NEW ISSUE - BOOK ENTRY ONLY Series 2011-A Bonds: Moody s: Aa2 (stable) Standard & Poor s: AA- (stable)

Transcription

1 NEW ISSUE - BOOK ENTRY ONLY RATINGS: Series 2011-A Bonds: Moody s: Aa2 (stable) Standard & Poor s: AA- (stable) In the opinion of Bond Counsel, under existing law and assuming the accuracy of certain representations and certifications and compliance by the University with certain tax covenants, interest on the Series 2011-A Bonds will be excluded from gross income for federal income tax purposes. Bond counsel is of the further opinion that, under existing law, interest on the Series 2011-A Bonds will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is includable in adjusted current earnings in determining the federal alternative minimum tax imposed on certain corporations. See TAX MATTERS herein for further information and certain other federal tax consequences arising with respect to the Series 2011-A Bonds. Bond Counsel is also of the opinion that, under existing law, interest on the Series 2011-A Bonds will be exempt from State of Alabama income taxation. AUBURN UNIVERSITY $226,035,000 General Fee Revenue Bonds, Series 2011-A Dated: May 1, 2011 Due: June 1, as shown on inside cover The series of bonds listed above and offered pursuant to this Official Statement are referred herein collectively as the Series 2011-A Bonds. The Series 2011-A Bonds are issuable as fully registered bonds and, when issued, will be registered in the name of Cede & Co., a nominee of The Depository Trust Company ( DTC ), New York, New York, to which principal and interest payments on the Series 2011-A Bonds will be made so long as Cede & Co. is the registered owner of the Series 2011-A Bonds. Individual purchases of the Series 2011-A Bonds will be made in Book- Entry Only form, and individual purchasers ( Beneficial Owners ) of the Series 2011-A Bonds will not receive physical delivery of bond certificates. Interest will be payable on the Series 2011-A Bonds each June 1 and December 1, commencing December 1, So long as DTC or its nominee is the registered owner of the Series 2011-A Bonds, disbursements of such payments to DTC is the responsibility of the Trustee, disbursements of such payments to DTC Participants is the responsibility of DTC and disbursements of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants as described more fully herein. The Series 2011-A Bonds are being issued in order to finance certain capital improvements on the University s campuses in Auburn and Montgomery, Alabama. See THE PLAN OF FINANCING herein. The Series 2011-A Bonds will be special obligations of the University secured by a pledge of the general tuition fees levied against all students enrolled at the University (the General Fees ) and by a pledge of certain student fees levied by the University pursuant to resolutions of the Board of Trustees (the Pledged Student Fees ), as provided for under the General Fee Revenue Indenture described herein. The Series 2011-A Bonds will be further secured by a subordinate pledge of the gross revenues derived by the University from the operation of the housing and dining facilities owned by the University, defined herein as the Housing and Dining Revenues, and by a subordinate pledge of the gross revenues derived by the University from its intercollegiate athletic program, defined herein as the Athletic Program Revenues. The Series 2011-A Bonds will be payable solely from the General Fees and Pledged Student Fees and, on a subordinate basis, from the Housing and Dining Revenues and the Athletic Program Revenues, as described herein. See SECURITY AND SOURCE OF PAYMENT herein. Neither the Series 2011-A Bonds nor the pledge of such revenues and other agreements provided in the General Fee Revenue Indenture shall be or constitute an obligation of any nature whatsoever of the State of Alabama, or be payable out of any moneys appropriated by the State to the University. The Series 2011-A Bonds are issuable as fully registered bonds in denominations of $5,000 or any integral multiple thereof. FOR MATURITIES, AMOUNTS, RATES, PRICES, AND CUSIPS, SEE INSIDE COVER. The Series 2011-A Bonds are offered when, as and if issued by the University and received by the Underwriter, subject to prior sale, to withdrawal or modifications of the offer without notice, and to the approval of legality of the Series 2011-A Bonds by Balch & Bingham LLP, Birmingham, Alabama, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Maynard, Cooper & Gale, P.C., Birmingham, Alabama. It is expected that the Series 2011-A Bonds in definitive form will be available for delivery in Birmingham, Alabama, on May 12, The date of this Official Statement is April 21, 2011.

2 MATURITIES, AMOUNTS, RATES, PRICES & CUSIPS Maturity (June 1) Principal Amount Interest Rate Yield CUSIP ,255, % 1.730% HL ,460, % 2.070% HM ,685, % 2.420% HN ,835, % 2.740% HP ,025, % 3.060% HQ ,275, % 3.290% HR ,540, % 3.470% HS ,820, % 3.630% HT ,110, % 3.810% HU ,415, % 4.000% HV ,735, % 4.150% HW ,000, % 4.150% HK ,055, % 4.260% HX ,405, % 4.370% HY ,775, % 4.470% HZ ,165, % 4.560% JA ,575, % 4.650% JB ,005, % 4.740% JC5 $52,235, % Term Bonds maturing June 1, 2036 (Yield: 5.080%), CUSIP NO JD3 $66,665, % Term Bonds maturing June 1, 2041 (Yield: 5.140%), CUSIP NO JE1

3 TABLE OF CONTENTS Page INTRODUCTORY STATEMENT... 1 The University... 1 Purpose of the Issue... 1 Security... 1 Existing and Additional Parity Bonds... 2 Changes to the Preliminary Official Statement... 2 DEFINITIONS... 2 THE SERIES 2011-A BONDS... 4 Series 2011-A Bonds... 4 General Provisions Respecting Redemption... 5 Transfer and Exchange... 6 Method and Place of Payment... 6 Registration and Exchange... 6 Book-Entry Only System... 6 Authority for Issuance... 8 SECURITY AND SOURCE OF PAYMENT... 8 Sources of Payment and Pledged Revenues... 8 The General Fees... 8 The Pledged Student Fees... 9 The Housing and Dining Revenues... 9 The Athletic Program Revenues Maintenance of Pledged Revenues Special Funds Parity Bonds Additional Debt Covenant Limited Obligations THE PLAN OF FINANCING Description of University Improvements SOURCES AND USES OF FUNDS DEBT STRUCTURE OF THE UNIVERSITY Outstanding Bonds under General Fee Revenue Indenture Outstanding 1978 Dormitory Revenue Bonds Outstanding Bonds under Housing and Dining Revenue Indenture Outstanding Bonds under Athletic Revenue Indenture Miscellaneous Debt Short-Term Debt Additional Debt DEBT SERVICE REQUIREMENTS DEBT SERVICE COVERAGE INTEREST RATE SWAPS SPECIAL CONSIDERATIONS Limited Source of Payment Limitation on Remedies Upon Default State Proration General Factors Affecting the Pledged Revenues ACCOUNTING AND FINANCIAL INFORMATION Accounting i

4 Other Post-Employment Benefits Description of Funds Budgetary Process Major Sources of Revenue Financial RETIREMENT PLANS TAX MATTERS General Original Issue Discount Premium LEGALITY OF THE SERIES 2011-A BONDS FOR INVESTMENT STATE NOT LIABLE ON SERIES 2011-A BONDS LEGAL MATTERS INDEPENDENT ACCOUNTANTS ENFORCEABILITY LITIGATION UNDERWRITING CONTINUING DISCLOSURE General Compliance with Prior Undertakings RATINGS MISCELLANEOUS APPENDIX A General Description of the University APPENDIX B Financial Report of the University APPENDIX C - Summary of the General Fee Revenue Indenture APPENDIX D - Form of Legal Opinion of Bond Counsel ii

5 OFFICIAL STATEMENT relating to AUBURN UNIVERSITY $226,035,000 General Fee Revenue Bonds, Series 2011-A INTRODUCTORY STATEMENT This Official Statement, including the cover page and Appendices, is furnished by Auburn University (herein called the University or Auburn ) to provide certain information in connection with the sale by the University of its General Fee Revenue Bonds, Series 2011-A in the aggregate principal amount of $226,035,000 (the Series 2011-A Bonds ). The Series 2011-A Bonds will be issued as additional parity bonds under a General Fee Revenue Indenture dated as of June 1, 1985, between the University and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the Trustee ), as previously supplemented and as further supplemented by a Fifteenth Supplemental General Fee Indenture to be dated as of May 1, 2011 (as so supplemented, the Indenture or General Fee Revenue Indenture ). The University The University is a public corporation and an instrumentality of the State of Alabama existing under provisions of Amendment No. 161 of the Constitution of Alabama of 1901 and Chapter 48 of Title 16 of the CODE OF ALABAMA The University is governed by Board of Trustees (the Board ) with fourteen voting members. The members of the Board are appointed by a committee consisting of the Governor of Alabama and representatives of the Board and the Auburn Alumni Association, with the advice and consent of the Alabama Senate. No member of the Board receives compensation for his or her services. The University has two campuses. The University s larger campus is located in Auburn, Alabama (the Auburn Main Campus ) approximately 55 miles east of Montgomery, Alabama. The University s second campus is located in Montgomery, Alabama (the Auburn Montgomery Campus or AUM ). Fall 2010 enrollment at the University was 30,889. For a description of the University and the Board, see APPENDIX A General Description of the University. Purpose of the Issue The Series 2011-A Bonds are being issued for the purposes of (i) financing certain capital improvements at the University s campuses; and (ii) paying the costs of issuing the Series 2011-A Bonds. See THE PLAN OF FINANCING. Security The Series 2011-A Bonds are limited obligations of the University, payable solely from, and secured by a pledge of, the Pledged Revenues, as more fully described below under SECURITY AND SOURCE OF PAYMENT - Sources of Payment and Pledged Revenues. The Pledged Revenues include a pledge of the General Fees levied against students enrolled at the University, a pledge of certain Pledged Student Fees, and, on a subordinate basis, pledges of the Housing and Dining Revenues and Athletic Program Revenues, each as described herein. See SECURITY AND SOURCE OF PAYMENT - Sources of Payment and Pledged Revenues. 1

6 The Series 2011-A Bonds will not constitute a charge against the general credit of the University, and will not be payable from moneys appropriated to the University by the State of Alabama. The University has no taxing power. The State of Alabama will not be liable in any manner for the payment of the principal and interest on the Series 2011-A Bonds. Holders of the Series 2011-A Bonds shall never have the right to demand payment of the Series 2011-A Bonds from the University from any source other than the special funds established under the Indenture and the Pledged Revenues and shall be entitled to payment from such sources only on a parity basis with all other bonds now or hereafter outstanding under the Indenture. Existing and Additional Parity Bonds The Indenture permits the University to issue additional parity bonds ( Additional Bonds ) that will be secured on a parity with the Series 2011-A Bonds and any other bonds issued thereunder. For a description of bonds already outstanding under the Indenture that are secured on a parity with the Series 2011-A Bonds, see DEBT STRUCTURE OF THE UNIVERSITY. For a description of the terms of the Indenture that permit the issuance of additional parity bonds in the future, see SECURITY AND SOURCE OF PAYMENT - Parity Bonds and - Additional Debt Covenant. See also Additional Bonds in Appendix C. Changes to the Preliminary Official Statement This Official Statement includes certain information that was dependent on final pricing of the Series A Bonds and was either omitted or estimated in the preliminary official statement, such as aggregate principal amount, principal amount per maturity, sale prices, interest rates, selling compensation, delivery dates, and other similar information. In addition to adding the above information, this Official Statement has been revised since distribution of the preliminary official statement as follows: (i) the University s steps to mitigate the effects of proration have been revised to reflect actions taken by the Board of Trustees at its meeting on April 15, 2011, as described in SPECIAL CONSIDERATIONS Proration, (ii) the schedule of tuition and fees for the Auburn Montgomery Campus has been updated, as shown under ACCOUNTING AND FINANCIAL INFORMATION Major Sources of Revenue General Fees and Tuition, (iii) the reference to the accounting principles used by component units of the University has been revised from FASB to the Accounting Standards Codification, under ACCOUNTING AND FINANCIAL INFORMATION Accounting, and (iv) revenues from auxiliary sales for Sales and Service and revenues from Sales and Service (Educational) have been corrected to reflect University-wide revenues rather than revenues from the Auburn Main Campus only, as shown under ACCOUNTING AND FINANCIAL INFORMATION. DEFINITIONS The definitions of certain capitalized terms used frequently in this Official Statement are set forth in this section. The appendix summarizing the terms of the Indenture (Appendix C) contains additional terms used in such summary Dormitory Revenue Bonds means the dormitory revenue bonds issued by the University in 1978 in the original principal amount of $3,279,000 (which are currently outstanding in the aggregate principal amount of $1,025,000) to finance dormitories at the Auburn Montgomery Campus. Additional Bonds means an additional series of bonds issued pursuant to the Indenture that is secured on a parity with other bonds issued pursuant to the Indenture. Athletic Program Revenues means the gross revenues derived by the University from its intercollegiate athletic program, including, without limitation, all proceeds from the sales of tickets and from other fees and charges for admission to or use of facilities in connection with athletic events at Jordan-Hare Stadium and all other athletic facilities of the University, all concession revenues from such facilities, all payments for television and other broadcast rights referable to intercollegiate athletic events in which the University is a participant or to athletic conferences or associations of which the University is a member, all payments received by the University by way of 2

7 settlement or otherwise from other institutions and from conferences or associations of which the University is a member and directly or indirectly related to the intercollegiate athletic program of the University, and that portion (presently $96.00 per student per academic semester) of the general tuition fees levied against all students of the University at the Auburn Main Campus, designated for athletic purposes and allocated to the Athletic Department of the University. Athletic Revenue Bonds means the University s Series 2004 Athletic Revenue Bonds and Series A Athletic Revenue Bonds, as described under DEBT STRUCTURE OF THE UNIVERSITY - Outstanding Bonds under Athletic Revenue Indenture herein, and all other bonds issued from time to time pursuant to the Athletic Revenue Indenture. See SECURITY AND SOURCE OF PAYMENT Parity Bonds and -Additional Debt Covenant. Athletic Revenue Indenture means the Athletic Revenue Trust Indenture dated as of September 15, 1985, between the University and the Trustee, as supplemented and amended. Auburn Main Campus means the campus of the University located in Auburn, Alabama. Auburn Montgomery Campus means the campus of the University located in Montgomery, Alabama. Board means the Board of Trustees of the University. General Fee Revenue Indenture or Indenture means the General Fee Revenue Indenture dated as of June 1, 1985, between the University and the Trustee, as previously supplemented and amended and as further supplemented by a Fifteenth Supplemental General Fee Indenture to be dated as of May 1, 2011 (as so supplemented, the Indenture or General Fee Revenue Indenture ). General Fees means the gross revenues from the general tuition fees levied against all students of the University, excluding (i) that portion (presently $96.00 per student at the Auburn Main Campus per academic semester) of such fees designated for athletic purposes and allocated to the Athletic Department of the University, and (ii) any other fee or charge designated for a special purpose by resolution duly adopted by the Board, unless otherwise provided by such a resolution. Housing and Dining Revenue Indenture means the Housing and Dining Revenue Trust Indenture dated as of January 1, 1987 between the University and the Trustee, as supplemented and amended. Housing and Dining Revenues means the gross revenues derived by the University from the operation of the housing and dining facilities owned by the University. Pledged Revenues means General Fees, the Pledged Student Fees, and, on a subordinate basis, the Housing and Dining Revenues and the Athletic Program Revenues, each as described herein. fees: Pledged Student Fees means the gross revenues derived by the University from the following student (i) that certain fee levied against students at the Auburn Main Campus authorized by a resolution of the Board adopted on June 18, 2010, to be collected in an amount up to $200 per academic semester and to be used to pay a portion of the costs of a new student wellness and a sustainability center to be located on the Auburn Main Campus; (ii) that certain fee levied against students at the Auburn Main Campus authorized by a resolution of the Board adopted on June 7, 1999 (currently $75 per semester), to be used to pay a portion of the costs of the student center located on the Auburn Main Campus; and (iii) that portion (presently $160 per semester) of the student activity fee levied against students at the Auburn Montgomery Campus authorized by a resolution of the Board adopted on November 6, 2009, to be used to pay a portion of the costs of the new student wellness center to be located on the Auburn Montgomery Campus. 3

8 Series 2011-A Bonds means the University s General Fee Revenue Bonds, Series 2011-A, being offered pursuant to this Official Statement. Trustee means The Bank of New York Mellon Trust Company, N.A. (successor trustee to Compass Bank and JPMorgan Chase Bank) in its capacity as trustee under the Indenture, the Housing and Dining Revenue Indenture and the Athletic Revenue Indenture. University or Auburn means Auburn University, a public corporation and instrumentality of the State of Alabama. University Improvements means the capital improvements to the Auburn Main Campus and the Auburn Montgomery Campus that will be constructed and acquired with proceeds of the Series 2011-A Bonds. Series 2011-A Bonds THE SERIES 2011-A BONDS General Description. The Series 2011-A Bonds will be issued in the aggregate principal amount of $226,035,000 and will be dated as of May 1, The Series 2011-A Bonds will bear interest (payable on each June 1 and December 1 thereafter until maturity, commencing December 1, 2011) at the rates, and will mature on June 1 in the years and in the amounts, set forth on the inside cover page of this Official Statement. The Series 2011-A Bonds will be issuable only as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof. Redemption of Series 2011-A Bonds Prior to Maturity. The Series 2011-A Bonds will be subject to optional or mandatory redemption, as follows: Optional Redemption. The Series 2011-A Bonds maturing on June 1, 2022, and thereafter will be subject to redemption on June 1, 2021, or any date thereafter at the option of the University at a redemption price equal to 100% of the par amount of the Series 2011-A Bonds being redeemed plus accrued interest through the date of redemption. Mandatory Redemption of 2036 Term Bonds. The Series 2011-A Bonds maturing on June 1, 2036 (the 2036 Term Bonds ) are subject to mandatory redemption, by lot, at a redemption price equal to 100% of the principal amount to be redeemed plus accrued interest thereon to the redemption date, on June 1, in years and principal amounts (after credit as provided below) as follows: Year Amount 2032 $9,455, $9,925, $10,420, $10,945,000 $11,490,000 of the 2036 Term Bonds is scheduled to be retired at maturity. Not less than 45 or more than 60 days prior to each mandatory redemption date with respect to the 2036 Term Bonds, the Trustee shall proceed to select for redemption, by lot, 2036 Term Bonds or portions thereof in an aggregate principal amount equal to the amount required to be redeemed and shall call such 2036 Term Bonds or portions thereof for redemption on such mandatory redemption date. The University may, not less than 60 days prior to any such mandatory redemption date, direct that any or all of the following amounts be credited against the 2036 Term Bonds scheduled for redemption on such date: (i) the principal amount of 2036 Term Bonds delivered by the University to the Trustee for cancellation and not previously claimed as a credit; and (ii) the principal amount of 4

9 2036 Term Bonds previously redeemed pursuant to the optional redemption provisions of the Indenture and not previously claimed as a credit. Mandatory Redemption of 2041 Term Bonds. The Series 2011-A Bonds maturing on June 1, 2041 (the 2041 Term Bonds ) are subject to mandatory redemption, by lot, at a redemption price equal to 100% of the principal amount to be redeemed plus accrued interest thereon to the redemption date, on June 1, in years and principal amounts (after credit as provided below) as follows: Year Amount 2037 $12,065, $12,670, $13,300, $13,965,000 $14,665,000 of the 2041 Term Bonds is scheduled to be retired at maturity. Not less than 45 or more than 60 days prior to each mandatory redemption date with respect to the 2041 Term Bonds, the Trustee shall proceed to select for redemption, by lot, 2041 Term Bonds or portions thereof in an aggregate principal amount equal to the amount required to be redeemed and shall call such 2041 Term Bonds or portions thereof for redemption on such mandatory redemption date. The University may, not less than 60 days prior to any such mandatory redemption date, direct that any or all of the following amounts be credited against the 2041 Term Bonds scheduled for redemption on such date: (i) the principal amount of 2041 Term Bonds delivered by the University to the Trustee for cancellation and not previously claimed as a credit; and (ii) the principal amount of 2041 Term Bonds previously redeemed pursuant to the optional redemption provisions of the Indenture and not previously claimed as a credit. Except in the case of mandatory redemption of 2036 Term Bonds or 2041 Term Bonds, if less than all Series 2011-A Bonds Outstanding are to be redeemed, the particular Series 2011-A Bonds to be redeemed may be specified by the University by written notice to the Trustee, or, in the absence of timely receipt by the Trustee of such notice, shall be selected by the Trustee by lot or by such other method as the Trustee shall deem fair and appropriate; provided, however, that (i) the principal amount of Series 2011-A Bonds of each maturity to be redeemed must be a multiple of the smallest authorized denomination of Series 2011-A Bonds, and (ii) if less than all Series 2011-A Bonds with the same stated maturity and coupon are to be redeemed, the Series 2011-A Bonds of such maturity and coupon to be redeemed shall be selected by lot by the Trustee. General Provisions Respecting Redemption Any redemption will be made upon at least 30 days notice by registered or certified mail to the holders of Series 2011-A Bonds to be redeemed. If a trust is established for payment of less than all Series 2011-A Bonds of a particular maturity and coupon, the Series 2011-A Bonds of such maturity and coupon to be paid from the trust shall be selected by the Trustee by lot within 7 days after such trust is established and shall be identified by a separate CUSIP number or other designation satisfactory to the Trustee. The Trustee shall notify holders whose Series 2011-A Bonds (or portions thereof) have been selected for payment from such trust and shall direct such holders to surrender their Series 2011-A Bonds to the Trustee in exchange for Series 2011-A Bonds with the appropriate designation. Upon any partial redemption of a Series 2011-A Bond, such Bond shall be surrendered to the Trustee in exchange for one or more new Series 2011-A Bonds in authorized form for the unredeemed portion of principal. Any Series 2011-A Bond (or portion thereof) which is to be redeemed must be surrendered to the Trustee for payment of the redemption price. Series 2011-A Bonds (or portions thereof) duly called for redemption will cease to bear interest after the redemption date, unless the University defaults in payment of the redemption price. 5

10 Transfer and Exchange No charge will be made for any exchange or transfer of the Series 2011-A Bonds, but the registered owner thereof shall be responsible for paying all taxes and other governmental charges relating to such transfer or exchange. In the event a Series 2011-A Bond is lost, stolen, destroyed or mutilated, the University and the Trustee may require satisfactory indemnification for the replacement thereof and may charge the holder or owner of such bond with their fees and expenses in connection with the replacement thereof. Method and Place of Payment The Series 2011-A Bonds will be issued in book-entry only form, as described below under Book-Entry Only System, and the method and place of payment will be as provided in the book-entry only system. The Indenture contains alternative provisions for the method and place of payment if the book-entry only system is discontinued. Registration and Exchange The Series 2011-A Bonds will be issued in book-entry only form, as described below under Book-Entry Only System, and the method for registration and exchange of the Series 2011-A Bonds will be as provided in the book-entry only system. The Indenture contains alternative provisions for the registration and exchange of Series 2011-A Bonds if the book-entry only system is discontinued. Book-Entry Only System The information contained in this section concerning The Depository Trust Company and its book-entry only system has been obtained from materials furnished by The Depository Trust Company to the University. The University and the Underwriter do not make any representation or warranty as to the accuracy or completeness of such information. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Series 2011-A Bonds. The Series 2011-A 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 certificate will be issued for each Series 2011-A Bond, in the aggregate principal amount of such bond, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 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 bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2011-A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2011-A Bonds on DTC s records. The ownership interest of each actual 6

11 purchaser of each Series 2011-A 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 Series 2011-A 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 Series 2011-A Bonds, except in the event that use of the book-entry system for the Series 2011-A Bonds is discontinued. To facilitate subsequent transfers, all Series 2011-A 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 Series 2011-A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2011-A Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2011-A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2011-A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2011-A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2011-A Bonds may wish to ascertain that the nominee holding the Series 2011-A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2011-A Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2011-A Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the University as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Series 2011-A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2011-A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the University or its Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, or its nominee, Agent, or the University, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the University or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Series 2011-A Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Series 2011-A Bonds by causing the Direct Participant to transfer the Participant s interest in the Series 2011-A Bonds, on DTC s records, to the Trustee. The requirement for physical delivery of Series 2011-A Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2011-A Bonds are transferred by Direct 7

12 Participants on DTC s records and followed by a book-entry credit of tendered Series 2011-A Bonds to the Trustee s DTC account. DTC may discontinue providing its services as depository with respect to the Series 2011-A Bonds at any time by giving reasonable notice to the University or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2011-A Bond certificates are required to be printed and delivered. The University may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2011-A Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the University believes to be reliable, but the University takes no responsibility for the accuracy thereof. Authority for Issuance The Series 2011-A Bonds are being issued by the University under the authority of the Constitution and laws of the State of Alabama, including particularly Chapter 3 of Title 16 of the Code of Alabama 1975, Section (the Enabling Law ). The Enabling Law authorizes any public corporation that conducts one or more state educational institutions under its supervision, acting through its board of trustees or other governing body, to issue interest bearing securities, whether in the form of bonds, notes or other securities, in evidence of money borrowed for the purchase, construction, enlargement or alteration of any buildings or other improvements, all for use by such institution. The issuing institution may agree to pledge to the payment of the principal of and interest on such securities the fees from students levied and to be levied by or for such institution and any other moneys and revenues not appropriated by the state to such institution. Sources of Payment and Pledged Revenues SECURITY AND SOURCE OF PAYMENT The Series 2011-A Bonds will be limited obligations of the University and will be payable solely from, and will be secured by a pledge of, the Pledged Revenues. The Pledged Revenues under the Indenture will include a pledge of the General Fees, a pledge of the Pledged Student Fees, and, on a subordinate basis, pledges of the Housing and Dining Revenues and the Athletic Program Revenues, each subject to the exclusions and limitations described below. The General Fees The term General Fees, as used herein, means the gross revenues from the general tuition fees levied against all students of the University, excluding (i) that portion (presently $96.00 per student at the Auburn Main Campus per academic semester) of such fees designated for athletic purposes and allocated to the Athletic Department of the University, and (ii) any other fee or charge designated for a special purpose by resolution duly adopted by the Board, unless otherwise provided by such a resolution. Expansion of General Fee Pledge to Include Auburn Montgomery Campus. Prior to issuance of the Series 2011-A Bonds, the General Fees pledged to secure all Parity Bonds issued under the General Fee Revenue Indenture were limited to General Fees levied against students of the University at the Auburn Main Campus. Concurrently with the delivery of the Series 2011-A Bonds, the University and the Trustee will enter into the Fifteenth Supplement Indenture that will, among other things, expand the definition of General Fee Revenues pledged under the General Fee Revenue Indenture to include General Fees levied against Students of the University at the Auburn Montgomery Campus. Upon giving effect to the Fifteenth Supplemental Indenture, the pledge of General Fees pledged to secure the Series 2011-A Bonds and all other Parity Bonds now or hereafter outstanding 8

13 under the General Fee Revenue Indenture will include the General Fees levied against students of the University at the Auburn Montgomery Campus. Historical General Fees. Set forth below are the historical General Fees for the fiscal years indicated: General Fees (Auburn Main Campus) General Fees (Auburn Montgomery Campus) General Fees (Total) (all unaudited) 2010 $266,821,792 $31,844,543 $298,666, ,242,411 27,198, ,441, ,747,572 23,206, ,953, ,681,240 20,673, ,354, ,517,470 20,874, ,392,033 First Priority Pledge of General Fees. The University s pledge of its General Fees is a first-priority pledge that is not subject to any prior pledge by the University and is not pledged to pay debt service on any indebtedness of the University other than indebtedness issued under the General Fee Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY - Outstanding Bonds under General Fee Revenue Indenture and DEBT SERVICE REQUIREMENTS herein. The General Fees constitute a portion of the Pledged Revenues under the Indenture. The Pledged Student Fees The term Pledged Student Fees, as used herein, includes (i) a fee levied against students at the Auburn Main Campus authorized by a resolution of the Board adopted on June 18, 2010, to be collected in an amount up to $200 per academic semester and to be used to pay a portion of the costs of a new student wellness and a sustainability center to be located on the Auburn Main Campus; (ii) a fee levied against students at the Auburn Main Campus authorized by a resolution of the Board adopted on June 7, 1999 (presently $75 per semester), to be used to pay a portion of the costs of the student center located on the Auburn Main Campus; and (iii) that portion (presently $160 per semester) of the student activity fee levied against students at the Auburn Montgomery Campus authorized by a resolution of the Board adopted on November 6, 2009, to be used to pay a portion of the costs of the new student wellness center to be located on the Auburn Montgomery Campus. The Pledged Student Fees were designated for the special purposes described above and were pledged to secure all Parity Bonds now or hereafter outstanding under the General Fee Revenue Indenture, including without limitation the Series 2011-A Bonds, by resolutions duly adopted by the Board. The Pledged Student Fees for 2009 and 2010 are included in the amount of Historical General Fees shown in the table above under the heading SECURITY AND SOURCE OF PAYMENT The General Fees Historical General Fees. The University s pledge of the Pledged Student Fees is a first-priority pledge that is not subject to any prior pledge by the University and does not secure the payment of debt service on any indebtedness of the University other than indebtedness issued under the General Fee Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY - Outstanding Bonds under General Fee Revenue Indenture and DEBT SERVICE REQUIREMENTS herein. The Pledged Student Fees constitute a portion of the Pledged Revenues under the Indenture. The Housing and Dining Revenues The term Housing and Dining Revenues, as used herein, means the gross revenues derived by the University from the operation of the housing and dining facilities owned by the University. The pledge of Housing and Dining Revenues from the operation of housing and dining facilities on the Auburn Main Campus was added to the General Fee Trust Indenture contemporaneously with the issuance of the University s General Fee Revenue Bonds, Series 2007-A and 2007-B (Taxable). See INTRODUCTORY STATEMENT Existing and Parity Bonds 9

14 and SECURITY AND SOURCE OF PAYMENT Additional Parity Bonds and - Additional Debt Covenant herein. Expansion of Housing and Dining Revenue Pledge to Include Auburn Montgomery Campus. Contemporaneously with the delivery of the Series 2011-A Bonds, the University and the Trustee will enter into the Fifteenth Supplement Indenture that will, among other things, expand the definition of Housing and Dining Revenues pledged under the General Fee Revenue Indenture to include Housing and Dining Revenues from the operation of housing and dining facilities on the Auburn Montgomery Campus. Upon giving effect to the Fifteenth Supplemental Indenture, the pledge of Housing and Dining Revenues pledged to secure the Series 2011-A Bonds and all other Parity Bonds now or hereafter outstanding under the General Fee Revenue Indenture will include the University s Housing and Dining Revenues from the operation of housing and dining facilities on both the Auburn Main Campus and the Auburn Montgomery Campus. Subordinate Pledge of Housing and Dining Revenues. The pledge of Housing and Dining Revenues under the General Fee Revenue Indenture is subordinate in all respects to (i) the University s prior pledge of certain dormitory revenues on the Auburn Montgomery Campus to secure payment of the 1978 Dormitory Revenue Bonds, and (ii) the University s prior pledge of the Housing and Dining Revenues under the Housing and Dining Revenue Indenture to secure the University s Housing and Dining Revenue Bonds, Series 2003 and any other bonds hereafter issued on a parity basis with such Series 2003 Bonds under the terms and conditions of the Housing and Dining Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY 1978 Dormitory Revenue Bonds and - Outstanding Bonds under Housing and Dining Revenue Indenture herein. Remaining Debt Service Secured by Prior Pledges of Housing and Dining Revenues. Set forth below is the remaining debt service on the University s 1978 Dormitory Revenue Bonds, which are secured by a pledge of the revenues generated by the dormitories on the Auburn Montgomery Campus that were financed by those Bonds: Fiscal Year Principal Interest Total 2012 $115,000 $29,025 $144, ,000 25, , ,000 21, , ,000 18, , ,000 14, , ,000 10, , ,000 6, , ,000 2, ,100 Set forth below is the remaining debt service on the University s Housing and Dining Revenues Bonds, Series 2003, which are the only bonds outstanding and secured by the senior pledge of Housing and Dining Revenues under the Housing and Dining Revenue Indenture: Fiscal Year Series 2003 Housing and Dining Refunding Bonds 2011 $1,960, $1,963,500 10

15 Historical Pledged Net Housing and Dining Revenues. Set forth below are the historical Housing and Dining Revenues for the fiscal years indicated, after payment of debt service on the 1978 Dormitory Revenue Bonds and the University s Housing and Dining Revenue Bonds, Series 2003: Fiscal Year Housing and Dining Revenues (all unaudited) 2010 $18,461, ,484, ,482, ,360, ,667,757 The Housing and Dining Revenues, subject to the subordination described above, constitute a portion of the Pledged Revenues under the Indenture. The Athletic Program Revenues The term Athletic Program Revenues means the gross revenues (including, without limitation, a portion of certain student fees) derived by the University from its intercollegiate athletic program, including, without limitation, all proceeds from the sales of tickets and from other fees and charges for admission to or use of facilities in connection with athletic events at Jordan-Hare Stadium and all other athletic facilities of the University, all concession revenues from such facilities, all payments for television and other broadcast rights referable to intercollegiate athletic events in which the University is a participant or to athletic conferences or associations of which the University is a member, all payments received by the University by way of settlement or otherwise from other institutions and from conferences or associations of which the University is a member and directly or indirectly related to the intercollegiate athletic program of the University; and that portion (presently $96 per student per semester) of the general tuition fee levied against all students of the University at the Auburn Main Campus designated for athletic purposes and allocated to the Athletic Department of the University. The pledge of Athletic Program Revenues was added to the General Fee Trust Indenture contemporaneously with the issuance of the University s General Fee Revenue Bonds, Series 2008 and secures on a parity basis all bonds now or hereafter issued under the General Fee Revenue Indenture. See INTRODUCTORY STATEMENT Existing and Parity Bonds and SECURITY AND SOURCE OF PAYMENT Parity Bonds and - Additional Debt Covenant herein. Subordinate Pledge of Athletic Program Revenues. The pledge of Athletic Program Revenues under the General Fee Revenue Indenture is subordinate in all respects to the University s prior pledge of the Athletic Program Revenues under the Athletic Revenue Indenture to secure the University s Athletic Revenue Bonds now or hereafter issued under the terms and conditions of the Athletic Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY Outstanding Bonds under Athletic Revenue Indenture herein. 11

16 Remaining Debt Service on Senior Athletic Revenue Debt. Set forth below is the remaining debt service on the Athletic Revenue Bonds that are currently outstanding and secured by the senior pledge of Athletic Program Revenues under the Athletic Revenue Indenture: Fiscal Year Series 2001 Athletic Bonds Series 2004A Athletic Bonds Series 2004B Athletic Bonds Aggregate Debt Service 2011 $3,915,000 $1,622,858 $175,375 $5,713, $3,915,000 $1,623,338 $175,375 $5,713, $3,915,000 $1,621,763 $175,375 $5,712, $3,915,000 $1,619,013 $175,375 $5,709, $3,915,000 $1,619,223 $175,375 $5,709, $3,915,000 $1,623,160 $175,375 $5,713, $3,915,000 $1,621,910 $175,375 $5,712, $3,920,000 $1,618,910 $175,375 $5,714, $3,920,000 $1,622,110 $175,375 $5,717, $3,920,000 $1,623,080 $175,375 $5,718, $3,915,000 $1,621,750 $175,375 $5,712, $683,050 $1,135,375 $1,818, $683,050 $1,135,175 $1,818, $683,050 $1,136,813 $1,819, $1,798,050 $1,798, $1,797,875 $1,797, $1,794,625 $1,794, $1,798,625 $1,798, $1,794,375 $1,794, $1,797,125 $1,797, $1,796,375 $1,796, $1,797,125 $1,797, $1,794,125 $1,794, $1,796,463 $1,796, $1,794,125 $1,794, $1,796,463 $1,796,463 Historical Pledged Net Athletic Program Revenues. Set forth below are the Athletic Program Revenues for the fiscal years indicated, after payment of debt service on the University s Athletic Revenue Bonds: Fiscal Year Athletic Program Revenues (all unaudited) 2010 $54,185, ,155, ,805, ,981, ,399,390 The Athletic Program Revenues, subject to the subordination described above, constitute a portion of the Pledged Revenues under the Indenture. Maintenance of Pledged Revenues In the Indenture, the University agrees that so long as the principal of and the interest on any bonds issued thereunder remain unpaid it will continue to levy and collect those fees and charges composing the Pledged 12

17 Revenues, and it will from time to time make such increases and adjustments in such fees and charges and allocation and designation thereof as will produce during each fiscal year Pledged Revenues in an amount not less than 250% of the amounts required to make all payments into the Bond Fund established thereunder in respect of debt service on such bonds. The University may, however, reduce or otherwise adjust such fees and charges so long as the Pledged Revenues during each fiscal year are not less than 250% of the amount required for all payments to be made during the same fiscal year into such Bond Fund pursuant to the Indenture or any supplemental indenture. For purposes of the foregoing covenant, Pledged Revenues shall be calculated by taking into account the fees and charges comprising the Pledged Revenues after deducting therefrom the annual debt service requirements under the 1978 Dormitory Revenue Bonds, the Housing and Dining Revenue Indenture, the Athletic Revenue Indenture and the amounts, if any, required to be paid during the relevant fiscal year into the reserve funds established under the Housing and Dining Revenue Indenture or the Athletic Revenue Indenture. Special Funds As security for the Series 2011-A Bonds, the University will grant the Trustee a security interest in the special funds established under the Indenture, as described in APPENDIX C- Flow of Funds. The construction fund will be held by and under the control of the University and will not be held in a special fund under the Indenture or otherwise pledged to secure payment of the Series 2011-A Bonds. Parity Bonds When the Series 2011-A Bonds are issued, the only bonds secured by the Indenture will be (i) the General Fee Revenue Bonds, Series 2003, (ii) the General Fee Revenue Bonds, Series 2004, (iii) the General Fee Revenue Bonds, Series 2006-A, (iv) the General Fee Revenue Bonds, Series 2007-A, (v) the General Fee Revenue Bonds, Series 2007-B (Taxable), (vi) the General Fee Revenue Bonds, Series 2008, (vii) the General Fee Revenue Refunding Bonds, Series 2009, and (viii) Series 2011-A Bonds. There are no liens or pledges with respect to the General Fees or Pledged Student Fees that are prior to the lien of the Indenture. See DEBT STRUCTURE OF THE UNIVERSITY and SECURITY AND SOURCE OF PAYMENT The General Fees and - The Pledged Student Fees herein. There are no liens or pledges with respect to the Housing and Dining Revenues that are prior to the lien of the Indenture, other than the University s prior pledge of those revenues to secure the 1978 Dormitory Revenue Bonds and the University s prior pledge of those revenues under the Housing and Dining Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY and SECURITY AND SOURCE OF PAYMENT - The Housing and Dining Revenues herein. There are no liens or pledges of the Athletic Program Revenues that are prior to the lien of the Indenture, other than the University s prior pledge of those revenues under the Athletic Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY and SECURITY AND SOURCE OF PAYMENT - The Athletic Program Revenues herein. The Indenture permits the issuance of Additional Bonds secured by the Indenture on a parity with the Series 2011-A Bonds and all other bonds now or hereafter outstanding under such Indenture. See SECURITY AND SOURCE OF PAYMENT Parity Bonds and - Additional Debt Covenant and APPENDIX C - Additional Bonds. Additional Debt Covenant In the Indenture, the University covenants that so long as any of the Series 2011-A Bonds remain outstanding, the University will not issue any bonds or incur any other obligations secured by a pledge of the Pledged Student Fees, Housing and Dining Revenues or the Athletic Program Revenues, including, without limitation, bonds or other obligations issued under the Housing and Dining Revenue Indenture or Athletic Revenue Indenture, that are senior to the pledge of the Pledged Student Fees, Housing and Dining Revenues or Athletic Program Revenues contained in the General Fee Revenue Indenture (such bonds and other obligations, collectively, the Other Senior Obligations ) unless, at the time of such issuance or incurrence, the Executive Vice President of 13

18 the University files a certificate with the Trustee certifying that the amount of Pledged Revenues received by the University during each of the two fiscal years next preceding the date of issuance or incurrence of the Other Senior Obligations, less the maximum amount payable in any Fiscal Year on the Other Senior Obligations proposed to be issued, is not less than 250% of the University s maximum annual debt service under the General Fee Revenue Indenture. Limited Obligations The Series 2011-A Bonds will not constitute a charge against the general credit of the University, and will not be payable from moneys appropriated to the University by the State of Alabama. The University has no taxing power. The State of Alabama will not be liable in any manner for the payment of the principal and interest on the Series 2011-A Bonds. Holders of the Series 2011-A Bonds shall never have the right to demand payment of the Series 2011-A Bonds from the University from any source other than the special funds established under the Indenture and the Pledged Revenues and shall be entitled to payment from such sources only on a parity basis with all other bonds outstanding under the Indenture. THE PLAN OF FINANCING The Series 2011-A Bonds are being issued for the purposes of (i) financing the costs of the University Improvements, and (ii) paying the costs of issuing the Series 2011-A Bonds. Description of University Improvements Proceeds of the Series 2011-A Bonds are expected to be allocated to finance University Improvements to the Auburn Main Campus, including (i) acquisition and construction of a new University Recreation and Wellness Center, equipment, furnishings, infrastructure and other real and personal property and facilities necessary or desirable in connection therewith; (ii) acquisition and construction of a multi-purpose practice facility, volleyball offices & locker room, swimming & equestrian offices, weight facility and other athletic projects deemed necessary including infrastructure, equipment and furnishings; (iii) acquisition and construction of new South Donahue Residential and Parking facilities, equipment, furnishings and all associated general infrastructure facility additions and improvements relating to these residential facilities; (iv) acquisition and construction of a new Small Animal Teaching Hospital, equipment, furnishings, infrastructure and other real and personal property and facilities necessary or desirable in connection therewith; (v) acquisition and construction of a new College of Education Department of Kinesiology facility, equipment, furnishings, infrastructure and other real and personal property and facilities necessary or desirable in connection therewith; and (vi) the acquisition, design and construction or rehabilitation of other real and personal property and facilities necessary and desirable including general building deferred maintenance, utility and mechanical infrastructure, campus roads, walkways, paths and pedestrian concourses, as well as general design cost on new facilities. Proceeds of the Series 2011-A Bonds are also expected to be allocated to finance University Improvements to the Auburn Montgomery Campus including (i) acquisition and construction of a new University Wellness Center, equipment, furnishings, infrastructure and other real and personal property and facilities necessary or desirable in connection therewith; (ii) renovation to the Taylor Center building including real and personal property and infrastructure associated with the project; (iii) renovation to Goodwyn Hall (Science Building) to include HVAC replacement, other equipment and furnishings as needed; and (iv) acquisition and construction of campus entrances, roadwork, parking lots, walkways, path and other pedestrian concourses. SOURCES AND USES OF FUNDS The estimated sources and uses of funds for the plan of financing with respect to the issuance of the Series 2011-A Bonds are as follows (rounded to the nearest whole dollar): 14

19 Sources of Funds Par amount of Series 2011-A Bonds $226,035, Net original issue premium 5,802, Interest Earnings (1) 1,695, Accrued Interest 340, Total Sources $233,873, Uses of Funds Project Fund $231,695, Expenses of issuance (including Underwriter s discount, legal, accounting and other issuance expenses) 1,833, Accrued Interest 340, Contingency/Rounding 4, Total Uses $233,873, (1) Assumes earnings, based on current draw-down schedule for proceeds of the Series 2011-A Bonds, of 0.5% per annum on amounts in the construction fund. DEBT STRUCTURE OF THE UNIVERSITY Outstanding Bonds under General Fee Revenue Indenture After giving effect to the issuance of the Series 2011-A Bonds and the plan of financing, the University will have the following long-term debt outstanding that is secured on a parity basis by a pledge of the General Fees and Pledged Student Fees under the General Fee Revenue Indenture: Series 2011-A Bonds. These are the bonds that are being offered pursuant to this Official Statement. The Series 2011-A Bonds are being issued as Additional Bonds under the Indenture. Series 2009 Bonds. The University has issued its General Fee Revenue Refunding Bonds, Series 2009 (the Series 2009 Bonds ) for the purpose of advance refunding the University s General Fee Revenue Refunding Bonds, Series 2001 and advance refunding the University s General Fee Revenue Bonds, Series 2001-A, both of which were issued for the purpose of making various capital improvements to University facilities. The Series 2009 Bonds are currently outstanding in the aggregate principal amount of $79,500,000 and mature in installments through The outstanding Series 2009 Bonds are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2008 Bonds, the Series 2007 Bonds, the Series 2006-A Bonds, the Series 2004 Bonds and the Series 2003 Bonds. Series 2008 Bonds. The University has issued its General Fee Revenue Bonds, Series 2008 (the Series 2008 Bonds ) for the purpose of making various capital improvements to University facilities. The Series 2008 Bonds are currently outstanding in the aggregate principal amount of $90,780,000 and mature in installments through The outstanding Series 2008 Bonds are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2009 Bonds, the Series 2007 Bonds, the Series 2006-A Bonds, the Series 2004 Bonds and the Series 2003 Bonds. Series 2007 Bonds. The University has issued its General Fee Revenue Bonds, Series 2007-A (the Series 2007-A Bonds ) and its General Fee Revenue Bonds, Series 2007-B (Taxable) (the Series 2007-B Bonds ) for the purpose of making various capital improvements to University facilities. The Series 2007-A Bonds are currently outstanding in the aggregate principal amount of $161,240,000 and mature in installments through The Series 2007-B Bonds are currently outstanding in the aggregate principal amount of $11,865,000 and mature in 15

20 installments through The outstanding Series 2007-A Bonds and outstanding Series 2007-B Bonds (together, the Series 2007 Bonds ) are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2009 Bonds, the Series 2008 Bonds, the Series 2006-A Bonds, the Series 2004 Bonds and the Series 2003 Bonds. Series 2006-A Bonds. The University has issued its General Fee Revenue Bonds, Series 2006-A (the Series 2006-A Bonds ) for the purpose of making various capital improvements to University facilities. The Series 2006-A Bonds are currently outstanding in the aggregate principal amount of $56,895,000 and mature in installments through The outstanding Series 2006-A Bonds are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2009 Bonds, the Series 2008 Bonds, the Series 2007 Bonds, the Series 2004 Bonds and the Series 2003 Bonds. Series 2004 Bonds. The University has issued its General Fee Revenue Bonds, Series 2004 (the Series 2004-A Bonds ) for the purpose of making various capital improvements to University facilities. The Series 2004 Bonds are currently outstanding in the aggregate principal amount of $67,705,000 and mature in installments through The outstanding Series 2004 Bonds are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2009 Bonds, the Series 2008 Bonds, the Series 2007 Bonds, the Series 2006-A Bonds and the Series 2003 Bonds. Series 2003 Bonds. The University has issued its General Fee Revenue Bonds, Series 2003 (the Series 2003 Bonds ) for the purpose of making various capital improvements to University facilities. The Series 2003 Bonds are currently outstanding in the aggregate principal amount of $26,100,000 and mature in installments through The outstanding Series 2003 Bonds are secured by the General Fee Revenue Indenture and the General Fees on a parity with the Series 2011-A Bonds, the Series 2009 Bonds, the Series 2008 Bonds, the Series 2007 Bonds, the Series 2006-A Bonds and Series 2004 Bonds. The Series 2011-A Bonds, the Series 2009 Bonds, the Series 2008 Bonds, the Series 2007 Bonds, the Series 2006-A Bonds, the Series 2004 Bonds and the Series 2003 Bonds are further secured by a subordinate pledge of the Housing and Dining Revenues and the Athletic Program Revenues. See DEBT STRUCTURE OF THE UNIVERSITY - Outstanding Bonds under Housing and Dining Revenue Indenture and - Outstanding Bonds under Athletic Revenue Indenture herein. Outstanding 1978 Dormitory Revenue Bonds The University issued its 1978 Dormitory Revenue Bonds in connection with a dormitory financing through the United States Department of Housing and Urban Development. The 1978 Dormitory Revenue Bonds are currently outstanding in the aggregate principal amount of $1,025,000 and mature in installments through See SECURITY AND SOURCE OF PAYMENT The Housing and Dining Revenues - Subordinate Pledge of Housing and Dining Revenues and -Remaining Debt Service Secured by Prior Pledges of Housing and Dining Revenues. Outstanding Bonds under Housing and Dining Revenue Indenture The University has issued its Housing and Dining Revenue Bonds, Series 2003, pursuant to the Housing and Dining Revenue Indenture for the purpose of constructing student housing and student dining facilities on the Auburn Main Campus. The Housing and Dining Revenue Bonds, Series 2003, are the only bonds outstanding under the Housing and Dining Revenue Indenture. They are currently outstanding in the aggregate principal amount of $3,685,000 and mature in annual installments through See SECURITY AND SOURCE OF PAYMENT The Housing and Dining Revenues - Subordinate Pledge of Housing and Dining Revenues and -Remaining Debt Service Secured by Prior Pledges of Housing and Dining Revenues. The Housing and Dining Revenue Bonds, Series 2003 are secured by a pledge of the University s Housing and Dining Revenues. The Housing and Dining Revenue Indenture permits the University to issue additional bonds secured by the Housing and Dining Revenues on a parity basis with the Housing and Dining Revenue Bonds, Series Bonds now or hereafter issued under the Housing and Dining Revenue Indenture are not payable from or secured by any of the General Fees but are payable from and secured by a pledge of the Housing and Dining Revenues that is senior and superior in all respects to the pledge of Housing and Dining Revenues that is contained 16

21 in the General Fee Trust Indenture. See SECURITY AND SOURCE OF PAYMENT The Housing and Dining Revenues - Subordinate Pledge of Housing and Dining Revenues and -Remaining Debt Service Secured by Prior Pledges of Housing and Dining Revenues. The University has entered into a covenant not to issue additional bonds under the Housing and Dining Revenue Indenture unless after delivery of such additional bonds, it can maintain compliance with certain financial covenants. See SECURITY AND SOURCE OF PAYMENT Parity Bonds and -Additional Debt Covenant and APPENDIX C Additional Bonds herein. Outstanding Bonds under Athletic Revenue Indenture Series 2004 Athletic Revenue Bonds. The University has issued its Athletic Revenue Bonds, Series A and Series 2004-B (collectively, the Series 2004 Athletic Revenue Bonds ) for the purpose of making various improvements to the University s athletic facilities. The Series 2004 Athletic Revenue Bonds were issued pursuant to an Athletic Revenue Trust Indenture dated as of September 15, 1985 (as heretofore supplemented from time to time, the Athletic Revenue Indenture ) between the University and the Trustee. The Series 2004 Athletic Revenue Bonds are currently outstanding in the aggregate principal amount of $25,120,000 and will mature in annual installments through See SECURITY AND SOURCE OF PAYMENT The Athletic Program Revenues - Subordinate Pledge of Athletic Program Revenues and Remaining Debt Service on Senior Athletic Revenue Debt herein. The Series 2004 Athletic Revenue Bonds are secured by a pledge of the Athletic Program Revenues under the Athletic Revenue Indenture on a parity basis with the Series 2001-A Athletic Revenue Bonds. Series 2001-A Athletic Revenue Bonds. The University has issued its Athletic Revenue Bonds, Series 2001-A (the Series 2001-A Athletic Revenue Bonds ) as capital appreciation bonds. Series 2001-A Athletic Revenue Bonds maturing in 2003 through 2021 are currently outstanding in the principal amount of $20,963,772 with a maturity value (including accrued, compounded interest) of $43,080,000. See SECURITY AND SOURCE OF PAYMENT The Athletic Program Revenues - Subordinate Pledge of Athletic Program Revenues and - Remaining Debt Service on Senior Athletic Revenue Debt herein. The outstanding Series 2001-A Athletic Revenue Bonds are secured by a pledge of the Athletic Program Revenues under the Athletic Revenue Indenture on a parity basis with the Series 2004 Athletic Revenue Bonds. The Series 2004 Athletic Revenue Bonds and Series 2001-A Athletic Revenue Bonds are secured by a firstpriority pledge of the Athletic Program Revenues that is senior to, and has priority in all respects over, the subordinate pledge of the Athletic Program Revenues that is contained in the General Fee Trust Indenture. See SECURITY AND SOURCE OF PAYMENT - The Athletic Program Revenues - Subordinate Pledge of Athletic Program Revenues and -Remaining Debt Service on Senior Athletic Revenue Debt herein. The foregoing Athletic Revenue Bonds are not payable from or secured by any other part of the Pledged Revenues. The University has entered into a covenant not to issue additional bonds under the Athletic Revenue Indenture unless after delivery of such additional bonds, it can maintain compliance with certain financial covenants. See SECURITY AND SOURCE OF PAYMENT Parity Bonds and - Additional Debt Covenant and APPENDIX C Additional Bonds herein. Miscellaneous Debt The University has incurred various long-term debts (including notes and capitalized leases) that may be payable from one or more of the sources of Pledged Revenues, but such debts are not secured by a pledge of any of the Pledged Revenues and, to the extent such debts are payable from any of the Pledged Revenues, such debts are payable on a subordinate basis with respect to bonds issued under the General Fee Revenue Indenture. As of September 30, 2010, the outstanding principal amount of such debt was $1,774,585. Short-Term Debt The University will not have any outstanding short-term debt payable from the Pledged Revenues when the Series 2011-A Bonds are issued. The University does not have any existing line of credit for working capital purposes that is payable from the Pledged Revenues. 17

22 Additional Debt The University has a number of capital projects currently under construction or under consideration for construction. See APPENDIX A Divisions and Facilities - Capital Expenditures herein. The University expects to incur additional debt in the future to finance certain of those capital projects. The University also expects to incur additional debt in the future at times, in amounts, and for other purposes not yet determined. Such debt may be issued or incurred as Additional Bonds under the Indenture that are payable from the Pledged Revenues. See APPENDIX C Additional Bonds for a description of the terms and conditions for issuance of Additional Bonds under the Indenture. [Remainder of this page intentionally blank.] 18

23 DEBT SERVICE REQUIREMENTS The following table 1/ sets forth debt service requirements on all bonds that will be secured by a pledge of the General Fees after giving effect to the issuance of the Series 2011-A Bonds and the plan of financing described herein: Fiscal Year Ending Sept. 30 Series 2003 Bonds Series 2004 Bonds Series 2006-A Bonds Series 2007 Bonds Series 2008 Bonds Series 2009 Bonds Series 2011-A Bonds Principal 1 Interest Total Total Debt Service 2011 $5,428,563 $4,869,163 $3,805,488 $11,742,640 $5,962,273 $5,057,431 $36,865, ,722,313 4,870,975 3,809,513 11,744,828 5,964,173 5,956,981 $12,073,317 $12,073,317 50,142, ,698,875 4,873,050 3,808,463 11,741,140 5,959,423 6,157,881 11,144,600 11,144,600 49,383, ,413,875 4,872,300 3,806,313 11,745,890 5,965,298 6,160,831 11,144,600 11,144,600 49,109, ,204,238 4,872,300 3,806,313 11,370,811 5,961,435 7,382,581 $4,255,000 11,144,600 15,399,600 52,997, ,210,000 4,870,755 3,809,369 11,370,311 5,965,560 7,375,581 4,460,000 10,931,850 15,391,850 52,993, ,872,593 3,805,569 11,370,561 5,961,248 7,375,081 4,685,000 10,753,450 15,438,450 48,823, ,868,918 3,805,819 11,361,561 5,961,178 7,822,581 4,835,000 10,566,050 15,401,050 49,221, ,868,655 3,807,569 11,361,286 5,961,178 7,821,581 5,025,000 10,372,650 15,397,650 49,217, ,870,128 3,805,569 11,362,161 5,967,578 7,823,081 5,275,000 10,121,400 15,396,400 49,224, ,869,885 3,809,819 11,360,321 5,959,578 7,820,831 5,540,000 9,857,650 15,397,650 49,218, ,872,500 3,809,819 11,363,571 5,964,803 7,824,331 5,820,000 9,580,650 15,400,650 49,235, ,868,250 3,805,819 11,361,096 5,963,463 7,823,850 6,110,000 9,289,650 15,399,650 49,222, ,872,750 3,807,569 11,358,496 5,960,950 7,825,650 6,415,000 8,984,150 15,399,150 49,224, ,870,250 3,809,569 11,358,428 5,961,950 7,823,400 6,735,000 8,663,400 15,398,400 49,221, ,870,750 3,806,569 11,367,238 5,960,700 7,826,000 7,055,000 8,344,000 15,399,000 49,230, ,868,750 3,808,569 11,364,738 5,961,950 7,405,000 7,991,250 15,396,250 41,400, ,869,000 3,807,094 11,367,238 5,965,200 7,775,000 7,621,000 15,396,000 41,404, ,871,000 3,808,844 11,363,750 5,964,950 8,165,000 7,232,250 15,397,250 41,405, ,869,250 3,809,594 11,370,000 5,965,950 8,575,000 6,824,000 15,399,000 41,413, ,868,500 3,809,094 11,368,500 5,962,700 9,005,000 6,395,250 15,400,250 41,409, ,868,250 3,807,094 11,368,750 5,964,950 9,455,000 5,945,000 15,400,000 41,409, ,873,000 3,808,344 11,369,750 5,962,600 9,925,000 5,472,250 15,397,250 41,410, ,872,000 3,807,344 11,365,500 5,960,750 10,420,000 4,976,000 15,396,000 41,401, ,803,844 11,365,250 5,962,250 10,945,000 4,455,000 15,400,000 36,531, ,807,594 11,367,750 5,962,000 11,490,000 3,907,750 15,397,750 36,535, ,809,688 11,366,750 5,964,500 12,065,000 3,333,250 15,398,250 36,539, ,366,250 5,964,000 12,670,000 2,730,000 15,400,000 32,730, ,300,000 2,096,500 15,396,500 15,396, ,965,000 1,431,500 15,396,500 15,396, ,665, ,250 15,398,250 15,398,250 $30,677,864 $116,892,972 $102,806,252 $319,744,565 $166,962,588 $115,877,672 $226,035,000 $224,116,267 $450,151,267 $1,303,113,169 1/ For purposes of this table the principal amount of bonds to be retired in a fiscal year pursuant to mandatory redemption provisions is shown as maturing in that fiscal year. 19

24 DEBT SERVICE COVERAGE Set forth in the table below is information about historical receipts from the General Fees during the fiscal years indicated, historical debt service requirements on bonds secured by a pledge of the General Fees, and resulting coverage ratios: Fiscal Year Ended September (unaudited) 2009 (unaudited) General Fees (1) $298,666,335 $270,441,083 Historical maximum annual debt service (2) $38,274,152 $38,274,152 Historical debt service coverage (3) 7.80 times 7.07 times Set forth in the table below is information about historical receipts from the Pledged Revenues during the fiscal years indicated, pro forma debt service requirements on bonds secured by the Pledged Revenues, and resulting coverage ratios: Fiscal Year Ended September (unaudited) 2009 (unaudited) Pledged Revenues (4) $371,313, $331,081, Pro forma maximum annual debt service (5) $52,997, $52,997, Pro forma debt service coverage (6) times times (1) These are gross receipts from General Fees before payment of debt service and other operating expenses. (2) This is maximum annual debt service on bonds outstanding under the Indenture prior to the issuance of the Series 2011-A Bonds. (3) This is gross receipts from General Fees for the fiscal year indicated divided by historical maximum annual debt service requirements. (4) This is the sum for the fiscal year indicated of the University s gross receipts from General Fees and Pledged Student Fees and its net receipts from Housing and Dining Revenues and Athletic Program Revenues after payment of debt service on bonds currently secured by the senior pledges of the Housing and Dining Revenues and Athletic Program Revenues. The Housing and Dining Revenues and Athletic Program Revenues are included in the calculation of pro forma debt service coverage, because they are pledged under the Indenture as security for bonds now or hereafter issued under the Indenture. The test for issuance of Additional Bonds and the rate covenant under the Indenture require in effect that the aggregate revenues described in this note (4) be not less than 250% of the aggregate annual debt service requirements on the secured bonds. (5) This is maximum annual debt service on the Series 2011-A Bonds and all other bonds secured by the Indenture after giving effect to the plan of financing described in this Official Statement. (6) This is the amount described in note (4) above for the fiscal year indicated divided by pro forma maximum annual debt service. INTEREST RATE SWAPS The University currently has no interest rate swap agreements in effect. The University has no present plans to enter into any interest rate swap agreements but reserves the right to enter into such agreements from time to time in its discretion. 20

25 SPECIAL CONSIDERATIONS Limited Source of Payment The Series 2011-A Bonds will be limited obligations of the University, payable solely from, and secured by a pledge of, the Pledged Revenues. See SECURITY AND SOURCE OF PAYMENT. The Series 2011-A Bonds will not be debts or obligations of the State of Alabama, and debt service on the Series 2011-A Bonds will not be payable out of any money provided or appropriated to the University by the State of Alabama. Holders of the Series 2011-A Bonds shall never have the right to demand payment of the Series A Bonds from the University from any source other than the special funds established under the Indenture and the Pledged Revenues and shall be entitled to payment from such sources only on a parity basis with all other bonds outstanding under the Indenture. The net proceeds of the Series 2011-A Bonds will be deposited in a construction fund from which the University will pay the costs of the University Improvements. The construction fund will be held by and under the control of the University and will not be held in a special fund under the Indenture or otherwise pledged to secure payment of the Series 2011-A Bonds. Limitation on Remedies Upon Default The Indenture does not constitute a mortgage on or security interest in any properties of the University, and no foreclosure or sale proceedings with respect to any property of the University may occur. The University is exempt from all suits under the doctrine of sovereign immunity, but state law provides that agents and employees of the University may, by mandamus, be compelled to apply the Pledged Revenues to the payment of the Series A Bonds in accordance with the terms of the Indenture. The remedies available to the registered holders of the Series 2011-A Bonds upon the occurrence of a default under the Indenture are in many respects dependant upon regulatory and judicial actions, which are often subject to discretion and delay. Under existing law, the remedies provided under the Indenture may not be readily available or may be limited, and no assurance can be given that a mandamus or other legal action to enforce payment under the Indenture would be successful. The various legal opinions to be delivered concurrently with the delivery of the Series 2011-A Bonds will be qualified as to enforceability of the various legal instruments, limitations imposed by bankruptcy, reorganization, insolvency or similar laws affecting the rights of creditors generally and by judicial discretion applicable to equitable remedies and proceedings generally. State Proration Annual appropriations from the State of Alabama are the University s largest single source of revenue. The University is required to use these appropriations for operational and maintenance purposes, and no portion of the University s annual appropriation from the State of Alabama is pledged to secure bonds issued under the General Fee Revenue Indenture, including without limitation the Series 2011-A Bonds. Applicable provisions of the Constitution of Alabama of 1901 effectively prohibit the State from engaging in deficit financing -- that is, state expenditures during any fiscal year may not exceed available revenues. State law provides procedures for delaying or, if necessary, reducing (or prorating ) appropriations of state revenues in order to maintain and enforce the constitutional ban on deficit financing. The postponement or reduction of State appropriations to the University as a consequence of proration may therefore result in reductions of expenditures by the University for certain budget items other than salaries (e.g. instructional materials, supplies and maintenance). 21

26 The following table sets forth the years in which proration has been enforced since 1985 and the amounts of such proration: Year Percentage Proration % % % % % % % For the year, the University received $336,941,382 (audited) in state appropriations.. For the fiscal year, the State of Alabama declared total proration of 11%, which reduced the University s annual appropriation for that year to $261,691,096 (audited). For the fiscal year, the University's annual appropriation from the State of Alabama, following a 9.5% proration, was reduced to $236,212,711 (audited). Appropriations for the fiscal year beginning October 1, 2010 and ending September 30, 2011, following a 3% proration, are expected to be $235,724,142 million (unaudited). The following table summarizes the gross effect of proration on the dollar amount of the University s State appropriation for the fiscal years ending September 30 of the years indicated: (Expected) Budgeted Appropriation $336,941,382 $294,034,961 $261,002,790 $243,014,579 Proration Reduction - ($32,343,865) ($24,790,079) ($7,290,437) Received Appropriation $336,941,382 $261,691,096 $236,212,711 $235,724,142 The Education Trust Fund Rainy Day Account was established by an amendment to the Constitution of Alabama of 1901, which was adopted by statewide ballot on June 4, 2002, in order to prevent the proration of state appropriations for education (including higher education expenditures). The Constitutional amendment also contains provisions for the replenishment of the Education Trust Fund Rainy Day Account. No assurance can be given, however, that funds in such account will be available to prevent future proration, or that the State will be able to replenish the account if drawn upon. Neither the funds in the Education Trust Fund Rainy Day Account nor any state appropriations are pledged as security for the Series 2011-A Bonds. The American Recovery and Reinvestment Act also allowed the Governor to bridge a portion of the appropriations gap during the fiscal years ending September 30, 2010 and 2011, and the Governor allocated approximately $51.8 million in state fiscal stabilization funds to the University for the combined fiscal years 2010 and 2011, which helped offset the effects of proration. In addition, the University has taken steps to mitigate the effects of proration. The Board of Trustees approved a restructuring of tuition and fees for resident and non-resident students in the March, 2010 meeting, and at its meeting on April 15, 2011, the Board of Trustees approved a 4.1% increase in tuition for both undergraduate and graduate students enrolled at the Auburn Main Campus and approved 12% and 14% increases in tuition for undergraduate and graduate students, respectively, enrolled at the Auburn Montgomery Campus. See ACCOUNTING AND FINANCIAL INFORMATION Major Sources of Revenue Student Tuition and Fees. In addition, the Board of Trustees approved at its meeting on April 15, 2011, a fee of $ per semester per student enrolled at the Auburn Main Campus in order to offset the effects of proration. Finally, the University has identified selected reallocations within the budget and cost reductions to minimize the impact of this decrease. The Board of Trustees approved the University's annual operating budget for fiscal year 2011 at its meeting on September 24, The University cannot predict to what extent State revenues appropriated to the University will be subject to proration in any subsequent fiscal year or the extent to which the University can mitigate its impact. Funds subject to proration are not pledged for the security of the Series 2011-A Bonds. The University has identified a

27 portion of its unrestricted fund balance to serve as a reserve to mitigate the effects of future proration on its finances, if necessary. General Factors Affecting the Pledged Revenues No representation can be made and no assurance can be given that receipts from the Pledged Revenues will be sufficient to make the required payments of debt service on the Series 2011-A Bonds and pay the necessary operating expenses of the University. Such receipts are subject to a variety of factors that could adversely affect debt service coverage, including general economic conditions, population in the University s basic service area, the demand for higher education, and legislative and administrative requirements on the University s operations. Accounting ACCOUNTING AND FINANCIAL INFORMATION Effective October 1, 2001, the University adopted Government Accounting Standards Board Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities (GASB Statement No. 35). GASB Statement No. 35 establishes standards for external financial reporting for public colleges and universities on an entity-wide perspective and requires that resources be classified in three net asset categories: (1) Invested in capital, net of related debt, (2) Restricted, and (3) Unrestricted. GASB Statement No. 35 also requires the presentation of three financial statements: the statement of net assets; the statement of revenues, expenses and changes in net assets; and the statement of cash flow. Beginning with the fiscal year 2002, the financial statements of the University have been prepared on the accrual basis of accounting and all significant, interdivisional transactions between auxiliary units and other funds have been eliminated. The University reports as a Business Type Activity (BTA) as defined by GASB Statement No. 35. BTA s are those institutions that are financed in whole or in part by fees charged to external parties for goods or services. During the year ended September 30, 2004, the University adopted GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. This statement provides criteria for determining whether such organizations for which a government is not financially accountable should be reported as component units. Due to the fact that the exclusion of such organizations would render the entity s financial statements misleading or incomplete, the University has included statements for Auburn University Foundation, Tigers Unlimited Foundation and Auburn Alumni Association in the attached financial statements. The component units are not GASB entities and, therefore, their respective financial statements adhere to accounting principles under the Accounting Standards Codification. Auburn University Foundation (AUF) is a qualified charitable organization established in 1960, existing solely for the purpose of receiving and administering funds for the use of the University. AUF s activities are governed by its own board of directors. Tigers Unlimited Foundation (TUF) is an independent corporation that began operations on April 21, It was formed for the sole purpose of obtaining and disbursing funds for the University s Intercollegiate Athletics Department. TUF s activities are governed by its own board of directors with transactions being maintained using a June 30 fiscal year end date. The Auburn Alumni Association (the Association) is an independent corporation organized on April 14, 1945, to promote mutually beneficial relationships between the University and its alumni to encourage loyalty among alumni, and to undertake various other actions for the benefit of the University, its alumni and the State of Alabama. Membership is comprised of alumni, friends and students of the University. The Association s activities are governed by its own board of directors. Auburn Spirit Foundation for Scholarships (ASFS) is a qualified charitable organization established September 29, 2006, organized exclusively to assist Auburn University with the attraction and funding of student scholarships. The ASFS activities are governed by its own board of directors. 23

28 The Auburn Research and Technology Foundation (ARTF) is an independent corporation organized on August 24, 2004 to facilitate the acquisition, construction and equipping of a technology and research park on the Auburn Main Campus. ARTF activities are governed by its own board of directors. In order to ensure observance of limitations and restrictions placed on the use of certain funds, the various accounts are maintained in accordance with the principles of fund accounting. Separate accounts are maintained for each of the University s four major funds, which are (i) Current Funds, (ii) Loan Funds, (iii) Endowment and Similar Funds, and (iv) Plant Funds. This procedure segregates unrestricted funds from restricted funds which have been allocated to specific purposes by the Board. Externally restricted funds (i.e., grants or gifts) may only be utilized in accordance with the specified purposes of the donor. Other Post-Employment Benefits The University adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions, during fiscal year GASB Statement No. 45 requires governmental entities to quantify the costs of other post-employment benefits (which includes post-employment benefits other than pensions, such as health or life insurance) that accrue with respect to current employees, to recognize these costs as a current liability, and to disclose the actuarial accrued liability and related funding level, if any, for other post-employment benefits already accrued for both current and past employees. The University offers post-employment health care benefits to all employees who retire officially from the University. Health care benefits are offered through the State of Alabama Public Education Employees Health Insurance Plan (PEEHIP) or Auburn University's self-insured Retiree Medical Plan, which is available only to select retirees, to employees who are not eligible for PEEHIP or to employees who were grandfathered as Civil Service employees. Employees included in the actuarial valuation under GASB Statement No. 45 include retirees or their surviving beneficiaries, active Civil Service employees who are eligible to participate in the plan, and those employees for whom the University pays a subsidy with respect to PEEHIP due to their election to participate in PEEHIP on or prior to October 1, In accordance with the transition provisions of GASB Statement No. 45, the University accrued an additional $2,219,838 in retiree health care expense during the fiscal year For additional information, see APPENDIX B 2010 Financial Report of the University Notes (10) & (11) and Required Supplemental Information. Description of Funds Current Unrestricted Funds. Current Unrestricted Funds are the University s largest classification of funds. Moneys deposited into these funds may be used for any purpose designated by the Board. Major sources of revenue for the Current Unrestricted Funds include (i) State appropriations; (ii) tuition and fees; (iii) auxiliary enterprises; (iv) sales, services and other incomes; and (v) private gifts. Current Restricted Funds. Funds which are made available to the University for stipulated purposes are deposited into the Current Restricted Funds. The purposes for which the funds may be used are specified by the donor or grantor. Sources of Current Restricted Funds receipts include (i) federal appropriations; (ii) governmental grants and contracts; and (iii) private gifts. Loan Funds. Loan Funds are established to account for loans made to students of the University. Sources of funding include loans and grants from the federal government and private funds. Terms of student loans vary depending upon the specific program under which the loan was obtained. The Perkins student loan cohort default rate as of June 30, 2010 was 8.82%. Endowment and Similar Funds - Quasi. These funds consist of assets set aside which are invested and may be expended at the direction of the Board. Endowment and Similar Funds - True. These funds consist of gifts given for which the principal may not be invaded. The income derived from these investments is used for projects designated by the donor. As of December 31, 2010, the University s total endowment market value, including trusts held by others for which the University is the beneficiary, totaled approximately $445,055,307 (unaudited). 24

29 Unrestricted Plant Funds. Funds deposited into the Unrestricted Plant Funds may be expended for any capital purpose as designated by the Board. Funds for these capital expenditures are surpluses generated from the operation of the University. Restricted Plant Funds. The University deposits all moneys needed to service funded debt into the Restricted Plant Funds for debt service payments. Although the University periodically receives appropriations from bond issues of the Alabama Public School and College Authority (the Authority ), no funds are transferred to the University by the Authority. The University requisitions sums allotted by the Authority to the University as required for either construction or for payment of debt service on capital improvements. Budgetary Process The budgetary process at the University begins in November when the Legislative Budget Request is presented to the Alabama Commission on Higher Education. From December through April, the Budget Advisory Committee (the BAC ) meets with the various vice presidents, deans, and other groups on campus to prioritize needs for the coming year. The Executive Vice President s office provides the BAC estimated revenue figures based on anticipated State appropriations, estimated student fees and ancillary revenues. By early May, the BAC presents to the President its recommendations for the distribution of new funds. By late May, the President reviews the BAC s recommendations and makes his recommendations to the Board, once the State Legislature passes the Education Appropriation Bill and the Governor signs it. Following Board approval, which has occurred typically in early June, the general guidelines and budget forms are distributed to all units with a requested completion date of late July. The forms, which must be approved by the appropriate vice president, are then audited and consolidated by the University Budget Office during July and August. The final proposed budget is prepared and delivered to members of the Budget Committee of the Board prior to the regular September meeting. At the regular September meeting, the Budget Committee of the Board presents the proposed budget to the full Board for its approval. Major Sources of Revenue State Appropriations Operational and Maintenance Purposes. The largest single source of revenue of the University is appropriations by the State. After the University receives its annual appropriation, requisitions for the month are sent to the State approximately three days prior to the ensuing month. State appropriations must be used for operational and maintenance purposes. A substantial portion of the State tax revenues is paid into the Alabama Educational Trust Fund (the ETF ) and is appropriated for educational purposes, including appropriations for the University and other institutions of higher learning. The ETF was established in 1927 by Act of the Legislature, and revenues are paid into the ETF pursuant to constitutional provisions and continuing appropriations of the Legislature. Among the State taxes paid into the ETF are the utilities gross receipts and use taxes, lease taxes, sales taxes, income taxes, and a portion of the State ad valorem taxes. Appropriations from the ETF for the University for the years ended September 30, 2006 through 2010, are as follows: Year Total 2010 $236,212, ,691, ,941, ,250, ,740,695 Appropriations to the University are allocated to the four divisions of the University (Auburn University Main Campus, Auburn University Montgomery, Alabama Agricultural Experiment Station and Alabama Cooperative Extension System) by the State Legislature. The method of appropriation can vary from year to year. 25

30 For the fiscal years ending September 30, 2009, 2010 and 2011, the University s annual appropriation from the State of Alabama was reduced on a percentage basis as a result of proration. The University has taken steps to mitigate a portion of the impact of proration. For a discussion of the impact of proration on the University s annual appropriation from the State of Alabama and the steps taken by the University, see SPECIAL CONSIDERATIONS State Proration herein. Student Tuition and Fees. Student tuition and fees are payable by all students in advance of attendance of any classes. These funds may be used for any purpose designated by the Board, but historically the funds have been expended primarily for instructional purposes. The Board has the sole authority to establish the student tuition and fees, which it may set at whatever level it considers appropriate and in the best interests of the University. State appropriations are not increased or reduced based on, or otherwise offset against, revenues from student tuition and fees. Student tuition and fees received at the Auburn Main Campus for the fiscal year ended September 30, 2010, including amounts received from the special student building fee, were $250,761,075 (unaudited) (net of discounts and allowances of $71,353,524 (unaudited)). Effective with the Summer term of 2010, the Board instituted the following tuition and fee schedule for students at the Auburn Main Campus: Fee Classification Tuition and Fees Full-time undergraduate student (in-state) $3,504 per semester Full-time graduate student (in-state) $3,501 per semester Non-resident undergraduate student $10,512 per semester Non-resident graduate student $10,503 per semester Veterinary Medicine student (in-state) $6,057 per semester Non-resident Veterinary Medicine student $18,171 per semester Pharmacy student (in-state) $8,284 per semester Non-resident Pharmacy student $15,286 per semester Architecture professional student (in-state) $5,664 per semester Non-resident Architecture professional student $12,672 per semester Student registration fee $446 per semester (1)(2) Part-time undergraduate credit hour fee $206 per credit hour Part-time graduate credit hour fee $618 per credit hour Non-resident undergraduate part-time credit hour fee $247 per credit hour Non-resident graduate part-time credit hour fee $741 per credit hour (1) (2) Includes a mandatory fee of $96 per student on the Auburn Main Campus that is allocated to the Athletic Department and is excluded from General Fees but is included in Athletic Program Revenues. Also includes (i) a mandatory fee imposed on each student on the Auburn Main Campus (currently $100 per semester but increasing to $150 per semester for the academic year and to $200 per semester for the academic year and each academic year thereafter) allocated by the Board to pay for construction, equipping and operation of the new wellness facility to be constructed on the Auburn Main Campus with proceeds of the Series 2011-A Bonds and (ii) a mandatory fee imposed on each student on the Auburn Main Campus (currently $75 per semester) allocated by the Board to pay for construction, equipping and operation of the student center to be constructed on the Auburn Main Campus with proceeds of the Series 2011-A Bonds. The student fees referenced in this footnote are included within the Pledged Student Fees. 26

31 Student tuition and fees received at the Auburn Montgomery Campus for the fiscal year ended September 30, 2010, including amounts received from special fees, were $24,728,379 (unaudited) net of discounts $7,116,164 (unaudited). Effective with the Summer term of 2010, the Board instituted the following tuition and fee schedule for students at the Auburn Montgomery Campus: Fee Classification Tuition and Fees Full-time undergraduate student (in-state) $2,472 per semester Full-time graduate student (in-state) $2,223 per semester Non-resident undergraduate student $7,416 per semester Non-resident graduate student $6,669 per semester Mandatory student fees $213 per semester (1) Undergraduate credit hour fee $206 per credit hour Non-resident undergraduate credit hour fee $618 per credit hour Graduate credit hour fee $247 per credit hour Non-resident graduate credit hour fee $741 per credit hour (1) Includes a technology fee of $8, an administrative service fee of $35 and a fee of $170 allocated by the Board to pay for construction, equipping and operation of the new wellness facility to be constructed on the Auburn Montgomery Campus with proceeds of the Series 2011-A Bonds. The $160 portion of the student fee referenced in this footnote is included within the Pledged Student Fees. Sales and Service. Revenues from enterprise activities such as student housing, food service, the University Book Store, the University Printing Service, and the Athletic Department are classified as auxiliary revenues. The moneys generated by these enterprise activities have historically remained with the unit from which the revenues were derived. In the event the administration deems it desirable to transfer surplus revenues from these units, it has the authority to do so. The University s Housing and Dining Revenues have been pledged to its Housing and Dining Revenue Bonds, Series 2003, and to any additional bonds issued in accordance with the Housing and Dining Revenue Indenture. See DEBT STRUCTURE OF THE UNIVERSITY Outstanding Bonds under Housing and Dining Revenue Indenture herein. A pledge of the Housing and Dining Revenues was added to the General Fee Revenue Indenture concurrently with the issuance of the Series 2007 Bonds, and such pledge will secure on a parity basis all bonds now or hereafter issued under the General Fee Revenue Indenture, subject to the prior pledge of Housing and Dining Revenues made under the Housing and Dining Revenue Indenture. See SECURITY AND SOURCE OF PAYMENT The Housing and Dining Revenues herein. In addition, housing revenues from the dormitories financed with the 1978 Dormitory Revenue Bonds have been pledged to the payment of the debt service on those bonds. See DEBT STRUCTURE OF THE UNIVERSITY 1978 Dormitory Revenue Bonds and - Outstanding Bonds under Housing and Dining Revenue Indenture herein. Auxiliary Revenues from the sales and service activities at the University for the fiscal year ended September 30, 2010 were $87,714,612 (net of scholarship allowances of $5,002,042 and intra University revenues of $14,037,103 (unaudited)). Federal Grants and Contracts. Auburn receives certain funds from the United States government for specific research and public-service oriented purposes. The University makes such requests to the appropriate governmental agency for specific projects and, if the requests are granted, all funds must be used for the specified project. Revenues from Federal grants and contracts, exclusive of capital items, at the Auburn Main Campus for the fiscal year ended September 30, 2010 were $53,243,997 (unaudited). Sales and Services (Educational). In the course of instruction by certain departments of the University, fees for sales and services rendered by those departments are received. All moneys received for those services are deposited in Current Funds (Unrestricted). 27

32 Receipts from sales and services at the University for the fiscal year ended September 30, 2010, were $30,308,344. Financial The following section contains certain financial information for the University as follows: (i) excerpts from the budget, (ii) a comparison of the Current Funds for fiscal years 2009 and 2010, and (iii) a comparison of the revenues, expenses and changes in net assets for the fiscal years 2009 and The budget information for fiscal year 2011 includes current funds only, as approved by the Board of Trustees. The University s audited financial statements for the year ended September 30, 2010 are attached as APPENDIX B. [Remainder of this page intentionally blank.] 28

33 Auburn University Current Funds Budget 1 For the Year Ended September 30, 2011 Unrestricted and Restricted (Unaudited) 2011 REVENUES State Appropriations 2 243,014,579 Student Fees and Charges 343,729,213 Auxiliary Enterprises 110,481,173 Other Income (Includes Federal Grants, Appropriations and Contracts) 213,742,628 American Recovery and Reinvestment Act of 2009 State Fiscal Stabilization Funds 25,883,408 BUDGETED REVENUES 936,851,001 EXPENDITURES AND TRANSFERS Instruction 240,871,674 Research 202,948,453 Public Service 45,238,576 Academic Support 28,989,470 Student Services 22,473,731 Institutional Support 61,413,939 Library 14,399,132 Operation and Maintenance of Plant 54,926,026 Scholarships and Fellowships 67,774,678 Auxiliary Enterprises 110,481,173 Mandatory and Non-Mandatory Transfers 61,450,741 American Recovery and Reinvestment Act of 2009 State Fiscal Stabilization Funds 25,883,408 BUDGETED EXPENDITURES AND TRANSFERS 936,851,001 1 The University's annual operating budget, as approved by the Board of Trustees, reflects unrestricted and recurring restricted fund revenues and expenditures on a cash basis and is organized according to revenue source and expenditure function. The annual operating budget is not intended to reflect revenues and expenditures and other changes in net assets in the same format presented in the audited financial statements as required by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The prospective financial information included in this Official Statement has been prepared by, and is the responsibility of, the University's management. The University and its management believe that the Current Funds Budget for the year ended September 30, 2011, has been prepared on a reasonable basis, reflecting the best estimates and judgments, and represents, to the best of management's knowledge and opinion, the University's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results. PricewaterhouseCoopers LLP has neither examined, compiled nor performed any procedures with respect to the prospective financial information contained herein and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance on such information or its achievability. PricewaterhouseCoopers LLP assumes no responsibility for and denies any association with the prospective financial information and any other information derived there from included elsewhere in this offering document. The PricewaterhouseCoopers LLP report attached as an appendix to this Official Statement refers exclusively to the University's historical financial information. PricewaterhouseCoopers LLP reports do not cover any other information in this Official Statement and should not be read to do so. This prospective financial information was not prepared with a view toward compliance with published guidelines established by the American Institute of Certified Public Accountants for preparation, presentation of prospective financial information. 2 For more information concerning the University's anticipated course of action to address the reduction in State appropriations, see SPECIAL CONSIDERATIONS State Proration herein. 29

34 Auburn University Statement of Revenues, Expenses and Changes in Net Assets For the Years Ended September 30, OPERATING REVENUES Tuition & fees, net of scholarship $204,501,267 $219,527,520 $235,307,172 $257,628,293 $275,489,454 allowances Federal appropriations 10,224,608 12,980,725 15,709,270 10,946,114 9,026,000 Federal grants & contracts, net 73,535,070 89,231,359 85,360,887 69,512,621 77,953,387 State & local grants & contracts, net 22,167,518 27,490,738 23,662,282 18,187,145 19,873,107 Nongovernmental grants & contracts, 10,739,860 10,475,227 9,812,888 11,516,685 11,297,084 net Sales & services of educational 23,381,047 21,856,102 23,658,031 27,998,226 30,308,344 departments Auxiliary revenue, net of scholarship 64,123,811 65,342,459 75,495,395 80,754,997 87,714,612 allowances Other operating revenues 13,282,552 14,035,624 17,158,183 13,106,214 13,405,886 Total operating revenues 421,955, ,939, ,164, ,650, ,067,874 OPERATING EXPENSES Compensation & benefits 419,134, ,666, ,624, ,894, ,919,404 Scholarships & fellowships 14,207,166 16,250,173 18,922,374 17,903,346 21,931,019 Utilities 20,486,012 22,880,676 23,708,155 22,899,217 Other supplies & services 176,848, ,780, ,892, ,348, ,965,097 Depreciation 34,186,357 37,134,786 41,270,457 44,187,852 49,328,811 Total operating expenses 644,377, ,318, ,590, ,042, ,043,548 Operating loss (222,421,269) (246,378,432) (280,426,401) (294,392,067) (263,975,674) NONOPERATING REVENUES (EXPENSES) State appropriations 245,740, ,250, ,941, ,691, ,212,711 ARRA state fiscal stabilization funds ,236,839 Gifts 22,547,034 54,813,663 28,522,474 29,786,518 30,218,934 Grants ,424,734 23,204,820 Net investment income 35,671,671 51,623,939 21,994,083 41,436,581 25,088,863 Interest expense on capital debt (9,967,957) (11,962,218) (16,071,668) (14,150,603) (9,174,150) Nonoperating revenues, net 293,991, ,726, ,386, ,188, ,788,017 Income before other changes in net assets 71,570, ,347,861 90,959,870 40,796,259 62,812,343 OTHER CHANGES IN NET ASSETS Capital appropriations 1,151, ,492-2,760,396 18,224,230 Capital gifts & grants 7,415,133 22,414,383 23,506,851 15,681,879 29,373,311 Additions to permanent endowments 150, , , , ,528 Net increase in net assets 80,286, ,082, ,878,599 59,493, ,575,412 Net assets - beginning of year 796,170, ,456,857 1,035,539,626 1,150,418,225 1,209,912,192 Net assets - end of year $876,456,857 $1,035,539,626 $1,150,418,225 $1,209,912,192 $1,320,487,604 See accompanying notes to financial statements. See accompanying notes to financial statements 30

35 RETIREMENT PLANS All eligible employees of the University are members of the Teachers Retirement System of Alabama (the System ). The System was established in 1941 and at this time covers public school and public college teachers and certain other public educational employees in the State. The System is funded by employee contributions at the rate of 5% of their compensation and contributions made from appropriations by the Legislature of Alabama from the Alabama Education Trust Fund. The System provides retirement, disability and death benefits, and the benefits are available to members at varying times during their creditable service. The University is current in its required annual contributions to the System. See APPENDIX B 2010 Financial Report of the University Notes (10) & (11) and Required Supplemental Information. General TAX MATTERS In the opinion of Bond Counsel, under existing law, interest on the Series 2011-A Bonds will be excludable from gross income for federal income tax purposes if the University complies with all requirements of the Internal Revenue Code of 1986 (the Internal Revenue Code ) that must be satisfied subsequent to the issuance of the Series 2011-A Bonds in order that interest thereon be and remain excludable from gross income. Failure to comply with certain of such requirements could cause the interest on the Series 2011-A Bonds to be included in gross income, retroactive to the date of issuance of the Series 2011-A Bonds. The University has covenanted to comply with all such requirements. Bond Counsel is also of the opinion that, under existing law, interest on the Series 2011-A Bonds will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that for the purpose of computing the alternative minimum use tax imposed on certain corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. Bond Counsel will express no opinion regarding federal tax consequences arising with regard to the Series 2011-A Bonds other than the opinions expressed in the two preceding paragraphs. The form of Bond Counsel s opinion is expected to be substantially as set forth in Appendix D to this Official Statement. Prospective purchasers of the Series 2011-A Bonds should be aware that ownership of the Series 2011-A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with excess net passive income, foreign corporations subject to a branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2011-A Bonds. Bond Counsel will not express any opinion as to such collateral tax consequences. Prospective purchasers of the Series 2011-A Bonds should consult their tax advisors as to collateral federal income tax consequences. Bond Counsel is also of the opinion that, under existing law, interest on the Series 2011-A Bonds will be exempt from State of Alabama income taxation. Original Issue Discount In the opinion of Bond Counsel, under existing law, the original issue discount in the selling price of a Series 2011-A Bond, to the extent properly allocable to each owner of such Series 2011-A Bond, is excluded from gross income for federal income tax purposes with respect to such owner. The original issue discount is the excess of the stated redemption price at maturity of such Series 2011-A Bond over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of the Series 2011-A Bonds of such maturity were sold. 31

36 Under Section 1288 of the Internal Revenue Code of 1986, as amended, original issue discount on taxexempt bonds accrues on a compound basis. The amount of original issue discount that accrues to an owner of a Series 2011-A Bond during any accrual period generally equals (i) the issue price of such Series 2011-A Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Series 2011-A Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Series 2011-A Bond during such accrual period. The amount of original issue discount so accrued for a Series 2011-A Bond in a particular accrual period will be considered to be received ratably on each day of the accrual period, and for Series 2011-A Bonds will be excluded from gross income for federal income tax purposes and will increase the owner s tax basis in such Series 2011-A Bond. Any gain realized by an owner from a sale, exchange, payment or redemption of a Series 2011-A Bond will be treated as gain from the sale or exchange of such Series 2011-A Bond. Premium An amount equal to the excess of the purchase price of the Series 2011-A Bond over its stated redemption price at maturity constitutes premium on such Series 2011-A Bond. A purchaser of a Series 2011-A Bond must amortize any premium over such Series 2011-A Bond s term using constant yield principles, based on the purchaser s yield to maturity. As premium is amortized, the purchaser s basis in such Series 2011-A Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Series 2011-A Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Series A Bonds at a premium, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Series 2011-A Bonds. LEGALITY OF THE SERIES 2011-A BONDS FOR INVESTMENT Section of the CODE OF ALABAMA 1975, as amended, provides that bonds, notes and other securities issued under such section shall be eligible for the investment of trust or other fiduciary funds in the exercise of prudent judgment by those making such investment. STATE NOT LIABLE ON SERIES 2011-A BONDS The Series 2011-A Bonds are special obligations of the University payable solely out of, and secured by a pledge of, the Pledged Revenues. Neither the principal of nor the interest on the Series 2011-A Bonds nor the aforesaid pledge or any other agreement contained in the Indenture shall constitute an obligation of any nature whatsoever of the State of Alabama, and neither the Series 2011-A Bonds nor any obligation arising from said pledge or agreements shall be payable out of any moneys appropriated to the University by the State of Alabama. LEGAL MATTERS Legal matters incident to the authorization and issuance of the Series 2011-A Bonds by the University are subject to the approval of Balch & Bingham LLP, Birmingham, Alabama, Bond Counsel. The expected form of the opinion of Bond Counsel is set forth in APPENDIX D. Certain legal matters will be passed upon for the Underwriter by its counsel, Maynard, Cooper & Gale, P.C., Birmingham, Alabama. The various legal opinions to be delivered concurrently with the delivery of the Series 2011-A Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the authoring firm or attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or the future performance of parties to the 32

37 transaction, and the rendering of an opinion does not guarantee the outcome of any legal dispute that may arise out of the transaction. INDEPENDENT ACCOUNTANTS The financial statements as of September 30, 2010 and 2009 and for each of the two years in the period ended September 30, 2010, included in APPENDIX B of this Official Statement, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein. ENFORCEABILITY In the opinion of Bond Counsel, the University is, under existing provisions of the Constitution of Alabama as construed by the Supreme Court of Alabama, exempt from all suits, but Bond Counsel is further of the opinion that the agents and employees of the University may, by mandamus, be compelled to perform the University s obligations under the Indenture, including application of the Pledged Revenues for the payment of the Bonds in accordance with the Indenture. See SPECIAL CONSIDERATIONS Limitations on Remedies Upon Default. LITIGATION There is no suit, action or proceeding of any nature now pending or threatened to restrain or to enjoin the issuance, sale, execution or delivery of the Series 2011-A Bonds, or in any way contesting the validity of the Series 2011-A Bonds or any proceedings of the University taken with respect to the issuance or sale thereof, or the pledge or application of any moneys, revenues, or security provided for the payment of the Series 2011-A Bonds. The University is a defendant in legal proceedings alleging civil rights violations, including but not limited to race, sex and age discrimination, as well as personal injury claims. The University believes that any monetary liability resulting from such suits, if determined adversely to the University, will be adequately covered by liability insurance and by funds of the University which will be available to dispose of such liability with no material adverse impact on the ability of the University to perform its other obligations, including payment of the Series 2011-A Bonds. UNDERWRITING The Series 2011-A Bonds are to be purchased by Merchant Capital, L.L.C. (the Underwriter ), which has agreed to purchase the Series 2011-A Bonds at an aggregate purchase price of $230,841, The purchase price reflects an underwriting discount of $1,356, and net original issue premium of $5,802, The Underwriter intends to offer the Series 2011-A Bonds to the public at the prices stated on the inside cover page hereof. The initial public offering prices set forth on the inside cover page may be changed by the Underwriter. The Underwriter may offer and sell the Series 2011-A Bonds to certain dealers (including dealers depositing Series 2011-A Bonds into investment trusts) and others at prices lower than the public offering prices set forth on the inside cover page. 33

38 CONTINUING DISCLOSURE General The University has covenanted for the benefit of the holders of the Series 2011-A Bonds to provide the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System ( EMMA ) with (i) certain financial information and operating data relating to the University on an annual basis (the Annual Financial Information ) within 180 days after the end of its fiscal year and (ii) notices ( Material Event Notices ) of the occurrence of the following events: 1. A delinquency in payment of principal of or interest on the Series 2011-A Bonds. 2. Non-payment related defaults under the General Fee Trust Indenture. 3. Unscheduled draws on any debt service reserve fund for the Series 2011-A Bonds reflecting financial difficulties of the University. 4. Unscheduled draws on any credit enhancement or liquidity facility with respect to the Series A Bonds reflecting financial difficulties of the University. 5. Substitution of a credit enhancer for the one originally described in this Official Statement (if any), or the failure of any credit enhancer respecting the Series 2011-A Bonds to perform its obligations under the agreement between the University and such credit enhancer. 6. The existence of any adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the Series 2011-A Bonds, or other material events affecting the tax status of the Series 2011-A Bonds. 7. Modifications to rights of the registered holders of the Series 2011-A Bonds, if material. 8. Redemption of any of the Series 2011-A Bonds prior to the stated maturity or mandatory redemption date thereof, if material, and tender offers with respect to the Series 2011-A Bonds. 9. Defeasance of the lien of any of the Series 2011-A Bonds or the occurrence of circumstances which, pursuant to the General Fee Trust Indenture, would cause the Series 2011-A Bonds, or any of them, to be no longer regarded as outstanding thereunder. 10. Release, substitution, or sale of property securing repayment of the Series 2011-A Bonds, if material. 11. Any changes in published ratings affecting the Series 2011-A Bonds. 12. Bankruptcy, insolvency, receivership or similar event of the University. 13. The consummation of a merger, consolidation, or acquisition involving an University or the sale of all or substantially all of the assets of the University, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. In addition, the University has covenanted to provide in a timely manner to EMMA, notice of the University s failure to provide the Annual Financial Information on or before the date specified herein. 34

39 The Annual Financial Information will include financial information and operating data relating to the University of the type found in the section of this Official Statement called ACCOUNTING AND FINANCIAL INFORMATION. In addition, the University will provide to EMMA, when and if available, audited financial statements prepared in accordance with accounting principles described in the audited financial statements included in this Official Statement as an appendix. The University shall never be subject to money damages for its failure to comply with its obligations to provide the required information. The only remedy available to the holders of the Series 2011-A Bonds for breach by the University of its obligations to provide the required information shall be the remedy of specific performance or mandamus against appropriate officials of the University. The failure by the University to provide the required information shall not be an event of default with respect to the Series 2011-A Bonds under the Indenture. A failure by the University to comply with its obligations to provide the required information must be reported as described above and must be considered by any broker, dealer, or municipal securities dealer before recommending the purchase or sale of the Series 2011-A Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2011-A Bonds and their market price. No person other than the University shall have any liability or responsibility for compliance by the University with its obligations to provide information. The Trustee has not undertaken any responsibility with respect to any required reports, notices or disclosures. The University retains the right to modify its obligations described above as long as such modification is done in a manner consistent with Rule 15c2-12 of the Securities and Exchange Commission. Compliance with Prior Undertakings The University has filed its Annual Financial Information for the fiscal years ended September 30, 2006 through 2010 with all NRMSIRs or with EMMA, as applicable, as required by Rule 15c2-12. Certain outstanding indebtedness of the University has been secured by credit enhancement in the form of bond insurance. The ratings of the providers of this credit enhancement have been downgraded at various times in the past two years. Information about the downgrades was publicly reported. The University may not have filed a notice in accordance with Rule 15c2-12 with respect to each downgrade. RATINGS Moody s Investors Service, Inc. and Standard & Poor s Rating Service, a division of the McGraw-Hill Companies, Inc. (the Rating Agencies ) have assigned ratings to the Series 2011-A Bonds as indicated on the cover page. The ratings reflect the Rating Agency s rating of the creditworthiness of the University with respect to obligations payable from the Pledged Revenues. Any further explanation of the significance of such rating may be obtained only from the appropriate Rating Agency. The University furnished to the Rating Agencies the information contained in this Official Statement and certain other information respecting the University and the Series 2011-A Bonds. Generally, Rating Agencies base their underlying ratings on such materials and information, as well as on their own investigations, studies and assumptions. The ratings indicated on the cover page are not recommendations to buy, sell or hold the Series 2011-A Bonds, and any such ratings may be subject to revision or withdrawal at any time by the Rating Agencies. Any downward revision or withdrawal of any or all of such rating may have an adverse effect on the market price of the affected Series 2011-A Bonds. Neither the University nor the Underwriter has undertaken any responsibility either to bring to the attention of the holders of Series 2011-A Bonds any proposed revision, suspension or withdrawal of a rating or to oppose any such revision, suspension or withdrawal. 35

40 MISCELLANEOUS The information in this Official Statement has been obtained from the University and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. No dealer, salesperson or any other person has been authorized to give any information or to make any representation other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the University or the Underwriter. All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Series 2011-A Bonds shall under any circumstances create any implication that there has been no change in the affairs of the Board since the date hereof. All estimates and assumptions contained herein are believed to be reasonable, but no representation is made that such estimates or assumptions are correct or will be realized. Neither the Series 2011-A Bonds nor the Indenture have been registered with the Securities and Exchange Commission. The registration or qualification of the Series 2011-A Bonds and the Indenture in accordance with applicable provisions of securities laws of the states in which the Series 2011-A Bonds may be registered or qualified, and any exemption from registration or qualification in other states, shall not be regarded as a recommendation thereof. The Trustee makes no representation or warranty as to, and has no responsibility for the accuracy or completeness of, the information contained in this Official Statement. This Official Statement does not constitute an offer to sell the Series 2011-A Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. This Official Statement is not to be construed as a contract or agreement between the University and the purchasers or holders of any of the Series 2011-A Bonds. The order and placement of material in this Official Statement, including its appendices, are not to be deemed a determination of relevance, materiality or importance, and all material in this Official Statement, including its appendices, must be considered in its entirety. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the Federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THE OFFERING OF THE SERIES 2011-A BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2011-A BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE UNIVERSITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES 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 DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 36

41 This Official Statement contains forward-looking statements, which can be identified by the use of the future tense or other forward-looking terms such as may, intend, will, expect, anticipate, plan, management believes, estimate, continue, should, strategy, or position or the negatives of those terms or other variations on them or by comparable terminology. In particular, any statements, express or implied, concerning future operating results or the ability to generate Pledged Revenues or cash flow to service indebtedness are forward-looking statements. Investors are cautioned that reliance on any of those forward-looking statements involves risks and uncertainties and that, although the University s management believes that the assumptions on which those forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based on those assumptions also could be incorrect, and actual results may differ materially from any results indicated or suggested by those assumptions. In light of these and other uncertainties, the inclusion of a forward-looking statement in this Official Statement should not be regarded as a representation by the University that its plans and objectives will be achieved. All forward-looking statements are expressly qualified by the cautionary statement contained in this paragraph. The University undertakes no duty to update any forward-looking statements. [Remainder of this page intentionally blank.] 37

42 The University, represented by certain of its officers, administrative staff and counsel, has reviewed the information contained herein which relates to the University. This Official Statement has been approved by the Board of Trustees of the University. AUBURN UNIVERSITY By: Jay Gogue, President

43 APPENDIX A General Description of The University

44 (Page Intentionally Left Blank)

45 THE UNIVERSITY General The University is comprised of the Auburn Campus, the Auburn University at Montgomery Campus, the Alabama Cooperative Extension System, and the Alabama Agricultural Experiment Station. History The University was chartered on February 1, 1856, as the Methodist-sponsored East Alabama Male College and formally opened on October 1, 1859, with a student body of eighty and faculty of six. The school became the first land-grant college in the South established separate from a state university. In 1872 Alabama Methodists, unable to continue support, offered the entire facility to the State of Alabama. Under the Morrill Act (which was enacted by the U. S. Congress in 1862 and which provided for land-grant colleges), the Alabama Legislature accepted the institution in 1872 and changed the name to the Agricultural and Mechanical College of Alabama. It was renamed Alabama Polytechnic Institute in 1899 and Auburn University in Women students were first admitted to Auburn in 1892, making it the oldest coeducational school in Alabama and the second oldest in the Southeast. The University has experienced its greatest growth and development since World War II. From a single campus of 35 buildings at the close of that War, the multi-million dollar physical complex at the Auburn Main Campus includes today over 80 major buildings on approximately 1,875 acres. In addition, the Alabama Agricultural Experiment Station holdings over the State include approximately 23,000 owned or leased acres. Auburn University at Montgomery was chartered originally as the metropolitan campus of a land-grant university in 1967 by Act 403 of the Alabama legislature. In March 1968, Dr. H. Hanly Funderburk, Jr., was appointed vice president and chief administrator of the newly created university. Auburn University at Montgomery opened its doors in September 1969 with nearly 600 students in the old Alabama Extension Center on Bell Street, next to Maxwell Air Force Base. Two years later, in 1971, the University s campus relocated its Montgomery campus to a 500-acre campus on the McLemore Plantation tract, seven miles east of downtown, which continues to serve as the Auburn Montgomery Campus of the University. Enrollment at the Auburn Montgomery Campus has increased steadily from just over 5,000 in Fall 2006 to 5,811 in Fall 2010, with the greatest increases seen in the last two years, and since 1971, the Auburn Montgomery Campus has grown from just two structures to seventeen major buildings. Board of Trustees The University is governed by a Board of Trustees composed of 14 voting members. The Board includes one person from each of the nine Congressional districts (as the districts were constituted on January 1, 1961) in Alabama, one additional member from Lee County, and the Governor of Alabama (ex officio), who serves as the Board president. Two non-voting student representatives and two non-voting faculty members also sit on the Board, one student and faculty member from the Auburn Main Campus and one student and faculty member from the Auburn Montgomery Campus. Based upon a state constitutional amendment approved by voters in 2000, two additional at-large voting members have been appointed. The trustees who were serving prior to the adoption of the amendment were appointed for 12 year terms. The constitutional amendment also changed the term of office of new trustees from 12 to seven years except in the case of one of the initially appointed at-large members, who shall serve a four year term for the purpose of staggering appointments. After the four year term of the initial at-large member expires, all trustees will have seven year appointments. A third at-large member was added in 2004 to replace the State Superintendent of Education at the end of his term of office, and his ex officio position has been eliminated. Under these changed criteria, new appointments are made by a committee consisting of the Governor of Alabama and representatives of the Board and the Auburn Alumni Association, with the advice and consent of the Alabama Senate. No member of the Board receives compensation for his or her services. A-1

46 Administration The members of the Board and the date of expiration of their terms are as follows: Principal Expiration Name Occupation of Term Robert Bentley Governor Ex Officio John G. Blackwell Business Executive 2012 Dwight L. Carlisle Retired Business Executive 2011 Byron P. Franklin, Sr. Minister 2011 Samuel L. Ginn Business Executive 2012 Raymond J. Harbert Business Executive 2016 Gaines Lanier Business Executive 2014 Robert E. Lowder Retired Business Executive 2011 Charles D. McCrary Utility Executive 2011 Sarah B. Newton Educator 2011 James W. Rane Business Executive 2011 Virginia Thompson Hospital Executive 2011 Vacant Vacant Heading the three missions of Instruction, Research and University Outreach is the President, who serves both as President of the University and administrative head of the Auburn Main Campus. He is assisted by several senior administrators. Jay Gogue. Dr. Jay Gogue began his tenure as Auburn University s 18 th President on July 16, Immediately before coming to Auburn, he served as Chancellor of the University of Houston System and President of the University of Houston. From 2000 to 2003, he was President of New Mexico State University. Gogue worked for the National Park Service from 1973 to 1986, starting as a field research scientist and rising to the position of chief administrative scientist for several regions of the U.S. Park System. He began his distinguished career in higher education administration in 1986 as associate director of the Office of University Research at Clemson University, where he also served as vice president for research and vice president/vice provost for agriculture and natural resources. Utah State University selected Gogue as its provost in Dr. Gogue holds the B.S. and M.S. in Horticulture from Auburn University and the Ph.D. in Horticulture from Michigan State University. John G. Veres III Dr. John G. Veres III serves as the fifth Chancellor of Auburn University at Montgomery (AUM), which is located on the Auburn Montgomery Campus. Dr. Veres has worked at AUM for over 33 years and has over 30 years' experience in human resources management. He began his tenure as Chancellor of AUM in June He has published extensively on human resources management (HRM) topics and has consulted in over 80 employment discrimination lawsuits, testifying on assessing adverse impact, selection procedure validity, and other issues on equal employment opportunity. Dr. Veres has long been involved in community affairs. He serves on the Boards of Directors of the Alabama Technology Foundation, the Alabama World Affairs Council, the Montgomery Area YMCA, the Montgomery Catholic Building Authority (Seton Haven), and the River Region United Way. He also serves on the Montgomery Area Chamber of Commerce s Education and Workforce Development Council and Steering Committee for the Chamber s Imagine a Greater Montgomery II strategic planning effort. Donald L. Large, Jr. Dr. Donald L. Large, Jr., Executive Vice President and Treasurer, received his B.S. in Business Administration from Auburn University in 1975, and his M.Ed. and Ed.D. in Higher Education Administration from Auburn in 1989 and 1998, respectively. Dr. Large is a certified public accountant and has served in various capacities at Auburn University since Before assuming his current position in 1997, he served Auburn University as Vice President for Business and Finance from 1991 to 1997 and Controller from 1986 to Prior to joining Auburn University, he was employed 11 years with the international accounting firm of A-2

47 Deloitte Haskins and Sells, where as a senior manager he served clients in the manufacturing, service, financial and education sectors, and as a national instructor in the areas of auditing, recruitment and time management. Dr. Large also serves as Treasurer of the Auburn Alumni Association. Mary Ellen Mazey. Dr. Mazey was appointed Provost and Vice President for Academic Affairs in She previously served as Dean of the Eberly College of Arts and Sciences at West Virginia University and Dean of the College of Liberal Arts at Wright State University. She received her Ph.D. from the University of Cincinnati in urban geography in 1977 and taught at the institution for two years prior to joining the faculty at Wright State University in Dr. Mazey was founding director of the Center for Urban and Public Affairs at Wright State University and served in that capacity for 11 years. During that time, she served as the university s representative to the Ohio Board of Regents Urban University Advisory Committee. She also served as chair of the Wright State s Department of Urban Affairs and Geography and led the creation of a Master of Urban Administration Program. From , Dr. Mazey was granted the title of Distinguished Professor of Professional Service at Wright State University. Dr. Mazey has announced that she will be leaving the University, effective July 1, 2011, to become President of Bowling Green University. The University has begun a national search process to find a replacement Provost and Vice President of Academic Affairs. John M. Mason. Dr. John M. Mason was appointed Associate Provost and Vice President for Research in June Prior to his appointment he served as the Associate Dean for Graduate Studies, Research and Outreach in the College of Engineering at Pennsylvania State University. He also served as the director of the Thomas D. Larson Pennsylvania Transportation Institute and executive director of the Mid-Atlantic Universities Transportation Center. Dr. Mason holds a bachelor s degree in transportation from Pennsylvania State University, a master s degree in transportation engineering from Villanova University and a doctorate in civil engineering from Texas A&M University. He is a registered professional engineer in Pennsylvania and began his career in consulting engineering practice. He began teaching at the community college level and completed his doctorate while performing research at the Texas Transportation Institute. After returning to private practice as a district transportation manager for a Florida engineering firm, he was recruited by Pennsylvania State University to return to teaching and research and was named the Director of the Transportation Operations Program at the Pennsylvania Transportation Institute. While at Pennsylvania State University, he became center director, institute director and, in 1997, associate dean of engineering. Ainsley Carry. Dr. Ainsley Carry was named Vice President for Student Affairs at Auburn University in His areas of responsibility include Campus Recreation, Student Development Programs, Office of Judicial Affairs, Student Center, Greek Life, Medical Clinic, Leadership Programs and Student Counseling Services. Dr. Carry earned his master s degree in Counseling and the doctorate in Education and Leadership from the University of Florida. He has served as a college administrator since 1992, working at Southern Methodist University, the University of Arkansas, the University of Florida and Temple University. Deborah L. Shaw. Dr. Deborah L. Shaw was appointed Vice President for Alumni Affairs in January 2007, after filling that role in an interim capacity since March of Prior to her appointment she served as the Assistant Vice President for Alumni Affairs. Dr. Shaw received her B.S. degree in Secondary Education from the University of North Alabama, and a Masters and Doctorate degree in Administration of Higher Education from Auburn University. Dr. Shaw began her professional career in the Division of Student Affairs at Auburn University where she worked for twenty years in Housing, Admissions, and Student Activities/Student Affairs. In 1996, Dr. Shaw was named the acting director of the AU Student Success Center where she was instrumental in developing Camp War Eagle, the freshman summer orientation program. She served as director of Camp War Eagle for five years. Before transitioning to Alumni Affairs, Dr. Shaw was Director of Foy Student Union and Student Activities for five years. Rob W. Wellbaum. Mr. Wellbaum is a seasoned professional in higher education fundraising and was named Auburn University's Interim Vice President of Development in February, He has previously served Auburn University as Associate Vice President of Development and as Senior Director of Development for the Samuel Ginn College of Engineering. During his 13-year tenure at Auburn, Wellbaum's expertise and leadership have resulted in significant increases in the university's endowment and overall fundraising efforts. He played a critical role in the success of the recent It Begins at Auburn campaign that secured over $608 million in gifts and pledges for the institution. Wellbaum holds a bachelor's degree in international business from Auburn University and has earned professional recognition as a Certified Fund Raising Executive (CFRE), the first at Auburn to earn A-3

48 this distinction. Prior to working at Auburn, Wellbaum served as the Director of Corporate Relations for the Scottish Rite Children's Medical Center Foundation, now Children's Health Care of Atlanta. Campuses Auburn Main Campus. The Auburn Main Campus is located in Lee County, Alabama, in the City of Auburn, approximately 55 miles east of Montgomery, 120 miles southeast of Birmingham, and 118 miles southwest of Atlanta, Georgia. The Auburn Main Campus is the University s larger campus, consisting of over 80 major buildings on 1,875 acres. Auburn is a fully accredited land-grant institution organized into the three divisions of Instruction, Research and Outreach. Auburn Montgomery Campus. The Auburn Montgomery Campus is located in the City of Montgomery in south central Alabama. It serves as the campus for Auburn University at Montgomery and includes seventeen major buildings on approximately 500 acres. Enrollment The combined enrollment (also sometimes called the headcount) of both University campuses for the Fall semesters 2006 through 2010, broken down between undergraduate and graduate students, was as follows: Undergraduate 24,602 25,115 25,471 25,599 26,025 Graduate 4,024 4,146 4,436 4,558 4,864 TOTAL 28,626 29,261 29,907 30,157 30,889 The headcount enrollment for the same five Fall semesters, broken down by campus, is shown in the table below. The headcounts shown below are unduplicated, meaning that each student is counted only one time based on the campus he or she physically attends Main Campus 23,547 24,137 24,530 24,602 25,078 Montgomery Campus 5,079 5,124 5,377 5,555 5,811 TOTAL 28,626 29,261 29,907 30,157 30,889 Another measure of enrollment, known as full-time equivalent or FTE, is obtained by adding (a) all fulltime undergraduate and graduate students plus (b) the so-called credit-hour productivity for all part-time undergraduate and graduate students, in accordance with a formula prescribed by the Southern Association of Colleges and Schools (SACS). The University s FTE enrollment for the Fall semesters 2006 through 2010, broken down by campus, is shown below: Main Campus 21,542 22,062 22,438 22,556 22,930 Montgomery Campus 4,181 4,219 4,424 4,646 4,897 TOTAL 25,723 26,281 26,862 27,202 27,827 A-4

49 The table below contains historical undergraduate admissions figures for the Auburn Main Campus for the five Fall semesters 2006 through 2010: 2006 % 2007 % 2008 % 2009 % 2010 % Freshman Applications 15, , , , , Acceptances 11, , , , , Matriculants 4, , , , , Avg ACT Avg GPA The table below contains historical undergraduate admissions figures for the Auburn Montgomery Campus for the five Fall semesters 2006 through 2010: 2006 % 2007 % 2008 % 2009 % 2010 % Freshman Applications , , , , Acceptances , , , , Matriculants Avg ACT Avg GPA Students come to the University from all 67 counties in Alabama, from 49 states and territories and from 83 foreign countries. The highest numbers of in-state students come from Jefferson, Lee, Madison, Shelby, Montgomery, Mobile and Baldwin counties, respectively, and the highest numbers of out-of-state students come from Georgia, Florida, Tennessee, Texas, North Carolina, Virginia, Kentucky and South Carolina, in that order. China contributes more students than any other foreign country, followed by India and South Korea. The following table sets forth, by percentage, a breakdown of the University s enrollment at the Auburn Main Campus by residency classification for the five Fall semesters 2006 though 2010: In-State Students Out-of-State Students Foreign Students TOTAL The following table sets forth, by percentage, a breakdown of the University s enrollment at the Auburn Montgomery Campus by residency classification for the five Fall semesters 2006 though 2010: In-State Students Out-of-State Students Foreign Students TOTAL A-5

50 DIVISIONS AND FACILITIES Instruction Academic Programs. The Auburn Main Campus serves approximately 25,000 students and offers undergraduate degrees in 90 areas; Master s degrees in 60 areas; Doctor of Philosophy degrees in 39 areas; and the Specialist in Education, along with the first professional degrees Doctor of Veterinary Medicine and Doctor of Pharmacy. Post-baccalaureate certificate offerings are being expanded, with certification currently conferred in nine areas. Instruction is provided by the University through twelve undergraduate schools and the graduate school, which are listed below in order of enrolled headcount for the Fall semester of 2010: School/College 2010 Agriculture 1,221 Architecture, Design & Construction 1,322 Business 3,661 Education 2,774 Engineering 4,700 Forestry & Wildlife Sciences 393 Human Sciences 1,225 Liberal Arts 4,458 Nursing 691 Pharmacy 612 Sciences and Mathematics 3,403 Veterinary Medicine 467 Interdisciplinary/Interdepartmental Programs & Transients 151 Total 25,078 The Auburn Montgomery Campus serves approximately 5,900 students, offers undergraduate degrees in 26 areas, Master s degrees in 12 areas, the Specialist in Education and a joint Doctor of Philosophy degrees in 5 academic areas, including, Business, Education, Liberal Arts, School of Nursing and School of Sciences. Research Auburn s combined research funds provided by competitive contracts and grants have increased over the last decade. The sources of this support are federal, $78 million (unaudited); state, $19.9 million (unaudited); and other, $11.3 million (unaudited). Total research revenues for fiscal 2010 surpassed $109 million (unaudited). Peaks of Excellence. Auburn has identified seven research programs as Peaks of Excellence involving an interdisciplinary core of faculty in the areas of biological sciences, detection and food safety, information technology, forestry and wildlife sciences, poultry science, fisheries and allied aquacultures and transportation. These Peaks of Excellence programs are strong research areas that are capable of fast growth and stand to produce developments that directly benefit the public. For example, detection and food safety is producing technologies capable of monitoring commercially prepared food products for bacterial contamination, temperature, and other indicators of safety and quality. Accomplishments in biological sciences include advances in the treatment of heart disease, diabetes, and other maladies. Transportation research is improving automotive safety and performance and extending the life-spans of roads and bridges. Auburn also operates an asphalt research and testing facility, a oneof-a-kind research facility that has made Auburn a central force in highway surface material research. Auburn s research in forestry, fisheries and poultry science is being enhanced, and these programs are making even larger contributions to these multi-million-dollar state and regional economic mainstays. Homeland Security. Auburn University has increased its activities in support of enhanced homeland security and defense. Spurred by the increasing attention to the threat of terrorism, the University's detection dogs program and applied research through its Canine and Detection Research Institute and Canine and Detection A-6

51 Training Center conducts first-responder training for a number of government agencies, military groups and major municipalities. AU also holds an exclusive license on a robust emergency preparedness simulation training software developed by Lawrence Livermore Laboratories, originally for the U.S. military. Using this JCATS software, AU and its license partner, ERTS, has conducted training with emergency management agencies and municipalities throughout Alabama and Georgia. Technology Transfer. Auburn has seen continued growth in technology transfer. Although technology transfer is a relatively new venture for the University, through fiscal year 2006 it has executed commercial licensing agreements with 64 companies and 11 start-up companies organized expressly to develop and market Auburndeveloped technologies and inventions. These ventures bring new resources to the University, and new jobs and tax receipts to the city and state. The University s patent portfolio has grown to over 116 patents, and its technology licensing revenue has grown to approximately $700,000 per year. Although the amount of licensing revenues is relatively small at this time, it has grown at an average rate of 44% per year. Research Park. Auburn broke ground in November of 2005 for a new 156-acre research park, and the first research building is complete. The effort is a University-city-state partnership, with the City of Auburn investing $5 million and the State of Alabama investing $10 million. A major tenant of this 42,700 gross square foot building is Northrup Grumman, a Fortune 100 company, has established one of its Workforce Training Centers in the Research Park. Developed in partnership with the City of Auburn, Lee County and the State of Alabama, the park provides a facility where University faculty and students can work directly with business and industry to promote researchbased economic development for the state and region. It will also provide a venue for commercial interests to develop their businesses in Auburn, promoting economic development in the region. Through innovation, the Research Park will foster entrepreneurial activity, thereby creating jobs, sustaining economic vitality and improving the quality of life. At full development, the Research Park is projected to provide more than 12,000 new jobs stemming from those created within the park as well as spin-off employment within businesses supporting tenants within the Research Park. Other Research Having Public Impact. An Auburn-invented microscope technology was ranked by R&D Magazine among the top 100 most technologically significant products introduced in Other AUdeveloped technologies and research that have had an impact on the public include: a bacteria-eliminating chemical technology currently marketed as a water purification process, which also has potential medical and other commercial applications; a fabric that improves the effectiveness of bullet-proof vests worn by law enforcement personnel by stopping high-powered rifle bullets; a device that improves the operation and safety of automobile airbags; germ-killing rubber, which has broad commercial potential; a drug-delivery system that aids in the treatment of diseases and medical conditions such as muscular dystrophy, diabetes and muscle-related tumors. Alabama Agricultural Experiment Station. Studies cover a broad range of agriculture, food production and forestry. Auburn s internationally acclaimed aquaculture program offers hope to many nations in producing food fish economically. New technology is continually being developed to increase production with less energy in the future. University Outreach Through University Outreach, the University fulfills its land-grant responsibility to provide citizens access to its knowledge-based programs and service. Drawing on its university-wide faculty expertise, Auburn s Outreach programming addresses Alabama s economic development, quality K-12 education, excellence in government, continuing education for professionals, cultural preservation, and agricultural and natural resources. On campus, University Outreach staff and faculty from each of the University s schools and colleges provide expertise and resources through a diverse program base. An average of 50,000 persons participate in more than 1,000 outreach conferences, courses and activities provided each year by Auburn academic departments and outreach centers. Courses and graduate programs delivered through distance learning technologies have increased more than 60% in the last five years, extending Auburn s reach beyond campus with more than 20 degrees and certificates. Interdisciplinary initiatives for education and industry are benefiting citizens across the state, but particularly in West Alabama where Auburn operates several program targeting the economically depressed region. A-7

52 The Office of University Outreach provides oversight to outreach units and collaborates with academic deans, faculty, Auburn Montgomery Campus and extension system leadership to promote the University s objectives for Outreach. Outreach units include: (1) The Center for Governmental Services which assists state, county and local governments with applied policy research, technical assistance, professional development programs and survey research; (2) Distance Learning and Outreach Technology which assists the University faculty in developing distance education applications for academic programs and manages independent learning programs for academic departments; (3) Economic Development Institute which links the University expertise to Alabama s economic and community development through instruction, research, and technical assistance; (4) Outreach Information and Marketing which provides marketing support to the Vice President s initiatives, maintains the University s comprehensive database of faculty outreach activity; and (5) Outreach Program Office which conducts interdisciplinary programs, youth activities, and community courses linking the University s educational resources to the general public. Many more outreach program resources are headquartered in the University s schools, colleges and libraries. These are a major source of continuing education programs for architects, educators, engineers, pharmacists, veterinarians and many other professionals. The Auburn Technical Assistance Center (College of Business) is dedicated to assisting industries with business development and strategic planning. The Truman Pierce Institute for the Advancement of Teacher Education (College of Education) promotes the study and improvement of teaching. The Center for Arts and Humanities (College of Liberal Arts) unites University scholars and local citizens in partnerships of study and appreciation of humanities subjects. The Colleges of Business and Engineering cooperate in a joint Outreach and Continuing Education office that provides continuing education and development opportunities to engineers and business professionals. Alabama Cooperative Extension System In addition to on-campus units, the University reaches all segments of the state s population through the statewide network of the Alabama Cooperative Extension System whose principal participating entities are the University and Alabama A&M University. Staff and faculty in all 67 counties and at the University lead research-based educational programs to revitalize Alabama s agricultural and forestry industry, strengthen the health, economic and social well-being of families and individuals, stimulate economic development in Alabama s rural areas, and develop the state s human and natural resources. County Extension Agents develop, organize and carry out educational programs to meet the needs of local people. Agents live in the community, associate closely with clientele, and involve their clientele in program planning decisions. Subject matter specialists in pertinent disciplines operate from the most up-to-date and technical knowledge available. They constantly process new information discovered by research. Specialists and agents influence new research on campus through feedback of problems and opportunities at the local level. A-8

53 Capital Expenditures The University expects its capital expenditures to exceed $446 million for projects now under construction or approved for construction by the Board of Trustees. Approved facilities currently in planning, design or construction include: Transportation Technology Shelby Center Phase II; Collections Building; Aquatic Resource Center; Advanced Science, Innovation and Commerce Building; South Quad Multimodal Facility; Small Animal Teaching Hospital, Student Recreation Building; Multipurpose Indoor Practice Facility; Facilities Buildings 6&7, South Donahue Resident Hall and Parking Facility; Biological Engineering Research Laboratory and numerous pedestrian friendly additions. Renovation projects include: Dudley Hall; Pebble Hill; Forestry Product Lab; utility infrastructure upgrades; and numerous deferred maintenance projects. Libraries The Auburn University Libraries include the Ralph Brown Draughon Library, the Library of Architecture, Design and Construction and the Charles Allen Cary Veterinary Medical Library. The Special Collections and Archives department, located in the Ralph Brown Draughon Library, houses manuscripts and rare books related to Alabama history and literature, the Civil War, the history of flight and other subjects. Faculty In , the Auburn Main Campus has 1,196 full-time faculty and 167 part-time faculty, and the Auburn Montgomery Campus has 180 full-time faculty and 135 part-time faculty. A-9

54 (Page Intentionally Left Blank)

55 APPENDIX B 2010 Financial Report of the University

56 (Page Intentionally Left Blank)

57 F i n a n c i a l Report 2010 Comprehensive Annual Financial Report for the year ended September 30, 2010

58 Auburn University

59 2010 Financial Report Table of Contents INTRODUCTORY SECTION PRESIDENT S LETTER...6 LETTER OF TRANSMITTAL...7 FINANCIAL SECTION REPORT OF INDEPENDENT AUDITORS MANAGEMENT S DISCUSSION AND ANALYSIS...12 AUBURN UNIVERSITY FINANCIAL STATEMENTS STATEMENTS OF NET ASSETS...22 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS STATEMENTS OF CASH FLOWS COMPONENT UNITS FINANCIAL STATEMENTS AUBURN UNIVERSITY FOUNDATION AND AUBURN ALUMNI ASSOCIATION TIGERS UNLIMITED FOUNDATION NOTES TO FINANCIAL STATEMENTS DIVISIONAL FINANCIAL STATEMENTS (UNAUDITED) AUBURN UNIVERSITY MAIN CAMPUS...60 AUBURN UNIVERSITY AT MONTGOMERY...62 ALABAMA AGRICULTURAL EXPERIMENT STATION ALABAMA COOPERATIVE EXTENSION SYSTEM REQUIRED SUPPLEMENTAL INFORMATION AUBURN UNIVERSITY BOARD OF TRUSTEES Auburn University 2010

60 Auburn University

61 2010 Financial Report Introductory Section 5 Auburn University 2010

62 Auburn University 2010 Dear Members of the Auburn Community and Alabama Citizens: January 21, 2011 This annual Financial Report summarizes Auburn University s financial position and activity for the fiscal year ended September 30, Auburn University has a number of strengths that has enabled it to achieve distinction as a premier land-, sea-, and space-grant institution. The Strategic Plan, introduced two years ago, is further building on this foundation to bringing positive, measurable results in many strategic areas. Auburn s stakeholders our alumni, students, faculty, staff, friends and every citizen of the state of Alabama have an essential role in the success of the plan and the university. We have made a commitment to serve our state, our nation, and beyond by continually working to improve and sustain our academic excellence. You can review our latest updates to the plan in the areas of instruction, research, outreach, and collaborative efforts at As a result, Auburn University will provide its students and the community with greater access to a world of opportunity. In addition to the excitement and success on the football field, capturing its second national championship, seventh conference title, and a third Heisman Trophy, the following are highlights for Auburn in what was an equally productive year off the field as well: Auburn University more than doubled its number of newly enrolled National Merit Scholars in Auburn enrolled 133 new scholars this summer and fall, which more than doubles last year s number of 64. Only six public institutions nationally enrolled more than 133 scholars. Auburn is ranked 38th among public universities nationwide, up from 39th last year, according to an annual survey released by U.S. News & World Report. The ranking marks the 18th consecutive year the magazine has ranked Auburn among the nation s top 50 public universities. Auburn University has achieved its highest enrollment in history this fall, and its freshman class boasts the top ACT score of any previous class. The class compiled an average score of 26.9 on the ACT college entrance exam, outpacing last year s then-record of They also earned an average high school grade point average of 3.79, up from 3.69 last year. Two members of Auburn s Honors College were selected finalists in 2010 for the prestigious Rhodes Scholarship. Auburn has two national finalist candidates for The Harry S. Truman Scholarship that prepares students for careers in government or public service. For its design of the $20K House in Newbern, The Rural Studio is currently one of 11 teams highlighted in the Museum of Modern Art s exhibition, Small Scale, Big Change: New Architectures of Social Engagement. Auburn University and East Alabama Medical Center have partnered to bring a 3-Tesla MRI, the most powerful unit currently cleared for clinical use with humans, to Auburn. Auburn University administrators opened a new flight terminal at the Auburn University Regional Airport, which will be an important economic development tool for east Alabama. Auburn s new Huntsville Research Center is working closely with area industry and federal agencies, including plans to develop cyber security technologies designed to protect U.S. soldiers and information systems on the battlefield. The U.S. Department of Commerce has awarded an Auburn University outreach initiative $4.6 million to expand the availability of broadband technology in Alabama s rural libraries and schools. The National Science Foundation has awarded Auburn University a $4.6 million grant to renovate research laboratories that will enhance the university s biological engineering programs. Please visit online at to see more achievements Auburn University has reached as we continue our commitment to provide research, outreach, and instruction for our citizens. Sincerely, Jay Gogue President 6

63 January 21, 2011 The Comprehensive Annual Financial Report for Auburn University for 2010 provides comparative financial statements for the years ended September 30, 2010, and September 30, The financial statements on the following pages have been prepared in accordance with the guidelines established by the Governmental Accounting Standards Board, the American Institute of Certified Public Accountants, and general conformance with College and University Business Administration, which sets forth generally accepted accounting principles for colleges and universities. The management of Auburn University is responsible for the integrity and objectivity of the financial statements. Management believes that the University s highly developed system of internal accounting controls provides reasonable assurance that assets are protected and that transactions and events are properly recorded. The system of internal controls is maintained by establishment and communication of fiscal policies and procedures, careful selection of qualified financial staff, and an extensive program of internal audits and management reviews. Sincerely, Donald L. Large, Jr. Executive Vice President 7 Auburn University 2010

64 Auburn University

65 2010 Financial Report Financial Section 9 Auburn University 2010

66 Auburn University

67 PricewaterhouseCoopers LLP th Ave. North Suite 1600 Birmingham AL Telephone (205) Facsimile (205) Report of Independent Auditors To the Board of Trustees of Auburn University and the President of Auburn University: In our opinion, based upon our audits and the reports of other auditors, the financial statements listed in the accompanying table of contents, which collectively comprise the financial statements of Auburn University (the University ), a component unit of the State of Alabama, present fairly, in all material respects, the respective financial position of the University and its discretely presented component units at September 30, 2010 and 2009 (June 30, 2010 and 2009 for Tigers Unlimited Foundation), and the respective changes in financial position and cash flows (as applicable), of the University and its component units for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the University s management. Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of the Auburn Alumni Association (the Association ) and the Auburn University Foundation (the Foundation ), which represent 85 percent and 84 percent of assets, 87 percent and 85 percent of net assets and 53 percent and 60 percent of revenues of the discretely presented component units at September 30, 2010 and 2009 (at June 30, 2010 and 2009 for Tigers Unlimited Foundation) and for the years then ended (for the years ended June 30, 2010 and 2009 for Tigers Unlimited Foundation), respectively. Each of those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the Association and the Foundation, is based solely on the reports of other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions. The management s discussion and analysis and required supplemental information on pages 12 through 21 and pages 69 through 72 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted primarily of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it. The University has not presented the management s discussion and analysis for the year ended September 30, 2009, that accounting principles generally accepted in the United States of America require to supplement, although not to be part of, the basic financial statements. Our audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the University s basic financial statements. The introductory information on pages 6 through 7, the information presented on pages 12 through 21, and the supplemental divisional financial statements as set forth on pages 59 through 67 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. January 21, Auburn University 2010

68 Auburn University 2010 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) The following discussion and analysis provides an overview of the financial position and activities of Auburn University (the University) for the year ended September 3.0, 2010, with a comparison to the year ended September 3.0, This discussion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follow this section. The financial statements, footnotes, and this discussion are the responsibility of University management. The University is a land grant institution and is classified by the Carnegie Foundation as Doctoral/Research-Extensive, while Auburn University at Montgomery (AUM) is classified as Master s I. Fall 2010 enrollment included 3.0,8.8.9 total students at the main campus at Auburn and at AUM. The University offers a diverse range of degree programs in 12 colleges and schools and has approximately 5,168. full-time employees, including approximately 1,3.8.1 faculty members, who contribute to the University s mission of serving the citizens of the State of Alabama through its instructional, research, and outreach programs. Using the Annual Report The University s financial report includes three financial statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 3.5, Basic Financial Statements-and Management s Discussion and Analysis-for Public Colleges and Universities. GASB Statement No. 3.5 establishes standards for external financial reporting for public colleges and universities and requires that financial statements be presented on an entity-wide basis to focus on the University as a whole. All references to 2010, 2009, or another year refer to the fiscal year ended September 3.0, unless otherwise noted. The Statement of Cash Flows reports the major sources and uses of cash and reveals further information for assessing the University s ability to meet financial obligations as they become due. Inflows and outflows of cash are summarized by operating, noncapital financing, capital and related financing, and investing activities. In addition to the University s financial statements, related component unit Statements of Financial Position and Statements of Activities and Changes in Net Assets have been included in this annual report. GASB Statement No. 3.9, Determining Whether Certain Organizations Are Component Units, provides criteria for determining which related organizations should be reported as component units based on the nature and significance of their relationship with the primary government, which is the University. GASB Statement No. 3.9 also clarifies financial reporting requirements for those organizations as amendments to GASB Statement No. 14., The Financial Reporting Entity. The University has identified these significant related organizations that are required to be reported as component units. The component units are FASB entities and subject to standards under Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles and present net assets in three classes: unrestricted, temporarily restricted, and permanently restricted. The three component units of the University reported herein are: (1) Auburn University Foundation (AUF) - AUF was organized on February 9, 1960, and is the fundraising foundation for the University. As of September 3.0, 2010, AUF holds endowments and distributes earnings from those endowments to the University. AUF is incorporated as a legally separate, tax-exempt nonprofit organization established to solicit individual and corporate donations for the direct benefit of the University. The Auburn University Real Estate Foundation, Inc. (AUREFI) has been consolidated into AUF s financial statements. The University s financial statements are summarized as follows: The Statement of Net Assets presents entity-wide assets, liabilities, and net assets (assets minus liabilities) on the last day of the fiscal year. Distinctions are made in current and noncurrent assets and liabilities. Net assets are segregated into unrestricted, restricted (expendable and nonexpendable), and invested in capital, net of related debt. The University s net assets are one indicator of the University s financial health. From the data presented, readers of the Statement of Net Assets have the information to determine the assets available to continue the operation of the University. They may also determine how much the University owes vendors, investors and lending institutions. Finally, the Statement of Net Assets outlines the net assets available to the University. The Statement of Revenues, Expenses and Changes in Net Assets presents the revenues earned and expenses incurred during the year. Activities are reported as either operating or nonoperating. Governmental accounting standards require state appropriations, gifts, and investment earnings to be classified as nonoperating revenues. As a result, the University will typically realize a significant operating loss. The utilization of capital assets is reflected in the Statement of Revenues, Expenses and Changes in Net Assets as depreciation expense, which reflects the amortization of the cost of an asset over its expected useful life. (2) Tigers Unlimited Foundation (TUF) - TUF is a legally separate nonprofit organization incorporated in December 2002, which began operations on April 21, TUF was organized exclusively for charitable purposes, pursuant to Sections 501(a) and 501(c)(3.) of the Internal Revenue Code to support athletic fund raising and athletic programs. TUF has a June 3.0 fiscal year end. TUF provides economic resources to the University for athletic scholarships, athletic building maintenance or new construction, and for athletic department programs. (3) Auburn Alumni Association (the Association) - The Association is a nonprofit corporation organized on April 14., 194.5, to promote mutually beneficial relationships between the University and its alumni, to encourage loyalty among alumni, and to undertake various other actions for the benefit of the University, its alumni, and the State of Alabama. Membership is comprised of alumni, friends, and students of the University. The Association provides monetary support to the University in the form of faculty awards and student scholarships. The University has two other related foundations. Due to immateriality, the statements of the Auburn Research and Technology Foundation (ARTF) and the Auburn Spirit Foundation for Scholarships (ASFS) are not presented as component units in these financial statements. 12

69 Financial Highlights Statement of Net Assets A summary of assets, liabilities, and net assets as of September 3.0, 2010 and 2009, is as follows: MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) Assets Current assets $ 254.,4.90,3.76 $ 24.0,967,072 Capital assets 1,13.3.,914., ,04.4.,4.3.5,194. Other noncurrent assets 73.7,279, ,553.,8.96 Total assets 2,125,68.4., ,021,956,162 Liabilities Current liabilities 24.7,022, ,3.54.,3.92 Noncurrent liabilities 558.,174., ,68.9,578. Total liabilities 8.05,196, ,04.3.,970 Net assets Invested in capital assets, net of related debt 616,209, ,28.1,602 Restricted-nonexpendable 24.,051, ,8.8.6,04.9 Restricted-expendable 163.,73.8., ,8.74.,294. Unrestricted 516,4.8.7, ,8.70,24.7 Total net assets $ 1,3.20,4.8.7,604. $ 1,209,912,192 The University s Assets Current assets consist of cash and cash equivalents, operating investments (those investments that are expected to be liquidated during the course of normal operations), net accounts receivable (primarily amounts due from the federal and state governments and other agencies as reimbursements for sponsored programs), net student accounts receivable (including amounts due from third parties on behalf of the students), current portion of loans receivable, accrued interest receivable, inventories, and prepaid expenses. The University s current assets increased $13..5 million from 2009 to The University s total receivables increased $10.9 million. Most of this increase is attributable to accounts receivable growing $9 million. Two million dollars of this increase is the result of spending American Recovery and Reinvestment Act (ARRA) funds, which were not reimbursed as of September 3.0, Approximately $6.3. million relates to spending incurred for federal or state sponsored capital projects. Accrued interest receivable decreased approximately $1.2 million, due to a reduction in interest earned in the cash pool. In the prior year, the University also earned interest on unexpended bond proceeds, which were utilized in the current year. Student accounts receivable increased $3..1 million. During fiscal year 2010, the University saw enrollment climb, and the University s Board of Trustees (the Board) approved a tuition restructure plan. In addition, cash and cash equivalents and operating investments combined increased approximately $2.5 million. The University is maintaining additional funds in current assets due to the uncertainty of future state funding. Other noncurrent assets had minor increases. However, capital assets, net of depreciation, shown as Investment in plant, net on the Statement of Net Assets increased 8..6% from 2009 to Capital assets generally represent the historical cost of land improvements, buildings, construction in progress, infrastructure, equipment, library books and livestock, less any accumulated depreciation, with buildings comprising over 68.% of the total capital asset value. The increase, offset by disposal activity, depreciation and transfers, was the result of $13.9 million, net of new additions to property, plant and equipment. In addition to the following construction projects totaling $119 million, which were completed and placed into service during 2010, the University experienced a growth of the projects under construction of $13.2 million. New Basketball Arena Housing District Energy Plant Expansion Phase II Airport Terminal Housing Costs Assessment and Programming A-O Airport New Hanger Inst. of Natural Resource Bioenergy and Biproduct Plant West Campus Dining Facility Federal Highway Admin Center for Technology District Energy Plant Expansion Other Small Projects $ million $ 11.0 million $ 5.5 million $ 3..9 million $ 1.4. million $ 1.3. million $ 1.2 million $ 1.0 million $ 1.0 million $ 7.0 million The University s Liabilities Current liabilities consist of accounts payable, the current portion of compensation-related liabilities, accrued interest payable, student and other deposits (including Perkins and Health Professions loan liability), deferred revenues, the current portion of noncurrent liabilities, and other accrued liabilities. Current liabilities increased by $10.7 million from 2009 to Although accounts payable and the current portion of long term debt decreased approximately $2.8. million, deferred revenue increased approximately $13..7 million. Deferred revenue is comprised of deferred tuition revenue and contracts and grants funding received prior to expenditures. For Fall 2010, the Board approved a 9.75% tuition increase for AUM, and AU implemented a tuition restructure plan and increased tuition approximately 8.%. Sixty percent of Fall tuition is reported as deferred revenue due to the fiscal year end of September 3.0. Accounts payable decreased due to overall reduction in noncompensation expense resulting from a reduction in state budgeted appropriations and proration. Noncurrent liabilities include principal amounts due on University bonds payable, accrued compensated absences and other compensation-related liabilities that are payable beyond September 3.0, Noncurrent liabilities decreased $17.5 million from 2009 to 2010, primarily due to principal payments on the General, Athletic, and Housing bonds, General and Athletic A bonds, 2006A General Fee bond, 2007 A and B General Fee bonds, and bonds that become due in fiscal year During 2010, the 2001 General Fee and 2001A General Fee bonds were defeased and replaced with the 2009 General Fee bond. This transaction decreased 13 Auburn University 2010

70 Auburn University 2010 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) the University s future debt service obligations (including interest) by $4..5 million. The University s Net Assets The three major net asset categories are discussed below: Net assets invested in capital, net of related debt, represent unexpended capital debt proceeds, the University s capital assets, net of accumulated depreciation, and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. These net assets increased 11.4.% from 2009 to This increase is due to capitalization of assets as previously described. Restricted Net Assets are divided into two categories: Nonexpendable and Expendable. Restricted-nonexpendable net assets are subject to external restrictions governing their use and consist of the University s permanent endowment funds. These net assets increased modestly from 2009 to This increase is the result of additional gifts to permanently endowed funds as well as investment earnings that were added back to current permanent endowments. Restricted-expendable net assets are also subject to external restrictions governing their use. Such net assets include gifts, contracts, and grants restricted by federal, state, local governments, or private sources for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. Restricted funds functioning as endowments, restricted funds available for student loans and funds restricted for construction purposes are also included in this category. Although there was a slight increase related to restricted scholarships and gifts, there was a comparable decrease due to amounts spent that were temporarily restricted for capital projects. Unrestricted net assets are the third major class of net assets, and they are not subject to externally imposed stipulations; however, the majority of the University s unrestricted net assets have been internally designated for various mission-related purposes. These assets include funds for general operations of the University, for auxiliary operations (including athletics, housing, and the bookstore), for unrestricted quasiendowments, and for capital projects. Unrestricted net assets increased $4.6.6 million from 2009 to The increase in unrestricted net assets is mainly due to holding unrestricted funds for future missionrelated priorities and deferred maintenance needs during this uncertain economic time. $1,400 $1,200 $1,000 $876 TOTAL NET ASSETS $1,150 $1,210 $1,036 $1,320 Amount in Millions $800 $600 $400 Invested in Capital Assets, Net of Related Debt Restricted Nonexpendable Restricted Expendable Unrestricted $200 $ Fiscal Year Statement of Revenues, Expenses and Changes in Net Assets Changes in total net assets are the result of activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of this statement is to present the revenues earned by the University, both operating and nonoperating, and the expenses incurred by the University, operating and nonoperating, and any other revenues, expenses, gains, losses, and changes in net assets. A condensed statement is provided below: Operating revenues $ 525,067,8.74. $ 4.8.9,650,295 Operating expenses 78.9,04.3., ,04.2,3.62 Operating loss (263.,975,674.) (294.,3.92,067) Net nonoperating revenues and other changes in net assets 3.74.,551, ,8.8.6,03.4. Increase in net assets 110,575, ,4.93.,967 Net assets - beginning of year 1,209,912,192 1,150,4.18.,225 Net assets - end of year $ 1,3.20,4.8.7,604. $ 1,209,912,192

71 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) The 2010 Statement of Revenues, Expenses and Changes in Net Assets reflects an increase in net assets at the end of the year of $110.6 million. Operating revenues increased 7.2% when comparing operating revenues from 2009 to The majority of this increase is attributable to the increase in student tuition and fee revenue, net of discounts, which increased $17.9 million. The University also recognized an increase in contract and grant revenues of $9.9 million. This is primarily due to an increase in federal funds awarded for research. Approximately $3..1 million of this increase were competitive awards received under the ARRA. Auxiliary revenue increased approximately $7.0 million due to new revenue generated by the opening of the Village housing. Operating expenses increased $5 million from 2009 to The University s compensation and employee benefits experienced a modest increase in fiscal year The University incurred an additional $4. million related to employer paid benefits. Scholarships and fellowships expense increased $4. million from 2009 to This was due to the increase in tuition and the additional scholarships that were awarded in fiscal year Other supplies and services expenses decreased $6.4. million. This decrease reflects reductions in spending due to reduced State appropriation budgets. Depreciation expense increased $5.1 million, as a result of recording depreciation beginning in fiscal year 2010 on new projects completed in The buildings completed include the Village Dorms, infrastructure related to the Village, and West Campus Dining. Net nonoperating revenues decreased $8..4. million from 2009 to The University s State appropriations decreased from $262 million in fiscal year 2009 to $23.6 million in fiscal year The $25.5 million decrease is attributable to a combined 23.% permanent reduction in appropriations and proration from the State of Alabama. This decrease was offset by the recognition of ARRA State Fiscal Stabilization funds of $21.2 million. In addition, the University received an additional $6.8. million in Pell grants, which were awarded to students in fiscal year The University saw revenue related to investments continue to decline in fiscal year The University s endowment, interest income and realized gains decreased $10.8. million from fiscal year 2009 to 2010, and the University only recognized $7.9 million in unrealized gains, which was a decrease of $5.5 million from the $ million recognized in fiscal year Capital appropriations, capital gifts and grants, and additions to permanent endowments increased $29.1 million when comparing $ million recognized in 2010 to $18..7 million recognized in In fiscal year 2010, the University received funding from the Alabama Public Schools and Colleges Act and ARRA State Fiscal Stabilization for capital projects of approximately $14..1 million and $4..1 million, respectively. These amounts are reflected in capital appropriations. The University expended approximately $14. million dollars for the construction of the new phase of the Technology Transportation building. The corresponding revenue is reflected in the line item capital gifts & grants. State appropriations $350 $337 $300 $288 $262 $250 $246 $236 Amount in Millions $200 $150 $100 $50 $ Fiscal Year 15 Auburn University 2010

72 Auburn University 2010 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) OPERATING REVENUES SUPPORTING CORE ACTIVITIES For the year ended September 3.0, 2010 Auxiliaries 17% Student Tuition & Fees, Net 52% Other Operating Revenue 2% Sales & Services 6% Grants & Contracts 21% Federal Appropriations 2% OPERATING EXPENSES BY NATURAL CLASSIFICATION For the year ended September 3.0, 2010 Compensation & Benefits 65% Scholarships & Fellowships 3% Utilities 3% Depreciation 6% Other Supplies & Services 23% OPERATING EXPENSES BY FUNCTION For the year ended September 3.0, 2010 Student Services 3% Library 1% Institutional Support 7% Operations & Maintenance 9% Scholarships & Fellowships 5% Auxiliaries 11% Depreciation 6% Academic Support 5% Public Service 13% Instruction 28% Research 12% 16

73 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) Statement of Cash Flows The Statement of Cash Flows presents information about changes in the University s cash position using the direct method of reporting sources and uses of cash. The direct method reports all major gross cash inflows and outflows, differentiating these activities into operating activities; noncapital financing, such as nonexchange grants and contributions; capital and related financing, including bond proceeds from debt issued to purchase or construct buildings; and investing activities. Operating activity uses of cash significantly exceed operating activity sources of cash due to classification of state appropriations and gifts as noncapital financing activities. The University s cash flows are summarized below: Cash provided by (used in): Operating activities $ (201,3.94.,93.9) $ (24.8.,64.8.,625) Net noncapital financing activities 3.10,63.3., ,913.,714. Net capital and related financing activities (13.2,74.5,160) (226,029,8.8.8.) Net investing activities 3.6,08.5, ,63.7,8.4.1 Net increase in cash 12,579,590 7,8.73.,04.2 Cash and cash equivalents beginning of year 57,096, ,223.,563. Cash and cash equivalents end of year $ 69,676,195 $ 57,096,605 The excess of uses over sources of cash used for operating activities decreased from 2009 to 2010 by 19.0%. This decrease was the result of the University receiving additional funds from tuition and fees, as well as the University decreasing its payments to suppliers related to operations. The University reduced its expenditures related to operations as a direct result of the reduced appropriations from the State of Alabama. Cash provided by noncapital financing activities increased $28.0,000. Although the University received a decrease in State appropriations of $25.5 million, the University s net decrease from the State was $6.2 million, due to the receipt of $19.3. million of ARRA State Fiscal Stabilization funds. This net decrease was offset by a $6.7 million increase in gifts other than capital purposes. The remaining difference was due to timing differences in the receipt and disbursement of loan funds issued to students in the Direct Loan Program. Net cash used in capital and related financing activities decreased $ million from 2009 to 2010, which is primarily attributable to a reduction of purchases of capital assets. Net cash provided by investing activities decreased $ million. This decrease is the result of the University utilizing previously invested bond funds for construction projects. In addition, the University received fewer funds from investment income. Economic factors that will affect the future While the University is impacted by the general economic conditions, management believes the University will continue its high level of excellence in service to students, sponsors, the State of Alabama, and other constituents. In addition to legislative permanent appropriation reductions for fiscal year 2010, the Governor announced the 9.5% proration of the Special Education Trust Fund, which effectively reduced the appropriations for the University by an additional 9% in the fiscal year ended September 3.0, The University s strong financial position and internal financial planning process provides the University some protection against the funding reductions and adverse economic conditions. Nonetheless, a continuation of the economic downturn and future reductions in state support must be anticipated and managed carefully to maintain excellence. Neither external nor internal efforts to mitigate the impact, however, are intended to eliminate the effects of future proration or decreases in state funding. As a labor-intensive organization, the University faces competitive pressures related to attracting and retaining faculty and staff. The rising cost of health care remains a concern, particularly in light of the post-retirement health care benefits offered to retirees. The University continues to address aging facilities with significant new construction, as well as modernization and renovation of existing facilities. Although funding of these projects through gifts, federal and state funds, and deferred maintenance budget allocations continues, the costs of operating the new and renovated facilities will continue to place additional resource demands on the operating budget of the institution. The University continues to take steps to enhance student recruitment, both in marketing efforts and in providing additional scholarship funding. Applications, acceptances and retention are monitored closely to assess the potential impact of general economic conditions on future enrollment. We are cautiously optimistic that demand will remain strong. The University will continue to employ its long-term investment strategy to maximize total returns at an appropriate level of risk, while utilizing a spending rate policy to insulate the University s operations from temporary market volatility. Preservation of capital is regarded as the highest priority in the investing of the cash pool. Diversification through asset allocation is utilized as a fundamental risk strategy for endowed funds. Cautionary note regarding forward-looking statements Certain information provided by the University, including written, as outlined above, or oral statements made by its representatives, may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of All statements, other than statements of historical fact, which address activities, events or developments that the University expects or anticipates will or may occur in the future, contain forward-looking information. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based upon various factors and was derived using various assumptions. 17 Auburn University 2010

74 Auburn University 2010 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) Auburn Main Campus and Auburn University at Montgomery UNDERGRADUATE TUITION FOR THE ACADEMIC YEAR Full Time Students: In-State $5,4.96/$4.,760 $5,8.3.4./$5,010 $6,500/$5,58.0 $6,972/$5,970 $7,900/$6,73.0 Out-of-State $15,4.96/$13.,760 $16,3.3.4./$14.,4.90 $18.,260/$16,200 $19,4.52/$17,250 $21,916/$19,090 Auburn Main Campus and Auburn University at Montgomery FALL STUDENT ENROLLMENT Undergraduate and Professional 24.,602 25,115 25, ,599 26,025 Graduate 4., , , , ,8.64. Auburn Main Campus and Auburn University at Montgomery DEGREES AWARDED FOR THE ACADEMIC YEAR Bachelor 4., , , , ,700 Advanced 1, ,4.65 1,520 1,561 1, AUBURN UNIVERSITY MAIN CAMPUS AND AUBURN UNIVERSITY AT MONTGOMERY FULL-TIME FACULTY BY RANK Number of Faculty FALL 2006 FALL 2007 FALL 2008 FALL 2009 FALL 2010 Term 18 Professor Associate Professor Assistant Professor Instructor Visiting

75 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) AUBURN UNIVERSITY MAIN CAMPUS TOTAL STUDENT CREDIT HOURS BY COLLEGE/SCHOOL Number of Credit Hours College/School , , , , ,000 Liberal Arts 102, ,814 Sciences & Mathematics Business Engineering Education 61,540 72,713 58,291 55,944 78,758 Human Sciences 27,060 Arch., Design & Const. 24, Agriculture 17,532 Pharmacy 19,540 Veterinary Medicine 15,722 Nursing 5,541 Forestry & Wildlife Sciences 4,435 Other 18, Other Courses ROTC 2,116 Core Courses AUBURN UNIVERSITY MAIN CAMPUS FRESHMEN ENROLLMENT BY ALABAMA COUNTIES SUMMER/FALL TERMS 2010 Other 32% Jefferson 18% Madison 13% Tennessee 4% Florida 8% Baldwin 5% Texas 4% Georgia 15% Mobile 6% Montgomery 6% SOURCES OF ENTERING FRESHMEN BY STATE MAIN CAMPUS SUMMER/FALL TERMS 2010 Other Locations 13% Lee 7% Shelby 13% Alabama 56% 19 Auburn University 2010

76 Auburn University 2010 AUBURN UNIVERSITY five year highlights (Millions of Dollars) For the fiscal years ended SEPTEMBER Revenues by Source Tuition and fees $ $ $ $ $ Federal appropriations State appropriations ARRA state fiscal stabilization funds Grants & contracts Gifts Sales, services, investments and other income Sales and services of auxiliary enterprises Total Revenues by Source $ $ $ $ $ Operating Expenses by Function Instruction $ $ $ $ $ Research Public Service Academic Support Library Student Services Institutional Support Operation and Maintenance Scholarships and Fellowships Auxiliary Enterprises Depreciation Total Operating Expenses by Function $ $ $ $ $ Operating Expenses by Natural Classification Salaries and wages $ $ $ $ $ Employee benefits Scholarships and fellowships Utilities Travel Other operating expenses Total Operating Expenses by Natural Classification $ $ $ $ $

77 AUBURN UNIVERSITY Financial Ratios* For the fiscal years ended SEPTEMBER 30 Debt Service Coverage Ratio The debt service coverage ratio measures the ability to cover annual debt service obligations from current year operating cash flows. A ratio of at least 1.0 is desirable. The University s debt service coverage ratio decreased in recent years due to new debt issuances in 2007 and Still, the ratio remains sufficiently above the desired 1.0 in all years presented. Debt Service Burden This ratio measures the percentage of annual operating expenses devoted to debt service. A ratio below 7% is desirable. The University s debt service burden increased in recent years due to new debt issuances in 2007 and Still, the ratio remains sufficiently below the target of 7% in all years presented. Primary Reserve Ratio The Primary Reserve Ratio measures the financial strength of the institution by indicating how many years it could operate using expendable net assets without relying on additional revenue. A positive trend over time indicates improving financial condition with reserves. The University s primary reserve ratio has continued to improve over the 5 years presented, indicating a strengthening financial condition. Viability Ratio This ratio measures the availability of expendable net assets to cover debt obligations should the institution be required to settle them immediately. A ratio of at least 1.0 is desirable. While the University s viability ratio has fluctuated somewhat over the 5 years presented, it remains higher than the desired 1.0, and has increased steadily since Return on Net Assets Ratio This ratio measures total economic return and can be used to indicate whether the institution is financially stronger or weaker over time. A positive trend over time is desirable. While the University s return on net assets ratio has fluctuated over the 5 years presented, it remains strong, with an increase in 2010 over the previous year. * These financial ratios are presented for purposes of additional analysis and are not a required part of the basic financial statements. These ratios include only the University s financial statements and may not be comparable to other institutions. 21 Auburn University 2010

78 Auburn University 2010 AUBURN UNIVERSITY STATEMENTs OF NET ASSETS SEPTEMBER 30, 2010 AND ASSETS Current assets Cash and cash equivalents $ 69,676,195 $ 57,096,605 Operating investments 90,101, ,197,78.2 Accounts receivable, net 4.9,160, ,127,13.7 Student accounts receivable, net 3.1,774., ,63.5,4.8.2 Loans receivable, net 2,74.4.,74.2 2,8.95,997 Accrued interest receivable 2,3.3.5,669 3.,4.8.8.,574. Inventories 4.,006,169 3.,595,3.8.0 Prepaid expenses 4.,690,560 4.,93.0,115 Total current assets 254.,4.90, ,967,072 Noncurrent assets Investments 719,777, ,525,726 Loans receivable, net 17,502,621 17,028.,170 Investment in plant, net 1,13.3.,914., ,04.4.,4.3.5,194. Total noncurrent assets 1,8.71,194.,118. 1,78.0,98.9,090 Total assets 2,125,68.4., ,021,956, LIABILITIES Current liabilities Accounts payable 4.1,8.53., ,4.92,762 Accrued salaries and wages 5,4.4.1,206 5,077,503. Accrued compensated absences 17,4.66, ,029,73.6 Accrued interest payable 9,123.,94.5 9,006,78.5 Other accrued liabilities 3.,109,966 2,8.14.,171 Student deposits 198., ,3.55 Deposits held in custody 19,097, ,8.4.8.,095 Deferred revenues 13.1,08.9, ,4.24.,3.51 Noncurrent liabilities-current portion 19,64.2, ,8.4.4.,63.4. Total current liabilities 24.7,022, ,3.54.,3.92 Noncurrent liabilities Accrued compensated absences - 691,23.0 Bonds and notes payable 53.0,768., ,08.0,4.67 Lease obligations 1,23.5,3.79 1,54.0,660 Other noncurrent liabilities 26,171, ,3.77,221 Total noncurrent liabilities 558.,174., ,68.9,578. Total liabilities 8.05,196, ,04.3.,970 NET ASSETS Invested in capital assets, net of related debt 616,209, ,28.1,602 Restricted Nonexpendable 24.,051, ,8.8.6,04.9 Expendable: Scholarships, research, instruction, other 14.1,718., ,000,957 Loans 5,116,93.1 5,023.,192 Capital projects 16,903., ,8.50,14.5 Unrestricted 516,4.8.7, ,8.70,24.7 Total net assets $ 1,3.20,4.8.7,604. $ 1,209,912,192 See accompanying notes to financial statements.

79 AUBURN UNIVERSITY STATEMENTs OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the years ended SEPTEMBER 30, 2010 AND OPERATING REVENUES Tuition & fees, net of scholarship allowances of $78.,4.69,68.8. and $60,575,755, respectively $ 275,4.8.9,4.54. $ 257,628.,293. Federal appropriations 9,026,000 10,94.6,114. Federal grants & contracts, net 77,953., ,512,621 State & local grants & contracts, net 19,8.73., ,18.7,14.5 Nongovernmental grants & contracts, net 11,297, ,516,68.5 Sales & services of educational departments 3.0,3.08., ,998.,226 Auxiliary revenue, net of scholarship allowances of $5,002,04.2 and $3.,125,629, respectively 8.7,714., ,754.,997 Other operating revenues 13.,4.05, ,106,214. Total operating revenues 525,067, ,650,295 OPERATING EXPENSES Compensation & benefits 510,919, ,8.94.,296 Scholarships & fellowships 21,93.1,019 17,903.,3.4.6 Utilities 22,8.99, ,708.,155 Other supplies & services 18.3.,965, ,3.4.8.,713. Depreciation 4.9,3.28., ,18.7,8.52 Total operating expenses 78.9,04.3., ,04.2,3.62 Operating loss (263.,975,674.) (294.,3.92,067) NONOPERATING REVENUES (EXPENSES) State appropriations 23.6,212, ,691,096 ARRA state fiscal stabilization funds 21,23.6, Gifts 3.0,218., ,78.6,518. Grants 23.,204., ,4.24.,73.4. Net investment income 25,08.8., ,4.3.6,58.1 Interest expense on capital debt (9,174.,150) (14.,150,603.) Nonoperating revenues, net 3.26,78.8., ,18.8.,3.26 Income before other changes in net assets 62,8.12, ,796,259 OTHER CHANGES IN NET ASSETS Capital appropriations 18.,224.,23.0 2,760,3.96 Capital gifts & grants 29,3.73., ,68.1,8.79 Additions to permanent endowments 165, , Net increase in net assets 110,575, ,4.93.,967 Net assets - beginning of year 1,209,912,192 1,150,4.18.,225 Net assets - end of year $ 1,3.20,4.8.7,604. $ 1,209,912,192 See accompanying notes to financial statements. 23 Auburn University 2010

80 Auburn University 2010 AUBURN UNIVERSITY STATEMENTs OF Cash Flows For the years ended SEPTEMBER 30, 2010 AND CASH FLOWS FROM OPERATING ACTIVITIES Tuition & fees $ 28.3.,673.,4.17 $ 262,8.75,23.0 Federal appropriations 8.,8.70,750 10,601,58.8. Grants & contracts 104.,103., ,8.00,123. Sales & services of educational departments 28.,8.75, ,562,93.3. Auxiliary enterprises 91,974., ,3.3.7,18.7 Other operating revenues 13.,998., ,950,271 Payments to suppliers (178.,8.61,3.90) (202,3.4.8.,794.) Payments for utilities (22,8.99,217) (23.,708.,155) Payments for employee compensation & benefits (508.,4.77,3.3.6) (504.,676,629) Payments for scholarships & fellowships (21,902,709) (17,93.2,8.71) Student loans issued (2,973.,616) (2,558.,526) Student loans collected 2,223.,061 2,4.4.9,018. Net cash used in operating activities (201,3.94.,93.9) (24.8.,64.8.,625) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 23.6,212, ,691,096 ARRA state fiscal stabilization funds 19,28.9, Gifts and grants for other than capital purposes 56,154., ,4.65,54.2 Direct loan receipts 158.,192, ,3.8.4.,3.4.6 Direct loan disbursements (159,215,4.66) (14.2,627,270) Net cash provided by noncapital financing activities 3.10,63.3., ,913.,714. CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from advanced refunding of debt, net of issuance cost 8.4.,94.6, Capital appropriations 18.,224.,23.0 2,760,3.96 Capital grants & gifts received 21,8.8.9, ,679,929 Purchases of capital assets (14.6,662,98.8.) (221,4.93.,168.) Proceeds received from sale of capital assets 57,270 6,769,654. Principal paid on debt & capital leases (18.,057,271) (15,268.,177) Interest paid on debt & capital leases (8.,24.5,8.20) (11,4.78.,522) Payment to escrow on advanced refunding of debt (8.4.,8.95,904.) - Net cash used in capital and related financing activities (13.2,74.5,160) (226,029,8.8.8.) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments and reinvestments 795,600, ,3.4.4.,3.4.2 Investment income 17,3.57, ,290,907 Purchases of investments (776,8.72,24.1) (663.,997,4.08.) Net cash provided by investing activities 3.6,08.5, ,63.7,8.4.1 Net increase in cash and cash equivalents 12,579,590 7,8.73.,04.2 Cash and cash equivalents, beginning of year 57,096, ,223.,563. Cash and cash equivalents, end of year $ 69,676,195 $ 57,096,605 See accompanying notes to financial statements. 24

81 AUBURN UNIVERSITY STATEMENTs OF CASH FLOWS (CONTINUED) For the years ended SEPTEMBER 30, 2010 AND 2009 RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Operating loss $ (263.,975,674.) $ (294.,3.92,067) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 4.8.,78.0, ,54.2,273. Write-off of loans receivable 4.27, , Loss (gain) on sale of net assets 120,03.2 (2,4.21,03.8.) Changes in assets and liabilities: Accounts receivable (3.,4.67,03.2) (1,517,74.2) Student accounts receivable (3.,13.9,261) (3.,3.3.0,3.18.) Inventories (4.10,78.9) 129,04.1 Deferred revenue 13.,664., ,664.,799 Accounts payable 5,074.,297 (10,564.,04.8.) Prepaid expenses 23.9,555 1,051,905 Accrued salaries, wages and compensated absences 109, ,963. Student deposits and deposits held in custody (3.4.5,4.74.) 623.,3.06 Loans to students (750,555) (109,508.) Other accrued liabilities 295,795 (53.,913.) Other noncurrent liabilities 1,98.2,68.5 2,74.6,3.79 Net cash used in operating activities $ (201,3.94.,93.9) $ (24.8.,64.8.,625) SUPPLEMENTAL NONCASH ACTIVITIES INFORMATION Capital assets acquired with a liability at year-end $ 10,4.03.,68.9 $ 19,73.5, Gifts of capital assets 1,3.00, ,4.67,8.93. Capital assets acquired through capital leases 3.54., Capitalized interest 17,4.18., ,228.,3.75 See accompanying notes to financial statements. 25 Auburn University 2010

82 Auburn University 2010 AUBURN UNIVERSITY COMPONENT UNITS STATEMENTS OF FINANCIAL POSITION SEPTEMBER 30, 2010 AND 2009 Auburn University Foundation Auburn Alumni Association ASSETS Cash and cash equivalents $ 3.8.7,622 $ 615,925 $ 20,501 $ 61,520 Investments 28.7,28.9, ,294., ,012,591 3.,772,017 Investment in Auburn University Foundation Securities Pool - - 7,021,266 6,4.12,561 Accrued interest receivable , , , ,23.0 Contributions receivable, net 23.,4.54., ,4.11, , ,24.0 Notes receivable , Other assets 14.6, , Investment in real estate 2,93.9, ,24.0, , ,799 Cash surrender value of life insurance 3.,4.76, ,057, Beneficial interest in outside trusts 1,3.53., , Property and equipment, net 297,014. 1,916,8.01 2,03.0,4.90 2,08.7,765 Prepaid rent Due from Auburn University Foundation , Total assets $ 3.19,68.2,8.56 $ 292,23.8.,991 $ 14.,3.66,8.61 $ 13.,4.26,3.4.0 LIABILITIES Accounts payable and accrued liabilities $ 290,576 $ 3.76,293. $ 4.5,78.4. $ 8.6,58.0 Annuities payable 8.,096, ,8.20, Due to Auburn University 9, , , ,8.4.6 Due to Auburn University Foundation ,555 Due to Auburn Alumni Association 7,021,8.66 6,4.11, Due to Tigers Unlimited Foundation 6,3.94.,967 5,701, Deferred revenue 122,3.69-7,729,229 7,295,068. Total liabilities 21,93.5,677 19,565,950 8.,006,920 7,54.3.,04.9 NET ASSETS Unrestricted 10,661,255 2,679,275 6,3.59,94.1 5,8.8.3.,291 Temporarily restricted 4.8.,779, ,98.8., Permanently restricted 23.8.,3.06, ,005, Total net assets 297,74.7, ,673.,04.1 6,3.59,94.1 5,8.8.3.,291 Total liabilities and net assets $ 3.19,68.2,8.56 $ 292,23.8.,991 $ 14.,3.66,8.61 $ 13.,4.26,3.4.0 See accompanying notes to financial statements. 26

83 AUBURN UNIVERSITY COMPONENT UNITS STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 Auburn University Foundation Auburn Alumni Association REVENUES AND OTHER SUPPORT Public support - contributions $ 26,23.4.,797 $ 4.0,4.3.1,3.04. $ 1,3.97,553. $ 1,4.71,028. Investment income 2,905,022 3.,651, , ,211 Other revenues 2,276,151 1,922, , ,4.51 Total operating revenues 3.1,4.15, ,005,905 2,3.8.2,3.50 2,64.8.,690 EXPENSES AND LOSSES Program services Contributions to and support for Auburn University 20,4.52, ,8.71, Other program services 2,163.,967 1,78.1, , ,4.8.7 Total program services 22,616, ,653., , ,4.8.7 Support services General and administrative 1,3.70,98.0 2,027, ,3.69, ,565,152 Fund raising 2,8.3.7, ,8.50, , ,605 Total support services 4.,208., ,8.78.,24.6 1,620,072 1,73.4.,757 Total expenses 26,8.25, ,53.1, ,3.8.7,920 2,53.9,24.4. Unrealized (gains) losses on investments (20,8.19,4.8.0) 3.,3.8.8.,23.9 (4.8.2,220) 500, Realized losses on investments 1,4.15, ,619, Change in valuation of split-interest agreements (1,116,279) 901, Impairment in real estate 3.7, , Total expenses, (gains) and losses 6,3.4.1, ,113.,296 1,905,700 3.,04.0,08.8. *Change in net assets 25,074., ,8.92, ,650 (3.91,3.98.) Net assets - beginning of year 272,673., ,78.0, ,8.8.3.,291 6,274.,68.9 Net assets - end of year $ 297,74.7,179 $ 272,673.,04.1 $ 6,3.59,94.1 $ 5,8.8.3.,291 *Change in net assets Unrestricted $ 7,98.1,98.0 $ (1,08.2,8.78.) $ 4.76,650 $ (3.91,3.98.) Temporarily restricted 6,791,294. (16,551,14.3.) - - Permanently restricted 10,3.00, ,526, Total change in net assets $ 25,074.,13.8. $ 5,8.92,609 $ 4.76,650 $ (3.91,3.98.) See accompanying notes to financial statements. 27 Auburn University 2010

84 Auburn University 2010 AUBURN UNIVERSITY COMPONENT UNITS STATEMENTS OF FINANCIAL POSITION JUNE 30, 2010 AND 2009 Tigers Unlimited Foundation ASSETS Cash and cash equivalents $ 662,93.1 $ 54.3.,077 Investments 3.2,618., ,08.6,163. Investment in Auburn University Foundation Securities Pool 5,8.3.8., ,106,54.5 Accrued interest receivable 119, ,4.72 Contributions receivable, net 8.,8.20, ,606,4.50 Other receivables Notes receivable , ,000 Other assets 4.58., ,792 Property and equipment, net 16,3.65 2,14.0 Due from Auburn University Foundation 100, ,000 Total assets $ 4.9,4.69, $ 53.,627,953. LIABILITIES Accounts payable and accrued liabilities $ 129,561 $ 2,525,995 Deferred revenue 1,23.9,908. 1,193.,18.1 Due to Auburn University 2,4.4.5,4.60 2,022,8.00 Total liabilities 3.,8.14.,929 5,74.1,976 NET ASSETS Unrestricted 27,975, ,74.8.,8.14. Temporarily restricted 10,78.7, ,608.,64.6 Permanently restricted 6,8.91,274. 7,528.,517 Total net assets 4.5,654., ,8.8.5,977 Total liabilities and net assets $ 4.9,4.69, $ 53.,627,953. See accompanying notes to financial statements. 28

85 AUBURN UNIVERSITY COMPONENT UNITS STATEMENTs OF ACTIVITIES AND CHANGES IN NET ASSETS for the years ended june 30, 2010 and 2009 Tigers Unlimited Foundation REVENUES AND OTHER SUPPORT Public support - contributions $ 24.,729,8.64. $ 28.,272,54.9 Investment income 74.4.,120 1,3.8.6,722 Other revenues 4.,53.0,971 3.,3.4.8.,179 Total operating revenues 3.0,004., ,007,4.50 EXPENSES, (GAINS) AND LOSSES Program services Contributions to and support for Auburn University 12,3.67,507 17,3.21,8.8.7 Other program services 8.,4.71, ,527,120 Total program services 20,8.3.9, ,8.4.9,007 Support services General and administrative 1,277,728. 1,225,214. Fund raising 5,3.8.2, ,93.4.,128. Total support services 6,660,557 6,159,3.4.2 Total expenses 27,4.99, ,008.,3.4.9 Unrealized (gains) losses on investments (8.17,04.2) 1,73.0,3.51 Realized losses on investments 601 2,057 Loss on write-off of contribution receivable 5,553., ,23.1,3.15 Total expenses, (gains) and losses 3.2,23.6, ,972,072 *Change in net assets (2,23.1,4.63.) (5,964.,622) Net assets - beginning of year 4.7,8.8.5, ,8.50,599 Net assets - end of year $ 4.5,654.,514. $ 4.7,8.8.5,977 *Change in net assets Unrestricted $ 3.,226, $ (4.,062,203.) Temporarily restricted (4.,8.21,063.) 1,901,117 Permanently restricted (63.7,24.3.) 1,3.02 Total change in net assets $ (2,23.1,4.63.) $ (5,964.,622) See accompanying notes to financial statements. 29 Auburn University 2010

86 Auburn University 2010 notes to financial statements (1) NATURE OF OPERATIONS Auburn University (the University) is a land grant university originally chartered on February 1, 18.56, as the East Alabama Male College. The Federal Land Grant Act of 18.62, by which the University was established as a land grant university, donated public lands to several states and territories with the intent that the states would use these properties for the benefit of agriculture and the mechanical arts. Several pertinent laws dictate specific purposes for which the land may be used. In 1960, the Alabama State Legislature officially changed the name of the University to Auburn University. The University has two campuses, Auburn and Montgomery, with a combined enrollment of 3.0,8.8.9 students for Fall Semester It serves the State of Alabama, the nation and international business communities through instruction of students and the advancement of research and outreach programs. By statutory laws of the State of Alabama, the University is governed by the Board of Trustees (the Board) appointed by the Governor, a committee consisting of two trustees and two Alumni Association board members and approved by the Alabama State Senate. The accompanying financial statements of the University have been prepared in accordance with accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB) and all Financial Accounting Standards Board (FASB) pronouncements issued before November 3.0, 198.9, unless FASB conflicts with GASB. The accompanying financial statements include the following four divisions of the University: Auburn University Main Campus Auburn University at Montgomery Alabama Agricultural Experiment Station Alabama Cooperative Extension System The Auburn University Real Estate Foundation, Inc. was organized in 2005 under Internal Revenue Code 170(b)(1)(A)(vi). This real estate holding corporation is a tax-exempt organization under 501(c)(3.) of the Internal Revenue Code. Contributions intended for the University s benefit are primarily received through Auburn University Foundation, Tigers Unlimited Foundation, Auburn Research and Technology Foundation, Auburn Spirit Foundation for Scholarships or Auburn University Real Estate Foundation, Inc. and are deductible by donors as provided under Section 170 of the Internal Revenue Code, consistent with the provisions under Section 501(c)(3.) and corresponding state law. Component Units The University adheres to GASB Statement No. 3.9, Determining Whether Certain Organizations Are Component Units-an amendment of GASB Statement No. 14. This statement clarifies GASB Statement No. 14., The Financial Reporting Entity, which provides criteria for determining whether such organizations for which a government is not financially accountable should be reported as component units. Due to the fact that the exclusion of such organizations would render the entity s financial statements misleading or incomplete, the University has included statements for Auburn University Foundation, the Tigers Unlimited Foundation and the Auburn Alumni Association in these financial statements. The Auburn University Real Estate Foundation, Inc. has been consolidated into the Auburn University Foundation s financial statements. These three affiliated organizations financial statements are presented following the University s statements. The component units are not GASB entities; therefore, their respective financial statements adhere to accounting principles under the Accounting Standards Codification. Reporting Entity The University, a publicly supported, state funded institution, is a component unit of the State of Alabama and is included in the Comprehensive Annual Financial Report of the State. However, the University is considered a separate reporting entity for financial statement purposes. The University, as a public corporation and instrumentality of the State of Alabama, is exempt from federal income taxes under Section 115 of the Internal Revenue Code. Certain transactions may be taxable as unrelated business income under Internal Revenue Code Sections 511 to The Auburn University Foundation and the Auburn Alumni Association are exempt from federal income taxes pursuant to Section 501(c)(3.) of the Internal Revenue Code. Tigers Unlimited Foundation is exempt from federal taxes under section 501(a) as an organization described in section 501(c)(3.). Therefore, no provision has been made for income taxes in their respective financial statements. The Auburn Research and Technology Foundation and the Auburn Spirit Foundation for Scholarships, created in and 2006, respectively, were organized under Internal Revenue Code 509(a)(3.) and Internal Revenue Code 509(a)(2), respectively. They are exempt from Federal income taxes under section 501(c)(3.) of the Internal Revenue Code. Due to the immateriality of the Auburn Research and Technology Foundation and the Auburn Spirit Foundation for Scholarships, presentation and disclosure of their statements are not included. Auburn University Foundation (AUF) is a qualified charitable organization established in 1960, existing solely for the purpose of receiving and administering funds for the benefit of the University. AUF s activities are governed by its own Board of Directors. Tigers Unlimited Foundation (TUF) is an independent corporation that began operations on April 21, It was formed for the sole purpose of obtaining and disbursing funds for the University s Intercollegiate Athletics Department. TUF s activities are governed by its own Board of Directors with transactions being maintained using a June 3.0 fiscal year end date. The Auburn Alumni Association (the Association) is an independent corporation organized on April 14., 194.5, to promote mutually beneficial relationships between the University and its alumni, to encourage loyalty among alumni and to undertake various other actions for the benefit of the University, its alumni and the State of Alabama. Membership is comprised of alumni, friends and students of the University. The Association s activities are governed by its own Board of Directors. The Auburn Research and Technology Foundation (ARTF) is an independent corporation organized on August 24., 2004., to facilitate the 30

87 acquisition, construction and equipping of a technology and research park on the Auburn University campus. ARTF activities are governed by its own Board of Directors. The Auburn Spirit Foundation for Scholarships (ASFS) is a qualified charitable organization established on September 29, 2006, organized exclusively to assist the University with the attraction and funding of student scholarships. The ASFS activities are governed by its own Board of Directors. The Auburn University Real Estate Foundation, Inc. (AUREFI) is a qualified charitable organization created on July 5, 2005, which is owned and controlled by the AUF solely for the purpose of receiving and administering real estate gifts. The AUREFI activities are governed by its own Board of Directors. Financial statements for AUF, TUF, the Association, and ASFS may be obtained by writing to the applicable entity at 3.17 South College Street, Auburn, Alabama Financial statements for ARTF may be obtained by writing to 570 Devall Drive, Suite 101, Auburn, AL Financial Statement Presentation For financial reporting purposes, the University adheres to the provisions of GASB Statement No. 3.4., Basic Financial Statements and Management s Discussion and Analysis-for State and Local Governments and GASB Statement No. 3.5, Basic Financial Statements and Management s Discussion and Analysis-for Public Colleges and Universities-an amendment of GASB Statement No. 34. These statements establish standards for external financial reporting for public colleges and universities on an entity-wide perspective and require that resources be classified in three net asset categories. The foundations are not-for-profit organizations that report financial results under principles prescribed by the FASB. In June 2009, the FASB issued FASB Statement No. 168., The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. FASB Statement No establishes the FASB Accounting Standards Codification (ASC) as the single authoritative source for GAAP. The Codification is effective for financial statements that cover interim and annual periods ending after September 15, Authoritative accounting guidance for the Foundations transactions is found under the ASC topic 958. Not-for-Profit Entities with more specific areas covered under subtopics 20 Financially Interrelated Entities, 3.0 Split Interest Agreements, 205 Presentation, 210 Balance Sheet, 225 Income Statement, 23.0 Cash Flow Statement, 3.10 Receivables and 605 Revenue Recognition. The financial statements of the foundations have been prepared on the accrual basis of accounting. Net assets, revenues, expenses, gains and losses are classified on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the foundations and changes therein are classified and reported as unrestricted, temporarily restricted or permanently restricted. Investments in debt securities, equity securities and mutual funds with readily determinable market values are reported at their fair market values based on published market prices. Contributions received, including unconditional promises to give, are recognized as revenues at their fair values in the period received. For financial reporting purposes, foundations distinguish between contributions of unrestricted assets, temporarily restricted assets and permanently restricted assets. Contributions for which donors have imposed restrictions, which limit the use of the donated assets, are reported as restricted support if the restrictions are not met in the same reporting period. When such donor-imposed restrictions are met in subsequent reporting periods, temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions when the purpose or time restrictions are met. Contributions of assets which donors have stipulated must be maintained permanently, with only the income earned thereon available for current use, are classified as permanently restricted assets. Contributions for which donors have not stipulated restrictions are reported as unrestricted support. Invested in capital assets, net of related debt: Unexpended debt proceeds, capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. Restricted net assets: Nonexpendable Net assets subject to externally imposed stipulations that they be maintained permanently by the University. Such assets include the University s permanent endowment funds. Expendable Net assets whose use by the University are subject to externally imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations, or that expire by the passage of time. Unrestricted net assets: Net assets that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of management or the Board. Substantially all unrestricted net assets are designated for academic and research programs and initiatives, capital programs, and auxiliary units. GASB Statement No. 3.5 also requires three statements: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. Basis of Accounting The financial statements of the University have been prepared on the accrual basis of accounting and in accordance with accounting standards of the United States of America and all significant, interdivisional transactions between auxiliary units and other funds have been eliminated. The University reports as a Business Type Activity (BTA) as defined by GASB Statement No BTA s are those institutions that are financed in whole or in part by fees charged to external parties for goods or services. Under BTA reporting, it is required that statements be prepared using the economic resources measurement focus. GASB Statement No. 3.5 requires the recording of depreciation on capital assets, accrual or deferral of revenue associated with certain grants and contracts, accrual of interest expense, accounting for certain scholarship allowances as a reduction of revenue, classification of federal refundable loans as a liability, and capitalization and depreciation of equipment with a sponsor reversionary interest. 31 Auburn University 2010

88 Auburn University 2010 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 liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain reclassifications have been made to the 2009 financial statements in order to conform them to the 2010 financial statement presentation. The reclassifications had no impact on net assets. (2) SIGNIFICANT ACCOUNTING POLICIES OF AUBURN UNIVERSITY Cash & Cash Equivalents Cash and cash equivalents are defined as highly liquid debt instruments readily convertible into cash and with maturities at date of acquisition of three months or less, whose use is not restricted for long term purposes. Investments Investments in equity securities, mutual funds, common trust funds, business trust funds, cash value of life insurance and debt securities are reported at fair value in the Statement of Net Assets, with all net realized and unrealized gains and losses reflected in the Statement of Revenues, Expenses and Changes in Net Assets. Fair value of these investments is based on quoted market prices or dealer quotes where available. Under GASB Statement No. 3.1, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, the University records its initial investment and subsequent contributions in nonreadily marketable investments at cost with no adjustments for its share of income/appreciation and losses/depreciation received from the investment (see Note 4.). The University performs periodic evaluations in which these investments are monitored for impairment. Under GASB Statement No. 4.0, Deposit and Investment Risk Disclosures-an amendment of GASB Statement No. 3, common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk are addressed. The Statement defines custodial risk for deposits as the risk that, in the event of a failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. As an element of rate risk, this statement requires certain disclosures of investments that have fair values which are highly sensitive to changes in interest rates. Deposit and investment policies related to the risks identified in this statement are also required to be disclosed (see Note 4.). The University employs a custodian to hold, and external investment managers to administer, the majority of its endowed investments and reflects transactions related to these investments based upon the University s review of their records. Operating investments consist of cash and investments designated for current operations. Investments for capital and student loan activities represent funds that are intended to be used for the related specific activities. Investments recorded as endowment and life income represent funds that are considered by management to be of long duration. Investments received by gift are recorded at fair market value or appraised value on the date of receipt. Investments in real estate are recorded at fair value. For investments other than non-readily marketable investments, investment income is recorded on the accrual basis of accounting. Inventories Units currently holding inventories include Facilities, Chemistry Supply Store, Animal Clinic Pharmacy, Alabama Agricultural Experiment Station, Bookstores, Museum Gift Shop, Copycat Duplicating Service, and Ralph Draughon and AUM Libraries. All inventories are valued at the lower of cost or market, on the first-in, first-out basis, and are considered to be current assets. Capital Assets Capital expenditures for and gifts of land, buildings and equipment are carried at cost at date of acquisition or, in the case of gifts, at fair market value at the date of donation. Depreciation is computed on a straight line basis over the estimated useful lives of buildings and building improvements (4.0 years), land improvements and infrastructure ( years), library collection and software costs (10 years) and inventoried equipment (5 18. years). Land and construction in progress are not depreciated. The threshold for capitalizing buildings and infrastructure is $25,000. Expenditures for maintenance, repairs and minor renewals and replacements are expensed as incurred; major renewals and replacements are capitalized if they meet the $25,000 threshold. Equipment is capitalized if the cost exceeds $5,000 and has a useful life of more than one year. All buildings are insured through the State of Alabama Property Insurance Fund. The equipment capitalization threshold was increased from $2,500, effective October 1, Art collections, historical treasures and livestock are capitalized and valued at cost or fair market value at the date of purchase or gift, respectively, but not depreciated. Collections are preserved and held for public exhibition, education and research. In accordance with GASB Statement No. 4.2, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, the University continues to evaluate prominent events of changes in circumstance to determine whether an impairment loss should be recorded and whether any insurance recoveries should be offset against the impairment loss. The University did not incur any losses related to asset impairment during fiscal year 2010 or Deferred Revenues Deferred revenues include funds received in advance of an event, such as tuition and fees and advance ticket sales for athletic events. Net student tuition and fee revenues and housing revenues for the fall semester are recognized in the fiscal year in which the related revenues are earned. Ticket sale revenues for athletic events are recognized as the related games are played. Deferred revenues also consist of amounts received from grant and contract sponsors that have not yet been earned under the terms of the agreements. All deferred revenue is classified as a current liability (see Note 12). Classification of Revenues The University has classified its revenues as either operating or nonoperating according to the following criteria: 32

89 Operating Revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, (3.) most federal, state, local, private grants and contracts and federal appropriations, and (4.) interest on institutional student loans. Nonoperating Revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues. In accordance with GASB Statement No. 3.5, certain significant revenues on which the University relies to support its operational mission are required by the GASB to be recorded as nonoperating revenues. These revenues include state appropriations, private gifts and investment income, including realized and unrealized gains and losses on investments. Student Tuition, Fees and Scholarship Discounts and Allowances Student tuition and fee revenues and certain other revenues from students are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship discounts and allowances represent the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on the students behalf. Scholarship allowance to students is reported using the alternative method as prescribed by the National Association of College and University Business Officers (NACUBO). The alternative method is an algorithm that computes scholarship allowance on a university-wide basis rather than on an individual student basis. Auxiliary Enterprises Revenues Sales and services of auxiliary enterprises primarily consist of revenues generated by Athletics, Bookstore, Housing, Printing and Telecommunications, which are substantially self-supporting activities that primarily provide services to students, faculty, administrative and professional employees and staff. Compensated Absences The University reports employees accrued annual leave and sick leave at varying rates depending upon employee classification and length of service, subject to maximum limitations. Upon termination of employment, employees are paid all unused accrued vacation at their regular rates of pay up to a designated maximum number of days. GASB Statement No. 3.5 requires the amount of compensated absences that are due within one year of the fiscal year end to be classified as a current liability. Since this amount cannot be known precisely in advance, the current liability is estimated, based on a three-year average cost of annual and sick leave taken by eligible employees. Pledged Revenue The University normally does not receive gift pledges. Pledged revenue representing unconditional promises to give is normally received by AUF or TUF and later disbursed in accordance with the donors wishes for the benefit of the University. Pledges are recorded at their gross, undiscounted amounts. In accordance with the recognition criteria of GASB Statement No. 3.3., Accounting and Financial Reporting for Nonexchange Transactions, the University recorded pledges of approximately $23.3.,000 and $4.09,000 in fiscal years 2010 and 2009, respectively. (3) CASH AND CASH EQUIVALENTS Cash consists of petty cash funds and demand deposits held in the name of the University. The Board approves all banks or other institutions as depositories for University funds. GASB Statement No. 4.0, Deposit and Investment Risk Disclosures-an amendment of GASB Statement No. 3., defines custodial risk for deposits as the risk that, in the event of a failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover securities which are in the possession of an outside party. Effective January 1, 2001, any depository of University funds must provide annual evidence of its continuing designation as a qualified public depository under the Security for Alabama Fund Enhancement Act (SAFE). The enactment of the SAFE program changed the way all Alabama public deposits are collateralized. In the past, the bank pledged collateral directly to each individual public entity. Under the mandatory SAFE program, each qualified public depository (QPD) is required to hold collateral for all its public deposits on a pooled basis in a custody account established for the State Treasurer as SAFE administrator. In the unlikely event a public entity should suffer a loss due to QPD insolvency or default, a claim form would be filed with the State Treasurer who would use the SAFE pool collateral or other means to reimburse the loss. As a result, the University believes its custodial risk related to cash is remote. In addition, all funds in non-interest bearing accounts are fully guaranteed by the Federal Deposit Insurance Corporation (FDIC) through December 3.1, 2012, regardless of the amount. Cash equivalents may consist of commercial paper, repurchase agreements, banker s acceptance, and money market accounts purchased with maturities at date of acquisition of three months or less. (4) INVESTMENTS The Board is authorized to invest all available cash and is responsible for the management of the University s investments. The endowment funds and the cash pool assets are invested in accordance with policies established by the Board. The Board has engaged professional investment managers to manage the investment of the endowment funds assets while maintaining centralized management of the cash pool. The University periodically monitors these investments. Preservation of capital is regarded as the highest priority in the investing of the cash pool. It is assumed that all investments will be suitable to be held to maturity. The University s investment portfolio is structured in such a manner to help ensure sufficient liquidity to pay obligations as they become due. The portfolio strives to provide a stable return consistent with investment policy. The Cash Pool Investment Policy authorizes investments in the following: money market accounts, repurchase and reverse repurchase agreements, bankers acceptances, commercial paper, certificates of deposit, municipals, U. S. Treasury obligations, U. S. Agency securities and mortgage-backed securities. Bond proceeds are invested in accordance with the underlying bond agreements. The University s bond agreements generally permit bond proceeds and debt service funds to be invested in obligations in accordance with University policy in terms maturing on or before the date funds are expected to be required for expenditures or withdrawal. Certain bond indentures require the University to invest amounts held in certain construction funds, redemption funds and bond funds in federal securities or state, local and government series (SLGS) securities. 33 Auburn University 2010

90 Auburn University 2010 Diversification through asset allocation is utilized as a fundamental risk strategy for endowed funds. These strategic allocations represent a blend of assets best suited, over the long term, to achieve maximum returns without violating the risk parameters established by the Board. The Endowment Investment Policy, approved June 18., 2010, authorizes investment of the endowment portfolio to include the following: cash and cash equivalents; global fixed income; global equity securities; private capital; absolute return/hedge funds; and real estate assets, collectively referred to as the endowment pool. The Alabama Uniform Prudent Management of Institutional Funds Act (UPMIFA) has been enacted by the Legislature of the State of Alabama and signed into law effective January 1, Among its changes, UPMIFA prescribes new guidelines for expenditure of a donorrestricted endowment fund (in the absence of overriding, explicit donor stipulations). Its predecessor, the Uniform Management of Institutional Funds Act (UMIFA), focused on the prudent spending of the net appreciation of the fund. UPMIFA, instead, focuses on the entirety of a donor-restricted endowment fund, that is, both the original gift amount(s) and net appreciation. UPMIFA eliminates UMIFA s historic dollar value threshold, an amount below which an organization could not spend from the fund, in favor of a more robust set of guidelines about what constitutes prudent spending, explicitly requiring consideration of the duration and preservation of the fund. The earnings distributions are appropriated for expenditure by the Board in a manner consistent with the standard of prudence prescribed by UPMIFA. In order to conform to the standards for prudent fiduciary management of investments, the Board has adopted a spending plan whose long term objective is to maintain the purchasing power of each endowment and provide a predictable and sustainable level of income to support current operations. In the policy approved on June 18., 2010, spending for a given year equals 8.0% of spending in the previous year, adjusted for inflation (Consumer Price Index (CPI) within a range of 0% and 6%), plus 20% of the long-term spending rate (4.%) applied to the twelve-month rolling average of the market values. For the calendar year 2009, the Board approved a spending distribution equal to 3.% of the December 3.1, 2009 market values. Accumulated net realized and unrealized gains on endowments and funds functioning as endowments total $28.,3.96,13.1 and $24.,078.,53.4. at September 3.0, 2010 and 2009, respectively, and are recorded as restricted expendable net assets. The components of the accumulated net gains in fair value of investments for the years ended September 3.0, 2010 and 2009, are as follows: Accumulated net realized gains on sale of investments $ 21,4.4.3.,994. $ 25,278.,210 Accumulated net unrealized gains (losses) 6,952,13.7 (1,199,676) Net gains in fair value of investments $ 28.,3.96,13.1 $ 24.,078.,53.4. Investment Risks Investments are subject to certain types of risks, including interest rate risk, custodial credit risk, credit quality risk, concentration of credit risk, and foreign currency risk. The following describes those risks: Interest Rate Risk Interest rate or market risk is the potential for changes in the value of financial instruments due to interest rate changes in the market. Certain fixed maturity investments contain call provisions that could result in shorter maturity periods. As previously stated, it is the University s intent to hold all investments in the Cash Pool until maturity. The Board understands that in order to achieve its objectives, investments can experience fluctuations in fair value. Both the Endowment Investment Policy and the Non-Endowment Cash Pool Investment Policy set forth allowable investments and allocations. 34

91 The following segmented time distribution tables provide information as of September 3.0, 2010 and 2009, covering the fair value of investments by investment type and related maturity: Auburn University Investments Investment Maturities at Fair Value (in Years) September 30, 2010 Type of Investments < 1 year 1-5 years 6-10 years > 10 years Total Fair Value Fixed Maturity Commercial Paper $ 4.7,4.76,8.65 $ - $ - $ - $ 4.7,4.76,8.65 Certificates of Deposit - 3.,73.3., ,73.3.,3.21 U. S. Treasury Obligations 53.,04.9, ,921, ,971,510 U. S. Agency Securities 55,4.3.7, ,259, ,666, ,8.05, ,168.,627 Mortgage Backed Securities - 5,18.7, ,258.,216 26,921, ,3.67,269 Municipals - 1,029, ,029,58.0 $ 155,963.,910 $ 28.0,13.1,8.15 $ 153.,924.,4.61 $ 8.2,726,98.6 $ 672,74.7,172 Domestic Equities 8.22,964. Alternative Investments at cost: Hedge Funds 4.6,98.7,120 Private Capital 12,254.,701 Real Assets 23.,225,4.3.2 Mutual Funds 79,08.6,220 Other 3.,8.8.8.,8.68. Money Market 3.4.,24.3.,74.1 Total investments 8.73.,256,218. Less cash equivalents held in cash pool (63.,3.76,8.64.) Operating and noncurrent investments $ 8.09,8.79,3.54. Auburn University Investments Investment Maturities at Fair Value (in Years) September 30, 2009 Type of Investments < 1 year 1-5 years 6-10 years > 10 years Total Fair Value Fixed Maturity Certificates of Deposit $ 1,000,000 $ 3.,711,3.71 $ - $ - $ 4.,711,3.71 U. S. Treasury Obligations 71,758., ,3.74., ,13.2,8.79 U. S. Agency Securities 78.,4.8.7, ,3.76, ,58.6, ,8.4.7, ,297,608. Mortgage Backed Securities - 7,616, ,8.4.1, ,3.4.7, ,8.04.,176 Municipals - 1,016, ,016,53.0 $ 151,24.5,54.8. $ 3.58.,095,13.2 $ 57,4.27,78.7 $ 74.,194.,097 $ 64.0,962,564. Domestic Equities 73.1,14.8. Alternative Investments at cost: Hedge Funds 4.2,599,3.65 Private Capital 10,3.02,627 Real Assets 13.,8.63.,98.1 Mutual Funds 8.4.,54.1,223. Other 3.,8.11,708. Money Market 72,510,8.92 Total investments 8.69,3.23.,508. Less cash equivalents held in cash pool (4.9,600,000) Operating and noncurrent investments $ 8.19,723., Auburn University 2010

92 Auburn University 2010 Custodial Credit Risk GASB Statement No. 4.0 defines investment custodial risk as the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. Although no formal policy has been adopted, the University requires its safekeeping agents to hold all securities in the University s name for both the Cash Pool and the Endowment Pool. Certain limited partnership investments represent ownership interests that do not exist in physical or book-entry form. As a result, custodial credit risk is remote. The following table provides information as of September 3.0, 2010 and 2009, concerning credit quality risk: Moody s Rating Fair Value Auburn University Investments Ratings of Fixed Maturities Fair Value as a % of Total Fixed Maturity Fair Value Credit Quality Risk GASB Statement No. 4.0 defines credit quality risk as the risk that an issuer or other counterparty to an investment will not fulfill its obligations as they become due. The University Non-Endowment Cash Pool Investment Policy stipulates that commercial paper be rated P1 by Moody s or A1 by Standard & Poor s or a comparable rating by another nationally recognized rating agency. Bankers acceptances should hold a long term debt rating of at least AA or short term debt rating of AAA (or comparable ratings) as provided by one of the nationally recognized rating agencies. Fair Value Fair value as a % of Total Fixed Maturity Fair Value US Treasury $ 8.8.,971, % $ 114.,13.2, % Aaa 53.1,53.5, % 521,101, % Aa 1,029, % 1,016, % P1 4.7,4.76, % - - Not rated* 3.,73.3., % 4.,711, % $ 672,74.7, % $ 64.0,962, % *Certificates of deposit and repurchase agreements are included in the Not rated category. Concentration of Credit Risk GASB Statement No. 4.0 defines concentration of credit risk as the risk of loss attributed to the magnitude of a government s investment in a single issuer. The University Non-Endowment Cash Pool Investment Policy does not limit the aggregate amounts that can be invested in U. S. Treasury securities with the explicit guarantee of the U. S. Government or U. S. Agency securities that carry the implicit guarantee of the U. S. Government. As of September 3.0, 2010 and 2009, the University Cash Pool and the University Endowment Pool were in compliance with their respective policies. The University Endowment Investment Policy provides for diversification by identifying asset allocation classes and ranges to provide reasonable assurance that no single security, or class of securities, will have a disproportionate impact on the performance of the total Endowment Pool. Foreign Currency Risk GASB Statement No. 4.0 defines foreign currency risk as the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. No formal University policy has been adopted addressing foreign currency risk. As of September 3.0, 2010 and 2009, the University held no investments in foreign currency. Securities Lending Program The University s investment policies allow participation in securities lending, such as Reverse Repurchase Agreements, as authorized by the State Street Index Fund held by the University Endowment Pool. Effective June 2008., the State Street Index Fund held by the Endowment Pool terminated participation in securities lending. As of September 3.0, 2010 and 2009, there was no participation in any securities lending program. Interest Sensitive Securities As of September 3.0, 2010 and 2009, the University held $4.4.,3.67,269 and $4.5,8.04.,176, representing 5.08.% and 5.27%, respectively, of its total investments in mortgage-backed securities. As of September 3.0, 2010 and 2009, the University held no investments in asset backed securities. The mortgage-backed and asset-backed investments have embedded prepayment options that are expected to fluctuate with interest rate changes. Generally, this variance presents itself in variable repayment amounts, such as early or extended principal payments. Certain fixed maturity investments have call provisions that could result in shorter maturity periods. However, it is the intent that the University s Cash Pool fixed maturity investments be held to maturity; therefore, the fixed maturity investments are classified in the above table as if they were held to maturity. As of September 3.0, 2010 and 2009, the University Cash Pool held $4.,000,000 and $12,4.96,715, representing 0.4.6% and %, respectively, of total investments in continuously callable fixed maturity investments. The University investment policies do not restrict the purchase of mortgage-backed securities, assetbacked securities, or bonds with call provisions. 36

93 The University owns shares in ten mutual funds, three common trust funds and four business trust funds. These funds are invested in global marketable securities, commodities and global debt securities. The University owns an interest in a corporation and limited partnership interests in several non-registered investment partnerships. The goal of the corporation and limited partnerships is to invest in readily marketable securities, privately held companies and properties within different industry sectors. At investment inception, the University enters into a separate subscription agreement with a capital commitment to each corporation or limited partnership. The University has entered into separate subscription agreements with a capital commitment to each alternative investment that expire periodically in the future. The following information pertains to alternative investment capital commitments at September 3.0, 2010 and 2009: 2010 Unfunded Commitment by Commitment Expiration Type of Alternative Investment Number of Commitments Original Commitments Capital Contributions < 1 Year 1-5 years 6-10 years >10 years Total Unfunded Commitment Hedge Funds 11 $ 4.7,98.7,120 $ 4.7,98.7,120 $ - $ - $ - $ - $ - Private Capital 8. 17,250,000 12,254.,701-1,8.4.2,795 3.,152, ,995,299 Real Assets ,3.00,000 26,3.63., ,726,594. 2,209, ,93.6, $ 98.,53.7,120 $ 8.6,605,729 $ - $ 1,8.4.2,795 $ $7,8.79,098. $ 2,209,4.98. $ 11,93.1, Unfunded Commitment by Commitment Expiration Type of Alternative Investment Number of Commitments Original Commitments Capital Contributions < 1 Year 1-5 years 6-10 years >10 years Total Unfunded Commitment Hedge Funds 7 $ 4.2,599,3.65 $ 4.2,599,3.65 $ - $ - $ - $ - $ - Private Capital 8. 17,250,000 10,3.02,627-1,13.0,009 4.,8.4.0, ,3.19 6,94.7,3.73. Real Assets 6 25,500,000 15,8.71, ,28.0, ,3.4.7, ,628., $ 8.5,3.4.9,3.65 $ 68.,773.,520 $ - $ 1,13.0,009 $ 11,120,699 $ 4.,3.25,13.7 $ 16,575,8.4.5 Unfunded commitments presented in the tables above are intended to reflect the time of expiration of the commitment, not the timing of future capital calls by the investment. The hedge funds are primarily invested in long/short term equities, fixed income arbitrage, merger arbitrage and other event driven strategies through various investment managers, investment partnerships and offshore funds. The private capital fund commitments are investments in privately held companies in various industries, including alternative fuel technology. The real asset funds include investments in commercial real estate, residential real estate and oil and gas production. As of September 3.0, 2010 and 2009, the University s limited partnership investments are carried at cost. As required by GASB Statement No. 3.1, no adjustment was recorded to recognize net unrealized gains and losses. Limited partnership investments are made in accordance with the University s investment policy, which approves the allocation of funds to various assets classes (i.e., global equity, private capital, hedge funds, real assets, global fixed income and cash) in order to ensure the proper level of diversification within the endowment pool. The limited partnerships (private equity, hedge funds, and real assets) enhance diversification and provide reductions in overall portfolio volatility. On September 3.0, 2010 and 2009, the University was not a party to any swap contracts or other derivative instruments. The table entitled, Auburn University Investments, Investment Maturities at Fair Value (in Years), included funds held for pending capital expenditures at September 3.0, 2010 and 2009 totaling $101,513.,4.59 and $154.,055,3.72, respectively. The General Liability Account held investments of $5,697,020 and $5,650,670 as of September 3.0, 2010 and 2009, respectively. 37 Auburn University 2010

94 Auburn University 2010 AUF investments at September 30, 2010 and 2009, include the following: Fair Value Cost Fair Value Cost Cash and pooled investments $ 10,179,3.3.5 $ 10,179,3.3.5 $ 10,58.0,219 $ 10,575,3.71 Government bonds, notes and other securities 25,278., ,4.04.,790 29,3.27, ,509, Municipal bonds 14., , , ,753. Corporate bonds and debentures 12,94.9,996 9,575,051 10,272,4.55 9,074.,98.2 Corporate stocks 1,173., ,18.9 1,13.8., ,08.7 Mutual funds, business trust funds and common trust funds 102,3.3.9,501 96,4.57, ,664., ,568.,997 Hedge funds 8.0,58.9, ,675, ,561, ,8.75,000 Private equity funds 20,18.1, ,268., ,628.,159 17,08.8.,4.4.6 Real asset investment funds 3.4.,58.2, ,667,276 19,097, ,58.6,3.18. Total investments $ 28.7,28.9,68.3. $ 273.,04.6,609 $ 250,294.,773. $ 259,13.7,8.3.7 AUF owns shares in eight mutual funds, three business trust funds and three common trust funds. These funds are invested in global marketable securities, commodities and global debt securities. AUF owns an interest in a corporation and limited partnership interests of which the goal is to invest in readily marketable securities, privately held companies and properties within different industry sectors. At investment inception, the AUF enters into a separate subscription agreement with a capital commitment to each corporation or limited partnership. As of September 3.0, 2010, AUF had entered into subscription agreements with one corporate and twenty-seven limited partnership investments. The aggregate amount of capital committed to these investments is $13.5,275,000 of which capital contributions of $115,14.5,4.11 have been invested. A net unrealized loss of $2,558.,603. has been recorded on these investments. Of these twenty-eight commitments, eleven subscriptions relate to hedge funds, ten subscriptions relate to private equity funds, and seven subscriptions relate to real estate asset funds. The hedge funds are primarily invested in long/short equities, fixed income arbitrage, merger arbitrage and other event driven strategies through various investment managers, investment partnerships and offshore funds. The private equity fund commitments are for investments in privately held companies in various industries, including alternative fuel technology. The real assets funds include investments in commercial real estate, residential real estate, and oil and gas production. Investment income, realized gains and losses, unrealized gains and losses, and changes in values of split-interest agreements are reported on the Consolidated Statements of Activities and Changes in Net Assets net of estimated investment expenses of $2,791,000 and $2,3.4.7,000 for the fiscal years ended September 3.0, 2010 and 2009, respectively. AUF carries its limited partnership investments at fair value. This differs from how the University carries these investments, which is at cost, in accordance with GASB requirements. AUF believes that the carrying amount of its limited partnership investments is a reasonable estimate of fair value as of September 3.0, Because limited partnership investments are not readily marketable, the estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for the investments existed and such 38 difference could be material. Limited partnership investments are made in accordance with AUF s investment policy that approves the allocation of funds to various assets classes (i.e., global equity, private capital, hedge funds, real assets, global fixed income and cash) in order to ensure the proper level of diversification within the endowment pool. Investments in limited partnerships (private equity, hedge funds, and real assets) are designed to enhance diversification and provide reductions in overall portfolio volatility. These fair values are estimated by the general partner of each limited partnership using various valuation techniques. The fair values of these investments at September 3.0, 2010 and 2009, were $128.,662,8.69 and $91,900,500, respectively. The FASB has provided guidance in the ASC relevant to endowments of not-for-profit organizations net asset classification of funds subject to an enacted version of UPMIFA, and enhanced disclosures for all endowment funds. The ASC requires new endowment disclosures, effective for the fiscal year ending September 3.0, The combination of the adoption of new ASC disclosure requirements and the enactment of UPMIFA by the State of Alabama, for the year ended September 3.0, 2010, resulted in AUF recognizing an increase in unrestricted net assets and a decrease in temporarily restricted net assets in the amount of $10,621, Previously, AUF recognized a decrease in unrestricted net assets and an increase in temporarily restricted net assets in the amount of $17,3.03.,4.74., related to donorrestricted endowment fund deficits in existence at the time of the enactment of UPMIFA. (5) FUNDS HELD IN TRUST In addition to permanently restricted net assets carried on the University s financial statements, the University is the beneficiary of income earned on a number of AUF endowments. The cost of these funds was $235,635,688 and $219,752,906 and the market value was $248,182,214 and $211,045,198 at September 30, 2010 and 2009, respectively. The portion of endowment income received by the University from these funds was $5,509,017 and $8,640,852 for the fiscal years ended September 30, 2010 and 2009, respectively. Endowment earnings are distributed annually in January, based on the AUF endowment distribution spending rate. These amounts are reported as investment income on the Statement of Revenues, Expenses and Changes in Net Assets.

95 In addition, the University has been named as a beneficiary of a foundation with investments having a cost of $2,418,022 and $2,414,034 and a market value of $2,722,358 and $2,481,781 at September 30, 2010 and 2009, respectively. The University is the beneficiary of the income earned on two additional trusts. The cost of investments held by these trusts was $753,000 as of September 30, 2010 and The income received from the two trusts was $59,965 and $62,615 for the fiscal years ended September 30, 2010 and 2009, respectively. (6) ACCOUNTS RECEIVABLE Accounts receivable and the allowances for doubtful accounts at September 3.0, 2010 and 2009, are summarized as follows: NONSTUDENT ACCOUNTS RECEIVABLE Federal, state & local government, and other restricted expendable $ 3.2,58.6,193. $ 27,8.4.9,191 Less allowance for doubtful accounts (2,3.21,015) (3.,13.0,3.01) Pledged receivables 1,990,657 4.,4.01,23.1 General 10,121,993. 9,214.,566 Less allowance for doubtful accounts (9,994.,252) (8.,628.,021) Auxiliary 8.,8.67,052 9,128.,3.14. Capital gifts and grants 7,909,675 1,292,157 Total $ 4.9,160,3.03. $ 4.0,127, STUDENT ACCOUNTS RECEIVABLE Unrestricted general $ 3.0,13.0,761 $ 27,551, Less allowance for doubtful accounts (4.71,670) (4.19,78.6) Unrestricted auxiliary 2,123.,129 1,528.,8.28. Less allowance for doubtful accounts (7,4.77) (24.,8.93.) Total $ 3.1,774.,74.3. $ 28.,63.5, Auburn University 2010

96 Auburn University 2010 (7) CAPITAL ASSETS Capital assets at September 3.0, 2010 and 2009, are summarized as follows (dollars in thousands): September 30, 2009 Additions/Transfers Deletions/Transfers September 30, 2010 Capital assets not being depreciated Land $ 15,8.90 $ $ - $ 16,23.9 Art & collectibles 7, (61) 8.,006 Construction in progress 115, ,914. (170,58.5) 76,503. Livestock 1, (256) 1,8.3.2 Total capital assets not being depreciated 14.0, ,4.50 (170,902) 102,58.0 Capital assets being depreciated Land improvements 4.5,926 25, ,3.66 Buildings 979, ,3.72-1,098.,8.19 Equipment 191,4.10 9,3.94. (6,78.5) 194.,019 Infrastructure 14.3., , ,105 Library books 14.4.,613. 5,796 (50) 150,3.59 Banner system implementation 11, , ,73.7 Total capital assets being depreciated 1,516, ,119 (6,8.3.5) 1,68.5,4.05 Less accumulated depreciation for Land improvements 18.,554. 2,94.2 (5) 21,4.91 Buildings 3.08., ,4.8.7 (3.) 3.29,621 Equipment 123., ,022 (6,93.7) 129, Infrastructure 4.1, , ,968. Library books 116,78.6 5,710 (3.1) 122,4.65 Banner system implementation 3., , ,08.8. Total accumulated depreciation 611, ,3.29 (6,976) 654.,071 Total capital assets being depreciated, net 904., , ,03.1, Capital assets, net $ 1,04.4.,4.3.5 $ 260,24.0 $ (170,761) $ 1,13.3.,

97 Capital assets at September 3.0, 2009 and 2008., are summarized as follows (dollars in thousands): September 30, 2008 Additions/Transfers Deletions/Transfers September 30, 2009 Capital assets not being depreciated Land $ 15,8.90 $ - $ - $ 15,8.90 Art & collectibles 7, ,73.8. Construction in progress 8.6, ,8.10 (175,174.) 115,174. Livestock 1, (273.) 1,23.0 Total capital assets not being depreciated 110, ,4.8.7 (175,4.4.7) 14.0,03.2 Capital assets being depreciated Land improvements 4.2, , ,926 Buildings 8.3.1, , ,4.4.7 Equipment 18.7, ,8.4.9 (19,3.8.7) 191,4.10 Infrastructure 125, , ,294. Library books 13.8., ,503. (78.) 14.4.,613. Banner system implementation 11, ,4.3.1 Total capital assets being depreciated 1,3.3.7, ,3.98. (19,4.65) 1,516,121 Less accumulated depreciation for Land improvements 15,799 2, ,554. Buildings 290, , ,13.7 Equipment 125, ,007 (15,3.3.3.) 123.,3.53. Infrastructure 3.6, , ,074. Library books 111,4.09 5, (56) 116,78.6 Banner system implementation 2,671 1, ,8.14. Total accumulated depreciation 58.2, ,18.8. (15,3.8.9) 611,718. Total capital assets being depreciated, net 754., ,210 (4.,076) 904.,4.03. Capital assets, net $ 8.65,261 $ 3.58.,697 $ (179,523.) $ 1,04.4.,4.3.5 During the fiscal years ended September 3.0, 2010 and 2009, approximately $18.,000,000 and $2,760,000, respectively, were received from the State of Alabama to fund construction. These revenues are classified as capital appropriations on the Statement of Revenues, Expenses and Changes in Net Assets. 41 Auburn University 2010

98 Auburn University 2010 (8) LONG-TERM DEBT Bonds, notes and lease obligations are collateralized by certain real estate, equipment and pledged revenues (see Note 9). Balance at Principal Balance at Bonds and notes payable September 30, 2009 New Debt Repayment September 30, Auburn University at Montgomery Dormitory Revenue Bonds, $3.,279,000 face value, 3..0%, due annually through 2018., a reserve of $14.6,28.3. and a $13.8.,14.3. contingency fund. $ 1,24.5,000 $ - $ (110,000) $ 1,13.5, General Fee Revenue Bonds, $19,4.60,000 face value, 3..25% to 5.0%, due annually through ,700,000 - (4.,700,000) A General Fee Revenue Bonds, $74.,750,000 face value, 5.0% to 6.0%, due annually from 2012 through ,750,000 - (74.,750,000) A Athletic Revenue Bonds, $24.,4.12,607 face value, 2.125% to 5.4.9%, due annually through ,3.75,792 - (4.12,020) 20,963., General Fee Revenue Bonds, $4.9,4.60,000 face value, 1.4.5% to 5.25%, due annually through ,050,000 - (3.,950,000) 26,100, Athletic Revenue Bonds, $21,900,000 face value, 2.25% to 5.0%, due annually through ,060,000 - (3.,060,000) Housing and Dining Revenue Bonds, $15,64.5,000 face value, 1.4.% to 5.0%, due annually through ,4.4.5,000 - (1,760,000) 3.,68.5, General Fee Revenue Bonds, $76,8.75,000 face value, 3..0% to 5.25%, due annually through ,220,000 - (1,515,000) 67,705, A Athletic Revenue Bonds, $24.,8.60,000 face value, 2.0% to 5.0%, due annually from 2006 through 2021 and annually from 2025 through ,660,000 - (590,000) 22,070, B Athletic Revenue Bonds, $3.,050,000 face value, 5.75%, due annually from 2022 through ,050, ,050, A General Fee Revenue Bonds, $60,000,000 face value, 3..5% to 5.0%, due annually from through ,970,000 - (1,075,000) 56,8.95, A General Fee Revenue Bonds, $162,53.0,000 face value, 3..6% to 5.0%, due annually from 2009 through ,910,000 - (670,000) 161,24.0, B General Fee Revenue Bonds, $14.,4.65,000 face value, % to 5.125%, due annually from 2010 through ,4.65,000 - (2,600,000) 11,8.65, General Fee Revenue Bonds, $8.2,500,000 face value, 3..0% to 5.0%, due annually from 2010 through ,500,000 - (1,720,000) 90,78.0, General Fee Revenue Bonds, $79,500,000 face value, 2.0% to 5.0%, due annually from 2011 through ,500,000-79,500,000 Notes payable 2,618., (2,618.,54.4.) - Total bonds and notes payable 565,019, ,500,000 (99,53.0,564.) 54.4.,98.8.,772 Plus unamortized bond premium 6,8.19,951 6,166,3.15 (2,14.7,3.8.0) 10,8.3.8.,8.8.6 Less unamortized bond discount (990,8.14.) - 715,508. (275,3.06) Less unamortized loss on refunding (3.98.,4.13.) (6,121,267) ,04.2 (5,68.1,63.8.) 570,4.50,060 $ 79,54.5,04.8. $ (100,124.,3.94.) 54.9,8.70,714. Less: current portion Bonds payable (19,74.7,020) (18.,594.,610) Unamortized bond premium (8.3.2,798.) (1,3.3.4.,4.4.6) Unamortized bond discount 76, ,676 Unamortized loss on refunding 13.3., ,719 Total noncurrent bonds and notes payable $ 550,08.0,4.67 $ 53.0,768.,

99 Balance at Principal Balance at Bonds and notes payable September 30, 2008 New Debt Repayment September 30, Auburn University at Montgomery Dormitory Revenue Bonds, $3.,279,000 face value, 3..0%, due annually through 2018., a reserve of $14.6,04.7 and a $13.7,926 contingency fund. $ 1,3.50,000 $ - $ (105,000) $ 1,24.5, General Fee Revenue Bonds, $19,4.60,000 face value, 3..25% to 5.0%, due annually through ,8.8.0,000 - (2,18.0,000) 4.,700, A General Fee Revenue Bonds, $74.,750,000 face value, 5.0% to 6.0%, due annually from 2012 through ,750, ,750, A Athletic Revenue Bonds, $24.,4.12,607 face value, 2.125% to 5.4.9%, due annually through ,774., (3.98.,294.) 21,3.75, General Fee Revenue Bonds, $4.9,4.60,000 face value, 1.4.5% to 5.25%, due annually through ,8.60,000 - (3.,8.10,000) 3.0,050, Athletic Revenue Bonds, $21,900,000 face value, 2.25% to 5.0%, due annually through ,970,000 - (2,910,000) 3.,060, Housing and Dining Revenue Bonds, $15,64.5,000 face value, 1.4.% to 5.0%, due annually through ,14.5,000 - (1,700,000) 5,4.4.5, General Fee Revenue Bonds, $76,8.75,000 face value, 3..0% to 5.25%, due annually through ,690,000 - (1,4.70,000) 69,220, A Athletic Revenue Bonds, $24.,8.60,000 face value, 2.0% to 5.0%, due annually from 2006 through 2021 and annually from 2025 through ,23.5,000 - (575,000) 22,660, B Athletic Revenue Bonds, $3.,050,000 face value, 5.75%, due annually from 2022 through ,050, ,050, A General Fee Revenue Bonds, $60,000,000 face value, 3..5% to 5.0%, due annually from through ,005,000 - (1,03.5,000) 57,970, A General Fee Revenue Bonds, $162,53.0,000 face value, 3..6% to 5.0%, due annually from through ,53.0,000 - (620,000) 161,910, B General Fee Revenue Bonds, $14.,4.65,000 face value, % to 5.125%, due annually from 2010 through ,4.65, ,4.65, General Fee Revenue Bonds, $8.2,500,000 face value, 3..0% to 5.0%, due annually from 2010 through ,500, ,500,000 Notes payable - 2,618., ,618.,54.4. Total bonds and notes payable 577,204.,08.6 2,618.,54.4. (14.,8.03.,294.) 565,019,3.3.6 Plus unamortized bond premium 7,724., (904.,3.68.) 6,8.19,951 Less unamortized bond discount (1,071,04.5) - 8.0,23.1 (990,8.14.) Less unamortized loss on refunding (576,972) ,559 (3.98.,4.13.) 58.3.,28.0, $ 2,618.,54.4. $ (15,4.4.8.,8.72) 570,4.50,060 Less: current portion Bonds payable (14.,8.03.,294.) (19,74.7,020) Unamortized bond premium (8.4.0,4.12) (8.3.2,798.) Unamortized bond discount 8.0, ,98.8. Unamortized loss on refunding 178., ,23.7 Total noncurrent bonds and notes payable $ 567,8.95,4.72 $ 550,08.0, Auburn University 2010

100 Auburn University 2010 On December 29, 2009, $79,500,000 in General Fee bonds with interest rates ranging from 2% to 5% were issued to advance refund $79,450,000 of outstanding bonds with interest rates ranging from 4.45% to 6%. The net proceeds of the new bond issue were deposited in an irrevocable trust with an escrow agent and were used to purchase U.S. Government securities which will provide sufficient funds to pay all future debt service payments on the previously outstanding bonds. As a result, the previously outstanding bonds are considered to be defeased and the liability for those bonds has been removed from Year Ending Bonds Payable September 30 Principal Interest 2011 $ 18.,594.,610 $ 22,54.5, ,3.14., ,078., ,090, ,58.3., ,4.3.7, ,04.2, ,708., ,4.99, ,011,606 95,704., ,706, ,24.4., ,125,000 52,4.23., ,660, ,692, ,3.4.0,000 5,268.,53.1 the University s financial statements. This refunding resulted in the University recognizing a loss of $6,121,267 for the difference between the acquisition price of the new debt and the net carrying amount of the old debt. Although the University recognized an accounting loss, the refunding decreases the University s total debt service payments over the next 16 years by $4,508,214 and resulted in an economic gain (the difference between the present values of the debt service payments on the old and new bonds) for the University of $4,352,046. Future Debt Service Future debt service payments for each of the five fiscal years subsequent to September 3.0, 2010, and thereafter, are as follows: Total future debt service $ 54.4.,98.8.,772 $ 3.63.,08.2,08.6 The University has not issued any variable interest rate demand bonds. Capital Lease Obligations AUM is acquiring a building under a capital lease agreement which provides for the University to purchase the building over a period of 25 years. The University also leases certain items of equipment which are classified as capital leases. Balance at New Principal Balance at Lease Obligations September 30, 2009 Debt Repayment September 30, 2010 Building $ 1,08.0,000 $ - $ (160,000) $ 920,000 Equipment 93.5, ,13.5 (4.3.5,251) 8.54.,58.5 Total lease obligations $ 2,015,701 $ 3.54.,13.5 $ (595,251) $ 1,774.,58.5 Minimum lease payments under capital leases together with the present value of the net minimum lease payments are shown in the table below: Building Equipment Total $ 210,053. $ 4.29,8.17 $ 63.9, , , , , , , , , , , ,000 Minimum lease payments 1,060, ,268. 2,010,101 Less interest (14.0,8.3.3.) (94.,68.3.) (23.5,516) Present value of minimum lease payments 920, ,58.5 1,774.,58.5 Less current portion (165,000) (3.74.,206) (53.9,206) Noncurrent obligations $ 755,000 $ 4.8.0,3.79 $ 1,23.5,3.79 The University has entered into various operating leases for equipment. It is expected that, in the normal course of business, such leases will continue to be required. Net expenditures for rentals under operating 44 leases for the years ended September 3.0, 2010 and 2009, amounted to approximately $4..4. million for each year.

101 (9) PLEDGED REVENUES Pledged revenue for 2010 and 2009 as defined by the Series 2001, 2001A, 2003, 2004, 2006A, 2007A, 2007B, 2008 and 2009 General Fee Revenue Trust Indentures is as follows: Student fees collected $ 3.10,3.8.8.,794. $ 28.1,903.,4.3.5 Less AUM fees (3.1,8.4.4.,54.3.) (27,198.,672) Less fees pledged for specific purposes: Athletic fees ($96 per student per semester) (5,001,4.04.) (5,227,908.) Transit fees ($114./$105 as of Fall 2010/2009 per student per semester) (5,94.5,222) (5,4.27,004.) Student activities fees ($15 per student per semester) (775,8.3.3.) (8.07,4.4.0) Total general fees pledged $ 266,8.21,792 $ 24.3.,24.2,4.11 The pledge of Athletic program revenues was added to the General Fee Trust Indenture contemporaneously with the issuance of the Series 2008 bonds and collateralizes, on a parity basis, all bonds now or hereafter issued under the General Fee Revenue Indenture. Athletic program revenues pledged to the 2008 General Fee Revenue bonds are subordinate to the Athletic program revenues previously pledged to the Athletic revenue bonds as described below. Pledged revenue for 2010 and 2009 as defined by the Series 2001A, 2003 and 2004 Athletic A & B Revenue Trust Indentures is as follows: Jordan Hare and other revenues: Television and broadcast revenues $ 4.,63.7,605 $ 4.,900,000 Conference and NCAA distributions 19,096, ,202,753. Sales and services revenues 25,600, ,207,553. Student fees 5,001, ,227,908. Royalties, advertisements and sponsorships 3.,18.8., ,3.96,58.5 Other income 2,269,8.95 5,777,724. Total athletic revenues pledged $ 59,794.,769 $ 55,712,523. The Series 2004 Athletic Revenue bonds, Series 2003 Athletic Revenue bonds and Series 2001A Athletic Revenue bonds are collateralized by a first-priority pledge of the Athletic program revenues that is senior to, and has priority in all respects over, the subordinate pledge of the Athletic program revenues that is being added to the General Fee Trust Indenture concurrently with the issuance of the Series 2008 bonds. The pledge of Housing and Dining revenues was added to the General Fee Trust Indenture, contemporaneously with the issuance of the University s General Fee Revenue bonds, Series 2007A and 2007B (taxable) and collateralizes, on a parity basis now or hereafter issued under the General Fee Revenue Indenture. Pledged revenue for 2010 and 2009 as defined by the Series 2003 Housing and Dining Revenue Trust Indenture is as follows: Housing revenues: Room rental $ 18.,4.4.0,714. $ 11,3.12,3.4.5 Other income 919, ,114. Total housing revenues pledged 19,3.59, ,907,4.59 Food services revenue - - Total housing and food services revenues pledged $ 19,3.59,8.91 $ 11,907,4.59 The Housing and Dining Revenue Bonds, Series 2003 are collateralized by a pledge of the University s Housing and Dining Revenues. The Housing and Dining Revenue Indenture permits the University to issue additional bonds collateralized by the Housing and Dining Revenues on a parity basis with the Housing and Dining Revenue Bonds Series The Auburn University dormitory occupancy rate for Fall Semester 2010 and Fall Semester 2009 was 98.7% and 98.3%, respectively (unaudited). 45 Auburn University 2010

102 Auburn University 2010 Pledged revenues and related expenses for 2010 and 2009 as defined by the 1978 Auburn University at Montgomery Trust Indenture are as follows: The following summary shows the revenues, expenses and transfers from operations of the dormitories of AUM for the years ended September 30, 2010 and Revenues: Room rental $ 1,14.1,122 $ 623.,3.57 Other income 73.,652 57,560 Total revenues 1,214., ,917 Expenses and transfers: Personnel costs 516, ,54.4. Operating expenses 298., ,919 Transfers 14.8., ,68.6 Total expenses and transfers 963., ,14.9 Surplus (deficit) of revenues over expenses and transfers 250,903. (23.6,23.2) AUM Student Housing net deficit at beginning of year (1,551,973.) (1,3.15,74.1) AUM Student Housing net deficit at end of year $ (1,3.01,070) $ (1,551,973.) The AUM dormitory occupancy rate for Fall Semester 2010 and Fall Semester 2009 was 99.04% and 89.42%, respectively (unaudited). During fiscal year 2009, West Courtyard Dormitory facility, whose revenues were pledged for the 1978 Auburn University at Montgomery Bond Indenture, was closed for renovation during the Summer Semester and did not generate room rental revenue during that term. (10) RETIREMENT PROGRAMS The employees of the University are participants in two defined benefit plans, a 4.03.(b) defined contribution plan and a 4.57(b) deferred compensation plan as follows: A. Teachers Retirement System of Alabama The University contributes to the Teachers Retirement System of Alabama (TRS), a cost sharing, multiple-employer, public employee retirement system for the various state-supported educational agencies and institutions. This plan is administered by the Retirement Systems of Alabama. Substantially all non-student employees are members of the Teachers Retirement System. Membership is mandatory for eligible employees. Benefits vest after ten years of creditable service. Vested employees may retire with full benefits at age 60 or after 25 years of service. Retirement benefits are calculated by the formula method by which retirees are allowed % of their average final salary (best three of the last ten years) for each year of service. Disability retirement benefits are calculated in the same manner. Pre-retirement death benefits are provided to plan members. The Teachers Retirement System was established as of October 1, 194.1, under the provisions of Act Number 4.19, of the Acts of Alabama 193.9, for the purpose of providing retirement allowances and other specified benefits for qualified persons employed by state-supported educational institutions. The responsibility for general administration and operation of the Teachers Retirement System is vested in the Board of Control (currently 14. members). Benefit provisions are established by the Code of Alabama 1975, Sections through , as amended, and Sections B-1 through B-6, as amended. The ten year historical trend information showing TRS s progress in accumulating sufficient assets to pay benefits when due and the significant actuarial assumptions used to compute the pension benefit obligation, including the discount rate, projected salary increases and post-retirement benefit increases, are presented in the September 3.0, 2009, annual financial report of the Teachers Retirement System of Alabama. The Retirement System of Alabama issues a publicly available financial report that includes financial statements and required supplementary information for the Teachers Retirement System of Alabama. That report may be obtained by writing to the Retirement System of Alabama, 13.5 South Union Street, Montgomery, Alabama Funding Policy Employees are required by statute to contribute five percent of their salary to the Teachers Retirement System. The University is required to contribute the remaining amounts necessary to fund the actuarially determined contributions to ensure sufficient assets will be available to pay benefits when due. Each year the Teachers Retirement System recommends to the Alabama State Legislature the contribution rate for the following fiscal year, with the Alabama State Legislature setting this rate in the annual appropriations bill. The percentages of the contributions and the amount of contributions made by the University and the University s employees equal the required contributions for each year as follows: 46

103 Fiscal year ended September 3.0, Total percentage of covered payroll 17.51% 17.07% 16.75% Contributions: Percentage contributed by the employer 12.51% 12.07% 11.75% Percentage contributed by the employees 5.00% 5.00% 5.00% Contributed by the employer $ 3.9,951,63.2 $ 3.8.,697,8.99 $ 3.6,74.2,052 Contributed by the employees 15,973., ,03.6, ,63.9,571 Total contributions $ 55,925,03.8. $ 54.,73.4.,63.8. $ 52,3.8.1,623. B. Employees Retirement System of Alabama Federally appointed employees of the Alabama Cooperative Extension System are covered by the Employees Retirement System of Alabama (ERS). This program is a multi-employer defined benefit plan. Benefits of the ERS plan are similar to those of the TRS plan with the exception that they are based on half of the employee s average final salary. Upon retirement, these employees will also receive pension benefits under the Federal Civil Service Retirement System. ERS is part of the Retirement Systems of Alabama. Funding Policy Employees are required by statute to contribute 2.5 percent of their salary to the Employees Retirement System. The University is required to contribute the remaining amounts necessary to fund the actuarially determined contributions to ensure sufficient assets will be available to pay benefits when due. Each year the Employees Retirement System recommends to the Legislature the contribution rate for the following fiscal year, with the Legislature setting this rate in the annual appropriation bill. The percentages of the contributions and the amount of contributions made by the University and the University s employees equal the required contributions for each year as follows: Fiscal year ended September 3.0, Total percentage of covered payroll % % % Contributions: Percentage contributed by the employer % % % Percentage contributed by the employees 2.50% 2.50% 2.50% Contributed by the employer $ 1,910,078. $ 2,216,74.7 $ 1,954.,795 Contributed by the employees 13.6, , ,172 Total contributions $ 2,04.6,3.56 $ 2,3.70,773. $ 2,117,967 C. Tax Deferred Annuity Plans This plan is a defined contribution plan under section 4.03.(b) of the Internal Revenue Code. Accordingly, benefits depend solely on amounts contributed to the plan plus investment earnings. This is provided as a supplement to the aforementioned programs. All full-time regular or probationary employees are eligible to participate. Full-time temporary employees are also eligible if their employment period is for a minimum of one year. The University will match up to $1,650 per year of a qualifying employee s contribution. This equates to five percent of gross salary with a maximum covered salary of $3.3.,000 per year. An employee enrolling in one of the University s tax deferred annuity plans will not vest in the University s matching portion until he/she has completed five years of full-time continuous service. Upon the employee s completion of the five year requirement, the University s matching contribution and interest earned will be vested to the participant. Nonparticipating employees with continuous service will be given credit toward the five year requirement upon joining the tax deferred annuity program. The total investment in the annuities is determined by Section 4.03.(b). There are several investment options including fixed and variable annuities and mutual funds. The University-approved investment firms employees may select are Valic, TIAA-CREF, Fidelity Investments and Lincoln Financial. At September 3.0, 2010 and 2009, 3.,23.6 employees and 3.,264. employees, respectively, participated in the tax deferred annuity program. The contribution for 2010 was $16,206,000, which includes $4.,705,98.7 from the University and $11,500,013. from its employees. The contribution for 2009 was $16,591,8.93., which includes $4.,753.,976 from the University and $11,8.3.7,917 from its employees. Total salaries and wages during the fiscal year for covered employees participating in the plan were approximately $207,74.4.,900 and $208.,722,000 for the fiscal years ended September 3.0, 2010 and 2009, respectively. D. Deferred Compensation Plans The University follows the provisions of GASB Statement No. 3.2, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans-a recission of GASB Statement No. 2 and an amendment of GASB Statement No. 31. As of September 3.0, 2010 and 2009, 206 and 218. employees, respectively, participated in the plans. Contributions of $2,051,796 and $2,04.7,116 for fiscal years 2010 and 2009, respectively, were funded by employees and no employer contribution was funded. The 4.57(b) plans include Valic, TIAA-CREF, Fidelity Investments and Lincoln Financial. 47 Auburn University 2010

104 Auburn University 2010 (11) OTHER POSTEMPLOYMENT BENEFITS (OPEB) The University offers postemployment health care benefits to all employees who officially retire from the University. Health care benefits are offered through the State of Alabama Public Education Employees Health Insurance Plan (PEEHIP) with TRS or Auburn University s self-insured Retiree Medical Plan (the Plan), which is available for select employees who are not eligible for PEEHIP or those who were grandfathered in as Civil Service employees. Eligibility for benefits for either option begins at age 60 with at least 10 years of service or at any age with 25 years of service. Retirees must have been enrolled in the active employees health care plan for the last six of those years in order to be eligible for coverage under the plan. The University applies GASB Statement No. 4.5, Accounting and Financial Reporting by Employers for Postretirement Benefits Other than Pensions. This statement requires governmental entities to recognize and match other postretirement benefit costs with related services received and also to provide information regarding the actuarially calculated liability and funding level of the benefits associated with past services. A. State of Alabama Public Education Employees Health Insurance Plan (PEEHIP) Alabama Retired Education Employees Health Care Trust is a costsharing multiple-employer defined benefit health care plan administered by the Public Education Employee Health Insurance Board. PEEHIP offers a basic hospital/medical plan that provides basic medical coverage for up to 3.65 days of care during each hospital confinement. The basic hospital/medical plan also provides for physicians benefits, outpatient care, prescription drugs, and mental health benefits. Major medical benefits under the basic hospital/medical plan were subject to a lifetime contract maximum of $1,000,000 for each covered individual. The Code of Alabama 1975, Section 16-25A-8. provides the authority to set the contribution for retirees and employers. PEEHIP Supplemental Plan - $0 Optional Plans (Hospital Indemnity, Cancer, Dental, Vision) - up to two optional plans can be taken by retirees at no cost if the retiree is not also taking one of the Hospital Medical Plans or combining allocations. Otherwise, these plans can be purchased for $ per month per plan. Surviving Spouse Rates Surviving Spouse Non-Medicare Eligible - $ Surviving Spouse Non-Medicare Eligible and Dependent Non-Medicare Eligible - $ Surviving Spouse Non-Medicare Eligible and Dependent Medicare Eligible - $ Surviving Spouse Medicare Eligible - $ Surviving Spouse Medicare Eligible and Dependent Non-Medicare Eligible - $ Surviving Spouse Medicare Eligible and Dependent Medicare Eligible - $ The complete financial report for PEEHIP can be obtained on the PEEHIP website at under the Trust Fund Financials tab. B. Retiree Medical Plan (the Plan) The Plan is considered a single-employer plan and consists of hospital benefits, major medical benefits, a prescription drug program and a preferred care program. The health care benefits cover medical and hospitalization costs for retirees and their dependents. If the retiree is eligible for Medicare, University coverage is secondary. The authority under which the Plan s benefit provisions are established or amended is the University President. Recommendations for modifications are brought to the President by the Insurance and Benefits Committee. Any amendments to the obligations of the plan members or employer(s) to contribute to the plan are brought forth by the Insurance and Benefits Committee and approved by the President. The required contribution rate of the employer was $3.8.2 per employee per month in the years ended September 3.0, 2010 and The University paid $8.,999,920 and $8.,719, for 2,001 and 1,925 retirees for the years ended September 3.0, 2010 and 2009, respectively. The required contribution rate is determined by PEEHIP in accordance with state statute. The required monthly contribution rates for fiscal year 2010 are as follows: Retired Member Rates Individual Coverage/Non-Medicare Eligible - $97.54 Family Coverage/Non-Medicare Eligible Retired Member and Non- Medicare Eligible Dependent(s) - $ Family Coverage/Non-Medicare Eligible Retired Member and Dependent Medicare Eligible - $ Individual Coverage/Medicare Eligible Retired Member - $1.14 Family Coverage/Medicare Eligible Retired Member and Non- Medicare Eligible Dependent(s) - $ Family Coverage/Non-Medicare Eligible Retired Member and Dependent Medicare Eligible - $ For employees that retire other than for disability, for each year under 25 years of service, the retiree pays two percent of the employer premium and for each year over 25 years of service, the retiree premium is reduced by two percent of the employer premium. Tobacco surcharge - $25.00 per month Employees included in the actuarial valuation include retirees and survivors, active Civil Service employees who are eligible to participate in the Plan upon retirement and those employees the University pays a subsidy for who elected the PEEHIP plan on or prior to October 1, Expenditures for postretirement health care benefits are recognized monthly and financed on a pay-as-you-go basis. The University funds approximately 60% of the postretirement healthcare premiums, which totaled $8.61,096 and $93.0,64.8. for fiscal years ended September 3.0, 2010 and 2009, respectively. The retirees are responsible for funding approximately 4.0% of the healthcare premiums. In compliance with the provisions of GASB Statement No. 4.5, the University accrued an additional $2,219, and $2,608.,604. in retiree healthcare expense during fiscal years 2010 and 2009, respectively. The Plan does not issue a stand-alone financial report. For inquires relating to the Plan, please contact Auburn University Payroll and Employee Benefits, 212 Ingram Hall, Auburn University, Alabama The required schedule of funding progress contained in the Required Supplemental Information immediately following the divisional financial statements presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. 48

105 Determination of Annual Required Contribution (ARC) and End of Year Accrual Cost Element Fiscal Year Ended Sept. 30, 2010 Amount Percent of Payroll 1 1. Unfunded actuarial accrued liability at Oct. 1, 2009 $ 67,08.3., ,107.5% Annual Required Contribution (ARC) 2. Normal cost $ 101, Amortization of the unfunded actuarial accrued liability over 15 years using level dollar amortization 5,163., Annual Required Contribution (ARC = ) $ 5,264., % Annual OPEB Cost (Expense) 5. ARC $ 5,264., Interest on beginning of year accrual 14.7, Adjustment to ARC 561, Fiscal year 2010 OPEB cost ( ) $ 4.,8.50, % End of Year Accrual (Net OPEB Obligation) 2 9. Beginning of year accrual 1 $ 7,3.60, Annual OPEB cost 4.,8.50, Employer contribution (benefit payments) 2 2,63.0, End of year CAFR accrual ( ) 2 $ 9,58.0, % 1 Annual payroll for 77 participants as of October 1, 2009, $6,057, Actual amounts paid in fiscal year 2010 include claim costs, administrative fees, and PEEHIP subsidy less participant contributions. Three Year Schedule of Percentage of OPEB Cost Contributed Fiscal Year Ended Annual OPEB Cost Percentage of OPEB Cost Contributed 3 Net OPEB Obligation Sept. 3.0, $ 4.,258., % $ 4.,751,600 Sept. 3.0, 2009 $ 5,162, % $ 7,3.60,204. Sept. 3.0, 2010 $ 4.,8.50, % $ 9,58.0, Cost Contributed is shown in the Determination of Annual Required contribution and End of Year Accrual. Summary of Key Actuarial Methods and Assumptions Valuation year October 1, 2009 September 3.0, 2010 Actuarial cost method Unit Credit, Actuarial Cost Method Amortization method 15 years, level dollar open amortization 4. Asset valuation method Not applicable Discount rate 2.0% Projected payroll growth rate Not applicable 4. Open amortization means a fresh-start each year for the cumulative unrecognized amount. 49 Auburn University 2010

106 Auburn University 2010 Heath care cost trend rate for medical and prescription drugs 9.0% in fiscal year 2010, decreasing by one-half percentage point per year to an ultimate of 5.0% in fiscal year 2019 and later. Valuation Date October 1, 2009 Monthly Per Capita Claim Costs Retiree Premiums Age Medical 55 $ Claim costs were increased by 4..5% over last year. Future claim costs are increased by health care cost trend. Retirees contribute 4.0% and surviving spouses pay 100% of the monthly premiums shown below: As of 1/1/10 As of 1/1/09 Pre-65 Single $4.3.2 $4.13. Pre-65 Family Post-65 Single Post-65 Family Note: There are several other categories of premiums. Administrative Expenses Included in claim cost. Annual Health Care Trend Rate Fiscal Year Medical and Rx Combined Rate % % % % % % % % % Spouse Age Difference Mortality Participation Rates Husbands are assumed to be three years older than wives for current and future retirees who are married. RP-2000 Combined Mortality Projected to 2015 using Projection Scale AA. 100% of active employees are assumed to elect postretirement health insurance coverage upon retirement. 50

107 Retirement Rates Employees are assumed to retire according to the following schedule: Age Retirement Rate 4.5 or less 0% % % % 55 10% % 60 20% 61 15% 62 25% % % % % % Withdrawal Rates Disability Rates None assumed since all are long service Civil Service employees. Sample rates are shown below Percent assumed to terminate within one year Age Male Female % 0.09% % 0.12% % 0.24.% % 0.4.1% % 0.65% % 0.98.% % 1.50% (12) SELF INSURANCE PROGRAMS AND OTHER LIABILITIES Self Insurance An actuarially determined rate is used to provide funding for retained risk in the University s self-insurance program. The self-insurance reserves, liabilities and related assets are included in the accompanying financial statements. The estimated liability for general liability and on-the-job injury self-insurance is actuarially determined. These self-insured programs are supplemented with commercial excess insurance. The Comprehensive General Liability Trust Fund is a self-insured retention program that protects the University, its faculty, staff and volunteers against claims brought by third parties arising from bodily injury, property damage and personal liability (libel, slander, etc.). Funds are held in a separate trust account with a financial institution to be used to pay claims for which the University may become legally liable. The liability at September 3.0, 2010 and 2009, was $592,550 and $651,28.8., respectively. The On-The-Job-Injury program provides benefits for job-related injuries or death related from work at the University. This program is designed to cover out-of-pocket expenses of any employee who is not covered by insurance. The program will also pay for medically evidenced disability claims and provide death benefits arising from a job-related death of an employee. This self-funded program is provided to employees since the University is not subject to the workers compensation laws of the State of Alabama. The liability at September 3.0, 2010 and 2009, was $1,720,4.15 and $1,903.,007, respectively. The University self-insures its health insurance program for all eligible employees. Assets have been set aside to fund the related claims of this program. Should the assets be insufficient to pay the insurance claims, the University would be liable for such claims. The accompanying Statement of Net Assets includes a self-insurance reserve for health insurance as of September 3.0, 2010 and 2009, of $2,64.1,157 and $2,8.14.,100, respectively. Other Liabilities Other liabilities include compensated absences, deposits held in custody and deferred revenues. The University allows employees to accrue and carryover annual and sick leave up to certain maximum amounts depending on years of service. Employees will be compensated for accrued annual leave at time of separation from University employment (termination or retirement) up to a maximum of one month s additional compensation. All eligible employees hired before October 1, 1990, may be compensated for unused sick leave at the rate of 25% of their respective balances, subject to a maximum of one month s additional compensation. The liability for compensated absences was $17,4.66,53.4. and $17,720,966 at September 3.0, 2010 and 2009, respectively. Deposits held in custody include the portion of the Federal Perkins Student Loan funds and Health Professional Student Loans which would be refunded in the event the University s operations ceased. The refundable amounts were $16,18.7,022 and $16,3.07,677 at September 3.0, 2010 and 2009, respectively. Also included in deposits held in custody of others are the agency funds. These amounts totaled $2,909,4.4.1 and $3.,620,8.4.0 for September 3.0, 2010 and 2009, respectively. 51 Auburn University 2010

108 Auburn University 2010 Deferred revenue includes tuition revenue related to the portion of Fall Semester subsequent to September 3.0, funding received for contracts Deferred revenues at September 30, 2010 and September 30, 2009 are as follows: and grants which has not been expended as of September 3.0, as well as athletic revenue related to games played subsequent to September Tuition and fees $ 92,93.9,208. $ 8.3.,119,621 Federal, state and local government grants and contracts 11,3.63., ,08.7,4.56 Auxiliary 26,216, ,63.1,653. Plant 569, ,621 Total deferred revenue $ 13.1,08.9,174. $ 117,4.24.,3.51 (13) CONTRACTS AND GRANTS The University has been awarded approximately $12,73.4.,000 (unaudited) and $8.,4.3.8.,000 (unaudited) in contracts and grants that have not been received or expended as of September 3.0, 2010 and 2009, respectively. These awards, which represent commitments of sponsors to provide funds for research and training projects, have not been reflected in the financial statements. (15) CONSTRUCTION COMMITMENTS AND FINANCING The University has entered into projects for the construction and renovation of various facilities that are estimated to cost approximately $703.,000,000 (unaudited). At September 3.0, 2010, the estimated remaining cost to complete the projects is approximately $3.17,000,000 (unaudited) which will be funded from University funds and bond proceeds. (14) RECOVERY OF FACILITIES AND ADMINISTRATIVE COST FOR SPONSORED PROGRAMS The portion of revenue recognized for all grants and contracts that represents facilities and administrative cost recovery is recognized on the Statement of Revenues, Expenses and Changes in Net Assets with contract and grant operating revenues. The University recognized $16,227,24.6 and $14.,68.0,214. in facilities and administrative cost recovery for the years ended September 3.0, 2010 and 2009, respectively. September 30, 2010 (16) OPERATING EXPENSES BY FUNCTION Operating expenses by functional classification for the years ended September 3.0, 2010 and 2009, are listed below. In preparing the financial statements, all significant transactions and balances between auxiliary units and other funds have been eliminated. Some scholarships and fellowships are provided by the instruction or research function and are broken out in the charts below. In addition, the graduate waivers are shown as compensation; however, they are shown functionally as scholarship and fellowship expense. The University is able to capture auxiliary utility expenditures; therefore, those expenditures are shown separately by function. Compensation Scholarships Other Supplies and Benefits and Fellowships Utilities and Services Depreciation Total Instruction $ 193.,058.,3.23. $ 1,206,4.4.6 $ - $ 26,3.75,28.8. $ - $ 220,64.0,057 Research 69,223., ,250 7, ,626,196-97,4.75,93.9 Public Service 60,215, , , ,8.95,071-99,205,226 Academic Support 3.2,666, ,8.62, ,528.,3.22 Library 7,3.70, ,8.3.6,500-10,207,265 Student Services 14.,8.8.5, ,963., ,8.4.9,709 Institutional Support 54.,605, ,8.3.4., ,4.3.9, Operation and Maintenance 24.,571, ,13.4., ,3.59, ,066,4.62 Scholarships and Fellowships 15,8.90, ,8.74., , ,965,974. Auxiliaries 3.8.,4.3.2, ,750 4.,68.7, ,010, ,3.3.6,3.3.9 Depreciation ,3.28., ,3.28.,8.11 $ 510,919,4.04. $ 21,93.1,019 $ 22,8.99,217 $ 18.3.,965,097 $ 4.9,3.28.,8.11 $ 78.9,04.3.,

109 September 30, 2009 Compensation Scholarships Other Supplies and Benefits and Fellowships Utilities and Services Depreciation Total Instruction $ 18.8.,264.,64.0 $ 1,24.7,3.13. $ - $ 25,78.9,4.69 $ - $ 215,3.01,4.22 Research 66,612, , ,4.13., ,615,758. Public Service 61,569, ,719, ,28.8.,93.3. Academic Support 3.0,23.9, ,24.3., ,4.8.3.,23.1 Library 7,4.27, ,155,967-8.,58.3.,24.1 Student Services 14.,661, ,776, ,4.3.8.,293. Institutional Support 64.,506, ,3.14., ,8.20,8.8.7 Operation and Maintenance 24.,663.,759-20,077, ,8.76, ,617,601 Scholarships and Fellowships 14.,605, ,927, , ,228.,721 Auxiliaries 3.5,3.4.3., , ,63.1, ,3.62, ,4.76,4.23. Depreciation ,18.7, ,18.7,8.52 $ 507,8.94.,296 $ 17,903.,3.4.6 $ 23.,708.,155 $ 190,3.4.8.,713. $ 4.4.,18.7,8.52 $ 78.4.,04.2,3.62 (17) CONTINGENT LIABILITIES The University is a party in various legal actions and administrative proceedings arising in the normal course of its operations. Management does not believe that the outcome of these actions will have a material adverse effect on the University s financial position. (18) RELATED PARTY TRANSACTIONS Auburn University Foundation The majority of funds that the AUF raises are donor restricted for specific schools, colleges or programs of the University. These may be transferred to the University for its use, expended by AUF for the benefit of University schools, colleges or programs, or in the case of endowments, invested with only the earnings transferred to or expended on behalf of the University. Amounts transferred to the University or expended on behalf of its programs totaled $22,616,24.7 and $26,653.,08.9 during the years ended September 3.0, 2010 and 2009, respectively. Net undistributed grants to the University totaled $9,115 and $256,4.17 at September 3.0, 2010 and 2009, respectively. The President of the University serves as an ex officio non-voting member of AUF s Board of Directors. The University is the primary recipient of AUF expenditures and maintains AUF s accounting records as a subsystem within the University s accounting system. AUF and the University entered into an operating agreement (the Agreement), which addresses the general and administrative and development financial relationships between these two entities. In summary, the Agreement states that in return for raising and administering gifts for the benefit of the University, the University will provide certain services and facilities to AUF, which primarily consist of personnel and other administrative support and that AUF will make a quarterly determination of their allocable share of these costs and transfer funds as necessary. AUF and the University review the agreement annually and to provide an estimate of the maximum consideration to be paid for the upcoming year for approval by the respective boards. The actual reimbursement is determined based on the actual costs incurred and is as follows: For the years ended September 30, 2010 and 2009, all personnel costs were incurred by the University and AUF reimbursed the University $1,3.60,120 and $1,63.7,53.8., respectively, for its share of these central development services in accordance with the Agreement. Non-salary development costs were incurred and paid primarily by AUF. The University provided for its share of Development nonpersonnel operating costs by establishing budgets within the University s budgetary system whereby it paid a portion of the costs, and reimbursed AUF for the balance. The amount directly incurred by the University or reimbursed to AUF was $1,714.,3.02 and $2,023.,8.14. for the years ended September 3.0, 2010 and 2009, respectively. Constituency development operations, which are fund raising programs restricted to one school, college or program of the University, are funded jointly by AUF and the University unit involved. While essentially all of the non-salary expenses are paid by AUF from restricted funds, the salaries are incurred by the University and reimbursed by AUF upon request by the head of the related university unit. During the years ended September 3.0, 2010 and 2009, the constituency salaries reimbursed to the University totaled $56,250 and $4.02,116, respectively. During 2010 and 2009, AUF granted AUREFI $1,913.,3.71 and $2,675,522, respectively, for operations and projects. AUREFI reimbursed AUF $14.,54.8. and $12,8.78. for operating expenses paid on behalf of AUREFI during 2010 and 2009, respectively. AUREFI also reimbursed AUF $3.5,28.4. for construction related disbursements in These inter-entity transactions are eliminated in consolidation. For the year ended September 3.0, 2008., AUREFI and the University entered into a services and facilities agreement which addressed the construction services and facilities. The University provided certain construction services and facilities to AUREFI, which primarily consisted of personnel and other administrative support. For the year ended September 3.0, 2009, AUREFI reimbursed the University $16,000 under that agreement upon the completion of the project. AUREFI also reimbursed the University $14.8.,4.28. for administrative support services. Both reimbursements are accrued and reflected in the payable due to the University in the Consolidated Statements of Financial Position. 53 Auburn University 2010

110 Auburn University 2010 AUREFI granted real estate to the University valued at $3.4.9,500 for an archaeological preserve for the College of Liberal Arts and $1,260,000 for the perpetual management and use of the School of Forestry and Wildlife Science in the year During 2009, AUREFI also granted $200,000 in cash for professorships, $3.00,000 in real estate for expanding the property of an existing University center and a constructed asset with a cost basis of $3.,065,906. The amount due from AUF to the Association consists of funds from the Association s Life Membership program which are invested with AUF s pooled endowment. AUF remits income from the investments directly to the Association on an annual basis. For the years ended September 3.0, 2010 and 2009, AUF was committed to the Association for $7,021,8.66 and $6,4.11,18.2, respectively. Of the amount for the year ended September 3.0, 2010 and 2009, $600 and $64.1 relates to receivables from the Association to AUF for reimbursement of miscellaneous general and administrative expenses, respectively. The amount due from AUF to TUF consists of funds which are invested with AUF s pooled endowment. AUF remits income from the investments which are designated by donor restriction for spending directly to the University on behalf of TUF on an annual basis. AUF remits income from investments which are designated by donor restriction for additions to endowment corpus directly to the TUF on an annual basis. As of September 3.0, 2010 and 2009, AUF was committed to TUF for $6,3.94.,967 and $5,701,268., respectively. Of these amounts for both fiscal years, $100,000 relates to a payable by AUF to TUF upon the termination of a trust. In 2009, AUF owed TUF $500 for a routine operating transaction. Tigers Unlimited Foundation During the year ended June 3.0, 2010, TUF identified certain errors in the accounting for bad debt expense related to contributions receivable that impacted its fiscal year 2009 and prior Statement of Financial Position and Statement of Activities and Changes in Net Assets. The restatement to correct these errors for periods prior to 2009 resulted in a decrease to the fiscal year 2009 beginning of the year temporarily restricted and permanently restricted net assets, and a corresponding increase to the fiscal year 2009 beginning of the year unrestricted net assets, in the aggregate amount of $2.5 million. TUF has also restated its fiscal year 2009 financial statements by increasing loss on write-off of contributions receivable in the temporarily restricted and permanently restricted net asset categories, and decreasing fundraising expense in the unrestricted net asset category, in the aggregate amount of $3..2 million. These adjustments had no impact on total net assets, revenues or cash flows for any period presented. The funds that TUF raises are restricted for athletic-related programs of the University. These may be transferred to the University for its use, expended for the benefit of athletic programs or, in the case of endowments, invested according to donor restriction and the earnings transferred to, or expended for, the University s benefit. Amounts transferred to the University, or expended on behalf of its programs, totaled $20,8.3.9,24.8. and $27,8.4.9,007 during the years ended June 3.0, 2010 and 2009, respectively. Effective July 1, 2007, TUF and the University entered into an operating agreement (the Agreement), which addresses the general and administrative and development financial relationships between these two entities. In summary, the Agreement states that the University will provide certain services and facilities to TUF, which primarily consist of personnel and other administrative support. TUF will pay to the University an amount equal to the compensation of the University employees for services performed and reimbursement for space and property utilized by such employees, in an amount to be specifically approved by TUF s Board of Directors each year. The Agreement commenced on July 1, 2007, and expired on July 1, 2008., but remains in force in subsequent years unless cancelled in writing by one of the parties. For the years ended June 3.0, 2010 and 2009, TUF reimbursed the University $293.,207 and $267,8.57, respectively, for TUF personnel costs incurred by the University. During the years ended June 3.0, 2010 and 2009, the University contributed $4.99,125 and $515,58.8., respectively, to TUF for the use of executive suites at University athletic events. This amount is recorded as public support-contribution revenue on the Statements of Activities and Changes in Net Assets. During the years ended June 3.0, 2010 and 2009, TUF paid the University for normal, recurring expense transactions including, but not limited to, purchasing athletic event tickets, reimbursing athletic staff salaries, sponsoring student scholarships, and funding the debt, repair, maintenance and operations of athletic facilities. At June 3.0, 2010 and 2009, obligations of $2,4.4.5,4.60 and $2,022,8.00 related to these transactions, respectively, were outstanding. These obligations were paid during the subsequent fiscal year. At June 3.0, 2010 and 2009, amounts payable from AUF to TUF were $100,000. As indicated, the above TUF balances are as of June 3.0, 2010 and 2009; however, the University believes these figures are not materially different than at September 3.0, 2010 and 2009, respectively. Auburn Alumni Association The Association, AUF, Auburn University Offices of Alumni and Development and their related support units jointly utilize operational facilities, personnel and other assets in order to effectively and efficiently carry out their required activities. All personnel are employed by the University and their services are provided to the other organizations under contractual agreements. Other operational costs are paid from budgets of each organization. The combined expenditures are analyzed periodically and, based on each entity s utilization of the facilities, supplies and services, any necessary reimbursements are made among the organizations. In the Statements of Activities and Changes in Net Assets, amounts received by the Operating Fund from other organizations are used to offset the related expenses. The Executive Director of the Association is an employee of the University, providing services to the Association under a services and facilities contract. The Executive Director also serves as the Vice President for Alumni Affairs for the University. A portion of the Association s investments have been pooled with AUF investments and are invested and managed by AUF. Cash receipts and disbursements records of the Association are maintained within the University accounting system. During the years ended September 3.0, 2010 and 2009, the Association had a salary reimbursement expense of $956,909 and $8.8.5,693., respectively, to the University under the service and facilities agreement. Of this amount, $725,002 and $725,8.4.7 had been paid and $23.1,907 and $159,

111 was accrued as an amount payable at September 3.0, 2010 and 2009, respectively. Rental income recorded by the Association from the University totaled $213.,116 and $210,8.78., respectively, for the years ended September 3.0, 2010 and Rental income recorded by the Association from AUF totaled $112,114. and $111,3.74. for the years ended September 3.0, 2010 and 2009, respectively. During the year ended September 3.0, 2010, the University provided for its share of alumni affairs activities costs by establishing a budget within the University s budgetary system; whereby, the University pays a portion of the costs, and reimburses the Association for the balance. The alumni affairs activities costs were $64.0,000 and $74.0,000 for the years ended September 3.0, 2010 and 2009, respectively. During the years ended September 3.0, 2010 and 2009, the Association contributed $129,607 and $3.4.7,3.3.8., respectively, to the Auburn Alumni Association Endowment for Scholarships held with the AUF. (19) DIRECT LOAN PROGRAMS The Federal Direct Loan Program (DL) enables an eligible student or parent to obtain a loan directly through the Department of Education. Main campus returned to DL from the Federal Family Education Loan Program (FFELP) in the summer of All schools were required to process loans through DL effective July 1, 2010, which is when AUM returned to DL. Under DL, files are transmitted via the federal Common Origination and Disbursement system (COD). Funds are received via G5, a federal web site. The Department of Education is responsible for the collection of these loans. FFELP was established under the Higher Education Act of 1965, as amended in the Student Loan Reform Act of The FFELP enabled an eligible student or parent to obtain a loan directly through FFELP lenders. Alabama s designated state guarantor for FFELP loans was Kentucky Higher Education Assistance Authority (KHEAA). KHEAA was responsible for handling the complete loan process, including funds management as well as promissory note functions. Other guarantors were also involved in the process depending on the lender s guarantor of choice. Files were transmitted via the ELM-Electronic Loan Maintenance System which routed loan information to the appropriate lender or guarantor and then routed the response files back to the University. The FFELP lenders, and not the University, are responsible for the collection of these loans. The University s main campus disbursed approximately $13.1,3.00,000 and $111,900,000 under these programs during the fiscal years ended September 3.0, 2010 and 2009, respectively. AUM disbursed approximately $27,900,000 and $3.0,700,000 under these programs during the fiscal years ended September 3.0, 2010 and 2009, respectively. (20) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Statement No. 51, Accounting and Financial Reporting for Intangible Assets, was issued in June Statement No. 51 provides guidelines for the capitalization and amortization of intangible assets to include internally generated intangible assets and to reduce the inconsistencies existing due to the absence of sufficiently specific authoritative guidance that has resulted in inconsistencies in the accounting and financial reporting of intangible assets among states and local governments, particularly in the areas of recognition, initial measurement, and amortization. Implementation of this standard should enhance the comparability of the accounting and financial reporting of such assets among state and local governments. This Statement is effective for periods beginning after June 15, 2009, and is required to be applied retroactively by phase I and phase II governments for intangible assets acquired or generated in fiscal years ending after June 3.0, There was no material impact on the University s financial statements from the adoption of this statement. Statement No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, was issued in December Statement No. 57 amends Statement No. 4.5, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, to permit an agent employer that has an individual-employer OPEB plan with fewer than 100 total plan members to use the alternative measurement method. It also amends Statement No. 4.3., Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans to permit the actuarial valuation requirement to be satisfied for an agent multipleemployer other postemployment benefit (OPEB) plan by reporting an aggregation of individual-employer valuations or measurements from the alternative measurement method where eligible. Additionally, it clarifies timing and frequency guidelines for agent employers participating in multiple-employer OPEB plans. The provisions applying to the alternative measurement method are effective immediately, while the frequency and timing provisions are effective for valuations first used to report on periods beginning after June 15, The University does not believe this Statement will impact the University s financial statements, since all University plans have over 100 total plan members. Statement No. 58., Accounting and Financial Reporting for Chapter 9 Bankruptcies, was issued in December This Statement, effective for periods beginning after June 15, 2009, provides accounting and financial reporting guidance for governments that have petitioned for protection from creditors by filing for Chapter 9 Bankruptcy, and requires remeasurement of liabilities that are adjusted in bankruptcy. The University does not believe this Statement will impact the University s financial statements, since the University has not filed for Chapter 9 Bankruptcy; however, an evaluation of the impact of this Statement will be completed should such a filing take place. Statement No. 59, Financial Instruments Omnibus, was issued in June This Statement, which will be effective for periods beginning after June 15, 2010, updates existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools and amends several previous Statements, including No. 25, No. 3.1, No. 4.0, No. 4.3., and No The University is currently evaluating the financial statement impact of the adoption of this Statement. Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements was issued November This Statement addresses issues related to service concession arrangements (SCAs), which are a type of public-private or public-public partnership. This Statement requires disclosures about an SCA including a general description of the arrangement and information about the associated assets, liabilities, and deferred inflows, the rights granted and retained, and guarantees and commitments. The requirements of this Statement are effective for financial statements for periods beginning after December 15, The provisions of this Statement generally are 55 Auburn University 2010

112 Auburn University 2010 required to be applied retroactively for all periods presented. The University is currently evaluating the financial statement impact of the adoption of this Statement. Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34 was issued in November The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. It amends the requirements of Statement No. 14., The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 3.4., Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements. The requirements of this Statement are effective for financial statements for periods beginning after June 15, The University is currently evaluating the financial statement impact of the adoption of this Statement. Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements was issued in December The objective of this Statement is to incorporate into the GASB s authoritative literature certain accounting and financial reporting guidance that is included in the Financial Accounting Standards Board (FASB) Statements and interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure issued on or before November 3.0, 198.9, which does not conflict with or contradict GASB pronouncements. The requirements of this Statement are effective for financial statements for periods beginning after December 15, Earlier application is encouraged. The provisions of this Statement generally are required to be applied retroactively for all periods presented. The University does not believe the adoption of this Statement will have an effect on the University s financial statements. 56

113 57 Auburn University 2010

114 Auburn University

115 2010 Financial Report Unaudited Divisional Financial Statements 59 Auburn University 2010

116 Auburn University 2010 AUBURN UNIVERSITY main campus STATEMENTs OF NET ASSETS SEPTEMBER 30, 2010 AND 2009 (unaudited) ASSETS Current assets Cash and cash equivalents $ 64.,3.3.8.,24.4. $ 52,754.,520 Operating investments 8.3.,199,207 92,577,93.7 Accounts receivable, net 3.7,3.24., ,212,64.6 Student accounts receivable, net 27,599, ,4.17,671 Loans receivable, net 2,154., ,4.3.4.,010 Accrued interest receivable 2,23.5,270 3.,3.8.7,8.52 Inventories 3.,3.8.6, ,18.4.,74.7 Prepaid expenses 4.,68.3., ,925,3.12 Due from other funds 4.64., ,066 Total current assets 225,3.8.5, ,3.14.,761 Noncurrent assets Investments 664.,63.4., ,8.07,207 Loans receivable, net 15,022, ,4.4.3.,096 Investment in plant, net 1,098.,4.28., ,009,4.3.2,264. Due from other funds 19,28.8., ,98.4.,24.3. Total noncurrent assets 1,797,3.74.,04.9 1,707,666,8.10 Total assets 2,022,759,791 1,920,98.1,571 LIABILITIES Current liabilities Accounts payable 3.6,54.4., ,78.2,693. Accrued salaries and wages 4.,18.3., ,8.3.1,228. Accrued compensated absences 12,252, ,770,08.1 Accrued interest payable 9,113., ,994.,8.8.5 Other accrued liabilities 3.,109,966 2,8.14.,171 Student deposits 198., ,3.55 Deposits held in custody 16,109, ,58.0,514. Deferred revenues 115,3.06, ,195,54.1 Noncurrent liabilities-current portion 19,3.67, ,574.,63.4. Total current liabilities 216,18.5, ,3.60,102 Noncurrent liabilities Accrued compensated absences ,563. Bonds and notes payable 529,74.3., ,94.5,4.67 Lease obligations 4.8.0, ,660 Other noncurrent liabilities 17,625,222 16,8.4.3.,909 Due to other funds 26,529,995 25,4.4.8.,74.1 Total noncurrent liabilities 574.,3.78., ,3.3.6,3.4.0 Total liabilities 790,564., ,696,4.4.2 NET ASSETS Invested in capital assets, net of related debt 601,94.0, ,771,94.9 Restricted Nonexpendable 19,060, ,93.0,14.5 Expendable: Scholarships, research, instruction, other 113.,961, ,4.4.4.,956 Loans 4.,74.3.,279 4.,669,23.0 Capital projects 16,73.3., ,68.3.,8.61 Unrestricted 4.75,755, ,78.4.,98.8. Total net assets $ 1,23.2,195,277 $ 1,120,28.5,129 60

117 AUBURN UNIVERSITY main campus STATEMENTs OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 (unaudited) OPERATING REVENUES Tuition and fees, net of scholarship allowances of $71,3.53.,524. and $54.,78.2,963., respectively $ 250,761,075 $ 23.6,222,4.13. Federal appropriations 4.4., ,28.3. Federal grants & contracts, net 53.,24.3., ,676,163. State & local grants & contracts, net 6,526,578. 6,4.4.7,28.2 Nongovernmental grants & contracts, net 8.,24.6,712 8.,3.8.7,973. Sales & services of educational departments 25,254.,090 22,707,595 Auxiliary revenue, net of scholarship allowances of $4.,3.28.,221 and $2,607,73.6, respectively 8.2,04.9,029 75,075,74.9 Other operating revenues 9,4.29, ,919,23.1 Total operating revenues 4.3.5,555, ,519,68.9 OPERATING EXPENSES Compensation & benefits 3.8.5,18.5, ,63.6,8.78. Scholarships & fellowships 16,8.8.1, ,276,14.0 Utilities 19,226,761 19,64.5,909 Other supplies & services 127,4.56, ,571,28.9 Depreciation 4.6,728., ,617,3.69 Total operating expenses 595,4.79, ,74.7,58.5 Operating loss (159,924.,18.7) (18.5,227,8.96) NONOPERATING REVENUES (EXPENSES) State appropriations 152,94.1, ,961,68.1 ARRA state fiscal stabilization funds 12,4.95, Gifts 29,24.8., ,3.53.,94.8. Grants 15,114., ,752,794. Net investment income 23.,295, ,4.56,24.2 Interest expense on capital debt (7,8.79,3.53.) (12,8.61,04.3.) Nonoperating revenues, net 225,215, ,663.,622 Income before other changes in net assets 65,291, ,4.3.5,726 OTHER CHANGES IN NET ASSETS Capital appropriations 17,13.4., ,609 Capital gifts & grants 29,3.54., ,64.4.,657 Additions to permanent endowments 13.0, ,252 Net increase in net assets 111,910, ,58.8.,24.4. Net assets - beginning of year 1,120,28.5,129 1,053.,696,8.8.5 Net assets - end of year $ 1,23.2,195,277 $ 1,120,28.5, Auburn University 2010

118 Auburn University 2010 AUBURN UNIVERSITY at montgomery STATEMENTs OF NET ASSETS SEPTEMBER 30, 2010 AND 2009 (unaudited) ASSETS Current assets Cash and cash equivalents $ 1,195,4.56 $ 1,004.,4.55 Operating investments 1,54.5,908. 1,762,699 Accounts receivable, net 5,509,079 6,4.09, Student accounts receivable, net 4.,174., ,217,8.11 Loans receivable, net 590, ,98.7 Accrued interest receivable 100, ,722 Inventories 619, ,63.3. Prepaid expenses 6,627 4.,8.03. Total current assets 13.,74.2, ,3.72,993. Noncurrent assets Investments 12,3.4.9, ,658.,03.7 Loans receivable, net 2,4.8.0,162 2,58.5,074. Investment in plant, net 3.5,4.8.5, ,002,93.0 Due from other funds 26,529,995 25,4.4.8.,74.1 Total noncurrent assets 76,8.4.5, ,694.,78.2 Total assets 90,58.8., ,067, LIABILITIES Current liabilities Accounts payable 2,4.15, ,678.,795 Accrued salaries and wages 502, ,007 Accrued compensated absences 1,3.4.4., ,3.73.,521 Accrued interest payable 10, ,900 Deposits held in custody 2,98.7,011 3.,267,18.1 Deferred revenues 10,174., ,4.4.1,3.71 Noncurrent liabilities-current portion 275, ,000 Due to other funds 4.64., ,066 Total current liabilities 18.,174., ,93.3.,8.4.1 Noncurrent liabilities Accrued compensated absences - 55,73.0 Bonds and notes payable 1,025,000 1,13.5,000 Lease obligations 755, ,000 Other noncurrent liabilities 151, ,571 Due to other funds 19,28.8., ,98.4.,24.3. Total noncurrent liabilities 21,220, ,13.0,54.4. Total liabilities 3.9,3.94., ,064.,3.8.5 NET ASSETS Invested in capital assets, net of related debt 14.,269, ,509,653. Restricted Nonexpendable 4.,991, ,955,904. Expendable: Scholarships, research, instruction, other 23.,04.0, ,18.3.,097 Loans 3.73., ,962 Capital projects 13.8., ,650 Unrestricted 8.,3.79,662 8.,8.64.,124. Total net assets $ 51,193.,3.3.1 $ 52,003.,3.90

119 AUBURN UNIVERSITY at montgomery STATEMENTs OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 (unaudited) OPERATING REVENUES Tuition and fees, net of scholarship allowances of $7,116,164. and $5,792,792, respectively $ 24.,728.,3.79 $ 21,4.05,8.8.0 Federal grants & contracts, net 2,068.,153. 2,263.,64.2 State & local grants & contracts, net 9,4.00,191 7,252,208. Nongovernmental grants & contracts, net 156, ,8.28. Sales & services of educational departments 2,267,665 2,3.8.2,599 Auxiliary revenue, net of scholarship allowances of $673.,8.21 and $517,8.93., respectively 5,665, ,679,24.8. Other operating revenues 1,4.67, ,169 Total operating revenues 4.5,753., ,014.,574. OPERATING EXPENSES Compensation & benefits 4.4.,711, ,3.3.0,28.3. Scholarships & fellowships 5,03.7, ,627,206 Utilities 2,54.7, ,74.5,98.2 Other supplies & services 24.,991, ,164.,924. Depreciation 2,600,165 2,570, Total operating expenses 79,8.8.8., ,4.3.8.,8.78. Operating loss (3.4.,13.5,105) (3.4.,4.24.,3.04.) NONOPERATING REVENUES (EXPENSES) State appropriations 22,8.4.2, ,8.3.0,698. ARRA state fiscal stabilization funds 1,8.06, Gifts (58.2,299) 4.26,054. Grants 8.,08.9,902 5,671,94.0 Net investment income 1,3.21,14.2 2,195,3.3.2 Interest expense on capital debt (1,294.,797) (1,28.9,560) Nonoperating revenues, net 3.2,18.3., ,8.3.4.,4.64. Loss before other changes in net assets (1,951,994.) (2,58.9,8.4.0) OTHER CHANGES IN NET ASSETS Capital appropriations 1,08.9,73.0 2,4.67,78.7 Capital gifts & grants 16, ,152 Additions to permanent endowments 3.5, ,18.1 Net decrease in net assets (8.10,059) (4.6,720) Net assets - beginning of year 52,003., ,050,110 Net assets - end of year $ 51,193.,3.3.1 $ 52,003., Auburn University 2010

120 Auburn University 2010 ALABAMA AGRICULTURAL EXPERIMENT STATION STATEMENTs OF NET ASSETS SEPTEMBER 30, 2010 AND 2009 (unaudited) ASSETS Current assets Cash and cash equivalents $ 1,908.,4.3.1 $ 1,64.6,223. Operating investments 2,4.67, ,8.8.8.,927 Accounts receivable, net 3.,924., ,4.55,3.75 Total current assets 8.,3.01,108. 7,990,525 Noncurrent assets Investments 19,714.,697 20,74.5,54.1 Total noncurrent assets 19,714.,697 20,74.5,54.1 Total assets 28.,015, ,73.6,066 LIABILITIES Current liabilities Accounts payable 760, ,054.,64.7 Accrued salaries and wages 3.53., ,692 Accrued compensated absences 1,8.00, ,8.13.,8.95 Deposits held in custody Deferred revenues 4.,566, ,120,521 Total current liabilities 7,4.8.1,122 7,3.3.7,155 Noncurrent liabilities Accrued compensated absences - 73.,598. Other noncurrent liabilities 92,515 76,153. Total noncurrent liabilities 92, ,751 Total liabilities 7,573.,63.7 7,4.8.6,906 NET ASSETS Restricted Expendable: Scholarships, research, instruction, other ,529,003. Unrestricted 20,4.4.1, ,720,157 Total net assets $ 20,4.4.2,168. $ 21,24.9,160 64

121 ALABAMA AGRICULTURAL EXPERIMENT STATION STATEMENTs OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 (unaudited) OPERATING REVENUES Federal appropriations $ 2,4.8.3.,595 $ 3.,64.2,554. Federal grants & contracts 16,073., ,8.66,093. State & local grants & contracts 1,107, ,18.4. Nongovernmental grants & contracts 2,124.,68.6 2,14.2, Sales & services of educational departments 2,651,528. 2,768.,3.05 Other operating revenues 3.4.1, ,669 Total operating revenues 24.,78.1, ,655,64.3. OPERATING EXPENSES Compensation & benefits 4.0,001, ,652,297 Scholarships & fellowships 11,760 - Utilities 951,076 1,060,776 Other supplies & services 18.,721,565 19,121,24.5 Total operating expenses 59,68.6, ,8.3.4.,3.18. Operating loss (3.4.,904.,3.55) (3.5,178.,675) NONOPERATING REVENUES State appropriations 29,3.20, ,768.,93.3. ARRA state fiscal stabilization funds 3.,3.10,569 - Gifts 1,28.1, ,917 Net investment income 18.5, ,090 Nonoperating revenues, net 3.4.,097, ,8.24.,94.0 Net decrease in net assets (8.06,992) (2,3.53.,73.5) Net assets - beginning of year 21,24.9, ,602,8.95 Net assets - end of year $ 20,4.4.2,168. $ 21,24.9, Auburn University 2010

122 Auburn University 2010 ALABAMA COOPERATIVE EXTENSION SYSTEM STATEMENTs OF NET ASSETS SEPTEMBER 30, 2010 AND 2009 (unaudited) ASSETS Current assets Cash and cash equivalents $ 2,23.4.,064. $ 1,691,4.07 Operating investments 2,8.8.8.,98.7 2,968.,219 Accounts receivable, net 2,4.02,3.10 2,04.9,23.3. Total current assets 7,525,3.61 6,708.,8.59 Noncurrent assets Investments 23.,078., ,3.14.,94.1 Total noncurrent assets 23.,078., ,3.14.,94.1 Total assets 3.0,603., ,023.,8.00 LIABILITIES Current liabilities Accounts payable 2,13.3.,200 1,976,627 Accrued salaries and wages 4.01, ,576 Accrued compensated absences 2,069,28.1 2,072,23.9 Deferred revenues 1,04.1, ,918. Total current liabilities 5,64.5,699 5,14.3.,3.60 Noncurrent liabilities Accrued compensated absences ,3.3.9 Other noncurrent liabilities 8.,3.01,4.27 6,4.21,58.8. Total noncurrent liabilities 8.,3.01,4.27 6,505,927 Total liabilities 13.,94.7,126 11,64.9,28.7 NET ASSETS Restricted Expendable: Scholarships, research, instruction, other 4.,714., ,8.4.3.,901 Capital projects 3.1, ,63.4. Unrestricted 11,910,550 11,500,978. Total net assets $ 16,656,8.28. $ 16,3.74.,

123 ALABAMA COOPERATIVE EXTENSION SYSTEM STATEMENTs OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 (unaudited) OPERATING REVENUES Federal appropriations $ 6,4.97,962 $ 7,220,277 Federal grants & contracts 6,568.,203. 5,706,723. State & local grants & contracts 2,8.3.9, ,591,4.71 Nongovernmental grants & contracts 769, ,04.6 Sales & services of educational departments 13.5, ,727 Other operating revenue 2,168.,092 2,113.,14.5 Total operating revenues 18.,977, ,4.60,3.8.9 OPERATING EXPENSES Compensation & benefits 4.1,020, ,274., Utilities 173., , Other supplies & services 12,795, ,4.91,255 Total operating expenses 53.,98.9,560 59,021,58.1 Operating loss (3.5,012,027) (3.9,561,192) NONOPERATING REVENUES State appropriations 3.1,108., ,129,78.4. ARRA state fiscal stabilization funds 3.,624., Gifts 271, ,599 Net investment income 28.7, ,917 Nonoperating revenues, net 3.5,292, ,8.65,3.00 Income (loss) before other changes in net assets 28.0,13.5 (4.,695,8.92) OTHER CHANGES IN NET ASSETS Capital gifts and grants 2,18.0 2,070 Net increase (decrease) in net assets 28.2,3.15 (4.,693.,8.22) Net assets - beginning of year 16,3.74., ,068.,3.3.5 Net assets - end of year $ 16,656,8.28. $ 16,3.74., Auburn University 2010

124 Auburn University

125 2010 Financial Report Required Supplemental Information 69 Auburn University 2010

126 Auburn University 2010 REQUIRED SUPPLEMENTAL INFORMATION Determination of Annual Required Contribution (ARC) and End of Year Accrual Cost Element Fiscal Year Ended Sept. 30, 2010 Amount Percent of Payroll 1 1. Unfunded actuarial accrued liability at Oct. 1, 2009 $ 67,08.3., ,107.5% Annual Required Contribution (ARC) 2. Normal cost $ 101, Amortization of the unfunded actuarial accrued liability over 15 years using level dollar amortization 5,163., Annual Required Contribution (ARC = ) $ 5,264., % Annual OPEB Cost (Expense) 5. ARC $ 5,264., Interest on beginning of year accrual 14.7, Adjustment to ARC 561, Fiscal year 2010 OPEB cost ( ) $ 4.,8.50, % End of Year Accrual (Net OPEB Obligation) 2 9. Beginning of year accrual 1 $ 7,3.60, Annual OPEB cost 4.,8.50, Employer contribution (benefit payments) 2 2,63.0, End of year CAFR accrual ( ) 2 $ 9,58.0, % 1 Annual payroll for 77 participants as of October 1, 2009, $6,057, Actual amounts paid in fiscal year 2010 include claim costs, administrative fees, and PEEHIP subsidy less participant contributions. Three Year Schedule of Percentage of OPEB Cost Contributed Fiscal Year Ended Annual OPEB Cost Percentage of OPEB Cost Contributed 3 Net OPEB Obligation Sept. 3.0, $ 4.,258., % $ 4.,751,600 Sept. 3.0, 2009 $ 5,162, % $ 7,3.60,204. Sept. 3.0, 2010 $ 4.,8.50, % $ 9,58.0, Cost Contributed is shown in the Determination of Annual Required contribution and End of Year Accrual. Summary of Key Actuarial Methods and Assumptions Valuation year October 1, 2009 September 3.0, 2010 Actuarial cost method Amortization method Asset valuation method Unit Credit, Actuarial Cost Method 15 years, level dollar open amortization 4. Not applicable Discount rate 2.0% Projected payroll growth rate Not applicable 4. Open amortization means a fresh-start each year for the cumulative unrecognized amount. 70

127 Heath care cost trend rate for medical and prescription drugs 9.0% in fiscal year 2010, decreasing by one-half percentage point per year to an ultimate of 5.0% in fiscal year 2019 and later. Valuation Date October 1, 2009 Monthly Per Capita Claim Costs Age Medical 55 $ Claim costs were increased by 4..5% over last year. Future claim costs are increased by health care cost trend. Retiree Premiums Retirees contribute 4.0% and surviving spouses pay 100% of the monthly premiums shown below: As of 1/1/10 As of 1/1/09 Pre-65 Single $4.3.2 $4.13. Pre-65 Family Post-65 Single Post-65 Family Note: There are several other categories of premiums. Administrative Expenses Included in claim cost. Annual Health Care Trend Rate Fiscal Year Medical and Rx Combined Rate % % % % % % % % % Spouse Age Difference Mortality Participation Rates Husbands are assumed to be three years older than wives for current and future retirees who are married. RP-2000 Combined Mortality Projected to 2015 using Projection Scale AA. 100% of active employees are assumed to elect postretirement health insurance coverage upon retirement. 71 Auburn University 2010

128 Auburn University 2010 Retirement Rates Withdrawal Rates Disability Rates Employees are assumed to retire according to the following schedule: Age Retirement Rate 4.5 or less 0% % % % 55 10% % 60 20% 61 15% 62 25% % % % % % None assumed since all are long service Civil Service employees. Sample rates are shown below Percent assumed to terminate within one year Age Male Female % 0.09% % 0.12% % 0.24.% % 0.4.1% % 0.65% % 0.98.% % 1.50% 72

129 Auburn university Board of trustees Auburn University is governed by a Board of Trustees consisting of one member from each congressional district, as these districts were constituted on January 1, 1961, one member from Lee County, three at-large members, all of whom shall be residents of the continental United States, and the Governor, who is ex-officio. The Governor is the President of the Board of Trustees. Prior to 2003., trustees were appointed by the Governor, by and with the consent of the State Senate, for a term of 12 years. Any new trustees will be appointed by a committee, by and with the consent of the State Senate, for a term of seven years and may serve no more than two full seven year terms. A member may continue to serve until a successor is confirmed, but in no case for more than one year after the completion of a term. Members of the board receive no compensation. By executive order of the Governor in 1971, two non-voting student representatives selected by the student body serve as members ex-officio, one from the Auburn campus and one from the Montgomery campus. Bob Riley Governor of Alabama President, Montgomery John G. Blackwell Huntsville, Eighth Congressional District President Pro Tempore Robert E. Lowder Montgomery, Second Congressional District James W. Rane Abbeville, Third Congressional District Virginia N. Thompson Opelika, Third Congressional District Byron P. Franklin, Sr. Birmingham, Ninth Congressional District Dwight L. Carlisle Tallassee, Fourth Congressional District Samuel L. Ginn At-Large Member D. Gaines Lanier Lanett, Fifth Congressional District Raymond J. Harbert At-Large Member Sarah B. Newton Fayette, Seventh Congressional District Charles D. McCrary At-Large Member 73 Auburn University 2010