contributions and Contributions Activities Activities Total Primary Government Governmental Activities: Instruction s 33,655,508 $ $ 7,517,163 s - s (26,138,345} S. s (26,138,345} Support Services 18,055,901 2,707,052 (15,348,849) (15,348,849) Noninstruclional SelVices 2,020, ,988 (1,857,929) (1,857,929) Pension 4, (4,721,085) (4, ) Interest on Long-Term Debt ,553, , Total Governmental Activities 59,241,665 1D D3 1,553,455 (47,301,007} (47,301,007) Business-Type Activities: Food Service 1,319, , (13,704) (13,704) Total Business-Type Activities 1, (13,704) (13,704) Total Primary Government $ 60,561,511 s 901,826 $ 10,791,519 s 1, (47,301,007) (13,704) (47,314,711) General Revenues: Taxes: Property 23,485,275 23,485,275 Olher laxes levied 4,608,491 4,608,491 Grants, subsidies, and contributions not restricted 15,150,045 15,150,045 Interest Earnings 68, ,725 Sale of Fb:ed Assets 415, ,334 Miscellaneous Total General Revenues and Transfers 43, ,742,056 Change in Net Position (3,559,032) (13,623) (3,572,655) Net Position - Beginning (38,296,570) (185,918) (38,482,488) Net Position - Ending $ (41,855,602) S (199,541) S (42, ) The accompanying notes are an integral part of the financial statements.

21 BALANCE SHEET GOVERNMENTAL FUNDS Page 19 Assets Total Capital Projects other Nonmajor Governmental General Fund Fund Funds Funds Cash and cash equivalents $ 10,439,540 $ 5,725,493 $ 16,834 $ 16,181,867 Receivables: Taxes 925, ,821 Intergovernmental 2,086 2,086 State Revenue 1,834,050 1,834,050 Total assets $ 13,201,497 $ 5,725,493 $ 16,834 $ 18,943,824 Liabilities Accounts payable $ 542,989 $ 1,191,830 $ - $ 1,734,819 Accrued liabilities 5, ,826,999 Total liabilities 6,369,988 1,191,830 7,561,818 Deferred Inflows of Resources Unavailable revenue - property taxes 920, ,955 Total deferred inflows of resources 920, ,955 Fund Balances Committed 2,000,000 2,000,000 Restricted 4,533,663 16,834 4,550,497 Unassigned 3,910,554 3,910,554 Total fund balances 5,910,554 4,533,663 16,834 10,461,051 Total liabilities and fund balances $ 13,201,497 $ 5,725,493 $ 16,834 $ 18,943,824 The accompanying notes are an integral part of the financial statements.

22 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION Page20 Amounts reported for governmental activities in the Statement of Net Position are different because: Total fund balances of governmental funds Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The cost of the assets is $106,113,368 and the accumulated depreciation is $42,339,674. Property taxes receivable will be collected, but are not available soon enough to pay for current year's expenditures, and therefore are deferred in the Governmental Funds. $ 10,461,051 63,773, ,955 Long-term liabilities such as Debt, Accrued Interest, and Compensated Absences are not due and payable in the current period and accordingly are not reported as fund liabilities. Both current and long-term liabilities are reported in the Statement of Net Position. Long-term Bonds and Notes Payable Bond Discount Bond Premium Bond Insurance Costs Accrued Interest Capital Lease Payable Other Postemployment Benefits Net Pension Liability Deferred Outflows Deferred Inflows $ (34,485,000} 136,186 (90,394} 11,325 (129,884) (703,431) (3,356,498} (91,333,232) 14,965,252 (550,011) Compensated absences (1,475,615) (117,011,302) Total net position of governmental activities $ (41,855,602) The accompanying notes are an integral part of the financial statements.

23 Page 21 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED Total Capital Projects Other Nonmajor Governmental General Fund Fund Funds Funds Revenues Local revenue sources $ 28,800,127 $ 3,081 $ 19,355 $ 28,822,563 State revenue sources 26,079,701 26,079,701 Federal revenue sources 386, ,921 Total revenues 55,266,749 3,081 19,355 55,289,185 Expenditures Current operating: Instruction 32,019,133 32,019,133 Support Services 16,896,361 16,896,361 Noninstructional services 1,892,776 1,892,776 Capital outlay 1,091,516 1,884,418 4,203,986 7,179,920 Debt service Principal 1,875,000 1,875,000 Interest 806, ,169 Total Expenditures 54,580,955 1,884,418 4,203,986 60,669,359 Excess (deficiency) of revenues over expenditures 685,794 (1,881,337) (4,184,631) (5,380,174) Other financing sources (uses) Sale of Fixed Assets 415, ,334 Proceeds from Capital Leases 795, ,114 Bond Proceeds 6,415,000 6,415,000 Transfers in 82 39,880 39,962 Transfers out (39,880) {82) (39,962) Total other financing sources (uses) 1,170,650 6,415,000 39,798 7,625,448 Net change in fund balance 1, ,533,663 (4. 144,833) 2, Fund balance, beginning of year 4,054,110 4,161,667 8,215,777 Fund balance, end of year $ 5,910,554 $ 4,533,663 $ 16,834 $ 10,461,051 The accompanying notes are an integral part of the financial statements.

24 Page 22 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, ANO CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVJTIES FOR THE YEAR ENDED Amounts reported for governmental activities in the Statement of Activities are different because: Net Change in fund balances - total governmental funds $ 2,245,274 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over the estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded net book value of assets disposed and depreciation expense in the current period: Capital outlays Net book value of assets disposed Depreciation Net change in capital assets 7,179,920 (307,736) (2,732,097) 4,140,087 4,140,087 Payments of long-tenn debt and certain expenditures of debt issuance are expensed when paid in the Governmental Funds, but are amortized or recorded as a reduction of long term liabilities in the Statement of Net Position: Issuance of Bond Proceeds Debt principal repayments Capital lease additions Amortization of bond issue costs Change in accrued interest Amortization of bond discount Amortization of bond premium Capital lease payments (6,415,000) 1,875,000 (795,114) (263) 4,477 (7,715) 21, ,543 (4,785,657) Real estate taxes reported in the funds include receipt of prior year delinquent taxes and do not include revenue attributable to the current yeafs delinquent tax receivable. This amount is the net effect of these differences. Some expenses reported in the statement of activities do not require the use of current financial resources, and, therefore, are not reported as expenditures in governmental funds Change in net pension liability and deferred amounts Increase in compensated absences Increase in other postemployment benefits (4,721,085) (66,418) (349,348) (21,885) (5,136,851) Changes in net position of governmental activities $ (3,559,032) The accompanying notes are an integral part of the financial statements.

25 Assets Current assets: Cash and cash equivalents Other receivables Inventories Total current assets STATEMENT OF NET POSITION PROPRIETARY FUND Noncurrent assets: Capital assets (net of accumulated depreciation of $355,720) Total noncurrent assets Total assets Page 23 Business-Type Activities - Enterprise Fund Cafeteria Fund $ $ 1, ,669 27,238 9,811 9,811 Liabilities Current liabilities: Accounts payable Unearned revenues Total current liabilities Total liabilities $ 197,279 39, , ,590 Net Position Net investment in capital assets Unrestricted Total net position Total liabilities and net position $ 9,811 (209,352) (199,541) 37,049 The accompanying notes are an integral part of the financial statements.

26 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUND FOR THE YEAR ENDED Page 24 Business-Type Activities - Entererise Fund Cafeteria Fund Operating Revenues Receipts from providing services $ 901,826 Total operating revenues 901,826 Operating Expenses Food Service 1,319,846 Total operating expenses 1,319,846 Operating Loss (418,020) Nonoperating Revenues Interest income 81 Grants 404,316 Total Nonoperating Revenues 404,397 Change in Net Position (13,623) Net Position (Deficit) - Beginning of Year (185,918) Net Position (Deficit) - End of Year $ {199,541) The accompanying notes are an integral part of the financial statements.

27 Cash flows from operating activities Cash received from customers Cash paid to suppliers Net cash used in operating activities Cash flows from investing activities Interest income Net cash provided by investing activities Cash flows from non-capital financing activities Grant payments received STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED Net cash provided by non-capital financing activities $ Page ,029 (1,294,745) (386,716) , ,363 Net decrease in cash and cash equivalents Beginning cash and cash equivalents Ending cash and cash equivalents RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash used in operating activities Depreciation Donated commodities (Increase) in assets Inventories Increase (decrease) in liabilities Accounts payable Deferred revenue Net cash used in operating activities $ $ $ (29,272) 30,410 1,138 (418,020) 7,388 86,745 (7,067) (61,965) 6,203 (386,716) The accompanying notes are an integral part of the financial statements.

28 STATEMENT OF FIDUCIARY NET POSITION FIDCUCIARY FUNDS Page26 Agency Funds Assets Cash and Cash Equivalents Total Assets $ 224, ,078 Liabilities Liabilities Funds Held in Fiduciary Capacity Total Liabilities 224, ,078 Net Position Total Net Position $ The accompanying notes are an integral part of the financial statements.

29 NOTES TO THE FINANCIAL STATEMENTS Page 27 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Penn-Trafford School District (the "Districr) is located in Westmoreland County, Pennsylvania. The District's tax base consists of Penn Borough, Trafford Borough, and Penn Township. The District is governed by a board of nine school directors who are residents of the District and who are elected every two years, on a staggered basis, for a four-year term. The Board of Directors (the "Board") has the power and duty to establish, equip, furnish and maintain a sufficient number of elementary, secondary and other schools necessary to educate every person residing in such district between the ages of six and twenty-one years, who may attend. The Board is vested with all the necessary authority and power annually to levy and collect the necessary taxes required and granted by the legislature, in addition to the annual State appropriation, and are vested with all necessary power and authority to comply with and carry out any or all of the provisions of the Public School Code of The financial statements of the District have been prepared in accordance with U.S. generally accepted accounting principles 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. A.) Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B.) Reporting Entity: The District is the basic level of government, which has financial accountability and control over all activities related to the public school education in the District. The District receives funding from local, state and federal government sources and must comply with the requirements of these funding source entities. However, the District, is not included in any other governmental "reporting entity" as defined by the GASB pronouncements, since Board members are elected from the public and have decision making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. In addition, there are no component units as defined in GASB Statement No. 61, which are included in the District's reporting entity.

30 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 28 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C.) Joint Venture: The District is one of nine member school districts of the Central Westmoreland Career & Technology Center (CWCTC). CWCTC provides vocational-technical training and education to participating students of the member districts. CWCTC is controlled and governed by the Joint Board, which is composed of all the school board members of all of the member districts. Direct oversight of CWCTC operations is the responsibility of the Joint Committee, which consists of one representative from each participating school district. No member of the joint venture exercises specific control over the fiscal policies or operations of CWCTC. The District's share of annual operating and capital costs fluctuates based on the percentage of enrollment of each member district in the school. The District's financial obligation to CWCTC for the year ended June 30, 2017 has been reported in the District's General Fund. The District paid $440,304 as its share of costs to CWCTC. The District has no equity interest in CWCTC as of June 30, Complete financial statements for CWCTC can be obtained from the administrative offices at 240 Arona Road, New Stanton, Pennsylvania D.) Jointly Governed Organizations: The District is a participating member of the Westmoreland County Intermediate Unit (IU #7). Operations of the IU #7 are directed by a joint committee consisting of members from each participating district. No participating district appoints a majority of the joint committee. The board of directors of each participating district must approve IU #7's annual operating budget. The IU #7 is a self-sustaining organization that provides services for fees to participating districts. As such, the District has no ongoing financial interest or responsibility in the IU # 7. The JU #7 contracts with participating districts to supply special education services and to act as a conduit for certain federal programs. E.) Fund Accounting: The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts, which are comprised of each fund's assets, liabilities, fund balance, revenues and expenditures or expenses as appropriate. Resources are allocated to and accounted for in the individual funds based on the purpose for which they are to be spent. The District uses the following funds: GOVERNMENTAL FUNDS - These funds are used to account for most of the District's finances. The measurement focus is on determination of the financial position and changes in financial position (current financial resources) rather than on income determination.

31 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 29 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E.) Fund Accounting (Continued) General Fund - This is the general operating fund of the District. All activities of the District are accounted for through this major fund except for those required to be accounted for in another fund. Capital Reserve Fund - This fund is used to account for financial resources that are used for the acquisition or construction of major assets at the Board's discretion. Capital Projects {Construction) Fund - This fund is used to account for the acquisition or construction of major capital facilities (other than those financed by proprietary funds). Capital Projects Fund - This fund is a new fund in 2017 used to account for the acquisition or construction of various smaller capital projects for the district. PROPRIETARY FUND - This fund accounts for District activities that are similar to business operations in the private sector or where the reporting focus is on determining net income, financial position and changes in financial position (economic resources measurement focus). 1. Cafeteria Fund - This major fund is used to account for the District's food service operations that are financed and operated in a manner similar to private business enterprises. The Fund accounts for all revenues, food purchases, costs and expenses for the Food Service Program. FIDUCIARY FUNDS - These funds are used to account for assets held by the District as trustee or agent. 1. Agency Funds - This fund accounts for the receipts and disbursements of monies from student activity organizations. These organizations exist with the explicit approval and are subject to revocation by the District's governing body. This accounting reflects the District's agency relationship with the student activity organizations. F.) Basis of Presentation: Government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the District. As a general rule, the effect of interfund activity has been eliminated from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities which rely, to a significant extent, on fees and charges for support.

32 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 30 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F.) Basis of Presentation (Continued}: The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. Program revenues include charges to customers who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment. In addition, program revenues include grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund financial statements are also provided in the report for all of the governmental funds, proprietary funds and the fiduciary funds of the District. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Non-major funds are aggregated and presented in a single column. Fiduciary funds are separately reported by fund type. Proprietary funds distinguish 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 Enterprise Fund are food service charges. Operating expenses for the District's Enterprise Fund include food production costs, supplies, administrative costs and depreciation on capital assets. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. G.) Measurement Focus and Basis of Accounting: The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the Proprietary Fund and the Fiduciary Fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Net Position (total assets and deferred outflows of resources less total liabilities and deferred inflows of resources) is used as a practical measure of economic resources and the operating statement includes all transactions and events that increased or decreased Net Position. Depreciation is charged as expense against current operations and accumulated depreciation is reported on the Statement of Net Position. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. 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 sixty days of the end of the fiscal period. Revenue from federal, state, and other grants designated for payment of specific school district expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

33 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 31 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H.) Budgetary Data: In accordance with Act 1, the District elected not to increase the real estate tax rate above the index established by the Pennsylvania Department of Education and, therefore, follows the procedures outlined below in establishing the budgetary data reflected in the basic financial statements: 1. Prior to May 31, the Board submits a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them for the General Fund. 2. A public hearing is conducted to obtain taxpayer comments. 3. Prior to June 30, the budget is legally enacted through passage of a resolution. 4. The budget of the District is the approved spending plan of the District for the year and the Board is prohibited from obligating funds in excess of these amounts. The Board may, during any fiscal year, amend the budget by making additional appropriations or increase existing appropriations to meet emergencies. The funds shall be provided from unexpended balances in existing appropriations, from unappropriated revenues or from temporary loans. Legal budgetary control is maintained by the Board at the department level. Transfers between departments, whether between funds or within a fund or revisions that alter the total revenues and expenditures of any fund, must be approved by the Board. Budget information in the Budgetary Comparison Schedule is presented at or below the legal lever of budgetary control. Several functions had expenditures that exceeded the budgeted amount; however, these overages were absorbed by surpluses in other functions and fund balance. Total expenditures exceeded the appropriations for the year which is a violation of school code. 5. Budgetary data is included in the District's management information system and is employed as a management control device during the year. 6. The budget for the General Fund is adopted on the modified accrual basis of accounting, which is consistent with accounting principles generally accepted in the United States of America. 7. There were no supplemental budgetary appropriations or amendments proposed or approved during the year. Legal budgetary control is maintained by the District Board at the functional object level. Transfer between functional objects, whether between funds or within a fund or revisions that alters the total revenues and expenditures of any fund, must be approved by the District Board. Budget information in the Budgetary Comparison Schedule for the General Fund is presented at or below the legal level of budgetary control. Instruction expenditures exceeded the budgeted amount; however, these overages were absorbed by surpluses in other functions, revenues and fund balance. Included in the General Fund budget are program budgets as prescribed by the state and federal agencies funding the program. These budgets are approved on a program basis by the state or federal funding agency.

34 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 32 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I.) Cash and Cash Equivalents: Cash and cash equivalents in the basic financial statements include all highly liquid investments with an original maturity of three months or less. J.) Investments: Investments are carried at market value based on quoted market prices. K.) Receivables/Payables: Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as "interfund receivables/payables." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." L.) Accounts Receivable: Accounts receivable are recorded at the invoiced amount. The District determines the allowance for doubtful accounts based on historical write-off experience. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. M.) Inventories and Prepaid Items: Inventories of the Cafeteria Fund consisting of food and paper supplies are carried at cost, using the first-in, first-out method. Federal donated commodities are valued at their fair market value as determined by the U.S. Department of Agriculture at the date of donation. The inventories on hand at June 30, 2017, consist of the following: Food Paper Supplies Donated Commodities Total Inventory $ 8,315 1, $ Certain payments to vendors reflect costs applicable to future periods and are recorded as prepaid items in both government-wide and fund financial statements.

35 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 33 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) N.) Capital Assets: Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the District as assets with an initial, individual cost of more than $4,000 and an estimated useful life in excess of one year. Management has elected to include certain homogeneous asset categories with individual assets less than $4,000 as composite groups for financial reporting purposes. In addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market 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. Interest incurred during the construction phase of capital assets of businesstype activities is included as part of the capitalized value of the assets constructed. All reported capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings and Improvements Equipment and vehicles Library and textbooks Food service equipment ) Long-Term Obligations: In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred. 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, while discounts on debt issuances are reported as other financial uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. P.) Fund Balance: Fund Balance Classification: The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the School District is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows:

36 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 34 NOTE 1: NATURE OF ORGANIZATION ANO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) P.) Fund Balance: (Continued) Nonspendable: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. The School District did not have any nonspendable fund balance as of June 30, Restricted: This classification includes amounts for which constraints have been placed on the use of the resources either (a) externally imposed by creditors (such as through a debt covenant), grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. The School District had $4,533,663 of restricted fund balance in the Capital Projects Fund, $8 of restricted fund balance in the Capital Projects (Construction) Fund, and $16,826 of restricted fund balance in the Building Improvement Fund as of June 30, The funds were restricted for capital improvements. Committed: This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Directors. These amounts cannot be used for any other purpose unless the Board of Directors removes or changes the specified use by taking the same type of action (ordinance or resolution) that was employed when the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources have been specifically committed for use in satisfying those contractual requirements. The School District had $2,000,000 of committed fund balance in the General Fund as of June 30, The funds were committed for pension costs. Assigned: This classification includes amounts that are constrained by the School District's intent to be used for a specific purpose but are neither restricted nor committed. This intent can be expressed by the Board of Directors or through the Board of Directors delegating this responsibility to the School District's management. This classification also includes the remaining positive fund balance for all governmental funds except for the General Fund. The School District did not have any assigned resources as of June 30, Unassigned: This classification includes the residual fund balance for the General Fund. The Unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of Assigned fund balance amounts. The School District had $3,910,554 of unassigned fund balance in the General Fund as of June 30, The School District uses Restricted fund balances first, followed by Committed resources, and then Assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend Unassigned resources first to defer the use of these other classified funds.

37 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 35 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Q.) Deferred Outflows/Inflows of Resources The Statement of Net Position reports separate sections for deferred outflows and deferred inflows of resources. These separate financial statement elements represent a consumption or acquisition of net position that applies to a future period(s) and so will not be recognized as an outflow or inflow of resources (expense/revenue) until then. The District has two items that qualify for reporting in these categories: deferred outflows and inflows related to pensions, and unavailable tax revenue. Deferred outflows and inflows of resources related to pensions are described further in Note 9. Annual changes to the net pension liability resulting from differences between expected and actual experience with regard to economic and demographic factors and from changes of assumptions about future economic or demographic factors or other inputs are deferred and amortized over a closed period equal to the average of the expected service lives of all employees that are provided with pension benefits determined for the period during which the changes occurred. Differences between projected and actual earnings on pension plan investments are amortized over a closed five-year period. Unavailable tax revenue, which arises under the modified accrual basis of accounting, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenue from property taxes. This amount is deferred and recognized as an inflow of resources in the period that the amount becomes available. R.) Adoption of Governmental Accounting Standards Board Statements The School District adopted the provisions of GASB Statement No. 73, "Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provision of GASB Statements 67 and 6f!'. The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASS Statement No. 74, "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans". The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASB Statement No. 78, "Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans". The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASS Statement No. 79, "Certain External Investment Pools and Pool Participants". The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASB Statement No. 80, "Blending Requirements for Certain Component Units- an Amendment of GASB Statement No.14". The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASB Statement No. 81, "In-evocable Split Interest Agreements". The adoption of this Statement had no effect on previously reported amounts.

38 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 36 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) R.) Adoption of Governmental Accounting Standards Board Statements (Continued) The School District adopted the provisions of GASS Statement No. 82, "Pension Issuesan Amendment of GASB Statements No. 67, No. 68, and No. 73." The adoption of this Statement had no effect on previously reported amounts. S.) Pending Changes in Accounting Principles In June 2015, the GASS issued Statement No. 75, "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions". The School District is required to adopt Statement No. 75 for its fiscal year 2018 financial statements. In November 2016, the GASS issued Statement No. 83, "Certain Asset Retirement Obligations". The School District is required to adopt Statement No. 83 for its fiscal year 2019 financial statements. In January 2017, the GASS issued Statement No. 84, "Fiduciary Activities". The School District is required to adopt Statement No. 84 for its fiscal year 2020 financial statements. In March 2017, the GASB issued Statement No. 85, "Omnibus 2017'. The School District is required to adopt Statement No. 85 for its fiscal year 2018 financial statements. In May 2017, the GASS issued Statement No. 86, "Certain Debt Extinguishments." The School District is required to adopt Statement No. 86 for its fiscal year 2018 financial statements. In June 2017, the GASB issued Statement No. 87, "Leases." The School District is required to adopt Statement No. 87 for its fiscal year 2021 financial statements. The School District has not completed the various analysis required to estimate the financial statement impact of these new pronouncements. NOTE 2: CASH AND CASH EQUIVALENTS Under Section of the Public School Code of 1949, as amended, the District is permitted to invest funds in the following types of investments: Obligations of (a) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or (c) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision and (d) shares of an investment company registered under the Investment Company Act of 1940, provided that the instruments are those types of investments listed above, and the investment company is managed so as to maintain its shares at a constant net asset value and the investment company is rated in the highest category by a nationally recognized rating agency. Pursuant to Act 72 of the Pennsylvania State Legislature, a depository must pledge assets to secure state and municipal deposits. The pledged assets must at least be equal to the total amount of such assets required to secure all of the public deposits at the depository and may be on a pooled basis. Additionally, all such pledged assets must be delivered to a legal custodian.

39 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 37 NOTE 2: CASH AND CASH EQUIVALENTS (CONTINUED) Act 10 of 2016 broadened the scope of investment options for the District with safeguard measures to protect those investments. The Act added high quality money market instruments including repurchase agreements, commercial paper, negotiable certificates of deposit and bankers' acceptances to the authorized list of investments. The deposit and investment policy of the District adheres to State statutes and prudent business practice. There were no deposits or investment transactions during the year that were in violation of either the State statutes or the policy of the District. A portion of the District's cash and cash and equivalents are in the Pennsylvania School District Liquid Asset Fund ("PSDLAF"), and the Pennsylvania Local Government Investment Trust ("PLGIT"), which are funds very similar to mutual funds. PSDLAF and PLGIT operate in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares. A portion of the District's cash and investments are in the Pennsylvania School District Liquid Asset Fund ("PSDLAF"), which is a fund very similar to mutual funds. PSDLAF operates in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares. In accordance with the Government Accounting Standards Board, cash equivalents in PSDLAF are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and recording a constant amortization or accretion to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the investment. The net asset value per share for the purpose of calculating the price at which shares are issued and redeemed is determined by the Administrator each banking day. Such determination is made by subtracting the liabilities from the value of the assets and dividing the remainder by the number of shares outstanding. Although such requirement has been waived since 2005, all investments in PSDLAF's MAX Series by Settlers must be deposited for a minimum of 14 calendar days. No investment made in the MAX Series may be withdrawn by the Settlor making it during the first 14 calendar days after it is made without the incurrence of a penalty for such premature withdrawal. However, the 14 day minimum investment period does not apply to direct deposits of state aid payments into the MAX Series. In the event that a Settler withdraws a deposit within such initial 14 calendar day period, it will be subject to a penalty equal to the loss of 14 days interest on the amount so withdrawn. Such 14 day interest penalty shall be calculated on the basis of the dividend rates in effect for the MAX Series for the 14 day period immediately preceding the withdrawal date. Accordingly, the penalty will be equal to the dividend that would have been paid during the 14 days preceding the withdrawal date on the amount prematurely withdrawn. Such penalty will be payable even though the amount withdrawn has not been invested in the MAX Series for the full 14 day period preceding the withdrawal. However, as noted above, the 14 day minimum investment period has been waived since 2005 and would not be reinstituted without notice to the Fund's Settlers. As of June 30, 2017, there were no redemption fees or maximum transaction amounts, or any other requirements that serve to limit a participant's daily access to 100 percent of their account value. The PSDLAF collateralized CD Pool is collateralized in accordance with Act 72 and invests in Certificates of Deposit in the name of PSDLAF.

40 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 38 NOTE 2: CASH AND CASH EQUIVALENTS (CONTINUED) A portion of the District's cash is in the Pennsylvania Local Government Investment Trust Fund ("PLGIT9), which is a fund very similar to mutual funds. PLGIT operates in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares In accordance with the Government Accounting Standards Board, investments in PLGIT are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and recording a constant amortization or accretion to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the investment. The net asset value per share for the purpose of calculating the price at which shares are issued and redeemed is determined by the Administrator each banking day. Such determination is made by subtracting the liabilities from the value of the assets and dividing the remainder by the number of shares outstanding. As of June 30, 2017, there were no redemption fees or maximum transaction amounts, or any other requirements that serve to limit a participant's daily access to 100 percent of their account value. Investments with Pennsylvania State Treasury INVEST Program are secured by (1) Treasuries, Federal Agencies, or Repurchase Agreements; or (2) Certificates of Deposit collateralized at 102 percent or 120 percent. Interest Rate Risk - The School District's investment policy that limits investment maturities as a means of managing its exposure to fair value losses, arising from increasing interest rates, is the maturity of any investments in US Government or its agencies or instrumentalities may not exceed one year. The money market funds maintain an average maturity that is less than 60 days. Credit Risk - The School District has no formal investment policy for its operating and Fiduciary funds that addresses credit risk. As of June 30, 2017, the School District's operating investments were all maintained in Money Market funds with the Pennsylvania School District Liquid Asset Fund (PSDLAF). Custodial Credit Risk- Custodial credit risk is the risk that in the event of the failure of the counterparty, the School District will be able to recover the value of its investment or collateral securities that are in the possession of the outside party. As of June 30, 2017, the carrying amount of the School District's cash deposits was $16,407,083 and the bank balance was $16,578,788, of which $1,131,729 is covered by FDIC insurance. All of the $15,447,059 balance not covered by FDIC insurance was collateralized with securities held by the pledging financial institutions, or by their trust departments or agents, but not in the School District's name. Concentration of Credit Risk - The School District has no formal investment policy for operating investments pertaining to the concentration of credit risk.

41 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 39 NOTE 3: REAL ESTATE TAXES RECEIVABLE AND DEFERRED REVENUE The District has two independently elected tax collectors who are responsible for the collection of taxes. Assessed values are established by the Westmoreland County Board of Assessment. The District tax rate for the year ended June 30, 2017 was mills ($80.25 per $1,000 of assessed valuation) as levied by the Board of School Directors. Assessed value at June 30, 2017 was $305.5 million. The schedule for real estate taxes levied for each fiscal year is as follows: July 1 July 1 -August 31 September 1 - October 31 November 1 - January 14 January 15 Levy Date 2% Discount period Face payment period 10% Penalty period Turnover to delinquent collector The District, in accordance with U.S. generally accepted accounting principles, recognizes the delinquent and unpaid taxes receivable, reduced by an allowance for uncollectible taxes, as determined by management. A portion of the net amount estimated to be collectible, which was measurable and available within sixty days, was recognized as revenue and the balance deferred in the fund financial statements. The SCHOOL DISTRICT'S 2017 real estate taxes are based on assessed values established by the Westmoreland County Board of Assessment. Assessed values of real property are generally 100% of the market value as determined by the Westmoreland County Tax Assessment Office. The total 2017 real estate taxes levied was $24,522,679 based on a total SCHOOL DISTRICT assessed valuation of $305,578,560.

42 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 40 NOTE4: CAPITAL ASSETS Capital asset activity for the year ended June 30, 2017 was as follows: Beginning Ending GOVERNMENTAL ACTIVITIES Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ 54,814 $ $ - $ 54,814 Construction in Progress 28,375,375 6,216,389 (33,587,761) 1,004,003 Total Capital Assets, Not Being Depreciated 28,430,189 6,216,389 (33,587,761) 1,058,817 Capital Assets, Being Depreciated: Land Improvements 3,027,025 3,027,025 Building and Building Improvements 59,967,828 33,605,081 93,572,909 Furniture, Vehicles, and Equipment 8,569, ,211 (1,061,410) 8,454,617 Total Capital Assets, Being Depreciated 71,564,669 34,551,292 (1,061,410) 105,054,551 Less Accumulated Depreciation For: Land Improvements (2,253,845) (48,082) (2,301,927) Building and Building Improvements (31,344,421) (2,040,417) (33,384,838) Furniture, Vehicles, and Equipment (6,762,985) (643,598) 753,674 (6,652,909) Total Accumulated Depreciation (40,361,251) (2,732,097) 753,674 (42,339,674) Total Capital Assets, Being Depreciated, Net 31,203,418 31,819,195 (307,736) 62,714,877 Governmental Activities Capital Assets, Net $ 59,633,607 $ 38,035,584 $ (33,895,497) $ 63,773,694

43 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 41 NOTE4: CAPITAL ASSETS (CONTINUED) Beginning Ending BUSINESS TYPE ACTMTIES Balance Increases Decreases Balance Capital Assets, Being Depreciated: Furniture, Vehicles, and Equipment $ 365,531 $ - $ - $ 365,531 Total Capital Assets, Being Depreciated 365, ,531 Less Accumulated Depreciation (348,332) (7,388) (355,720) Total Capital Assets, Being Depreciated, Net 17,199 (7,388) 9,811 Business Type Activities Capital Assets, Net $ 17,199 $ (7,388) $ - $ 9,811 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: Instructional Services Support Services Administrative $ 1,714, , ,312 Total Depreciation Expense - Governmental Activities Business Type Activities: Food Service Total Depreciation Expense- Business Type Activities $ $ $ 2,732,097 7,388 7,388

44 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 42 NOTE 5: CAPITAL LEASES On June 5, 2014, the District entered into a lease purchase agreement for Apple MacBook Airs for teachers. The lease requires annual payments of $134,277 from July 1, 2014 through July 1, On November 13, 2015, the District entered into a lease purchase agreement for Apple imac computers. The first payment of $11,220 was made on December 1, The remaining annual payments are to be paid from July 1, 2016 through July 1, On June 9, 2016, the District entered into a lease purchase agreement for 3 MacBook Pros and 54 MacBook Airs. The lease requires annual payments of $60,076 from July 1, 2016 through July 1, On June 15, 2016, the District entered into a lease purchase agreement for 2,215 Acer Chromebooks. The lease requires annual payments of $160,000 from August 1, 2016 through August 1, On June 27, 2016, the District entered into a lease purchase agreement for 126 Dell Workstations. The lease requires annual payments of $26,118 from July 1, 2016 through July 1, The assets acquired through capital leases are as follows: Asset Detail Machinery and Equipment Less: Accumulated Depreciation Governmental Activities $ 911,793 (212,491) $ 699,302 The future minimum lease obligation and the net present value of these minimum lease payments as of June 30, 2017 are as follows: Beginning Balance $ 439,860 Additions $ 795,114 Reductions $ (531,543) Ending Balance $ 703,431 Current Portion $ 372,008 Governmental Activities Year Ended June 30: Governmental Activities Total Minimum Lease Payments Less: Interest Total $ s 391, , ,297 /31 866) NOTES: LONG-TERM LIABILITIES OBLIGATIONS Bonds Payable:

45 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 43 Amount of Balance Outstanding Issuance Original Issue Pure2se June 30, 2017 Series of $ 9,380,000 To pay the costs of a renovation project at the high school 2012 and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2012 is due in annual installments of $1,030,000 to $540,000 on May 1, 2015, through 2023, with final payment of $345,000 due May 1, Interest is payable at variable interest rates of 2.00 percent to 3.00 percent due semiannually on May 1 and November 1. $ Series of $ 9,790,000 To pay the costs of a renovation project at the high school 5,575, and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2013 is due in annual installments of $5,000 to $865,000 due May 1, 2015, through 2031, with final payment of $865,000 due May 31, Interest is payable at variable rates of 2.00 percent to percent due semiannually on May 1 and November 1. 9,495,000 Series of $ 9,400,000 To pay the costs of a renovation project at the high school 2014 and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2014 is due in annual installments of $165,000 to $1,205,000 on May 1, 2015, through 2031, with final payment of $1,315,000 due May 1, Interest is payable at variable rates of 2.00 percent to 3.00 percent due semiannually on May 1 and November 1. Series of $ 4,445,000 To pay the costs of a renovation project at the high school 8,840, and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2015 is due in annual installments of $135,000 to $1,545,000 on May 1, 2015, through 2031, with final payment of $1,545,000 on May 1, Interest is payable at variable rates of 2.00 percent to 3.38 percent due semiannually on May 1 and November 1. Series of $ 6,415,000 To pay the costs of various capital projects throughout the 2017 school district. The Series of 2017 is due in annual installments of $35,000 to $1,610,000 on May 1, 2018, through 2035, with final payment of $640,000 on May 1, Interest is payable at variable rates of 1.10 percent to 3.30 percent due semiannually on May 1 and November 1. 4,160,000 6,415,000 Total Bonds Outstanding $ 34,485,000

46 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 44 NOTE6: LONG-TERM OBLIGATIONS (CONTINUED) An analysis of debt service requirements to maturity for the governmental activities on these obligations follows (with the exception of the compensated absences liability): Principal Interest Total Debt Service Governmental Activities Reguirements Reguirements Reguirements Year Ended June 30: 2018 $ 2,000,000 $ 972,453 $ 2,972, ,050, ,943 2,973, ,090, ,553 2,970, ,135, ,240 2,972, ,180, ,465 2,971, ,345,000 3,133,394 14,478, ,215,000 1,499,625 10,714, ,470, ,300 3,671,300 Total $ 34,485,000 $ 9,239,973 $ 43,724,973 Compensated Absences: Compensated absences are comprised of accumulated unused sick days and vacation days. The aggregate liability is $1,475,615 as of June 30, Under the current plan, the following is a summary of the items covered: Administrators- Rate paid equals $104 per day. Teachers - Rate paid equals $75 per day. Non-Professionals - Rate paid equals $65 per day.

47 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 45 NOTE6: LONG-TERM OBLIGATIONS (CONTINUED) In addition to the above sick day policy, administrators and non-professionals can accumulate and receive compensation for unused vacation pay. The policy describes that upon retirement, any unused vacation days will be paid at a daily rate commensurate to the administrator's or non-professionals current salary. A summary of changes in long-term debt obligations for 2017 is as follows: Amounts Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Bonds and Notes payable: General obligation bonds $ 29,945,000 $ 6,415,000 $ {1,875,000) $ 34,485,000 $ 2,000,000 Total bonds and notes payable 29,945,000 6,415,000 (1,875,000) 34,485,000 2,000,000 Other Liabilities: Other postemployment benefits 3,007, ,348 3,356,498 Compensated absences 1,409,197 66,418 1,475,615 Lease Payable 439, ,114 (531,543) 703,431 Pension 78, ,412,739 91,333,232 Total Other Liabilities 83,776,700 13,623,619 (531,543) 96,868,776 Governmental Activities Long-Term Liabilities $ 113,721,700 $ 20,038,619 $ (2,406,543) $ 131,353,776 $ 486, , ,961 2,858,961 Payments on bonds are made by the General Fund. The compensated absence liabilities will be liquidated by the General Fund. Total interest paid during the year ended June 30, 2017 was $788,254. NOTE 7: RISK MANAGEMENT In an effort to reduce the cost of providing health insurance benefits for its employees, the School joined in the Westmoreland Intermediate Unit Rate Stabilization Consortium for Health Insurance. Effective July 1, 1991, the Consortium entered into a cost plus with an aggregate stop loss premium payment plan with Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield for the purchase of health and medical coverage. The Pool is effectively utilized to help the members of the Consortium to have leverage in purchasing the insurance premiums. During the year ended June 30, 2017, the school paid premiums of $5,569,964 to the Consortium.

48 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 46 NOTES: OTHER POSTEMPLOYMENT BENEFITS (OPES) Plan Description: The District administers a single-employer defined benefit healthcare plan (the "Retiree Health Plan"). The plan provides healthcare, prescription drug, dental and/or vision insurance, at various costs to the member and the District, for the life of the member or until the member is eligible for Medicare, depending on the terms of the contract when they retire, for eligible retirees and their spouses through the District's health insurance plan. The Retiree Health Plan covers both active and retired members. Benefit provisions are established through negotiation with the District and the unions representing the District's employees. The Retiree Health Plan does not issue a publicly available financial report. Funding Policy: The benefits are expensed when incurred and are financed on a pay-as-you-go basis. Retirees currently pay a portion of the monthly premium. The School District covers the balance of the premium not paid by the retiree. Retiree and dependent coverage, group plans, and costs to the retiree are subject to change. A spouse may be covered as a dependent until the death of the retiree; thereafter, they are eligible to continue coverage by paying 100% of the monthly insurance premium. The School District's annual OPEB cost is calculated based on the annual required contribution of the employees (ARC), an amount actuarially determined in accordance with the parameters of GASS Statement No 45. The ARC is the normal cost plus the portion of the unfunded actuarial accrued liability to be amortized in the current period. The ARC is an amount that is actuarially determined in accordance with the requirements so that if paid on an ongoing basis, it would be expected to provide sufficient resources to fund both normal cost for each year and the amortized unfunded liability.

49 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 47 NOTE 8: OTHER POSTEMPLOYMENT BENEFITS (CONTINUED) Annual OPES Cost and Net OPEB Obligation The District's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with GASS Statement No.45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan and changes in the District's net OPEB obligation. Governmental Activities Annual Required Contribution $ 1,134,341 Interest on Net OPES Obligation 90,214 ARC Adjustment ( ) Annual OPEB Cost 1,075,602 Estimated Contributions made ( ) Net Increase in Net OPES Obligation 349,348 Net OPES Obligation, beginning of year Net OPES Obligation, end of year :& 3.356~~8 The District's annual OPES cost, the percentage of annual OPEB cost contributed to the plan, and the net OPES obligation as of June 30 was as follows: Percentage Of Annual Net Fiscal Year Annual OPEB Cost OPEB Ended OPEB Cost Contributed Obligation 6/30/2015 $ 1,055,602 79% $ 2,615,759 6/30/2016 $ 1,051,621 63% $ 3,007,150 6/30/2017 $ 1,075,602 68% $ 3,356,498 As of July 1, 2015, the most recent valuation date, the plan was not funded. The actuarial accrued liability for benefits was $9.3 million, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of $9.3 million. The actuarial value of assets as a percentage of the actuarial accrued liability was 0%. The covered payroll was $23.4 million, and the ratio of the UAAL to the covered payroll was 39. 7%.

50 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 48 NOTE 9: PENSION BENEFITS Pensions. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, Information about fiduciary net position of the Public School Employees' Retirement System (PSERS) and additions to/deductions from PSERS' fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. General Information about the Pension Plan: Plan Description. The District contributes to the Commonwealth of Pennsylvania School Employees Retirement System ("PSERS"), a governmental cost-sharing multi-employer defined benefit plan. Benefit provisions of the plan are established under the provisions of the PSERS Code (Act No. 96 of October 2, 1975, as amended) (24 PAC. S ) and may be amended by an act of the Pennsylvania legislature. The plan provides retirement and disability, legislatively mandated ad hoc cost-of-living adjustments and healthcare insurance premium assistance to qualifying plan members and beneficiaries. It also provides for refunds of a member's accumulated contributions upon termination of a member's employment in the public school sector. 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, PSERS, P.O. Box 125, Harrisburg, PA This publication is also available on the PSERS website at Benefits provided. PSERS provides retirement, disability, and death benefits. Retirement benefits are determined as 2.5 percent of the employee's final 3-year average compensation times the employee's years of service. Employees with 10 years of continuous service are eligible to retirement at age 60. Employees are eligible for servicerelated disability benefits regardless of length of service. Five years of services is required for nonservice-related disability eligibility. Disability benefits are determined in the same manner as retirement benefits but are payable immediately without an actuarial reduction. Death benefits equal two times the employee's final full-year salary. A) Contributions. The contribution policy is established in the Public School Employee's Retirement Code and requires contributions by active members, employers and the Commonwealth. Active members who joined the System prior to July 22, 1983, contribute at 5.25% (Membership Class T-C) or at 6.50% (Membership Class T-D) of the member's qualifying compensation. Members who joined the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, contribute at 6.25% (Membership Class T-C) or at 7.50% (Membership Class T-D) of member's qualifying compensation. Members who joined the System after June 30, 2001 and before July 1, 2011, contribute at 7.50% (automatic Membership Class T-D.) For all new hires and for members who elected Class T-O membership, the higher contribution rates began with service rendered on or after January 1, 2002 Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7.5% (base rate) of the member' qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.3% (base rate) of the member's qualifying compensation. Membership Class T-E and Class T-F are affected by a "shared risk" provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-F contribution rate to fluctuate between 7.5% and 9.5% and Membership Class T-F contribution rate to fluctuate between 10.3% and 12.3%.

51 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 49 NOTE 9: PENSION BENEFITS (CONTINUED) A) Contributions. {Continued) Employer Contributions. The school districts' contractually required contribution rate for fiscal year ended June 30, 2017 was 29.2% of covered payroll, actuarially determined as an amount that, when combines with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the District were $7,248,075 for the year ended June 30, B) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows or Resources Related to Pensions: At June 30, 2017, the District reported a liability of $91,333,232 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System's total pension liability as of June 30, 2015 to June 30, The District's proportion of the net pension liability was calculated utilizing the employer's one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2016, the District's proportion was percent, which was an increase of.0021 from its proportion measured as of June 30, For the fiscal year ended June 30, 2017, the District recognized pension expense of $4,721,085. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outnows of Resources Deferred Inflows of Resources District contributions subsequent to the measurement dale $ 7,248,075 $ Difference between actual and expected investment earnings 4,235,962 Deferred changes in assumptions 2,472,699 Deferred changes in proportion 1,008,516 Difference between actual and experience 550,011 Total S 14,965,252 s 550,011

52 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 50 NOTE 9: PENSION BENEFITS (CONTINUED) B) Pension Liabilities. Pension Expense, and Deferred Outflows of Resources and Deferred Inflows or Resources Related to Pensions (Continued}: $7,248,075 reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense as follows: Year ending June 30: $ 1,932,179 3,134,556 2,100,431 $ 7,167,166 C) Actuarial Assumptions The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial cost method Salary increases Investment rate of return Entry Age Normal - level % of pay 5.00 percent, average, including inflation of percent, and real wage growth and merit or seniority increases of 2.25 % 7.25 percent, net of pension plan investment expense, Including inflation of 2.75% Mortality rates were modified from the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back 3 years for both males and females to the RP-2014 Mortality Tables for Males and Females, adjusted to reflect PSERS' experience and projected using a modified version of the MP-2015 Mortality Improvement Scale. For disabled annuitants the RP-2000 Combined Disability Tables (male and female) with age set back 7 years for males and 3 years for females to the RP-2014 Mortality Tables for Males and Females, adjusted to reflect PSERS' experience and projected using a modified version of the MP-2015 Mortality Improvement Scale. The actuarial assumptions used in the June 30, 2016 valuation were based on the experience study that was performed for the five-year period ending June 30, The recommended assumption changes based on this experience study were adopted by the Board at its June 10, 2016 Board meeting, and were effective beginning with the June 30, 2016 actuarial valuation. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the longterm expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table:

53 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 51 NOTE 9: PENSION BENEFITS (CONTINUED) C) Actuarial Assumptions Long-Term Target Expected Real Asset Class Allocation Ri!1!2fRetum Global public equity 22.5% 5.3% Fixed Income 28.5% 2.1% Commodities 8.0% 2.5% Absolute return 10.0% 3.3% Risk parity 10.0% 3.9% lnfrastructure/mlp's 5.0% 4.8% Real estate 12.0% 4.0% Alternative investments 15.0% 6.6% Cash 3.0%.2% Financing (LIBOR) -14.0%.5% 100% D) Discount Rate The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. E) Sensitivity of the District's proportionate share of the net pension liability to change in the discount rate The following presents the District's proportionate share of the net pension liability calculated using the discount rate of 7.25%, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.25%) or one percentage point higher (8.25%) than the current rate: District's proportionate share of the net pension liability Amounts X $1,000 1% Decrease Current Rate 1% Increase 6.25% 7.25% 8.25% $ 111,725 $ 91,333 $ 74,198 F) Pension plan fiduciary net position Detailed information about PSERS' fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System's website at

54 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Page 52 NOTE 10: COMMITMENTS AND CONTINGENCIES The School District is a defendant in various lawsuits. Management does not believe the settlement of these matters will have a material effect upon the District's financial condition. The District receives a number of state and federal grants. The grants may be subject to audit by the granting agency to determine if activities undertaken by the District comply with the conditions of the grant. Management believes no material liability would arise from any such audit NOTE 11: EXPENDITURES IN EXCESS OF APPROPRIATIONS The General Fund expenditures exceeded appropriations by $723,458. The excess was due to salary costs being higher than budgeted. The excess was offset by revenues being higher than budgeted.

55 Page 53 REQUIRED SUPPLEMENTAL INFORMATION

56 BUDGETARY COMPARISON SCHEDULE GENERAL FUND FOR THE YEAR ENDED Variance with Bu!:!geted Amounts Actual Final Budget Original Final Amounts Positive (Negative) Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses s (532,604} S (532,604} S 1, s 2,389,048 Total other financing sources (uses) 1 170,650 1,170,650 Other financing sources (uses) Sale of Fixed Assets 415, ,334 Proceeds from Capital Leases 795, ,114 Transfers In Transfers Out (39,880) (39,880} Excess(deficiency)ofrevenues over expenditures (532,604} (532,604} 685, ,398 Expenditures Current operating: Instruction 32,607,378 32,607,376 32,019, ,245 Support Services 16,782,690 16,782,690 16,896,361 (113,671) Noninstructional Services 1,776,526 1,778,526 1,892,776 (114,250) Capital outlay 1,091,516 (1,091,516) Debt Service 2,688,903 2,688,903 2,681,169 7,734 Total Expenditures 53,857,497 53,857,497 54,580,955 (723,458} Revenues Local Revenue Sources s 29,565,733 s 29,565,733 s 28,800,127 s (765,606) State Revenue Sources 23,095,919 23,095,919 26,079,701 2,963,782 Federal Revenue Sources , ,921 (276,320) Total Revenues 53,324,893 53,324,893 55,266,749 1,941,856 Page 54

57 SCHEDULE OF FUNDING PROGRESS Page 55 Schedule of Funding Progress for Post Employment Benefits Other Than Pensions Actuarial Valuation Date 7/1/2011 $ 7/1/2013 $ 7/1/2015 $ Actuarial Accrued Actuarial Liability (AAL) - Unfunded AAL Funded Covered Value of Assets Projected Unit Credit (UAAL) Ratio Payroll (a) ( b) ( b - a) (alb} ( C} - $ 9,057,606 $ 9,057, % $ 22,318,467 - $ 9,213,804 $ 9,213, % $ 22,775,004 - $ 9,317,717 $ 9,317, % $ 23,446,871 UAAL as a Percentage of Covered Payroll (( b - a)/ c) 40.58% 40.46% 39.74%

58 Districts proportion of the net pension liability NET PENSION LIABILITY TEACHERS PENSION PLAN LAST 10 FISCAL YEARS* (Dollar amounts in thousands) % % % The District adopted GASB 68 on a prospective basis in 2015; therefore only three years are present in the above schedule. The amounts presented for each fiscal year were determined as of 06/30 Plan fiduciary net position as a percentage of the total pension liability 57.24% 54.36% 50.14% District's proportionate share of the net pension liability as a percentage of its covered-employee payroll % % % District's covered-employee payroll $ 23,003 $ 23,446 $ 23,875 District's proportionate share of the net pension liability $ 71,364 $ 78,920 $ 91,333 SCHEDULE OF THE DISTRICTS PROPORTIONATE SHARE OF THE Page 56

59 TEACHERS PENSION PLAN LAST 10 FISCAL YEARS* (Dollar amounts in thousands) Contractually required contribution $ 4,656,871 $ 6,025,284 $ 7,185,848 The District adopted GASB 68 on a prospective basis in 2015; therefore only three years are present in the above schedule. Contributions as a percentage of covered-employee payroll 19.86% 25.24% 29.45% District's covered-employee payroll $ 23,446,871 $ 23,875,235 $ 24,609,068 Contribution deficiency (excess) $ $ $ {62,2271 Contributions in relation to the contractually required contribution 4,656,871 6,025,284 7,248,075 SCHEDULE OF THE DISTRICT'S CONTRIBUTIONS Page 57

60 Page 58 OTHER SUPPLEMENTAL INFORMATION

61 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS Page 59 Total Nonmajor Capital Building Capital Projects Governmental Reserve Fund Improvement Fund (Construction) Fund Funds Total liabilities and fund balances Total fund balances Restricted Fund Balances Total liabilities Liabilities Total assets Cash and Cash Equivalents Assets $ 16, ,834 - $ 1s,82s _s e s 1s_.e_3_4 16, , ~ _ $ -$ -$ -$ ,826 $ - $ $ $ $ 1s,82s _$ 8 _$ a s 1s 1_6.._,8_34_... _ 1 a_34

62 NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED Total Nonmajor Capital Reserve Building Capital Projects Governmental Fund Improvement Fund (Construction) Fund Funds Fund balance, end of year $ - $ $ 8 $ Net change in fund balance (82) 13,224 (4,157,975) (4,144,833) Fund balance, beginning of year 82 3,602 4,157,983 4,161,667 Total other financing sources (uses) (82) 39,880 39,798 Other financing sources (uses) Transfers in 39,880 39,880 Transfers out (82) (82) Excess (deficiency) of revenues over expenditures 13,224 (4,197,855) (4,184,631) Expenditures Current operating: Capital Outlay 4,203,986 4,203,986 Total Expenditures 4,203,986 4,203,986 Revenues Local Revenue Sources $ - $ 13,224 $ 6,131 $ 19,355 Total Revenues 13, ,355 Page60 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE