$21,355,000 DOUGLAS COUNTY SCHOOL DISTRICT 0001 (OMAHA, NEBRASKA, PUBLIC SCHOOLS) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2014

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1 Refunding Issue-Book-Entry Only Official Statement Dated January 15,2014 Ratings: S&P: "AAA" Moody's: "Aal" In the opinion of Bond Counsel, under existing laws, regulations and court decisions and subject to the qualifications set forth herein under "TAX EXEMPTION," interest on the Bonds is not includable in gross income for purposes of regular federal and Nebraska state income taxation. Interest on the Bonds is not subject to the alternative minimum tax imposed on individuals under the Internal Revenue Code of1986, as amended (the "Code"), but is required to be included in the calculation of adjusted current earnings to be used in computing corporate alternative minimum taxable income. See the caption "TAXEXEMPTION" herein. $21,355,000 DOUGLAS COUNTY SCHOOL DISTRICT 0001 (OMAHA, NEBRASKA, PUBLIC SCHOOLS) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2014 Dated: Date of Delivery Due: December 15, as shown below The General Obligation Refunding Bonds, Series 2014 (the "Bonds") are issuable as fully registered bonds and, when initially issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry only form, in the principal amount of $5,000 or any integral multiple thereof, through brokers and dealers who are, or who act through, DTC participants. Beneficial owners of the Bonds will not receive physical delivery of bond certificates so long as DTC or a successor securities depository acts as the securities depository with respect to the Bonds. Interest is payable semiannually on June 15 arid December 15 of each year commencing June 15, So long as DTC or its nominee is the registered owner of the Bonds, payments of the principal or redemption price of and interest on the Bonds will be made directly to DTC. Disbursement of such payments to DTC participants is the responsibility of DTC and disbursement of such payments to the beneficial owners is the responsibility of DTC participants. See "THE BONDS-Global Book-Entry Bonds." U.S. Bank National Association, will act as paying agent and registrar for the Bonds. For terms relating to payments made to DTC or its nominee or in the event that the use of book-entry form is discontinued, see "THE BONDS." Maturity Schedule Maturity Principal Interest December IS. Amount Rate Price (%) 2014 $3,410, % % ,320, ,490, ,665, ,715, ,755, The Bonds are payable from ad valorem taxes, unlimited as to rate and amount, levied by the District against all taxable property in the District. The fall faith and credit of the District are pledged to the prompt payment of the principal of and interest on the Bonds. The Bonds are not subject to optional redemption prior to maturity. The proceeds of the Bonds will be used by the District to pay and redeem the District's outstanding General Obligation Refunding Bonds, Series 2003B, in the principal amount of $22,225,000 (the "Called Bonds"), as called for redemption on February 18,2014 (the "Redemption Date"). This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered in book-entry form, when, as and if issued and received by the Underwriter and subject to the approval of legality by Baird Holm LLP, Omaha, Nebraska, Bond Counsel and General Counsel for the District, and certain other conditions. It is expected that the Bonds will be available for delivery through The Depository Trust Company, in New York, New York, on or about February 18,2014. AMERITAS INVESTMENT CORP.

2 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement with respect to the Bonds, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been provided by the District and other sources which are believed to be reliable. Nothing contained in the Official Statement is, or shall be relied on, as a promise or representation by the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any offer or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date of this Official Statement. TABLE OF CONTENTS INTRODUCTION 1 THE BONDS, 1 SOURCES AND USES OF FUNDS 3 THE DISTRICT 3 DEBT SERVICE ON THE BONDS 4 CONTINUING DISCLOSURE UNDERTAKING 4 BONDHOLDERS' RISKS 4 NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION 5 TAX EXEMPTION 7 LITIGATION 9 LEGAL MATTERS. 9 UNDERWRITING 9 RATINGS...10 FINANCIAL STATEMENTS 10 MISCELLANEOUS 10 APPENDIX A - INFORMATION CONCERNING THE DISTRICT APPENDIX B - FINANCIAL STATEMENTS OF THE DISTRICT APPENDIX C - GLOBAL BOOK-ENTRY INFORMATION APPENDIX D - FORM OF CONTINUING DISCLOSURE UNDERTAKING SUCH SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS ANY DOCUMENT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN. EXAMINATIONS OF THE TERMS OF THE OFFERING. THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. i

3 OFFICIAL STATEMENT relating to $21,355,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2014 ISSUED BY DOUGLAS COUNTY SCHOOL DISTRICT 0001 (OMAHA, NEBRASKA, PUBLIC SCHOOLS) INTRODUCTION This Official Statement, including the cover page, is furnished in connection with the offering of $21,355,000 of General Obligation Refunding Bonds, Series 2014 (the "Bonds") of Douglas County School District 0001 (Omaha, Nebraska, Public Schools) as approved by the Board of Education of the District (the "Board") pursuant to a resolution adopted by the Board on November 4, 2013, and a Bond Purchase Agreement dated January 15, 2014 (together, the "Resolution"). The proceeds of the Bonds will be used by the District to pay and redeem the District's outstanding General Obligation Refunding Bonds, Series 2003B, maturing in the years 2014 through and including 2019 in the principal amount of $22,225,000 (the "Called Bonds"), as called for redemption on February 18,2014 (the "Redemption Date"). Forward Looking Statements. This Official Statement, including Appendix A, contains statements which should be considered "forward-looking statements," meaning they refer to possible future events or conditions. Such statements are generally identifiable by the words such as "plan," "expect," "estimate," "budget" or similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forwardlooking statements. The District does not expect or intend to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. This Official Statement speaks only as of its date. The information contained in this Official Statement is subject to change. The District has no obligation to update the information in this Official Statement, except as described under the heading "CONTINUING DISCLOSURE UNDERTAKING" and as may be provided for in the Bond Purchase Agreement for the sale of the Bonds. The purpose of this Official Statement is to supply information to prospective purchasers of the Bonds. Summaries and explanations of the Bonds, the Resolution and the statutes and other documents described herein do not purport to be complete and reference should be made to such sources for the complete provisions. Terms THE BONDS The Bonds will bear an original issue date of the date of delivery, will bear interest at the rates and mature in the amounts and on the dates set forth on the cover page of this Official Statement. Payment of Principal and Interest; Denominations The principal of the Bonds due at maturity is payable upon presentation and surrender of the Bonds to U.S. Bank National Association, as the Paying Agent and Registrar (the "Registrar") at the designated corporate trust office of the Registrar in St. Paul, Minnesota. The interest on the Bonds is payable on June 15 and December 15 of each year, beginning on June 15, 2014, by check or draft mailed (or by wire transfer in the case of Cede & Co. as nominee for DTC) by the Registrar directly to the persons who are the registered owners as of the close of business on the last business day of the month immediately preceding the month in which each respective interest payment date occurs. The Bonds are issuable as fully registered bonds in the denomination of $5,000 or any integral multiple thereof and are transferable as provided in the Resolution. 1

4 Global Book-Entry Bonds The Bonds will be available to the ultimate purchasers in global book-entry form only, in the principal amount of $5,000 or integral multiples thereof. Purchasers of the Bonds will not receive certificates representing their interests in the Bonds purchased, except as described below and in Appendix C. The description set forth in Appendix C of the procedures and record-keeping with respect to beneficial ownership interests in the Bonds, payment of interest and other payments on the Bonds to Participants (as defined in Appendix C) or Beneficial Owners (as defined in Appendix C) of the Bonds, confirmation and transfer of beneficial ownership interests in the Bonds and other related transactions by and between DTC, Participants and Beneficial Owners of the Bonds, is based solely on information furnished by DTC to the District for inclusion in this Official Statement. Accordingly, the District, the Registrar and the Underwriter do not make any representations concerning these matters, and the Beneficial Owners of the Bonds should not rely on the information set forth in Appendix C with respect to such matters, but should instead confirm the same with the Participants from whom they purchased the Bonds. The District and the Registrar will not have any responsibility or obligation to Participants, to Indirect Participants (as defined in Appendix C) or to any Beneficial Owner with respect to (i) the accuracy of any records maintained by DTC, any Direct Participant (as defined in Appendix C) or any Indirect Participant; (ii) the payment by DTC or any Direct Participant or Indirect Participant of any amount with respect to the principal or redemption price of or interest on the Bonds; (iii) any notice which is permitted or required to be given to bondholders under the Resolution; (iv) the selection by DTC or any Direct or Indirect Participant of any person to receive payment in the event of a partial redemption of the Bonds; or (v) any consent given or other action taken by DTC as registered owner of the Bonds. The information set forth in Appendix C has been provided by DTC. No representation is made by the District, the Registrar or the Underwriter as to the accuracy or adequacy of such information provided by DTC or as to the absence of material adverse changes in such information subsequent to the date hereof. The Beneficial Owners of the Bonds will rely on DTC Participants or Indirect Participants for timely payments and other notices and for otherwise making available to the Beneficial Owners the rights of a bondholder. No assurances can be given, in the event of the bankruptcy or insolvency of DTC or the Direct Participant or Indirect Participant through which a Beneficial Owner holds beneficial interest in the Bonds, that payment will be made by DTC, the Direct Participant or the Indirect Participant on a timely basis. Notice to Bondholders Notice of any proposed modification or amendment of the Resolution by means of a supplemental resolution that is to be effective with the consent of the registered owners of the Bonds as well as all notices of redemption, if any, will be mailed or otherwise sent to DTC, as the registered owner of the Bonds then outstanding. No assurance can be given by the District or the Registrar that DTC will distribute to the Participants, or that the Participants will distribute to the Beneficial Owners, (i) payment of debt service on the Bonds paid to DTC, or its nominee, as the registered owner, or (ii) any redemption or other notices, or that DTC or the Participants will serve and act on a timely basis or in the manner described in this Official Statement. Optional Redemption The Bonds are not subject to optional redemption prior to maturity. Purpose and Authority The proceeds of the Bonds will be used to pay and redeem the Called Bonds including principal of and interest on such issue. The Called Bonds were issued for the purpose of refunding certain bonds which were issued to provide funds to build new school buildings, construct additions and improvements for existing buildings of the District, and to provide furniture and apparatus for such new and existing school buildings. The Called Bonds have been called for redemption on the Redemption Date, and the proceeds of the Bonds will be delivered to U.S. Bank National Association, as paying agent and registrar for the Called Bonds to be applied to the payment thereof a as called for redemption on the Redemption Date. 2

5 Security The Bonds are the general obligations of the District. As such, they are payable from ad valorem taxes, unlimited by law as to rate and amount, levied against all taxable property in the District, sufficient to pay the interest on and principal of the Bonds as the same become due. The full faith and credit of the District have been pledged to the prompt payment of the principal of and interest on the Bonds. Transfer of Bonds The Bonds are transferable upon presentation for cancellation to the Registrar at its designated corporate trust office, initially its trust office in St. Paul, Minnesota. To be transferred, any Bonds must be accompanied by a written instrument of transfer in form satisfactory to the Registrar and must be accompanied by such signature guaranties and other evidence as the Registrar may require. Upon surrender of any Bond in proper form, the Registrar will deliver at its office or send by registered mail to the transferee owner or owners at such transferee owner's or owners' risk and expense, a new Bond or Bonds of the same maturity, interest rate and aggregate principal amount registered in the name of the transferee owner or owners. To the extent of the denominations permitted by the Resolution, one Bond may be transferred for several Bonds of a like maturity, interest rate and aggregate principal amount and several Bonds may be transferred for one or several Bonds, respectively, of the same maturity, interest rate and aggregate principal amount. Transfer of interests by Beneficial Owners, so long as there is a securities depository serving will be governed by the procedures described under "THE BONDS - Global Book-Entry Bonds" and as described in Appendix C. Source s: Uses: SOURCES AND USES OF FUNDS Bond Proceeds: $21,355, Aggregate Original Issue Premium: 1,042, Transfer from Debt Service Funds of District: 185, Total Source s: $ Redemption of2003b Bonds: $22,419, Underwriter's discount: 106, Estimated Costs of Issuance (Including Bond Counsel and Rating Agency Fees): 56, Total Use s: $ THE DISTRICT The District is organized as a Class V School District under Sections and , R.R.S. Neb. 2008, and is the largest school district in Nebraska. The District covers 134 square miles and serves over sixteen percent of Nebraska's public school students. For detailed information concerning the District, see Appendix A. 3

6 DEBT SERVICE ON THE BONDS The following table shows the debt service on the Bonds, based upon the maturity schedule and interest rates shown on the cover page of this Official Statement. Fiscal Year ("Ending August 31") Princi pal Interest Total Debt Service 2014 $-0- $182, $182, ,410, , ,953, ,320, , ,763, ,490, , ,763, ,665, , ,823, ,715, , ,817, Totals $ $ $ The debt service on the Bonds will replace the scheduled debt service on the Called Bonds and result in a lower overall debt service for such indebtedness, as shown above and in Appendix A - TOTAL DEBT SERVICE REQUIRED ON BONDED DEBT OF THE DISTRICT. Undertaking CONTINUING DISCLOSURE UNDERTAKING In accordance with the requirements of Rule 15c2-12 (the "Rule") under the Securities Exchange Act of 1934, as amended, the District has agreed in the Resolution to provide the continuing disclosure information as set forth in Appendix D to this Official Statement. Compliance with Prior Continuing Disclosure Undertakings The District has complied in each of the past five fiscal years with the continuing disclosure requirements related to its outstanding bonded indebtedness. BONDHOLDERS' RISKS Prospective investors should carefully consider the risk factors set forth below and the other information included in this Official Statement. The risks described below are not the only risks that the District faces and the following discussion of risk factors is not, and is not intended to be, exhaustive. Additional risks and uncertainties not currently known to the District or that it currently believes are immaterial may also impair its operations. Any of these risks may have a material adverse effect on the District's financial condition. In such a case, bondholders may lose all or part of their investment in the Bonds. 1. Limitation of Rights Upon Insolvenc y. The United States Bankruptcy Code enables debtors, including school districts, which are insolvent to obtain relief through petition and plan which may result in the modification or delay of payments to creditors, including bondholders. In the event of any insolvency upon the part of the District, the holders of the Bonds would be treated as general creditors of the District along with other unsecured claimants. The extent to which the exception from limitations upon overall tax rates provided for in existing legislation, including the Tax Limitations and the Budget Limitations (see "NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION"), might entitle bondholders to be treated as a separate class or otherwise given priority over other unsecured claimants is a matter that would be subject to future determinations of Nebraska state and federal courts interpreting and applying both state law and the United States Bankruptcy Code. Procedures under the Bankruptcy Code or other insolvency laws could result in delays in payment and modifications of payment rights. The State of Nebraska has authorized its political subdivisions to seek relief under the United States Bankruptcy Code by statute. 4

7 2. Nebraska Developments Related to Budgets and Taxatio n. The Nebraska Legislature has taken actions designed to reduce the reliance of local governmental units on property taxation. For a discussion of such changes, see "NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION." 3. Economic Downturn/Decreased Nebraska State Tax Revenue s. The State of Nebraska, like many other states, has experienced decreased collections of revenues as a result of the impact of general economic conditions on enterprises in Nebraska. In response, the Nebraska Legislature passed legislation which eliminates or reduces state aid to certain political subdivisions, including counties and cities, and legislation which may reduce state aid to school districts. Further reductions in state expenditures affecting political subdivisions generally are likely to be considered from time to time as a result of economic conditions or in connection with tax cuts, such as those proposed by the Governor in Legislation affecting the taxing powers of political subdivisions, particularly with respect to occupation taxes, is also under consideration. The recent economic downturn also impacted sales tax receipts and may have a delayed impact on determinations of valuations for local property taxes. See "NEBRASKA DEVELOPMENTS RELATING TO BUDGETS AND TAXATION - State Aid Limitations" herein. 4. Recovery Act Funds No Longer Availabl e. During the and school years, certain funds were made available to the District as a result of the American Recovery and Reinvestment Act of 2009 (the "Recovery Act"); however funds under the Recovery Act are not available for the current year and are not expected to be available for future years. See "NEBRASKA DEVELOPMENTS RELATING TO BUDGETS AND TAXATION - State Aid Limitations" herein. 5. Proposed Tax n. Legislatio President Obama has released legislative and budget proposals that would, among other things, subject interest on tax-exempt bonds (including the Bonds and other tax-exempt obligations of the District) to a federal income tax for taxpayers with incomes above certain thresholds. Additional proposals affecting tax-exempt interest may be considered from time to time which could limit the availability of or eliminate federally tax-exempt interest on tax-exempt bonds, particularly including the President's fiscal 2014 budget proposal which would limit to 28 percent the benefit of certain tax preferences, including tax-exempt interest. It is not possible to predict whether President Obama's, or another proposal with similar effects, will be adopted or enacted into law. If enacted into law, suchta proposal could adversely affect the Bonds as well as the ability of the District to finance and/or refinance projects on favorable tax-exempt terms. NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION The District's principal sources of revenue, for its general fund are local property taxes as levied by the District, allocations from the Learning Community (derived by the Learning Community from local property taxes), State aid and, for certain prior fiscal years (but not the current fiscal year or any future years), amounts received under the Recovery Act. The State aid formula has been revised several times in recent years. A variety of factors including taxable valuations and per student costs and unique student needs are used to determine State aid. Budget limitations are discussed below. The Nebraska Legislature has enacted legislation intended to reduce the level of property taxation and political subdivision expenditures in the State. Such legislation provides for budget limitations and places limits on the rate of taxation for general property taxes. Budget limitations relating to school districts (Section and related sections, the "Budget Limitations") limit the growth in general fund expenditures for school districts. Tax levy limitations (Section as amended, and related sections, the "Levy Limitations") provide for an overall limitation on the tax levies of school districts and other political subdivisions. The Budget Limitations, because they apply only to general fund expenditures, do not limit budgeting of expenditures for debt service on bonded debt, nor do they limit building fund and certain other special fund expenditures. The Levy Limitations provide for an express exclusion from the limitations for property tax levies for bonded indebtedness. Budget Limitation s. The Budget Limitations are subject to review and revision by the Nebraska Legislature. Over the past several legislative sessions, the Budget Limitations have been significantly revised and they are likely to be further revised in future legislative sessions. Under the current requirements, on or before March 1 of each year, the Nebraska Department of Education must determine and certify to each school district the budget authority of each school district for the general fund budget 5

8 of expenditures for the following fiscal year. Certain items are excluded from the calculation, including certain expenditures for which the District is permitted by statute to exceed limitations, expenditures for which voters have approved exceeding the limitations and expenditures in certain cases in which the District has elected to cany forward unused budget authority. The Nebraska Department of Education follows the statutory formula in Section to determine the budget authority of each school district. The formula takes into account various factors, including (i) formula need (as provided for in Section ), (ii) student growth adjustment (as provided for in Section ), (iii) basic allowable growth rate (which is the base limitation provided for in Section ; currently set at 1.5% for , and 2.5% thereafter) and (iv) special education budget of expenditures. Lew Limitation s. Under the Levy Limitations the rates for levying property taxes have been reduced for each type of governmental unit in the State of Nebraska. The rate for school districts generally is set at no more than $1.05 per one hundred dollars ($100) of taxable value. The levy permitted for the District is, however, subject to the special provisions applicable to the District as a member of a learning community, as described under the subcaption "Learning Community". Property tax levies to pay bonded debt are not included in such limitations. Because the Bonds are the general obligations of the District payable from the special property tax levy authorized by law, neither the tax levy nor the corresponding expenditures to pay debt service on the Bonds are subject to the Budget Limitations or the Levy Limitations. State Aid Limitations State aid is funded through the collection of statewide sales and income taxes. Legislative enactments in recent years have both increased and decreased the amounts of funds available for State aid to school districts, as well as established and revised procedures and formulae for the distribution of State aid to school districts. The State of Nebraska, like many other states, has experienced decreased collections of revenues as general economic conditions have impacted the State. Such decreased collections have resulted in lower forecasts of revenues for budgeting purposes. State aid amounts may also be subject to legislative changes in the relevant statutes as to methods of allocation. Future general state aid payments may also be reduced or increased based upon a variety of factors set forth in the statutes currently governing such aid and the Legislature's ability and willingness to make appropriations for school districts. For the current fiscal year, the District expects to receive a total of $182,532,302 in Total Certified State Aid in , which is an increase of $16,461,749 from the State aid of $166,070,553 budgeted for the prior fiscal year. Methods for providing for financing cities, schools and other local units in the future may depend upon actions by the Nebraska Legislature, initiative proposals by voters and decisions of the Nebraska Supreme Court and Federal courts. Learning Community The Nebraska Legislature enacted legislation (consisting principally of LB 1024 in 2006, LB 641 in 2007 and LB 988 and LB 1154 in 2008, referred to in combination and after taking into consideration changes made by such later bills and by LB 545 and LB 549 as enacted in 2009, as the "Douglas/Sarpy School Legislation"). This legislation has been enacted to resolve certain controversies related to school funding, student transfer policies, provisions for education of lower income students, differences in socio-economic diversity and territorial claims and disputes among various school districts located in Douglas and Sarpy Counties. The Douglas/Sarpy School Legislation created a "Learning Community" composed of all school districts located within Douglas County (the county in which the City of Omaha is located and in which most of the District's territory is located) and Sarpy County (the county lying immediately to the south of Douglas County), including the District. The Learning Community is a single property tax levying body and political subdivision for general fund levying purposes, and has additional powers to provide better funding for education for certain students requiring higher allocation of resources. The Learning Community has taxing authority for the eleven school districts within Douglas and Sarpy Counties, supporting a substantial portion of their general funds and certain capital funds. In Sarpy Cty. Farm Bureau v. Learning Community, 283 Neb. 212, 808 N.W.2d 598 (2012), the Nebraska Supreme Court upheld the validity of the Douglas/Sarpy School Legislation under the Constitution of the State of Nebraska. 6

9 The Learning Community came into being in January 2009, following election of the 18 voting members of its governing body. Twelve members were elected from six voting districts at the general election in November Six additional members from each of the six voting districts were elected by the boards of education having territoiy within such districts. Each such board-elected representative must be a member of one or another of the electing boards of education and must reside in that voting district. Non-voting members may be appointed to represent school districts not represented by voting members of the governing body of the Learning Community. The governing body of the Learning Community is charged with responsibility for (i) allocating general fond, special building fund and special project fond tax receipts among the member school districts, (ii) coordinating integration and diversity programs, (iii) developing reorganization plans for member school districts, (iv) coordinating the development of focus schools within the Learning Community and (v) providing certain other coordinating services for each of its member school districts. The Learning Community may levy a maximum levy up to 950 per $100 of taxable valuation (and in addition, may also levy up to 20 for special building fond purposes). In addition to any legislative and/or voter approved levy exclusions, each school district within the Learning Community may make a levy of up to $1.05 per $100 of taxable valuation, reduced by the levy rate or rates for the Learning Community for general fond and special building fund purposes (the "Differential Levy")., The Differential Levy (as the general fond levy rate over which the District's Board of Education is to have control as to the levy rate) can thus be expected to be 100 per $100 of valuation. Tax receipts attributable to the Learning Community's general fond levy are to be distributed in accordance with each district's proportionate "formula need" as determined under statutes governing distribution of state aid after taking into consideration state aid as certified to be received and certain other receipts. The Douglas/Sarpy School Legislation has added to the factors used in determining "formula need" considerations relating to focus schools, English proficiency and poverty. Amounts from the Learning Community's special building fond levy are to be distributed based upon "formula students" (an attendance statistic based upon the fall membership for the immediately preceding school year subject to certain adjustments). In addition, the Learning Community may levy up to 50 per $100 of taxable valuation for remodeling leased elementaiy learning facilities and up to 150 per $100 of taxable valuation for elementaiy learning center employees, for contracts with other entities or individuals who are not employees of the learning community, for elementary learning center programs and services, and for pilot projects. The Learning Community levy proceeds from the 950 levy are allocated to each school district based upon each district's proportionate share of "formula need," as determined by the state aid formula, as compared to the sum of the formula need for all districts in the Learning Community. The District anticipates that the proceeds from the Learning Community general fond levy allocated to the District will be $227,286,078 for the budget year. The proceeds from the Learning Community's levy of up to 20 per $100 of taxable valuation for the special building fund are distributed on a proportionate share of "formula students" as determined by the state aid formula, as compared to the total formula students in the Learning Community. The District anticipates that the proceeds to be received by the District from the Learning Community special building fond levy will be $-0- for the budget year. As member districts and the Nebraska Legislature experience the effects of the Learning Community and the Douglas/Sarpy School Legislation, further modifications of the Douglas/Sarpy School Legislation are possible. No predictions can be made concerning the enactment of any such proposed legislation or its impact on the District. The actual operational effect of the Douglas/Sarpy School Legislation (and any amendments or modifications thereto) may differ materially from any currently anticipated or projected effects. TAX EXEMPTION Under the Internal Revenue Code of 1986, as amended (the "Code") interest on the Bonds will not be includable in gross income for purposes of determining federal income taxes. Certain features of the Code with respect to interest on the Bonds are described in the following paragraphs. Prospective investors should consult with their tax advisors concerning the tax consequences of investing in the Bonds. 1. The Bonds are not Private Activity s. Bond The Bonds are being issued for essential governmental purposes and will not be "private activity bonds" as described in the Code. In connection with the issuance of the Bonds, the District will certify that none of the proceeds of the Bonds will be used to acquire property for which any persons will be a user other than as a member of the general public under the terms of the Code. The District will also certify that none of the proceeds of the Bonds will be used to make or finance loans to any person. Because the Bonds will not be 7

10 "private activity bonds", as described in the Code, they will not be subject to the alternative minimum tax for individuals or corporations. For corporations, interest on tax-exempt bonds may be subject to the additional minimum tax on "adjusted current earnings", which is described below. 2. The Bonds will not be Arbitrage Bonds under the Terms of the Cod e. In connection with the issuance of the Bonds, the District will certify certain of its expectations and anticipations with respect to the Bonds. Under certain circumstances, failure to pay rebates on a timely basis can result in a retroactive loss of tax-exempt status for bonds. Although the Code provides that the determination of whether or not a bond is an arbitrage bond is to be based upon reasonable expectations at the time of issuance, it also contains language which indicates that a bond is to be treated as an arbitrage bond "if the issuer intentionally uses any portion of the proceeds of the issue" to acquire higher yielding investments or replace funds which were used directly or indirectly to acquire such higher yielding investments. The Resolution will include a covenant on the part of the District to take all actions necessary to preserve the tax-exempt status of interest on the Bonds under the Code. 3. Tax Consequences for Tax-Exempt Interest Income Under Certain Other Provisions of Federal Tax Law s. Under the Code, while interest on the Bonds is exempt as to taxpayers generally, such income may be taken into consideration for purposes of computing certain other taxes imposed. Investors with social security or railroad retirement income may have a tax imposed upon such social security or railroad retirement income depending upon whether or not they have received tax-exempt income such as interest on the Bonds. Corporations subject to the additional minimum tax on "adjusted current earnings" will be required to pay taxes on a portion of the interest income which is attributable to the Bonds. Such corporate income may also be subject to additional tax such as the environmental tax imposed by Section 59 A of the Code (no longer in effect for current tax years). Casualty and insurance companies will be required to take into consideration tax-exempt interest income in determining losses for certain purposes. Foreign corporations may be required to take into account interest on the Bonds in computing the branch profits tax under Section 884 of the Code. Certain S Corporations may also be required to take interest on the Bonds into consideration for certain federal income tax purposes. Taxpayers with social security income or railroad retirement income, corporations subject to the additional minimum tax on "adjusted current earnings," casualty and insurance companies, foreign corporations and S Corporations should consult with their own tax advisors concerning the consequences of investment in the Bonds. 4. Financial Institutions - Deductibility of Attributable t. Interes Under the Code, financial institutions are not allowed to deduct any portion of the interest expense allocable to the acquisition or carrying of certain tax-exempt bonds acquired after August 7, 1986, unless such bonds have been designated by the issuer as "qualified tax-exempt obligations" under the provisions of Section 265 of the Code. Financial institutions considering a purchase of the Bonds are advised that the Bonds have not been and cannot be so designated because of the size of the issue. 5. Changes in Federal and State Tax La w. From time to time, there are legislative proposals in Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds or the market value thereof would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. See "BONDHOLDERS' RISKS - Proposed Tax Legislation" herein. Prospective purchasers should consult their own advisors with respect to state and local tax consequences of owning the Bonds. 6. Treatment of Original Issue Premiu m. The initial public offering price for certain of the Bonds is more than the principal amount payable at maturity (the "Premium Bonds"). Under the Code, the difference between the principal amount of a Premium Bond and the cost basis of such Premium Bond to an owner thereof is "bond premium." Under the Code, bond premium is amortized over the term of a Premium Bond (i.e., the maturity date of a Premium Bond or its earlier call date) for federal income tax purposes. An owner of a Premium Bond is required to decrease his or her basis in such Premium Bond by the amount of the amortizable bond premium attfibutable to each taxable year (or portion thereof) he or she owns such Premium Bond. The amount of the amortizable bond premium attributable to each tax year is determined on an actuarial basis at a constant interest rate determined with respect to the yield on a Premium Bond compounded on each interest payment date. The amortizable bond premium attributable to a taxable year is not 8

11 deductible for federal income tax purposes. Owners of Premium Bonds (including purchasers of Premium Bonds in the secondary market) should consult their own tax advisors with respect to the precise determination for federal income tax purposes of the treatment of bond premium upon sale, redemption or other disposition of Premium Bonds and with respect to the state and local consequences of owning and disposing of Premium Bonds. LITIGATION There is not now pending any litigation restraining or enjoining the issuance and delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization or existence of the District, nor the title of the members of the Board or other officers of the District to their respective offices is being contested or questioned. There is no litigation pending which in any manner questions the right of the District to pass the Resolution. In connection with the closing of the sale of the Bonds, the District will provide a closing certification that no such litigation is pending or, to the best of its knowledge, threatened, which would affect or question the validity of the Bonds. LEGAL MATTERS All legal matters incidental to the authorization, issuance, sale and validity of the Bonds are subject to the approval of Baird Holm LLP, Omaha, Nebraska, Bond Counsel and General Counsel to the District. Such firm serves as counsel to the Underwriter on transactions unrelated to the Bonds. UNDERWRITING Ameritas Investment Corp., as underwriter (the "Underwriter") has agreed to purchase the Bonds from the District at the price of $22,290, (which amount takes into consideration aggregate Underwriter' discount in the amount of $106, and aggregate original issue premium of $1,042,693.80, plus accrued interest, if any. Ameritas Investment Corp. previously acted as financial advisor to the District but no longer serves in such capacity. In connection with the sale of the Bonds, Ameritas Investment Corp. serves as underwriter for the Bonds. The Underwriter must take and pay for all of the Bonds, if any are purchased. The Underwriter is purchasing the Bonds from the District for resale in the ordinaiy course of business activities. The public offering prices for the Bonds may be changed from time to time. The Underwriter may offer and sell the Bonds to certain dealers at prices lower than the public offering prices. 9

12 RATINGS The Bonds have received the ratings of "Aal" from Moody's Investors Service and "AAA" from Standard & Poor's Ratings Services. Each rating agency generally bases its ratings on its own investigations, studies and assumptions. The District has provided certain additional information and materials to each rating agency (some of which does not appear in this Official Statement). The ratings reflect only the views of each rating agency, and any explanation of the significance of such ratings may be obtained only from the respective rating agencies. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the respective rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds. The District undertakes no responsibility to oppose any such downward revision, suspension or withdrawal. FINANCIAL STATEMENTS The financial statements of the District included in Appendix B to this Official Statement have been audited by Seim Johnson, LLP, of Omaha, Nebraska, independent certified public accountants, to the extent and for the periods indicated in their report thereon. Such financial statements have been included in reliance upon the report of Seim Johnson, LLP. MISCELLANEOUS All estimates and assumptions herein have been made on the basis of 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. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. DOUGLAS COUNTY SCHOOL DISTRICT 0001 (OMAHA, NEBRASKA, PUBLIC SCHOOLS) 10

13 APPENDIX A - INFORMATION CONCERNING THE DISTRICT DOUGLAS COUNTY SCHOOL DISTRICT 0001 (OMAHA, NEBRASKA, PUBLIC SCHOOLS) SCHOOL DISTRICT OFFICIALS Board of Education Justin T. Wayne, President LouAnn Goding, Vice President Marian Fey Lacey Merica Matt Scanlan Marque A. Snow Katie Underwood Anthony Vargas Yolanda R. Williams Superintendent of Schools Mark A. Evans Administrative and Legal Staff Dr. Dennis L. Pool, Assistant Superintendent, General Administration Megan Neiles-Brasch, Chief Negotiator/In-house Legal Counsel for the District Professional Services Seim Johnson, LLP, Certified Public Accountants Baird Holm LLP, Bond Counsel and General Counsel for the District A-1

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15 THE DISTRICT The District is organized as a Class V School District under Sections and R.R.S. Neb. 2008, and is the largest school district in Nebraska. The District covers 134 square miles and serves over sixteen percent of Nebraska's public school students and approximately 38 percent of the minority students within the State. The District operates a Career Center, seven senior high schools, eleven middle schools and sixty-two elementary schools with a total enrollment of approximately 51,070 students. Total enrollments have grown over the past five years and enrollment projections anticipate a slight growth in enrollment. The District employs approximately 3,863 full-time instructional staff members and is accredited by the Nebraska Department of Education with a rating of AA, the highest rating given. The District's secondary schools are accredited by the North Central Association of Colleges and Schools. The District is governed by a nine person Board of Education, whose members are elected by district. The District employs a Superintendent of Schools who acts as the Secretary of the Board of Education and also as the Treasurer of the District. Mark A. Evans has served as superintendent since July Capital Improvements/Site and Building Fund/Section 79-10,110 The District has provided for a variety of new facilities and renovations in recent years. In 1999, the voters of the District approved the issuance of $253,885,000 of general obligation bonds to pay the costs of constructing additional school facilities and the renovation of existing facilities. The Called Bonds represent an issue which refunded a portion of such voted bonds. The District undertook construction of three new elementary schools and one new middle school and the renovation and improvement of 21 existing schools using the proceeds of such voted bonds. In addition, the District has in recent years provided for a variety of improvements and new facilities from its site and building fund, previously authorized under the terms of Section 79-10,126, R.R.S. Neb ("Section 79-10,126") and currently authorized under the terms of Section 79-10,126.01, R.R.S. Neb ("Section 79-10,126.01"). Section 79-10,126 authorized a site and building fund tax levy of not to exceed 140 on each $100 of taxable valuation. The levies made under this authorization through the fiscal year are reflected in the table "HISTORICAL TAX LEVIES" herein. Section 79-10, currently authorizes a site and building fund levy which may be funded from certain distributions from the Learning Community and from any tax levy amounts which the District determines to make from its Differential Levy (see, "NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION-Learning Community" in main body of this official statement). For the fiscal year, this building fund levy has been set at $0,000 per $100 of taxable valuation. The District does not expect to receive any amounts for its building fund from amounts allocated from a building fund levy permitted to be made (but chosen not to be made) by the Learning Community. Accumulated amounts in the District's site and building fund are to be used to pay for future planned capital improvements and to meet capital improvement contingencies arising from time to time. At the end of the Fiscal year, the District had approximately $34,069, accumulated in its site and building fund. For the fiscal years , and , the District expects to apply amounts available from bonds issued under Section 79-10,110, R.R.S. Neb. 2008, as amended ("Section "79-10,110") to pay for capital construction and improvement needs. In 2009, the Nebraska Legislature amended the terms of Section 79-10,110 to permit the issuance of bonds payable from limited taxes for certain capital construction projects in response to the American Recovery and Reinvestment Act of 2009 (the "Recovery Act") permitting the issuance of "build America bonds" ("BABs") and "qualified school construction bonds" ("QSCBs") with certain special standing under federal tax law. The authorization for such financing with BABs and QSCBs under Section 79-10,110 extended only for calendar years 2009 and The Nebraska Legislature further amended the terms of Section 79-10,110 to permit the issuance of QSCBs authorized by the Hiring Incentives to Restore Employment Act (the "HIRE Act") from and after the year Pursuant to the Recovery Act, the District has issued its Qualified School Construction Bonds (Tax Credit Bonds), Series 2009A, Limited Tax Payment Source Taxable Interest, in the principal amount of $17,375,000; Build America Bonds (Taxable Interest Direct Pay), Series 2009B, Limited Tax Payment Source, in the principal amount of $22,070,000; Limited Tax Obligation Qualified School Construction Bonds (Taxable Interest Direct Pay), Series 201 OA, in the principal amount of $18,920,000; and Limited Tax Obligation Build America Bonds (Taxable Interest Direct Pay), Series 2010B, in the principal amount of $5,050,000, all as more fully described herein (collectively, the "Recovery Act Bonds"). The proceeds of the Recovery Act Bonds have been and will be used to fund a variety of school buildings A-2

16 and improvements. The Recovery Act Bonds are payable from a limited tax which may not exceed in the aggregate 5.2j on each $ 100 of taxable valuation. Capital Improvement Plan In April, 2013 the Board of Education approved the services to conduct an assessment of the District's facilities for the development of a 2014 Facility Plan. The 2014 Facility Plan will be prepared by the District's administrative staff and serves as a guide for the Board of Education in determining capital expenditures. The Facility Plan will assess the adequacy of each elementary school, middle school and senior high school to deliver current and future anticipated programs and services. The Facility Plan will identify costs for improvements and additions to schools along with needs and requirements for constructing new schools. From the Facility Plan, the Board of Education determines specific projects to be constructed from time to time. Both the new Gateway Elementary school at 42nd and V Streets and the new Davis Middle school at 132nd and State Streets were selected by the Board from the 2009 Facility Plan. These and other projects are being funded by the Recovery Act Bonds. The Board expects to review and set objectives from the 2014 Facility Plan and its available funding sources. Submission of a bond issue to a vote by voters of the District may be considered, to the extent that amounts to be received for the Special Building Fund, from the Learning Community Levy and the Differential Levy are inadequate for anticipated funding of current and future capital needs. Additional Capital Spending Requirements - Existing Leases The District has obtained lease-purchase financing for certain equipment needs, principally transportation and computer equipment, in recent years through lease-purchase agreements with Omaha Education Services Agency (the "Agency"). See "OUTSTANDING INDEBTEDNESS OF THE DISTRICT Outstanding Lease-Purchase Financing". During the school year, the School District is planning on purchasing approximately $150,000 of transportation equipment funded from cash in the Depreciation Fund. The District anticipates continued lease-purchase financing for transportation purposes and other equipment needs depending upon the future effects of budget and tax levy limitations. Transportation equipment acquisitions relating to replacement of vehicles are expected to be in excess of $1,500,000 per year for the foreseeable future. Such requirements may or may not be met by additional equipment financings. In addition, the District has entered into certain other capital leases. As of August 31, 2013, the total outstanding principal obligation on such capital leases was approximately $385,000. A-3

17 General Obligation Bonds OUTSTANDING INDEBTEDNESS OF THE DISTRICT General obligation bonds may be issued by a Nebraska school district only after approval by a majority of the district's voters. Refunding bonds may be issued without voter approval. The District is a Class V school district under Nebraska laws and as such has no legal limit on the amount of bonded indebtedness that it may incur. Outstanding General Obligation Bonds Upon issuance of the Bonds, the District will have outstanding three separate series of general obligation bonds for which initial voter approval was obtained either on November 8,1988 or on May 11,1999: Designation of Issue Principal Amount Outstanding General Obligation Refunding Bonds, Series 2010 $ 80,965,000 General Obligation Refunding Bonds, Series 2012 $ 83,875,000 General Obligation Refunding Bonds, Series 2014 $ 21,355,000 Total Outstanding General Obligation Bonds $ The District, with voter approval, may issue additional general obligation bonds as noted above. Based on the District's current capital plans, it is possible that an election to approve additional general obligation bonds may be proposed sometime in the next several years. Limited Tax Bonds Limited tax bonds authorized under Section 79-10,110 may be issued for the following purposes: a) elimination of environmental hazards, accessibility barriers and life safety code violations; b) expenditures to improve indoor air quality and mold abatement and prevention; c) any qualified capital purpose in any qualified zone academy; or d) construction of a new public school facility or the acquisition of land or any expansion, rehabilitation, modernization, renovation or repair of any existing school facilities. The last of these permitted purposes (an "ARRA Purpose") relates to Recovery Act Bonds as described above. All bonds issued under the terms of Section 79-10,110 are payable from a limited tax which in the aggregate for payments due on all such bonds in any given year may not exceed 5.20 on each $100 of taxable valuation. Such limited tax is currently required for making payment on the Recovery Act Bonds and the District's currently outstanding qualified zone academy bonds. Additional bonds payable from this limited tax may be issued in the future. Limited tax supported bonds issued under Section 79-10,110 may be issued without voter approval. Outstanding Limited Tax Bonds The District currently (as of August 31,2013) has outstanding the following series of limited tax bonds: Designation of Issue Qualified Zone Academy Bond, Series 2002 Qualified Zone Academy Bond, Series 2003 Series 2009A Bonds (QSCBs) Series 2009B Bonds (BABs) Series 201 OA Bonds (QSCBs) Series 2010B Bonds (BABs) Principal Amount Outstanding $ 289, ,066 14,117,188 20,955,000 17,825, Total Outstanding Limited Tax Bonds $ A-4

18 As shown above, the District has issued two series of qualified zone academy bonds, which do not bear interest and are payable from the special tax levy pursuant to Section 79-10,110. Sinking fund requirements for retirement of principal on these issues of bonds will not exceed $116,500 in any year and run through October of Outstanding Lease-Purchase Financing As of August 31, 2013, the District had outstanding liabilities under lease-purchase agreements for $385,000 in principal amount of bonds issued on behalf of the District by the Agency. The Agency is a separate corporate entity created by the District and Educational Service Unit No. 19 which was created under the Nebraska Interlocal Cooperation Act to act for the District and such Educational Service Unit. Lease payments made by the District to the Agency are authorized by Section 79-10,105, R.R.S. Neb and are paid from the general funds of the District. Such lease-purchase agreements were entered into for the purchase of buses student transportation. The following table sets forth the lease rental obligations of the School District with respect to the presently outstanding bonds of the Agency: Fiscal Year Rentals Under Agency Lease $385,000 Cash Flow Borrowing A relatively large portion of the District's revenues come from local property taxes. Property taxes in Douglas County become due on December 31 of each year but fall delinquent and begin to bear interest in the next calendar year, half on April 1 and half on August 1. Many taxpayers pay only upon the delinquency dates resulting in larger cash receipts in April and August of each year and the possibility of cash shortfalls, particularly in February and March of each year. The District believes that it is maintaining a sufficient cash fund balance to meet the cash flow demands of the District. Cash flow borrowings in future fiscal years may be required depending upon the levels of state aid funding, legislative changes and property value trends. Debt Payment Record The District has never defaulted on its obligation to pay principal of or interest on its indebtedness. A-5

19 General Obligation Bonds TOTAL DEBT SERVICE REQUIRED ON BONDED DEBT OF THE DISTRICT rhe debt service requirements (including principal and interest) on the District's outstanding g >onds through the fiscal year are as follows: Fiscal Fiscal Year Bonds Bonds Bonds Total $6,565, $9,761, $ 182, $16,509, ,670, ,661, ,953, ,285, ,653, ,507, ,763, ,924, ,838, ,193, ,763, ,795, ,906, ,084, ,823, ,813, ,067, ,868, ,817, ,754, ,538, ,364, ,792, ,694, ,990, ,202, ,192, ,117, ,062, ,179, ,244, ,775, ,019, ,320, ,677, ,997, ,449, ,420, ,869, Total $106,360, $106,579, $23,095, $236,036, A-6

20 Limited Tax Bonds The total debt service requirements (including principal and interest) on the District's outstanding limited tax obligation debt through the fiscal year are as follows: Fiscal Direct Fiscal Year QZAB'" QZAB»> (l ) QSCB BAB QSCB<" BAB Payments Total , , ,411, ,687, ,685, , (1,515,644.19) 3,978, , , ,411, ,686, ,685, , (1,506,956.75) 3,982, , , ,411, ,688, ,685, , (1,496,394.45) 3,983, , , ,411, ,686, ,760, , (1,483,996.14) 4,055, , ,411, ,680, ,760, , (1,469,218.36) 4,050, ,411, ,682, ,760, , (1,408,392.65) 4,098, ,411, ,681, ,760, , (1,429,978.89) 4,052, ,411,718,75 1,675, ,760, , (1,408,517.41) 4,042, ,411, ,675, ,235, (1,389,914.20) 3,932, ,411, ,673, ,235, (1,375,250.43) 3,945, ,411, ,669, ,235, (1,359,848.86) 3,956, ,411, ,668, ,235, (1,343,663.37) 3,971, ,248, ,667, ,385, (1,325,637.49) 3,975, ,664, ,535, (1,305,623.18) 3,894, ,664, ,635, " (1,284,431.56) 4,015, ,660, ,067, (724,683,43) 4,003, ,662, (163,604.43) 1,498, ,659, (137,933.16) 1,521, ,655, (110,261.55) 1,544, ,651, (80,943.45) 1,570, ,642, (49,925.75) 1,592, ,648, (16,996.00) 1,631, Totals S $ S $36,731, S S Sf S a) Includes annual sinking fund deposits for redemption of bonds at maturity, and takes into account application of such deposits at maturity. (2 ) Direct payment anticipated from US Treasury equal to a portion of interest due on 2009 BABs, 2010 QSCBs and 2010 BABs on each interest payment date. The District expects to comply with certain restrictions in order to receive such amounts. Net Debt Service shown is actual debt service net of scheduled direct-pay subsidy payments, but does not reflect recent budgetary cuts to such subsidy payments due to so-called "sequestration", which resulted in a reduction in the subsidy payment for 2013 and (unless other budgetary or legislative actions are taken in the future) is expected to result in reductions in the subsidy payments for future years. Management of the District believes that these sequestration cuts will not have a material adverse impact on the financial condition of the District. A-7

21 Total General Obligation and Limited Tax Bonds The total debt service requirements (including principal and interest) on the District's outstanding limited tax obligation debt and general obligation debt through the fiscal year are as follows: General Obligation Limited Tax Total Debt Fiscal Year Bonds* Bonds Service $ 16,509, $3,978, $20,488, ,285, ,982, ,268, ,924, ,983, ,907, ,795, ,055, ,850, ,813, ,050, ,864, ,754, ,098, ,852, ,694, ,052, ,746, ,192, ,042, ,235, ,179, ,932, , ,019, ,945, ,964, ,997, ,956, ,954, ,869, ,971, ,841, ,975, ,975, ,894, ,894, ,015, ,015, ,003, ,003, ,498, ,498, ,521, ,521, ,544, ,544, ,570, ,570, ,592, ,592, ,631, ,631, Total $236,036, $73,298, $309,334, including the Bonds, but not including the Series 2003B Bonds. A-8

22 Taxable Valuation (2013) FINANCIAL INFORMATION Douglas County School District 0001 $19,141,556,063 General Obligation Debt (including the Bonds; not including the bonds refunded hereby) Limited Tax Supported Debt" Lease-Purchase Debt* Total Tax Supported Debt Ratio of Net Direct Tax Supported Debt to Taxable Valuation $186,195,000 57,569, ,000 $ % Lease-Purchase Debt does not include any vendor-financed leases " Does not take into account sinking fond deposits reflected in the debt service table presented under TOTAL DEBT SERVICE REQUIRED ON BONDED DEBT OF THE DISTRICT - Limited Tax Bonds, herein Overlapping and Underlying Debt Taxable Valuation 2013 Outstanding G.O. Bonded Debt* Percent Applicable to School District Amount Applicable to School District City of Omaha $27,803,448,875 $517,154, % $300,725,495 Douglas County $36,909,027,670 $44,075, % $21,931,720 Sarpy County $11,599,879,360 $39,640, % $2,647,952 Omaha-Douglas Building Commission * $36,909,027,670 $31,585, % $15,716,696 Source: Nebraska Department of Revenue Indebtedness includes outstanding lease-purchase obligations. The levy for the fiscal year is $0.00 per $100 of taxable valuation. In addition, under lease agreements with the County and the City of Omaha, operating and maintenance expenses and debt service amounts due in excess of the property tax revenues generated by the levy are prorated between Douglas County and the City of Omaha based on the ratio of space utilized by each entity. The relative shares of the City and the County vary based upon utilization of space under several agreements. Combined Direct Tax Supported Debt of the District and the applicable portion of Overlapping and Underlying Bonded Debt (as shown above, totaling $585,171,833) represents approximately 3.1% of Taxable Valuation. Douglas County includes many Sanitary Improvement Districts (SIDs), most of which have bonded debt and construction fund warrants outstanding. Based upon an informal survey of available information, the District believes that the SIDs have outstanding bonded debt of approximately $490,910,769 and outstanding construction fund warrants as of June 30, 2012 of approximately $195,371,593. Bonded debt and construction fund warrants of SIDs are retired from a combination of general taxes and special assessments levied against real estate. A significant portion of such SID debt is attributable to property located within the District. A-9

23 Debt Related Plans and Actions of Certain Other Douglas County Issuers Public filings indicate that the City of Omaha has issued approximately $24,970,000 of tax supported indebtedness in calendar years 2013 (not reflected in the above table) to fund a variety of improvements, including various purpose and refunding bonds. The City is also engaged in a major separation of parts of its sanitary sewer system from its storm sewer system for which the publicly reported cost is at $1,700,000,000 or more. Significantly higher sewer use fees for Omaha residents, ranging up to approximately $50 or more per month in place by 2017, are anticipated as a payment source. The Papio-Missouri River Natural Resources District, with a taxing jurisdiction extending over all or part of six counties, including Douglas County and Sarpy County, has been authorized by a change in legislation to borrow against a limited tax levy of 10 on each $100 of taxable valuation for flood control and storm water projects and issued $13,300,000 in build America bonds in 2010 for such purposes. The Papio-Missouri River Natural Resources District also issued $3,125,000 of refunding bonds in 2011 to refund debt originally issued in 2006; as well as approximately $58,200,000 of limited tax bonds issued in 2012 and 2013 (payable out of the authorized 10 tax described above) for fund certain flood control and water quality enhancement projects. Qualified Pension Plan Obligations The employees of the District participate in a defined benefit retirement plan known as the Omaha School Employees' Retirement System (OSERS), which is established by the Nebraska statutes as a separate retirement system for the eligible employees of the District. A general description of OSERS, including the contribution obligations of the District under OSERS and summary of the annual pension costs and net pension obligation to OSERS for the fiscal year ended August 31, 2012, is provided at note (10) of the Notes to Basic Financial Statements of the OPS Financial Statement of August 31,2012, included as Appendix B. A-10

24 GENERAL STATISTICAL INFORMATION The following tables show historical property tax valuations, tax levies, numbers of pupils, numbers of staff, revenue by source for the District's general fond, general fund expenditures, site and building fund expenditures, bond redemption fund expenditures and total expenditures during recent years. The District operates on a fiscal year commencing September 1 and ending on August 31 of the following year. OMAHA PUBLIC SCHOOLS HISTORICAL PROPERTY TAX VALUATION YEAR TAXABLE VALUATION 14,501,267,011 14,918,979,483 16,124,748,077 17,000,326,350 18,439,358,310 18,830,017,173 19,288,343,082 19,156,900,563 19,232,921,295 19,224,790,998 19,141,556,063 OMAHA PUBLIC SCHOOLS HISTORICAL TAX LEVIES THROUGH SITE AND QCP* YEAR GENERAL FUND BOND FUND BUILDING FUND FUND ** ** ** * Qualified Capital Purpose Fund, formerly the Environmental Hazard Abatement or "Asbestos" Fund. This fund supports the payment of principal and interest on the Recovery Act Bonds, qualified school construction bonds and qualified zone academy bonds and provides additional funds for school improvements. **The Learning Community General Fund Levy of has reduced the District General Fund Levy since The District's funding requirements for its General Fund and Site and Building Fund under current law are expected to be provided for, as to a substantial portion, from allocations made by the Learning Community. $227,286,078 is expected to be received from the Learning Community's general fund levy during the current fiscal year. A-ll

25 Composite Tax Levies The following table shows the composite tax levies for each of the principal taxing authorities applicable to properties located within the District and within the City of Omaha and the total levy applicable to such properties: 2012/ / / / /2009 Douglas County Omaha-Douglas Pub. Bldg Comm Papio-Mo. Riv. NRD City of Omaha * * * Douglas Co. School District Metro Community College Learning Community N/A *Not including MAT Levy The following table shows the preliminary anticipated levy rates and percentages of distribution for property taxes for property located within the District and inside the City of Omaha for the tax year, including the levies for the learning community: Rate of Levy Percentage of Distribution Tax Levying Body (cents per $100 of value) for Tax Receipts Douglas County Omaha-Douglas Pub. Bldg. Comm Papio-Mo. Riv. NRD City of Omaha Douglas County School District Educational Service Unit Metropolitan Comm. Coll Omaha Transit Authority Learning Community Gen. Fund Learning Community Special Cap. Imp Total % Source: Douglas County A-12

26 OMAHA PUBLIC SCHOOLS OCTOBER MEMBERSHIP (ENROLLMENT) BY YEAR: GRADE LEVEL Headstart ,018 1,008 1, Pre-kin 1, ,457 1,437 1,578 1,519 1,981 1,430 1,430 1,443 1,601 Total Pre- Kin and Headstart 1,458 1,467 1,457 1,437 2,547 2,487 2,971 2,448 2,438 2,448 2,546 Kin 3,525 3,726 3,851 3,956 4,056 4,049 4,264 4,270 4,419 3,975 4,472 First 3,463 3,575 3,656 3,775 3,863 3,997 4,003 4,161 4,201 4,341 3,920 Second 3, ,479 3,634 3,674 3,837 3,924 3,962 4,105 4,072 4,245 Third 3, ,457 3,502 3,564 3,654 3,820 3,864 3,938 4,066 4,031 Fourth 3,397 3,496 3,520 3,423 3,418 3,558 3,672 3,761 3,865 3,885 3,985 Fifth 3,447 3,393 3,466 3,481 3,379 3,432 3,528 3,631 3,730 3,792 3,831 Sixth 3,578 3,412 3,356 3,453 3,437 3,366 3,414 3,498 3,617 3,636 3,750 Total K-6 24,510 24,672 24,785 25,244 25,391 25,893 26,625 27,147 27,875 27,767 28,234 Seventh 3, ,327 3,284 3,321 3,347 3,248 3,269 3,373 3,428 3,515 Eighth 3,488 3,401 3,510 3,333 3,217 3,264 3,334 3,229 3,277 3,323 3,419 Ninth 4,626 4,883 5,018 4,897 4,405 4,284 4,163 4,182 3,591 3,209 3,235 Total ,545 11,833 11,855 11,514 10,943 10,895 10,745 10,680 10,241 9,960 10,169 Tenth 3,256 3,347 3,387 3,496 3,463 3,227 3,307 3,413 3,607 3,169 3,235 Eleventh 2,578 2,669 2,630 2,860 2,861 2,917 2,883 3,061 3,207 3,206 3,167 Twelfth 2,688 2,561 2,571 2,513 2,565 2,656 2,775 2,759 3,010 3,911 3,719 Total ,522 8,577 8,588 8,869 8,889 8,800 8,965 9,233 9,824 10,286 10,121 Ungraded -0-» -0-* -0-* -0-* -0-* - -0-* -0-* -0-* -0-* -0-* Total K-12 and Ungraded Change from Previous Year K-12 & Ungraded GRAND TOTAL 46,577 46,082 45,228 45,607 45,223 45,588 46,335 47,060 47,940 48,013 48, ,035 46,549 46,685 47,044 47,770 48,075 49,306 49,508 50,378 50,461 51,070 NOTE: Official membership taken on the last Friday in September. * As of 2002, the Nebraska Department of Education required all students to be placed in a grade level. A-13

27 BOARD OF EDUCATION School District of Omaha November 5,2012 District Full Time Equiv ESU FTE SpEd FTE Grant FTE Total FTE Total Employee Count Teachers 3, , , Administration ' Field Principals Classroom Support Office Personnel Full-time Part-time Operation-Custodial Full-time Part-time Maintenance Full-time Part-time Nutrition Services Full-time Part-time Transportation Full-time Part-time Professional/Tech Full-time Part-time Paraprofessional Full-time , Part-time Security Full-time Part-time Head Start Status of Labor Agreements Employees of the District are affiliated with several unions. The bargaining unit representing the District's educators is the Omaha Education Association (OEA). The OEA has approved a two-year agreement for the and school years. Under this agreement, base salary increases from to are approximately 3.1%. Existing benefits will be maintained during the course of the agreement. The OEA also represents the District's Sign Language Interpreters. The Interpreters unit is in the process of negotiating a new A-14

28 agreement; current proposals call for a 2.10% across the board package increase. The OEA also represents the District's Head Start Family Support Workers/Bilingual Community Liaisons. Other employees of the District are affiliated with Service Employees Union Local. 226 which consists of five individual bargaining divisions: Operations, Educational Professionals, Transportation, Nutrition Services and Office Personnel. The Operations unit operates under the terms of a one-year agreement reflecting a $0.37 across the board hourly salary increase from The Educational Paraprofessionals unit operates under the terms of a two-year agreement, with a total package increase from to of 2.03%. The Transportation unit operates under the terms of atwo-year agreement, which calls for a 2.06% hourly salary increase from to The Nutrition Services unit operates under the terms of a two-year agreement, which calls for a 4.07% total package increase from to The Office Personnel unit operates under the terms of a two-year agreement with a 2.04% salary increase from to The District's Security Personnel are associated with Eastern Nebraska School Security Union, Local 28. The Security unit is in the process of negotiating a new agreement; current proposals call for a 1.3% across the board increase from and a 1.9% across the board increase from to The District's School Psychologists are currently represented by the Omaha School Psychologists Association. The District's School Psychologists total package increase for the one year agreement entered into for was 1.5%; current negotiations are not settled. A-15

29 Source REVENUE FROM LOCAL SOURCES Taxes - Tangible Current Delinquent Total Tangible Taxes - Other PERCENT OF REVENUE BY SOURCE - GENERAL FUND ACCOUNT: Omaha Public Power District 5% of Gross Sales In Lieu Carline Motor Vehicle , Public Housing Authority - In Lieu Total Other Taxes Other Local Revenue Fees Adult Education Self Support Summer School Interest from Investments Licenses Tobacco , Liquor Police Court Fines Rent Transportation - Other Districts Tuition Other Districts Individuals Total Other Revenue Total Revenue from Local Sources REVENUE FROM COUNTY SOURCES County Fines and Licenses 0,59 Total Revenue from County 0.59 Sources A-16

30 Source ft REVENUE FROM STATE SOURCES Apportionment General State Aid Pro-Rate Motor Vehicle Homestead Exemption Payment for Wards of the Court Special Education Programs Special Education Transportation Total Revenue from State Sources REVENUE FROM FEDERAL SOURCES Medicaid in Public Schools Preschool Special Education ** ** ** ** ** ** ** Program Preschool Special Education ** ** ** ** ** ** ** Transportation Federal Security Act - PL U.S. Army ROTC Individuals with Disabilities ** ** ** ** ** ** ** Education Act Total Revenue - Federal Sources Non-Revenue Sources Abatement Reimbursement Interlocal Agreement Insurance Adjustments Refunds - Regular Reimbursement Employee Services Sale of Property Sale of Supplies and Junk Other Non-Revenue Total Non-Revenue Sources Grand Total ** Moved to Grant Funds to realign according to Nebraska Department of Education requirement. A-17

31 BOND REDEMPTION FUND EXPENDITURES: FISCAL REDEMPTION OF INTEREST ON YEAR BONDS* BONDS TOTAL * 73,922,821 11,216,889 85,139, ,345,000 13,007,110 21,352, ,455,000 12,719,750 22,174, ,655,000 12,425,818 22,080, ,040,000 12,104,205 22,144, ,465,000 11,743,098 22,208, ,635,934 9,222,961 25,858, ,030,000 10,423,347 22,453, ,445,000 7,128,028 18,573, ,495,000 8,241,509 20,736,509 *Includes redemptions related to refunding transactions. Purpose - BuSdingf SITE AND BUILDING FUND EXPENDITURES: $89,912 $0 $3, ,256 2,134,683 Remodeling/ New Construction* 16,117,187 2,179,600 5,087,454 29,399,044 13,382,039 Other Expenditures 292, ,368 4,722, ,465 2,861,199 Site 4,649,925 2,028,475 1,673,689 1,653, ,975 Total Site and Building Fund S S X nS Includes application of proceeds of general obligation and limited tax bonds. A-18

32 GENERAL FUND EXPENDITURES - AMOUNT AND PERCENT: FUNCTION Amount % Amount % Amount % Amount % Adult Basic Education $266, $267, $ 267, Non-Vocational Adult Education 0 0 O.OO Adult High School 265, , , , Basic Instruction 209,688, ,808, ,269, ,576, Instructional Support Services 15,987, ,144, ,526, ,542, Early Childhood - SPED & Community Use of Facilities 2,558, ,264, ,762, ,901, Early childhood - Non-SPED 2,326, ,757, ,718, ,854, Student Support Services 29,483, ,234, ,470, ,075, School Administration 28,244, ,378, ,177, ,378, Special Education Programs 42,471, ,680, ,260, ,745, Regular Summer School 1,599, , , ,507, Saturday Programs 136, , , , Transfers to Activities Funds O.OO O.OO Buildings & Grounds 46,533, ,876, ,192, ,574, Business Support Services 22,687, ,620, ,718, ,737, Board of Education & General Administration 7,435, ,861, ,306, ,347, Transportation Services 30,664, ,054, ,546, ,037, Debt Services 403, , , , Employee Assistance Program 116, , Amount % , ,006, ,982, ,388, ,145, ,502, ,392, ,466, ,562, , ,369, ,276, ,051, ,221, , , Total General Fund Expenditures 440,869, ,431, ,172, ,212, ,571, OMAHA PUBLIC SCHOOLS TOTAL EXPENDITURES * Fiscal Year Total Expenditures ,994, ,407, ,100, ,125, ,260, ,799, ,248, ,867, ,883, ,077,486 *Total Expenditures for certain years shown above also include the application of proceeds of refunding bonds. A-19

33 School District Budget Limitations/State Aid The District's principal sources of revenue for its general fund are local property taxes and state aid. State aid is allocated to school districts based upon statutory formulas which take into consideration taxable valuations, student population, per student costs and a variety of other factors. The District's current budget is governed by the provisions of the "Budget Limitations" which are discussed under the heading "NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION". The "Levy Limitations," also discussed under the heading "NEBRASKA DEVELOPMENTS RELATED TO BUDGETS AND TAXATION," limit the current tax levies and will also limit such levies for subsequent fiscal years. Such limitations do not affect the District's ability to levy and collect taxes sufficient to pay the principal of and interest on the Bonds. Location and General Background CITY OF OMAHA - GENERAL INFORMATION Omaha, founded in 1854, is the largest city in the State of Nebraska. Omaha is the hub of a transportation network leading to all parts of the nation and thus offers significant advantages to business and industry competing in regional and national markets. Omaha has experienced growth of population, employment and income during recent years. Area and Population The population of the eight-county Omaha Metropolitan Statistical Area ("MSA"), comprising five Nebraska counties and three Iowa counties, according to estimates applied to the United States Census 2010, is 865,350. The 2010 Census indicates the City of Omaha has a population of 408,958. Transportation Twenty total airlines (including seven national airlines) currently handle approximately 90 flights daily in and out of Eppley Airfield. In 2012, approximately 4.1 million passengers used Eppley Airfield, located approximately 10 minutes driving time from downtown Omaha. Union Pacific Railroad is headquartered in Omaha. In addition, the presence of Burlington Northern Santa Fe Railroad and Canadian National Railway make Omaha an important rail center. Two interstate highways (Interstate 80 and Interstate 29), five federal highways and seven state highways provide multiple all-weather routes within Nebraska and provide access to and from the rest of the continental U.S.. Within Omaha, Interstate 480 (downtown spur) and Interstate 680 (circumferential route) enable faster access to many parts of the metropolitan area. Omaha is home to 150 commercial motor freight carriers which connect Omaha with all parts of the nation, making Omaha a major Midwestern trucking center. Greyhound Bus Lines furnishes Omaha with transcontinental passenger service. Several smaller bus lines operate between Omaha and points in Iowa and Nebraska. Utility Services Residential, commercial and industrial electric service rates in Omaha historically have been below the national averages, according to reports of the Energy Information Administration, Form EIA-861, In addition to low rates, the Omaha Public Power District, a Nebraska political subdivision, provides its customers power with a net generating capability of 3,208.8 MWs (2012 Annual Report, OPPD). Omaha Public Power District has coal fired, natural gas fired and nuclear generating capacity, with significant recent additions in coal fired capacity. The Metropolitan Utilities District ("MUD"), a Nebraska political subdivision, distributes natural gas and water in the Omaha area. Rates compare favorably with those in other metropolitan areas in the nation. Omaha has a plentiful water supply (Missouri River and Platte River wells) and a water system designed to the standards of the National Board of Fire Underwriters, with a current capacity of 320 million gallons a day. MUD's supply of natural A-20

34 gas is purchased from a variety of producers and is delivered by Northern Natural Gas Company. This supply is supplemented with peak-shaving storage facilities which can provide up to approximately 40% of peak demand. There have been no interruptions of natural gas service to firm commercial and residential customers and no interruptions are expected in the foreseeable future. MUD continues to add new natural gas customers. Education Creighton University, the University of Nebraska at Omaha and the University of Nebraska Medical Center are all located in Omaha. These institutions, together with three additional colleges located in Omaha, offer various educational programs at the graduate and undergraduate levels, including law, medicine, dentistry, nursing and pharmacy. Public elementary and secondary education are provided by five local school districts: Douglas County School District 0001 (Omaha Public Schools), Douglas County School District No (Westside), Douglas County School District No (Millard), Douglas County School District No (Ralston) and Douglas County School District 0010 (Elkhorn). The Omaha Public Schools has the largest enrollment of pupils residing within the City. The City also has a number of private and parochial schools at the elementary and secondary levels. Section of the Nebraska Statutes established a "learning community" comprising 1 school districts in Douglas County and Sarpy County, Nebraska. Among other things, the learning community is responsible for levying and distributing common tax levies, approving focus schools and developing integration and diversity plans. Health Services There are fifteen area hospitals, including eight general medical and surgical hospitals, two University-affiliated hospitals and a veterans hospital. Omaha has two children's general hospitals and Douglas County Health Center is classified as a specialty hospital. There are more than 2,311 active physicians in Douglas County and 446 active dentists in Douglas County who serve Omaha residents and residents of the surrounding communities as of October 31,2013. Military The United States Strategic Command ("USSTRATCOM") is headquartered at Offutt Air Force Base, just south of Omaha. It is one of nine unified commands under the Department of Defense ("DOD"). USSTRATCOM resulted from the October 1, 2002, integration of two previous unified commands, U.S. Space Command (formerly at Colorado Springs, Colorado) and the former StratCom, and is responsible for DOD space and information operations as well as command and control of U.S. strategic forces. Economy Omaha has a diversified economy which includes major corporate headquarters, technology companies, agribusiness, insurance and banking. Its growing economy is reflected by growth in the number of businesses. Corporate headquarters include Berkshire Hathaway, ConAgra, Union Pacific, Mutual of Omaha Companies and Peter Kiewit and Sons. The largest employer in the metropolitan area is Offutt Air Force Base (USSTRATCOM). The second largest employer is Alegent Health. The 2012 annual unemployment rate for the Omaha metropolitan area was 4.6%, under the 2012 average national rate of 8.1 %. In the Omaha metropolitan area there are over 550 manufacturers and approximately 31,600 people are employed in manufacturing as of August A-21

35 The following table shows the employment distribution by industry group for the greater Omaha area for 2011 and 2012: Omaha MSA Nonagricultural Wage and Salary Average for Average for Employment Number of %of Number of % of Employees Total Employees Total Industry Construction and Mining 20, , Manufacturing 31, , Trade, Transportation, and Utilities 93, , Information 11, , Finance, Insurance and Real Estate 41, , Professional & Business Services 64, , Education and Health Services 71, , Leisure & Hospitality 44, , Other Services 17, , Government 65, , Total 461, , Source: Bureau of Labor Statistics: State and Area Employment, Hours and Earnings. Selected Economic Indicators Omaha MSA Population and Employment 1 PoDulation 2 Employment , , , , , , , , , , ,144 s 431, , , , , , , , , , , , , , , , , , ,197 1 Source: United States Bureau of Census 2013 Release. 2 Estimated annual averages based on labor force available, from Reports of the Nebraska Department of Labor, Labor Market Information as reported by the Greater Omaha Chamber of Commerce. 3 In 2003, the Omaha MSA was modified to include one additional Nebraska county and two additional Iowa counties. A-22

36 Omaha Area Largest Employers by Number of Employees (2013) 1. Offutt Air Force Base 7, Alegent Health 7, Omaha Public Schools 7, Methodist Health System 5,000-7, The Nebraska Medical Center 5,000-7, University of Nebraska Medical Center 2,500-4, First Data Corp. 2,500-4, Union Pacific Corp. 2,500-4, HyVeelnc. 2,500-4, First National Bank of Nebraska 2,500-4, West Corp. 2,500-4, Wal-Mart Stores 2,500-4, ConAgra Foods 2,500-4, Mutual of Omaha 2,500-4, Creighton University 2,500-4, University of Nebraska at Omaha 2,500-4, Millard Public Schools 2,500-4, City of Omaha 2,500-4, PayPal 2,500-4, Omaha Public Power District 1,000-2, Baker's Supermarkets 1,000-2, Omaha Steaks 1,000-2, Omaha World-Herald 1,000-2, Target Stores 1,000-2, Douglas County 1,000-2,499 Source: Greater Omaha Chamber of Commerce Omaha MSA Personal Income (per capita) Per Capita Personal U.S. Per Capita Personal Year Personal Income Income Income 1970 $ 2,547,642 $ 4,097 $ 4, ,648,387 10,151 10, ,293,632 19,325 19, ,230,391 31,503 29, ,179,787 32,458 30, ,207,762 33,480 30, ,237,083 34,414 31, ,025,111 36,191 33, ,435,305 37,444 34, ,448,000 39,448 36, ,835,843 41,976 36, ,098,000 43,012 40, ,029,000 42,412 39, ,986,509 42,606 39, ,005,295 44,470 41, ,693 Source: Bureau of Economic Analysis, SA1-3, CA1-3 A-23

37 Net Taxable Sales - Douglas County Net Taxable Year Sales (includes Retail Sales') ,192,299, ,351,073, ,409,175, ,665,964, ,264,607, ,507,569, ,619,797, ,821,472, ,972,759, ,734,353, ,884,002, ,213,178, ,165,469, Source: Nebraska Department of Revenue, Finance & Research Division. Net Taxable Sales for Nebraska Counties (annual reports). Value of Building Permits - City of Omaha Year Total Permit Value ,605, ,558,867, ,502, ,542, ,481, ,153, ,536, ,007, ,783, ,026, ,808, ,915, ,885,725 Source: Divisions of Permits and Inspections, City of Omaha A-24

38 Major Taxpayers The following are firms located within the City of Omaha with the greatest 2013 real estate valuations. Some of the valuations shown are for properties located within other school districts in Douglas County. Certain of the valuations shown may be under current contest or may have been revised, based upon successful contest, by the Nebraska's Tax Equalization and Review Commission. Taxpayer Value of Real Property First Data Resources Inc. $108,122,000 Oak View Mall LLC 103,206,100 United of Omaha Life Insurance 95,101,200 Westroads Mall LLC 92,602, th and Dodge LP 90,337,700 Nebraska Furniture Mart 66,198,500 IRET-MR9 LLC 54,360,600 Commercial Federal Savings & Loan 48,357,000 CLF Landmark Omaha LLC 46,177,800 SFI Ltd Partnership 45,325,000 Wal-Mart Real Estate Bus Tr. 45,146,800 First National Bank of Omaha 44,258,000 Target Corporation 41,888,600 EM Omaha Owner LLC 40,368,700 Alegent Health 40,098,100 W.O.W. Life Insurance Society 40,000,000 Omaha Plaza Investments LLC 36,287,300 Wachovia Development Co. 35,524,000 CAGR LLC 34,761,700 Bishop Clarkson Memorial Hospital 33,396,300 Guarantee Mutual Life 31,132,000 Wells Fargo Bank Nebraska 31,074,300 West Teleservices Corp. 30,500,000 Omaha Marketplace Holdings LL 30,451,200 Westplex Limited Partnership 30,060,300 Source: Records of the Tax Control Department, Office of the Douglas County Treasurer. A-25

39 SUMMARY FINANCIAL STATEMENT AND OPERATING STATISTICS The following table sets forth in summary form the financial and operating information which the District will provide pursuant to its undertaking as described under the heading "CONTINUING DISCLOSURE UNDERTAKING": Taxable valuation for current tax year (presently ): $ 19,141,556,063 General Obligation Bonded Debt, Lease Related Debt and Limited Tax Supported $318,127,262.25* Debt ( Budget): Principal Amount of Lease Related Debt $1,120,000** Current Enrollment (as of last Friday in September, 2012): 50,461 Total Budgeted General Fund Expenditures Current Fiscal Year: $468,946,264 Total Number of Employees (November 5, 2012): 7,961 * Indebtedness includes outstanding stated principal amounts for general obligation bonds, limited tax supported bonds and includes qualified zone academy bonds and qualified school construction bonds (without consideration for debt service funds on hand) and the lease-purchase obligation but does not include any vendor-financed leases. Includes the bonds to be refunded, but not the bonds being issued. * Lease related debt does not include any vendor-financed leases. A-26

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41 APPENDIX B - FINANCIAL STATEMENTS OF THE DISTRICT B-1

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43 Douglas County, Nebraska Financial Statements and Supplementary Information August 31, 2013 Together with Independent Auditor's Report

44 Table of Contents Independent Auditor's Report 1-2 Page Management's Discussion and Analysis 3-12 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements: Balance Sheet - Governmental Funds 15 Statement of Revenue, Expenditures, and Changes in Fund Balances - Governmental Funds 16 Statement of Net Position - Proprietary Funds 17 Statement of Revenue, Expenditures, and Changes in Net Position - Proprietary Funds 18 Statement of Cash Flows - Proprietary Funds 19 Statement of Net Position - Fiduciary Funds 20 Statement of Changes in Fiduciary Net Position 21 Notes to Basic Financial Statements Required Supplementary Information: Budgetary Comparison Schedule - General and Major Special Revenue Funds Other Supplementary Information: Budgetary Comparison Schedules - Other Governmental Funds Internal Service Funds Proprietary Funds 56 Schedule of Receipts and Disbursements - American Recovery and Reinvestment Act (ARRA) of Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards 60 Independent Auditor's 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 Auditor's Report on Compliance For Each Major Program; Report on Internal Control Over Compliance Required By OMB Circular A Schedule of Findings and Questioned Costs Summary of Schedule of Prior Year Audit Findings 67-68

45 U S E I M JOHNSON Independent Auditor's Report To the Board of Education Douglas County School District #0001: Report on the Financial Statements 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 Douglas County School District #0001 (the District), as of and for the year ended August 31, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Omaha Schools Foundation, a blended component unit, which represents 82.2%, 98.4%, and 28.1%, respectively, of the assets, net position, and revenues of the business-type activities of the District. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Omaha Schools Foundation, is based solely on the report of the other auditors. 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. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the District, as of August 31, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Seim Johnson, LLP Burt Street, Suite 200? Omaha, NE s Tel: s Fax; > s SeimJohnsim.com 1

46 Emphasis of Matter As discussed in Note 13 to the financial statements, the 2012 financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 3 through 12 and the budgetary comparison schedule - general and major special revenue funds on pages 50 and 51 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The accompanying budgetary comparison schedules on pages 52 through 56, the schedule of receipts and disbursements - American Recovery and Reinvestment Act of 2009 (ARRA) on page 57, and schedule of expenditures of federal awards on pages 58 through 60, as required by the OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such 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 basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The supplementary information has not been subjected to auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 13, 2013 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Omaha, Nebraska, November 13, Jo/wso/o, L L P 2

47 Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS Douglas County School District 0001 (Omaha Public Schools) OVERVIEW Management's Discussion and Analysis (MD&A) is information required to be presented by the Governmental Accounting Standards Board (GASB). This section will provide an introduction to the basic financial statements and an analytical overview of the Omaha Public School District's (the District) activities with primary emphasis on the school district as a whole. The basic financial statements are comprised of three components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. It also provides additional information that supplements the financial statements and the notes to the financial statements. Our discussion and analysis of financial performance of the District is for the fiscal year ended August 31, 2013, and it is presented on the accrual basis, in accordance with generally accepted accounting principles (GAAP), which is a comprehensive basis of accounting generally accepted in the United States of America. Under the accrual basis of accounting, revenues are recorded when earned and expenditures are recorded when they result in a liability for benefits received, even if they occur in an accounting period other than the current fiscal year. GOVERNANCE ORGANIZATION AND RESPONSIBILITIES The nine-member Governing Board is elected by the citizens of the community to four-year terms representing nine districts. The terms of the board members overlap with elections occurring every two years. The Governing Board is a policy-making body, deriving its authority from the State of Nebraska through the laws of the State. One of the statutory duties of the Governing Board, as a governing body, is to prepare and approve an annual budget in accordance with the Nebraska Budget Act. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements - The Government-wide financial statements present a broad overview of information on the primary government's activities (the District) and its component units. The component units include: Educational Service Unit No. 19, Friends of KIOS, Educare of Omaha, Inc., Omaha Education Services Agency and the Omaha Schools Foundation. As defined in GASB No. 14, as amended, component units are legally separate entities that are included in the District's reporting entity because of the significance of their operating or financial relationships with the District. These statements show both the governmental and business-type activities of the school district. Any specific requests for information about the financial operations of the District's component units should be addressed to those agencies. The government-wide financial statements distinguish between functions of the District that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The Statement of Net Position and the Statement of Activities comprise the government-wide statements and they divide the District's activities into three main categories: Governmental Activities: Most of the District's basic services are included here such as instruction, student support, transportation, etc. Taxes, state aid, county fines and licenses, and other local revenues principally support these functions. Business-type Activities: The District charges fees to customers in order to cover the costs of certain services it provides. The Foundation and the Cooperative Fund are among the activities included here. 3

48 Management's Discussion and Analysis Component Unit: The District includes six component units as identified above. Although legally separate entities, the District is the primary recipient of the services provided by these entities. The Statement of Net Position presents information on all the District's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as an indicator of whether or not the financial position of the District is improving or deteriorating. The Statement of Activities presents information showing how the District's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus revenues and expenditures are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation. Fund Financial Statements - Fund financial statements present most of the individual components (funds) of the District in more detail than the government-wide financial statements. There are separate financial statements for the governmental funds, proprietary funds and fiduciary funds. The governmental funds are presented using the current financial resources measurement focus and the modified accrual basis of accounting. The modified accrual method measures cash and all other financial assets that can be readily converted to cash. These statements provide a detailed short-term view of the District's operations and the services it provides. Because the focus of the governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. The reader of these financial statements should refer to the reconciliations on the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance to facilitate the comparison between governmental funds and governmental activities. All of the District's services are reported in the governmental funds. Governmental fund reporting focuses on showing how money flows into and out of funds and the balances left at the end of the fiscal year, which are available for spending. They are reported using modified accrual accounting, which measures cash and all other financial assets that can be readily converted to cash. Governmental Funds: Governmental funds report information about the major funds individually and the non-major funds on aggregate. These statements focus on (1) how cash and other financial assets that can be readily converted to cash flow in and out and (2) the balances remaining at year-end which are available for spending. Therefore, the governmental funds provide a short-term view that helps the reader determine whether there are more or fewer resources that can be spent in the near future to finance the District's programs. Proprietary Funds: Proprietary funds report resources that are not available to support the government's programs. These are generally supported by user fees. The District maintains several enterprise funds which are used to report the functions presented as business-type activities in the government-wide financial statements. Fiduciary Funds: Fiduciary funds account for assets held in a trustee or fiduciary capacity. The District is responsible for ensuring that the assets reported in these funds are used for their intended purpose. These activities are reported in a separate Statement of Net Position - Fiduciary Funds. The District excludes these activities from its government-wide financial statements because the District cannot use these assets to finance its operations. 4

49 Management's Discussion and Analysis Notes to the Financial Statements - The notes to the financial statements are an integral part of these financial statements and provide a more detailed presentation of various activities of the District such as bonded indebtedness, leases, future obligations, commitments and contingencies of the District. The reader of the financial statements should make particular note of the information included in the notes. Required Supplementary Information (other than the Management's Discussion & Analysis) - The budget to actual comparisons presented in this section provide a comparison of the District's actual and revised budgets for the general fund and major special revenue funds compared to the actual expenditures and revenues for the year being audited. It also presents the variance between budget and actual. This report is required supplementary information. Other Supplementary Information - This section includes budgetary comparisons for other funds and the Schedule of Expenditures of Federal Awards that provides a listing of all federal funding expanded by the District in the year being audited. This report is presented on the basis of accounting permitted by the Nebraska Department of Education, which is a basis of accounting other than GAAP. CONDENSED FINANCIAL STATEMENTS The District's combined Total Assets changed from a year ago - increasing by $12,501 million. The largest portion of the District's assets (56%) reflects its investment in capital assets (e.g. land, building, equipment, vehicles, etc.) net of accumulated depreciation. The District uses these assets to provide services to its students and consequently, these assets are not available for future spending. The resources needed to repay the debt related to these capital assets must be provided from other sources. The following table reflects the condensed summary of net position and the changes from fiscal year 2012 to 2013: SUMMARY OF NET POSITION (in thousands) Governmental Activities Business-Type Activities Total Primary Government Current and other assets Capital assets Less: accumulated depreciation $ 265, ,716 (489,169) 261, ,559 (519,676) 24,873 2,386 (1,073) 34,724 2,388 (1,289) 290, ,102 (490,242) 295, ,947 (520,965) Total assets 629, ,921 26,186 35, , ,744 Current and other liabilities Long-term liabilities 79, ,348 88, ,186 6, ,995 85, ,103 95, ,186 Total liabilities ,366 7,066 6, , ,361 Net Position: Net investment in capital assets Restricted net position Unrestricted net position 91, ,845 69, ,418 89,012 85,125 1,539 17, ,528 15,586 92, ,161 69, , , ,711 Total net position $ 262, ,555 19,120 28, , ,383 Approximately 32% or $101,540 million, of the. District's net position represents resources that are subject to external restrictions on their use. Approximately 36% or $ million of the District's net position represent investment in capital assets net of related debt. The remaining balance of unrestricted net position, 32% or $100,711 million, may be used to meet the District's ongoing obligations to citizens and creditors. On August 31, 2013, the District is able to report positive net position for the District as a whole. 5

50 Management's Discussion and Analysis The District's combined changes in net position (including both the governmental activities and businesstype activities) changed from a year ago - increasing by $33,775 million. The majority of the change in position is due to revenues in excess of expenses of $25,943 million with a prior period adjustment of $7,832 million. The following table reflects the condensed Statement of Activities. SUMMARY OF CHANGES IN NET POSITION (in thousands) Governmental Business-Type Total Primary Activities Activities Government Revenue: General receipts Taxes $ 286, , , ,260 Unrestricted investment earnings , ,441 State funding 171, , , ,064 Federal funding 555 1,696 8,121 7,946 8,676 9,642 Other 15,323 15,520 47,311 63,141 62,634 78,661 Total general revenue 473, ,420 56,168 72, , ,068 Program Expenses, Net: Functions/Programs Government activities Instruction and student support (276,588) (279,883) - - (276,588) (279,883) General administration and board of education (11,260) (12,503) - - (11,260) (12,503) School administration and staff support (53,425) (53,596) - - (53,425) (53,596) Business support services (36,050) (34,758) - - (36,050) (34,758) Building and grounds (44,104) (47,711) - - ' (44,104) (47,711) Building, construction, renovation (2,276) (4,691) - - (2,276) (4,691) Student transportation (22,788) (28,247) - - (22,788) (28,247) Community use of facilities (4,226) (5,710) - - (4,226) (5,710) Regular summer school (5,573) (5,798) - - (5,573) (5,798) Adult basic education (1,082) (758) - - (1,082) (758) Debt service (9,798) (10,536) - - (9,798) (10,536) Total government activities (467,170) (484,191) (467,170) (484,191) Business-type activities Cooperative activities - - (38,913) (44,856) (38,913) (44,856) OESA - - (205) (195) (205) (195) Foundation - - (8,955) (10,441) (8,955) (10,441) Other - - (7,302) (7,441) (7,302) (7,441) Total business-type activities (55,375) (62,933) (55,375) (62,933) Total primary government (467,170) (484,191) (55,375) (62,933) (522,545) (547,124) Change in Net Position 6,763 16, ,715 7,556 25,944 Net transfers - 7 (10,440) (7) (10,440) 0 Net position at beginning of year 254, ,487 28,767 19, , ,607 Prior period adjustment 816 7, ,832 Net Position End of Year $ 262, ,555 19,120 28, , ,383 Governmental Activities' general receipts increased mainly because of a 7.8% increase in state funding and a 4% increase in tax revenue. ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATION The focus of the District's governmental funds is to provide information on short-term inflows, outflows, and balances of spendable resources. Unassigned fund balance may serve as a useful measure of the District's net resources available for spending at the end of the fiscal year, except where prohibited by State statutes. 6

51 Management's Discussion and Analysis For the fiscal year ended August 31, 2013, the governmental funds had total fund balance of $154,006 million, a decrease of $447,000 in comparison with the prior year. The District proprietary fund statements have two main sections. Those sections are the enterprise funds and internal services funds. The District's enterprise funds provide the same category of information found in the Government-Wide financial statements, but in more detail. Net position of the enterprise funds totaled $28,828 million on August 31,2013, an increase of $9,708 million. The increase is mainly due to the increase in net position of the Foundation of $9,968 million. In total, the other components of the enterprise funds such as Cooperative, OESA, slightly decreased. EAP services are now contracted with Creighton/Alegent and that fund is no longer used. The District's internal services are used to account for goods and services provided by an activity to other departments, funds or component units of the District. The consumption of these services and goods is primarily done by the District. Net Position of the internal services fund total $54,385 million on August 31, This represents an increase of 3.76% and is all from net income for the current fiscal year. ANALYSIS OF BALANCES AND TRANSACTIONS OF INDIVIDUAL FUNDS A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The General Fund is the District's main operating fund. The General Fund's fund balance on August 31, 2013 was $61,952 million. The following tables represent significant revenue and expenditure trends for the General Fund. Revenues (thousands of dollars ) Percent 2013 Increase Increase Percent (Decrease) (Decrease) Amount Amount of Total From 2012 From 2012 Taxes $ 257, , % 13, % Tuition % (72) % Fees % % Interest on investments % % State receipts 199, , % 12, % Federal receipts % % Fines and licenses 4,274 3, % (361) -8.45% Other receipts 3,817 4, % % Total receipts $ 465, , % 25, % General Fund taxes have increased by $13,147 million or 5.11%. The two main reasons for the increase in taxes were an increase in remittance of motor vehicle taxes of $6,881 million and an increase in property valuation from all taxing counties of $5,552 million. General Fund State Receipts increased by $12,268 million or 6.14%. The largest component, State Aid, increased by 6.04% or $9,466 million in General Fund Total Receipts increased by $25,500 million or 5.47%, with the main factors being Taxes and State Aid. Interest on investment was low in FY due low interest rates from the Federal Reserve Bank. Furthermore, most of the district's grants and construction projects are based on cost reimbursement. Therefore, the District's General Fund keeps significant cash balance to cover the expenses prior to the reimbursements. 7

52 Management's Discussion and Analysis General Fund Five-Year Revenue Comparison Millions of Dollars J Actual Actual Actual Actual Budget Other General Fund Five-Year Expenditures Comparison MillionsofDoltars Actual Actual Actual Actual Budget Instruction Administration Other 8

53 Management's Discussion and Analysis 2012 Amount General Fund Expenditures (thousands of dollars ) 2013 Amount 2013 Percent of Total Increase (Decrease) From 2012 Percent Increase (Decrease) From 2012 Basic instruction $ 224, , % 3, % Special education 48,403 47, % (842) -1.74% Student services 30,070 30, % % Staff support services 14,903 15, % % General administration and board of education 8,022 6, % (1,316) % School administration 28,940 29, % % Business support services 23,069 24, % 1, % Building and grounds 44,250 46, % 2, % Student transportation 30,773 35, % 4, % Community use of facilities 0.00% and regular preschool 2,939 2, % (113) -3.84% Early childhood special. education 4,697 6, % 1, % Summer school 5,454 5, % (29) -0.53% Adult education % (248) % Debt service % % Total expenditures $ 467, , % 12, % General Administration and Board of Education costs were higher in FY12 than in FY 13 mainly because of a payment of $924,876 to the former Superintendent of the Omaha Public Schools for termination benefits. The decrease is also partially due to lower legal and contracted professional expenses in FY13. The increase in Business Support Services is the result of increase in contracted services and supplies. Building and Grounds costs increased due to higher payroll benefits and utility costs in FY13. Student Transportation expenditures increased in FY13 because of higher contract costs due to the need for more buses, and due to a higher cost for fuel. Early Childhood Special Education costs were higher in FY13 because of expenses in the new Early Childhood Home-based program. The elimination of Adult Education started in July of FY12 and continued in FY13, hence the 62% drop in expenditure for the program. Debt Services is higher because of an increase in payments to the Tax Equalization and Review Commission as a result of property owners within the District successfully protesting property valuations. 9

54 Management's Discussion and Analysis BUDGETARY ANALYSIS Annual budgets are prepared in accordance with State statutes on the cash basis of accounting which is a regulatory basis of accounting and is not consistent with generally accepted accounting principles in the United States. The budget is prepared by fund, department/building, and account. The only transfers allowed for in the General Fund are those between departmental budgets. Any number of transfers can occur throughout each fiscal year as long as the original budgeted amount does not change. In , there were no budget amendments. Fund Balance increased due to actual expenditures and transfers lower than budgeted amounts. General Fund Budgetary Analysis August 31, Original Budget Final Budget Actual Revenue: Local County receipts State receipts Federal receipts Other local $ 272,817 2, , , ,817 2, , , ,118 2, , ,660 Total 482, , ,277 Expenditures and transfers 484, , ,656 Total 484, , ,656 Changes in Fund Balance $ (2,000) (2,000) 6,621 CAPITAL ASSETS AND LONG-TERM DEBT ACTIVITY At August 31, 2013, the District had $ million invested in a broad range of capital assets net of depreciation, including land, buildings and improvements, textbooks, equipment, and vehicles. This amount represents a net increase (including additions, disposals and depreciation) of $7,121 million or 1.95% over the prior fiscal year % (in thousands) (in thousands) Difference Change Land $ 19,005 21,219 2, % Construction in progress 47,822 3,203 (44,619) % Buildings and improvements 618, ,567 66, % Furniture, equipment, textbooks and art 86,772 97,841 11, % Computers and software 64,971 68,155 3, % Vehicles 18,035 17,962 (73) -0.40% 855, ,947 37, % Less: Accumulated depreciation (490,242) (520,965) (30,723) 6.27% Total Capital Assets, Net of Depreciation $ 364, ,982 7, % Construction in progress decreased because of the completion of two new schools (132nd St. & State St. Davis Middle School and 42nd & V St. Gateway Elementary) that were under construction in FY 12. After a physical count of Land and artwork, new values were recorded in FY13 as a prior period adjustment. As for Textbook, a new adoption was capitalized in FY13. Computers and Software increased due to the purchase of additional computers to meet the State's new testing requirements. 10

55 Management's Discussion and Analysis General Obligation Bonds Qualified Zone Academy Bonds Unamortized Premium Series 2003A and 2003B Bonds Series 2010 Refunding Bonds Series 2012 Refunding Bonds Unamortized Deferred Amount on Refunding Series 2010 Refunding Series 2012 Refunding $ 191,450,000 63,017,160 94,163 3,447,955 10,207,928 (4,653,360) (5,374,583) Total Balance per Bonds Payable Note $ 258,189,263 Lease/Purchase Bonds Early Leave Incentive Program Lease Obligations $ 385,000 $ 13,031,161 $ 275,846 CURRENTLY KNOWN FACTS. DECISIONS OR CONDITIONS The Omaha Public School District is a member of the Douglas and Sarpy County Learning Community. The framework for learning communities in Nebraska began as a result of several years of legislation beginning in The Douglas and Sarpy County Learning Community is comprised of the eleven school districts in the metropolitan Douglas and Sarpy County area. These eleven school districts have a $.95 common levy established by the Learning Community Coordinating Council and up to a $.02 levy on behalf of school districts for the special building fund. The Nebraska Supreme Court upheld the constitutionality of the common levy, State funding for K-12 education is expected to be a topic before the Nebraska Legislature in January of Law impacting on the state aid formula will impact future funding for the school district. Furthermore, the Omaha Public Schools has opened Gateway, a new eiementary school and Alfonza W. Davis, a new middle school in In FY14, the district is planning a refunding of the 2003B bonds. We constantly look at bonds for new structures that would benefit the district in gaining interest leverage. Also in FY14, the district has hired an In-house Legal Council/Chief Negotiator. 11

56 Douglas County School District #0001 Management's Discussion and Analysis REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, parents, students, investors and creditors with a general overview of the Omaha Public School District's accountability for the money it receives. Additional details, questions or comments can be requested from the following individuals. Respectfully submitted by: Dennis L. Pool, Assistant Superintendent Department of General Finance and Administrative Services Omaha Public School District 3215 Cuming Street Omaha, NE Voice: Fax: : dennis.p00l@0ps.0ra Ibrahima A. Diop Director Finance, Accounting, and Budget Department of General Finance and Administrative Services Omaha Public School District 3215 Cuming Street Omaha, NE Voice: Fax: : ibrahima.diop@ops.org Please visit the District's website at for additional financial and other information. Omaha Public Schools does not discriminate on the basis of race, color, national origin, religion, sex, marital status, sexual orientation, disability, age, genetic information, citizenship status, or economic status in its programs, activities and em- ployment and provides equal access to the Boy Scouts and other designated youth groups. The following individual has been designated to address inquiries regarding the non-discrimination policies: Superintendent of Schools Cuming Street, Omaha, NE ( ). 12

57 Statement of Net Position August 31, 2013 (Thousands of Dollars) Primary Government ASSETS Cash and cash equivalents Investments Property taxes receivable, net Internal balances Accrued interest Other receivables Promise to give donations in the future Inventories and prepaid expenses Other assets - bond issuance costs, net Governmental Activities 187,469 21,549 16,298 (1,085) 1 28,026 7,310 1,470 Business-Type Activities 2,634 20,008 1,085 3,221 7,774 2 Total 190,103 41,557 16, ,247 7,774 7,312 1,470 Capital assets: Land 21,219 21,219 Construction in process 3, ,203 Buildings and improvements 684, ,567 Furniture Fine art 4, ,111 Equipment 14, ,817 Computers 41, ,256 Software 26,899 26,899 Textbooks and library books 78, ,836 Vehicles 16,151 1,811 17, ,559 2, ,947 Less accumulated depreciation/amortization (519,676) (1,289) (520,965) Total capital assets, net 370,883 1, ,982 Total assets 631,921 35, ,744 LIABILITIES Accounts payable and accrued liabilities 6,887 4,723 11,610 Accrued payroll liabilities 60, ,853 Contract retention Deferred and unearned revenue 4,006 1,397 5,403 Accrued interest 2, ,202 Current portion of long term debt 14, ,695 Long term debt, net of current portion 230, ,405 Premium on bonds payable 13,750-13,750 Special termination benefits 13,031 13,031 Total liabilities 345,366 6, ,361 MET POSITION Net investment in capital assets 112, ,132 Restricted for: Debt service 32,551 32,551 Capital projects 42,015-42,015 Scholarships 12,528 12,528 Other purposes 14,446-14,446 Unrestricted: Designated for scholarships 12,403 12,403 Unrestricted 85,125 3,183 88,308 Total net position $ 286,555 28, ,383 See accompanying notes to the financial statements

58 Statement of Activities For the Year Ended August 31, 2013 (Thousands of Dollars) Programs Revenue s Net (Expenses) Revenue and Changes in Net Position Primary Government Disbursements Operating Businessand Charges for Grants and Governmental Type Functions/Programs Expenditures Services Contributions Activities Activities Total Governmental activities Basic instruction $ 251, ,652 (211,795) - (211,795) Special education 56, ,964 (4,706) (4,706) Student services 64,361 3,937 2,590 (57,834) (57,834) Staff support services 27,128-2,619 (24,509) - (24,509) General administration and board of education 12,503 - (12,503) - (12,503) School administration 29, (29,087) ~ (29,087) Business support services 36, ,620 (34,758) (34,758) Building and grounds 47, (47,711) (47,711) Building, construction, renovation 5, (4,691) (4,691) Student transportation 35,609 7,362 - (28,247) (28,247) Community use of facilities 12,755 7,045 (5,710) (5,710) Early childhood special education 11,295 5,747 (5,548) (5,548) Regular summer school 5, (5,798) (5,798) Adult basic education (758) (758) Debt service interest 10, (10,536) (10,536) Total governmental activities 607, BB 111,709 (484,191) - (484,191) Business type activities Cooperative activities 44, (44,856) (44,856) Foundation 10, (10,441) (10,441) OESA 195 (195) (195) Other 7, (7.441) (7,441) Total business activities (62.933) (62,933) Total primary government. $ 670,521 11, ,709 (484,191) (62,933) (547,124) General Revenues Taxes 298, ,260 Investment income 251 1,190 1,441 State funding 184, ,064 Federal funding. 1,696 7,946 9,642 Fines and licenses 3,913-3,913 Other revenue 11,424 63,141 74,565 Other non-operating Total general revenues 500,420 72, ,068 Net transfers 7 (7) - Change in net position 16,236 9,708 25,944 Net position, beginning of year 262,487 19, ,607 Prior period adjustment " 7,832 Net position, beginning of year, restated Net position, end of year $ 286, See accompanying notes to the financial statements 14

59 Balance Sheet - Governmental Funds August 31, 2013 (Thousands of Dollars) Special Debt Other Total General Building Grant Service Governmental Governmental Fund Fund Fund Fund Funds Funds ASSETS Cash and cash equivalents $ 59,576 34,996 13,494 19,340 9, ,209 investments.. 12,097 5,670 17,767 Property taxes receivable 14, , ,298 Accounts receivable , ,959 Accrued interest _ Due from other funds 23, ,995 Inventories 2,216 - _ 241 2,457 Prepaid expenses 1, ,048 2,949 Total assets $ 101,608 34,996 41,084 32,551 17, ,635 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 2,832 1, _ 434 5,473 Payroll liabilities 35,241-2, ,658 Due to other funds 1, , ,080 Deferred revenue _ 3, ,006 Contract retention Total liabilities 39,656 2,679 29, ,629 Fund balances Nonspendable 3, ,289 5,406 Restricted - 32,317 10,516 32,551 12,193 87,577 Committed _ _ Assigned 2, ,545 4,539 Undesignated 55, ,566 Total fund balances ,317 11,241 32,551 15, ,006 TotaS liabilities and fund balances $ 101,608 34,39() 41,084 32,551 17,396 RECONCILIATION Amounts reported for governmental activities in statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore are not reported in the funds. Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. Other liabilities are not due and payable in the current period and therefore are not reported in the funds. Other assets are not due and receivable in the current period and therefore are not reported in the funds. Internal service funds are used by management to charge the costs of certain activities, such as, insurance and vehicles to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Net position - governmental activities 366,970 (260,664) (29,943) 1,801 54,385 $ 286,555 See accompanying notes to the financial statements 15

60 Statement of Revenue, Expenditures, and Changes in Fund Balances - Governmental Funds For the Year Ended August 31, 2013 (Thousands of Dollars ) REVENUES Taxes Tuition Fees Investment income State receipts Federal receipts Fines and licenses Other receipts Tota! revenues - 270, ,255 6, , ,132 « , , ,574-1,491 67,651 3, ,913 4, , Special Debt Other Total General Building Grant Service Governmental Governmental Fund Fund Fund Fund Funds Funds EXPENDITURES Current Basic instruction 228,209 29, , ,275 Special education 47,561 9,344 56,905 Student services 30,766-2,973 6,481 40,220 Staff supported services 15, ,107 8,868 27,332 General administration and board of education 6,706 «3, ,420 School administration 29, ,562 Business support services 24, ,111 31,257 Building and grounds 46, ,163 47,936 Building, construction, renovation 16,162 1,188 17,350 Student transportation 35, ,176 Community use of facilities & regular preschool education 2,826 «9, ,761 Early childhood special education 6,419 4,912-11,331 Summer school 5, ,787 Adult education Debt service Debt service Interest ~ 8,242 2,732 10,974 Debt service principal ,495 1,015 13,510 Property tax recapture Total expenditures 480,225 16,190 65,833 20, ,522 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 11,181 (15,668) 629 1,265 2,146 (447) OTHER FINANCING SOURCES (USES) Transfers in (out) 1,203 - (1,203) NET CHANGE IN FUND BALANCE 12,384 (15,668) (574) 1,265 2,146 (447) FUND BALANCES, BEGINNING OF YEAR FUND BALANCES, END OF YEAR $ 61, , , ,006 RECONCILIATION Net change in fund balances - total governmental funds Internal sen/ice funds are used by management to change the cost of certain activities to individual funds The change in net position is reported with governmental activities. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of these assets is allocated over their useful lives and reported as depreciation expense. Repayment of bond principal is an expenditures in the governmental funds, butthe repayment reduces long term liabilities In the statement of net position. Revenues in the statements of activities that do not provide a current financial resource are not reported as revenue in the funds. Some expenses reported In the statement of activities do not require the use of current financial resources and are therefore not reported as expenditures in governmental funds. Change In net position - governmental activities (447) 1,972 (273) 13, , See accompanying notes to the financial statements 16

61 Statement of Net Position - Proprietary Funds August 31, 2013 (Thousands of Dollars ) ASSETS Current assets Business-type Activities Enterprise Funds Cooperative Foundation OESA Totals Governmental Activities Internal Service Funds Cash and cash equivalents $ 1,186 1, ,634 50,259 Investments - 20,008-20,008 3,782 Accounts receivable 2, , Due from other funds 1,525 - «1,525 - Promise to give 7, ,774 - Prepaid expenses Inventories Total current assets Noncurrent assets Capital assets Building and improvements Furniture and equipment ,185 Fine art « Textbooks and library books Vehicles - 1, ,811 4,749 Construction in progress Less accumulated depreciation (15) (85) (926) (263) (1.289) (5.853) Total capital assets, net ,915 Total assets $ ,263 60,594 LIABILITIES Current liabilities Accounts payable $ 2, ~ 23 3,125 1,414 Payroll liabilities ,795 Other liabilities ,598 - Accrued interest Deferred and unearned revenue 1, ,397 - Due to other funds Current portion of bonds payable Total liabilities 5, NET POSITION Net investment in capita! assets ,915 Restricted for scholarships and other purposes - 12, ,528 - Unrestricted Designated for scholarships - 12, ,403 - Unrestricted (1) 3,317 (3) (130) 3,183 50,470 Total net position (58) 28,828 54,385 Total liabilities and net position $ 5,318 29, ,263 60,594 See accompanying notes to the financial statements 17

62 Statement of Revenue, Expenditures, and Changes in Fund Net Position - Proprietary Funds For the Year Ended August 31, 2013 (Thousands of Dollars ) Business-type Activities Governmental Enterprise Funds Activities Internal Service Cooperative Foundation OESA Other Totals Fund OPERATING REVENUES School lunch charges $ ,082 Other operating revenues ,665 63,141 5,064 Total operating revenues , OPERATING EXPENSES Salaries 1,034 1,875-4,441 7,350 8,360 Employee benefits ,124 6,059 Purchased services' 43, ,584 1,868 Supplies and materials ,391 Capital outlay Other expenditures 204 8, ,419 9,888 2,868 Commodities expense Total operating expenses 44, ,441 62, OPERATING INCOME (LOSS) (4.976) 8, (3,776) 208 (24.222) NON-OPERATING REVENUES Employer contribution ,530 Interest and investment income State subsidies Federal subsidies 4, ,974 7,946 21,449 Unrealized/realized gain Total non-operating revenues ,345 9, NET INCOME (LOSS) (4) 9, (431) 9,715 1,972 TRANSFERS OUT (7) _ (7) _ CHANGES IN NET POSITION (11) (431) ,972 NET POSITION, BEGINNING OF YEAR NET POSITION, END OF YEAR $ 7 28, (58) 28,828 54,385 See accompanying notes to the financial statements 18

63 Statement of Cash Flows - Proprietary Funds For the Year Ended August 31, 2013 (Thousands of Dollars) Business-type Activities Enterprise Funds Internal Service Cooperative Foundation OESA Other Total Funds CAS.H FLOWS FROM OPERATING ACTIVITIES Received from user charges i E 38, ,342 4,082 Received from nonrevenue sources ,024 Received from contributions 11, ,372 - Received from other operating receipts 116 2, ,812 6,647 - Payments to employees (1,310) (1,843) - (5,274) (8,427) (8,324) Payments of employee benefits «(5.687) Payments to suppliers for goods and services (19,640) (7,570) - (706) (27,916) (15,085) Payments for contracted services - transportation (22,120) (22,120) - Payments for scholarships - (365) - (365) - Payments for grants - (2,073) - - (2,073) Payments for other expenditures (204) - - (1,374) (1,578) (2,840) Payments to affiliates (7) -.. «(7) - Cash provided by (used in) operating activities (4.823) 1, (3,542) (6,125) (22,830) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Federal and state subsidies 4, ,345 8,317 21,657 Employer contributions ,530 Cash provided by noncapital financing activities 4, ,345 8,317 26,187 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Payments for equipment - - (3) (3) (697) Interest payments on long-term debt - - (17) - (17) - Payments on capital lease obligations - - (370) (370) - Cash used in capital and related financing activities - (387) (3) (390) (697) CASH FLOWS FROM INVESTING ACTIVITIES Investment activity, net - (2,049) - - (2,049) (322) NET CHANGE IN CASH AND CASH EQUIVALENTS 149 (186) (10) (200) (247) 2,338 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,037 1, ,881 47,921 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,186 1, ,634 50,259 - Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) $ (4,976) 8, (3,776) 208 (24,222) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities Depreciation Interest expense Transfers to affiliates (7).. - (7) - (Increase) decrease in accounts receivable (1.538) (4) 149 (1,393) (40) Increase in promises to give «(5,501) - - (5,501) - Decrease in inventory and prepayments - « (384) Increase in accounts payable 1, , Increase in payroll liabilities Decrease in other liabilities (300) (1.714) - (2) (2,016) (70) Net cash provided by (used in) operating activities $ (4.823) 1, (3,542) (6,125) (22,830) See accompanying notes to the financial statements 19

64 Statement of Net Position - Fiduciary Funds August 31, 2013 (Thousands of Dollars) Employee Retirement Plan Private- Purpose Trusts Agency Funds ASSETS Current assets Cash and cash equivalents $ 9, Investments 1,160,326 - Accrued.investment income 3,468 - Accounts receivable Contributions receivable 4,921 - Other assets 32 - ~ Total current assets 1,178, Noncurrent assets Capital assets Furniture and equipment Textbooks and library books -- 2 Less accumulated depreciation (8) (1) Total capital assets, net 1 Total assets 1,178, LIABILITIES AND NET POSITION Liabilities Accounts payable Payroll liabilities 7, Total liabilities 8, Net position Held in trust for pension benefits and other purposes $ 1,170, See accompanying notes to the financial statements 20

65 Statement of Changes in Fiduciary Net Position For the Year Ended August 31, 2013 (Thousands of Dollars) ADDITIONS Contributions Plan member contributions Employer contributions State contributions Employee Retirement Plan $ 29,197 29,581 5,544 Private- Purpose Trusts Total contributions 64, Investment income Interest and dividends Net appreciation in fair value of investments 33,996 76, Total investment income 110, Less investment expense (5,036) Net investment income 105,313 Purchase of service Other Net additions 170, DEDUCTIONS Retirement annuities Refunds to employees, including interest Administrative expenses - Personnel costs Professional fees Other 92,104 3, Total deductions 95, CHANGE IN NET POSITION 74,782 (13) NET POSITION, BEGINNING OF YEAR 1,095, NET POSITION, END OF YEAR $ 1,170, See accompanying notes to the financial statements 21

66 Notes to Basic Financial Statements August 31, (1) Summary of Significant Accounting Policies The following is a summary of the significant accounting policies of Douglas County School District #0001 (the District). The District has prepared its financial statements in accordance with generally accepted accounting principles (GAAP), which is a comprehensive basis of accounting generally accepted in the United States of America. A. Reporting Entity The governmental reporting entity consists of the District (Primary Government) and its component units. Component units are legally separate organizations for which the District is financially accountable or other organizations whose nature and significant relationship with the District are such that exclusion would cause the District's financial statements to be misleading or incomplete. Financial accountability is defined as the appointment of a voting majority of the component unit's board, and (i) either the District's ability to impose its will on the organization or (ii) there is potential for the organization to provide a financial benefit to or impose a financial burden on the District. The basic financial statements include only blended component units. The blended component units, although legally separate entities are, in substance, part of the District's operations and so data from these units are combined with data of the primary government. For financial reporting purposes, the District's basic financial statements include all financial activities that are controlled by or are dependent upon the actions taken by the District. The financial statements of the individual component units may be obtained from the District, the Omaha Schools Foundation, or Educare of Omaha, Inc. Educational Service Unit No. 191Blended Component Unit within Other Governmental Funds) On June 19,1972, the Board of Education (the Board) of the District, through official resolution and under powers from LB 928 passed by the Nebraska State Legislature, established Educational Service Unit No. 19 (ESU). ESU was originally designed to provide educational data processing to the District and, on a cost reimbursable basis, to other districts throughout the State of Nebraska. Currently, its core services include, but are not limited to; staff development, technology, and audio-visual services. The Governing Board of ESU maintains a posture of cooperating with other school districts. However, ESU's first responsibility is to the students and patrons of the District. ESU has an August 31 fiscal year end and the information included herein is as of and for the year ended August 31, Friends of KIOS (Blended Component Unit within Other Governmental Funds) Friends of KIOS was created as a fund raising entity for KIOS-FM, the radio station of the District. The amounts raised are to be exclusively used to benefit the Omaha Public Schools radio station, KIOS. For IRS purposes, this entity is classified as a 501(c)(3) corporation. Friends of KIOS has an August 31 st fiscal year end and the information included herein is as of and for the year ended August 31,

67 Notes to Basic Financial Statements August 31, Omaha Schools Foundation (Blended Component Unit within Enterprise Funds) The Omaha Schools Foundation (the Foundation) is a not-for-profit entity classified as a 501(c)(3) entity by the IRS. The Foundation was organized to solicit and receive contributions, gifts, grants, devises, or bequests of real or personal property or both and to use the income and principle exclusively for the benefit of the public schools operated by the District. The Foundation also administers programs beneficial to the education of pre-kindergarten or school age children. The Board of Directors manages the business and affairs of the Foundation. The number of Directors of the Board shall not be less than nine nor more than eighteen; one of which shall at all times be a member of the Board of Education of the District; one shall be the President of the Omaha Education Association; and one of which shall be the President of the Omaha Council PTA/PTSA, or designee. The members-at-large are appointed by the Board of Education of the District in consultation with the Superintendent. The Secretary of the Board of Education of the District also serves as a member of the Board of Directors, in the office of the Treasurer. The Foundation has a December 31 year end. The financial data included here, for the Foundation, are as of and for the year ended December 31, Omaha Education Services Agency (Blended Component Unit within Enterprise Funds) On November 21, 2005, the Omaha Education Services Agency was created as a governmental agency pursuant to the Interlocal Cooperation Act of Nebraska as defined in State Statute Sections to of R.R.S. Neb The Board of Directors shall consist of the President of the Board of Education of Douglas County School District #0001 (serving as the agency's president), the Vice-President of the Board of Educational Service Unit No. 19 (serving as the agency's vice-president), the Superintendent of Douglas County School District #0001 (serving as the agency's secretary/treasurer) and the Assistant Superintendent of Douglas County School District #0001 (serving as the agency's assistant secretary/treasurer). The Omaha Education Services Agency will support the educational missions of the member organizations by providing or contracting for the acquisition, finance, operation and maintenance of equipment, software, services and real estate. The Omaha Education Services Agency has an August 31 fiscal year end and the information included herein is as of and for the year ended August 31, Educare of Omaha. Inc. (Blended Component Unit within Enterprise Funds) On March 31, 2002, Educare of Omaha was formed as a 501(c)(3) organization to provide educational and developmental programs to pre-kindergarten children meeting designated criteria, including but not limited to LB 759. The Board of Directors shall not be less than four or more than nine members. All current representatives must agree to add more members to the Board. Otherwise, the number of Board members shall remain at four. Educare of Omaha administers programs that are beneficial to the education of pre-kindergarten age children. The financial data included in the financial statements for Educare are as of and for the fiscal year ending August 31,2013. B. Basic Financial Statements - Government-Wide Statements The District's basic financial statements include both Government-wide (reporting the District as a whole) and fund financial statements (reporting the District's major funds). The Government-wide financial statements categorize activities as governmental or business-type and exclude any fiduciary activity. 23

68 Notes to Basic Financial Statements August 31, C. Basic Financial Statements - Fund Financial Statements The emphasis in fund financial statements is on the major funds in either the governmental, proprietary or fiduciary activity categories. Non-major funds by category are summarized into a single column. GASB Statement No. 34, as amended, sets forth minimum criteria for the determination of major funds. The District uses the following fund categories for presentation in its financial statements: 1. Governmental Funds The General Fund is the general operating fund of the District. It is used to account for all financial resources except those that are required to be accounted for elsewhere. The Special Building Fund is used to account for (1) resources accumulated from tax levies and spent for Board authorized facility renovation and construction and (2) for revenues and expenditures for Board authorized facility renovation and construction and associated with the issuance of General Obligation Bonds. The Debt Service Fund is used to account for resources accumulated from tax levies and are spent for Board authorized General Obligation Bond debt and interest payments. The Grant Fund is used to account for all revenues and Board authorized expenditures for programs that have Federal, State, or private funding. All other governmental funds are aggregated for purposes of the financial statement presentation. 2. Proprietary Funds The business-type proprietary funds are used to account for activities of the District that are similar in nature to business in the private sector. The Cooperative Fund records activities of the District in the context of cooperative activities between two or more political subdivisions as defined in the Interlocal Agreement Act. The Foundation records the activities of a 501(c)(3) non-profit that receive donations on behalf of the District and administers programs that are beneficial to the education of prekindergarten and school age children. Omaha Education Service Agency (OESA) records the activities of a governmental agency to support the education mission of the District by providing for the acquisition, finance, operation and maintenance of equipment, software, services and real estate. All other enterprise funds are aggregated for the purposes of financial statement presentation. The Internal Service funds are used to account for financing of goods or services provided by an activity to other departments, funds, or component units of the District. They are also used to account for self-insurance funds to accommodate risk financing. The District's internal service funds are presented in the Proprietary Fund financial statements. Because the principal users of the internal services are the District's governmental activities, the financial activity of the internal service fund is included in the governmental activities column when presented in the Government-wide financial statements. 24

69 Notes to Basic Financial Statements August 31, Fiduciary Funds The Fiduciary Funds are used to report assets held in a trustee or agency capacity for others and therefore are not available to support the District's programs. Since by definition these assets are being held for the benefit of a third party, these funds are not incorporated into the Government-wide financial statements. D. Measurement Focus and Basis of Accounting The Government-wide, proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property tax is recognized as revenue in the year for which it is levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been satisfied. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period Property tax, intergovernmental revenues (shared revenues, grants and reimbursements from other governments) and interest associated with current fiscal period are all considered to be susceptible to accrual. All other revenue items are considered to be measurable and available only when cash is received by the District. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, principal and interest on long-term debt, claims and judgments and compensated absences are recognized as expenditures only when payment is due. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the District funds certain programs by a combination of specific cost-reimbursement grants and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the District's policy to first apply cost-reimbursement grant resources to such programs and then general revenues. Proprietary funds distinguish operating revenues and expenses from non-operating 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 District's proprietary funds are charges to customers for services and contributions for program purposes. Operating expenses for proprietary funds include the cost of providing services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. E. Budget Process The District prepares the operating budgets for the various funds. The basis of accounting for budgetary purposes is the same as that used for regulatory reporting purposes permitted by the Nebraska Commissioner of Education, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. The operating budget includes disbursements and their financing means. Public hearings are conducted to obtain taxpayer comments. The budget is legally adopted by the Board of Education through passage of a resolution in accordance with state statutes. Total disbursements cannot legally exceed the adopted budget. Any revisions to the adopted budget must be approved by the Board of Education following a hearing to obtain taxpayer comments. 25

70 Notes to Basic Financial Statements August 31, F. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. G. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. H. Investments Investments are reported at fair value. Securities traded on the national or international exchange are valued at the last reported sales price at current exchange rates. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair value. I. Receivables All receivables, including property taxes receivable, are shown net of an allowance for uncollectible amounts, if applicable. Property taxes are assessed, levied, due and payable on a calendar year basis as of December 31, based on an assessed valuation as of each January 1, and are payable in two equal installments on or before March 31 and July 31. Property taxes become delinquent April 1 and August 1. Property taxes receivable represents the amount of tax levied for the current year, which is uncollected as of August 31. J. Inventories and Prepaids Inventories in governmental funds consist of expendable supplies held for consumption. They are reported at weighted average cost which is recorded as expenditure at the time individual inventory items are used. Proprietary fund and similar component unit inventories are recorded at cost on a first-in, first-out basis. Prepaids are payments to vendors that benefit future reporting periods also reported on the consumption basis. Both inventories and prepaids are similarly reported in Government-wide and fund financial statements. K. Capital Assets, Depreciation and Amortization The District's property, plant and equipment with useful lives of more than one year are stated at historical cost and reported in the Government-wide financial statements. Proprietary capital assets are also reported in their respective fund financial statements. Donated assets are stated at fair value on the date donated. The District generally capitalizes assets with cost of $5,000 or more. The costs of normal maintenance and repairs that do not add to the assets value or materially extend useful lives are not capitalized. Capital assets are depreciated over their estimated useful lives using the straight-line method. When capital assets are disposed, the cost and applicable accumulated depreciation/amortization are removed from the respective accounts, and the resulting gain or loss is recorded in operations. Estimated useful lives, in years, for depreciable assets are as follows: 26

71 Notes to Basic Financial Statements August 31,2013 Buildings and improvements Furniture and equipment, computers, art, textbooks and vehicles years 3-10 years The District has policy to recognize works of art at cost upon acquisition or fair market value if donated at time of acquisition. L Deferred and Unearned Revenue Although certain revenues are measurable, they are not available. Available means collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period. Unearned revenue in the governmental fund financial statements represents the amount of assets that have been recognized, but the related revenue has not been recognized to be used to pay liabilities of the current period or expected to be collected soon enough thereafter to be used to pay liabilities of current period. In the statement of net position, deferred revenue represent the deferral of grant proceeds for specific projects which have not commenced. M. Compensated Absences Full time 12-month employees accrue vacation on a semi-monthly or monthly basis, depending on the applicable pay period. All unused days from prior years are carried over, however, the maximum accumulated vacation days can never exceed the current year authorization plus 5 days. Days can be used, or paid to the employee if the employee terminates employment or transfers to a position, which no longer qualifies for vacation. Payment is the number of days remaining times the employee's daily rate of pay. All full time employees are eligible for sick leave benefit days. Days are awarded annually on August 1 and days from prior years carry over. Ten-month employees earn 10 days annually and 12-month employees earn 12 days annually. Employees can carry up to maximum balance dependent on their number of annual duty days worked and as specified per negotiated contracts. If an employee retires through normal or early retirement, and has more than 10 sick days accrued, they are eligible to participate in the accumulated sick leave conversion program. Accumulated days are converted to a health reimbursement account or tax sheltered annuity 403(b) on the employee's behalf at 50% of their pay rate (Note 8). Employees that have a balance of 10 days or less are paid the value of their day as per the calculation above. Certificated Employees that have at least 18 years of creditable service and classified employees that have at least 20 years of creditable service are eligible for the sick leave conversions program. The calculation is same as above. Total obligations as of August 31, 2013 for compensated absences amounted to $19,255,208 for the governmental activities, $0 for the business type activities and $64,914 for the fiduciary activities, included in accrued payroll liabilities in the statement of net position. N. Interfund Transactions In the process of aggregating the financial information for the Government-wide financial statements, some amounts reported as interfund activity and balances in the fund financial statements have been eliminated or reclassified. Transactions among District funds that would be treated as revenue and expenditures or expenses if they involved organizations external to the District are accounted for as revenue and expenditures or expenses in the funds involved. 27

72 Notes to Basic Financial Statements August 31, 3201 Transactions, which constitute reimbursements to a fund for expenditures initially made from it, which are properly applicable to another fund, are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the reimbursed fund. 0. Net Position/Fund Balance The District considers that all incurred and spent restricted, committed, and assigned amounts have been utilized first before unassigned amounts are made. Fund Balance of the District's Governmental Funds are classified in the financial statements as follows: Nonsoendable Fund Balance consists of amounts that cannot be spent because they are either (a) not in a spendable form or (b) legally or contractually required to be kept intact. Restricted Fund Balance consists of amounts that are restricted for specific purposes. These restrictions are either imposed by 1) externally imposed by creditors, grantors contributors, or laws or regulations of other governments or 2) imposed through constitutional provisions or enabling legislation. Committed Fund Balance consists of amounts that can only be used for specific purposes pursuant to constraints imposed by formal actions of the government's highest level of decision making authority. These amounts cannot be used for any other purpose unless the government removes or changes the specific use by taking the same type of action it used to commit those amounts. The Board of Commissions is the District's highest level of authority. All actions concerning approving, eliminating, or modifying of minimal fund balances will be accomplished through resolution. Assigned Fund Balance consists of amounts that are constrained by the government intended to be used for specific purposes, but are neither restricted nor committed. The authority for making an assignment is not required to be the government's highest decision making authority. Furthermore, the nature of the actions necessary to remove or modify an assignment is not as prescriptive as it is with regards to committed fund balances. The District management staff will have the overall responsibilities for monitoring these balances. Unassigned Fund Balance is the residual classification for the general fund. The general fund is the only fund to report a positive unassigned fund balance. Net position of the District is classified in the Fiduciary, Proprietary and Government-Wide statements of net position are defined as follows: Net investment in capital assets consist of capital assets net of accumulated depreciation and reduced by the current balances of any outstanding borrowings used to finance the purchase or construction of those assets. Restricted net position results when constraints placed on net position use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted net position is remaining net position that does not meet the definition of net investment in capital assets or restricted. The District first applies restricted resources when an expense incurred for purposes for which both restricted and unrestricted resources are available. 28

73 Notes to Basic Financial Statements August 31, Minimal Fund Balance Policy As defined by Governmental Accounting Standards Board Statement No. 54, the unassigned fund balance is equal to the amount of fund balance which is not classified as restricted, committed or assigned. The unassigned fund balance for the general fund shall be maintained at a level between 5% and 15% of the prior year's expenditures of the general fund per the. audited financial statements. In any instance, unassigned fund balance shall be maintained at a level which is compliant with Nebraska Revised Statute Section The purpose of the unassigned fund balance is to maintain sufficient cash flow, maintain investment grade bond ratings, offset revenue shortfalls and provide funds for unforeseen expenditures related to emergencies. Fund balance calculations shall be made on an annual basis and reported in the District's audited financial statements. Should the unassigned general fund balance as reported on the audited financial statements fall below the minimum 5% the District will budget to replenish the shortfall through reducing recurring expenditures or increasing revenues in next available budget cycle plans not to exceed three years. Should the unassigned general fund balance as reported on the audited financial statements fall above the maximum 15% for two consecutive years the District will consider such fund balance surplus for one-time expenditures that are nonrecurring in nature in the next available budget cycle plans. The unassigned fund balance may be expended below the minimum 5% for an extraordinary circumstance or nonrecurring emergency that the District's Board of Education authorizes. Administrative staff recommendations related to the fund balance shall occur throughout the budget development process. The annual fund balance plan is approved by the Board of Education with the annual approval of the school district budget. O. Endowments Endowment funds consist of funds that are subject to restrictions of gift instruments requiring that the principal be invested and only the income can be expended. The non-expendable endowment net position is the aggregate original amounts of all contributions received that shall not be expended. The expendable endowment position is the aggregate revenues (investment revenue, realized gains/losses and unrealized gains/losses) and expenses (scholarships, other and investment expenses) of the endowment funds. P. Income Taxes The Foundation, Educare of Omaha, Inc. and Friends of KIOS are not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Code, and have received determination letters stating that they are exempt from federal income taxes on related income pursuant to Section 501(a) of the Internal Revenue Code. The Internal Revenue Service has established standards to be met to maintain tax exempt status. The Foundation, Educare of Omaha, Inc. and Friends of KIOS account for uncertainties in accounting for income tax assets and liabilities using guidance included in ASC Topic 740, Income Taxes. The Foundation, Educare of Omaha, Inc. and Friends of KIOS recognize the effect of income tax positions only if those positions are more likely than not of being sustained. As of the balance sheet date, Educare and Friends of KIOS have no uncertain tax positions accrued. Educare of Omaha, Inc. and Friends of KIOS are no longer subject to income tax examinations for years ended prior to August 31, As of the balance sheet date, the Foundation has no uncertain tax positions accrued. The Foundation is no longer subject to income tax examinations for years ended prior to December 31,2009. Q. Change in Accounting Principle During 2013, the District adopted the provision of GASB Statement No. 63. GASB Statement No. 63 required additional changes such as now referring to "Net Assets" as "Net Position" on the statement of net position. 29

74 Notes to Basic Financial Statements August 31, R. Subsequent Events The District considered events occurring through November 13, 2013 for recognition or disclosure in the financial statements as subsequent events. That date is the date the financial statements were available to be issued. (2) Deposits and Investments A. Douglas County School District #0001 Nebraska Revised Statute provides that the District may, by and with the consent of the Board of Education of the District, invest the funds of the District in securities, including repurchase agreements, the nature of which individuals of prudence, discretion and intelligence acquire or retain in dealing with the property of another. Collateral is required for any demand deposits, savings accounts, and certificates of deposit at 102% of all amounts not covered by federal deposit insurance. Obligations that may be pledged are as follows: U.S. Treasury Bills, Treasury Notes, and Treasury Bonds or other United States securities guaranteed by or for which the credit of the United States is pledged for the payment of principal and interest or dividends. Bonds, debentures or other obligations issued by the Federal National Mortgage Association, the Federal Home Loan Corporation, or Government National Mortgage Association or any other obligations of any agency controlled or supervised by and acting as an instrumentality of the United States government pursuant to Authority granted by Congress of the United States whose timely payment is unconditionally guaranteed by the United States of America. > Credit Risk The credit quality of the bond mutual funds held by the Capital Projects Fund and the Debt Service Fund are listed below: Credit Quality Distribution of Securities with Credit Exposures as a Percentage of Each Bond Fund are listed below: Credit Quality Distribution of Securities with Credit Exposures as a Percentage of Each Bond Fund US Bank US Bank US Bank US Bank US Bank ARRA Sinking Sinking Sinking Sinking QSCB'10 QSCB'10 QSCB'09 Q2AB'03 QZAB'02 Percentage US Treasury Bill Percentage of FHLMC Disc Note Percentage of FN MA Disc Note Percentage of SLGS 100% 100% 100% 100% 100% 30

75 Notes to Basic Financial Statements August 31, The District does not have a formal policy limiting investment maturities that would help manage its exposure to fair value losses that may result from increasing interest rates. Maturity (Years) As a Percentage of Market Value 0 to % > Individual Debt Investment The District's funds at August 31, 2013 contained no individual highly sensitive debt investments with exposure to interest rate changes. > Foreign Currency Risk There is no foreign currency risk in any of the District's investments. B. Omaha Schools Foundation > Carrying Values of Deposits and Investments The carrying value of deposits as of December 31, 2012 is as follows: Cash in financial institutions $ 1,339,352 The carrying value of investments as of December 31,2012 is as follows: Money market funds $ 158,033 U.S. government agencies 4,551,929 Mortgage-backed securities 5,438 Corporate bonds 2,960,337 Mutual funds 7,319,799 Municipal obligations 1,935,124 Real estate investments trust 345,791 Common equity securities 2,294,526 Other investments 437,324 Total $ 20,008,301 > Legal and Contractual Provisions The Board of Directors has established the investment policy of the Foundation. The investment policy emphasizes a balance of both income and growth of the principal. The Foundation can invest in equity and fixed income securities. The portfolio may consist of corporate notes, corporate bonds, mortgaged back bonds, preferred stock, collateralized mortgage obligations, corporate debt securities, money market accounts, and fixed income common trust funds, equity mutual funds, common stocks and common trust funds. 31

76 Notes to Basic Financial Statements August 31, > Deposit Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the Foundation's deposits may not be returned. The Foundation does not have a deposit policy for custodial credit risk. > Investment Credit Risk It is the Foundation's policy to minimize credit risk and to avoid extreme fluctuations in both the market value and the income from bond investments. Bonds with a credit rating of "A" or better are eligible for investment. The Foundation's investments in money market funds, U.S. Government Agencies and corporate bonds were rated by Standard & Poor's or Moody's as follows: Mortgage- Real Estate Mutual Funds, Credit Government Municipal Corporate Backed Investment Common Money Market, Ratin g Securitie s Bond s Bond s Securitie s Trust s Stock s and Other AAA $ 3,826, , ,323 - AA 225,704 1,666, ,377 - A - 959, BBB , BB - 96,723 - ' -- Not rated 500, ,187,98 5 5, ,791 2,294,52 6 7,915,156 Total $ 4,551,929 1,935,124 72,960,33 5, ,791 2,294,526 7,915,156. > Concentration of Credit Risk The Foundation's diversification policy is consistent with the need to avoid significant capital losses to the portfolio. As such, no single entity shall comprise more than 5% of the portfolio's assets and no investment in a single issuer shall compromise a similar amount, except for obligations of the federal government, federal agencies and mutual funds. > Interest Rate Risk The Foundation does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Maturities (in years) Government Securities Municipal Bonds Corporate Bonds Mortgage- Real Estate Mutual Funds, Backed Investment Common Money Market, Securities Trusts Stocks and Other Less than or more No maturity $ 100,684 3,937,341 61, , ,579 1,136,934 27,611 56,559 1,386, , , ,499 5, ,791 2,294,526 7,915,156 Total $ 4,551,929 1,935,124 2,960,337 5, ,791 2,294,526 7,915,156 32

77 Notes to Basic Financial Statements August 31, C. Omaha School Employees' Retirement System > Legal and Contractual The Retirement System's investments are governed by State Statute and These statutes state that the Trustees of the Retirement System, with approval of the Board of Education, shall invest and reinvest funds of the retirement system. The Board of Education shall approve or deny the investments each month. The trustees shall invest the funds of the retirement system in investments of the nature which individuals of prudence, discretion, and intelligence acquire or retain in dealing with property of another. Such investments shall not be made for speculation but for investments, considering the probable safety of their capital as the probable income derived. The trustee shall not purchase investments on margin or enter futures contracts or other contract obligations which requires the payment of margin or enter into any similar contractual arrangement which may result in losses in excess of the amount paid or deposited with respect to investment contracts, unless such transaction constitutes a hedging transaction or is incurred for the purpose of portfolio or risk management for the funds and investments of the system. The Trustee may write covered call options or put options. The trustee may lend any security if cash, United States obligations or United States government agency obligations with a market equal to or exceeding the market value of the security lent or received as collateral. > Credit Risk The credit quality of the bonds held in the portfolio is listed below. Each bond investment manager is required to invest according to investment guidelines, including credit quality, established for them by the Board of Trustees. Treasury $ - Agency - -- AAA 22,201, % AA 2,213, % A 22,172, % BBB 26,048, % BB 42,788, % B 63,149, % CCC 777, % CC C/D NR 2,700, % Total Value $ 182,052, % 33

78 Notes to Basic Financial Statements August 31, > Interest Rate Risk The Retirement System's funds do not have a formal policy limiting investment maturities that would help manage its exposure to fair value losses that may result from increasing interest rates. Maturity As a Percentage of (Years ) Market Value 0 to % 5 to % Over % > Foreign Currency Risk The exposure to foreign currency is outlined below on a portfolio wide basis: Percentage of Currenc y Market Value Portfoli o Australian Dollar $ 6,422, % British Pound 16,437, % Canadian Dollar 3,217, % Danish Kroner 3,167, % Euro 6,494, % Hong Kong Dollar 14,666, % Singapore Dollar 16,966, % Swedish Krona 3,045, % Swiss Franc 3,323, % Japanese Yen 10,861, % US Dollar 1,079,191, % Total $ 1,163,794, % The Retirement System's foreign currency-denominated investments include traded on a national exchange. 34

79 Notes to Basic Financial Statements August 31, The following is a summary of investments at August 31, 2013: Currenc y i Market Value Cash equivalents $ 4,426,413 US government securities 19,776,344 Municipal bonds 5,682,659 Domestic corporate bonds 184,381,996 Domestic common stocks 283,817,013 International common stocks 84,154,790 Limited partnerships 543,915,195 Collective equity funds 34,171,554 Accrued income 3,468,401 Total $ 1,163,794,365 D. Friends of KIOS > Legal and Contractual The Board of Directors has established the investment philosophy of the Friends of KIOS. The investment philosophy emphasizes a balance of both income and growth. While the Friends of KIOS can invest in any type of investment available in the market, they have chosen to primarily follow the investment practices of the District. > Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the deposits may not be returned to it. The Friends of KIOS does not have a deposit policy for custodial credit risk. As of August 31, 2013, the Friends of KIOS had total deposits of $26,413. This amount was insured and collateralized. > Interest Rate Risk It is the practice of Friends of KIOS to minimize credit risk and to avoid extreme fluctuations in both the market value and the income from investments. The Friends of KIOS currently has an investment in the Weitz Value fund. The cash composite of the fund was 26.64% and the treasury bill composite was 16.22% of the fund balance as of August 31, The market value of the fund held by Friends of KIOS and the concentration of cash and bond securities on the fund are as follows: Equity Treasury Market Securities Bills Cash Value Weitz Fund $ 24,352 6,914 11,360 42,626 35

80 Notes to Basic Financial Statements August 31, > Individual Debt Investment The Friends of KIOS investments at August 31, 2013 contained no individual highly sensitive debt investments with exposure to interest rate changes. E. Educare of Omaha, Inc. > Legal and Contractual Educare of Omaha, Inc. currently does not have sufficient cash flow to allow for investment opportunities to maximize income for the organization. At such time as adequate funding is available for investing, the Board of Directors will adopt an investment policy. > Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the deposits may not be returned to it. Educare of Omaha, Inc. does not have a deposit policy for custodial credit risk. As of August 31, 2013, Educare of Omaha, Inc. had total deposits of $108,842 and the bank balance was $117,918. Educare maintains its cash balances at two financial institutions located in Omaha, Nebraska. Educare, at times, maintains balances in excess of Federal Deposit Insurance Corporation Insurance limits. Management believes the risk relating to these deposits is minimal. (3) Due From/Due To Other Funds The detail of interfund receivables and payables at August 31, 2013 is as follows: Receivable Fun d Due from other funds: General General General General General General Grant Due to other funds: Cooperative General General General General Governmental Activities: Payable Fund Fiduciary General Cooperative Grants Special Building Other Government Cooperative Total: General Grants Special Building Other Governmental General Total: Amount $ ,512 22,624, ,166 2, ,764 $ 23,994,425 $ 1,525,903 22,624, ,166 2, $ 25,080,976 36

81 Notes to Basic Financial Statements August 31, Receivable Fun d Due from other funds: Cooperative Due to other funds: Grant General Receivable Fun d Due to other funds: General Business-Type Activities: Payable Fund General Cooperative Cooperative Fiduciary Activities: Payable Fund Fiduciary Amount 1,525, ,764 34, ,276 Amount 76 Interfund receivables and payables balances consist of amounts related to revenue and expenditure transactions during fiscal year 2013 which will be repaid during fiscal year (4) Capital Assets and Depreciation Capital asset activity for the year ended August 31, 2013 was as follows: Beginning Balance Governmental Activities Prior Period Adjustment Additions Transfers Retirements Ending Balance Nondepreciable capital assets: Land Construction in process $ 19,005,162 47,696,893 2,213,852 17,471,808 (62,090,745) - 21,219,014 3,077,956 Total nondepreciable capital assets 66,702,055 2,213,852 17,471,808 24,296,970 Depreciable capital assets: Buildings and improvements 618,283,568 3,609, ,227 62,090, ,354,352 Furniture 10,924-22, ,299 Equipment 13,888,496-1,019,011 - (126,975) 14,780,532 Computers 37,962,869-5,287,177 - (2,130,804) 41,119,242 Software 26,869,910-28, ,898,767 Art 6,000 4,093, ,099,174 Textbooks and library books 72,767,685-6,057, ,825,344 Vehicles 16,224, ,483 - (122,431) 16,151,382 Total depreciable capital assets 786,013,782 7,702,986 12,834,789 62,090,745 (2,380,210) 866,262,092 Less accumulated depreciation/amortization 489,169,128 2,084,427 30,771,941 - (2,349,648) 519,675,848 Net depreciable capital assets 296,844,654 5,618,559 (17,937,152) 62,090,745 (30,562) 346,586,244 Net capital assets $ 363,546,709 7,832,411 (465,344) 62,090,745 (30,562) 370,883,214 37

82 Notes to Basic Financial Statements August 31,2013 Business-Type Activities Beginning Prior Period Ending Balance Adjustment Additions Transfers Retirements Balance Nondepreciable capital assets: Construction in process $ 125, ,107 Depreciable capital assets: Buildings and improvements 212, ,750 Furniture 41,213-3, ,248 Equipment 35, ,957 Computers 137,460-3,091 - (3,975) 136,576 Art 12, ,000 Textbooks and library books 10, ,208 Vehicles 1,810, ,810,809 Total depreciable capital assets 2,260,296 6,227 (3,975) 2,262,548 Less accumulated depreciation/amortization 1,072, ,602 (3,975) 1,288,516 Net depreciable capital assets 1,187,407 - (213,375) - ~ 974,032 Net capital assets $ 1,312, ,227 ~ - 1,099,139 Fiduciary Activities Beginning Prior Period Ending Balance Adjustment Additions Transfers Retirements Balance Depreciable capital assets: Equipment Computers Textbooks $ 6,568 1,670 2, ,568 1,670 2,366 Total depreciable capital assets Less accumulated depreciation/amortization 10,604 8, ,604 8,817 Net capital assets $ 2, ,787 The following schedule shows the amount of depreciation charged to each governmental function on the Government-wide statement of activities: Functions/Programs Governmental Activitie s Depreciation Expense Basic instruction $ 4,962,288 Special education 84,568 Student services 1,093,299 Staff support services 939,990 General administration and board of education 6,288,569 School administration 23,538 Business support services 12,440,217 Building and grounds 133,156 Building, construction, renovation 4,163,430 Student transportation 594,862 Community use of facilities 4,412 Early childhood special education 17,919 Regular summer school 10,687 Adult basic education 15,006 Total governmental activities $ 30,771,941 38

83 Notes to Basic Financial Statements August 31,201 (5) Equipment Bonds The activity of the equipment bonds included in business-type activities of the District as of and for the year ended August 31,2013 is as follows: August 31, August 31, Due Within 2012 Additions Payments 2013 One Year Omaha Education Services Agency $ 755, , , ,000 Omaha Education Services Aaencv In November 2005, the Board of Education in conjunction with the Governing Board of Educational Service Unit No. 19, approved the formation of a governmental entity (Omaha Education Services Agency, a blended component unit) under the Interlocal Cooperation Act of Nebraska for the purpose of issuing bonds for the acquisition, finance, operation and maintenance of equipment, software, services and real estate. Lease purchase agreements have been entered into between the District and the Omaha Education Services Agency; Equipment bond payments for the year ended August 31, 2013, totaled $386,730, of which $16,730 was for interest. Under the equipment bond agreements, the District is committed to make the following payments: Year Ending Principal Interest August 31 Requirements Requirements Total 2014 $ 385,000 5, ,775 (6) Capital Lease Obligations The District has various capital leases for printing equipment. The total cost of the equipment was $1,045,637 net of accumulated amortization of $763,604. The activity of the lease obligations included in governmental activities for the year ending August 31,2013 is as follows: August 31, August 31, Due Within 2012 Additions Payments 2013 One Year Capital obligations $ 468, , , ,072 Under the lease obligations included in governmental activities, the District is required to make the following remaining payments: Year Ending Leasing Interest August 31 Obligations Obligations Total 2014 $ 190,072 7, , ,774 1,278 87,052 Total $ 275,846 9, ,110 39

84 Notes to Basic Financial Statements August 31, (7) Bonds Payable Series 2003A Bond Issue On December 23, 2003, the District authorized the issuance of general obligation bonds in the amount of $100,000,000. Principal and interest payments are made semi-annually with the interest rate increasing from 1.3% to 5.0%. During 2012, $84,175,000 in outstanding bonds was subject to an advance refunding. The remaining balance of $3,790,000 was paid in full during the fiscal year ending August 31,2013. Series 2003B Bond Issue On December 23, 2003, the District authorized the issuance of general obligation refunding bonds in the amount of $65,865,000. Principal and interest payments are made semi-annually with the interest rate increasing from 1.05% to 5.0%. Final payment is due December 15, As of August 31, 2013, the unmatured balance was $25,285,000. The issuance of the Series 2003A and 2003B bonds resulted in a premium of $2,510,208. This premium is being amortized on a straight line basis. As of August 31, 2013, the unamortized balance was $94,163. General Obligation Refunding Bonds - Series 2010 On April 1, 2010, the District issued $87,325,000 in General Obligation Refunding Bonds to advance refund $86,000,000 of outstanding Series 2001B Bonds. Principal and interest payments are made semi-annually with the interest rate increasing from 2.0% to 4.0%. Final payment is due in June As of August 31, 2013, the unmatured balance was $82,290,000. The sale of this resulted in a premium of $4,382,992. This premium is being amortized on a straight-line basis over the life of the bonds. As of August 31, 2013, the unamortized balance was $3,447,955. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $6,025,934. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2025 using the straight-line method. Amortization on the deferred amount was $401,729 for the year ended August 31, The unamortized balance at August 31, 2013 was $4,653,360. Qualified Zone Academy Bonds - Series 2002 (Kellom Academy Project) On October 21, 2002, the District authorized the issuance of Qualified Zone Academy Bonds in the amount of $991,576. Annual deposits for principal only are made into a sinking fund for the future retirement of the bonds. The maturity on these bonds is October 15, As of August 31, 2013, the sinking fund established to pay for bonds at maturity had a market value of $715,736. As of August 31, 2013, the unmatured balance was $991,576. Qualified Zone Academy Bonds - Series 2003 (Central High School Project) On November 5, 2003, the District authorized the issuance of Qualified Zone Academy Bonds in the amount of $610,584. Annual deposits for principal only are made into a sinking fund for the future retirement of the bonds. The maturity on these bonds is October 15, As of August 31, 2013, the sinking fund established to pay for bonds at maturity had a market value of $400,736. As of August 31, 2013, the unmatured balance was $610,

85 Notes to Basic Financial Statements August 31, American Recovery and Reinvestment Act - Build America Bonds 2009 On December 7, 2009, the District authorized the issuance of Build America Bonds authorized under the American Recovery and Reinvestment Act (ARRA) of 2009 in the amount of $22,620,000. Interest payments are made semi-annually with the interest rate increasing from.99% to 6.07%, net of an interest subsidy from the United States Treasury equal to 35% of the interest due on each of the payments. Principal payments are made annually. Final payment is due December 15, As of August 31, 2013, the unmatured balance was $20,955,000. American Recovery and Reinvestment Act - Build America Bonds 2010 On December 9, 2010, the District authorized the issuance of Build America Bonds authorized under the American Recovery and Reinvestment Act (ARRA) of 2010 in the amount of $5,080,000. Interest payments are made semi-annually with the interest rate increasing from 1.12% to 4.53%, net of an interest subsidy from the United States Treasury equal to 35% of the interest due on each of the payments. Principal payments are made annually. Final payment is due December 1, As of August 31, 2013, the unmatured balance was $4,165,000. American Recovery and Reinvestment Act - Qualified School Construction Bonds (Tax Credit Bonds) 2009 On December 8, 2009, the District authorized the issuance of Qualified School Construction Tax Credit Bonds authorized under the American Recovery and Reinvestment Act (ARRA) of 2009 in the amount of $17,375,000. Interest payments are made quarterly with the interest rate of 1.875%. Annual deposits are made into a sinking fund for the future retirement of the bonds. Maturity date of the bonds is December 15, As of August 31, 2013, the sinking fund established to pay for the bonds at maturity has a market value of $3,332,118. As of August 31, 2013, the unmatured balance was $17,375,000. American Recovery and Reinvestment Act - Qualified School Construction Bonds (Tax Credit Bonds) 2010 On December 9, 2010, the District authorized the issuance of Qualified School Construction Tax Credit Bonds authorized under the American Recovery and Reinvestment Act (ARRA) of 2010 in the amount of $18,920,000. Interest payments are made quarterly with the interest rate of 6%, net of an interest subsidy from the United States Treasury equal to 95% of the interest due on each of the payments. Annual deposits will be made into a sinking fund for the future retirement of the bonds. The funding requirements of the sinking fund are included in the bond requirements in the table below. Maturity date of the bonds is December 9, As of August 31, 2013, the sinking fund established to pay for the bonds at maturity has a market value of $1,114,706. As of August 31, 2013, the unmatured balance was $18,920,000. General Obligation Refunding Bonds - Series 2012 On May 1, 2012, the District issued $84,175,000 in General Obligation Refunding Bonds to advance refund $88,060,000 of outstanding Series 2003A Bonds. Principal and interest payments are made semi-annually with the interest rate increasing from 1.0% to 5.0%. Final payment is due in June As of August 31, 2013, the unmatured balance was $83,875,000. The sale of this resulted in a premium of $11,374,549. This premium is being amortized on a straight-line basis over the life of the bonds. As of August 31, 2013, the unamortized balance was $10,207,928. With this issuance, the District defeased certain general obligation and other bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the District's financial statements. On August 31, 2013, $88,060,000 of bonds outstanding are considered defeased. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $6,039,020. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2025 using the straight-line method. Amortization on the deferred amount was $447,882 for the year ended August 31, The unamortized balance at August 31, 2013 amounted to $5,374,

86 Notes to Basic Financial Statements August 31,2013 Sequestration The "Budget Control Act of 2011" requires, among other things, mandatory across-the-board reductions in Federal spending, also known as sequestration. The "American Taxpayer Relief Act of 2012" postponed sequestration for two months. As required by law, President Obama issued a sequestration order on March 1, Effective March 1, 2013, the interest subsidies for the ARRA Build America Bonds 2009, ARRA Build America Bonds 2010 and ARRA Qualified School Construction Bonds (Tax Credit Bonds) 2010 were reduced by 8.7% The changes in unmatured bond indebtedness included in governmental activities for the year ended August 31, 2013, were: Un-matured Bond Issue Retired During Un-matured Due Within Bond Issue Interest Rates Balance 2012 During Year Year Balance 2013 One Year 12/23/ % $ 3,790,000 3,790,000 12/23/ ,579 9,416 94,163-12/23/ % 31,590,000 6,305,000 25,285,000 3,060,000 10/21/2002 None 991, ,576-11/05/2003 None 610, , /07/ % 21,515, ,000 20,955, ,000 12/08/ % 17,375,000-17,375,000-04/01/ % 84,390,000 2,100,000 82,290,000 3,590,000 04/01/2010 3,740, ,199 3,447,955-04/01/2010 (5,055,089) (401,729) (4,653,360) - 12/09/ % 18,920, ,920, /09/ % 4,620, ,000 4,165, ,000 05/01/ % 84,175, ,000 83,875,000 6,440,000 05/01/ ,082, ,965 10,207,928 ~ 05/01/2012 (5,822,465) (447,882) (5,374,583) - $ 272,026,232 13,836, ,189,263 14,120,000 Bonds payable and interest requirements for bond issues outstanding as of August 31, 2013, are as follows: Years Ending August 31 Bond Requirements Interest Requirements Interest Subsidy, Net of Sequestration Total 2014 $ 14,120,000 10,180,928 (1,381,129) 22,919, ,665,000 9,660,869 (1,373,197) 22,952, ,025,000 9,128,666 (1,363,554) 22,790, ,471,576 8,539,630 (1,352,234) 23,658, ,685,584 7,976,495 (1,338,742) 23,323, ,005,000 29,445,393 (6,439,169) 112,011, ,130,000 11,937,337 (6,043,333) 66,024, ,265,000 2,510,737 (1,111,510) 26,664, ,100, ,205 (61,100) 3,230,105 Premium on bonds payable 13,750,046 Gain on advance refunding (10,027,943) 254,467,160 89,571,260 (20,463,968) 323,574,452 $ 258,189,263 42

87 Notes to Basic Financial Statements August 31, (8) Other Post-Employment Benefits Accumulated Sick Leave In January 2006, the Board of Education approved a mandatory plan for conversion of accumulated sick leave benefits into a supplemental retirement income benefit and/or post-retirement medical expense reimbursement program upon an employee's retirement from the District. These benefits will be funded by the District on a pay-as-you-go basis at the time of each employee's retirement. The amount of this benefit is equal to one-half of the employee's unused accumulated sick leave at the time of his/her retirement and is solely funded by the District. The District will make a determination based upon an interview with each employee prior to his or her retirement date as to which benefit will be most beneficial for the employee - (1) a tax sheltered annuity 403(b); or (2) health reimbursement account. The District is the Plan Administrator for this program and may choose to contract with a third party administrator to manage the day-to-day activity associated with these benefits. At August 31, 2013, the obligation under the post-employment benefit amounted to $3,548,097 included in payroll liabilities in the Internal Service funds of governmental activities. The obligation is funded through employer contributions on an ongoing basis. Special Termination Benefits In March 2006, the District approved a voluntary early retirement plan for employees. Eligible employees must have completed at least 18 credible years service as a full-time employee to the District, must have reached age of 55 as of the separation date, and must be a certificated employee. The application for early retirement is subject to approval by the Board of Education. Early retirement benefits will be equal to the lesser of the monthly Social Security retirement benefit that will be payable to the certificated employee at age 62 (as determined by the School District as of the employee's August 31 separation date) or 25% of the certificated employee's scheduled monthly salary in the certificated employee's last full year of employment. The policy requires early retirement benefits be paid on a monthly basis. Benefits payments will begin in the month following the employees' separation date and will continue until the employee reaches age 62 at which time they will be qualified to receive social security benefits. At August 31, 2013 the District has obligations to 325 participants with a total liability of $13,031,161. This amount represents the discounted present value of the gross benefits due to participants each year until they reach age 62. The discount rate used by the District is 5%. Actual early retirement expenditures for the year ended August 31, 2013 totaled $5,569,968. Supplemental Retirement Benefit Plan for Administrative Employees Effective after September 2, 2006, the District approved a benefit for highly compensated certified administrators who have been approved for retirement under the Omaha School Employees' Retirement System or terminate with at least 18 credible years of service and has attained at least age 55 as a full time employee are eligible to apply. The application to participate is subject to approval by the Board of Education. The benefit plan provides 60 monthly post-retirement payments to the Section 403(b) Plan on behalf of an eligible employee following retirement, beginning Sept 1st following the date of the eligible employees' retirement. The monthly post-retirement benefit shall be equal to % multiplied by the amount by which: the employee's final salary exceeds ninety percent (90%) of the Social Security taxable wage base in effect for the calendar year of the employee's retirement, as determined under Section 230 of the Social Security Act, as amended from time to time. 43

88 Notes to Basic Financial Statements August 31, At August 31, 2013 the District has an obligation to 15 individuals for a total liability of $405,375. Actual expenditures for the year ended August 31, 2013 totaled $117,321. (9) Fund Balance Fund Balance as of August 31, 2013: Analysis of Governmental Fund Balances as of August 31,2012 Special Debt Other General Building Grant Service Governmental Fund Funds Funds Funds Funds Total Fund Balances: Nonspendable: Inventory $ 2,215, ,823 2,456,611 Prepaid Expenses 1,176,280 ~ 724,991-1,048,463 2,949,734 Restricted: Debt Service ,550,974-32,550,974 Capital Projects - 32,316, ,316,757 Grants ,516, ,516,480 Qualified Purpose ,698,086 9,698,086 ESU ,494,533 2,494,533 Committed to: KIOS , ,775 Assigned to: General Fund - _ School Activity ,542,813 1,542,813 Student Fees ,347 2,347 Central Office and School Support 2,994, ,994,266 Unassigned 55,565, ,565,485 Total Fund Balance $ 61,951,819 32,316,757 11,241,471 32,550,974 15,944, ,005,861 The Fund Balance Percentage for the General Fund: Fiscal Year Financial Statements Unassigned Fund Balance as of Percentage of Total General Fund Expenditures 11.57% 9.26% 11.17% Regulatory Fund Balance as a Percentage of Total General Fund Expenditure s 13.10% 10.51% 7.73% (10) Retirement System A. Plan Description The employees of the District are covered by Omaha School Employees' Retirement System (OSERS). OSERS is a single-employer defined benefit retirement plan. In accordance with Nebraska statutes, OSERS is governed by the Board of Education, which is advised by a Board of Trustees composed of three employees, one annuitant, three Board of Education members, two business people, and the Superintendent of the District. OSERS is administered by the Executive Director of the System. The State of Nebraska has the authority under which plan provisions and obligations may be amended or established. OSERS issues a publicly available financial report that includes financial statements and required supplementary information for OSERS. That report may be obtained by contacting the Executive Director of OSERS. 44

89 Notes to Basic Financial Statements August 31,201 B. Contributions Employees of the District, OSERS and ESU are required to contribute 9.30% of their annual salary to OSERS. The District, OSERS and ESU contribute 9.393% of member salaries or such amount above 9.393% necessary to maintain the solvency of OSERS. For fiscal years beginning July 1, 2009 until July 1, 2014, the State of Nebraska contributes 1% of the employees' compensation in accordance with State Statute For the fiscal years following July 1, 2014, the State of Nebraska will revert to the pre-2009 contribution of 7/1 Oths of 1% of employees' compensation. Administrative costs of OSERS are financed through investment earnings. C. Payment of Benefits and Refunds Each employee who has completed five or more years of creditable service is eligible to elect a deferred vested service annuity in lieu of a refund of accumulated contributions. OSERS provides for various benefits including normal retirement benefits, early retirement benefits, disability benefits, and pre-retirement and post retirement survivor benefits. These benefits are paid monthly from OSERS. The benefits under OSERS are based on an average of the highest three years of salary earned by employees during their employment with the District, up to their normal retirement dates. Employees who terminate employment with less than five years of creditable service can elect to receive a refund or a rollover of the employee's contributions plus accrued interest. D. Method Used to Value Investments OSERS invests in both short-term and long-term securities. Investment managers are utilized to advise the Board of Trustees regarding investments. The market value of the investments will fluctuate as a result of interest rate changes and general economic conditions. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. The fair value of real estate investments is based on independent appraisals. Limited partnership investments that do not have an established market are reported at estimated fair value. E. Risks and Uncertainties Investment securities, in general, are exposed to various risks, such as interest rate risk, credit risk and overall market volatility. The depressed global economic conditions and concern over the security of debt issued by the United States and other sovereign nations has resulted in continued volatility in financial markets and the banking system. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. 45

90 Notes to Basic Financial Statements August 31, F. Annual Pension Cost and Net Pension Obligation (Asset) The District's annual pension cost and net pension obligation (asset) to OSERS as of September 1, 2012, (latest actuarial valuation) were as follows: Annual Required Contribution (ARC) $ 32,957,547 Interest on Net Pension Obligation (NPO) 9,134 Adjustments on ARC (6,484) Annual pension cost 32,960,197 Less contributions made 37,109,000 (4,148,803) Net pension obligation, beginning of year 114,169 Net pension asset, end of year $ (4,034,634) Three-Year Trend Information - OSERS Fiscal Year Ending Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation (Asset) 08/31/ /31/ /31/ ,776,789 34,094,135 32,960, % 88.74% % (3,724,966) 114,169 (4,034,634) Actuarial Methods and Assumptions Valuation Date 9/1/2012 Actuarial Cost Method Entry Age Normal Cost Amortization Method Open Period, 30 years, Level Percentage of Payroll Asset Valuation Method Market-related Smoothed Value Actuarial Assumptions: Inflation Rate 3.0% General Wage Growth 4.0% Investment Rate of Return 8,0% Salary Increases 4% plus merit of 0% to 1.6% Post-retirement Increases 1.5% 46

91 Notes to Basic Financial Statements August 31,201 The following Required Supplementary Information for OSERS was determined as part of the actuarial valuations (in thousands) at the dates indicated: Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (aft)) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-avc) 9/1/2007 1,117,628,000 1,255,527, ,899, % 272,844, % 9/1/2008 1,149,289,000 1,346,999, ,710, % 272,720, % 9/1/2009 1,061,326,000 1,410,318, ,992, % 287,770, % 9/1/2010 1,078,269,000 1,467,850, ,581, % 302,229, % 9/1/2011 1,110,033,000 1,516,284, ,251, % 310,228, % 9/1/2012 1,155,495,000 1,592,738, ,243, % 307,258, % Tax Sheltered Annuity Program (403(b) Plan) The District has adopted a tax sheltered annuity program (403(b) Plan) covering all employees who are employed for at least 20 hours per week. Employees are eligible to participate if they meet minimum monthly contribution requirements. Benefits depend solely on amounts contributed to the plan plus investment earnings. The benefits payable under the plan are not available to employees until they reach the age of 59 1/2. The District, at the discretion of the Board of Directors, may provide contributions to the 403(b) plan for individual employees. Total contributions by the District for the year ended August 31, 2013 was $76,000. (11) Commitments and Contingencies The District is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The District carries commercial insurance for risks of loss including workers' compensation. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. The District contracts with reputable carriers and utilizes deductibles ranging from $10,000 to $1,000,000 per claim, and $1,000,000 to $5,948,818 in the aggregate, depending on the type of insurance. The District has established four separate funds to address the payment of claims that are less than the deductible amounts. Actual claims paid from these funds did not exceed the District's expectations during the fiscal year ended August 31, Also, the District has a line of credit up to $860,000 with a financial institution for purposes of payment of premiums for general liability and automobile liability. There were no amounts drawn on the line of credit during the fiscal year ending August 31,2013. District employees are represented by a variety of bargaining units that are currently in the process of negotiating new union contracts. The financial impact of these negotiations cannot be reasonably estimated and, therefore, are not included in the financial statements. The District participates in a number of federally assisted grant programs. These programs are subject to financial and performance audits. The amount of expenditures, if any, which may be disallowed by granting agencies, is not determinable at this time; however, District management does not believe that such amounts, if any, would be significant. The District has commitments of $1,307,395 remaining on various construction contracts. 47

92 Notes to Basic Financial Statements August 31, 2013 The Foundation carries commercial insurance for risks of loss including directors and officers, property, commercial general liability and workers' compensation. Settled claims resulting from these risks have not exceeded commercial insurance coverage. The Foundation contracts with reputable carriers and utilizes deductibles ranging from $500 to $1,000 per claim, and $245,000 to $2,000,000 in the aggregate, depending on the type of insurance. Litigation The District is involved in litigation and regulatory investigations arising in the normal course of business. After consultation with legal counsel, management estimates these matters will be resolved without material adverse affect on the District's future financial position or changes in financial position. OSERS Commitments outstanding and available for investment on demand by the limited partnerships as of August 31, 2013 were as follows: Limited Partnerships in: SPC Capital Management Stonetree Capital Fund IV JP Morgan Global Maritime Fund FCP Fund II Mariner Real Estate Partners III Almanac Realty Securities VI JP Morgan India Property Fund II Total Commitment 120,785,343 51,612,310 25,000,000 30,000,000 50,000,000 25,000,000 25,000,000 Outstanding 17,138,137 32,929,629 19,668,875 16,125,000 11,060,646 18,434,803 16,791,351 $ 327,397, ,148,441 (12) Interfund Transfers The detail of interfund transfers for the year ending August 31,2013 is as follows: Transfer To Government Wide Governmental Actvities - Capital Assets Governmental Funds General Fund Cooperative Fund Grant Fund Transfer From Amount 7,347 1,202,638 The Omaha Schools Foundation receives funding to assist with the financing of certain construction of facilities for the District. Due to the timing differences of the year end of Omaha Schools Foundation (December 31) and the District (August 31), certain related capital projects in the amount of $125,107 are included in construction in progress on the Foundation's financial statements as of December 31, As of August 31, 2013, the Foundation has incurred $453,425 in construction in progress for these projects that are not included in the statement of net position of the District. 48

93 Notes to Basic Financial Statements August 31, (13) Prior Period Adjustments Governmental Wide A. For the fiscal year ending August 31, 2013, the District recognized works of art that were owned and acquired prior to September 1, The amount recognized was based upon an appraisal. The amount for the works of art was $4,093,174. B. During the fiscal year, the District conducted two internal audits to validate land and buildings. The land was validated with Douglas and Sarpy Counties Assessors' office. The buildings were validated both through Douglas & Sarpy Counties and internally with School House Planning. The result of this audit was as follows: Increase in land $2,213,852 Increase in buildings, net of depreciation 1,525,385 $3,739,237 49

94 Required Supplementary Information Budgetary Comparison Schedule - General and Major Special Revenue Funds (with legally adopted budgets) For the Year Ended August 31,2013 (Thousands of Dollars) REVENUES Local County and ESU Receipts State Receipts Federal Receipts Insurance Adjustments Sale of supplies & junk Other non-revenue Abatement reimbursement Reimb. for employee services TOTAL General Fund Special Building Fund Debt Service Fund Final Fiscal Variance Final Fiscal Variance Final Fiscal Adopted Transfers Revised Year Favorable Adopted Year Favorable Adopted Year Budqet In/Out Budget Actual (Unfavorable) ^udget^_ ^^^Actua^^^ ^Unfavorable^ Budget Actual ; 272, , ,118 (6,699) 2, ,340 2, , , ,432 5, , (25) 1,150 1, (386) 482, , ,277 1, (148) (5) (84) (237) 21, , Variance Favorable (Unfavorable) (324) 813 EXPENDITURES Basic instruction Special Education Student services Staff supported services General admin & board of education School administration Business support services Building and grounds Building, construction, renovation Student transportation Comm use of facilities & reg presch ed Early childhood special education Summer school Adult education Debt service interest Debt service principal Property tax recapture TOTAL 228,175 (737) 227, , ,745-47,745 47, ,076 (17) 30,059 30,130 (71) 15, ,632 15, , ,375 7, , ,400 29,311 1,089 23,724 (150) 23,574 23,844 (270) 48, ,750 46,831 1,919 37,050 (16) 37,034 33,686 3, , , ,918 6,050 (132) 5, ,647 5, (33) (394) 484, , ,656 7, , ,732 8,242 12, ,642 35,882 20,785 8,242 12, (46) 20,831 (46) REVENUES IN EXCESS OF (LESS THAN) EXPENDITURES (2,000) " (2,000) 6,621 8,621 (53,870) (18,225) 35,645 1,060 OTHER FINANCING SOURCES (USES) Bond proceeds, including refunding bonds Payments to bond refunding escrow agent 39,383 (40,000) (39,383) (40,000) REVENUES AND OTHER FINANCING SOURCES (USES) IN EXCESS OF (LESS THAN) EXPENDITURES Fund Balance, Beginning of Year Fund Balance, End of Year (2,000) (2,000) 6,621 8,621 76,027 _ 76,027 76, _ (53,870) (18,225) 52,294 52,294 (1.576) 34,069 35,645 1,060 (78,940) 30, f78.940) See accompanying independent auditor's report 50

95 Required Supplementary Information Budgetary Comparison Schedule - General and Major Special Revenue Funds (with legally adopted budgets) For the Year Ended August 31,2013 (Thousands of Dollars ) Budget to GAAP Reporting Reconciliation - Governmental Funds The accompanying schedule of revenue, expenses and change in fund balance budget to actual presents comparison of legally adopted budget (more fully described in note (1)E) with actual data on the GAAP basis. Because accounting principles applied for purpose of developing data on a budgetary basis differs significantly from those used to present financial statements in conformity with GAAP, a reconciliation of the resulted basis, timing, perspective, and entity deficiencies in revenue or expenses for year ended August 31, 2013 are presented below. General Operating Fund Receipts over disbursements and encumbrances (budgetary basis) $ 6,621 Adjustments: Record change in receivables 2,959 Record change in inventories (39) Record change in prepaids 146 Record change in payables 2,697 Revenues over expenditures (GAAP basis) $ 12,384 Special Building Fund Receipts under disbursements and encumbrances (budgetary basis) $ (18,225) Adjustments: Record change in receivables (13) Record change in prepaids (11) Record change in payables 2,581 Revenues under expenditures (GAAP basis) $ (15,668) Debt Service Fund Receipts over disbursements and encumbrances (budgetary basis) $ 1,060 Adjustments: Record change in receivables 205 Revenues over expenditures (GAAP basis) $ 1,265 51

96 - Douglas County School District #0001 Other Supplementary Information Budgetary Comparison Schedule - Other Governmental Funds For the Year Ended August 31, 2013 (Thousands of Dollars) Qualified Capital Purchase Fund Student Fee Fund Activity Fund Final Fiscal Variance Final Fiscal Variance Final Fiscal Variance Adopted Year Favorable Adopted Year Favorable Adopted Year Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) Budget Actual (Unfavorable) - - REVENUES Local $ 4,093 4, ,025 2,025 State receipts ~ - Federal receipts ~ - - Other non-revenue (704) 5,202 3,155 (2,047) Reimb for employee services TOTAL 4,093 4, (70) 5,202 5, EXPENDITURES Basic instruction ~ Special education _ Student services (115) 6,500 5,422 1,078 Staff supported services ~ General admin & board of education School administration Business support services Building and grounds 1,432 1, Building, construction, renovation - Comm use of facilities & reg presch ed Early childhood special education ~ Summer school Adult education - _ - - Debt service interest 1,213 1,278 (65) - 1 Debt service principal 2,767 2, Property tax recapture (5) TOTAL 5,530 5, ,500 5,422 1,078 REVENUES IN EXCESS OF (LESS THAN) EXPENDITURES (1,437) (794) 643 (20) (21) (1) (1,298) 03) 1,205 Fund Balance, Beginning of Year 4,635 4, ,735 1,735 - Fund Balance, End of Year $ 3,198 3, (1) 437 1,642 1,205 See accompanying independent auditor's report 52

97 Other Supplementary Information Budgetary Comparison Schedule - Other Governmental Funds (Continued) For the Year Ended August 31, 2013 (Thousands of Dollars) Grant Fund KIOS - Fund 911 & 915 ESU19 Fund Final Fiscal Variance Final Fiscal Variance Final Fiscal Variance Adopted Year Favorable Adopted Year Favorable Adopted Year Favorable Budqet Actual (Unfavorable) Budget Actual (Unfavorable) Budget Actual (Unfavorable) REVENUES Local ,386 11,863 (2,523) State receipts ,251 2, Federal receipts 83,100 69,691 (13,409) - - 7,178 1,491 (5,687) Other non-revenue (1.186) (1,186) (41) (41) Reimb for employee services ' ,116 2,116 TOTAL 83,700 69,376 (14,324) ,995 18,117 (5,878) EXPENDITURES Basic instruction 47,344 30,171 17, ,070 1,440 5,630 Special Education 8,764 9,231 (467) _ Student services 13,213 3,326 9, , Staff supported sendees 1,564 3,628 (2,074) ,501 8,396 1,105 Genera! admin & board of education - 3,663 (3,663) School administration 16 (16) Business support services 641 (641). - 6,327 6, Building and grounds Building, construction, renovation - 1,208 (1,208) Comm use of facilities &reg presch ed 7,581 9,531 (1,950) Early childhood special education 5,244 5, _ Summer school 362 (362) ~ Aduit education (622) Debt service interest _ Debt service principal - - ~ Property tax recapture ~ TOTAL 83,700 67,587 16, ,995 16,821 7,174 REVENUES JN EXCESS OF (LESS THAN) EXPENDITURES " 1,789 1, ,296 1,296 Fund Balance, Beginning of Year (10,774) (10,774) _ ,390 2,390 - Fund Balance, End of Year (10,774) (8,985) 1, ,390 3,686 1,296 See accompanying independent auditor's report 53

98 Other Supplementary Information Budgetary Comparison Schedule - Internal Service Funds For the Year Ended August 31, 2013 (Thousands of Dollars) Depreciation Fund s Employee Benefit Funds Final Adopted Budget Fiscal Year Actual Variance Favorable (Unfavorable) Final Adopted Budget Fiscal Year Actual Variance Favorable (Unfavorable) REVENUES Total Revenues $ 4,958 2,001 (2,957) 4,076 6,385 2,309 TOTAL 4,958 2,001 (2,957) 4,076 6,385 2,309 EXPENSES Total Expenses 4, ,359 10,500 5,912 4,588 TOTAL 4, ,359 10,500 5,912 4,588 REVENUES IN EXCESS OF (LESS THAN)EXPENSES 558 1,960 1,402 (6,424) 473 6,897 Net Position, Beginning of Year 5,454 5,454 10,099 10,099 Net Position, End of Year $ 6,012 7,414 1,402 3,675 10,572 6,897 See accompanying independent auditor's report 54

99 Other Supplementary Information Budgetary Comparison Schedule Internal Service Funds (Continued) For the Year Ended August 31, 2013 (Thousands of Dollars ) Contingency Funds School Lunch Funds Final Adopted Budget Fiscal Year Actual Variance Favorable (Unfavorable) Final Adopted Budget Fiscal Year Actual Variance Favorable (Unfavorable) REVENUES Total Revenues $ 515 1, ,974 25,758 1,784 TOTAL 515 1, ,974 25,758 1,784 EXPENSES Total Expenses 8, ,652 46,986 26,007 20,979 TOTAL 8, ,652 46,986 26,007 20,979 REVENUES IN EXCESS OF (LESS THAN)EXPENSES (8,085) 220 8,305 (23,012) (249) 22,763 Net Position, Beginning of Year 10,411 10,411 23,451 23,451 Net Position, End of Year $ 2,326 10,631 8, ,202 22,763 See accompanying independent auditor's report 55

100 Other Supplementary Information Budgetary Comparison Schedule - Proprietary Funds (with legally adopted budgets) For the Year Ended August 31, 2013 (Thousands of Dollars ) Final Adopted Budget Cooperative Funds Fiscal Year Actual Variance Favorable (Unfavorable) REVENUES Total Revenues $ 43,142 43, TOTAL 43,142 43, EXPENDITURES Total Expenses 44,634 43,420 1,214 TOTAL 44,634 43,420. 1,214 REVENUES IN EXCESS OF (LESS THAN)EXPENSES (1,492) 127 1,619 Net Position, Beginning of Year 1,024 1,024 _ Net Position, End of Year $ (468) 1,151 1,619 See accompanying independent auditor's report 56

101 Schedule of Receipts and Disbursements - American Recovery and Reinvestment Act (ARRA) of 2009 For the Year Ended August 31, 2013 (Thousands of Dollars) ARRA Federal Fund - Receipts GRANTS FUND: IDEA Receipts $ Title ESEA Receipts 31 Total ARRA Federal Funds - Grant Fund 31 TOTAL ARRA RECEIPTS 31 ARRA Federal Fund - Disbursements ESEA Til PtD Technology Salaries 3 Employee benefits 1 Purchased services Supplies and materials Capital outlay Other expenditures Total ARRA Federal Funds - Grants Fund 4_ TOTAL ARRA DISBURSEMENTS 4_ RECEIPTS OVER DISBURSEMENTS $ 27 See accompanying independent auditor's report 57

102 Schedule of Expenditures of Federal Awards For the Year Ended August 31,2013 Federal Grantor/Pass-Through Grantor/Program Title U.S. DEPARTMENT OF EDUCATION Direct Programs Teaching American History Indian Education Native Indian Centered Education for College Demonstration Grants for Indian Children NICE Phase IV Total Direct Programs Pass-Through Entity Indentifying Number U215X S060A S299A S299A S299A Federal CFDA Number X A A A A Expenditures of Federal Awards 240, , , , ,115 1,273,157 Title I Cluster Passed through the State of Nebraska Department of Education Title I Basic Title I Part A Accountability Title I Part A Accountability Total Title I Cluster 13-Title I Accountability Accountability ,957,925 1,019, ,149 28,299,144 Special Education (IDEA) Cluster Passed through the State of Nebraska Department of Education IDEA Base & Enrollment/Poverty Special Ed Continuous Improvement (Part B) IDEA base pre School Passed through ESU#19 Special Education ESU Collaborative Project Total Special Education (IDEA) Cluster BBA-13, BEP B31B BBA-13, 28-0OO1-48O-BEP SPED Collaborative Grant ,400, , , ,320 12,901,410 Education Technology State Grants Cluster Passed through the State of Nebraska Department of Education Title I Part D ARRA - Title I Part D Total Education Technology State Grants Cluster 12-TitlellD ARRA-Title ll-d ,676 3,665 10,341 Passed through the State of Nebraska Department of Education Career/Technical Education - Basic Grants Early Development Network Systems Change/Support McAuliffe Fellowship 21st. Century Learning Centers Advance Placement Incentive Title I Part A Title I Migrant McKinney-Vento Homeless Education Assistance C xxxx-xx AP22NP Titlel IA TitlelC-Migrant-491 S McKinney-Vento Homeless Competitive Grant Title III - Immigrant Education 13-lmmigrant Title III - Limited English 13-Titlelll-LEP Total passed through the State of Nebraska Department of Education A A A 764,363 14, ,313 6,270 3,182,973 1,876,456 71, , ,101 6,996,554 Passed through Nebraska Coordinating Commission for Postsecondary Education College Access Challenge Grant N/A ,178 Passed through University of Nebraska at Omaha Improving Teacher Quality SC B 16,066 Total U.S. DEPARTMENT OF EDUCATION 49,699,850 58

103 Schedule of Expenditures of Federal Awards (Continued) For the Year Ended August 31, U.S. DEPARTMENT OF AGRICULTURE Child Nutrition Cluster Passed through the State of Nebraska Department of Education USDA School Lunch and Breakfast Summer Food Program ,325, ,708 Passed through the State of Nebraska Department of Health and Human Services Food Commodities Received - Non Cash Award Total Child Nutrition Cluster ,278,955 21,439,117 Passed through the State of Nebraska Department of Education Child and Adult Care Food Program FruitA/egetable Program , ,206 Total U.S. DEPARTMENT OF AGRICULTURE 22,727,279 U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES Direct Programs Head Start 07CH7044/ ,924,714 Passed through the Nebraska Department of Health & Human Services Refugee School Impact Grant 90ZE012902, 902E ,970 Passed through the Nebraska Schools Medicaid Consortium Medical Assistance Program NE5ADM ,712,575 Total U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES 8,748,259 NATIONAL SCIENCE FOUNDATION Passed through the University of Nebraska, Lincoln Nebraska Math ,067 Total NATIONAL SCIENCE FOUNDATION 113,067 DEPARTMENT OF DEFENSE Direct Program ROTC D812.14JROTC ,471 Total DEPARTMENT OF DEFENSE 575,471 Total EXPENDITURES OF FEDERAL AWARDS $ 81,863,926 See accompanying independent auditor's report 59

104 Notes to the Schedule of Expenditures of Federal Awards For the Year Ended August 31, Note 1 Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the District under programs of the federal government for the year ended August 31, The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the District, it is not intended to and does not present the financial position or changes in net assets/fund balance of the District. Note 2 Summary of Significant Accounting Policies Expenditures reported on the schedule are reported on the same basis of accounting, i.e., in accordance with the accounting procedures and reporting requirements permitted by the Nebraska Commissioner of Education, which is comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Such expenditures are recognized following the cost principles contained in OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through entity identifying numbers are presented where available. Note 3 Subrecipients Of the Federal expenditures presented in the schedule, the District provided federal awards to subrecipients as follows: Program Title Federal CFDA Number Amounts Provided to Subrecipients Head Start $ 2,308,408 60

105 SlSEIM JOHNSON Independent Auditor's 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 Auditor's Report To the Board of Education Douglas County School District #0001: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Douglas County School District #0001 (the District), as of and for the year ended August 31, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated November 13, Our report includes a reference to other auditors who audited the financial statements of the Omaha Schools Foundation, as described in our report on the District's financial statements. This report does not included the results of other auditor's testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Selm Johnson, LLP» Burt Street, Suite 200Omaha, NE fel: >! Fas > SetmrohnBon.com 61

106 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Omaha, Nebraska, November 13, 2013., LLP 62

107 St s E I M JOHNSON Independent Auditor's Report on Compliance For Each Major Program; Report on Internal Control Over Compliance Required by OMB Circular A-133 Independent Auditor's Report To the Board of Education Douglas County School District #0001 Report on Compliance for Each Major Program We have audited Douglas County School District #0001's (the District) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District's major federal programs for the year ended August 31, The District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. The District's basic financial statements include the operations of Educare of Omaha, Inc., which expended $2,747,949 in federal awards which is not included in the schedule of expenditures of federal awards of the District during the year ended August 31, Our audit, described below, did not include the operations of Educare of Omaha, Inc. because the component unit engaged auditors to perform a separate audit in accordance with OMB Circular A-133. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on the District's compliance. Opinion on Each Major Federal Program In our opinion, the District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended August 31,2013. Seta Johnson, lip ^ 180S1 Burt Street, Suite 200 > Omaha, NE > Ttet ,2660» Fax; > SeimJohnBOiLCom 63

108 Report on Internal Control Over Compliance Management of the District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above, in planning and performing our audit of compliance, we considered the District's internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine our auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Omaha, Nebraska. November 13,

109 Schedule of Findings and Questioned Costs For the Year Ended August 31, I. SUMMARY OF INDEPENDENT AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes x No Significant deficiency(ies) identified? Yes x None Reported Noncompliance material to financial statements noted? Yes x No Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified? Yes Yes x x No None Reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes x No Identification of major programs: CFDA Number(s) Name of Federal Program or r Cluste Title I Grants to Local Education Agencies (Title, Part A of the ESEA) Special Education (IDEA) Cluster Special Education - Grants to States (IDEA, Part B) Special Education - Preschool Grants (IDEA Preschool) Headstart Medical Assistance Program (Medicaid; Title XIX) Dollar threshold used to distinguish between type A and type B programs $2,455,918 Auditee qualified as low-risk auditee? Yes x No 65

110 Schedule of Findings and Questioned Costs For the Year Ended August 31, II. FINANCIAL STATEMENT FINDINGS There were no financial statement findings reported. III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no Federal award findings or questioned costs reported. 66

111 Summary Schedule of Prior Year Audit Findings For the Year Ended August 31, Finding 12-1 Criteria or Specific Requirement: Condition: Auditee Response: Management is responsible for establishing and maintaining effective internal control over financial reporting to ensure the financial statements are accurately presented in accordance with accounting principles generally accepted in the United States of America. The District's financial statements presented for audit required adjusting journal entries to properly reflect accounts payable balances Management is aware of the deficiencies in the accounts payable cutoff procedures. For fiscal year 2013 the following additional procedures were put in place to enhance our existing cutoff procedures: Actual cutoff date was moved back two days to allow for a more complete analysis of September data Individual review of invoices to make sure that at least 60% of the accrual was reviewed by management on a detailed level After cutoff date and prior to September 30th we contacted Nutrition Services, School House Planning, Operations, and Transportation for any invoices that they may have that would require an accrual entry Management believes that these additional processes and changes that were initiated after the fiscal year 2011 audit are now sufficient. Status: Management believes that given the time constraints that are in place which must be met in order to provide the auditors with financial statements and trial balances on a timely basis, that these additional steps along with changes initiated after the 2011 audit are now sufficient so that the financial position and related activities of the District are properly reflected in the financial statements, The steps that the District implemented during the current fiscal year were successful to some degree in the completeness and accuracy of financial reporting. An audit adjustment was proposed related to accounts payable cutoff, but it was an isolated incident due to the timing of a vendor invoice received. The District will continue to evaluate and improve upon its processes. Finding cleared. 67

112 Summary Schedule of Prior Year Audit Findings For the Year Ended August 31, Federal Program Criteria or Specific Requirement: Condition: Auditee Response: Status: CFDA #84.027, Special Education, Grants to States (IDEA, Part B) Only actual allowable expenditures in the appropriate section(s), which have been made in accordance with Title 92, Nebraska Administrative Code, Chapter 51, Regulations and Standards for Special Education Programs, should be included in the Special Education and Support Services Final Financial Report for School Age Students. Expenditures reported on the Special Education and Support Services Final Financial Report for School Age Students for the year ended August 31, 2012 were overstated in the amount of $5,346,849 which resulted in an overpayment of Special Education funding from the Nebraska Department of Education during the school year of approximately $2,700,000. The amount of the overpayment was repaid to the Nebraska Department of Education through a reduction in the allocation of special education funding. The District is aware of the reporting requirement and believes this to be an isolated occurrence due to the existence of the American Reinvestment and Recovery Act (ARRA) funding. In order to avoid a repeat of this occurrence, in the future, all necessary staff meet prior to reporting due dates to review the reporting process and data collected to ensure its accuracy and assure that all reporting requirements are met. Finding cleared 68

113 APPENDIX C GLOBAL BOOK-ENTRY INFORMATION The Depository Trust Company ("DTC"), New York, NY, will act as securities depositoiy for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each separate maturity of the Bonds, each 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 ("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 Participant's accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depositoiy Trust & Clearing Coiporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 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 ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entiy 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf oftheir customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the documents relating to the Bonds. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may C-1