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MECHANICSBURG AREA SCHOOL DISTRICT FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2003 TABLE OF CONTENTS Independent auditors' report Management's discussion and analysis Statement of net assets Statement of activities Balance sheet- governmental funds Reconciliation of the governmental funds balance sheet to the statement of net assets Statement of revenues, expenditures, and changes in fund balances - governmental funds Reconciliation of the governmental funds statement of revenues, expenditures, and changes in fund balance to the statement of activities Statement of net assets - proprietary funds Statement of revenues, expenses, and changes in net assets - proprietary funds Statement of cash flows - proprietary funds Statement of net assets - fiduciary funds Statement of changes in fiduciary new assets - fiduciary funds Notes to financial statements Required supplementary information Supplementary information Page Number AR- 1 to AR- 2 MDA ~ 1 to MDA - 10 FS- 1 FS - 2 FS - 3 FS - 4 FS - 5 FS - 6 FS - 7 FS - 8 FS - 9 to FS - 10 FS- 11 FS- 12 FS - 13 tO FS ~ 28 RSI - 1 SI- 1 tO SI-4 R. A. GREENAWALT (1956-1983) GRr. N^W^LT & COMP^iX ', P.C. CERTIFIED PUBLIC ACCOUNTANTS 400 WEET MAIN STREET MECHAalCSBUR~, PE~aSYLVA~I* 17055 (717) 766-4763 F~ (717) 766,273t INDEP£NDENTAUDITORS'REPORT 62 WEST POMFRET STREET CARLISLE,PA 17013 (717) 2434822 FAX (717) 25g-9372 Board of School Directors Mechanicsburg Area School District Mechanicsburg, Pennsylvania We have audited the accompanying financial statements of Mechanicsburg Area School District as of and for the year ended June 30, 2003, as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying financial statements 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 Mechanicsburg Area School District, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof and for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in the notes to the financial statements, the District has implemented a new financial reporting model, as required by the provisions of Governmental Accounting Standards Board Statement No, 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of and for the year ended June 30, 2003, Management's discussion and analysis on pages MDA - 1 through MDA - 10 and budgetary comparison information on page RSI - 1 are not a required part of the financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. AR- 1 ivITc2MBERS -AMERICAN IYqSTITLrI~E OF CERTIFIED PUBLIC ACCOUNTANTS- PENNSYLVANIA INS'ITl uTE OF C~TIFIED PUBLIC ACCOUNTANTS Board of School Directors Mechanicsburg Area School District Mechanicsburg, Pennsylvania Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The combining schedules on pages SI - 1 through SI - 4 are for purposes of additional analysis and are not a required part of the financial statements of Mechanicsburg Area School District. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued separate reports dated September 2, 2003, on our consideration of Mechanicsburg Area School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with GovemmentAuditing Standards and should be read in conjunction with this report in considering the results of our audit. yGREENAWALT & COMP~C~Y, P.C. September 2, 2003 Mechanicsburg, Pennsylvania AR - 2 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUS SION AND ANALYSIS JUNE 30, 2003 The management of Mechanicsburg Area School District is pleased to present the following discussion and analysis of the District's financial activities for the fiscal year ending June 30, 2003. The purpose of this discussion is to provide a narrative stmunary of the financial position and activities of the District in order to enhance the reader's understanding of the District's basic financial statements. The District is required to present comparative financial information between the current year and the prior year in its Management's Discussion and Analysis (MD&A) as mandated by the Governmental Accounting Standards Board (GASB) Statement No. 34 Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. However, GASB Statement No. 34 does not require comparative data to be presented in the first year of implementation. Due to the extensive financial resources necessary to prepare this information for the prior year, the District has elected to omit the prior year information for comparative purposes from this report. Subsequent reports, however, will include the required comparative information. FINANCIAL HIGHLIGHTS As a result of enacting Act 24 of 2001, Optional Occupation Tax Elimination Act, the District eliminated the Occupation Tax and increased the Earned Income Tax to 1.2%. The actual collection of the Earned Income Tax fei1 short during 2002-2003 due to the normal time delay until the funds are collected and available to the District. For the year 2002-2003, the School Board adopted a balanced General Fund Budget. In order to balance the budget, a real estate tax increase of 1.25 mills was required. Actual expenditures exceeded actual revenues by $ 514,742, mainly due to the delay in collecting the increased earned income tax. In May 2003, the District refunded the Series of 1998 bonds by issuing the Series of 2003 general obligation bonds in the amount of $ 9,755,000. The refunding reduced future debt service, and generated about $ 491,000 in savings to the District. Approximately $ 175,000 of those savings will be realized during the 2003-2004 fiscal year. OVERVIEW OF THE FINANCIAL STATEMENTS These financial statements consist of four sections - Management's Discussion and Analysis (this section), the basic financial statements, other required supplementary information, and other supplementary information. MDA- 1 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 The first two statements of the basic financial statements are government-wide financial statements. These statements on pages FS - 1 and FS - 2 consist of the Statement of Net Assets and the Statement of Activities. The government-wide financial statements provide both short-term and long-term information about the District's overall financial status. The remaining basic financial statements consist of fund financial statements. These statements focus on individual funds of the District and provide a more detailed presentation of the District's operations. The governmental funds statements on pages FS - 3 and FS - 5 present how general District services are financed in the short-term as well as what remains for future spending. The proprietary fund statements on pages FS - 7 through FS - 10 present both short-term and long-term information about the activities that the District operates similar to a business. The basic financial statements also include notes on pages FS - 13 through FS - 28 that provide a more detailed explanation of some of the information in the financial statements. Following the basic financial statements is other required supplementary information on page RSI - 1 that consists of the District's budgetary comparison and other supplementary information on pages SI - 1 to SI - 4 presenting combining schedules for additional analysis. Government-wide Statements Report the District as a Whole The government-wide statements report financial information about the District as a whole using accounting methods similar to the accounting used by private-sector companies. The Statement of Net Assets includes all of the District's assets and liabilities utilizing the full accrual basis of accounting. The Statement of Activities accounts for all of the District's revenues and expenses, regardless of when cash is received or paid. These two government-wide statements report the District's net assets and changes in them. The District's net assets represent the difference between the District's assets and liabilities. The District's net assets are one way to measure the District's financial position, or financial health, over time. Increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the District, non-financial factors must also be considered, such as changes in the District's property tax base and the performance of the students. MDA - 2 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 The government-wide financial statements of the District are divided into two categories: Governmental activities - All of the District's basic services are included here, such as instruction, administration and community services. Real estate and earned income taxes, and state and federal subsidies and grants finance most of these activities. Business-type activities - The District operates a food service operation and charges fees to staff, students and visitors to help it cover the costs of the food service operation. Fund Financial Statements The District's fund financial statements provide detailed information about the most significant funds, or major funds - not the District as a whole. Some funds are required to be reported as major funds. Governmental funds - Most of the District's activities are reported in governmental funds, and focus on changes in financial resources, rather than upon net income determination. These funds are reported using the modified accrual basis of accounting, which measures cash and all financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's operations and the services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The relationship (or differences) between governmental activities (reported in the Statements of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements on pages FS - 4 and FS - 6. Proprietary funds - These funds are used to account for the District activities that are similar to business operations in the private sector. When the District charges customers for services it provides, these services are generally reported in proprietary funds. The Food Service Fund is the District's proprietary fund and is the same as the business-type activities reported in the goven~nent-wide statements. Fiduciary funds - The District is the trustee or agent for individuals, private organizations and/or governmental units as shown on page FS - 11 and FS - 12. MDA - 3 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE The District's total net assets were $ 9,829,399 at June 30, 2003 which includes $ 8,792,350 in Governmental Activities and $1,037,049 in Business-type Activities. Statement of Net Assets Governmental Business-type Total School Activities Activities District Current and other assets Capital assets $ 12,527,221 $ 274,444 $ 12,801,665 53,325,674 903,983 54,229,657 Total assets $ 65,852,895 $ 1,178,427 $_ 67,03 !,322 Current and other liabilities Long-term liabilities Total liabilities $ 2,981,596 $ 141,378 $ 3,543,295 54,078~949 53,658,629 57.060.545 141.378 57,201,923 Capital assets (net of related debt) Restricted for retirement of debt Restricted for capital projects Unrestricted Total net assets (1,077,868) 903,983 903;983 341,267 341,267 5,476,397 5,476,397 4,05Z554 I33,066 3,107,752 8~792,350 1,037,049 9,829,399 Total liabilities and net assets $ 65,852,895 $ 1,178,427 $ 67,031,322 The results of this year's operations as a whole are reported in the Statement of Activities. Direct expenses are listed by programs, then offset by program revenues to determine net (expense) revenue and changes in net assets. General revenues, such as taxes, state subsidies, and investment earnings are then applied prior to transfers, and special items, to determine the change in net assets. For the 2002- 2003 fiscal year, the change in net assets for governmental activities was a decrease of $ 2,375,147, and an increase of $ 812,733 for business-type activities, for a net total decrease of $ 1,562,414 as reflected in the following chart. MDA - 4 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 Statement of Activities Governmental Business-type Total School Activities Activities District Program revenues Charges for services Operating grants and contributions $ 289,333 $ 860,133 $ 1,149,466 3,882,537 315,732 4,198,269 General revenues Taxes Other local revenue State general subsidies Investment earnings 24,613,103 24,613,103 33,923 33,923 4,563,628 4,563,628 292,580 4,208 296,788 Total revenues 33,675,104 1,180.073 34.855,177 Direct expenses 35.098,021 1,319~570 36~41T591 Excess (deficiency) before transfers (1,422,917) (139,497) (I,562,414) Transfers between activities (952,230) 952,230 Change in net assets $ (2,375,147) $ 812,733 $ (1,562,414) Direct expenses represents the actual cost of providing the services while the net cost represents the amount of cost that is not recovered through program revenues, meaning user charges, grants and contributions. The largest source of grants and contributions is state sources, which provided $ 3,154,833 for governmental activities. The net cost of services must be recovered through general revenue, primarily taxes and state subsidies. Amounts not recovered will reduce funds available for future years. MDA - 5 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 Instruction Instructional student support Administrative and financial support Operation and maintenance of plant Pupil transportation Student activities Community services Interest on long-term debt Total governmental activities Transfers State general subsidies revenues Total needs from taxes and other local sources Food services Transfers received and investment earnings Total business-type activities THE DISTRICT FUNDS Direct Expenses Governmental Activities Program Net Revenues Cost 21,534,334 $ 2,949,258 $ 18,585,076 3,617,565 240,849 3,376,716 2,521,326 75,503 2,445,823 3,040,498 43,772 2,996,726 1,071,592 325,516 746,076 812,073 116,636 695,437 247,091 154,115 92,976 2.253,542 266.221 1,987,32I $ 35,098,021 $ 4, I71,870 Business-type Activities Direct Program Expenses Revenues $ 1,319,570 $ 1,175,86~ $ 30.926A51 (952,230) (4,563,628) 25,410,293 Net Cost 143,705 956~438 (812,733) At June 30, 2003, the District governmental funds reported a combined fund balance of $ 9,896,870, which is a decrease ors 5,810,495 from June 30, 2002. MDA - 6 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 Governmental fund balance 2002 2003 Chanee % Change General fund - unrestricted Capital reserve fund - unrestricted Athletic fund - unrestricted Construction fund - restricted Debt service fund Unrestricted Restricted $ 4,402,870 $ 3,888,128 $ (514,742) (11.7)% 286,025 190,348 (95,677) (33.5) 1,289 730 (559) (43.4) 10,846,133 5,476,397 (5,369,736) (49.5) 41 (41) (100.0) 171,007 341~267 170,260 99.5 Total governmental funds $ 15,707,365 $ 9,896,870 $ ~81~0,495) (37.0) % Total unrestricted Total restricted $ 4,690,225 $ 4,079,206 $ (611,019) (13.0) % 11,017,140 5,817.664 (5.199~476) (47.2) Total governmental funds $ 15,707,365_ $ 9,896,870 $~(5,81~495) (37.0)% Governmental Funds The General Fund had budgeted expenditures equal to revenues in 2002-2003. The District eliminated the occupation tax in 2002-2003, which was replaced with a higher earned income tax based on Act 24 of 2001. As a result of this change, the actual earned income tax revenue collected fell short of budget by approximately $ 747,526. Total expenditures were under budget by approximately $ 204,842, resulting in the reduction in fund balance. The Capital Reserve Fund decrease of $ 95,677 was the result of making planned capital improvements during the 2002-03 fiscal year. The Construction Fund decrease of $ 5~369,736 was a result of construction projects coming to a close, and payments being made to contractors. The Debt Service Fund increase of $170,219 was due to favorable results on a variable rate bond issue. MDA - 7 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 General Fund Budget A General Fund budget is adopted each year in accordance with the Pennsylvania School Code. The revised budget reflects budget transfers as approved by the Board. Contracted educational services, increased maintenance and utility costs, and the opening of a new school required budget adjustments. The District applies for State and Federal grants each year. Certain grants may not be anticipated during the budgeting process and must be added to the budget during the fiscal year. In addition, the grants that are anticipated during the budgeting process are based on estimates. The budget must then be modified based on the actual grant award. Total revenues Total expenditures Revenues over (under) expenditures Other financing sources (uses) Net change in fund balance CAPITAL ASSETS Budget Actual Variance $ 34,609,213 $ 33,889,588 $ (719,625) 31,033,773 30.828,931 204~842 3,575,440 3,060,657 (514,783) (3~575,440) (3,575,399) 41 $ _- _$ (514,742) $ (514,742) At June 30, 2003, the District had $ 52,580,761 in Governmental activities capital assets, which represents an increase of $ 11,400,616. The District has made substantial capital improvements over the past two years. A major renovation was completed to the Senior High School and a new Middle School was completed in November 2002. Construction in progress at June 30, 2003 is for the renovation of the former Middle School which will be converted to an elementary school. The decrease of Construction in Progress is due the completion of the High School renovations and the New Middle School. MDA - 8 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 Governmental activities Land Construction in progress Land improvements Buildings and improvements Furniture and equipment Library books Capital assets (net of depreciation) 2002 2003 Change 605,983 $ 605,983 $ 31,232,981 232,262 (31,000,719) 1,464,329 2,798,772 1,334,443 5,147,482 46,196,141 41,048,659 1,434,750 1,781,259 346,509 1~294,620 966,344 (328,276) Total governmental capital assets ~180,145 $ 52,580~761 ~ 11,400,616 Business-type activities Furnitm-e and equipment $ 130,171 $ 903,983 $ 773,812 LONG-TERM LIABILITIES Bonds payable were $ 45,902,062, and $ 53,781,880 at June 30, 2002 and 2003, respectively. Scheduled payments of principal made during the year to the bondholders were $ 1,155,182. The net change from the refunding of two bond series was $ 315,000. The amount of bond principal due within one year is $ 1,197,793. Standard and Poor's Corporation has assigned its municipal bond rating of "AAA" to both series of bonds issued during the year. Compensated absences decreased dm'ing the year from an entity-wide perspective by $ 68,442 to $ 424,621 at June 30, 2003. NEXT YEAR'S BUDGET AND ECONOMIC FACTORS Budget Budget 2002-2003 2003 -2004 Chanee Total revenues Total expenditures $ 34,609,213 $ 35,495,500 31,033.773 32~790,254 $ 886,287 (1,756,481) Revenues over (under) expenditures $ (3,575,440) $ (2,705,246) (870A94) Net change in fund balance (870,194) MDA - 9 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2003 The new budget for 2003-2004 represents an increase in total expenditures of 5.71%. This increase is largely due to the increase in the retirement rate from 1.15% to 3.77%, increase in medical insurance costs, new curriculum initiatives, new facility operational costs, and increase in debt service payments. The 2003-2004 budgeted revenues do not include any tax increases. The District plans to reduce its fund balance to offset the planned budget deficit. There are no changes to economic factors that are expected to have a significant impact on our 2003- 2004 budget, other than the cash flow difficulties created by the Commonwealth of Permsylvania's inability to adopt an education budget timely; therefore not providing operating funds to the District timely. CONTACTING THE DISTRICT FINANCIAL MANAGEMENT The District's financial report is intended to provide the readers with a general overview of the District's finances and to show the Board's accountability for the funds it receives. If you have questions about this report or wish to request additional financial information, please contact the district office of Mechanicsburg Area School District, 500 S. Broad Street, Mechanicsburg, PA 17055, (717) 691-4500. MDA - 10 --IUJ O~ I--W I'- W ~ZU.o° ~j uJ C) cq ©~- Z E~- cci ~ _~E~ .~=~ E 0'6 E o~ o~ ~-- ~o ~.-o~ =~ .-~o ~ -- ° I-- n z "~ U.I Z LU LU IL. 0 Z UJ 0 mc, o~ ~w ~w~z ~OOw ~Oz~ ~<~ > (.9 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS - PROPRIETARY FUNDS JUNE 30, 2003 Assets Cash and cash equivalents Investments Due from other governments Other receivables Inventories Total current assets Furniture and equipment (net of accumulated depreciation) Total assets Food Service $ 3,005 235,758 11,317 505 23,859 274,444 903,983 $ 1,178,427 Liabilities Current liabilities Due to other funds Deferred revenues Other current liabilities Total current liabilities Total liabilities Net assets Invested in capital assets (net of related debt) Unrestricted Total net assets Total liabilities and net assets $ 114,730 12,844 13,804 141,378 141,378 903,983 133,066 1,037,049 $ 1,178,427 The accompanying notes are an integral part of these financial statements. FS - 7 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 Operating revenues Food service revenue Charges for services Other operating revenues Total operating revenues Operating expenses Salaries Employee benefits Purchased property service Other purchased service Food and milk Other supplies Depreciation Total operating expenses Operating income (loss) Nonoperating revenues Earnings on investments State sources - commodities State soumes - social security and retirement subsidies State soumes - meal subsidies Federal sources - meal subsidies Total nonoperating revenues Income (loss) before transfers Transfers from other funds Change in net assets Net assets - beginning Net assets - ending Food Service $ 832,297 17,960 9,876 860,133 407,074 138,764 51,345 868 554,066 104,668 62,785 1,319,570 (459,437) 4,208 49,731 19,566 41,263 205,171 319,939 (139,498) 952,231 812,733 224,316 $ 1,037,049 The accompanying notes 'are an integral part of these financial statements. FS- 8 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 Operating activities Cash received from users Cash payments to employees for services Cash payments to suppliers for goods and services Cash payments for other operating expenses Net cash provided by (used for) operating activities Non-capital financing activities State sources Federal sources General fund contributed services Net cash provided by (used for) non-capital financing activities Capital and related financing activities Cash payments for equipment Net cash provided by (used for) capital and related financing activities Investing activities Earnings on investments Net decrease (increase) in investments Net cash provided by (used for) investing activities Net decrease in cash and cash equivalents Cash and cash equivalents - beginning Cash and cash equivalents - ending Food Service $ 863,815 (491,285) (568,754) (868) (197,092) 59,035 195,648 254,683 (24,746) (24,746) 4,208 (152,027) (147,819) (114,974) 117,979 $ 3,OO5 Reconciliation of operating income (loss) to net cash used in operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash used in operating activities Depreciation Donated commodities Contribution of General Fund Net change in other assets and other liabilities Accounts receivable Inventories Due to/from other funds Deferred revenue Other current liabilities Compensated absences Total adjustments Net cash provided by (used for) operating activities (Continued) The accompanying notes are an integral part of these financial statements. FS- 9 $ (459,437) 62,785 49,731 140,381 (137) (3,340) 22,185 3,820 9,339 (22,419) 262,345 $ (197,092) MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS (Cont'd.) FOR THE YEAR ENDED JUNE 30, 2003 SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES Amount $ 811,850 Explanation of Transaction and Balance Sheet Effect High School and Middle School equipment paid by the various Construction Funds. During the year, various equipment was provided to the Proprietary Fund from Construction Funds totaling $ 811,850. The accompanying notes are an integral part of these financial statements. FS - 10 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS - FIDUCIARY FUNDS JUNE 30, 2003 Private Purpose Trusts Agency Assets Cash and cash equivalents $ $ 134,469 Investments 85,512 Total assets $ 85,512 $ 134,469 Activities $ 149,721 $ 149,721 Total 284,190 85,512 369,702 Liabilities Other current liabilities $ $ 134,469 Total liabilities 184,469 Net assets Restricted 85,512 Total liabilities and net assets $ 85,512 $ 184,469 $ 149,721 149,721 $ 149,721 $ 284,190 284,190 85,512 $ 369,702 The accompanying notes are an integral part of these financial statements. FS- 11 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS - FIDUCIARY FUNDS JUNE 30, 2003 Additions Investment earnings Gifts and contributions Total additions Deductions Scholarships awarded Change in net assets Net assets, beginning Net assets, ending Pdvate Purpose Trust Funds $ 934 9,009 9,943 8,248 1,695 83,817 $ 85,512 The accompanying notes are an integral part of these financial statements. FS - 12 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mechanicsburg Area School District is the level of government which has oversight responsibility and control over activities related to public school education. The report includes services provided by the District to residents within the boundaries of the Cumberland County municipalities of Upper Allen Township, Shiremanstown and Mechanicsburg Boroughs. Services provided include a comprehensive curriculum for primary and secondary education as well as special education and vocational education programs. The District receives revenue from local, state and federal sources and must comply with the requirements of these funding sources. The financial statements of Mechanicsburg Area School District have been prepared in accordance with generally accepted accounting principles as applied to governmental units. The Governmental Accounting Standards Board is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles, The more significant of these accounting policies are as follows: Reporting entity Governmental Accounting Standards Board Statement No. 14, "The Financial Reporting Entity", established the criteria for determining the activities, organizations and functions of government to be included in the financial statement of the reporting entity. In evaluating the school as a reporting entity, management has addressed all potential component units which may or may not fall within the school'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. There are no component units that meet the above criteria for inclusion in the reporting entity. However, the District is a participant in four jointly-governed operations, each of which is a separate legal entity that offers services to the District and its residents. Each entity serves several school districts, and therefore are not included in the reporting entity. These entities do not have taxing power, but they are required to adopt an annual budget, which is funded primarily by member Districts or others that use their services. Complete financial statements for each entity can be obtained from the entity's administrative offices. Capital Area Intermediate Unit provides special education services and programs. Cumberland Perry Area Vocational Technical School provides vocational and technical education services and programs. Harrisburg Area Community College provides community college education services and programs. West Shore Tax Bureau provides earned income tax collection services. FS- 13 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JuNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Fund accounting The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts which comprise its assets, liabilities, fund equity, revenues, and expenditures, or expenses, as appropriate. Resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent. When both restricted and unrestricted resoumes are available for use, it is the District's general policy to use the restricted (primarily operating grants) resoumes first, then unrestricted resources as they are needed. The District has the following major types of funds: Governmental Funds - These funds account for the activities through which most of the District's operations are provided. Proprietary Funds - These funds account for the operations of the District that are financed and operated in a manner similar to private business enterprises. Fiduciary Funds - These funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or governmental units and are therefore not available to support the District's own programs. Basis of presentation Government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the District. As a general rule the effect of interfund activity has been eliminated from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities which rely to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of given functions or programs are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or program. Program revenues include charges to customers who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or program. In addition, program revenues include grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or program. Taxes and other items not properly included among program revenues are reported as general revenues. FS - 14 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Confid.) JUNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Basis of presentation (Cont'd.) Fund financial statements are also provided for all governmental funds, proprietary funds, and fiduciary funds of the District. Major individual governmental funds and major individual proprietary funds are reported as separate columns in the fund financial statements. Nonmajor funds, if any, are aggregated and presented in a single column. Fiduciary funds are reported by fund. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the fund's principal ongoing operations. Operating expenses for the District's proprietary fund include food production costs, supplies, administrative costs, and depreciation on capital assets. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. The District reports the following major governmental funds: The General Fund is the primary operating fund. It accounts for all financial resources except those required to be accounted for in another fund. The Capital Reserve Fund accounts for transfers from other funds and related investment earnings for capital outlays not accounted for in another fund. The Athletic Fund accounts for the revenues and expenditures for athletic purposes. The Construction Funds account for bond proceeds and the expenditure of those funds. The Debt Service Fund accounts for bond refinancing and related costs. The District reports the following proprietary fund: The Food Service Fund accounts for the operations of the cafeterias. The District reports the following fiduciary funds: Expendable and Non-expendable Trusts account for contributions to and interest earnings on scholarship funds donated to the District, and for payments of scholarship funds to selected students. The District Agency Fund accounts for programs operated and sponsored by non-school organizations. These funds are separated from student activity funds. The Student Activities Fund accounts for programs operated and sponsored by various clubs and organizations within the schools. FS- 15 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Measurement focus and basis of accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the proprietary fund and the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Real estate and personal taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Net assets (total assets less total liabilities) are used as a practical measure of economic resources and the operating statement includes all transactions and events that increased or decreased net assets. Depreciation and amortization are charged as an expense against current operations. Accumulated depreciation and unamortized costs are reported in the statement of net assets. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers tax revenue to be available if collected within 90 days of the end of the fiscal period. Revenue from federal, state and other grants designated for payment of specific expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Budgets and budgetary accounting An operating budget is adopted prior to the beginning of each year for the General Fund on a modified accrual basis of accounting. The General Fund is the only fund for which a budget is legally required. The Pennsylvania School Code dictates specific procedures relative to adoption of the District's budget and reporting of its financial statements. The District, before levying annual school taxes, is required to prepare an operating budget for the succeeding fiscal year. This process includes the publishing of notices by advertisement, that the proposed budget has been prepared and is available for public inspection at the administrative office of the District, and that public hearings are held on the proposed operating budget which are required to be scheduled at least ten days prior to when final action on adoption is taken by the Board. Legal budgetary control is maintained at the sub-function/major object level. The Board may approve transfers of funds appropriated to any particular item of expenditure in accordance with the Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without Board approval, provided it is not at a higher level than the Board adopted budget. FS - 16 MECHANCISBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Budgets and budgetary accounting (Cont'd.) In order to preserve a portion of an appropriation for which an expenditure has been committed by a pumhase order, contract or other form of commitment, an encumbrance is recorded. Unused encumbrances expire at the end of each year. Included in the General Fund budget are program budgets as prescribed by the federal and state agencies funding the program. These budgets are approved on a program by program basis by the federal and state funding agencies. Taxes and taxes receivable Real estate and personal taxes are levied as of July 1 with a legal, enforceable claim against the property and/or taxpayer. Amounts not collected within six months (December 31) are considered delinquent and submitted to outside agencies/entities for collection actions. Receivables and payables between funds Activity between funds that represent lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds". Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances". Inventories Inventories are presented at the lower of cost or market on a first-in, first-out basis, and are expended when used. Donated commodities are recognized as revenue and are inventoried at an estimated cost value. Capital assets Capital assets, which include property, plant, equipment, and infrastructure assets: e.g., roads, sidewalks, and similar items, are reported in the applicable governmental or business-type activities columns in the government- wide financial statements. Capital assets are defined by the District as assets with an initial, individual cost of more than $ 5,000 and an estimated useful life in excess of one year. Management has elected to include certain homogeneous groups with individual costs of less than $ 5,000 as composite groups for financial reporting purposes, in addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. FS - 17 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 SUMMARY' OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Capital assets (Cont'd.) Major outlays for capital assets and improvements are capitalized as projects are constructed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. All reported capital assets are depreciated using the straight-line method over the following estimated useful lives: Governmental Business-type Assets Activities Activities Buildings 50 Interior renovations 25 Land improvements 20 Furniture 20 Machinery and equipment 10 to 15 Vehicles 8 Computer equipment 5 Library books 5 20 15 5 Long-term liabilities In the government-wide financial statement and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities or proprietary fund statement of net assets. Refunding costs and bond discounts are amortized over the life of the bonds using the effective interest method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance and refunding costs, as current period expenditures. The face amount of debt issued is reported as other financing sources while discounts and refunding costs on debt issuances are reported as debt service. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as support service expenditures. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. FS - 18 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Financial accounting standards for proprietary funds Standards for accounting and financial reporting for private business enterprises generally are followed for proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. CHANGES IN ACCOUNTING PRINCIPLES AND RESTATEMENT OF FUND BALANCE Changes in accounting principles For the year ended June 30, 2003 the District has implemented GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. GASB 34 creates new basic financial statements for reporting on the District's financial activities. The financial statements now include government-wide financial statements prepared on an accrual basis of accounting and fund financial statements which present information for individual major funds rather than by fund type. Nonmajor funds, if any, are presented in total in one column. The government-wide financial statements split the District's programs between governmental and business-type activities. The beginning net asset amounts reflect the changes in fund balance at June 30, 2002, caused by the conversion to the accrual basis of accounting. Restatement of fund balances The transition from fund balances of governmental funds to net assets of governmental activities is as follows: Total fund balances of governmental funds - June 30, 2002 $ 15,707,365 GASB 34 adjustments: Capital assets, net of accumulated depreciation Long-term liabilities Unamortized bond related costs Accrued interest on bonds payable Taxes receivable, net of allowance for uncoliectibles 41,180,145 (46,391,468) 586,320 (194,170) 279,305 Total net assets of governmental activities - June 30, 2002 $ 11,167,497 FS-19 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 CASH AND CASH EQUIVALENTS AND INVESTMENTS The District's cash and cash equivalents and investments have been categorized to indicate the level of risk assumed by the District. Category 1 includes cash and cash equivalents and investments that are insured or registered, or securities held by the District or by its agent in the District's name. Category 2 includes cash and cash equivalents and investments uninsured or unregistered, with securities held by the counterpart's trust department or agent in the District's name. Category 3 includes cash and cash equivalents and investments uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the District's name, including public funds collateralized as permitted by Act 72 of the Commonwealth of Pennsylvania. Carrying Amount/ Bank Cateqorv Market Value Balance 1 2 3 Demand deposits $ 2,301,076 $ 2,739,959 $ 100,000 $ - L 2,639,959 Petty cash 60 Money market fund 5,476 5,476 Pooled investments 9,326,864 9,324,923 $ 11,633,476 $ 12,070,35_8 Cash and cash equivalents, in the proprietary funds statement of cash flows, consists of a demand deposit account. The types of authorized investments are limited by State regulations. Investment policies followed during the year did not significantly alter the categorizations shown above. The pooled investments funds are required to be operated in accordance with state laws and regulations. TAXES RECEIVABLE Taxes receivable are as follows: Taxes Taxes Tax Receivable Allowance for Receivable Revenue Deferred fGross) Uncollectibles (Net) Recoc!nized Tax Revenue Real estate taxes $ 241,038 $ Personal taxes 89,311 330,349 Earned income taxes 870,420 Occupational privilege taxes 13,176 1,213,945 12,052 $ 228,986 $ 101,315 $ 127,671 20,541 68,770 11,629 57,141 32,593 297,756 112,944 184,812 870,420 870,420 13,176 13,176 32,593 1,181,352 996,540 184,812 FS-20 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 TAXES RECEIVABLE (Cont'd.) Taxes Taxes Tax Receivable Allowance for Receivable Revenue Deferred (Gross) Uncollectibles (Net) Recoanized Tax Revenue Full accrual adjustment Real estate taxes Personal taxes Earned income taxes $ $ $ $ 127,671 $ (127,671) 57,141 (57,141) (353,929) (353,929) (353,929) (353,929) (353,929) (169,117) (184,812) GeneraI Fund $ 860,016 $ 32,593 $ 827,423=_ $ 827,423 $ The deferred revenue balance in the General Fund of $ 79,172 consists of medical premium reimbursements received in advance of premium payment of $ 77,552 and deferred federal grant revenue of $1,620. DUE FROM OTHER GOVERNMENTS Due from other governments are as follows: Governmental Business-type Activities Activities Total Localsources-taxes $ 139,363 $ - $ 139,363 Localsources- other 8,159 8,159 State sources 169,634 1,794 171,428 Federalsources 131,318 9,523 140,841 Otheritems 64,454 64,454 $ 512,928 $ 11,317 $ 524,245 CHANGES IN CAPITAL ASSETS Capital asset activity for the year was as follows: Governmental activities Capital assets not being depreciated Land Construction in progress Beginning Ending Balance Increases Decreases Balance $ 605,983$ $ $ 605,983 31,232,981 232,262 31,232,981 232,262 31,838,964 232,262 31,232,981 838,245 FS-21 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 CHANGES IN CAPITAL ASSETS (Cont'd.) Capital asset activity for the year was as follows: Governmental activities (Cont'd.) Capital assets being depreciated Land improvements Buildings and improvements Furniture and equipment Library books Accumulated depreciation for: Land improvements Buildings and improvements Furniture and equipment Library books Total capital assets being depreciated, net Governmental activities capital assets, net Business-type activities Capital assets being depreciated Equipment Accumulated depreciation for: Equipment Total capital assets being depreciated, net Business-type activities capital assets, net Beginning Ending Balance Increases Decreases Balance $ 1,762,797 $ 1,428,536 $ - $ 3,191,333 12,927,623 42,243,059 55,170,682 1,778,827 670,154 2,448,981 1,641,380 1,641,380 18, t10,627 44,341,749 62,452,376 298,468 94,093 392,561 7,780,141 1,194,400 8,974,541 344,077 323,645 667,722 346,760 328,276 675,036 8,769,446 1,940,414 10,709,860 9,341,181 42,401,335 51,742,516 $ 41,180,145 $ 286,186 $ $~42,633,597 $ 31,232,981 $ 52 580,761 836,597 $ - $ 1,122,783 156,015 62,785 218,800 130,171 773,812 903,983 130,1~1 $ 773,812 $ - $ 903,983 FS - 22 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd,) JUNE 30, 2003 CHANGES IN CAPITAL ASSETS (Cont'd.) Depreciation expense was charged to functions/programs as follows: Governmental activities Instruction Instructional student support Administrative and financial support Operation and maintenance of plant Student activities $ 1,501,683 386,107 3,659 43,809 5,156 $ 1,940,414 Business-type activities - Food service L62.785 LONG-TERM LIABILITIES Changes in bonds payable during the fiscal year ended June 30, 2003 were as follows: Beginning Bond Scheduled Balance Proceeds Refundina Redemptions Ending Balance 1992 Series 1998 Series 1998 Series A 2000 Series 2000 Series C 2001 Series 2002 Series 2002 Series A 2003 Series 3,582,062 9,445,000 2,890,000 4,990,000 4,995,000 10,000,000 10,000,000 $ - $ - $ (9,440,000) (2,580,000) 8,720,000 2,580,000 9,755,000 (825,182) $ (5,0oo) (310,000) (5,coo) (5,ooo) (5,ooo) 2,756,880 4,985,000 4,99O,000 9,995,000 10,000,000 11,300,000 9,755,000 $ 45,902,062 $ 8,720,000 $ 315,000 $ (1,155,182) $_ 53,781,880 FS-23 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd,) JUNE 30, 2003 LONG-TERM LIABILITIES (Cont'd.) Interest Rates Maturity Date Callable Date Amounts Due Within One Year 1992 Series 2000 Series 2000 Series C 2001 Series 2002 Series 2002 Series A 2003 Series 6.277% 5.30% to 5.55% Variable rate stabilized at 4.50% 3.95% to 5.00% 2.00% to 5.00% 1.40% to 4.80% 1.60% to 3.60% Compensated absences due within one year September2005 August2016 October2016 August2019 August2022 August2022 February 2013 Not Callable February 2005 Currently August 2006 February 2007 February 2010 August 2008 $ 877,793 5,000 5,000 5,000 100,000 205,000 1,197,793 133,300 $~ 1,331~09~ In October 2002, the District issued its 2002 Series A general obligation bonds in the amount of $11,300,000, for the advance refunding of the remaining portion of the 1998 Series A and to provide funds for the renovations and additions to various school buildings. After a District contribution of $ I10,561 and deducting discounts and issuance costs of $ 95,695, net proceeds of $ 2,616,160 were deposited in an irrevocable trust fund to refund the 1998 Series A bond issue, capitalized interest of $106,173 and new funds for renovations and additions of $ 8,505,663 recorded in the Construction Fund. The investments and fixed earnings of the irrevocable refunding trust were sufficient to fully service the 1998 Series A until it was called in March 2003. The advance refunding reduced future debt service, resulting in an economic gain of approximately $ 174,300 which was realized primarily during the year ending June 30, 2003. In May 2003, the District issued its 2003 Series general obligation bonds in the amount of $ 9,755,000, for the advance refunding of the 1998 Series, After discounts and issuance costs of $ 96,801 the net proceeds of $ 9,658,199 was deposited in an irrevocable trust fund. The investments and fixed earnings of that trust were sufficient to fully service the 1998 Series until it was called in August 2003. This advance refunding reduced future debt service, resulting in an economic gain of approximately $ 491,000 which will be realized primarily during the succeeding three fiscal years. FS - 24 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 LONG-TERM LIABILITIES (Cont'd.) Scheduled debt service requirements, payable by the General Fund, are as follows: Year Endincl June 30 Principal Interest Total 2004 $ 1,197,793 2005 2,013,757 2006 2,055,330 2007 2,385,000 2008 2,500,000 2009-2013 13,840,000 2014-2018 17,450,000 2019-2020 12,340,000 2,191,559 $ 3,389,352 2,196,280 4,210,037 2,106,108 4,161,438 2,045,587 4,430,587 1,977,197 4,477,197 8,601,443 22,441,443 5,122,591 22,572,591 t,105,515 13,445,515 $ 53,781,880 $ 25~346,280 $ 79,128~160 The District has advance refunded the 1998 Series of general obligation bonds, by creating a separate irrevocable trust fund. The investments and fixed earnings from the investments are sufficient to fully service the bonds until they are called or mature. For financial reporting purposes these bonds are considered defeased and therefore not included as a liability in the statement of net assets. As of June 30, 2003 defeased bonds outstanding are as follows: Par Value Defeased Date Callable Date Outstandincl 1998 Series May2003 August 2003 $ 9,440,000 Changes in compensated absences were as follows: Beginning Ending Balance Net Chancle Balance Governmental activities 489,405 $ (69,085) $ 420,320 Business-type activities $ 3,658$ 809 $ 4,465 The estimated amounts due within one year on these items are $133,300 and $ -0- for the governmental and business-type activities, respectively. FS-25 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd,) JUNE 30, 2003 LONG-TERM LIABILITIES (Cont'd.) Compensated absences (those for which employees receive pay) are presented using the termination payment method. A liability is computed using estimates which apply historical data to current factors. The District maintains records of unused leave and applies the contracted rate for employees eligible for termination payments. The District allows only restricted sabbatical leave and therefore does not present any liability in advance of the sabbatical. Payments for compensated absences are made in the year the absence is taken or the employee retires. When an employee retires, the payout is as follows: Unused sick leave, after 15 years service to the District, will be paid at the following rates: Number of Years Percentage of Accumulated Days Less than ten 20 % 10 through 14 35 % 15 or more 50 % For teachers and administrators, any unused sick leave shall be paid at the daily substitute rate. For support staff and Food Service Fund employees, unused sick leave will be paid at the lowest hourly rate for support employees. Under the District's negotiated agreement with Mechanicsburg Education Association, professional employees of the District who become eligible for retirement, and elect to retire in that year, will receive a retirement payment of $10,000. OPERATING LEASES The District is obligated under various equipment, vehicle, and modular classroom lease agreements at June 30, 2003. The following is a schedule of future minimum rental payments required under the operating lease agreements. Year Ending June 30 2OO4 $ 109,189 2005 49,513 2006 46,117 2007 36,239 2008 24,414 Total minimum payments required $ 265,472 FS - 26 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Conrad.) JUNE 30, 2003 PENSION PLAN Substantially all full-time and part-time employees of the District participate in a cost-sharing multiple employer defined benefit pension plan. The District recognizes expenditures or expenses equal to its contractually-required contributions, subject to the modified accrual basis of accounting in governmental funds. The District contributes to The Public School Employees' Retirement System (the System), a governmental cost sharing multiple-employer defined benefit plan. The plan is under the authority of the Public School Employees' Retirement Code (the Code), as amended. The plan provides retirement and disability, legislatively mandated ad hoc cost-of-living adjustments, and healthcare insurance premium assistance to qualifying annuitants. 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 the System at PO Box 125, Harrisburg, PA 17108-0125, or by accessing the System's website at www.psers.state.pa.us. The contribution policy is established by the Code and requires contributions by active members, employers and the Commonwealth. Active members are required to contribute as follows: Active members who joined the System prier to July 22, 1983, contribute at 5.25 percent (Class TC) or at 6.50 percent (Class TD) of the member's qualifying compensation. Members who joined the System on or before July 22, 1983, who were active or inactive as of July 1, 2001, contribute at 6.25 percent (Class TC) or at 7.50 percent (Class TD) of the member's qualifying compensation. Members who joined the System after June 30, 2001, contribute at 7.50 percent (automatic Class TD). For all new hires and for members who elected Class TD membership, the higher contribution rates begin with service rendered on or after January 1, 2002. Contributions required of employers are based upon an actuarial valuation. For the fiscal year ended June 30, 2003 the employer contribution rate was t.15 percent of covered payroll, composed of 0.18 percent for pension benefits and 0.97 percent for healthcare insurance premium assistance. The District's contributions to PSERS for the years ending June 30, 2003, 2002 and 2001 were $ 245,097, $194,687 and $ 315,013, respectively. Those amounts are equal to the required contributions for each year. 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. The District maintains commercial insurance coverage covering each of those risks of loss. Management believes such coverage is sufficient to preclude any significant uninsured losses to the District. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. For State unemployment compensation laws, the District is self-insured, which is a common practice for local governmental units. Any unemployment claims are paid by the District on a quarterly basis as incurred. FS - 27 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2003 COMMITMENTS AND CONTINGENCIES The District's collective bargaining agreement with its teaching staff is scheduled to expire in June 2005. The District is in the final stage of a multi-year capital construction project involving all of its buildings. As of June 30, 2003 approximately $ 362,900 of construction contracts remain to complete the High School and Middle School projects. The District has issued general obligation bonds to fund these projects as more fully described in the Long-term liabilities note. In addition, in connection with construction of the Middle School, the District was required by the local municipality to obtain several letters-of-credit to ensure completion of required roadwork and traffic signal installation totaling $ 683,638. In the normal course of business, the District is subject to legal disputes and claims. The District does not anticipate any material losses from any pending or threatened litigation. In the normal course of preparing for the subsequent school year, the District has awarded bids for various supplies, fuel contracts, etc. No major commitments in excess of routine requirements have been made by the District. The District is also audited by the State's Department of the Auditor General. Findings, if any, from these audits could result in the repayment of funds, or the receipt of additional funds. The District participates in numerous state and federal grant programs which are governed by various rules and regulations of the grantor agencies, Costs charged to the respective grant programs are subject to audit and review by the grantor agencies; therefore, any findings or adjustments by the grantor agencies could have an effect on the recorded grants receivable and/or deferred grant revenues and on the related grant revenues and expenditures. FS - 28 I'-n OZ 0 0 0 0 ._o .o o~- 0 n~ I CO 0,,,~ m 121 × < MECHANICSBURG AREA SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE ~ ALL TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2003 Revenue and other financing sources Investment income Contributions Total operating revenues Operating expenses Scholarship awards Total operating expenses Operating income (loss) Transfers to (from) trust accounts Net income (loss) Reserved fund balance, July 1, 2002 Reserved fund balance, June 30, 2003 Expendable Non-expendable Trust Trust $ 208 $ 726 6,220 2,789 Total 934 9,009 6,428 3,515 9,943 6,437 1,811 6,437 1,811 (9) 1,704 (421) 421 (430) 2,125 18,160 65,657 $ 17,730 $ 67,782 8,248 8,248 1,695 1,695 83,817 85,512 SI -4 WILLIAM McCOY, JR., APPELLANT Vo YVONNE D. THRESH IN THE SUPERIOR COURT OF PENNSYLVANIA No. 670 MDA 2004 ORDER The trial court shall complete its opinion and transmit the record to this Court by June 30, 2004. Per Curiam Date: June 23, 2004 Sul~rlor Com~ of PA - Middle Dlsldet No.: 670 MI'IA 2004 Carbon Copy Recipient List Addressed To: The Honorable Edward E. Guido Court of Common Pleas of Cumberland County Cumberland County Courthouse, One Courthouse Sq Carlisle, PA 17013 Carbon Copied: Ms. Yvonne Thresh 3188 Carson Road Placerville, CA 95667 Douglas George Miller, Esq. Irwin, McKnight & Hughes 60 W Pomfret Street Carlisle, PA 17013 Mr. Curtis R. Long Prothonotary Cumberland County Courthouse 1 Courthouse Square Carlisle, PA 17013 1013 -10/99 10/1/99 David A. Szewczak, Esq. Prothonotary PatrlciaA. WNttaker Deputy Prothonotaty Superior Court of Pennsylv:ania Middle District June 23, 2004 100 Pine Street. Suite 400 H~rfisbure. PA 17101 717-772-1294 ww~-.superior, court.state.pa.us RE: Dear: McCoy, Jr., W. v. Thresh, Y. No. 670 MDA 2004 Trial Court Docket Number: 2004-256 Civil Term Enclosed please find a certified copy of an order dated June 23, 2004 entered in the above-captioned matter. RJS Very truly yours, Patricia A. Whittaker Deputy Prothonotary CC: Douglas George Miller, Esq. Ms. Yvonne Thresh Mr. Curtis R. Long Prothonotary