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~~~~ ~uM~~~.~~a~,~xiA jY ~ 1 ~~ ~Sf ~ ivr~ MECHANICSBURG AREA SCHOOL DISTRICT FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2012 ~/8 ~P~ ~~ S ~~ a ~y33~ TABLE OF CONTENTS Page Number INDEPENDENT AUDITOR'S REPORT IAR -1 to IAR - 2 MANAGEMENT'S DISCUSSION AND ANALYSIS MDA -1 to MDA -11 BASIC FINANCIAL STATEMENTS District-wide financial statements Statement of net assets FS - 1 Statement of activities FS - 2 Fund financial statements Balance sheet -governmental funds FS - 3 Reconciliation of the governmental funds balance sheet to the statement of net assets FS - 4 Statement of revenues, expenditures, and changes in fund balances -governmental funds FS - 5 Reconciliation of the governmental funds statement of revenues, expenditures, and changes in fund balance to the statement of activities FS - 6 Statement of net assets -proprietary funds FS - 7 Statement of revenues, expenses, and changes in net assets -proprietary funds FS - 8 Statement of cash flows -proprietary funds FS - 9 Statement of net assets -fiduciary funds FS - 10 Statement of changes in net assets -fiduciary funds FS - 11 NOTES TO FINANCIAL STATEMENTS FS - 12 to FS - 33 OTHER REQUIRED SUPPLEMENTARY INFORMATION Budgetary comparison information -general fund ORSI - 1 Other post employment benefit plans ORSI - 2 SUPPLEMENTARY INFORMATION SI - 1 to SI - 2 Greenawalt & Company, P.C. CERTIFIED PUBLIC ACCOUNTANTS Tames E. Lyons Deborah 1. Kelly Since 1955 Scott J. Christ ~~ Ronald S. Morgan Howard R. Greenawalt Creedon R. Hoffman INDEPENDENT AUDITOR'S REPORT Board of School Directors Mechanicsburg Area School District Mechanicsburg, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the fiduciary funds of Mechanicsburg Area School District as of and for the year ended June 30, 2012, which collectively comprise the District's basic. financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the fiduciary funds of Mechanicsburg Area School District, as of June 30, 2012, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2012 on our consideration of Mechanicsburg Area 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 the intemal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Govemment Auditing Standards and should be considered in assessing the results of our audit. IAR - 1 400 West Main Street .Mechanicsburg, PA 17055.717.766.4763 .Fax 717.766.2731 62 West Pomfret Street . Cazlisle, PA 17013.717.243.4822 .Fax 717.258.9372 www.greenawalt.cc Board of School Directors Mechanicsburg Area School District Mechanicsburg, Pennsylvania Accounting principles generally accepted in the United States of America require that the management's discussion and. analysis on pages MDA - 1 through MDA - 11 and other required supplementary information on pages ORSI - 1 and ORSI - 2 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. Our audit was conducted for the purpose of forming opinions on the finahcial statements that collectively comprise Mechanicsburg Area School District's financial statements as a whole. The combining fiduciary fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The combining fiduciary fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial- statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. qc. ~C: GREENAWALT & COMP N , P C. November 12, 2012 Mechanicsburg, Pennsylvania IAR - 2 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS - JItNE 30, 2012 The management of the Mechanicsburg Area School District is pleased to present the following discussion and analysis of the District's financial position at June 30, 2012, 2011, and 20,10. It provides an overview of our financial performance between fiscal yeaxs ended June 30, 2012 and 2011, in accordance with governmental reporting requirements. The purpose of this discussion is to provide a narrative summary of the financial position and activities of the District in order to enhance the reader's understanding of the District's basic fmancial 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. This report contains such comparative financial information. The District has elected not to include the financial information of its discretely presented component unit, The Wildcat Foundation, in its Management Discussion and Analysis. The separate audited financial statements for the Foundation are available by contacting the District office. FINANCIAL HIGHLIGHTS The School Board adopted -the 2011-2012 general fund budget with a planned deficit of $484,126. The actual 2011-2012 fiscal year results increased fund balance by $1,652,989. Expenditures were under budget by $512,325 and revenue was over budget by $1,624,790 or 3%. This year the school district received $886,169 from the PA Property Tax Relief Fund. This amount was used to provide property tax reductions to each qualified homeowner in the amount of $121.24.- The ending fund balance at June 30, 2012 is $16,788,975 which is comprised of $8,238,118 non-spendable or committed for future medical insurance claims and future pension costs, $3,766,808 committed for retirement of long-term debt and capital outlays and $4,784,049 which is unassigned. The unassigned fund balance represents 9% of expenditures and transfers to other funds. OVERVIEW OF THE FINANCIAL STATEMENTS These financial statements consist of three sections -Management's Discussion and Analysis (this section), the basic financial statements, and other required supplementary information. 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. MDA - 1 - MECHANICS~URG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) JUNE 30, 2012 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 District services aze financed in the short-term as well as what remains for future spending. The proprietary fund statements on pages FS-7 through FS-9 present both short-term and long-term information about the activities that the District operates similaz to a business (the Food Service Fund). The fiduciary fund statements on pages FS-10 and FS-11 report amounts held in trust by the District for agency and student activity funds. The basic financial statements also include notes on pages FS-12 through FS-33 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 pages ORSI-1 and ORSI-2 that consists of the District's budgetary comparison and other post-employment benefit plans. Other supplementary information on pages SI-1 and SI-2 present 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 similaz 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 aze one indicator of whether its financial health is improving or deteriorating. 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. The government-wide financial statements of the District aze 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. MDA-2 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) ,_ JUNE 30, 2012 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 fmancial 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 aze 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 government-wide statements. • Fiduciary funds -The District is the trustee or agent for individuals, private organizations and/or governmental units as shown on pages FS-10 and FS-11. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Assets The District's total net assets were $36,737,653 at June 30, 2012 which includes $35,789,980 in Governmental Activities and $947,673 in Business-type Activities. This shows an increase of $5,125,452 from total net assets at June 30, 2011, which included an increase of $5,124,728 in Governmental Activities and an increase of $724 in Business-type Activities. MDA - 3 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) ._ JUNE 30, 2012 Statement of Net Assets 2011-2012 Current and other assets Capital assets Total assets Governmental Activities Business-type Activities Total School District $ 28,677,858 $ 711,266 $ 29,389,124 67,042,701 304,798 67,347,499 $ 95,720,559 $ 1,016,064 $ 96,736,623 Current and other liabilities Long-term liabilities Total liabilities Capital assets (net of related debt) Restricted for capital projects Unrestricted Total net assets Total liabilities and net assets Statement of Net Assets 2010-2011 Current and other assets Capital assets Total assets Current and other liabilities Long-term liabilities Total liabilities Capital assets (net of related debt) Restricted for capital projects Unrestricted Total net assets Total liabilities and net assets $ 4,290,944 55,639,635 59,930,579 12,611,275 813,123 22,365,582 35,789,980 $ 95,720,559 $ 42,789 25,602 68,391 304,798 642,875 947,673 $ 1,016,064 Governmental Business-type Activities Activities $ 26,364,449 68,511,00.1 $ 94,875,450 $ 653,802 360,704 $ 1,014,506 $ 5,572,526 58,637,672 64,210,198 11,060,592 1,951,656 17,653,004 30,665,252 $ 94,875,450 MDA - 4 $ 43,166 24,391 67,557 360,704 586,245 946,949 $ 1,014,506 $ 4,333,733 55,665,237 59,998,970 12,916,073 813,123 23,008,457 36,737,653 $ 96,736,623 Total School District $ 27,018,251 68,871,705 $ 95,889,956 $ 5,615,692 58,662,063 .64,277,755 11,421,296 1,951,656 18,239,249 31,612,201 $ 95,889,956 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) - JUNE 30, 2012 Statement of Net Assets 2009-2010 Current and other assets Capital assets Total assets Current and other liabilities Long-term liabilities Total liabilities Capital assets (net of related debt) Restricted for capital projects Unrestricted Total net assets Total liabilities and net assets Statement of Activities Governmental Activities Business-type Activities Total School District $ 25,075,945 $ 572,996 $ 25,648,941 67,896,753 416,183 68,312,936 $ 92,972,698 $ 989,179 $ 93,961,877 $ 4,730,296 61,507,713 66,238,009 $ 42,311 23,916 66,227 $ 4,772,607 61,531,629 66,304,236 7,431,496 4,552,260 14,750,933 26,734,689 $ 92,972,698 416,183 506,769 922,952 $ 989,179 7,847,679 4,552,260 15,257,702 27,657,641 $ 93,961,877 The results of this year's operations as a whole are reported in the Statement of Activities. Direct expenses are listed by programs, and then offset by program revenues to determine net (expense) revenue and changes in net assets. General revenues, such as taxes, state general subsidies, and investment earnings are then applied prior to transfers, and special items, to determine the change in net assets. For the 2011-2012 fiscal year, the change in net assets for governmental activities was an increase of $5,124,728 and an increase of $724 for business-type activities, for a net total increase of $5,125,452 as reflected in the chart on page MDA - 6. For the 2010-2011 fiscal year, the change in net assets for governmental activities was an increase of $3,930,563 and an increase of $23,997 for business-type activities for a net total increase of $3,954,560 as reflected in the chart on page MDA - 6: MDA - 5 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) JUNE 30, 2012 Statement of Activities 2011-2012 Governmental Business-type Total Activities Activities School District Program revenues Charges for services $ 1,177,556 $ 1,011,268 $ 2,188,824 Operating grants and contributions 5,719,212 797,089 6,516,301 Capital grants and contributions 671,326 - 671,326 General revenues Taxes 39,427,230 - 39,427,230 Other local revenue _ _ _ State general subsidies 6,578,107 - 6,578,107 Investment earnings 72,340 793 73,133 Total revenues 53,645,771 1,809,150 55,454,921 Direct expenses 48,407,758 1,921,711 50,329,469 Excess (deficiency) before transfers 5,238,013 (112,561) 5,125,452 Transfers between activities (113,285) 113,285 - Change in net assets $ 5,124,728 $ 724 $ 5,125,452 Statement of Activities 2010-2011 Governmental Business-type Total Activities Activities School District Program revenues Charges for services $ 1,179,455 $ 1,040,538 $ 2,219,993 Operating grants and contributions 7,097,359 734,849 7,832,208 Capital grants and contributions 682,170 - 682,170 General revenues Taxes 37,730,958 - 37,730,958 Other local revenue _ _ _ State general subsidies 6,017,837 - 6,017,837 Investment earnings 55,944 1,315 57,259 Total revenues 52,763,723 1,776,702 54,540,425 Direct expenses 48,716,866 1,868,999 50,585,865 Excess (deficiency) before transfers 4,046,857 (92,297) 3,954,560 Transfers between activities (116,294) 116,294 - Change in net assets $ 3,930,563 $ 23,997 $ 3,954,560 MDA - 6 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) JUNE 30, 2012 Local Sources Direct expenses represent 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 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. Local Sources 2011-2012 Governmental Activities Direct Program Net Expenses Revenues Cost Instruction $ 31,015,908 Instructional student support 4,858,072 Administrative and financial support 3,813,581 Operation and maintenance of plant ~ 3,720,045 Pupil transportation 1,600,912 Student activities 995,623 Community services 614,453 Interest on long-term debt 1,789,164 $ 48,407,758 Transfers out State general subsidies revenues Total needs from taxes and other local sources $ 5,003,651 356,394 250,416 131,049 558,153 132;096 465,009 671,326 $ 7,568,094 Activities $ 26,012,257 4,501,678 3,563,165 3,588,996 1,042,759 863,527 149,444 1,117,838 40,839,664 113,285 (6,578,107) $ 34,374,842 Food services Expenses Revenues Net Cost $ 1,921,711 Transfers received Total needs from taxes and other local sources $ 1,808,357 $ 113,354 (113,285) $ 69 MDA - 7 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) -- JUNE 30, 2012 Local Sources 2010-2011 Governmental Activities Direct Program Net Expenses Revenues Cost Instruction $ 31,106,278 Instructional student support 4,793,835 Administrative and fmancial support 3,873,720 Operation and maintenance of plant 3,907,206 Pupil transportation 1,593,401 Student activities 989,131 Community services 591,222 Interest on long-term debt 1,862,073. $ 48,716,866 Transfers out and special items State general subsidies revenues Total needs from taxes and other local sources Food services $ 6,433,479 345,983 209,450 105,570 540,841 129,531 511,960 682,170 $ 8,958,984 $ 24,672,799 4,447,852 3,664,270 3,801,636 1,052,560 859,600 79,262 1,179,903 39,757,882 116,294 (6,017,837) $ 33,856,339 Business-type Activities Direct Program Net Expenses Revenues Cost $ 1,868,999 $ .1,775,387 $ 93,612 Transfers received, special items and investment earnings Total needs from taxes and other local sources The District Funds (117,609) $ (23,997) At June 30, 2012, the District governmental funds reported a combined fund balance of $22,908,183, which is an increase of $2,920,312 from June 30, 2011. The information below compares the governmental funds fund balances for June 30, 2012, 2011 and 2010 using current fund balances categories under the new GASB 54. MDA - 8 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) JUNE 30, 2012 2010-2011 2011-2012 2010 2011 2012 Chance %Chance Chance %Chance General Fund -unassigned $ 6,012,829 $ 4,394,000 $ 4,784,049 $ (1,618,829) -26.9% $ 390,049 8.9% General Fund -committed 5,635,378 10,001,986 10,864,926 4,366,608 77.5% 862,940 8.6% General Fund -nonspendable 740,000 740,000 1,140,000 - 0.0% 400,000 54.1% Capital Reserve Fund -committed 2,592,074 1,793,179 4,051,908 (798,895) -30.8% 2,258,729 126.0% Construction Fund -restricted 4,552,260 1,951,656 813,123 (2,600,604) -57.1% (1,138,533) -58.3% Debt Service Fund -committed 976,454 1,107,050 1,254,177 130,596 13.4% 147,127 13.3% Total governmental funds $ 20,508,995 $ 19,987,871 $ 22,908,183 $ (521,124) -2.5% $ 2,920,312 14.6% Total unassigned $ 6,012,829 $ 4,394,000 $ 4,784,049 $ (1,618,829) -26.9% $ 390,049 8.9% Total restricted/committed 13,756,166 14,853,871 16,984,134 1,097,705 8.0% 2,130,263 14.3% Total nonspendable .740,000 740,000 1,140,000 - 0.0% 400,000 54.1% Total governmental funds $ 20,508,995 $ 19,987,871 $ 22,908,183 $ (521,124) -2.5% $ 2,920,312 14.6% Governmental Funds -Reconciliation The General Fund Balance increase of $1,652,989 was due to favorable variances on expenditures. The district over budgeted pension expenditures in order to develop a reserve to mitigate projected pension increases. Revenue exceeded budget for 2011-12 primarily due to increased earned income tax collections. The Capital Reserve Fund increase of $2,258,729 was due to a transfer from the general fund for future capital projects. The Construction Fund decrease of $1,138,533 was due to payments on a 16-classroom addition to the Middle School. The Debt Service Fund increase of $147,127 was due to favorable interest rates on a variable rate bond issue. 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. 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. MDA - 9 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) JUNE 30, 2012 Jnne 30, 2012 Total revenues Total expenditures Excess revenues (expenditures) Other financing sources (uses) Net change in fund balance June 30, 2011 Total revenues Total expenditures Excess revenues (expenditures) Other financing sources (uses) Net change in fund balance CAPITAL ASSETS Budget Actual Variance $ 51,440,734 $ 53,065,524 $ 1,624,790 46,268,603 43,587,804 2,680,799 5,172,131 9,477,720 4,305,589 (5,656,257) (7,824,731) (2,168,474) $ (484,126) $ 1,652,989 $ 2,137,115 Budget Actual Variance $ 51,477,772 $ 51,759,532 $ 281,760 .46,533,597 43,829,225 2,704,372 4,944,175 7,930,307 2,986,132 (5,342,028) (5,182,528) 159,500 $ (397,853) $ 2,747,779 $ 3,145,632 At June 30, 2012, the District had $65,877,634 in Governmental activities capital assets, which represents a net decrease after depreciation of $1,535,095. Capital assets (net of depreciation) Governmental activities Land Construction in progress Land improvements Buildings and improvements Furniture and equipment Library books Total governmental capital assets Business-type activities Furniture and equipment 2010-2011 2011-2012 2010 2011 2012 Change Chance $ 605,983 $ 605,983 $ 605,983 $ - $ _ 340,819 2,892,727 61,164,121 3,669,294 2,750,390 58,797,563 19,595 2,529,083 61,195,997 3,328,475 (142,337) (2,366,558) (3,649,699) (221,307) 2,398,434 1,493,768 1,442,203 1,375,705 (51,565) (66,498) 148,229 147,296 151,271 933) 3,975 $ 66,645,647 $ 67,412,729 $ 65,877,634 $ 767,082 $ (1,535,095) $ 416,183 $ 360,704 $ 304,798 $ (55,479) $ (55,906) MDA - 10 MECHANICSBURG AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (Cont'd.) _ JUNE 30, 2012 LONG-TERM LIABILITIES Bonds .payable at June 30, 2010, 2011 and 2012 were $60,450,000, $57;435,000, and $54,380,000 respectively. Scheduled payments of principal made during the year to the bondholders were $3,080,000. During the current fiscal year, the District refinanced a bond issue resulting in a savings on future debt payments. The amount of bond principal due within one year is $3,795,000. Compensated absences decreased during the year from anentity-wide perspective from $756,294 to $653,045 at June 30, 2012. Compensated absences increased from June 30, 2010 to June 30, 2011, from an entity-wide perspective from $748,135 to $756,294. Recording for other post employment benefits began in 2008-2009. The liability from anentity-wide perspective increased from $430,969 to $555,164 at June 30, 2012. Other post employment benefits increased from June 30, 2010 to June 30, 2011 from anentity-wide perspective from $294,321 to $430,969. NEXT YEAR'S BUDGET AND ECONOMIC FACTORS Budget Budget 2012-2013 2011-2012 Chance Total revenue $ 53,002,568 $ 51,440,734 $ 1,561,834 Total expenditures 47,985,973 46,328,103 1,657,870 Excess revenues (expenditures) before transfers 5,016,595 5,112,631 (96,036) Transfers (5,660,257) (5,596,757) (63,500) Net change in fund balance $ (643,662) $ (484,126) $ (159,536) The budget for 2012-2013 represents an increase in total expenditures of 3.3%. This is due to contracted salary increases, increased pension obligations, and incorporating athletic fund costs into the general fund. In order to mitigate some of the budget increase, 7.1 positions were eliminated. The budget included a real estate tax increase of 1%. The resulting mill value is 12.289. The District plans to reduce its fund balance by $643,662 to offset the planned budget deficit. 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, 100 East Elmwood Avenue, Mechanicsburg, PA 17055, (717) 691-4500. MDA - 11 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS JUNE 30, 2012 Assets Cash and cash equivalents Investments Real and personal taxes receivable (net) Internal balances Due from other governments Prepaid expenses Other receivables Inventories Restricted cash and cash equivalents for construction Endowment investments Unamortized bond issuance costs Capital assets not being depreciated Capital assets being depreciated (net of accumulated depreciation) Total assets Liabilities Accounts payable Payroll and benefits payable Deferred revenues Accrued interest on bonds payable Long-term liabilities Due within one year Due in more than one year Unamortized bond discounts and refunding costs Total liabilities Net assets Invested in capital assets (net of related debt) Restricted for capital projects Temporarily restricted Permanently restricted Unrestricted Total net assets Total liabilities and net assets Primary Government Governmental Business-type Activities Activities Total $ 17,717,714 4,488,000 3,343,002 20,815 1,014,036 1,142,322 136,022 815,947 $ 705,012 (20,815) 8,299 3,357 15,413 304,798 $ 1,016,064 $ 18,422,726 4,488,000 3,343,002 1,022,335 1,142, 322 139,379 15,413 815,947 1,165,067 625,578 65,252,056 $ 95,720,559 1,165,067 625,578 65,556,854 $ 96,736,623 Component Unit $ 558,914 1,887 114,911 237,951 601,126 $ 1,514,789 $ 610,209 $ 2,788 $ 612,997 $ 24,123 2,991,573 - 2,991.,573 - 121,722 40,001 161,723 - 567,440 - 567,440 - 4,245,000 51,343,209 51,426 59,930,579 12,611,275 813,123 10,000 15,602 68,391 304,798 22,365,582 642,875 35,789,980 947,673 $ 95,720,559 $ 1,016,064 4,255,000 51,358,811 51,426 59,998,970 12,916,073 813,123 23,008,457 36,737,653 $ 96,736,623 28,127 52,250 476,401 202, 726 783,412 1,462,539 $ 1,514,789 The accompanying notes are an integral part of these financial statements. FS-1 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2012 Direct Functions/Programs Expenses Primary Government Governmental activities Program Revenues Net (Expense) Revenue and Changes in Net Assets Operating Capital Grants Primary Government Charges for Grants and and Governmental Business-type Component Services Contributions Contributions Activities Activities Total Unit Instruction $ 31.,015,908 $ 624,888 $ 4,378,763 $ - $ (26,012,257) Instructional student support 4,858,072 - 356,394 - (4,501,678) Administrative and financial support 3,813,581 - 250,416 - (3,563,165) Operation and maintenance of plant 3,720,045 15,782 115,267 - (3,588,996) Pupil transportation 1,600,912 - 558,153 - (1,042,759) Student activities 995,623 88,562 43,534 - (863,527) Community services 614,453 448,324 16,685 - (149,444) Interest on long-term debt 1,789,164 - - 671,326 (1,117,838) 48,407,758 1,177,556 5,719,212 671,326 (40,839,664) Business-type activities Food service Total primary government Component Units Wildcat Foundation 1,921,711 1,011,268 797,089 - - $ 50,329,469 $ 2,188,824 $ 6,516,301 $ 671,326 (40,839,664) $ 147,176 $ - $ 426,808 $ General revenues Real estate taxes Earned income taxes Other taxes Investment earnings State general subsidies Transfers Total general revenues and transfers Change in net assets Net assets -beginning Net assets -ending $ - $ (26,012,257) $ - - (4,501,678) - - (3,563,165) - - " (3,588,996) - - (1,042,759) - - (863,527) - - (149,444) - - (1,117,838) - - (40,839,664) - (113,354) (113,354) - (113,354) (40,953,018) - 279,632 30,417,468 - 30,417,468 - 8,464,774 - 8,464,774 - 544,988 - 544,988 - 72,340 793 73,133 (2,900) 6, 578,107 - 6, 578,107 - (113,285) 113,285 - - 45,964,392 114,078 46,078,470 (2,900) 5,124,728 724 5,125,452 276,732 30,665,252 946,949 31,612,201 1,185,807 $ 35,789,980 $ 947,673 $ 36,737,653 $ 1,462,539 The accompanying notes are an integral part of these financial statements. FS-2 MECHANICSBURG AREA SCHOOL DISTRICT BALANCE SHEET -GOVERNMENTAL FUNDS JUNE 30, 2012 ~~ Assets Cash and cash equivalents Investments Taxes receivable (net) Due from other funds Due from other governments Other receivables Prepaid expenses Total assets Liabilities and fund balances Accounts payable Payroll and benefrts payable Deferred revenues Total liabilities Total Capital Construction Debt Governmental General Reserve Funds Service Funds $ 12,399,618 $ 4,063,919 $ 815,947 $ 1,254,177 $ 18,533,661 4,488,000 - - - 4,488,000 3,343,002 - - - 3,343,002 20,815 - - - 20,815 1,014,036 - - - .1,014,036 136,022 - - - 136,022 1,142,322 - - - 1,142,322 $ 22,543,815 $ 4,063,919 $ 815,947 $ 1,254,177 $ 28,677,858 $ 595,374 $ 12,011 $ 2,824 2,991,573 - - 2,167,893 - - 5,754,840 12,011 2,824 $ - $ 610,209 2,991,573 2,167, 893 5,769,675 Fund balances Nonspendable Health care costs prepaid 1,140,000 - - - 1,140, 000 Restricted Capital projects - - 813,123 - 813,123 Committed Future medical and pension costs 7,098,118 - - - 7,098,118 Retirement of long-term debt 1,266,808 - - 1,254,177 2,520,985 Capital outlays 2,500,000 4,051,908 - - 6,551,908 Unassigned 4,784,049 - - - 4,784,049 Total fund balances 16,788,975 4,051,908 813,123 1,254,177 22,908,183 Total liabilities and fund balances $ 22,543,815 $ 4,063,919 $ 815,947 $ 1,254,177 $ 28,677,858 The accompanying notes are an integral part of these financial statements FS-3 MECHANICSBURG AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2012 Total fund balances -Governmental funds $ 22,908,183 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets are not financial resources and therefore are not reported as assets in the governmental funds. At year end, the cost of capital assets is $ 101,570,808 and the accumulated depreciation is $ 35,693,174 65,877,634 Certain liabilities are not due and payable in the current year, and therefore are not reported as liabilities in the governmental funds. At year end, these liabilities consist of: Bonds payable $ (54,380,000) Compensated absences (653,045) Other post-employment benefit accrual (555,164) Long-term liabilities (55,588,209) Accrued interest on bonds payable (567,440) (56,155,649) Costs related to the issuance of bonds are reported as expenditures in the governmental funds. At year end, the remaining unamortized bond related costs consist of: Bond issuance costs 1,165,067 Bond discounts (premiums) (51,426) 1,113,641 Taxes receivable will be collected, but are not available soon enough to pay for the current year's expenditures, and therefore are deferred in the governmental funds. At year end, these taxes receivable consist of: Real estate taxes 497,171 Earned income taxes 1,549,000 2,046,171 Total net assets -Governmental activities $ 35,789,980 The accompanying notes are an integral part of these financial statements. FS-4 MECHAPIICSBURG AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2012 Revenues Local sources -taxes Local sources -other State sources Federal sources Total revenues Expenditures Instruction Support services Noninstructional services Capital outlay Debt service Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Refunding bond proceeds Transfers from other funds Debtservice (refunded bond issues) Transfers to other funds Net changes in fund balances Fund balances -beginning Fund balances -ending Total Capital Construction Debt Governmental General Reserve Funds Service Funds $ 38,848,874 $ - $ - $ - $ 38,848,874 1,853,502 1,388 198 305 1,855,393 11,727,015 - - - 11,727,015 636,133 - - - 636,133 53,065,524 1,388 198 305 53,067,415 28,780,111 - - - 28,780,111 13,285,170 - - - 13,285,170 1,510,221 - - 70,586 1,580,807 12,300 332,229 1,138,731 - 1,483,260 2 - - 4,786,871 4,786,873 43,587,804 332,229 1,138,731 4,857,457 49,916,221 9,477,720 (330,841) (1,138,533) (4,857,152) 3,151,194 - - - 9,995,000 - 2, 589, 570 - 5,121,876 - - - (10,112,597) (7, 824, 731) - - - 1,652,989 2,258,729 (1,138,533) 147,127 9,995,000 7, 711,446 (10,112,597) (7,824,731) 2,920,312 15,135, 986 1, 793,179 1, 951,656 1,107, 050 19, 987, 871 $ 16,788,975 $ 4,051,908 $ 813,123 $ 1,254,177 $ 22,908,183 The accompanying notes are an integral part of these financial statements. FS-5 MECHANICSBURG AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2012 Total net change in fund balances -Govemmental funds $ 2,920,312 Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported as expenditures in the governmental funds. In the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. During the year, the capital outlays and depreciation expense are as follows: Capital outlays, net of retirements $ 1,944,151 Depreciation Expense (3,479,246) (1,535,095) Payments of bond and note principal are reported as expenditures in the govemmental funds. The principal repayment reduces the liability for bonds and notes payable in the statement of net assets. 13,050,000 Bond and note proceeds are presented as other financing sources in the governmental funds. They are shown as liabilities in the statement of net assets. During the year, the 2011 Series of bonds were issued. (9,995,000) Bond issuance costs, bond discounts and premiums, and the difference between new bonds and any related refunded bonds are presented as expenditures in the governmental funds. These costs are amortized over the life of the bonds. Bond issuance costs incurred 253,225 Bond premiums received (40,043) Amortization expense (182,404) 30,778 Because some taxes will not be collected until several months after the end of the fiscal year, they are not considered as available revenues in the governmental funds. Deferred tax revenues increased (decreased) during the year as follows: Real estate taxes 171,356 Earned income taxes ~~ 407,000 578,356 Payments of interest are presented as expenditures in the governmental funds when the payment is due. In the statement of activities, the expense is measured by the amount accrued during the year. The liability for accrued interest on bonds payable decreased during the year. 96,323 Payments of compensated absences are presented as expenditures in the governmental funds. In the statement of activities, the expense is measured by the amount earned by employees during the year. The liability for compensated absences decreased during the year. 103,249 Payments of other post employment benefits are presented as expenditures in the governmental funds. In the statement of activities, the expense includes actuarial estimates, primarily for amortization of prior costs. The liability for other post employment benefit accruals increased during the year. (124,195) Changes in net assets -Govemmental activities $ 5,124,728 The accompanying notes are an integral part of these financial statements. FS-6 • MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS -PROPRIETARY FUNDS JUNE 30, 2012 Assets Cash and cash equivalents Due from other. governments Accounts receivable Inventories Total current assets Furniture and equipment (net of accumulated depreciation) Total assets Liabilities Due to general fund Deferred revenues Accounts payable Current portion of compensated absences Total current liabilities Long-term portion of compensated absences Total liabilities Net assets Invested in capital assets (net of related debt) Unrestricted Total net assets Total liabilities and net assets Food Service $ 705,012 8,299 3, 357 15,413 732,081 304,798 $ 1,036,879 $ 20,815 40,001 2,788 10,000 73,604 15,602 89,206 304,798 642,875 947,673 $ 1,036,879 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 YEAR ENDED JUNE 30, 2012 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 -social security and retirement subsidies State sources -meal subsidies Federal sources -meal and other subsidies Federal sources -donated commodities Total nonoperating revenues Loss before transfers Transfers from other funds Changes in net assets Net assets -beginning Net assets -ending Food Service $ 991,746 19,391 131 1,011,268 587,216 253, 854 43,201 63,363 843,196 74,030 56, 851 1,921,711 (910,443) 793 47,661 72,007 587,168 90,253 797,882 (112,561) 113,285 724 946,949 $ 947,673 The accompanying notes are an integral part of these financial statements. FS-8 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS -PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2012 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 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 cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents -beginning Cash and cash equivalents -ending Reconciliation of operating income (loss) to net cash provided by (used for) operating activities Operating income (toss) Adjustments to reconcile operating income (loss) to net cash provided by (used for) 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 Accounts payable Compensated absences Total adjustments Net cash provided by (used for) operating activities Food Service $ 1,015,805 (760,046) (769,313) (139,177) (652,731) 120,901 595,527 716,428 (945) (945) 793 793 63,545 641,467 $ 705,012 $ (910,443) 56,851 90,253 113,285 262 2,034 (5,807) 4,276 (4,653) 1,211 257,712 $ (652,731) The accompanying notes are an integral part of these financial statements. FS-9 MECHANiCSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS -FIDUCIARY FUNDS JUNE 30, 2012 Assets Cash and cash equivalents Accounts receivable Total assets Liabilities Due to other organizations Total liabilities Net assets Restricted Total liabilities and net assets Private Purpose Trusts Agency Activities Total $ 169,130 $ 575,242 $ 159,206 $ 903,578 $ 169,130 $ 575,242 $ 159,206 $ 903,578 $ - $ 575,242 $ 159,206 $ 734,448 - 575,242 159,206 734,448 169,130 - - 169,130 $ 169,130, $ 575,242 $ 159,206 $ 903,578 The accompanying notes are an integral part of these financial statements. FS-10 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF CHANGES IN NET ASSETS -FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2012 Additions Gifts and contributions Investment income Total additions Deductions Scholarships and awards Changes in net assets Net assets, beginning Net assets, ending Private Purpose Trusts $ 73,579 31 73,610 48,280 25,330 143,800 $ 169,130 The accompanying notes are an integral part of these financial statements. FS-11 • MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 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 Govemmental Accounting Standards Board (GASB) is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. Accounting guidance is also provided through the Comptroller's office for Pennsylvania Department of Education. The more significant of these accounting policies are as follows: Reporting entity GASB establishes criteria for determining the activities, organizations and functions of government to be included in the financial statement of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the school's financial accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are: The economic resources received or held by the separate organization are entirely for the direct benefit of the District or its constituents. The District is entitled to (or has the ability to) access a majority of the economic resources received or held by the separate organization. The economic resources received or held by an individual organization that the District is entitled to (or has the ability to) access is significant to the District. The District has included The Wildcat Foundation (the Foundation) as a discretely presented component unit. The financial data of the Foundation is reported in the component unit column in the basic financial statements. This separate column is used to emphasize that the Foundation is legally separate from the District. The Foundation was formed for the purpose of supporting projects related to educational programs and to create opportunities for development for the students, staff and community within the Mechanicsburg Area School District. The separate financial statements for the Foundation are available by contacting the District office. FS-12 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Jointly-governed organizations The District is a participant in four jointly-governed organizations, each of which is a separate legal entity that offers services to the District and its residents. Each of these entities serves several school districts and/or municipalities and therefore are not included in this reporting entity. These entities do not have taxing power, but are required to adopt an annual budget, which is funded primarily by its member Districts or others that use its services. Complete financial statements for these entities can be obtained from the respective entity's administrative office. 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. Cumberland County Tax Bureau provides earned income tax collection services. Basis of presentation -District-wide financial statements District-wide financial statements (i.e., the statement of net assets and the statement of activities) present 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 presented separately from business-type activities which rely to a significant extent, on fees and charges for support. District-wide financial statements are presented 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 recognized when earned and expenses are recognized 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. Capital assets (net of accumulated depreciation) and bonds payable (net of unamortized costs) are presented in the statement of net assets. 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-13 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Basis of presentation -Fund financial statements Fund financial statements are also provided for all governmental funds, proprietary funds, and fiduciary funds of the District. Major individual govemmental 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. Governmental funds are presented 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 received within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the District considers tax revenue to be available if received 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 recognized as deferred revenues until earned. Expenditures generally are recognized 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 recognized only when payment is due. Proprietary funds generally follow- standards for accounting and financial presentation for private business enterprises to the extent that those standards do not conflict with or contradict .guidance of the GASB. Proprietary funds distinguish operating revenues and expenses from nonoperaflng 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. 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 resources are available for use, it is the District's general policy to use the restricted (primarily operating grants) resources first, then unrestricted resources as they are needed. The District has the following types of funds: Governmental Funds -These funds account for the activities through which most of the District's operations are provided. FS - 14 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Basis of presentation -Fund financial statements (Cont'd.) Fund accounting (Cont'd.) 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. The District presents the following major govemmental 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. An operating budget is adopted prior to the beginning of each year 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 budget adoption and financial statement presentation. 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. In order to preserve a portion of an appropriation for which an expenditure has been committed by a purchase order, contract or other form of commitment, an encumbrance is recognized. Unused encumbrances expire at the end of each year. Included in the 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. FS-15 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY Of SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Basis of pn3sentation -Fund financial statements (Cont'd.) Fund accounting (Cont'd.) Capital Projects Funds can consist of more than one project each set up under separate "Construction Funds", to separately account for each project. Each issuance of new debt (primarily bonds) is a project to account for the debt proceeds and the expenditure of those proceeds. The District also maintains a capital reserve account for funds transferred from the General Fund and the expenditure of those funds for capital outlays. The Debt Service Fund accounts for bond refinancing, related costs and other debt-related payments. The District presents the following proprietary fund: The Food Service Fund accounts for the operations of the cafeterias. The District presents the following fiduciary funds: The Private Purpose 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 Agency Fund accounts for programs operated and sponsored by school related organizations. These funds are separated from student activity funds. The Activities Fund accounts for programs operated and sponsored by various clubs and organizations within the schools. Cash and cash equivalents and investments Cash and cash equivalents are considered to be cash on hand, demand deposits (including pooled investments), and short-term investments with original maturities of three months or less from the date of acquisition. The types of authorized investments are limited by State regulations. Pooled investment funds are required to be operated in accordance with State regulations. Investments, including pooled investments, are presented at fair value. 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. FS-16 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Contd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) 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 from/to other funds". Any residual balances outstanding between the governmental activities and business-type activities are presented in the district-wide financial statements as "internal balances". .Balances between funds are considered to be short term items pending periodic repayments. Inventories and prepaid items Inventories are presented at the lower of cost or market on a first-in, first-out basis, and are expended when consumed. Donated commodities are recognized as revenue and are inventoried at an estimated cost value. Certain payments, if any, to vendors reflect expenses applicable to future periods and are presented as prepaid items in both district-wide and fund financial statements. Capital assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, sidewalks, and similar items), are presented in the applicable governmental or business-type activities columns in the district- 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 capital assets for financial presentation purposes. In addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Such assets are presented at historical cost or estimated historical cost if purchased or constructed. Major outlays for capi#al 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. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Governmental Business-type Activities Activities Buildings In#erior renovations Land improvements Furniture Machinery and equipment Library books Computer equipment Vehicles 50 - 25 - 20 - 20 20 10 to 15 15 5 - 5 5 8 - FS-17 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Long-term liabilities In the district-wide financial statement, and proprietary fund types in the fund financial statements, bonds and notes payable and other long term obligations are presented as liabilities in the applicable govemmental activities or proprietary fund statement of net assets. Refunding costs and bond premiums and discounts are amortized over the life of the bonds using the effective interest method. Bond issuance costs are presented 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 presented as other financing sources while discounts and refunding costs on debt issuances are presented as debt service expenditures. Issuance costs, whether or not withheld from the actual debt proceeds received, are presented as support service expenditures. Net assets Net assets represent the difference between assets and liabilities. In the district-wide financial statements and proprietary fund financial statements, net assets are classified in the following categories: Invested in capital assets (net of related debt) -This category groups all capital assets into one component of net assets. Accumulated depreciation and outstanding debt that are attributable to the acquisition, construction or improvement of these assets reduce this category. Restricted -Amounts constrained to be used fora specific purpose as per: External parties, contributors or enabling legislation. Unrestricted -This category presents the net assets of the District, which are not restricted for any project or other purpose. However, these funds may be committed or assigned for specific projects or purposes in the fund financial statements. Temporarily restricted (component unit only) -This category presents external time and/or use restrictions imposed by donors. Penmanentiy restricted (component unit only) -This category presents donor-imposed stipulations that they be maintained permanently with only the income available for specified uses. FS-18 MECHANCISBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Governmental fund balances GASB has established criteria for classifying fund balances into specifically defined classifications based on a hierarchy that reflects the extent to which the District is bound to honor constraints on how those funds can be spent. Classifications of fund balances are: Nonspendable -Amounts that cannot be spent because they are either in a (a) non-spendable form (i.e. inventories) or (b) legally or contractually required to be maintained intact (i.e. the principal of a permanent fund). Restricted -Amounts constrained to be used for a specific purpose as per: External parties, contributors or enabling legislation. Committed -Amounts constrained to be used for a specific purpose as per: The District's highest level of decision making authority which is the Board of School Directors. Assigned -Amounts intended to be used for a specific purpose as per: Committee or individual authorized by the Board of School Directors (for example a budget or finance committee, or business manager/financial officer). Unassigned -Amounts available for any purpose (amounts that are not Nonspendable, Restricted, Committed or Assigned) in the General Fund. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain presented amounts and disclosures. Accordingly, actual results could differ from those estimates. Recent accounting standards There are several GASB pronouncements that will become effective for future reporting periods. Of the pronouncements effective for the year ending June 2013, the District does not currently anticipate any significant impact on the District's financial statements. GASB Statement No. 63, effective for the year ending June 2013, is to improve financial reporting by standardizing the presentation of deferred outflows of resources, deferred inflows of resources, and their effects on the District's net position, rather than net assets. This pronouncement will impact terminology and presentation of the Statement of Net Assets (page FS-1 ). FS - 19 MECHANCISBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) Recent accounting standards (Cont'd.) GASB Statement No. 68, effective for the year ending June 2015, is to improve accounting and financial reporting for pensions. This pronouncement will impact the Statement of Net Assets (page FS-1 ), the Statement of Activities (page FS 2), and the Pension Plan disclosures in the Notes to Financial Statements. The District has not yet determined what effect GAS6 68 will have on the District's financial statements. Subsequent events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through November 12, 2012, the date the financial statements were available to be issued. CASH AND CASH EQUIVALENTS AND INVESTMENTS Pennsylvania statutes provide for investment of District funds into authorized investment types including U.S. Treasury bills, other short-term U.S. and Pennsylvania government obligations, and insured or collateralized time deposits and certificates of deposit. The statutes do not prescribe regulations related to demand deposits; however, they do allow the pooling of funds for investment purposes. Custodial credit risk is the risk that in the event of a depository institution failure, the District's deposits may not be returned to it. The District's policy requires that all deposits in excess of federal deposit insurance coverage be collateralized by the depository institution with approved collateral as provided by law. At June 30, 2012, the District's deposits totaled $ 1,680,607 and the depository institution balances totaled $ 2,163,273. Of the depository institution balances, $ 250,000 was covered by federal depository insurance and $ 1,913,273 was collateralized under Act No. 72 of the 1971 Session of the Pennsylvania General Assembly, in which financial institutions were granted the authority to secure deposits of public bodies by pledging a pool of assets, as defined in the Act, to cover all public funds deposited in excess of Federal Depository Insurance limits. The pledged collateral is held by the Federal Reserve Bank, but is not titled in the District's name. FS - 20 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 CASH AND CASH EQUIVALENTS AND INVESTMENTS (Cont'd.) The District also has cash equivalents and investments with three organizations that operate as common law trusts established pursuant to the Intergovernmental Cooperation Act and related statutes for the purpose of pooling investments. Each organization's fundamental policy is to maintain a net asset value of $ 1 per share, but there can be no assurance that the net asset value will not vary from $ 1 per share. They may only purchase securities which are permitted under PA law. As of June 30, 2012, the District's deposits in these organizations are as follows: Cash and Cash Eauivalents Investments Pennsylvania Local Government Investment Trust (PLGIT) $ 9,098,461 $ 1,488,000 Pennsylvania Treasurer's INVEST Program (PA INVEST) 4,334,653 - Pennsylvania School District Liquid Asset Fund (PSDLAF) 5.028.530 3.000.000 Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District does not have a formal investment policy for interest rate risk. The weighted average maturity of the securities held by each of the organizations is generally less than 90 days. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill. its obligations. The District does not have a formal investment policy for credit risk. The District's deposits in each of the organization's were rated "AAAm" by Standard & Poor's. Cash and cash equivalents and investments at June 30, 2012 are as follows: Cash and Cash Equivalents Investments Governmental activities $ 18,533,661 $ 4,488,000 Business-type activities 705,012 - Fiduciary funds 903.578 Total cash and cash equivalents and investments 20 ~a~?~ X4.4 Investments consist of certificates of deposits with original maturities of more than three months from the date of acquisition. FS-21 _ MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 TAXES RECENABLE Taxes receivable are as follows: Taxes Taxes Receivable Allowance for Receivable Deferred (Gross) Uncollectibles (Nat) Tax Revenue Real estate taxes $ 701,401 $ 28,000 $ 673,401 $ 497,171 Earned income taxes 2.669.601 - 2.669.601 1.549.000 General Fund 3,371,002 28,000 3,343,002 2,046,171 Full accrual adjustment - - - (2.046.171) Governmental activities $ 3.371.002 $ 28.000 3.343.00 $ DUE FROM/TO OTHER FUNDS AND INTERFUND TRANSFERS Interfund balances are as follows: Assets Liabilities General Fund $ 20,815 $ 20,815 Food Service Fund Intertund transfers were as follows: Other financing sources Other financing uses Debt Service Fund $ 5,121,876 $ 5,121,876 General Fund Food Service Fund 113,285 113,285 General Fund Capital Reserve Fund 2,589,570 2,589,570 General Fund DUE FROM OTHER GOVERNMENTS Due from other governments are as follows: Local sources -other taxes Local sources -other items State sources Federal sources Govemmental Business-type Activities Activities $ 53, 380 $ - 323, 513 - 494,936 7,436 142.207 863 1.014.036 $ 8.2AG FS-22 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 CAPITAL ASSETS Changes in capital assets were as follows: Governmental activities Capital assets not being depreciated Land Construction in progress Capital assets being depreciated Land improvements Buildings and improvements Furniture and equipment Library books Accumulated depreciation Land improvements Buildings and improvements Furniture and equipment Library books Capital assets being depreciated, net Governmental activities capital assets, net Business-type activities Capital assets being depreciated Equipment Accumulated depreciation Equipment Capital assets being depreciated, net Business-type activities capital assets, net Beginning Ending Balance Increases Decreases Balance $ 605,983 $ - $ - $ 605,983 3.669.294 19.595 13.669.294) 19.595 4.275.277 19.595 13 669 294) 625 578 _ . . . 5,306,901 - - 5,306,901 83,171,328 5,029,019 - 88,200,347 5,639,880 527,681 (563,361) 5,604,200 1.783.479 79.865 (29.5621 1.833.782 , 95.901.588 5.636.565 (592.923) 100.945.230 (2,556,511) (221,307) - (2,777,818) (24,373,765) (2,630,585) - (27,004,350) (4,197,677) (551,465) 520,647 (4,228,495) (1.636.183) (75.889) 29.561 (1.682.511) 132.764.136) (3.479.246) 550.208 (35.693.174) 63.137.452 2.157.319 (42.715) 65.252.056 $ 1,069,748 $ 945 $ (1,000) $ 1,069,693 (709.044 (56.851) 1.000 _ (764.895) 360.704 !55.906) - 304.798 360.704 ~ (55.906) $ - $ 304.798 The Middle School Construction Project was completed in the 2011-12 school year at a total cost of $ 3,669,294. FS - 23 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 CAPITAL ASSETS (Cont'd.) Depreciation expense was charged to functions/programs as follows: Governmental activities Instruction $ 2,187,432 Instructional student support 760,953 Administrative and financial support 256,844 Operation and maintenance of plant 164,357 Transportation 9, 805 Student activities 65,811 Community services 34.044 3.479. Business-type activities -Food service $ 56.851 DEFERRED REVENUES Governmental funds present deferred revenue in connection with receivables for revenues that are not considered to be available to pay liabilities of the current period. Govemmental funds also defer revenue recognition with resources that have been received, but not yet eamed. Deferred revenues in the General Fund of $ 2,167,893 consists of $ 2,046,171 of taxes receivable not received within 90 days of the end of the fiscal period, and $ 121,722 of resources that have been received but not yet eamed. Deferred revenue in the proprietary funds and the district-wide financial statements represents resources that have been received but not yet earned. LONG-TERM LIABILITIES Changes in all long-term liabilities were as follows: Beginning Ending Due Within Balance Increases Decreases Balance One Year Governmental activities Bonds and notes payable $ 57,435,000 $ 9,995,000 $ (13,050,000) $ 54,380,000 $ 3,795 000 Compensated absences 756,294 76,751 (180,000) 653,045 , 250 000 Other post employment benefits _ 430.969 $ 58 23 822 294.500 10 ~F~ ~ (170.305) 555.164 , 200.000 Business-type activities . . . ,~ $ (13.400.305) $ 55.588.2ng X4.245.000 Compensated absences $ 24.391 ~ 1 211 $ - $ 25.60 $ 10.000 FS-24 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 LONG-TERM LIABILITIES (Cont'd.) Bonds and notes payable Changes in bonds and notes payable were as follows: Beginning New Current Scheduled Ending Balance Issue Refunding Redemotians Balance 2000 Series C Notes $ 4,950,000 $ - $ - $ (5,000) $ 4,945,000 2006 Series 3,510,000 - - (165,000) 3,345,000 2006 Series A 9,975,000 - (9,970,000) (5,000) - 2007 Series 7,460,000 - - (500,000) 6,960,000 2009 Series 10,170,000 - - (5,000) 10,165,000 2010 A Series 5,000,000 - - (5,000) 4,995,000 2010 AA Series 16,370,000 - - (2,395,000) 13,975,000 2011 Series - - 9.995.000 9.995.000 Amounts Due Interest Rates _ Maturity Date Callable Date Within One Year 2000 Series C No#es Variable rate stabilized at 4.50% October 2016 Currently $ 1,030,000 2006 Series 3.40% to 4.20% August 2026 Currently 170,000 2007 Series 3.70% to 4.00% August 2022 August 2012 520,000 2009 Series 2.00% to 3.90% August 2021 August 2014 425,000 2010 A Series 1.00% to 3.55% August 2023 August 2015 5,000 2010 AA Series 1.00% to 3.80% August 2026 August 2015 1,640,000 2011 Series 2.00% to 2.25% August 2019 August 2016 5.000 In September 2011, the District issued its 2011 Series of bonds, which is summarized as follows: Amount of 2011 Series of bonds $ 9,995,000 Premiums received on 2011 Series 40,043 District cash contribution 190,000 Payoff 2006 Series of bonds (9,970,000) Interest paid on the 2006 Series (32,714) Transaction costs incurred (220.511) Amount available to the District -Bond Sinking Fund $ 1.818 FS - 25 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 LONG-TERM LIABILITIES (Cont'd.) Bonds and notes payable (Cont'd.) Scheduled debt service requirements are as follows: Year Ending June 30 Principal Interest Total 2013 $ 3,795,000 $ 1,659,209 $ 5,454,209 2014 3,960,000 1,536,823 5,496,823 2015 4,105,000 1,399,937 5,504,937 2016 4,245,000 1,266,206 5,511,206 2017 4,355,000 .1,137,850 5,492,850 2018-2022 25,105,000 3,684,295 28,789,295 2023-2027 8.815.000 745.432 9.560.432 Compensated absences 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 will be paid at the following rates: Number of Years Percentage of Accumulated Davs Less than ten 10 through 14 15 or more 20 35 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. FS-26 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 LONG-TERM LIABILITIES (Cont'd.) Retirement incentive payments Professional employees who become eligible for retirement without penalty, and have at least 20 years of service, are eligible for a one time District payment made to their individual 403(b) retirement account of $ 10,000. These incentive payments are included as compensated absences once employees have met the District's eligibility requirements. Other post employment benefits (OPEBs) OPEBs are presented in accordance with GASB Statement No. 45 (GASB 45), which requires their recognition as part of the compensation package of active employees for services rendered. The cost and obligation for OPEBs are required to be measured by an actuarial valuation. Plan description All eligible retirees (see pension plan) including teachers, administrators, and support staff are allowed to continue coverage for themselves and their dependents until the retiree attains the Medicare eligible age. Retiree's premiums are less than the District's actual cost to provide health care coverage to retirees. The premium amount retirees pay is a blended rate for covering both active and retired Plan members. The fact that the blended rate that retirees pay is less than the cost of covering retired members-and their beneficiaries results in what is known as an "implicit rate subsidy," which creates an additional cost to the District. Participant information Active. participants 509 Vested former members 30 Retired participants 47 Funding Policy The District funds Plan liabilities on a "pay-as-you-go" basis, and has not established an OPEB trust fund to accumulate assets to fund Plan obligations. The District has no statutory or contractual obligation to fund the Plan and would only do so at the District's discretion. FS - 27 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 LONG-TERM LIABILITIES (Cont'd.) Other post employment benefits (OPEBs) (Cont'd.) Annual OPEB cost and net OPEB obligation The District's annual OPEB cost (expense) is calculated based on the actuarially determined annual required contribution (ARC) of the employer. The ARC represents the amount needed to fund the cost of benefits attributed to the current year, plus an amortized portion of the unfunded actuarial accrued liability (UAAL). The District has selected a blended amortization method, which results in the UAAL being amortized over a remaining period of 4 years. Components of the District's annual OPEB cost, the amount contributed to the Plan, and changes in the net OPEB obligation are as follows: Employer normal cost $ 82 529 Amortization of unfunded actuarial accrued liability 276.132 Annual required contribution 358,661 Interest on the net OPEB obligation 19 394 Adjustment to the ARC (83.555) Annual OPEB cost 294,500 Contributed to the plan (170.305) Increase in net OPEB obligation 124;195 Net OPEB obligation -beginning 430.969 Net OPEB obligation -ending $ 555.164 The percentage of annual OPEB cost contributed was as follows: Year ended Percentage of Annual Annual OPEB OPEB Cost Cost Contributed Net OPEB Obligation June 2012 Funding status and funding progress $ 294,500 57.83% $ 555,164 The District's actuarial accrued liability (AAL) for OPEBs as of July 2010 was $ 1,424,261. There are no Plan assets, thus, the entire amount is unfunded. The District does not have any current plans to fund the AAL. Actuarial UAAL as Actuarial Actuarial Accrued a % of Valuation Value of Liability Unfunded Funded Covered Covered Date Assets (AAL~ AAL Ratio Payroll Pavroll July 2010 $ - $ 1,424,261 $ 1,424,261 0.00% $ 23,290,133 6.12% FS - 28 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 LONG TERM LIABILITIES (Cont'd.) Other post employment benefits (OPEBs) (Cont'd.) Actuarial assumptions and methods Actuarial assumptions and methods used in the July 2010 actuarial valuation include the following: Interest rate 4.50% General inflation rate 3.00% Health care cost trend rate 6.5% in 2012 decreasing by 0.5% per year to 5.5% in 2014. Rates gradually decrease from 5.3% in 2015 to 4.2% in 2019 and later. Actuarial cost method Benefits are allocated on a level basis over the earnings of an individual from date of hire to assumed retirement date Amortization (blended) Active employees over expected future service period, and retirees over expected future payment period Actuarial evaluations on an ongoing basis involve estimates of the reported amounts and assumptions about the probability of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Projections of benefits are based on the types of benefits provided under the plan at the time of each valuation and on the pattern of sharing of benefit costs between the employer and plan members to that point in time. Actuarial calculations reflect along-term perspective, and consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in accrued liabilities. The required schedule of funding progress in the other required supplementary information (ORSI) immediately following the notes to financial statements, is to present multi-year trend information about whether the actuarial value of Plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. However, because the District maintains no Plan assets, information relative to Plan asset disclosures is not applicable. Additionally, because the June 2009 year was the implementation year of GASB 45, the OPEB disclosure standards were implemented prospectively; therefore, the ORSI does not reflect similar information for three consecutive valuations. FS - 29 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 OPERATING LEASES The District is obligated under various equipment and modular classroom lease agreements at June 30, 2012. Total Operating lease payments included in General Fund expenditures for the year ended June 30, 2012 amounted to approximately $ 134,430. The following is a schedule of future minimum rental payments under the operating lease agreements required for the years ending: 2013 $ 138,960 2014 138,960 2015 124,200 2016 119, 999 2017 2.231 Total minimum payments required $ 524.350 PENSION PLAN Substantially all full-time and part-time employees of the District participate in the 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 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 P© Box 125, Harrisburg, PA 17108-0125, or on the System's website. The contribution policy is established in the Code and requires contributions by active members, employers and the Commonwealth. Contribution rates for active members are set by law and are dependent upon members' class. In most cases, the member contribution rates based on qualified compensation are as follows: Membership Class T-C Membership Class T-C Membership Class T-D Membership Class T-D Membership Class T-D Active members hired before July 22, 1983 Members hired on or after July 22, 1983 and who were active or inactive as of July 1, 2001 Active members hired before July 22, 1983 Members hired on or after July 22, 1983 and who were active or inactive as of July 1, 2001 Members hired from July 1, 2001 thru June 30, 2011 5.25% 6.25% 6.50% 7.50% 7.50% FS-30 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 PENSION PLAN (Cont'd.) Members hired after June 30, 2011 are automatically Membership Class T-E and have a member contribution rate of 7.50% (base rate). Members hired after June 30, 2011 who elect Membership Class T-F have a member contribution rate of 10.30% (base rate). Membership Class T-E and T-F are affected by a `shared risk' provision in Act 120 of 201.0 that in fiscal years could cause the Membership Class T-E contribution rate to fluctuate between 7.50% and 9.50% and Membership Class T-F contribution rate to fluctuate between 10.30% and 12.30%. Contributions required of employers are based upon an actuarial valuation. For the fiscal year ended June 2012 the employer contribution rate was 8.65 percent of covered payroll, composed of 8.00 percent for pension benefits and 0.65 percent for healthcare insurance premium assistance. District's contributions to the system for years ended June 2012, 2011 and 2010 were $ 2,112,090, $ 1,361,369 and $ 1,148,602, respectively. Those amounts are equal to the required contributions for each year. RISK MANAGEMENT Health insurance The District is a member of South Central Trust for processing claims and obtaining reinsurance through commercial insurance carriers, but the Trust is not a risk sharing pool. The District has reinsurance for claims in excess of $ 125,000 specific (per person). The District has a maximum lifetime benefit of $ 5,000,000 per person. Financial statements of the trust are provided to member districts. District transactions with the trust were as follows: Cash balance in the trust -beginning Payments from the District and its retirees Benefit claims paid by the trust Stop loss premiums and commissions Administrative and other fees, net of interest earned Cash balance in the trust -ending Prepaid health insurance Amount available for accrued benefit claims The amount available for benefit claims was as follows: Accrual for benefit claims incurred Accrual for health insurance coverage on payroll payable Amount available for accrued benefit claims $ 1,751,958 5,020,663 $ (4,372,956) (187,290) (14.251) X4.574.497) 2,198,124 1.140.000 $ 578,124 480.000 FS-31 MECHANICSBURG AREA SCHOOL DfSTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 RISK MANAGEMENT (Cont'd.) Health insurance (Cont'd.) There are various methodologies for estimating a reasonable level for claims that have been incurred but not reported (IBNR). District management has selected the methodology of approximately '60 days of paid claims'. District management believes this methodology provides an adequate amount for accrued claims. Other insurance 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. For workers' compensation insurance, approximately 80 Districts participate in a public entity risk sharing pool (School Districts Insurance Consortium) for processing claims and obtaining reinsurance through commercial insurance carriers. Under this plan, the District's annual cost should not exceed standard commercial insurance rates. COMMITMENTS AND CONTINGENCIES Other commitments and contingencies The District's collective bargaining agreement with its teaching staff expires June 30, 2013. 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 participates in state and federal grant programs which are governed by various rules and regulations. Expenditures charged to these grant programs are subject to program compliance audits and reviews by the grantor agencies. The District is potentially liable for any expenditures which may be disallowed by the rules of these grant programs. The District does not anticipate any material disallowance of program expenditures. 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 receipt of additional funds. FS-32 MECHANICSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS (Cont'd.) JUNE 30, 2012 COMMITMENTS AND CONTINGENCIES (Cont'd.) As part of its ongoing capital projects, the District has entered into contract commitments approximating $ 58,000 for the final completion of the Middle School kitchen construction project at June 30, 2012. COMMITTED FUND BALANCE Committed amounts of fund balance of the General Fund are as follows: Pension plan rate increases Health insurance Retirement of long-term debt Capital outlays $ 5,312,740 1, 785, 378 1,266,808 2.500.000 FS-33 MECHANICSBURG AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE, BUDGET AND ACTUAL -GENERAL FUND YEAR ENDED JUNE 30, 2012 Budgeted Amounts Variance With Original Final Actual Final Budget Revenues Local sources -taxes $ 37,641,842 $ 37,641,842 $ 38,848,874 $ 1,207,032 Local sources -other 1,753,893 1,753,893 1,853,502 99,609 State sources 11,472,879 11,472,879 11,727,015 254,136 Federal sources 572,120 572,120 636,133 64,013 Total revenues 51,440,734 51,440,734 53,065,524 1,624,790 Expenditures Regular programs 21,800,195 21,574,213 20,717,105 857,108 Special programs 6,811,230 7,037,412 6,891,138 146,274 Vocational programs 241,184 241,184 223,715 17,469 Other instructional programs 425,246 502,122 496,119 6,003 Community College programs 626,705 545,829 448,034 97,795 Pre-School programs - 4;000 4,000 - Pupil personnel 1,669,085 1,669,085 1,555,367 113,718 Instructional staff 2,631,085 2,650,808 2,407,603 243,205 Administration 2,754,879 2,803,244 2,756,281 46,963 Pupil health 605,368 632,120 622,459 9,661 Business 531,862 553,482 531,894 21,588 Operation and maintenance of plant 4,496,903 4,255,168 3,555,688 699,480 Student transportation 1,678,592 1,803,667 1,591,107 212,560 Central services 132,551 132,551 130,372 2,179 Other support services 148,745 148,745 134,399 14,346 Student activities 1,265,410 1,106,314 929,812 176,502 Community services 437,063 596,159 580,409 15,750 Capital outlay 12,500 12,497 12,300 197 Debt service - 3 2 1 Total expenditures 46,268,603 46,268,603 43,587,804 2,680,799 Excess (deficiency) of revenues over expenditures 5,172,131 5,172,131 9,477,720 4,305,589 Other financing sources (uses) Transfers to other funds (5,596,757) (5,596,757) (7,824,731) (2,227,974) Budgetary reserve (59,500) (59,500) - 59,500 Net changes in fund balances (484,126) (484,126) 1,652,989 2,137,115 Fund balance -beginning 14,214,360 14,214,360 15,135,986 921,626 Fund balance -ending $ 13,730,234 $ 13,730,234 $ 16,788,975 $ 3,058,741 ORSI - 1 MECHANICSBURG AREA SCHOOL DISTRICT OTHER POST EMPLOYMENT BENEFIT PLANS JUNE 30, 2012 HEALTH CARE BENEFITS SCHEDULE OF FUNDING PROGRESS Actuarial Actuarial Actuarial Accrued Valuation Value of Liability Date Assets (AALL July 2010 $ - $ 1,424,261 July 2008 - 1,288,868 UAAL as a%of Unfunded Funded Covered Covered AAL Ratio Pavroll Payroll $ 1,424,261 0.00% $ 23,290,133 6.12% 1,288,868 0.00% 20,610,024 6.25% The District is required to have an actuarial valuation at least biennially (every 2 years). If the plan experiences significant changes, a new actuarial valuation should be performed rather than waiting for the next scheduled valuation date. Because the June 2009 year was the implementation year for GASB 45, and the District chose to implement prospectively, the above illustration does not reflect similar information for three consecutive valuations. ORSI - 2 SUPPLEMENTARY INFORMATION r ~ MECHANICSBURG AREA SCHOOL DISTRICT COMBINING STATEMENT OF NET ASSETS -FIDUCIARY FUNDS JUNE 30, 2012 Private Purpose Trusts Total Expendable Non-expendable Trust District Trust Trust Funds Agency Fund Activities Total Assets Cash and cash equivalents $ 129,033 $ 40,097 $ 169,130 $ 575,242 $ 159,206 $ 903,578 Accounts receivable - - - - - - Total assets $ 129,033 $ 40,097 $ 169,130 $ 575,242 $ 159,206 $ 903,578 Liabilities Due to other organizations $ - $ - $ - $ 575,242 $ 159,206 $ 734,448 Total liabilities - - - 575,242 159,206. 734,448 Net assets Restricted 129,033 40,097 169,130 - - 169,130 Total liabilities and net assets $ 129,033 $ 40,097 $ 169,130 $ 575,242 $ 159,206 $ 903,578 SI-1 MECHANICSBURG AREA SCHOOL DISTRICT COMBINING STATEMENT OF CHANGES IN NET ASSETS -ALL TRUST FUNDS YEAR ENDED JUNE 30, 2012 • Additions Gifts and contributions Investment income Total additions Deductions Scholarships and awards Total deductions Operating income (loss) Transfers to (from) trust accounts Changes in net assets Net assets, beginning Net assets, ending Expendable Non-expendable Trust Trust Totals $ 71,879 $ 1,700 $ 73,579 - 31 31 71,879 1,731 73 610 , 24,828 23,452 48 280 , 24,828 23,452 48 280 , 47, 051 (21, 721) 25, 330 47, 051 (21, 721) 25, 330 81,982 61,818 143 800 , $ 129, 033 $ 40, 097 $ 169,130 SI - 2