PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 24, 2012

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without notice. The Bonds 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 Bonds 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. PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 24, 2012 NEW ISSUE BOOK-ENTRY ONLY RATINGS: S&P: (Underlying) (See Ratings herein) In the opinion of Bond Counsel, under existing statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation 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 corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. This opinion of Bond Counsel is subject to continuing compliance by the School District with its covenants in the Resolution and other documents to comply with requirements of the Internal Revenue Code of 1986, as amended, and applicable regulations thereunder. Bond Counsel is also of the opinion that under the laws of the Commonwealth of Pennsylvania as presently enacted and construed, the Bonds are exempt from personal property taxes in the Commonwealth of Pennsylvania and the interest on the Bonds is exempt from the Commonwealth of Pennsylvania Personal Income Tax and the Commonwealth of Pennsylvania Corporate Net Income Tax. The Bonds are "qualified tax-exempt obligations", for purposes and effect contemplated by Section 265 of the Internal Revenue Code of 1986, as amended (relating to expenses and interest relating to tax-exempt income of certain financial institutions). For further information concerning federal and state tax matters relating to the Bonds, see "Tax Exemption and Other Tax Matters" herein. $10,000,000* AVON GROVE SCHOOL DISTRICT Chester County, Pennsylvania $2,115,000* General Obligation Bonds, Series of 2012 $7,885,000* General Obligation Bonds, Series A of 2012 Dated: Date of Delivery Principal Due: Initially on May 15, 2013, thereafter on November 15 as shown on inside cover Interest Due: May 15 and November 15 First Interest Payment: May 15, 2013 The Bonds described herein are in the aggregate principal amount of $10,000,000* and consist of $2,115,000* General Obligation Bonds, Series of 2012 (the 2012 Bonds ) and $7,885,000* General Obligation Bonds, Series A of 2012 (the Series 2012A Bonds ). The 2012 Bonds and the 2012A Bonds are collectively referred to as the "Bonds". The Bonds will be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company ("DTC"), New York, New York. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof only under the book-entry only system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. If, under the circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of transfer, exchange and payment as described herein. The Bonds are general obligations of the Avon Grove School District, Chester County, Pennsylvania (the "School District"), payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its revenues or funds the principal of every Bond and the interest thereon on the dates, at the place and in the manner stated in the Bonds, 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, which taxing power presently includes the power to levy ad valorem taxes on all taxable real property within the School District (But see Security and The Taxpayer Relief Act herein). Interest on each of the Bonds is payable initially on May 15, 2013, and thereafter semiannually on May 15 and November 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. The School District has appointed U.S. Bank National Association (the Paying Agent ), as paying agent and sinking fund depository for the Bonds. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds, when due for payment, will be made directly to DTC by the Paying Agent, and DTC will in turn remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. If the use of the Book-Entry Only System for the Bonds is ever discontinued, the principal of and redemption premium, if any, on each of the Bonds will be payable, when due, upon surrender of such Bond to the Paying Agent at its principal corporate trust office presently located in Philadelphia, Pennsylvania (or any successor paying agent at its designated office(s)) and interest on such Bond will be payable by check made out and mailed to the person(s) in whose name(s) such Bond is registered as of the Record Date with respect to the particular interest payment date (See THE BONDS, infra). The Bonds are subject to redemption prior to maturity as described herein. Proceeds of the 2012 Bonds will be used to currently refund the School District s General Obligation Bonds, Series of 2007 and pay costs and expenses of issuing of the 2012 Bonds. Proceeds of the 2012A Bonds will be used to currently refund a portion of the School District s General Obligation Bonds, Series A of 2007 and pay related costs and expenses of issuing of the 2012A Bonds. The Bonds are an authorized investment for fiduciaries in the Commonwealth of Pennsylvania pursuant to the Pennsylvania Probate, Estate and Fiduciaries Code, Act of June 30, 1972, No. 164, P.L. 508, as amended and supplemented. MATURITIES, AMOUNTS, RATES AND YIELDS As Shown on Inside Front Cover The Bonds 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 Kegel Kelin Almy & Lord LLP, Lancaster, Pennsylvania, Bond Counsel, to be furnished upon delivery of the Bonds. Certain other legal matters will be passed upon for the School District by Unruh, Turner, Burke & Frees, P.C., of West Chester, Pennsylvania, School District Solicitor. Public Financial Management, Inc., Harrisburg, Pennsylvania, serves as Financial Advisor to the School District in connection with the issuance of the Bonds. It is expected that the Bonds will be available for delivery in New York, New York, on or about October 23, Public Financial Management, Inc. Financial Advisor to the School District Dated: *Estimated, subject to change.

2 $10,000,000* AVON GROVE SCHOOL DISTRICT Chester County, Pennsylvania Dated: Date of Delivery Principal Due: Initially on May 15, 2013, thereafter on November 15 as shown below Interest Due: May 15 and November 15 First Interest Payment: May 15, 2013 BOND MATURITY SCHEDULE FOR: $2,115,000* General Obligation Bonds, Series of 2012 Maturity Date (May 15) Principal Interest Initial Offering Year Amounts Rates Yields 2013 Maturity Date (November 15) Principal Interest Initial Offering Year Amounts Rates Yields (A portion of the Bonds may be structured as Term Bonds. See "Invitation to Bid".) *Estimated, subject to change.

3 $10,000,000* AVON GROVE SCHOOL DISTRICT Chester County, Pennsylvania Dated: Date of Delivery Principal Due: Initially on May 15, 2013, thereafter on November 15 as shown below Interest Due: May 15 and November 15 First Interest Payment: May 15, 2013 BOND MATURITY SCHEDULE FOR: $7,885,000* General Obligation Bonds, Series A of 2012 Maturity Date (May 15) Principal Interest Initial Offering Year Amounts Rates Yields 2013 Maturity Date (November 15) Principal Interest Initial Offering Year Amounts Rates Yields (A portion of the Bonds may be structured as Term Bonds. See "Invitation to Bid".) *Estimated, subject to change.

4 AVON GROVE SCHOOL DISTRICT Chester County, Pennsylvania BOARD OF SCHOOL DIRECTORS Bonnie Wolff... Dennis Gerber... Charles F. Beatty III... Bruce E. Dobsch... Robert Weidenmuller... Donald Y. Needham... William G. Sites... Herman Engel... Pattie Lyons... President Vice-President Member Member Member Member Member Member Member SUPERINTENDENT AUGUSTUS J. MASSARO, Ed.D. BUSINESS MANAGER JAMES A. ASCIUTTO SOLICITOR UNRUH, TURNER, BURKE & FREES, P.C. West Chester, Pennsylvania BOND COUNSEL KEGEL KELIN ALMY & LORD LLP Lancaster, Pennsylvania FINANCIAL ADVISOR PUBLIC FINANCIAL MANAGEMENT, INC. Harrisburg, Pennsylvania PAYING AGENT U.S. BANK NATIONAL ASSOCIATION Philadelphia, Pennsylvania SCHOOL DISTRICT ADDRESS 375 South Jennersville Road West Grove, Pennsylvania 19390

5 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 Bonds 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. TABLE OF CONTENTS INTRODUCTION... 1 PURPOSE OF THE ISSUE... 1 Page Sources and Uses of Bond Proceeds... 1 Description... 2 Payment of Principal and Interest... 2 Transfer, Exchange and Registration of Bonds... 2 Commonwealth Enforcement of Debt Service Payments... 3 Security... 3 Sinking Funds... 3 BOOK-ENTRY ONLY SYSTEM... 4 REDEMPTION OF BONDS... 5 Mandatory Redemption... 5 Optional Redemption 2012 Bonds... 5 Optional Redemption 2012A Bonds... 6 Manner of Redemption... 6 Notice of Redemption... 6 THE SCHOOL DISTRICT... 7 Introduction... 7 Administration... 7 School Facilities... 7 Enrollment Trends... 7 SCHOOL DISTRICT FINANCES... 8 Introduction... 8 Financial Reporting... 8 Budgeting Process in School Districts under the 2006 Taxpayer Relief Act... 8 Summary and Discussion of Financial Results... 9 Revenue TAXING POWERS OF THE SCHOOL DISTRICT The Taxpayer Relief Act (Act 1) STATUS OF THE 2012 BONDS UNDER ACT The 2012A Bonds are not Grandfathered under Act State Law Authorizing Replacement of the School District s Occupation Tax with an Increase in the Local Earned Income Tax Legislation Limiting Unreserved Undesignated Fund Balances Tax Levy Trends Real Property Tax Other Taxes Commonwealth Aid to School Districts DEBT AND DEBT LIMITS Debt Statement Debt Limit and Remaining Borrowing Capacity Debt Service Requirements Page Future Financing LABOR RELATIONS School District Employees Pension Program Other Post-Employment Benefits LITIGATION DEFAULTS AND REMEDIES TAX EXEMPTION CONTINUING DISCLOSURE UNDERTAKING RATINGS UNDERWRITING LEGAL OPINION FINANCIAL ADVISOR MISCELLANEOUS APPENDIX A - DEMOGRAPHIC AND ECONOMIC INFORMATION RELATING TO THE AVON GROVE SCHOOL DISTRICT Introduction... A-1 Population... A-1 Employment... A-2 Income... A-4 Commercial Activity... A-5 Educational Institutions... A-5 Medical Facilities... A-5 Utilities... A-5 Transportation... A-5 APPENDIX B - OPINION OF BOND COUNSEL APPENDIX C - AUDITED FINANCIAL STATEMENT i

6 PRELIMINARY OFFICIAL STATEMENT $10,000,000* AVON GROVE SCHOOL DISTRICT Chester County, Pennsylvania $2,115,000* General Obligation Bonds, Series of 2012 $7,885,000* General Obligation Bonds, Series A of 2012 INTRODUCTION This Preliminary Official Statement, including the cover and inside cover pages hereof and Appendices hereto, is furnished by Avon Grove School District, Chester County, Pennsylvania (the School District ), in connection with the offering of its Bonds consisting of the $2,115,000* General Obligation Bonds, Series of 2012 (the 2012 Bonds ) and the $7,885,000* General Obligation Bonds, Series A of 2012 (the Series 2012A Bonds ), all dated as of the date of delivery (collectively referred to as the Bonds ). The Bonds are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on September 13, 2012 (the Resolution ), and pursuant to the Local Government Unit Debt Act, 53 Pa. C.S. Chs (the Act ) of the Commonwealth of Pennsylvania (the Commonwealth ). PURPOSE OF THE ISSUE Proceeds of the 2012 Bonds will be used to currently refund the School District s General Obligation Bonds, Series of 2007, currently outstanding in the principal amount of $2,040,000 (the 2007 Bonds ) and paying the allocable cost of issuing the 2012 Bonds. Proceeds of the 2012A Bonds will be used to currently refund a portion of the School District s General Obligation Bonds, Series A of 2007, currently outstanding in the principal amount of $8,495,000 (the 2007A Bonds ) of which $7,585,000 will be refunded (the Refunded 2007A Bonds ) and paying the allocable costs of issuing the 2012A Bonds. Upon issuance of the 2012 Bonds, a portion of the proceeds of the 2012 Bonds will be irrevocably deposited with The Bank of New York Trust Company, N.A., located in Philadelphia, Pennsylvania, as paying agent for the 2007 Bonds in an amount sufficient to redeem the 2007 Bonds at a redemption price of 100%, plus accrued interest on the date of delivery of the 2012 Bonds, plus accrued interest on October 23, Upon issuance of the 2012A Bonds, a portion of the proceeds of the 2012A Bonds will be irrevocably deposited with U.S. Bank National Association, located in Philadelphia, Pennsylvania, as paying agent for the 2007A Bonds in an amount sufficient to redeem the 2007A Bonds at a redemption price of 100%, plus accrued interest on the date of delivery of the 2012A Bonds, plus accrued interest on November 15, Sources and Uses of Bond Proceeds The following is a summary of the sources and uses of the proceeds from the issuance of the Bonds. Sources of Funds 2012 Bonds 2012A Bonds Total Bond Proceeds... Net Original Issue Premium... Total Sources of Funds... Uses of Funds Amount Required to Call 2007 Bonds... Amount Required to Call the Refunded 2007A Bonds. Costs of Issuance (1)... Total Uses of Funds... (1) Includes legal, financial advisor, printing, rating, underwriter s discount, CUSIP, paying agent and miscellaneous costs. *Estimated, subject to change. 1

7 THE BONDS Description The Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof, will be in the aggregate principal amount of $10,000,000*, will be dated as of the date of delivery and will bear interest at the rates and mature in the amounts and at the times set forth on the inside cover of this Preliminary Official Statement. Interest on the Bonds will be payable initially on May 15, 2013, and thereafter, semiannually on May 15 and November 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 Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. Purchasers of the Bonds (the Beneficial Owners ) will not receive any physical delivery of Bond certificates, and beneficial ownership of the Bonds 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 Bonds, payments of principal of, redemption premium, if any, and interest on the Bonds, 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 Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal, redemption premium, if any, and interest on the Bonds shall be made as described in the following paragraphs: The principal of the Bonds, when due upon maturity or upon any earlier redemption, will be paid to the registered owners of the Bonds, or registered assigns, upon surrender of the Bonds to U.S. Bank National Association (the Paying Agent ), acting as paying agent, registrar and sinking fund depositary for the Bonds, at its specified corporate trust office in Philadelphia, Pennsylvania (or to any successor paying agent at its designated office(s)). Interest on the Bonds 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 May 15, 2013 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 to 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 fifteenth (15 th ) calendar day (whether or not a day on which the Paying Agent is open for business) 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 Bonds not less than fifteen (15) days preceding such special record date. Such notice shall be mailed to the persons in whose names such Bonds are registered at the close of business on the fifth (5 th ) day preceding the date of mailing. If the date for payment of the principal of or interest on any Bonds 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. Transfer, Exchange and Registration of Bonds Subject to the provisions described below under Book-Entry Only System, Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds 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 Bonds 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 bonds of authorized denominations of the same series, 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. *Estimated, subject to change. 2

8 The School District and the Paying Agent shall not be required (a) to register the transfer of or exchange any Bonds then considered for redemption during a period beginning at the close of business on the fifteenth (15 th ) day next preceding any date of selection of Bonds 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 until after the redemption date. Bonds may be exchanged for a like aggregate principal amount of Bonds 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 154 of 1998 (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 at 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 bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any State 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 Bonds, and may be amended or repealed by future legislation. There can be no assurance, however, that any payments pursuant to this withholding provision will be made by the date on which such payments are due to the Bondholders. 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. Security The Bonds 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 Bonds 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 Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, 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 Commonwealth Enforcement of Debt Service Payments herein). Sinking Funds Sinking funds for the payment of debt service on the Bonds, designated "Sinking Funds - General Obligation Bonds, Series of 2012 & General Obligation Bonds, Series A of 2012" (the "Sinking Funds"), created under the Resolution shall be held by the Paying Agent as sinking fund depository. The School District shall deposit in the Sinking Funds a sufficient sum not later than the date when interest and/or principal is to become due on the Bonds so that on each payment date the Sinking Funds will contain amounts which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Bonds. The Sinking Funds 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 Funds. The Paying Agent, as sinking fund depository, is authorized without further order from the School District to pay from the Sinking Funds the principal of and interest on the Bonds, as and when due and payable. 3

9 BOOK-ENTRY ONLY SYSTEM Portions of the following information concerning The Depository Trust Company ("DTC") and DTC's book-entry-only system have been obtained from DTC. The School District (sometimes herein referred to in this section as the Issuer ), the Financial Advisor, and the Underwriters make no representation as to the accuracy of such information. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (D TC 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 Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 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 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 Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds 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 Bonds 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 Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds 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 Bonds 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 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds 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 Bonds 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 Bonds 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 4

10 Redemption proceeds, distributions, and dividend payments on the Bonds 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 Bonds 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. THE SCHOOL DISTRICT, PAYING AGENT AND UNDERWRITER SHALL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE PAYING AGENT AS BEING A BONDHOLDER WITH RESPECT TO ANY OF THE FOLLOWING: (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (2) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON BONDS OR NOTES; (3) THE DELIVERY OR THE TIMELINESS OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO THE OWNERS OF BONDS; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER. Mandatory Redemption REDEMPTION OF BONDS Bidders may elect to structure the issue to include term Bonds, which term Bonds, if selected by the bidder, will be subject to mandatory redemption prior to maturity, in the years and amounts as shown in the Invitation to Bid, upon payment of the principal amount of Bonds to be redeemed, together with accrued interest to the date fixed for redemption, or upon maturity, as applicable. Bonds to be redeemed shall be selected by lot by the Paying Agent. In lieu of such Mandatory Redemption, the Paying Agent, on behalf of the School District, may purchase from money in the Sinking Fund, at a price not to exceed the principal amount plus accrued interest, or the School District may tender to the Paying Agent, all or part of the Bonds subject to being drawn for redemption in any such year. Optional Redemption 2012 Bonds The 2012 Bonds stated to mature on or after November 15, 2018, shall be subject to redemption prior to maturity, at the option of the School District, as a whole or in part, from time to time, in any order of maturities designated by the Issuer, on November 15, 2017, or on any date thereafter upon payment of a redemption price of 100% of the principal amount redeemed, plus accrued interest thereon to the date fixed for redemption. In the event that less than all 2012 Bonds of any particular maturity are to be redeemed, the 2012 Bonds of such maturity to be redeemed shall be drawn by lot by the paying agent. On the date designated for redemption, notice having been mailed as provided in the Resolution, and money for payment of the principal and accrued interest being held by the Paying Agent (hereinafter defined), interest on the 2012 Bonds or portions thereof so called for redemption shall cease to accrue and the 2012 Bonds or portions thereof so called for redemption shall cease to be entitled to any benefit or security under the Resolution, and registered owners thereof shall have no rights with respect thereto, except to receive payment of the principal to be redeemed and accrued interest thereon to the date fixed for redemption. 5

11 Optional Redemption 2012A Bonds The 2012A Bonds stated to mature on or after November 15, 2018, shall be subject to redemption prior to maturity, at the option of the School District, as a whole or in part, from time to time, in any order of maturities designated by the Issuer, on November 15, 2017, or on any date thereafter upon payment of a redemption price of 100% of the principal amount redeemed, plus accrued interest thereon to the date fixed for redemption. In the event that less than all 2012A Bonds of any particular maturity are to be redeemed, the 2012A Bonds of such maturity to be redeemed shall be drawn by lot by the paying agent. On the date designated for redemption, notice having been mailed as provided in the Resolution, and money for payment of the principal and accrued interest being held by the Paying Agent (hereinafter defined), interest on the 2012A Bonds or portions thereof so called for redemption shall cease to accrue and the 2012A Bonds or portions thereof so called for redemption shall cease to be entitled to any benefit or security under the Resolution, and registered owners thereof shall have no rights with respect thereto, except to receive payment of the principal to be redeemed and accrued interest thereon to the date fixed for redemption. Manner of Redemption 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 that number of Bonds which is obtained by dividing the principal amount thereof 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 such Bond in exchange for Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof. If the redemption date for any Bonds 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. Notice of Redemption Notice of any redemption shall be given by depositing a copy of the redemption notice by first class mail not more than sixty (60) days and not less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds 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 Bonds 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 Bonds or portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption. {REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK} 6

12 THE SCHOOL DISTRICT Introduction The School District is a School District of the third class organized under State law and located in Chester County in the southeast corner of Pennsylvania. It covers approximately 67.2 square miles with New Garden Township to the east, West Marlborough and Londonderry Townships to the north, Big Elk Creek to the west, and the Maryland and Delaware state lines to the south. The School District is comprised of the boroughs of Avondale and West Grove and the townships of Franklin, London Britain, London Grove, New London and Penn Census indicates that the population served by the School District was 30,080. 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 all aspects of operations, including education and finance. The Business Manager is responsible for budget and financial operations. Both of these officials are appointed by the School Board. School Facilities The School District presently operates two elementary schools, one middle school and one senior high school, all as described in the following table. Students in grade also attend the Center for Arts and Technology Brandywine Campus in Coatesville, Pennsylvania and the Chester County Technical College High School in Jennersville, Pennsylvania. TABLE 1 AVON GROVE SCHOOL DISTRICT FACILITIES Original Addition/ Rated Construction Renovation Pupil (1) Building Date Date(s) Grades Capacity Enrollment Penn London K Avon Grove Intermediate School ,650 1,521 Fred S. Engle Middle Avon Grove High , ,500 1,778 Avon Grove Administration Building (1) As of July Source: School District officials. Enrollment Trends Table 2 presents recent trends in school enrollment and projections of enrollment for the next three years, as prepared by the School District's administrative officials. TABLE 2 AVON GROVE SCHOOL DISTRICT ENROLLMENT TRENDS Actual Enrollments Projected Enrollments School School Year Elementary Secondary Total Year Elementary Secondary Total ,744 2,698 5, ,489 2,635 5, ,706 2,674 5, ,514 2,661 5, ,668 2,732 5, ,539 2,688 5, ,662 2,716 5, ,564 2,715 5, ,580 2,648 5, ,585 2,736 5,321 Source: School District officials and Pennsylvania Department of Education estimates. 7

13 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 Business Manager and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1. Financial Reporting The financial statements of the School District are prepared in accordance with accounting principles generally accepted in the United States of America. The School District s reporting entity applies all relevant Governmental Accounting Standards Board (GASB) pronouncements. The government-wide and proprietary fund financial statements apply Financial Accounting Standards Board pronouncements and Accounting Principles Board opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. The government wide statements report using the economic resources measurement focus and the accrual basis of accounting generally including the reclassification or elimination of internal activity (between or within funds). The School District financial statements are audited by an independent certified public account, as required by State law. The firm of Barbacane, Thornton & Company LLP of Wilmington, Delaware serves as the School District s Auditor. Budgeting Process in School Districts under the 2006 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 final 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 The Taxpayer Relief Act 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 The Taxpayer Relief Act 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. 8

14 Summary and Discussion of Financial Results A summary of the 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 four years, unaudited and the budget. The School District adopted a budget of $74,936,761 in revenue and $75,813,936 in expenditures. TABLE 3 AVON GROVE SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET Unaudited (1) ASSETS Cash and Cash Equivalents... $591,010 $173,420 $390,806 $1,961,787 $206,508 Investments... 28,997,089 31,027,723 30,000,034 25,454,777 28,927,036 Taxes Receivable... 2,359,703 1,893,008 2,085,613 1,871,719 1,580,246 Due from Other Funds ,599 65,352 63,457 63,941 79,798 Intergovernmental Receivables , ,829 1,185, , ,471 State Revenue Receivable , , ,703 Federal Revenue Receivable , , ,193 Other Receivables ,213 45,930 27, , ,712 TOTAL ASSETS... $32,812,213 $34,029,701 $33,752,881 $31,001,081 $31,945,667 LIABILITIES Accounts Payable... $708,338 $878,414 $1,426,244 $815,348 $1,105,367 Accrued Payroll/Salaries and Benefits 5,897,042 5,880,607 6,367,159 8,958,571 9,344,948 Due to Other Funds , ,422 Payroll Deducts & Withholding ,900 Deferred Revenues... 1,860,796 1,786,575 2,346,419 1,439,772 1,463,108 Other , ,426 0 TOTAL LIABILITIES... $8,466,176 $8,586,618 $10,274,476 $11,428,117 $12,307,745 FUND EQUITIES TOTAL FUND EQUITIES... $24,346,037 $25,443,083 $23,478,405 $19,572,964 $19,637,922 TOTAL LIABILITIES AND FUND EQUITIES... $32,812,213 $34,029,701 $33,752,881 $31,001,081 $31,945,667 (1) Unaudited, subject to change and final audit. Source: School District Annual Financial Reports. TABLE 4 AVON GROVE SCHOOL DISTRICT GENERAL FUND SUMMARY OF CHANGES IN FUND BALANCE* Actual Unaudited Budgeted (1) 2013 (2) Beginning Fund Balance... $19,904,247 $24,346,037 $25,443,083 $23,478,406 $19,572,964 $19,637,922 Surplus (Deficit) of Revenue over Expenditures... 4,441,790 1,097,046 (1,964,677) (3,905,442) 64,958 (877,175) Other Ending Fund Balance... $24,346,037 $25,443,083 $23,478,406 $19,572,964 $19,637,922 $18,760,747 *Totals may not add due to rounding. (1) Unaudited, subject to change and final audit. (2) Budget, as adopted June 14, Source: School District Annual Financial Reports and Budget. 9

15 Revenue The School District received an unaudited $73,908,597 in General Fund revenue in and budgeted revenue of $74,936,761 for Local sources decreased as a share of total revenue in the past five years, from 67.3 percent in to 64.4 percent in (unaudited). Revenue from State sources increased as a share of the total revenue from 31.7 percent to 34.4 percent over this period. Federal revenue and other sources increased slightly as a share of total revenue, from 1.0 percent in to 1.2 percent over this period. TABLE 5 AVON GROVE SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES* (Years Ending June 30) REVENUE: Actual Unaudited Budgeted Local Sources: (1) 2013 (2) Real Estate Taxes... $40,371,701 $38,580,456 $38,542,077 $40,435,145 $43,318,051 $44,024,108 Interim Real Estate , , , , , ,000 Total Act 511 Taxes , , , , , ,000 Public Utility Tax... 62,106 57,550 61,048 59,122 57,645 57,643 Delinquent Taxes... 1,297,402 1,587,737 1,578,291 2,059,146 1,472,132 1,722,273 Earnings - Temporary Deposits & Investments.. 1,557, , , , , ,000 Revenue from Student Activities , , , ,598 0 State Revenue Rec'd from Other Interm. Sources 610, , , , , ,257 Federal ARRA IDEA Pass Through Revenue , ,257 39,266 0 Rentals... 34,645 22,400 26,143 29,555 40,000 Tuition from Patrons... 22,118 14,920 3,440 3,589 10,899 3,000 Refund of Prior Years' Expenditures Other Sources ,634 80,574 45,282 64,446 88, ,292 Total Local Sources... $45,918,278 $42,954,235 $42,647,415 $45,337,720 $47,239,814 $48,051,573 State Sources: Instructional Subsidy... $11,243,417 $12,588,927 $12,405,381 $12,638,516 $14,028,003 $14,030,051 Charter School Reimbursement... 1,325,591 1,371,936 1,239,848 1,249, Tuition for Orphans & Children in Pvt. Homes.. 23,033 97,871 37, ,619 20,000 Special Education... 2,315,547 2,431,690 2,477,436 2,412,743 2,435,751 2,306,666 Transportation... 2,045,777 2,202,954 2,061,497 2,304,518 2,319,720 2,373,501 Rentals and Sinking Fund Reimbursements... 1,015,867 1,056, ,935 1,109,708 1,153,258 1,187,557 Health Services , , , , , ,754 Classrooms for the Future , Extra Grants ,243 14,702 1,882 $10,703 0 PA Accountability Grant , , , , ,716 0 State Property Reduction Allocation ,672,324 2,673,477 2,673,674 2,673,527 2,673,368 Revenue for Social Security... 1,096,346 1,125,953 1,158,485 1,217,170 1,165,541 1,331,888 Revenue for Retirement... 1,044, , , ,498 1,570,262 1,901,546 Project 720/High School Reform ,333 85,000 21, Other... 10,076 10,015 7,888 5, Total State Sources... $21,622,601 $25,320,460 $24,699,648 $25,240,683 $25,769,854 $25,930,331 Federal Sources: Total Federal Sources... $616,519 $539,985 $2,268,292 (3) $3,669,863 (3) $898,929 $954,857 Other Sources: Total Other Sources... $58,325 $0 $266,802 $0 $0 $0 TOTAL REVENUE... $68,215,722 $68,814,680 $69,882,157 $74,248,266 $73,908,597 $74,936,761 *Totals may not add due to rounding. (1) Unaudited, subject to change and final audit. (2) Budget, as adopted June 14, (3) ARRA - State Fiscal Stabilization Fund Subsidy. Source: School District Annual Financial Reports and Budget. 10

16 TABLE 5 AVON GROVE SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND EXPENDITURES* (continued) (Years Ending June 30) Actual Unaudited Budgeted EXPENDITURES: (1) 2013 (2) Instruction... $37,694,984 $38,710,996 $43,142,625 $46,135,948 $47,808,097 $48,205,648 Pupil Personnel... 2,526,920 2,539,286 2,654,484 2,817,111 2,290,042 2,434,119 Instructional Staff... 1,477,976 1,278,815 1,039,297 1,220,575 1,181,194 1,376,380 Administration... 3,091,093 3,223,999 3,071,337 3,266,386 3,270,829 3,277,187 Pupil Health , , , , , ,044 Business , , , , , ,830 Operation and Maintenance... 4,447,792 5,643,687 4,454,615 4,365,133 3,593,205 4,383,422 Student Transportation... 5,142,492 5,843,096 5,918,713 6,019,933 5,976,285 6,210,401 Central... 1,138,517 1,238,478 1,279, , , ,664 Other Support Services... 32,298 32,602 32,601 35,251 37,825 42,000 Operation of Non-instructional Services... 1,152,398 1,173,185 1,249,868 1,191, , ,739 Debt Service... 5,908,025 6,850,174 6,513,313 5,980,235 6,796,831 6,911,502 Refund of Prior Year Receipts ,205 16, Fund Transfers ,270,826 5,000, Budgetary Reserve TOTAL EXPENDITURES... $63,773,933 $67,717,634 $71,846,834 $78,153,708 $73,843,639 $75,813,936 SURPLUS (DEFICIT) OF REVENUES OVER EXPENDITURES... $4,441,789 $1,097,046 ($1,964,677) ($3,905,442) $64,958 ($877,175) *Totals may not add due to rounding. (1) Estimated, subject to change and final audit. (2) Budget, as adopted June 14, Source: School District Annual Financial Reports and Budget. {THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK} 11

17 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, An annual per capita tax on each resident or inhabitant over 18 years of age of not less than $1.00 and not more than $ 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 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 REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK} 12

18 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 or in any subsequent fiscal year, levy any tax for the support of the public schools which was not levied in the 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 current and prior fiscal years are as follows: Fiscal Year Index % % % % % 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 seeking approval to levy or increase the rate of an EIT or impose 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. The information set forth above is a summary of Act 1. This summary is not intended to be an exhaustive discussion of the provisions of Act 1 nor a legal interpretation of any provision of Act 1 and a prospective purchaser of the Bonds should review the full text of Act 1 as a part of any decision to purchase the Bonds. 13

19 Status of the 2012 Bonds under Act 1 The 2012 Bonds described in this Preliminary Official Statement are being issued to refund indebtedness that was 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 maximum annual debt service on the indebtedness being refunded. The maximum annual debt service on the Bonds will not be more than the maximum annual debt service on the indebtedness being refunded by the 2012 Bonds; and, therefore, it will not be necessary for the School District 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 2012 Bonds. The 2012A Bonds are not Grandfathered under Act 1 The 2012A Bonds were not authorized before effective date of Act 1, therefore, the 2012A Bonds are not Grandfathered and the School District cannot be granted an exception to the Act 1 referendum requirement on the basis of the debt service due and payable on the 2012A Bonds if a tax increase greater than the Index is needed. The School District has included sufficient new tax millage in its 2012/13 budget to cover the full amount of the debt service on the 2012A Bonds without exceeding the 2012/13 Index (although the actual tax increase may exceed the 2012/13 Index as a result of the other available and approved exceptions to the Index). State Law Authorizing Replacement of the School District s Occupation Tax with an Increase in the Local Earned Income Tax Act 24 of 2001 of the Commonwealth of Pennsylvania, which became law on June 22, 2001, authorizes a Board of School Directors to schedule a public hearing and conduct a ballot referendum on replacing the school district s occupation tax with an increase in the local earned income tax. Currently, school districts in Pennsylvania share a 1.0% tax on the annual amount of residents wages and other earned income (which excludes unearned or investment income), with the resident s municipality. Under the new law, this tax could be increased by the percentage necessary to generate revenue equal to what was collected during the preceding year on the occupation tax. The occupation tax is a flat amount for all employed individuals, or assessed by various trade, occupation, and professional titles, regardless of income. The restructured tax is designed to be revenue neutral to the school district. Legislation Limiting Unreserved Undesignated Fund Balances Pennsylvania Act No (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 Total Budgeted Expenditures Balance as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999, % Between $16,095,000 and $12,999, % Between $13,000,000 and $13,999, % Between $14,000,000 and $14,999, % Between $15,000,000 and $15,999, % Between $16,000,000 and $16,999, % Between $17,000,000 and $17,999, % Between $18,000,000 and $18,999, % Greater than or equal to $19,000, % Estimated ending unreserved undesignated fund balance is defined in Act 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. 14

20 Tax Levy Trends Table 6 which follows 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 two boroughs and five townships comprising the School District, and Chester County. TABLE 6 AVON GROVE SCHOOL DISTRICT TAX RATES Real Estate Real Estate Transfer Fiscal Year (mills) (%) Source: School District Officials. TABLE 7 AVON GROVE SCHOOL DISTRICT COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value) School District Avondale Borough Franklin Township London Britain Township London Grove Township New London Township Penn Township West Grove Borough Chester County Source: Local Government website. 15

21 Real Property Tax The real property tax (excluding delinquent collections) produced $43,318,051 (unaudited) in or approximately 59.1 percent of total revenue. The tax is levied on July 1 of each year. Taxpayers who remit within 60 days receive 2 percent discount, and those who remit subsequent to 120 days after July 1 are assessed a 10 percent penalty. The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data. The last countywide assessment was in TABLE 8 AVON GROVE SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA Market Assessed Fiscal Year Value Value Ratio $1,920,917,900 $1,661,586, % ,014,708,600 1,732,036, % ,285,257,512 1,790,628, % ,338,939,120 1,815,998, % ,516,594,880 1,815,104, % Source: Pennsylvania State Tax Equalization Board. TABLE 9 AVON GROVE SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY Market Value Assessed Value Market Value Assessed Value Avon Grove School District... $ 2,338,939,120 $ 1,815,998,083 $ 2,516,594,880 $ 1,815,104,725 Avondale Borough... 50,193,935 37,630,650 51,079,924 36,747,820 Franklin Township ,442, ,478, ,805, ,195,140 London Britain Township ,836, ,724, ,225, ,158,395 London Grove Township ,818, ,523, ,510, ,588,961 New London Township ,368, ,577, ,472, ,345,595 Penn Township ,166, ,934, ,182, ,625,894 West Grove Borough ,112,493 93,127, ,318,211 94,442,920 Chester County... 49,146,202,564 37,198,472,898 52,956,376,186 36,530,159,273 Source: Pennsylvania State Tax Equalization Board. TABLE 10 AVON GROVE SCHOOL DISTRICT ASSESSMENT BY LAND USE Residential... $1,408,536,803 $1,475,964,433 $1,511,665,163 $1,528,198,098 $1,519,100,350 Lots... 47,592,095 46,972,935 46,721,635 44,603,025 47,724,985 Industrial... 10,869,170 10,869,170 10,869,170 10,869,170 10,219,840 Commercial ,214, ,741, ,993, ,600, ,498,040 Agriculture... 51,373,510 51,488,480 51,742,480 51,727,620 52,561,510 Trailers ,637, Total... $1,661,586,498 $1,732,036,108 $1,790,628,848 $1,815,998,083 $1,815,104,725 Source: Pennsylvania State Tax Equalization Board. 16

22 TABLE 11 AVON GROVE SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA Current Total Total Current Collections Current Collections Total Year as Percent Plus as Percent Flat Collections of Total Delinquent of Total Year Billing (July-June) (1) Flat Billing Collections (2) Flat Billing $42,306,170 $40,371, % $41,827, % ,687,794 (2) 38,580, % 39,874, % ,675,933 (3) 38,542, % 39,862, % ,308,391 40,435, % 41,800, % ,308,221 43,318, % 45,040, % (1) Flat billing plus penalties, less discounts and exonerations. (2) Includes delinquent realty taxes collected only. Source: School District Officials. The ten largest real property taxpayers, together with 2012 assessed values are shown in Table 12. The aggregate assessed value of these ten taxpayers totals approximately 5.9 percent of total assessed value. TABLE 12 AVON GROVE SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS, Assessed Owner Property Value Jenners Pond Inc Commercial $ 36,472,100 London Grove North LP Commercial 18,644,290 West Grove Hospital Corp Commercial 18,391,950 Penn Devco Commercial 11,286,910 Cabot Kjellerup Commercial 9,060,440 Gemcraft Homes Commercial 3,431,870 Yeatman Brothers Commercial 2,836,140 Jenners Commons Commercial Commercial 2,748,840 Wilkinson Builders Commercial 2,540,390 Sheridan Construction Commercial 2,450,360 Total $107,863,290 Other Taxes Source: School District officials. Under Act 511, the School District collected $708,655 in other taxes in (unaudited). Among the taxes authorized by Act 511, the Real Estate Transfer Tax is the only tax levied by the School District. The Act 511 limit, equal to 12 mills on the market value of real property was $30,199,

23 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, basic instructional subsidy, is allocated to all school districts based on factors such as: (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; (3) the school district's tax effort, as compared with the tax effort of other school districts in the Commonwealth; and (4) student count. School districts also receive subsidies for special education, pupil transportation, health service, and debt service. Commonwealth law presently provides that the School District will receive reimbursement from the Commonwealth for a portion of debt service on the Bonds after the Bonds financed have received final approval of the Department of Education. Commonwealth reimbursement is based on the "Reimbursable Percentage" assigned to the Bonds and the School District's Market Value Aid Ratio ( MVAR ). The School District officials have estimated that the "Reimbursable Percentage" of the 2012 Bonds will be a maximum of percent. The School District MVAR for the school year is currently percent. The product of these two factors is percent which is the percentage of debt service which will be reimbursed by the Commonwealth. The School District s 2012A Bonds are not subject to reimbursement. In future years, this percentage may change as the School District's MVAR changes, or by future legislation. MVAR is a function of the market value of real estate within a school district per weighted average daily membership of the School District relative to that of other school district of the Commonwealth. Debt Statement DEBT AND DEBT LIMITS Table 13 shows the debt of the School District as of August 15, 2012 including the issuance of the Bonds. TABLE 13 AVON GROVE SCHOOL DISTRICT DEBT STATEMENT* (As of August 15, 2012) Gross NONELECTORAL DEBT Outstanding General Obligation Bonds, Series A of 2012 (last maturity 2027)... $ 7,885,000 General Obligation Bonds, Series of 2012 (last maturity 2022)... 2,115,000 General Obligation Bonds, Series A of 2010 (last maturity 2014)... 3,340,000 General Obligation Bonds, Series of 2010 (last maturity 2021)... 5,950,000 General Obligation Bonds, Series A of 2009 (last maturity 2021)... 13,660,000 General Obligation Bonds, Series of 2009 (last maturity 2015)... 4,360,000 General Obligation Bonds, Series A of 2007 (last maturity 2015)(remaining portion) ,000 General Obligation Bonds, Series of 2006 (last maturity 2028) (1)... 53,480,000 General Obligation Bonds, Series C of 2004 (last maturity 2012) ,000 TOTAL NONELECTORAL DEBT... $91,810,000 LEASE RENTAL DEBT TOTAL LEASE RENTAL DEBT... $ 0 TOTAL PRINCIPAL OF DIRECT DEBT... $91,810,000 (1) Incurred debt, but not yet issued. *Includes the estimated Bonds offered through this Preliminary Official Statement. Excludes the 2007 Bonds and the Refunded 2007A Bonds being refunded herein. 18

24 Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, the principal of direct debt of the School District will total $91,810,000. After adjustment for available funds and estimated Commonwealth Aid, the local effort of direct debt will total $82,926,366. TABLE 14 AVON GROVE SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS (As of August 15, 2012)* Local Effort or Net of Available Funds Gross and Estimated Outstanding State Aid (1) DIRECT DEBT Nonelectoral Debt... $ 91,810,000 $ 82,926,366 Lease Rental Debt TOTAL DIRECT DEBT... $ 91,810,000 $ 82,926,366 OVERLAPPING DEBT Chester County, General Obligation (2)... $ 30,448,510 $ 30,448,510 Municipal Debt... 23,197,248 23,197,248 TOTAL OVERLAPPING DEBT... $ 53,645,757 $ 53,645,757 TOTAL DIRECT AND OVERLAPPING DEBT... $145,455,757 $136,572,124 DEBT RATIOS Per Capita... $4, $4, Percent Assessed Value % 7.52% Percent Market Value % 5.43% *Includes the estimated Bonds offered through this Preliminary Official Statement. Excludes the 2007 Bonds and the Refunded 2007A Bonds being refunded herein. (1) Gives effect to current appropriations for payment of debt service, and expected future Commonwealth reimbursement of School District sinking fund payments based on current Aid Ratio. See State Aid to School Districts. The School District may, at any time, claim a credit against the gross principal of debt outstanding equal to the amount estimated to be reimbursed by state sources. (2) Pro rata 4.75% share of $471,658,000 principal amount outstanding. 19

25 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 $ 68,645,420 Total Revenues for ,138,558 Total Revenues for (unaudited) 72,755,339 Total $ 214,539,317 Annual Arithmetic Average (Borrowing Base) $ 71,513,106 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 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 Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $160,904,488 $91,810,000 $69,094,488 *Includes the estimated Bonds described herein. Excludes the 2007 Bonds and the Refunded 2007A Bonds being refunded herein. {THIS SPACE INTENTIONALLY LEFT BLANK} 20

26 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 Bonds. Table 16 presents data on the extent to which Commonwealth Aid provides coverage for debt service and lease rental requirements. The School District has never defaulted on the payment of debt service. TABLE 15 AVON GROVE SCHOOL DISTRICT DEBT SERVICE REQUIREMENTS* Other Total General Series Series A Debt Obligation of 2012 of 2012 Service Year Debt Principal Interest Subtotal Principal Interest Subtotal Requirements $ 6,310, ,918, ,987, ,956, ,335, ,335, ,334, ,339, ,340, ,548, Total $35,406,425 (1) Does not include the debt service on the $53,480,000 million, Series of 2006 which has been incurred, but has not yet been issued. *Totals may not add due to rounding. TABLE 16 AVON GROVE SCHOOL DISTRICT COVERAGE OF DEBT SERVICE AND LEASE RENTAL REQUIREMENTS BY STATE AID* Estimated Commonwealth Aid Received... $25,769, Estimated Debt Service Requirements... Maximum Future Debt Service Requirements after Issuance of Bonds... 6,796,831 Coverage of Estimated Debt Service Requirements... Coverage of Maximum Future Debt Service Requirements after Issuance of Bonds times *Assumes current Commonwealth Aid Ratio. See Commonwealth Aid to School Districts. 21

27 Future Financing The School District does not plan to issue additional long-term debt within the next 2-3 years. School District Employees LABOR RELATIONS There are presently 530 full-time employees of the School District, including 381 full-time teachers and administrators as well as 36 fulltime support personnel, including secretaries, custodial and maintenance. In addition, the School District employs 111 part-time teachers and support personnel. The School District's teachers are represented by the Avon Grove Education Association (the "Association") and the support staff is represented by the Avon Grove Educational Support Personnel Association, both are affiliates of the Pennsylvania State Education Association (PSEA). The teachers are under a contract which expired on June 30, 2012 (negotiations are currently underway), the expired contract called for an average 4.5% increase for the past four years. Support staff employees are under a contract which expires on June 30, 2014 which calls for an average increase of 4.3%. Pension Program School districts in Pennsylvania are required to participate in a statewide pension program administered by the State Public School Employees Retirement Board (the Retirement Board ). All of the School District 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 are required to participate in the program. 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, 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, Act 120 of 2010 was passed by the General Assembly on November 15 and signed by Governor Rendell on November 23, The benefit reductions contained in this legislation will only impact individuals who become new members of PSERS on or after July 1, New members will have the option of selecting one of 2 new classes. The members selecting class T-E will 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 will contribute a base rate of 10.3% with shared risk contribution levels between 10.3% and 12.3% and a pension multiplier or 2.5%. The PSERS Board certified the employer rate, to be paid by the School District, of 8.22% for the fiscal year (In accordance with Senate Bill 1042 enacted on July 6, 2010, this rate was recertified at 5.64% for fiscal year). The PSERS Board certified a new employer rate, to be paid by the School District, of 8.65% for the fiscal year and 12.36% for the fiscal year. According to Act 120 of 2010 the employer contribution rate is suppressed for future years by using rate caps to keep the rate from rising too high, too fast. The rate caps limit amount the pension component of the employer contribution rate can increase over the prior year s rate as follows: FY not more than 3.0% plus the premium assistance contribution rate; FY not more than 3.5% plus the premium assistance contribution rates; and FY not more than 4.5% plus the premium assistance contribution rate and thereafter at not more than 4.5%. Both the School District and the Commonwealth are responsible for paying a portion of the employer s share. School entities are responsible for paying 100% of the employer share of contributions to PSERS. The Commonwealth reimburses the employer for one-half the payment for employees. The School District contributions are made on a quarterly basis and employee contributions are deducted bi-weekly for each paycheck and remitted monthly. Recent School District pension contributions to PSERS have been as follows: $1,924, ,469, ,238, ,904, ,508, budgeted 3,879,000 The School District is current in all payments. The Fund s complete report is available on the PSERS website on the Internet: Source: PSERS Website. 22

28 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 eligible retired employees, and to provide retirement severance pay for existing eligible employees. The School District has become 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, For a more thorough description of the plan and funding policy, please refer to Appendix C Audited Financial Statement Notes to Financial Statements (Note 11). LITIGATION At the time of settlement, the School Board and the Solicitor will deliver a certificate stating that there is no litigation pending with respect to the Bonds, the Resolution or the right of the School District to issue said Bonds or the security therefor. The School District might incur a loss with respect to certain investments. The School District currently has $29,133,544 in invested funds. Of this amount, the School District invested $2,970,000 through Bentley Financial Services, Inc. ( Bentley ), a certificate of deposit broker, to purchase $100,000 or less federally insured certificates of deposit. As to these investments, the amount was scheduled to mature and be repaid to the School District in varying amounts over the period from December 14, 2001 to June 14, On October 23, 2001, the Securities and Exchange Commission filed a complaint in the Federal District Court for the Eastern District of Pennsylvania alleging that Bentley had engaged in a fraudulent scheme under which investors thought they were buying federally insured certificates of deposit but instead received only an obligation of Bentley or related affiliates. On October 24, 2001, the Court entered a restraining order freezing all assets held by Bentley and affiliates and appointing a receiver to take control of the assets and develop a plan for distribution to investors. In the Spring of 2003, the receiver released a plan for a partial distribution to investors. Consequently, the School District has received six distributions from the receiver totaling approximately 91.5% or $2,718, of the funds it had invested with Bentley. There is no certainty as to if and when additional distributions will occur and as to the amount to be distributed. As to the School District s cash flow, the School District Business Manager projects that the School District has sufficient funds to meet all obligations through June 30, 2013, even without receiving any return of funds invested through Bentley. The budget previously adopted for the fiscal year ending June 30, 2013, projected an ending surplus of $18,760,747. The School District Business Manager currently projects that, even without receiving any return of funds invested through Bentley, the School District will have a surplus on hand at June 30, For future fiscal years, the School District will fix its tax levy at whatever level is required to ensure payment of all School District obligations. The School District is taking every possible step to minimize any remaining loss from these discrete and limited investments made through Bentley. 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 Bonds, as the same becomes due and payable, the holders of the Bonds 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 Bonds shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas of the county in which the School District is located. The Act provides 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 Bonds may appoint a trustee to represent them. The Act provides certain other remedies in the event of default, and further qualifies the remedies herein before described. {THIS SPACE INTENTIONALLY LEFT BLANK} 23

29 TAX EXEMPTION In the opinion of Kegel Kelin Almy & Lord LLP, Lancaster, Pennsylvania, Bond Counsel, interest on the Bonds (a) is excludable from the gross income of the registered owners thereof for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings of corporations (as defined for federal income tax purposes) for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion set forth in clause (a) above is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, (the Code ) and any regulations thereunder, now or hereafter enacted, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excludable from gross income for federal income tax purposes. Failure to comply with certain of such requirements could cause the interest on the Bonds to be included in the gross income of the registered owners thereof retroactive to the date of issuance of the Bonds. The issuer has covenanted to comply with all such requirements. Except for the discussion of original issue discount below, Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds. Bond Counsel is of the opinion, based on existing law, that the original issue discount in the selling price of Bonds, if any, to the extent properly allocable to each holder of such Bonds, is excluded from gross income for federal income tax purposes with respect to such holder. The original issue discount is the excess of the stated redemption price at maturity of such Bonds over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of such Bonds were sold. Original issue discount on taxexempt bonds accrues on a compound basis. The amount of original issue discount that accrues to holders of such Bonds who acquire the Bonds in this offering during any accrual period generally equals (i) the issue price of such Bonds plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Bonds (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Bonds during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the holder s tax basis in such Bonds. Any gain realized by the holder from a sale, exchange, payment or redemption of a Bond would be treated as gain from the sale or exchange of such Bond. Prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of a holder s interest expense allocated to interest on the Bonds, except with respect to certain financial institutions (within the meaning of Section 265 (b)(5) of the Code), (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, for taxable years beginning after December 31, 1986, Section 832 (b)(5)(b)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) for taxable years beginning after December 31, 1986, interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iv) passive investment income including interest on the Bonds, may be subject to federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income and (v) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account in determining gross income, receipts or accruals of interest on the Bonds. The Bonds are qualified tax exempt obligations within the meaning of Section 265(b)(3)(B) of the Code, and, in the case of certain financial institutions (within the meaning of Section 265 (b)(5) of the Code), a deduction is allowed for 80 percent of that portion of such financial institutions interest expense allocable to interest on the Bonds. In the opinion of Bond Counsel, under the existing statutes, regulations and decisions, the interest on the Bonds is exempt from taxation for state and local purposes within the Commonwealth of Pennsylvania. Such exemption, however, does not extend to profits, gains or income derived from the sale, exchange or other disposition of the Bonds, nor to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the interest on the Bonds. Under the laws of the Commonwealth profits, gains, or income derived from the sale, exchange, or other disposition of certain government obligations, including the Bonds, may be subject to state and local taxation within the Commonwealth of Pennsylvania. Pennsylvania Act 68 of 1993 enacted a statutory provision allowing taxation of such profits, gains or income; although the statute is unclear as to its applicability to obligations of political subdivisions, the Pennsylvania Department of Revenue interprets the statute as applicable to obligations of political subdivisions. The issuer of the Bonds will issue its certificate to the effect that on the basis of the facts, estimates and circumstances in existence on the date of delivery of the Bonds, it is not expected that proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds under Section 103 (b)(2) and Section 148 of the Internal Revenue Code of 1986, as amended, or as contemplated by the United States Treasury regulations relating to arbitrage bonds. 24

30 CONTINUING DISCLOSURE UNDERTAKING In accordance with the requirements of Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission (the SEC ), the School District (being an obligated person on outstanding securities, including the Bonds, within the meaning of the Rule), will agree to provide the following to the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format as prescribed by the MSRB, either directly or indirectly through a designated agent: (A) Annually, not later than 180 days following the end of each School District fiscal year, beginning with its fiscal year ending June 30, 2012, the following financial information and operating information pertaining to the School District: financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units a summary of the budget for the current fiscal year the assessed value and market value of all taxable real estate for the current fiscal year the taxes and millage rates imposed for the current fiscal year 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 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) 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 pupil enrollment figures, including enrollment at the end of the most recent fiscal year, current enrollment and projected enrollment for the beginning of the next fiscal year, including a breakdown between elementary and secondary enrollment (to the extent reasonably feasible); (B) (C) (D) If not submitted as part of the annual financial information, then when and if available, audited financial statements for the School District; In a timely manner not in excess of ten (10) business days after the occurrence of the event, notice of the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) 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 Bonds, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the School District; (13) 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; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material; and in a timely manner, notice of a failure of the School District to provide the required annual financial information specified above, on or before the date specified above. With respect to the filing of annual financial and operating information, the School District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate as a result of a change in legal requirements or a change in the nature of the School District or its operations or financial reporting, but the School District will agree that any such modification will be done in a manner consistent with the Rule. The events listed in (C) above are those specified in the Rule, not all of which may be relevant to the Bonds. The School District may from time to time choose to file notice of the occurrence of other events, in addition to the events listed in (C) above, but the School District does not commit to provide notice of the occurrence of any events except those specifically listed in (C) above. 25

31 The School District acknowledges that its undertaking pursuant to the Rule described herein is intended to be for the benefit of the holders and beneficial owners of the Bonds and shall be enforceable by the holders and beneficial owners of the Bonds, but the right of the holders and beneficial owners of the Bonds to enforce the provisions of the School District s continuing disclosure undertaking shall be limited to a right to obtain specific enforcement, and any failure by the School District to comply with the provisions of the undertaking shall not be an event of default with respect to the Bonds. The School District s obligations with respect to continuing disclosure described herein shall terminate upon the prior redemption or payment in full of all of the Bonds or if and when the School District is no longer an obligated person with respect to the Bonds, within the meaning of the Rule. 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, 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 The School District unintentionally failed to file some of their Annual Reports in a timely manner for the past (5) five years. For fiscal years ending June 30, 2007, June 30, 2008 and June 30, 2009 the School District s Audits were filed on August 17, 2012 by its continuing disclosure agent. The Annual Reports for fiscal year s ending June 30, 2010 and June 30, 2011 were filed with EMMA by the School District on March 29, 2011 and December 20, The School District is currently in compliance with its filing requirements for these fiscal years. The School District will continue to adhere to procedures that were put in place to provide timely ongoing disclosure of annual financial information and notice of material events affecting its securities. RATING S&P has assigned the School District an underlying rating of. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: Standard & Poor s Ratings Group, 55 Water Street, 38 th Floor, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any 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 circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. UNDERWRITING The Underwriter has agreed to purchase the Bonds from the School District, subject to certain conditions precedent, and will purchase all of the Bonds if any of such Bonds are purchased. The Bonds will be purchased for a purchase price of $ equal to the par value of the Bonds less an underwriters discount of $ and plus a net original issue premium of $, plus accrued interest from the dated date to the date of delivery of the Bonds. LEGAL OPINION The Bonds are offered with the approving legal opinion of Kegel Kelin Almy & Lord LLP, Bond Counsel of Lancaster, Pennsylvania. Certain other legal matters will be passed upon for the School District by Unruh, Turner, Burke & Frees, P.C., of West Chester, Pennsylvania, School District Solicitor. FINANCIAL ADVISOR The School District has retained Public Financial Management, Inc., Harrisburg, Pennsylvania as financial advisor (the "Financial Advisor") in connection with the preparation, authorization and issuance of the Bonds. 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. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. 26

32 MISCELLANEOUS This Preliminary Official Statement has been prepared under the direction of the School District by Public Financial Management, Inc., Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Preliminary Official Statement had 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 Bonds, 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 Bonds. The School District has authorized the distribution of this Preliminary Official Statement. AVON GROVE SCHOOL DISTRICT CHESTER COUNTY, PENNSYLVANIA By: President, Board of School Directors 27

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34 APPENDIX A Demographic and Economic Information Relating to the Avon Grove School District

35 Introduction The School District is in West Grove, in southwestern Chester County. It is located in the southeast corner of Pennsylvania. The School District is approximately 15 miles northwest of Wilmington, Delaware, approximately 35 miles southwest of Philadelphia and approximately 30 miles southeast of Lancaster. It is a residential community with some agricultural activity. Chester County is in the Philadelphia, PA-NJ MSA (the MSA ), a statistical area including Bucks, Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania. Population Table A-1 which follows shows recent population trends for the School District, Chester County and the State of Pennsylvania. Table A-2 shows 1990 age composition and average number of persons per household in Chester County and for the State. Average household size was slightly higher for Chester County than the Statewide average. TABLE A-1 RECENT POPULATION TRENDS Compound Average Annual Percentage Change Area School District... 23,067 30, % Chester County , , % Pennsylvania... 11,881,643 12,281, % Source: 2000 & 2010 U.S. Bureau of the Census, Decennial Census and Pennsylvania State Data Center. TABLE A-2 AGE COMPOSITION Persons Per Years Years Years Household Chester County % 64.1% 10.9% 2.73 Pennsylvania % 61.1% 15.4% 2.57 Source: Pennsylvania State Data Center, 2000 General Population and Housing Characteristics: Pennsylvania. A-1

36 Employment Overall employment data are not compiled for the School District or the municipality within it, but such data are compiled for the Philadelphia Primary Metropolitan Statistical Area ( PMSA ) for April TABLE A-3 DISTRIBUTION OF EMPLOYMENT PHILADELPHIA PRIMARY METROPOLITAN STATISTICAL AREA (Bucks, Chester, Delaware, Montgomery, and Philadelphia PA Counties) NONFARM JOBS (April 2012) Industry Employment Net Change From: ESTABLISHMENT DATA April 2012 March 2012 February 2012 April 2011 March 2012 April 2012 Total Nonfarm... 1,887,900 1,869,300 1,859,200 1,888,500 18, Total Private... 1,675,000 1,656,900 1,646,800 1,666,600 18,100 8,400 Goods Producing , , , ,000 1,300-1,700 Mining, Logging, and Construction... 63,700 62,600 62,800 65,300 1,100-1,600 Manufacturing , , , , Durable Goods... 69,200 69,300 68,100 67, ,600 Transportation equipment mfg ,700 14,700 14,600 14, Non-Durable Goods... 61,400 61,100 61,400 63, ,700 Chemical mfg ,800 22,800 22,700 23, Pharmaceutical and medicine mfg ,200 14,200 14,300 15, SERVICE-PROVIDING... 1,693,600 1,676,300 1,666,900 1,692,500 17,300 1,100 PRIVATE SERVICE-PROVIDING... 1,480,700 1,463,900 14,545,500 1,470,600 16,800 10,100 Trade, Transportation, and Utilities , , , ,300 2, Wholesale Trade... 83,300 82,900 82,300 82, ,200 Retail Trade , , , ,200 2, Building material and supplies dealers... 11,300 10,600 10,200 10, Food and beverage stores... 44,400 44,400 44,100 44, Health and personal care stores... 15,600 15,500 15,600 15, Clothing and clothing accessories stores... 21,200 21,200 21,200 21, General merchandise stores... 28,500 28,500 28,200 27, Department stores... 20,600 20,400 20,000 20, Transportation, warehousing, and utilities... 59,000 58,700 58,600 59, Transportation and warehousing... 53,800 53,500 53,400 53, Trucking, couriers & messengers, and warehousing... 24,600 24,400 24,400 24, Information... 37,100 36,800 36,900 37, Telecommunications... 12,400 12,400 12,500 12, Financial Activities , , , , ,100 Finance and insurance , , , , Credit intermediation and related activities... 30,800 30,700 30,800 31, Depository credit intermediation... 22,500 22,500 22,500 22, Insurance carriers and related activities... 47,000 46, ,600 46, Real estate and rental and leasing... 23,700 23,700 23,400 24, Professional and Business Services , , , ,900 2,700 6,100 Professional and Technical Services , , , , ,200 Legal services... 25,500 25,500 25,500 25, Architectural and engineering services... 18,600 18,400 18,200 17, Computer systems design and related services... 32,600 32,300 32,300 31, Scientific research and development services... 18,400 18,600 18,700 18, Management of companies and enterprises... 42,100 42,400 42,300 42, Administrative and waste services , ,400 97, ,100 3, Administrative and support services ,600 97,200 94,000 98,400 3,400 2,200 Employment services... 27,700 27,700 27,500 28, Data benchmarked to March 2011 ***Data changes of 100 may be due to rounding*** Source: Pennsylvania State Employment Service: A-2

37 Major employers located within Chester County include: Approximate Name Product or Service Employment The Vanguard Group... Financial Services 5,800 Shared Medical Systems... Computer Services 3,200 QVC... Televised Merchandising 2,200 Lukens, Inc.... Steel Mfg. 2,000 Providian Financial Corp.... Financial Services 1,400 Unisys... Computer Services 1,200 Devereaux Foundation... Private Special Education Svcs. 1,000 Johnson Matthey, Inc.... Mfg. R&D /Testing 1,000 Decision One Corp.... Computer Maintenance Svcs. 1,000 Source: Chester County Council of Business and Industry. Additional employers located within surrounding counties to which the School District residents have access to by commuting: Approximate Name Product or Service Employment DuPont... Corporate Headquarters 12,000 Bank of America... Financial Services 10,000 Christiana Care Health Services... Health Care 7,700 AstraZeneca, Inc.... Pharmaceuticals 7,500 Crozier-Keystone Health System... Non-profit Health Care 4,000 Lancaster General... Regional Teaching Hospital 3,300 R R Donnelley & Sons, Inc.... Commercial Printing 3,200 First USA Bank... Financial Services 2,400 W.L. Gore & Associates, Inc.... Specialty Textiles Mfg. 1,700 Source: County Chambers of Commerce. A-3

38 Table A-4 shows recent trends in labor force, employment and unemployment for Chester County and the Commonwealth. TABLE A-4 RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT* Compound Average Annual % (1) Rate Chester County Civilian Labor Force (000) % Employment (000) % Unemployment (000) % Unemployment Rate Pennsylvania Civilian Labor Force (000) 6, , , , , , % Employment (000)... 6, , , , , , % Unemployment (000) % Unemployment Rate (1) As of April Source: Pennsylvania State Employment Service: Income The data on Table A-5 shows recent trends in per capita income for the School District, the County and Pennsylvania over the period. Per capita income in the School District is higher than per capita income in the State. Per capita income for both the County and the School District increased at a faster rate over this period than per capita income for the State. TABLE A-5 RECENT TRENDS IN PER CAPITA INCOME* Percentage Change School District... $26,577 $36, % Chester County... 20,601 31, % Pennsylvania... 14,068 20, % *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 populationweighted average for political subdivisions. Source: 2000 & 2010 Census, Pennsylvania State Data Center. A-4

39 Commercial Activity Table A-6 shows recent trends for retail sales in Chester County, MSA and the State. TABLE A-6 TOTAL RETAIL SALES (Millions of Dollars) Chester County... $ 15,103,555 $ 12,929,399 $ 11,660,539 $ 12,218,832 $ 12,210,801 PMSA ,677,207 94,687,876 89,183,335 94,935,061 94,890,513 Pennsylvania... NR 180,948, ,483, ,193, ,149,727 NR: Not reported. Source: Sales and Marketing Management Magazine Educational Institutions Chester County contains West Chester University, Immaculata College, Lincoln University, Penn State Great Valley Campus and Valley Forge Christian College. The Wilmington, Delaware area contains the University of Delaware and 4 other colleges, with combined enrollments of over 27,000 students. In nearby Philadelphia area there are approximately 31 institutions of higher education with a total enrollment of over 110,000 students. Included among these institutions are the University of Pennsylvania, Villanova University, Swarthmore College, La Salle College, St. Joseph s University, Temple University and Drexel University. Medical Facilities Chester County has 11 hospitals with bed capacity of approximately 4,600 to serve the School District residents. The Wilmington, Delaware area has 5 acute care hospitals with bed capacity of over 1,500 beds and employ over 4,000 people. The nearby city of Philadelphia is one of the largest health care centers in the world, with 53 hospitals employing over 37,000 people. There are 7 medical schools and 2 dental schools in Philadelphia. Utilities Those utilities serving the major portions of the County include Verizon, which provide telephone services, and the PECO Energy Company, which provides electric and gas service to the area. There are several local municipal authorities serving the area. Transportation U.S. Route 1 is the main highway traveling through the School District. State routes 10, 41, 52, 82, 162, 472, 841, 896 and 926 also traverse the School District. Chester County contains a portion of the Pennsylvania Turnpike, and is served by 6 commercial airports. Wilmington, Delaware is the nearest major transportation center, providing a Regional Airport, all bus, rail and port services. In nearby Philadelphia is the Philadelphia International Airport, along with all major rail, bus and trucking lines. The Philadelphia Port is one of the largest fresh water ports in the world. A-5

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41 APPENDIX B Opinion of Bond Counsel

42 DRAFT AVON GROVE SCHOOL DISTRICT GENERAL OBLIGATION BONDS, SERIES OF 2012 GENERAL OBLIGATION BONDS, SERIES A OF 2012 OPINION We have acted as Bond Counsel in connection with the issuance by Avon Grove School District, Chester County, Pennsylvania (the "School District"), of $,000 General Obligation Bonds, Series of 2012, and $,000 General Obligation Bonds, Series A of 2012, dated, 2012 (collectively, the "Bonds"). We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Bonds are issued in accordance and in compliance with the provisions of the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, as codified by the Act of December 19, 1996 (53 Pa. Cons. Stat. Chs ), ("the Act"), without the assent of the electors, and pursuant to a resolution adopted by the Board of School Directors of the School District on, The Bonds are valid and binding obligations of the School District. 3. The School District has established with the Paying Agent, as Sinking Fund Depositary, sinking funds in which it has covenanted to deposit amounts sufficient to pay the principal of and interest on the Bonds as the same become due and payable and, to the extent required, to apply such amounts to such purposes. 4. The School District has further covenanted that, subject to statutory restrictions and limitations, it will include in its budget for each fiscal year in which the Bonds are outstanding, and will appropriate in each such fiscal year, the amount of the debt service on the Bonds for such year, that it will duly and punctually pay or cause to be paid, the principal of and interest on the Bonds at the dates and place and in the manner stated on the Bonds; and for such budgeting, appropriation and payment, the School District has irrevocably pledged its full faith, credit and taxing power. For purposes of such payments, the School District has covenanted that it will exercise its ad valorem taxing power, within limitations provided by law, upon all taxable property within the School District. The Bonds are additionally secured by the state aid intercept provisions of Section 633 of the Public School Code of 1949, as amended by Act 150 of The School District has designated the Bonds as qualified tax-exempt obligations as defined in Section 265(b)(3)(B) of the Internal Revenue Code of 1986, as amended (the Code ), and the Bonds meet all of the requirements of, and therefore are, qualified tax-exempt obligations under Section 265(b)(3)(B) of the Code, and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction is allowed for 80 percent of the portion of such financial institutions interest expense allocable to interest on the Bonds. The opinions set forth in the preceding sentence are subject to the condition that the School District comply with all requirements of the Code, and any regulations promulgated thereunder, that must be satisfied subsequent to the issuance of the Bonds, in order that the Bonds continue to constitute qualified tax exempt obligations for purposes of Section 265(b)(3) of the Code. Failure to comply with such requirements may cause the Bonds to cease to constitute qualified tax exempt obligations, with the result that the Bonds would have to be taken into account by financial institutions (as defined in

43 Section 265(b)(5) of the Code) for purposes of determining the allocation of interest expense to tax-exempt interest under Sections 265(b)(1) and (2) of the Code retroactive to the date of issuance of the Bonds. 6. The interest on the Bonds 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; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The opinions set forth in the preceding sentence are subject to the condition that the School District comply with all requirements of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder, that must be satisfied subsequent to the issuance of the Bonds, in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The School District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 7. Under the laws of the Commonwealth of Pennsylvania as presently enacted and construed, the Bonds and the interest thereon will be free from taxation for state and local purposes within the Commonwealth of Pennsylvania, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from the sale, exchange or other disposition of certain government obligations, including the Bonds, may be subject to state and local taxation within the Commonwealth of Pennsylvania. The rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Bonds. Very truly yours, Kegel Kelin Almy & Lord LLP,

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45 APPENDIX C Audited Financial Statement

46 AVON GROVE SCHOOL DISTRICT WEST GROVE, PENNSYLVANIA AUDIT REPORT JUNE 30, 2011

47 AVON GROVE SCHOOl DISTRICT TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAl STATEMENTS Entity-wide Financial Statements: - Statement of Net Assets - Statement of Activities Fund Financial Statements: - Balance Sheet - Governmental Funds - Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Assets - Statement of Revenues, Expenditures and Changes in Fund Balances -Governmental Funds - Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds to Statement of Activities - Budgetary Comparison Statement - General Fund - Statement of Net Assets - Proprietary Fund - Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Fund - Statement of Cash Flows - Proprietary Fund - Statement of Net Assets - Fiduciary Funds NOTES TO FINANCIAl STATEMENTS

48 AVON GROVE SCHOOL DISTRICT TABLE OF CONTENTS SINGLE AUDIT 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 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Schedule of Findings and Recommendations Schedule of Expenditures of Federal Awards and Certain State Grants Notes to Schedule of Expenditures of Federal Awards and Certain State Grants

49 INDEPENDENT AUDITORS' REPORT Barbacane, Thornton & Company LLP 200 Springer Building Silverside Road Wilmington, Delaware October 31, 2011 T F www. btcpa.com Board of School Directors Avon Grove School District West Grove, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Avon Grove School District (the "District"), West Grove, Pennsylvania, as of and for the year ended June 30, 2011, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Avon Grove School District's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year summarized comparative information has been derived from the District's financial statements and, in our report dated January 10, 2011, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 Avon Grove School District, West Grove, Pennsylvania, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparisons for the general fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing standards, we have also issued our report dated October 31, 2011, on our consideration of Avon Grove School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing standards and should be considered in assessing the results of our audit BARBAO\NE lhornidn &CDMPANY CERTIFIED PUBLIC ACCOUNTANTS

50 Board of School Directors Avon Grove School District The management's discussion and analysis on pages 3 through 12 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Avon Grove School District's basic financial statements. The accompanying schedule of expenditures of federal awards and certain slate grants is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments and Nonprofit Organizations," and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial slalemenls and, in our opinion, is fairly stated In all material respects in relation to the basic financial statements taken as a whole. /J~~~t!7 BARBACANE, THORNTON & COMPANY LLP? LLP. 2.

51 Avon Grove School District Management's Discussion and Analysis - Unaudited For the Fiscal Year Ended June 30, 2011 This discussion and analysis of Avon Grove School District's financial performance provides an overview of the District's financial activities for the fiscal year ended June 30, Financial Highlights The District's net assets increased by $1.2 million, due primarily to increased revenues and the payment of long-term debt expenditures. Program revenues accounted for $17.0 million, or 22.6 percent of total revenues ($75.3 million); and general revenues accounted for $58.3 million, or 77.4 percent of the total. The general fund reported a positive unassigned fund balance of $7.6 million, or 10.1 percent of the $75.6 million operating budget. Actual expenditures in the general fund were $1.4 million less than budget. Reporting the District as a Whole The Statement of Net Assets and Statement of Activities The Statement of Net Assets and the Statement of Activities report information about the District as a whole and about its overall activities. These statements include all assets and liabilities of the District (except for fiduciary funds held in trust for student purposes) using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year's revenues and expenses are taken into consideration regardless of when cash is received or paid. These two statements report the District's net assets and changes in them during the fiscal year. The change in net assets provides the reader a tool to assist in determining whether the District's financial health is improving or deteriorating. The reader will need to consider other nonfinancial factors such as the District's property tax base, current property tax laws, student enrollment growth and facility conditions in arriving at a conclusion regarding the overall health of the District. Entity-wide Financial Analysis Net assets may serve over time as a useful indicator of a government's financial position. In the case of the District, assets exceeded liabilities by $34.1 million at the close of the most recent fiscal year. In the prior year, assets exceeded liabilities by $32.8 million. A portion of the District's total net assets reflects its investment in capital assets. The District uses capital assets to provide services; consequently, these assets are not available for future spending. Although the District's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. -3-

52 Avon Grove School District Management's Discussion and Analysis - Unaudited (confd) For the Fiscal Year Ended June 30, 2011 A comparative analysis of fiscal year 2011 to follows: STATEMENT OF NET ASSETS June 30, 2011 And Assets: Governmental Activities Business-!YJ~e Activities Totals Current and other assets $33,740,983 $35,519,987 $ 991,011 $ 869,151 $34,731,994 $36,389,138 Capital assets 62,031,241 60,538, , ,388 62,181,413 60,696,232 Total Assets 95,772,224 96,058,831 1,141,183 1,026,539 96,913,407 97,085,370 Liabilities: Current liabilities 16,339,124 13,225,415 48,595 40,358 16,387,719 13,265,773 Long-term liabilities 46,449,295 50,992,486 46,449,295 50,992,486 Total Liabilities 62,788,419 64,217,901 48,595 40,358 62,837,014 64,258,259 Net Assets: Invested in capital assets, net of debt 14,745,627 10,199, , ,388 14,895,799 10,356,828 Restricted 2,443,282 2,443,282 Unrestricted 15,794,896 21,641, , ,793 16,737,312 22,470,283 Total Net Assets $32,983,805 $31,840,930 $1,092,588 $ 986,181 $34,076,393 $32,827,111 Decreases in cash and investments were offset by decreases in long-term liabilities, and increases in capital assets as bond proceeds were expended for the acquisition of real property. Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those costs. The table on the following page reflects the cost of program services and the net cost of those services after taking into account the program revenues tor the governmental activities. -4-

53 Avon Grove School District Management's Discussion and Analysis - Unaudited (contd) For the Fiscal Year Ended June 30, 2011 STATEMENT OF ACTIVITIES For The Years Ended June 30, 2011 And Total Net Total Services Services Services PROGRAM EXPENSES Governmental Activities: Instruction $ 49,153,714 $ 38,200,311 $ 47,362,978 Instructional student support 4,566,219 4,247,682 4,383,524 Administration 4,858,331 4,657,850 4,935,672 Maintenance 4,624,874 4,508,302 4,555,260 Pupil transportation 6,019,933 3,713,391 5,918,713 Student activities 1,480,795 1,361,566 1,542,065 Community services 107, ,478 98,273 Interest and fiscal charges 1,498, ,944 2,247,445 Total Governmental Activities 72,310,067 57,179,524 71,043,930 Business-type Activities: Food service 1,772,808 (105,480) 1,848,272 Total Business-type Activities 1,772,808 (105,480) 1,848,272 Total Primary Government $ 74,082,875 $ 57,074,044 $ 72,892, Net Services $ 38,015,660 4,076,914 4,756,778 4,440,584 3,853,173 1,408,167 92,529 1,277,510 57,921,315 (83,538) (83,538) $ 57,837,777 The increases in the net cost of services for instruction are due to increasing personnel costs. In addition, as dictated by prior year trends, the District experienced increases in the cost of special education services. Interest expenses decreased due to the structure of refunding bond issues. In total, most other categories of expenses increased slightly as the District attempted to control and reduce the cost of support services. The net costs of food services increased as labor and food costs increased. CHANGES IN NET ASSETS For The Years Ended June 30,2011 And 2010 REVENUES Program Revenues: Charges for services Operating grants Total Program Revenues General Revenues: Taxes Grants and entitlements Investment earnings Miscellaneous Total General Revenues Governmental Activities $ 398,579 $ 261,583 14,731,964 12,861,033 15,130,543 13,122,616 42,815,043 41,569,239 15,312,190 15,078, , , ,142 58,322,399 57,094,483 Business-type Activities $1,146,472 $1,185, , ,114 1,878,288 1,931, ,773,9"'2.:,_7 1 '773 Totals $ 1,545,051 $ 1,447,279 15,463,780 13,607,147 17,008,831 15,054,426 42,815,043 41,569,239 15,312,190 15,078, , , ,142 58,323,326 57,096,256 TOTAL REVENUES 73,452,942 70,217,099 1,879,215 1,933,583 75,332,157 72,150,682-5-

54 Avon Grove School District Management's Discussion and Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 Governmental Activities Business~~~e Activities Totals EXPENSES Program Services: Instruction 49,153,714 47,362,978 49,153,714 47,362,978 Support services: Instructional staff support 4,566,219 4,383,524 4,566,219 4,383,524 Administration 4,858,331 4,935,672 4,858,331 4,935,672 Maintenance 4,624,874 4,555,260 4,624,874 4,555,260 Pupil transportation 6,019,933 5,918,713 6,019,933 5,918,713 Student activities 1,480,795 1,542, ,795 1,542,065 Community services 107,549 98, ,549 98,273 Interest/fiscal charges 1,498,652 2,247, ,652 2,247,445 Food service 1,772,808 1,848,272 1,772,808 1,848,272 TOTAL EXPENSES 72,310,067 71,043,930 1,772,808 1,848,272 74,082,875 72,892,202 CHANGE IN NET ASSETS $ 1,142,875 $!826,831) $ 106,407 $ 85,311 $ 1,249,282 $ ~741,520) Reporting the District's Most Significant Funds Governmental Funds Most of the 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. These funds are reported using the modified accrual method of accounting, which measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources available to spend in the near future to finance the District's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the basic financial statements. Proprietary Funds Proprietary funds use the accrual basis of accounting, the same as on the entity-wide statements; therefore, the statements will essentially match the business-type activities portion of the entity-wide statements. Fiduciary Funds The District is the trustee, or fiduciary, for funds held on behalf of the District's students. All of the District's fiduciary activities are reported in the Statement of Fiduciary Net Assets on page 23. These activities are excluded from the District's other financial statements because the assets cannot be utilized by the District to finance its operations. - 6-

55 Avon Grove School District Management's Discussion and Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 Fund Financial Statements The fund financial statements of the District's major funds begin on page 15 and provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State statute, while many other funds are established by the District to help manage money for particular purposes and compliance with various grant provisions. The District's three types of funds, governmental, proprietary and fiduciary, use different accounting approaches as further described in the notes to the financial statements. The District's governmental funds reported a combined fund balance of $22.0 million, which is less than last year's total of $24.6 million. The schedule below indicates the fund balance and the total change in fund balances as of June 30, 2011 and Fund Balance Fund Balance Increase June 30, 2011 June 30, 2010 (Decrease) General $ 19,572,964 $ 23,478,405 $ (3,905,441) Capital Projects 2,443,282 1,110,787 1,332,495 TOTAL $ 22,016,246 $ 24,589,192 $ (2,572,946l The change in the capital projects fund balance is the result of the transfer of funds from the General Fund to pay for capital improvement projects and elimination of the use of the Capital Reserve Fund to conform to new accounting standards. The decrease in the capital reserve fund balance is due to the expenditure of funds for a major renovation project at the Fred s. Engle Middle School and the elimination ot the fund prior to the end of the year with the transfer of remaining funds to the Capital Projects Fund. The decrease in the District's general fund balance is due to the use of a portion of the accumulated fund balance to pay for current operations and the transfer of funds to the Capital Projects Fund. The tables and graphs that follow assist in illustrating the financial activities and balance of the general fund Dollar Percent Revenues Amount Amount Change Change Taxes $ 43,615,320 $41,233,713 $ 2,381, % Intergovernmental 28,910,546 27,835,977 1,074, % Other revenue 1,722, ,077 1,017, % Total $ 74,248,266 $69,774,767 $ 4,473, % - 7-

56 Avon Grove School District Management's Discussion end Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 There was an increase in the tax rate from 2010 to 2011 of 3.8 percent. Total current real estate taxes collected increased by $1,895,519, or 4.91 percent, due to the increased rate and an increase in assessed valuation. Delinquent tax collected increased by $480,855, or 30.5 percent, due to an increase in the collection rate and settlement of a tax appeal. Interest earnings decreased due to the general decline in interest rates during the year. Intergovernmental revenue increased by 3.90 percent due to increased Commonwealth subsidies for basic education, and the receipt of federal stimulus funds for both regular education and special education programs. Other revenue increased by percent due to the increased amount of federal stimulus funds passed through another education agency. Fund Revenues 6.5% 1:1 Prop Tax 34.0% Local Other 58. 7% D State c Federal The District's reliance upon revenues from real estate property taxes and revenues from other local sources is demonstrated by the chart above that indicates 58.7 percent of total revenues for government activities come from local sources. As the graph below illustrates, the largest portions of District expenditures are for salaries and benefits (57.0 percent) and contracted services, including pupil transportation and charter school tuition (8.7 percent), other purchased services (18.0 percent) and debt service (14.0 percent). Equipment, purchased services and supplies make up the balance (4.3 percent) of total expenditures. General Fund Expenditures 8.7% D Wages Benefits C Purch Svc C Supplies Equipment C Mise o ebt/trn CQthPchSvc - 8 -

57 Avon Grove School District Management's Discussion and Analysis - Unaudited (confd) For the Fiscal Year Ended June 30, 2011 Exr:>enditures by Object Change Salaries and wages $ 31,411,636 $ 30,273,310 $ 1,138,326 Benefits 11,567,010 10,007,178 1,559,832 Other purchased services 14,068,395 13,072, ,582 Purchased property services 6,788,324 6,862,244 (73,920) Supplies 3,104,966 3,223, ,251 Equipment 179, ,453 (370,828) Miscellaneous 53,513 56,905 (3,392) Debt service/transfers 10,980, ,714 3,179,524 Total $ 78,153,707 $ 71,846,834 $ 6,306,873 Percent 3.76% 15.56% 9.61% -1.08% 3.67% 67.37% -5.96% 40.76% 8.78% Expenditures increased by $6,306,8 73 (8. 78 percent), or 3.59 percent when transfers to the capital projects fund are excluded. The increase in expenditures was due primarily to increases in salaries and wages associated with existing and additional staff and increases in purchased services such as contracted pupil transportation and the tuition paid to charter schools. Fund transfers to the Capital Projects Fund ($5,000,000) account for a sizable portion of the year-to-year increase (5.23 percent). Business-type Activities Business-type activities consist of the food service program. This program had a net increase in net assets of $106,407, due to an operating surplus generated by increased sales and increased subsidies from the National School lunch Program. General Fund Budget Information The District's budget is prepared in accordance with Pennsylvania law and is based on the modified accrual basis of accounting. The most significant budgeted fund is the General Fund. The final budget for expenditures reflects the required changes in functional categories due to spending patterns. Spending Review Variance Original Final Positive Percent Budget Budget (Negative) Change Instructional services: Regular programs 1000 $ 32,816,446 $ 32,399,603 $ 416, % Special programs ,817,402 12,080,485 (263,083) -2.23% Vocational programs ,678,694 1,678,894 (200) -0.01% Other programs , , % Total Instructional Services 46,488,657 46,335, , % -9-

58 Avon Grove School District Management's Discussion and Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 Spending Review Variance (cont'dl Original Final Positive Budget Budget (Negative) Support services: Pupil personnel 2100 $ 2,729,481 $ 2,860,866 $ (131,385) Instructional staff services '169,002 1,328,134 (159,132) Administrative services ,336,570 3,295,968 40,602 Pupil health , ,760 37,139 Business services , ,822 (833) Operation and maintenance of plant ,936,781 4,703, ,000 Student transportation services ,849,235 6,061,996 (212,761) Central support services , ,338 35,770 Other support services (1,300) Total Support Services 20,322,065 20,480,965 (158,900) Operation of noninstructional services: Student activities '175,597 1,155,063 20,534 Community services ,650 (17,095) Total Operation of Noninstructional Services 1,267,152 1,263,713 3,439 Debt service/transfers ,450,180 6,448,279 1,901 $ 74,528,054 $ 7 4,528,054 $ Percent Change -4.81% % 1.22% 5.14% 0.15% 4.72% -3.64% 3.63% -3.82% -0.78% 1.75% % 0.27% 0.03% 0.00% Using spending variances in excess of one percent, the most significant changes in the District's final budget expenditures vs. planned expenditures were: Variance Original Final Positive Percent Budget Budget (Negative) Change Instruction 1000 $ 32,816,446 $ 32,399,603 $ 16, % Special proqrams ,817,402 12,080,485 (263,083) -2.23% Pupil personnel ,729,481 2,860,866 (131,385) -4.81% Instructional staff services '169,002 1,328,134 (159, 132) % Administrative services ,336,570 3,295,968 40, % Pupil health , ,760 37, % Operations and maintenance ,936,781 4,703, , % Transportation ,849,235 6,061,996 (212,761) -3.64% Central support , ,338 35, % Other support services ,000 35,300 (1,300) -3.82% Student activities ,175,597 1 '155,063 20, % Community services , ,650 (17,095) % - ld-

59 Avon Grove School District Management's Discussion and Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 Due to budgetary changes and changes in funding from the Commonwealth of Pennsylvania and the federal government after the adoption of the school district budget, several major budget revisions were required. Funds were reallocated to the special education function to budget and account for the expenditure of federal stimulus funds. In addition, funds for regular education were reallocated to special education programs. Expenditures for vocational education increased due to an increase in the number of students attending the county vocational program. Funds for curriculum and staff development were reallocated to instructional programs. Due to savings in energy and operating costs, the District was able to transfer funds from this area of the budget to cover the increased cost of pupil transportation services for special education and nonpublic students. There was a significant increase in the cost of the senior citizen lax assistance program which has been discontinued. Capital Assets The District has $62.2 million invested in capital assets net of depreciation, with $62.0 million attributed to governmental activities. Acquisitions for governmental activities totaled $4.3 million, and depreciation expense for the year was $2.9 million. The majority of the acquisitions were for improvements made to the Fred S. Engle Middle School and the Penn London Elementary School. Detailed information regarding capital asset activity is included in the notes to the basic financial statements (Note 5). Debt AI June 30, 2011, the District had $46.9 million in outstanding general obligation bonds and $ million in authorized but unissued general obligation bonds. The District had a net decrease of $4.55 million in outstanding general obligation bonds during the fiscal year. Detailed information regarding long-term debt activity is included in the notes to the basic financial statements (Note 7). Under current Commonwealth of Pennsylvania statutes, the District's non-electoral general obligation bonded debt issues are subject to legal limitation based on 225 percent of the average revenues for the prior three years. AI June 30, 2011, the District's general obligation debt was $54.9 million below the legal limit. Factors Expected to have an Effect on Future Operations The District has experienced significant growth (9. 9 percent) in enrollment over the last 1 0 years but enrollment in the last four years has remained relatively constant. If the growth patterns in student population change so that more students enter the District than currently anticipated, adjustments will have to be made to the financial models upon which assumptions have been made. - ll -

60 Avon Grove School District Management's Discussion and Analysis - Unaudited (cont'd) For the Fiscal Year Ended June 30, 2011 The District's property tax base is expected to remain relatively constant over the next several years. The District's ability to raise new real estate property tax revenues has been curtailed by property tax relief legislation that limits future tax rate increases and limits the future taxing authority of the District. II is anticipated that the rate of growth will return to the three percent to five percent range previously projected when the overall housing market improves. The District's enrollment is expected to remain relatively constant through fiscal year The District's facilities are being studied to adequately accommodate the expected future increases in student growth. While most of the District's facilities are relatively new or renovated, and while all these facilities meet current federal, state, county and municipal guidelines for health and safety criteria, new mandates for facility upgrades can be imposed by any of these governments at any time. The reader is invited to review additional tax and enrollment information on the District's web page ( and to review official offering statements of recent District bond issues that contain related housing, commercial and demographic information available at its business office located at the Avon Grove School District Administrative Office. Contacting the District Financial Management Our financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact James A. Asciutto, Business Manager, at Avon Grove School District, 375 South Jennersville Road, West Grove, Pennsylvania 19390, (61 OJ , extension 1014; or asciutto@avongrove.org

61 AVON GROVE SCHOOL DISTRICT STATEMENT OF NET ASSETS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 2010) ASSETS Cash and cash equivalents Investments Taxes receivable, net of allowance Due from other governments Internal balances Other receivables Inventories Other current assets Issuance costs Land Construction-in-progress Buildings and improvements Furniture and equipment Accumulated depreciation Governmental Activities $ 1,961,787 27,898,059 1,871,719 1,237,907 63, , ,620 11,035,789 82,316,215 4,337,964 (35,658,727) Business-type Activities $ 146, ,159 31,616 (63,941) 21 55, ,547 (560,375) 2011 $ 2,108,069 28,719,218 1,871,719 1,269, , , ,620 11,035,789 82,316,215 5,048,511 (36,219,102) Totals 2010 $ 604,352 32,009,220 2,085,613 1,220,588 28,573 62, ,290 10,980,025 8,477,649 71,005,082 3,581,548 (33,348,072) TOTAL ASSETS $95,772,224 $1,141,183 $96,913,407 $97,085,370 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable Accrued salaries, payroll withholdings and benefits Accrued interest payable Deferred revenues Long-term liabilities Portion due or payable within one year: Bonds payable Add: Unamortized premium Less: Unamortized discount Less: Deferred amount on refunding Accumulated compensated absences/ early retirement incentive Other post-employment benefit obligations Portion due or payable after one year: Bonds payable Add: Unamortized premium Less: Unamortized discount Less: Deferred amount on refunding Accumulated compensated absences/ early retirement incentive Other post-employment benefit obligations TOTAL LIABILITIES $ 815,348 8,958, ,165 9,280 5,400,000 84,136 (38,354) (114) 214, ,666 41,500, ,763 (243,718) (1,099) 1,096,363 3,512,986 62,788,419 $ 21,273 27,322 48,595 $ 815,348 8,979, ,165 36,602 5,400,000 84,136 (38,354) (114) 214, ,666 41,500, ,763 (243,718) (1,099) 1,096,363 3,512,986 62,837,014 $ 1,704,530 6,391, , ,833 4,550,000 87,588 (40,652) (15,792) 134, ,718 46,900, ,552 (289,161) (43,054) 1,140,088 2,032,343 64,258,259 NET ASSETS: Invested in capital assets, net of related debt Restricted for capital projects Unrestricted TOTAL NET ASSETS 14,745,627 2,443,282 15,794,896 32,983, , ,416 1,092,588 14,895,799 2,443,282 16,737,312 34,076,393 10,356,828 22,470,283 32,827,111 TOTAL LIABILITIES AND NET ASSETS $95,772,224 $1,141,183 $96,913,407 $97,085,370 The accompanying notes are an integral part of these financial statements

62 AVON GROVE SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 (With Summarized Comparative Data for the Year Ended June 30, 201 0) Expenses GOVERNMENTAL ACTIVITIES: Instruction $49,153,714 Instructional student support 4,566,219 Administrative and financial support services 4,858,331 Operation and maintenance of plant services 4,624,874 Pupil transportation 6,019,933 Student activities 1,480,795 Community services 107,549 Interest on long-term debt 1,498,652 TOTAL GOVERNMENTAL ACTIVITIES 72,310,067 BUSINESS-TYPE ACTIVITIES: Food service 1,772,808 TOTAL BUSINESS-TYPE ACTIVITIES 1,772,808 TOTAL PRIMARY GOVERNMENT $74,082,875 Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions $ 275,965 $10,677,438 $ 318,537 16, ,154 29,555 87,017 2,306,542 76,732 42,497 6,071 1,109, ,579 14,731,964 1,146, ,816 1,146, ,816 $1,545,051 $15,463,780 $ - Net (Expense)Revenue a_nd_changes in Net Assets Governmental Business-type Totals Activities Activities $(38,200,311) $ $(38,200,311) $(38,015,660) (4,247,682) (4,247,682) (4,076,914) (4,657,850) (4,657,850) ( 4, 756, 777) (4,508,302) (4,508,302) (4,440,584) (3,713,391) (3, 713,391) (3,853, 173) (1,361,566) (1,361,566) (1,408,167) (101,478) (101,478) (92,529) (388,944) (388,944) (1,277,510) (57,179,524) (57, 179,524) (57,921,314) , ,480 83, , ,480 83,538 (57, 179,524) 105,480 (57,074,044) (57,837,776) GENERAL REVENUES Property taxes levied for general purposes Taxes levied for specific purposes Grants and entitlements not restricted to specific programs Investment earnings Miscellaneous TOTAL GENERAL REVENUES CHANGE IN NET ASSETS NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR 42,142,886 42,142,886 40,833, , , ,919 15,312,190 15,312,190 15,078, , , , ,142 58,322, ,323,326 57,096,256 1 '142, ,407 1,249,282 (741,520) 31,840, ,181 32,827,111 33,568,631 $ 32,983,805 $1,092,588 $ 34,076,393 $ 32,827,111 The accompanying notes are an integral part of these financial statements

63 AVON GROVE SCHOOL DISTRICT BALANCE SHEET-GOVERNMENTAL FUNDS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 201 0) ASSETS Cash and cash equivalents Investments Taxes receivable, net of allowance Due from other funds Due from other governments Other receivables Other current assets General Fund $ 1,961,787 25,454,777 1,871,719 63,941 1,237, ,057 Major Funds Capital Projects Fund $ 2,443, $ 1,961,787 27,898,059 1,871,719 63,941 1,237, ,057 Totals 2010 $ 390,806 31,388,850 2,085,613 63,457 1,185,546 27,425 TOTAL ASSETS $31.001,081 $ 2.443,282 $33.444,363 $35, LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable Accrued salaries, payroll withholdings and benefits Accumulated compensated absences/ early retirement incentive Deferred revenues TOTAL LIABILITIES $ 815,348 8,958, ,426 1,439,772 11,428,117 $ $ 815,348 8,958, ,426 1,439,772 11,428,117 $ 1,704,273 6,367, ,654 2,346,419 10,552,505 FUND BALANCES Committed Assigned for budget Unassigned TOTAL FUND BALANCES 10,000,000 2,000,000 7,572,964 19,572,964 2,443,282 2,443,282 12,443,282 2,000,000 7,572,964 22,016,246 24,589,192 24,589,192 TOTAL LIABILITIES AND FUND BALANCES $31, $ 2.443,282 $ ,363 $35.141,697 The accompanying notes are an integral part of these financial statements

64 AVON GROVE SCHOOL DISTRICT RECONCILIATION OF BALANCE SHEET- GOVERNMENTAL FUNDS TO STATEMENT OF NET ASSETS JUNE 30, 2011 TOTAL GOVERNMENTAL FUND BALANCES $22,016,246 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Buildings and improvements (including construction-in-progress) Furniture and equipment Accumulated depreciation $11,035,789 82,316,215 4,337,964 (35,658, 727) 62,031,241 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Bonds payable Accumulated compensated absences/early retirement incentive Accrued interest payable Other post-employment benefits (46,900,000) (1,096,363) (298, 165) (4,110,652) (52,405, 180) Refunded debt and bond issuance costs resulted in deferred charges and credits which will be amortized over the life of the new debt but do not represent current rights. (88,994) Some of the District's revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. 1,430,492 NET ASSETS OF GOVERNMENTAL ACTIVITIES $32,983,805 These accompanying notes are an integral part of these financial statements

65 AVON GROVE SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2011 (With Summarized Comparative Data for the Year Ended June 30, 2010) REVENUES Local sources State sources Federal sources TOTAL REVENUES General Fund $ 44,204,112 25,240,682 4,803,472 74,248,266 Major Funds Capital Projects Fund $ $ 44,205,101 25,240,682 4,803,472 74,249,255 Totals 2010 $ 41,928,790 24,699,648 3,146, ,767 EXPENDITURES Current: Instruction Support services Operation of noninstructional services Capital outlays Debt service TOTAL EXPENDITURES 46,135,948 19,846,167 1,191,336 5,980,256 73,153,707 3,668,494 3, ,135,948 19,846,167 1,191,336 3,668,494 5,980,256 76, ,142,624 19,656,570 1,249,868 8,527,814 7,067,339 79,644,215 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,094,559 (3,667,505) (2,572,946) (9,869,448) OTHER FINANCING SOURCES (USES) Issuance of debt Payment of debt- refunding Bond premiums Bond discounts Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) (5,000,000) (5,000,000) 5,000,000 5,000,000 5,000,000 (5,000,000) 29,370,000 (29,340,000) 735,969 (228,517) 1,537,629 (1,537,629) 537,452 NET CHANGE IN FUND BALANCES (3,905,441) 1,332,495 (2,572,946) (9,331,996) FUND BALANCES, BEGINNING OF YEAR 23,478,405 1,110,787 24,589,192 33,921,188 FUND BALANCES, END OF YEAR $ H\ $ $ $ 24, The accompanying notes are an integral part of these financial statements

66 AVON GROVE SCHOOL DISTRICT RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 NET CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays ($4,332,780) exceeded depreciation ($2,840,383) in the period. Because some property taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred tax revenues increased by this amount this year. Grant awards that did not provide current financial resources in the current year are recorded as deferred revenue in the funds but as income in the statement of activities. Debt proceeds are reported as financing sources in the governmental funds and thus contribute to the change in fund balance. In the statement of net assets, however, issuing debt increases long-term liabilities and does not affect the statement of activities. Similarly, repayment of principal is an expenditure in the governmental funds but reduces the liability in the statement of net assets. This is the amount by which debt proceeds ($0) were less than debt repayments ($4,550,000). Governmental funds report bond issuance cost, discounts and deferred amounts on refunding as expenditures and bond premiums as revenue. However, these amounts are reported on the statement of net assets as deferred charges and credits and are amortized over the life of the debt. This is the amount by which net amortization exceeded current issuance costs, discounts and deferred amounts on refunding net of bond premiums. In the statement of activities, certain operating expenses--compensated absences (vacations and sick leave) and special termination benefits (early retirement)--are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This is the amount by which current period amounts paid were less than current period compensated absences earned. Compensated absences Other post-employment benefits Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and, thus, requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. $ (2,572,946) 1,492,397 (801,267) 4,953 4,550,000 (88,803) $ 43,725 (1,505,591) (1,461,866) 20,407 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 1,142,875 The accompanying notes are an integral part of these financial statements.. 18.

67 REVENUES Local sources State sources Federal sources TOTAL REVENUES EXPENDITURES Instruction: Regular programs Special programs Vocational programs Other instructional programs Total Instruction Support services: Pupil personnel services Instructional staff services Administrative services Pupil health Business services Operation and maintenance of plant services Student transportation services Central support services Other support services Total Support Services Operation of noninstructional se!vices: Student activities Community services Total Operation of Noninstructional Services Debt service TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in/out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCE FUND BALANCE (DEFICIT), BEGINNING OF YEAR FUND BALANCE, END OF YEAR AVON GROVE SCHOOL DISTRICT BUDGETARY COMPARISON STATEMENT GENERAL FUND FOR THE YEAR ENDED JUNE 30,2011 Original Budgeted Amounts Final $ 43,515,603 $ 43,515,603 28,858,170 28,858, , ,657 73,023,430 73,023,430 32,816,446 32,399,603 11,817,402 12,080,485 1,678,694 1,678, , ,115 46,488,657 46,335,097-2,729,481 2,860,866 1 '169,002 1,328,134 3,336,570 3,295, , , , ,822 4,936,781 4,703,781 5,849,235 6,061, , ,338 34,000 35,300 20,322,065 20,480,965-1,175,597 1,155,063 91, ,650 1,267,152 1,263,713 6,450,180 6,448,279 74,528,054 74,528,054 (1,504,624) (1,504,624) (16,653,468) (16,653,468) (16,653,468) (16,653,468) (18,158,092) (18, 158,092) 25,443,083 25,443,083 $ 1.<84,991 $. 7,284,991 - Actual (GAAP Basis) Final Budget Positive (Negative) $ 44,204,112 $ 688,509 25,240,682 (3,617,488) 4,803,472 4,153, ,266 1,224,836 32,384,513 15,090 11,956, ,997 1,678, ,053 60,062 46,135, ,149 2,817,110 43,756 1,220, ,559 3,266,386 29, ,874 40, ,549 5,273 4,365, ,648 6,019,933 42, ,356 26,982 35, ,846, ,798 1,083,787 71, ,549 1 '101 1,191,336 i'/.,377 5,980, ,023 73,153,707 1,374,347 1,094,559 2,599,183 (5,000,000) 11,653,468 (5,000,000) 11,653,468 (3,905,441) 14,252,651 23,478,405 (1,964,678) $ 19,572,964 $12,287,973 The accompanying notes are an integral part of these financial statements

68 AVON GROVE SCHOOL DISTRICT STATEMENT OF NET ASSETS- PROPRIETARY FUND JUNE 30, 2011 (With Comparative Data for June 30, 201 0) 2011 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 146,282 Investments 821 '159 Due from other funds Due from other governments 31,616 Other receivables 21 Inventories 55,874 Total Current Assets 1,054,952 PROPERTY AND EQUIPMENT: Furniture and equipment 710,547 Accumulated depreciation (560,375) Net Property and Equipment 150,172 TOTAL ASSETS $ 1,205,124 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ Payroll payable 21,273 Due to other funds 63,941 Deferred revenues 27,322 Total Liabilities 112,536 NET ASSETS: Invested in capital assets, net of related debt 150,172 Unrestricted 942,416 Total Net Assets 1,092,588 TOTAL LIABILITIES AND NET ASSETS $ 1,205,124 Major Fund Food Service Fund 2010 $ 213, ,370 3,266 35,042 1 '148 62, , ,116 (529,728) 157,388 $ 1,093,262 $ ,881 66,723 16, , , , ,181 $ 1,093,262 The accompanying notes are an integral part of these financial statements. -20-

69 AVON GROVE SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS. PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30,2011 (With Comparative Data for the Year Ended June 30, 2010) Major Fund Food Service Fund OPERATING REVENUES Food service revenues $ 1,146,472 $ 1 '185,696 Total Operating Revenues 1,146,472 1,185,696 OPERATING EXPENSES Salaries 477, ,234 Employee benefits 235, ,716 Purchased professional and technical services 22,206 11,694 Other operating expenses 2,888 3,283 Supplies 1,003,286 1,070,857 Depreciation 30,647 29,488 Total Operating Expenses 1,772,808 1,847,272 OPERATING LOSS (626,336) (661,576) NONOPERATING REVENUES Earnings on investments 927 1,773 State sources 95,248 98,739 Federal sources 636, ,375 Total Nonoperating Revenues 732, ,887 CHANGE IN NET ASSETS 106,407 85,311 NET ASSETS, BEGINNING OF YEAR 986, ,870 NET ASSETS, END OF YEAR $ 1,092,588 $ 986,181 The accompanying notes are an integral part of these financial statements

70 AVON GROVE SCHOOL DISTRICT STATEMENT OF CASH FLOWS- PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30,2011 (With Comparative Data for the Year Ended June 30, 2010) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers Payments to suppliers Payments to employees NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State sources Federal sources NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Earnings on investments Purchase of investments Sale of investments NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2011 $ 1,158,701 (922,494) (715,905) (479,698) 95, , ,727 (23,431) (23,431) 927 (200,789) (199,862) (67,264) 213,546 Major Fund Food Service Fund 2010 $ 1,175,956 (927,337) (726,254) (477,635) 98, , ,229 1,773 53,400 55, ,767 52,779 CASH AND CASH EQUIVALENTS, END OF YEAR $ 146,282 $ 213,546 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating loss Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation Donated commodities {Increase) Decrease in: Accounts receivable Inventories Increase (Decrease) in: Accounts payable Due to other funds Accrued payroll expenses Deferred revenue NET CASH USED BY OPERATING ACTIVITIES $ (626,336) 30,647 99,515 1,127 6,628 (257) 484 (2,608) 11,102 $ (479,698) $ $ (661,576) 29, ,659 (912) 5,691 (958) (1,895) 5,696 (8,828) (477,635) SUPPLEMENTAL DISCLOSURE: Noncash noncapital financing activity: USDA donated commodities $ 99,515 $ 155,659 The accompanying notes are an integral part of these financial statements.. 22.

71 AVON GROVE SCHOOL DISTRICT STATEMENT OF NET ASSETS FIDUCIARY FUND JUNE 30,2011 (With Comparative Data for June 30, 2010) ASSETS: Cash TOTAL ASSETS 2011 $ 86,147 $ 86, $ 83,189 $ 83,189 LIABILITIES AND NET ASSETS: LIABILITIES Accounts payable $ 86,147 $ 83,189 NET ASSETS TOTAL LIABILITIES AND NET ASSETS $ 86,147 $ 83,189 The accompanying notes are an integral part of these financial statements. -23-

72 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Avon Grove School District (the "District") operates two elementary schools, one middle school and one senior high school to provide education and related services to the residents of Penn, London Grove, New London, Franklin and London Britain Townships and the Boroughs of Avondale and West Grove. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School Laws of Pennsylvania as a school district of the third class. The District operates under a locally elected nine-member Board form of government. The financial statements of the District have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. Reporting Entity GASB Statement No. 14, "The Financial Reporting Entity," as amended by GASB Statement No. 39, established the criteria for determining the activities, organizations and functions of government to be included in the financial statements of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's financial accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are financial accountability and the nature and significance of the relationship. The District is considered to be an independent reporting entity and has no component units. Basis of Presentation Entity-wide Financial Statements The statement of net assets and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type. These statements include the financial activities of the primary government, except for fiduciary funds. The entity-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under proprietary funds below. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include a reconciliation with brief explanations to better identify the relationship between the entity-wide statements and the statements of governmental funds. The entity-wide statement of activities presents a comparison between expenses and program revenues for each function of the business-type activities of the District and for each governmental program. Expenses are those that are specifically associated with a service or

73 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con!' d) program and are, therefore, clearly identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by the programs, and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Except for interfund activity and balances between the funds that underlie governmental activities and the funds that underlie business-type activities, which are reported as transfers and internal balances. the effect of interfund activity has been removed from these statements. The entity-wide financial statements report net assets in one of three components: invested in net assets, net of related debt; consists of capital assets, net of accumulated depreciation; and reduced by the outstanding balances of borrowings attributable to acquiring, constructing or improving those assets. Net assets are reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Those restrictions affect net assets arising from the capital projects fund. Unrestricted net assets consist of net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted." Fund Financial statements During the school year, the District segregates transactions related to certain District functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements report detailed information about the District. The focus of governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Fiduciary fund financial statements are presented by fund type. Governmental Funds All governmental funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. The District reports the following major governmental funds: The General Fund is the government's primary operating fund. II accounts for all financial resources of the general government, including the athletic fund, except those required to be accounted for in another fund. The Capital Projects Fund is used to account for the acquisition, construction and renovation of major capital facilities and their related capital assets and to account for funds set aside for future capital needs

74 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con!' d) Revenue Recognition In applying the "susceptible to accrual concept" under!he modified accrual basis, revenues are considered lo be available when!hey are collectible within!he current period or soon enough lhereafler lo pay liabilities of the current period. For!his purpose, the District considers tax revenue to be available if collected within 60 days of the end of the fiscal period. Revenue from federal, stale and other grants designated for payment of specific District expenditures is recognized when!he related expenditures are incurred; accordingly, when such funds are received,!hey are reported as deferred revenues until earned. Other revenues, including certain other charges for services and miscellaneous revenues, are recorded as revenue when received in cash because they generally are no! measurable until actually received. Expenditure Recognition The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather!han expenses. Most expenditures are measurable and are recorded when the related fund liability is incurred. However, principal and interest on general long-term debt which has no! matured are recognized when paid. Liabilities for compensated absences and special termination benefits are recognized as fund liabilities lo the extent they mature each period. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds. Proprietary Funds Proprietary funds are accounted for using the accrual basis of accounting. These funds account for operations!hal are financed primarily by user charges. The economic resource focus concerns determining costs as a means of maintaining!he capital investment and management control. Revenues are recognized when!hey are earned and expenses are recognized when!hey are incurred. Allocations of certain costs, such as depreciation, are recorded in proprietary funds. The District does no! allempllo allocate all "building-wide costs" lo!he proprietary fund. Thus, general fund expenditures which partially benefit the proprietary fund (utilities, janitorial services, insurance, etc.) are not recognized proportionately within the proprietary fund. Similarly, the proprietary fund does not recognize a cost for!he building space it occupies. These funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary fund's principal ongoing operations. The principal operating revenues of the District's proprietary fund are food service charges. Operating expenses for the District's proprietary fund include food production costs, supplies and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses

75 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 are followed in both the entity-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict the guidance of GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and proprietary funds, subject to this same limitation. The District has elected not to follow subsequent private-sector guidance. Fiduciary Funds Fiduciary funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or governmental units and are, therefore, not available to support the District's own programs. The District accounts for these assets in an agency fund. The agency fund accounts for funds held on behalf of students of the District. II is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the entity-wide financial statements as "internal balances." Taxes receivable are presented net of allowances for estimated uncollectibles of $24,181. The allowance for uncollectible accounts is based upon historical data established according to experience and other factors which, in the judgment of District management, deserve recognition in estimating possible losses. Management believes that they have adequately provided for future probable losses. Property Taxes Taxes are levied on July 1 and are payable in the following periods: July 1 -August 31 September 1 - October 31 November 1 to collection January 15 Discount period, 2% of gross levy Face period Penalty period, 10% of gross levy Lien date

76 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) An installment payment plan is available to residential property owners, who have been approved as homestead owners by the Chester County Board of Assessments, with three equal installments due as follows: August 31 September 30 October 31 one third of the gross levy one third of the gross levy one third of the gross levy In order to participate in the installment payment plan, homestead owners must forego the opportunity to make payment at the two percent of gross levy discount rate. The District's taxes are billed and collected by the District. The tax on real estate for public school purposes for fiscal was mills ($ for $1,000 of assessed valuation) for the entire District. Inventories All inventories are valued at the lower of cost (first-in, first-out method) or market. Capital Assets Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the entity-wide and proprietary fund financial statements. Capital assets are defined by the District as assets with an initial, individual cost of more than $5,000, composite assets of more than $10,000 and critical control assets as defined by District policy. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed, inclusive of ancillary costs. Property, plant and equipment ot the District are depreciated using the straight-line method over the following estimated useful lives: School buildings Portable classrooms HVAC systems Interior construction Sprinkler/fire system Outdoor equipment Machinery and tools Kitchen equipment Custodian equipment years years years years years years years years 5-7 years

77 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (conl'd) Furniture and accessories Business machines Copiers Computers Audio visual Communication years 5-10 years 3-5 years 3-5 years 7-10 years 5-10 years Compensated Absences District policies permit employees to accumulate earned but unused vacation and personal and sick days as stipulated in each bargaining unit's contract. The liability for these compensated absences is recorded as long-term debt in the entity-wide financial statements. The current portion of this debt is estimated based on historical trends. In the fund financial slalemenls, governmental funds report the compensated absence liability payable from expendable available financial resources. Long-term Obligations In the entity-wide financial statements and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. Deferred amounts on refunding are recorded as a decrease to debt payable and amortized over the life of the old deb! or the life of the new debt, whichever is shorter. All amounts are amortized using the straight-line method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received and discounts paid on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as deb! service expenditures, except for refundings paid from proceeds which are reported as other financing uses. Fund Equity In the fund financial slalemenls, governmental funds report reservations of fund balance for amounts!hal are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. When both restricted and unrestricted resources are available for use, il is the District's policy to use restricted resources first and then unrestricted resources as they are needed. Comparative Data Comparative totals for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the District's financial position and operations. Certain amounts presented in the prior year have been reclassified in order to

78 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) be consistent with the current year's presentation. However, presentation of prior year totals by fund and activity type have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Summarized comparative information should be read in conjunction with the District's financial statements for the year ended June 30, 2010, from which the summarized information was derived. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information An annual budget is adopted prior to the beginning of each year for the general fund on the modified accrual basis of accounting. The general fund is the only fund for which a budget is legally required, although project-length financial plans are adopted for all capital projects funds. The District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district 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 July1. Under the Taxpayer Relief Act, the school district 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 such 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 and within 10 days, but no 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 or more of the referendum exceptions authorized by the Taxpayer Relief Act

79 AVON GROVE SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (con!' d) With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which POE approval is required, the school district must publish notice of its intent to seek POE approval not less than one week before submitting its request for approval to POE and, if POE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. POE 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 POE 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. To use any of the referendum exceptions for which court approval is required under the Taxpayer Relief Act, the school district must petition the court of common pleas no later than 75 days prior to the upcoming election, after giving one week's public notice of the intent to file such petition. The court may schedule a hearing on the petition, and the school district must prove by clear and convincing evidence that it qualifies for the exception sought. The Taxpayer ReliefAct requires that the court rule on the petition and inform the school district of its decision no later than 55 days prior to the upcoming election. Such Act provides that the court in approving the petition shall determine the dollar amount for which the exception is granted, the tax rate increase required to fund the exception and the appropriate duration of the tax increase. If the court denies the school district's petition, such Act permits the school district to submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses. If the 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 or more 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. The above budgetary procedures will not apply if the school district adopts a resolution no later than 11 0 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax 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 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. Legal budgetary control is maintained at the sub-function/major object level. The Board may make transfers of funds appropriated to any particular item of expenditure by legislative action in accordance with the Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without Board approval. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments