Catasauqua Area School District

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without notice. The Notes may not be sold nor may offers to buy be accepted prior to the time the Preliminary Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of any such jurisdiction. delivery oftheNotesby______. 30, 1972,No.164,P.L. 508,asamendedandsupplemented. District’s GeneralObligationBonds,Series A of2013(the“2013A Bonds”),and(d)payingthecostsexpensesrelated totheissuanceofNotes. School the of portion a or all refund currently (c) Bonds”), “2013 (the 2013 of Series Bonds, Obligation District’sGeneral School the of portion a or all refund (See date “THE NOTES,”infra).TheNotesare subjecttoredemptionpayment prior tomaturityasdescribedherein.interest particular the to respect with Date Record the of as registered is Bond such name(s) whose in person(s) the to mailed and out made bycheck bepayable will Bond onsuch and interest office(s)) designated its at agent paying successor any (or Pennsylvania Harrisburg, in office trust corporate the principal of and redemption premium, if any, on each of the Notes will be payable, when due, upon surrender of such Bond to the Paying Agent at its specified DTC Participants for subsequent disbursement to the Beneficial Owners of the Notes. If the use of the Book-Entry Only System for the Notes is ever discontinued, premium, if any, and interest on the Notes, when due for payment, will be made directly to DTC by the Paying Agent, and DTC will in turn remit such payments to sinking fund depository for the Notes. So long as Cede & Co., as nominee for DTC, is the registered owner of the Notes, payments of the principal of, redemption price has been duly made or provided for. The School redemption District the has of payment appointed if Manufacturers thereof, and redemption for Tradersfixed date maturity,Trustthe to until prior Company redemption (the to “Paying subject is Bond Agent”), such or,as if Bond paying such agent of and date maturity pledged itsfullfaith,creditandtaxingpower,has withinthelimitsprovidedbylaw.irrevocably (See“Security”and“TaxingDistrict School PowersoftheSchoolDistrict”infra). the payment and appropriation budgeting, such for and Notes, the in stated manner the in and place the at dates, the on thereon interest the and Bond every of principal the funds or revenues its of other any or Resolution the under established fund sinking the from paid be to cause or pay each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Notes for such year and will duly and punctually from its tax and other general revenues. The School District has covenanted that it will, to the fullest extent permitted under applicable law, provide in its budget in of transfer, exchangeandpaymentasdescribedherein. ENTRY ONLY SYSTEM” herein. If, under the circumstances described herein, Notes are ever issued in certificated form, the Notes will be subject to registration maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and must interest purchaser that on Bond, a the of Notes. owner beneficial the is See purchaser any “BOOK- as long so For Notes. the of delivery physical receive not will Notes the of purchasers The any and integral multiple thereof owner only under the registered book-entry only system the maintained by DTC as through its Co., brokers and dealers & who are, or Cede act through, DTC of Participants. name the in or $5,000 of registered denominations New in York,(“DTC”), acquired TrustDepository Company be The of be may nominee Notes New the York. of will ownership Beneficial Notes The thereof. multiple integral any or $5,000 of denominations in coupons, of theInternalRevenueCode1986,asamended(relating toexpensesandinterest relating totax-exemptincomeofcertainfinancialinstitutions). School Districtinconnectionwiththe Notes.ItisexpectedthattheNoteswillbeavailablefordelivery inNew York, New York, onor aboutJune18,2018. the to Financial Advisor the as serve will Pennsylvania, Harrisburg, of LLC, Financial Advisors PFM Counsel. Underwriter’s Scope Limited as Pennsylvania, upon for the School District by David Knerr, Esquire, School District Solicitor, of Macungie, Pennsylvania and by McNees Wallace & Nurick LLC, of Lancaster, Fox Rothschild LLP, of Blue Bell, Pennsylvania, Bond Counsel to the School District, to be furnished upon delivery of the Notes. Certain matters will be passed Interest Due:March15andSeptember Dated: DateofDelivery The information concerningfederalandstatetaxmattersrelating totheNotes,see“TAX EXEMPTION AND OTHERTAX MATTERS” herein. in Pennsylvaniaandtheinterest ontheNotesisexemptfrom thePennsylvaniapersonalincometaxandcorporatenettax.Forfurther the opinionthatunderlawsofCommonwealthPennsylvaniaaspresently enacted andconstrued,theNotesare exemptfrom personalproperty taxes may beincludedinadjustedcurrent earningsincomputingalternativeminimumtaxthatmaybeimposedbytheCodeoncorporations.BondCounselisalsoof treated asapreference itemforpurposesofthealternativeminimumtaxthatmaybeimposedbyCodeonindividualsandcorporations;suchinterest, however, Revenue Codeof1986,asamended(the“Code”),andapplicableregulations thereunder. InthefurtheropinionofBondCounsel,interest ontheNotesisnot purposes offederalincometaxation.ThisopinionBondCounselissubjecttocontinuingcompliancebytheSchoolDistrictwithrequirements ofthe Internal NEW ISSUE—BOOK-ENTRY ONLY *Estimated, subject tochange. Dated: The scheduled payment of principal of and interest on the Notes when due will be guaranteed under an insurance policy to be issued concurrently with the with concurrently issued be to policy insurance an under guaranteed be will due when Notes the on interest and of principal of payment scheduled The The Notes are an authorized investment for fiduciaries in the Commonwealth pursuant to the Pennsylvania Probate, Estate and Fiduciaries Code, Act of June District’sSchool the refund currently (a) to: used be will Notes the of Proceeds currently (b) Notes”), “2006 (the 2006 of Series Notes, Obligation General the until year each of 15 September and 15 March on semiannually thereafter and 2018, 15, September on initially payable is Notes the of each on Interest The Notes are general obligations of the Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania (the “School District”), payable without form, registered in issued be will $7,970,000* of amount principal aggregate the in “Notes”) (the 2018 of Series Notes, Obligation General The The Notes are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to the approving legal opinion of In the opinion of Bond Counsel, under existing statutes and court decisions, interest on the Notes is excluded from gross income of the owners thereof for Notes have MATURITY DATES AND AMOUNTS, INTEREST RATES, INITIAL OFFERINGPRICES/YIELDS AND CUSIPS been designated, PRELIMINARY OFFICIAL STATEMENT DATED MAY 8,2018 or are Lehigh andNorthamptonCounties,Pennsylvania Catasauqua Area SchoolDistrict “deemed General ObligationNotes,Seriesof2018 designated” See InsideFront Cover $7,970,000* as “qualified tax-exempt obligations”, Principal Due:September15,asshownoninsidecover for purposes S&P: BBB+(NegativeOutlook)(Underlying) First Interest Payment:September15,2018 and RATINGS: S&P:“ ”(Insured) effect contemplated (see “RATINGS” herein) by Section 265 $7,970,000* Catasauqua Area School District Lehigh and Northampton Counties, Pennsylvania General Obligation Notes, Series of 2018

Dated: Date of Delivery Principal Due: September 15, as shown below Interest Due: March 15 and September 15 First Interest Payment: September 15, 2018

BOND MATURITY SCHEDULE FOR:

Maturity Date (September 15) Principal Interest Initial Offering Year Amounts Rates Yields CUSIP(1) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038

(1)The above CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the School District or the Underwriter, and such parties are not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refunding or defeasance of such issue or the use of secondary market financial products. Neither the School District nor the Underwriter has agreed to, and there is no duty or obligation to, update this Preliminary Official Statement to reflect any change or correction in the CUSIP numbers set forth above.

*Estimated, subject to change.

Catasauqua Area School District Lehigh and Northampton Counties, Pennsylvania

BOARD OF SCHOOL DIRECTORS

Mrs. Carol Cunningham ...... President Mr. Duane Deitrich ...... Vice-President Mr. Donald Panto ...... Treasurer Mr. Jason Bashaw ...... Secretary Mr. Stephen Becker ...... Member Mr. Dale Hein ...... Member Mrs. Christine Nace ...... Member Mr. Rodney Nace ...... Member Vacant ...... Member

SUPERINTENDENT MR. ROBERT SPENGLER

BUSINESS SUPERVISOR MS. LOIS REED

SCHOOL DISTRICT SOLICITOR DAVID KNERR, ESQUIRE Macungie, Pennsylvania

BOND COUNSEL TO THE SCHOOL DISTRICT FOX ROTHSCHILD LLP Blue Bell, Pennsylvania

FINANCIAL ADVISOR PFM FINANCIAL ADVISORS LLC Harrisburg, Pennsylvania

UNDERWRITER RBC CAPITAL MARKETS, LLC Lancaster, Pennsylvania

LIMITED SCOPE UNDERWRITER’S COUNSEL MCNEES WALLACE & NURICK LLC Lancaster, Pennsylvania

PAYING AGENT MANUFACTURERS AND TRADERS TRUST COMPANY Harrisburg, Pennsylvania

SCHOOL DISTRICT ADDRESS 201 North 14th Street Catasauqua, Pennsylvania 18032-1199

No dealer, broker, salesman or other person has been authorized by the School District to give information or to make any representations, other than those contained in this Preliminary Official Statement, and if given or made, such other information or representations must not be relied upon. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof. IN CONNECTION WITH THE OFFERING OF THE NOTES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS PRELIMINARY OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS PRELIMINARY OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE NOTES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE RESOLUTION BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE NOTES OR THE RESOLUTION IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF CERTAIN STATES, IF ANY, IN WHICH THE NOTES HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE NOTES OR THE ACCURACY OR COMPLETENESS OF THIS PRELIMINARY OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

TABLE OF CONTENTS

Page Page INTRODUCTION ...... 1 Debt Limit and Remaining Borrowing Capacity ...... 20 Debt Service Requirements ...... 20 PURPOSE OF THE ISSUE ...... 1 Future Financing ...... 21 Sources and Uses of Bond Proceeds ...... 1 LABOR RELATIONS ...... 21 THE NOTES ...... 2 School District Employees ...... 21 Description ...... 2 Pension Program ...... 21 Payment of Principal and Interest ...... 2 Other Post-Employment Benefits ...... 22 Transfer, Exchange and Registration of Notes ...... 3 LITIGATION...... 22 Commonwealth Enforcement of Debt Service Payments...... 3 Pennsylvania Budget Adoption ...... 3 DEFAULTS AND REMEDIES ...... 22 Act 85 of 2016 ...... 4 TAX EXEMPTION AND CERTAIN OTHER TAX MATTERS 22 Security ...... 4 Sinking Fund ...... 4 Certain Federal Income Tax Matters ...... 22 Certain Pennsylvania Tax Matters ...... 23 BOOK-ENTRY ONLY SYSTEM ...... 5 Changes in Federal and State Tax Law ...... 23 REDEMPTION OF NOTES ...... 6 CONTINUING DISCLOSURE UNDERTAKING ...... 23 Mandatory Redemption ...... 6 RATINGS ...... 24 Optional Redemption ...... 6 Notice of Redemption ...... 7 BOND INSURANCE RISK FACTORS ...... 24 Manner of Redemption ...... 7 UNDERWRITING ...... 25 THE SCHOOL DISTRICT ...... 8 Introduction ...... 8 LEGAL OPINION ...... 25 Administration ...... 8 FINANCIAL ADVISOR ...... 25 School Facilities ...... 8 Enrollment Trends ...... 8 MISCELLANEOUS ...... 25 SCHOOL DISTRICT FINANCES ...... 9 APPENDIX A- DEMOGRAPHIC AND ECONOMIC INFORMATION Introduction ...... 9 RELATING TO THE CATASAUQUA AREA SCHOOL DISTRICT Financial Reporting ...... 9 Budgeting Process in School Districts under the Taxpayer Introduction ...... A-1 Relief Act ...... 9 Population ...... A-1 Summary and Discussion of Financial Results ...... 10 Employment ...... A-2 Income ...... A-3 TAXES AND TAXING POWERS OF THE SCHOOL Industry ...... A-4 DISTRICT ...... 12 Transportation ...... A-4 The Taxpayer Relief Act (Act 1) ...... 13 Utilities ...... A-4 Status of the Notes Under Act 1...... 14 Legislation Limiting Unreserved Fund Balances ...... 14 APPENDIX B- FORM OF BOND COUNSEL OPINION Tax Levy Trends ...... 15 Real Property Tax ...... 15 APPENDIX C- CONTINUING DISCLOSURE CERTIFICATE Other Taxes ...... 17 APPENDIX D SPECIMEN OF MUNICIPAL BOND INSURANCE COMMONWEALTH AID TO SCHOOL DISTRICTS ...... 17 - POLICY DEBT AND DEBT LIMITS ...... 19 Debt Statement ...... 19 APPENDIX E- AUDITED FINANCIAL STATEMENT

PRELIMINARY OFFICIAL STATEMENT

$7,970,000* Catasauqua Area School District Lehigh and Northampton Counties, Pennsylvania General Obligation Notes, Series of 2018

INTRODUCTION

This Preliminary Official Statement, including the cover and inside cover pages hereof and Appendices hereto, is furnished by Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania (the “School District”), in connection with the offering of its $7,970,000* aggregate principal amount General Obligation Notes, Series of 2018, dated as of September 15, 2018 (the “Notes”). The Notes are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on May 8, 2018 (the “Resolution”), and pursuant to the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, 53 Pa. Cons. Stat. Chs. 80-82 (the “Act”).

PURPOSE OF THE ISSUE

Proceeds of the Notes will be used to: (a) currently refund the School District’s General Obligation Notes, Series of 2006 currently outstanding in the principal amount of $395,000 (the “2006 Notes”), (b) currently refund all or a portion of the School District’s General Obligation Bonds, Series of 2013 currently outstanding in the principal amount $5,305,000 (the “2013 Bonds”) of which $675,000 shall be refunded (the “Refunded 2013 Bonds”), (c) currently refund all or a portion of the School District’s General Obligation Bonds, Series A of 2013 currently outstanding in the principal amount of $7,290,000 (the “2013A Bonds”) of which $6,650,000 shall be refunded (the “Refunded 2013A Bonds”), and (d) paying the costs and expenses related to the issuance of the Notes.

Upon issuance of the Notes, a portion of the proceeds will be irrevocably deposited with Manufacturers and Traders Trust Company, as paying agent for the 2006 Notes, 2013 Bonds, and 2013A Bonds, in an amount sufficient to redeem the 2006 Notes, Refunded 2013 Bonds, and Refunded 2013A Bonds at a redemption price of 100% on or about June 18, 2018.

Sources and Uses of Bond Proceeds

The following is a summary of the sources and uses of the proceeds from the issuance of the Notes.

Sources of Funds Total Bond Proceeds ...... Net Original Issue Premium [Discount] ...... Total Sources of Funds ......

Uses of Funds Amount Required to Redeem the 2006 Notes ...... Amount Required to Redeem the Refunded 2013 Bonds ...... Amount Required to Redeem the Refunded 2013A Bonds ...... Issuance Costs(1) ...... Total Uses of Funds ......

(1)Includes legal, financial advisor, printing, rating, total bond discount, municipal bond insurance premium, CUSIP, paying agent and miscellaneous costs.

*Estimated, subject to change.

THE NOTES

Description

The Notes will be issued in fully registered form in denominations of $5,000 and integral multiples thereof, will be in the aggregate principal amount of $7,970,000*, will be dated as of June 18, 2018, and will bear interest at the rates and mature in the amounts and on the dates set forth on the cover of this Preliminary Official Statement. Interest on the Notes will be payable initially on September 15, 2018, and thereafter, semiannually on March 15 and September 15 of each year until the maturity date of such Bond or, if such Bond is subject to redemption prior to maturity, until the date fixed for redemption thereof, if payment of the redemption price has been duly made or provided for.

When issued, the Notes will be registered in the name of Cede & Co., as nominee for the Depository Trust Company (“DTC”), New York, New York. Purchasers of the Notes (the “Beneficial Owners”) will not receive any physical delivery of bond certificates, and beneficial ownership of the Notes will be evidenced only by book entries. See “BOOK – ENTRY ONLY SYSTEM” herein.

Payment of Principal and Interest

So long as Cede & Co., as nominee of DTC, is the registered owner of the Notes, payments of principal of, redemption premium, if any, and interest on the Notes, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal, redemption premium, if any, and interest so paid.

If the use of the Book-Entry Only System for the Notes is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Notes and payment of principal, redemption premium, if any, and interest on the Notes shall be made as described in the following paragraphs:

The principal of the Notes, when due upon maturity or upon any earlier redemption, will be paid to the registered owners of the Notes, or registered assigns, upon surrender of the Notes to Manufacturers and Traders Trust Company (the “Paying Agent”), acting as paying agent and sinking fund depository for the Notes, at its specified corporate trust office in Harrisburg, Pennsylvania (or to any successor paying agent at its designated office(s)).

Interest on the Notes will be payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding September 15, 2018, in which event such Bond shall bear interest from the date of delivery, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bond shall bear interest from the date on which interest was last paid on such Bond. Interest on each Bond will be payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the last day (whether or not a day on which the Paying Agent is open for business) of the calendar month next preceding each interest payment date (the “Record Date”), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the School District shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owners of such Notes not less than fifteen (15) days preceding such special record date. Such notice shall be mailed to the persons in whose names such Notes are registered at the close of business on the fifth (5th) day preceding the date of mailing.

If the date for payment of the principal of or interest on any Notes shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of such principal or interest shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment.

*Estimated, subject to change.

Transfer, Exchange and Registration of Notes

Subject to the provisions described below under “Book-Entry Only System,” Notes are transferable or exchangeable by the registered owners thereof upon surrender of Notes to the Paying Agent, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Paying Agent shall enter any transfer of ownership of Notes in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered bond or Notes of authorized denominations, maturity and interest rate for the aggregate principal amount which the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary.

The School District and the Paying Agent shall not be required (a) to issue or register the transfer of or exchange any Notes then considered for redemption during a period beginning at the close of business on the fifteenth (15th) day next preceding any date of selection of Notes to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed or (b) to register the transfer of or exchange any portion of any Bond selected for redemption in whole or in part until after the redemption date. Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations of the same maturity and interest rate.

Commonwealth Enforcement of Debt Service Payments

Section 633 of the Pennsylvania Public School Code of 1949, as amended by Act 150 of 1975, and as further amended and supplemented (the “Public School Code”), presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness on the date of maturity or date of mandatory redemption or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date or on any sinking fund deposit date, in accordance with the schedule under which the Notes were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depositary for such Bond issue. These withholding provisions are not part of any contract with the holders of the Notes, and may be amended or repealed by future legislation.

The effectiveness of Section 633 of the Public School Code may be limited by the application of other withholding provisions contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers’ salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors’ rights generally. See “Pennsylvania Budget Adoption” hereinafter.

Pennsylvania Budget Adoption

Over the past several years the Commonwealth of Pennsylvania has, from time to time, started its fiscal year without a fully adopted state budget. In the state’s 2015-16 fiscal year, a final budget was not enacted until 270 days following the beginning of the fiscal year on March 27, 2016 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on March 17, 2016.

For the 2016-17 fiscal year, the state budget became law, known as Act 16A of 2016, on July 12, 2016 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on July 1, 2016. On July 13, 2016, the General Assembly adopted and Governor signed into law additional tax and revenue package, known as Act 85 of 2016, which was needed to balance the 2016-17 state budget.

For the current 2017-18 fiscal year, the state budget became law, known as Act 1A of 2017, on July 11, 2017 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on June 30, 2017. Act 1A of 2017 did not have any accompanying legislation regarding the potential revenue that would be needed to fund the balance of the 2017-18 Budget at the time of its enactment. On October 25, 2017, the General Assembly adopted House Bill 542 which contained the necessary revenue to fund the balance of the previously adopted Act 1A of 2017. On October 30, 2017 the Governor approved and signed House Bill 542 and it became known as Act 43 of 2017.

During a state budget impasse, school districts in Pennsylvania cannot be certain that state subsidies and revenues owed them from the Commonwealth will become available. This includes many of the major state subsidies, and overall revenues, that a Pennsylvania school district receives including basic education funding, special education funding, PlanCon reimbursements, and certain block grants, among many others. Future budget impasses may affect the timeliness or amount of payments by the Commonwealth under the withholding provisions of Section 633 of the Public School Code, however recent legislation included in Act 85 of 2016 has attempted to address the timeliness of the withholding provisions of Section 633 of the Public School Code during any future budget impasses. See “Act 85 of 2016” hereinafter.

Act 85 of 2016

On July 13, 2016, the Governor of the Commonwealth signed into law Act No. 85 of 2016, (P.L. 664, No. 85) (“Act 85 of 2016”), an amendment to the Act of April 9, 1929 (P.L. 343, No. 176), known as the Fiscal Code (“Fiscal Code”). Act 85 of 2016 adds to the Fiscal Code Article XVII-E.4, entitled “School District Intercepts for the Payment of Debt Service During Budget Impasse”, which provides for intercept of subsidy payments by the Pennsylvania Department of Education (“PDE”) to a school district subject to an intercept statute or an intercept agreement in the event of a Commonwealth budget impasse in any fiscal year.

Act 85 of 2016 includes in the definition of “intercept statutes” Section 633 of the Public School Code. The School District's general obligation Notes, including the Notes, are subject to Section 633 of the Public School Code.

Act 85 of 2016 provides that the amounts that may be necessary for PDE to comply with the provisions of the applicable intercept statute or intercept agreement “shall be appropriated” to PDE from the General Fund of the Commonwealth after PDE submits justification to the majority and minority chairs of the appropriations committees of the Pennsylvania Senate and House of Representatives allowing ten (10) calendar days for their review and comment, if, in any fiscal year:

(1) annual appropriations for payment of Commonwealth money to school districts have not been enacted by July 1 and continue not to be enacted when a payment is due;

(2) the conditions under which PDE is required to comply with an intercept statute or intercept agreement have occurred, thereby requiring PDE to withhold payments which would otherwise be due to school districts; and

(3) the Secretary of PDE, in consultation with the Secretary of the Budget, determines that there are no payments or allocations due to be paid to the applicable school districts from which PDE may withhold money as required by the applicable intercept statute or intercept agreement.

The necessary amounts shall be appropriated and paid to the paying agent on the day the scheduled payment for principal and interest is due on the expiration of the tenth (10th) day following submission of the justification described above to the majority and minority chairs of the appropriations committees, who may comment on the justification but cannot prevent the effectiveness of the appropriation.

The total of all intercept payments under Article XVII-E.4 for a school district may not exceed 50% of the total nonfederal general fund subsidy payments made to that school district in the prior fiscal year.

Act 85 of 2016 requires that each school district with Notes or notes subject to an intercept statute or intercept agreement must deliver to PDE, in such format as PDE may direct, a copy of the final Official Statement for the relevant Notes or notes or the loan documents relating to the obligations, within thirty (30) days of receipt of the proceeds of the obligations. The School District intends on submitting this information with respect to the Notes to PDE within the prescribed timeframe following the issuance of the Notes. Act 85 of 2016 provides that any obligation for which PDE does not receive the required documents shall not be subject to the applicable intercept statute or intercept agreement.

The provisions of Act 85 of 2016 are not part of any contract with the holders of the Notes and may be amended or repealed by future legislation.

Security

The Notes will be general obligations of the School District, payable from its tax and other general revenues. The School District has, subject to statutory restrictions and limitations, covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Notes for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Notes and the interest thereon at the dates and place and in the manner stated on the Notes, and for such budgeting, appropriation and payment the School District, subject to statutory restrictions and limitations, irrevocably has pledged its full faith, credit and available taxing power. (See “The Taxpayer Relief Act” herein). The Act presently provides for enforcement of debt service payments as hereinafter described (see “Defaults and Remedies” herein), and the Public School Code presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see “State Enforcement of Debt Service Payments” herein).

Sinking Fund

A sinking fund for the payment of debt service on the Notes, designated “Sinking Fund, General Obligation Notes, Series of 2018” (the “Sinking Fund”), has been created under the Resolution and is maintained by the Paying Agent, as sinking fund depository. The School District shall deposit in the Sinking Fund a sufficient sum not later than the date when interest and/or principal is to become due on the Notes so that on each payment date the Sinking Fund will contain an amount which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Notes.

The Sinking Fund shall be held by the Paying Agent, as sinking fund depository, and invested by the Paying Agent in such securities or shall be deposited in such funds or accounts as are authorized by the Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District, but subject to withdrawal or collection only by the Paying Agent, as sinking fund depository, and such deposits and securities, together with the interest thereon, shall be a part of the Sinking Fund.

The Paying Agent, as sinking fund depository, is authorized without further order from the School District to pay from the Sinking Fund the principal of and interest on the Notes, as and when due and payable.

BOOK-ENTRY ONLY SYSTEM

The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the “Issuer”) and the Underwriter do not guaranty the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District or the Underwriter.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Notes. The Notes will be issued as fully-registered Notes registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each series of the Notes, each in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC’s records. The Ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates rep resenting their ownership interests in Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Notes may wish to ascertain that the nominee holding the Notes for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.]

Redemption notices shall be sent to DTC. If less than all of the Notes within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Notes unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Notes at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

NEITHER THE SCHOOL DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE NOTES; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE NOTES; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE NOTES; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

The Issuer and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the principal or redemption price of and interest on the Notes paid to DTC or its nominee, as the registered owner of the Notes, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Preliminary Official Statement.

REDEMPTION OF NOTES

Mandatory Redemption

The Notes stated to mature on September 15, , are subject to redemption pursuant to the operation of the Notes Mandatory Sinking Fund in the manner set forth in the Resolution at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, on September 15 of the following years in the following principal amounts:

Year Amount

*Final maturity

Optional Redemption

The Notes maturing ____, ____ and thereafter, will be subject to redemption prior to maturity at the option of the Issuer, in whole or in part, on any date on or after ___, _____. In the event that less than all the Notes of a particular maturity are to be

6 redeemed, the Notes of such maturity to be redeemed shall be drawn by lot by the Paying Agent. Any such redemption shall be upon payment of 100% of the principal amount thereof plus accrued interest to the redemption date.

Notice of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the Notes, however, the School District and the Paying Agent shall send redemption notices only to Cede & Co. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding conveyance of notices to Beneficial Owners.

Notice of any redemption shall be given by depositing a copy of the redemption notice in first class mail not less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Notes to be redeemed, in whole or in part, at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof, shall not affect the validity of any proceeding for redemption of other Notes so called for redemption as to which proper notice has been given.

On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and accrued interest being held by the Paying Agent, interest on the Notes or portions thereof so called for redemption shall cease to accrue and such Notes or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Notes or portions thereof so called for redemption shall have no rights with respect to such Notes, except to receive payment of the principal of and accrued interest on such Notes to the date fixed for redemption.

The notice of redemption may state that it is conditional, that it is subject to the deposit of sufficient redemption money with the Paying Agent no later than a time satisfactory to the Paying Agent on the redemption date and the School District has not timely deposited with the Paying Agent money sufficient to redeem all the Notes called for redemption. Such notice shall be of no effect unless and until such money is so deposited.

Manner of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the Notes, however, payment of the redemption price shall be made to Cede & Co. in accordance with the existing arrangements by and among the School District, the Paying Agent and DTC and, if less than all Notes of any particular maturity are to be redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner in such Notes to be redeemed shall be determined by the governing arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding redemption of Notes registered in the name of Cede & Co.

If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing the number of Notes that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of a certificated Bond in exchange for a Bond or Notes of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof.

If the redemption date for any Notes shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth of Pennsylvania are authorized or required by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption.

THE SCHOOL DISTRICT

Introduction

Administration

The School District is governed by a nine member Board of School Directors (the “School Board”), elected for four-year terms. The Superintendent is the chief administrative officer of the School District, with overall responsibility for the entire educational program including budget and financial operations. The Superintendent is appointed by the School Board.

School Facilities

The School District presently operates one elementary school, a middle school and a high school, all as described in the following table.

TABLE 1

CATASAUQUA AREA SCHOOL DISTRICT SCHOOL FACILITIES

Original Addition/ Construction Renovation Pupil 2017 -18 Building Date Date Grades Capacity Enrollment Elementary: Francis H. Sheckler Elementary School ...... 1970 2010/2011 K-4 800 606 Secondary: Catasauqua Middle School ...... 1962 1985/2005 5-8 750 529 Catasauqua High School ...... 2005 --- 9-12 800 517

Source: School District Officials.

Enrollment Trends

The following table presents recent trends in school enrollment and projections of enrollment, as prepared by School District officials. The table shows relatively stable enrollments.

TABLE 2

CATASAUQUA AREA SCHOOL DISTRICT ENROLLMENT TRENDS

Actual Enrollments Projected Enrollments(2) School School Year Elementary (1) Secondary Total Year Elementary Secondary Total 2013-14 815 784 1,599 2018-19 845 815 1,660 2014-15 818 783 1,601 2019-20 850 817 1,667 2015-16 814 782 1,596 2021-22 852 819 1,671 2016-17 825 799 1,624 2022-23 855 820 1,675 2017-18 830 808 1,638 2023-24 857 822 1,679

(1)Based on elementary grades K-6 and secondary grades 7-12. (2)Projected enrollments as reported by the Pennsylvania Department of Education.

Source: School District Officials

SCHOOL DISTRICT FINANCES

Introduction

The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1.

Financial Reporting

The School District keeps its books and prepares its financial reports according to a modified accrual basis. Major accrual items are payroll taxes and pension fund contributions payable, loans receivable from other funds, and revenues receivable from other governmental units.

The School District’s financial statements are audited annually by a firm of independent certified public accountants, as required by Commonwealth law. The firm of France, Anderson, Basile and Company, P.C., Certified Public Accountant, Emmaus, Pennsylvania, serves as School District auditor.

Budgeting Process in School Districts under the Taxpayer Relief Act

In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1.

Procedures for Adoption of the Annual Budget. Under the Taxpayer Relief Act, all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days’ public notice of its intent to adopt the preliminary budget.

If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to the Pennsylvania Department of Education (PDE) no later than 85 days prior to the date of the election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district’s Index (see “TAXING POWERS AND LIMITS - The Taxpayer Relief Act (Act 1)” herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming election, or seek approval to utilize one of the referendum exceptions authorized under The Taxpayer Relief Act.

With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see “TAXING POWERS AND LIMITS – The Taxpayer Relief Act (Act 1)” herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district’s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district’s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses.

If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index.

Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days’ public notice be given of the board’s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution.

Summary and Discussion of Financial Results

A summary of General Fund balance sheet and changes in fund balances is presented in Tables 3 and 4. Table 5 shows revenues and expenditures for the past five (5) years and budgeted for 2017-18. The School District’s budget for 2017-18, as adopted May 9, 2017, projected revenue of $30,238,508 and expenditures of $30,238,508.

TABLE 3 CATASAUQUA AREA SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET (Fiscal Years ending June 30)

2013 2014 2015 2016 2017 ASSETS Cash and Cash Equivalents ...... $1,559,338 $2,289,663 $2,710,512 $1,534,518 $227,144 Investments ...... 335,000 335,000 335,000 335,000 335,000 Taxes Receivable ...... 433,523 388,186 459,024 445,582 564,142 State & Federal Receivable ...... 597,190 492,436 738,151 966,052 791,189 Intergovernmental Receivable ...... 139,147 275,867 304,672 82,649 86,138 Other Receivables...... 21,858 13,457 10,636 64,371 121,929 TOTAL ASSETS ...... $3,086,056 $3,794,609 $4,557,995 $3,428,172 $2,125,542

LIABILITIES Accounts Payables ...... $297,263 $306,196 $494,130 $991,575 $478,523 Accrued Salaries and Benefits ...... 1,979,511 2,086,137 1,968,600 1,348,463 2,469,757 Cur. Por. Lg-Trm. Dbt. (e.g. ST Co Ab) ...... 104,961 91,497 125,962 126,773 148,572 Other ...... 0 0 0 82,847 2,291 TOTAL LIABILITIES ...... $2,381,735 $2,483,830 $2,588,692 $2,549,658 $3,099,143

DEFERRED INFLOWS OF RESOURCES Deferred Inflows ...... $358,572 $318,459 $387,629 $381,337 $445,345 TOTAL DEFERRED INFLOWS OF RESOURCES ...... $358,572 $318,459 $387,629 $381,337 $445,345

FUND EQUITIES Non-spendable Fund Balance ...... $335,000 $335,000 $335,000 $335,000 $0 Unassigned Fund Balance ...... 10,749 657,320 1,246,674 162,177 (1,418,946) TOTAL FUND EQUITIES ...... $345,749 $992,320 $1,581,674 $497,177 ($1,418,946)

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND EQUITIES ...... $3,086,056 $3,794,609 $4,557,995 $3,428,172 $2,125,542

Source: School District Annual Financial Reports.

TABLE 4 CATASAUQUA AREA SCHOOL DISTRICT GENERAL FUND SUMMARY OF CHANGES IN FUND BALANCE* (Fiscal Years ending June 30)

Actual Budget 2013 2014 2015 2016 2017 2018(1) Beginning Fund Balance ...... $122,699 $345,748 $992,318 $1,581,675 $497,178 ($1,418,947) Revenues over (under) Expenditure...... 223,048 646,570 589,355 (1,084,497) (1,916,125) 0 Prior Period Adjustments ...... 1 0 0 0 0 0 Ending Fund Balance ...... $345,748 $992,318 $1,581,673 $497,178 ($1,418,947) ($1,418,947)

*Totals may not add due to rounding. (1)Budget, as adopted May 9, 2017. Source: School District Annual Financial Reports and Budget.

General Fund Revenue

The School District received $27,917,693 in revenue in 2016-17 and has budgeted revenue of $30,238,508 in 2017-18. Local sources have decreased as a share of total revenue in the past five years, from 70.0 percent in 2012-13 to 67.0 percent in 2016-17. Revenue from Commonwealth sources increased as a share of total revenue from 28.3 percent to 32.0 percent over this period. Federal and other sources decreased as a share of total revenue from 1.7 percent to 1.3 percent over this period.

TABLE 5

CATASAUQUA AREA SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES* (Fiscal Years ending June 30)

REVENUE: Actual Budgeted Local Sources 2013 2014 2015 2016 2017 2018(1) Current Real Estate Taxes ...... $14,712,783 $15,207,899 $15,217,162 $15,127,067 $15,272,662 $16,236,866 Interim Real Estate Taxes ...... 39,830 16,585 57,214 28,741 273,711 307,000 Public Utility Realty Tax ...... 21,628 21,219 20,980 20,226 19,354 19,350 Payments in Lieu of Taxes ...... 37,334 33,287 33,287 33,287 34,384 34,300 Act 511 Taxes ...... 1,476,418 1,696,281 1,926,999 1,643,337 1,734,782 1,840,462 Delinquencies on Taxes Levied/Assessed .. 611,579 461,803 305,675 412,421 346,095 412,000 Interest Earnings ...... 12,503 11,831 10,583 10,422 8,861 10,000 Revenue from LEA Activities...... 70,208 44,724 46,982 36,584 41,771 28,000 Federal Revenue Received for other LEA .. 0 6,634 2,406 3,465 2,892 0 Federal IDEA Pass Through Revenue...... 278,719 270,842 304,185 308,660 315,639 316,500 Other Federal Revenue ...... 13,222 0 0 8,895 5,600 0 Rentals ...... 114,715 115,156 124,604 121,854 127,979 178,300 Contributions & Donations ...... 1,000 1,000 250 0 12,000 75,000 Tuition ...... 10,382 11,685 200 0 0 63,000 Receipts from other LEAs in PA ...... 25,434 0 35,333 26,602 38,489 0 Revenue from Community Service ...... 0 0 224 1,096 0 0 Refunds of Prior Years' Expenditures ...... 7,764 6,405 138 14 73,371 0 All Other Local Revenues Not Specified ... 169,489 154,808 168,122 196,716 277,054 281,236 Total Revenue from Local Sources ...... $17,603,008 $18,060,159 $18,254,344 $17,979,386 $18,584,643 $19,802,014 State Sources Basic Instructional Subsidy ...... $3,822,509 $3,907,046 $3,907,079 $4,034,916 $4,202,952 $4,409,525 Tuition for Orphans & Children ...... 59,990 48,056 22,801 45,437 52,995 30,000 Special Education ...... 897,689 856,835 880,152 914,469 937,016 972,095 Transportation...... 215,201 228,369 211,669 187,607 181,811 210,000 Rental and Sinking Fund Reimbursement .. 222,671 791,635 361,579 351,024 356,133 335,000 Health Services ...... 30,495 29,661 31,000 30,523 29,730 30,500 State Property Tax Reduction Allocation ... 677,935 677,717 680,329 681,600 681,694 682,595 Grants ...... 78,861 78,861 161,790 206,861 206,861 195,000 Revenue for Social Security Payments ...... 427,502 425,329 447,822 466,758 459,330 502,367 Revenue of Retirement ...... 695,511 936,885 1,255,564 1,596,344 1,847,359 2,099,292 Other ...... 0 26,900 39,776 0 0 5,600 Total Revenue from State Sources ...... $7,128,364 $8,007,293 $7,999,561 $8,515,540 $8,955,880 $9,471,974 Federal Sources Total Revenue from Federal Sources .. $443,495 $500,992 $533,971 $387,832 $376,470 $361,000 Other Sources Total Revenue from Other Sources/ Fund Balance Appropriation ...... $0 $0 $16,548 $15,807 $699 $603,520 Total Revenue ...... $25,174,866 $26,568,444 $26,804,425 $26,898,565 $27,917,693 $30,238,508

*Totals may not add due to rounding. (1)Budget, as adopted May 9, 2017. Source: School District Annual Financial Reports and Budget.

General Fund Expenditures

TABLE 5

CATASAUQUA AREA SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND EXPENDITURES* (Fiscal Years ending June 30)

Actual Budgeted EXPENDITURES: 2013 2014 2015 2016 2017 2018(1) Instruction ...... $14,487,849 $14,779,722 $15,085,732 $16,492,020 $18,144,094 $17,733,720 Pupil Personnel ...... 760,476 814,726 948,125 1,033,521 974,668 1,023,523 Instructional Staff ...... 1,012,283 948,138 997,275 1,018,338 1,121,830 1,208,531 Administration ...... 1,522,999 1,594,973 1,805,061 1,838,481 2,069,749 2,078,689 Pupil Health ...... 253,500 283,036 278,738 254,625 268,297 304,913 Business ...... 550,993 492,646 417,139 435,496 455,771 480,098 Operation and Maintenance of Plant Svcs...... 1,834,991 1,920,153 2,078,915 2,096,259 1,808,218 1,954,191 Student Transportation Services ...... 777,957 757,455 706,909 746,060 722,728 1,002,362 Central...... 63,644 65,080 68,253 57,838 48,930 55,788 Other Support Services ...... 22,715 24,202 23,889 23,617 24,859 24,860 Operation of Non-instructional Services ...... 589,671 592,012 708,770 703,915 710,103 775,043 Facilities Acquisition and Improvement ...... 93,076 0 9,085 41,558 70,792 0 Debt Service ...... 229,576 317,983 17,795 990 227 3,078,966 Fund Transfers ...... 2,752,087 3,331,747 3,069,385 3,166,990 3,346,496 363,041 Budgetary Reserve ...... 0 0 0 0 0 154,783 Other Expenditures...... 0 0 0 73,354 67,054 0 Total Expenditures ...... $24,951,817 $25,921,874 $26,215,070 $27,983,061 $29,833,817 $30,238,508

SURPLUS (DEFICIT) OF REVENUES OVER EXPENDITURES ...... $223,050 $646,570 $589,355 ($1,084,497) ($1,916,125) $0

*Totals may not add due to rounding. (1)Budget, as adopted May 9, 2017. Source: School District Annual Financial Reports and Budget.

TAXES AND TAXING POWERS OF THE SCHOOL DISTRICT

Subject to certain limitations imposed by the Taxpayer Relief Act, Act No. 1 of the Special Session of 2006, as amended (see “The Taxpayer Relief Act (Act 1)” herein), the School District is empowered by the School Code and other statutes to levy the following taxes:

1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes.

2. An unlimited ad valorem tax on the property taxable for school purposes to provide funds:

a. for minimum salaries and increments of the teaching and supervisory staff;

b. to pay rentals due any municipality authority or non-profit corporation or due the State Public School Building Authority;

c. to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and

d. to pay for the amortization of a bond or note issue which provided a school building prior to the first Monday of July, 1959.

3. An annual per capita tax on each resident or inhabitant over 18 years of age of not more than $5.00.

4. Additional taxes subject to division with other political subdivisions authorized to levy similar taxes on the same person, subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended (“The 12

Local Tax Enabling Act”). These taxes, which may include, among others, an additional per capita tax, a wage and other earned income tax, a real estate transfer tax, a gross receipts tax, a local services tax and an occupation tax, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth – “STEB”) multiplied by twelve mills. All local taxing authorities are required by the Local Tax Enabling Act to exempt disabled veterans and members of the armed forces reserve who are called to active duty at any time during the tax year from any local services tax and to exempt from any local services tax levied at a rate in excess of $10 those persons whose total income and net profits from all sources within the political subdivision is less than $12,000 for the tax year. The Local Tax Enabling Act also authorizes, but does not require, taxing authorities to exempt from per capita, occupation, and earned income taxes and any local services tax levied at a rate of $10 or less per year, any person whose total income from all sources is less than $12,000 per year.

The Taxpayer Relief Act (Act 1)

Under Pennsylvania Act No. 1 of the Special Session of 2006, as amended by Act 25 of 2011 (“The Taxpayer Tax Relief Act” or “Act 1”), a school district may not, in fiscal year 2007-2008 or in any subsequent fiscal year, levy any tax for the support of the public schools which was not levied in the 2006-2007 fiscal year, raise the rate of any earned income and net profits tax if already imposed under the authority of the Local Tax Enabling Act (Act 511), or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by the Pennsylvania Department of Education (PDE):

1. to pay interest and principal on indebtedness incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004; to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees’ Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district’s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum.

The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio.

The Act 1 Index applicable to the School District in the next, current and prior fiscal years are as follows:

Fiscal Year Index % 2018-19 ...... 3.1% 2017-18 ...... 3.2 2016-17 ...... 3.1 2015-16 ...... 2.4 2014-15 ...... 2.6

Source: Pennsylvania Department of Education website.

In accordance with Act 1, the School District put a referendum question on the ballot at the May, 15, 2007, primary election seeking voter approval to levy (or increase the rate of) an earned income and net profits tax (“EIT”) or a personal income tax (“PIT”) and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was NOT approved by the voters.

A board of school directors may submit, but is not required to submit, a referendum question to the voters at the municipal election in 2009 or any later year seeking approval to levy or increase the rate of an EIT or a PIT for the purpose of funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate that is required to provide the maximum homestead and farmstead exclusions allowable under law.

Status of the Notes Under Act 1

A portion of the Notes described in this Preliminary Official Statement are being issued to refund indebtedness that was originally approved (“incurred”) by the School District under the Local Government Unit Debt Act prior to June 27, 2006, the effective date of the Taxpayer Relief Act. The School District already has levied and has in place sufficient tax millage to provide for payment of the annual debt service on the indebtedness being refunded. The annual debt service on the Notes will be less than or approximately equal to the annual debt service budgeted on the indebtedness being refunded by the Notes and, therefore, for the School District does not expect to levy any new tax or to increase the rate of any existing tax in order to provide for payment of the interest and principal of the Notes.

Legislation Limiting Unreserved Fund Balances

Pennsylvania Act No. 2003-48 (enacted December 23, 2003) prohibits a school district from increasing real property taxes unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below:

Estimated Ending Unreserved Undesignated Fund Balance Total Budgeted Expenditures as a Percentage of Total Budgeted Expenditures(1) Less than or equal to $11,999,999 12.0% Between $12,000,000 and $12,999,999 11.5% Between $13,000,000 and $13,999,999 11.0% Between $14,000,000 and $14,999,999 10.5% Between $15,000,000 and $15,999,999 10.0% Between $16,000,000 and $16,999,999 9.5% Between $17,000,000 and $17,999,999 9.0% Between $18,000,000 and $18,999,999 8.5% Greater than or equal to $19,000,000 8.0%

“Estimated ending unreserved fund balance” is defined in Act 2003-48 as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district’s budget was adopted and held in the general fund accounts of the school district.

(1)Effective June 30, 2011, GASB 54 fund designations renamed.

Tax Levy Trends

Table 6 shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District, Counties and the municipalities within the School District.

TABLE 6 CATASAUQUA AREA SCHOOL DISTRICT TAX RATES

Real Estate Taxes Earned Lehigh Northampton Income & Realty Local Services Commercial County County Net Profits(1) Transfer(1) Tax(2) Parking(3) Fiscal Year (mills) (mills) (%) (%) ($) (%) 2013-14 16.3100(4) 52.0900 1.00 1.00 5.00 10.00 2014-15 16.3100 53.7400 1.00 1.00 5.00 10.00 2015-16 16.3100 53.7200 1.00 1.00 5.00 10.00 2016-17 16.8678 53.4413 1.00 1.00 5.00 10.00 2017-18 17.4009 56.4678 1.00 1.00 5.00 10.00

(1) Subject to sharing providing the municipality levies the tax. (2) Formerly known as the Occupation Privilege Tax and Emergency & Municipal Services Tax. (3) The School District levies a tax of 10% of which the School District receives 7.0% and Hanover Township receives 3.0%. (4) County wide reassessment went into effect July 1, 2013. Source: School District Officials.

TABLE 7 CATASAUQUA AREA SCHOOL DISTRICT COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value) (Fiscal Years Ending)

School District 2014 2015 2016 2017 2018 Lehigh County ...... 16.3100 16.3100 16.3100 16.8676 17.4009 Northampton County ...... 53.1400 53.7200 53.7200 54.7172 56.4678 Catasauqua Borough ...... 5.1600 5.5000 5.9000 5.9000 6.1000 Hanover Township ...... 0.0796 0.0796 0.0796 0.0796 0.0796 North Catasauqua Borough ...... 10.7000 10.7000 10.7000 12.2000 12.2000 Lehigh County ...... 11.9000 3.7500 3.7500 3.6400 3.6400 Northampton County ...... 10.8000 11.8000 11.8000 11.8000 11.8000

Source: Local Government Officials.

Real Property Tax

The real property tax (excluding delinquent collections) produced $15,272,662 in 2016-17, approximately 54.7 percent of total revenue. The School District fiscal year is from July 1 through June 30 and tax bills are issued on July 1 of each year. Taxpayers who remit within 60 days of July 1 receive a 2 percent discount, and those who remit subsequent to 120 days after July 1 are assessed a 10 percent penalty. The School District adopted a Resolution in fiscal year 2006-07 permitting the payment of real property taxes for residential properties with the homestead purpose exception to pay in installment plans on August 10, October 10 and December 10 (no discounts will be given for early payments). Act 25 of 2011 requires school districts of a second, third, or fourth class to adopt a resolution giving small business owners the option to pay school real property taxes in installments beginning in 2012. The School District adopted a resolution pursuant to Act 25 prior to July 1, 2012.

The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data. The last county-wide reassessment in Lehigh County was completed in 2012 and became effective for the School District taxes due and payable on and after July 1, 2013. School Real Estate taxes paid for 2012-2013 were based on assessed values established in 1991 (unless changed through tax assessment appeals or interim assessments) when the County previously conducted a county-wide reassessment. The County has also changed its pre-determined ratio from 50% to 100% effective for the School District on July 1, 2013. The last county-wide assessment in Northampton County was in 1995.

TABLE 8 CATASAUQUA AREA SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA

Market Assessed Fiscal Year Value Value Ratio 2012-13 ...... $814,890,267 $313,281,950 38.44% 2013-14(1) ...... 815,949,091 896,011,800 109.81% 2014-15 ...... 860,591,471 886,375,300 103.00% 2015-16 ...... 847,727,100 872,256,200 102.89% 2016-17 ...... 896,859,345 880,794,700 98.21%

(1)Lehigh County reassessment went into effect July 1, 2013. Source: Pennsylvania State Tax Equalization Board (STEB) / Tax Equalization Division (TED).

TABLE 9 CATASAUQUA AREA SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY

2015 2015 2016 2016 Market Value Assessed Value Market Value Assessed Value School District ...... $847,727,100 $872,256,200 $896,859,345 $880,794,700 Catasauqua Borough ...... 275,536,267 327,958,200 272,061,685 327,627,700 Hanover Township ...... 422,656,523 489,962,200 475,012,594 498,874,200 North Catasauqua Borough ...... 149,534,310 54,335,800 149,785,066 54,292,800 (Northampton County) Lehigh County ...... 26,095,012,816 28,899,231,200 26,921,565,008 29,180,834,000 Northampton County ...... 22,184,041,644 8,069,920,928 22,546,318,609 8,141,396,073

Source: Pennsylvania State Tax Equalization Board (STEB) / Tax Equalization Division (TED).

TABLE 10 CATASAUQUA AREA SCHOOL DISTRICT ASSESSMENT BY LAND USE

2012 2013(1) 2014 2015 2016 Residential ...... $146,790,450 $382,172,200 $382,368,700 $381,271,300 $383,806,400 Lots ...... 1,801,350 841,700 898,000 1,523,000 6,995,000 Industrial ...... 63,559,200 177,952,100 178,047,100 182,455,700 182,359,300 Commercial .... 99,927,550 333,604,900 323,867,800 305,359,700 306,420,300 Agriculture ..... 229,950 320,100 0 432,800 0 Land ...... 0 0 72,900 72,900 72,900 Trailers ...... 973,450 1,120,800 1,120,800 1,140,800 1,140,800 Totals ...... $313,281,950 $896,011,800 $886,375,300 $872,256,200 $880,794,700

(1) Lehigh County reassessment went into effect July 1, 2013. Source: Pennsylvania State Tax Equalization Board (STEB) / Tax Equalization Division (TED).

TABLE 11 CATASAUQUA AREA SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA

Current Total Collections Year as Percent Current Year Collections Lehigh Northampton of Total Adjusted Collections as Percent Total Assessed County County Flat Billing Tax Levy(2) (July-June) of Tax Levy Collections(1) Fiscal Year Valuation (mills) (mills) (%)

2012-13 ...... $313,281,950 51.4700 51.4700 $16,226,092 $14,654,582 90.31% $15,072,136 92.89% (3) 2013-14 ..... 896,011,800 16.3100 52.0900 16,124,946 14,712,783 91.24% 15,364,191 95.28%

2014-15 ...... 886,375,300 16.3100 53.7400 16,477,589 15,207,899 92.29% 15,670,474 95.10% 2015-16 ...... 872,256,200 16.3100 53.7200 16,465,349 15,274,376 92.77% 15,576,000 94.60% 2016-17 ...... 880,794,700 16.8678 53.4413 16,837,891 15,309,919 90.93% 15,455,662 91.79%

(1)Includes delinquent realty taxes collected. (2)Beginning in 2008-09 the amount of the Adjusted Levy is reduced by the amount of the Homestead/Farmstead Exemptions. (3)Lehigh County reassessment went into effect July 1, 2013. Source: School District officials.

Table 12 represents the ten largest real property taxpayers within the School District; the aggregate assessed value of these ten largest real property taxpayers represents approximately 27.3 percent of the School District’s total assessed value of $880,794,700.

TABLE 12 CATASAUQUA AREA SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS

2017-18 Owner Assessed Values* Airport Associates $45,748,400 Patriot 40,000,000 Bbraun 36,122,000 FR200 Cascade, LLC 23,419,000 PennCAP 20,459,100 Health Network Laboratories LP 18,546,300 Central Plains LLC 15,701,000 Allendale Apts & Associates 15,185,000 HJ & VJ Inc. 13,095,500 Target Corporation 11,715,400 Totals $239,991,700

Source: School District officials.

Other Taxes

Under Act 511, the School District collected $1,734,782 in other taxes in 2016-17. Among the taxes authorized by Act 511, the Local Services Tax, Earned Income Tax, Real Estate Transfer Tax and the Commercial Parking Tax are levied by the School District. The Act 511 limit, equal to 12 mills on the market value of real property, was approximately $10,762,312

Local Services Tax (Formerly known as the Occupation Privilege Tax and Emergency & Municipal Services Tax.) A tax of $5.00 is levied on each resident with an occupation. In 2016-17 the collected portion of this tax yielded $57,523 or less than one percent of total revenue.

Earned Income Tax. The School District levies a tax of 1.0% on earned income of residents (of which 50% is subject to sharing with the municipality that levies the same tax). In 2016-17 the collected portion of this tax yielded $1,161,896 or 4.2 percent of total revenue.

Real Estate Transfer Tax. The School District levies a tax of 1.0% (of which 50% is subject to sharing with the municipality that levies the same tax) of the value of real estate transfers. In 2016-17 the collected portion of this tax yielded $212,637 or less than one percent of total revenue.

Commercial Parking. A tax at a rate of 10.0% is imposed on patrons of non-residential parking places (The School District receives 7.0% of this tax and is subject to sharing 3.0% of this tax with the municipality that levies the same tax in Lehigh County). In 2016-17 the collected portion of this tax yielded $302,726 or 1.0 percent of total revenue.

COMMONWEALTH AID TO SCHOOL DISTRICTS

Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly.

The largest subsidy, the basic instructional subsidy, is allocated to all school districts based on (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; and (3) the school district's tax effort, as compared with the tax effort of other school districts in the Commonwealth. School districts also receive subsidies for special education, pupil transportation; vocational education, health service and debt service are also received by the school district.

Current Lack of State Appropriations for Debt Service Subsidies

Commonwealth law presently provides that the School District will receive, subject to state legislative appropriation, reimbursement from the Commonwealth for a portion of debt service paid on the Notes following final approval by PDE. Commonwealth reimbursement is calculated based on the “Reimbursable Percentage” assigned to the Notes by the PDE and the School District's permanent Capital Account Reimbursement Fraction (“CARF”) (38.48%) or the wealth based Market Value Aid Ratio (“MVAR”) currently (44.22%), whichever is higher. The Reimbursable Percentage is determined through a process known as the “Planning and Construction Workbook” or “PlanCon”.

Based on the current PlanCon program, School District officials have estimated that the Reimbursable Percentage of the Notes will be 27.26% (there has been no determination by the PDE). The School District's MVAR (which is higher than the CARF) is 44.22%. The product of these two factors is 12.05%, which is the estimated percentage of debt service which may be reimbursed by the Commonwealth, subject to annual appropriation. In future years, this percentage may change as the School District’s MVAR changes, or as a result of future legislation regarding changes to, or even elimination of, the PlanCon program.

In May of 2016, the Commonwealth enacted appropriation legislation known as Act 25 (“Act 25”), which contains authorization for the Commonwealth Finance Authority (“CFA”) to issue up to $2.5 billion of debt to fund PlanCon reimbursements to school districts. Act 25 also instituted a moratorium on new projects entering the PlanCon process while an advisory committee established under Act 25 considers amendments to the PlanCon reimbursement program. This new moratorium went into effect on May 15, 2016 and expired on June 30, 2017. On November 6, 2017, House Bill 178 became law without the signature of the Governor and became known as Act 55 of 2017. Contained in Act 55 of 2017 was an extension of the PlanCon moratorium through the end of the 2017-18 fiscal year.

To date, the CFA has issued $1,170,705,000, to provide for PlanCon reimbursements owed to school districts, including the issuance of its Revenue Notes, Series A of 2016 (Federally Taxable) in the principal amount of $758,185,000 issued on October 31, 2016, as well as its Revenue Notes, Series A of 2018 (Federally Taxable) in the total amount of $412,520,000 issued on January 18, 2018. It is expected that proceeds of these issues have been and will continue to be used to provide PlanCon reimbursement that is owed to the School District for past and current fiscal years. However, the School District cannot be certain that any future PlanCon reimbursement will be received by PDE as the ability for CFA to issue additional Notes in the future to fund future PlanCon reimbursements owed to school districts may impact the availability of PlanCon reimbursements payable to the School District. Any failure by the Commonwealth to adopt a timely budget and enact necessary spending authorizations could have a material adverse effect upon the School District’s anticipated receipt of PlanCon reimbursements.

There can be no assurances that the School District will be able to successfully apply for, be awarded, and receive sufficient PlanCon reimbursement for the costs of any current or future projects of the School District. A failure by the School District to receive such reimbursement could force the School District to apply other available funds, if any, toward the completion costs of the Project and may have a material adverse effect on the financial resources of the School District to fund other obligations, including payment of debt service on the Notes.

Legislation has been introduced from time to time in the Pennsylvania legislature containing language that would revise or even abolish the debt service reimbursement program for Pennsylvania school districts. As of the date hereof, and except as described above, none of these proposals have been signed into law. To the extent that any future legislation contains material changes to the PlanCon program as it is structured currently, the amount of PlanCon reimbursement to the School District may be positively or negatively affected, which could materially impact the amount of local funds needed to be raised by the School District to pay debt service on its debt obligations.

DEBT AND DEBT LIMITS

Debt Statement

Table 13 shows the debt of the School District as of April 18, 2018, including the issuance of the Notes.

TABLE 13 CATASAUQUA AREA SCHOOL DISTRICT DEBT STATEMENT* (As of April 18, 2018)

Gross NON ELECTORAL DEBT Outstanding General Obligation Notes, Series of 2018 (last maturity 2038) ...... $7,970,000 General Obligation Bonds, Series of 2016 (last maturity 2036) ...... 9,985,000 General Obligation Bonds, Series of 2015 (last maturity 2036) ...... 9,985,000 General Obligation Bonds, Series of 2014 (last maturity 2036) ...... 5,635,000 General Obligation Bonds, Series A of 2013 (last maturity 2030)(remaining portion) ...... 640,000 General Obligation Bonds, Series of 2013 (last maturity 2023)(remaining portion) ...... 4,630,000 General Obligation Bonds, Series of 2010 (last maturity 2021) ...... 375,000 TOTAL NONELECTORAL DEBT ...... $39,220,000 LEASE RENTAL DEBT TOTAL LEASE RENTAL DEBT ...... $ 0 TOTAL PRINCIPAL OF DIRECT DEBT ...... $39,220,000

Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Notes, the principal of direct debt of the School District will total $39,220,000. After adjustment for available funds and estimated State aid, the local effort of direct debt will total $36,471,567.

TABLE 14 CATASAUQUA AREA SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS* (As of April 18, 2018)

Local Effort or Net of Available Funds Gross and Estimated DIRECT DEBT Outstanding State Aid(1) Nonelectoral Obligation Debt ...... $39,220,000 $36,471,567 Lease Rental Debt ...... 0 0 TOTAL DIRECT DEBT ...... $39,220,000 $36,471,567

OVERLAPPING DEBT Lehigh County, General Obligation Debt(2) ...... $3,690,643 $3,690,643 Northampton County, General Obligation Debt(3) ...... 10,139,303 10,139,303 Municipal, General Obligation Debt ...... 21,610,222 21,610,222 TOTAL OVERLAPPING DEBT ...... $35,440,168 $35,440,168

TOTAL DIRECT AND OVERLAPPING DEBT ...... $74,660,168 $71,911,735

DEBT RATIOS Per Capita ...... $6,753.52 $6,504.91 Percent 2016-17 Assessed Value ...... 8.48% 8.16% Percent 2016-17 Market Value ...... 8.32% 8.02%

*Includes the estimated Notes being offered through this Preliminary Official Statement. Excludes the Refunded 2006 Notes, the portion of the Refunded 2013 Bonds, and the portion of the Refunded 2013A Bonds. (1)Gives effect to current appropriations for payment of debt service and expected future State Reimbursement of School District sinking fund payments based on current Aid Ratio. See “State Aid to School Districts”. (2)Pro rata 3.02 percent share of $122,271,452 principal outstanding. (3)Pro rata 10.82 percent share of $93,720,000 principal outstanding.

Debt Limit and Remaining Borrowing Capacity

The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District’s “Borrowing Base”. The “Borrowing Base” is defined as the annual arithmetic average of total “Revenues” (as defined by the Act) for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows:

Total Revenues for 2014-15 ...... $26,426,297 Total Revenues for 2015-16 ...... 26,531,735 Total Revenues for 2016-17 ...... 27,560,860 Totals ...... $80,518,892

Annual Arithmetic Average (Borrowing Base) ...... $26,839,631

Under the Act as presently in effect, no school district shall incur any nonelectoral debt or lease rental debt, if the aggregate net principal amount of such new debt, together with any other net nonelectoral debt and net lease rental debt then outstanding, would cause the net nonelectoral debt plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District’s Borrowing Base produces the following product: Remaining Legal Gross Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $60,389,169 $39,220,000 $21,169,169

*Includes the estimated Notes described herein; does not reflect credits against gross indebtedness that may be claimed for a portion of principal of debt estimated to be reimbursed by Commonwealth aid.

Debt Service Requirements

Table 15 presents the debt service requirements on the School District’s outstanding general obligation and lease rental indebtedness including debt service on the Notes.

The School District has never defaulted on the payment of debt service.

TABLE 15 CATASAUQUA AREA SCHOOL DISTRICT DEBT SERVICE REQUIREMENTS*

Other General Series Obligation of 2016 Total Year Debt Principal Interest Subtotal Requirements 2017-18 $3,078,966 2018-19 3,083,133 2019-20 3,086,138 2020-21 3,089,256 2021-22 3,048,919 2022-23 3,050,453 2023-24 3,044,101 2024-25 3,043,296 2025-26 3,043,276 2026-27 3,045,220 2027-28 3,040,838 2028-29 3,042,513 2029-30 3,044,273 2030-31 2,486,413 2031-32 2,486,288 2032-33 2,486,831 2033-34 2,486,831 2034-35 2,483,431 2035-36 2,486,125 Total $54,656,299

*Totals may not add due to rounding.

Table 16 presents data on the extent to which State Aid provides coverage for debt service and lease rental requirements.

TABLE 16 CATASAUQUA AREA SCHOOL DISTRICT COVERAGE OF DEBT SERVICE AND LEASE RENTAL REQUIREMENTS BY STATE AID*

2016-17 State Aid Received ...... $8,955,880 2016-17 Debt Service Requirements ...... 3,343,519 Maximum Future Debt Service Requirements after Issuance of Notes ...... Coverage of 2016-17 Debt Service Requirements ...... 2.68 times Coverage of Maximum Future Debt Service Requirements after Issuance of Notes......

*Assumes current State Aid Ratio. See “COMMONWEALTH AID TO SCHOOL DISTRICTS.”

Future Financing

The School District does not currently anticipate issuing additional long-term debt for capital projects in the near future.

LABOR RELATIONS

School District Employees

There are presently 227 employees of the School District, including 105 teachers, 12 administrators, and 110 full-time and part-time secretaries, athletic staff, maintenance/custodial staff, transportation staff, cafeteria staff and teachers’ aides.

The School District's teachers are represented by the Catasauqua Area Education Association, an affiliate of the Pennsylvania State Education Association (PSEA), under a contract with the School District which expires on June 30, 2022. Custodial employees are represented by the Teamsters Local Union # 773, under a contract which expires June 30, 2022.

Pension Program

School Districts in Pennsylvania are required to participate in a statewide pension program administered by the Public School Employees Retirement System (PSERS). All of the School District's full-time employees, part-time employees who work more than 80 days in a school year, and hourly employees who work over 500 hours a year participate in the program. However, please note a Pennsylvania Supreme Court decision(1) has removed the hourly de minimis requirement for current members of PSERS regarding the purchase of credit for their part-time school service rendered prior to their being members of PSERS, for purposes of increasing their pension benefits.

Beginning July 1, 1976, certain revisions were made in the pension program. The Retirement Board, previously under the Department of Education of the Commonwealth, became an independent agency. However, the program is still guaranteed by the Commonwealth. Currently, each party to the program contributes a fixed percentage of the employee's salary. Employees belonging to the Public School Employees Retirement System (“PSERS”) prior to July 22, 1983 contribute 5.25% of their salary, and employees who joined the PSERS on or after July 22, 1983 contribute 6.25% of their salary. On February 17, 2002, Governor Ridge signed Act 9 which created a new membership class that sets the employee contribution rate at 7.50% of the employee’s salary for those employees hired on or after July 1, 2001. Act 9 also provides an option for those employees hired prior to July 1, 2001 to elect a contribution rate of 6.50%, if they were hired before July 22, 1983, or 7.50% if they were hired on or after July 22, 1983. Act 120 of 2010 (“Act 120”) was passed by the General Assembly on September 1 and signed by Governor Rendell on November 23, 2010. The benefit reductions contained in this legislation, only impacts individuals who become new members of PSERS on or after July 1, 2011. New members have the option of selecting one of 2 new classes. The members selecting class T-E contribute a base rate of 7.5% with “shared risk” contribution levels between 7.5% and 9.5% and a pension multiplier of 2.0%. Members selecting class T-F contribute a base rate of 10.3% with shared risk contribution levels between 10.3% and 12.3% and a pension multiplier of 2.5%.

The PSERS Board of Trustees certified an annual employer contribution rate of 32.57% for fiscal year 2017-18, which began July 1, 2017. On December 8, 2017, the Board of Trustees certified the annual employer contribution rate of 33.43% for the fiscal year 2018-19, which begins on July 1, 2018.

The School District and the Commonwealth are responsible for paying a portion of the employer’s share. School entities are initially responsible for paying 100% of the employer share of contributions to PSERS. The Commonwealth reimburses the employer for a minimum of one-half of the payment made on behalf of employees. The School District contributions are made on a quarterly basis and employee contributions are deducted from each eligible employee paycheck and remitted quarterly. Annual School District contributions net of reimbursement have been as follows:

2013-14 ...... $ 870,946 2014-15 ...... 1,142,209 2015-16 ...... 1,465,252 2016-17 ...... 1,676,041 2017-18 (Budgeted) ...... 2,012,780

PSERS is also funded through investment earnings and mandatory member contributions. PSERS members contribute from 5.25% to 10.30% of pay depending on their membership class and when they joined PSERS. Members will contribute an average of 7.57% of their salary to fund their retirement benefit in fiscal year 2018-19.

In June 2012, the Government Accounting Standards Board (“GASB”) issued “Statement No. 68 Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No 27.” The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. The accounting standard requires the School District to report in its government-wide financial statements its proportionate share of the new pension liability of the pension systems to which it contributes. GASB 68 became effective for fiscal years beginning after June 15, 2014, which, in the case of the School District began with fiscal year ending June 30, 2015. Please see the School District’s Audited Financial Statements for fiscal year ending June 30, 2017 in Appendix C for the net effects of the implementation of GASB 68.

(1)Pennsylvania Sch. Boards Ass'n, Inc. v. Com., Pub. Sch. Employees' Ret. Bd., 580 Pa. 610, 612, 863 A.2d 432, 434 (2004). Source: Pennsylvania School Board Association at www.PSBA.org and PSERS at www.PSERS.state.pa.us

Other Post-Employment Benefits

The School District is obligated under collective bargaining agreements to provide in the future health insurance coverage for current and future retired employees, and to provide retirement severance pay for existing employees. The School District became subject to the requirements of GASB Statements No. 43 and 45 commencing with the School District’s annual financial statements for the fiscal year ending June 30, 2009.

LITIGATION

At the time of settlement, the President or Vice-President of the School District, will deliver a certificate dated as of the date of delivery of and payment for the Notes, certifying that there is no litigation pending which challenges the validity or enforceability of the Notes; or in the event that such litigation is pending, a description of the nature of such litigation, together with an opinion of legal counsel approved by the School District, to the effect that such litigation is without legal merit.

DEFAULTS AND REMEDIES

In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Notes, as the same becomes due and payable, the holders of the Notes shall be entitled to certain remedies provided by the Act. Among the remedies, if the failure to pay shall continue for 30 days, holders of the Notes shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas. The Act provides that any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Notes may appoint a trustee to represent them. The Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described.

TAX EXEMPTION AND CERTAIN OTHER TAX MATTERS

Certain Federal Income Tax Matters

On the date of delivery of the Notes, Fox Rothschild LLP (“Bond Counsel”) will issue an opinion to the effect that under existing statutes and court decisions as of the date of initial delivery of the Notes, interest on the Notes is excluded from gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although interest on the Notes is taken into account for purposes of computing alternative minimum tax that may be imposed by the Code on certain corporations. Although the federal corporate alternative minimum tax is repealed for taxable years beginning on and after January 1, 2018, for corporations whose taxable year began before January 1, 2018, interest on the Notes will be included in the calculation of the federal alternative minimum tax imposed on corporations. The opinion of Bond Counsel will assume the accuracy of certifications made by the School District and will be subject to the condition that the School District comply with all requirements of the Code. Failure to

22 comply with such requirements could cause the interest on the Notes to be included in gross income prospectively and/or retroactively to the date of issuance of the Notes.

Notwithstanding the general exclusion of interest on the Notes from gross income and the exemption of the Notes and the interest thereon from certain taxes, ownership of the Notes may result in certain other federal income tax consequences to certain taxpayers, including, without limitation, certain foreign corporations doing business in the United States that are subject to the branch profits tax imposed by the Code, financial institutions, property and casualty insurance companies, certain subchapter S corporations with substantial passive income and Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise eligible for the earned income credit and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Notes. Bond Counsel will express no opinion as to such other tax consequences, and prospective purchasers of the Notes should consult their tax advisors as to all matters relating to the acquisition, ownership and disposition of the Notes.

Certain Pennsylvania Tax Matters

On the date of delivery of the Notes, Bond Counsel will issue an opinion to the effect that, under the laws of the Commonwealth of Pennsylvania as enacted and construed as of the date of initial delivery of the Notes, the Notes are exempt from personal property taxes in Pennsylvania and interest on the Notes is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax.

Changes in Federal and State Tax Law

From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Notes or otherwise prevent holders of the Notes from realizing the full benefit of the tax exemption of interest on the Notes. Further, such proposals may impact the marketability or market value of the Notes simply by being proposed. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to Notes issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Notes. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Notes would be impacted thereby.

Purchasers of the Notes should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Notes, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation.

CONTINUING DISCLOSURE UNDERTAKING

In accordance with the requirements of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (“SEC”), and the Resolution, adopted May 8, 2018 authorizing issuance of the Notes, the School District will execute and deliver a written continuing disclosure obligation with respect to the Notes. See the form of the Continuing Disclosure Certificate (the “Certificate”) at Appendix C to this Preliminary Official Statement.

Under the terms of the Certificate, the School District will undertake to file with the Municipal Securities Rulemaking Board (the “MSRB”) financial and other information concerning the School District (annual audited financial statements, annual budget, other operating and financial information and notice of certain events affecting the School District). The School District’s obligations with respect to continuing disclosure shall terminate upon the prior redemption or payment in full of all of the Notes.

The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, 2009. Information and notices filed by municipal issuers (and other “obligated persons” with respect to municipal securities issues) are made available through the MSRB’s Electronic Municipal Market Access (EMMA) System, which may be accessed on the internet at http://www.emma.msrb.org.

Continuing Disclosure Filing History

Under the School District's existing annual disclosure requirements under the Rule, the School District agreed to provide updates to its audited financial statements, its budgets and certain financial and operational information relating to the School District. The School District failed to timely file its budget for fiscal year ending June 30, 2014. This information has since been filed. The School District has filed a separate notice with EMMA setting forth the School District's failure to timely file its budget. This notice was not timely filed.

The School District also failed to timely file its required financial and operational information for fiscal year ending June 30, 2013. Certain of this information has since been filed; and, certain of this information was available in an official statement 23 of the School District filed on EMMA on March 12, 2014, as amended and supplemented. The School District has filed a separate notice with EMMA (i) setting forth the School District’s failure to timely file certain its financial and operational information as described herein, and (ii) cross referencing certain other of the financial and operating information of the School District as contained in the official statement of the School District filed on EMMA on March 12, 2014. This notice was not timely filed.

The School District has procedures in place to ensure ongoing timely filings of its continuing disclosure requirements.

Bond Insurance Rating Downgrades and Upgrades by S&P and/or Moody’s

Some of the School District’s bond issues that have been outstanding during the past five (5) years have been insured by various bond insurance companies that have received rating downgrades and upgrades by both S&P and Moody’s. This information was publicly available from widely accepted information sources at the time of their respective downgrades or upgrades. For informational purposes, the School District has recently filed a summary of rating upgrades and downgrades relating to certain bond insurance companies.

The School District failed to file with EMMA in a timely fashion notice by S&P Global Ratings of its downgrade of the School District’s rating from A to A- on December 11, 2015.

RATINGS

S&P Global Ratings (“S&P”) has assigned their municipal Bond rating of “ “ to this issue of Notes with the understanding that upon delivery of the Notes, a municipal bond insurance policy insuring the payment when due of the principal of and interest on the Notes will be issued by . S&P has also assigned an underlying rating of BBB+ (Negative Outlook) to the Notes. Any explanation of the significance of such rating may be obtained from the rating agency furnishing the rating. The rating reflects only the view of such rating agency and the School District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Notes.

The above ratings are not recommendations to buy sell or hold the Notes, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Notes.

BOND INSURANCE RISK FACTORS

The Issuer has applied for a bond insurance policy to guarantee the scheduled payment of principal and interest on the Notes. The Issuer has yet to determine whether an insurance policy will be purchased with the Notes. If an insurance policy is purchased, the following are risk factors relating to bond insurance.

In the event of default of the payment of principal or interest with respect to the Notes when all or some becomes due, any owner of Notes shall have a claim under the applicable Bond Insurance Policy (the “Policy”) for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional prepayment of the Notes by the issuer which is recovered by the issuer from the Bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the Bond Insurer at such time and in such amounts as would have been due absence such prepayment by the issuer unless the Bond Insurer chooses to pay such amounts at an earlier date.

Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may direct and must consent to any remedies that the Paying Agent exercises and the Bond Insurer’s consent may be required in connection with amendments to the Resolution under which the Notes are issued.

In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the Notes are payable solely from the moneys received by the Paying Agent pursuant to the Resolution or default provisions of the Act. In the event the Bond Insurer becomes obligated to make payments with respect to the Notes, no assurance is given that such event will not adversely affect the market price of the Notes or the marketability (liquidity) of the Notes.

The long-term ratings on the Notes are dependent in part on the financial strength of the Bond Insurer and its claim paying ability. The Bond Insurer’s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Notes insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Notes or the marketability (liquidity) of the Notes. See “RATINGS” herein.

The obligations of the Bond Insurer are general obligations of the Bond Insurer, and in an event of default by the Bond Insurer, the remedies available to the Bondholders may be limited by applicable bankruptcy law or other similar laws related to insolvency.

Neither the issuer or Underwriter have made independent investigation into the claims paying ability of the Bond Insurer, and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given.

Thus, when making an investment decision, potential investors should carefully consider the ability of the issuer to pay principal and interest on the Notes and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See “Bond Insurance” herein for further information provided by the Bond Insurer and the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer.

UNDERWRITING

RBC Capital Markets, LLC (the “Underwriter”) has agreed, subject to certain conditions, to purchase the Notes from the School District at an aggregate price of $ , which includes an underwriting discount of $ and a net original issue premium of $ . The Underwriter's obligations are subject to certain conditions precedent; however, the Underwriter will be obligated to purchase all such Notes if any such Notes are purchased. The Notes may be offered and sold to certain dealers (including dealers depositing such Notes into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter. The Underwriter has provided the following information for inclusion in this Preliminary Official Statement: The Underwriter and their respective affiliates are full service financial institutions engaged in various activities, that may include securities trading, commercial and investment banking, municipal advisory, brokerage and asset management. In the ordinary course of business, the Underwriter and their respective affiliates may actively trade debt and if applicable equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriter and its affiliates may engage in transactions for its own accounts involving the securities and instruments made the subject of this securities offering or other offering of the Issuer and/or Borrower. The Underwriter and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Issuer and/or Borrower. The Underwriter does not make a market in credit default swaps with respect to municipal securities at this time but may do so in the future.

LEGAL OPINION

The Notes are offered subject to the receipt of the legal opinion of Fox Rothschild LLP, Bond Counsel to the School District, of Blue Bell, Pennsylvania. Certain legal matters will be passed upon for the School District by David Knerr, Esquire of Macungie, Pennsylvania, School District Solicitor.

FINANCIAL ADVISOR

The School District has retained PFM Financial Advisors LLC, Harrisburg, Pennsylvania, as financial advisor (the “Financial Advisor”) in connection with the preparation, authorization and issuance of the Notes. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Preliminary Official Statement. PFM Financial Advisors LLC is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.

MISCELLANEOUS

This Preliminary Official Statement has been prepared under the direction of the School District by PFM Financial Advisors LLC, Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Preliminary Official Statement has been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Notes, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Preliminary Official Statement is not to be construed as a contract with holders of the Notes. The administration has authorized the preparation and distribution of the Preliminary Official Statement.

CATASAUQUA AREA SCHOOL DISTRICT Lehigh and Northampton Counties, Pennsylvania

By: President, Board of School Directors 25 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

APPENDIX A Demographic and Economic Information Relating to the Catasauqua Area School District

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Introduction

The School District is located along the banks of the Lehigh River, covers 6.6 square miles adjacent to the north of the City of Allentown, the County seat of Lehigh County. The School District is composed of the Borough of Catasauqua and Hanover Township, both in Lehigh County, and the Borough of North Catasauqua in Northampton County. Lehigh County constitute and important part of the Lehigh Valley Area also defined by the U.S. Census Bureau as the Allentown-Bethlehem-Easton Metropolitan Statistical Area (MSA), which is the third largest MSA in the state, surpassed only by Philadelphia and Pittsburgh.

Population

Table A-1 shows population trends for the School District, Lehigh and Northampton Counties and the Commonwealth. Table A-2 shows 2015 (estimated) age composition and average number of persons per household in Lehigh and Northampton Counties and for the Commonwealth.

TABLE A-1 POPULATION TRENDS

Compound Average Annual Percentage Change Area 2010 2015 2010-2015 School District ...... 10,856 11,055 0.36% Lehigh County ...... 349,497 356,756 0.41% Northampton County ...... 297,735 299,616 0.13% Pennsylvania ...... 12,702,379 12,779,559 0.12%

Source: U.S. Census Bureau, 2010 Census and U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates.

TABLE A-2 AGE COMPOSITION

Under 19 20 Years Persons Per

Years and Over Household

Lehigh County ...... 25.7% 74.3% 2.54 Northampton County ...... 24.2% 75.8% 2.61 Pennsylvania ...... 24.2% 75.8% 2.50

Source: U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates.

A-1

Employment

Overall Nonfarm Jobs, Industry Employment data for the Allentown-Bethlehem-Easton Labor Metropolitan Statistical Area (“MSA”) an area which includes the School District.

TABLE A-3 DISTRIBUTION OF EMPLOYMENT BY INDUSTRY Allentown-Bethlehem-Easton Metropolitan Statistical Area (Carbon, Lehigh, and Northampton PA Counties, Warren County, NJ) NONFARM JOBS – NOT SEASONALLY ADJUSTED February 2018

Industry Employment Net Change From:

Establishment Data Feb-18 Jan-18 Dec-17 Feb-17 Jan-18 Feb-17 TOTAL NONFARM 366,700 365,000 373,000 363,700 1,700 3,000 TOTAL PRIVATE 326,700 325,500 332,200 324,000 1,200 2,700 GOODS PRODUCING 48,900 49,100 50,100 48,300 (200) 600 Construction, Natural Resources, and Mining 12,500 12,600 13,400 12,100 (100) 400 Manufacturing 36,400 36,500 36,700 36,200 (100) 200 Durable Goods 21,900 22,100 22,200 21,700 (200) 200 Non-Durable Goods 14,500 14,400 14,500 14,500 100 - SERVICE-PROVIDING 317,800 315,900 322,900 315,400 1,900 2,400 PRIVATE SERVICE-PROVIDING 277,800 276,400 282,100 272,700 1,400 5,100 Trade, Transportation, and Utilities 84,400 84,400 86,600 81,900 - 2,500 Wholesale Trade 14,600 14,600 14,800 14,100 - 500 Retail Trade 38,900 39,000 40,400 40,200 (100) (1,300) Food and beverage stores 9,600 9,700 9,900 10,000 (100) (400) General merchandise stores 7,300 7,500 8,100 7,200 (200) 100 Department stores 4,400 4,600 5,200 4,200 (200) 200 Transportation, Warehousing, and Utilities 30,900 30,800 31,400 27,600 100 3,300 Transportation and Warehousing 29,900 29,800 30,400 26,500 100 3,400 Information 5,300 5,400 5,400 5,700 (100) (400) Financial Activities 14,200 14,200 14,400 14,200 - - Finance and insurance 11,100 11,000 11,100 11,100 100 - Insurance carriers and related activities 5,700 5,700 5,700 5,700 - - Professional and Business Services 47,300 47,700 48,600 48,800 (400) (1,500) Professional and technical services 13,600 13,700 13,500 13,600 (100) - Management of companies and enterprises 9,600 9,800 9,800 10,200 (200) (600) Administrative and waste services 24,100 24,200 25,300 25,000 (100) (900) Employment services 11,000 11,600 12,800 12,300 (600) (1,300) Education and Health Services 77,700 75,400 77,200 75,300 2,300 2,400 Educational services 13,800 11,900 13,800 13,400 1,900 400 Health care and social assistance 63,900 63,500 63,400 61,900 400 2,000 Hospitals 20,500 20,500 20,600 19,700 - 800 Leisure and Hospitality 34,600 35,000 35,400 35,500 (400) (900) Accommodation and food services 29,800 30,200 30,500 29,400 (400) 400 Food services and drinking places 25,100 25,600 25,700 24,700 (500) 400 Other Services 14,300 14,300 14,500 14,300 - - Government 40,000 39,500 40,800 39,700 500 300 Federal Government 2,200 2,200 2,300 2,300 - (100) State Government 2,600 2,600 2,600 2,600 - - Local Government 35,200 34,700 35,900 34,800 500 400 Local government educational services 22,300 21,700 22,900 22,000 600 300 Other Local Government 12,900 13,000 13,000 12,800 (100) 100 Data Benchmarked to March 2017 ** Data Changes of 100 May be Due to Rounding**

Source: Pennsylvania Department of Labor and Industry, Center for Workforce Information and Analysis website.

A-2

Table A-4 shows recent trends in labor force, employment and unemployment for Lehigh and Northampton Counties and the Commonwealth.

TABLE A-4 TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT NOT SEASONALLY ADJUSTED Compound Average Annual % 2013 2014 2015 2016 2017 Rate Lehigh County Civilian Labor Force (000) 183.3 183.2 185.9 118.1 181.2 -0.23% Employment (000) 168.9 172.1 176 177.9 173 0.48% Unemployment (000) 14.3 11.1 9.9 10.2 8.2 -10.53% Unemployment Rate 7.8% 6.1% 5.3% 5.4% 4.5%

Northampton County Civilian Labor Force (000) 155.7 155.4 156.7 158.3 152.5 -0.41% Employment (000) 144.2 146.3 148.5 150.1 145.9 0.23% Unemployment (000) 11.5 9.2 8.2 8.3 6.6 -10.51% Unemployment Rate 7.4% 5.9% 5.3% 5.2% 4.3%

Pennsylvania Civilian Labor Force (000) 6,442.0 6,396.0 6,421.0 6,453.0 6,427.0 -0.05% Employment (000) 5,968.0 6,021.0 6,080.0 6,105.0 6,112.0 0.48% Unemployment (000) 475.0 375.0 340.0 348.0 316.0 -7.83% Unemployment Rate 7.4% 5.9% 5.3% 5.4% 4.9%

Source: Pennsylvania Department of Labor and Industry, Center for Workforce Information and Analysis website.

Following is a listing of the larger employers within the Lehigh Valley and Northampton County regions:

Name Name

Lehigh Valley Hospital Center Sands Bethworks Gaming LLC

St. Luke’s Hospital Wal-Mart Associates Inc.

Amazon.com DEDC LLC C&S Wholesale Grocers Inc.

Lehigh County Lehigh University Allentown School District Northampton County Mack Trucks Inc. Bethlehem Area School District Air Products and Chemicals Guardian Life Insurance Company of Dorney Park / Wildwater Kingdom Northampton County Area Community College

B Braun Medical Inc. Crayola LLC

Source: Quarterly Census of Employment and Wages, Center for Workforce Information & Analysis, Q3 of 2017

Income

The data on Table A-5 shows trends in per capita income for the School District, the Counties and Pennsylvania over the 2010-2015 period. Per capita income for the School District increased at a slower rate over this period than per capita income for the Counties and the Commonwealth.

TABLE A-5 TRENDS IN PER CAPITA INCOME* Compound Annual Average Percentage Change 2010 2015 2010-2015 School District ...... $24,837 $24,846 0.01% Lehigh County ...... 27,588 28,688 0.80% Northampton County ...... 28,171 30,176 1.39% Pennsylvania ...... 26,678 29,291 1.89%

*Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. School District income is the population-weighted average for political subdivisions. Source: U.S. Census Bureau, 2010 Census and U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates.

A-3

Industry

Table A-6 shows retail sales over a five year period for the Counties, the MSA and the Commonwealth. The great diversity of industrial activity can be seen in even a partial list of products manufactured in these areas: steel products, trucks, industrial equipment, food products, pet foods, electrical and mechanical equipment, electronic components, modular storage cabinets, storage systems, musical instruments, clothing and textiles, and chemical and mineral processing equipment. The increasingly important service sector is characterized by the rapid growth of computer service, software companies, and firms which deal in information processing.

The stable industrial base, combined with the existing educational, research, and development facilities, has created an ideal environment for the development of advanced technology in the Lehigh Valley (Northampton and Lehigh Counties).

TABLE A-6 TOTAL RETAIL SALES (000)

2015 2016 2017 2018 Lehigh County ...... $5,289,311 $5,415,160 $6,779,183 $5,985,072 MSA ...... 13,893,265 13,954,517 13,460,005 12,172,470 Pennsylvania ...... 198,215,135 207,887,942 213,005,476 188,389,810

Source: The Nielsen Company.

Higher Education

Lehigh Valley (Lehigh and Northampton Counties) provides area residents with numerous educational facilities in the Valley. A listing of the major educational facilities appears below:

Institutions of Higher Education Muhlenberg College Cedar Crest College De Sales University East Stroudsburg University Kutztown University (Berks County) Lafayette College Lehigh Carbon Community College Lehigh University Lincoln Technical Institute Moravian College Northampton Community College Penn State University, Lehigh Valley

Source: Lehigh Valley website.

Transportation

The Lehigh Valley is served by Interstate 78 and in addition State routes 191, 378 and 412, US 22 and PA 309.

The Lehigh Valley International Airport has jet facilities, air freight and air express service. Air transportation services and partners include: Allegiant, American, Delta and United. As a railroad center, Bethlehem contains the main classification of the Central Railroad of New Jersey and freight agencies of a number of other railroads including Reading Company, Philadelphia, Bethlehem and New England and Lehigh Valley Railroads. These railroads, with links to the national railroad systems, provide easy access to major sources of raw materials and sales markets.

Utilities

The Lehigh Valley (Northampton and Lehigh Counties) region is served by PPL, natural gas service is provided by UGI and telephone service is provided by Verizon.

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APPENDIX B Form of Bond Counsel Opinion [ THIS PAGE INTENTIONALLY LEFT BLANK ]

______, 2018

RBC Capital Markets LLC [______] 2101 Oregon Pike Lancaster, PA 17604

Re: Catasauqua Area School District Lehigh and Northampton Counties, Pennsylvania $______General Obligation Notes, Series of 2018

Ladies and Gentlemen:

We have acted as Bond Counsel to Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania (the “School District”), a school district located in the Commonwealth of Pennsylvania (the “Commonwealth”), in connection with the authorization, issuance and sale by the School District of its General Obligation Notes, Series of 2018, dated ______, 2018, in the aggregate principal amount of ______Dollars ($______) (the “Notes”).

The Board of Directors of the School District, by a Resolution dated May 8, 2018 (the “Resolution”), has authorized and directed the issuance of the Notes. The Resolution provides, inter alia, that the proceeds of the Notes will be used to: (1) currently refund the School District’s outstanding General Obligation Notes, Series of 2006 (the “Refunded 2006 Notes”); (2) currently refund a portion of the School District’s outstanding General Obligation Bonds, Series of 2013; (3) currently refund a portion of the School District’s outstanding General Obligation Bonds, Series A of 2013; and (4) paying the costs and expenses related to the issuance of the Notes (collectively known as the “Project”), all in accordance with applicable and appropriate provisions of the Local Government Unit Debt Act of the Commonwealth, as codified by the Act of December 19, 1996 (P.L. 1158, No. 177) (the “LGUDA”). Proceedings for authorization, issuance and sale of the Notes have been conducted in accordance with the provisions of the LGUDA.

The Department of Community and Economic Development (the “Department”) of the Commonwealth has approved the proceedings for the incurring of this debt of the School District as authorized in the Resolution, as required by the LGUDA.

As to questions of fact material to our opinion, without undertaking to verify such facts by independent investigation, we have relied upon the certified proceedings and other certifications of the School District and other public officials, including without limitation, the matters listed in the following paragraph, which have been furnished to us.

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As Bond Counsel to the School District, we have examined and relied upon, among other things: (1) the proceedings related to the issuance and delivery of the Notes as filed with and approved by the Department; (2) an executed counterpart of the Resolution; (3) the form of Bond; (4) a General Certificate of the School District; (5) a Tax Compliance Agreement; (6) the supporting legal opinion of David G. Knerr, Esquire; and (7) the usual closing affidavits, certificates and documents.

We have assumed that the School District, pursuant to the Resolution, has established a sinking fund with the Paying Agent named in the Resolution, as the sinking fund depositary, into which funds for the payment of the principal of and interest on the Notes will be deposited no later than the date fixed for the disbursement thereof. The School District has set forth in the Resolution to make payments out of such sinking fund or out of any other of its revenue or funds, at such times and in such annual amounts, as shall be sufficient for prompt and full payment of all obligations under the Notes.

The School District in the Resolution has covenanted to include in each year’s budget, to the fullest extent authorized under law, sums sufficient to meet the requirements of all interest and principal payment due under the Notes, to appropriate such amounts from its general revenues necessary for the payment of such debt service and to pay the principal and interest due upon the Notes to the extent of its obligation as and when due and it has pledged its full faith, credit and taxing power to such payment, budgeting and appropriation.

We have further assumed that the principal of and interest on the Notes are payable without deduction of any tax or taxes now levied or assessed thereon under any present law of the Commonwealth, which tax or taxes the School District assumes and agrees to pay; provided, however, that the foregoing shall not be applicable to gift, succession or inheritance taxes or to other taxes not levied or assessed directly on the Notes or the interest paid thereon.

The Resolution provides that the School District reasonably anticipates to issue, together with subordinate governmental entities, no more than Ten Million Dollars ($10,000,000) of “qualified tax exempt obligations” within the meaning of Section 265(b)(3)(B) of the Internal Revenue Code of 1986 (the “Code”) during calendar year 2018 and the Notes have been designated, or are deemed designated, as “qualified tax exempt obligations” within the meaning of Section 265(b)(3)(B) of the Code.

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Based upon the foregoing, and subject to the further qualifications stated herein, and assuming investment and application of the proceeds of the Notes as set forth in the Tax Compliance Agreement and the continuing compliance by the School District therewith and with the applicable provisions of the Code and the Regulations thereunder, we are of the opinion that:

1. The School District is authorized, under applicable laws of the Commonwealth, to issue the Notes to provide funds as enumerated in the Resolution.

2. The amount of non-electoral debt of the School District issued and outstanding or authorized by vote of the Board of Directors of the School District, including the Notes, computed in accordance with the LGUDA, is not in excess of legal limitations; and the incurring of non-electoral debt of the School District, which is evidenced by the Notes, is permitted by the LGUDA and the Constitution of the Commonwealth to be made by vote of the Board of Directors of the School District without assent of electors of the School District.

3. The proceedings pursuant to which the Notes have been authorized and thus the incurring of the non-electoral debt of the School District, which is evidenced by the Notes, are in accordance with applicable law. The Notes are a full faith and credit obligation of the School District, the payment for which the School District is obligated, if necessary, to exercise its ad valorem taxing power, subject to the limits of Act 1, discussed below, upon all taxable property within the School District.

4. The Notes are not presently “arbitrage bonds” as that term is contemplated by, and defined in, Section 103(b)(2) and Section 148, respectively, of the Code and applicable Regulations promulgated thereunder.

5. Interest on the Notes is excluded from gross income for Federal income tax purposes, and is not an item of “tax preference” for purposes of the Federal alternative minimum tax imposed on individuals and corporations, although in the case of certain corporations and entities treated as corporations for Federal income tax purposes, such interest may be indirectly subject to the alternative minimum tax because of its inclusion in the income reported for financial accounting purposes or earnings and profits of the holder.

6. The Notes are exempt from personal property taxes in the Commonwealth and interest on the Notes is exempt from the personal income tax and the corporate net income tax imposed by the Commonwealth.

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7. The Notes, when issued and approved by the Pennsylvania Department of Community and Economic Development, will constitute indebtedness of the Local Government Unit for purposes of Section 6-633 of the Pennsylvania Public School Code of 1949, as amended.

Notwithstanding the general excludability of interest on the Notes from gross income and the exemption of the Notes and the interest thereon from certain taxes, ownership of the Notes may result in other Federal, state, local and/or foreign tax consequences to certain taxpayers, including, without limitation, corporations required to include such interest in the calculation and payment of the alternative minimum tax under Section 55 of the Code (as noted in Paragraph 5 above); certain foreign corporations doing business in the United States that are subject to the Branch Profits Tax imposed by Section 884 of the Code; individuals or entities required to take such interest into account as market discount; financial institutions; insurance companies required to include such interest in amounts required to reduce the deductions for loss reserves pursuant to Section 832 of the Code; certain “S” Corporations (as defined in Section 1361 of the Code) with accumulated earnings and profits; individual recipients of Social Security, or Railroad Retirement benefits; and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Notes. We offer no opinion as to any of such other tax consequences.

With respect to the foregoing opinion, we advise you that the rights of the holders of the Notes and the enforceability of the Notes will be subject to and may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws of general application or equitable principles relating to or affecting creditors’ rights and remedies or debtors’ obligations generally, (ii) general principles of equity, whether considered and applied in a court of law or equity, and (iii) the exercise of judicial discretion in appropriate cases.

The opinion set forth in paragraph 5 above is subject to the condition that the School District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Notes in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Code establishes certain requirements relating to the use and expenditures of the Notes proceeds, restrictions on investments prior to expenditure and the requirement that certain earnings be rebated to the Federal government. Non-compliance with any of these or other applicable requirements of the Code might cause interest on the Notes to be subject to Federal income taxation either prospectively or retroactively to the date of issuance. The School District has covenanted to comply with such requirements.

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We call to your attention that the Taxpayer Relief Act, Pennsylvania Special Session Act No. 1 of 2006 (“Act 1”) became effective June 27, 2006. Act 1 generally provides that a school district may not, in fiscal year 2007-2008 or in any subsequent fiscal year, increase the rate of any tax for school purposes by more than an index based on factors described in Act 1 without voter approval by referendum. Act 1 provides an exception from the referendum requirement for tax increases for the purposes of paying principal and interest on, and costs of issuance of, debt which refunds debt incurred by the School District prior to the effective date of Act 1, such as the portion of the Notes issued to refund the Refunded 2006 Notes. However, the use of such exception by the School District must be approved by the Pennsylvania Department of Education. We express no opinion regarding the likelihood of approval by the Pennsylvania Department of Education of the use of the foregoing exception by the School District with respect to the Notes.

We express no opinion herein as to any matter not expressly set forth herein, including Federal, state, local and/or foreign tax consequences arising with respect to the Notes other than as expressly set forth in paragraphs 4, 5 and 6 above. Further, we express no opinion herein regarding the accuracy, adequacy, or completeness of the Official Statement relating to the Notes.

This opinion is given as of the time of closing on the date hereof, and is based on existing law as enacted and construed as of that time. We assume no obligation to update or supplement this opinion to reflect any facts or circumstances which may hereafter come to our attention or any changes in such laws, regulations, or judicial or administrative decisions, any of which could adversely affect a holder of the Notes.

Very truly yours,

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APPENDIX C Continuing Disclosure Certificate [ THIS PAGE INTENTIONALLY LEFT BLANK ]

CATASAUQUA AREA SCHOOL DISTRICT LEHIGH AND NORTHAMPTON COUNTIES, PENNSYLVANIA GENERAL OBLIGATION NOTES, SERIES OF 2018

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania (the “School District”), in connection with the issuance of its $______aggregate principal amount General Obligation Notes, Series of 2018 (the “Notes”). The Notes are being issued pursuant to a Resolution of the School District, dated May 8, 2018 (the “Resolution”). The School District covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the School District for the benefit of the Bondholders and in order to assist the Participating Underwriter in complying with the Rule (hereinafter defined).

SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the School District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Bondholders” or “Holders” shall mean the registered owners of the Notes and, if registered in the name of Cede & Co., through The Depository Trust Company, New York, New York (“DTC”), any Beneficial Owners (as such term is used by DTC to define holders other than nominees) of the Notes, unless the Rule, or an authoritative interpretation thereof by the Securities and Exchange Commission (the “Commission”) or its staff, does not require this Disclosure Certificate to be for the benefit of such Beneficial Owners.

“Commission” shall mean the Securities and Exchange Commission.

“Dissemination Agent” shall mean any person or entity designated from time to time in writing by the School District and which has filed with the School District a written acceptance of such designation and of the duties of the Dissemination Agent under this Disclosure Certificate.

“EMMA” shall mean the Electronic Municipal Market Access system as described in 1934 Act Release No. 59062 and maintained by the MSRB for purposes of the Rule as further described in Section 13 hereof.

“Filing” shall mean, as applicable, any Annual Report or Listed Event filing or any other notice or report made public under this Disclosure Certificate made with each NRMSIR or the

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MSRB and the SID, if any, together with a completed copy of a cover sheet in such form acceptable to each NRMSIR, the MSRB or SID, if applicable, describing the event by checking the box in said form when filing pursuant to the pertinent sections of this Disclosure Certificate.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“MSRB” shall mean the Municipal Securities Rulemaking Board, or any successor thereto for purposes of the Rule. Currently, MSRB’s address, phone number and fax number for purposes of the Rule are:

MSRB c/o CDINet 1900 Duke Street Suite 600 Alexandria, VA 22314 Phone: (703) 797-6000 Fax: (703) 683-1930

“NRMSIR” shall mean any Nationally Recognized Municipal Securities Information Repository recognized for purposes of the Rule and the MSRB, as reflected on the website of the Securities and Exchange Commission at www.sec.gov. As of the date of this Disclosure Certificate, the sole NRMSIR shall be the MSRB, through the operation of EMMA, as provided in Section 13 hereof.

“Participating Underwriter” shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

“Repository” shall mean each NRMSIR and the SID, if any.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SID” shall mean any public or private state information depositary or entity designated by the Commonwealth of Pennsylvania as a state information depositary for the purpose of the Rule, if any. As of the date of this Disclosure Certificate, no SID has been designated.

SECTION 3. Provision of Annual Reports.

(a) The School District shall not later than 270 days after the end of each fiscal year of the School District, commencing with the fiscal year ending June 30, 2018, provide directly or through the Dissemination Agent to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. In connection therewith, not later than fifteen (15) Business Days prior to said date, the School District shall provide the Annual Report to the Dissemination Agent (if one has been designated by the School District under this Disclosure Certificate). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited

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financial statements of the School District may be submitted separately from the remainder of the Annual Report when such audited financial statements are available. If the audited financial statements are not submitted as part of the Annual Filing to each Repository pursuant to this Section 3(a), the School District shall provide to each Repository such audited financial statements when they are available to the School District.

(b) If the School District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the School District shall send or cause the Dissemination Agent to send a notice to each NRMSIR and the SID in substantially the form attached as Exhibit A.

(i) determine each year prior to the date for providing the Annual Report the name and address of each NRMSIR and the SID, if any; and

(ii) if a Dissemination Agent has been designated hereunder, file a report with the School District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

(iii) The School District shall promptly file a notice of any change in its fiscal year and the new annual filing date with each NRMSIR and the SID.

(d) If the Dissemination Agent does not receive the Annual Report from the School District by the fifteenth Business Day specified in Section 3(a) above, the Dissemination Agent shall provide a written reminder notice to the School District with respect to the School District’s obligations under Section 3(a) above no later than five (5) Business Days after such fifteenth Business Day.

SECTION 4. Content of Annual Reports. The School District’s Annual Report shall contain or incorporate by reference the following:

(i) the financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units and audited in accordance with generally accepted auditing standards;

(ii) the total assessed value and market value of all taxable real estate for the current fiscal year (may be contained within the budget or audit for the current fiscal year without need for further cross reference);

(iii) the taxes and millage rates imposed for the current fiscal year (may be contained within the budget or audit for the current fiscal year without need for further cross reference);

(iv) the real property tax collection results for the most recent fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current

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collections (expressed both as a percentage of such fiscal year’s levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year’s levy and as an aggregate dollar amount) (may be contained within the budget or audit for the current fiscal year without need for further cross reference); and

(v) a list of the ten (10) largest real estate taxpayers and, for each, the total assessed value of real estate for the current fiscal year (may be contained within the budget or audit for the current fiscal year without need for further cross reference).

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the School District or related public entities, which have been submitted to each of the Repositories or the Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The School District shall clearly identify each such other document so incorporated by reference. The School District reserves the right to modify from time to time specific types of information provided hereunder or the format of the presentation of such information, to the extent necessary or appropriate; provided, however, that any such modification will be done in a manner consistent with the Rule.

SECTION 5. Reporting of Significant Events.

(a) The occurrence of any of the following events, with respect to a particular series of the Notes, constitutes a “Listed Event” only with respect to such series of the Notes. This Section 5 shall govern the giving of notices of the occurrence of any of the following events:

(i) Principal and interest payment delinquencies;

(ii) Nonpayment related defaults, if material;

(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;

(v) Substitution of credit or liquidity providers, or their failure to perform;

(vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax-exempt status of the Notes, or other material events affecting the tax status of the Notes;

(vii) Modifications to rights of securities holders, if material;

(viii) Bond calls, if material, and tender offers for the Notes;

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(ix) Defeasances;

(x) Release, substitution, or sale of property securing repayment of the securities, if material;

(xi) Rating changes;

(xii) Bankruptcy, insolvency, receivership or similar events of the School District;

(xiii) The consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;

(xiv) Appointment of a successor or additional trustee or paying agent or the change of name of a trustee or paying agent, if material; and

(xv) Failure to provide annual financial information as required.

(b) Whenever the School District obtains knowledge of the occurrence of a Listed Event, the School District shall as soon as possible (with respect to those Listed Events where a determination of materiality by the School District is applicable) determine if such event would constitute material information for Holders of Notes under applicable federal securities laws.

(c) If (i) a Determination of materiality by the School District is not relevant to the obligation to give notice of a Listed Event or (ii) the School District determines (with respect to those Listed Events where a determination of materiality by the School District is applicable) that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the School District shall promptly file in a timely manner, not in excess of ten (10) business days after the occurrence of the Listed Event, or cause the Dissemination Agent to so file (if a Dissemination Agent has been designated hereunder) a notice of such occurrence with each NRMSIR and the SID, if any, with a copy to the Paying Agent.

(d) For purposes of the Listed Events in Section 5(a)(xii), the School District and the Dissemination Agent acknowledge the following interpretive note which the Commission has set forth in the Rule: “ Note: for the purposes of the event identified in subparagraph (b)(5)(1)(C)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having

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supervision or jurisdiction over substantially all of the assets or business of the obligated person;”

SECTION 6. Termination of Reporting Obligation. The School District’s obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Notes.

In the event that any person or entity subsequent to the execution hereof becomes an “obligated person,” as such term is defined in the Rule, with respect to the Notes, the School District covenants to use its best effort to cause such obligated person to enter into a written undertaking to comply with the provisions of the Rule or to cause this Disclosure Certificate to be amended and to cause such obligated person to join in the execution of such amendment.

SECTION 7. Dissemination Agent. The School District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The School District shall cause the Dissemination Agent appointed hereunder and any successors to execute and deliver an acknowledgment of acceptance of the designation and duties of Dissemination Agent under this Disclosure Statement.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the School District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the School District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the School District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the School District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the School District to comply with any provision of this Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the School District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Notes or the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the School District to comply with this Disclosure Certificate shall be an action to compel performance.

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SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent, if other than the School District. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the School District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the School District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes.

SECTION 12. Undertaking with Respect to Certain Procedures and Policies. The School District agrees to begin the process of establishing internal policies and procedures for the purpose of continuing disclosure compliance. Without intending to preclude the adoption of other necessary or useful policies and procedures, a single School District official will be designated with ultimate responsibility for continuing disclosure compliance and will oversee the process of informing and training appropriate deputies and other School District employees with respect to the School District’s continuing disclosure undertakings.

SECTION 13. EMMA. Filings shall be made to the continuing disclosure service portal provided through EMMA as provided at http://www.emma.msrb.org, or any similar system that is acceptable to the Commission.

SECTION 14. Alternative Filing. Notwithstanding the other provisions of this Disclosure Certificate, any filing under this Disclosure Certificate, and any additional supplements hereto, may be made with such depositories and using such electronic filing systems as may be approved by the United States Securities and Exchange Commission (in lieu of the procedures currently in this Disclosure Certificate).

SECTION 15. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the School District, the Paying Agent, the Dissemination Agent (if any), the Participating Underwriter and the Holders from time to time of the Notes, and shall create no rights in any other person or entity.

[signature page follows]

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[signature page to Continuing Disclosure Certificate General Obligation Notes, Series of 2018]

Attest: CATASAUQUA AREA SCHOOL DISTRICT Lehigh and Northampton Counties, PA

By: By: Jason M. Bashaw Carol A. Cunningham Secretary of the Board President of the Board

Date: ______, 2018

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EXHIBIT A1

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Catasauqua Area School District Lehigh and Northampton Counties, Pennsylvania

Name of Bond Issue: Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania $______aggregate principal amount General Obligation Notes, Series of 2018 (the “Notes”)

Date of Issuance: ______, 2018

NOTICE IS HEREBY GIVEN that the Catasauqua Area School District, Lehigh and Northampton Counties, Pennsylvania (the “School District”), has not provided an Annual Report with respect to the above-named Notes as required by Section 3 of the Continuing Disclosure Certificate, dated ______, 2018, executed by the School District. The School District anticipates that the Annual Report will be filed by ______.

1 The substantive content of this notice shall be provided in any applicable notice filing. Appropriate modifications may be made to accommodate the electronic submission format requirements of the EMMA system or other successor electronic filing system.

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CATASAUQUA AREA SCHOOL DISTRICT, LEHIGH AND NORTHAMPTON COUNTIES, PENNSYLVANIA [OR DISSEMINATION AGENT ON BEHALF OF THE CATASAUQUA AREA SCHOOL DISTRICT, LEHIGH AND NORTHAMPTON COUNTIES, PENNSYLVANIA]

Dated:

cc: Paying Agent

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APPENDIX D Specimen of Municipal Bond Insurance Policy [ THIS PAGE INTENTIONALLY LEFT BLANK ]

APPENDIX E Audited Financial Statement

[ THIS PAGE INTENTIONALLY LEFT BLANK ] FINANCIAL STATEMENTS

CATASAUQUA AREA SCHOOL DISTRICT

JUNE 30, 2017 [ THIS PAGE INTENTIONALLY LEFT BLANK ] CATASAUQUA AREA SCHOOL DISTRICT FINANCIAL ST A TEMENTS JUNE 30, 2017

CONTENTS

Page (s)

Independent Auditors' Report 1 - 3

Management's Discussion and Analysis (Unaudited) 4 - 11

Basic Financial Statements:

Government-wide Financial Statements:

Statement ofNet Position 12

Statement ofActivities 13 - 14

Fund Financial Statements:

Balance Sheet - Governmental Funds 15

Reconciliation ofthe Governmental Funds Balance Sheet to the Statement ofNet Position 16

Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 17

Reconciliation ofthe Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement ofActivities 18

Statement ofN et Position - Proprietary Funds 19

Statement of Revenues, Expenses and Changes in Fund Net Position - Proprietary Funds 20

Statement of Cash Flows - Proprietary Funds 21

Statement ofNet Position - Fiduciary Funds 22

Statement ofChanges in Net Position - Fiduciary Funds 23

Notes to Financial Statements 24 - 50 CATASAUQUA AREA SCHOOL DISTRICT FINANCIAL STATEMENTS JUNE 30, 2017

CONTENTS (Continued)

Page (s) Required Supplementary Information

Budgetary Comparison Schedule Budget and Actual - General Fund 51

Schedule ofFunding Progress for the Catasauqua Area School Distiict Postemployinent Benefits Plan 52

Schedule of Employer Contnbutions for the Catasauqua Area School Dishict Postemployment Benefits Plan 53

Schedule of the Dishict's Proportionate Share of the Net Pension Liability 54

Schedule ofDishict Contnbutions - Pension Plan 55

Supplementary Information Required by the Uniform Guidance

Schedule of Expenditures ofFederal Awards 56 - 57

Notes to the Schedule of Expenditures of Federal Awards 58

Schedule ofFinding; and Questioned Costs 59 - 60

Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Perfonned in Accordance with Government Auditing Standards 61 - 62

Independent Auditors' Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Unifonn Guidance 63 - 64

Other Supplementary Information

Schedule ofReceipts and Disbursements - Activity Fund Accounts 65 - 66 FRANCE, ANDERSON, BASILE and CDNIP ANY, P.C CERTIFIED PUBLIC ACCDUNTANTS

903 Chestnut Street 610-967-1200 Phone Emmaus, Pennsylvania 18049 610-966-6669 Fax www.fabandco.com INDEPENDENT AUDITORS' REPORT

To the Board of School Directors Catasauqua Area School District Catasauqua, Pennsylvania

Report on the Financial Statements

We have audited the accompanying financial statements of the govenunental activities, the business type activities, each major fund, and the aggregate remaining fund information of the Catasauqua Area School District, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Catasauqua Area School District's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perfonn the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves perfonning procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

- 1 - We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Catasauqua Area School District as of June 30, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 - 11, budgetary comparison on page 51, postemployment benefits plan infonnation on pages 52 - 53, and pension plan reporting inf01mation on pages 54 - 55 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Goverrunental 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 infonnation and compaiing the infonnation for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of fonning opm1ons on the financial statements that collectively comprise the Catasauqua Area School District's basic financial statements. The introductory section and statistical section are presented for purposes of additional analysis and are not a required paii of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code ofF ederal Regulations Paii 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements.

The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such infonnation has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such infonnation directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional

- 2 - procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.

The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance them.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 14, 2017, on our consideration of the Catasauqua 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 internal control over financial reporting or on compliance. That report is an integral part of an audit perfotmed in accordance with Government Auditing Standards in considering the Catasauqua Area School District's internal control over financial reporting and compliance.

(.__,.,/ ,___ -

Emmaus, Pennsylvania December 14, 2017

- 3 - CATASAUQUA AREA SCHOOL DISTRICT CATASAUQUA,PENNSYLVANIA

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI) June 30, 2017

Our discussion and analysis of Catasauqua's financial perfonnance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2017. The MD& A should be read in conjunction with the financial statements and footnotes.

The Management Discussion and Analysis (MD&A) is an element of the new reporting model adopted by the Govenunental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements - and Management's Discussion and Analysis-for State and Local Govenunents issued June 1999. Certain comparative infonnation between the current year and the prior year is required to be presented in the MD&A.

THE SCHOOL DISTRICT

Catasauqua Area School District is a School District of the Third Class, organized and existing under the law of the Commonwealth of Pennsylvania (the "Co1mnonwealth"). The governing body of the School District is a board of nine school directors who are each elected for a four-year tenn. The daily operation and management of the School District is carried out by the administrative staff of the School District, headed by the Superintendent of Schools who is appointed by the Board of School Directors.

FINANCIAL HIGHLIGHTS

The District's financial position is reflected in total govenunental and business type activities total net position of $(38,862,608). Total net position of business-type activities was $340,652. Total net position governmental activities were $(39,203,260). The negative net position is the result of recording the district's proportionate share of net pension liability and deferred inflow/outflow amounts in accordance with GASB Statement No. 68, which was implemented during fiscal year ending June 30, 2015.

Total govenunental activities revenues and other sources were $27,947,706. General and other revenues accounted for $18,176,371 or 65 percent of all revenues. Program specific revenues in the fonn of charges for services and grants accounted for $9,771,335 or 35 percent of total revenues.

The school district had $3 1,110,489 expenses related to governmental activities; $9,771,335 of these expenses was offset by grants, subsidies and charges for services. General revenue (p1imarily taxes) of $17,707,789 covered the expenses.

- 4 - Catasauqua Area School District Catasauqua, Pennsylvania

At June 30, 2017, the restricted net position of the governmental activities was $66,361 and the unrestricted net position was $(41,69 8,320).

At June 30, 2017, the fund balance for the general fund was $(1 ,418,946) and the restricted fund balances were for capital projects of$66,361, and debt service of $0.

OVERVIEW OF THE FINANCIAL STATEMENTS

Management's Discussion and Analysis introduces the school district's basic financial statements. The basic financial statements include: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. These statements are organized so the reader can understand Catasauqua Area School Disttict as a financial whole. The statements then proceed to provide an increasingly detailed look at specific financial activities.

Government-wide Financial Statements

There are two (2) government-wide financial statements: The Statement of Net Position and the Statement of Activities. These statements report infonnation about the District as a whole using the accrual basis of accounting similar to that used by private-sector companies. The Statements of Net Position includes all of the District's assets and liabilities, short tenn as well as long-tenn. The Statement of Activities reports all current year revenues and expenditures regardless of when cash is received or paid.

Together, the two government-wide statements report the District's net position and how they have changed. The Statement of Activities reports how the changes in net position have occurred during the current fiscal year. Over time, increases or decreases in the District's net position are an indication of whether its financial health is improving or deteriorating, respectively. Evaluation of the overall economic health of the district would extend to other factors such as changes in the district's property tax base, student enrollment, facility conditions, required educational programs and perfonnance of the students.

The government-wide financial statement of the District are divided into two categories:

• Governmental Activities - All of the District's basic services are included here, such as instruction support services, administration, operation and maintenance of plant, pupil transportation, and extracunicular activities. Property taxes and state and federal subsidies finance most of these activities. • Business-Type Activities-The District operates a food service operation and charges fees to staff, sh1dents, and visitors to help cover its costs of operation.

- 5 - Catasauqua Area School District Catasauqua, Pennsylvania

Fund Financial Statements

The District's fund financial statements, which begin on page 15, provide detailed information about the most significant funds - Not the District as a whole. Major funds are separately reported while all others are combined into a single, aggregated presentation.

Governmental funds - Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end available for spending in future periods. They are reported using an accounting method called modified accrual accounting, which measures cash and all other· financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the Disttict's operations and the services it provides. Governmental fund information helps the reader detennine 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 Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the financial statements on pages 16 and 18.

Proprietary fund - Proprietary funds use the same basis of accounting as business-type activities; therefore, these fund financial statements will essentially match the government-wide financial statements. The Food Service Fund is the District's proprietary fund.

Fiduciary funds - The District is the trustee, or fiduciary, for scholarship, student activity and agency funds. All of the Districts fiduciary activities are reported in separate Statement of Fiduciary Net Position on Page 22. We exclude these activities from the District's other financial statements because of the District cannot use these assets to finance its operations.

- 6 - Catasauqua Area School District

Figure A-1 summarizes the major features of the District's financial statements, including the portion of the District they cover and the types of information they contain. The remainder of this overview section of management discussion and analysis explains the structure and contents of each of the statements.

Figure A-1 Major Features of Catasauqua School District's Government-wide and Fund Financial Statements

Fund Statements Government Governmental wide Funds Proprietary Fiduciary Funds Statements Funds Scope ! Entire District ! The activities of the i Activities the ! Instances in which I I I l (except r District that are not r District operates ; the District is the j fiduciary funds) ! proprietary or i similar to private ! trustee or agent to ! ! l fiduciary, such as l business - Food l someone else's ! education, ! Services i resources - , ! administration and ! j Scholarship Funds :______.. _.. __ __],_ .. _.. _.. _.. _.. _.. _.. _.. _.. _J_com mun ity services __ L,_.. _.. ____ .. _.. _.. _.. ____ .. _J_and Agency Funds _; ! Required financial ! Statement of ! Balance Sheet ! Statement of net ! Statement of · ! statements ! net position i Statement of i position ! fiduciary net I I I I r ! Statement of ; revenues, Statement of ' position i ! activities j expenditures, and revenues, Statement of I I ; ; changes in fund expenses and changes in ! ! balance changes in fund fiduciary net ! i net position position i . Statement of i ! i i ; , ; cash flows ; ! Accounting basis ! Accrual ! Modified accrual ! Accrual ! Accrual ! l and ! accounting and l accounting and l accounting and l accounting and ! measurement i economic i current financial economic ! economic j !I I I !I I I i focus i resources i resources focus i resources focus ; resources focus i ! focus i ! 1-··-··-·--··- ··-··-··-··- ··-··----~·-··-·! ·--·----··-··-··-·· -··-·-+··- ··-··-··-··-··- ··-··-··-··-··-··---f---! ------+---··-··-·. ·-··-··-··------1 ; Type of ; All assets and ; Only assets : All assets and i All assets and · i asset/liability i liabilities, both i expected to be i liabilities, both i liabilities, both ; information ; financial and ; used up and i financial and i short-term and i i capital, and i liabilities that come i capital, and i long-term ; short-term and i due during the year i short-term and ; i long-term i or soon thereafter; i long-term ! ! no capital assets ; ! . i included i l . Type of inflow- 1 All revenues -'- Revenues for which i All revenues and 1All revenues and outflow i and expenses cash is received expenses during i expenses during information i during year, during or soon after year, regardless i year, regardless of i regardless of the end of the year; of when cash is i when cash is : when cash is expenditures when received or paid ; received or paid [ received or goods or services i ! paid have been received and payment is due ! i during the year or ! ! soon thereafter i j 1------··------.. - •- ---- J·------· ------.l.------·-··-··-··-··-··- ··-··-··--·L·--··-·-----··-··-••-•·--·-··--·.l.·-- ··-··-··- · ·-··-··- ··-··------1

- 7 - Catasauqua Area School District Catasauqua, Pennsylvania

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE

Table A-1 Net Position Fiscal Year Ended June 30, 2017

Go1.ernmental Business-Type Total Activities Activities 2017

Current and other assets $ 2,191,903 $ 310,003 $ 2,501,906 Capital assets 43,424,408 58,641 43,483,049

Total Assets $ 45,616,311 $ 368,644 $ 45,984,955

Deferred Outflows of Resources 10,094,516 0 10,094,516

Current and other liabilities $ 5,644,705 $ 18,952 $ 5,663,657 Noncurrent liabilities 88,787,530 9,040 88,796,570 Total Liabilities $ 94,432,235 $ 27,992 $ 94,460,227

Deferred Inflows of Resources 481,852 0 481,852

Net Position Net ln1.est in capital assets $ 2,428,699 $ 58,641 $ 2,487,340 Restricted 66,361 0 66,361 Unrestricted {deficit) (41,698,320) 282,011 {41,416,309)

Total Net Position $ (39,203,260) $ 340,652 $ (38,862,608)

Most of the District's Net Position is invested in capital assets (buildings, land and equipment). The restricted net position is for future capital projects and reduction of general obligation bonds debt service.

The results of this year' s operations as a whole are reported in the Statement of Activities on pages 13-14. All expenses are reported in the first column. Specific charges, grants, revenues and subsidies that directly relate to specific expense categories are represented to determine the final amount of the District's activities that are supported by other general revenues.

Table A-2 takes the infonnation from that statement, rearranges it slightly, so the reader can see the total revenues for the year.

- 8 - Catasauqua Area School District Catasauqua, Pennsylvania

Table A-2 Changes in Net Position Fiscal Year Ended June 30, 2017

G01,ernmental Business-Type Total Activities Activities 2017 Revenue and other sources Program Re'A:lnues Charges for services $ 114,853 $ 273,234 $ 388,087 Operating grants and contributions 9,656,482 666,986 10,323,468 Capital grants and contributions 0 0 0 General Revenues: Property Taxes 15,912,434 0 15,912,434 Taxes levied for specific purposes 1,795,355 0 1,795,355 Grants, subsidies and contributions, unrestricted 19,354 0 19,354 Investment earnings 8,872 43 8,915 Other 507,410 0 507,410 Extraordinary item (67,054) 0 (67,054) Total Revenues and Other Sources $ 27,947,706 $ 940,263 $ 28,887,969

Program expenses and other uses Instruction $ 19,616,388 $ 0 $ 19,616,388 Support services Instructional student support 3,871,305 0 3,871,305 Administrati'A:l and financial support services 2,822,181 0 2,822,181 Operation and maintenance of plant services 1,920,805 0 1,920,805 Pupil transportation 869,246 0 869,246 Non-instructional services Student activities 735,247 0 735,247 Community services 27,446 0 27,446 Interest and debt related expenses 1,247,644 0 1,247,644 Refund of prior year receipts 227 0 227 Food services 0 909,929 909,929 Total Expenses $ 31 ,110,489 $ 909,929 $ 32,020,418

Increase (decrease) in Net Position $ (3,162,783) $ 30,334 $ (3, 132,449)

- 9 - Catasauqua Area School District Catasauqua, Pennsylvania

Governmental Activities

Goverrunental activities for 2017 resulted in a net change decrease in net position of $(3,162,783) as compared to a net change decrease in goverrunental funds of $(1,904,574). The $(1,258,209) net change between the govenunental activities and goverrunental funds was due to various reconciliation items listed on page 18 of the audit report.

The School District's revenues consist of Local (taxes and other), 66 percent; and State and Federal revenues (subsidies and grants), 34 percent. Local taxation is the major funding source for the District. The School District's program expenses are 63 .1 percent instruction, 21.5 percent support services, 11.4 percent non instructional, and 4.0 percent for debt financing and other expenses.

Business-Type Activities The District's food service operation is the business-type of activity. Charges for services, along with federal and state subsidies funded 100 percent of the food service operation, and the fund's change in net position increased by $30,334.

SCHOOL DISTRICT'S FUNDS

Financial infonnation related to the School District's major funds starts on page 15 . These funds are accounted for using the modified accrual basis of accounting. All governmental funds had total revenues of $27.9 million, total expenditures of $(29.9) million and total other net financing sources of$153,149.

General Fund Budget Highlights

The School District's budget is prepared on the modified accrual basis of accounting. The Board of School Directors authorizes revisions to the original budget to acconunodate differences from the 01iginal budget to the ach1al expenditures of the distticts.

The General Fund' s fund balance decreased by$( 1,916,123) for the year ending June 30, 2017. This decrease is due to the unanticipated increases in Charter School Tuition expenses, unanticipated PSERS deduction from Medical Academy Charter School and Special Education expenses. The unrealized sale of surplus district property led to less revenue than projected, since the sole bid was rejected by the Board of School Directors and is currently being rezoned and marketed via a broker.

Anticipated revenue in the area ofreal estate taxes did not materialize due to several assessment appeals decided unfavorably to the district, along with a sharp reduction in Realty Transfer Tax due to limited real estate transactions and development that has been delayed.

- 10 - Catasauqua Area School District Catasauqua, Pennsylvania

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets At June 30, 2017, the District had $43,483,049 invested in land, buildings, and equipment. This represents the capital assets of both the govenunental and business-type activities of the District. The investment is shown net of accumulated depreciation.

Debt Administration

At June 30, 2017 the School District had $40,995,709 in General Obligation Bonds and Notes and Capital Leases outstanding.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

The 2016-2017 $29,566,425 annual budget is $1 ,571 ,507 more than the budget for 2015-2016. The budget for 2016-2017 reflected a tax increase to the maximum of 3.2%. The decrease in fund balance was due to the unanticipated increase in expenses associated with Charter School Tuition payments, and providing Special Education services and associated transportation, and a PSERS (retirement) deduction from PDE as a result of the Medical Academy Charter School closing and not submitting payment of their retirement obligation. The unrealized sale of surplus district property led to less revenue than projected, since the sole bid was rejected by the Board of School Directors and is currently being rezoned and marketed via a broker.

Increased Earned Income Tax resulted from both the recovering economic condition and a concentrated effort of a newly designed and implemented county-wide system of tax collection. Realty Transfer Tax decreased significantly due to limited real estate transactions and delayed development projects. Additionally, negative assessment appeals have impacted real estate revenue in the past. However reverse assessment appeals have proven to be a fruitful endeavor, with several appeals decided in the District's favor with increased revenue to be realized in the 2017-2018 on a recurring basis.

2017-2018 projections include both revenue and expense adjustments in anticipation of this continued trend. Commercial development is likely within the 2017-2018 Fiscal Year due to approved expansion of our current largest taxpayer, along with significant planned development as a result of the sale of commercial property to The Rockefeller Group.

Contacting the School District's Financial Management

Our financial report is designed to provide citizens, taxpayers, students, investors and creditors with a general overview of the School District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial infonnation, please contact Catasauqua Area School District, 201 North l 4t 11.Street, Catasauqua, Pennsylvania, 18032, or 610-264-5571.

- 11 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017

Governmental Business-Type Assets Activities Activities Total Current Assets: Cash and cash equivalents $ 290,1 12 $ 228,681 $ 518,793 Investments 335,000 335,000 Taxes receivable 564,142 564,142 Intergovernmental receivables 877,327 70,862 948,189 Other receivables 125,322 1,516 126,838 Inventories 8,944 8,944 Total Current Assets 2,191 ,903 310,003 2,501 ,906 Noncurrent Assets: Land 1,700,300 1,700,300 Site improvements, net 397,216 397,216 Building and improvements, net 39,437,485 39,437,485 Fwniture and equipment, net 1,889,407 58,641 1,948,048 Total NoncwTent Assets 43,424,408 58,641 43,483,049 Total Assets $ 45,616,311 $ 368,644 $ 45,984,955 Deferred Outflo"WS of Resources: 10,094,516 10,094,5 16 Liabilities Current Liabilities: Accow1ts payable 478,523 5,378 483,901 Accrued salaries and benefits 2,469,757 2,469,757 Accrued interest payable 402, 106 402,106 Current portion oflong-tenn debt 2,143,456 2,143,456 Compensated absences payable 148,572 332 148,904 Unearned revenues 13,242 13,242 Other liabilities 2,291 2,291 Total Current Liabilities 5,644,705 18,952 5,663,657 Noncurrent Liabilities: Compensated absences payable 582,698 9,040 591,738 Postemployment benefits 1,827,579 1,827,579 Net pension liability 47,525,000 47,525,000 Bonds, notes, and capital leases payable 38,852,253 38,852,253 Total Noncurrent Liabilities 88,787,530 9,040 88,796,570 Total Liabilities 94,432,235 27,992 94,460,227

Deferred Inflo-ws of Resources: 481,852 481,852 Net Position Net investment in capital assets 2,428,699 58,641 2,487,340 Restricted 66,361 66,361 Unrestricted (deficit) (41 ,698,320) 282,011 (41,416,309) Total Net Position $ (39,203,260) $ 340,652 $ (38,862,608)

The accompanying notes are an integral part of the financial statements.

- 12 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017

Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contnbutions Contnbutions Governmental Activities Instruction $19,616,388 $ 38,489 $ 6,090,102 $ Instructional student support 3,871 ,305 34,593 37,987 Administrative and financial support services 2,822,181 2,988,383 Operation and maintenance of plant services 1,920,805 Pupil transportation 869,246 183,876 Student activities 735,247 41,771 Corrnnunity services 27,446 Interest and debt related expens( 1,247,644 356,134 Refund ofprior year receipts 227 Total Goverrunental Activities 31,110,489 114,853 9,656,482

Business-type Activities Food service 909,929 273,234 666,986 Total Business-type Activities 909,929 273,234 666,986

Total Primary Government $32,020,418 $ 388,087 $10,323,468 $ ==== =

Property taxes, levied for general purposes, net Taxes levied for specific purposes Grants, subsidies, and contnbutions not restricted to specific programs Investment earnings Miscellaneous income Gain (loss) on disposal ofassets Extraordinary item Interfimd transfers Total general revenues and transfers

Change in Net Position

Net Position - Beginning ofYear

Net Position - End ofYear

The accompanying notes are an integral part of the financial statements.

- 13 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF ACTIVITIES (Continued} FOR THE YEAR ENDED JUNE 30, 2017

Net (Expense) Revenue and Changes in Net Position

Governmental Business-type Activities Activities Total

$ (13,487,797) $ - $ (13,487,797) (3 ,798,725) (3,798,725)

166,202 166,202

(1,920,805) (1 ,920,805) (685,370) (685,370) (693,476) (693,476) (27,446) (27,446) (891,510) (891 ,510) (227) (227) (21 ,339,154) (21 ,339,154)

30,291 30,291 30,291 30,291

(21,339,154) 30,291 (21 ,308,863)

15,912,434 15,912,434 1,795,355 1,795,355

19,354 19,354 8,872 43 8,915 510,404 510,404 (2,994) (2,994) (67,054) (67,054)

18,176,371 43 18,176,414

(3,162,783) 30,334 (3,132,449) (36,040,477) 310,318 (35,730,159)

$ (39,203,260) $ 340,652 $ (38,862,608)

The accompanying notes are an integral part of the financial statements.

- 14 - CATASAUQUA AREA SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017

Total Capital Debt Governmental General Projects Service Funds Assets and Deferred Outfloffl of Resources

Cash and cash equivalents $ 227,144 $ 62,968 $ - $ 290,112 Investments 335,000 335,000 Taxes receivable 564,142 564,142 Intergovernmental receivables 877,327 877,327 Other receivables 121 ,929 3,393 125,322 Total Assets 22125,542 66,361 2)91,903 Defen-ed Outflows ofResources Total Assets and Defen-ed Outflows of Resources $ 2.125,542 $ 66,361 $ - $ 2,191,903

Liabilities 2 Deferred Infloffl of Resources and Fund Balance Liabilities Accounts payable $ 478,523 $ - $ - $ 478 ,523 Accrned sala1ies and benefits 2,469,757 2,469,757 Payroll deductions payable 2,291 2,29 1 Compensated absences payable 148,572 148,572 Other liabilities Total Liabilities 3,099,143 3,099, 143

Deferred Inflows ofResources 445,345 445,345

Fund Balance Nonspendable Restricted Committed 66,361 66,361 Unassigned (1,418,946) (1 ,418,946) Total Fund Balances (1,418,946) 66,361 (1 ,352,585)

Total Liabilities, Deferred Inflows ofResources and Fund Balances $ 2,125,542 $ 66,361 $ - $ 2,19 1,903

The accompanying notes are an integral part of the financial statements.

- 15 - CATASAUQUA AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENT AL FUNDS BALANCE SHEET TO THE STA TEMENT OF NET POSITION AS OF JUNE 30, 2017

Total Fund Balances - Governmental Funds $ (1 ,352,585)

Amounts reported for governmental activities in the Statement ofNet Position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental fimds. The cost ofthe assets is $6 1,921,778 and the accIBnulated depreciation is $18,497,370. 43 ,424,408

Property taxes receivable will be collected this year, but are not available soon enough to pay for the cIBTent period's expenditures and are therefore deferred in the fimds. 427,493

Deferred outlflows and inflows ofresources related to pensions are applicable to future periods and, there fore, are not reported in the funds:

Deferred outflows ofresources related to pensions 10,094,516 Deferred inflows ofre sources related to pensions (464,000)

Long-tenn liabilities are not due and payable in the current pe1iod and therefore are not reported as liabilities in the fimds. These liabilities at year-end consist of

Bonds, notes, and capital leases payable 40,995,709 Accrued interest 402,106 Postemployrnent benefits 1,827,579 Net pension liability 47,525,000 Compensated absences 582,698 (91 ,333,092)

Total Net Position - Government Activities $ (39,203,260)

The accompanying notes are an integral part of the financial statements.

- 16 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2017

Total Capital Debt Govenunental General Projects Service Funds Revenues Local sources $ 18,584,643 $ 34,604 $ - $ 18,619,247 State sources 8,955,881 8,955,88 1 Federal sources 376,470 376,470 Total Revenues 27,916,994 34,604 27,951 ,598

Expe ncliture s Instruction 18,144,094 18,144,094 Support services 7,495,050 157,799 5,460 7,658,309 N oninstructional services 7 10,103 710, 103 Facilities construction & improvement 70,792 15,223 86,015 Debt service 3,343,519 3,343,519 Refund of prior year receipts 227 227 Total Expenditures 26,420,266 173,022 3,348,979 29,942,267 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,496,728 (138,418) (3,348,979) (1 ,990,669)

Other Financing Sources (Uses) Proceeds from refunding ofbonds Bond premiums Proceeds extended tenn financing 152,450 152,450 Transfers in 3,346,496 3,346,496 Sale of fixed assets 699 699 Debt service-refunded bonds Bond discounts Transfers out (3 ,346,496) (3,346,496) Total Other Financing Sources (Uses) (3 ,345,797) 152,450 3,346,496 153,149

Extraordinary items-loss 67,054 67,054

N et Change in Fund Balance (1 ,916,123) 14,032 (2,483) (1,904,574)

Fund Balances, Beginning ofYear 497,177 52,329 2,483 551 ,989

Fund Balances, End ofYear $ (1 ,418,946) $ 66,361 $ - $ (1 ,352,585) =====

The accompanying notes are an integral part of the financial statements.

- 17 - CATASAUQUA AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017

Net Change in Fund Balances - Governmental Funds $ (1 ,904,574)

Amounts reported for gmernmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation expense of$(1,423,591) exceeded capital outlays of$227,907. (1 ,195,684)

In the s tatement of activities, the gain/loss on the disposal ofassets is reported, whereas in the governmental funds, the proceeds from the sale increase financial resources. The change in net position differs from the change in fund balance by the cost of the disposed assets of$(31,875), net of related accumulated depreciatio n of$28,182. (3,693)

Some propetty taxes will not be collected for several months after year end, they are not considered as "available" revenues in the governmental funds. Deferred inflows increased by $46,156. 46,156

Issuance of long-tern, debt (e.g. bonds) provid es current finan cial resources to governmental funds, while the repayment of the p1in cipal oflong-tem1 debt consumes the current fmancial resources ofgove rnmental funds. How ever, neither transaction has an effect on net posit ion. Repayment o f note, bond and lease p1incipal is an expenditure in the governmental funds, but the repayment reduces long-tern, liabilities in the s tatement of net position. The effect of this tran saction in the s tatement is s hown below:

Proceeds extended tetm financing (152,450) Repayment ofdebt service principal 2,109,580 Note premium amortization 1,176 Bond discount amortization (26,945) 1,931,361

Governmental funds repo1t dist1ict pens ion contributions as expenditures. However in the Statement of Activities, the cost of pension re lated benefits earned net of employee cont1ibutions is reported as pension expense.

District pension contributions 3,546,516 Cost of pension benefits earned, net ofemp loyee contributions (5,348,799)

Some expenses reported in the s tatement of activities do not require the use ofc urrent financial resources and are not repo1ted as expenditures in governmental funds. These in clu de the net increase in compensated absences of$(3,406), the net (increase) in postemployment benefits of $(242,724), and the decrease of accrued interest of$12,064. (234,066)

Change in Net Position of Governmental Activities $ (3,162,783)

The accompanying notes are an integral part of the financial statements.

- 18 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2017

Food Service Fund Assets

Current Assets: Cash and cash equivalents $ 228,68 1 Intergovernmental receivables 70,862 Other receivables 1,516 Inventories 8,944 Total Current Assets 310,003

Noncurrent Assets: Machinery, equipment & furniture, net 58,641 Total N oncurrent Assets 58,641

Total Assets $ 368,644

Deferred Outflows or Resources

Liabilities

Current Liabilities: Accounts payable $ 5,378 Compensated absences payable 332 Unearned revenues 13,242 Total Current Liabilities 18,952

N oncurrent Liabilities: Compensated absences payable 9,040

Total Liabilities 27,992

Deferred Inflol\'S of Resources

Net Position

Net investment in capital assets 58,641 Unrestricted 282,011

Total Net Position $ 340,652

The accompanying notes are an integral part of the financial statements.

- 19 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION - PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017

Food Service Fund Operating Revenues

Food service revenue $ 258,065 Other operating revenues 15,169 Total Operating Revenues 273,234

Operating Expenses

Salaries 322,126 Employee benefits 160,185 Purchased property services 53 ,145 Other purchased services 1,854 Supplies 366,525 Depreciation 5,380 Other operating expenditures 714 Total Operating Expenses 909,929

Operating Income (Loss) (636,695)

Nonoperating Revenues

Earnings on deposits 43 State sources 86,705 Federal sources 580,281 Total N onoperating Revenues 667,029

Net (Loss) Before Operating Transfers 30,334

Operating transfers

Change in Net Position 30,334

Net Position- Beginning ofYear 310,318

Net Position- End ofYear $ 340,652

The accompanying notes are an integral part of the financial statements.

- 20 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017

Food Service Fund Cash Flo~ from Operating Activities: Cash received from users $ 257,490 Cash received from other operating revenues 16,234 Cash payinents to employees for services (482,652) Cash payinents to suppliers for goods and services (419,783) Cash payinents for other operating expenses (304) Net Cash (Used for) Operating Expenses (629,015)

Cash Flo~ from Non-Capital Financing Activities: Grants and subsidies received for non-operating activities: State sources 27,239 Federal sources 578,511 Net Cash Provided by Non-Capital Financing Activities 605,750

Cash Flo~ from Capital and Related Financing Activities: Purchase of machinery and equipment Net Cash (Used for) Capital & Related Financing Activities

Cash Flo~ from Investing Activities: Earnings on deposits 43 Net Cash Provided by Investing Activities 43 Net (Decrease) in Cash and Cash Equivalents (23,222) Cash and Cash Equivalents, Beginning ofYear 251,903

Cash and Cash Equivalents, End of Year $ 228,681

Reconciliation of Operating (Loss) to Net Cash (Used for) Operating Activities: Operating (Loss) $ (636,695) Adjustments to reconcile operating (loss) to net cash used by operating activities: Depreciation expense 5,380 (Increase) Decrease in accounts receivable (431) (Increase) Decrease in inventories (2,586) Increase (Decrease) in accounts payable 991 Increase (Decrease) in unearned revenue 3,366 Increase (Decrease) in noncurrent liabilities 960 Total Adjustments 7,680

Net Cash (Used for) Operating Activities $ (629,015) The accompanying notes are an integral paii of the financial statements.

- 21 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF NET POSITION FIDUCIARY FUNDS JUNE 30, 2017

Total Other Fiduciary Activi!Y Fiduciary Funds Assets

Cash and cash equivalents $ 89,916 $ 106,208 $ 196,124 Other current assets

Total Assets $ 89,916 $ 106,208 $ 196, 124

Deferred Outflo~ of Resources

Lia bill ties: Accounts payable $ - $ - $ Due to student organizations 89,916 89,916 Other current liabilities

Total Liabilities 89,916 89,916

Deferred lnflo~ of Resources

Net Position: Restricted for student scholarships 106,208 106,208 Total Net Position 106,208 106,208 Total Liabilities and Net Position $ 89,916 $ 106,208 $ 196,124

The accompanying notes are an integral part of the financial statements.

- 22 - CATASAUQUA AREA SCHOOL DISTRICT STATEMENT OF CHANGES IN NET POSITION FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017

Other Fiduciary Funds ADDITIONS

Gifts and contnbutions $ 5,076 Other additions

Total additions 5,076

DEDUCTIONS

Scholarships awarded 10,157 Other deductions 1 Total deductions 10,158

Change in Net Position (5,082)

Net Position Restricted for Student Scholarships - Beginning ofYear 111 ,290

Net Position Restricted for Student Scholarships - End ofYear $ 106,208

The accompanying notes are an integral pmi of the financial statements.

- 23 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies

The accounting policies and accompanying financial statements of the Catasauqua Area School District (the District) confonn to generally accepted accounting principles as applicable to governmental units. The District applies relevant Governmental Accounting Standards Board (GASB) pronouncements. Prop1ietary funds apply Financial Accounting Standards Board (F ASB) pronouncements, unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. The District has adopted all GASB pronouncements in effect as of June 30, 2017.

Principles Detennining Scope of Reporting Entity

The Board of School Directors, a nine-member group, has governance responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of the Catasauqua Area School Distiict, in accordance with an act established by the Commonwealth legislature. The Board receives funding from local, state and federal government sources and must comply with the concomitant requirements of these funding source entities.

In evaluating how to define the District, for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the financial reporting entity was made by applying the criteria set forth by GASB Statement 14, as amended. The criteria for including a potential component unit within the financial reporting entity is the significance of the potential component unit's operational or financial relationship with the Distiict. Based upon the application of these criteria, there are no component units to be included in the financial reporting entity of the District.

Government-wide and Fund Financial Statements

The goverrunent-wide financial statements include the statement of net position and the statement of activities, which report infonnation on all of the nonfiduciary activities of the District. For the most part, the effect of interfund activity has been removed from these statements. Goverrunental activities, which nonnally are supported by taxes and intergoverrunental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

- 24 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Government-wide and Fund Financial Statements (Continued)

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

Measurement Focus, Basis of Accounting. and Financial Statement Presentation

The govenunent-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Prope1iy 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.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the District considers revenues to be available if they are collected within sixty days of the end of the cmTent fiscal year. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt services expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Prope1iy taxes, intergovernmental revenues, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal year. All other revenue items are considered to be measurable and available only when cash is received by the District.

Net Position

Net position represents the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the Catasauqua Area School District or through external restrictions imposed by creditors, granters or laws or regulations of other governments.

The District applies restricted resources when an expense is incurred for purposes for which both restiicted and unrestricted net positions are available.

- 25 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued)

Fund Accounting

The District uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. There are three categories of funds: governmental, proprietary, and fiduciary.

Governmental Funds

Govenunental funds are those tlu·ough which most governmental functions are financed. Goverrunental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the vmious governmental funds according to the purpose for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the Disttict's major governmental funds:

The General Fund is the general operating fund of the District. Substantially all tax revenues, Federal and State aid (except aid restricted for use in the Special Revenue Fund) and other operating revenues are accounted for in the General Fund. This fund also accounts for expenditures and transfers as appropriated in the budget, which provides for the District's day-to-day operations.

The Capital Projects Fund accounts for resources used to construct or acquire fixed assets and capital improvements. Resources of the Capital Projects Fund are derived principally from operating transfers, long-tenn debt proceeds, and investment earnings.

The Debt Service Fund accounts for the accumulation of resources for, and payment of, interest and principal on long-tenn obligations.

Proprietary Fund

The Food Service Fund is the District's proprietary fund established to account for all revenues, food purchases, costs, and expenses for the food service.

The proprietary fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods. The principal operating revenue of the District is the sale of food to students and other related organizations. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

- 26 - CAT ASAUOUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued)

Fiduciary Funds

The agency and activity funds are established to administer resources received and held by the District in a fiduciary capacity for others. Use of these funds facilitates the discharge of responsibilities placed upon the District by virtue of law or other autho1ity. These funds are established to account for the resources of student groups and student scholarships, which are custodial in nature (assets equal liabilities) and do not involve measurement or results of operations.

Fund Balance

Fund balance is divided into five classifications based p1imarily on the extent to which the District is bound to observe constraints imposed upon the use of the resources in the governmental funds. The classifications are as follows:

Nonspendable - The nonspendable fund balance category includes amounts that cannot be spent because they are not in spendable fonn, or legally or contractually required to be maintained intact. The "not in spendable forn1" criteria includes items that are not expected to be converted to cash. It also includes the long-tenn amount of interfund loans.

Restricted - Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as debt covenants), grantors, contributors, or laws or regulations of other governments or is imposed by law through constitutional provisions or enabling legislation.

Enabling legislation authorizes the Distiict to assess, levy, charge, or otherwise mandate payment of resources (from external resource providers) and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation. Legal enforceability means that the District can be compelled by an external party - such as citizens, public interest groups, or the judiciary to use resources created by enabling legislation only for the purposes specified by the legislation.

Committed - The committed fund balance classification includes amounts that can be used only for the specific purposes imposed by fonnal action of the School Board. Those committed amounts cannot be used for any other purpose unless the School Board removes or changes the specified use by taking the same type of action it employed to previously c01mnit those amounts. In contrast to fund balance that is restricted by enabling legislation, c01mnitted fund balance classification may be redeployed for other purposes with approp1iate due process. Constraints imposed on the use of c01mnitted amounts are imposed by the School Board separate from the authorization to raise the

- 27 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued)

underlying revenue; therefore, compliance with these constraints is not considered to be legally enforceable. Committed fund balance also incorporates contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.

Assigned - Amounts in the assigned fund balance classification are intended to be used by the District for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the General Fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the General Fund, assigned amounts represent intended uses established by the School Board.

Unassigned - Unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not contained in the other classifications. In other governmental funds, the unassigned classification is used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned.

The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted ( committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, c01mnitted amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used.

Budgets and Budgetary Accounting

The District follows these procedures in establishing the budgetary data reflected in the financial statements:

1) In accordance with State law and District procedures, prior to May 31 , the District Superintendent and Business Manager submit to the Board of School Directors, with whom the legal level of budgetary control resides, a proposed budget for the fiscal year beginning the following July 1. The budget includes proposed expenditures and the means of financing them for the upcoming year. The only legally adopted budgets are for the General and Special Revenue Funds.

2) Public hearings are conducted to obtain taxpayer comment concerning the proposed budget.

3) Prior to June 30, the budget is legally enacted through passage of a resolution. Expenditures for the budget may not legally exceed appropriations and prior year fund balance reserves. This is done as a level of budgetary control.

- 28 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Budgets and Budgetary Accounting (Continued)

4) Each month the administration prepares a detailed budget report. The report cites the past month and year-to-date activity, as well as encumbrances and unencumbered balances by account.

5) All modifications, transfers and amendments must be approved by the Board of School Directors.

6) Fonnal budgetary integration is employed as a management control device during the year for the General Fund.

7) The budget for the General Fund is adopted substantially on the modified accrual basis of accounting, which is consistent with generally accepted accounting principles.

Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is employed in governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year.

Statement of Cash Flows

For purposes of the statement of cash flows, the proprietary fund type considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Cash and Investments

Statutes allow the District to invest in obligations of the U.S. Treasury and U.S. Agencies, savings accounts or time deposits of institutions insured by the FDIC (Federal Deposit Insurance Corporation) and deposits in excess of insured amounts if collateralized by the depository.

Prepaid Expenses

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements.

- 29 - CATASAUOUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Property Taxes

Property taxes are levied on July 1, on the assessed value listed as of that date for all taxable real property located in the District. Assessed values are established by the County's Board of Assessments. Taxable real property was assessed at $880,415,600, for the year ended June 30, 2017. The tax millage rate for the year was $16.8676 per $1,000 of assessed valuation in Lehigh County, and $53 .4413 per $1,000 of assessed valuation in Northampton County.

The property tax calendar for the fiscal year is as follows:

July 1 Levy Date July 1 to August 31 2% Discount Period September 1 to October 31 Face Payment Period November 1 to December 31 10% Penalty Period January 1 Lien Date

Inventory

Inventory in the General Fund consists of expendable supplies held for consumption. The cost is recorded as an expenditure at the time the individual inventory items are purchased.

Inventory of the Food Service Fund uses the consumption method, in which items are purchased for inventory and charged to expenses when used. Inventories are similarly reported in government-wide and fund financial statements.

Capital Assets, Depreciation and Amortization

Capital assets, which include property, plant, equipment, and infrastructure assets are reported in the applicable govenunental or business-type activities columns in the govenunent-wide financial statements. Capital assets are defined by the District as assets with an initial cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost. Donated capital assets are recorded at the estimated fair value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. When capital assets are disposed, the cost and applicable accumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recorded in the financial statements.

- 30 - CATASAUOUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Capital Assets, Depreciation and Amortization (Continued)

Property, plant, and equipment is depreciated using the straight line method over the following estimated useful lives:

Assets Years Buildings 50 Building improvements 20 Vehicles 8 Furniture, machinery and equipment 10 - 20 Computers 5

Compensated Absences

Sick leave and severance allowances are recorded as expenditures in the year paid. In the government-wide statements the total accumulated liability is recorded. Upon retirement, the District compensates employees for unused accumulated sick leave at the rate of $40.00 per day for support staff and $80.00 per day for administrative personnel provided that the employee has reached normal retirement within the District and has met the requirements of retirement with the Public School Employees' Retirement System.

District employees who are required to work a twelve-month schedule are credited with vacation rates which vary with length of service and job classification. 10 unused vacation days, per year, may be caITied over into future periods. Administrators max out at 40 days, support staff at 30 days.

Long-tenn Obligations

In the government-wide and proprietary fund financial statements, outstanding debt is reported as liabilities. Debt premiums and discounts are defe1Ted and amortized over the life of the debt using a method that approximates the effective interest method.

In the fund financial statements, governmental fund types recognize debt premiums and discounts, as well as debt issuance costs, during the cuITent period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Fund Equity

In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside patties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.

- 31 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL ST ATEMENTS (Continued) JUNE 30, 2017

NOTE 1 Summary of Significant Accounting Policies (Continued)

Use of Estimates

The preparation of financial statements in confonnity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from those estimates.

Transfers

Legally authorized payments or authorizations to make payments from a fund receiving revenue to a fund through which the resources are to be expended are reported as operating transfers.

NOTE 2 Deposits and Investments

The District's current investment policy is to place as much of the available funds into interest bearing accounts as feasible. Current cash requirements are kept in bank. The District does not pool cash of the various funds.

Deposits

The District requires all deposits and investments to be covered by federal depository insurance or to be fully collateralized by the financial institution issuing the investment or acquiring the deposit. Deposits that are not fully insured by the Federal Deposit Insurance Corporation are collateralized using the pooled asset method to 100% of value as required by Pennsylvania law. The secu1ities pledged as collateral are held by the trust department of a financial institution or by its agents in the financial institution's name.

The District's deposits are categorized to give an indication of the level of risk assumed by the District. The categories are described as follows:

Category I - Insured or collateralized with securities held by the District or by its agent in the District's name.

Category 2 - Collateralized with securities held by the pledging financial institution's trust department or agent in the District's name.

Category 3 - Uncollateralized.

- 32 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 2 Deposits and Investments (Continued)

Deposits (Continued)

As of June 30, 2017, the carrying amount of the District's deposits is$ 714,917 and the bank balance is$ 1,497,822. Of the bank balance,$ 250,000 is covered by federal depository corporation msurance.

Deposits, categorized by level of risk are:

Categories Bartle Carrying 1 2 3 Balance Amount

Cash $ 1,497,822 $ $ $ 1,497,822 $ 714,917

Investments

Auth01ized types of investments for the District funds are as follows:

a. United States Treasury Bills and Notes. b. Short-term obligations of the United States, its agencies or instrumentalities. c. Deposits in savings accounts or time deposits insured by the Federal Deposit Insurance Corporation or similar insurance and provided that approved collateral for public deposits is pledged by the depository for excess amounts over the insured maximum. d. Obligations of the United States and the Commonwealth of Pennsylvania or any of their agencies or instrumentalities backed by the full faith and credit of the United States, Commonwealth of Pennsylvania or political subdivisions. e. Shares of an investment company provided that the only investments of the company are in the investments listed in a) through d) above.

- 33 - CAT ASAUOUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 2 Deposits and Investments (Continued)

Investments (Continued)

Investments made by the District are summarized below. The investments that are represented by specific identifiable investment securities are classified as to credit risk by the three categories described below:

Category 1 - Insured or registered, or securities held by the District or its agent in the Dist1ict's name.

Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the District's name.

Category 3 - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the District' s name.

The District has an investment in 10. 76 acres of land, located on the west side of 14th Street, Borough of Catasauqua, Lehigh County, Pennsylvania.

Investments, categorized by level of risk, are:

Categories Fair Carrying 2 3 Value Amount

Land $ 335,000 $ $ $ 335,000 $ 335,000

NOTE 3 Taxes Receivable and Deferred Inflows

Property taxes are collected and remitted to the District by two local tax collectors and the District. Earned income taxes are collected and remitted to the District by an independent collection company.

In the governmental fund financial statements, property taxes receivable are recorded in the General Fund after the taxes are levied. At June 30, 2017, the receivables represent delinquent property taxes, as well as current earned income taxes and interim real estate taxes. Delinquent property taxes not paid within sixty days of June 30 are recorded as deferred inflows ofresources.

- 34 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 3 Taxes Receivable and Deferred Inflows (Continued)

In the goverrunent-wide financial statements, taxes receivable and related revenue include all amounts due to the District regardless of when cash is received. Over time, substantially all property taxes are collected.

NOTE 4 Interfund Receivable and Payable Balances, and Transfers

The District did not have any interfund receivables and payable balances at June 30, 2017.

NOTE 5 Intergovernmental Receivables and Unearned Revenue

Intergovernmental receivables are comprised of amounts due from the state and federal governments for grants and subsidies. Revenue is recorded as earned when eligibility requirements are satisfied. The receivable balance consisted of the following at June 30, 2017:

General Food Service Fund Frmd Total Federal grant revenues $ 101,067 $ 10,921 $ 111,988 State subsidy revenues 690,122 59,941 750,063 0 ther governments 86,138 86,138

Total $ 877,327 $ 70,862 $ 948,189

Unearned revenues in the Food Service Fund financial statements include grant revenues from donated commodities received from the federal goverrunent.

- 35 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 6 Capital Assets

Capital asset activity for the year ended June 30, 2017, was as follows:

Balance Balance 7/1/2016 Increases Decreases 6/30/2017 Governmental activities: Capital assets, not being depreciated: Land $ 1,700,300 $ - $ - $ 1,700,300 Total capital assets not being depreciated 1,700,300 1,700,300 Capital assets, being depreciated: Site improvements 1,632,987 1,632,987 Buildings and improvements 53,181,444 53,181,444 Furniture, equipment, and vehicles 5,211 ,015 227,907 (31,875) 5,407,047 Total capital assets being depreciated 60,025,446 227,907 (31,875) 60,22 1,478 Less accumulated depreciation for: Site improvements (1 ,180,566) (55,205) (1,235,771) Buildings and improvements (12,725,238) (1 ,018,721) (13,743,959) Furniture, equipment, and vehicles (3,196,157) (349,665) 28,182 (3,517,640) Total accwnulated depreciation (17,101,961) (1,423,591) 28,182 (18,497,370)

Total capital assets, being depreciated, net 42,923,485 (1 ,195,684) (3,693) 41 ,724,108

Government activities capital assets, net $ 44,623,785 $ (1,195,684) $ (3,693) $ 43,424,408

Business-type activities: Capital assets, being depreciated: Furniture and equipment $ 75,447 $ - $ - $ 75,447 Less accwnulated depreciation for: Furniture and equipment (11 ,426) (5,380) (16,806)

Business-type activities capital assets, net $ 64,021 $ (5,380) $ - $ 58,641

Depreciation expense was charged to functions ofthe District as follows: Governmental Activities Business-Tyµe Activities Instructional student support $ 1,311,587 Food service $ 5,380 Operation and maintenance 16,233 Pupil transportation 92,951 Student activities 2,820 Total Depreciation expense Governmental Activities $ 1,423,591

- 36 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 7 Long-Term Debt

The District issues general obligation bonds and notes to provide funds for the acquisition and construction of major capital facilities. General obligation bonds and notes have been issued for governmental activities only.

The following is a summary of the details of outstanding long-term debt as of June 30, 2017:

General Obligation Notes, Series of 2006, in the aggregate principal amount of $ 19,570,000, were issued February 1, 2006. Proceeds of the Notes will be used to currently refund the School District's February 15, 2006, interest payment and the August 15, 2006, principal payment on the General Obligation Bonds, Se1ies of 2002, to advance refund the School District's General Obligation Bonds, Series of 2003 and 2005, and paying the costs and expenses of issuing the Notes. The interest indebtedness is payable February 15, and August 15, with interest rates ranging from 3.20% to 5.00%. Maturity date is February 15, 2024.

General Obligation Bonds, Series of 2010, registered bonds, in the aggregate principal amount of $3 ,040,000, were issued December 15, 2010. Proceeds of the Bonds will be used to currently refund all of the School District's outstanding General Obligation Bonds, Series of 2002; currently refund a portion of the outstanding General Obligation Notes, Se1ies of 2006, and finance an interest payment due February 15, 2011; cmTently refund a portion of the outstanding General Obligation Notes, Series of2006A, and finance an interest payment due February 15, 2011, and to pay the costs of issuing and insuring the Bonds. The interest indebtedness is payable February 15 and August 15, with interest rates ranging from .54% to 3.125%. Maturity date is August 15, 2020.

General Obligation Bonds, Series of 2013, registered bonds, in the aggregate principal amount of $7,525,000, were issued January 8, 2013. Proceeds of the Bonds will be used to currently refund the remaining School Disttict's outstanding General Obligation Bonds, Series of 2007, and to pay the costs of issuing and insuring the Bonds. The interest indebtedness is payable February 15 and August 15, with interest rates ranging from 1.00% to 2.125%. Maturity date is August 15, 2022.

General Obligation Bonds, Series A of 2013, registered bonds, in the aggregate principal amount of $8,955,000, were issued March 15, 2013. Proceeds of the Bonds will be used to refund a portion of the remaining School District's outstanding General Obligation Bonds, Series of 2009, and to pay the costs of issuing and insuring the Bonds. The interest indebtedness is payable May 15 and November 15, with interest rates ranging from .60% to 3.00%. Maturity date is May 15, 2030.

- 37 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 7 Long-Term Debt (Continued)

General Obligation Bonds, Series of 2014, registered bonds, in the aggregate principal amount of$ 7,455,000, were issued April 10, 2014. Proceeds of the Bonds will be used to currently refund a portion of the School District's General Obligation Notes, Series A of 2006, and paying the costs and expenses of issuing the Bonds. The interest indebtedness is payable February 15, and August 15, with interest rates ranging from .30% to 4.125%. Maturity date is February 15, 2036.

General Obligation Bonds, Series of 2015, registered bonds, in the aggregate principal amount of$ 9,995,000, were issued December 14, 2015. Proceeds of the Bonds will be used to currently refund a portion of the School District's General Obligation Notes, Se1ies of 2006, and finance an interest payment due February 15, 2016, and to pay the costs and expenses of issuing the Bonds. The interest indebtedness is payable February 15, and August 15, with interest rates ranging from 1.00% to 4.00%. Maturity date is February 15, 2036.

General Obligation Bonds, Series of 2016, registered bonds, in the aggregate principal amount of$ 9,995,000, were issued February 12, 2016. Proceeds of the Bonds will be used to currently refund a portion of the School District's General Obligation Notes, Series of 2006, and finance an interest payment due February 15, 2016, and to pay the costs and expenses of issuing the Bonds. The interest indebtedness is payable February 15, and August 15, with interest rates ranging from 1.00% to 4.00%. Maturity date is February 15, 2036.

On July 4, 2014, the District entered into a lease-purchase agreement for the purchase of computer equipment. The capital lease requires four annual payments of$ 155,565, including principal and interest at 2.79% over 4 years.

On October 20, 2014, the District entered into a lease-purchase agreement for the purchase of transportation equipment. The capital lease requires sixty monthly payments of $1,412, including principal and interest at 2.442% over 5 years.

On November 20, 2014, the District entered into a lease-purchase agreement for the purchase of transportation equipment. The capital lease requires sixty monthly payments of $1 ,029, including principal and interest at 3. 7 5% over 5 years.

On December 28 , 2015, the District entered into a lease-purchase agreement for the purchase of transportation equipment. The capital lease requires sixty monthly payments of $4,145, including principal and interest at 3.18% over 5 years.

On November 30, 2016, the District entered into a lease-purchase agreement for the purchase of transportation equipment. The capital lease requires sixty monthly payments of $2,748, including principal and interest at 3.13% over 5 years.

- 38 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 7 Long-Term Debt (Continued)

The following is a summary of bonds, notes, and capital leases payable transactions of the District for the year ended June 30, 2017:

Balance Balance 7/1/2016 Additions Reductions 6/30/2017 G.O. Bonds, Notes and Leases Series of 2006 $ 405,000 $ - $ 5,000 $ 400,000 Series of 2010 605,000 115,000 490,000 Series of 2013 6,610,000 650,000 5,960,000 Series of 2013A 8,325,000 5 15,000 7,810,000 Series of 2014 6,800,000 580,000 6,220,000 Series of 2015 9,995,000 5,000 9,990,000 Series of 2016 9,995,000 5,000 9,990,000 Capital Lease 298,608 147,255 151,353 Capital Lease 54,189 15,797 38,392 Capital Lease 39,548 11,056 28,492 Capital Lease 204,749 43,891 160,858 Capital Lease 152,450 16,581 135,869

$ 43,332,094 $ 152,450 $ 2,109,580 $ 41,374,964

Add: Unamortized Premium 9,407 1,176 8,231

Less: Unamortized Discount (414,431) (26,945) (387,486)

Total $ 42,927,070 $ 152,450 $ 2,083,811 $ 40,995,709

- 39 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued} JUNE 30, 2017

NOTE 7 Long-Term Debt (Continued)

Debt Service Requirements

The annual debt service requirements to maturity for goverrunental-type general obligation bonds and notes including interest are as follows, as of June 30, 2017:

Year Ending June 302 Principal Interest Total 2018 $ 1,890,000 $ 1,188,966 $ 3,078,966 2019 1,930,000 1,153,132 3,083,132 2020 1,970,000 1,1 16,139 3,086,139 2021 2,020,000 1,069,255 3,089,255 2022 2,020,000 1,028,920 3,048,920 2023 2,065,000 985,453 3,050,453 2024 2,090,000 954,102 3,044,102 2025 2,150,000 893,297 3,043,297 2026 2,205,000 838,276 3,043,276 2027 2,265,000 780,220 3,045,220 2028 2,325,000 715,837 3,040,837 2029 2,395,000 647,512 3,042,512 2030 2 ,470,000 574,272 3,044,272 2031 1,990,000 496,412 2,486,412 2032 2,055,000 431,287 2,486,287 2033 2,125,000 361,831 2,486,83 1 2034 2,210,000 276,831 2,486,831 2035 2,295,000 188,431 2,483,431 2036 2,390,000 96,125 2,486,125

Total $ 40,860,000 $ 13,796,298 $ 54,656,298

The annual debt service requirements to maturity for goverrunental-type capital leases are as follows, as of June 30, 2017:

Year Ending June 3 0 2 Principal Interest Total 2018 $ 253,456 $ 14 ,120 $ 267,576 2019 105,320 6,691 112,011 2020 89,986 3,525 93,511 2021 52,567 1,139 53,706 2022 13,635 107 13,742

Total $ 514,964 $ 25,582 $ 540,546

- 40 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL ST A TEMENTS (Continued) JUNE 30, 2017

NOTE 8 Fund Balances

Fund balance is classified as nonspendable, restricted, committed, assigned and/or unassigned based primarily on the extent to which the District is bound to observe constraints imposed upon the use of the resources in the government funds. The constraints placed on fund balances for the major governmental funds and all other governmental funds are presented below:

Total Capital Debt Govenunental General Projects Service Funds Nonspendable (not in spendable fonn): Inveshnents-land $ $ $ $ Total Nonspendable

Resh--icted: Debt service payments Total Resh--icted

Go1mnitted: Capital equipment 66,361 66,361 Total Co1mnitted 66,361 66,361

Unassigned (1 ,418,946) (1 ,418,946)

Total Fw1d Balance $ (1,418,946) $ 66,361 $ $ (1 ,352,585) =====

NOTE 9 Accumulated Compensated Absences

Early Retirement Incentive

The District offers early retirement incentive programs to teachers, administrative and supervisory personnel. Payment shall be made only after the sum is included in the adopted budget of the District. In the event that the retiree dies prior to payment, it will be made posthumously in accordance with retirement policy.

Sick Leave

The District compensates employees for unused accumulated sick leave at the rate of $40.00 per day for support staff and $80.00 per day for administrative personnel provided that the employee has reached nonnal retirement within the District and has met the requirements of retirement with the Public School Employees' Retirement System.

- 41 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 9 Accumulated Compensated Absences (Continued)

Vacation

District employees who are required to work a twelve-month schedule are credited with vacation rates which vary with length of service and job classification. 10 unused vacation days, per year, may be canied over into future periods. Administrators max out at 40 days, support staff at 30 days. Unused vacation days are bought out at the per diem rate.

In the goverrunental funds financial statements, these accumulated leaves are recorded as expenditures in the period taken or as an accrued expenditure in the fiscal year of separation. Tennination compensation payable in future years is recorded in the goverrunent-wide financial statements.

The liability for compensated absences to employees as of June 30, 2017, is as follows:

Early retirement incentive $ Sick leave 591,738 Vacation time 148,572

Total $ 740,310

NOTE 10 Pension Plan

A. Summary of Significant Accounting Policies

For purposes of measming the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public School Employees' Retirement System (PSERS) and additions to/deductions from PSERS 's fiduciary net position have been detennined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contiibutions) are recognized when due and payable in accordance with the benefit tenns. Investments are reported at fair value.

General Information about the Pension Plan Plan description PSERS is a goverrunental cost-sharing multi-employer defined benefit pension plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania. The members eligible to participate in the System include all full -time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at www.psers.state.pa.gov.

- 42 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 10 Pension Plan (Continued) Benefits provided

PSER provides retirement, disability, and death benefits. Members are eligible for monthly retirement benefits upon reaching (a) age 62 with at least 1 year of credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010, (Act 120) preserves the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, 2011. Act 120 created two new membership classes, Membership Class T-E (Class T-E) and Membership Class T-F (Class T-F). To qualify for nonnal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of 3 years of service or attain a total combination of age and service that is equal to or greater than 92 with a minimum of 35 years of service. Benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member's final average salary (as defined in the Code) multiplied by the number of years of credited service. For members whose membership sta1ied ptior to July 1, 2011 , after completion of five years of service, a member's right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and Class T-F members, the right to benefits is vested after ten years of service.

Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member's final average salary ( as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the member would have had at nonnal retirement age. Members over nonnal retirement age may apply for disability benefits.

Death benefits are payable upon the death of an active member who has reached age 62 with at least one year of credited service (age 65 with at least three years of credited service for Class T-E and Class T-F members) or who has at least five years of credited service (ten years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death. Contributions

Member Contributions: Active members who joined the System prior to July 22, 1983, contribute at 5.25% (Membership Class T-C) or at 6.50% (Membership Class T-D) of the member's qualifying compensation.

Members who joined the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, contribute at 6.25% (Membership Class T-C) or at 7.50% (Membership Class T-D) of the member's qualifying compensation.

Members who joined the System after June 30, 2001, and before July 1, 2011, contribute at 7.50% (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, 2002.

- 43 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 10 Pension Plan (Continued)

Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7 .50% (base rate) of the member's qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.30% (base rate) of the member's qualifying compensation. Membership Class T-E and Class T-F are affected by a "shared risk" provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-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%.

Employer Contributions:

The school districts' contractually required contribution rate for fiscal year ended June 30, 2017, was 29.20% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the District were $ 3,546,516 for the year ended June 30, 2017.

B. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

At June 30, 2017, the District reported a liability of$47,525,000 for its prop01iionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System's total pension liability as ofJune 30, 2015, to June 30, 2016. The District's proportion of the net pension liability was calculated utilizing the employer' s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2016, the District's proportion was .0959 percent, which was an increase of .0048 percent from its proportion as of June 30, 2015.

For the year ended June 30, 2017, the District recognized pension expense of $5,348,799. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: DefeITed Outflows Deferred Inflows ofResOLrrces of Resources Difference between expected and actual experience $ $ 396,000 Changes ofAssrnnptions 1,716,000 Net difference between projected and actual investment earnings on pension plan 2,649,000 Changes in proportion 2,183,000 68,000 Contnbutions subsequent to the measurement date 3,546,516 Total $ 10,094,516 $ 464,000

- 44 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STA TEMENTS (Continued) JUNE 30, 2017

NOTE 10 Pension Plan (Continued)

$3,546,516 reported as deferred outflows of resources related to pensions resulting from District conttibutions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year ending June 30, 2018 1,320,000 2019 1,320,000 2020 2,026,000 2021 1,418,000

C. Changes in Actuarial Assumptions

The total pension liability as of June 30, 2016, was determined by rolling forward the System's total pension liability as of June 30, 2015, to June 30, 2016, using the following actuarial assumptions, applied to all periods included in the measurement:

Changes in assumptions used in measurement of the Total Pension Liability beginning June 30,2016

• The Investment Rate of Return was adjusted from 7.50% to 7.25%. • The inflation assumption was decreased from 3.00% to 2.75% • Salary growth changed from an effective average of 5.50%, which was comprised of inflation of 3.00%, real wage growth and for merit or seniority increases of 2.50%, to an effective average of 5.00%, comprised of inflation of 2.75% and 2.25% for real wage growth and for merit or seniority increases. • Mortality rates were modified from the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back 3 years for both males and females to the RP- 2014 M01iality Tables for Males and Females, adjusted to reflect PSERS' experience and projected using a modified version of the MP-2015 Mortality Improvement Scale. For disabled annuitants the RP-2000 Combined Disabled Tables (male and female) with age set back 7 years for males and 3 years for females to the RP-2014 Mortality Tables for Males and Females, adjusted to reflect PSERS' experience and projected using a modified version of the MP-2015 Mortality Improvement Scale.

The actuarial assumptions used in the June 30, 2016, valuation were based on the experience study that was performed for the five-year period ending June 30, 2015. The recommended assumption changes based on this expe1ience study were adopted by the Board at its June 10, 2016, Board meeting, and were effective beginning with the June 30, 2016, actuarial valuation.

- 45 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 10 Pension Plan (Continued)

The long-tenn expected rate of return on pension plan investments was detennined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-tenn expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

The pension plan's policy in regard to the allocation of invested plan assets is established and may be amended by the Board. Plan assets are managed with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension. Long-Tenn Expected Real Asset Class Target allocation Rate ofReturn

Global public equity 22.5% 5.3% Fixed income 28.5% 2.1% Commodities 8.0% 2.5% Absolute return 10.0% 3.3% Risk parity 10.0% 3.9% In:frastructure/MLPs 5.0% 4.8% Real estate 12.0% 4.0% Alternative inveshnents 15.0% 6.6% Cash 3.0% 0.2% Financing (LIBOR) - 14.0% 0.5% 100.0%

The above was the Board' s adopted asset allocation policy and best estimates of geometric real rates ofreturn for each major asset class as of June 30, 2016.

Discount Rate

The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to detennine the discount rate assumed that contributions from plan members will be made at the current contribution rate and the contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

- 46 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 10 Pension Plan (Continued)

Sensitivity of the District's proportionate share of the net pension liability to changes in the discount rate

The following presents the net pension liability, calculated using the discount rate of 7.25%, as well as what the net pension liability would be if it were calculated using a discount rate that is I-percentage point lower (6.25%) or I-percentage-point higher (8.25%) than the current rate: 1 % Decrease Current Discmmt Rate 1 % Increase 6.25% 7.25% 8.25% District's proportionate share of the net pension liability $ 58,136,000 $ 47,525,000 $ 38,609,000

Pension plan fiduciary net position

Detailed infom1ation about PSERS' fiduciary net position is available m PSERS Comprehensive Annual Financial Report which can be found on the System's website at www. psers.state. pa. gov.

NOTE 11 Postemployment Benefits Plan

Plan Description. Catasauqua Area School District's Postemployment Benefits Plan is a single-employer defined benefit healthcare plan administered by the District. The Plan provides medical, prescription drug, and dental insurance benefits to eligible retirees and their spouses. The Plan also provides life insurance to grand fathered retirees.

Funding Policy. The contribution requirements of plan members and the District are established and may be amended by the District. The required contribution is based on projected pay-as-you-go financing requirements.

Annual OPEB Cost and Net OPEB Obligation. The District's annual other postemployrnent benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC) , an amount actuarially detennined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover nonnal cost each year and amortize any unfunded actuarial liabilities ( or funding excess) over a period not to exceed thirty years.

- 47 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 11 Postemployment Benefits Plan (Continued)

The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District's net OPEB obligation to the Plan:

Annual required contribution $ 690,700 Interest on net OPEB obligation 71 ,318 Adjustment to annual required contnbution (97,297) Annual OPEB cost (expense) 664,721 Contnbutions made (421,997) Increase in net OPEB obligation 242,724 Net OPEB obligation- beginning of year 1,584,855 Net OPEB obligation - end of year $ 1,827,579

The Distiict's annual OPEB cost, the percentage of ammal OPEB cost contributed to the plan, and the net OPEB obligation for 2017 were as follows:

Year Annual Annual OPEB OPEB Ended OPEB Cost Cost Contributed Obligation

June 30, 2017 $664,721 63.5% $242,724

Funded Status and Funding Progress. As of July 1, 2015, the most recent actuarial valuation date, the plan was 0% funded. The actuarial accrued liability for benefits was $6,574,221 and the actuarial value of assets was $ -0-, resulting in an unfunded actuarial accrued liability (UAAL) of $6,574,221. The covered payroll (annual payroll of active employees covered by the plan) was $10,757,283, and the ratio of the UAAL to the covered payroll was 61.11 %.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occun-ence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts detennined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend infonnation about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

- 48 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 11 Postemployment Benefits Plan (Continued)

Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types ofbenefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-tenn volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-tenn perspective of the calculations.

In the July 1, 2015, actuarial valuation, the entry age nonnal actuarial cost method was used. The actuarial assumptions included a 4.5% investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 6.0% in 2015, and a rate of 5.5% in 2016 through 2020. The actuarial value of assets was dete1mined using the market value of investments. The UAAL is being amortized as a level dollar basis. The remaining amortization period at July 1, 2015, was thirty years.

NOTE 12 Litigation and Claims

Vaiious other claims and lawsuits are pending against the District. Defenses are being conducted by counsel for the District or the insurance carrier, and losses, if any, are not anticipated to have a significant effect on the District's financial statements.

NOTE 13 Contingencies

The District paiiicipates in a number of state and federally assisted grant programs. These programs are subject to compliance audits by the grantors or their representatives. The audits of these programs including the year ended June 30, 2017, have not yet been conducted. Accordingly, the District's compliance with applicable grant requirements will be established at some future date. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the District expects such amounts, if any, to be immaterial.

NOTE 14 Joint Ventures

The District is a participating member of the Lehigh Career and Technical Institute (the Institute). The Institute is governed by a joint board consisting of school directors from each member district. The board of directors from each member district must approve the Institute's annual operating budget. Each member district participates in the operating, capital, debt service and other costs of the Institute based on the number of students attending the Institute from each

- 49 - CATASAUQUA AREA SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (Continued) JUNE 30, 2017

NOTE 14 Joint Ventures (Continued) district. For the year ended June 30, 2017, the District's share was$ 778,416. The Institute issues separate financial statements which are available to the public.

The District also participates with the Lehigh Carbon Community College (the College) and the Carbon Lehigh Intermediate Unit (the Unit). The Distiict's involvement is limited to District member representatives serving on committees of the Boards of the College and the Unit as well as approving their annual budgets. The Distiicts shares in the operating, capital and other costs of the College and Unit, which amounted to $ 174,993 and $ 24,859 respectively, for the year ended June 30, 2017. The College and the Unit issue separate financial statements, which are available to the public.

NOTE 15 Risk Management

Significant losses are covered by commercial insurance for all major programs. There has been no significant reduction in insurance coverage's. Settlement amounts have not exceeded insurance coverage's for the current year or the three prior years.

NOTE 16 Deficit Fund Equity, Expenditures and Appropriations

The General Fund had a deficit fund balance as of June 30, 2017.

The General Fund's; Regular Programs, Special Programs, Instructional Staff Services, Other Support Services, Facilities Acquisition, Construction and Improvements, and Refund of Prior Year Receipts budget categories had expenditures in excess of budgeted appropriations for the year ended June 30, 2017.

NOTE 17 Subsequent Events

Subsequent events have been evaluated through December 14, 2017, which was the date the financial statements were available to be issued.

- 50 - CATASAUQUA AREA SCHOOL DISTRICT REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED JUNE 30l 2017 (An Integral Part of the Financial Statements)

Variance With Actual Final Budget Budgeted Amounts Budgetary Positive Original Final Basis (Negative) Revenues Local sow·ces $ 19,161 ,522 $ 19,161,522 $ 18,584,643 $ (576,879) Sta te sow-ces 9,28 1,805 9,28 1,805 8,955,881 (325,924) Federal sow-ces 473,098 473,098 376,470 (96,628) Total Revenues 28,916,425 28,916,425 27,9 16,994 (999,43 1) Ex~enditures Regular programs 12,073,142 12,073, 142 12, 170,003 (96,861) Special programs 4,462,998 4,462,998 4,983,497 (520,499) Vocational programs 805,870 805,870 778,4 16 27,454 Other instructional programs 70,326 70,326 30,272 40,054 Nonpublic school programs 8,626 8,626 6,913 1,713 Higher education programs 174,993 174,993 174,993 Pupil personnel services 997,55 1 997,551 974,668 22,883 Instructional staff services 1,113,152 1,113,152 1,1 21,830 (8,678) Administrative services 2,076,236 2,076,236 2,069,749 6,487 Pupil health 277,102 277,102 268,297 8,805 Business services 480,701 480,701 455,771 24,930 Operation & maintenance of plant services 1,986,928 1,986,928 1,808,218 178,7 10 Student transportation services 909,500 909,500 722,728 186,772 Central & other support services 55,577 55,577 48,930 6,647 Other support services 23,745 23,745 24,859 (1,114) Student activities 71 1,746 71 1,746 682,657 29,089 Community services 28,927 28,927 27,446 1,481 Fae acq, construction, and improvements 70,792 (70,792) Debt service (principal and interest) 3,089,684 3,089,684 3,089,684 Refund of prior year receipts 227 (227) Total Expenditw-es 29,346,804 29,346,804 26,420,266 2,926,538

Excess (deficiency) of revenues over expenditures (430,379) (430,379) 1,496,728 1,927,107

Other financing sources (uses} Sale of fixed assets 650,000 650,000 699 (649,30 1) Interfund transfers - out (2 19,621) (219,621) (3,346,496) (3,126,875) Total other fmancing sow·ces (uses) 430,379 430,379 (3,345,797) (3,776,176) Extraordinary items - loss (67,054) (67,054)

Net Change in Fund Balance (1 ,916,123) (1,916,123) Fund Balance - Beginning of Year 1,181,674 1,181,674 497,177 (684,497) Fund Balance - End of Year $ 1,18 1,674 $ 1,1 81,674 $ (1 ,41 8,946) $ (2,600,620)

- 51 - CATASAUOUA AREA SCHOOL DISTRICT POSTEMPLOYMENT BENEFITS PLAN REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (An Integral Part of the Financial Statements)

Actuarial Accrued UAAL as a Actuarial Liability- Un:fimded Percentage Actuarial Value Entry Age N onnal AAL Funded Covered ofCovered Valuation ofAssets (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b - a) (alb) (c) ((b-a)/c)

7/1 /2011 $ - $ 5,449,418 $ 5,449,418 n/a $ 10,274,068 53.0% 7/1/2012 Infonnation not available 7/1/2013 - $ 5,578,881 $ 5,578,881 n/a $ 10,160,267 54.9% 7/1/2014 Infonnation not available 7/1/2015 $ 6,574,221 $ 6,574,221 1v'a $ 10,757,283 61.1% 7/1/2016 Infonnation not available

- 52 - CATASAUQUA AREA SCHOOL DISTRICT POSTEMPLOYMENT BENEFITS PLAN REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS (An Integral Part of the Financial Statements)

Annual Contnbutions Year Ending Required from Percentage Jlll1e 30, Contnbution Employer Contnbuted

2012 $ 599,298 $ 387,684 64.7% 2013 $ 599,298 $ 415,598 69.3% 2014 $ 604,761 $ 432,414 71.5% 2015 $ 604,761 $ 386,487 63.9% 2016 $ 690,700 $ 471,661 68.3% 2017 $ 690,700 $ 421 ,997 61.1 %

The infonnation presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows.

Postemployment Benefit Plan

Valuation date: 7/1 /2015

Actuarial cost method: Entry age normal

Amortization method: Level dollar

Remaining amortization period: 30Years

Asset valuation method: NIA

Actuarial assumptions: Investment rate of return 4.50% Projected salary increases 3.50% and a merit increase which varies by age from .25% to 2.75% Includes Inflation Based on the Society of Actuaries Long Run Medical Cost Trend Model

- 53 - CATASAUQUA AREA SCHOOL DISTRICT PENSION PLAN REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY (An Integral Part of the Financial Statements)

Last 10 Fiscal Years*

Jlll1e 30, 2017 JLIDe 30, 2016 June 30, 2015 June 30, 2014

District's proportion of the net pension liability 0.0959% 0.0911 % 0.0891 % 0.0895%

District's proportionate share ofthe net pension liability $ 47,525,000 $ 39,461,000 $ 35,267,000 $ 36,638,000

District's covered-employee payroll ** $ 12,414,110 $ 11,719,792 $ 11 ,368,202 $ 11,484,650

District's prop01iionate share of the net pension liability as a percentage ofits covered-employee payroll 382.83% 336.70% 310.23% 319.02%

Plan fiduciary net position as a percentage ofthe total pension liability 50.1 4% 54.36% 57.24% 54.49%

Ainow1ts were dete1mined as ofthe cost-sharing plan's June 30, 2016, fiscal year.

* 1his schedule is presented to illustrate the requirement to show infonnation for 10 years. However, lll1til a full 10-year trend is complete, available infonnation is presented.

** District's covered-employee payroll for this schedule was furnished by PSERS, and is a year behind.

- 54 - CATASAUQUA AREA SCHOOL DISTRICT PENSION PLAN REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF DISTRICT CONTRIBUTIONS (An Integral Part of the Financial Statements)

Last 10 Fis cal Years*

JW1e 30, 2017 June 30, 2016 June 30, 2015 JLme 30, 2014

Contractually required contnbution 3,546,516 3,032,799 2,332,942 1,775,000

Contnbutions in relation to the contractually required contnbution (3,546,516) (3,032,799) (2,332,942) (1,775,000)

Contnbution deficiency (excess)

District's covered-employee payroll 12,145,603 12,414,110 11 ,7 19,792 11 ,368,202

Contributions as a percentage of covered-employee payroll 29.20% 24.43% 19.91% 15.61%

Amounts are based on actual contnbutions during the fiscal year.

* This schedule is presented to illustrate the requirement to show infonnation for 10 years. However, tmtil a :foll I 0-year trend is complete, available infonnation is presented.

- 55 - CATASAUQUA AREA SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2017

Pass Federal Through Grant Period Program Source CFDA Grantor's Beginning / or Award Program Title Code Nrnnber NIBnber Ending Date Amount U.S. De2t. of Agriculture Passed through PA De2t. ofEducation: National School Lunch I 10.555 NIA 7/ 1/15 - 6/30/16 NIA National School Lunch I 10.555 NIA 7 / 1/16 - 6/30/17 NIA National School Breakfast I 10.553 NIA 7 /1/15 - 6/30/16 NIA National School Breakfast I 10.553 NIA 7 /1/16 - 6/30/17 NIA Passed through PA De2t. ofAgriculture: National School Lunch I 10.555 NIA 7/1/16 - 6/30/17 NIA Total U.S. Dept. of Agriculture

U.S. De2t. ofEducation Passed through PA De2t. ofEducation: ESEA - Title I I 84.010 13-160066 7 /1/15 - 9/30/ 16 $ 320,330 ESEA - Title I I 84.0 I 0 13-170066 7 /1/ 16 - 9/30/ 17 $ 309,674 Title II I 84.367 20-160066 7 /1/15 - 9/30/ 16 $ 57,962 Title II I 84.367 20- 170066 7/1/ 16 - 9/30/17 $ 56,474 Passed through Carbon Lehigh I.U.: IDEA - Part B, Section 6 11 I 84.027 H027Al50093 7/ 1/ 15 - 9/30/ 16 $ 307,534 IDEA - Part B, Section 611 I 84.027 H027 A 160093 7/ 1/16 - 9/30/17 $ 312,645 IDEA - Part B, Section 619 I 84.173 H1 73A 150090 7 / 1/15 - 6/30/ 16 $ 1,126 IDEA - Part B, Section 619 I 84.173 H173Al 60090 7 / 1/16 - 6/30/ 17 $ 2,994 Title III - English Language I 84.365 NIA 7 / 1/15 - 6/30/ 16 NIA Title III - English Language I 84.365 NIA 7/1/16 - 6/30/17 NIA Total U.S. Dept. ofEducation

U.S. De2t. of Health & Hwnan Services Passed through PA De2t. ofPublic Welfure: Medicaid Administrative Claiming I 93.778 NIA 7 / 1/15 - 6/30/16 NIA Medicaid Administrative Claiming I 93.778 NIA 7 /1/16 - 6/30/17 NIA Passed through PA De2t. ofEducation: Adolescent Health I 93.079 NIA 7/1/13 - 6/30/18 $ 5,600 Passed through Carbon Lehigh LU.: Access Program-Transportation I 93.778 NIA 7 /1/13 - 6/30/15 NIA Total U.S. Dept. ofHealth & Hrnnan Services

Total Federal Assistance

Source Codes: I - Indirect Funding D - Direct Funding Note: There were no federal awards passed through by the District to subrecipients. See notes to the Schedule of Expenditures of Federal Awards.

- 56 - CATASAUQUA AREA SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) YEAR ENDED JUNE 30, 2017

Accrued or Accrued or Total (Deferred) (Deferred) Received Revenue at Revenue Revenue at fur the Year 7/ 1/16 Recognized Expenditures 6/30/17

$ 7,758.00 $ 7,758.00 $ $ $ 441 ,633.00 450,608.00 450,608.00 8,975.00 1,393.00 1,393.00 70,217.00 72,163.00 72,163.00 1,946.00

59,943.00 (2,866.00) 57,5 10.00 57,510.00 (5,299.00) 580,944.00 6,285.00 580,281.00 580,281.00 5,622.00

63,193.00 63,193.00 230,101.00 309,674.00 309,674.00 79,573.00 11 ,525.00 11,525.00 41,601.00 56,474.00 56,474.00 14,873.00

81 ,021.00 8 1,021.00 229,501.00 312,645.00 312,645.00 83,144.00 1,126.00 1,126.00 2,994.00 2,994.00 2,994.00 502.00 502.00 2,892.00 2,892.00 2,892.00 661,462.00 157,367.00 684,679.00 684,679.00 180,584.00

7,042.00 7,042.00 1,636.00 8,257.00 8,257.00 6,621.00

5,600.00 5,600.00 5,600.00

2,065.00 2,065.00 2,065.00 16,343.00 7,042.00 15,922.00 15,922.00 6,621.00

$ 1,258,749.00 $ 170,694.00 $ 1,280,882.00 $ 1,280,882.00 $ 192,827.00

Total Federal Expenditures $ 1,280,882.00

See notes to the Schedule of Expenditures of Federal Awards.

- 57 - CATASAUOUA AREA SCHOOL DISTRICT NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2017 NOTE 1 Summary of Significant Accounting Policies

Basis of Accounting

The revenues and expenditures recognized on this schedule are reported on the accrual basis of accounting. Such revenues and expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Catasauqua Area School District has elected not to use the 10 percent de minimis indirect cost rate allowed under the Unifonn Guidance.

Inventory

It is the policy of Catasauqua Area School District to expense the value of all donated commodities used during the year. Recognition is given to inventories of donated goods on hand at year-end on this schedule.

NOTE 2 Federal Revenue Summary

The following is a summary of federal revenue by CFDA number:

10.553 $ 72,163 10.555 508,118 84.010 309,674 84.027 312,645 84.173 2,994 84.365 2,892 84.367 56,474 93.079 5,600 93.778 10,322

Total $ 1,280,882

NOTE 3 Schedule Presentation

The accompanying schedule of expenditures of federal awards includes the federal award activity of Catasauqua Area School District under programs of the federal government for the year ended June 30, 2017. The infonnation in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of Catasauqua Area School District, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Catasauqua Area School District.

- 58 - CATASAUOUA AREA SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2017

SECTION I - SUMMARY AUDITORS' RESULTS

Financial Statements

Type of auditors' repo11 issued: Unmodified

Internal control over financial reporting: Material weakness( es) identified? NO Reportable condition(s) identified not considered to be material weaknesses? NONE

Noncompliance material to financial statements noted? NO

Federal A wards

Internal control over major programs: Material weakness( es) identified? NO Reportable condition(s) identified not considered to be material weaknesses? NONE

Type of auditors' repor1 issued on compliance for major programs? Unmodified

Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? NO

Major programs: CFDA No. Name ofFederal Program 84.010 Title I Grants to Local Educational Agencies

Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000

Auditee qualified as low risk auditee? YES

- 59 - CATASAUQUA AREA SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) YEAR ENDED JUNE 30, 2017

SECTION II - FINANCIAL STATEMENT FINDINGS NONE

SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS NONE

SUMMARY OF PRIOR AUDIT FINDINGS NONE

- 60 - FRANCE, ANDERSON, BASILE and CC)MP ANY, P.C CERTIFIED PUBLIC ACCDUNTANTS

903 Chestnut Street 610-967-1200 Phone Emmaus, Pennsylvania 18049 610-966-6669 Fax www.fabandco.com

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of School Directors Catasauqua Area School District Catasauqua, Pennsylvania

We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the govenunental activities, the business-type activities, each major fund, and the aggregate remaining fund infonnation of the Catasauqua Area School District, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Catasauqua Area School District's basic financial statements, and have issued our report thereon dated December 14, 2017.

Internal Control over Financial Reporting

In planning and perfonning our audit of the financial statements, we considered the Catasauqua Area School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Catasauqua Area School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the Catasauqua Area School District's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of perfonning their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and con-ected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

- 61 - Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Catasauqua Area School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts, and grarit agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Emmaus, Pennsylvania December 14, 2017

- 62 - FRANCE, ANDERSON, BASILE and CDMPANY, P.C CERTIFIED PUBLICACCDUNTANTS

903 Chestnut Street 610-967-1200 Phone Emmaus, Pennsylvania 18049 610-966-6669 Fax www.fabandco.com

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE

To the Board of School Directors Catasauqua Area School District Catasauqua, Pe1msylvania

Report on Compliance for Each Major Federal Program

We have audited Catasauqua Area School District's compliance with the types of compliance requirements described in the 0MB Compliance Supplement that could have a direct and mate1ial effect on each of the Catasauqua Area School District's major federal programs for the year ended June 30, 2017. Catasauqua Area School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs.

Management's Responsibility

Management is responsible for compliance with federal statutes, regulations, and the tenns and conditions of its federal awards applicable to its federal programs.

Auditors' Responsibility

Our responsibility is to express an opinion on compliance for each of the Catasauqua Area School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code ofFederal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Unifonn Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Catasauqua Area School District's compliance with those requirements and perfonning such other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Catasauqua Area School District's compliance.

- 63 - Opinion on Each Major Federal Program

In our opinion, the Catasauqua Area School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and mate1ial effect on each of its major federal programs for the year ended June 30, 2017.

Report on Internal Control over Compliance

Management of the Catasauqua Area School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Catasauqua Area School District's internal control over compliance with the types ofrequirements that could have a direct and material effect on each major federal program to detennine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Unifonn Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Catasauqua Area School District's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the nonnal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that mate1ial noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A sign(ficant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

~-~ .... :.:~Z-- ._.,,,:,:;.; ,,.::>~~ ,-·~.

Emmaus, Pennsylvania December 14, 2017

- 64 - CATASAUQUA AREA SCHOOL DISTRICT SCHEDULE OF RECEIPTS AND DISBURSEMENTS - ACTIVITY FUND ACCOUNTS YEAR ENDED JUNE 30, 2017

Balance Balance 7/1/16 Recei12ts Disbmsements 6/30/17 Alva R. Davies Art Scholarship * $ 5,912 $ $ 251 $ 5,661 Catasauqua Alwlll1i Scholarship * 16,124 500 15,624 Art Club 151 151 Band-Concert, Ja72 1,569 1,000 2,569 Brown & White 84 200 284 Cata. Community Partnership * 15,650 15,650 Cheerleaders 162 58 220 CHS Green Team 713 713 Chorus, High School 6,533 6,533 Chorus, Middle School 763 763 Dennis Baclunan Award * Dennis Snell Memorial Scholarship * 271 150 121 8th Grade Celebration 24 24 Elementary General Fund 18,485 13,080 10,089 21 ,476 Gennan Club 1,173 1,655 1,586 1,242 Interest 42 42 Frank Snyder Memorial * 7,298 200 7,098 Hanna Kowaleski Scholarship * 150 100 50 Joseph Gahn Science Ed. * 1,068 201 867 Middle School Library 552 3,416 3,515 453 Middle School 10,638 48,047 57,517 1,168 Charles Gallagher Award * 667 100 567 Ken & Shirley Wotring Memorial * 32,069 32,069 Michael Brosky Memorial * 74 126 200 National Honor Society 524 3,058 1,269 2,313 NSF Collections 424 22 446 Expenses Paid by Students 2,451 2,451 Spengler/Bernadine Wehr Memorial * 3,254 1,000 500 3,754 SADD 414 343 137 620 Sage Stauffer Memcnial Scholarship * 5,901 500 5,401 Scholarship Fund * 3,000 3,000 Sr. Dra1na Society 10,621 20,744 11,285 20,080 Student Council 1,876 3,541 3,132 2,285

- 65 - CATASAUQUA AREA SCHOOL DISTRICT SCHEDULE OF RECEIPTS AND DISBURSEMENTS - ACTIVITY FUND ACCOUNTS {Continued} YEAR ENDED JUNE 30, 2017

Balance Balance 7/1 /16 Recen2ts Disbursements 6/30/ 17

Student Store - CMS 7,178 3,342 3,285 7,235 Varsity "C" Club 8,248 12,213 11,216 9,245 Vincent Suppan Music Scholarship * 1,500 200 1,300 Walter Schlener Memorial Award * 725 200 525 Whitehead Scholarship Fund * 3,961 2,000 1,961 Whitehead Program Fund 1,950 528 1,422 Year Book 1,406 5,931 5,650 1,687 Class of 2017 4,624 6,826 10,337 1,113 Class of2018 2,415 13,730 10,696 5,449 Class of 2019 80 2,019 991 I, 108 Class of 2020 2,588 1,963 625 Class of202 l 100 100 Class of 193 7 Scholarship * 1,523 125 1,398 Class of 1956 Scholarship * 4,501 750 500 4,751 Class ofl 959 Scholarship * 2,067 500 1,567 Class of2002 Scholarship * 20 20 Class of2008 Scholarship * 670 200 470 Class of2010 Scholarship * 131 131 Class of2014 Scholarship * 1,592 200 1,392 Class of1951 Scholarship * 1,901 100 1,801 Class of 1958 Scholarship * 1,475 175 200 1,450 Class of 1961 Scholarship * 400 25 100 325 Sheckler Student Store 724 994 1,168 550 Stacey K . Bendzlowicz Scholarship * 2,386 2,386 TOTAL 192,621 150,476 146,973 196,124 Less: Scholarship Funds * (111 ,290) (5,076) (10,158) (106,208) TOTAL $ 81,331 $ 145,400 $ 136,8 15 $ 89,916

- 66 -