Consolidated Financial Report

Transcription

1 Consolidated Financial Report For the Year Ended June 30, 2006

2 Management s Discussion and Analysis... 2 ANNUAL FINANCIAL STATEMENTS (UNAUDITED) Statement of Net Assets...15 Statement of Revenues, Expenses and Changes in Net Assets...17 Statement of Cash Flows...19 NOTES TO FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies...22 Note 2 Change in Accounting Principle...25 Note 3 Cash and Investment...25 Note 4 Accounts Receivable...27 Note 5 Notes Receivable from Students...28 Note 6 Capital Assets...29 Note 7 Long-term Liabilities...31 Note 8 Operating Leases...33 Note 9 Natural Classifications with Functional Classifications...33 Note 10 Construction Commitments and Financing...34 Note 11 Pension Plan...35 Note 12 Donor Restricted Endowments...35 Note 13 Federal Direct Lending and FFEL Programs...35 Note 14 Foundations and Affiliated Parties...36 Note 15 Subsequent Events...36

3 Management s Discussion and Analysis Consolidated Financial Report Year Ended June 30, 2006 Overview (referred to as the University) presents its financial statements for June 30, 2006 (end of the fiscal year) in accordance with Governmental Accounting Standards Board (GASB) Statement 34 as a special purpose government engaged solely in business-type activities (BTA). According to paragraphs 44 through 47 of GASB Statement 35 and related paragraph 67 of GASB Statement 34, the University is a public institution that regularly receives state appropriations and covers a major portion of its costs through external user charges for its services and is therefore allowed to report as a BTA. The University is one of eight universities under the direction of the Board of Trustees of Institutions of Higher Learning. The student population is 16,101 with the main campus in Starkville, Mississippi, and off-campus locations at Meridian and Vicksburg. is a land-grant institution with strong ties to the U.S. Department of Agriculture and has County Extension Offices in eighty-two counties and eight Branch Experiment Stations. The following discussion and analysis of the University s financial statements provide an overview of its financial activities for the year ending June Fiscal year 2005 data are presented for comparative purposes. Swalm Chemical Engineering Building The statements are composed of the statement of net assets, statement of revenues, expenses and changes, in net assets, statement of cash flows (direct method), and notes to the financial statements. 2

4 Management s Discussion and Analysis Statement of Net Assets The purpose of the Statement of Net Assets is to present at a point in time (end of the fiscal year) assets, liabilities and net assets of. The University has chosen a net asset presentation. The statement uses a classified format presenting current and non-current assets and liabilities, as well as, three net asset categories (unrestricted, restricted and invested in capital assets). STATEMENT OF NET ASSETS FY 2006 FY 2005 Assets: Current Assets $112,261,585 $117,295,674 Capital Assets Net 533,812, ,700,620 Other Noncurrent Assets 102,510,742 95,775,923 Total Assets 748,584, ,772,217 Liabilities: Current Liabilities 48,954,071 44,738,865 Noncurrent Liabilities 177,933, ,725, ,887, ,464,306 Net Assets: Invested in Capital Assets (net of related debt) 376,061, ,451,603 Restricted-Nonexpendable Scholarships 12,106,647 11,415,490 Restricted-Nonexpendable Research 4,783,218 4,500,000 Restricted-Nonexpendable Other Purposes 239, ,789 Restricted-Expendable Scholarships 2,884,590 2,914,570 Restricted-Expendable Research 14,971,278 19,472,424 Restricted-Expendable Loans 3,834,352 3,761,189 Restricted-Expendable Capital Projects 14,787,375 8,707,208 Restricted-Expendable Debt Service 4,185,908 7,666,913 Unrestricted 87,842,162 91,178,725 Total Net Assets $521,697,186 $496,307,911 Unrestricted 17% Restricted- Expendable 8% Restricted- Nonexpendable 3% Invested in Capital Assets 72% 3

5 Management s Discussion and Analysis Overall for the year the University improved its financial position with an increase in net assets of $25,389,275 or 5.1%. Much of this increase is due to the category of invested in capital assets, net of related debt which represents the University s net equity in property, plant and equipment. The following overview discusses variances in both assets and liabilities as compared to fiscal year 2005 balances. While the discussion does not attempt to be all inclusive it does cover the major items for each category that exceed the variance limit. Current assets decreased for the year by $5,034,089. The following lists the major items in this category experiencing at least a 5% variance: Cash and Cash Equivalents 36.5% Decrease EBC 1996 (Escrow) bond proceeds reclassified from cash equivalents to short term investments during fiscal year Short Term Investments 150.9% Increase EBC 1996 (Escrow) bond proceeds reclassified and EBC 2005 (construction) proceeds added during fiscal year Accounts Receivables, Net 5.9% Decrease Accounts receivable due from Bulldog Club at fiscal year end decreased from previous fiscal year. Inventories 8.4% Increase Work in process job orders for Facilities Management increased $249,620 at fiscal year end 2006 over fiscal year Prepaid Expenses 34.1% Decrease Equipment deposit in the amount of $1,878,224 for a magnetic resonance imaging system for the Institute of Neurocognitive Science and Technology expensed during Non-current assets increased by $88,846,735. Below are the line items in non current assets that exceeded the 5% variance limit. Restricted Cash and Cash Equivalents 100.0% Increase Bond trustee accounts reclassified from cash and cash equivalents. Endowment Investments 7.0% Increase Value of endowments reclassified from current assets as deposits with bond trustees increased. Capital Assets, Net of Accumulated Depreciation 18.2% Increase Capitalized buildings increased $36,075,094 and construction in progress increased $46,517,287 for fiscal year 2006 over the prior year. Overall for the year assets increased $83,812,646. Much of this can be attributed to the increase in capital assets net of accumulated depreciation which increased $82,111,916. Current liabilities increased $4,215,206 for the fiscal year. Line items included within current liabilities that varied more than 5% are presented below: Deferred Revenues 37.0% Increase Deferred credit for 2005 bond premium in the amount of $3,252,209 was recognized in fiscal year

6 Management s Discussion and Analysis Accrued Leave Liabilities, Current Portion 9.7% Decrease Current portion of accrued leave liability is a calculated value based on the average of the current fiscal year and prior two years expense. Due to a 4% salary increase in fiscal year 2003 expense was substantially greater than the succeeding years 2004 through 2006 and dropped out of the calculation. Long Term Liabilities, Current Portion 7.9% Increase A portion of the 2005 bonds payable in the amount of $58,965,000 was included in the reclassification. Other Current Liabilities 27.1% Increase Represents the agency fund balance that must be reclassified to other current liabilities. Non-current liabilities increased $54,208,165. Most of this increase can be attributed to the issuance of additional bonds during the fiscal year. A discussion of major items included in this category is provided as follows: Deposits Refundable 6.4% Decrease Aiken Village housing deposits decreased by $5,616 for the year. Accrued Leave Liabilities 8.4% Increase Accumulated leave hours at fiscal year end 2006 decreased by 4,170 hours compared to fiscal year This decrease was offset by a university salary increase that was approved during the June meeting of the Board of the Institutions of Higher Learning. Long Term Liabilities 56.7% Increase Bonds payable in the amount of $58,965,000 were recognized during fiscal year Overall for the year liabilities increased $58,423,371. As disclosed previously this is largely due to the additional issuance of bonds during the fiscal year for the construction of Phase II of student housing. Ruby Hall Construction 5 Ruby Hall Courtyard

7 Management s Discussion and Analysis Statement of Revenues, Expenses and Changes in Net Assets The purpose of this statement is to present to the reader not only the revenues and expenses of the University but to also make a distinction between operating and nonoperating categories. Operating revenues are received for providing goods and services to the customers of the institution. Operating expenses are paid to acquire or produce goods and services provided in turn for operating revenues. Nonoperating revenue is revenue received for which goods and services are not provided. For example, state appropriations are nonoperating revenues since they are provided by the State of Mississippi Legislature to the Institutions of Higher Learning without the Legislature requiring a direct service in return. FY 2006 FY 2005 Operating revenues $305,747,079 $291,821,555 Operating expenses 476,456, ,959,407 Operating loss (170,708,964) (166,137,852) Nonoperating revenues and expenses 171,021, ,727,201 Income (loss) before other revenues, 312,266 6,589,349 expenses, gains or losses Other revenues, expenses, gains or losses 25,077,009 12,768,000 Increase in net assets 25,389,275 19,357,349 Net assets - beginning of year, as originally reported 496,307, ,950,562 Net assets - end of year $521,697,186 $496,307,911 6

8 Management s Discussion and Analysis The statement of revenues, expenses and changes in net assets reflects a positive year with an increase in net assets at the end of the year in the amount of $25,389,275. The following overview discusses variances that exceed 5% from FY 2005 totals: Scholarship Allowance 20.8% Increase Hurricane disaster tuition assistance aid made available to the institution during the fiscal year increased the financial aid component of the allowance calculation. Federal Grants and Contracts 8.2% Increase Department of Defense grants increased for the fiscal year in the amount of $7,687,434 and Department of Education grants increased $3,724,259. State Grants and Contracts 19.3% Decrease Meridian Project (Lauderdale County) grant was recognized the previous fiscal year in the amount of $3,837,012 to support the Riley Center development. Nongovernmental Grants and Contracts 80.3% Increase Grants from foundations increased by $1,865,288 and contracts from business and industry increased $904,335 for the year. Student Housing 17.3% Increase Dormitory rent revenue increased $1,599,813 over the previous fiscal year due to a 6% rate increase and the addition of Ruby Hall. Food Services 7.0% Increase Meal ticket revenue increased $313,838 over the previous fiscal year. Athletic Sales 19.9% Increase Conference revenue increased by $1,217,977 and postage sales revenue increased by $1,720,907. Other Auxiliary Revenues 5.9% Increase Student Health Center services revenue increased $529,146 over fiscal year Other Operating Revenues 48.3% Decrease County revenue recognized for support of university employees in addition to their university salaries was adjusted out of revenue for fiscal year The corresponding salaries expense associated with county employees was omitted. The total adjustment was $2,527,810. Travel 5.0% Increase Out of state conference travel increased $328,289. Contractual Services 20.2% Increase Repair and maintenance of buildings and grounds increased $7,274,267 for the year primarily due to the Riley Center renovation. Facilities management services increased $5,171,079 over the previous fiscal year primarily due to north entrance landscape and McCool addition. Utilities 48.1% Increase Electricity expenditures increased $3,773,385 and natural gas expenditures increased $2,003,722 over the previous fiscal year. Scholarships and Fellowships 17.5% Increase Scholarship expenditures increased $3,172,091. Commodities 36.9% Decrease Majority of decrease is due to the administrative adjustment for capitalized assets made in the investment in plant. The adjustment reduces commodity expense as an offset to items capitalized. Depreciation Expense 12.6% Increase Depreciable capital assets increased $56,183,283 for the year. 7

9 Management s Discussion and Analysis Gifts and Grants 10.9% Increase Foundation gifts account recognized $1,856,082 over the previous fiscal year. Interest Expense on Capital Asset (Related Debt) 33.9% Increase EBC 2004A bond interest payments increased $966,799 over the previous fiscal year. Other Nonoperating Revenues 34.5% Decrease Adjustment necessary in fiscal year 2005 to offset Perkins loan net decrease. Other Nonoperating Expenses 106.2% Increase Trustee fees for issuance of bonds increased $330,546 over the prior fiscal year. Capital Grants and Gifts 307.5% Increase Shira Athletic Fieldhouse and Softball Field renovation were donated to the University by the Bulldog Club during fiscal year Other Deletions 95.1% Decrease Loss on disposal of assets decreased $2,621,738 due to a reduction in deletion of depreciable capital assets of approximately $11 million dollars from the previous fiscal year. Operating Revenues FY 2006 State Grants and Contracts 5% Nongovernmental Grants and Contracts 3% Federal Grants and Contracts 51% Sales and Services 18% Other 1% Net Tuition and Fees 18% Federal Appropriations 4% Operating Expenses by Object FY 2006 Scholarships and Fellowships 5% Depreciation 5% Utilities 4% Supplies and Services 27% Salaries and Benefits 59% 8

10 Management s Discussion and Analysis Statement of Cash Flows The purpose of this statement is to present information about cash receipts and cash payments during the year. Information is presented using the direct method and has four categories: operating activities, noncapital financing activities, capital financing activities and investing activities. The primary cash receipts from operating activities for fiscal year 2006 consists of tuition and fees in the amount of $66,741,218 and grants and contracts in the amount of $156,636,551. Cash outlays include payments to employees in the amount of $283,256,645. State appropriations are the primary source of non-capital financing in the amount of $145,189,025. FY 2006 FY 2005 Cash provided (used) by: Operating activities ($146,881,342) ($144,769,178) Noncapital financing activities 176,138, ,485,739 Capital financing activities (53,362,210) (20,589,754) Investing activities 6,735,260 4,443,570 Net change in cash (17,369,448) 8,570,377 Cash, beginning of year 53,803,520 45,233,143 Cash, end of year $36,434,072 $53,803,520 Married grads celebrate under a ginkgo tree 9

11 Management s Discussion and Analysis Functional Classification of Operating Expenses Year Ended June 30, 2006 Natural Classification Functional Salaries Fringe Contractual Scholarships & Depreciation Classification & Wages Benefits Travel Services Utilities Fellowships Commodities Expense Total Instruction $60,462,827 $16,969,471 $1,125,230 $3,968,534 $20,447 $705,490 $443,393 $83,695,392 Research 65,317,827 18,582,661 3,916,713 42,342,554 2,854, ,829 5,524, ,105,138 Public Service 35,475,399 10,925,018 2,977,767 9,885, , ,887 1,001,685 61,195,206 Academic Support 13,608,888 3,558, ,571 3,523,015 47,567 13,544 1,033,024 22,217,616 Student Services 6,100,664 1,734, ,777 1,010,292 14, ,004 1,020,692 10,567,732 Institutional Support 15,943,609 1,043, ,890 25,865, , ,503 9,996,088 54,183,593 Operation of Plant 10,570,837 3,185,645 35,488 11,143, ,747 25,767,285 Student Aid 923,097 1,904,304 15, ,077 14,773,108 13,770 17,980,524 Auxiliary Enterprises 14,925,847 3,697,290 2,163,573 8,271,127 2,040,282 4,778,971 1,479,494 37,356,584 Depreciation $24,386,973 24,386,973 Total Operating Expenses $223,328,995 $61,600,070 $11,120,177 $95,217,510 $17,795,495 $21,662,336 $21,344,487 $24,386,973 $476,456,043 Operating Expenses by Function Auxiliary Enterprises 8% Student Aid 4% Operation of Plant 5% Institutional Support 11% Depreciation 5% Instruction 18% Research 29% Student Services 2% Academic Support 5% Public Service 13% 10

12 Management s Discussion and Analysis Capital Asset and Debt Administration Buildings McCain Hall Renovations - $6,805, Montgomery Hall Renovations - $5,202, Bowen Hall Renovations - $3,827, Hand Chemical Lab Phase III - $7,175, Shira Field House - $6,495, Child Development & Family Studies Center - $935, Capital Street Building Renovation - $2,725, Gulf Coast Research & Extension Building - $3,726, Capps Entrepreneurial Center - $2,684, Franklin Administration & Lab Buildings - $4,793, During 2006 the premium for the 2004 bond issuance was reclassified to retirement of indebtedness from net investment in plant. Damage assessments from hurricanes Katrina and Rita resulted in no buildings being declared impaired under the guidelines of Statement 42 (Accounting and Financial Reporting for Impairment of Capital Assets for Insurance Recoveries). Trends Total State Appropriations Millions $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Full-time Resident Tuition and Required Fees $2,591 $2,631 $2,731 $3,017 $3,017 $3,117 $3,586 $3,874 $3,874 $4,106 $4,312 11

13 Management s Discussion and Analysis Trends (continued) Total Campus Student Enrollment 17,000 16,000 15,000 14,000 13, ,344 14,852 15,645 15,718 16,076 16,561 16,878 16,610 16,226 15,934 16,101 Student Profile 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Other 6% African American 20% Caucasian 74% Male 51% Female 49% Non-resident 23% Resident 77% Graduate 22% Undergraduate 78% Under 25 71% Race Gender Residency Level Age Over 25 29% 12

14 Management s Discussion and Analysis Financial Summary and Outlook achieved significant progress on key strategic priorities during the fiscal year ending June 30, 2006 and set the stage for significant new growth into the future. The main campus in Starkville was transformed by a record level of construction activity throughout the year as several new buildings including the Cullis Wade Depot and the Griffis Residence Hall were completed and new projects started. Mississippi State was awarded a record total of more than $154.7 million in external grants and contracts for a variety of research and education programs during the 2006 fiscal year. Undergraduate and graduate enrollment was maintained at a stable level despite increasing competition for new students and a required tuition increase. These achievements were realized against a backdrop of significant challenges. The impact of Hurricane Katrina on our students, alumni, faculty and staff, was immediate and significant. The Mississippi State family banded together to help each other and the affected areas recover. Remarkably, the majority of students that withdrew after Katrina have since returned to MSU. Finally, sharply higher utility costs, due partially to the effects of Katrina, persisted throughout the year and resulted in MSU having to draw upon its reserves to meet the unexpected cost. The top financial priority in fiscal year 2007 is to restore these reserves while continuing to support all of the operations and initiatives of at the highest levels of service and integrity. Michael J. Mike McGrevey Chief of Staff and Chief Financial Officer 13

15 Crosby Arboretum Financial Statements

16 MISSISSIPPI STATE UNIVERSITY STATEMENT OF NET ASSETS Assets June Current Assets: Cash and Cash Equivalents $34,170,264 $53,803,520 Short Term Investments (note #3) 31,071,547 12,384,341 Accounts Receivables, Net (note #4) 37,227,752 39,574,631 Student Notes Receivables (note #5) 3,771,692 3,820,568 Inventories 2,390,447 2,204,229 Prepaid Expenses 3,629,883 5,508,385 Total Current Assets $112,261,585 $117,295,674 Non-Current Assets: Restricted Cash and Cash Equivalents $2,263,808 $0 Endowment Investments (note #3) 19,621,231 18,331,617 Other Long Term Investments (note #3) 67,163,514 64,243,587 Student Notes Receivable, Net (note #5) 13,462,189 13,200,719 Capital Assets, Net of Accumulated Depreciation (note #6) 533,812, ,700,620 Total Non-Current Assets $636,323,278 $547,476,543 Total Assets $748,584,863 $664,772,217 Liabilities and Net Assets Current Liabilities: Accounts Payable and Accrued Liabilities $23,518,314 $23,091,944 Deferred Revenues 10,918,019 7,971,523 Accrued Leave Liabilities - Current Portion (note #7) 1,411,002 1,563,088 Long Term Liabilities - Current Portion (note #7) 12,877,395 11,931,852 Other Current Liabilities 229, ,458 Total Current Liabilities $48,954,071 $44,738,865 15

17 MISSISSIPPI STATE UNIVERSITY STATEMENT OF NET ASSETS (Continued) June Non-Current Liabilities: Deposits Refundable (note #7) $86,620 $92,541 Accrued Leave Liabilities (note #7) 17,744,204 16,362,287 Long Term Liabilities (note #7) 144,873,273 92,469,434 Other Non-Current Liabilities (note #7) 15,229,509 14,801,179 Total Non-Current Liabilities $177,933,606 $123,725,441 Total Liabilities $226,887,677 $168,464,306 Net Assets: Invested in Capital Assets, Net of Related Debt $376,061,867 $346,451,603 Restricted for: Nonexpendable - Scholarships and Fellowships 12,106,647 11,415,490 Research 4,783,218 4,500,000 Other Purposes 239, ,789 Expendable - Scholarships and Fellowships 2,884,590 2,914,570 Research 14,971,278 19,472,424 Capital Projects 14,787,375 8,707,208 Debt Service 4,185,908 7,666,913 Loans 3,834,352 3,761,189 Unrestricted 87,842,162 91,178,725 Total Net Assets $521,697,186 $496,307,911 Supplemental Information -- Academic Programs & Research $11,777,895 $17,200, Capital Projects 5,568,871 5,873, Repairs and Maintenance 7,683,511 7,654, Remaining Purposes 62,811,885 60,450,821 $87,842,162 $91,178,725 16

18 MISSISSIPPI STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS June Operating Revenues: Tuition and Fees $90,150,385 $86,250,497 Less: Scholarship Allowance (23,168,265) (19,178,775) Net Tuition and Fees 66,982,120 67,071,722 Federal Appropriations 12,982,886 13,574,507 Federal Grants and Contracts 130,157, ,269,354 State Grants and Contracts 16,859,379 20,886,317 Nongovernmental Grants and Contracts 10,708,701 5,939,176 Sales and Services of Educational Departments 24,363,102 23,810,918 Auxiliary Enterprises: Student Housing 10,801,156 9,208,327 Food Services 5,770,470 5,391,140 Athletics 17,213,661 14,359,990 Other Auxiliary Revenues 7,686,612 7,257,490 Interest Earned on Loans to Students 264, ,685 Other Operating Revenues 1,956,913 3,784,929 Total Operating Revenues $305,747,079 $291,821,555 Operating Expenses: Salaries and Wages $223,328,995 $223,088,734 Fringe Benefits 61,600,070 59,123,190 Travel 11,120,177 10,589,254 Contractual Services 95,217,510 79,215,154 Utilities 17,795,495 12,015,295 Scholarships and Fellowships 21,662,336 18,432,018 Commodities 21,344,487 33,835,179 Depreciation Expense 24,386,973 21,660,583 Total Operating Expenses $476,456,043 $457,959,407 Operating Income (Loss) (170,708,964) (166,137,852) 17

19 MISSISSIPPI STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (Continued) June Nonoperating Revenues (Expenses): State Appropriations $145,588,753 $147,671,741 Gifts and Grants 26,861,905 24,232,457 Investment Income, Net of Investment Expense 4,997,427 5,177,005 Interest Expense on Capital Asset - Related Debt (5,126,715) (3,829,683) Other Nonoperating Revenues 101, ,568 Other Nonoperating Expenses (1,401,975) (679,887) Total Net Nonoperating Revenues (Expenses) $171,021,230 $172,727,201 Income (Loss) Before Other Revenues, $312,266 $6,589,349 Expenses, Gains and Losses: Capital Grants and Gifts 11,573,426 2,840,308 State Appropriations Restricted for Capital Purposes 13,696,409 13,832,958 Other Deletions (192,826) (3,905,266) Net Increase in Net Assets $25,389,275 $19,357,349 Net Assets Net Assets - Beginning of Year, as Originally Reported $496,307,911 $476,950,562 Net Assets - Beginning of Year, as Restated $496,307,911 $476,950,562 Net Assets - End of Year $521,697,186 $496,307,911 18

20 MISSISSIPPI STATE UNIVERSITY STATEMENT OF CASH FLOWS June Cash Flows from Operating Activities: Tuition and Fees $66,741,218 $66,552,865 Grants and Contracts 156,636, ,453,832 Sales and Services of Educational Departments 24,468,027 23,752,451 Payments to Suppliers (128,126,449) (119,646,251) Payments to Employees for Salaries and Benefits (283,256,645) (278,645,608) Payments for Utilities (17,795,495) (12,015,295) Payments for Scholarships and Fellowships (21,662,608) (18,432,018) Loans Issued to Students and Employees (4,984,276) (6,446,952) Collection of Loans to Students and Employees 4,799,379 6,540,618 Auxiliary Enterprise Charges: Student Housing 10,794,990 9,208,577 Food services 5,773,961 5,415,628 Athletics 16,999,323 14,773,919 Other Auxiliary Enterprises 7,686,872 7,262,374 Interest Earned on Loans to Students 264,149 Other Receipts 14,779,661 14,456,682 Net Cash provided (Used) by Operating Activities ($146,881,342) ($144,769,178) Cash Flows from Noncapital Financing Activities: State Appropriations $145,189,025 $149,169,179 Gifts and Grants for Other Than Capital Purposes 31,185,355 20,531,576 Federal Loan Program Receipts 61,655,759 55,691,915 Federal Loan Program Disbursements (61,623,240) (55,564,422) Other Sources 48,883 8,251 Other Uses (316,938) (350,760) Net Cash Provided by Noncapital Financing Activities $176,138,844 $169,485,739 19

21 MISSISSIPPI STATE UNIVERSITY STATEMENT OF CASH FLOWS (continued) June Cash Flows from Capital Financing Activites: Proceeds from Capital Debt $58,846,499 $29,518,115 Cash Paid for Capital Assets (86,316,476) (38,938,103) Capital Grants and Contracts Received 4,791,483 2,223,442 Proceeds from Sales of Capital Assets 2,652, ,877 Principal Paid on Capital Debt and Leases (6,091,625) (8,044,358) Interest Paid on Capital Debt and Leases (5,245,216) (3,949,300) Other Sources 3,281,967 Other Uses (25,281,815) (1,739,427) Net Cash used by Capital and Related Financing Activities ($53,362,210) ($20,589,754) Cash Flows from Investing Activities: Proceeds from Sales and Maturities of Investments $9,949,466 $8,650,142 Interest Received on Investments 5,785,794 3,783,428 Purchases of Investments (9,000,000) (7,990,000) Net Cash Provided by Investing Activities $6,735,260 $4,443,570 Net Increase (Decrease) in Cash and Cash Equivalents ($17,369,448) $8,570,377 Cash and Cash Equivalents - Beginning of the the Year 53,803,520 45,233,143 Cash and Cash Equivalents - End of the Year $36,434,072 $53,803,520 20

22 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES June Operating Income (Loss) ($170,708,964) ($166,137,852) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation Expense 24,386,973 21,660,583 Other Changes in Assets and Liabilities (Increase) Decrease in Assets: Receivables, Net (1,584,440) (5,822,517) Inventories (186,218) 791,618 Prepaid Expenses (557,950) 172,926 Other Assets Increase (Decrease) in Liabilities: Accounts Payables and Accrued Liabilities 2,778,878 4,351,440 Deferred Revenues 118, ,405 Accrued Leave Liability (1,229,830) (523,978) Other Liabilities 101,834 70,197 Total Adjustments: 23,827,622 21,368,674 Net Cash Provided (Used) by Operating Activities: ($146,881,342) ($144,769,178) NON-CASH TRANSACTIONS 1.) Equipment $735,051 $2,573,414 Buildings 935,363 Capital Lease (1,670,414) (2,573,414) 2.) Construction in Progress 13,696,409 13,832,958 Bureau of Buildings Appropriations (13,696,409) (13,832,958) 3.) Unrealized Loss on Investments 2,303,414 1,215,974 Investments (2,303,414) (1,215,974) 4.) Buildings 6,781, ,000 Capital Grants and Gifts (6,781,943) (585,000) 21

23 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies Reporting Entity The Mississippi Constitution was amended in 1943 to create a Board of Trustees of State Institutions of Higher Learning. This constitutional Board provides management and control of Mississippi s system of public higher education. The constitution provides that the Board members be appointed by the Governor with the approval of the Senate. The Board of Trustees consists of twelve (12) members. Four (4) members of the Board of Trustees shall be appointed from each of the three (3) Mississippi Supreme Court districts and, as such vacancies occur, the Governor shall make appointments from the Supreme Court district having the smallest number of Board members until the membership includes four (4) members from each district. The members of the Board of Trustees as constituted on January 1, 2004, shall continue to serve until expiration of their respective terms of office. Appointments made to fill vacancies created by expiration of members terms of office occurring after January 1, 2004, shall be as follows: The initial term of the members appointed in 2004 shall be for eleven (11) years; the initial term of the members appointed in 2008 shall be for ten (10) years; and the initial term of the members appointed in 2012 shall be for nine (9) years. After the expiration of the initial terms, all terms shall be for (9) years. has established its own educational building corporation (a nonprofit corporation incorporated in the State of Mississippi) in accordance with Section of the Mississippi Code Annotated of The purpose of this corporation is for the acquisition, construction and equipping of facilities and land for the university. In accordance with Governmental Accounting Standards Board Statement Number 14, this educational building corporation is deemed a component unit of the State of Mississippi Institutions of Higher Learning and is included as a blended component unit in the general purpose financial statements. The State of Mississippi Institutions of Higher Learning is considered a component unit of the State of Mississippi reporting entity. Basis of Presentation The financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis of Public Colleges and Universities, issued in June and November, The university now follows the business type activities reporting requirements of GASB Statement No. 34 that provides a comprehensive one-look at the universities financial activities. Basis of Accounting The financial statements of the university have been prepared on the accrual basis whereby all revenues are recorded when earned and all expenses are recorded when they have been reduced to a legal or contractual obligation to pay. All significant intra-agency transactions have been eliminated. Cash Equivalents For purposes of the statement of cash flows, the university considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Investments The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statement of revenues, expenses and changes in net assets. Investments for which there are no quoted market prices are not material. 22

24 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies (Continued) Accounts Receivable, Net Accounts receivable consist of tuition and fee charges to students. Accounts receivables also include amounts due from federal and state governments, and nongovernmental sources, in connection with reimbursement of allowable expenses made pursuant to the university grants and contracts. Accounts receivables are recorded net of an allowance for doubtful account. Student Notes Receivable, Net Student notes receivable consist of federal, state and institutional loans made to students for the purpose of paying tuition and fee charges. Loan balances that are expected to be paid during the next fiscal year are presented on the statement of net assets as current assets. Those balances that are either in deferment status or expected to be paid back beyond the next fiscal year are presented as non-current assets on the statement of net assets. Inventories Inventories consist of physical plant, agriculture, printing and food service supplies. These inventories are generally valued at the lower of cost or market, on either the first-in, first-out ( FIFO ) basis or the average cost basis. Non-Current Cash and Investments Cash and investments that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or non-current assets, are classified as non-current assets in the statement of net assets. Capital Assets Capital assets are recorded at cost at the date of acquisition, or, if donated, at fair market value at the date of donation. Livestock for educational purposes is adjusted at year-end to reflect market price. Renovations to buildings, and improvements other than buildings that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful life of the asset and is not allocated to the functional categories. See Note #6 for additional details concerning useful lives, salvage values and capitalization thresholds. Expenditures for construction in progress are capitalized as incurred. Interest expense relating to construction is capitalized net of interest income earned on resources set aside for this purpose. Certain maintenance and replacement reserves have been established to fund costs relating to residences and other auxiliary activity facilities. Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Compensated Absences Twelve-month employees earn annual personal leave at a rate of 12 hours per month for zero to three years of service; 14 hours per month for three to eight years of service; 16 hours per month for eight to 15 years of service; and from 15 years of service and over, 18 hours per month are earned. There is no requirement that annual leave be taken, and there is no maximum accumulation. At termination, these employees are paid for up to 240 hours of accumulated leave. Nine-month employees earn major medical leave at a rate of 13 1/3 hours per month for one month to three years of service; 14 1/5 hours per month for three to eight years of service; 15 2/5 hours per month for eight to 15 years of service; and from 15 years of service and over, 16 hours per month are earned are paid for up to 240 hours of accumulated major medical leave. 23

25 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies (Continued) Classification of Revenues The University has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristic of exchange transactions, such as (1) student tuition, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. Gifts (pledges) that are received on an installment basis are recorded at net present value. Nonoperating revenues: Non-Operating revenues include activities that have the characteristic of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9 Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34 such as state appropriations and investment income. Scholarship Discounts and Allowances Financial aid to students is reported in the financial statements under the alternative method as prescribed by the National Association of College and University Business Officers (NACUBO). Certain aid such as loans, funds provided to students as awarded by third parties, and Federal Direct Lending is accounted for as a third party payment (credited to the student s account as if the student made the payment). All other aid is reflected in the financial statements as operating expenses, or scholarship allowances, which reduce revenues. The amount reported as operating expenses represents the portion of aid that was provided to the student in the form of cash. Scholarship allowances represent the portion of aid provided to the student in the form of reduced tuition. Under the alternative method, these amounts are computed on a university basis by allocating the cash payments to students, excluding payments for services, on the ratio of total aid to the aid not considered to be third party aid. Net Assets GASB No. 34 reports equity as Net Assets rather than Fund Balance. Net assets are classified according to external donor restrictions or availability of assets for satisfaction of university obligations. Nonexpendable restricted net assets are gifts that have been received for endowment purposes, the corpus of which cannot be expended. Expendable restricted net assets represent funds that have been gifted for specific purposes and funds held in Federal loan programs. The unrestricted net asset balance of $87,842,162 at June 30, 2006 includes $11,777,895 reserved for academic programs and research, $5,568,871 reserved for capital projects, $7,683,511 reserved for repairs and maintenance, with $62,811,885 remaining for other purposes. University Foundation Although the University is the exclusive beneficiary of the Foundation, the Foundation is independent of the University in all respects. The Foundation is not a subsidiary of the University and is not directly or indirectly controlled by the University. Moreover, the assets of the Foundation are the exclusive property of the Foundation and do not belong to the University. The University is not accountable for, and does not have ownership of, any of the financial and capital resources of the Foundation. The University does not have the power or authority to mortgage, pledge or encumber the assets of the Foundation. The trustees of the Foundation are entitled to make all decisions regarding the business and affairs of the Foundation, including, without limitation, distributions made to the University. Under state law, neither the principal nor income generated by the assets of the Foundation can be taken into consideration in determining the amount of Stateappropriated funds allocated to the University. Third parties dealing with the University, the Mississippi State Board of Trustees and the State of Mississippi (or any agency thereof) should not rely upon the financial statements of the Foundation for any purpose without consideration of all of the foregoing conditions and limitations. 24

26 Notes to Financial Statements Note 2 Change in Accounting Principles For the year ended June 30, 2006 there were no changes in accounting principles. Note 3 - Cash and Investments Policies: A. Cash and Short-term Investments Investment policies for cash and short-term investments as set forth by the IHL Board of Trustees policy and state statute authorize the university to invest in demand deposits and interest-bearing time deposits such as savings accounts, certificates of deposit, money market funds, U.S. Treasury bills and notes, and repurchase agreements. For purposes of the statement of cash flows, the university considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents representing assets of the universities endowments are included in non-current investments. The collateral for public entities deposits in financial institutions is now held in the name of the State Treasurer under a program established by the Mississippi State Legislature and is governed by Section of the Mississippi Code Annotated (1972). Under this program, the universities funds are protected through a collateral pool administered by the State Treasurer. Financial institutions holding deposits of public funds must pledge securities as collateral against these deposits. In the event of failure of a financial institution, securities pledged by that institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Depository Insurance Corporation. B. Investments Investment policy at each university is governed by state statute (Section , MS Code Ann. 1972) and the Uniform Management of Institutional Funds Act of An institution may at its discretion adopt policies affecting investments beyond the standards cited above. The following table presents the fair value of investments by type at June 30, 2006: Investment Type Fair Value U.S. Government Agency Obligations $90,984,794 U.S. Treasury Obligations 7,323,925 Certificates of Deposit 22,079 Corporate Bonds 1,124,422 Collateralized Mortgage Obligations 190,932 Municipal Bonds 35,303 Mutual Funds 8,680,816 Asset Backed Securities 1,785,671 Equity Securities 7,314,554 International Obligations 154,007 Landgrant Principal 239,789 Total $117,856,292 25

27 Notes to Financial Statements Note 3 Cash and Investments (Continued) Interest Rate Risk Per GASB Statement No. 40, Interest Rate Risk is defined as the risk a government may face should interest rate variances affect the fair value of investments. The State of Mississippi Institutions of Higher Learning System does not presently have a formal policy that addresses Interest Rate Risk. As of June 30, 2006, the institution had the following investments subject to Interest Rate Risk: Interest Rate Risk Fair Investment Maturities (in years) Investment Type Value Less than More than 10 U.S. Government Agency Obligations $90,564,558 $23,524,048 $58,580,350 $7,805,145 $655,015 Repurchase Agreements U.S. Treasury Obligations 7,323,925 7,323,925 Corporate Bonds Commercial Mortgage Backed Securities Collateralized Mortgage Obligations Municipal Bonds 35,303 35,303 Asset Backed Securities International Obligations Certificates of Deposit 22,079 22,079 Total $97,945,865 $30,905,355 $58,580,350 $7,805,145 $655,015 Credit Risk The State of Mississippi Institutions of Higher Learning System does not presently have a formal policy that addresses Credit Risk. As of June 30, 2006 the institution had the following investment credit profile: Fair Value AAA $98,063,372 Not Rated 19,792,920 Total $117,856,292 Rating Agency: S&P 26

28 Notes to Financial Statements Note 3 Cash and Investments (Continued) Concentration of Credit Risk Per GASB Statement No. 40, Concentration of Credit Risk is defined as the risk of loss attributed to the magnitude of a government s investment in a single issuer. The State of Mississippi Institutions of Higher Learning System does not presently have a formal policy that addresses Concentration of Credit Risk. Fair % of Total Issuer Value Investments FHLB $31,879, % FNMA 21,953, % FHLMC 30,713, % FFCB 5,853, % GNMA Derivative 164, % Treasury Bill 327, % Treasury Note 6,996, % Municipal Bond 35, % Total $97,923,786 Note 4 - Accounts Receivable Accounts receivable consisted of the following at June 30, 2006: June 30, 2006 Student Tuition $9,946,241 Other Operating Activities 2,497,752 Contributions and Gifts 1,937,648 Federal, State, and Private Grants and Contracts 25,112,505 State Appropriations 1,181,548 Accrued Interest 534,919 Total Accounts receivable $41,210,613 Less allowance for doubtful accounts 3,982,861 Net Accounts receivable $37,227,752 27

29 Notes to Financial Statements Note 5 - Notes Receivable from Students Notes receivable from students are payable in installments over a period of up to ten years, commencing three to twelve months from the date of separation from the institution. The following is a schedule of interest rates and unpaid balances for the different types of notes receivable held by the institution at June 30, 2006: Interest Current Non-Current Rates June 30, 2006 Portion Portion Perkins Student Loans 3% to 9% $17,918,345 $3,500,000 $14,418,345 Institutional Loans 0% to 9% 775, , ,844 Total Notes Receivable $18,693,880 $3,771,692 $14,922,188 Less Allowance for Doubtful Accounts 1,459,999 1,459,999 Net Notes Receivable $17,233,881 $3,771,692 $13,462,189 28

30 Notes to Financial Statements Note 6 - Capital Assets A summary of changes in capital assets for the year ended June 30, 2006 is presented as follows: June 30, 2005 Additions Deletions June 30, 2006 Nondepreciable Capital Assets: Land $12,675,396 $22,797 $12,652,599 Construction in Progress 86,476,180 83,888,742 37,371, ,993,466 Livestock 1,587, , ,973 1,629,376 Total Nondepreciable Capital Assets $100,739,267 $84,183,400 $37,647,226 $147,275,441 Depreciable Capital Assets: Improvements other than Building $45,486,553 $1,914,282 $47,400,835 Buildings 364,164,590 44,659,519 $1,979, ,844,804 Equipment 108,753,004 13,579,591 5,973, ,359,314 Library Books 63,785,534 4,038,087 55,610 67,768,011 Total Depreciable Capital Assets $582,189,681 $64,191,479 $8,008,196 $638,372,964 Less Accumulated Depreciation for: Improvements other than Building $8,681,926 $1,022,271 $9,704,197 Buildings 107,747,589 6,995,473 $390, ,352,709 Equipment 68,981,140 12,571,642 3,333,468 78,219,314 Library Books 45,817,673 3,797,586 55,610 49,559,649 Total Accumulated Depreciation $231,228,328 $24,386,972 $3,779,431 $251,835,869 Capital Assets, Net $451,700,620 $123,987,907 $41,875,991 $533,812,536 29

31 Notes to Financial Statements Note 6 Capital Assets (continued) Depreciation is computed on a straight-line basis with the exception of the library books category, which is computed using a composite method. The following useful lives, salvage values and capitalization thresholds are used to compute depreciation: Estimated Useful Lives Salvage Value Capitalization Threshold Buildings 40 years 20% $50,000 Improvements Other than Buildings 20 years 20% 25,000 Equipment 3-15 years 1-10% 5,000 Library Books 10 years 0% 0 30

32 Notes to Financial Statements Note 7 - Long-term Liabilities Long-term liabilities of the university consist of notes and bonds payable, capital lease obligations and certain other liabilities that are expected to be liquidated at least one year from June 30, The various leases cover a period not to exceed five years. The university has the option to prepay all outstanding lease payments less any unearned interest to fully satisfy the obligation. There is also a fiscal funding addendum stating that if funds are not appropriated for periodic payment for any future fiscal period, the lessee will not be obligated to pay the remainder of the total payments due beyond the end of the current fiscal period. Information regarding original issue amounts, interest rates and maturity dates for bonds, notes and capital leases included in the long-term liabilities balance at June 30, 2006, is listed in the following schedule. A schedule detailing the annual requirements necessary to amortize the outstanding debt is also provided. Original Annual Due Within Description and Purpose Issue Interest Rate Maturity July 1, 2005 Additions Deletions June 30, 2006 One Year Bonded Debt Dormitory Revenue System $2,250, % 2020 $1,230,000 $65,000 $1,165,000 $65,000 Student Apartments 2,038, % ,200,000 55,000 1,145,000 55,000 EBC96 - Revenue Bonds 11,920, %-5.00% ,510, ,000 7,990,000 7,410,000 EBC98 - Revenue Bonds 31,865, %-5.25% ,465, ,000 26,575, ,000 EBC01 - Revenue Bonds 16,920, %-5.50% ,860, ,000 14,115, ,000 EBC04 - Revenue Bonds 17,000, %-5.00% ,755, ,000 16,280, ,000 EBC04A - Revenue Bonds 28,790, %-5.00% ,790, ,000 27,890, ,000 EBC05 - Revenue Bonds 58,965, %-5.00% ,965,000 58,965, ,000 Total Bonded Debt $98,810,000 $58,965,000 $3,650,000 $154,125,000 $11,540,000 Capital Leases Farm Equipment $1,667,464 $32,476 $348,398 $1,351,542 $365,612 Computer Equipment 1,715, , ,662 1,282, ,309 Vehicles 200, , ,481 99,963 58,643 Other 2,008,562 1,117, , ,831 Total Capital Leases $5,591,286 $476,008 $2,441,626 $3,625,668 $1,337,395 Other Long-term Liabilities - Accrued Leave Liabilities $17,925,375 $1,229,830 $19,155,206 $1,411,002 - Deposits Refundable 92,541 $5,921 86,620 Total Other Liabilities $18,017,916 $1,229,830 $5,921 $19,241,826 $1,411,002 Federal Portion of National Direct Student Loan $14,801,179 $428,330 $15,229,509 Total $137,220,381 $61,099,168 $6,097,547 $192,222,003 $14,288,397 Due Within One Year 14,288,397 Total Long-term Liabilities $177,933,606 31

33 Notes to Financial Statements Note 7 Long-term Liabilities (Continued) Bonded Capital Fiscal Year Debt Leases Interest Total 2007 $11,540,000 $1,337,395 $7,802,535 $20,679, ,265,000 1,077,780 6,716,124 13,058, ,430, ,743 6,464,304 12,657, ,365, ,237 6,227,022 11,971, ,560,000 66,990 5,978,771 11,605, ,550,000 1,523 25,622,072 57,173, ,765,000 17,804,250 48,569, ,905,000 10,336,260 41,241, ,720,000 4,537,263 21,257, ,025,000 1,432,625 12,457,625 Totals $154,125,000 $3,625,668 $92,921,226 $250,671,894 32

34 Notes to Financial Statements Note 8 - Operating Leases Leased property under operating leases is composed of office rent, land, computer software and equipment. The following is a schedule by years of the future minimum rental payments required under those operating leases: Year Ending June 30 Amount 2007 $2,845, ,845, ,845, ,845, ,845,086 Total minimum payments required $14,225,430 The total rental expense for all operating leases, except those with terms of a month or less that were not renewed, for the fiscal year ending June 30, 2006 was $2,845,086. Note 9 - Natural Classifications with Functional Classifications The universities operating expenses by functional classification were as follows for the year ended June 30, 2006: Functional Salaries Fringe Contractual Scholarships & Depreciation Classification & Wages Benefits Travel Services Utilities Fellowships Commodities Expense Total Instruction $60,462,827 $16,969,471 $1,125,230 $3,968,534 $20,447 $705,490 $443,393 $83,695,392 Research 65,317,827 18,582,661 3,916,713 42,342,554 2,854, ,829 5,524, ,105,138 Public Service 35,475,399 10,925,018 2,977,767 9,885, , ,887 1,001,685 61,195,206 Academic Support 13,608,888 3,558, ,571 3,523,015 47,567 13,544 1,033,024 22,217,616 Student Services 6,100,664 1,734, ,777 1,010,292 14, ,004 1,020,692 10,567,732 Institutional Support 15,943,609 1,043, ,890 25,865, , ,503 9,996,088 54,183,593 Operation of Plant 10,570,837 3,185,645 35,488 11,143, ,747 25,767,285 Student Aid 923,097 1,904,304 15, ,077 14,773,108 13,770 17,980,524 Auxiliary Enterprises 14,925,847 3,697,290 2,163,573 8,271,127 2,040,282 4,778,971 1,479,494 37,356,584 Depreciation $24,386,973 24,386,973 Total Operating Expenses $223,328,995 $61,600,070 $11,120,177 $95,217,510 $17,795,495 $21,662,336 $21,344,487 $24,386,973 $476,456,043 33

35 Notes to Financial Statements Note 10 - Construction Commitments and Financing The university has contracted for various construction projects as of June 30, Estimated costs to complete the various projects and the sources of anticipated funding are presented below: Total Cost Funded by Institutional to Complete Federal Sources State Sources Funds Other Lee Hall Renovation - Phase II $4,419,353 $4,419, Colvard Student Union Preplanning 617, , Simulation Design Center 5,266,100 5,266, Electrical Distributions 545, ,612 $119, ADA Program (Replace Sidewalks) 414, , North MS R&E Center Expansion 924, , Colvard Student Union Renovation 4,081,925 4,081, Harned Hall Renovation - Phase I 699, , Communications - Sims/Design Center 340, , Communications - Colvard Union 5,000 5, Band & Choral Rehearsal Hall 3,529,000 $3,529, North Entrance Landscape Improvements 1,500,000 1,500, Mark Rothenburg Building & Opera House - Meridian 23,752,563 $7,185, ,894 15,966, Power Generation Plant 17,000,000 17,000, McCool Hall Additions & Renovations 16,421,389 16,421, Cullis Wade Welcome Center & Museum 8,086,989 8,086, Roy Ruby Residence Hall (EBC 2004) 20,414,314 20,414, Palmeiro Center 7,597,529 7,597, New Residence Hall - Phase II (EBC 2005) 39,833,000 39,833,000 Student Life Center 550, , Pace Seed Technology Building Reno 1,929,956 1,929, MS Veterinary Diagnostic Lab (Phase I) 11,555,319 11,555, Agricultural & Biological Engineering Bldg 9,683,415 9,683, Communications Pace Seed Lab 196, , Landscaping Pace Seed Lab 40,264 40, Pre-plan Wise Center Renovation 250, , Communications MS Vet Lab 640, , Communications Ag/Bio Eng 10,000 10, Wise Center Fire Alarm/Security 329, ,284 Poultry Processing Plant 350, ,000 Total $180,982,697 $7,185,815 $43,928,374 $93,951,265 $35,917,243 34

36 Notes to Financial Statements Note 11 - Pension Plan Plan Description. The State of Mississippi Institutions of Higher Learning participates in the Public Employees Retirement System of Mississippi (PERS), a cost-sharing multiple-employer defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by State law and may be amended only by the State of Mississippi Legislature. PERS issues a publicly available financial report that includes financial statements and required supplementary information which may be obtained by writing to the Public Employees Retirement System, PERS Building, 429 Mississippi Street, Jackson, MS or by calling (601) or PERS. Funding Policy. PERS members are required to contribute 7.25% of their annual salary and the institution is required to contribute at an actuarially determined rate. This rate was 9.75% of annual covered payroll in fiscal years 2004 and The rate increased to 10.75% of covered payroll on July 1, 2005; however, the Mississippi Legislature provided funds to cover approximately 89% of the increase during fiscal year The rate increased to 11.30% as of July 1, The contribution requirement of PERS members are established and may be amended only by the State of Mississippi Legislature. The institutional contributions to PERS for the years ending June 30, 2006, 2005, and 2004 were $16,468,674, $14,922,385, and $14,362,646 respectively, and equal to the required contributions for each year. PERS also administers an Optional Retirement Plan (ORP) whereby new faculty members may select from three investment companies. ORP contribution rates are identical to the PERS rates. University contributions for the years ending June 30, 2006, 2005, and 2004 were $4,735,718, $4,176,339 and $3,843,060 respectively. Note 12 - Donor Restricted Endowments The net appreciation on investments of donor restricted endowments that is available for authorization for expenditure increased $98,187 to $3,015,445. This amount is included on the Statement of Net Assets as Restricted Expendable. Most endowments operate on the total-return concept as permitted by the Uniform Management of Institutional Funds Act (Sections through , MS code, Ann. 1972) as enacted in The annual spending rate for these endowments is 5% of the three-year moving average of fiscal year end endowment fund market values using the most previous fiscal years, plus any funds available but not spent in previous fiscal years. Note 13 Federal Direct Lending and FFEL Programs The University distributed $61,623,240 for the year ended June 30, 2006, for student loans through the U. S. Department of Education lending programs. These distributions and their related funding sources are included as Non-Capital Financing Distributions in the Cash Flows Statement. 35

37 Notes to Financial Statements Note 14 - Foundations and Affiliated Parties Foundation (Foundation) is a legally separate, tax-exempt organization supporting (University). The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The 44-member board of the Foundation is self-perpetuating and consists of graduates and friends of the University. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests is restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University s financial statements. During the year ended June 30, 2006, the Foundation made distributions of $25,631,242 to or on behalf of the University for both restricted and unrestricted purposes. Immediately following this note are the financial statements for the Foundation. Any questions regarding the Foundation statements or requests for additional information may be addressed to the Administrative Office, Hunter Henry Center, P.O. Box 6149, Mississippi State, MS Note 15 - Subsequent Events Subsequent to year-end, the University will refund the 1996 bond issue of the Educational Building Corporation in the amount of $7,410,000 in FY

38 Mississippi State University Foundation, Inc. Financial Statements June 30, 2006 and 2005 (With Independent Auditors Report Thereon)