( Mai/lie EXETER TOWNSHIP SCHOOL DISTRICT ANNUAL FINANCIAL REPORT. Year Ended June 30, Certified Public Accountants and Business Consultants

Transcription

1 ANNUAL FINANCIAL REPORT Year Ended June 30, 2014 ( Mai/lie Expulls~ B~yond Th~ Numb~rs Certified Public Accountants and Business Consultants

2 INTRODUCTORY SECTION

3 TABLE OF CONTENTS YEAR ENDED JUNE 30, 2014 Page Introductory Section Table of Contents 1 Financial Section Independent Auditors' Report Management's Discussion and Analysis (Unaudited) 3 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet Reconciliation of Total Governmental Funds Balances to Net Position of Governmental Activities Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities Proprietary Fund Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Fiduciary Funds Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position

4 TABLE OF CONTENTS YEAR ENDED JUNE 30, 2014 Page Notes to the Basic Financial Statements 30 Required Supplementary Information Budgetary Comparison Schedule Note to the Budgetary Comparison Schedule Postemployment Benefits Other Than Pension Funding Progress Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditors' Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance in Accordance With OMB Circular A Supplementary Information - Major Federal Award Programs Audit Schedule of Expenditures of Federal and Certain State Awards Notes to the Schedule of Expenditures of Federal and Certain State Awards Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings

5 FINANCIAL SECTION

6 CM Expertise Beyond The Numbers P.O. Box 680, Oaks, PA I I Fax: a i 11 i e 624 Willowbrook Lane, West Chester, PA I I Fax: Maillie LLP I _ Independent Auditors' Report To the Board of School Directors Exeter Township School District Reading, Pennsylvania Report on the Financial Statements 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 Exeter Township School District as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Exeter Township School District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the 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 Exeter Township School District as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. -3- Certified Public Accountants and Business Co nsultants

7 To the Board of School Directors Exeter Township School District Reading, Pennsylvania Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 17, budgetary comparison information on pages 53 and 54 and postemployment benefits other than pension funding progress on page 55 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Exeter Township School District's basic financial statements. The schedule of expenditures of federal and certain state awards, as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal and certain state awards is the responsibility of management and was derived from and relates 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 schedule of expenditures of federal and certain state awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 4, 2014, on our consideration of the Exeter Township School District'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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Exeter Township School District's internal control over financial reporting and compliance. Oaks, Pennsylvania November 4,

8 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The following discussion and analysis is on overall presentation of the short-term and long-term financial activities of the Exeter Township School District, (the "District") for the fiscal year ended June 30, FINANCIAL HIGHLIGHTS In total, the District's net position increased by approximately $1.3 million. The net position of governmental activities increased by approximately $1.5 million, which represents a 6 percent increase from This increase is the result of a net revenue increase in governmental activities driven by greater program and general revenues and reduced expenses. The net position of business-type activities decreased by approximately $158,000, which represents a 13.5 percent decrease from General revenues accounted for $55.5 million, or 83 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $11.2 million, or 17% of total revenues of $66. 7 million. The School District had $63.5 million in expenses for 2014 related to governmental activities compared to $71 million in The higher governmental expenses in 2013 were related to debt costs. Only $9.5 million of the expenses in 2014 for governmental activities were offset by program charges for services, grants or contributions. General revenues (primarily taxes) of $55.5 million funded other program expenses. The General Fund reported positive assigned and unassigned components of fund balance of $12,643,814 as of June 30, The School District Board of Directors authorized commitments totaling approximately $3.6 million of General Fund balance as of June 30, The committed portion of fund balance is limited to a specific purpose through the School Board's formal action. The Exeter Township School District Board of Directors made commitments of fund balance in order to support the following: future increases in employee benefit expenditures including pension costs, lost real estate tax revenue due to property value assessment reductions and various capital improvement projects. DISTRICT-WIDE REPORTING The MD&A is only one of the required components of Exeter Township School District's Financial Statements. Two statements that provide comprehensive information about the entire District are the following: Statement of Net Position - which reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position. Statement of Activities - identifies the costs of providing public school services and the resources obtained to finance the services. -5-

9 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The basis of accounting used in these government-wide statements is full accrual with an economic resources focus. All assets, deferred outflows of resources, liabilities and deferred inflows of resources, both financial and capital, and short-term and long-term are presented. This basis of accounting takes into account all the current year's revenues and expenses regardless of when cash is received or paid. In the Statement of Net Position and the Statement of Activities, the School District is divided into two distinct kinds of activities: Governmental Activities - Most of the School District's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation and extracurricular activities. Property taxes and state and federal subsidies and grants finance most of these activities. Business-Type Activities - The School District operates a food service operation and charges fees to staff and students to cover some of the costs of the food service operation. State and federal breakfast and lunch programs further subsidize the cost of operation. FUND LEVEL STATEMENTS: DISTRICT'S FUND TYPES Fund level statements focus on the School District's most significant funds. There are three kinds of fund financial statements - Governmental, Proprietary and Fiduciary Funds. Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, sets the requirements for which funds may be reported in the Governmental Funds financial statements. The District's Governmental Funds include the General Fund, Capital Reserve Fund and Capital Projects Fund established for the construction of Owatin Creek Elementary School. The Governmental Funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The Governmental Fund statements include only short-term information; the most readily available assets and currently due liabilities and the resources that flow into and out of a School District during the year. The School District's Proprietary Fund reports the finances of the food services operation. This fund uses the same basis of accounting as business-type activities; therefore, these statements will essentially match government-wide statement reporting of business-type activities. The Fiduciary Funds account for resources the School District manages or holds on behalf of others, which include the Student Activity Fund and the Scholarship Fund. The Fiduciary Funds are presented in the statement of fiduciary net position and the statement of changes in fiduciary net position

10 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 ENTITY-WIDE FINANCIAL ANALYSIS The Statement of Net Position contains information about what the District owns, owes, i.e., assets and liabilities, and what is left after assets are used to satisfy liabilities. The following table is a comparative summary of the School District's net position as of June 30, 2014 and 2013: Table 1 Net Position As of June 30, 2014 and 2013 Governmental Activities ASSETS Current and other assets $ 33,007,990 $ 30,084,920 Capital and other assets 83,756,368 87,469,592 TOTAL ASSETS 116,764, ,554,512 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding 2,649,322 2,506,649 LIABILITIES Current and other liabilities 12,706,770 14,048,346 Long-term liabilities 81,096,326 81,907,371 TOTAL LIABILITIES 93,803,096 95,955,717 NET POSITION Net investment in capital assets 6,653,054 5,902,496 Unrestricted 18,957,530 18,202,948 TOTAL NET POSITION $ 25,610,584 $ 24,105,444 Total Net Position of the District increased by approximately $1.3 million. A major component of Net Position is the Net Investment in Capital Assets, which increased by $731,609. This investment represents the current value of capital assets (less depreciation) less the related debt outstanding to finance the purchase or acquisition of such assets, plus unused bond proceeds issued for a capital project. Current Assets increased by approximately $2.8 million due to governmental activities revenues exceeding governmental activities expenses, and additional bond proceeds for future capital needs. Funds due from other governments increased by $596,963 due to outstanding federal program revenue earned for FY Capital Assets decreased by approximately $3.7 million due to depreciation and disposition of assets. Deferred outflows of resources increased by approximately $142,673 due to the implementation of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The deferred outflow represents the School District's deferred charges resulting from bond refundings. Liabilities decreased by $2.1 million due in large part to the payment of debt obligations.

11 Business-Type Activities Totals Change $ 1,115,633 $ 1,243,880 $ 34,123,623 $ 31,328,800 $ 2,794,823 94, ,593 83,851,012 87,583,185 (3,732,173) 1,210,277 1,357, ,974, ,911,985 (937,350) 2,649,322 2,506, , , ,050 12,904,491 14,235,396 (1,330,905) 81,096,326 81,907,371 (811,045) 197, ,050 94,000,817 96,142,767 (2,141,950) 94, ,593 6,747,698 6,016, , ,912 1,056,830 19,875,442 19,259, ,664 $ 1,012,556 $ 1,170,423 $ 26,623,140 $ 25,275,867 $ 1,347,

12 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 It is projected that $2,269,512 of the unrestricted portion of net assets will be used to fund the deficiency of revenues over expenditures budgeted for FY The results of this year's operations as a whole are reported in the Statement of Activities. Table 2 is a comparative summary of changes in net position for the periods ended June 30, 2014 and Revenues are defined as either program or general revenues. Program revenues are generated by the services themselves or provided externally for use in a particular function. Program revenues reduce the net expense to the public. General revenues include the Basic Education Subsidy provided by the State of Pennsylvania, local taxes assessed to community taxpayers and other general revenues the District uses to finance the total net cost of programs. Table 2 Change in Net Position Fiscal Years Ended June 30, 2014 and 2013 Governmental Activities REVENUES Program revenues Charges for services $ 331,741 $ 384,602 Operating and capital grants 9,149,232 8,371,018 Capital grants and contributions 86,752 General revenues Property taxes 45,513,320 45,009,759 Grants and entitlements 9,627,330 9,311,066 Other 369, ,470 TOTAL REVENUES 64,990,661 63,741,667 EXPENSES Instruction 41,932,956 40,456,535 Instructional student support 4,497,798 4,260,191 Administrative and financial support services 4,643,641 5,007,870 Operation and maintenance of plant 3,928,372 4,607,850 Pupil transportation 2,694,723 2,609,082 Student activities 1,313,759 1,284,135 Food service Community services/other 9,252 5,302 Facilities acquisition, construction and improvement 843,069 77,998 Debt service 3,621,951 12,733,500 TOTAL EXPENSES 63,485,521 71,042,463 CHANGE IN NET POSITION $ 1,505, 140 $ (7,300,796)

13 Business-Type Activities Totals Change $ 961,578 $ 1,059,686 $ 1,293,319 $ 1,444,288 $ (150,969) 733, ,298 9,882,955 9,056, ,639 86,752 (86,752) 45,513,320 45,009, ,561 9,627,330 9,311, ,264 10, , ,269 (220,231) 1,695,301 1,755,783 66,685,962 65,497,450 1,188,512 41,932,956 40,456,535 1,476,421 4,497,798 4,260, ,607 4,643,641 5,007,870 (364,229) 3,928,372 4,607,850 (679,478) 2,694,723 2,609,082 85,641 1,313,759 1,284,135 29,624 1,853,168 1,852,231 1,853, 168 1,852, ,252 5,302 3, ,069 77, ,071 3,621,951 12,733,500 (9, 111,549) 1,853,168 1,852,231 65,338,689 72,894,694 (7,556,005) $ (157,867) $ (96,448) $ 1,347,273 $ (7,397,244) $ 8,744,517-8-

14 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 Operating and capital grants increased by $739,887 due in large part to an increase in state reimbursement related to the increase in the School District's contribution rate to PSERS (Pennsylvania School Employees' Retirement System) from 12.36% in FY to 16.93% in FY Other sources of operating and capital grants which include reimbursement for special education, transportation, rental and sinking fund costs, and other federal program grants reflected no significant increase from year to year. The School District's Basic Education Subsidy from the state for FY is estimated at $8,142,874 which represents no increase from the FY subsidy amount due to the pressure on the State's budget to fund pension obligation increases. The basic subsidy represents 14.7 percent of the District's general revenues. Program expenses decreased by 10 percent, or $7.6 million. The decrease is due in large part to a debt service cost decrease of $9.1 million. During FY , the District incurred a one-time swap termination fee related to the General Obligation Bond Series of Areas of increase in instruction, support services, and non-instructional service expenses occurred in employee benefits due to a 36% increase or $1,275,000 in the School District's mandated employer pension contribution. Employee wage costs for FY declined by $29,000 from due to modest contractual wage increases which were offset by attritional savings. Due to a downward trend in enrollment, several staff positions have not been filled over the past several years as retirements or resignations have occurred. Contracted professional fees for student related services; tuition costs for students placed in private education agencies; and costs for students enrolled in charter and cyber charter schools continue to increase as special education and alternative education student needs become more challenging. During FY , contracted professional service costs were $1,553,208; charter school tuition costs were $1,381,404; and private placement tuition costs were $1,380,827. In the current fiscal year, the Basic Education and other educational program subsidies increased by $316,264 due to the addition of a student focused supplement in the education budget in the amount of $258,435, and an increase in student placement and related tuition received from the state for orphans and children placed in private homes. The net increase in tax revenue of $503,561, or 1.1 percent, was due in part to an increase in real estate property tax millage of 2.3% or.6919 mills, and an increase in tax receipts related to improved property sales and business revenue. The School District's taxable assessed value declined by $1,547,710 or $48,000 less in school property tax revenue, from FY to FY as the trend in property assessed value reductions continued but at a significantly reduced rate. The District's property tax collection rate for FY remained at 96.9 as compared to the collection rate in , and collection of delinquent real estate taxes continues to be strong. Local property tax revenue was offset by the state's property tax relief allocation in the amount of $1,359,259 for FY Property taxes represent 68.3 percent of the School District's general revenues. -9-

15 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The following table shows projected and actual enrollment history of the District: Actual Third Day Projected School Year District Enrollment 3,658 3,741 3,818 3,899 3,940 4,073 4,203 4,297 4,352 4,376 4,413 4,388 4,381 4,315 4,206 4,107 4,081 4,019 As total student enrollment for the School District continues to decline, professional and support staff positions that are vacated due to retirement or resignation are evaluated for elimination in order to achieve wage and benefit savings while not impacting class size, educational program, or the overall operation of the District. The reduction in staff over the past several years is estimated at 40 positions with budget savings of approximately $3.5 million. The number of IDEIA and gifted students in the District grew by 208 students, from 847 in to 1,055 in , or a 25 percent increase. The increase in the number of special education students has dictated the hiring of additional staff, additional contracted services and increases in private placement tuition costs for those special education students that are served by other education agencies outside of the District. Special education costs, including direct instruction and support services have increased from an annual level of $7.4 million in to $11.5 million in FY , or a 55 percent increase over the past eight years. Special Education operating grants to the District in FY totaled $2.5 million which is the same level of funding available to the District in FY

16 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The following table shows the total cost of program expenses and the net costs of programs offset by charges for services and grant income. Net Cost of Services is supported by unrestricted grants including the basic education subsidy, local taxes and other miscellaneous revenue. In this School District, local taxes support percent of the total cost of governmental activities. Table 3 Governmental Activities Fiscal Years Ended June 30, 2014 and 2013 Total Cost of Services Net Cost of Services Instruction $ 41,932,956 $ 40,456,535 $ 36,132,597 $ 35,113,616 Instruction and student support 4,497,798 4,260,191 4,054,249 3,837,867 Administrative and financial support services 4,643,641 5,007,870 4,311,588 4,743,733 Operation and maintenance of plant 3,928,372 4,607,850 3,657,906 4,297,538 Pupil transportation 2,694,723 2,609,082 1,545,108 1,470,740 Student activities 1,313,759 1,284,135 1,032,701 1,029,975 Community services/other 9,252 5,302 9,252 5,302 Facilities acquisition, construction and improvement 843,069 77, ,069 77,998 Interest on long-term debt 3,621,951 12,733,500 2,418,078 11,623,322 TOTAL $ 63,485,521 $ 71,042,463 $ 54,004,548 $ 62,200,091 Program Revenue Support of Costs 14% 13% General Revenue Support of Costs 86% 87% The following table reflects the activities of the food service program, the only business-type activity of the District. Table 3A Business-Type Activities Fiscal Years Ended June 30, 2014 and 2013 Total Cost of Services Net Revenue Food service program Gain on sale of capital assets Interest income $ 1,853,168 $ 1,852,231 $ (157,867) $ (107,247) 3,900 6,899 $ (157,867) $ ====(9=6=,4=48=)

17 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The financial operation of food services produced a decrease in net position in FY due in large part to a decline in student enrollment and meal participation rates in addition to an increase in the mandated employer contribution rate to PSERs from percent in FY to percent in FY Fund Financial Statements Total Governmental Funds which include the General Fund, the Capital Reserve Fund and the Capital Project Funds had total revenues of $65.1 million, expenditures of $65.2 million and net other financing sources of $3 million. The District's Governmental Funds reported a combined fund balance of $24.4 million, which is $2.8 million more than last year's total of $21.6 million. The District had $2.5 million in proceeds from bonds issued in 2014 for the purpose of funding capital projects. The schedule below indicates the fund balance and the total change in fund balances as of June 30, 2014 and Fund Balance Fund Balance Increase/ June 30, 2014 June 30, 2013 (Decrease) General Fund Nonspendable $ 35,983 $ 1,365 $ 34,618 Committed 3,571,038 4,851,813 (1,280,775) Assigned/designated 2,989,822 1,656,802 1,333,020 Unassigned 9,653,992 9,246, ,329 16,250,835 15,756, , 192 Capital Reserve Fund, assigned 3,767,167 3,767,988 (821) Capital Projects Fund, restricted 4,424,607 2,078,705 2,345,902 $ 24,442,609 $ 21,603,336 $ 2,839,273 The net change in the fund balance of the General Fund was $494, 192. Local sources of revenue, including current real estate collections driven by a higher collection rate, and higher earned income tax collections were higher than budgeted by approximately $194,000. In addition, FY General Fund expenditures were less than projected due to favorable employee bargaining unit contract settlements that provided for annual wage increases of approximately 2% per year which were less than budgeted, and increases in employee contributions toward healthcare premiums which reduced district paid benefit costs. Commitments of fund balance were reduced by $1,280, 775 during FY , which was a planned use of the commitments for employer-paid employee retirement expense, property assessed value reduction, and healthcare premium increases. Assigned fund balance increased by $1,333,020, which reflects the planned use of General Funds to balance the FY General Fund budget, and costs related to healthcare, special education, and a computer laptop one to one initiative. The balance of the Exeter Township School Board fund balance commitments as of June 30, 2014, was $3,571,038. The commitments are targeted to help fund future employer-paid benefit cost increases for employee retirement, the loss of current real estate tax revenue resulting from property assessed value reductions and future capital improvements

18 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The Capital Reserve Fund, established under Section 1431 of the Municipal Code, is to be used only for capital improvements and replacement of school transportation vehicles. The Capital Projects Fund restricted balance increased by $2,345,902 due in large part to new bond funds in the amount of $2,510,000 issued in January 2014 for the purpose of funding future capital projects. The balance of restricted capital project funds remains from the Owatin Creek Elementary project.fund. Capital Assets and Debt Administration The School District's investment in capital assets net of accumulated depreciation decreased by $3,732,173 during FY This net decrease is the result of annual depreciation costs, and the disposal of capital assets. The following table summarizes the capital assets of the District. Table 4 Investment in Capital Assets Capital Assets - Net of Accumulated Depreciation As of June 30, 2014 and 2013 June 30, 2014 Land and land improvements, net of accumulated depreciation $ 7,730,830 Building and building improvements, net of accumulated depreciation 71,320,840 Furniture and equipment, net of accumulated depreciation 4,799,342 $ 83,851,012 June 30, 2013 $ 7,833,445 74,580,429 5, 169,311 $ 87,583, 185 Change $ (102,615) (3,259,589) (369,969) $ (3, 732, 173) As of June 30, 2014, the District had an outstanding bond principal balance of $82,692,328. During the year, the District issued General Obligation Bonds, Series of 2014 in the amount of $9,995,000 to: (1) advance refund a portion of the Series A of 2009 Bonds, (2) advance refund a portion of the outstanding Series C of 2009 Bonds, (3) advance refund a portion of the outstanding Series of 2010 Bonds, (4) finance various capital projects of the School District, and (5) pay the costs of issuing the Bonds. The advance refunding was undertaken to reduce total debt payments by $161,213 and resulted in an economic gain of $205,

19 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 The following table lists Bonds Outstanding and Capital Lease Payable as of June 30, June 30, 2014 June 30, 2013 Change GENERAL OBLIGATION BONDS Series of 2014 $ 9,995,000 $ $ 9,995,000 Series of ,505,000 9,560,000 (55,000) Series of 2012A 19,995,000 19,995,000 Series of 2012B 5,970,000 6,375,000 (405,000) Series of ,895,000 7,270,000 (2,375,000) Series of ,035,000 9,660,000 (625,000) Series of 201 O 13,030,000 14,245,000 (1,215,000) Series 2009A 755,000 5,805,000 (5,050,000) Series 2009B 4,935,000 5,560,000 (625,000) Series 2009C 1,295,000 (1,295,000) Series ,577,328 4,577,328 Series ,844 (416,844) $ 82,692,328 $ 84,759, 172 $ (2,066,844) CAPITAL LEASES PAYABLE IBM Credit $ 171,387 $ $ 171,387 Lenovo Financial 90,727 (90,727) $ 171,387 $ 90,727 $ 80,660 Other recent issues include General Obligation Bonds, Series A of 2012 in the amount of $19,995,000 to advance refund a portion of the Series of 2003 Bonds, and pay a portion of the termination amount to Wells Fargo Bank with respect to the termination of a swap agreement related to the General Obligation Bonds, Series of The District issued Federally-Taxable General Obligation Bonds, Series B of 2012 to pay a portion of the termination amount to Wells Fargo Bank with respect to the termination of the swap agreement related to Series The District advanced refunded the outstanding balance of Series of 2003 Bonds through the General Obligation Bonds, 2013 in the amount of $9,675,000. The advance refunding was undertaken to reduce total debt payments by $2,219,536 and resulted in an economic gain of $1,921,313. In addition, the School District issued GOB Series 2011 and 2012 which were used to refund Series 2006 and 2007, respectively. The net present value savings for Series 2011 and 2012 was $1,314,313. Bond issues used to fund the Owatin Creek Elementary School construction project include GOB Series 2006, 2009A, and 2010 with proceeds of $32,630,729. GOB Series 2006 and 2010 also included proceeds to refund a portion of prior debt Series 1996 and Series 2001, respectively

20 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 LOOKING TO THE FUTURE Capital Assets and Building Projects The School District Board of School Directors has made commitments of General Fund Balance in the amount of $2,332,329 as of June 30, 2014, for future capital projects which include capital improvements to upgrade heating and air conditioning control systems, roof replacements or restorations and other building upgrade projects. While the Owatin Creek Elementary School has been occupied since the beginning of School Year , there remains outstanding project work related to the site work contract. The outstanding project site work was re-bid during FY in order to meet all regulatory agency requirements with substantial completion expected in November The available funds in the Owatin Elementary Capital Project Fund as of June 30, 2014, were $1,919,273. Taxpaver Relief Act - Special Session Act I of 2006 The Pennsylvania Taxpayer Relief Act of 2006 was signed into law on June 27, Act 25 of 2011 amended the Taxpayer Relief Act of Act 25 eliminated all but three of the referendum exceptions initiated as part of Act 1 of This was effective for the budget cycle. School districts of Pennsylvania are subject to a real property tax cap. The base index for FY is 2.1 percent. The School District's index is adjusted to 2.7 percent because the aide ratio is more than The base index for FY is 1.9 percent, and the School District's adjusted index is 2.5 percent. School districts which need to exceed the cap must get exceptions or vote for additional property tax millage. In order to accommodate the exception submission process and the back end referendum, an additional budget process is required. The School District's Preliminary Budget for FY must be adopted by February 17, Effective with the FY school year, the School District offered homestead and farmstead property owners the option to pay their properly taxes in installments. The Board approved a frequency of three installment payments with due dates of July 31, September 15 and October 31. Act 25 of 2011 provided for installment payments for small business effective July 1, The School Board decided that installment payments would be offered to all taxpayers in order to comply with the Act 25 requirement to offer small businesses installment payments. This change has not brought a significant increase in the number of installment payments during the past two years. For fiscal years through , property tax relief has been made available to approved homestead and farmstead properties. The total property tax reduction allocation funded by gambling tax funds has been relatively consistent over the past six years ranging between $1,354,650 and $1,363,018. The associated real estate assessed reduction amount over the past six years has ranged between $6,042 and $7,047. In addition, the aggregate number of approved homesteads and farmsteads that receive the real estate tax reduction has increased from 6,938 in FY to 7,201 in FY As the number of approved homesteads and farmsteads increases, and with the property tax allocation remaining fairly constant, the value of the annual property tax reduction amount has declined over the past five years from a high of $ to the current year amount of $

21 MANAGEMENTS DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 Budget The Taxpayer Relief Act of 2006 limits the tax increase proposed by any board of school directors to the index unless referendum exceptions are approved that would allow the rate of tax to increase above the index to cover certain costs. The Exeter Township School District's adjusted index for the FY budget was 2.7 percent. The Exeter Township School District applied for an exception to cover costs that exceeded the indexed costs for Employer Retirement Expenditures. The District received approval for $558,017 of referendum exceptions that represented costs that exceeded the index amount. The Board of School Directors did not authorize use of the Employer Retirement exception and adopted a.455 mill increase or 1.48 percent to mills. The Board of School Directors was and continues to be concerned about the financial impact of real estate tax increases on District taxpayers as the economy is slow to show signs of sustainable improvement. At the same time, the Board of School Directors needs to remain focused on the long-term financial challenges of the District, which include bargaining unit contract costs, increases in the Public School Employee Retirement System employer contribution rate, increasing special education costs and escalating costs due to unfunded mandates. The revenue budget for FY includes a property tax increase of.455 mills (a 1.48 percent increase) from to The millage increase, in addition to an increase in total assessed value, will generate approximately $806,000 in additional real estate tax revenue based on the value of a mill of $1,330,000. Total property assessed value for FY increased by.33 percent or $4,578,200. This modest increase comes after three successive years of declines in total assessed value due to assessment appeals. All other local sources of revenue are expected to decrease by a net amount of $123,000 over FY actual amounts due in large part to a non-recurring delinquent real estate account collection during FY State and Federal sources of revenue are projected to increase by $940,000 over FY actual amounts due in large part to the increase in state reimbursement for higher state mandated employer's contributions to employees' retirement, and for debt payments based on project reimbursement rates. The state reimburses school districts at least 50 percent of the contributions made by the employer to PSERS (Public School Employees' Retirement System). Total revenue budgeted for FY is $66,439,817, which is approximately $1.3 million more than FY actual amounts. Total budgeted expenditures for FY are $68,709,329. Employee wages and benefits are projected to increase by $2. 7 million, or 6.2 percent due to contractual wage increases which average 2 percent annually for a three year contract period; an increase of 3 percent in healthcare premium costs; and a 26 percent increase in the Public School Employees' Retirement System employer contribution rate from percent to percent. Budgeted expenditures for charter school tuition costs are approximately $1.4 million. It is projected that private cyber charter school tuition costs for FY will be similar to tuition costs incurred for FY During FY the District implemented the Exeter Virtual Academy Program which costs significantly less than private charter school tuition costs. Contracted professional service costs and private placement tuition costs for special education students are expected to be $616,000 more than FY due to the increased needs of students with individualized education programs. 16.

22 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) YEAR ENDED JUNE 30, 2014 Budget expenditures for interest and principal payments are projected to increase by $197,000 in FY due to the General Obligation Bond debt service payments related to bond issues. The projected deficiency of General Fund revenue over expenditures for FY in the amount of $2,269,512 will be absorbed by General Fund balance resources. The School Board planned the assignment of fund balance resources to balance the budget. As reported in PDE Final General Budget for FY , the projected General Fund Unassigned fund balance as of June 30, 2015, is $5,450,852, or 8 percent of total budgeted expenditures. CONTACTING THE DISTRICT FINANCIAL MANAGEMENT Our financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact Anne Guydish, Business Manager, at Exeter Township School District, 200 Elm Street, Reading, Pennsylvania

23 STATEMENT OF NET POSITION JUNE 30, 2014 Governmental Business-Type Activities Activities Totals ASSETS Cash and cash equivalents $ 442,259 $ 529,711 $ 971,970 Investments 27,250, ,000 27,740,581 Taxes receivable, net 2,494,945 2,494,945 Internal balances 948 (948) Due from other governments 2,376,064 12,075 2,388,139 Other receivables, net 71,972 2,177 74, 149 Inventories 82,618 82,618 Prepaid expenses 35,983 35,983 Bond prepaid insurance premiums 95,221 95,221 Bond discounts, net of amortization 240, ,017 Capital assets Land and land improvements 11,283,390 11,283,390 Buildings and building improvements 130,938, ,938,427 Furniture and equipment 17,386, ,873 17,835,600 Accumulated depreciation (75,852, 176) (354,229) (76,206,405) TOTAL ASSETS 116,764,358 1,210, ,974,635 DEFERRED OUTFLOW OF RESOURCES Deferred amount on refunding 2,649,322 2,649,322 LIABILITIES Accounts payable 985, ,030 Due to other governments Accrued salaries and benefits 5,138, ,422 5,297,425 Unearned revenue 24,677 38,299 62,976 Other current liabilities 27,822 27,822 Bond premiums 1,895,004 1,895,004 Accrued interest 661, ,495 Long-term liabilities Portion due or payable within one year Bonds payable 3,890,022 3,890,022 Capital leases 84,621 84,621 Portion due or payable after one year Bonds payable 78,802,306 78,802,306 Capital leases 86,766 86,766 Compensated absences 1,852,354 1,852,354 Net OPEB obligation 354, ,900 TOTAL LIABILITIES 93,803, ,721 94,000,817 NET POSITION Net investment in capital assets 6,653,054 94,644 6,747,698 Unrestricted 18,957, ,912 19,875,442 TOTAL NET POSITION $ 25,610,584 $ 1,012,556 $ 26,623, 140 See accompanying notes to the basic financial statements

24 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Functions/Programs Expenses Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions GOVERNMENTAL ACTIVITIES Instruction Support services Administrative and financial support services Operation and maintenance of plant services Pupil transportation Student activities Community services Facilities acquisition, construction and improvement Debt service TOTAL GOVERNMENTAL ACTIVITIES $ 41,932,956 4,497,798 4,643,641 3,928,372 2,694,723 1,313,759 9, ,069 3,621,951 63,485,521 $ 95,027 $ 5,705,332 $ 443, ,053 52, ,349 1,149, ,597 96,461 1,203, ,741 9,149,232 BUSINESS-TYPE ACTIVITIES Food service 1,853, , ,723 TOTAL SCHOOL DISTRICT ACTIVITIES $ 65,338,689 $ 1,293,319 $ 9,882,955 $ GENERAL REVENUES Taxes Property taxes, levied for general purposes Taxes levied for specific purposes Grants and contributions not restricted to specific programs Investment earnings Gain on sale of capital assets Miscellaneous TOTAL GENERAL REVENUES CHANGE IN NET POSITION NET POSITION AT BEGINNING OF YEAR NET POSITION AT END OF YEAR See accompanying notes to the basic financial statements.

25 Net (Expense) Revenue and Changes in Net Position Governmental Business-Type Activities Activities Totals $ (36, 132,597) $ $ (36, 132,597) (4,054,249) (4,054,249) (4,311,588) (4,311,588) (3,657,906) (3,657,906) (1,545,108) (1,545, 108) (1,032,701) (1,032,701) (9,252) (9,252) (843,069) (843,069) (2,418,078) (2,418,078) (54,004,548) (54,004,548) (157,867) (157,867) (54,004,548) (157,867) (54, 162,415) 40,875,555 40,875,555 4,637,765 4,637,765 9,627,330 9,627,330 65,095 65,095 33,776 33, , ,167 55,509,688 55,509,688 1,505,140 (157,867) 1,347,273 24,105,444 1, 170,423 25,275,867 $ 25,610,584 $ 1,012,556 $ 26,623,

26 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 Total Capital Capital Governmental General Fund Reserve Fund Projects Fund Funds ASSETS Cash and cash equivalents $ 442,259 $ $ $ 442,259 Investments 18,989,625 3,761,498 4,499,458 27,250,581 Taxes receivable, net 2,536,874 2,536,874 Due from other funds Due from other governments 2,376,064 2,376,064 Other receivables 66,258 5, ,972 Prepaid items 35,983 35,983 TOTAL ASSETS $ 24,448,011 $ 3,767,167 $ 4,499,503 $ 32,714,681 LIABILITIES, DEFERRED INFLOW OF RESOURCES AND FUND BALANCES LIABILITIES Accounts payable $ 910,134 $ $ 74,896 $ 985,030 Due to other governments Accrued salaries and benefits 5,138,003 5,138,003 Unearned revenue 24,677 24,677 Other payables 27,822 27,822 TOTAL LIABILITIES 6,100,732 74,896 6,175,628 DEFERRED INFLOW OF RESOURCES Unavailable revenue, taxes 2,096,444 2,096,444 FUND BALANCES Non spendable 35,983 35,983 Restricted 4,424,607 4,424,607 Committed 3,571,038 3,571,038 Assigned 2,989,822 3,767, 167 6,756,989 Unassigned 9,653,992 9,653,992 TOTAL FUND BALANCES 16,250,835 3,767, 167 4,424,607 24,442,609 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES AND FUND BALANCES $ 24,448,011 $ 3,767,167 $ 4,499,503 $ 32,714,681 See accompanying notes to the basic financial statements

27 RECONCILIATION OF TOTAL GOVERNMENTAL FUNDS BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES JUNE 30, 2014 TOTAL GOVERNMENTAL FUNDS BALANCES Capital assets used in governmental activities are not current financial resources and therefore are not reported in the funds. These assets consist of: Land and land improvements Buildings and building improvements Furniture and equipment Accumulated depreciation Deferred charges used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Deferred amount on refunding Bond prepaid insurance premiums Bond discounts Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Accrued interest Bonds payable Bond premiums Capital leases Compensated absences Net OPEB obligation Allowance for doubtful accounts, property taxes receivable Some of the School District's revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. NET POSITION OF GOVERNMENTAL ACTIVITIES $ 24,442,609 11,283, ,938,427 17,386,727 (75,852, 176) 2,649,322 95, ,017 (661,495) (82,692,328) (1,895,004) (171,387) (1,852,354) (354,900) (41,929) 2,096,444 $ 25,610,584 See accompanying notes to the basic financial statements

28 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2014 Total Capital Capital Governmental General Fund Reserve Fund Projects Fund Funds REVENUES Local sources $ 46,046,270 $ 264,201 $ 1,997 $ 46,312,468 State sources 17,635,627 17,635,627 Federal sources 1,097,540 1,097,540 Receipts from other districts 60,949 60,949 TOTAL REVENUES 64,840, ,201 1,997 65,106,584 EXPENDITURES Instruction 37,318,848 37,318,848 Support services 16,316,516 16,316,516 Operation of non-instructional services 1,281,460 1,281,460 Capital outlays 734, , ,040 1, 160,294 Debt service 9,130,418 36,094 9,166,512 TOTAL EXPENDITURES 64,781, , ,134 65,243,630 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 58,912 (821) (195, 137) (137,046) OTHER FINANCING SOURCES (USES) Premiums on bond issuances 91,925 31, ,964 Proceeds from bonds issued 2,510,000 2,510,000 Refunding bonds issued 7,485,000 7,485,000 Payment to refunded bond escrow agent (7,469,290) (7,469,290) Proceeds from capital lease 259, ,800 Proceeds from sale of capital assets 67,845 67,845 TOTAL OTHER FINANCING SOURCES (USES) 435,280 2,541,039 2,976,319 NET CHANGE IN FUND BALANCES 494,192 (821) 2,345,902 2,839,273 FUND BALANCES AT BEGINNING OF YEAR 15,756,643 3,767,988 2,078,705 21,603,336 FUND BALANCES AT END OF YEAR $ 16,250,835 $ 3,767, 167 $ 4,424,607 $ 24,442,609 See accompanying notes to the basic financial statements

29 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS Capital outlays are reported in Governmental Funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeds capital outlays in the current period. The net effect of various miscellaneous transactions involving capital assets (i.e., sales and donations) is to decrease net position. Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered as "available" revenues in the Governmental Funds. Deferred tax revenues decreased by this amount this year. The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to Governmental Funds, while the repayment of the principal of long-term debt consumes the current financial resources of Governmental Funds. Neither transaction, however, has any effect on net position. Also, Governmental Funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Allowance for doubtful accounts, property taxes receivable. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in Governmental Funds. The net change in the liability for the net OPEB obligation is reported in the government-wide statements but not in the Governmental Funds statements. CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 2,839,273 (3,679, 155) (34,069) (157,944) 2,057,846 3, ,285 (84,255) $ 1,505,140 See accompanying notes to the basic financial statements

30 STATEMENT OF NET POSITION PROPRIETARY FUND JUNE 30, 2014 Enterprise Fund Food Service Fund ASSETS CURRENT ASSETS Cash and cash equivalents $ 529,711 Investments 490,000 Receivables 2,177 Due from other governments 12,075 Inventories 82,618 TOTAL CURRENT ASSETS 1, 116,581 CAPITAL ASSETS Property and equipment 448,873 Accumulated depreciation (354,229) TOTAL CAPITAL ASSETS 94,644 LIABILITIES TOTAL ASSETS 1,211,225 CURRENT LIABILITIES Due to other funds 948 Accrued salary and benefits 159,422 Unearned revenue 38,299 TOTAL CURRENT LIABILITIES 198,669 NET POSITION Net investment in capital assets 94,644 Unrestricted 917,912 TOTAL NET POSITION $ 1,012,556 See accompanying notes to the basic financial statements

31 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUND YEAR ENDED JUNE 30, 2014 Enterprise Fund Food Service Fund OPERATING REVENUES Charges for services $ 961,578 OPERATING EXPENSES Salaries 680,494 Employee benefits 302,024 Purchased property services 35,708 Other purchased service 116,390 Supplies 690,280 Depreciation 18,949 Dues and fees 9,323 TOTAL OPERATING EXPENSES 1,853, 168 OPERATING LOSS (891,590) NONOPERATING REVENUES State sources 127,376 Federal sources 606,347 TOTAL NONOPERATING REVENUES 733,723 CHANGE IN NET POSITION (157,867) NET POSITION AT BEGINNING OF YEAR 1, 170,423 NET POSITION AT END OF YEAR $ 1,012,556 See accompanying notes to the basic financial statements

32 STATEMENT OF CASH FLOWS PROPRIETARY FUND YEAR ENDED JUNE 30, 2014 Enterprise Fund Food Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from users Payments to employees Payments to suppliers NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Federal sources State sources NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Sale of investments NET INCREASE IN CASH CASH AT BEGINNING OF YEAR $ 963,498 (971,974) (732,745) (741,221) 496, , , , , ,650 CASH AT END OF YEAR $ 529,

33 STATEMENT OF CASH FLOWS PROPRIETARY FUND YEAR ENDED JUNE 30, 2014 Enterprise Fund Food Service Fund RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash used by operating activities Depreciation Donated foods used Decrease in Receivables Inventories Increase (decrease) in Due to other funds Accrued salary and benefits Unearned revenue NET CASH USED BY OPERATING ACTIVITIES $ $ (891,590) 18, ,493 1,793 7,905 (442) 10, (741,221) SUPPLEMENTAL DISCLOSURES Noncash activities Donated foods $ 111,493 See accompanying notes to the basic financial statements

34 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2014 Private- Purpose Trust Funds Agency Fund ASSETS Cash $ 4,004 $ 43,037 Investments 31, ,334 TOTAL ASSETS 35,823 $ 149,371 LIABILITIES Accounts payable $ 149,371 NET POSITION Reserved for trust $ 35,823 See accompanying notes to the basic financial statements

35 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS YEAR ENDED JUNE 30, Private Purpose Trust Funds ADDITIONS Local contributions Investment income TOTAL ADDITIONS DEDUCTIONS Fees paid and scholarships awarded CHANGE IN NET POSITION NET POSITION AT BEGINNING OF YEAR $ 10, ,269 12,599 (2,330) 38, 153 NET POSITION AT END OF YEAR $==35='=82=3= See accompanying notes to the basic financial statements.

36 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Exeter Township School District (the "District") complies with generally accepted accounting principles (GAAP). GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. The accounting and reporting framework and the more significant accounting policies are discussed in subsequent subsections of this note. Reporting Entitv The District was established under the laws of the Commonwealth of Pennsylvania as a school district of the third class. The District tax base consists of the Township of Exeter and St. Lawrence Borough. 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. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's financial accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are financial accountability and the nature and significance of the relationship. This report presents the activities of Exeter Township School District, the primary government. The District is not a component unit of another reporting entity nor does it have any component units. The Berks County Intermediate Unit, the Berks County Vocational-Technical School and the Exeter Township School District Authority have been excluded from this reporting entity. These potential component units have separate elected boards and provide services to residents generally within the geographic boundaries of the District. The Berks County Intermediate Unit is excluded from the reporting entity because the District does not have the ability to exercise influence over its daily operations, approve budgets, or provide funding. The Berks County Vocational-Technical School d/b/a Berks Career and Technology Center is deemed to be a joint venture. The Exeter Township School District Authority is inactive with no outstanding debt issues or account balances. Joint Ventures The District is a participating member of the Berks Career and Technical Center (BCTC). BCTC is run by a joint board consisting of school directors from each member district. The board of directors of each member district must approve the BCTC's annual budget. Each member pays a proportionate share of the operating costs of BCTC based on the number of students from each district. The District's share of BCTC's General Fund budget for the year was $1,407,567. Complete financial statements can be obtained from BCTC at 1057 County Road, Leesport, PA The District does not have an equity interest in this organization

37 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation Entity-Wide Financial Statements - The statement of net position and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type activities. These statements exclude fiduciary activities. The entity-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under Proprietary Fund. This is the same approach used in the preparation of the Proprietary Fund financial statements but differs from the manner in which Governmental Funds financial statements are prepared. Therefore, Governmental Funds financial statements include a reconciliation with brief explanations to better identify the relationship between the entity-wide statements and the statements of Governmental Funds. The entity-wide statement of activities presents a comparison between expenses and program revenues for each segment of the business-type activities of the District and for each governmental program. Expenses are those that are specifically associated with a service or program and are, therefore, clearly identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Internal activity is limited to interfund transfers which are eliminated to avoid "doubling up" revenues and expenses. Net position is reported as restricted when constraints placed on net position use are either externally imposed by creditors (such as through debt covenants), granters, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other purposes results from Special Revenue and Capital Projects Funds and the restrictions on their net position use. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first and then unrestricted resources as they are needed. Fund Financial Statements - Fund financial statements report detailed information about the District. The focus of Governmental and Enterprise Funds financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Fiduciary Funds financial statements are represented by fund type

38 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Governmental Funds - All Governmental Funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. The District reports the following major Governmental Funds: The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government except those required to be accounted for in another fund. The Capital Reserve Fund is used for funds set aside that are legally restricted to expenditures for specific purposes. The Capital Projects Fund is used to account for the acquisition, construction and renovation of major capital facilities. Revenue Recognition - In applying the susceptible to accrual concept under the modified accrual basis, certain revenue sources are deemed both measurable and available (i.e., collectible within the current year or within 60 days from year-end and available to pay obligations of the current period). This includes property taxes, interest earnings, real estate transfer taxes, earned income taxes and certain fees for services. Revenues for state and federally funded projects are recognized at the time the expenditures are made or when received in advance. Other revenues, including certain other charges for services and miscellaneous revenues, are recorded as revenue when received in cash because they generally are not measurable until actually received. Expenditure Recognition - The measurement focus of Governmental Fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures are measurable and are recorded when the related fund liability is incurred. However, principal and interest on general long-term debt which has not matured, as well as expenditures related to compensated absences, are recognized when payment is due. Allocations of costs, such as depreciation and amortization, are not recognized in the Governmental Funds. Proprietary Fund - The Proprietary Fund is accounted for using the accrual basis of accounting. This fund accounts for operations that are financed primarily by user charges. The economic resource measurement focus concerns determining costs as a means of maintaining the capital investment and management control. Revenues are recognized when they are earned and expenses are recognized when they are incurred. Allocations of certain costs, such as depreciation, are recorded in the Proprietary Fund. The District does not attempt to allocate all "building-wide costs" to the Enterprise Fund. Thus, General Fund expenditures which partially benefit the Enterprise Fund (utilities, janitorial services, insurance, etc.) are not recognized proportionately with the Enterprise Fund. Similarly, the Enterprise Fund does not recognize a cost for the building space it occupies

39 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District's only Proprietary Fund is the Food Service Fund, which is a major Enterprise Fund. This fund accounts for the revenues and costs of feeding students; it distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the fund's principal ongoing operations. The principal operating revenues of this fund are food service charges. Operating expenses for this fund include food production costs, supplies and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. Fiduciary Funds - Fiduciary Funds are restricted to account for assets held by the District in a trustee capacity or as an agent for individuals, private organizations, other governmental units and other funds. The District has a Scholarship Fund used to account for assets held by the District to be used for student scholarships. The District has one Agency Fund, the Student Activity Fund, which accounts for funds held on behalf of students of the District. The Agency Fund is unlike all other types of funds, reporting only assets and liabilities. Therefore, this fund cannot be said to have a measurement focus. It does, however, use the accrual basis of accounting to recognize receivables and payables. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Investments State statutes authorize the District to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds and repurchase agreements. Investments are stated at fair value. Included in investments are pooled funds in the Pennsylvania School District Liquid Asset Fund (PSDLAF). Property Taxes Property taxes are assessed against individual properties based on property ownership as of July 1. Taxes are levied on July 1 and are payable in the following periods: July 1 to August Discount period - 2% of gross levy September 1 to October Gross tax October 31 to collection... Penalty period-10% of gross levy March 1... Lien date The tax on real estate for public school purposes for fiscal was mills

40 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Since taxes are recorded as revenue only when received in cash, outstanding tax levies are offset on the fund balance sheet by deferred revenue in the liabilities section. Annual, interim and delinquent taxes as yet uncollected are included as deferred revenue. The District records an allowance for uncollectible taxes at the entity-wide level based on historical data. The allowance amount as of June 30, 2014, was $41,929. Inventories Inventories in the Food Service Fund are stated at cost (first-in, first-out method) and consist of food and supplies held for resale. The inventories on hand in the Food Service Fund at June 30, 2014, consist of the following: Purchased food Supplies Donated commodities $ 35,924 18,459 28,235 $ 82,618 Capital Assets Capital assets, which include property, plant and equipment with a cost of $5,000 or more, are reported in the applicable governmental or business-type activities columns in the entitywide financial statements and the Proprietary Fund financial statements. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed, inclusive of ancillary costs. Property, plant and equipment of the District are depreciated using the straight-line method over the following estimated useful lives: Years Land improvements School buildings Building improvements Furniture and equipment Vehicles Library books

41 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Compensated Absences Vacation - The District administrators and support staff are granted vacation based on individual contracts and length of service. Administrators earning vacation can carry (and be paid for upon retirement) up to twice their annual allotment of vacation days. Additional accumulated vacation days can be added to the pool of unused sick leave (for retirement purposes only) and be paid at the rate of $90/day upon retirement. Support staff can accumulate unused vacation up to a maximum of two times the employee's annual allotment. Sick Leave - The District allows all employees to accumulate their unused sick leave as specified in negotiated contracts. Upon retirement, unused sick leave will be paid at a rate of $80 per day for support staff, $90 per day for teachers and $90 per day for administrators. Personal Leave - The District allows all employees to accumulate their unused personal leave as specified in negotiated contracts. Upon retirement, unused personal leave will be paid at a rate of $80 per day for support staff, $90 per day for teachers and $90 per day for administrators. Accumulated compensated absences are estimated by management based on the following assumptions: Persons over age 50 with ten or more years of PSERS credited service will become retirees of the District. Persons over age 50 with between five and nine years of PSERS credited service with the District, or persons under age 50 with more than ten years of service with the District, are 50% likely to become retirees of the District. Long-Term Obligations Long-term debt and other long-term obligations are reported as liabilities in the entity-wide financial statements and the Proprietary Fund financial statements. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Issuance costs, whether or not withheld from the actual debt proceeds received, generally are reported as debt service expenditures. In the fund financial statements, Governmental Fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received and discounts paid on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, generally are reported as debt service expenditures

42 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has only one item that qualifies for reporting in this category. It is the deferred amount on refunding reported in the government-wide statement of net position. A deferred amount on refunding results from the difference in the carrying value of refunded debt and its reacquisition prices. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District has only one type of item, which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the Governmental Funds balance sheet. The Governmental Funds report unavailable revenues from property taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Fund Equity Fund balance will be placed in the following classification (if applicable) depicting the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendab/e - That portion of the fund balance that cannot be spent because it is either in a nonspendable form or legally or contractually required to be maintained intact. Restricted - That portion of the fund balance that is constrained to be used for a specific purpose as per an external party or law. Committed - That portion of the balance that is to be used for a specific purpose as per School Board motion. These constraints can be removed or changed by equal level action. Action to constrain resources should occur prior to the fiscal year-end. Direction from the School Board can commit specific dollar amounts, percentages, or funds related to a specific activity

43 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assigned - That portion of the fund balance that is intended to be used for a specific purpose as per the Property and Finance Committee, the Superintendent or the Business Manager. Unassigned - That portion of the fund balance that represents expendable available financial resources. It is the residual after the nonspendable, restricted, committed and assigned portions are deducted from the total fund balance. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds and, finally, unassigned funds, as needed, unless the Board has provided otherwise in its commitment or assignment actions. Net Position Flow Assumption Sometimes the District will fund outlays for a particular purpose for both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the governmentwide and Proprietary Fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District's policy to consider restricted net position to have been depleted before unrestricted net position is applied. NOTE B - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information With the enactment of Act 1 of 2006, school districts of the Commonwealth of Pennsylvania are required to prepare a preliminary budget as well as a proposed final budget. The Board of School Directors is required to adopt the preliminary budget at least 90 days prior to the primary election. On or before November 15 of each year, all school principals and department supervisors submit estimates of expenditures for their area of responsibility so that a preliminary budget can be prepared. The Board of School Directors reviews the preliminary budget during the months of December and January. On or before February 15 of each year, all school principals and department supervisors submit detailed requests for appropriation to the District's Secretary to the Board so that a proposed final budget may be prepared. The budget is prepared by fund, function and activity. The Secretary to the Board is required to submit a proposed budget to a Business Functions Committee by the beginning of April

44 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE B - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) Before May 30, the proposed budget is presented to the District's School Board for review. The School Board holds public hearings and may add to, subtract from, or change appropriations but may not change the form of the budget. Any changes in the budget must be with the revenues and reserves estimated as available by the District's Business Manager or the revenue estimates must be changed by an affirmative vote of a majority of the School Board. Expenditures may not legally exceed budgeted appropriations at the activity level. All annual appropriations lapse at the end of the fiscal year. NOTE C - DEPOSITS AND INVESTMENTS Custodial Credit Risk. Deposits Custodial credit risk is the risk that in the event of a bank failure, the government's deposits may not be returned. The District does not have a policy for custodial credit risk. At June 30, 2014, the carrying amount of the District's deposits was $1,019,011, and the bank balance was $1,465,951. Of the bank balance, $222,655 was covered by federal depository insurance. The remaining cash deposits totaling $1,243,296 of the District are in the Pennsylvania School District Liquid Asset Fund (PSDLAF) and are uninsured. Although not registered with the Securities and Exchange Commission and not subject to regulatory oversight, PSDLAF acts like a money market mutual fund in that its objective is to maintain a stable net asset value of $1 per share, is rated by a nationally recognized statistical rating organization and is subject to an independent annual audit. Investments Statutes authorize the District to invest in U.S. Treasury bills, time, or share accounts of institutions insured by the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation or in certificates of deposit when they are secured by proper bond or collateral, repurchase agreements, State Treasurer's investment pools, or mutual funds. A portion of the District's cash investments is in the PSDLAF and Pennsylvania Treasurer's program for Local Governments (INVEST), both of which are funds very similar to mutual funds. GASB Statement No. 3, Paragraph 69, provides that certain types of cash and investments, such as cash investments in a State Treasurer's investment pool or mutual fund, cannot be assigned a credit risk category because the government does not own specific securities. Therefore, the PSDLAF and INVEST cash investments included in these statements will not be assigned a credit risk category. The carrying amount of these investments at June 30, 2014, is $27,878,734. The fair value of the position in this investment is the same as the value of the pool shares, i.e., they maintain a stable net asset value of $1 per share. PSDLAF and INVEST are not SEC-registered. All investments are monitored weekly by Standard & Poor's and are subject to an independent audit on an annual basis

45 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE C - DEPOSITS AND INVESTMENTS (Continued) Interest Rate Risk The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Custodial Credit Risk, Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral security that is in the possession of an outside party. The District has no investments subject to custodial credit risk. Credit Risk The District has no investment policy that would limit its investment choices to those with certain credit ratings. As of June 30, 2014, PSDLAF was rated as AAAm by a nationally recognized statistical rating organization. NOTE D - DEFERRED INFLOW OF RESOURCES AND UNEARNED REVENUE Governmental Funds report deferred inflows of resources and unearned revenues in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental Funds also defer revenue recognition with resources that have been received but not yet earned. Real estate taxes collected within 60 days of the close of the fiscal year are recorded as current revenues. The noncurrent portion of real estate taxes receivable is recorded as deferred inflow of resources until such time as it becomes available. Program grants received prior to the incurrence of qualifying expenditures are recorded as unearned revenue

46 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE E - CAPITAL ASSETS Capital asset activity for the year ended June 30, 2014, was as follows: Beginning Ending Balance Increase Decrease Balance GOVERNMENTAL ACTIVITIES Capital assets not being depreciated Land $ 5,367,217 $ $ $ 5,367,217 Capital assets being depreciated Land improvements 5,792, ,739 5,916, 173 Buildings and improvements 130, 135, ,821 (74,333) 130,938,427 Furniture and equipment 16,856, ,857 (301,690) 17,386,727 TOTAL CAPITAL ASSETS BEING DEPRECIATED 152,784,933 1,832,417 (376,023) 154,241,327 Accumulated depreciation Land improvements (3,326,206) (226,354) (3, 552, 560) Buildings and improvements (55,555,510) (4,102,341) 40,264 (59,617,587) Furniture and equipment (11,800,842) (1, 182,877) 301,690 (12,682,029) TOTAL ACCUMULATED DEPRECIATION (70,682,558) (5,511,572) 341,954 (75,852,176) TOTAL CAPITAL ASSETS BEING DEPRECIATED, net 82, 102,375 (3,679, 155) (34,069) 78,389, 151 GOVERNMENTAL ACTIVITIES CAPITAL ASSETS, net $ 87,469,592 $ (3,679, 155) $ (34,069) $ 83,756,368 BUSINESS-TYPE ACTIVITIES Capital assets being depreciated Furniture and equipment $ 448,873 $ $ $ 448,873 Accumulated depreciation (335,280) (18,949) (354,229) BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS, net $ 113,593 $ (18,949) $ $ 94,644 Depreciation expense was charged to governmental functions as follows: GOVERNMENTAL ACTIVITIES Instruction Support services Administrative and financial support services Operation and maintenance of plant services Pupil transportation Student activities $ 4,883,144 53,630 19, , ,224 52,036 $ 5,511,

47 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE F - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of June 30, 2014, is as follows: Receivable By Amount Payable From General Fund $ 948 Food Service Fund ===== Amount $ 948 ==== NOTE G - GENERAL LONG-TERM DEBT The following summarizes the changes in general long-term debt for the year ended June 30, 2014: Balance July 1, 2013 Additions Reductions Balance June 30, 2014 Compensated absences $ 1,834,398 $ 134,036 $ (116,080) General obligation debt 84,759, 172 9,995,000 (12,061,844) Capital leases 90, ,800 (179, 140) Net OPEB obligation 270, ,638 (333,383) $ 86,954,942 $ 10,806,474 $ (12,690,447) $ 1,852,354 82,692, , ,900 $ 85,070,969 Bonds payable outstanding at June 30, 2014, are as follows: General Obligation Bonds. Series of1994 On August 23, 1994, the District issued $15,487,328 of General Obligation Bonds, Series of The 1994 General Obligation Bonds were comprised of $10,910,000 of current interest bonds and $4,577,328 of capital appreciation bonds. Current interest bonds of $10,910,000 consist of $6,280,000 in serial bonds, which mature from May 15, 1995 through 2004 and $4,630,000 in term bonds, which mature on May 15, 2009 and May 15, 2014, at interest rates ranging from 5.85% to 6.00%. Interest is payable seimannually on the serial bonds at rates ranging from 3.6% to 5.3%. The serial bonds and term bonds were refunded in Capital appreciation bonds of $4,577,328 mature May 15, 2015 through 2019, with interest ranging from 6.35% to 6.40%. renovation of the Junior High School building and renovation of the heating and air conditioning system at the M. L. Lausch Elementary Center building and to advance refund portions of the 1992 and 1993 General Obligation Bonds. SUBTOTAL FORWARD $ 4,577,328 $ 4,577,

48 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE G - GENERAL LONG-TERM DEBT (Continued) SUBTOTAL FORWARDED $ 4,577,328 General Obligation Bonds. Series A. B, C of 2009 On September 15, 2009, the District issued General Obligation Bonds, Series A, B and C of 2009, in the amount of $17,375,000. The proceeds of Series A were used to provide funds for the new elementary capital project. The proceeds of Series B were used to refund the outstanding General Obligation Bonds, Series of The proceeds of Series C were used to provide funds for a school building roof replacement project. Series A and C were partially refunded with proceeds of General Obligation Bonds, Series of After the partial refunding, Series A Bonds mature serially through February 1, 2017, at interest rates ranging from 2.5% to 3.0%. Series B Bonds mature serially through May 15, 2021, at interest rates ranging from 1.85% to 3.7%. Series C bonds matured on May 15, 2014, and were fully paid off at June 30, ,690,000 General Obligation Bonds. Series of 2010 On May 28, 2010, the District issued General Obligation Bonds in the amount of $15,670,000. The proceeds of this bond were used to finance the new elementary capital project and to refund the outstanding General Obligation Bonds, Series of These bonds were partially refunded with proceeds of General Obligation Bonds, Series of After the partial refunding, the bonds mature in various principal amounts through 2027, at interest rates ranging from 2% to 4%. 13,030,000 General Obligation Bonds, Series of 2011 On December 7, 2011, the District issued General Obligation Bonds in the amount of $10,000,000. The proceeds of this bond were used to refund the outstanding General Obligation Bonds, Series of The bonds mature in various principal amounts from May 15, 2013 through 2026, at interest rates ranging from.85% to 3.375%. This current refunding was undertaken to reduce total debt payments and resulted in an economic gain of $711,229. 9,035,000 General Obligation Bonds. Series of 2012 On January 19, 2012, the District issued General Obligation Bonds in the amount of $8, 180,000. The proceeds of this bond were used to refund the outstanding General Obligation Bonds, Series of The bonds mature in various principal amounts from May 15, 2013 through 2021, at interest rates ranging from.55% to 3%. This current refunding was undertaken to reduce total debt payments and resulted in an economic gain of $603,084. SUBTOTAL FORWARD 4,895,000 $ 37,227,

49 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE G - GENERAL LONG-TERM DEBT (Continued) SUBTOTAL FORWARDED $ 37,227,328 General Obligation Bonds, Series A of 2012 and Federallv-Taxable General Obligation Bonds. Series B of 2012 On December 27, 2012, the District issued General Obligation Bonds, Series A in the amount of $19,995,000 and Federally-Taxable General Obligation Bonds, Series B of 2012, in the amount of $6,720,000. The proceeds of Series A were used to advance refund a portion of the Series of 2003 Bonds, pay a portion of the termination amount to Wells Fargo Bank with respect to the termination of a swap agreement related to General Obligation Bonds, Series of 2003, and pay the costs of issuing the bonds. The proceeds of Series B were used to pay a portion of the termination amount to Wells Fargo Bank with respect to the termination of a swap agreement related to the General Obligation Bonds, Series of 2003, and pay the costs of issuing the bonds. Series A Bonds mature in various principal amounts from May 15, 2021 through May 15, 2028, at interest rates ranging from 3% to 4%. Series B Bonds mature in various principal amounts from May 15, 2013 through May 15, 2021, at interest rates ranging from 0.538% to 2.838%. 25,965,000 General Obligation Bonds. Series of 2013 On February 6, 2013, the District issued General Obligation Bonds in the amount of $9,675,000. The proceeds were used to advance refund the outstanding Series of 2003 Bonds of the District and pay the costs of issuing the bonds. The bonds mature in various principal amounts from May 15, 2013 through May 15, 2025, at interest rates ranging from 0.3% to 2.3%. This advance refunding was undertaken to reduce total debt payments by $2,219,536 and resulted in an economic gain of$1,921,313. 9,505,000 General Obligation Bonds. Series of 2014 On January 9, 2014, the District issued General Obligation Bonds, Series of 2014 in the amount of $9,995,000. The proceeds were used to advance refund a portion pf the outstanding Series A of 2009 Bonds, advance refund a portion of the outstanding Series C of 2009 Bonds, advance refund a portion of the outstanding series of 2010 Bonds, finance various capital projects of the District and pay the costs of issuing the bonds. The bonds mature in various principal amounts from May 15, 2015 through May 15, 2028, at interest rates ranging from 0.50% to 4.5%. The advance refunding was undertaken to reduce total debt payments by $161,213 and resulted in an economic gain of $205, ,995,000 $ 82,692,

50 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE G - GENERAL LONG-TERM DEBT (Continued) Presented below is a summary of the debt service requirements of the bonds to maturity by year: Year Ending Principal Interest Total June 30, Maturities Maturities Maturities 2015 $ 3,890,022 $ 5,242,091 $ 9, 132, ,931,980 5,249,992 9, 181, ,982,744 5,243,762 9,226, ,997,302 5,219,884 9,217, ,015,280 5,190,906 9,206, to ,025,000 8,533,493 42,558, to ,850,000 2,596, ,446, 125 $ 82,692,328 $ 37,276,253 $ 119,968,581 Total interest expense for the year ended June 30, 2014, was $3,881,724. NOTE H- CAPITAL LEASES The District has entered into lease agreements as lessee for financing the acquisition of capital assets. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of future minimum lease payments as of the inception date. The assets acquired through the capital leases are as follows: Furniture and equipment Accumulated depreciation $ 259,800 (86,600) $ 173,200 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2014, were as follows: Year Ending June 30, Amount representing interest PRESENT VALUE OF MINIMUM LEASE PAYMENTS Total expenditures under capital leases amounted to $184,215 during $ $ Amount 88,966 88,966 (6,545) 171,

51 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1- OPERATING LEASES The District leases several copiers under operating leases expiring through June The future lease obligations under these leases are as follows: Year Ending June 30, Principal 2015 $ 179, , , , ,740 $ 509,565 Total expenditures under these leases amounted to $164,681 for the year ended June 30, NOTE J - PENSION PLAN School districts in the Commonwealth of Pennsylvania participate in a state administered pension program. Under the program, contributions are made by each of three parties--the District, the state and the employee. All full-time employees of the District and part-time employees who meet certain minimum employment requirements participate in the program. Plan Description Name of Plan: Public School Employees' Retirement System (the "System"). Type of Plan: Governmental cost-sharing multiple-employer defined benefit plan. Benefits: Retirement and disability, legislatively mandated ad hoc cost-of-living adjustments, healthcare insurance premium assistance to qualifying annuitants. Authority. The Public School Employees' Retirement Code (Act No. 96 of October 2, 1975, as amended) (24 Pa. C. S ). Annual Financial Report The System 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 Beth Girman, Office of Financial Management, Public School Employees' Retirement System, 5 North 5th Street, Harrisburg, PA This publication is also available on the PSERS website at pu blications/cafr/index. htm. -45-

52 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE J - PENSION PLAN (Continued) Funding Policy Authority: The contribution policy is established in the Public School Employees' Retirement Code and requires contributions by active members, employers and the Commonwealth. Contribution Rates Member Contributions 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 the member's qualifying compensation. Members who joined the System after June 30, 2001, contribute at 7.50% (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, 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's 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 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-E 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%. Employer Contributions: Contributions required of employers are based upon an actuarial valuation. For the fiscal year ended June 30, 2014, the rate of employer's contribution was 16.93% of covered payroll. The 16.93% rate is composed of a pension contribution rate of 16.00% for pension benefits and.93% for healthcare insurance premium assistance. The School District's contribution to PSERS for the years ended June 30, 2014, 2013 and 2012, was $4,900,064, $3,594,084 and $2,570,703, respectively, equal to the required contribution for each year. -46-

53 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE K - EMPLOYEE BENEFIT PLANS Exeter Township School District provides three self-insured benefit plans for all eligible employees. EX-FLEX provides reimbursement for certain healthcare costs up to an annual amount specified in the collective bargaining agreement. Any unused portion of the annual allocation is cumulative provided the employee remains employed by the District. Any unused credits revert to the District upon termination of employment. The annual allocations are expended currently, and the accumulated unused portions are included in accrued salaries and benefits on the District's balance sheet. The amount expended and the liability as of June 30, 2014, is $462,275 and $512,350, respectively. In addition, in November 1989, the District began a self-insured dental plan which reimburses specific dental expenses incurred by eligible employees. Expenditures for the plan are recognized as incurred. For the year ended June 30, 2014, $322,541 of benefits has been expended. Exeter Township School District's 401 (a) Special Pay Plan with Bencor, Inc. established during fiscal year was terminated as of July 1, 2005, due to a change in Internal Revenue Service regulations regarding 401 (a) Special Pay Plans. Contract language regarding special pay plans has been amended to reflect the use of qualified 403(b) employee accounts as the plan to which the District contributes 100% of compensation in the year of an employee's termination. The employer contribution includes accumulated personal and sick leave, special bonus, accumulated vacation, retirement incentive and terminal pay. For the years ended June 30, 2012, 2013 and 2014, the District made employer contributions in the amounts of $630,385, $276,832 and $153,624, respectively. NOTE L - POSTEMPLOYMENT HEALTHCARE PLAN Plan Description Effective for the fiscal year, the District implemented Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, for certain postemployment healthcare benefits and life insurance benefits provided by the District. This statement generally provides for prospective implementation, i.e., that employers set the beginning net OPEB obligation at zero as of the beginning of the initial year. The District's postemployment healthcare plan is a single-employer defined benefit healthcare plan. The plan provides medical insurance benefits to eligible retirees and their spouses. The Board of School Directors has the authority to establish and amend benefit provisions through the collective bargaining process with members of the professional and support staff, an agreement with administrative employees and individual employment contracts with certain employees. The plan does not issue any financial report and is not included in the report of any public employee retirement system or any other entity

54 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE L - POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Funding Policv The contribution requirements of plan members are established and may be amended by the Board of School Directors. The required contribution is based on projected pay-as-yougo financing requirements, with any additional amount to prefund as determined annually by the Board of School Directors. For the year ended June 30, 2014, the District contributed $333,383 to the plan for current premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual other postemployment benefit cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's OPEB cost for the year, the amount actually contributed to the plan and changes in the District's net OPEB obligation to the plan. Annual required contribution (ARC) $ 422,074 Interest on net OPEB obligation 12, 179 Adjustment to ARC (16,615) ANNUAL OPEB EXPENSE 417,638 Contributions made (333,383) INCREASE IN NET OPEB OBLIGATION 84,255 Net OPEB obligation at beginning of year 270,645 NET OPEB OBLIGATION AT END OF YEAR $ 354,900 Percentage of Annual Year Ended Annual OPEB Cost Net OPEB June 30, OPEB Cost Contributed Obligation 2012 $ 302, % $ 197, , % 270, , % 354,

55 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE L - POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Funded Status and Funding Progress The schedule of funding progress of OPEB is as follows: (b) Entry Age (a) Actuarial (c) (d) Valuation Actuarial Accrued Unfunded Funded Date Value of Liability AAL (UAAL) Ratio November 1, Assets (AAL) (b)-(a) (a)/(b) (e) Covered Payroll (f) UAAL as a Percentage of Covered Payroll (c)/(e) 2007 $ $ 2,350,037 $ 2,350,037 QOfo ,614,109 2,614, 109 oo;;, ,513,995 3,513,995 oo;;, $ 22,170, % 23,960, % 24,560, %1 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the November 1, 2011 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.5% investment rate of return and an annual healthcare cost trend rate of 8% in 2011, reduced by decrements to an ultimate rate of 4.2% in 2089 or later. The UAAL is being amortized based on the level dollar, 30-year open period. The remaining amortization period at June 30, 2014, was 24 years. NOTE M - RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all major programs. There were no significant reductions in insurance coverages in the year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years

56 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE N - CONTINGENCIES The District participates in both state and federally assisted grant programs. These programs are subject to program compliance audits by the granters or their representatives. The District is potentially liable for any expenditures which may be disallowed pursuant to the terms of these grant programs. Management is not aware at any material items of noncompliance which would result in the disallowance of program expenditures. NOTE 0 - COMMITMENTS Tax Increment Financing Plan and Cooperation Agreement On June 17, 2007, the Board of School Directors of Exeter Township School District adopted a resolution approving a Tax Increment Financing Plan for the Exeter Township Project to finance the design, construction, acquisition and installation of certain improvements to Business Route 422, Perkiomen Avenue and the U.S. 422 Bypass in the Township of Exeter, Berks County, Pennsylvania. The TIF District comprises acres with ten County tax parcels. A private developer, Exeter JV Associates, LP, will construct a large regional shopping center in the TIF District. The Berks County Industrial Development Authority designed the TIF Plan to finance the project. The Tax Incremental Financing Act (P.L. 465 July 11, 1990), as amended, grants this power to development authorities. The TIF Plan calls for the Industrial Development Authority to borrow $6,299,000 to finance part of the $15,375,000 in costs to improve Business Route 422 through the TIF District, as well as adjacent commercial areas along Route 422. All the TIF funds will be used for the off-site improvements to Route 422, traffic signals and other public rights of way. The District's election to participate in the plan shall not, in any way, pledge or obligate the credit or taxing power of the District, nor shall the District be liable for the payment of principal of, or interest on, any obligations issued by the Authority. In addition, the Board of School Directors of Exeter Township School District authorized the execution of a Cooperation Agreement among the Authority, the District, the County and the Township of Exeter which sets forth and confirms the basic terms and conditions of the Tax Increment Financing Plan. The Tax Increment District was created as of December 1, The Tax Increment District shall continue in existence until November 30, Commencing with the collection of the Tax Increment in calendar year 2008, within 30 days of receipt of the Tax Increment, the District will pay to the issuer an amount equal to the lesser of (i) 75% of the Tax Increment received by the District during the term of the Tax Increment District; or (ii) a percentage of the Tax Increment received by the District during the term of the Tax Increment District in an amount that will be sufficient, together with the Tax Increment collected by the Township and the County, to enable the Authority to pay debt service on the notes for such fiscal year and to pay all costs and expenses of the Authority incurred with respect to the administration of the Tax Increment District

57 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 0 - COMMITMENTS (Continued) The tax assessor for the County has determined the full aggregate market value of the taxable property in the Tax Increment District to be $3,654,900 as of December 1, This shall be considered the base assessed value of the taxable property in the Tax Increment District, and the real estate tax calculated at the current millage will be the amount earned by the District. The Tax Assessment valuation for the TIF District for FY was $28, 187,860, which generated approximately $745,000 in tax revenue. In December 2013, the District gave $272,947 of the Tax Increment to the Authority to pay debt service. This amount represents a percentage of the Tax Increment received by the District in an amount that was sufficient, together with the Tax Increment collected by the Township and the County, to enable the Authority to pay debt service on the notes and any administrative costs related to the Tax Increment District. The payment represents 36% of the Tax Increment. As of July 2011, the Berks County Board of Assessment determined the full market value assessment of the TIF properties to be $32,416,300. The difference between the base assessed value of the TIF District parcels and the reassessed values is the Tax Assessment Increment in the amount of $28, 187,860. NOTE P - FUND BALANCES As of June 30, 2014, fund balances are composed of the following: Total General Capital Capital Governmental Fund Reserve Fund Projects Fund Funds NONSPENDABLE Prepaid expenses $ 35,983 $ $ $ 35,983 RESTRICTED Capital projects 4,424,607 4,424,607 COMMITTED PSERS 1,078,709 1,078,709 Property tax 160, ,000 Other improvements 2,332,329 2,332,329 ASSIGNED Renovations 3,767,167 3,767,167 Budgetary 2,989,822 2,989,822 UNASSIGNED 9,653,992 9,653,992 TOTAL FUND BALANCES $ 16,250,835 $ 3,767,167 $ 4,424,607 $ 24,442,

58 NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE Q- ON-BEHALF PAYMENTS FOR FRINGE BENEFITS The District recognizes as revenue and expenses contributions made by the Commonwealth of Pennsylvania to be used for District employees' social security and pension contributions. On-behalf payments to the District totaled $1, 148,075 and $2,639,861 for social security and retirement contributions, respectively. These contributions are recorded in the General Fund and Food Service Fund as revenue and expenditures

59 REQUIRED SUPPLEMENTARY INFORMATION

60 BUDGETARY COMPARISON SCHEDULE GENERAL FUND YEAR ENDED JUNE 30, 2014 Variance With Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Local sources $ 45,893,404 $ 45,893,404 $ 46,046,270 $ 152,866 State sources 17,557,872 17,557,872 17,635,627 77,755 Federal sources 1,170,288 1, 170,288 1,097,540 (72,748) Receipts from other districts 60,949 60,949 TOTAL REVENUES 64,621,564 64,621,564 64,840, ,822 EXPENDITURES Instruction 38,265,264 38,296,559 37,318, ,711 Support services 17,120,599 17,157,171 16,316, ,655 Operation of non-instructional services 1,269,461 1,279,795 1,281,460 (1,665) Facility acquisition, construction and improvement 850, , ,232 85,768 Debt service 9,061,327 9,061,327 9, 130,418 (69,091) TOTAL EXPENDITURES 66,566,651 66,614,852 64,781,474 1,833,378 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,945,087) (1,993,288) 58,912 2,052,200 OTHER FINANCING SOURCES (USES) Bond issue proceeds 7,485,000 7,485,000 Premiums on bond issuances 91,925 91,925 Payment to refunded bond escrow agent (7,469,290) (7,469,290) Proceeds from sale of capital assets 2,000 2,000 67,845 65,845 Proceeds from extended term financing 273, , ,800 (13,200) Budgetary reserve (200,000) (151,799) 151,799 TOTAL OTHER FINANCING SOURCES (USES) 75, , , ,079 NET CHANGE IN FUND BALANCE (1,870,087) (1,870,087) 494,192 2,364,279 FUND BALANCE AT BEGINNING OF YEAR 15,756,643 15,756,643 15,756,643 FUND BALANCE AT END OF YEAR $ 13,886,556 $ 13,886,556 $ 16,250,835 $ 2,364,279 See accompanying note to the budgetary comparison schedule

61 NOTE TO THE BUDGETARY COMPARISON SCHEDULE YEAR ENDED JUNE 30, 2014 NOTE A- BUDGETARY INFORMATION Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. An annual appropriated budget is adopted for the General Fund. All annual appropriations lapse at fiscal year-end. Project-length financial plans are adopted for the Capital Projects Fund. The District follows these procedures in establishing the budgetary data reflected in the financial statements: 1. Prior to March 1, the Business Manager submits to the School Board 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. 2. Public hearings are conducted at the District offices to obtain taxpayer comments. 3. Prior to July 1, the budget is legally enacted through passage of an ordinance. 4. The Business Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions that alter the total expenditures of any fund must be approved by the School Board. 5. Formal budgetary integration is employed as a management control device during the year for the General Fund. Formal budgetary integration is not employed for the Special Revenue Fund. Formal budgetary integration is also not employed for the Debt Service Fund because effective budgetary control is alternatively achieved through general obligation bond indenture provisions. 6. Budgeted amounts are as originally adopted or as amended by the School Board. All budget amounts presented in the accompanying required supplementary information reflect the original budget and the amended budget (which have been adjusted for legally authorized revisions to the annual budgets during the year)

62 POST EMPLOYMENT BENEFITS OTHER THAN PENSION FUNDING PROGRESS YEAR ENDED JUNE 30, 2014 SCHEDULE OF FUNDING PROGRESS (b} Entry Age (a) Actuarial (c} Valuation Actuarial Accrued Unfunded Date Value of Liability AAL (UAAL) November 1, Assets (AAL) (b}-(a) 2007 $ $ 2,350,037 $ 2,350, ,614,109 2,614, ,513,995 3,513,995 (!) UAAL as a (d} Percentage Funded (e) of Covered Ratio Covered Payroll (a)/(b} Payroll (c)/(e) 0% $ 22,170, % 0% 23,960, % 0% 24,560, %

63 G Mai 11 i e 624 P.O.Box680,0aks,PA I Fax: Willowbrook lane, West Chester, PA I I Fax: M aillie LLP I Expertise Beyond The Numbers Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards To the Board of School Directors Exeter Township School District Reading, Pennsylvania We have audited, 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, the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the Exeter Township School District as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Exeter Township School District's basic financial statements, and have issued our report thereon dated November 4, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Exeter Township School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Exeter Township School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the Exeter Township School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified Certified Public Accountants and Business Consultants