PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 12, 2012

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other changes without notice. The Bonds may not be sold nor may offers to buy be accepted prior to the time of the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 12, 2012 NEW ISSUE -- BOOK ENTRY ONLY Rating: See Rating herein In the opinion of Stevens & Lee, a professional corporation, Reading, Pennsylvania, Bond Counsel, assuming continuing compliance by the School District with certain covenants to comply with provisions of the Internal Revenue Code of 1986, as amended (the Code ) and any applicable regulations thereunder, interest on the Bonds is not includable in gross income under Section 103(a) of the Code and interest on the Bonds is not an item of tax preference for purposes of the federal individual and corporate alternative minimum taxes, except as set forth under the heading Tax Exemption in this Official Statement. Other provisions of the Code may affect the purchasers and holders of the Bonds. See Federal Tax Laws herein for a brief description of these provisions. Under the laws of the Commonwealth of Pennsylvania, the Bonds and interest on the Bonds shall be free from taxation for state and local purposes within the Commonwealth of Pennsylvania, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied directly on the Bonds or the income therefrom. Under the laws of the Commonwealth of Pennsylvania, profits, gains or income derived from the sale, exchange or other disposition of the Bonds, shall be subject to state and local taxation within the Commonwealth of Pennsylvania. $47,875,000* Governor Mifflin School District Berks County, Pennsylvania General Obligation Bonds, Series of 2012 Consisting of: $37,310,000* General Obligation Bonds, Series A of 2012 $10,565,000* General Obligation Bonds, Series B of 2012 Dated Dated: Date of Delivery Principal Due: September 15, as shown herein Interest Payable: March 15 and September 15 First Interest Payment: March 15, 2013 Governor Mifflin School District, Berks County, Pennsylvania (the School District ), will issue its General Obligation Bonds, Series of 2012 consisting of $37,310,000* General Obligation Bonds, Series A of 2012 (the Series A Bonds ) and $10,565,000* General Obligation Bonds, Series B of 2012 (the Series B Bonds, collectively with the Series A Bonds, the Bonds ) as fully registered bonds in the denomination of $5,000 or any integral multiples of $5,000 in excess thereof. The Bonds are being issued as fully registered securities and, when issued, will be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds may be made in book-entry-only form and purchasers (the Beneficial Owners ) will not receive certificates representing their interests in the Bonds. So long as DTC, or its nominee, Cede & Co., or any other nominee of DTC, is the registered owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds will be made by the Paying Agent directly to Cede & Co. Disbursement of such payments to DTC Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners of the Bonds is the responsibility of DTC Participants and Indirect Participants. See BOOK-ENTRY-ONLY SYSTEM herein. The Bonds are subject to redemption prior to maturity as set forth herein. The proceeds of the Series A Bonds will be used for and towards: (i) the refinancing of the outstanding General Obligation Bonds, Series of 2007, General Obligation Bonds, Series of 2008 and General Obligation Bonds, Series of 2010; and (ii) the payment of the costs of issuance on the Series A Bonds. The proceeds of the Series B Bonds will be used for and towards: (i) payment of the cost of termination of three swaps; and (ii) the payment of the costs of issuance on the Series B Bonds. MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES ARE DISPLAYED INSIDE THE FRONT COVER THE BONDS ARE GENERAL OBLIGATIONS OF THE SCHOOL DISTRICT AND ARE PAYABLE FROM THE TAXES AND OTHER GENERAL REVENUES OF THE SCHOOL DISTRICT. THE SCHOOL DISTRICT HAS COVENANTED THAT IT WILL INCLUDE THE AMOUNT OF DEBT SERVICE FOR THE BONDS IN ITS BUDGET FOR EACH FISCAL YEAR, THAT IT WILL APPROPRIATE SUCH AMOUNTS FROM ITS GENERAL REVENUES FOR THE PAYMENT OF SUCH DEBT SERVICE IN EACH SUCH FISCAL YEAR AND THAT IT WILL DULY AND PUNCTUALLY PAY OR CAUSE TO BE PAID THE PRINCIPAL OF EVERY BOND AND THE INTEREST THEREON AT THE DATES AND PLACE AND IN THE MANNER STATED ON THE BONDS. WITH REGARD TO SUCH BUDGETING, APPROPRIATION AND PAYMENT, THE SCHOOL DISTRICT IRREVOCABLY HAS PLEDGED ITS FULL FAITH, CREDIT AND TAXING POWER. The Bonds are offered for delivery when, as and if issued by the School District and received by the Underwriter subject to the approving legal opinion of Stevens & Lee, a professional corporation, Bond Counsel, of Reading, Pennsylvania. Certain legal matters will be passed upon for the School District by its Solicitor, Brumbach, Mancuso & Fegley, P.C., Reading, Pennsylvania. Concord Public Financial Advisors, Inc., Reading, Pennsylvania, has acted as financial advisor in connection with the issuance of the Bonds. It is expected that the Bonds will be available for delivery to DTC on or about, Dated:, 2012 *Preliminary, subject to change

2 $47,875,000* Governor Mifflin School District Berks County, Pennsylvania General Obligation Bonds, Series of 2012 Consisting of: $37,310,000* General Obligation Bonds, Series A of 2012 Date Maturing Principal Amount Interest Rate Price CUSIP $ % Term Bonds due September 15, -- Yield % -- CUSIP $10,565,000* General Obligation Bonds, Series B of 2012 Date Maturing Principal Amount Interest Rate Price CUSIP $ % Term Bonds due September 15, -- Yield % -- CUSIP *Preliminary, subject to change

3 Berks County, Pennsylvania James Ulrich... President Ronald Dunkelberger, Jr.... Vice President Robert Rhoads... Treasurer* Mark Naylon... Secretary* Rachel Dombrowski... Member Elaine Fiant... Member Jeffrey Haggerty... Member Jill Koestel... Member Jennifer Murray... Member Dr. Michele Hill O Brien... Member Kimberly Siegel... Member * Non-member SUPERINTENDENT Dr. Daniel G. Bulinski BUSINESS MANAGER Mark Naylon SOLICITOR BRUMBACH, MANCUSO & FEGLEY, P.C. Reading, Pennsylvania BOND COUNSEL STEVENS & LEE, A PROFESSIONAL CORPORATION Reading, Pennsylvania PAYING AGENT U.S. BANK NATIONAL ASSOCIATION Philadelphia, Pennsylvania FINANCIAL ADVISOR CONCORD PUBLIC FINANCIAL ADVISORS, INC. Reading, Pennsylvania UNDERWRITER, Pennsylvania SCHOOL DISTRICT ADDRESS 10 South Waverly Street Shillington, PA 19607

4 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THIS OFFICIAL STATEMENT, INCLUDING THE COVER PAGE HEREOF AND THE APPENDICES ATTACHED HERETO, DOES NOT CONSTITUTE AN OFFERING ON ANY SECURITY OTHER THAN THE BONDS SPECIFICALLY OFFERED HEREBY. NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED BY THE GOVERNOR MIFFLIN SCHOOL DISTRICT, BERKS COUNTY, PENNSYLVANIA (THE SCHOOL DISTRICT ) OR THE UNDERWRITER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER OF THE FOREGOING. THE INFORMATION SET FORTH HEREIN HAS BEEN OBTAINED FROM THE SCHOOL DISTRICT, AND OTHER SOURCES WHICH ARE BELIEVED TO BE RELIABLE. SUCH INFORMATION, HOWEVER, IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS AND IS NOT TO BE CONSTRUED AS A REPRESENTATION OR WARRANTY OF, THE SCHOOL DISTRICT OR THE UNDERWRITER. 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 JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. 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 AFFAIRS OF THE SCHOOL DISTRICT SINCE THE DATE HEREOF. No quotations from or summaries or explanations of the provisions of laws or documents herein purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. This Official Statement is not to be construed as a contract or agreement between the School District and the purchasers or holders of any of the Bonds. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or matters of opinion and not as representations of fact. The cover page hereof and any Appendices attached hereto are part of this Official Statement. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

5 TABLE OF CONTENTS Page Page Introductory Statement... 1 Purpose of the Issue... 1 Sources and Uses of Funds... 2 The Bonds... 2 General Description... 2 Security... 2 Redemption of Bonds... 3 Mandatory Redemption... 3 Transfer and Exchange... 4 State Enforcement of Debt Service Payments... 4 Book Entry Only... 4 The School District... 7 Introduction... 7 Character... 8 Administration... 8 School Facilities... 8 Enrollment Trends... 9 School District Finances... 9 Introduction... 9 Financial Reporting... 9 Summary and Discussion of Financial Results... 9 Revenue Taxing Powers of the School District Act 1 of Special Session 2006 ("Taxpayer Relief Act") Impact of Act 2 on the District s Ability to Pay Debt Service on the Bonds Act 130 of Legislation Limiting Unreserved Fund Balances Tax Levy Trends Real Property Tax Other Taxes State Aid to School Districts Debt and Debt Limits Debt Statement Debt Limit and Remaining Borrowing Capacity School District Pension Program Labor Relations Financial History Future Financing Tax Exemption Federal Tax Laws Tax Exemption Regulations; Future Legislation Proposed Tax Legislation Miscellaneous Litigation Continuing Disclosure Underwriting Rating Financial Advisor Certain Matters Appendix A Demographic and Economic Information Relating to the School District Appendix B Form of Bond Opinion Appendix C Audited Financial Statement of the School District The Table of Contents does not list all of the subjects in this Official Statement and in all instances reference should be made to the complete Official Statement to determine the subjects set forth herein.

6 OFFICIAL STATEMENT $47,875,000* Governor Mifflin School District Berks County, Pennsylvania General Obligation Bonds, Series of 2012 Consisting of: $37,310,000* General Obligation Bonds, Series A of 2012 $10,565,000* General Obligation Bonds, Series B of 2012 INTRODUCTORY STATEMENT This Official Statement, including the cover page hereof, is furnished by the Governor Mifflin School District, Berks County, Pennsylvania (the School District ) in connection with the offering of $47,875,000* aggregate principal amount of its General Obligation Bonds, Series of 2012 consisting of $37,310,000* General Obligation Bonds, Series A of 2012 (the Series A Bonds ) and $10,565,000* General Obligation Bonds, Series B of 2012 (the Series B Bonds and, together with the Series A Bonds, the Bonds ). The Bonds are dated the Date of Delivery and are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on, 2012 (the Resolution ), and pursuant to the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, Act of December 19, 1996, P.L. 1158, No. 177 (the Debt Act ), as amended. Neither the delivery of this Official Statement nor any sale of the Bonds made hereunder shall, under any circumstances, create any implication that there have been no changes in the affairs of the School District or the communities or areas located near the School District since the date of this Official Statement or the earliest date as of which certain information contained herein is given. PURPOSE OF THE ISSUE The proceeds of the Series A Bonds will be used for and towards: (i) the refinancing of the outstanding General Obligation Bonds, Series of 2007, General Obligation Bonds, Series of 2008 and General Obligation Bonds, Series of 2010 (collectively, the Refunded Bonds ); and (ii) the payment of the costs of issuance on the Series A Bonds. The proceeds of the Series B Bonds will be used for and towards: (i) the payment to Morgan Stanley Capital Services LLC of the cost of termination of three interest rate swap agreements related to the Refunded Bonds; and (ii) the payment of the costs of issuance on the Series B Bonds. 1

7 SOURCES AND USES OF FUNDS The estimated sources and uses of funds for the Project are summarized as follows: Series A Series B Bonds Bonds Source of Funds Bond Proceeds... $ $ Net Original Issue Premium/(Discount)... School District Contribution... Total Sources... $ $ Use of Funds Cost of Calls... $ $ Termination of Outstanding Swaps... Costs of Issuance 1... Total Uses... $ $ 1 Includes bond discount, [municipal bond insurance premium], legal, financial advisor, printing, rating, paying agent and miscellaneous fees. General Description THE BONDS The Bonds are dated as of the Date of Delivery, and bear interest at the rates and mature in the amounts and on the dates described on the inside cover page. When issued, the Bonds will be available for purchase only in book entry form. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 principal amount or any integral multiple thereof only under the book-entry system maintained by The Depository Trust Company ( DTC ), New York, New York, through brokers and dealers who are, or act through DTC Participants. The purchasers of the Bonds (the Beneficial Owners ) will not receive any physical delivery of bond certificates, and beneficial ownership of the Bonds will be evidenced only by book entries maintained by DTC. For so long as any purchaser is the Beneficial Owner of a Bond, that purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC Participant to receive payment of the principal of, and interest on the Bonds. See BOOK - ENTRY ONLY SYSTEM herein. Security The Bonds will be general obligations of the School District, payable from its tax and other general revenues which include unlimited ad valorem taxes which may be levied on all taxable property within the School District without limitation as to rate or amount, provided such power is subject to the provisions set forth in the Taxpayer Relief Act (as defined herein). The School District has covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay, or cause to be paid, from its Sinking Fund, as hereinafter 2

8 defined, or from any other of its other revenues or funds, the principal of every maturity of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds; for such budgeting, appropriation, and payment the School District has irrevocably pledged its full faith, credit and taxing power. The Public School Code of 1949, P.L. 30, No. 14, as amended (the School Code ) presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see State Enforcement of Debt Service Payments herein). REDEMPTION OF BONDS The Bonds maturing on and after are subject to redemption prior to maturity, at the option of the School District, as a whole, on or on any date thereafter, or from time to time, in part, in any order of maturities, on or on any date thereafter, in either case upon payment of a redemption price of 100% of the principal amount, plus accrued interest to the date fixed for redemption. In the event that less than all Bonds of any particular maturity are to be redeemed, the Bonds of such maturity to be redeemed shall be drawn by lot by the Trustee. On the date designated for redemption, notice having been published as hereinafter provided, and money for payment of the principal and accrued interest being held by the Trustee, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and the Bonds or portions thereof so called for redemption shall cease to be entitled to any benefit or security under the indenture, and registered owners of the Bonds so called for redemption shall have no rights with respect to the Bonds or portions so called for redemption, except to receive payment of the principal of and accrued interest on the Bonds so called for redemption on the date fixed for redemption. Mandatory Redemption Series A Bonds The Series A Bonds maturing on, are subject to mandatory redemption, in part, as drawn by lot by the Paying Agent, prior to the stated maturity date, by application of money available for such purposes in the Series A Bonds Sinking Fund established under the Resolution, upon payment of the principal amount thereof, together with accrued interest, to the date fixed for redemption or upon maturity, as applicable, on of the following years and in the following principal amounts: Mandatory Redemption Series B Bonds Series A Bonds Stated to Mature on, 20xx Year Amount (Maturity) $ The Series B Bonds maturing on, are subject to mandatory redemption, in part, as drawn by lot by the Paying Agent, prior to the stated maturity date, by application of money available for such purposes in the Series B Bonds Sinking Fund established under the Resolution, upon payment of the principal amount thereof, together with accrued interest, to the 3

9 date fixed for redemption or upon maturity, as applicable, on of the following years and in the following principal amounts: Series B Bonds Stated to Mature on, 20xx Year Amount (Maturity) $ Transfer and Exchange Subject to the provisions described below under BOOK-ENTRY ONLY SYSTEM, a Bond may be transferred or exchanged only upon presentation thereof to the Paying Agent. Such Bond must be accompanied by an endorsement duly executed by the registered owner. No charge will be imposed in connection with any transfer or exchange, except for taxes or governmental charges related thereto. State Enforcement of Debt Service Payments Section 633 of the School Code, as amended by Act 150 of 1975, presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption, or any interest due on such indebtedness on any interest payment date, or fails to make when due a required deposit to a sinking fund with respect to the indebtedness, in accordance with the schedule under which such indebtedness was issued, the Secretary of Education is required to notify such board of school directors of its obligation and shall withhold out of any State appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depositary for such bond issue. These withholding provisions presently apply to debt service on the Bonds; however, they are not part of any contract with the holders of the Bonds, and could be amended or repealed by future legislation. The effectiveness of Section 633 may be limited by the application of other withholding provisions contained in the School Code, such as provisions for withholding and paying over of unpaid teacher's salaries. Enforcement may also be limited by bankruptcy, insolvency or other laws or equitable principles affecting the enforcement of creditors' rights generally. BOOK-ENTRY ONLY SYSTEM The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the Issuer ) and the Underwriter do not guarantee the accuracy or completeness of such information and such information is not to be construed as a representation of the School District or the Underwriter. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the 4

10 name of Cede & Co. (DTC s partnership nominee) or in such other name as may be requested by an authorized representative of DTC. One fully-registered certificate for the Bonds, of each maturity will be issued in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants (the 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 whollyowned 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 (the Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of 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 the Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not 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 5

11 are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security 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 of Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds (or all Bonds of a particular maturity) are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue (or maturity) to be redeemed. Neither DTC nor Cede & Co. (nor such 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 Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). So long as the Bonds are held by DTC under a book-entry system, payments of the principal of and interest on the Bonds and, if applicable, any premium payable upon redemption thereof, 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 Issuer or the Paying Agent on the 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 Participants and not of DTC, the Paying Agent or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of the principal of and interest on Bonds and, if applicable, and premium payable upon redemption thereof to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue its services as a securities depository for the Bonds at any time by giving notice to the Issuer or the Paying Agent. Under such circumstances, in the event that a 6

12 successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Issuer 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 to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. THE ISSUER AND THE PAYING AGENT CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (1) PAYMENTS OF PRINCIPAL OR INTEREST ON, THE BONDS, (2) CERTIFICATES REPRESENTING AN OWNERSHIP OF INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN BONDS, OR (3) NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DTC PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT "RULES" APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT "PROCEDURES" OR DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. NEITHER THE ISSUER NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR INTEREST ON THE BONDS; (4) THE DELIVERY BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BONDHOLDERS; OR (5) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER. Introduction THE SCHOOL DISTRICT Governor Mifflin School District is located in central Berks County and covers an area of 7 square miles. The School District is located in the Schuylkill Valley which runs in the southeast and northwest direction through the area and is part of the Reading Metropolitan Area. Geographically, the area of the School District extends from the City of Reading in central Berks County south to Lancaster County. The School District is located approximately 40 miles northwest of the City of Philadelphia, 20 miles north of Lancaster, Pennsylvania, 20 miles east of 7

13 Lebanon, Pennsylvania and south and adjacent to Reading, Pennsylvania. Many unincorporated communities are located within the School District and these include: Flying Hills in Cumru Township, and Knauers in Brecknock Township. Character Governor Mifflin School District is characterized by rolling hills and valleys which are common to the Piedmont region of the Commonwealth of Pennsylvania. The area flanks the Schuylkill River. Economically, the northern portion of the School District is commercial in character. The central portion is residential in nature and the southern portion is rural in character. Residential growth in the School District is chiefly due to the location in relation to the major employment centers located in the region: Reading, Lancaster, King of Prussia, Philadelphia and Lebanon. The School District is on the fringe of urban influence but still possess the advantage of a country environment. Administration The governing body of the School District is a board of nine school directors who are elected on a staggered basis. The daily operations and management of the School District are carried out by the administrative staff of the School District headed by the Superintendent of Schools who is appointed by the Board of School Directors. School Facilities The School District presently operates four elementary schools, one Junior High School and one high school, all as described below: Table 1 Governor Mifflin School District Facilities Original Construction Renovation Building Date Date Grades Enrollment Brecknock Elementary School K Cumru Elementary School /91 K Mifflin Park 2008 K Intermediate School / Junior High School / Senior High School /90/ Source: School District Officials The School District also shares facilities at the Berks County Career and Technology Center with neighboring school districts. 8

14 Enrollment Trends The following Table 2 presents recent trends in school enrollment. Table 2 Governor Mifflin School District Enrollment Trends Actual Enrollment Projected Enrollment School School Year Elementary Secondary Total Year Elementary Secondary Total ,143 2,119 4, ,251 1,955 4, ,165 2,086 4, ,330 1,992 4, ,204 2,022 4, ,238 1,979 4, ,243 1,974 4,217 Source: School District Introduction SCHOOL DISTRICT FINANCES The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and Business Administrator and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1. Financial Reporting The School District has organized its accounts on the basis of funds or groups of funds, each of which is a separate accounting entity. It maintains a General Fund for instructional, operation and administrative expenses, a Food Services Fund, and various school activity funds. Federal funds are appropriated by the School Board during the fiscal year after grant commitments and project approvals are received. The School District keeps the books and prepares the financial reports for the General Fund according to a modified accrual basis of accounting. Major accrual items are payrolls, payroll taxes and pension fund contributions payable, loans receivable from other funds, and revenues receivable from other governmental units. Taxes are credited when received. The School District financial statements are audited annually by a firm of independent certified public accountants, as required by State law. The firm of Maillie, Falconiero & Company, Oaks, Pennsylvania, serves as auditors for the School District. Summary and Discussion of Financial Results A summary of General Fund balance sheet and changes in fund balances are presented in Tables 3, 4 and 5 which follow. The adopted budget for , adopted June 4, 2012, budgeted revenues of $62,671,438 which include a fund balance of $4,200,000, and expenditures of $62,671,438 which includes a budgetary reserve of $3,132,850. Table 5 shows revenues and expenditures for the past 4 years and the budget. 9

15 Table 3 Governor Mifflin School District Summary of Comparative General Fund Balance Sheet* Year Ending June ASSETS Cash & Investments $8,614,589 $8,347,630 $7,780,789 $9,163,704 $10,265,580 Taxes Receivables 816,814 1,033,415 1,206, ,814 1,055,837 Interfund Receivables 12, Intergovernmental Receivables 1,008, ,040 1,054,995 1,172, ,097 Other Assets 0 6,235 8,904 9,125 1,050 Other Receivables TOTAL ASSETS $10,451,860 $10,371,706 $10,051,233 $11,334,840 $12,301,939 LIABILITIES Accounts Payable $609,810 $615,683 $652,082 $667,034 $516,909 Accrued Salaries and Benefits 2,964,836 3,618,229 3,604,184 4,055,370 4,217,883 Payroll deductions and withholdings Judgments Payable 432, Accumulated compensated absences Deferred Revenue and Other 721, ,248 1,133, , ,873 TOTAL LIABILITIES $4,728,585 $5,150,160 $5,389,954 $5,582,953 $5,682,665 FUND EQUITIES Unreserved Fund Balance $5,723,275 $5,221,546 $4,661,279 $5,751,887 $6,619,274 TOTAL FUND EQUITY $5,723,275 $5,221,546 $4,661,279 $5,751,887 $6,619,274 TOTAL LIABILITIES AND FUND EQUITIES $10,451,860 $10,371,706 $10,051,233 $11,334,840 $12,301,939 *Totals may not add due to rounding Source: School District Annual Financial Reports. Revenue The School District received an estimated $56,863,239 in revenue in and has budgeted for $62,671,438 in In local sources contributed 76 percent, state sources contributed 22 percent and federal and other sources contributed 2 percent of total revenue. 10

16 Table 4 Governor Mifflin School District General Fund Summary of Changes in Fund Balance Year ending June 30 Unaudited General Fund: Beginning Fund Balance $5,723,275 $5,221,545 $4,661,278 $5,751,887 6,619,274 Surplus (Deficit) of Revenue over Expenditures (501,729) (560,267) 1,090, , ,895 Period Adjustment 52,722 Ending Fund Balance $5,221,545 $4,661,278 $5,751,887 $6,619,274 7,524,169 TAXING POWERS OF THE SCHOOL DISTRICT Subject to certain limitations by the Taxpayer Relief Act, Act No. 1 of the Special Session of 2006, as amended (see ACT 1 OF SPECIAL SESSION 2006 ( TAXPAYER RELIEF ACT ) herein), the School District is empowered by the School Code and other statutes to levy the following taxes: 1. An ad valorem tax on all property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes. 2. Unless limited by Act 1, an unlimited ad valorem tax on all property taxable for school purposes to provide funds for: (a) minimum salaries and increments for the teaching and supervisory staff; (b) rentals due any municipality, authority, or non-profit corporation, or due the State Public School Building Authority; (c) interest and principal on any indebtedness incurred under the Debt Act or any prior or subsequent act governing the incurrence of indebtedness of the School District; and (d) amortization of bonds to finance construction of school facilities, if issued prior to the first Monday in July, An annual per capita tax on each resident over eighteen years old of not less than $1.00 and not more than $ Additional taxes levied under the Local Tax Enabling Act (Act 511 of 1965), including per capita, wage and other earned income, real estate transfer, and occupation taxes, subject to sharing with other political subdivisions authorized to levy similar taxes on the same person, property, transaction or income. A school district cannot levy these taxes in an amount which exceeds the equivalent of 12 mills on the market value of taxable real estate (such market value to be certified by the State Tax Equalization Board). All local taxing authorities are required by 11

17 the Local Tax Enabling Act to exempt disabled veterans and members of the armed forces reserve who are called to active duty at any time during the tax year from any local services tax and to exempt from any local services tax levied at a rate in excess of $10 those persons whose total income and net profits from all sources within the political subdivision is less than $12,000 for the tax year. The Local Tax Enabling Act also authorizes, but does not require, taxing authorities to exempt from per capita, occupation, and earned income taxes and any local services tax levied at a rate of $10 or less per year, any person whose total income from all sources is less than $12,000 per year. Table 5 Governor Mifflin School District Summary of School District General Fund Revenues and Expenditures (Years Ending June 30) (1) Unaudited Budget REVENUE Local Sources $40,302,794 $41,679,835 $41,955,919 $42,954,714 $44,061,347 State Sources 12,065,501 11,967,486 11,767,694 12,526,772 13,207,440 Federal Sources 710,819 1,457,792 1,864,568 1,349,435 1,152,651 Other Sources ,000 Estimated Unreserved Fund Balance TOTAL REVENUE 53,079,114 55,105,113 55,588,181 56,863,239 58,471,438 EXPENDITURES Instruction 28,622,159 30,314,498 30,557,922 31,693,523 33,744,295 Support Services 15,954,281 16,309,414 16,265,943 16,321,158 17,453,274 Operation of Non-Instructional Services 927, ,197 1,330,938 1,402,434 1,558,014 Facilities Acquisition, Construction and Improvement 0 46, ,331 0 Refund of Prior Year Expenditure 178, , , , ,000 Debt Service 679, Budgetary Reserve TOTAL EXPENDITURES 46,362,206 47,802,687 48,446,583 49,584,702 52,935,583 EXCESS OF REVENUE OVER (UNDER) EXPENDITURES 6,716,908 7,302,426 7,141,598 7,278,537 5,535,855 OTHER FINANCING SOURCES (USES) Bond/note Issue Proceeds Refund of Prior Year Revenues Transfers In 409,952 15,000 15, Transfers Out (7,687,127) (6,226,818) (6,341,933) (6,373,642) (6,603,005) TOTAL OTHER FINANCING SOURCES (USES) (7,277,175) (6,211,818) (6,326,933) (6,373,642) (6,603,005) NET CHANGE IN FUND BALANCES (560,267) 1,090, , ,895 (1,067,150) BEGINNING FUND BALANCE 5,221,546 $4,661,279 $5,804,609* 6,619,274 7,524,169 ENDING FUND BALANCE $4,661,279 $5,751,887 $6,619,274 $7,524,169 $6,457,019 (1) Totals may not add due to rounding. *Restated Source: School District Financial Reports. 12

18 ACT 1 OF SPECIAL SESSION 2006 ( TAXPAYER RELIEF ACT ) The Taxpayer Relief Act became effective June 27, 2006, as amended by Act 25 of 2011 (the Taxpayer Relief Act or Act 1 ). Under the provisions of such Act, a school district may not, in any fiscal year, levy any tax for the support of the public schools which was not levied in the fiscal year, raise the rate of any earned income and net profits tax if already imposed under the authority of the Local Tax Enabling Act (Act 511), or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by the Pennsylvania Department of Education (PDE): 1. to pay interest and principal on indebtedness incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004; to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district's petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum. The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the Federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater 13

19 than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio. The Act 1 Index applicable to the School District for the current and previous fiscal years (not including exceptions) are as follows: Fiscal Year Adjusted Index Fiscal Year Adjusted Index % % Source: Pennsylvania Department of Education. As required by Act 1, the board of school directors of the School District submitted a referendum question to the voters at the primary elections held on May 15, 2007 seeking voter approval allowing the school district to levy, assess and collect an earned income and net profits tax ( EIT ) or a personal income tax ( PIT ) for the purpose of annually funding homestead and farmstead exclusions from real property taxes. The proposed rate of such EIT or PIT may not exceed the rate required to provide the maximum exclusion for homestead and farmstead property allowable under Pennsylvania law, nor may it be less than the rate required to provide 50% of the maximum allowable exclusion. Nevertheless, no school district is required to propose an EIT that is greater than 1% or a PIT equivalent to an EIT of 1%. The voters did not choose to increase the EIT. A board of school directors may submit, but is not required to submit, a further referendum question to the voters at the municipal election in 2009 or any later year seeking approval to levy or increase the rate of an EIT or a PIT for the purpose of further funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate which, when combined with any tax rate authorized at the 2007 primary election, is required to provide the maximum homestead and farmstead exclusions allowable under law. No such further referendum question has been submitted to the voters at the date hereof by the School District. This summary is not intended to be an exhaustive discussion of the provisions of Act 1 nor a legal interpretation of any provision of Act 1, and a prospective purchaser of the Bonds should review the full text of Act 1 as a part of any decision to purchase the Bonds. Impact of Act 1 on the School District s Ability to Pay Debt Service on the Bonds The passage of Act 1 should not impact the School District s ability to pay principal and interest on the Bonds. Assuming that Basic Education Subsidies continue to be granted by the Commonwealth to the School District in annual amounts not less than the annual amounts expected to be received in fiscal year 2012, the additional Basic Education Subsidies should enable the School District to generate sufficient revenues to pay principal and interest on the Bonds without the need for any tax increase. All Commonwealth subsidies to the School District 14

20 are subject to annual appropriation by the General Assembly. Currently, all Commonwealth subsidies (including the Basic Education Subsidies) amount to 22% of School District revenues. The School District does not anticipate that additional millage will have to be levied to pay the principal of and interest on the Bonds; however, such additional millage, if levied, would be eligible for an exception under Act 1 for the refunding of indebtedness incurred prior to the effective date of Act 1. Act 130 of 2008 Act 130 of 2008 of the Commonwealth amended the Local Tax Enabling Act so as to authorize school districts levying an occupation tax to replace that occupation tax with an increased earned income tax, or if the school district has implemented a personal income tax in accordance with the Taxpayer Relief Act, an increased personal income tax, in a revenue neutral manner. To so replace an occupation tax, the board of school directors must first hold at least one public hearing on the matter and then place a binding referendum question on the ballot at a general or municipal election for approval by the voters. The School District currently does not levy an occupation tax. SET FORTH ABOVE IS A SUMMARY OF PORTIONS OF ACT 130. THIS SUMMARY IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF THE PROVISIONS OF ACT 130 NOR A LEGAL INTERPRETATION OF ANY PROVISION OF ACT 130. A PROSPECTIVE PURCHASER OF THE BONDS SHOULD REVIEW THE FULL TEXT OF ACT 130 AS A PART OF ANY DECISION TO PURCHASE THE BONDS. Legislation Limiting Unreserved Fund Balances Pennsylvania Act No (enacted December 23, 2003) prohibits a school district from increasing real property taxes for the school year or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below: Estimated Ending Unreserved Undesignated Fund Balance as a Percentage of Total Total Budgeted Expenditures Budgeted Expenditures Less than or equal to $11,999, % Between $12,000,000 and $12,999, % Between $13,000,000 and $13,999, % Between $14,000,000 and $14,999, % Between $15,000,000 and $15,999, % Between $16,000,000 and $16,999, % Between $17,000,000 and $17,999, % Between $18,000,000 and $18,999, % Greater than or equal to $19,000, % 15

21 Estimated ending unreserved fund balance is defined in Act as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district s budget was adopted and held in that general fund accounts of the school district. Tax Levy Trends Table 6 which follows shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District and the County. Table 6 Governor Mifflin School District Tax Rates Real Estate Occupation Occupation Earned Real Estate Year (mills) Per Capita(1) Flat Rate Privilege Income Transfer $10.00 $5.00 $ % 0.5% (2) (1) Includes $5.00 under Act 511 and $5.00 under School Code Taxes (2) Adopted Budget (June 4, 2012) for Source: School District Officials Table 7 Governor Mifflin School District Comparative Real Property Tax Rates (Mills on Assessed Value) School District Berks County Source: Local Government Officials Real Property Tax The real property tax including interim collections (excluding delinquent collections) is budgeted to produce $37,317,709 in , or 60% percent of overall revenue. 16

22 The following tables summarize recent trends of assessed and market valuations of real property. Table 8 shows real property assessment data for the School District and Table 9 summarizes real property assessment data for the municipalities within the School District. Table 10 summarizes recent trends in real property tax collection. Table 8 Governor Mifflin School District Real Property Assessment Data Common Level Market Value Assessed Value Ratio 2002 $1,578,040,487 $1,426,548, % ,680,734,647 1,450,474, ,849,732,625 1,479,786, ,011,905,333 1,508,929, ,271,836,417 1,547,120, ,377,119,939 1,561,767, ,327,994,534 1,576,052, ,262,366,191 1,585,918, ,182,316,530 1,597,455, ,056,127,086 1,601,723, Source: Pennsylvania State Tax Equalization Board. Table 9 Governor Mifflin School District Real Property Assessment Data by Municipality 2010 Market Value 2010 Assessed Value 2011 Market Value 2011 Assessed Value School District $2,182,316,530 $1,697,455,700 $2,056,127,086 $1,601,723,000 Brecknock Township 195,099, ,529, ,004, ,014,800 Cumru Township 648,955, ,550, ,615, ,392,500 Kenhorst Borough 83,883, ,595,100 89,300, ,635,300 Mohnton Borough 92,263, ,043,300 97,898, ,672,000 Shillington Borough 149,135, ,737, ,922, ,008,400 Market Value computed using Common Level Ratio Source: Pennsylvania State Tax Equalization Board 17

23 Table 10 Governor Mifflin School District Real Property Tax Collection Data Total Adjusted Flat Billing(1) Current Year Collections (July-June) Current Year Collections As Percent of Total Adjusted Flat Billing Total Current Plus Delinquent Collections Total Collections as Percent or Total Adjusted Flat Billing Assessed Year Valuation $1,476,058,100 $21,289,902 $20,736, % $21,497, % ,497,342,600 19,996,369 19,556, ,431, ,435,455,600 22,967,290 22,057, ,913, ,463,094,100 24,141,052 23,246, ,267, ,493,120,400 25,980,295 24,910, ,868, ,522,967,800 28,784,091 27,642, ,507, ,557,271,600 31,612,613 30,262, ,224, ,570,584,500 33,924,625 32,405, ,376, ,581,246,700 35,578,051 33,660, * 34,933, ,587,193,000 35,870,562 33,721, * 34,970, ,602,283,000 37,172,966 34,664, * 35,960, ,606,349,800 38,070,490 35,471, * 36,843, *In the State under Act 1 reduced the assessed value of Homestead properties and the money is received in State subsidy not local taxes-$870,000 (1) Flat billing plus penalties, less discounts and exonerations. Source: School District Financial Reports. The ten largest real property taxpayers, together with 2012 assessed values are shown on Table 11 which follows. Table 11 Governor Mifflin School District Ten Largest Real Property Taxpayers, Assessed Owner Value Green Hills Realty Assoc. $29,148,100 Heritage of Green Hills 20,000,000 AG/Spectrum Kenhorst LP 11,562,100 Shillington Realty Assoc. 9,783,400 Governor Mifflin Apartments LP 9,241,800 RRI Energy Mid Atlantic Power 7,637,600 Lancaster Avenue Assoc LP 7,536,500 Healthsouth of Reading Inc. 5,953,200 Sencit Towne house LTD Prtshp 5,584,000 Shillington Shopping Center 5,000,000 Total $111,446,700 Source: School District Officials. 18

24 Other Taxes Under Act 511, the School District has collected an estimated $4,320,417 in taxes in Among the taxes authorized by Act 511, the Occupation Tax, Occupational Privilege Tax, Real Estate Transfer Tax, Earned Income Tax, and Per Capita Tax are all levied by the School District. The Act 511 limit, equal to 12 mills on the market value of real property, was approximately $21,212,582 in Occupation Tax. A flat tax of $5.00 is levied on all residents occupations regardless of where the occupations are practiced. The District received $83,765 in or less than 1% of total revenue. Emergency and Municipal Services Tax. Another tax of $5.00 is levied for the privilege of engaging in an occupation within the District and is levied on residents and non-residents alike. Collection of this tax for was $46,233 for the School District or less than 1% of total revenue. Real Estate Transfer. The School District levies a tax of one percent of the value of real estate transfers which is shared with the municipality in which the property is located. In the School District s portion of this tax was $364,138 or less than 1% percent of total revenue. Earned Income Tax. A tax of one percent is levied on the earned income of residents which is shared with the municipality in which the resident resides. In the School District received $4,045,041 or approximately 6.50% of total revenue. Per Capita Taxes. A tax of $10.00 ($5.00 under Act 511 and $5.00 under the School Code) on each resident over 18 years old yielded a total amount of $96,141 in , or less than 1% percent of total revenue. State Aid to School Districts Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly. A basic instructional subsidy is allocated to all school districts based on (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; and (3) the school district's tax effort, as compared with the tax effort of other school districts in the State. School districts also receive state aid for special education, pupil transportation, vocational education, and health services, among other things. A reimbursement for school building construction is also made. Debt service on the Series A Bonds will be eligible for reimbursement from the State based on the "Reimbursable Percentage" assigned to the Series A Bonds and the School District's Aid Ratio, a function of the market 19

25 value per weighted average daily membership of the School District relative to that of the State. The School District Market Value Aid Ratio is currently percent. Debt Statement DEBT AND DEBT LIMITS Table 12 which follows shows the debt of the School District as of November 16, 2012 after issuance of the Bonds. TABLE 12 Governor Mifflin School District Debt Statement (As of November 16, 2012)* Outstanding Principal Balance Project Eligible Percentage Reimbursable Factor(1) Principal Amount of Local Effort of Net of Available Funds and Estimated State Aid General Obligation Bonds, Series A of 2006 $29,355, % 19.84% $23,530,968 General Obligation Bonds, Series of ,970, %** 10.36% 13,419,108 General Obligation Bonds, Series of ,375, %** 13.41% 12,447,312 General Obligation Bonds, Series of ,405, %** 11.88% 7,406,486 General Obligation Bonds, Series A of ,625, % 21.55% 4,412,812 Total Nonelectoral Debt $72,730,000 $61,216,686 Lease Rental Debt 0 0 Total Direct Debt $72,730,000 $61,216,686 *After issuance of the Bonds **Estimated (1) Project eligible percentage multiplied by School District s Market Value Aid Ratio of 48.98% Table 13 presents the overlapping indebtedness and debt ratios of the School District. Before issuance of the Bonds, the principal amount of direct and overlapping debt of the School District will total $72,730,000. After adjustment for available funds and estimated State aid, the local effort of direct debt will total $61,216,

26 Table 13 Governor Mifflin School District Bonded Indebtedness and Debt Ratios Principal Amount of Local Effort or Net Principal Amount of Available of Gross Funds and Outstanding State Aid* DIRECT DEBT: Nonelectoral General Obligation Debt $72,730,000 $61,216,686 Lease Rental Debt 0 0 Total Direct Debt: $72,730,000 $61,216,686 OVERLAPPING DEBT** Berks County, General Obligation Bonds*** $21,445,573 $21,445,573 Municipal Bonds and Notes 5,905,195 5,905,195 Total Overlapping Debt $27,350,768 $27,350,768 Total Direct and Overlapping Debt $100,080,768 $88,567,454 DEBT RATIOS (Direct): Per Capita (2000) (28,976) $3, $3, Percent 2008 Assessed Value % % Percent 2008 Market Value % % *Gives effect to current appropriations for payment of debt service, and expected future State reimbursement of School District sinking fund payments based on current Market Value Aid Ratio. See State Aid to School Districts. **As of September 1, 2010 ***Pro rata 8.81% of $243,423,080 outstanding. Debt Limit and Remaining Borrowing Capacity The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District's "Borrowing Base." The "Borrowing Base" is calculated as the annual arithmetic average of total "Revenues" (as defined by the Act), for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows: Revenues for $56,877,274 Revenues for ,685,867 Revenues for ,779,097 Total Revenues, Past Three Years $166,342,238 Annual arithmetic average (Borrowing Base) $55,447,413 Under the Act as presently in effect, new nonelectoral debt and new lease rental debt may not be incurred if the net amount of such new nonelectoral debt and/or new lease rental debt plus all outstanding net nonelectoral debt and net lease rental debt would cause total net nonelectoral 21

27 debt and net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentages to the School District's Borrowing Base produces the following products: Remaining Legal Gross Debt Borrowing Limit Outstanding Capacity Net Nonelectoral Debt Limit: 225% of Borrowing Base $124,756,679 $72,730,000 $52,026,679 SCHOOL DISTRICT PENSION PROGRAM All School District full-time employees participate in the Pennsylvania Public School Employees Retirement System under which contributions are made on a cost sharing multipleemployer method by the School District, the State and the individual employee. The School District s retirement contributions are considered an expenditure of Fixed Charges from its General Fund revenues. The School District has always made its annual retirement contributions as required. LABOR RELATIONS The School District is under contract with the Governor Mifflin Teachers (GMEA) Association which is affiliated with the Pennsylvania State Education Association (PSEA) covering the professional employees of the School District other than administrators. The Association acts as bargaining agent for such employees under the conditions of Pennsylvania Law (Act 195) providing for collective bargaining. Professional employees have a limited right to strike under Act 195 if bargaining, fact finding and mediation do not result in agreement on a new contract. The contract with GMEA expires on June 30, FINANCIAL HISTORY The School District has never defaulted on the payment of debt service or lease rentals. FUTURE FINANCING The Board of School Directors has no plans to issue additional long term bonds within the next five years. The School District may, if necessary, elect to borrow in anticipation of taxes and revenues on an annual basis. Federal Tax Laws TAX EXEMPTION Numerous provisions of the Internal Revenue Code of 1986, as amended (the Code ), affect the issuers of state and local government bonds, such as the School District, and impair or restrict the ability of the School District to finance projects on a tax-exempt basis. Failure on the part of the School District to comply with any one or more of such provisions of the Code, or any 22

28 regulations under the Code, could render interest on the Bonds includable in the gross income of the owners thereof for purposes of federal income tax retroactively to the date of issuance of the Bonds. Among these provisions are more restrictive rules relating to: (a) investment of funds treated as proceeds of the Bonds; (b) the advance refunding of tax-exempt bonds; and (c) the use of proceeds of the Bonds to benefit private activities. In addition, under the Code, the School District is required to file an information return with respect to the Bonds and, if applicable, to rebate to the federal government certain arbitrage profits on an ongoing basis throughout the term of the issue constituting the Bonds. Bond Counsel has not undertaken to determine (or to inform any person) whether any action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the S Bonds may affect the tax status of interest on the Bonds. Other provisions of the Code affect the purchasers and holders of certain state and local government bonds such as the Bonds. Prospective purchasers of the Bonds should be aware that: (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry certain state or local government bonds, such as the Bonds, or, in the case of a financial institution, that portion of a financial institution s interest expense allocated to interest on certain state or local government bonds, such as the Bonds, unless the issuer of the state or local government bonds designates the bonds as qualified tax-exempt obligations for the purpose and effect contemplated by Section 265(b)(3)(B) of the Code (the School District has not designated the Bonds as qualified tax-exempt obligations under Section 265(b)(3)(B) of the Code, as such phrase is defined in the Code); (ii) certain corporations must take into account interest on certain state or local government bonds, such as the Bonds, in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations; (iii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(1) of the Code reduces the deduction for loss reserves by 15% of the sum of certain items, including interest and amounts treated as such on certain state or local government bonds such as the Bonds; (iv) interest on certain state or local government bonds, such as the Bonds, earned by some corporations could be subject to a branch profits tax imposed by Section 884 of the Code; (v) if a Subchapter S corporation has passive investment income (which passive investment income will include interest on state and local government bonds such as the Bonds) exceeding 25% of such Subchapter S corporation's gross receipts and if such Subchapter S corporation has Subchapter C earnings and profits, then interest income derived from state and local government bonds, such as the Bonds, may be subject to federal income tax under Section 1375 of the Code; and (vi) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on certain state or local government bonds such as the Bonds. Tax Exemption In the opinion of Bond Counsel, assuming continuing compliance by the School District with certain certifications and agreements relating to the use of Bond proceeds and covenants to comply with provisions of the Code and any applicable regulations thereunder, now or hereafter enacted, interest on the Bonds is not includable in the gross income of the holders of the Bonds under Section 103(a) of the Code and interest on the Bonds is not an item of tax preference for purposes of the federal individual and corporate alternative minimum taxes, except as described above under the caption Federal Tax Law. The tax exemption described above does not 23

29 extend to corporations required to include interest on the Bonds in the calculation of alternative minimum taxable income within the meaning provided in Section 56 of the Code. Other provisions of the Code will affect certain purchasers and holders of the Bonds. See Federal Tax Laws above. Under the laws of the Commonwealth, the Bonds and the interest thereon shall be free from taxation for State and local purposes within the Commonwealth, but this exemption shall not extend to gift, estate, succession or inheritance taxes or any other taxes not levied directly on the Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from the sale, exchange or other disposition of the Bonds shall be subject to State and local taxation within the Commonwealth of Pennsylvania. The School District will issue its certificate regarding the facts, estimates and circumstances in existence on the date of delivery of the Bonds and regarding the anticipated use of the proceeds of the Bonds. The School District will certify that, on the basis of the facts, estimates and circumstances in existence on the date of issuance of the Bonds, the School District does not reasonably expect to use the proceeds of the Bonds in a manner that would cause the Bonds to be or become arbitrage bonds or private activity bonds as defined in Section 148 and Section 141 of the Code. THE ABOVE SUMMARY OF POSSIBLE TAX CONSEQUENCES IS NOT EXHAUSTIVE OR COMPLETE. ALL PURCHASERS OF THE BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE POSSIBLE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF OWNERSHIP OF THE BONDS. ANY STATEMENTS REGARDING TAX MATTERS HEREIN CANNOT BE RELIED UPON BY ANY PERSON TO AVOID TAX PENALTIES. Regulations; Future Legislation Under the provisions of the Code, the Treasury Department is authorized and empowered to promulgate regulations implementing the intent of Congress under the Code which could affect the tax-exemption and/or tax consequences of holding tax-exempt obligations, such as the Bonds. In addition, legislation may be introduced and enacted in the future which could change the provisions of the Code relating to tax-exempt bonds of a state or local government unit, such as the School District, or the taxability of interest in general. No representation is made or can be made by the School District or any other party associated with the issuance of the Bonds as to whether or not any other legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the Bonds to federal income taxes or so as to otherwise affect the marketability or market value of the Series A Bonds. EACH PURCHASER OF THE BONDS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING ANY CHANGES IN THE STATUS OF PENDING OR PROPOSED FEDERAL TAX LEGISLATION. 24

30 Proposed Tax Legislation Proposals to alter or eliminate the exclusion of interest on tax-exempt bonds from gross income for some or all taxpayers have been made in the past and may be made again in the future. For example, on September 12, 2011, President Obama submitted the American Jobs Act of 2011 (the Jobs Act ) to Congress. While the Jobs Act was not enacted in its original form, certain measures in support of tax-reform continue to appear in the President s fiscal 2013 budget request, released in February The 2013 budget proposes a 28% cap on the value of tax preferences, including tax-exempt interest for municipal bonds. There is much uncertainty regarding whether any legislation to effect tax-reform will be enacted now or in the future. The impact of such legislation on the Bonds and the financial condition of the School District cannot be predicted. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential consequences of the proposed change to the treatment of interest on the Bonds. Future legislation, if enacted into law, or clarification of the Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Bonds. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING ANY PROPOSED FEDERAL TAX LEGISLATION, AS TO WHICH BOND COUNSEL EXPRESSES NO OPINION. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Bond Counsel s engagement with respect to the Bonds ends with the issuance of the Bonds. MISCELLANEOUS This Official Statement has been prepared under the direction of the School District by Concord Public Financial Advisors, Inc., Reading, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Official Statement has been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Official Statement is not to be construed to be a contract with holders of the Bonds. 25

31 LITIGATION Upon delivery of the Bonds, the School District shall furnish, or cause to be furnished, a certificate, in form satisfactory to Bond Counsel and the Underwriter, to the effect that, among other things, there is no litigation pending in any court to restrain or enjoin the issuance or delivery of the Bonds, or the proceedings of the School District taken in connection therewith, or the application of any moneys provided for their payment, or contesting the powers of the School District with respect to the foregoing or the consummation of the transactions contemplated by this Official Statement. CONTINUING DISCLOSURE In accordance with the requirements of Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission, the School District (being an obligated person with respect to $10,000,000 or more of outstanding securities, including the Bonds, within the meaning of the Rule) will agree: (i) to file annually, with the Municipal Securities Rulemaking Board s ( MSRB ) Electronic Municipal Market Access ( EMMA ) system (discussed below), not later than 180 days following the end of each fiscal year of the School District, beginning with the fiscal year ending June 30, 2013, the following financial information and operating data with respect to the School District certain annual financial information and operating data (the Annual Information ), including the annual audited financial statements of the School District and certain information located in this document under the following headings: Revenue from State Sources, School District Finances, Table 3 Summary of Comparative General Fund Balance, Revenue, Table 4 Summary of Changes in Fund Balance, Table 5 Summary of School District General Fund Revenues and Expenditures, Real Property Tax, Table 8 Real Property Assessment Data, Table 9 Real Property Assessment Data by Municipality, Table 10 Real Property Tax Collection Data, Table 11 Ten Largest Real Property Taxpayers, Other Taxes, State Aid to School District, Debt and Debt Limits, Table 13 Debt Statement, Table 14 Bonded Indebtedness and Debt Ratios, Debt Limit and Remaining Borrowing Capacity, School District Pension Program, Labor Relations and Coverage of Debt Service and Lease Rental Requirements by State Aid such other information and data, if any, as may be fully described in the Continuing Disclosure Certificate; (ii) to file with the EMMA system in a timely manner not in excess of ten business days after the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or a Notice of Proposed Issue (IRS Form 5701-TEB) or other material notices of determinations with respect to the tax status of the Bonds, or other events affecting the tax status of the Bonds; (7) modifications to rights of registered owners of the Bonds, if material; (8) bond calls (excluding mandatory sinking fund redemptions), if material and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing 26

32 repayment of the Bonds; (11) rating changes; (12) bankruptcy, insolvency, receivership, or a similar proceeding by an obligated person; (13) consummation of a merger, consolidation, acquisition involving an obligated person, or sale of all or substantially all of the assets of an obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or determination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of an additional or a successor trustee, or the change in name of a trustee, if material. (iii) in a timely manner, to file with the EMMA system notice of a failure to provide the required annual financial information specified above, on or before the date specified above. The School District may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, but the School District does not commit to provide notice of the occurrence of any events except those specifically listed above. The School District reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when such School District no longer remains an obligated person with respect to the Series A Bonds within the meaning of the Rule. The School District acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the holders of the Series A Bonds and shall be enforceable by the holders of such Bonds; provided that the Bondholders right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the School District s obligations hereunder and any failure by the School District to comply with the provisions of this undertaking shall not be an event of default with respect to the Series A Bonds. The School District has complied with all prior written undertakings under SEC Rule 15c2-12 to provide timely ongoing disclosure of annual financial information and notice of material events affecting its securities. UNDERWRITING (the Underwriter ) has agreed, subject to certain conditions, to purchase the Bonds from the School District at an aggregate price of $ (consisting of an aggregate principal amount of $ less an underwriter's discount of $ plus a net original issue premium of $ ). The Underwriter's obligations to purchase the Bonds is subject to certain conditions precedent, however, the Underwriter is obligated to purchase all such Bonds if any such Bonds are purchased. The Bonds may be offered and sold to certain dealers (including dealers depositing such Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter. 27

33 RATING Standard & Poor's has assigned a rating of, (stable outlook) to the Bonds. Such a rating reflects only the view of such organization any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: 55 Water Street, New York, NY Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series A Bonds. FINANCIAL ADVISOR The School District has retained Concord Public Financial Advisors, Inc., Reading, Pennsylvania, as financial advisor (the Financial Advisor ) in connection with the preparation, authorization and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Official Statement. Concord Public Financial Advisors, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal securities or other public securities. CERTAIN MATTERS All summaries or descriptions of the provisions of the Bonds set forth in this Official Statement, and all other references in this Official Statement to other documents not purported to be quoted in full, are made subject to all the detailed provisions thereof, to which reference is hereby made for further information. Such summaries or descriptions are only brief outlines of certain of the provisions of such documents and materials, and do not purport to summarize or describe all of the provisions thereof. All estimates and assumptions in this Official Statement have been made on the best information available and are believed to be reasonable, but no representations whatsoever are made that such estimates or assumptions are correct or will be realized. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as such and are not representations of fact. The School District has reviewed the portions of this Official Statement describing the School District and the uses of the Bond proceeds, and has certified that they do not contain any untrue statement of a material fact, and do not omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 28

34 This Official Statement has been approved, and its distribution authorized, by the School District. GOVERNOR MIFFLIN SCHOOL DISTRICT Berks County, Pennsylvania By: President, Board of School Directors 29

35 APPENDIX A Demographic and Economic Information Relating to the Governor Mifflin School District A-1

36 Population Table 14 which follows shows recent population trends for the School District, Berks County and the Commonwealth of Pennsylvania. The School District population has grown from 27,376 to 28,976 between 1990 and Employment Overall employment data are not compiled for the School District or municipalities within it, but such data are compiled for the Reading Primary Metropolitan Statistical Area, which includes Berks County. Table 16 shows the distribution of employment in the Reading Primary Labor Market Area in For the Labor Market Area as a whole, wholesale and retail trade, transportation and public utilities, government, service and miscellaneous, and finance insurance and real estate sectors of the economy have experienced the most rapid growth in the past five years, with employment in the manufacturing industries sector declining. Major employers located within the School District include: Approximate Name Product/Service Employment Gilbert/Commonwealth Associates Engineers 2,686 Penske Inc. Rental Vehicles 560 Governor Mifflin School District Education 480 Reading Rehabilitation Hospital Medical 320 GAI - Tronics, Inc. Meters 180 Source: School District officials The location of the School District also provides residents with many employment opportunities in neighboring communities and major employment centers: City of Reading (5 minutes), King of Prussia (30 minutes), Philadelphia (45 minutes) and Lancaster (30 minutes). Other manufacturing or service facilities, which are major employers, in these nearby communities include: AT&T Technologies CarTech Corporation General Electric Corp Wells Fargo Bank Boscov s Reading Reading Valley Forge Reading Exeter Township A-2

37 Recent Population Trends % Change School District 21,878 27,376 28,976 30, % Berks County , , , % Pennsylvania 11,824,220 11,881,640 12, ,702, % Source: U.S. Census Bureau The following table provides a classification of non-agricultural wage and salary employment within Berks County as of September, 2012: Title September 2012 September 2011 Total Nonfarm 172, ,200 Total Private 148, ,600 Goods Producing 35,400 36,000 Service-Providing 137, ,200 Private Service Providing 112, ,600 Mining, Logging and Construction 7,300 7,400 Manufacturing 28,100 28,600 Durable Goods 19,800 20,000 Non-Durable Goods 8,300 8,600 Trade 33,300 34,300 Wholesale Trade 7,100 7,100 Retail Trade 18,900 20,100 Transportation 7,300 7,100 Information 1,400 1,400 Financial Activities 6,500 6,500 Professional and Business Services 21,400 20,200 Education and Health Services 28,300 27,900 Leisure and Hospitality 14,300 13,800 Other Services 7,700 7,500 Government 24,300 23,600 The Department of Labor and Industry Center for Workforce Information Industry. Principal manufacturers in the County include textile mill products, primary and fabricated metals, machinery, food and kindred products and transportation equipment. The comparative importance of manufacturing as well as the variety of industrial employment opportunities available in Berks County is illustrated below. A-3

38 Industrial and Commercial Employers. The major industrial and commercial employers located within the County of Berks and their approximate employment are shown hereunder: Approximate Employer Product or Service Employment Reading Hospital and Medical Center Health Services 6,938 East Penn Manufacturing Co., Inc. Batteries 6,289 Berks County Government Government 2,477 Reading School District Public Education 2,358 Carpenter Technology Corp. Specialty Steel 2,294 Wal-Mart Stores Retail 1,931 Pennsylvania Government (in Berks) Government 1,875 St. Joseph Medical Center Hospital 1,558 Weis Markets Grocery Store 1,416 Boscov s Department Store, Inc. Retail 1,400 Source: Reading Eagle/Times, as of December 2011 Commerce. The downtown area of the City of Reading and other locations throughout the County provide shopping areas for residents. A wide variety of goods and services are provided by the retail outlets located in the central city and in outlying suburban areas. Additionally, the downtown and suburban areas provide auxiliary facilities such as theaters, restaurants and various banking, legal and medical services. Supplementing the central shopping area are various commercial centers in the areas surrounding the City including the Berkshire Mall in the Borough of Wyomissing where Sears Roebuck and Company and the Bon-Ton are located, the Fairgrounds Square Mall in Muhlenberg Township where Boscov's, and JC Penney Outlet Store are located and the VF Factory Outlets in the Borough of Wyomissing. The following table depicts unemployment rates in the County, as compared to the Commonwealth and the United States (not seasonally adjusted). Unemployment Rates Year Berks County Pennsylvania United States % 5.7% 5.8% * *As of August, 2012 Source: Pennsylvania Department of Labor & Industry A-4

39 Median Family Income Berks County $65,050 Commonwealth of Pennsylvania $64,331 Source: United States Census Bureau Housing. Housing statistics in the School District compare favorably with the County s and the Commonwealth s. Commercial Commercial activity within the School District tends to be centered along Route 222 (Borough of Shillington) in various shopping centers. Also located just 2 miles west of the School District is the Berkshire Mall, a regional shopping center for central Berks County. Table 16 Comparative Unemployment Rates for Berks County County Civilian Total Percentage Unemployed Labor Force Employment Berks Co. PA US , , % 4.8% 4.7% , , , , , , , , , , , , , , , , , , , , (Aug) 207, , Source: Pennsylvania Dept. of Labor & Industry Shown below are various housing statistics for the County and Commonwealth: Characteristics of Houses Occupied Housing Units 2010 Commonwealth of Pennsylvania Berks County Total Housing Units 150,222 5,249,750 % Owner Occupied 74.0% 71.3% % Renter Occupied 26.0% 28.7% Source: United States Census Bureau A-5

40 Transportation The School District is served by a network of Federal and State highways: Interstate 176, which crosses the area in a northwest, southeast direction, connects the area with Pennsylvania Turnpike to the southeast and Reading to the northwest; U.S. 222, which crosses in a north-south direction, connects the area with Lancaster, to the south and Reading, Pennsylvania to the north; and State routes 10, 568, 625 and 724. Motor freight service is supplied to the area by numerous interstate and intrastate carriers. Recreation and Tourism School District residents have access to a variety of recreational facilities through public, private and quasi-public agencies. Flying Hills Club, a quasi-public club located in Cumru Township, maintains an 18-hole golf course and swimming facilities for its residents and guests. Institutions Health South Rehabilitation Hospital is located in Cumru Township. The Hospital has approximately 80 physically handicapped patients and maintains a staff of approximately 320 persons who supply complete services to these patients. Sewer/Water UTILITIES Residents of developed portions School District are served by public water and sewer provided by municipal owned systems. All other residents are served by on-site systems or developer-owned systems. Electricity and Gas Metropolitan Electric Company provides both electricity and natural gas to users within the School District. Municipal Services All Townships and Boroughs have police protection from either the state police or local police departments. All communities support local volunteer fire companies. A-6

41 APPENDIX B Form of Bond Counsel Opinion

42 APPENDIX C Audited Financial Statement of the School District

43 ANNUAL FINANCIAL REPORT Year Ended June 30,2011

44 INTRODUCTORY SECTION

45 TABLE OF CONTENTS Page No. INTRODUCTORY SECTION ~blecl~~~... 1 FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis (Unaudited)... 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet... '"... '" Reconciliation of Total Governmental Funds Balances to Net Assets of Governmental Activities Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities Proprietary Fund Statement of Net Assets Statement of Revenues, Expenses and Changes in Net Assets Statement of Cash Flows

46 TABLE OF CONTENTS Fiduciary Funds Page No. Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Notes to the Basic Financial Statements Required Supplementary Information Budgetary Comparison Schedule Note to the Budgetary Comparison Schedule Postemployment Benefits Other Than Pension Funding Progress 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 THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A SUPPLEMENTARY INFORMATION - MAJOR FEDERAL AWARD PROGRAMS AUDIT Schedule of Expenditures of Federal and State Awards Notes to the Schedule of Expenditures of Federal and State Awards Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings

47 FINANCIAL SECTION

48 PO Box 680 Oaks, PA Fax: PO Box 3068 West Chester, PA Fax: Independent Auditors' Report To the Board of Directors Governor Mifflin School District Shillington, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the Governor Mifflin School District as of and for the year ended June 3D, 2011, which collectively comprise the School District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Governor Mifflin School District's management.. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the Governor Mifflin School District as of June 3D, 2011, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 7, 2011, on our consideration of the Governor Mifflin School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. -3- COl/nselors to tlte Closely Held BI/siness Since 1946

49 To the Board of Directors Govemor Mifflin School District Shillington, Pennsylvania Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 13, budgetary comparison information on pages 56 and 57 and postemployment benefits other than pension funding progress on page 58 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Govemmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Govemor Mifflin School District's basic financial statements. The schedule of expenditures of federal and state awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Oaks, Pennsylvania December 7,

50 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 This section of the Governor Mifflin School District's Annual Financial Report presents its discussion and analysis of the School District's financial performance during the fiscal year ended June 30, Readers should also review the notes to the basic financial staternents and financial statements to enhance their understanding of the School District's financial performance. THE DISTRICT AND ITS FACILITIES The Governor Mifflin School District serves an area of approximately 42 square miles. It is located in Berks County and consists of Brecknock TownShip, Cumru Township, Kenhorst Borough, Mohnton Borough and Shillington Borough. The population of this area is 28,925. The School District is comprised of three (3) Grades K to 4 buildings (Brecknock, Cumru and Mifflin Park Elementary Schools), one Grade 5 to 6 building (Intermediate School), a Grade 7 and 8 building (Middle School) and a Grades 9 to 12 building (High School). The School District also has an administration building, a transportation/maintenance facility and a prefab eight-room building which houses the special education offices, early intervention classrooms and gifted program. Over the last few years, enrollment at the Governor Mifflin School District has reached approximately 4,300 students. It is projected to increase over the next several years to approximately 4,400 students. EMPLOYEE RELATIONS The School District currently has 452 full-time and 147 part-time employees. There are two organizations representing School District employees. The Governor Mifflin Education Association (GMEA) represents certified employees, including teachers, librarians, guidance counselors, nurses and other educational specialists, for collective bargaining purposes. Classified employees, including clerical staff, custodians, maintenance, food service and miscellaneous positions are represented for collective bargaining purposes by the American Federation of State, County and Municipal Employees, AFL-CIO, District Council 88 and its Local 1332 (AFSCME). The current GMEA contract expired June 30, 2010, but was renewed through June 30, The current AFSCME contract expires June 30, 2012 also. The GMEA wage agreement for the period of July 1, 2010 through June 30, 2011, included raises of 2% for the first year and 2.4% for The District will be entering into negotiations with GMEA shortly. The AFSCME contract for and included an hourly increase of $

51 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 ECONOMIC OUTLOOK The global economy and financial markets are suffering from a crisis of confidence. An extended period of sluggish growth appears to be at hand. Several factors are contributing to this outlook. The extent of the economic decline in 2009 was worse than previously thought. The latest data has been disappointing and consumer and business confidence may prove difficult to regain. The U.S. housing market continues to struggle. The outlook for interest rates is unchanged and unemployment continues at 9.1%. The impact of low interest rates on investments and the slow housing market will continue to affect the District's budget due to the taxpayers' ability to pay property taxes and the amount of money received from property transfer tax. Eamed Income Tax Revenue will also be affected by the high unemployment rate. The District entered into a four year agreement with Capital Blue Cross beginning July 1, 2008 through June 30, 2011, with a cap at a maximum of 9%. The year has an increase of 2.0% and the contract was extended for two more years with a cap of 9%. The School District actively monitors the change of projected taxes and assessments. considered in the calculation of future projections and the budgeting process. These factors are FINANCIAL HIGHLIGHTS Net assets of the School District's govemmental activities increased only Slightly by.35%. The major component leading to this increase was higher revenues received for real estate taxes. Net assets of the business-type activities increased by approximately $103,617. Note that depreciation expense is included in the operating expenses in the approximate amount of $44,250. Program-specific revenues in the form of grants, entitlements and investment eamings accounted for $8.7 million or 16% of total governmental activities revenue, and the general revenue for taxes accounted for $40.6 million or 73% of total governmental activities revenue. Governmental activities expenditures totaled $55.3 million, of which $30.5 million was spent on instructional services, $16.1 million was spent on supportive services, $1.3 million was spent on noninstructional services and $7.4 million was used for interest payment on debt and depreciation expenses. The School District's budget is prepared according to Pennsylvania law and is based on accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. -6-

52 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the School District's budget for the year. Figure A-1 shows how the various parts of this annual report are arranged and related to one another. FigureA-1 Organization of the Governor Miff/in School District Annual Financial Report Management's Basic Required Discussion Financial Supplementary and Analysis Statements Information _. : Government-Wide Fund Notes to the Financial Financial Financial Statements Statements Statements Summary I! ~ Detail - 7 -

53 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 Figure A-2 summarizes the major features of the School District's financial statements, including the portion of the School District's activities they cover and the types of information they contain, The remainder of this overview section of management's discussion and analysis highlights the structure and contents of each of the statements, FigureA-2 Major Features of the Government-Wide and Fund Financial Statements Government-Wide Fund Financial Statements Statements Governmental Funds Proprietary Fund Fiduciary Funds Scope Entire School District The activities of the Activities the School Instances in which the (except Fiduciary Funds) School District that are District operates similar School District not proprietary or to private businesses: administers resources on fiduciary, such as special food services and adult behalf of someone else, education and building education such as scholarship maintenance programs and student activities monies Required Staternent of net Balance sheet Staternent of net Statement of financial assets assets fiduciary net statements Statement of assets Staternent of activities revenues, ex~ Statement of penditures and revenues, Statement of changes in fund expenses and changes in balances changes in net fiduciary net assets assets Statement of cash flows Accounting basis Accrual accounting and Modified accrual Accrual accounting and Accrual accounting and and measure- economic resources accounting and current economic resources economic resources ment focus focus financial focus focus focus Type of All assets and liabilities, Generally assets All assets and liabilities, All assets and liabilities, asset/liability both financial and expected to be used up both financial and both short-term and information capital, short-term and and liabilities that come capital, and short-term long-term; funds do not long-term due during the year or and long-term currently contain capital soon thereafter; no assets, although they capital assets or long- can term liabilities included Type of inflow! All revenues and Revenues for which cash All revenues and All additions and outflow infor- expenses during the is received during or expenses during the deductions during the mation year, regardless of when soon after the end of the year, regardless of when year, regardless of when cash is received or paid year; expenditures when cash is received or paid cash is received or paid goods or services have been received and the related liability is due and payable - 8 -

54 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Revenue For the General Fund, the revenue generated from real estate taxes was $885,000 more than last year. The School District's increase in millage was the contributor towards the increase in real estate taxes. The School District did not exceed its budget expectation in interim taxes, delinquent taxes and interest on investments. State aid decreased slightly for the Basic Instructional Subsidy. Expenditures The majority of the increase in expenditures for the school year is tied to the contractual raises and benefits for staff members. The District incorporated numerous cost cutting measures to keep the tax increase to a minimum. The reduction in electric consumption saved the District $40,000. Solar panels were installed this summer on the roofs of both the High School and Middle School. The expected savings from this installation will amount to $40,000. Limiting paper usage has saved the District over $12,000. Athletics and music groups have tapered their trip requests and saved over $15,000. Seven retired teaching positions were not replaced by the District. Two administrative positions were eliminated. Also several support staff position resignations/retirements were not replaced or were filled with part time employees. These reductions contributed a significant savings to the District

55 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 FigureA-3 Condensed Statement of Net Assets (In Millions of Dol/ars) Governmental Activities Business-T~~e Activities Total School District Change ASSETS Cash and cash equivalents Investments Receivables Due from other governments Prepaid expenses Other receivables Inventories Bond issue costs, net of amortization of $207,323 Bond discount Interest receivable Deferred outflow of resources Land and improvements Buildings and building improvements Machinery and equipment Accumulated depreciation Construction in progress $ 5,088,584 $ 3,951,703 10,386,927 14,216,412 1,055, , ,097 1,172,822 1,050 9, , , , , ,612,494 7,768,633 21,552,461 21,266,804 96,322,580 90,407,557 11,064,026 10,860,590 (35,455,766) (31,301,966) 2,687,895 $ 431,675 $ 283,366 $ 5,520,259 $ 4,235, % 10,386,927 14,216,412 (26.94)% 1,055, , % 18,155 29, ,252 1,202,636 (17.08)% 1,050 9,125 (88.49)% 3, , % 23,368 26,099 23,368 26,099 (10.46)% 663, ,396 (1.70)% 117, ,769 (5.74)% % 6,612,494 7,768,633 (14.88)% 21,552,461 21,266, % 96,322,580 90,407, % 898, ,750 11,962,125 11,732, % (651,361 ) (607,109) (36,107,127) (31,909,075) 13.16% 2,687,895 (100.00)% TOTAL ASSETS $ 118,389,201 $ 122,828,929 $ 723,779 $ 604,120 $ 119,112,980 $ 123,433,049 (3.50)% LIABILITIES AND NET ASSETS LIABILITIES Accounts payable Accrued salaries and benefits Accrued interest Deferred revenue Interest hedge swap Long-term liabilities Portion due or payable within one year Bonds payable in future years Bond premium, net of accumulated amortization Accumulated compensated absences Other postemployment benefits payable TOTAL LIABILITIES $ 800,048 $ 1,641,060 4,165,527 4,000, , ,815 1,611 6,612,494 7,768,633 3,015,117 2,867,550 69,440,000 72,220,000 1,016,934 1,103, , , , ,412 86,665,158 91,216,117 $ 17,902 $ 87 $ 817,950 $ 1,641,147 (50.16)% 14,760 16,533 4,180,287 4,017, % 716, ,815 (17.68)% 1,611 (100.00)% 6,612,494 7,768,633 (14.88)% 3,015,117 2,867, % 69,440,000 72,220,000 (3.85)% 1,016,934 1,103,684 (7.86)% 480, , % 418, , % 32,662 16,620 86,697,820 91,232,737 (4.97)% NET ASSETS Invested in capital assets, net of related debt Restricted for Capital projects Other Unrestricted TOTAL NET ASSETS 20,952,903 18,682,361 7,977,663 52,722 10,771,140 4,900,066 31,724,043 31,612, , ,641 21,199,641 18,947, % 7,977,663 (100.00)% 52,722 (100.00)% 444, ,859 11,215,519 5,222, % 691, ,500 32,415,160 32,200,312.67% TOTAL LIABILITIES AND NET ASSETS $ 118,389,201 $ 122,828,929 $ ~. $ 723,779 $ 604, ,112,980 $ 123,433,049 (3.50)%

56 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 FigureA-4 Changes in Net Assets from Operating Results (In Millions of Dollars) Governrnental Activities REVENUES Program revenues Charges for services $ 375,984 $ 298,710 Operating grants and contributions 8,753,525 9,125,660 General revenues Taxes 40,662,050 39,591,909 State and other aid 5,487,681 5,567,941 Other 133, ,921 TOTAL REVENUES 55,412,512 54,956,141 EXPENSES Instruction 30,475,121 30,428,202 Support services 16,089,664 15,891,074 Operation of non-instructional services 1,313,435 1,169,865 Interest on long-term debt 2,946,918 3,280,121 Amortization (bond cost) 68,099 93,369 Depreciation 4,408,044 3,566,673 Food service TOTAL EXPENSES 55,301,281 54,429,304 CHANGE IN NET ASSETS $ 111,231 $ 526,837 Increase (Decrease) Percentage Business-T)I~e Activities Total School District Change $ 1,325,845 $ 1,314,844 $ 1,701,829 $ 1,613, % 819, ,310 9,572,808 9,902,970 (3.33)% 40,662,050 39,591, % 5,487,681 5,567,941 (1.44)% (14,845) (14,908) 118, ,013 (66.83)% 2,130,283 2,077,246 57,542,795 57,033,387.89% 30,475,121 30,428,202.15% 16,089,664 15,891, % 1,313,435 1,169, % 2,946,918 3,280,121 (10.16)% 68,099 93,369 (27.06)% 4,408,044 3,566, % 2,026,666 2,078,503 2,026,666 2,078,503 (2.49)% 2,026,666 2,078,503 57,327,947 56,507, % $ 103,617 $ (1,257) $ 214,848 $ 525,580 (59.12)% GOVERNMENTAL ACTIVITIES Governmental activities consist of the General Fund, the Debt Service Fund, the Capital Project Fund and Special Revenue Funds. The arnount in pooled cash, cash equivalents and investments increased in This was due to the District spending less than budgeted in expenditures. Long-term liabilities, including lease obligations and bonds payable, decreased by almost $2.7 million as a result of the repayment of debt. The School District depends heavily on real estate taxes that rnake up approximately 72% of revenues. Other revenues consist of investment earnings, facilities rentals, interfund transfers and revenues from other sources

57 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 BUSINESS-TYPE ACTIVITIES Business-type activities include the Food Service Program, but the Enterprise Fund is operated separately. The programs are designed to operate at a break-even point so that the cost for the services offered will benefit the School District residents. Business activities received no support from tax revenues. The Food Service Program provides approximately 1,937 lunches per day and 354 breakfasts per day, as well as additional catering for the School District's many meetings and gatherings. Food Service receives both federal and state subsidies for milk, lunch and breakfast programs and also receives some government commodities on a routine basis. The majority of revenues come from the students and other users of the services. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets For the Governor Mifflin School District, capital assets include land, buildings, furniture and equipment, vehicles and other items that meet the following criteria: A. The individual asset must have a useful life greater than one year. B. The individual asset cost is equal to or greater than $2,500 or was purchased with debt proceeds. The District invested in equipment and upgraded its network infrastructure. Sixty laptops were purchased to replace computers over five years old. The District also entered into a contract with a vendor to service our printers which reflected a significant savings in the printer maintenance program. The and storage servers were upgraded with eight new servers. FigureA-5 Capital Assets (Net of Depreciation, In Millions of Dol/ars) Total Governmental Business-Type Percentage Activities Activities Total School District Change Land and improvements $ 15.9 $ 16.6 $ $ $ 15.9 $ 16.6 (4.22)% Buildings and building improvements % Machinery, equipment and education media (7.90)% Construction in progress (100.00)% TOTAL $ 93.5 $ 94.0 $.2 $.3 $ 93.7 $ 94.3 (.64)%

58 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Year Ended June 30, 2011 FigureA-6 Outstanding Long-Term Debt (In Millions of Dollars) Total School District Total Percentage Change General obligation bonds and note Other general obligation debt $ $ (3.6)% 22.2% TOTAL $ 73.4 $ 75.9 FACTORS BEARING ON THE SCHOOL DISTRICTS FUTURE The Pennsylvania School Employee Retirement System (PSERS) is projecting the rate to rise over the next several years. The State and School District share in the cost of the retirement system. In , the rate was 5.64%, in it is 8.65% and in the rate is expected to be 12.19%. The rate is anticipated to increase by approximately 4.5% over the next three years and then by 1-2% until it reaches 26.94% in In July 2011, Governor Mifflin property owners received property tax reductions of $ as a result of state revenue from slot machines. All homeowners in the District got the same amount regardless of their property assessments. The amounts were shown as deductions on the real estate bills issued in July for the year. To be eligible for the tax cut, property owners must apply to the County assessment office for homestead-farmstead status by March 1 for the next tax year. The County mails forms in mid-december to any property owner not currently listed in the homestead-farmstead status. In 2005, the District began a property tax rebate program. Any Governor Mifflin homeowner eligible to receive the State Property Tax Rebate is eligible to receive a District rebate. The District rebate is calculated on Income Level as is the PA Property Tax Rebate. In a total of $173,158 in rebates was issued to homeowners for the year. The range of rebates was between $165 and $486. The Teachers' contract will expire on June 30, Since 66% of the Budget is a result of salaries and benefits, the outcome of the negotiations will impact the School's current and future budgets. CONTACTING THE SCHOOL DISTRICTS FINANCIAL MANAGEMENT This financial report is designed to provide the School District's citizens, taxpayers, customers and investors and creditors with a general overview of the School District's finances and to demonstrate the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Business Office

59 STATEMENT OF NET ASSETS June 30, 2011 ASSETS Governmental Business-Type Governmental Business-Type Activities Activities Totals Activities Activities Totals LIABILITIES AND NET ASSETS Cash and cash equivalents $ 5,088,584 $ 431,675 $ 5,520,259 LIABILITIES Investrnents 10,386,927 10,386,927 Accounts payable $ 800,048 $ 17,902 $ 817,950 Taxes receivable, net 1,055,837 1,055,837 Accrued salaries and benefits 4,165,527 14,760 4,180,287 Due from other governments 979,097 18, ,252 Accrued interest 716, ,020 Interest hedge swap 6,612,494 6,612,494 Other receivables 3,843 3,843 Long-term liabilities Prepaid expenses 1,050 1,050 Portion due or payable within one year Bonds payable 2,855,000 2,855,000 Inventories 23,368 23,368 Compensated absences 160, ,117 Bond issue costs, net of accumulated Portion due or payable after one year amortization of $207, , ,929 Bonds payable 69,440,000 69,440,000 Bond discount, net of accumulated Bond premium, net of accumulated amortization of $26, , ,607 amortization of $407,490 1,016,934 1,016,934 Compensated absences 480, ,352 Interest receivable Other postemployment benefits 418, ,666 Deferred outflow of resources 6,612,494 6,612,494 TOTAL LIABILITIES 86,665,158 32,662 86,697,820 Capital assets NET ASSETS Land and land improvements 21,552,461 21,552,461 Invested in capital assets, net of related Buildings and building improvements 96,322,580 96,322,580 debt 20,952, ,738 21,199,641 Unrestricted 10,771, ,379 11,215,519 Machinery and equipment 11,064, ,099 11,962,125 TOTAL NET ASSETS 31,724, ,117 32,415,160 Accumulated depreciation (35,455,766) (651,361 ) (36,107,127) TOTAL LIABILITIES AND TOTAL ASSETS $ 118,389,201 $ 723,779 $ 119,112,980 NET ASSETS $ 118,389,201 $ 723,779 $ 119,112,980 See accompanying notes to the basic financial statements

60 STATEMENT OF ACTIVITIES Year Ended June 30, 2011 Program Revenues Operating Net (Expense) Revenue and Changes in Net Assets Charges for Grants and Governmental Business-Type Functions/Programs Expenses Services Contributions Activities Activities Totals GOVERNMENTAL ACTIVITIES Instruction Regular programs $ 21,805,947 $ 90,610 $ 3,914,875 $ (17,800,462) $ $ (17,800,462) Special programs 6,330,140 2,134,454 (4,195,686) (4,195,686) Vocational education 2,049,042 77,278 (1,971,764) (1,971,764) Other instructional programs 289,992 12,464 (277,528) (277,528) Support services Pupil personnel services 2,006,513 -ro,326 (1,936,187) (1,936,187) Instructional staff services 2,770, ,451 (2,654,060) (2,654,060) Administration services 2,789,548 1,238,628 (1,550,920) (1,550,920) Pupil health services 331,874 8,809 (323,065) (323,065) Business services 1,479,730 46,226 (1,433,504) (1,433,504) Operation and maintenance of plant services 4,760, , ,423 (4,457,754) (4,457,754) Student transportation services 1,885,091 (1,885,091 ) (1,885,091 ) Central services 10,046 (10,046) (10,046) Other services 55,808 (55,808) (55,808) Operation of non-instructional services Student activities 1,146, ,008 37,081 (956,202) (956,202) Community services 167,144 9,189 (157,955) (157,955) Amortization of bond issue costs, unallocated 68,099 (68,099) (68,099) Depreciation, unallocated 4,408,044 (4,408,044) (4,408,044) Debt service 2,946, ,321 (2,029,597) (2,029,597) TOTAL GOVERNMENTAL ACTIVITIES 55,301, ,984 8,753,525 (46,171,772) (46,171,772) BUSINESS-TYPE ACTIVITIES Food service 2,026,666 1,325,845 8'19, , ,462 TOTAL SCHOOL DISTRICT ACTIVITIES $ 57,327,947 $ 1,701,829 $ 9,572,808 (46,171,772) 118,462 (46,053,310) GENERAL REVENUES Taxes Taxes, levied for general purposes 36,747,614 36,747,614 Public utility taxes 55,817 55,817 Earned income taxes 3,858,619 3,858,619 Grants and contributions not restricted to specific programs 5,619,128 5,619,128 Refund of prior year revenues/expenses, net (131,447) (131,447) Investment earnings 103, ,680 Gain on disposal of assets 14,747 14,747 TRANSFERS 15,000 (15,000) TOTAL GENERAL REVENUES AND TRANSFERS 46,283,003 (14,845) 46,268,158 CHANGE IN NET ASSETS 111, , ,848 NET ASSETS AT BEGINNING OF YEAR 31,612, ,500 32,200,312 NET ASSETS AT END OF YEAR $ 31,724,043 $ 691,117 $ 32,415,160 See accompanying notes to the basic financial statements

61 BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2011 Total Capital Debt Governrnental General Fund Project Fund Service Fund Funds ASSETS Cash and cash equivalents $ 5,032,932 $ 55,652 $ $ 5,088,584 Investrnents 5,232,648 5,154,279 10,386,927 Taxes receivable, net 1,055,837 1,055,837 Due from other governments 979, ,097 Prepaid expenses 1,050 1,050 Interest receivable TOTAL ASSETS $ 12,301,939 $ 5,209,931 $ $ 17,511,870 LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable $ 516,909 $ 283,139 $ $ 800,048 Deferred revenue 947, ,873 Accrued salaries and benefits 4,217,883 4,217,883 TOTAL LIABILITIES 5,682, ,139 5,965,804 FUND BALANCES Nonspendable, prepaid expenses 1,050 1,050 Comrnitted, future retirernent rate increases 1,900,000 1,900,000 Assigned, capital projects 4,926,792 4,926,792 Unassigned 4,718,224 4,718,224 TOTAL FUND BALANCES 6,619,274 4,926,792 11,546,066 TOTAL LIABILITIES AND FUND BALANCES $ 12,301,939 $ 5,209,931 $ $ 17,511,870 See accompanying notes to the basic financial statements

62 RECONCILIATION OF TOTAL GOVERNMENTAL FUNDS BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES June 30, 2011 TOTAL GOVERNMENTAL FUNDS BALANCES Capital assets used in governmental activities are not current financial resources and therefore are not reported in the funds. These assets consist of: Land and land improvements Buildings and building improvements Machinery and equipment Accumulated depreciation Bond issue costs/discounts used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Bond issue costs Bond discount Accumulated amortization Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Accrued interest Bonds payable, including bond premium Compensated absences Other postemployment benefits Some of the School District's revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 11,546,066 21,552,461 96,322,580 11,064,026 (35,455,766) 871, ,436 (234,152) (716,020) (73,311,934) (588,113) (418,666) 947,873 $ 31,724,043 See accompanying notes to the basic financial statements

63 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Year Ended June 30, 2011 Total Capital Debt Governmental General Fund Project Fund Service Fund Funds REVENUES Local sources $ 41,955,919 $ 11,790 $ $ 41,967,709 State sources 11,767,694 11,767,694 Federal sources 1,864,568 1,864,568 TOTAL REVENUES 55,588,181 11,790 55,599,971 EXPENDITURES Instruction 30,557,922 30,557,922 Support services 16,265,943 16,265,943 Operation of non-instructional services 1,330,938 1,330,938 Facilities acquisition, construction and improvement services 206 3,527,661 3,527,867 Refund of prior year revenues 291, ,574 Debt service 5,910,910 5,910,910 Debt issuance cost 56,632 56,632 TOTAL EXPENDITURES 48,446,583 3,527,661 5,967,542 57,941,786 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 7,141,598 (3,515,871 ) (5,967,542) (2,341,815) OTHER FINANCING SOURCES (USES) Bond issue proceeds 5,625,000 5,625,000 Bond issue premium 15,609 15,609 Bond refunding (5,550,000) (5,550,000) Transfers in 15, ,000 5,876,933 6,356,933 Transfers out (6,341,933) (6,341,933) TOTAL OTHER FINANCING SOURCES (USES) (6,326,933) 465,000 5,967, ,609 NET CHANGE IN FUND BALANCES 814,665 (3,050,871 ) (2,236,206) FUND BALANCES AT BEGINNING OF YEAR, as restated (see Note L) 5,804,609 7,977,663 13,782,272 FUND BALANCES AT END OF YEAR $ 6,619,274 $ 4,926,792 $ $ 11,546,066 See accompanying notes to the basic financial statements

64 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2011 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS Capital outlays are reported in Governmental Funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeds capital outlays in the current period. Deferred charges and credits are reported in Governmental Funds as expenditures and revenues. However, in the statement of activities, the cost of those assets or liabilities is allocated over the term lives of debt instruments as amortization expense or credits. This is the amount by which capital outlays exceed amortization in the current period. Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered as "available" revenues in the Governmental Funds. Deferred tax revenues increased by this amount this year. Proceeds from long-term debt are reported as revenue in Governmental Funds, but the amount increases long-term liabilities in the statement of net assets. Repayment of bond principal and lease purchase obligations is an expenditure in the Governmental Funds, but the repayment reduces long-term liabilities in the statement of net assets. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in Governmental Funds: Accrued interest not reflected in Governmental Funds In the statement of activities, certain operating expenses--compensated absences (vacations and sick leave) and other postemployment benefits--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). CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ (2,236,206) (437,579) 68,121 89,114 (5,625,000) 8,265, ,795 (166,014) $ =~11~1 ;,:;,2;;,31;"" See accompanying notes to the basic financial statements

65 STATEMENT OF NET ASSETS PROPRIETARY FUND June 30, 2011 Enterprise Fund Food Service Fund ASSETS CURRENT ASSETS Cash and cash equivalents Due from other governments Other receivables Inventories TOTAL CURRENT ASSETS CAPITAL ASSETS Machinery and equipment Accumulated depreciation TOTAL CAPITAL ASSETS $ 431,675 18,155 3,843 23, , ,099 (651,361 ) 246,738 TOTAL ASSETS $ 723,779 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued salaries and benefits TOTAL CURRENT LIABILITIES $ 17,902 14,760 32,662 NET ASSETS Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS $ 246, , , ,779 See accompanying notes to the basic financial statements

66 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUND Year Ended June 30, 2011 Enterprise Fund Food Service Fund OPERATING REVENUES Charges for services OPERATING EXPENSES Salaries Employee benefits Purchased professional and technical service Purchased property service Other purchased service Supplies Depreciation Other operating expenses TOTAL OPERATING EXPENSES OPERATING LOSS NONOPERATING REVENUES Interest and investment revenue State sources Federal sources TOTAL NONOPERATING REVENUES TRANSFERS OUT INCOME BEFORE TRANSFERS CHANGE IN NET ASSETS NET ASSETS AT BEGINNING OF YEAR NET ASSETS AT END OF YEAR $ 1,325, , , ,582 1,027 1,064,912 44,252 1,073 2,026,666 (700,821 ) , , , ,617 (15,000) 103, ,500 $ 691,117 See accompanying notes to the basic financial statements

67 STATEMENT OF CASH FLOWS PROPRIETARY FUND Year Ended June 30, 2011 Enterprise Fund Food Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers Payments to employees Payments to suppliers NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers to other funds Federal sources State sources NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition, construction and improvements of capital assets CASH FLOWS FROM INVESTING ACTIVITIES Earnings on investments NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,322,202 (902,784) (971,070) (551,652) (15,000) 614, , ,155 (26,349) , ,366 $ 431,

68 STATEMENT OF CASH FLOWS PROPRIETARY FUND Year Ended June 30, 2011 Enterprise Fund Food Service Fund RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash used by operating activities Depreciation Donated foods (Increase) decrease in Other receivables Inventories Increase in accounts payable and accrued expenses NET CASH USED BY OPERATING ACTIVITIES $ $ (700,821 ) 44,252 89,787 (3,643) 2,731 16,042 (551,652) SUPPLEMENTAL DISCLOSURES Noncash activities Donated foods $ 89,787 See accompanying notes to the basic financial statements

69 STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS June 30, 2011 Trust Funds Agency Funds ASSETS Cash and cash equivalents $ 13,427 $ 8,938 Investments 45, ,213 TOTAL ASSETS 58,677 $ 148,151 LIABILITIES Accounts payable $ 148,151 NET ASSETS Held in trust for benefits and other purposes $ 58,677 See accompanying notes to the basic financial statements

70 STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS Year Ended June 30, 2011 Trust Funds ADDITIONS Investment earnings Contributions TOTAL ADDITIONS DEDUCTIONS Scholarships awarded CHANGE IN NET ASSETS NET ASSETS AT BEGINNING OF YEAR $ 2,706 5,000 7,706 4,187 3,519 55,158 NET ASSETS AT END OF YEAR $ =~58;;;,,6;;,;7~7= See accompanying notes to the basic financial statements

71 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the Governor Mifflin School District (the "School District") have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governrnental accounting and financial reporting principles. The School District also applies Financial Accounting Standards Board (FASB) statements and interpretations issued on or before November 30, 1989, to its governmental and business-type activities and to its Proprietary Fund provided they do not conflict with or contradict GASB pronouncements. The more significant of the School District's accounting policies are described below. Reporting Entity The School District is located in Berks County, Pennsylvania. The School District is comprised of three elementary schools, one intermediate school, one middle school and one high school. The accompanying basic financial statements comply with the provisions of GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, in that the financial statements include all organizations, activities and functions for which the School District is financially accountable. Financial accountability is defined as the appointment of a voting majority of a component unit's board and either (1) the School District's ability to impose its will over a component unit or (2) the possibility that the component unit will provide a financial benefit or impose a financial burden on the School District. This report presents the activities of the Governor Mifflin School District. The School District is not a component unit of another reporting entity nor does it have any component units. The tax collectors are elected officers who collect taxes on behalf of the boroughs and townships in the School District and for the School District. The School District regards the tax collectors' offices as separate entities and, therefore, does not account for their activity in the financial statements. Basis of Presentation and Accounting Government-Wide Financial Statements - The statement of net assets and the statement of activities display information about the School District as a whole. These statements include the financial activities of the primary government, except for Fiduciary Funds. The statements distinguish between those activities of the School District that are governmental and those that are considered business-type activities

72 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 The governrnent-wide statements are prepared using the econornic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the Proprietary Fund financial statements but differs from the manner in which Governmental Funds financial statements are prepared. Governmental Funds financial statements therefore include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for Governmental Funds. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the School District and for each function or program of the School District's governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues, which are not classified as program revenues, are presented as general revenues of the School District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the School District. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Fund Financial Statements - Fund financial statements report detailed information about the School District. The focus of Governmental and Proprietary Funds financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Fiduciary Funds are reported by fund type. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All Governmental Funds are accounted for using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School District considers revenues to be available if they are collected within 60 days of the end of the fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments are recorded only when payment is due. The financial statements for Governmental Funds are a balance sheet, which generally includes only current assets and current liabilities, and a statement of revenues, expenditures and changes in fund balances, which reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources

73 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 The Proprietary Fund Type is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of this fund are included on the statement of net assets. The statement of revenues, expenses and changes in net assets presents increases (i.e., revenues) and decreases (i.e., expenses) in net assets. The statement of cash flows provides information about how the School District finances and meets the cash flow needs of its proprietary activities. The Proprietary Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a Proprietary Fund's principal ongoing operations. The principal operating revenues of the School District's Enterprise Fund are charges to customers for sales and services. Operating expenses for the Enterprise Fund include cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Trust Funds are reported using the economic resources measurement focus. When both restricted and unrestricted resources are available for use, it is the School District's policy to use restricted resources first, then unrestricted resources as they are needed. Fund Accounting The School District uses funds to maintain its financial records during the fiscal year. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain School District functions or activities. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. The various funds of the School District are grouped into the categories govemmental, proprietary and fiduciary. Governmental Funds General Fund - The General Fund is used to account for all financial resources except those required to be accounted for in another fund. The General Fund balance is available for any purpose provided it is expended or transferred according to the general laws of Pennsylvania. Capital Project Fund - The Capital Project Fund accounts for financial resources related to general fixed asset acquisitions, construction and improvements. Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, long-term debt principal, interest and related costs

74 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 Proprietary Fund Food Service Fund - The Food Service Fund is used to account for operations (1) that are financed and operated in a manner similar to private business enterprises--where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges or (2) where the governing body has decided that periodic determination of revenues earned, expenses incurred and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Fiduciary Funds Trust and Agency Funds - Trust and Agency Funds are used to account for assets held by the School District in a trustee capacity or as an agent for individuals. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Budgets The Board of Directors annually adopts the budget for the General Fund on a basis consistent with accounting principles generally accepted in the United States of America. Budgetary control is legally maintained at the fund level. The Board of Directors also approves budgetary transfers to revise the adopted budget throughout the fiscal year. Cash and Cash Equivalents The School District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Investments Investments are valued at fair value. Short-Term Interfund Receivables/Payables During the course of operations, transactions may occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds" on the Governmental Funds balance sheet. Short-term interfund loans are classified as "interfund receivables/payables." These amounts are eliminated in the statement of net assets, except for amounts due between governmental and business-type activities, which, when present, are shown as internal balances. Inventories General Fund materials and supplies are expensed as purchased. Enterprise Fund materials and supplies are expensed as used, and year-end inventories are priced on a first-in, first-out cost basis

75 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 Capital Assets Capital assets, which include property, plant, equipment and construction in progress, are reported in the applicable governmental or business-type activities columns in the governmentwide financial statements. The School District defines a capital asset as an asset with an initial, individual cost equal to or greater than $2,500 (by purchase order). Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estirnated fair market value at the date of donation. The costs of norrnal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Property, plant and equipment of the School District are depreciated using the straight-line method over the following estimated useful lives: Years Land improvements Buildings and building improvements Machinery and equipment Software Deferred Revenue Deferred revenue arises when assets are recognized before the revenue recognition criteria have been satisfied. Such is the case in the General Fund, where deferred revenue has been established to offset real estate tax receivables. Deferred revenue also arises when resources are received by the School District before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when revenue recognition criteria are met or when the School District has a legal claim to the resources, the liability for deferred revenue is removed from the Governmental Funds balance sheet and revenue is recognized. Long-Term Obligations In the government-wide financial statements and Proprietary Fund Type in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or Proprietary Fund Type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, Governmental Funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as other financing uses

76 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 Compensated Absences It is the School District's policy to permit employees to accumulate earned but unused vacation. These benefits are accrued when incurred in the government-wide and Proprietary Fund financial statements. GASB Statement No. 45 The GASB has issued Statement No. 45, Accounting and Financial Reporting by Employers far Postemplayment Benefits Other Than Pensians, which addresses how state and local governments should account for and report their costs and obligations related to postemployment healthcare and other nonpension benefits. Collectively, these benefits are commonly referred to as other pastemployment benefits or OPEB. GASB Statement No. 45 generally requires that state and local governmental employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. The provisions of GASB Statement No. 45 may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation; however, the unfunded actuarial liability is required to be amortized over future periods. GASB Statement No. 45 is effective in three phases based on a government's total annual revenues. The School District implemented GASB Statement No. 45 during the fiscal year ended June 30, Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any borrowing used for the acquisition, construction, or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the School District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments

77 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 Fund Balance and GASB Statement No. 54 Beginning with the year ended June 30, 2011, the School District has implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on the School District's fund balances more transparent. The following classifications describe the relative strength of the spending constraints: Nonspendable - Amounts that cannot be spent either because they are not in spendable form or because of legal or contractual constraints. Restricted - Amounts that can be spent only for specific purposes stipulated by external resource providers or through enabling legislation. Committed - Amounts that are constrained for specific purposes that are internally imposed by the School District through formal action of the highest level of decision-making authority and do not lapse at year-end. Assigned - Amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Unassigned - Amounts not contained in other classifications. Beginning fund balances for the School District's Governmental Funds have been restated to reflect the above classifications. The Board of Directors establishes (and modifies or rescinds) fund balance commitments by passage of a motion. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a commitment of the fund. Assigned fund balance is intended to be used by the School District for specific purposes but does not meet the criteria to be classified as restricted or committed. The School District will typically use restricted fund balances first, followed by committed resources and then assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend unassigned resources first to defer the use of these other classified funds. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates

78 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 NOTE B CASH AND INVESTMENTS Custodial Credit Risk - Custodial credit risk is the risk that, in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. As of June 30, 2011, $5,433,554 of the School District's bank balance of $5,968,173 was exposed to custodial credit risk as follows: Uninsured and collateral held by pledging bank's trust department not in the School District's name $ 5,433,554 Checking and savings accounts are covered by federal depository insurance or collateralized on a pooled basis under the provisions of Act 72 of As of June 30, 2011, the School District's deposits were covered by federal depository insurance up to $250,000. Deposits of $5,433,554 in excess of the FDIC coverage limits were collateralized under the provisions of Act 720f1971. Interest Rate Risk - The School District's investment policy limits investment maturities in accordance with the Commonwealth of Pennsylvania School Code as a means of managing its exposure to fair value losses arising from increasing interest rates. Investments As of June 30, 2011, the School District had the following investments and maturities: Investment Maturities Less Than 1 to 5 More Than Investment Type Fair Value 1 Year Years 10 Years State investment pools $ 8,521,993 $ 8,521,993 $ $ U.S. Treasuries 21,320 21,320 Certificates of deposit 2,028,077 2,028,077 $ 10,571,390 $ 8,521,993 $ 2,028,077 $ 21,320 Credit Risk - State law permits the School District to invest funds in the following types of investments: Obligations of (1) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (2) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or (3) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision

79 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 The School District's investment policy does not further limit its investment choices. As of June 30, 2011, the School District's investment in the state investment pool was rated AAAm by Standard & Poor's. NOTEC TAXES - REAL ESTATE AND OTHER The School Board is authorized by state law to levy property taxes for School District operations, capital improvements and debt service. Property taxes are based on assessed ' valuations of real property within the School District. Taxes are levied on July 1 and payable in the following periods: Discount period... July 1 to August 31-2% of gross levy Face period... September 1 to October 31 Penalty period... October 31 to collection -10% of gross levy Lien date... January 15 Earned income taxes are assessed at 1/2 of 1 % of the taxpayer's earned income. School District taxes are billed and collected by the local elected tax collectors. NOTED ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2011, consisted of taxes, interest and intergovernmental grants and entitlements. All receivables are considered fully collectible due to the ability to lien property for the nonpayment of taxes, the stable condition of state programs and the current year guarantee of federal funds. A summary of accounts receivable by fund is as follows: General Food Fund Service Fund Totals Real estate taxes $ 1,055,837 $ $ 1,055,837 Intergovernmental 979,097 18, ,252 Other receivables 3,843 3,843 Interest receivable $ 2,035,309 $ 21,998 $ 2,057,

80 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 NOTE E INTERFUND TRANSFERS The composition of interfund transfers as of June 30, 2011, is as follows: Interfund Transfers Transfer In Debt Service Fund Capital Project Fund General Fund Transfer Out General Fund General Fund Food Service Fund Amount $ 5,876, ,000 15,000 $ 6,356,933 The School District typically transfers funds from the General Fund to the Debt Service Fund to pay for principal and interest due on outstanding bonds and notes payable. Additionally, the Board approves a transfer of excess fund balance above the subsequent year's budget from the General Fund to the Capital Project Fund

81 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 NOTE F CAPITAL ASSETS A summary of changes in capital assets is as follows: GOVERNMENTAL ACTIVITIES Capital assets not being depreciated Land Construction in progress TOTAL CAPITAL ASSETS NOT BEING DEPRECIATED Capital assets being depreciated Land improvements Buildings and building improvements Machinery and equipment TOTAL CAPITAL ASSETS BEING DEPRECIATED Accumulated depreciation Land improvements Buildings and building improvements Machinery and equipment TOTAL ACCUMULATED DEPRECIATION TOTAL CAPITAL ASSETS BEING DEPRECIATED, net GOVERNMENTAL ACTIVITIES CAPITAL ASSETS, net BUSINESS-TYPE ACTIVITIES Capital assets being depreciated Machinery and equipment Accumulated depreciation BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS, net CAPITAL ASSETS, net Balance July 1, 2010 $ 14,780,338 2,687,895 17,468,233 6,486,466 90,407,557 10,860, ,754,613 (4,670,260) (19,221,901 ) (7,409,805 ) (31,301,966) 76,452,647 93,920, ,750 (607,109) 264,641 $ 94,185,521 Balance Additions Deletions June 30, 2011 $ $ $ 14,780,338 (2,687,895) (2,687,895) 14,780, ,657 6,772,123 5,915,023 96,322, ,680 (254,244) 11,064,026 6,658,360 (254,244) 114,158,729 (937,774) (5,608,034) (2,844,431 ) (22,066,332) (625,839) 254,244 (7,781,400) (4,408,044) 254,244 (35,455,766) 2,250,316 78,702,963 2,250,316 (2,687,895) 93,483,301 26, ,099 (44,252) (651,361) (17,903) 246,738 $ 2,232,413 $ (2,687,895) $ 93,730,

82 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 NOTEG LONG-TERM LIABILITIES Long-term liability activity for the year ended June 30, 2011, was as follows: GENERAL OBLIGATION BONDS Series of 2003 Series A of 2006 Series of 2007 Series of 2008 Series of 2010 Series A of 2010 TOTAL GENERAL OBLIGATION BONDS COMPENSATED ABSENCES OTHER POSTEMPLOYMENT BENEFITS TOTAL LONG-TERM LIABILITIES Beginning Balance $ 7,830,000 29,355,000 14,970,000 14,375,000 8,405,000 74,935, , ,412 $ 75,830,611 Ending Due Within Additions Reductions Balance One Year $ $ (7,830,000) $ $ (5,000) 29,350,000 5,000 (15,000) 14,955,000 10,000 (330,000) 14,045, ,000 (85,000) 8,320,000 90,000 5,625,000 5,625,000 2,405,000 5,625,000 (8,265,000) 72,295,000 2,855,000 30, , , ,257 (175,003) 418,666 $ 5,963,527 $ (8,440,003) $ 73,354,135 $ 3,015,117 Annual debt service requirements to maturity for the general obligation bonds are as follows: Year Ending June 30, Principal Interest 2012 $ 2,855,000 $ 2,996, ,980,000 2,961, ,525,000 2,923, ,055,000 2,829, ,205,000 2,680, to ,540,000 10,914, to ,920,000 6,381, to ,215,000 1,382,036 $ 72,295,000 $ 33,069,

83 NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2011 General Obligation Bonds, Series of 2003 In June 2003, the General Obligation Bonds, Series of 2003, were issued in the amount of $19,180,000 for the purpose of advance refunding the Second Series of 1993 Bonds to pay the costs of certain capital improvement projects throughout the School District and to pay the issuance costs of the bonds. The principal portion refunded for the Second Series of 1993 Bonds was $16,545,000. Total bond issuance costs paid of $220,663 and premium on the bonds of $300,305 were amortized over the life of the bonds. In September 2010, the General Obligation Bonds, Series of 2010, were issued for the purpose of refunding the entire 2003 obligation. As such, the remaining net book value of the issuance costs of $64,707 and premium of $88,059 were combined with the associated issuance costs of the Series of 2010 Bonds and amortized over the life of the bonds. Current year amortization expense of the issue costs and premium was $4,977 and $6,774, respectively. General Obligation Bonds, Series A of 2006 On November 15, 2006, the School District issued General Obligation Bonds, Series A of The bonds were issued to refund the School District's General Obligation Variable Rate Demand Bonds, Series of 2006, and the payment of issuance costs. The original issue premium on issuance of the bonds of $1,277,876 is amortized over the life of the bonds. Current year amortization of the premium is $73,371. Bond issuance costs incurred of $278,088 are amortized over the life of the bonds. Current year amortization of the issuance costs is $15,967. The bonds mature through March 15, 2024, with interest which ranges from 3.70% to 5.00% charged at varying rates per year. General Obligation Variable Rate Demand Bonds, Series of 2007 On April 12,2007, the School District issued General Obligation Variable Rate Demand Bonds, Series of 2007, in the original issuance amount of $15,000,000. The bonds were issued for the purpose of design, acquisition, construction, installation, furnishing and equipping of alterations, renovations, additions and improvements to the existing facilities of the School District, the acquisition of land for use by the School District, additional capital projects of the School District to the extent approved by the Board of School Directors and the payment of issuance costs on the bonds. Issuance costs of the bonds of $177,472 are being amortized over the life of the bonds. Current year amortization of issuance costs is $8,874. Interest charged on the bonds at inception is based on a weekly rate mode as determined by the remarketing agent. This rate is defined as the lowest interest rate not in excess of the maximum rate of 12% that in the judgment of the remarketing agent would cause such bonds to have a market value equal to 100% of the principal amount thereof, plus accrued interest. The interest mode of the bonds may be converted to the term mode at the option of the School District, following which the bonds will bear interest at the term rate as determined by the remarketing agent. Such a conversion would result in the mandatory tender for purchase of the bonds as described in the agreement