George K. Baum & Company

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY RATING: S&P: AA SERIES 2010A BANK QUALIFIED In the opinion of Bond Counsel, conditioned on continuing compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), (1) interest on the Series 2010A Bonds (a) is excluded from gross income for federal income tax purposes and (b) is exempt from income taxation by the State of Missouri and (2) interest on the Series 2010B Bonds (a) is not excluded from gross income for federal income tax purposes but (b) is exempt from income taxation by the State of Missouri. Also in the opinion of Bond Counsel, interest on the Series 2010A Bonds is not a specific item of tax preference for purposes of the federal alternative minimum tax on corporations and other taxpayers, including individuals. In the opinion of Bond Counsel, the Series 2010A Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code (relating to financial institution deductibility of interest expense). See TAX MATTERS herein and the forms of opinions of Bond Counsel attached hereto as Appendix C. Dated: Date of Delivery $1,635,000 FRANCIS HOWELL R-III SCHOOL DISTRICT ST. CHARLES COUNTY, MISSOURI General Obligation Refunding Bonds Series 2010A Due: As shown on the inside cover $29,315,000 FRANCIS HOWELL R-III SCHOOL DISTRICT ST. CHARLES COUNTY, MISSOURI Taxable General Obligation Bonds (Build America Bonds Direct Pay) Series 2010B The General Obligation Refunding Bonds, Series 2010A (the Series 2010A Bonds ) and the Taxable General Obligation Bonds (Build America Bonds Direct Pay), Series 2010B (the Series 2010B Bonds and together with the Series 2010A Bonds, the Bonds ) will be issued by the Francis Howell R-III School District, St. Charles County, Missouri (the District ) for the purpose of providing funds to (1) refund certain of the District s outstanding general obligation bonds, as described herein, (2) pay the costs of the Project, as described herein, and (3) pay the costs of issuance of the Bonds. The Bonds will be issued as fully registered bonds without coupons, and, when issued, will be registered in the name of Cede & Co., as bondowner and nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or integral multiples thereof. Purchasers of the Bonds (the Beneficial Owners ) will not receive certificates representing their interest in the Bonds purchased. See the section herein captioned THE BONDS Book-Entry Only System. Principal on the Series 2010A Bonds will be payable as set forth on the inside cover of this Official Statement on March 1, Interest on the Series 2010A Bonds is payable semiannually on each March 1 and September 1, commencing September 1, Principal on the Series 2010B Bonds will be payable as set forth on the inside cover of this Official Statement, beginning on March 1, Interest on the Series 2010B Bonds is payable semiannually on each March 1 and September 1, commencing September 1, See the section herein captioned THE BONDS. So long as DTC or its nominee, Cede & Co., is the bondowner, such payments will be made by The Bank of New York Mellon Trust Company, N.A., whose principal payment office is located in St. Louis, Missouri, as paying agent and bond registrar (the Paying Agent ), directly to such bondowner. Disbursement of such payments to the DTC Participants is the responsibility of DTC. Distribution of such payments to Beneficial Owners is the responsibility of the DTC Participants and Indirect Participants, as more fully described herein. See the section herein captioned THE BONDS Book-Entry Only System. The Bonds are subject to redemption prior to maturity as described under the section herein captioned THE BONDS Redemption Provisions. THE BONDS AND INTEREST THEREON WILL CONSTITUTE GENERAL OBLIGATIONS OF THE DISTRICT, PAYABLE FROM AD VALOREM TAXES WHICH MAY BE LEVIED WITHOUT LIMITATION AS TO RATE OR AMOUNT UPON ALL OF THE TAXABLE TANGIBLE PROPERTY, REAL AND PERSONAL, WITHIN THE TERRITORIAL LIMITS OF THE DISTRICT. See inside cover for maturities, principal amounts, interest rates, prices and CUSIP numbers. This cover page contains information for quick reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if issued by the District and accepted by the Underwriters, subject to the approval of their validity by Thompson Coburn LLP, St. Louis, Missouri, Bond Counsel, and subject to certain other conditions. Certain legal matters related to this Official Statement will be passed upon by Thompson Coburn LLP, St. Louis, Missouri. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about December 7, George K. Baum & Company The date of this Official Statement is November 18, 2010.

2 MATURITY SCHEDULE Base CUSIP: $1,635,000 ST. CHARLES COUNTY, MISSOURI General Obligation Refunding Bonds Series 2010A Year (March 1) Amount Rate Yield Price CUSIP 2020 $1,635, % 3.150% % 3T2 $29,315,000 ST. CHARLES COUNTY, MISSOURI Taxable General Obligation Bonds (Build America Bonds Direct Pay) Series 2010B Year (March 1) Amount Rate Yield Price CUSIP 2020 $2,065, % 4.200% % 3U ,200, V ,300, W ,400, X ,500, Y ,600, Z ,750, B ,900, C8 $9,600, % Term Bonds due March 1, 2030; Yield 5.600%; Price 100%; CUSIP: 4A2

3 ST. CHARLES COUNTY, MISSOURI 4545 Central School Road St. Charles, Missouri (636) BOARD OF EDUCATION Mike Sommer, President and Member Stephen Johnson, Vice-President and Member Mike Hoehn, Treasurer and Member Dr. Cynthia Bice, Member Marty Hodits, Member Mark Lafata, Member Amy McEvoy, Member ADMINISTRATION Dr. Pam Sloan, Superintendent Kevin F. Supple, Chief Financial Officer BOND COUNSEL AND DISCLOSURE COUNSEL Thompson Coburn LLP St. Louis, Missouri PAYING AGENT The Bank of New York Mellon Trust Company, N.A. St. Louis, Missouri UNDERWRITERS George K. Baum & Company St. Louis, Missouri Stifel, Nicolaus & Company, Incorporated St. Louis, Missouri

4 REGARDING USE OF THIS OFFICIAL STATEMENT THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 3(a)(2) OF SUCH ACT. The information set forth herein has been obtained from the District and other sources which are deemed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the District. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or any other person has been authorized by the District to give any information or make any representations, other than those contained in this Official Statement, in connection with the offering of the Bonds, and if given or made, such other information or representations must not be relied upon as having been authorized by the foregoing. This 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 by any person in any state in which it is unlawful for such person to make such offer, solicitation or sale. The information herein is subject to change without notice, and neither the delivery of this Official Statement nor the sale of any of the Bonds hereunder shall under any circumstances create any implication that there has been no change in the affairs of the District or the other matters described herein since the date hereof. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CAUTIONARY STATEMENTS REGARDING FORWARD- LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included in or incorporated by reference in this Official Statement that are not purely historical are forwardlooking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended, and reflect the District s current expectations, hopes, intentions, or strategies regarding the future. Such statements may be identifiable by the terminology used such as plan, expect, estimate, budget, intend or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD- LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INCLUDED IN SUCH RISKS AND UNCERTAINTIES ARE (i) THOSE RELATING TO THE POSSIBLE INVALIDITY OF THE UNDERLYING ASSUMPTIONS AND ESTIMATES, (ii) POSSIBLE CHANGES OR DEVELOPMENTS IN SOCIAL, ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL AND REGULATORY CIRCUMSTANCES, AND (iii) CONDITIONS AND ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS AND COMPETITORS, AND LEGISLATIVE, JUDICIAL AND OTHER GOVERNMENTAL AUTHORITIES AND OFFICIALS. ASSUMPTIONS RELATED TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE, AND MARKET CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY. FOR THESE REASONS, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS OFFICIAL STATEMENT WILL PROVE TO BE ACCURATE. UNDUE RELIANCE SHOULD NOT BE PLACED ON FORWARD-LOOKING STATEMENTS. ALL FORWARD- LOOKING STATEMENTS INCLUDED IN THIS OFFICIAL STATEMENT ARE BASED ON INFORMATION AVAILABLE TO THE DISTRICT ON THE DATE HEREOF, AND THE DISTRICT ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR OR FAIL TO OCCUR, OTHER THAN AS INDICATED UNDER THE CAPTION CONTINUING DISCLOSURE UNDERTAKING.

5 TABLE OF CONTENTS INTRODUCTION...1 General...1 Purpose of the Bonds...1 Security for the Bonds...2 Continuing Disclosure Undertaking...2 Descriptions of Documents...2 THE BONDS...2 General...2 The Series 2010B Bonds as Build America Bonds and Qualified Bonds...3 Redemption Provisions...3 Selection of Series 2010B Bonds to be Redeemed...5 Notice and Effect of Call for Redemption...5 Book-Entry Only System...6 Registration, Transfer and Exchange of Bonds...8 SECURITY FOR THE BONDS...9 General...9 The American Recovery and Reinvestment Act of 2009 Series 2010B Bonds...9 BONDOWNERS RISKS PLAN OF FINANCING General Refunding of the Refunded Bonds The Project Sources and Uses THE DISTRICT LEGAL MATTERS BOND RATING TAX MATTERS CONTINUING DISCLOSURE UNDERTAKING ABSENCE OF LITIGATION UNDERWRITING CERTAIN RELATIONSHIPS MISCELLANEOUS Page APPENDIX A - Information Regarding the District APPENDIX B - Audited Financial Statements and Independent Auditor s Report of the District for the Fiscal Year Ended June 30, 2009 APPENDIX C - Forms of Opinions of Bond Counsel - i -

6 OFFICIAL STATEMENT $1,635,000 FRANCIS HOWELL R-III SCHOOL DISTRICT ST. CHARLES COUNTY, MISSOURI General Obligation Refunding Bonds Series 2010A $29,315,000 FRANCIS HOWELL R-III SCHOOL DISTRICT ST. CHARLES COUNTY, MISSOURI Taxable General Obligation Bonds (Build America Bonds Direct Pay) Series 2010B INTRODUCTION The following introductory information is subject in all respects to more complete information contained elsewhere in this Official Statement. The order and placement of materials in this Official Statement, including the appendices hereto, are not to be deemed to be a determination of relevance, materiality or relative importance, and this Official Statement, including the cover page and appendices, should be considered in its entirety. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, including the cover pages and appendices hereto, is furnished to prospective purchasers in connection with the offering and sale of $1,635,000 aggregate principal amount of General Obligation Refunding Bonds, Series 2010A (the Series 2010A Bonds ) and $29,315,000 aggregate principal amount of Taxable General Obligation Bonds (Build America Bonds Direct Pay), Series 2010B (the Series 2010B Bonds and together with the Series 2010A Bonds, the Bonds ) by the Francis Howell R-III School District, St. Charles County, Missouri (the District ). The issuance and sale of the Bonds is authorized by a resolution adopted by the Board of Education of the District on November 18, 2010 (the Resolution ). All capitalized terms not otherwise defined herein have the meanings assigned to those terms in the Resolution. Authority for the Bonds The Bonds are being issued pursuant to and in full compliance with the Constitution and statutes of the State of Missouri and the Resolution. The American Recovery and Reinvestment Act of 2009 (the Recovery Act ) authorizes the District to issue taxable bonds known as build America bonds and as qualified bonds to finance capital expenditures for which it could otherwise issue tax-exempt bonds and to elect to receive a subsidy payment from the federal government equal to 35% of the amount of each interest payment on such taxable bonds. The Series 2010B Bonds are being issued as build America bonds and as qualified bonds under the Internal Revenue Code of 1986, as amended (the Code ). See the sections herein captioned THE BONDS and SECURITY FOR THE BONDS. Purpose of the Bonds The Bonds are being issued for the purpose of providing funds to (1) refund certain of the District s outstanding general obligation bonds, as defined and described under the section herein captioned PLAN OF FINANCING Refunding of the Refunded Bonds, (2) pay the costs of the Project, as defined and described under the section herein captioned PLAN OF FINANCING The Project, and (3) pay the costs of issuance of the Bonds.

7 Security for the Bonds The Bonds will constitute general obligations of the District and will be payable as to principal or Redemption Price of and interest from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the District. See the section herein captioned SECURITY FOR THE BONDS General. Continuing Disclosure Undertaking The District has covenanted in a Continuing Disclosure Certificate to provide certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events relating to the Bonds. The financial information, operating data and notice of events will be filed by the District in compliance with Rule 15c2-12 promulgated by the Securities and Exchange Commission. See the section herein captioned CONTINUING DISCLOSURE UNDERTAKING. Descriptions of Documents Brief descriptions of the Bonds, the security for the Bonds and certain other matters are included in this Official Statement. Such information, summaries and descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds and the Resolution are qualified in their entirety by reference to such documents. General THE BONDS The Bonds are being issued by the District in two separate series: the Series 2010A Bonds and the Series 2010B Bonds and shall consist of fully registered bonds without coupons. The Series 2010A Bonds. The Series 2010A Bonds will be issued in the aggregate principal amount of $1,635,000. The Series 2010A Bonds will be dated the date of original delivery of and payment for such Series 2010A Bonds, will be issued in denominations of $5,000 or any integral multiple thereof, and will be numbered from 1 consecutively upward, with the number on each Series 2010A Bonds preceded by the letter R. The Series 2010A Bonds will become due in the amount on the Stated Maturity as shown on the inside cover page hereof and will bear interest at the rate shown on the inside cover page hereof (computed on the basis of a 360-day year of twelve 30-day months) from the date thereof or from the most recent date to which interest has been paid or duly provided for, payable semiannually on March 1 and September 1 in each year (each an Interest Payment Date ), beginning on September 1, The Series 2010B Bonds. The Series 2010B Bonds will be issued in the aggregate principal amount of $29,315,000. The Series 2010B Bonds will be dated the date of original delivery of and payment for such Series 2010B Bonds. The Series 2010B Bonds will be issued in denominations of $5,000 or any integral multiple thereof and will be numbered from 1 consecutively upward, with the number on each Series 2010B Bond preceded by the letter R. The Series 2010B Bonds will mature as shown on the inside cover page hereof, subject to redemption and payment prior to their Stated Maturity as provided in the Resolution, and will bear interest at the rates shown on the inside cover page hereof (computed on the basis of a 360-day year of twelve 30-day months) from the date thereof or from the most recent date to which interest has been paid or duly provided for, payable on each Interest Payment Date, beginning on September 1,

8 The interest payable on each Bond on any Interest Payment Date will be paid to the person in whose name such Bond is registered (the Registered Owner ) as shown on the registration books (the Bond Register ) at the close of business on the 15 th day (whether or not a business day) of the calendar month next preceding an Interest Payment Date (the Record Date ) for such interest (i) by check or draft mailed by The Bank of New York Mellon Trust Company, N.A., St. Louis, Missouri (the Paying Agent ) to the address of such Registered Owner shown on the Bond Register or such other address furnished to the Paying Agent in writing by such Registered Owner, or (ii) in the case of an interest payment to any Registered Owner of $500,000 or more in aggregate principal amount of Bonds, by electronic transfer to such Registered Owner upon written notice signed by such Registered Owner and given to the Paying Agent not less than 15 days prior to the Record Date for such interest, containing the electronic transfer instructions including the name and address of the bank (which shall be in the continental United States), its ABA routing number and the account number to which such Registered Owner wishes to have such transfer directed. The principal or Redemption Price of each Bond will be paid at Maturity by check or draft to the Registered Owner at the Maturity thereof, upon presentation and surrender of such Bond at such payment office as designated by the Paying Agent. The Series 2010B Bonds as Build America Bonds and Qualified Bonds The District is making the irrevocable election to have Section 54AA of the Code apply to the Series 2010B Bonds so the Series 2010B Bonds may be build America bonds as defined in Code Section 54AA(d). The District is further making the irrevocable election to have Section 54AA(g) of the Code apply to the Series 2010B Bonds so that the Series 2010B Bonds may be qualified bonds under Code Section 54AA(g) in order to receive the refundable credits allowed to issuers pursuant to Code Section 54AA(g)(1) and 6431 with respect to the Series 2010B Bonds (the U.S. Treasury Interest Subsidy ). Under current law, the U.S. Treasury Interest Subsidy payments are to be paid by the United States directly to any issuer of bonds that qualify as build America bonds and as qualified bonds in an amount equal to 35% of the interest payable by such issuer on such bonds on each interest payment date, provided that certain requirements, as described in the Code and related Internal Revenue Service (the Service ) pronouncements, as to the uses and investment of the bond proceeds and other matters, are continuously satisfied by such issuer. The District is covenanting to comply with the requirements of the Code necessary to maintain the qualification of the Series 2010B Bonds as build America bonds as defined in Code Section 54AA(d) and as qualified bonds as defined in Code Section 54AA(g). In the event that the District does not comply with such requirements, the District may be retroactively disqualified from being eligible to receive the U.S. Treasury Interest Subsidy payments otherwise allowable with respect to the Series 2010B Bonds from the date of issuance of such Series 2010B Bonds, regardless of the date on which the event causing such disqualification occurs. In order to actually be paid the U.S. Treasury Interest Subsidy payment with respect to each interest payment under the Series 2010B Bonds, the District must file IRS Form 8038-CP not earlier than 90 days nor later than 45 days prior to each interest payment date with respect to the Series 2010B Bonds. The U.S. Treasury Interest Subsidy payments are subject to being offset by certain amounts that may, for unrelated reasons, be owed by the District to any agency of the United States. Redemption Provisions No Redemption of Series 2010A Bonds. The Series 2010A Bonds are not subject to redemption and payment prior to their Stated Maturity

9 Optional Redemption of Series 2010B Bonds. At the option of the District, the Series 2010B Bonds or portions thereof maturing on March 1, 2021 and thereafter may be called for redemption and payment prior to their Stated Maturity on March 1, 2020 (the Call Date ) and thereafter in whole or in part, at any time, at the Redemption Price of 100% of the principal amount thereof plus accrued interest thereon to the Redemption Date. Extraordinary Optional Redemption of Series 2010B Bonds. Prior to the Call Date, the Series 2010B Bonds shall be subject to extraordinary optional redemption prior to maturity at the option of the District, in whole or in part upon the occurrence of any modification, amendment or interpretation of Sections 54AA or 6431 of the Code in a manner that would cause any U.S. Treasury Interest Subsidy payment to be reduced or eliminated, at a Redemption Price equal to the greater of: (1) 100% of the principal amount of the Series 2010B Bonds to be redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Call Date, not including any portion of those payments of interest accrued and unpaid as of the Redemption Date, discounted to the Redemption Date (on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months), at a discount rate equal to the sum of (A) the Treasury Rate (defined below) plus (B) 100 basis points; plus, in each case, accrued and unpaid interest on such Series 2010B Bonds to be redeemed to the Redemption Date. Treasury Rate means, if the period from the Redemption Date to the Call Date is one year or more, the Treasury Rate is the yield to the Call Date as of such Redemption Date of U.S. Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (excluding inflation indexed securities) or, if such statistical release is no longer published, any publicly available source of similar market data) most nearly equal to the period from the Redemption Date to the Call Date; or if the period from the Redemption Date to the Call Date is less than one year, the Treasury Rate is the weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of one year. Mandatory Redemption of Series 2010B Bonds. The Series 2010B Bonds maturing on March 1, 2030 (the Series 2010B Term Bonds ) shall be subject to mandatory redemption and payment prior to their Stated Maturity pursuant to the mandatory redemption requirements of the Resolution at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Resolution which are to be deposited into the Series 2010B Account of the Debt Service Fund shall be sufficient to redeem, and the District shall redeem on March 1 in each year, the following principal amounts of the Series 2010B Term Bonds: + Final Maturity Redemption Dates (March 1) Principal Amount 2028 $3,000, ,200, ,400,000 At its option, to be exercised on or before the 45 th day next preceding any mandatory Redemption Date, the District may: (1) deliver to the Paying Agent for cancellation Series 2010B Term Bonds, in any - 4 -

10 aggregate principal amount desired; or (2) furnish the Paying Agent funds, together with appropriate instructions, for the purpose of purchasing any Series 2010B Term Bonds from any Registered Owner thereof, whereupon the Paying Agent shall expend such funds for such purpose to such extent as may be practical; or (3) receive a credit with respect to the mandatory redemption obligation of the District under the Resolution for any Series 2010B Term Bonds which prior to such date have been redeemed (other than through the operation of the mandatory redemption obligation of the District under the Resolution) and cancelled by the Paying Agent and not theretofore applied as a credit against any such redemption obligation. Each Term Bond so delivered or previously purchased or redeemed shall be credited at 100% of the principal amount thereof on the obligation of the District to redeem Series 2010B Term Bonds of the same Stated Maturity on such Redemption Date, and any excess of such amount shall be credited on future mandatory redemption obligations for Series 2010B Term Bonds of the same Stated Maturity in chronological order, and the principal amount of Series 2010B Term Bonds of the same Stated Maturity to be redeemed by operation of the mandatory redemption obligation of the District under the Resolution shall be accordingly reduced. If the District intends to exercise any option granted by the provisions of clauses (1), (2) or (3) above, the District will, on or before the 45 th day next preceding each mandatory Redemption Date, furnish the Paying Agent a written certificate indicating to what extent the provisions of said clauses (1), (2) and (3) are to be complied with, with respect to such mandatory redemption payment Selection of Series 2010B Bonds to be Redeemed Series 2010B Bonds shall be redeemed only in Authorized Denominations. When less than all of the outstanding Series 2010B Bonds are to be redeemed, such Series 2010B Bonds shall be redeemed in such order of their Stated Maturities as shall be determined by the District, and the Series 2010B Bonds of less than a full Stated Maturity and bearing interest at the same interest rate shall be selected by the Paying Agent in $5,000 units of principal amount in such equitable manner as the Paying Agent may determine. In the case of a partial redemption of Series 2010B Bonds, when Series 2010B Bonds of denominations greater than $5,000 are then Outstanding, then for all purposes in connection with such redemption each $5,000 of face value shall be treated as though it were a separate Series 2010B Bond of the denomination of $5,000. If it is determined that one or more, but not all, of the $5,000 units of face value represented by any Series 2010B Bond are selected for redemption, then upon notice of intention to redeem such $5,000 unit or units, the Registered Owner of such Series 2010B Bond or the Registered Owner s duly authorized agent shall present and surrender such Series 2010B Bond to the Paying Agent (i) for payment of the Redemption Price and interest to the Redemption Date of such $5,000 unit or units of face value called for redemption, and (ii) for exchange, without charge to the Registered Owner thereof, for a new Series 2010B Bond or Series 2010B Bonds of the aggregate principal amount of the unredeemed portion of the principal amount of such Series 2010B Bond. If the Registered Owner of any such Series 2010B Bond fails to present such Series 2010B Bond to the Paying Agent for payment and exchange as aforesaid, such Series 2010B Bond shall, nevertheless, become due and payable on the redemption date to the extent of the $5,000 unit or units of face value called for redemption (and to that extent only). Notice and Effect of Call for Redemption Unless waived by any Registered Owner of Series 2010B Bonds to be redeemed, official notice of any redemption shall be given by the Paying Agent on the District s behalf by mailing a copy of an official redemption notice by first class mail at least 30 days but not more than 60 days prior to the Redemption Date to the State Auditor of Missouri, the Underwriters and each Registered Owner of the Series 2010B Bonds to be redeemed at the address shown on the Bond Register

11 All official notices of redemption shall be dated and shall contain the following information: (i) the Redemption Date; (ii) the Redemption Price; (iii) if less than all Outstanding Series 2010B Bonds are to be redeemed, the CUSIP number, if any, of each Series 2010B Bond being redeemed, Stated Maturity and, in the case of partial redemption of any Series 2010B Bonds, the respective principal amounts of the Series 2010B Bonds to be redeemed; (iv) a statement that on the Redemption Date the Redemption Price will become due and payable upon each such Series 2010B Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after the Redemption Date; and (v) the place where such Series 2010B Bonds are to be surrendered for payment of the Redemption Price, which shall be the principal payment office of the Paying Agent or any other payment office designated by the Paying Agent. Prior to any Redemption Date, the District shall deposit with the Paying Agent an amount of money sufficient to pay the Redemption Price of all the Series 2010B Bonds or portions of Series 2010B Bonds that are to be redeemed on such Redemption Date. Official notice of redemption having been given as aforesaid, the Series 2010B Bonds or portions of Series 2010B Bonds to be redeemed shall become due and payable on the Redemption Date, at the Redemption Price therein specified, and from and after the Redemption Date (unless the District defaults in the payment of the Redemption Price) such Series 2010B Bonds or portion of Series 2010B Bonds shall cease to bear interest. Upon surrender of such Series 2010B Bonds for redemption in accordance with such notice, the Redemption Price of such Series 2010B Bonds shall be paid by the Paying Agent. Installments of interest due on or prior to the Redemption Date shall be payable as herein provided for payment of interest. Upon surrender for any partial redemption of any Series 2010B Bond, the Paying Agent shall prepare for the Registered Owner a new Series 2010B Bond or Series 2010B Bonds of the same Stated Maturity in the amount of the unpaid principal as provided in the Resolution. All Series 2010B Bonds that have been surrendered for redemption shall be canceled and destroyed by the Paying Agent as provided in the Resolution and shall not be reissued. The failure of any Registered Owner to receive the foregoing notice or any defect therein shall not invalidate the effectiveness of the call for redemption. Book-Entry Only System The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. General. Ownership interests in the Bonds will be available to purchasers only through a bookentry only system (the Book-Entry Only System ) maintained by The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. The Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of each series of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC and its Participants. 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 - 6 -

12 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 Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchase of Ownership Interests. Purchases of the 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 (the 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 representing their ownership interest in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. Transfers. 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 effect 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. Notices. Conveyance of notices and other communication 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 will 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

13 Voting. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of Principal and Interest. Principal and interest payments on the Bonds and redemption proceeds, if any, 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 the Paying 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 Direct Participant and not of DTC, the Paying Agent or the District, subject to any statutory and regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest and redemption proceeds, if any, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying 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. Discontinuation of Book-Entry System. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. The Direct Participants holding a majority position in the Bonds may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. None of the District, the Underwriters or the Paying Agent will have any responsibility or obligations to any Direct Participants or Indirect Participants or the persons for whom they act with respect to (i) the accuracy of any records maintained by DTC or any such Direct Participant or Indirect Participant; (ii) the payment by any Direct Participant or Indirect Participant of any amount due to any Beneficial Owner in respect of the principal of, premium, if any, or interest on the Bonds; (iii) the delivery by any such Direct Participant or Indirect Participant of any notice to any Beneficial Owner that is required or permitted under the terms of the Resolution to be given to owners of the Bonds; or (iv) any consent given or other action taken by DTC as the owner of the Bonds. Registration, Transfer and Exchange of Bonds The District will cause the Bond Register to be kept at the principal payment office of the Paying Agent for the registration, transfer and exchange of Bonds. Upon surrender of any Bond at the principal payment office of the Paying Agent, the Paying Agent shall transfer or exchange such Bond as provided in the Resolution. The Paying Agent shall transfer or exchange such Bond for a new Bond or Bonds in any authorized denomination of the same Stated Maturity and in the same aggregate principal amount as the Bond that was presented for transfer or exchange. Bonds presented for transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in a form and with guarantee of signature satisfactory to the Paying Agent, duly executed by the Registered Owner - 8 -

14 thereof or by the Registered Owner s duly authorized agent. Any additional costs or fees that might be incurred in the secondary market, other than fees of the Paying Agent, are the responsibility of the Registered Owners of the Bonds. If any Registered Owner fails to provide a correct taxpayer identification number to the Paying Agent, the Paying Agent may make a charge against such Registered Owner sufficient to pay any governmental charge required to be paid as a result of such failure. The District and the Paying Agent shall not be required to register the transfer or exchange of any Bond during a period beginning at the opening of business on the day after receiving written notice from the District of its intent to pay Defaulted Interest and ending at the close of business on the date fixed for the payment of Defaulted Interest pursuant to the Resolution. General SECURITY FOR THE BONDS Pledge of Full Faith and Credit. The Bonds will constitute general obligations of the District payable as to both principal and interest from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the District. Levy and Collection of Annual Tax. Under the Resolution, there is levied upon all of the taxable tangible property within the District a direct annual tax sufficient to produce the amounts necessary for the payment of the principal or Redemption Price of and interest on the Bonds as the same becomes due and payable in each year. Such taxes shall be extended upon the tax rolls in each year of the several years, respectively, and shall be levied and collected at the same time and in the same manner as the District s other ad valorem taxes are levied and collected. The amounts calculated for levy and collection each year with respect to the Series 2010B Bonds shall take into account the U.S. Treasury Interest Subsidy payments to be received from the U.S. Treasury Department with respect to the Series 2010B Bonds. If any such U.S. Treasury Interest Subsidy payments are cancelled or otherwise not received, the amount of such cancelled payment shall be added to the taxes to be levied and collected. The proceeds derived from said taxes and U.S. Treasury Interest Subsidy payments with respect to the Series 2010B Bonds shall be kept separate and apart from all other funds of the District and shall be used solely for the payment of the principal or Redemption Price of and interest on the Series 2010B Bonds as and when the same become due, taking into account scheduled mandatory redemptions, if any, and the fees and expenses of the Paying Agent. The American Recovery and Reinvestment Act of 2009 Series 2010B Bonds The Recovery Act authorizes the District to issue taxable bonds known as build America bonds and as qualified bonds to finance capital expenditures for which it could otherwise issue tax-exempt bonds and to elect to receive U.S. Treasury Interest Subsidy payments (that is, subsidy payments from the federal government equal to 35% of the amount of each interest payment on such taxable bonds). The Series 2010B Bonds are being issued as build America bonds and qualified bonds under the Code. The U.S. Treasury Interest Subsidy payments with respect to the Series 2010B Bonds are to be paid to the District. Owners of the Series 2010B Bonds will not be entitled to a tax credit with respect to the Series 2010B Bonds. The receipt of the U.S. Treasury Interest Subsidy payments by the District is subject to certain requirements, including the filing of applicable forms with the Service prior to each interest payment date. The U.S. Treasury Interest Subsidy payments are also subject to being offset by certain amounts that may, for unrelated reasons, be owed by the District to any agency of the United States. Furthermore, the U.S. Treasury Interest Subsidy payments are payable under current law and there is no assurance that future change in the law would not reduce or eliminate the U.S. Treasury Interest Subsidy

15 The U.S. Treasury Interest Subsidy payments are also not full faith and credit obligations of the United States. BONDOWNERS RISKS Risk of Taxability of Interest on the Series 2010A Bonds For information with respect to events that may cause interest on the Series 2010A Bonds to be included in gross income for purposes of federal income taxation or not be exempt from income taxation by the State of Missouri, see TAX MATTERS herein. Furthermore, the Resolution does not require the District to redeem the Series 2010A Bonds or to pay any additional interest or penalty in the event that interest on the Series 2010A Bonds become taxable. Risk of Audit of the Bonds The Service has established an ongoing program to audit tax-exempt obligations like the Series 2010A Bonds to determine whether or not interest on such obligations should be excluded from gross income for federal income tax purposes and is establishing a similar program to audit taxable obligations like the Series 2010B Bonds to determine whether or not such obligations should qualify as build America bonds. No assurance can be given that the Service will not commence an audit of the Bonds resulting in a negative determination with respect to the Series 2010A Bonds causing the loss to the owners thereof of the tax exemption of the interest on the Series 2010A Bonds for federal and State of Missouri income tax purposes or resulting in a negative determination with respect to the Series 2010B Bonds causing the loss to the District of the U.S. Treasury Interest Subsidy payments with respect to the Series 2010B Bonds (and the loss to the owners of the tax exemption of the interest on the Series 2010B Bonds for State of Missouri income tax purposes). Owners of the Bonds are advised that, if an audit of the Bonds were commenced, the Service, in accordance with its current published procedures, will treat the District as the taxpayer, and the owners of the Bonds may not have a right to participate in such audit. Public awareness of any audit could adversely affect the market value and liquidity of the Bonds during the pendency of the audit, regardless of the ultimate outcome of the audit. General PLAN OF FINANCING The Bonds are being issued for the purpose of providing funds to (i) refund certain of the District s outstanding general obligation bonds, as defined and further discussed below; (ii) pay the costs of the Project, as defined and further discussed below; and (iii) pay costs of issuance of the Bonds. Refunding of the Refunded Bonds Series 2002A Refunded Bonds. A portion of the proceeds of the Series 2010A Bonds will be used to current refund all maturities of the District s remaining outstanding General Obligation Refunding and Improvement Bonds (Missouri Direct Deposit Program), Series 2002A (the Series 2002A Bonds ), being those Series 2002A Bonds maturing in the years 2011 and 2012, in the total aggregate principal amount of $1,635,000 (the Refunded Bonds ). In order to do so, the District will enter into an Escrow Trust Agreement dated as of December 1, 2010 (the Escrow Agreement ) with The Bank of New York Mellon Trust Company, N.A., St. Louis, Missouri, as Escrow Agent (the Escrow Agent ). Pursuant to the Escrow Agreement, the District will deposit with the Escrow Agent a portion of the proceeds of the Series 2010A Bonds as indicated below under the caption Sources and Uses of Funds and the Escrow

16 Agent will apply the moneys so deposited to purchase direct non-callable obligations of the United States of America (the Escrowed Securities ) maturing in such amounts and at such times as shall be sufficient, together with the interest to accrue thereon, to redeem and pay the Refunded Bonds on March 1, 2011 at a redemption price of 100% of the principal amount thereof, plus accrued interest thereon to the date of redemption. After the issuance of the Series 2010A Bonds and the deposit of the proceeds thereof with the Escrow Agent pursuant to the Escrow Agreement, the principal of and accrued interest on the Refunded Bonds will be payable from the maturing principal of the Escrowed Securities, together with earnings thereon and other moneys held for such purpose by the Escrow Agent. The Escrow Agreement provides that the Escrowed Securities and the moneys held uninvested by the Escrow Agent are irrevocably pledged to the payment of the Refunded Bonds and the interest thereon and may be applied only to such payment. The Project On November 4, 2008, the voters of the District approved the issuance of $78,500,000 of the District s general obligation bonds for the purpose of constructing, renovating and improving Francis Howell High School, Daniel Boone Elementary School, Francis Howell North High School, the District Maintenance Building, and for other capital projects (the Project ). In March 2009, the District issued $40,000,000 of general obligation bonds authorized pursuant to such election and in October 2009, the District issued an additional $9,185,000 of qualified school construction bonds, also authorized pursuant to such election. The Bonds will finance the costs of a third phase of the Project which includes the construction, renovation and improvement of an academic building and new gymnasium on the Francis Howell High School campus, classrooms and a new cafeteria at the Daniel Boone Elementary School, science classrooms at Francis Howell North High School and other capital projects. The District will utilize all of its voter authorization when it issues the Bonds. [Remainder of page intentionally left blank]

17 Sources and Uses The anticipated sources and uses of the proceeds of the Bonds are as follows: Sources of Funds: Series 2010A Bonds: Par amount of Series 2010A Bonds $ 1,635, District contribution 50, Less original issue discount (6,556.35) Total: $ 1,678, Series 2010B Bonds: Par amount of Series 2010B Bonds $29,315, Total: $29,315, Aggregate Total: $30,993, Uses of Funds: Series 2010A Bonds: Deposit to Escrow Fund created under the Escrow Agreement $ 1,667, Costs of issuance (including Underwriters discount) 11, Total: $ 1,678, Series 2010B Bonds: Deposit to Capital Projects Fund $29,158, Costs of issuance (including Underwriters discount) 156, Total: $29,315, Aggregate Total: $30,993, THE DISTRICT The District is located in east central Missouri approximately thirty miles west of the City of St. Louis and covers 150 square miles in St. Charles County, Missouri (the County ). The District is located within the southern portion of the County and is considered to be part of the St. Louis Metropolitan Statistical Area. The District serves the following municipalities: Cottleville, Dardenne Prairie, Defiance, Harvester, New Melle, Weldon Springs and Weldon Springs Heights and portions of O Fallon, St. Charles and St. Peters. See Appendix A - INFORMATION REGARDING THE DISTRICT for further information regarding the District

18 LEGAL MATTERS All legal matters incident to the authorization and issuance of the Bonds are subject to the approving legal opinion of Thompson Coburn LLP, St. Louis, Missouri, Bond Counsel, whose approving opinions will be available at the time of delivery of the Bonds. Bond Counsel has participated only in the preparation of those portions of this Official Statement captioned THE BONDS (other than the information under the caption Book-Entry Only System ), SECURITY FOR THE BONDS, LEGAL MATTERS, TAX MATTERS, and Appendix C FORMS OF OPINIONS OF BOND COUNSEL. Bond Counsel accordingly expresses no opinion as to the accuracy or sufficiency of other portions of this Official Statement. Factual and financial information appearing herein has been supplied and reviewed by various officials of the District. Certain legal matters with respect to this Official Statement will be passed upon by Thompson Coburn LLP, St. Louis, Missouri. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transactions opined upon or of the future performance of parties to such transaction, and the rendering of an opinion does not guarantee the outcome of any legal dispute that may arise out of the transaction. BOND RATING Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( Standard & Poor s ), has assigned a municipal bond rating of AA to the Bonds. The rating reflects only the view of Standard & Poor s at the time such rating is given, and the Underwriters and the District make no representation as to the appropriateness of such rating. An explanation of the significance of such rating may be obtained only from Standard & Poor s. The District has furnished Standard & Poor s with certain information and materials relating to the Bonds and the District that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions made by the rating agencies. The above rating is not a recommendation to buy, sell or hold the Bonds. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the rating agency originally establishing such rating, circumstances so warrant. Neither the Underwriters nor the District has undertaken any responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal of the rating of the Bonds or to oppose any such proposed revision or withdrawal. Any such revision or withdrawal of the rating could have an adverse effect on the market price and marketability of the Bonds. Series 2010A Bonds TAX MATTERS Tax Exemption. The opinion of Thompson Coburn LLP, St. Louis, Missouri, Bond Counsel, to be delivered upon the issuance of the Series 2010A Bonds will state that, under existing law, interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof as discussed in the portion of this Official Statement captioned TAX MATTERS Series 2010A Bonds Original Issue Discount ) (a) is excluded from gross income for federal income tax purposes and (b) is exempt from income taxation by the State of Missouri

19 Bond Counsel s opinion will be conditioned on continuing compliance by the District with all requirements of the Code that must be satisfied in order that interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof) be, and continue to be, excluded from gross income for federal income tax purposes and exempt from income taxation by the State of Missouri. The District is to covenant in the Resolution and the Series 2010A Tax Compliance Agreement to comply with all such requirements. In addition, Bond Counsel will rely on representations by the District and others, with respect to matters solely within their knowledge, which Bond Counsel has not independently verified. Failure to comply with the requirements of the Code (including due to the foregoing representations being determined to be inaccurate or incomplete), may cause interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof) to be included in gross income for federal income tax purposes and not be exempt from income taxation by the State of Missouri retroactive to the date of issuance of the Series 2010A Bonds. Bond Counsel has not been retained to monitor compliance with requirements such as described above subsequent to the issuance of the Series 2010A Bonds. In addition, the Resolution does not require the District to redeem the Series 2010A Bonds or to pay any additional interest or penalty in the event that interest on the Series 2010A Bonds becomes taxable. In addition, the opinion of Bond Counsel will state that, under existing law, interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof) is not a specific item of tax preference for purposes of the federal alternative minimum tax on corporations and other taxpayers, including individuals. However, interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof) is included in a corporate taxpayer s adjusted current earnings tax preference item for purposes of determining its federal alternative minimum tax liability. Furthermore, the opinion of Bond Counsel will state that, under existing law, the Series 2010A Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code (relating to financial institution deductibility of interest expense). Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences arising with respect to the Series 2010A Bonds. Bond Counsel s opinions are based on Bond Counsel s knowledge of facts as of the date thereof. Further, Bond Counsel s opinions are based on existing legal authorities, cover certain matters not directly addressed by such authorities and represent Bond Counsel s legal judgment as to the proper treatment of the Series 2010A Bonds for federal and State of Missouri income tax purposes. Such opinions are not a guarantee of result and are not binding on the Service or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the Service. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention or to reflect any changes in any law that may thereafter occur. Original Issue Discount. The initial public offering prices of certain maturities of Series 2010A Bonds, as set forth on the inside cover page of this Official Statement, may be less than the respective stated redemption prices at maturity (such Series 2010A Bonds are hereinafter referred to as Series 2010A OID Bonds ). An amount equal to the difference between the initial public offering price of a Series 2010A OID Bond (assuming a substantial amount of such maturity is first sold at that price) and its stated redemption price at maturity constitutes original issue discount. The amount of original issue discount properly accruable with respect to a Series 2010A Bond that is a Series 2010A OID Bond is excluded from gross income for federal income tax purposes and is exempt from income taxation by the State of Missouri (subject to compliance by the District with the requirements of the Code). The amount of properly accruable original issue discount during the period that the owner holds a Series 2010A OID

20 Bond is added to the owner s tax basis for purposes of determining gain or loss upon maturity, redemption, prior sale or other disposition of such Series 2010A OID Bond. Under Section 1288 of the Code, original issue discount on tax-exempt bonds accrues on a compound basis under the constant yield method. The amount of original issue discount that accrues during any accrual period to an owner of a Series 2010A OID Bond who purchases such Series 2010A OID Bond in this initial offering at the initial offering price generally equals (i) the issue price of such Series 2010A OID Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Series 2010A OID Bond (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 on such Series 2010A OID Bond payable during, or otherwise allocable to, 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. Each owner of a Series 2010A OID Bond may select accrual periods that may vary in length over the term of the Series 2010A OID Bond, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day of an accrual period or on the first day of an accrual period. Original issue discount on a Series 2010A Bond as described above is not a specific item of tax preference for purposes of the federal alternative minimum tax on corporations and other taxpayers, including individuals. However, the portion of the original issue discount that accrues in each year to an owner of a Series 2010A OID Bond that is a corporation will be included in the adjusted current earnings preference item for purposes of determining the corporation s federal alternative minimum tax liability. Consequently, corporate owners of any Series 2010A OID Bonds should be aware that the accrual of original issue discount in each year may result in federal alternative minimum tax liability, although the owners of such Series 2010A OID Bonds have not received cash attributable to the original issue discount in such year. Owners of Series 2010A OID Bonds (and particularly those not purchasing in this initial offering at the initial offering prices) should consult their own tax advisors with respect to the determination and treatment of original issue discount for federal and State of Missouri income tax purposes and with respect to other federal, state, local and foreign tax consequences of owning or disposing of such Series 2010A OID Bonds. Premium. An amount equal to the excess of the purchase price of a Series 2010A Bond over its stated redemption price at maturity constitutes amortizable bond premium on such Series 2010A Bond. A purchaser of a Series 2010A Bond generally must amortize any premium over such Series 2010A Bond s term using constant yield principles, based on the purchaser s yield on the Series 2010A Bond to maturity; provided that the premium must be amortized over the period to a call date with respect to the Series 2010A Bond, based on the purchaser s yield on the Series 2010A Bond to such call date, if the call by the District on such date would minimize the purchaser s yield on the Series 2010A Bond. As premium is amortized, the purchaser s basis in such Series 2010A Bond (and the amount of tax-exempt interest received) will be reduced by the amount of amortizable premium properly allocable to such purchaser. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal and State of Missouri income tax purposes upon a sale or disposition of such Series 2010A Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal or State of Missouri income tax deduction is allowed. Owners of Series 2010A Bonds who purchase at a premium (whether at the time of initial issuance or subsequent thereto) should consult their own tax advisors with respect to the determination

21 and treatment of premium for federal and State of Missouri income tax purposes and with respect to other federal, state, local and foreign tax consequences of owning or disposing of such Series 2010A Bonds. Market Discount. If a Series 2010A Bond is purchased at any time for a price that is less than the Series 2010A Bond s stated redemption price at maturity, in the case of a Series 2010A Bond other than a Series 2010A OID Bond (or its revised issue price in the case of a Series 2010A OID Bond, defined as the sum of the issue price of the Series 2010A OID Bond and the aggregate amount of the original issue discount previously accrued thereon), such bondowner will be treated as having purchased such Series 2010A Bond at a market discount, unless such market discount is less than a statutorily specified de minimis rule amount. Under the market discount rules, a bondowner will be required to treat any principal payment (or, in the case of a Series 2010A OID Bond, any payment that does not constitute qualified stated interest) on, or any gain realized on the sale, exchange, retirement or other disposition (including certain nontaxable dispositions such as gifts) of, such Series 2010A Bond as ordinary income to the extent of the market discount which has previously not been included in gross income and is treated as having accrued on such Series 2010A Bond at the time of such payment or disposition. A bondowner may instead elect to include market discount in gross income each taxable year as it accrues with respect to all debt instruments (including a Series 2010A Bond) acquired in the taxable year for which the election is made. Such election would apply to the taxable year for which it is made and for all subsequent taxable years and could be revoked only with the consent of the Service. The accrued market discount on a Series 2010A Bond is generally determined on a ratable basis, unless the bondowner elects with respect to such Series 2010A Bond to determine accrued market discount under a constant yield method similar to that applicable to original issue discount. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of a Series 2010A Bond. Owners of Series 2010A Bonds should consult their own tax advisors regarding the potential implications of the market discount rules with respect to the Series 2010A Bonds. Collateral Tax Consequences. Prospective purchasers of the Series 2010A Bonds should be aware that the ownership of the Series 2010A Bonds may result in other federal and State of Missouri tax consequences to certain taxpayers, including, without limitation, financial institutions, insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with Subchapter C earnings and profits, foreign corporations subject to the branch profits tax, taxpayers who have incurred or continued indebtedness to purchase or carry, or have paid or incurred certain expenses allocated to, the Series 2010A Bonds, individuals who may be eligible for the earned income credit, owners who dispose of any Series 2010A Bond prior to its stated maturity (whether by sale or otherwise) and owners who purchase any Series 2010A Bond at a price different from its initial offering price. All prospective purchasers of the Series 2010A Bonds should consult their own tax advisors as to the applicability and the impact of any other tax consequences (which may depend upon their particular tax status or other tax items) as well as to the treatment of interest on the Series 2010A Bonds (including any original issue discount properly allocable to an owner thereof) under state or local laws other than those of the State of Missouri. Under the Code, all taxpayers are required to report on their federal income tax returns the amount of interest (including properly allocable original issue discount) received or accrued during the year that is excluded from gross income for federal income tax purposes. This requirement applies to interest on all tax-exempt obligations, including, but not limited to, the Series 2010A Bonds. Also, the Code requires the reporting by payors of tax-exempt interest, in a manner similar to that for interest on taxable obligations. Generally, payors (including paying agents and other middlemen and nominees) of tax-exempt interest (such as interest on the Series 2010A Bonds) to non-corporate payees are subject to federal income tax information return and payee statement reporting and recordkeeping requirements

22 Also, as to payor reportable payments of tax-exempt interest (such as payments to non-corporate payees of interest on the Series 2010A Bonds), the general rules of federal income tax backup withholding will apply to such payments, unless the payor obtains from the payee a completed, certified Form W-9, Request for Taxpayer Identification Number and Certification. However, for tax-exempt original issue discount, no information reporting or backup withholding will be required until such time as the Service provides future guidance. Federal, state or local legislation, if enacted in the future, may cause interest on the Series 2010A Bonds to be subject, directly or indirectly, to federal or State of Missouri income taxation or otherwise adversely affect the federal, state or local tax consequences of ownership or disposition of, and, whether or not enacted, may adversely affect the value and liquidity of, the Series 2010A Bonds. Series 2010B Bonds The following is a summary of the material federal and State of Missouri income tax consequences of purchasing, owning and disposing of the Series 2010B Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of bondowners subject to special treatment under the federal income tax laws (for example, dealers in securities or other persons who do not hold the Series 2010B Bonds as a capital asset, tax-exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Missouri, does not discuss the consequences to an owner under any state, local or foreign tax laws. Prospective investors are advised to consult their own tax advisors regarding federal, state, local and other tax considerations of purchasing, owning and disposing of the Series 2010B Bonds. Treasury Circular 230 Disclosure Regarding the Series 2010B Bonds. Pursuant to United States Treasury Department Circular 230, (1) any discussion of federal tax issues arising with respect to the Series 2010B Bonds contained in or referred to in this Official Statement or any document referred to herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any federal tax penalties that may be imposed on the taxpayer, (2) such discussion is written to support the promotion or marketing of the Series 2010B Bonds, and (3) each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. Build America Bonds and Qualified Bonds. As part of the Recovery Act, the United States Congress added provisions to the Code that permit state or local governments to obtain certain tax advantages when issuing certain taxable obligations, referred to as build America bonds and as qualified bonds. Build America bonds and qualified bonds must satisfy certain requirements including that the interest on the build America bonds would be, but for the issuer s election to treat such bonds as build America bonds, excludable from gross income under Section 103 of the Code. The District is issuing the Series 2010B Bonds as build America bonds and making an irrevocable election to treat the Series 2010B Bonds as qualified bonds. As a result, interest on the Series 2010B Bonds is not excluded from gross income of the holders thereof for federal income tax purposes and the holders of the Series 2010B Bonds will not be entitled to any tax credits as a result either of ownership of the Series 2010B Bonds or of receipt of any interest payments on the Series 2010B Bonds. Owners of the Series 2010B Bonds should consult their tax advisors with respect to the inclusion of interest on the Series 2010B Bonds in gross income for federal income tax purposes. Federal tax law contains a number of requirements and restrictions that apply to the

23 Series 2010B Bonds in order for them to be build America bonds and qualified bonds. The District has covenanted to comply with requirements that must be satisfied in order for the Series 2010B Bonds to qualify as build America bonds and qualified bonds. Failure to comply with such requirements could prevent the allowance of the U.S. Treasury Interest Subsidy payments retroactively to the date of issuance of the Series 2010B Bonds. As a consequence of the Series 2010B Bonds being build America bonds and qualified bonds under Sections 54AA(d) and 54AA(g) of the Code, the District will be entitled to apply for the U.S. Treasury Interest Subsidy payments. If for any reason the Series 2010B Bonds cease to be build America bonds that are qualified bonds under Sections 54AA(d) and 54AA(g) of the Code, the District will not be entitled to receive such U.S. Treasury Interest Subsidy payments. Under Section 6431 of the Code, the District must apply in order to receive the U.S. Treasury Interest Subsidy payments directly from the United States. The amount of each U.S. Treasury Interest Subsidy payment with respect to the Series 2010B Bonds determined in accordance with Section 6431 of the Code is 35% of interest payable on each interest payment date. Under currently existing procedures, the District is required to file a tax return between 90 and 45 days prior to each interest payment date in order to receive the related U.S. Treasury Interest Subsidy payment by each interest payment date. If the District fails to file the necessary tax return requesting an U.S. Treasury Interest Subsidy payment between 90 and 45 days prior to the related interest payment date, the U.S. Treasury Interest Subsidy payment may not be received by such interest payment date. Also, the U.S. Treasury Interest Subsidy payments are subject to offset by certain amounts that may, for unrelated reasons, be owed by the District to any agency of the United States. Furthermore, the amount of the U.S. Treasury Interest Subsidy payments is subject to legislative changes by the United States Congress. The U.S. Treasury Interest Subsidy payments are also not full faith and credit obligations of the United States. Taxability of Interest on Series 2010B Bonds. The opinion of Thompson Coburn LLP, St. Louis, Missouri, Bond Counsel, to be delivered upon the issuance of the Series 2010B Bonds will state that, under existing law, interest on the Series 2010B Bonds (a) is not excluded from gross income for federal income tax purposes but (b) is exempt from income taxation by the State of Missouri. Bond Counsel s opinions with respect to the exemption from income taxation by the State of Missouri will be conditioned on continuing compliance by the District with all requirements of the Code that must be satisfied in order that the Series 2010B Bonds be, and continue to be, build America bonds and qualified bonds. The District is to covenant in the Resolution and the Series 2010B Tax Compliance Agreement to comply with all such requirements. In addition, Bond Counsel will rely on representations by the District and others, with respect to matters solely within their knowledge, which Bond Counsel has not independently verified. Failure to comply with the requirements of the Code (including due to the foregoing representations being determined to be inaccurate or incomplete), may cause interest on the Series 2010B Bonds to not be exempt from income taxation by the State of Missouri retroactive to the date of issuance of the Series 2010B Bonds. Bond Counsel has not been retained to monitor compliance with requirements such as described above subsequent to the issuance of the Series 2010B Bonds. In addition, the Resolution does not require the District to redeem the Series 2010B Bonds or to pay any additional interest or penalty in the event that interest on the Series 2010B Bonds becomes subject to income taxation by the State of Missouri. Bond Counsel s opinions are based on Bond Counsel s knowledge of facts as of the date thereof. Further, Bond Counsel s opinions are based on existing legal authorities, cover certain matters not directly addressed by such authorities and represent Bond Counsel s legal judgment as to the proper

24 treatment of the Series 2010B Bonds for federal and State of Missouri income tax purposes. Such opinions are not a guarantee of result and are not binding on the Service or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the Service. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention or to reflect any changes in any law that may thereafter occur. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences arising with respect to the Series 2010B Bonds. All prospective purchasers of the Series 2010B Bonds should consult their own tax advisors as to the applicability and the impact of any other tax consequences (which may depend upon their particular tax status or other tax items) as well as to the treatment of interest on the Series 2010B Bonds under state or local laws other than those of the State of Missouri. Federal, state or local legislation, if enacted in the future, may cause interest on the Series 2010B Bonds to be subject, directly or indirectly, to State of Missouri income taxation or otherwise adversely affect the federal, state or local tax consequences of ownership or disposition of, and, whether or not enacted, may adversely affect the value and liquidity of, the Series 2010B Bonds. Certain Federal Tax Consequences. The Code contains a number of provisions relating to the federal taxation of taxable obligations such as the Series 2010B Bonds (including but not limited to the federal income tax treatment of and accounting for interest, premium, original issue discount and market discount thereon, gain from the sale, exchange or other disposition thereof and withholding and backup withholding tax on income therefrom) that may affect the taxation of certain bondowners, depending on their particular tax situations. Bond Counsel expresses no opinion regarding the effect of such provisions. Payments of Interest. Payments of interest on the Series 2010B Bonds generally will be taxable to a bondowner as ordinary income for federal income tax purposes at the time such payments are accrued or received (in accordance with the bondowner s method of tax accounting). A cash basis bondowner will generally include interest in gross income when received (or when made available for receipt, if earlier). An accrual basis bondowner will generally include interest in gross income when all events necessary to establish the right to receive such interest have occurred. Premium. If a bondowner purchases a Series 2010B Bond for an amount that is greater than the sum of all amounts payable on such Series 2010B Bond after the purchase date other than payments of qualified stated interest, such bondowner will be considered to have purchased such Series 2010B Bond at a premium and will not be required to include any original issue discount in income, and may elect to deduct the amortizable bond premium. A bondowner may elect to amortize such premium using a constant yield method over the remaining term of such Series 2010B Bond and may offset interest otherwise required to be included in income in respect of such Series 2010B Bond during any taxable year by the amortized amount of such premium for the taxable year. The amount amortized in any year will be treated as a reduction of the bondowner s adjusted tax basis in such Series 2010B Bond. However, if the Series 2010B Bond may be optionally redeemed after the bondowner acquires it at a price in excess of its stated redemption price at maturity, special rules would apply which could result in a deferral of the amortization of some bond premium until later in the term of such Series 2010B Bond. Any election to amortize bond premium applies to all taxable debt obligations then owned and thereafter acquired by the bondowner and may be revoked only with the consent of the Service. Bond premium on a Series 2010B Bond held by a bondowner that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of such Series 2010B Bond

25 Market Discount. If a Series 2010B Bond is purchased at any time for a price that is less than its stated redemption price at maturity, such bondowner will be treated as having purchased such Series 2010B Bond at a market discount, unless such market discount is less than a statutorily specified de minimis amount. Under the market discount rules, a bondowner will be required to treat any partial principal payment on, or any gain realized on the sale, exchange, retirement or other disposition (including certain nontaxable dispositions such as gifts) of, such Series 2010B Bond as ordinary income for federal income tax purposes to the extent of the market discount which has not previously been included in gross income for federal income tax purposes and is treated as having accrued on such Series 2010B Bond at the time of such payment or disposition. A bondowner may instead elect to include market discount in gross income for federal income tax purposes each taxable year as it accrues with respect to all debt instruments (including a Series 2010B Bond) acquired in the taxable year for which the election is made. Such election would apply to the taxable year for which it is made and for all subsequent taxable years and could be revoked only with the consent of the Service. Also, a bondowner who acquires a Series 2010B Bond with market discount may be required to defer, until the maturity of the Series 2010B Bond or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry such Series 2010B Bond, unless an election is made to include in gross income market discount currently as it accrues as described above. The accrued market discount on a Series 2010B Bond is generally determined on a ratable basis, unless the bondowner elects with respect to such Series 2010B Bond to determine accrued market discount under a constant yield method similar to that applicable to original issue discount. Election to Treat All Interest as Original Issue Discount. Bondowners generally may elect, with respect to a Series 2010B Bond acquired in the taxable year for which such election is made, to include in gross income for federal income tax purposes each taxable year all interest, including stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium, that accrues on such Series 2010B Bond by using the constant yield method applicable to original issue discount, subject to certain limitations and exceptions. Such election would apply to the taxable year for which it is made and for all subsequent taxable years and could be revoked only with the consent of the Service. Redemption, Sale, Exchange or Other Disposition. Upon the redemption, sale, exchange or other disposition of a Series 2010B Bond, a bondowner generally will recognize taxable gain or loss for federal income tax purposes equal to the difference between the amount realized on the redemption, sale, exchange or other disposition (other than amounts representing accrued qualified stated interest which will be taxable as such) and such bondowner s adjusted tax basis in the Series 2010B Bond. Defeasance of the Series 2010B Bonds, as applicable, may result in a reissuance (or deemed exchange) thereof for federal income tax purposes, in which event a bondowner will recognize taxable gain or loss as described in the preceding sentence. A bondowner s adjusted tax basis in a Series 2010B Bond generally will equal such bondowner s initial investment in such Series 2010B Bond increased by any original issue discount included in such bondowner s gross income (and accrued market discount, if any, if the bondowner has included such market discount in such bondowner s gross income) and decreased by the amount of any payments received, other than qualified stated interest payments, and bond premium amortized with respect to such Series 2010B Bond by such bondowner. Subject to the market discount rules discussed above, such gain or loss generally will be long-term capital gain or loss if such Series 2010B Bond was

26 held by such bondowner for more than one year. Also, the deductibility of capital losses is subject to certain limitation. CONTINUING DISCLOSURE UNDERTAKING The District will covenant in the Continuing Disclosure Certificate to provide certain financial information and operating data relating to the District (updated within not later than 180 days following the end of its fiscal year, which currently ends June 30) (the Annual Report ) commencing with the Annual Report for the fiscal year ending June 30, 2011, and to provide notices of the occurrence of certain enumerated events. The Annual Report shall be filed by or on behalf of the District with the Municipal Securities Rulemaking Board (the MSRB ) through the Electronic Municipal Market Access system ( EMMA ). The Annual Report shall include: (1) The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles. (2) Information relating to the District and its operations set forth in Appendix A of this Official Statement relating to the Bonds, set forth in the tables under the sections captioned: THE DISTRICT - Enrollment ; FINANCIAL INFORMATION CONCERNING THE DISTRICT - Summary of Revenues and Expenditures, - Historic Assessed Valuation, - Assessed Valuation Components, -Tax Rates, - Tax Collection Rates and - Major Taxpayers ; and INDEBTEDNESS OF THE DISTRICT - Debt Ratios and Related Information (other than information relating to overlapping indebtedness). The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds ( Occurrence Events ): (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) principal and interest payment delinquencies; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; defeasances; rating changes; tender offers; or bankruptcy, insolvency, receivership or similar event of the obligated person. The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material ( Material Events and together with the Occurrence Events, Reportable Events ): (i) (ii) (iii) (iv) (v) (vi) non-payment related defaults; adverse tax opinions or events affecting the tax status of the Bonds; modifications to rights of Bond Owners; Bond calls (other than mandatory sinking fund redemptions); release, substitution or sale of property securing repayment of the Bonds; consummation of a merger, consolidation, or acquisition involving an obligated person, or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive

27 (vii) agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or appointment of a successor or additional trustee or change of name of a trustee. The District shall in a timely manner not in excess of 10 Business Days after the occurrence of the Reportable Event file a notice of such occurrence with the MSRB though EMMA. Nothing in the Continuing Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in the Continuing Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Reportable Event, in addition to that which is required by the Continuing Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Reportable Event in addition to that which is specifically required by the Continuing Disclosure Certificate, the District shall have no obligation under the Continuing Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Reportable Event. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12 promulgated by the Securities and Exchange Commission. The District has made similar continuing disclosure undertakings with respect to its outstanding bonds. The District has historically filed its audited financial statements, but inadvertently failed to file its operating data in certain years between 1997 through The District implemented procedures to ensure that it included both operating information along with its audited financial statements. Beginning with its annual report filed in connection with its fiscal year ending June 30, 2006, the District has filed its operating information along with its audited financial statements. ABSENCE OF LITIGATION As of the date hereof, there is no controversy, suit or other proceeding of any kind pending or to the District s knowledge, threatened in any court (either State or federal) restraining or enjoining the issuance or delivery of the Bonds or which might affect the District s ability to meet its obligations to pay the Bonds, or questioning, disputing or affecting in any way (i) the proceedings under which the Bonds are to be issued, (ii) the constitutionality or validity of the Bonds, (iii) the levy and collection of a tax to pay the principal and interest on the Bonds or the pledge by the District of the moneys under the Resolution of the District authorizing the issuance of the Bonds, or (iv) the legal existence of the District or its boundaries, or the title to office of the present officials of the District. UNDERWRITING George K. Baum & Company, St. Louis, Missouri and Stifel, Nicolaus & Company, Incorporated, St. Louis, Missouri (collectively, the Underwriters ) have agreed to purchase the Series 2010A Bonds from the District at a price equal to $1,624, (which is equal to the aggregate principal amount of the Series 2010A Bonds, less an underwriting discount of $4,087.50, less original issue discount of 6,556.35). The Underwriters have agreed to purchase the Series 2010B Bonds from the District at a price equal to $29,212, (which is equal to the aggregate principal amount of the Series 2010B Bonds, less an underwriting discount of $102,602.50). The Underwriters are purchasing the Bonds for resale in the normal course of the Underwriters business activities. The Underwriters reserve the right to offer any of the Bonds to one or more purchasers on such terms and conditions and at such price or prices as the Underwriters, in their discretion, shall determine

28 CERTAIN RELATIONSHIPS Thompson Coburn LLP, Bond Counsel, is also passing upon certain legal matters related to this Official Statement. MISCELLANEOUS The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is made to all such documents for full and complete statements of all matters of fact relating to the Bonds, the security for the payment of the Bonds and the rights of the Owners thereof. During the period of the offering, copies of drafts of such documents may be examined at the offices of the Underwriters; following delivery of the Bonds, copies of such documents may be examined at the principal corporate trust office of the Paying Agent. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. Any statement made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the information presented herein since the date hereof. This Official Statement is not to be construed as a contract or agreement between the District, the Paying Agent, or the Underwriters and the purchasers or Owners of any Bonds. [Remainder of page intentionally left blank]

29 The District has duly authorized the execution and delivery of this Official Statement., ST. CHARLES COUNTY, MISSOURI By: /s/ Mike Sommer President of the Board of Education

30 APPENDIX A INFORMATION REGARDING THE DISTRICT

31 TABLE OF CONTENTS Page THE DISTRICT...1 General...1 Location...1 The Board of Education...1 Professional Staff...1 Employee Relations...1 Enrollment...2 School Rating and Accreditation...2 School Facilities...2 Property and Liability Insurance...4 Retirement Plan...4 ECONOMIC INFORMATION CONCERNING THE DISTRICT...4 Major Employers...4 Industrial and Commercial Development...4 Unemployment...4 FINANCIAL INFORMATION CONCERNING THE DISTRICT...5 Sources of Revenue...5 Local Revenue...5 State Revenue...6 Federal Revenue Tax Limitation Provisions Accounting, Budgeting and Auditing Procedures Summary of Revenues and Expenditures Historic Assessed Valuation Assessed Valuation Components Tax Assessments and Collections Tax Rates Tax Collection Rates Major Taxpayers INDEBTEDNESS OF THE DISTRICT General Debt Limitation and Debt Capacity General Obligation Bonds Outstanding History of General Obligation Indebtedness Debt Service Requirements Overlapping General Obligation Indebtedness Debt Ratios and Related Information Lease Obligations Future Debt DESCRIPTION OF ST. CHARLES COUNTY, MISSOURI General Transportation Economic Growth Higher Education Medical Services Recreational Facilities i -

32 THE DISTRICT General Francis Howell R-III School District, St. Charles County, Missouri (the District ), was reorganized in 1951 and operates pursuant to Chapter 162 of the Revised Statutes of Missouri, as amended. Location The District is located in east central Missouri approximately thirty miles west of the City of St. Louis and covers 150 square miles in St. Charles County, Missouri (the County ). The District is located within the southern portion of the County and is considered to be part of the St. Louis Metropolitan Statistical Area (the St. Louis MSA ). The District serves the following municipalities: Cottleville, Dardenne Prairie, Defiance, Harvester, New Melle, Weldon Springs and Weldon Springs Heights and portions of O Fallon, St. Charles and St. Peters. The Board of Education The District is governed by the Board of Education (the Board ) consisting of seven directors who are elected for staggered three-year terms of office. The Board is a policy-making body that primarily functions to establish policies for the District, to provide for the general operation and personnel of the District and to oversee the property, facilities and financial affairs of the District. The Board elects a President and a Vice President from its members for one-year terms. The Secretary and Treasurer are elected by members of the Board each April and need not be members of the Board. The present members are listed below: Name Office Year First Elected Term Expiration Date Mike Sommer President and Member April, 2008 April, 2011 Stephen Johnson Vice-President and Member April, 2009 April, 2012 Mike Hoehn Treasurer and Member April, 2008 April, 2011 Cynthia Bice Member April, 2010 April, 2013 Marty Hodits Member April, 2006 April, 2012 Mark Lafata Member April, 2002 April, 2011 Amy McEvoy Member April, 2010 April, 2013 The Board has appointed Patty Knight to serve as Secretary of the Board of Education. Ms. Knight is employed as an administrative assistant to the District s Superintendent. Professional Staff The average teacher employed by the District has 12.8 years of teaching experience, compared to a statewide average of 12.2 years, and 77.3% of the District s teachers hold advanced degrees. For the school year, the beginning teacher s salary is $35,009 and the average salary for all teaching staff is $54,859. The District has 1,422 certified personnel and 1,043 non-certified personnel. Employee Relations Most of the District s teaching staff are members of the Missouri Chapter of the National Education Association ( MNEA ). In addition, most of the District s maintenance, groundskeeping and custodial employees are represented by MGC Local No. 1, a division of MNEA. A-1

33 The District has experienced only one labor action in its history. In spring of 1986, the teachers initiated a work stoppage for one day with a Day of Concern related to their ongoing contract negotiations. There has been no subsequent labor action since that time. Enrollment Listed below are the District s historic enrollment figures as of September for the last five school years and enrollment figures for the current school year: Source: District. Year Total Enrollment , , , , , ,470 School Rating and Accreditation Missouri law requires the Missouri Department of Elementary and Secondary Education ( DESE ) to regularly evaluate each public school district. The process of accrediting school districts is mandated by state law and the specific responsibilities are outlined both by rules of the State Board of Education and Section of the Revised Statutes of Missouri, as amended. Under DESE s current accreditation system, school districts are evaluated every five years based on DESE standards in three areas: resource standards, educational process standards and performance standards. School districts receive an evaluation judgment for each of the three sets of standards and an overall evaluation, which evaluations are in one of four categories: accredited, provisionally accredited, unaccredited or interim. As of February 2010, 511 (97.7%) of all school districts in the State of Missouri were accredited, 9 (1.7%) were provisionally accredited, 1 (0.2%) was interim accredited and 2 (0.4%) were unaccredited under the Missouri School Improvement Program (MSIP) rating system. DESE has always assigned the District accredited status, which is the highest accreditation status given to State of Missouri school districts. DESE s next formal review of the District will be in For the eighth time since 2001, the District has received the honor of Distinction in Performance Award which is based on academic achievement and progress. School Facilities The District currently owns and operates ten elementary schools, five middle schools, three high schools, two alternative schools and three early childhood centers. Enrollment figures for the two alternative schools and the three early childhood centers are not provided below because the enrollment at these facilities is not included in the District s overall enrollment figures. Listed below is information about each of the schools and facilities currently operated by the District and enrollment figures based on the District s Budget: Francis Howell Union High School Heritage Landing Location: 1405 Highway D Location: 1400 Gettysburg Landing St. Charles, Missouri St. Charles, Missouri A-2

34 Francis Howell High School Francis Howell North High School Location: 7001 Highway 94 South Location: 2549 Hackmann Road St. Charles, Missouri St. Charles, Missouri Enrollment: 1,803 Enrollment: 1,922 Francis Howell Central High School Barnwell Middle School Location: 5199 Highway N Location: 1035 Jungs Station Road St. Charles, Missouri St. Charles, Missouri Enrollment: 1,943 Enrollment: 813 Hollenbeck Middle School Francis Howell Middle School Location: 4555 Central School Road Location: 825 O Fallon Road St. Charles, Missouri St. Charles, Missouri Enrollment: 673 Enrollment: 865 Saeger Middle School Bryan Middle School Location: 5201 Highway N Location: 605 Independence Road St. Charles, Missouri St. Charles, Missouri Enrollment: 771 Enrollment: 928 Becky-David Elementary School Castlio Elementary School Location: 1155 Jungs Station Road Location: 1020 Dingledine Road St. Charles, Missouri St. Charles, Missouri Enrollment: 1,034 Enrollment: 961 Central Elementary School Daniel Boone Elementary School Location: 4525 Central School Road Location: 201 West Highway D St. Charles, Missouri Wentzville, Missouri Enrollment: 908 Enrollment: 364 Fairmount Elementary School Henderson Elementary School Location: 1725 Thoele Road Location: 2501 Hackmann Road St. Peters, Missouri St. Charles, Missouri Enrollment: 945 Enrollment: 528 Harvest Ridge Elementary School John Weldon Elementary School Location: 1220 Harvest Ridge Drive Location: 7370 Weldon Spring Road St. Charles, Missouri Dardenne Prairie, Missouri Enrollment: 745 Enrollment: 757 Independence Elementary School Warren Elementary School Location: 4800 Meadows Parkway Location: 141 Weiss Road St. Charles, Missouri St. Peters, Missouri Enrollment: 784 Enrollment: 720 Early Childhood Family Education Center Early Childhood Family Education Center Location: 4535 Central School Road Location: 2555 Hackmann Road St. Charles, Missouri St. Charles, Missouri Early Childhood Family Education Center Location: 4810 Meadows Parkway St. Charles, Missouri A-3

35 Property and Liability Insurance All District insurance needs are covered through a self-insured pool of over 400 separate Missouri school districts and which is officially referred to as the Missouri United School Insurance Council ( MUSIC ) program. MUSIC provides the District with all-risk (including earthquake) property, liability, errors and omissions, automobile, boiler and machinery and worker s compensation insurance coverage. Retirement Plan The District contributes to The Public School and Public Education Employees Retirement Systems of Missouri ( PSRS and PEERS ), each of which is a cost-sharing multiple-employer defined benefit pension plan. These systems provide retirement and disability benefits to full-time (and certain part-time) employees and death benefits to members and beneficiaries. For additional information regarding PSRS and PEERS, see the notes to the District s audited financial statements in Appendix B hereto. Major Employers ECONOMIC INFORMATION CONCERNING THE DISTRICT Listed below are the top employers located within the County and the approximate number of employees employed by each: Number of Major Employers Type of Business/Products Employees 1. CitiGroup Financial Services 4, Ft. Zumwalt School District Public School District 2, MasterCard Worldwide Financial Services 2, Francis Howell R-III School District Public School District 2, Wentzville School District Public School District 1, True Manufacturing Refrigeration Equipment 1, SSM St. Joseph Healthcare Medical Services 1, Ameristar Casino Casino 1, St. Charles County Government 1, Boeing Defense 1, General Motors Automobiles 1,000 Source: Economic Development Center of St. Charles County. Industrial and Commercial Development Although the District has a very large residential community, significant economic development exists in the form of both commercial and industrial development. There are also numerous retail stores located within the District, creating a diverse tax base for the District. As a result of this mix of economic development, the District is not dependent upon a limited number of employers but rather has a broad base of established companies. Unemployment The following table sets forth the average total labor force, average number of employed and unemployed workers in the County and, for comparative purposes, the average unemployment rates for the State of Missouri and the United States for 2005 through 2010: A-4

36 St. Charles County Unemployment Rates Labor Force St. Charles State of United Year Employed Unemployed Total County Missouri States ,576 7, , % 5.4% 5.1% ,404 7, , ,051 7, , ,723 10, , ,989 16, , (1) 175,000 15, , Source: Missouri Department of Economic Development, Missouri Economic Research and Information Center. (1) As of September, Sources of Revenue FINANCIAL INFORMATION CONCERNING THE DISTRICT The District finances its operations through local property taxes, revenues from a 1% state sales tax, state aid formula funds, including certain categorical source add-ons to the state formula funds, federal grant programs and miscellaneous sources including a state tax on cigarettes ( fair share revenues). A recent history of the breakdown of the sources of revenues (all funds) for the District is as follows: Revenues Local (1) $ 127,450,795 $ 132,627,465 $ 136,873,691 $137,491,360 $ 135,677,603 County 2,698,687 2,881,171 2,691,855 2,569,982 2,760,670 State 42,052,064 45,158,775 48,642,930 51,096,713 44,928,828 Federal 7,400,140 7,465,617 7,091,247 6,950,918 15,521,500 Other (2) 513, ,157 27,459,740 40,000,000 9,185,000 Total $ 180,115,300 $ 188,807,185 $ 222,759,463 $ 238,108,973 $ 208,073,601 Source: District s Annual Secretary of the Board Reports. (1) Under the provisions of an initiative petition adopted by the voters of Missouri on November 2, 1982 ( Proposition C ), revenues generated by a 1% state sales tax are credited to a special trust fund for school districts and are deemed to be local revenues. (2) Includes bond proceeds of various amounts in 2008, 2009 and Local Revenue The primary sources of local revenue are (1) taxes upon real and personal property within a school district, excluding railroad and utility property taxes (which are classified as County Revenues for school taxation purposes), (2) fines and forfeitures collected as a result of violations within a school district s boundaries, (3) a school district s allocable portion of state assessed railroad and utility property taxes collected and distributed by the county or counties in which it is located, and (4) receipts from a 1% state sales tax (commonly referred to as Proposition C ). For school taxation purposes, all state assessed railroad and utility property within a county is taxed uniformly at a rate determined by averaging the tax rates of all school districts in the county. No determination is made of the assessed value of the railroad and utility property that is physically located within the A-5

37 boundaries of each school district. Such tax collections for each county are distributed to the school districts within that county according to a formula, based in part on total student enrollment in each district and in part on the taxes levied by each district. Proposition C revenues are generated by a 1-cent state sales tax that was approved by the voters in The sales tax proceeds are deemed to be local revenues for school district accounting purposes. Under prior law, every school district in the State received a flat amount of Proposition C revenue for each eligible pupil. Such revenue is now being distributed under the provisions of a revised State Aid formula using weighted average daily attendance (see the section below captioned FINANCIAL INFORMATION CONCERNING THE DISTRICT State Revenue ). The following table shows the amounts of Proposition C revenue per pupil distributed for each of the five previous fiscal years: Fiscal Year Ended June 30 Proposition C Revenue Source: Missouri Department of Elementary and Secondary Education. (1) Per weighted average daily attendance. Under Proposition C, after determining its budget and the levy rate needed to produce required revenues to fund the budget, a school district must reduce the operating levy by an amount sufficient to decrease the revenues it would have received therefrom by an amount equal to approximately one-half of the estimated revenues to be received through Proposition C during the year. School districts may submit propositions to voters to forego some or all of the reduction in the operating levy that is otherwise required under terms of Proposition C. The voters in the District have approved a proposition to waive all of the reduction in the operating levy required under Proposition C. State Revenue State Aid. The amount of State Aid for school districts in Missouri has typically been calculated using a complex formula. Senate Bill 287 passed by the Missouri General Assembly in its 2005 regular session is intended to transition the State away from a local tax rate based formula to a formula that is primarily studentneeds based. The new formula is being phased in over a seven-year period that started with the fiscal year. During the phase-in period, State Aid for each school district will be based on a percentage of both the old local tax rate based formula (determined as a percentage of the State Aid Payments), and the new student-needs based formula. State Aid will be calculated using the following percentages of the old and new formulas: Phase-In Year 2006 $ (1) (1) (1) (1) Percentage of State Aid Payment Percentage of SB 287 Formula % 15% A-6

38 The fiscal year basic formula appropriation approved by the Missouri General Assembly and signed by the Governor is approximately 96% of the amount needed to fully fund the amount needed for the phase-in described above. To lessen the impact of the funding shortfall, the General Assembly approved an amendment to Chapter 163 of the Revised Statutes of Missouri, which provides that in fiscal years , and , if the State s basic formula appropriation is less than the amount needed to fully fund the phased-in formula, or the appropriation for transportation is funded at a level that provides less than 75% of the allowable transportation-related costs, school districts will be excused from compliance with certain spending requirements for professional development, as well as certain fund placement and expenditure requirements, described below under the caption Mandatory Deposit and Expenditures of Certain Amounts in the Teachers Fund. School districts will also be excused from complying with these requirements if the Governor withholds funds appropriated for funding the basic formula in any of the same three years. Property Tax Levy Requirements. The sum of a district s local property tax levies in its Incidental and Teachers Funds must be at least $2.75 per $100 assessed valuation in order for the district to receive increases in State Aid above the level of State Aid it received in the fiscal year. Levy reductions required as a result of a Hancock rollback or an SB 711 rollback (see FINANCIAL INFORMATION CONCERNING THE DISTRICT Tax Limitations Provisions below) will not affect a district s eligibility for State Aid increases. The Formula. A district s State Aid is determined by first multiplying the district s weighted average daily attendance ( ADA ) by the state adequacy target (discussed below). This figure may be adjusted upward by a dollar value modifier, which is an index of the relative purchasing power of a dollar, calculated as one plus 15% of the difference of the regional wage ratio minus one. The product of the weighted ADA multiplied by the state adequacy target is then reduced by a district s local effort (discussed below) to calculate a district s final State Aid amount. Weighted ADA. Weighted ADA is based upon regular term ADA plus summer school ADA, with additional weight assigned in certain circumstances for students who qualify for free and reduced lunch, receive special education services, or possess limited English language proficiency. Students receive additional weighted treatment if, categorically, they exceed certain thresholds (based on the percentage of students in each of the categories in Performance Districts, as defined below). Currently, additional weight is assigned to students above the following thresholds: above 26.6% for students who qualify for free or reduced lunch, above 14.9% for students receiving special education services, and above 1.1% for students possessing limited English language proficiency. The District s State Aid revenues would be adversely affected by decreases in its weighted ADA resulting from decreased enrollment generally and, specifically, decreased enrollment of students eligible for free and reduced lunch, special education students, or students with limited English language proficiency. State Adequacy Target. The new State Aid formula requires DESE to calculate a state adequacy target, which is intended to be the minimum amount of funds a school district needs in order to educate each student. DESE s calculation of the state adequacy target will be based upon amounts spent, excluding federal and state transportation revenues, by certain high performing districts (known as Performance Districts ). Every two years, using the most current list of Performance Districts, DESE will recalculate the state adequacy target. The recalculation can never result in a decrease from the previous state adequacy target amount. DESE has established the state adequacy target at $6,124 for fiscal year Local Effort. For the fiscal year, the local effort figure utilized in a district s State Aid calculation is the amount of locally generated revenue that the district would have received in the fiscal year if its operating levy was set at $3.43. The $3.43 amount is called the performance levy. For all subsequent years, a district s local effort amount will be frozen at the amount, except for adjustments due to increased locally collected fines or decreased assessed valuation in the district. Growth in A-7

39 assessed valuation and operating levy increases will result in additional local revenue to the district, without affecting State Aid payments. Categorical-Source Add-Ons. In addition to State Aid distributed pursuant to the formula as described above, the formula provides for the distribution of certain categorical sources of State Aid to school districts. These include (1) 75% of allowable transportation costs, (2) the career ladder entitlement, (3) the vocational education entitlement, and (4) educational and screening program entitlements. Classroom Trust Fund (Gambling Revenue) Distribution. A portion of the State Aid received under the formula will be in the form of a distribution from the Classroom Trust Fund a fund of the state treasury containing a portion of the State s gambling revenues. This money is distributed to school districts on the basis of average daily attendance (versus weighted ADA, which applies to the basic formula distribution). The funds deposited into the Classroom Trust Fund are not earmarked for a particular fund or expense and may be spent at the discretion of the local school district, except that, beginning with the fiscal year, all proceeds of the Classroom Trust Fund in excess of amounts received in the fiscal year must be placed in the Teachers or Incidental Funds. Mandatory Deposit and Expenditures of Certain Amounts in the Teachers Fund. The following state and local revenues must be deposited in the Teachers Fund: (1) 75% of basic formula State Aid, excluding State Aid distributed from the Classroom Trust Fund (gambling revenues); (2) 75% of one-half of the district s local share of Proposition C revenues; (3) 100% of the career ladder state matching payments; and (4) 100% of local revenue from fines and escheats based on violations or abandoned property within the district s boundaries. In addition to these mandatory deposits, commencing with the fiscal year, school districts are also required to spend for certificated staff compensation and tuition expenditures each year the amounts described in clauses (1) and (2) of the preceding paragraph. Beginning in the fiscal year, school districts are further required to spend for certificated staff compensation and tuition expenditures each year, per the second preceding year s weighted ADA, as much as was spent in the previous year from local and county tax revenues deposited in the Teachers Fund, plus the amount of any transfers from the Incidental Fund to the Teachers Fund that are calculated to be local and county tax sources. This amount is to be determined by dividing local and county tax sources in the Incidental Fund by total revenue in the Incidental Fund. Commencing with the fiscal year, the formula provides that certificated staff compensation now includes the costs of public school retirement and Medicare for those staff members. These items were previously paid from the Incidental Fund. Failure to satisfy the deposit and expenditure requirements applicable to the Teachers Fund will result in a deduction of the amount of the expenditure shortfall from a district s basic formula State Aid for the following year, unless the district receives an exemption from the State Board of Education. In fiscal years , and , under certain circumstances described above under State Aid, school districts will be excused from compliance with certain spending requirements for professional development, as well as certain of these fund placement and expenditure requirements. School districts will also be excused from complying with these requirements if the Governor withholds funds appropriated for funding the basic formula in any of the same three years. A school board may transfer any portion of the unrestricted balance remaining in the Incidental Fund to the Teachers Fund. Effective June 30, 2007, any district that uses a transfer from the Incidental Fund to pay for more than 25% of the annual certificated compensation obligation of the district, and has an Incidental Fund balance on June 30 in any year in excess of 50% of the combined Incidental and Teachers Fund expenditures for the fiscal year just ended, will be required to transfer the excess from the Incidental Fund to the Teachers Fund. A-8

40 Limited Sources of Funds for Capital Expenditures. School districts may only pay for capital outlays from the Capital Projects Fund. Sources of revenues in the Capital Projects Fund are limited to: (i) proceeds of general obligation bonds (which are repaid from a Debt Service Fund levy), (ii) revenue from the school district s local property tax levy for the Capital Projects Fund, (iii) certain permitted transfers from the Teachers and Incidental Funds, and (iv) a portion of the funds distributed to school districts from the Classroom Trust Fund. Capital Projects Fund Levy. Prior to setting tax rates for the Teachers and Incidental Funds, each school district must annually set the tax rate for the Capital Projects Fund as necessary to meet the expenditures of the Capital Projects Fund for capital outlays, except that the tax rate set for the Capital Projects Fund may not be in an amount that would result in the reduction of the equalized combined tax rates for the Teachers and Incidental Funds to an amount below $2.75. Transfers from Incidental Fund to Capital Projects Fund. In addition to money generated from the Capital Projects Fund levy, each school district may transfer money from the Incidental Fund to the Capital Projects Fund under the following limited circumstances: (1) The amount to be expended for transportation equipment that is considered an allowable cost under the state board of education rules for transportation reimbursements during the current year; (2) Current year obligations for lease-purchase obligations entered into prior to January 1, 1997; (3) The amount necessary to repay costs of one or more guaranteed energy savings performance contracts to renovate buildings in the school district, provided that the contract specified that no payment or total of payments shall be required from the school district until at least an equal total amount of energy and energy-related operating savings and payments from the vendor pursuant to the contract have been realized; and (4) To satisfy current year capital project expenditures, an amount not to exceed the greater of: a. $162,326; or b. Seven percent (7%) of the state adequacy target (currently, $6,124) times the district s weighted ADA. Transfers from Incidental Fund to Debt Service Fund and/or Capital Projects Fund. If a school district is not using the seven percent (7%) or the $162,326 transfer (as discussed above) and is not making payments on lease purchases pursuant to Section , Revised Statutes of Missouri, then the school district may transfer from the Incidental Fund to the Debt Service and/or the Capital Projects Fund the greater of: (1) The State Aid received in the school year as a result of no more than eighteen (18) cents of the sum of the debt service and capital projects levy used in the foundation formula and placed in the Capital Projects or Debt Service fund; or (2) Five percent (5%) of the state adequacy target (currently, $6,124) times the district s weighted ADA. A-9

41 Federal Revenue School districts receive certain grants and other revenue from the federal government, which are usually required to be used for the specified purposes of the grant or funding program. The federal No Child Left Behind law requires that every public school student must score at a proficient level or higher in math and reading by Each state establishes its own proficiency levels. Federal sanctions for school districts that fail to meet established proficiency standards include providing parents and students from underperforming schools within a district the right to request a transfer to a school within the district that meets proficiency standards. In addition, schools that continue to fail to meet proficiency standards must, in addition to transfers and tutoring, make additional changes in staffing, curriculum and management. Federal sanctions apply only to public schools that receive Title I federal money. Tax Limitation Provisions The operating levy of a school district (consisting of all ad valorem taxes levied except the debt service levy) cannot exceed the tax rate ceiling for the current year without voter approval. Under Article X, Section 11(b) of the Missouri Constitution, a school district may increase its operating levy up to $2.75 per $100 assessed valuation without voter approval. Any increase above $2.75, however, must be approved by a majority of the voters voting on the proposition. Further, pursuant to Article X, Section 11(c) of the Missouri Constitution, any increase above $6.00 must be approved by twothirds of the voters voting on the proposition. Without the required percentage of voter approval, the tax rate ceiling cannot at any time exceed the greater of the tax rate in effect in 1980 or the most recent voter-approved tax rate (as adjusted pursuant to the provisions of the Hancock Amendment and SB 711, more fully explained below). The tax levy for debt service on a school district s general obligation bonds is exempt from these limitations upon the tax rate ceiling. Article X, Section 22(a) of the Missouri Constitution (popularly known as the Hancock Amendment ), approved in 1980, places limitations on total state revenues and the levying or increasing of taxes without voter approval. The Missouri Supreme Court has interpreted the definition of total state revenues to exclude voter-approved tax increases. The Hancock Amendment also includes provisions requiring tax rate roll backs by local governmental units. By statute, in each odd-numbered year, the value of taxable real and personal property is reassessed. If the new assessed valuation of property, excluding the value of new construction and improvements, increases by a larger percentage than the increase in the Consumer Price Index from the previous year (or 5%, if greater), the current tax levy ceiling must be reduced to yield the same gross revenue from existing property, adjusted for changes in the Consumer Price Index, as could have been collected at the existing tax levy ceiling on the prior assessed value. This reduction is often referred to as a Hancock rollback. The limitation on local governmental units does not apply to taxes levied in the Debt Service Fund for the payment of principal and interest on general obligation bonds. In 2008, through the enactment of Senate Bill 711 ( SB 711 ), the Missouri General Assembly approved further limitations on the amount of property taxes that can be imposed by a local governmental unit. Prior to the enactment of SB 711, a Hancock rollback would not necessarily result in a reduction of a district s actual operating tax levy if its current tax levy was less than its current tax levy ceiling, due to the district s voluntary rollback from the maximum authorized tax levy. Under SB 711, in reassessment years (oddnumbered years), the Hancock rollback is applied to a district s actual operating tax levy, regardless of whether that levy is at the district s tax levy ceiling. This further reduction is sometimes referred to as an SB 711 rollback. In non-reassessment years (even-numbered years), the operating levy may be increased to the district s tax levy ceiling (as adjusted by the Hancock rollback), only after a public hearing and adoption of a resolution or policy statement justifying the action. A-10

42 Accounting, Budgeting and Auditing Procedures The accounts of the District are organized on the basis of funds and account groups, in conformity with generally accepted accounting principles. District resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The operations of each fund are accounted for with separate self-balancing accounts that include its assets and liabilities that arise from cash transactions, fund equity, revenues collected and expenditures paid. The District s financial statements are prepared according to the model prescribed in the Governmental Accounting Standards Board (GASB) Statement No. 34, as amended by subsequent GASB Statements Nos. 36, 37 and 38. These GASB pronouncements establish standards for the preparation of financial statements for school districts and other local government entities that focus on aggregate operations, versus the previous model, which focused on accountability of individual fund groups. These governmentwide financial statements are prepared on the full accrual basis of accounting and can be more easily compared to corporate full accrual statements. The District also presents fund financial statements prepared on the modified accrual basis of accounting. There are reconciliations between the accrual and modified accrual basis statements to facilitate understanding the differences between the two sets of statements. For additional information on the District s financial statements, see the Notes to the audited financial statements, included in this Official Statement as Appendix B. Prior to June 30, the Superintendent submits to the Board a proposed budget for the fiscal year beginning on the following July 1. The proposed budget is comprised of estimated revenues and expenditures for all funds. A public hearing is conducted to obtain taxpayer comments. Following the hearing and not later than September 1, the Board is required to fix the rates of taxes and the District must certify the tax rates to the Count and the State Auditor. The financial statements of the District are audited annually by a firm of independent certified public accountants in accordance with generally accepted auditing standards. The firm of Kerber, Eck & Braeckel LLP, St. Louis, Missouri, audited the financial statements of the District for the fiscal year ended June 30, 2009, a copy of which is included in this Official Statement as Appendix B. A summary of significant accounting policies of the District is contained in the Notes to the financial statements. Summary of Revenues and Expenditures Shown below is a summary of revenues, expenditures and fund balances for the General (Incidental) Fund, Special Revenue (Teacher s) Fund, Debt Service Fund and the Capital Projects (Building) Fund for the years shown below. The District s audited financial statements for the fiscal year ended June 30, 2009, are located in Appendix B herein. See Note A of the District s audited financial statements for the fiscal year 2009 for a discussion of the District s funds and accounting policies. Copies of the audited financial statements of the District for the prior years shown on the table are available upon request from the District. [Remainder of page intentionally left blank] A-11

43 SUMMARY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Fiscal Years Ended June (1) General (Incidental) Fund Beginning Balance $ 28,828,112 $ 34,073,363 $ 40,701,895 $43,353,130 (3) $40,009,180 Revenues 80,569,678 79,709,958 69,082,003 66,608,309 68,210,383 Expenditures (72,837,051) (63,855,642) (68,686,780) (68,120,062) (67,586,436) Other Sources (Uses) (2,487,376) (9,225,784) 326,872 (1,832,197) (595,981) Ending Balance $ 34,073,363 $ 40,701,895 $ 41,423,990 $ 40,009,180 $40,055,146 Special Revenue (Teachers) Fund Beginning Balance $ 3,235,021 $ 947,837 $ 681,581 $ 2,132,267 (3) $ 1,945,858 Revenues 79,460,230 88,776, ,363, ,962, ,120,879 Expenditures (84,672,863) (97,305,299) (104,983,874) (111,148,803) (111,502,307) Other Sources (Uses) 2,925,449 8,262, Ending Balance $ 947,837 $ 681,581 $ 4,061,408 $ 1,945,858 $ 2,564,430 Debt Service Fund Beginning Balance $ 42,416,399 $ 42,774,912 $ 42,309,465 $13,281,324 (3) $14,448,199 Revenues 16,231,952 16,156,764 17,652,324 16,795,442 15,776,908 Expenditures (15,873,439) (16,622,211) (46,959,424) (15,628,567) (17,220,476) Other Sources (Uses) ,959 (2) 0 0 Ending Balance $ 42,774,912 $ 42,309,465 $ 13,281,324 $ 14,448,199 $13,004,631 Capital Projects (Building) Fund Beginning Balance $ 1,823,804 $ 2,650,364 $ 2,352,364 $1,643,357 (3) $42,327,656 Revenues 4,070,703 2,860,802 2,132,068 2,531,532 4,212,053 Expenditures (3,319,683) (4,796,416) (3,357,031) (4,890,838) (22,226,094) Other Sources (Uses) 75,540 1,637, ,955 43,043,605 11,135,540 Ending Balance $ 2,650,364 $ 2,352,364 $ 1,643,356 $ 42,327,656 $35,449,155 Total Funds Beginning Balance $ 76,303,336 $ 80,446,476 $ 86,045,305 $60,410,078 (3) $ 98,730,893 Revenues 180,332, ,504, ,230, ,897, ,320,223 Expenditures (176,703,036) (182,579,568) (223,987,109) (199,788,270) (218,535,313) Other Sources (Uses) 513, ,156 1,121,786 (2) 41,211,408 (2) 10,539,559 Ending Balance $ 80,446,476 $ 86,045,305 $ 60,410,078 $ 98,730,893 $ 91,055,362 Source: Audited Financial Statements of the District and the District in connection with the June 30, 2010 unaudited data. (1) Unaudited. (2) Includes bond premium, bond issuance costs and bond proceeds. (3) Fiscal year 2009 beginning fund balances were restated due to a reclassification of state basic aid from the Special Revenue (Teachers ) Fund to the General (Incidental) Fund. A-12

44 Historic Assessed Valuation The table below shows the assessed valuation of property in the District as of January 1, as adjusted through December 31, for each of the years shown: Year Assessed Valuation (1) Percent Change 2005 $2,080,759,911 N/A ,333,132, % ,396,207, ,277,842, ,295,565, ,275,789,050 (2) Source: St. Charles County Assessor s Office, as certified by the St. Charles County Registrar. (1) Net of the incremental increase in assessed valuation over the established assessed valuation base within tax increment financing districts within the District. (2) As of January 1, adjusted through August 5, Assessed Valuation Components The following table shows the total assessed valuation and estimated actual value, by category, of all taxable tangible property (excluding state-assessed railroad and utility property) situated in the District as of January 1, 2010 (as adjusted through August 5, 2010): Total Total Estimated Assessed Assessment Actual Type of Property Valuation (1) Rate Valuation Real Estate: Residential $1,659,164, % $ 8,732,442,368 Commercial 305,225, % 953,828,375 Agriculture 6,209, % 51,745,250 Total Real Estate (2) $1,970,598,560 $ 9,738,015,993 Total Personal Property (2) $ 305,190, % $ 915,663,036 TOTAL $2,275,789,050 $ 10,653,679,029 Source: St. Charles County Registrar s Office. (1) Net of the incremental increase in assessed valuation over the established assessed valuation base within tax increment financing districts within the District. (2) Locally assessed railroad and utility property are included in the real estate and personal property totals. For school taxation purposes, all state assessed railroad and utility property within a county is taxed uniformly at a rate determined by averaging the tax rates of all school districts in the county. Such tax collections for each county are distributed to the school districts within that county according to a formula based in part on total student enrollments in each district and in part on the taxes levied by each district. Under this method of distributing tax collections from state assessed railroad and utility property, it is unnecessary to determine the assessed value of such property that is physically located within the bounds of each school district. Based upon information contained in the District s Annual Secretary of the Board Report (ASBR) for , the District received $2,295,265 from state assessed railroad and utility property taxes. A-13

45 Tax Assessments and Collections The St. Charles County Assessor assesses property within the County each year. Since 1985, state statutes have required a specific ratio of assessment for three classes of real property: residential (19%), agricultural (12%) and commercial (32%). Personal property is designated for assessment at 33-1/3% of its true value. Tax statements are mailed to taxpayers annually in early November. Taxes are payable immediately upon receipt of statements and are delinquent after December 31. A penalty of 2% is applied to all taxes not paid by December 31 of the year in which they are assessed, plus interest of 2% per month for nine months of each year. Property is sold to pay taxes after the delinquency extends up to three years. Tax Rates Debt Service Levy. The District is required under Article VI, Section 26(f) of the Missouri Constitution to levy an annual tax on all taxable tangible property therein sufficient to pay the interest and principal of the indebtedness as they fall due and to retire the same within 20 years from the date of issue. The Board of Education may set the tax rate for debt service, without limitation as to the rate or amount, at the level required to make such payments. Operating Levy. For the year, the District has set its operating levy (all ad valorem taxes levied except the debt service levy) at $ per $100 of assessed valuation. The voters of the District authorized an increase to the operating tax levy up to an additional eighty-nine cents ($0.89) in April 2004 to maintain the District s academic programs. Beginning in fiscal year 2005 the District determined that its fund balances and revenues from State sources were sufficient to maintain its programs and facilities. As a result, the District voluntarily reduced its operating levy by $0.25 in each of the fiscal years 2005 through In response to District plans to address any future decline in assessed valuation or the amount of state revenue that District receives, the District asked the voters in August 2008, and the voters approved, a five year extension of $0.20 of the total operating levy amount that was to expire that year. In addition, if in future years the District actually experiences declines in assessed valuation or state revenue, the District has the ability to increase its operating levy up to the full voter-authorized amount of $4.74, as adjusted to comply with the Hancock Amendment and SB 711, described above under the caption Tax Limitation Provisions. The following table shows the District s tax levies (per $100 of assessed valuation) for each of the following fiscal years: General (Incidental) Fund Capital Projects Fund Special Revenue (Teachers ) Fund Debt Service Fund Adjusted Tax Levy Total Fiscal Year 2006 $ $ $ $ $ Source: District. A-14

46 Tax Collection Rates The following table sets forth tax collection information for the District for the following fiscal years: Current Taxes Collected Delinquent Taxes Collected (4) % of Current Taxes Collected % of Total Taxes Collected Fiscal Year (1) Assessed (2), (3) Valuation Taxes Levied Total Taxes Collected (4) 2005 $1,987,305,521 $ 93,737, $ 91,653, $3,533, % $ 95,186, % ,080,759,911 98,161, ,931, ,011, ,942, ,333,132, ,875, ,781, ,357, ,139, ,396,207, ,729, ,647, ,741, ,389, ,277,842, ,720, ,829, ,599, ,429, Source: St. Charles County Collector of Revenue s Office. (1) Taxes are levied and collected on a calendar year basis. Numbers shown reflect taxes levied and collected in the District s fiscal year, as indicated. (2) (3) (4) Assessed Valuations as of year preceding tax collection. Net of the incremental increase in assessed valuation over the established assessed valuation base within tax increment financing districts within the District. Delinquent Taxes Collected are shown in the year payment is actually received, which may cause the percentage of Total Taxes Collected to exceed 100%. Total Taxes Collected also includes the current year s protested taxes which have been released. Major Taxpayers The ten largest taxpayers in the District for 2010 are shown below. These taxpayers represent 3.67% of the District s total assessed valuation of $2,275,789,050, as adjusted through August 5, Total Assessed Valuation (1) % of District s Assessed Valuation The Crawford Group, Inc. (2) $ 21,428, % Missouri American Water Company 10,901, John Q. Hammons Revocable Trust (3) 10,126, Nike IHM, Inc. 7,410, Mid-Rivers Investment Group, L.P. 6,477, American Power Conversion Corp. 6,120, City of O Fallon Citi Mortgage 5,837, Cuivre River Electric 5,720, Laclede Gas Co. 5,686, SSM Properties 3,877, Total $ 83,587, % Source: St. Charles County Assessor s Office. (1) Excludes exempt properties. (2) Doing business as Enterprise Rent-A-Car. (3) Doing business as Embassy Suites Hotel. A-15

47 INDEBTEDNESS OF THE DISTRICT General Under Missouri law, any general obligation bonds, other than refunding bonds, require voter approval for issuance. Pursuant to the Missouri Constitution, the District is authorized to issue general obligation bonds payable from unlimited ad valorem taxes upon a two-thirds or, at elections held on general municipal election days or state primary or general election days, a four-sevenths majority vote of the qualified voters voting on the specific proposition. Debt Limitation and Debt Capacity The total principal amount of indebtedness in the District cannot exceed 15% of the value of taxable tangible property in the District according to the last completed assessment for state and county purposes at the time such bonds are approved by the voters. Based on $2,275,789, net assessed valuation as of January 1, 2010 (as adjusted through August 5, 2010), the current legal debt limit of the District is approximately $341,368, The total outstanding indebtedness of the District, including the Bonds and excluding the Refunded Bonds, is $173,828,987.45, resulting in a legal debt margin of the District of approximately $167,539, General Obligation Bonds Outstanding The District fixes an annual debt service levy and levies taxes to meet the annual debt service requirements of its general obligation bonds. Article VI, Section 26(b) of the Constitution of the State of Missouri limits the outstanding amount of authorized general obligation bonds of a school district to 15% of assessed valuation of taxable tangible property within the school district. The District has never defaulted on the payment of any of its debt obligations. [Remainder of page intentionally left blank] A-16

48 The following table illustrates the District s total outstanding general obligation bond indebtedness at the time of issuance of the Bonds: Original Principal Amount Series Amount Outstanding General Obligation Refunding Bonds, Series 1993A $ 5,600, $ 1,650, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 1998C 35,682, ,707, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 1999A 14,998, ,498, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series ,998, ,583, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 2002B 15,000, ,200, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 2002C 4,840, ,705, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 2003A 11,895, ,650, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 2004A 28,870, ,960, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series ,370, ,200, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series ,955, ,540, General Obligation Bonds (Missouri Direct Deposit Program), Series ,000, ,000, General Obligation Qualified School Construction Bonds (Missouri Direct Deposit Program), Series 2009A 9,185, ,185, General Obligation Refunding Bonds (Missouri Direct Deposit Program), Series 2010A 1,635, ,635, Taxable General Obligation Bonds (Build America Bonds Direct Pay) (Missouri Direct Deposit Program), Series 2010B 29,315, ,315, TOTAL $257,343, $173,828, A-17

49 History of General Obligation Indebtedness The following table sets forth debt information pertaining to the District as of the end of each of the last five fiscal years: Fiscal Year Total Outstanding Debt Assessed Valuation (1) Debt as % of Assessed Valuation 2006 $174,563,987 $2,023,111, % ,928,987 2,117,876, ,258,987 2,364,630, ,773,987 2,421,940, ,348,987 2,295,565, Source: Audited Financial Statements of the District and the District in connection with the June 30, 2010 unaudited data. (1) Figures reflect Assessed Valuation as of the last completed assessment prior to the end of the District s fiscal year. Figures are also net of the incremental increase in assessed valuation over the established assessed valuation base within tax increment financing districts within the District. Debt Service Requirements The following table shows the debt service requirements for the District s obligation bond indebtedness, and the debt service requirements for the Bonds: [Remainder of page intentionally left blank] A-18

50 General Obligation Bonds Debt Service Schedule Fiscal The Bonds Year Ending June 30 Outstanding Debt Service Principal Interest (1) Total Total Debt Service 2011 $16,032,038 $ -0- $ -0- $ -0- $16,032, ,359, ,277,223 1,277,223 16,636, ,526, ,035,586 1,035,586 16,562, ,715, ,035,586 1,035,586 16,750, ,882, ,035,586 1,035,586 16,917, ,968, ,035,586 1,035,586 19,003, ,699, ,035,586 1,035,586 19,735, ,869, ,035,586 1,035,586 18,905, ,152, ,035,586 1,035,586 17,188, ,498,388 3,700,000 1,035,586 4,735,586 13,233, ,593,163 2,200, ,525 3,128,525 11,721, ,678,913 2,300, ,605 3,165,605 7,844, ,680,663 2,400, ,088 3,196,088 10,876, ,680,663 2,500, ,428 3,220,428 10,901, ,855,663 2,600, ,364 3,238,364 11,094, ,598,350 2,750, ,640 3,299,640 7,897, ,658,350 2,900, ,114 3,353,114 8,011, ,612,975 3,000, ,440 3,349,440 7,962, ,724,225 3,200, ,240 3,440,240 8,164, ,400, ,760 3,523,760 3,523,760 TOTAL $212,786,756 $30,950,000 $15,227,115 $46,177,115 $258,963,871 (1) Interest shown is net of the Subsidy Payments that the District expects to receive from the U.S. Treasury under the Recovery Act in connection with the issuance of the Series 2010B Bonds. See the section in the Official Statement captioned SECURITY FOR THE BONDS The American Recovery and Reinvestment Act of 2009 Series 2010B Bonds. The District is obligated to pay the interest on the Series 2010B Bonds at the rate shown on the inside cover page of this Official Statement irrespective of whether the District receives the Subsidy Payments from the U.S. Treasury. [Remainder of page intentionally left blank] A-19

51 Overlapping General Obligation Indebtedness (1) (As of November 1, 2010) General Percent Amount Taxing Body Obligation Debt Applicable Overlapping St. Charles County Ambulance Dist. $ 10,450, % $ 2,884,200 City of St. Peters 34,759, ,369,056 City of St. Charles 10,545, ,202,130 City of O Fallon 41,770, ,046,730 St. Charles Community College 39,860, ,838,420 Central County Fire Protection and Rescue Dist. 7,575, ,545,000 Cottleville Community Fire Protection Dist. 8,000, ,968,000 City of New Melle 12, ,000 TOTAL $152,971,700 $31,865,536 Source: Telephone calls to taxing jurisdictions. Debt Ratios and Related Information Population of the District (2000): 105,635 Assessed Valuation (as of August 5, 2010): (1) $2,275,789, Estimated Actual Value (as of August 5, 2010): (1) $10,653,679, Outstanding Direct Debt: (2) $173,828, Overlapping General Obligation Debt: $31,865, Total Direct and Overlapping General Obligation Debt (2) : $205,694, Per Capita Direct Debt: (2) $1, Per Capita Direct and Overlapping General Obligation Debt: (2) $1, Ratio of Direct and Overlapping General Obligation Debt to Assessed Valuation: (1),(2) 9.04% Ratio of Direct and Overlapping General Obligation Debt to Estimated Actual Value: (1),(2) 1.93% (1) Net of the incremental increase in assessed valuation over the established assessed valuation base within tax increment financing districts within the District. (2) Includes the Bonds, excludes the Refunded Bonds. Lease Obligations Obligations secured by annually appropriated funds do not constitute an indebtedness for purposes of any Missouri statutory or constitutional debt limit. Such obligations are payable solely from annually appropriated funds of a governmental body available therefor and neither taxes nor a specific source of revenues can be pledged to make payments on such obligations. Any increase in taxes required to generate sufficient funds with which to make payments on such obligations is subject to voter approval. The District leases certain equipment under operating leases. See the notes to the District s audited financial statements for the fiscal year ended June 30, 2009, included as Appendix B to this Official Statement. Future Debt In 2006, the District completed a comprehensive school improvement strategic plan for The strategic plan was prepared by a committee composed of District business people, teachers, administrators, parents and students and includes recommendations on instruction, facilities and financial issues. Historically, the District experienced significant population growth, which necessitated construction of additional facilities that were paid for with the proceeds of general obligation bonds. More recently student enrollment has leveled off and in recent years the District has experienced a slight decline in student enrollment. For this reason, the A-20

52 new strategic plan does not contemplate construction of additional facilities, but rather outlines additional capital improvements necessary to renovate and maintain the District s existing facilities through The Bonds represent the third and final installment of $78,500,000 general obligation bonds authorized pursuant to an election held on November 4, Following the issuance of the Bonds, the District will have utilized all remaining voter-authorized amounts. DESCRIPTION OF ST. CHARLES COUNTY, MISSOURI The District s location in St. Charles County and the St. Louis MSA provides the residents of the District with many advantages. The following paragraphs briefly describe the County. General The County was organized in 1812 and contains approximately 558 square miles. The County was designated a first class county by the State of Missouri effective January 1, 1979, having attained as of that date an assessed valuation in excess of $400 million for three successive years. St. Charles County is located approximately eighteen (18) miles northwest of the City of St. Louis, Missouri, at the confluence of the Missouri and Mississippi Rivers. The County has a diverse economic base that includes both industrial and commercial enterprises in addition to a strong agricultural base. The County is also a residential community with a large number of its residents commuting to their places of employment outside the County. Transportation A well integrated network of federal and state highways provides access from the County to St. Louis County, other parts of the St. Louis metropolitan area and the rest of Missouri. Commercial air service is provided by Lambert-St. Louis International Airport, located eight miles east of the County on Interstate 70. Within the County, small aircraft service is provided by St. Charles County Smartt Airport and the St. Charles Municipal Airport. Two major railroads serve the County, the Norfolk & Western and the Chicago- Burlington-Quincy. Twenty-eight barge lines and twelve common-carrier truck lines provide service within the County. Economic Growth In addition to its traditionally strong agricultural base, the County has experienced growth in its residential, industrial and commercial sectors during the past 15 years. According to a report prepared for the East-West Gateway Coordinating Council, manufacturers have chosen to locate in St. Charles County because of its central location in the United States, the quality of its transportation network and its expanding resources of labor and materials. More than half of the firms now located in the County have expanded their physical plants within the past 15 years. More than 25 industrial parks are currently located on nearly 2,500 acres within the County. Many large acreage tracts suitable for commercial or industrial usage are available throughout the County. Numerous public and private organizations are active in the promotion and development of the County. Such organizations include The Industrial Development Authority of St. Charles County, Missouri, the Crossroads Economic Development Corporation of St. Charles County, the Industrial Development Corporation of St. Charles County and the St. Charles County Economic Development Council. These organizations assist new industries considering locating in the County by consulting with them on planning, site location, plant construction, financing and labor aspects of the relocation. A-21

53 Higher Education In addition to St. Charles Community College, post secondary education is provided by Lindenwood University, a private four-year liberal arts institution. Lindenwood University offers baccalaureate degrees in 19 subject areas, including natural science and mathematics, social science, humanities, business administration, education and nursing and graduate degrees in business (MBA), administration and education. Lindenwood recently began offering a doctoral program in education. Continuing adult education at Lindenwood University includes not-for-credit courses, workshops and seminars. Medical Services St. Joseph Health Center, located in the City of St. Charles, and the Barnes-St. Peters Hospital, located in St. Peters, provide acute health care services. St. Joseph Health Center currently has 362 beds with admissions totaling from 12,000 to 15,000 annually. The hospital facilities include a pathology laboratory, a blood bank, an intensive care/coronary unit and departments of electrocardiography, physical therapy, nuclear medicine, radiology and psychiatry. St. Joseph s also offers community health programs dealing with prenatal care, diabetes treatment, alcohol usage, drug abuse and mental health. St. Joseph Hospital West is a 100- bed facility in Lake Saint Louis, Missouri. The Barnes-St. Peters Hospital is a 120-bed facility with annual average patient admissions of approximately 3,032. Hospital facilities include a medical/surgical floor, an emergency room, an intensive care/coronary care unit, a cardiopulmonary department and an x-ray laboratory. Recreational Facilities Thirty-eight public parks, thirty-one public tennis courts, fifteen public swimming pools and ten public golf courses are located in the County. Busch Wildlife Preserve, consisting of 7,000 acres near Weldon Spring, offers fishing, hunting, hiking and picnicking facilities. * * * A-22

54 APPENDIX B ST. CHARLES COUNTY, MISSOURI AUDITED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2009

55 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT June 30, 2009

56 CONTENTS Independent Auditors' Report 4-5 Management s Discussion and Analysis 6-20 Basic Financial Statements District-wide Financial Statements Statement of Net Assets 21 Statement of Activities 22 Fund Financial Statements Balance Sheet - Governmental Funds 23 Reconciliation of the Governmental Funds Balance Sheet with the Statement of Net Assets 24 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 25 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances With the Statement of Activities 26 Statement of Net Assets - Proprietary Fund 27 Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Fund 28 Statement of Cash Flows - Proprietary Fund 29 Notes to Financial Statements Required Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balances - Budgetary Basis - Budget and Actual - Unaudited General Fund 53 Special Revenue Fund 54 Notes to Required Supplementary Information Schedule of Funding Progress - Other Postemployment Benefit Obligation - Unaudited 57

57 CONTENTS Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balances - Budgetary Basis - Budget and Actual Debt Service Fund 59 Capital Projects Fund 60

58 CPAs and Management Consultants One South Memorial Drive, Ste. 950 St. Louis, MO ph fax Independent Auditors' Report Board of Education Francis Howell R-III School District We have audited the accompanying financial statements of the governmental activities and each major fund of the Francis Howell R-III School District as of and for the year ended June 30, 2009, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and 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 and each major fund of the Francis Howell R-III School District as of June 30, 2009, and the respective changes in financial position and cash flows, where applicable, 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 December 7, 2009, on our consideration of the Francis Howell R-III School District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Other Locations Belleville, IL Carbondale, IL Springfield, IL Jacksonville, IL Cape Girardeau, MO Milwaukee, WI

59 The management s discussion and analysis on pages 6 through 20, the budgetary comparison information on pages 53 and 54, and the Schedule of Funding Progress Other Postemployment Benefits Obligation on page 57, are not a required part of the basic financial statements but are 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 the Francis Howell R-III School District s basic financial statements. The budgetary comparison information on pages 59 and 60 is presented for purposes of additional analysis 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 statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. St. Louis, Missouri December 7, 2009

60 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 The discussion and analysis of the Francis Howell R-III School District s (the District) financial performance provides a narrative overview of the District s financial activities for the fiscal year ended June 30, The management s discussion and analysis should not be taken as a replacement for the financial statements and supplementary information but should be read in conjunction with them to enhance understanding of the District s financial performance. Guiding Financial Principles The Board of Education and Administration of the District are committed to proactive financial management of the resources entrusted to it by the Francis Howell community. This trust is strengthened by providing full disclosure to the Board and community regarding the District s financial condition. The Administration utilizes conservative fiscal management practices and a value-driven operating philosophy to maintain the District s strong financial position. Financial Highlights The following are key financial highlights on a budgetary (cash) basis for the fiscal year ended June 30, The General Fund had $67,042,014 in revenues and $68,290,035 in expenditures. The General Fund did not transfer any funds to the Special Revenue (Teachers ) Fund; however, it did transfer $2,011,159 into the Capital Projects Fund. The General Fund s balance decreased $3,259,380 from 2008 on a cash basis. The Special Revenue (Teachers ) Fund had $111,130,436 in revenues and $111,130,436 in expenditures. The Special Revenue Fund maintained a zero balance for All operating funds combined (General and Special Revenue Funds) had $178,172,450 in revenues and $179,420,471 in expenditures. The balances in these school purpose funds combined decreased $3,259,380 over 2008 on a cash basis. The decrease in fund balance is attributable to increased expenditures without significant increases in revenues to offset those expenditures as well as transferring funds to the Capital Projects Fund. The Debt Service Fund had $16,923,490 in revenues and $15,628,018 in expenditures. The Debt Service Fund balance increased $1,295,472 over 2008 on a cash basis. The increase in fund balance can be attributed to savings on interest payments from the refunding of general obligation bonds that were completed in the prior year. The fund continues to have sufficient balances to meets all principal and interest payments, allowing the District to maintain its current debt service levy

61 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 The Capital Projects Fund had $43,538,267 in revenues and other financing sources and $4,469,005 in expenditures. The Capital Projects Fund balance increased $41,080,421 over 2008 on a cash basis. This increase is primarily attributable to the sale of $40 million in general obligation bonds to finance construction projects in the District. The financial results also include a transfer of $2,011,159 from the General Fund. The District slightly increased the capital projects levy from $ in FY2008 to $ in FY2009. Revenue Total revenues and other financing sources for the District were $238,634,207 for the fiscal year versus $222,759,465 for the prior fiscal year, or an increase of $15,874,742 on a cash basis. Total revenues include proceeds from a bond refunding in FY2008 and the sale of general obligation bonds in FY2009, respectively. Local revenues accounted for $137,491,360, or 55.72% of all revenues and other financing sources for the fiscal year versus $136,009,732 for the prior fiscal year (58.45%). The $15.9 million increase in revenue is primarily attributable to the following items. 1. An increase of $1,481,628 in Local revenue as increases in assessed valuation from new construction contributed to an increase in property tax revenue; the property tax increase was offset by decreases in both Proposition C (Sales Tax) revenue and earnings on investments. Investment earnings are lower due to the low Federal Funds target interest rate of 0.0% to 0.25% and the District s smaller fund balances. In addition, there was an increase in revenues for the Tuition Based programs. 2. An increase of $2,453,783 in State revenue primarily attributable to an increase in Basic Formula through the new SB287 formula calculation combined with an increase in revenues associated with both Early Childhood Special Education and the High Need Fund. 3. An increase of $13,045,000 in other financing sources which includes the sale of general obligation bonds in FY2009 less the refunding bonds which were sold during FY Expenditures The District had $183,889,676 in expenditures for the fiscal year versus $176,413,071 for the prior fiscal year, or an increase of $7,476,605. These numbers do not include expenditures related to servicing debt. The $7 million increase in expenditures is attributable to the following items. 1. There was an increase in salary expenses of $5,953,744. Certified salaries increased $4,689,419 and non-certified salaries increased $1,264,

62 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, There was an increase in benefits expense of $1,160,732. This increase was primarily related to mandatory contribution increases for the retirement plans of Missouri. Retirement funding is based on a percentage of salaries paid to the employee. The increased expense comes from a combination of an increase in the required contribution rate, and the contractual increase in salaries. The increases in payroll obligations were offset by the decrease in the cost of other benefits provided by the District. 3. The remaining $362,129 increase is spread over several categories including Purchased Services, Supplies and Capital Outlay. Using this Annual Report This annual report consists of three parts: (1) the management s discussion and analysis section; (2) the basic financial statements and notes to the financial statements; and (3) required supplementary information. The management s discussion and analysis section serves as an introduction to the District s basic financial statements. The basic financial statements include district-wide and fund financial statements, each of which presents the District s financial information from different perspectives. The district-wide financial statements consist of the Statement of Net Assets and the Statement of Activities, found on pages 21 and 22. These statements provide information about the activities of the Francis Howell R-III School District as a whole and present a longer-term view of the District s finances. Fund financial statements start on page 23. For governmental activities, the financial statements tell how these services were financed in the short term as well as what resources remain for future spending. The statements then proceed to provide an increasingly detailed look at specific financial activities. The District maintains its general ledger on the cash basis of accounting, meaning that revenues are recognized when the District receives the money and the expenses are recognized when checks are issued. To meet GASB Statement Number 34, the District s annual report uses both the modified and full accrual methods of accounting. Because of this difference, budget reports will differ from the annual report. The District separates the food service, student activity and community service funds from the general fund during the budget process. The Annual Secretary of the Board Report (ASBR) combines all of these funds together when reporting them to the Missouri Department of Elementary and Secondary Education

63 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Reporting the School District as a Whole Statement of Net Assets and the Statement of Activities The district-wide financial statements outline functions of the District that are principally supported by property taxes and various governmental activities. In the Statement of Net Assets and the Statement of Activities, the District reports governmental activities including, but not limited to, instruction, support services, operation and maintenance of plant, pupil transportation and extracurricular activities. The District does not have any business-type activities. The district-wide financial statements look at all the financial transactions of the District and allow the reader to assess how well the District performed financially during fiscal year The Statement of Net Assets and the Statement of Activities report all assets and liabilities using the accrual basis of accounting. This focus is similar to the accounting focus used by most private-sector companies. Statements prepared on the accrual basis take into account all of the current year revenues and expenses regardless of when cash is received or paid out. The relationship between revenues and expenditures can be viewed as the District s operating results. It is important to note, however, that the District s goal is to educate its students, not to generate profits as commercial entities do. Other non-financial factors, such as the quality of the education services provided, must be considered when assessing the overall health of the District. The Statement of Net Assets presents the financial position of the District at the end of the fiscal year and reports the District s net assets and changes in those assets and liabilities or claims against those assets. The difference between total assets and total liabilities net assets is one indicator of whether the overall financial conditions of the District has improved or deteriorated during the year. The District s financial position is the product of several financial transactions, including the net results of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets, and the depreciation of capital assets. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which are stated at historical cost less an allowance for depreciation

64 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Table 1 provides a summary of the District s net assets for Table I Condensed Statements of Net Assets (in millions) June 30, Assets Current and other assets $ $ Capital assets Deferred Charges (Net of Amortization) Total assets $ $ Liabilities Noncurrent liabilities $ $ Other liabilities Total liabilities Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets Total liabilities and net assets $ $ A significant portion of the District s net assets (36.1%) is invested in capital assets (e.g., land, buildings and improvements, vehicles, and furniture and equipment), less any outstanding related debt used to acquire those assets. The District uses these capital assets to provide services to its students. It is important to note that these assets are not available for future spending. Similarly, the funds to pay the debt related to the acquisition of these assets must be provided from other

65 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 sources, since the assets themselves cannot be liquidated to satisfy these liabilities. Total assets of the District s governmental activities amounted to $276,018,748 with total liabilities of $187,451,292. Net assets as of June 30, 2009 equaled $88,567,458, an increase of $1,281,589 or 1.47% over the 2008 balance. The results of this year s operations for the District as a whole are reported in the Statement of Activities, found on page 22 of this report. The Statement of Activities explains the sources of resources (revenues, charges for services, grants and contributions) and the uses of resources (instructional and support services expenses) and shows how the District s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes). Table 2 on the following page shows the changes in net assets for fiscal year

66 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Table II Changes in Net Assets for Government-Wide Activities (in millions) Year ended June 30, Program revenues Charges for services $ $ Operating grants and contributions General revenue Property taxes and other county taxes Sales taxes State aid Investment earnings Other Total revenue Program expenses Instruction Pupil services Improvement of instruction Media services Board of Education and executive administration services Building level administration Operation of plant Pupil transportation Food services Business and central services Community services Facility acquisition and construction Debt administration Total expenses Increase in net assets $ $ Ending net assets $ $

67 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 The District s total accrual-based revenues for the fiscal year ended June 30, 2009 were $ million versus $ million at June 30, The $944 thousand decrease in revenue is primarily attributable to the reduced Federal Funds Target rate and the smaller fund balances resulting in the decrease in investment earnings and a decrease in Sales Tax revenue. Please note that Proposition C money is included with the property taxes. The total cost of all programs and services was $ million for the fiscal year ended June 30, 2009 versus $ million at June 30, 2008, or an increase of $2.1 million. Governmental Activities - Table 3 below shows the cost of each of the District s functions, as well as each function s net cost (i.e., the total cost of the program less revenue generated by program-related activities). Table III Total and Net Costs of Governmental Activities (in millions) Year ended June 30, Total cost Net cost Total cost Net cost of services of services of services of services Instruction $ $ $ $ Pupil services Improvement of instruction Media services Board of Education and executive administration Building level administration Operation of plant Pupil transportation Food services (0.632) (0.216) Business and central services Community services Facility acquisition and construction Debt administration Total $ $ $ $

68 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 The dependence upon tax revenues is apparent. General revenue sources, including local property taxes, funded 81.6% of the total cost of program services for fiscal year The community, as a whole, provides the primary support for the Francis Howell R-III School District through local property taxes. Following are descriptions of the District s major functional expense categories. Instruction includes activities directly dealing with the teaching of pupils and the interaction between teacher and pupil. Pupil Services includes attendance, guidance, health, psychological, speech, and audio assistance. Improvement of Instruction includes the activities involved with assisting staff with the content and process of teaching to pupils. Media Services include the activities concerned with the use of all teaching and learning resources, including hardware and content materials. Board of Education and Executive Administration includes the activities of the elected or appointed body as well as the overall general administration of the local education agency. Building Level Administration includes expenditures related to the administration of the individual school buildings. These expenditures provide for the building instructional leadership from the school principals and assistant principals. In addition, this includes expenditures for site administrative support to run the day-to-day operations of each building. Business and Central Services includes expenditures associated with administrative and financial supervision of the District. It also includes expenditures related to planning, research, development and evaluation of support services, as well as the reporting of this information internally and to the public. Finally, it includes the support for the Student Services department and Human Resource department of the District. Operation of Plant activities involve keeping the school grounds, buildings, and equipment in an effective working condition. Transportation includes activities involved with the conveyance of students to and from school, as well as to and from school activities, as provided by state law. Food Services includes the preparation, delivery, and servicing of lunches, snacks and other incidental meals to students and school staff in connection with school activities

69 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Community Services includes expenditures related to student activities provided by the District which are designed to provide opportunities for pupils to participate in school events, public events, or a combination of these for the purposes of motivation, enjoyment and skill improvement. These services also include our early childhood childcare programs and elementary before and after school care programs. Facility Acquisition and Construction includes any expenditures relating to the construction of, renovation of, or equipping of any District building. Debt Administration involves the transactions associated with the payment of interest and other related charges to the debt of the District. Reporting the School District s Most Significant Funds Fund Financial Statements The fund financial statements focus on individual parts of the District, reporting the District s operations in more detail than the district-wide statements. The fund financial statements are prepared on the modified accrual basis of accounting. This basis considers revenue earned if it is both measurable and available (within 60 days of the end of the fiscal year). Expenditures are recorded at the time the liability is incurred. The analysis of the District s major funds begins on page 23. Fund financial reports provide detailed information about the District s major funds. A fund is a grouping of related accounts used to keep track of specific sources of funding and spending on particular programs. The District uses fund accounting to ensure compliance with reporting requirements of the Missouri Department of Elementary and Secondary Education. The District uses different funds to account for a multitude of financial transactions. However, these fund financial statements focus on the District s most significant funds. The District s major governmental funds are the General (Incidental) Fund, Special Revenue (Teachers ) Fund, Debt Service Fund, and Capital Projects Fund. 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 the future periods. The governmental fund statements provide a detailed short-term view of the District s general governmental operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance educational 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 financial statements

70 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 The narrower focus of the fund financial statements makes it useful to compare the information presented therein with that of governmental activities in the district-wide financial statements. This comparison provides readers with a better understanding of the long-term impact of the District s short-term financing decisions. Both the district-wide and fund financial statements include reconciliations to facilitate a comparison between the two statements. These reconciliations are found on pages 24 and 26 of this report, respectively. Proprietary Funds Proprietary funds use the same basis of accounting as business-type activities in that they attempt to recover costs through charges to the user. An example of a proprietary fund would be the Internal Service Fund (Self- Funded Health Insurance Plans). Operating Funds (General, Special Revenue Funds Combined) - Budgeting Highlights The District s budget is prepared according to Missouri law and is based on accounting for certain transactions on a basis of cash receipts, disbursements, and encumbrances. The District uses site-based budgeting and the budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. The District amended its general and special revenue fund budgets in November 2008, based on known changes in revenue and expenditures. However, when comparing the original budget to the final budget, expenditures decreased by $2,654,947 (1.45%) and revenues decreased by $1,671,762 (.93%). In comparing actual revenues to the ending budget amount in the general and special revenue funds, the actual revenue was $178,172,450. This was a decrease of $731,069 or.41% under the District s final budget amount. Actual expenditures in general and special revenue funds were $179,420,671, or $3,898,375 under the final budget amount. The District finished the year with a deficit in its general and special funds of $3,259,380. Statements showing the original budget and the final budget amounts compared to the District s actual activity for the General Fund and the Special Revenue Fund are provided on page 53 and 54 of this report

71 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Capital Assets and Debt Administration Capital Assets At the end of the fiscal year 2009, the District had $163,507,579 invested in land, buildings, furniture, equipment, and vehicles (net of depreciation) versus $164,227,627 at the end of The $720,048 decrease is primarily attributable to the effect of depreciation for the buildings and improvements taken during The $1,000 increase in land is due to the earnest money for purchase of a building and land that will ultimately house the Facilities and Operations personnel and equipment. Table 4 shows fiscal year 2009 and 2008 Capital Asset balances. Table IV Capital Assets (net of depreciation) June 30, Land $ 5,936,149 $ 5,935,149 Construction in Progress 1,292,661 - Land improvements 2,816,495 2,900,602 Buildings 146,786, ,879,287 Vehicles and equipment 6,675,619 7,512,589 Totals $ 163,507,579 $ 164,227,627 Debt Administration At June 30, 2009, the District had $155,773,987 general obligation bonds outstanding. The general obligation bonds were used to construct, equip, and renovate buildings in the District. During 2009, the District issued $40,000,000 in general obligation bonds. Proceeds from these bonds will be used primarily for construction on Francis Howell High School, as well as construction projects at Francis Howell North High School and Daniel Boone Elementary School. Additional information about the District s general obligations bonds is provided in Note E

72 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Table 5 shows outstanding General Obligation Bonds at June 30, 2009 and Table V Outstanding Debt June 30, General obligation bonds Series 2009 $ 40,000,000 $ - Series ,785,000 26,955,000 Series ,370,000 23,370,000 Series ,455,000 28,870,000 Series 2003A 7,275,000 7,735,000 Series 2002C 3,205,000 3,615,000 Series 2002B 11,135,000 11,745,000 Series 2002A 2,805,000 3,880,000 Series ,883,236 2,083,236 Series 1999A 2,498,340 2,698,340 Series 1998C 9,707,411 9,707,411 Series ,655,000 5,600,000 Total $ 155,773,987 $ 126,258,

73 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Current Financial Issues and Concerns The Francis Howell R-III School District s mission is to be a learning community where all students reach their full potential. The District envisions that it will accomplish this mission by becoming an educational leader that builds excellence through a collaborative culture that values students, parents, employees, and the community as partners in learning. This partnership is evident in the tremendous support the community provides for the operation of District schools, as evidenced by the data contained in this report. General revenue sources, primarily property taxes, provide almost 81% of the District s total revenue. The strong financial support of the Francis Howell community makes it possible for the District to deliver a quality educational program and still maintain sufficient financial resources to cash flow its operations without short-term borrowing. The District is proud of the support its community has shown for the public schools. The Board and Administration realize, however, that the Francis Howell community shoulders a substantial tax burden in support of its public schools. With only 12.97% of the District s assessed valuation coming from business and industry, the majority of this burden falls on the local homeowner. Accordingly, the Board has voluntarily rolled back its operating tax levy by $0.25 in each of the last five years. This translates into a reduction of over $30 million in local property taxes over the five year period. In August of 2009, the voters within the Francis Howell School District approved the extension of a $.20 special purpose levy for an additional five years. The fiscal year is the third year of a new SB287 funding formula. The District continues to receive additional state aid as a result of the new formula. However, the formula is being phased in over a period of seven years. Any shortfall in future state revenue will impact the District s ability to completely fund is instructional programs, placing further stress on Francis Howell community members, particularly local homeowners. In addition, the District continues to experience a decline in its student population which subsequently affects the District s average daily attendance and state aid calculation. The Francis Howell School District remains committed to achieving academic as well as financial excellence. Through conservative budgeting and careful management of the District s financial resources, the Board and Administration can ensure that students in Francis Howell continue to have access to a comprehensive curriculum taught by well-qualified teaching professionals. Together, we can fulfill the vision of Francis Howell as an educational leader

74 MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED June 30, 2009 Contacting the School District s Financial Management This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the District s finances and to show the District s accountability for the money it receives. If you have questions about his report or need additional financial information, contact Kevin F. Supple, Chief Financial Officer, at the Francis Howell School District Administration Building, 4545 Central School Road, Saint Charles, Missouri

75 STATEMENT OF NET ASSETS June 30, 2009 Governmental activities ASSETS Cash and investments $ 58,355,890 Property taxes receivable, net of allowance for uncollectibles of $64,826 3,176,470 Other receivables Local 2,875,749 Federal 140,591 Prepaid expenses 1,157,712 Other assets 1,216,358 Restricted cash and investments 45,588,399 Capital assets, net of accumulated depreciation Land 5,936,149 Construction in progress 1,292,661 Other capital assets 156,278,769 TOTAL ASSETS $ 276,018,748 LIABILITIES Accounts payable $ 1,058,215 Salaries and benefits payable 238,050 Medical and dental benefits payable 3,973,940 Interest payable 13,001,281 Noncurrent liabilities Due within one year 11,511,360 Due in more than one year 157,668,446 Total liabilities 187,451,292 NET ASSETS Invested in capital assets, net of related debt 31,953,113 Restricted for: Debt service 12,605,973 Capital projects 2,588,621 Certified employees' salaries and benefits 2,963,760 Unrestricted 38,455,989 Total net assets 88,567,456 TOTAL LIABILITIES AND NET ASSETS $ 276,018,748 The accompanying notes are an integral part of this statement

76 STATEMENT OF ACTIVITIES Year ended June 30, 2009 Net (expense) revenue and changes in Program revenues net assets Charges Operating Capital Total for grants and grants and governmental Function/Program Expenses services contributions contributions activities Governmental activities Instruction $ 119,744,220 $ 2,047,779 $ 17,969,532 $ 847,037 $ (98,879,872) Attendance 534, (534,947) Guidance 4,563, (4,563,475) Health, psych, speech and audio 2,717, (2,717,232) Improvement of instruction 3,162, ,509 - (2,498,154) Professional development 352, ,056-94,183 Media services (library) 2,403, (2,403,297) Board of Education services 373, (373,961) Executive administration 1,134, (1,134,407) Building level administration 8,467, (8,467,652) Business central services 1,305, (1,305,385) Operation of plant 12,654, (12,654,948) Security services 24, (24,355) Pupil transportation 11,234,608 7,260 3,379,349 - (7,847,999) Food services 4,551,677 4,162,576 1,021, ,439 Central office support services 8,150, (8,150,751) Community service 8,235,446 6,055, ,324 - (1,366,028) Facilities acquisition and construction 224, (224,027) Interest and other charges 6,492, (6,492,845) Total governmental activities $ 196,328,769 $ 12,272,709 $ 24,296,310 $ 847,037 (158,912,713) General revenues Taxes Property taxes, levied for general purposes 91,808,219 Property taxes, levied for debt services 16,287,272 Other taxes 566,752 Sales taxes 13,475,566 State aid 36,081,217 Interest and investment earnings 1,402,757 Miscellaneous 572,519 Total general revenues 160,194,302 Change in net assets 1,281,589 Net assets at July 1, ,285,867 Net assets at June 30, 2009 $ 88,567,456 The accompanying notes are an integral part of this statement

77 BALANCE SHEET - GOVERNMENTAL FUNDS June 30, 2009 Special Debt Capital Total General Revenue Service Projects Governmental Fund Fund Fund Fund Funds ASSETS Cash and investments $ 37,935,392 $ - $ 8,441,384 $ 2,838,125 $ 49,214,901 Property taxes receivable - net of allowance for uncollectibles of $64,826 1,137,485 1,520, ,742 39,865 3,176,470 Other receivables Local 1,164,210 1,450,352 26, ,719 2,875,749 Federal 129,194 11, ,591 Prepaid expenses 1,157, ,157,712 Restricted cash and investments - - 5,822,674 39,765,725 45,588,399 Total assets $ 41,523,993 $ 2,982,127 $ 14,769,268 $ 42,878,434 $ 102,153,822 LIABILITIES Accounts payable $ 515,211 $ 18,367 $ 549 $ 524,088 $ 1,058,215 Salaries and benefits payable 238, ,050 Deferred revenue 761,552 1,017, ,520 26,690 2,126,664 Total liabilities 1,514,813 1,036, , ,778 3,422,929 FUND BALANCES Reserved for Professional development 54, ,197 Prepaid expenses 1,157, ,157,712 Debt service - - 5,822,674-5,822,674 Capital projects ,765,725 39,765,725 Unreserved, undesignated 38,797,271 1,945,858 8,625,525 2,561,931 51,930,585 Total fund balances 40,009,180 1,945,858 14,448,199 42,327,656 98,730,893 Total liabilities and fund balances $ 41,523,993 $ 2,982,127 $ 14,769,268 $ 42,878,434 $ 102,153,822 The accompanying notes are an integral part of this statement

78 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET WITH THE STATEMENT OF NET ASSETS June 30, 2009 Amounts reported for governmental activities in the statement of net assets are different because: Total fund balance - governmental funds $ 98,730,893 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. The cost of the assets is $214,888,416 and the accumulated depreciation is $51,380, ,507,579 Property tax receivable not available soon enough to pay for current-period expenditures are deferred in the funds 2,126,664 Bond issuance costs are reported as expenditures in the governmental funds. The cost is $1,608,957 and the accumulated amortization is $392,599 1,216,358 Interest accrued on bonds has not been reported in the governmental funds, but is reported in the statement of net assets. Accrued interest includes accreted interest on "capital appreciation" bonds totaling $10,838,535 (13,001,281) An internal service fund is used by management to charge the costs of insurance to individual funds. The assets and liabilities of the internal service fund are included in governmental activities in the statement of net assets 5,167,049 Long-term liabilities, including bonds payable, are not due and not payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities consist of the following: General obligation bonds (155,773,987) Capital lease obligations (756,166) Bond premium, net of accumulated amortization (5,167,861) Compensated absences (4,105,237) Postemployment benefits other than pensions (2,175,459) Early separation incentive plans (1,201,096) (169,179,806) Total net assets - governmental activitie $ 88,567,456 The accompanying notes are an integral part of this statement

79 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Year ended June 30, 2009 Special Debt Capital Total General Revenue Service Projects Governmental Fund Fund Fund Fund Funds Revenues Local $ 55,098,386 $ 59,645,367 $ 16,265,371 $ 2,093,386 $ 133,102,510 County 705,398 1,543, ,012 45,779 2,569,983 State 6,706,163 44,217, ,250 51,096,713 Federal 1,915,091 4,968, ,884,081 Interest 781,748 84, , ,117 1,340,379 Student activities 1,394, ,394,877 Other 6, , ,134 Total revenues 66,608, ,962,394 16,795,442 2,531, ,897,677 Expenditures Current Instruction 17,324,301 93,085, ,409,738 Attendance 534, ,947 Guidance 187,644 4,303, ,490,788 Health, psych, speech and audio 1,301,391 1,321, ,622,437 Improvement of instruction 885,473 2,208, ,093,851 Professional development 113, , ,873 Media services (library) 731,181 1,645, ,376,261 Board of Education services 373, ,961 Executive administration 479, , ,804 Building level administration 1,096,303 7,493, ,590,160 Business central service 1,241, ,241,810 Operation of plant 12,411, ,411,246 Security services 24, ,355 Pupil transportation 11,201, ,201,698 Food services 4,515, ,515,249 Central office support services 7,681, , ,880,092 Community service 7,622, , ,038,709 Capital outlay 178, ,389,059 4,568,021 Debt service Principal 175,975-10,485,000-10,660,975 Interest and other charges 37,949-5,143, ,779 5,683,295 Total expenditures 68,120, ,148,803 15,628,567 4,890, ,788,270 Revenues over (under) expenditures (1,511,753) (186,409) 1,166,875 (2,359,306) (2,890,593) Other financing sources (uses) Transfers in (out) (2,011,159) - - 2,011,159 - Proceeds from general obligation bonds ,000,000 40,000,000 Premium on bonds issued ,032,446 1,032,446 Proceeds from capital lease 178, ,962 Total other financing sources (uses) (1,832,197) ,043,605 41,211,408 NET CHANGE IN FUND BALANCES (3,343,950) (186,409) 1,166,875 40,684,299 38,320,815 Fund balances at July 1, 2008, as restated 43,353,130 2,132,267 13,281,324 1,643,357 60,410,078 Fund balances at June 30, 2009 $ 40,009,180 $ 1,945,858 $ 14,448,199 $ 42,327,656 $ 98,730,893 The accompanying notes are an integral part of this statement

80 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES WITH THE STATEMENT OF ACTIVITIES Year ended June 30, 2009 Total net change in fund balances - governmental funds $ 38,320,815 Capital outlay to purchase or build capital assets are reported in governmental funds as expenditures. However, for governmental activities those costs are shown in the statement of net assets and allocated over their estimated useful lives as annual depreciation expense in the statement of activities. This is the amount by which depreciation exceeds capital outlay in the period. Capital outlay 3,972,604 Depreciation expense (4,691,684) (719,080) Because some property taxes will not be collected for several months after the District's fiscal year end, they are not considered as "available" revenues in the governmental funds, and are instead reported as deferred tax revenue. They are, however, reported as revenues in the statement of activities. 712,683 The proceeds from the sale of equipment increase financial resources in the governmental funds, whereas in the statement of activities, the gain or loss on disposal of equipment is reported. (968) In the statement of activities, certain operating expenses such as compensated absences (vacation) 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 year, special termination benefits totaling $497,696 were paid and $1,064,284 new benefits were earned. The increase in the liability for compensated absences totaled $1,652,707. (2,219,295) The governmental funds report debt (e.g. bond) proceeds as an other financing source, while repayment of debt principal is reported as an expenditure. Also governmental funds report the effect of issuance costs and premiums when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The net effect of these differences in the treatment of debt and related items are as follows: Proceeds from general obligation bonds issued (40,000,000) Premium on general obligation bonds issued (1,032,446) Proceeds from capital lease obligations (178,962) Bond issuance costs 345,530 Repayment of bond principal 10,485,000 Repayment of capital lease obligations 175,975 Amortization of bond premium 386,644 Amortization of bond issuance costs (85,561) (29,903,820) The internal service fund used by management to charge the costs of insurance to individual funds is not reported in the statement of activities. Governmental fund expenditures and the related internal service fund revenues are eliminated. The net revenue (expense) of the internal service fund is allocated among the governmental activities. (2,394,673) Increase in other post employment benefits (OPEB) (1,019,959) Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recorded 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. The additional interest reported in the statement of activities is the net result of two factors. First, accrued interest on bonds increased by $450,041. Second, interest accreted on the District's "capital appreciation" bonds increased by $1,044,073. (1,494,114) Change in net assets of governmental activities $ 1,281,589 The accompanying notes are an integral part of this statement

81 STATEMENT OF NET ASSETS - PROPRIETARY FUND June 30, 2009 Governmental Activities - Internal Service Fund ASSETS Cash and investments $ 9,140,989 LIABILITIES Claims payable $ 3,973,940 NET ASSETS Unrestricted 5,167,049 TOTAL LIABILITIES AND NET ASSETS $ 9,140,989 The accompanying notes are an integral part of this statement

82 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUNDS Year Ended June 30, 2009 Governmental Activities - Internal Service Fund Operating revenues Contributions by District, employees and retirees $ 17,007,948 Operating expenses Claims 19,179,384 Administration 9,252 Other 310,357 Total operating expenses 19,498,993 Operating loss (2,491,045) Non-operating revenues Interest income 96,372 CHANGE IN NET ASSETS (2,394,673) Net assets at July 1, ,561,722 Net assets at June 30, 2009 $ 5,167,049 The accompanying notes are an integral part of this statement

83 STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS Year ended June 30, 2009 Governmental Activities - Internal Service Fund Cash flows from operating activities Cash received from District, employees and retirees contributions $ 17,007,948 Cash payments to suppliers for claims (18,080,347) Cash payments for supplies and services (319,609) Net cash used in operating activities (1,392,008) Cash flows from investing activities Interest on investments 96,372 NET DECREASE IN CASH (1,295,636) Cash at July 1, ,436,625 Cash at June 30, 2009 $ 9,140,989 Reconciliation of operating loss to net cash used in operating activities Operating loss $ (2,491,045) Adjustments to reconcile operating loss to net cash used in operating activities Increase in accounts payable 1,099,037 Net cash used in operating activities $ (1,392,008) The accompanying notes are an integral part of this statement

84 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Francis Howell R-III School District (the District), established under the Statutes of the State of Missouri, is governed by an elected seven-member board as described in Chapter 162, Missouri Revised Statutes. The Board of Education is the basic level of government that has financial accountability and control over all activities related to public school education in the District. The District s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). Governments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989 (when applicable) that do not conflict with or contradict GASB pronouncements. The more significant accounting policies established in GAAP and used by the District are discussed below. 1. Reporting Entity These financial statements present the District (the primary government) and its component unit, the Francis Howell R-III School District Educational Facilities Authority (the Authority). Generally accepted accounting principles require the financial reporting entity include (1) the primary government, (2) organizations for which the primary government is financially accountable and (3) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. Based on this criteria, the Authority is considered a component unit. The Authority was incorporated under Missouri statutes as a not-for-profit organization whose purpose is for acquisition, construction, improvement, extension, repair, remodeling, renovation and financing for the District. Although legally separate, the Authority is blended as a governmental fund into the primary government. The Authority is currently inactive. Separate financial statements for the Authority are not issued. 2. Basis of Presentation District-wide Financial Statements The Statement of Net Assets and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. The District has no business-type activities

85 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 2. Basis of Presentation - Continued The Statement of Activities presents a comparison between direct expenses and program revenues for each program or function of the District s governmental activities. Direct expenses are those that are specifically associated with and are clearly identifiable to a particular function. The District does not allocate indirect costs. Program revenues include charges paid by the recipients of goods and services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues not classified as program revenues, including all taxes, are presented as general revenues. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures/expenses. The emphasis is placed on major funds. Each major fund is presented in a separate column while nonmajor funds, if applicable, are aggregated and presented in a single column. The funds of the financial reporting entity are described below: Governmental Funds General Fund The General Fund is the primary operating fund of the District and accounts for expenditures for noncertified employees, pupil transportation costs, operation of plant, fringe benefits, student body activities, community services, the food service program and any expenditures not required to be accounted for in another fund. Special Revenue Fund The Special Revenue Fund is used to account for specific revenue sources that are legally restricted for the payment of salaries and certain employee benefits for certified personnel performing in certificate-required positions. Debt Service Fund The Debt Service Fund is used to account for the accumulation of resources for the payment of principal, interest and fiscal charges on general long-term debt

86 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 2. Basis of Presentation - Continued Capital Projects Fund The Capital Projects Fund is used to account for resources to be used for the acquisition or construction of major capital assets. Proprietary Fund Internal Service Fund This fund accounts for the proceeds from contributions for the payment of claims and the liabilities associated with the District s self-insurance activities (primarily medical and dental benefits). Expenses include claims paid, direct insurance payments and administrative fees. A liability for estimated claims incurred but not reported is recorded in this fund. 3. Measurement Focus and Basis of Accounting Measurement focus is a term used to describe which transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. Measurement focus The district-wide financial statements are prepared using the economic resources measurement focus, as are the proprietary fund financial statements. The accounting objectives of this measurement focus are the determination of changes in net assets, financial position, and cash flows. All assets and liabilities, whether current or noncurrent, are reported. The governmental fund financial statements are prepared using the current financial resources measurement focus. Only current financial assets and liabilities are generally included in the balance sheets. The operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. Basis of accounting The district-wide financial statements are prepared using the accrual basis of accounting, as are the proprietary fund financial statements. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the liability is incurred or economic assets used. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place

87 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 3. Measurement Focus and Basis of Accounting - Continued The governmental fund financial statements are prepared using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when measurable and available. Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within sixty days after year-end. Property and sales taxes, interest and certain grants are susceptible to accrual. Miscellaneous revenue items, which are not susceptible to accrual, are recognized as revenues only as they are received in cash. Expenditures, including capital outlay, are recorded when the related fund liability is incurred, except for principal and interest on general obligation long-term debt which are reported when due. 4. Cash and Investments Cash resources from all funds, except the debt service fund, are combined to form a pool of cash and temporary investments. Investments of the pooled accounts primarily consist of certificates of deposit and are carried at cost, which approximates fair value. Investments in U.S. agency securities are carried at amortized cost, which approximates fair value. Interest income earned is allocated to the contributing funds based on each funds proportionate share of funds invested on a monthly basis. For purposes of statement of cash flows, the District considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. 5. Interfund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as due to and from other funds. Interfund receivables and payables between funds within governmental activities are eliminated in the Statement of Net Assets. 6. Receivables Major receivables for the governmental activities include property and sales taxes, and state and federal grants. Allowances for uncollectible property taxes are estimated to be two percent of delinquent taxes at year-end. 7. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are reported as prepaid expenses. Reported prepaid expenses at year-end are offset by a fund balance reserve account since they do not represent expendable financial resources

88 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 8. Capital Assets and Depreciation In the district-wide financial statements, capital assets purchased or acquired with an original cost of $1,000 or more are reported at historical cost or estimated historical cost if actual cost is unavailable. Contributed assets are reported at their fair market value as of the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs for repairs and maintenance are expensed as incurred. Depreciation on assets is provided on the straight-line basis over the following estimated useful lives: Land improvements 15 years Buildings and improvements years Vehicles and equipment 5-20 years In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. 9. Restricted Assets Restricted assets include cash and investments that are legally restricted as to their use. The restricted assets consist primarily of funds escrowed under the Missouri School District Direct Deposit Program and unspent bond proceeds invested in the Missouri Securities Investment Program. 10. Long-term Liabilities All long-term liabilities to be repaid from governmental activities are reported in the district-wide financial statements. Long-term liabilities consist of bonds and capital leases payable, accrued compensated absences, special termination benefits and other postemployment benefits. Longterm liabilities are not due and are not payable in the current period and therefore are not reported as liabilities in the governmental fund financial statements. 11. Compensated Absences The District s policies regarding compensated absences permit employees to accumulate earned but unused vacation and sick leave. The liability for these compensated absences is recorded in the district-wide statements. In the fund financial statements, governmental funds report only the compensated absence liability from expendable available financial resources

89 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued 12. Equity Classifications In the district-wide financial statements, equity is classified as net assets and displayed in three components. Net assets invested in capital assets, net of related debt, consist of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction or improvement of those net assets. Net assets are reported as restricted when there are constraints imposed on their use either through enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, contributors, or laws or regulations of other governments. All other net assets that do not meet the definition of restricted or invested in capital assets, net of related debt are reported as unrestricted. The District first utilizes restricted resources to finance qualifying activities. In the fund financial statements, governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved. Reserved fund balances are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Proprietary funds equity is classified the same as in the district-wide statements. 13. Revenues Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied annually on November 1 and are due by December 31. The county collects the property tax and remits it to the District. In the district-wide financial statements, property tax revenues are recognized in the fiscal year levied. In the fund financial statements, property taxes are recognized in the fiscal year levied to the extent collected within 60 days of year-end. Revenues not collected within 60 days of year-end are reported as deferred revenue. Sales tax is collected by the State of Missouri and remitted to districts within the state based on a prior year weighted average attendance. The State receives the sales tax approximately one month after collection by vendors. Sales taxes collected by the State in June and July, which represent sales for May and June, and received by the District in July and August have been accrued and reported as other local receivables. Entitlements and grants are recognized as revenue in the fiscal year in which all eligibility requirements have been satisfied. Grants and entitlements received before eligibility requirements are met are reported as deferred revenue. In the fund financial statements, entitlement and grant revenues must be collected within 60 days of year-end before they can be recognized. Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and services. It also includes all revenue and expenses not related to capital and related financing, noncapital financing, and investing activities

90 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 14. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B CASH AND INVESTMENTS The District maintains a cash and temporary cash investment pool that is available for use by all funds except the Debt Service Fund (State law requires that all deposits of the Debt Service Fund be kept separate and apart from all other funds of the District). Each fund's portion of this pool is displayed on the balance sheet as cash and investments under each fund s caption. Deposits Missouri statutes require that all deposits with financial institutions be collateralized in an amount at least equal to uninsured deposits. At June 30, 2009, the carrying amount of the pooled deposits under District control was $8,733,971 and the bank balance was $14,306,568. At June 30, 2009, the District s bank balance was fully secured by federal depository insurance or fully collateralized with securities held by the District s safe keeping agent pledged in the name of the District. Investments The District may purchase any investments allowed by the State Treasurer. These include U.S. Treasury securities, U.S. agency securities, securities issued by the State of Missouri, repurchase agreements, certificates of deposit, bankers acceptances and commercial paper. The District participates in the Missouri Direct Deposit Program which is a mechanism for public school bond repayments through the MOHEFA Bond Program. It authorizes the direct deposit of a portion of the District s state aid payment by the State of Missouri to a trustee bank that accumulates these payments and then makes the principal and interest payments to the paying agent on the bonds. The direct deposits occur ten times per year and the balance is withdrawn every six months to pay the debt service requirement of the related bond issues. At June 30, 2009, the District had $5,822,674 in this program, which has been classified as restricted investments

91 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE B CASH AND INVESTMENTS - Continued Investments - Continued The District also participates in the Missouri Securities Investment Program (MoSIP). All funds of MoSIP are invested in accordance with Section of the Missouri Revised Statutes. Each school district owns a prorata share of each investment or deposit which is held in the name of the Fund. The District had $46,322,555 invested through MoSIP at June 30, As of June 30, 2009, the District had the following investments and maturities: Fair Investment Maturities Type Value 0 to 1 year 1 to 3 years Repurchase agreements $ 12,488,000 $ 12,488,000 $ - U.S. government and agency securities 30,577,089 15,261,823 15,315,266 External investment pools Missouri Securities Investment Program 46,322,555 46,322,555 - Missouri Direct Deposit Program 5,822,674 5,822,674 - $ 95,210,318 $ 79,895,052 $ 15,315,266 Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. The District minimizes interest rate risk by structuring its investment portfolio so that securities mature to meet anticipated cash flows for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity and by investing operating funds in primarily shorter-term securities. The District s investment policy also requires funds invested in bankers acceptances and commercial paper mature not more than one hundred and eighty days from the dates of purchase and all other investments mature not more than two years from the dates of purchase. Additionally, the policy requires the District to adopt a weighted average maturity limitation that should not exceed one year

92 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE B CASH AND INVESTMENTS - Continued Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. To protect against credit risk, the District restricts investments to those with a rating of AAA by Standards and Poor s or A1+/P1 by Moody s. These ratings are the highest given by the agencies and indicate a low credit risk. Concentration of Credit Risk As a means of limiting its exposure to losses arising from concentration of investments, the District s investment policy mandates that the portfolio not have a concentration of assets in specific maturity, specific issuer or specific class of securities. At a minimum, diversification standards by security type and issuer are established as: (a) U.S. treasuries and securities having principal and/or interest guaranteed by the U.S. Government, 95%; (b) collateralized time and demand deposits, 50%; (c) U.S. Government agencies, and government sponsored enterprises, no more than 70%; (d) collateralized repurchase agreements, no more than 50%; (e) U.S. Government agency callable securities, no more than 15%; (f) commercial paper, no more than 40%; and (g) bankers acceptances, no more than 40%. Investments in any one issuer representing 5% or more of total investments (excluding investments issued or explicitly guaranteed by the U.S. government and external investment pools) are as follows: Issuer Investment Type Percentage UMB Bank Repurchase agreement 13% Federal Home Loan Banks Bonds 14% Federal Home Loan Mortgage Corporation Notes and bonds 8% Federal National Mortgage Association Notes 8% Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. To minimize custodial credit risk, it is the District s policy that all securities purchased be perfected in the name of or for the account of the District and be held by a third-party custodian as evidenced by appropriate safekeeping receipts

93 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE B CASH AND INVESTMENTS - Continued Summary The cash deposits and investments are summarized and presented in the fund financial statements as follows as of June 30, 2009: Carrying amount of deposits $ 8,733,971 Investments 95,210,318 $ 103,944,289 Cash and investments - governmental funds $ 49,214,901 Restricted cash and investments - governmental funds 45,588,399 Cash - proprietary funds 9,140,989 Total reporting entity $ 103,944,289 NOTE C - TAXES Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on November 1 and payable by December 31. All unpaid taxes become delinquent January 1 of the following year. The county collects the property taxes and remits them to the District. The District also receives sales tax collected by the state and remitted based on a prior year weighted average attendance. The District is required to reduce its property tax levy by one-half the amount of sales tax estimated to be received in the subsequent calendar year. On April 4, 1995, the patrons of the Francis Howell R-III School District voted to forego this reduction in property taxes, thus earmarking the entire amount for education. The assessed valuation of the tangible taxable property for the calendar year 2008 and for purposes of local taxation was $2,421,940,581. The tax levy per $100 of the assessed valuation of tangible taxable property for the calendar year 2008 for purposes of local taxation was as follows: General Fund $ Special Revenue Fund Debt Service Fund Capital Projects Fund Total $ The receipts of current and delinquent property taxes during the fiscal year ended June 30, 2009 aggregated approximately 99% of the 2008 assessment computed on the basis of the levy as shown above

94 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE D CAPITAL ASSETS Capital asset activity for the year ended June 30, 2009, was as follows: Balance Balance July 1, June 30, 2008 Additions Reductions 2009 Governmental activities Capital assets that are not depreciated Land $ 5,935,149 $ 1,000 $ - $ 5,936,149 Construction in progress - 1,292,661-1,292,661 Capital assets that are depreciated Land improvements 11,875, ,946-12,071,872 Buildings 169,625, , ,621,684 Vehicles and equipment 23,722,989 1,486, ,636 24,966,050 Totals at estimated historical cost 211,159,448 3,972, , ,888,416 Accumulated depreciation Land improvements 8,975, ,051-9,255,377 Buildings 21,746,094 2,088,935-23,835,029 Vehicles and equipment 16,210,401 2,322, ,668 18,290,431 Total accumulated depreciation 46,931,821 4,691, ,668 51,380,837 Governmental activities capital assets, net $ 164,227,627 $ (719,080) $ 968 $ 163,507,579 Depreciation was charged to functions of the District at follows: Instruction $ 3,654,165 Improvement of instruction 24,053 Media services 6,960 Executive administration 589,438 Building level administration 6,796 Business services 13,200 Operation of plant 174,187 Transportation 44,888 Food service 43,365 Community services 134,632 $ 4,691,

95 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE E LONG-TERM LIABILITIES The following is a summary of the changes in long-term liabilities for the year ended June 30, 2009: Balance Balance Amounts due July 1, June 30, within 2008 Additions Reductions 2009 one year Governmental activities Bonds payable General obligation bonds $ 126,258,987 $ 40,000,000 $ (10,485,000) $ 155,773,987 $ 10,610,000 Deferred amounts for issuance premium 4,522,059 1,032,446 (386,644) 5,167,861 - Total bonds payable, net 130,781,046 41,032,446 (10,871,644) 160,941,848 10,610,000 Obligations under capital leases 753, ,962 (175,975) 756, ,218 Other postemployment benefit obligation 1,155,500 2,255,059 (1,235,100) 2,175,459 - Compensated absences 2,452,530 1,769,207 (116,500) 4,105, ,524 Early retirement payable 634,508 1,064,284 (497,696) 1,201, ,618 Total governmental activity longterm liabilities $ 135,776,763 $ 46,299,958 $ (12,896,915) $ 169,179,806 $ 11,511,360 Principal and interest on general obligation bonds are liquidated through the Debt Service Fund. Capital leases are liquidated through the General Fund. Other postemployment benefits, compensated absences and early retirement benefits will be liquidated by the fund in which the employee s salary was charged

96 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE E LONG-TERM LIABILITIES - Continued Bonds Payable Repayment of general obligation bond issues is made through the Missouri School District Direct Deposit Program which is a mechanism for public school bond repayments. It authorizes the direct deposit of a portion of the District s state aid payment by the State of Missouri to a trustee bank that accumulates these payments and then makes the principal and interest payments to the paying agent on the bonds. General obligation bonds outstanding at June 30, 2009 were as follows: Date Maturity Interest Original Issued Date Rates Issue Balance 12/15/1993 3/1/ % $ 5,600,000 $ 3,655,000 8/27/1998 3/1/ % % 35,682,411 9,707,411 5/6/1999 3/1/ % % 14,998,340 2,498,340 3/1/2001 3/1/ % % 9,998,236 1,883,236 2/22/2002 3/1/ % - 5.0% 15,825,000 2,805,000 7/2/2002 3/1/ % - 5.5% 15,000,000 11,135,000 10/30/2002 3/1/ % - 4.5% 4,840,000 3,205,000 7/31/2003 3/1/ % - 5.0% 11,895,000 7,275,000 8/31/2004 3/1/ % % 28,870,000 27,455,000 4/7/2005 3/1/ % % 23,370,000 23,370,000 3/4/2008 3/1/2018 3% - 5.0% 26,955,000 22,785,000 3/17/2009 3/1/ % - 5.0% 40,000,000 40,000,000 $ 155,773,

97 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE E LONG-TERM LIABILITIES - Continued Bonds Payable - Continued The annual requirements to amortize the general obligation bonds as of June 30, 2009, including interest payments, are as follows: Principal Interest Total Year ending June 30, 2010 $ 10,610,000 $ 6,498,483 $ 17,108, ,020,000 6,145,188 17,165, ,455,236 6,226,483 15,681, ,793,329 7,790,827 16,584, ,757,561 8,015,256 16,772, ,212,861 31,817,905 92,030, ,715,000 8,205,800 34,920, ,210,000 3,014,750 23,224,750 $ 155,773,987 $ 77,714,692 $ 233,488,680 Article VI, Section 26 (c), Constitution of Missouri, limits the outstanding amount of authorized General Obligation Bonds of a district to 15% of the assessed valuation of a District. The legal debt margin of the District at June 30, 2009 was: Constitutional debt limit $ 363,291,087 General obligation bonds payable (155,773,987) Amount available in Debt Service Fund 14,264,058 Legal debt margin $ 221,781,158 In March 2009, the District issued $40,000,000 in Series 2009 general obligation bonds (Missouri Direct Deposit Program) with interest rates ranging from 3.625% to 5.0%. The proceeds will be used for improvements to Francis Howell High School primarily; however, proceeds could also be used for improvements at Francis Howell North High School and Daniel Boone Elementary School

98 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE E LONG-TERM LIABILITIES - Continued Bonds Payable - Continued In prior years, the District has defeased certain general obligation bonds by creating a separate irrevocable trust fund with an escrow agent. New debt has been issued and the proceeds have been used to purchase U.S. Government securities that were placed in the trust fund. The investments and fixed earnings from the investments are sufficient to fully service the defeased debt until the debt is called or matures. For financial reporting purposes, the debt has been considered defeased and therefore removed as a liability from the District s financial statements. As of June 30, 2009, the outstanding principal of all defeased debt is $13,255,000. Capital Lease Payable The District leases certain equipment under agreements classified as capital leases. As of June 30, 2009, the cost for such equipment, which are included in vehicles and equipment, was $1,021,789 and accumulated depreciation was $297,247. The following is a schedule of future minimum lease payments under the capital leases together with the present value of the net minimum lease payments as of June 30, Year ending June 30, 2010 $ 231, , , , ,874 Total future minimum lease payments 830,202 Less amount representing interest (74,036) Present value of future minimum lease payments $ 756,

99 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE F RETIREMENT PLANS The District contributes to the Public School Retirement System of Missouri (PSRS), a costsharing multiple-employer defined benefit pension plan. PSRS provides retirement and disability benefits to full-time (and certain part-time) certified employees and death benefits to members and beneficiaries. Positions covered by the Public School Retirement System of Missouri are not covered by Social Security. PSRS benefit provisions are set forth in Section of the Missouri Revised Statutes. The statutes assign responsibility for the administration of the system to a seven-member Board of Trustees. PSRS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to: Public School Retirement System of Missouri, 701 West Main, P.O. Box 268, Jefferson City, Missouri or by calling PSRS members are required to contribute 13.0% of their annual covered salary and the District is required to contribute a matching amount. The contribution requirements of members and the District are established and may be amended by the PSRS Board of Trustees. The District s contributions to PSRS for the years ended June 30, 2009, 2008 and 2007 were 12,394,775, $11,350,016 and $10,183,390, respectively, equal to the required contributions. The District also contributes to the Public Education Employee Retirement System of Missouri (PEERS), a cost-sharing multiple-employer defined benefit pension plan. PEERS provides retirement and disability benefits to employees of the District who work 20 or more hours per week and who do not contribute to PSRS. Positions covered by the Public Education Employee Retirement System are also covered by Social Security. Benefit provisions are set forth in Chapter of the Missouri Revised Statutes. The statutes assign responsibility for the administration of the system to the Board of Trustees of the PSRS. PEERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to: The Public Education Employee Retirement System, 701 West Main, P.O. Box 268, Jefferson City, Missouri or by calling PEERS members are required to contribute 6.25% of their annual covered salary and the District is required to contribute a matching amount. The contribution requirements of members and the District are established and may be amended by the Board of Trustees. The District s contributions to PEERS for the years ended June 30, 2009, 2008 and 2007 were $1,544,163, $1,427,746 and $1,261,033, respectively, equal to the required contributions

100 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE G OTHER POSTEMPLOYMENT BENEFITS (OPEB) Plan Description In addition to providing the pension benefits described in Note F, the District provides continuation of medical, dental and vision insurance coverage, including prescription drugs to employees who are eligible for normal or early retirement under PSRS or PEERS. Retirees who elect to participate in the plan pay 100% of the blended premium rates effective for both active employees and retirees. The blended rates provide an implicit rate subsidy for retirees because, on an actuarial basis, the current and future claims are expected to result in higher cost to the plan on average than those of active employees A stand-alone financial report is not available for the plan. Funding Policy The District is financing the postemployment health care benefits on a pay-as-you-go basis. During the current year, 441 retirees participated in the District s insurance plans. Retiree contributions totaled $1,235,100 for the year ended June 30, Annual Other Postemployment Benefit Cost The District s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC). The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The District s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District s OPEB obligation at June 30, 2009 were as follows: Annual required contribution $ 2,240,300 Interest on net OPEB obligation 51,998 Adjustment to annual required contribution (37,239) Annual OPEB cost (expense) 2,255,059 Contributions made 1,235,100 Increase in net OPEB obliation 1,019,959 Net OPEB obligation, July 1, ,155,500 Net OPEB obligation, June 30, 2009 $ 2,175,

101 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE G OTHER POSTEMPLOYMENT BENEFITS (OPEB) - Continued Annual Other Postemployment Benefit Cost - Continued As of June 30, 2009, the annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation were as follows: Percentage Net Plan Annual of OPEB Cost OPEB Year OPEB Cost Contributed Obligation 2008 $ 2,205, % $ 1,155, ,255, % 2,175,459 The District implemented GASB 45 for the year ended June 30, 2008, therefore information for prior years is not available. Funded Status and Funding Progress As of July 1, 2007, the actuarial accrued liability for benefits was $21,655,000, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $105,565,000, and the ratio of the unfunded actuarial liability to the covered payroll was 21 percent. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits

102 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE G OTHER POSTEMPLOYMENT BENEFITS (OPEB) - Continued Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and the plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities consistent with the long-term perspective of the calculations. The initial unfunded actuarial accrued liability is being amortized over 30 years. In the July 1, 2007 actuarial valuation, the liabilities were computed using the projected unit credit cost method. The actuarial assumptions included an annual healthcare cost trend rate of 10% initially, reduced by decrements to an ultimate rate of 5% after 6 years. The actuarial assumptions also included a 4.50% discount rate. Because the plan is unfunded, reference to general assets, which are short-term in nature, was considered in the selection of the 4.50% rate. NOTE H EARLY SEPARATION INCENTIVE PLANS The Early Separation Incentive Plan was designated to provide a financial incentive to those who elected early separation from the District and help reduce the number of layoffs during mandatory staff reductions. The Eligibility Criteria to participate in the Early Separation Incentive Plan were as follows: 1. Employee must have at least fifteen years of creditable service with the last five years being continuous in the Francis Howell R-III School District as of June 30 of the final contract year; and 2. Employee must be eligible for normal retirement under the Public School Retirement System (under either the full benefit formula, early retirement formula or the modified benefit formula). As payment through the Early Separation Incentive Plan, employees received 80% of base salary of their final contract. An employee could select a five to ten year period over which the Early Separation Incentive would be paid. Installments are paid twice each month which began the July immediately following the employee s separation from the District. Each payment is subject to all deductions required by law, but is not eligible for contributions to the Missouri Public School Retirement System. The established liability for this plan is approximately $136,813 as of June 30,

103 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE H EARLY SEPARATION INCENTIVE PLANS - Continued In March 2009, the District announced a retirement incentive program for currently employed teachers who elected to retire after the school year. Employees who took advantage of this incentive will receive the individual Board contribution toward health insurance benefits, equal to that of active District employees for fiscal years through June 30, In order to receive the benefit, employees must be eligible to retire under the Public School Retirement System (PSRS). The established liability for this plan is approximately $1,064,284 as of June 30, NOTE I DEFERRED COMPENSATION PLAN Employees of the District may participate in a deferred compensation plan adopted under the provisions of Internal Revenue Code (IRC) Section 457. The deferred compensation plan is available to all employees of the District. Under the plan, employees may elect to defer a portion of their salaries and avoid paying taxes on the deferred portion until the withdrawal date. The deferred compensation amount is not available for withdrawal by employees until termination, retirement, death or unforeseeable emergency. The deferred compensation plan is administered by an unrelated financial institution. NOTE J SELF-INSURANCE PLAN The District maintains a self-funded health insurance program with claims processed by a third party administrator on behalf of the District. A separate Insurance Fund (an internal service fund) was created on October 1, 2003 to account for and finance the health insurance program. All funds of the District from which employee salaries are paid participate in the health insurance program and make payments to the Internal Service Fund based on actuarial estimates of the amounts needed to pay prior and current year claims and to establish a reserve for incurred but not reported claims. Total contributions and transfers to the program for the year ended June 30, 2009 were $17,007,948. The claims liability of $3,973,940 reported in the Internal Service Fund at June 30, 2009 is based on the requirements of Governmental Accounting Standards Board Statement No. 10 which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated

104 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE J SELF-INSURANCE PLAN - Continued Changes in the Internal Service Fund's claims liability amount were as follows for the year ended June 30,: Unpaid claims, beginning of year $ 2,874,903 $ 2,443,131 Incurred claims (including IBNRs) 19,179,384 16,317,046 Claim payments (18,080,347) (15,885,274) Unpaid claims, end of year $ 3,973,940 $ 2,874,903 NOTE K COMMITMENTS AND CONTINGENCIES Litigation Various claims and lawsuits are pending against the District. In the opinion of District management, the potential loss on all claims and lawsuits will not be material to the District s financial statements taken as a whole. Grant Audits The District receives Federal grants and State funding for specific purposes that are subject to review and audit. These reviews and audits could lead to requests for reimbursement or to withholding of future funding for expenditures disallowed under or other noncompliance with the terms of the grants and funding. The District is not aware of any noncompliance with federal or state provisions that might require the District to provide reimbursement. Protested Taxes Each year the County remits certain unresolved protested tax payments to the District. The County notifies the District when a taxpayer is successful in their protests, and the District refunds the tax payments to the County. Normal refunds of protested tax payments are not material in relation to the District's financial position and results of operations

105 NOTES TO FINANCIAL STATEMENTS June 30, 2009 NOTE L RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees and natural disasters. To mitigate these risks, the District is a participant in the Missouri United School Insurance Council (MUSIC) which is a Protected Self-Insurance Program of Missouri Public School Districts with approximately 400 members. The District pays an assessment to MUSIC. Part of the assessment then goes to purchase excess insurance contracts for the group as a whole. Should the contributions received by MUSIC not be sufficient, special assessments can be made to the member districts. NOTE M PRIOR PERIOD ADJUSTMENT Certain cumulative revenues totaling $1,929,140 originally reported in the Special Revenue Fund in prior year financial statements have been reclassified to the General Fund. Accordingly, the beginning fund balances in the Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds has been restated to reflect this reclassification. NOTE N SUBSEQUENT EVENTS In September 2009, the District issued an additional $9.2 million of general obligation qualified school construction bonds in connection with the on-going improvements at Francis Howell High School. In September 2009, the District purchased land in St Charles County for $1,100,000. In September 2009, the District awarded a contract totaling $30.3 million for the improvements at Francis Howell High School

106 REQUIRED SUPPLEMENTARY INFORMATION

107 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGETARY BASIS - BUDGET AND ACTUAL - UNAUDITED GENERAL FUND Year ended June 30, 2009 Variances - Actual positive (negative) Budgeted amounts (budgetary Original Final Original Final basis) to final to actual Revenues Local $ 58,249,629 $ 57,589,873 $ 54,963,765 $ (659,756) $ (2,626,108) County 784, , ,398 (2,378) (77,146) State 5,625,896 5,511,261 6,706,163 (114,635) 1,194,902 Federal 1,308,494 1,316,738 1,898,251 8, ,513 Interest 718, ,194 1,069,397 (2,177) 353,203 Student activities 2,016,000 2,216,000 1,699, ,000 (516,960) Total revenues 68,703,312 68,132,610 67,042,014 (570,702) (1,090,596) Expenditures Instruction 20,572,291 19,539,589 17,320,528 1,032,702 2,219,061 Attendance - 1,327, ,976 (1,327,684) 787,708 Guidance 639,141 33, , ,615 (154,030) Health, psych speech and audio 1,359,956 1,406,999 1,300,716 (47,043) 106,283 Improvement of instruction 1,580,720 1,364, , , ,263 Professional development 319,288 95, , ,850 (19,057) Media services (library) 775, , ,795 21,416 29,533 Board of Education services 516, , , ,448 Executive administration 795, , ,203 (35,750) 335,197 Building level administration 1,281, ,651 1,089, ,925 (700,157) Business central services 1,420,395 1,735,884 1,237,018 (315,489) 498,866 Operation of plant 12,929,384 12,981,182 12,649,230 (51,798) 331,952 Security services 40,000 40,000 23,845-16,155 Pupil transportation 11,222,662 11,381,344 11,318,072 (158,682) 63,272 Food services 4,829,990 4,817,990 4,535,250 12, ,740 Central office support services 9,108,106 8,250,387 7,870, , ,495 Community service 7,375,999 6,540,572 7,621, ,427 (1,080,654) Total expenditures 74,767,202 72,006,310 68,290,235 2,760,892 3,716,075 Revenues over (under) expenditures (6,063,890) (3,873,700) (1,248,221) 2,190,190 2,625,479 Other financing uses Transfers - - (2,011,159) - (2,011,159) NET CHANGE IN FUND BALANCE $ (6,063,890) $ (3,873,700) (3,259,380) $ 2,190,190 $ 614,320 Fund balance at July 1, 2008, as restated 41,194,772 Fund balance at June 30, 2009 $ 37,935,392 The accompanying notes to required supplementary information are an integral part of this statement

108 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGETARY BASIS - BUDGET AND ACTUAL - UNAUDITED SPECIAL REVENUE FUND Year ended June 30, 2009 Variances - Actual positive (negative) Budgeted amounts (budgetary Original Final Original Final basis) to final to actual Revenues Local $ 60,678,887 $ 60,310,550 $ 59,695,530 $ (368,337) $ (615,020) County 1,419,742 1,420,821 1,543,794 1, ,973 State 42,715,096 41,979,292 44,217,300 (735,804) 2,238,008 Federal 5,756,956 5,757,971 5,052,666 1,015 (705,305) Interest 956, , , (854,103) Other 345, , , ,974 Total revenues 111,871, ,770, ,130,436 (1,101,060) 359,527 Expenditures Instruction 93,059,751 96,796,152 93,067,070 (3,736,401) 3,729,082 Guidance 4,314,608 1,133,148 4,303,144 3,181,460 (3,169,996) Health, psych speech and audio 1,390,410 1,209,550 1,321, ,860 (111,496) Improvement of instruction 1,774,090 2,353,586 2,208,378 (579,496) 145,208 Professional development 157, , ,618 (76,602) (5,143) Media services (library) 1,756, ,797 1,645, ,088 (725,283) Executive administration 389, , , ,569 6,523 Building level administration 7,545,265 7,567,691 7,493,857 (22,426) 73,834 Central office support services 429, , ,137 (31,708) 262,871 Community service 388, , ,219 (4,289) (23,300) Total expenditures 111,206, ,312, ,130,436 (105,945) 182,300 NET CHANGE IN FUND BALANCE $ 665,178 $ (541,827) - $ (1,207,005) $ 541,827 Fund balance at July 1, 2008, as restated - Fund balance at June 30, 2009 $ - The accompanying notes to required supplementary information are an integral part of this statement

109 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2009 NOTE A BUDGETS AND BUDGETARY INFORMATION The District follows these procedures in establishing the budgetary data reflected in the financial statements: In accordance with Chapter 67, RSMo, the District adopts a budget for each fund. Prior to July, the Superintendent, who serves as the budget officer, submits to the Board of Education a proposed budget for the fiscal year beginning on the following July 1. The proposed budget includes estimated revenues and proposed expenditures for all District funds. Budgeted expenditures cannot exceed beginning available monies plus estimated revenues for the year. A public hearing is conducted to obtain taxpayer comments. Prior to its approval by the Board of Education, the budget document is available for public inspection. Prior to July 1, the budget is legally enacted by a vote of the Board of Education. Subsequent to its formal approval of the budget, the Board of Education has the authority to make necessary adjustments to the budget by formal vote of the Board. Adjustments made during the year are reflected in the budget information included in the financial statements. For the year ended June 30, 2009, the District s actual expenditures were in excess of its budgeted expenditures in the Debt Service Fund by $9,101. NOTE B ADJUSTMENTS TO CONVERT BUDGETARY BASIS TO MODIFIED ACCRUAL BASIS The District creates its budget and Annual Secretary of the Board Report using the cash basis of accounting. The cash basis is used because it enables the District to better budget revenue and expenditures as the resources are expended or received. As noted in the Summary of Significant Accounting Policies, the District used the modified accrual basis to report fund financial statements

110 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2009 NOTE B ADJUSTMENTS TO CONVERT BUDGETARY BASIS TO MODIFIED ACCRUAL BASIS - Continued The following is a summary of the differences between the ending fund balance cash basis and the ending fund balance modified accrual basis. Special Debt Capital General Revenue Service Projects Total Fund Fund Fund Fund All Funds Cash basis fund balance June 30, 2009 $ 37,935,392 $ - $ 14,264,058 $ 42,779,746 $ 94,979,196 Add receivables 1,669,337 1,964, , ,894 4,066,146 Add prepaid expenses 1,157, ,157,712 Adjust investments to amortized cost (175,896) (175,896) Less accounts payable (753,261) (18,367) (549) (524,088) (1,296,265) Modified accrual fund balance June 30, 2009 $ 40,009,180 $ 1,945,858 $ 14,448,199 $ 42,327,656 $ 98,730,

111 SCHEDULE OF FUNDING PROGRESS OTHER POSTEMPLOYMENT BENEFIT OBLIGATION - UNAUDITED Year ended June 30, 2009 Unfunded Actuarial (UAAL) Actuarial Actuarial Accrued Percentage Actuarial Value of Accrued Liability Funded Covered of Covered Valuation Assets Liability (UAAL) Ratio Payroll Payroll Date (a) (b) (b)-(a) (a/b) (c) ((b-a)/c) July 1, 2007 $ - $ 21,655,000 $ 21,655,000 0% $ 105,565,000 21% The District implemented GASB Statement No. 45 for the year ended June 30, 2008, therefore, information for prior years is not available

112 SUPPLEMENTARY INFORMATION

113 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGETARY BASIS - BUDGET AND ACTUAL - DEBT SERVICE FUND Year ended June 30, 2009 Variances - Actual positive (negative) Budgeted amounts (budgetary Original Final Original Final basis) to final to actual Revenues Local $ 16,366,208 $ 16,366,208 $ 16,278,723 $ - $ (87,485) County 329, , ,012 - (54,003) Interest 301, , ,755-68,636 Total revenues 16,996,342 16,996,342 16,923,490 - (72,852) Expenditures Debt service Principal 10,485,000 10,485,000 10,485, Interest and other charges 5,133,917 5,133,917 5,143,018 - (9,101) Total expenditures 15,618,917 15,618,917 15,628,018 - (9,101) NET CHANGE IN FUND BALANCE $ 1,377,425 $ 1,377,425 1,295,472 $ - $ (81,953) Fund balance at July 1, ,968,586 Fund balance at June 30, 2009 $ 14,264,

114 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGETARY BASIS - BUDGET AND ACTUAL - CAPITAL PROJECTS FUND Year ended June 30, 2009 Variances - Actual positive (negative) Budgeted amounts (budgetary Original Final Original Final basis) to final to actual Revenues Local $ 1,816,513 $ 1,862,905 $ 2,040,780 $ 46,392 $ 177,875 County 26,466 27,427 45, ,352 State 300, , ,250 - (126,750) Interest 24,222 25,100 1,278, ,253,358 Total revenues 2,167,201 2,215,432 3,538,267 48,231 1,322,835 Expenditures Instruction 1,084,155 1,055,120 1,056,267 29,035 (1,147) Improvement of instruction 3,500 4,300 5,000 (800) (700) Media services (library) 1,000 2,901 4,940 (1,901) (2,039) Building level administration - 6,933 7,548 (6,933) (615) Business central service 1,720 1,720 2,405 - (685) Pupil transportation 36,000 36,000 20,950-15,050 Food services 42,700-11,159 42,700 (11,159) Central office support services 724, , ,848 10, ,054 Community service 51,500-5,989 51,500 (5,989) Capital outlay 3,692,200 5,057,660 2,732,120 (1,365,460) 2,325,540 Interest and other fiscal charges ,779 - (501,779) Total expenditures 5,636,906 6,878,536 4,469,005 (1,241,630) 2,409,531 Revenues under expenditures (3,469,705) (4,663,104) (930,738) (1,193,399) 3,732,366 Other financing sources Proceeds from general obligation bonds ,000,000-40,000,000 Transfers - - 2,011,159-2,011,159 Total other financing sources ,011,159-42,011,159 NET CHANGE IN FUND BALANCE $ (3,469,705) $ (4,663,104) 41,080,421 $ (1,193,399) $ 45,743,525 Fund balance at July 1, ,699,325 Fund balance at June 30, 2009 $ 42,779,

115 INFORMATION REQUIRED FOR STATE AND FEDERAL PROGRAM REPORTING June 30, 2009

116 CONTENTS State Compliance Independent Accountants Report on Management s Assertions About Compliance with Specified Requirements of Missouri Laws and Regulations 4 Schedule of Selected Statistics - Unaudited 5-9 Federal Compliance Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditors Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 16 Notes to Schedule of Expenditures of Federal Awards 17 Schedule of Findings and Questioned Costs 18-19

117 STATE COMPLIANCE

118 CPAs and Management Consultants One South Memorial Drive, Ste. 950 St. Louis, MO ph fax Independent Accountants Report on Management s Assertions About Compliance with Specified Requirements of Missouri Laws and Regulations Board of Education Francis Howell R-III School District We have examined management's assertions, included in its representation letter dated December 7, 2009, that Francis Howell R-III School District complied with the requirements of Missouri laws and regulations regarding budgetary and disbursement procedures, accurate disclosure by the District s records of average daily attendance and average daily pupil transportation and other statutory requirements as listed in the Schedule of Selected Statistics. As discussed in that representation letter, management is responsible for the District's compliance with those requirements. Our responsibility is to express an opinion on management's assertions about the District's compliance based on our examination. Our examination was made in accordance with the attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining on a test basis, evidence about the District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our opinion does not provide a legal determination on the District s compliance with specified requirements. In our opinion, management s assertions that Francis Howell R-III School District complied with the aforementioned requirements for the year ended June 30, 2009 are fairly stated in all material respects. This report is intended solely for the information and use of the Board of Education, District management, the Missouri Department of Elementary and Secondary Education and other audit agencies and is not intended to be and should not be used by anyone other than these specified parties. St. Louis, Missouri December 7, 2009 Other Locations Belleville, IL Carbondale, IL Springfield, IL Jacksonville, IL Cape Girardeau, MO Milwaukee, WI

119 SCHEDULE OF SELECTED STATISTICS - UNAUDITED Year ended June 30, 2009 Type of audit performed: Yellow Book: X Single Audit: X 1. Calendar (Sections and , RSMo) A. The number of hours and days classes were in session and pupils were under the direction of the teachers during this school year were as follows: Hours Days Grades K through 8 1, Grades 9 through 12 1, Average Daily Attendance (ADA) Regular term average daily attendance Full-Time & Part-Time Remedial Total Grades K through 8 11, , Grades 9 through 12 5, , Subtotal - Regular attendance 16, , Summer school - Average daily attendance Total average daily attendance 16,

120 SCHEDULE OF SELECTED STATISTICS - UNAUDITED Year ended June 30, September Membership Full-Time & Federal Part-Time Deseg In Lands Total Deseg Out September resident membership 17, , Free and Reduced Priced Lunch FTE Count Full-Time & Part-Time Deseg In Total State FTE Total Free 1, , Reduced , , Finance A. As required by Section , RSMo, a bond was purchased for the district s treasurer in the total amount of: $ 25,000 B. The district s deposits were secured during the year as required by Sections and , RSMo. True C. The district maintained a separate bank account for the Debt Service Fund in accordance with Section , RSMo. True D. The district issued the following type(s) of general obligation refunding bonds in the current year. Current Advanced-Defeased Advanced-Crossover N/A N/A N/A - 6 -

121 SCHEDULE OF SELECTED STATISTICS - UNAUDITED Year ended June 30, Finance - Continued E. The district has appropriately included all current and prior year crossover refunding bonds in the financial statements. True F. The district has a school improvement plan. True G. The district has a professional development committee plan adopted by the board with the professional development committee plan identifying the expenditure of seventy-five percent (75%) of one percent (1%) of the current year basic formula apportionment. True H. The amount spent for approved professional development committee plan activities was: $ 354,113 I. The district did not use state-funded grant monies to supplant existing salaries. True J. Salaries reported for educators in the October Core Data cycle are supported by payroll/contract records. K. If a $162,326 or 7% x SAT x WADA transfer was made in excess of adjusted expenditures, the board approve a resolution to make the transfer, which identified the specific projects to be funded by the transfer and an expected expenditure date for the projects to be undertaken. L. The district took action prior to October 31 to cause the current year s audit to be performed. M. The district published a summary of the prior year s audit report within thirty days of the receipt of the audit pursuant to Section , RSMo. True N/A True True N. All above false answers must be supported by a finding or management letter comment. Finding #: N/A Management Letter Comment #: N/A - 7 -

122 SCHEDULE OF SELECTED STATISTICS - UNAUDITED Year ended June 30, Transportation A. The school transportation allowable costs substantially conform to 5 CSR , Allowable Costs for State Transportation Aid. B. The district s school transportation ridership records are so maintained as to accurately disclose in all material respects the average number of regular riders transported. True True C. Based on the ridership records, the average number of students (non-disabled K-12, K-12 students with disabilities and career education) transported on a regular basis (ADT) was: Eligible ADT 11,723 Ineligible ADT 1,300 D. The district s transportation odometer mileage records are so maintained as to accurately disclose in all material respects the eligible and ineligible mileage for the year. E. Actual odometer records show the total district-operated and contracted mileage for the year was: True 2,405,186 Of this total, the eligible non-disabled and students with disabilities route miles and the ineligible non-route and disapproved miles (combined) was: Eligible Miles 2,236,776 Ineligible Miles (Non-Route/Disapproved) 168,410 F. Number of days the district operated the school transportation system during the regular school year: 191 G. All above False answers must be supported by a finding or management letter comment. Finding #: N/A Management Letter Comment #: N/A - 8 -

123 SCHEDULE OF SELECTED STATISTICS - UNAUDITED Year ended June 30, Missouri School Improvement Program (MSIP) A. The district has adequate procedures that allow for the proper recording and reporting of hours of absence. B. The district has adequate procedures that allow for the identification and recording of dropouts as defined in the Core Data Manual (Exhibit 6) and the subsequent reporting of those students to the Adult Literacy Hotline and on the June Cycle of Core Data. C. The district has a set of adequate procedures for following up on the college and career placement of all of the previous year s graduates 180 days after graduation. D. The district has a set of procedures that ensure advanced courses and career courses (approved by the state) are properly identified and reported according to Core Data standards. True True True True E. All above False answers must be supported by a finding or management letter comment. Finding #: N/A Management Letter Comment #: N/A - 9 -

124 FEDERAL COMPLIANCE

125 CPAs and Management Consultants One South Memorial Drive, Ste. 950 St. Louis, MO ph fax Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Education Francis Howell R-III School District We have audited the financial statements of the governmental activities and each major fund of Francis Howell R-III School District (the District ) as of and for the year ended June 30, 2009, which collectively comprise the District s basic financial statements and have issued our report thereon dated December 7, 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity s financial statements that is more than inconsequential will not be prevented or detected by the District s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the District s internal control. Other Locations Belleville, IL Carbondale, IL Springfield, IL Jacksonville, IL Cape Girardeau, MO Milwaukee, WI

126 Our consideration of internal control over financial reporting was made for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Board of Education, District management, the Missouri Department of Elementary and Secondary Education and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. St. Louis, Missouri December 7, 2009

127 CPAs and Management Consultants One South Memorial Drive, Ste. 950 St. Louis, MO ph fax Independent Auditors Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Board of Education Francis Howell R-III School District Compliance We have audited the compliance of Francis Howell R-III School District (the District ) with the types of compliance requirements described in the U.S. Office of Management and Budget ( OMB ) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, The District s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs is the responsibility of the District s management. Our responsibility is to express an opinion on the District s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the District s compliance with those requirements. In our opinion the District complied, in all material respects, with the requirements referred to above that are applicable to its major federal programs for the year ended June 30, Other Locations Belleville, IL Carbondale, IL Springfield, IL Jacksonville, IL Cape Girardeau, MO Milwaukee, WI