The University of Mississippi

Transcription

1 The University of Mississippi Financial Statements Unaudited FY 2013

2 Table of Contents 1 Management s Discussion & Analysis 15 Financial Statements 16 Statements of Net Position University of Mississippi 17 Statements of Financial Position University of Mississippi Foundation 18 Statements of Revenues, Expenses and Changes in Net Position University of Mississippi 19 Statements of Activities University of Mississippi Foundation 20 Statements of Cash Flows University of Mississippi 22 Statements of Cash Flows University of Mississippi Foundation 23 notes to Financial Statements

3 Management s Discussion & Analysis Unaudited FY 2013

4 Management s Discussion & Analysis Introduction The Management s Discussion and Analysis (MD&A) provides an overview of the financial position and performance of the University for the fiscal years ended June 30, 2013, 2012 and This discussion and analysis was prepared by management, is the responsibility of management and should be read in conjunction with the financial statements and accompanying note disclosures. The Institution The University of Mississippi is the oldest public institution in the State of Mississippi, first opening its doors in The University is a comprehensive research institution of higher education that offers a broad range of undergraduate and graduate programs and opportunities for continuing study. The University is comprised of the main campus in Oxford, the Medical Center in Jackson, as well as educational centers in Southaven, Tupelo, Booneville and Grenada. These campuses serve a student population of 22,291 and employ approximately 10,600 full-time employees, including 1,700 full-time faculty. The Oxford campus is comprised of 11 colleges and schools offering 143 degrees in 47 academic departments. These enrollment and employment totals include the entirety of campuses and operations that report to the Chancellor of the University of Mississippi. However, the University of Mississippi Medical Center is treated as a separate entity for financial reporting purposes, and its financial position and performance are not included within this report. In addition, the financial position and performance for the University of Mississippi Foundation, Inc., are considered part of the University of Mississippi financial reporting entity and are therefore discretely presented in this report. Condensed comparative versions of this statement for the University are presented below for June 30, 2013, 2012 and This statement discloses all institutional assets, liabilities and net position in broad descriptive categories. Assets and liabilities are further classified as current and noncurrent in order to convey to readers a sense of the availability of assets on a short and long-term basis. This provides insight into the institution s ability to meet immediate and future obligations. The net position (assets minus liabilities) section presents a picture of the University s overall cumulative net value. This section is also categorized in a manner that communicates the degree of availability of net position to meet institutional obligations. Net position is divided into three major categories: Net Investment in Capital Assets; Restricted Net Position; and Unrestricted Net Position. Net Investment in Capital Assets provides an aggregated summation of the University s investment or net equity in property, plant and equipment. Assets are classified as restricted when limitations or restrictions are placed on their use by external parties. Restricted net position is sub-divided into two categories, expendable and nonexpendable. Expendable restricted net position is available for expenditure by the University, but must be used in accordance with the intent of the appropriate Statement of Net Position The Statement of Net Position provides a snapshot of an entity s financial position at a specific point in time. 2 The University of Mississippi

5 external parties. Nonexpendable restricted net position is only available for investment purposes and must remain intact in perpetuity. Unrestricted net position is available for use towards any lawful purpose of the institution. The University internally designates the majority of unrestricted net position to specific projects or departments. Statements of Net Position (thousands of dollars) Current Assets $ 128,619 $ 152,455 $ 167,201 Non-current Assets 965, , ,639 Total Assets $ 1,094,046 $ 1,052,772 $ 985,840 Current Liabilities $ 68,319 $ 57,241 $ 48,309 Non-current Liabilities 153, , ,304 Total Liabilities $ 221,391 $ 217,416 $ 188,613 Net Investment in Capital Assets $ 577,887 $ 539,924 $ 506,947 Restricted, Nonexpendable 50,272 48,836 47,147 Restricted, Expendable 49,380 47,231 43,528 Unrestricted 195, , ,605 Total Net Position $ 872,655 $ 835,356 $ 797,227 The financial position of the University strengthened during fiscal years 2013 and 2012 with total assets increasing $41.2 million and $66.9 million, respectively. Total liabilities increased $4.0 million and $28.8 million resulting in increases in net position of $37.3 million and $38.1 million at June 30, 2013 and 2012, respectively. The largest portion of this increase was due to capital assets. Because the University has experienced enrollment growth of 22% over the last five years, additional investments in facilities and infrastructure have been needed. These investments were made to accommodate current as well as anticipated needs. The growth in investments and cash and cash equivalents is directly related to an increased reliance on tuition and fees and less reliance on state support. State support is typically received in monthly installments on a reimbursement basis and is somewhat consistent with spending activity. Tuition and fees payments are predominantly received at the beginning of semesters and associated expenses occur throughout the semester. There has also been a shift from current to non-current within the cash and investments categories of assets. This shift is a direct result of the low interest rate environment and a conscious bias towards less liquidity in search of reasonable investment yields. Over the past decade, annual investment income has decreased in both amount and as a percentage of operating revenues. It should also be noted that a portion of cash and cash equivalents are classified as restricted noncurrent assets due to specific external restrictions regarding its use. These funds are held by the University, trustees, and the State Treasury and are primarily restricted for use on specific capital projects. During fiscal year 2013, restricted noncurrent cash and cash equivalents decreased $2.4 million due to the completion of some of these projects Cash, short-term investments and receivables have consistently comprised approximately 99% of current assets for each of the three years presented. Shortterm investments are predominantly comprised of U.S. Treasury Notes and represent 42% of current assets for fiscal years 2013 and 2012 and 50% of current assets for fiscal year Management s Discussion & Analysis FY

6 Current Assets 60% Current Assets % of Total 50% 40% 30% 20% 10% 0% Cash and Equivalents Short-Term Investments Receivables Other Current Assets The largest components of current liabilities are amounts payable to vendors and employees and unearned revenues. Unearned revenues include advance receipts for tuition, fees, and athletic tickets. The current accrued leave liability represents an estimate of total accrued compensation expected to be paid in the twelve months immediately following June 30. This liability consists of unused personal and medical leave earned by employees as dictated by state statute. Disbursements from this account only occur upon termination of employment. The portion of accrued leave liabilities considered current, increased 3% in fiscal year 2013 and 20% in fiscal year These increases are consistent with expectations. Current Liabilities % of Total 50% 40% 30% 20% 10% 0% Accounts Payable & Accrued Liabilities Current Liabilities Unearned Revenue Current Portion of Long-Term Liabilities Other Current Liabilities Noncurrent liabilities are those liabilities due and payable more than twelve months from June 30. The vast majority of noncurrent liabilities are the result of financing activities for capital projects through the issuance of bonds. Additional detail about long-term debt can be found in Note 8 of the Notes to Financial Statements. Total liabilities at June 30, 2013 and 2012 increased 1.8% and 15.3%, respectively from the prior year. Increases in long-term liabilities and outstanding amounts payable to vendors and employees account for the majority of the overall increase in liabilities in the prior fiscal year. Longterm liabilities, which constitute the largest portion of this category, experienced a net decrease of 5% as of June 30, This net decrease was achieved through the extinguishment of $7.7 million of outstanding debt during fiscal year This $7.7 million was comprised of principal payments and amortization of bond premiums. As previously noted, net position has increased approximately $38 million annually for the last two fiscal years. Changes in capital assets have been responsible for the most significant changes in this area. These increases in capital assets are reflective of the University s commitment to the construction, renovation and improvement of buildings and infrastructure to accommodate current and projected growth. The charts following depict the components of net position for the current and prior two fiscal years. The percentages of the components to total net position have remained static over these three fiscal years. 4 The University of Mississippi

7 Net Position June 30, 2013 Unrestricted 22% Restricted, Expendable 6% Restricted, Nonexpendable 6% Net Investment in Capital Assets 66% June 30, 2012 Unrestricted 24% Restricted, Expendable 6% Restricted, Nonexpendable 6% Net Investment in Capital Assets 64% June 30, 2011 Unrestricted 25% Restricted, Expendable 5% Restricted, Nonexpendable 6% Net Investment in Capital Assets 64% The decreases in unrestricted net position are directly related to increased investment in capital facilities and supporting infrastructure. The unrestricted component of net position is reflective of the largest percentage of institutional operations and serves as one measure of financial viability as of fiscal year-end. The increased investment in capital Management s Discussion & Analysis FY

8 spending was made possible by long-term financial planning that anticipated growth and the need for expansion. The University anticipates enrollment demands to stabilize in the near term and does not expect to continue this level of investment in facility expansion. The unrestricted component of net position consists of all assets except capital assets and those restricted by external parties. The University designates or reserves the majority of unrestricted net position as part of its fiscal management and long-term strategic planning. The unrestricted net asset designations and reservations in place at June 30, 2013, 2012 and 2011 are depicted in the charts below. Unrestricted Net Position June 30, 2013 Designated Projects 35% Other 8% Debt Retirement 2% Auxiliary Renewals & Replacements 6% Departmental Working Capital 12% Auxiliary Working Capital 7% Quasi Endowments 7% Capital Projects 23% June 30, 2012 Designated Projects 31% Other 6% Debt Retirement 2% Auxiliary Renewals & Replacements 9% Departmental Working Capital 12% Auxiliary Working Capital 4% Quasi Endowments 6% Capital Projects 30% June 30, 2011 Designated Projects 30% Other 7% Debt Retirement 1% Auxiliary Renewals & Replacements 10% Departmental Working Capital 13% Auxiliary Working Capital 6% Quasi Endowments 6% Capital Projects 27% 6 The University of Mississippi

9 Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position presents readers with an accounting of all revenues received, expenses incurred, as well as any other gains or losses for the fiscal year. Activities are categorized as either operating or non-operating. In general terms, operating revenues are revenues earned as a result of providing goods or services, and operating expenses are those expenses incurred to acquire or produce those goods and services or to support the mission of the University. All other revenues and expenses are categorized as non-operating. The net result of operating activities is presented as operating income or loss. The University has historically reported an operating loss due to the type and nature of revenues classified as non-operating. For example, state appropriations provide a material portion of revenues but are considered non-operating for reporting purposes. Therefore, management asserts that readers may find increase in net position a better indicator of overall annual financial results. Statements of Revenues, Expenses and Changes in Net Position (thousands of dollars) Operating Revenues $ 341,540 $ 325,567 $ 302,715 Operating Expenses 441, , ,082 Operating Loss (99,809) (91,086) (88,367) Non-operating Revenues and Expenses 110, , ,237 Income Before Other Revenues, Expenses, 10,279 16,440 29,870 Gains, or Losses Other Revenues, Expenses, Gains, or Losses 27,020 21,689 44,496 Increase in Net Position 37,299 38,129 74,366 Net Position, Beginning of Year 835, , ,861 Net Position, End of Year $ 872,655 $ 835,356 $ 797,227 Management s Discussion & Analysis FY

10 The University is supported by a mix of revenues that is heavily dependent upon tuition and state appropriations. Several notable items concerning these revenues during the current and prior fiscal years are included below: Student tuition and fees provide the largest source of institutional revenues. o Underlying the 12.4% and 15.5% increase in gross tuition and fees for the current and prior fiscal year were 3.4% and 3.1% increases in headcount enrollment and 8.5% and 6.5% increases in tuition rates. o After deducting allowances for scholarships and doubtful accounts, net tuition and fees increased 7% for fiscal year 2013 and 15% for fiscal year During fiscal year 2013, revenues from nongovernmental grants and contracts decreased while revenues from federal and state grants and contracts increased. Conversely, revenues from nongovernmental grants and contracts increased while revenues from federal and state grants and contracts declined during fiscal year Future declines in contract and grant revenues are expected to continue as long as economic weaknesses persist. For fiscal years 2013 and 2012, gifts and grants decreased $4.0 million and increased $3.2 million, respectively. This type of non-operating revenues is expected by management to fluctuate from year to year based on donor giving levels and market performance. Capital grants and gifts decreased 15% and 68% for fiscal years 2013 and 2012, respectively. The decreases were due to a reduction in the number and size of active capital projects seeking private support. Investment income, net of investment expense, increased $7.1 million for fiscal year 2013 and decreased $13.2 million for fiscal year These changes are related to market fluctuations, shifts in interest rates, and the amount of funds available for investment. The following chart depicts the breakdown of operating revenues and state appropriations. Operating Revenues & State Appropriations (thousands) 180, , , , ,000 80,000 60,000 40,000 20,000 0 Net Tuition & Fees State Appropriations Net Auxiliary Revenues Governmental Contracts & Grants Private Gifts, Grants, & Contracts Other Sources Expenses classified as operating are the largest portion of expenses. Operating expenses increased approximately $25 million from the prior year for fiscal years 2013 and Salaries, wages and fringe benefits increased $12.3 million and $14.8 million for fiscal years 2013 and 2012, respectively. These increases are attributable to pay raises and a concerted effort to hire additional faculty to accommodate increasing enrollment and stabilize student-to-faculty ratios. Increased enrollment, new scholarships, and expansion of existing scholarship programs led to increases in student aid. The total amount of scholarships provided to students comprises Scholarships and Fellowships included within Operating Expenses and Scholarship Allowances included within the Operating Revenues section. In addition to scholarships, significant increases were also experienced in the cost of commodities and contractual services due to higher costs of goods and services. 8 The University of Mississippi

11 Operating expenses are commonly reported using two classifications. In the following classifcation method, operating expenses are categorized by the types of goods or services purchased as shown below and depicted in the Statement of Revenues, Expenses and Changes in Net Position: Fiscal Year 2013 Operating Expenses by Type of Use Compensation & Benefits 54% Supplies & Services 30% Scholarships 10% Depreciation Expense 6% Fiscal Year 2012 Operating Expenses by Type of Use Compensation & Benefits 54% Supplies & Services 28% Scholarships 12% Depreciation Expense 6% Fiscal Year 2011 Operating Expenses by Type of Use Compensation & Benefits 54% Supplies & Services 28% Scholarships 12% Depreciation Expense 6% Management s Discussion & Analysis FY

12 Operating expenses also are categorized according to functional area of campus activity. This classification is presented below with additional detail in Note 10 of the Notes to Financial Statements. Operating Expenses by Function Fiscal Year 2013 Operation of Plant 8% Institutional Support 6% All Others 11% Academic Support 8% Student Aid 8% Instruction 32% Research 10% Auxiliary Enterprises 17% Fiscal Year 2012 Operation of Plant 7% Institutional Support 6% All Others 11% Academic Support 8% Student Aid 10% Instruction 33% Research 10% Auxiliary Enterprises 15% Fiscal Year 2011 Operation of Plant 7% Institutional Support 6% All Others 11% Academic Support 7% Student Aid 10% Instruction 33% Research 12% Auxiliary Enterprises 14% 10 The University of Mississippi

13 Statement of Cash Flows The Statement of Cash Flows presents the financial activities and results of the University on a cash basis. The statement is separated into four sections. The first section, Cash Flows from Operating Activities, reports cash generated and used through activities and accounts classified as operating. The activities represented in this section mirror the activities and accounts included in the operating sections of the Statement of Revenues, Expenses and Changes in Net Position. The second section reports cash flows from noncapital financing activities. This area of the report includes cash transactions that do not involve operating activities as previously defined, investment activities or capital financing activities. The third section focuses strictly on cash flows resulting from activities related to capital projects and the financing of these activities. This section includes cash used for the acquisition, construction, renovation and improvement of capital and related assets. The fourth section focuses on cash flows from investing activities. This part can include cash used to purchase investments, cash returns on these investments and cash proceeds from the sale or maturity of investments. Condensed Statements of Cash Flows are presented below: Statements of Cash Flows (thousands of dollars) Cash Provided (Used) By: Operating Activities $ (69,698) $ (57,830) $ (65,137) Noncapital Financing Activities 116, , ,244 Capital & Related Financing Activities (38,619) (40,675) (17,340) Investing Activities (23,598) (9,260) (29,836) Net Change in Cash (15,290) 3,416 (4,069) Cash, Beginning of Year 51,078 47,662 51,731 Cash, End of Year $ 35,788 $ 51,078 $ 47,662 The condensed statements illustrate the major summary components of cash sources and uses for the current and prior two fiscal years. Major sources of cash in operating activities for fiscal years 2013, 2012 and 2011 were student tuition and fees ($159.9 million, $149.8 million and $131.1 million, respectively), grants and contracts ($93.5 million, $97.5 million and $97.1 million, respectively) and auxiliary enterprises ($74.1 million, $62.5 million and $58.5 million, respectively). Major operating uses of cash for fiscal years 2013, 2012 and 2011 included payments to employees for salaries and benefits ($236.5 million, $221.5 million and $209.7 million, respectively) and payments to suppliers ($107.6 million, $91.1 million and $88.0 million, respectively). Major sources of cash included in non-capital financing activities for fiscal years 2013, 2012 and 2011 include state appropriations ($79.3 million, $79.4 million and $70.4 million, respectively) as well as gifts and grants received for purposes other than capital projects ($32.5 million, $31.0 million and $28.0 million, respectively). The major source of cash included in the capital and related financing activities section for fiscal year 2012 was $28 million of proceeds from the issuance of bonds related to capital projects. The other major source of cash presented as part of capital and related financing activities for fiscal years 2013, 2012 and 2011 was capital grants and contracts of $8.9 million, $10.4 million and $42.8 million, respectively. Major uses of cash in this section for fiscal years 2013, 2012 and 2011 included the payments for capital assets ($35.4 million, $65.5 million and $48.7 million, respectively) and principal and interest payments made on capital debt ($13.5 million, $17.2 million and $12.1 million, respectively). Management s Discussion & Analysis FY

14 Sources of cash included in the investing activities section for fiscal years 2013, 2012 and 2011 included sales and maturities of investments and interest received on investments of $63.5 million, $243.1 million and $157.1 million, respectively. Uses of cash included in this section were for purchases of investments of $87.1 million, $252.3 million and $187.0 million for fiscal years 2013, 2012 and 2011, respectively. Significant Long-Term Liability and Debt Activities The University has continued to make significant investments in capital assets as enrollment has continued to surge upward. Over the last three fiscal years, $189 million has been invested in capital improvements and expansions. A significant portion of these improvements were funded through the use of long-term financing. However, while the total amount of outstanding longterm debt has increased, most underlying debt ratios have remained stable or improved. The most recent financing occurred in October 2011 when $28 million of bonds were issued to partially fund the construction of a new residence hall project. This project included three new residence halls with over 860 total beds, a new food service venue, offices for student housing employees and new classroom space. More information on longterm debt is available in Note 8 in the Notes to Financial Statements. Operational Highlights The university has been able to achieve consistent improvement in its financial position throughout the recent periods of economic challenges. As this was accomplished, state and federal support has weakened and failed to keep up with growth. Other smaller revenue streams also have waned. At the same time, the University has faced cost escalations and mandates such as multiple increases in the employer s share of contributions to the Public Employees Retirement System of Mississippi. While other public higher education institutions in the United States face similar challenging financial environments, the University has been proactive in managing these challenges. It has also been fortunate that several factors have served to mitigate the effect of rising costs. One significant factor has been a surge in student demand and enrollment. Dramatic increases in new freshman admission applications have spearheaded these recent significant enrollment increases. Over the five-year period spanning from Fall 2009 through Fall 2013, new freshmen applications increased 66%. Consequently, freshmen class enrollment increased 43% and overall enrollment increased 22% over this same period. These increases came at a time when resident tuition rates increased 23% and nonresident rates increased 25%. Even so, tuition rates remain highly competitive and below the mean for similar institutions both within the region and throughout the country. A strong and growing demand from out-of-state residents has also been a contributing factor. While out-of-state students have been a key enrollment component for several decades, their importance has intensified over the past decade. Due to the continuing erosion of other revenue streams, nonresidents have become a necessary and important funding resource. Nonresidents have consistently comprised 30% to 35% of total enrollment. The chart below depicts fall headcount enrollments for the past 10 years, exclusive of the Medical Center in Jackson. 20,000 15,000 10,000 5, , , , , , , , , , , The University of Mississippi

15 Subsequent Events and Other Operational Factors Fall 2013 enrollment (fiscal year 2014) exceeded Fall 2012 enrollment (fiscal year 2013) by 3.4%. Fall 2012 enrollment (fiscal year 2013) exceeded Fall 2011 enrollment (fiscal year 2012) by 3.1%. Over the past five years, fall enrollment has increased 22%. The freshman class for Fall 2013 and Fall 2012 was 3,579 and 3,390, respectively. The freshman class has increased 40% in the past 5 years. Fiscal year 2013 state appropriations remained relatively stable, declining less than 1% below the fiscal year 2012 level. However, the increase in enrollment resulted in a decline in appropriations per full-time equivalent student for fiscal year admission requirements for nonresident applicants. This will allow greater selectivity for this group of applicants and provide a mechanism to manage growth. The process was first enacted for the Fall 2012 freshmen class. This change resulted in a slightly smaller, better-credentialed and equally diverse freshmen class. Compared to the freshman class in the previous year, average ACT scores rose from 23.5 to 23.8, and average high school GPAs increased from 3.35 to These trends continued in Fall 2013 with average ACT scores rising to 24.1 and average high school GPAs of State appropriations increased by $3.9 million in fiscal year 2014 due to the implementation of a new performance-based funding formula adopted by the Board of Trustees of State Institutions of Higher Learning. In addition, the State also provided funding to unrestricted educational and general budgets to cover the increases in employer contribution rates for the Public Employee s Retirement System. A portion of the University s endowment investments are exposed to both equity and fixed-income markets. The University maintains a diversified portfolio managed by professional money managers and employs conservative spending and investing policies that should minimize the reduction in cash flows from these revenue sources. While the endowment portfolio has suffered dramatic annual losses in fair market value in some recent years, the net return over the past three years was 10%. Based on preliminary applications and year-todate comparisons, management expects enrollment demand to stabilize in the near term. A continued strong demand from Mississippi residents and sharply increasing demand from residents of other states are predicted. The University recently received authority from its governing board (the Board of Trustees of State Institutions of Higher Learning) to enact additional Management s Discussion & Analysis FY

16 Management s Outlook University management continues to have a cautiously optimistic financial outlook. As the weak economy continues to show no immediate signs of consistent recovery, the expectation for state support of higher education remains weak for the near term. In addition, the low interest rate environment coupled with challenging investment markets have contributed to inconsistency in other revenue streams such as investment income, endowment returns and private gifts. However, the University also continues to experience consistent and significant growth in tuition, its largest revenue source. Contributing to this increase is the previously mentioned dramatic year-over-year increases in applications for admissions as well as increasing student retention rates. Management does not believe these economic factors will change anytime soon. Economists continue to predict the Mississippi economy will recover at a rate slower than the national average. Additionally, Mississippi has committed certain amounts of one-time funds to support continuing expenses and has built-in commitments for future funding periods that one must assume will limit the capability for higher education to participate in new funding in the next few funding cycles. These factors are prevalent in the University s business planning. In fact, future financial planning includes no expectation of significant increases in state funding This reality manifests itself through a greater reliance on tuition and fees, the growing significance of other revenue streams, as well as the increased importance of efficiency measures. The University has a history of lean operations and has made significant investments in efficiency measures. These efforts must continue and remain a priority in order to sustain the current and expected future business model. Management continues to monitor these changing operational factors, assess potential impacts and proactively plan and act. Larry D. Sparks Vice Chancellor for Administration and Finance 14 The University of Mississippi

17 Financial Statements Unaudited FY 2013

18 University of Mississippi Statements of Net Position June 30, Assets Current Assets: Cash and Cash Equivalents $ 33,778,865 $ 46,627,860 Short Term Investments 55,037,625 63,631,370 Accounts Receivables, Net 31,518,208 34,679,513 Student Notes Receivables, Net 6,260,106 5,749,045 Inventories 998, ,009 Prepaid Expenses 1,025, ,531 Total Current assets 128,618, ,455,328 Non-Current Assets: Restricted Cash and Cash Equivalents 2,009,160 4,449,738 Endowment Investments 77,690,886 70,281,118 Other Long Term Investments 153,017, ,538,523 Student Notes Receivable, Net 18,897,403 18,326,760 Capital Assets, Net 713,683, ,597,879 Other Noncurrent Assets 128, ,366 Total Non-Current assets 965,427, ,316,384 Total Assets $ 1,094,045,824 $ 1,052,771,712 Liabilities Current Liabilities: Accounts Payable and Accrued Liabilities $ 31,713,671 $ 26,015,818 Unearned Revenues 24,310,564 22,663,362 Accrued Leave Liabilities - Current Portion 1,374,000 1,336,000 Long Term Liabilities - Current Portion 7,061,053 6,822,823 Other Current Liabilities 3,859, ,435 Total Current liabilities 68,318,564 57,240,438 Non-Current Liabilities: Deposits Refundable 95, ,865 Accrued Leave Liabilities 13,053,797 12,108,658 Long Term Liabilities 130,925, ,851,160 Other Non-Current Liabilities 8,997,000 9,102,500 Total Non-Current liabilities 153,072, ,175,183 Total Liabilities $ 221,390,610 $ 217,415,621 Net Position: Net Invested in Capital Assets $ 577,886,893 $ 539,923,896 Restricted for: Nonexpendable - Scholarships and Fellowships 6,891,024 5,656,670 Research 175,822 90,164 Other Purposes 43,204,763 43,089,532 Expendable - Scholarships and Fellowships 5,750,366 4,972,816 Research 7,759,987 8,541,448 Capital Projects 4,617,229 7,570,358 Debt Service - 139,278 Loans 17,114,094 16,522,687 Other Purposes 14,138,522 9,484,057 Unrestricted 195,116, ,365,185 Total Net Position $ 872,655,214 $ 835,356, The University of Mississippi

19 University of Mississippi Foundation Statements of Financial Position June 30, 2013 and 2012 Assets Cash and cash equivalents $ 4,496,639 2,747,334 Pledges receivable, net 11,105,873 19,675,498 Investments 344,942, ,647,577 Beneficial interest in remainder trust 5,512,593 Property and equipment, net 3,088,339 3,200,638 Other assets 3,691,172 3,652,210 Total assets $ 367,324, ,435,850 Liabilities and Net Assets Funds held for others $ 21,485,622 19,642,394 Liabilities under remainder trusts and gift annuity 7,425,349 6,117,511 Other liabilities 4,243,198 7,656,969 Total liabilities 33,154,169 33,416,874 Net assets: Unrestricted 20,210,496 11,295,599 Temporarily restricted 134,997, ,377,256 Permanently restricted 178,962, ,346,121 Total net assets 334,170, ,018,976 Total liabilities and net assets $ 367,324, ,435,850 Financial Statements FY

20 University of Mississippi Statements of Revenues, Expenses and Changes in Net Position June 30, Operating Revenues: Tuition and Fees $ 217,028,021 $ 193,055,231 Less: Scholarship Allowances (55,182,305) (41,495,261) Less: Bad Debt Expenses (1,665,691) (1,460,232) Net Tuition and Fees $160,180,025 $150,099,738 Federal Grants and Contracts 44,394,151 40,363,088 State Grants and Contracts 11,733,437 8,222,897 Nongovernmental Grants and Contracts 35,350,285 42,838,975 Sales and Services of Educational Departments 6,857,432 9,415,257 Auxiliary Enterprises: Student Housing 22,943,462 19,108,213 Food Services 2,234,117 2,368,062 Bookstore 654,108 1,169,253 Athletics 43,028,513 37,825,534 Other Auxiliary revenues 9,493,616 6,324,006 Less: Auxiliary Enterprise Scholarship Allowances (5,391,026) (3,805,242) Interest Earned on Loans to Students 459, ,975 Other Operating Revenues, Net 9,602,485 11,188,493 Total Operating Revenues $ 341,540,491 $ 325,567,249 Operating Expenses: Salaries and Wages 186,746, ,334,463 Fringe Benefits 50,519,135 45,672,983 Travel 12,573,662 11,801,544 Contractual Services 79,326,854 68,695,022 Utilities 11,530,275 11,716,515 Scholarships and Fellowships 44,357,335 50,713,206 Commodities 29,603,519 23,472,896 Depreciation/Amortization Expense 26,198,172 24,729,894 Other Operating Expense 493, ,698 Total Operating Expenses $ 441,348,695 $ 416,653,221 Operating Income (Loss) $ (99,808,204) $ (91,085,972) Nonoperating Revenues (Expenses): State Appropriations 79,322,967 79,754,445 Gifts and Grants 29,554,718 33,595,881 Investment Income (Loss) 6,815,797 (311,006) Interest Expense on Capital Asset---Related Debt (5,680,203) (5,210,060) Other Nonoperating Revenues 74,350 - Other Nonoperating Expenses - (303,236) Total Net Nonoperating Revenues (Expenses) $ 110,087,629 $ 107,526,024 Income (Loss) Before Other Revenues, Expenses, Gains and Losses $ 10,279,425 $ 16,440,052 Capital Grants and Gifts 11,560,271 13,542,312 State Appropriations Restricted for Capital Purposes 11,403,749 6,462,305 Additions to Permanent Endowments 1,213,590 1,457,688 Other Additions 3,024, ,848 Other Deletions (182,499) (624,156) Net Increase in Net Position $ 37,299,123 $ 38,129,049 Net Position Net Position - Beginning of Year 835,356, ,227,042 Net Position - End of Year $ 872,655,214 $ 835,356, The University of Mississippi

21 University of Mississippi Foundation Statements of Activities Year ended June 30, 2013 Temporarily Permanently Unrestricted restricted restricted Total Revenues, gains, and other support: Contributions, gifts and bequests $ 220,490 20,600,662 6,560,592 27,381,744 Dividend and interest income 1,495,430 5,025,480 6,520,910 Net unrealized and realized gains on investments 307,968 24,304,299 24,612,267 Change in value of split-interest agreements 3,286,929 (333,890) 2,953,039 Other income 582,515 1,664,416 3,409 2,250,340 Total revenues, gains and other support 2,606,403 54,881,786 6,230,111 63,718,300 Net assets released from restrictions/ redesignated by donor 40,875,061 (43,261,055) 2,385,994 Expenses: Support for University activities 31,103,241 31,103,241 General and administrative expenses 2,293,562 2,293,562 Fund-raising expenses 1,169,764 1,169,764 Total expenses 34,566,567 34,566,567 Change in net assets 8,914,897 11,620,731 8,616,105 29,151,733 Net assets, beginning of year 11,295, ,377, ,346, ,018,976 Net assets, end of year $ 20,210, ,997, ,962, ,170,709 Year ended June 30, 2012 Temporarily Permanently Unrestricted restricted restricted Total Revenues, gains, and other support: Contributions, gifts and bequests $ 6,815,062 20,411,955 8,446,108 35,673,125 Dividend and interest income 1,573,944 3,466,641 5,040,585 Net unrealized and realized losses on investments (415,775) (7,406,813) (7,822,588) Change in value of split-interest agreements 198, , ,601 Other income 480,290 2,273,022 14,117 2,767,429 Total revenues, gains and other support 8,453,521 18,943,494 8,745,137 36,142,152 Net assets released from restrictions/ redesignated by donor 32,603,099 (35,117,193) 2,514,094 Expenses: Support for University activities 34,038,290 34,038,290 General and administrative expenses 2,165,060 2,165,060 Fund-raising expenses 1,278,462 1,278,462 Total expenses 37,481,812 37,481,812 Change in net assets 3,574,808 (16,173,699) 11,259,231 (1,339,660) Net assets, beginning of year 7,720, ,550, ,086, ,358,636 Net assets, end of year $ 11,295, ,377, ,346, ,018,976 Financial Statements FY

22 University of Mississippi Statements of Cash Flows June Cash Flows from Operating Activities: Tuition and Fees $ 159,869,955 $ 149,837,891 Grants and Contracts 93,501,396 97,525,928 Sales and Services of Educational Departments 6,677,720 9,427,285 Payments to Suppliers (107,605,995) (91,100,555) Payments to Employees for Salaries and Benefits (236,496,460) (221,546,791) Payments for Utilities (11,071,184) (11,996,221) Payments for Scholarships and Fellowships (44,351,680) (50,709,412) Loans Issued to Students and Employees (3,904,127) (3,414,824) Collection of Loans to Students and Employees 2,386,617 2,270,388 Auxiliary Enterprise Charges: Student Housing 16,675,873 14,987,121 Food Services 2,360,882 1,964,206 Bookstore 656, ,281 Athletics 44,786,003 38,182,984 Other Auxiliary Enterprises 9,656,770 6,482,664 Interest Earned on Loans to Students 459, ,975 Other Receipts 9,441,871 10,831,880 Other Payments (12,741,778) (11,921,537) Net Cash Used by Operating Activities $ (69,698,250) $ (57,829,737) Cash Flows from NonCapital Financing Activities: State Appropriations 79,319,026 79,350,261 Gifts and Grants for Other Than Capital Purposes; 32,495,974 31,022,076 Private Gifts for Endowment Purposes 1,213,590 1,457,688 Federal Loan Program Receipts 97,727, ,090,887 Federal Loan Program Disbursements (97,727,449) (102,090,887) Other Sources 3,596, ,915 Other Uses - (964,285) Net Cash Provided by Noncapital Financing Activities $116,625,556 $111,180,655 Cash Flows from Capital Financing Activities: Proceeds from Capital Debt - 27,995,000 Cash Paid for Capital Assets (35,449,743) (65,535,294) Capital Grants and Contracts Received 8,918,377 10,423,156 Principal Paid on Capital Debt and Leases (7,687,496) (11,111,573) Interest Paid on Capital Debt and Leases (5,846,007) (6,081,826) Other Source 2,935,497 5,029,201 Other Uses (1,489,306) (1,393,690) Net Cash Used by Capital and Related Financing Activities $ (38,618,678) $ (40,675,026) Cash Flows from Investing Activities: Proceeds from Sales and Maturities of Investments 60,492, ,039,499 Interest Received on Investments 3,049,804 2,035,594 Purchases of Investments (87,140,680) (252,334,989) Net Cash Used by Investing Activities $ (23,598,201) $ (9,259,896) Net Increase (Decrease) in Cash and Cash Equivalents $ (15,289,573) $ 3,415,996 Cash and Cash Equivalents - Beginning of the Year $ 51,077,598 $ 47,661,602 Cash and Cash Equivalents - End of the Year $ 35,788,025 $ 51,077, The University of Mississippi

23 University of Mississippi Statements of Cash Flows Reconciliation of Operating Income (Loss) to Net Cash Used by Operating Activities June Operating Income (Loss) $ (99,808,204) $ (91,085,972) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation/Amortization Expense 26,198,172 24,729,894 Other 1,711,733 1,435,540 Changes in Assets and Liabilities: (Increase) Decrease in Assets: Receivables, Net (506,105) (1,388,026) Inventories (50,017) 86,072 Prepaid Expenses (212,466) 934,826 Other Assets Increase (Decrease) in Liabilities: Accounts Payables and Accrued Liabilities 1,874,090 3,447,698 Unearned Revenues 1,647,202 4,293,241 Accrued Leave Liability 983, ,317 Loans to Students and Employees (1,535,794) (1,139,327) Total Adjustments: $ 30,109,954 $ 33,256,235 Net Cash Provided (Used) by Operating Activities: $ (69,698,250) $ (57,829,737) Noncash Capital Related Financing and Investing Activities: State Appropriations Restricted for Capital Purposes $ 11,403,749 $ 6,462,305 Change in the Fair Value of Investments Recognized as a Component of Investment Income $ 3,624,091 $ (2,850,294) Donations of Capital Assets $ 511,030 $ 3,507,358 Financial Statements FY

24 University of Mississippi Foundation Statements of Cash Flows Years ended June 30, 2013 and Cash flows from operating activities: Change in net assets $ 29,151,733 $ (1,339,660) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 189, ,020 Permanently restricted contributions (12,717,791) (8,446,108) Gifts in kind (129,980) (4,016,393) Net realized and unrealized (gains) losses on investments (24,612,267) 7,822,588 Provision for uncollectible pledges 3,908,219 (467,088) Changes in operating assets and liabilities: Other assets (38,997) 178,225 Pledges receivable 4,661,406 1,451,998 Funds held for others (410,963) (475,223) Beneficial interest in remainder trust 5,512,593 (198,689) Liabilities under remainder trusts 1,383,063 1,738,633 Other liabilities (3,413,773) 3,846,435 Net cash provided by (used in) operating activities 3,482, ,738 Cash flows from investing activities: Purchases of property and equipment (77,271) (50,362) Purchase of investments (117,428,639) (109,815,411) Proceeds from sales and maturities of investments 103,841,870 97,605,558 Proceeds from sale of campus walk 8,133,000 Net cash provided by (used in) investing activities (13,664,040) (4,127,215) Cash flows from financing activities: Permanently restricted contributions 8,917,791 4,446,108 Receipts under split-interest agreements 3,800,000 4,000,000 Payments to beneficiaries under remainder trusts (787,259) (552,722) Payment of mortgage (8,133,000) Net cash provided by (used in) financing activities 11,930,532 (239,614) Net decrease in cash and cash equivalents 1,749,305 (4,131,091) Cash and cash equivalents: Beginning of year 2,747,334 6,878,425 End of year $ 4,496,639 $ 2,747, The University of Mississippi

25 Notes to Financial Statements

26 Note 1 Summary of Significant Accounting Policies Nature of Operations The University of Mississippi is a public, comprehensive, research institution that exists to enhance the educational, economic, healthcare, social and cultural foundations of the state, region, and nation. As the oldest public institution of higher learning in the state and as a Carnegie Research University (high research activity), the institution s primary functions are the creation, dissemination, and application of knowledge through a variety of undergraduate, graduate and professional programs and public service activities. Reporting Entity The Mississippi Constitution was amended in 1943 to create a Board of Trustees of State Institutions of Higher Learning (IHL). This constitutional Board provides management and control of the senior Mississippi public higher education institutions. These Board members are to be appointed by the Governor with the approval of the Senate. The IHL is considered a component unit of the State of Mississippi reporting entity. The current twelve Board members were appointed by the Governor and approved by the Senate for twelve year terms as follows: one from each of the seven congressional districts, one from each of the three Supreme Court Districts, and two appointed from the state-at-large. The Mississippi Constitution was amended in 2003 to change the length of terms and appointment districts for Board members. As vacancies occur, new appointments will serve for terms of nine years and will be appointed from each of the three Mississippi Supreme Court Districts until there are four members from each of these districts. The amendment provides for these new appointments and tenures to be gradually implemented so that all members appointed after 2012 will have a term of nine years. In accordance with Governmental Accounting Standards Board (GASB) Statements No. 14 and 61, each of the university s affiliated organizations was evaluated for inclusion in the financial statements. The University of Mississippi established an educational building corporation (a nonprofit Mississippi corporation) in accordance with Section of the Mississippi Code Annotated, The purpose of this corporation is the acquisition of land and the construction, improvement, and equipping of facilities for the University. All debt of this affiliated entity is expected to be repaid by the university and the entity was created for the exclusive benefit of the university. In accordance with the provisions of GASB Statement No. 61, this entity is deemed a component unit of the University and is included as a blended component unit in the general-purpose financial statements. The University of Mississippi Foundation is a legally separate, tax-exempt organization. The Foundation raises and manages funds that predominantly act to supplement the resources that are available to the University in support of its programs. The Board of the Foundation 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 incomes thereon, which the Foundation holds and invests, are restricted to the activities of the University by donors. Because the majority of 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. Although the University is the primary 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 authorities to mortgage, pledge, or encumber the assets of the Foundation. The Board of Directors of the Foundation is entitled to make all decisions regarding the business and affairs of the Foundation, including, without limitation, distributions made to the University. Third parties dealing with the University, the IHL, and the State of Mississippi (or any agency thereof) should not rely upon the financial statements of the Foundation 24 The University of Mississippi

27 for any purpose without consideration of all the foregoing conditions and limitations. During the year ended June 30, 2013, the Foundation distributed $28.1 million to the University for both restricted and unrestricted purposes. Separate financial statements for the Foundation can be obtained at Brandt Memory House, Post Office Box 249, University, MS Basis of Presentation These financial statements have been prepared in accordance with accounting principles generally accepted in the United States as prescribed by 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, 1999, respectively. The University follows the business type activities reporting requirements of GASB Statement No. 34 that provides a comprehensive presentation of the University s financial activities. The Foundation is a private nonprofit corporation that reports under the Financial Accounting Standards Board (FASB) Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Foundation s financial statement information in the University s financial reporting entity for these differences. 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 reduced to a legal or contractual obligation to pay. All significant intra-institutional transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. The University s investments are invested in various types of investment securities and in various companies within various markets. Investment securities are exposed to several risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and those changes could materially affect the amounts reported in the University s financial statements. Significant estimates also include the determination of the allowances for uncollectible accounts and notes receivable. As a result, there is at least a reasonable possibility that recorded estimates associated with these assets could change by a material amount in the near term. In connection with the preparation of the financial statements, management evaluated subsequent events through the date the financial statements were available to be issued. Cash Equivalents For purposes of the Statements of Cash Flows, the Notes to Financial Statements 25

28 University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Short-Term Investments Short-term investments are investments that are not cash equivalents but mature within the next fiscal year. Accounts Receivable, Net Accounts receivable consist mainly of tuition and fee charges to students, as well as amounts due from federal and state governments and nongovernmental sources, in connection with reimbursement of allowable expenses made pursuant to university grants and contracts. Accounts receivable are recorded net of an allowance for doubtful accounts. 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 Statements of Net Position 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 noncurrent assets on the Statements of Net Position. Inventories Inventories consist of items stocked for repairs, maintenance, and retail operations. These inventories are generally valued at the lower of cost or market, on either the first-in, first-out ( FIFO ) or average cost basis. Prepaid Expenses Prepaid expenses consist of expenditures related to projects, programs, activities or revenues of future fiscal periods. Restricted Cash and Cash Equivalents and Restricted Short-Term Investments Cash, cash equivalents and short-term investments that are externally restricted to make debt service payments, to maintain sinking or reserve funds, or to purchase or construct capital or noncurrent assets, are classified as noncurrent assets in the Statements of Net Position. Endowment Investments The majority of endowment investments is pooled and operates on the total-return concept (interest, dividends, and appreciation). Distributions on these endowments are based on an adopted spending policy. The annual spending rate is 5% of the three-year moving average market value. Accumulated appreciation is used to make up any difference between current year income (interest and dividends) and the distribution permitted under the spending rate policy. At June 30, 2013 and 2012, accumulated appreciation of $16,203,458 and $11,306,853 respectively, was available in the pooled endowment funds. This entire total was restricted for specific purposes. Other Long-Term 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 Statements of Revenues, Expenses, and Changes in Net Position. Investments for which there are no quoted market prices are not material. Capital Assets Capital assets are recorded at cost at the date of acquisition, or, if donated, at fair market value at 26 The University of Mississippi

29 the date of donation. 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 is 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. Note 5 contains 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. Capitalized interest for fiscal years 2013 and 2012 was $90,010 and $791,800, respectively. Certain maintenance and replacement reserves have been established to fund costs relating to auxiliary facilities. Collections On occasion, the University may obtain collections of art or historical treasures (usually as private donations to the institution). These collections are usually held for public exhibition, education or research. The University is not required to capitalize these collections and in practice generally does not capitalize their value in the financial presentation. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of amounts owed to vendors, contractors, or accrued items such as interest, wages, and salaries. Deferred Revenues Deferred revenues include amounts received for tuition, fees, and certain auxiliary activities prior to the end of the fiscal year, but related to the subsequent accounting period. Income Taxes The University of Mississippi is considered an agency of the State and is treated as a governmental entity for tax purposes. As such, the University generally is not subject to federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. However, the University does remain subject to income taxes on any income that is derived from a trade or business regularly carried on and not in furtherance of the purpose for which it was granted exemption. No income tax provision has been recorded because, in the opinion of management, there is no significant amount of taxes on such unrelated business income. 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 8 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 Notes to Financial Statements 27

30 and over, 16 hours per month are earned. There is no limit on the accumulation of major medical leave. At retirement, these employees are paid for up to 240 hours of accumulated major medical leave. Deposits Refundable Deposits refundable represent good faith deposits from students to secure admission to various programs and to reserve housing assignments. Noncurrent Liabilities Noncurrent liabilities include (1) principal amounts of revenue bonds payable and notes payable; (2) estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fiscal year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method effective with the Series 2011 bond issue. Classification of Revenues and Expenditures The University has classified its revenues and expenses as either operating or non-operating according to the following criteria: Operating revenues and expenses have the characteristics of exchange transactions. These transactions can be defined as an exchange in which two or more entities both receive and sacrifice value, such as purchases and sales of goods or services. Examples of operating revenues include (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, and local grants and contracts, (4) interest on institutional student loans, and (5) other operating revenues. Examples of operating expenses include (1) employee compensation, benefits and related expenses, (2) scholarships and fellowships, net of scholarship discounts and allowances, (3) utilities, supplies, and other services, (4) professional fees, and (5) depreciation expense related to certain capital assets. Non-operating revenues and expenses have the characteristics of non-exchange transactions, such as gifts and contributions, state appropriations, investment income, and other revenue sources that are defined as non-operating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34. Gifts (pledges) that are received on an installment basis are recorded at net present value. Examples of non-operating expenses include interest on capital asset related debt and bond expenses. 28 The University of Mississippi

31 Auxiliary Enterprise Activities Auxiliary enterprises typically exist to furnish goods or services to students, faculty, or staff, and that charge a fee directly related to, although not necessarily equal to, the cost of the goods or services. One distinguishing characteristic of auxiliary enterprises is that they are managed as essentially self-supporting activities. Examples are residence halls, food services, and intercollegiate athletic programs (only if they are essentially self-supporting). The general public may be served incidentally by auxiliary enterprises. 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 statements of revenues, expenses and changes in net position. 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). 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 universitywide basis by allocating the cash payments to students, excluding payments for services, on the ratio of total aid versus non-third party aid. Net Position The University adopted GASB Statement No. 63 in fiscal year 2013, and, as a result, began reporting equity balances (previously referred to as Net Assets ) as Net Position. Net position represents the difference between all other elements in a statement of financial position and is displayed in three components-net investment in capital assets; restricted and unrestricted. Net investment in captial assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted Nonexpendable: Net position subject to externally imposed constraints to be maintained permanently by the university. Such assets include the university s permanent endowment funds. Restricted Expendable: Net position whose use by the university is subject to externally imposed constraints that can be fulfilled by actions of the university pursuant to those constraints or that expire by the passage of time. Unrestricted: Net position not subject to externally imposed constraints. Unrestricted net positions may be designated for specific purposes by action of management or the board or may otherwise be limited by contractual agreements with outside parties. Substantially all unrestricted net position is designated for academic, research and outreach programs and initiatives, operating and stabilization reserves, capital projects and capital asset renewals and replacements. The unrestricted net position of $195,116,514 and $199,365,185 at June 30, 2013 and 2012, respectively, includes $24,794,271 and $25,920,980 reserved for auxiliary operations, renewals, and replacements; $22,756,509 and $24,019,207 reserved for departmental working capital; $45,873,657 and $59,107,931 reserved for capital projects; $14,299,597 and $12,768,822 reserved for quasi-endowments; $3,399,596 and $2,920,153 reserved for debt service; $68,546,346 and $62,059,387 reserved for designated projects; and $15,446,538 and $12,568,705 reserved for other purposes. Changes in Accounting Standards Effective with the fiscal year ended June 30, 2013, the University adopted GASB statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and early adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. These statements introduce and define those elements as a consumption or acquisition of assets by the University applicable to a future reporting period. The standards also incorporate deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and rename that measure as net position, rather than net assets. In accordance with the standards, the University has modified the presentation of the Statements of Net Position. An analysis of the University s operations did not yield any transactions that qualified to be classified as deferred inflows or deferred outflows as prescribed by GASB Statement No. 65. Notes to Financial Statements 29

32 NOTE 2 Cash and Investments Cash, Cash Equivalents and Short-Term Investments Investment policies 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, U.S. Government agency and sponsored enterprise obligations, and repurchase agreements. For purposes of the Statements of Cash Flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and short-term investments include $666,733 in money market mutual funds with underlying portfolios with credit ratings of AAA. Custodial Credit Risk Deposits Custodial credit risk for deposits is the risk that in the event of the failure of a financial institution, the University would not be able to recover deposits or collateral securities that are in the possession of an outside party. The IHL System does not have a formal policy for custodial credit risk. However, the Mississippi State Treasurer manages risk on behalf of the universities. Deposits above Federal Depository Insurance Corporation (FDIC) coverage are collateralized by the pledging financial institution s trust department or agent in the name of the Mississippi State Treasurer on behalf of the IHL System. The collateral for public deposits in financial institutions is now held in the name of the State Treasurer under a program established by the Mississippi State Legislature and governed by Section of the Mississippi Code Annotated, Under this program, the University s 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 FDIC. Investments Investment policies at the University are governed by State statute (Section , Mississippi Code Annotated, 1972) and the Uniform Prudent Management of Institutional Funds (UPMIFA) as adopted by the State of Mississippi in Under UPMIFA, the university may appropriate for spending as much of the endowment as the institution deems prudent for the uses, benefits, purposes and duration for which the particular endowment fund was established, subject to evaluation of several specific factors including general economic conditions and the fund s purpose. The University has adopted investment and spending policies for endowments as recommended by the University s Joint Committee on Investments. Active domestic equity investment managers must assure that no position of any one company exceeds 8% of the manager s total portfolio as measured at market, a minimum of 20 positions is maintained in the portfolio to provide adequate diversification, and adequate diversification among industries is maintained by investing no more than 25% of the portfolio in any one industry as defined by the relevant benchmark. International equities are held to the same standards with the exception of maintaining adequate diversification among economic sectors by investing the portfolio in no more than 100% of the relevant benchmark s weighting in any one sector, being subject to a maximum exposure of 50% in any one economic sector, maintaining adequate diversification with respect to currency and country, and investing no more than 20% of the international portfolio in emerging markets. Investment categories are also limited and managed by a cap, a floor, and specified targets in relation to the total market value of the portfolio. 30 The University of Mississippi

33 The following table summarizes the fair values of investments at June 30: Investments Current Assets: Short-Term Investments $ $55,037,625 $ $63,631,370 Noncurrent Assets: Endowment Investments 77,690,886 70,281,118 Other Long-Term Investments 153,017, ,538,523 Total $ $285,746,210 $ $255,451,011 The following table presents the fair value of investments by type at June 30: Investment Type U.S. Government Agency Obligations $ 66,439,058 $ 60,231,411 U.S. Treasury Obligations 106,838, ,819,486 Certificates of Deposit 34,575,462 23,955,029 Collateralized Mortgage Obligations 96, ,967 Municipal Bonds 105,672 - Bond Mutual Funds 11,714,074 14,518,926 Domestic Equity Mutual Funds 20,304,080 15,039,841 Domestic Equity Securities 1,771,727 6,039,283 International Equity Mutual Funds 8,367,112 11,954,557 Hedge Funds 25,059,519 12,642,170 Private Equity 5,977,577 5,739,316 Natural Resources - Timber 3,762,989 3,613,217 Land Grant Seminary Fund 733, ,808 Total $ 285,746,210 $ 255,451,011 Notes to Financial Statements 31

34 Custodial Credit Risk Per GASB Statement No. 40, custodial credit risk is defined 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 the investment or collateral securities that are in the possession of an outside party. The University does not presently have a formal policy for custodial credit risk. Investments are exposed to custodial credit risk if the securities are uninsured and unregistered with securities held by the counterparty s trust department or agent, but not held in the government s name. As of June 30, 2013, no investments were exposed to custodial credit risk. 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. According to University investment policy, the average weighted maturity of the interest-bearing portfolio may not exceed 2.5 years in order to limit interest rate risk. As of June 30, 2013 and 2012, respectively, the University had the following investments subject to interest rate risk: As of June 30, 2013 Investment Maturities (In Years) Investment Type Fair Value Less than More than 10 U.S. Government Agency Obligations $ 61,689,658 $ - $ 14,619,354 $ 46,160,399 $ 909,905 U.S. Treasury Obligations 111,588,036 49,017,801 62,570, Collaterialized Mortgage Obligations 96, ,497 State of MS General Obligation Bonds 105, ,672 Bond Mutual Funds 14,740,735-5,612,956 9,127,779 - Total $ 188,220,598 $ 49,017,801 $ 82,802,545 $ 55,288,178 $ 1,112,074 As of June 30, 2012 Investment Maturities (In Years) Investment Type Fair Value Less than More than 10 U.S. Government Agency Obligations $ 60,231,411 $ - $ 25,107,000 $ 34,000,000 $ 1,124,411 U.S. Treasury Obligations 100,819,486 51,138,441 49,681, Collaterialized Mortgage Obligations 163, ,967 - Bond Mutual Funds 14,518,926-5,804,803 8,714,123 - Total $ 175,733,790 $ 51,138,441 $ 80,592,848 $ 42,878,090 $ 1,124, The University of Mississippi

35 Credit Risk Per GASB Statement No. 40, credit risk is the risk that an insurer or other counterparty to an investment will not fulfill its obligations. According to University investment policy, core fixed income investments must maintain an overall weighted average credit rating of A or better by Moody s and Standard & Poor s. An overall weighted average credit rating of B or better must be maintained by high yield fixed income investments. The University had the following investment credit risk at June 30: Average Credit Rating AA+ $ 173,277,694 $ 161,050,897 Not Rated 14,740,736 14,518,926 Total $ 188,018,430 $ 175,569,823 Bond mutual funds in the amount of $14,740,736 and $14,518,926 are included in the securities not rated at June 30, 2013 and 2012, respectively, and are invested in funds with underlying portfolios with average credit ratings as follows: Average Credit Rating AAA $ 5,798,513 $ 5,914,751 AA 818, ,620 A 1,640,829 1,634,928 BBB 2,379,446 2,033,514 BB 1,539,917 1,667,163 B 1,317,373 1,581,784 CCC or lower 429, ,404 Not Rated 816, ,762 $ 14,740,736 $ 14,518,926 The credit risk ratings listed above are issued upon standards set by Standard and Poor s. Notes to Financial Statements 33

36 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. According to University investment policy, investments in certificates of deposit issued by one bank may not exceed 50% of the total cash management portfolio and investments in obligations of the United States government or its agencies may not exceed 75% of this portfolio. The University had the following investments that represent more than 5% of net investments at June 30: Fair Value % of Total Fair Value % of Total Issuer 2013 Investments 2012 Investments Federal Home Loan Bank $ 41,437, % $ 39,769, % Federal Farm Credit Bank 14,487, % 10,000, % U.S. Treasury Obligations 106,838, % 100,819, % Foreign Currency Risk Per GASB Statement No. 40, the foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment. The University does not presently have a formal policy that addresses foreign currency risk. The University s exposure to foreign currency risk is limited to $8,367,112 and $11,954,557 invested in international equity mutual funds at June 30, 2013 and 2012, respectively. NOTE 3 Accounts Receivable Accounts receivable consisted of the following at June 30: Student tuition $ 10,358,047 $ 8,788,288 Auxiliary enterprises and other operating activities 11,397,872 11,120,857 Contributions and gifts 6,371,002 10,765,565 Federal, state, and private grants and contracts 6,908,878 5,854,983 State appropriations Appropriations 1,626,989 1,623,049 Accrued Interest interest 948, ,743 Other 1,992,806 2,104,163 Total accounts Accounts receivable 39,604,034 41,099,648 Less allowance for doubtful accounts 8,085,826 6,420,135 Net accounts Accounts receivable $ 31,518,208 $ 34,679, The University of Mississippi

37 NOTE 4 Notes Receivable From Students Notes receivable from students are payable in installments over a period of up to ten years and may commence immediately from the date of disbursement up to twelve months from the date that the enrollment status of the student drops below half-time. The following are schedules of interest rates and outstanding balances for the different types of notes receivable held by the University at June 30: Interest June 30, 2013 Current Non-Current Rates Balance Portion Portion Perkins Student Loans 3% to 5% $ 9,291,839 $ 1,645,875 $ 7,645,964 Other Federal Loans 5% 1,606, ,306 $ 1,433,776 Institutional Loans 1% to 5% 15,359,337 5,107,674 $ 10,251,663 Total Notes Receivable 26,257,258 6,925,855 19,331,403 Less Allowance for Doubtful Accounts 1,099, ,749 $ 434,000 Net Notes Receivable $ 25,157,509 $ 6,260,106 $ 18,897,403 Interest June 30, 2012 Current Non-Current Rates Balance Portion Portion Perkins Student Loans 3% to 5% $ 9,259,143 $ 1,662,085 $ 7,597,058 Other Federal Loans 5% 1,636, ,529 $ 1,480,297 Institutional Loans 1% to 5% 14,233,544 4,568,139 $ 9,665,405 Total Notes Receivable 25,129,513 6,386,753 18,742,760 Less Allowance for Doubtful Accounts 1,053, ,708 $ 416,000 Net Notes Receivable $ 24,075,805 $ 5,749,045 $ 18,326,760 Notes to Financial Statements 35

38 NOTE 5 Capital Assets A summary of changes in capital assets for the years ended June 30, 2013 and 2012, respectively, is presented as follows: July 1, 2012 Additions Deletions June 30, 2013 Capital Assets, Non-depreciable: Land $ 27,007,819 $ 129,073 $ - $ 27,136,892 Construction in Progress 75,709,628 44,072,543 74,618,273 45,163,898 Total Capital Assets, Non-depreciable 102,717,447 44,201,616 74,618,273 72,300,790 Capital Assets, Depreciable: Improvements Other Than Buildings 87,515,271 1,619,531-89,134,802 Buildings 587,100,330 72,781,448 65, ,815,986 Equipment 109,595,438 5,760,173 1,890, ,465,318 Library Books 99,684,047 4,793,797 14, ,463,533 Total Capital Assets, Depreciable 883,895,086 84,954,949 1,970, ,879,639 Less Accumulated Depreciation: Improvements Other Than Buildings 27,590,527 3,128,304-30,718,831 Buildings 120,232,643 11,237,192 30, ,439,462 Equipment 74,201,844 7,836,294 1,671,194 80,366,944 Library Books 78,989,640 3,996,382 14,311 82,971,711 Total Accumulated Depreciation 301,014,654 26,198,172 1,715, ,496,948 Capital Assets, Net of Depreciation $ 685,597,879 $ 102,958,393 $ 74,872,791 $ 713,683,481 July 1, 2011 Additions Deletions June 30, 2012 Capital Assets, Non-depreciable: Land $ 21,907,819 $ 5,100,000 $ - $ 27,007,819 Construction in Progress 91,206,115 54,382,557 69,879,044 75,709,628 Total Capital Assets, Non-depreciable 113,113,934 59,482,557 69,879, ,717,447 Capital Assets, Depreciable: Improvements Other Than Buildings 78,622,466 8,892,805-87,515,271 Buildings 520,582,850 66,517, ,100,330 Equipment 104,367,122 6,965,283 1,736, ,595,438 Library Books 94,670,540 5,054,658 41,151 99,684,047 Total Capital Assets, Depreciable 798,242,978 87,430,226 1,778, ,895,086 Less Accumulated Depreciation: Improvements Other Than Buildings 24,793,688 2,796,839-27,590,527 Buildings 110,334,925 9,897, ,232,644 Equipment 68,150,122 7,654,362 1,602,641 74,201,843 Library Books 74,649,817 4,380,974 41,151 78,989,640 Total Accumulated Depreciation 277,928,552 24,729,894 1,643, ,014,654 Capital Assets, Net of Depreciation $ 633,428,360 $ 122,182,889 $ 70,013,370 $ 685,597, The University of Mississippi

39 Depreciation is computed on a straight-line basis with the exception of library books, which is computed using a composite method. The following useful lives, salvage values, and capitalization thresholds are used to compute depreciation: estimated Salvage Capitalization useful Life Value 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 NOTE 6 Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following at June 30: Vendors and contractors $ 22,070,761 $ 15,272,334 Accrued salaries, wages and employee withholdings 9,334,017 9,119,022 Other 308,893 1,624,462 Total $ 31,713,671 $ 26,015,818 NOTE 7 Deferred Revenues Deferred Revenues consisted of the following at June 30: Tuition and fees $ 8,995,429 $ 9,420,213 Auxiliary Services 15,315,135 13,243,149 Total $ 24,310,564 $ 22,663,362 Notes to Financial Statements 37

40 NOTE 8 Long-Term Liabilities Long-term liabilities include bonds, notes, compensated absences, refundable deposits, and a federal loan fund contingency. This contingency represents the federal portion of the Perkins Loan program that would be due and payable to the U.S. government if the University ceased to participate in this program. Information regarding original issue amounts, interest rates and maturity dates for bonds and notes payable at June 30, 2013 and 2012 is listed in the following schedules: Annual 2013 Original Interest Maturity Due Within Description and Purpo Issue Rates (Fiscal Year) July 1, 2012 Additions Deletions June 30, 2013 One Year Bonded Debt Educational Building Corporation Bonds Series ,965, % 2028 $ 8,180,000 $ - $ 375,000 $ 7,805,000 $ 390,000 Series 2006A 17,985, % ,345,000-1,110,000 12,235,000 1,160,000 Series 2006B-1 17,290, % ,365, ,000 12,450, ,000 Series 2008A 29,785, % ,600, ,000 26,825, ,000 Series 2009A 19,870, % ,435, ,000 17,685, ,000 Series 2009B 24,165, % ,220,000-1,745,000 17,475,000 1,820,000 Series 2009C 14,770, % ,010, ,000 13,615, ,000 Series ,995, % ,995, ,000 27,510, ,000 Total Bonded Debt 142,150,000-6,550, ,600,000 6,845,000 Unamortized Premium 2,309, ,116 2,189, ,449 Total Bonded Debt - Net $ 144,459,015 $ - $ 6,669,116 $ 137,789,899 $ 6,964,449 Notes Payable NWCC Desoto Center Expansion 3.50% 2015 $ 289,925 $ - $ 93,337 $ 196,588 $ 96,604 Federal Housing Loan of % , , Total Notes Payable $ 1,214,968 $ - $ 1,018,380 $ 196,588 $ 96,604 Other Long Term Liabilities Accrued Leave Liabilities $ 13,444,658 $ 983,139 $ - $ 14,427,797 $ 1,374,000 Deposits Refundable 112,865-17,050 95,815 - Other 9,102, ,500 8,997,000 - Total Other Long Term Liabilities $ 22,660,023 $ 983,139 $ 122,550 $ 23,520,612 $ 1,374,000 Total $ 168,334,006 $ 983,139 $ 7,810, ,507,099 $ 8,435,053 Due Within One Year 8,435,053 Total Long Term Liabilities $ 153,072, The University of Mississippi

41 Annual 2012 Original Interest Maturity Due Within Description and Purpo Issue Rates (Fiscal Year) July 1, 2011 Additions Deletions June 30, 2012 One Year Bonded Debt Educational Building Corporation Bonds Series ,090, % 2017 $ 5,130,000 $ - $ 5,130,000 $ - $ - Series ,965, % ,545, ,000 8,180, ,000 Series 2006A 17,985, % ,400,000-1,055,000 13,345,000 1,110,000 Series 2006B-1 17,290, % ,250, ,000 13,365, ,000 Series 2008A 29,785, % ,350, ,000 27,600, ,000 Series 2009A 19,870, % ,165, ,000 18,435, ,000 Series 2009B 24,165, % ,885,000-1,665,000 19,220,000 1,745,000 Series 2009C 14,770, % ,395, ,000 14,010, ,000 Series ,995, % ,995,000-27,995, ,000 Total Bonded Debt 125,120,000 27,995,000 10,965, ,150,000 6,550,000 Unamortized Premium - 2,388,981 79,966 2,309, ,949 Total Bonded Debt - Net $ 125,120,000 $ 30,383,981 $ 11,044,966 $ 144,459,015 $ 6,669,949 Notes Payable NWCC Desoto Center Expansion 3.50% 2016 $ 380,105 $ - $ 90,180 $ 289,925 $ 93,337 Federal Housing Loan of % ,436-56, ,043 59,537 Total Notes Payable $ 1,361,541 $ - $ 146,573 $ 1,214,968 $ 152,874 Other Long Term Liabilities Accrued Leave Liabilities $ 12,588,341 $ 856,317 $ - $ 13,444,658 $ 1,336,000 Deposits Refundable 94,815 18, ,865 - Other 9,145,800-43,300 9,102,500 - Total Other Long Term Liabilities $ 21,828,956 $ 874,367 $ 43,300 $ 22,660,023 $ 1,336,000 Total $ 148,310,497 $ 31,258,348 $ 11,234, ,334,006 $ 8,158,823 Due Within One Year 8,158,823 Total Long Term Liabilities $ 160,175,183 BONDS PAYABLE The University has issued bonds to construct, renovate, and improve various campus facilities. As noted in the summary of significant accounting policies, the University established the University of Mississippi Educational Building Corporation (UMEBC). This nonprofit Mississippi corporation was established in accordance with Section of the Mississippi Code Annotated, 1972, for the purpose of acquiring, constructing, renovating, improving, and equipping University facilities. In accordance with GASB Statement No. 14, UMEBC is considered a blended component unit of the university and is included in the generalpurpose financial statements. Series 2005: UMEBC issued bonds totaling $10,965,000 in February 2005 (Series 2005) for the refunding of portions of UMEBC bonds issued July 1996 (Series 1996A) and December 1997 (Series 1997A). Outstanding coupons bear interest at rates ranging from 3.50% to 4.375% payable semiannually with final maturity in December Series 2006A: UMEBC issued bonds totaling $17,985,000 in April 2006 (Series 2006A) for the construction and improvement of athletic facilities and the refunding of portions of UMEBC bonds issued August 1999 (Series 1999). Outstanding coupons bear interest at rates ranging from 4.00% to 5.00% payable semiannually with final maturity in August Series 2006B-1: UMEBC issued bonds totaling $17,290,000 in December 2006 (Series 2006B-1) for (i) expansion and related infrastructure improvements Notes to Financial Statements 39

42 to Oxford-University Stadium/Swayze Field, (ii) renovation of the University golf course clubhouse/pro shop, expansion and upgrading of golf course irrigation, and improvements to cart paths, landscaping, and other necessary course infrastructure, and (iii) a portion of the construction, equipping, and expansion of the Inn at Ole Miss, including external infrastructure improvements. Outstanding coupons bear interest at rates ranging from 3.50% to 5.00% payable semiannually with final maturity in October Series 2008A: UMEBC issued bonds totaling $29,785,000 in August 2008 (Series 2008A) for the construction, equipping and landscaping of residential colleges, dormitories and academic facilities, including external infrastructure improvements. Outstanding coupons bear interest at rates ranging from 3.25% to 5.00% payable semiannually with final maturity in October Series 2009A: UMEBC issued bonds totaling $19,870,000 in June 2009 (Series 2009A) for the construction, equipping and landscaping of a new school of law, including external infrastructure improvements. Outstanding coupons bear interest at rates ranging from 2.125% to 4.50% payable semiannually with final maturity in October Series 2009B: UMEBC issued bonds totaling $24,165,000 in June 2009 (Series 2009B) for the refunding of all outstanding UMEBC bonds issued October 2000 (Series 2000A). Outstanding coupons bear interest at rates ranging from 3.00% to 5.00% payable semiannually with final maturity in October Series 2009C: UMEBC issued bonds totaling $14,770,000 in November 2009 (Series 2009C) for the construction, equipping and landscaping of residential colleges, dormitories and academic facilities, including external infrastructure improvements. Outstanding coupons bear interest at rates ranging from 2.50% to 4.75% payable semiannually with final maturity in November Series 2011: UMEBC issued bonds totaling $27,995,000 in October 2011 (Series 2011) for the construction, equipping and landscaping of student housing and/ or residence halls, including external infrastructure improvements. Outstanding coupons bear interest at 40 The University of Mississippi

43 rates ranging from 2.00% to 5.00% payable semiannually with final maturity in October NOTES PAYABLE The University has entered into note agreements for the expansion and renovation of facilities utilized at the Desoto Center and the improvement and construction of student housing facilities. Northwest Community College (NWCC) Desoto Center Note: This note is for the expansion of facilities wholly owned by NWCC. This facility is utilized by both parties for instructional purposes and is located in Desoto County, Mississippi, a part of the Memphis, Tennessee, metropolitan area. The note is payable in 12 annual payments of $103, with an interest rate of 3.5% and final payment due December 1, Federal Housing Loan of 1994: This loan totaled $1,601,500 and was issued March 8, 1994, for the purpose of renovation, construction, and improvements to student housing facilities. The outstanding balance of this loan was paid in November The future annual requirements necessary to pay principal and interest associated with long-term debt at June 30, 2013, are as follows: Bonds Capital Notes Fiscal Year(s) Payable Leases Payable Interest Total 2014 $ 6,964,449 $ - $ 96,603 $ 5,704,099 $ 12,765, ,279,449-99,985 5,446,800 12,826, ,639, ,168,550 12,807, ,994, ,866,831 12,861, ,979, ,540,118 12,519, ,902, ,878,928 54,781, ,722, ,454,191 45,176, ,483, ,349,084 27,832, ,825, ,206 3,963,206 Totals $ 137,789,899 $ - $ 196,588 $ 57,546,807 $ 195,533,294 NOTE 9 Operating Leases Property under operating leases is composed of office and apartment rent, computer and office equipment. The following is a schedule by years of the future minimum rental payments required under those operating leases: Year Ending June 30, Amount 2013 $ 3,019, ,604, ,604, , ,688 Total Minimum Payments Required $ 7,379,429 The total rental expense for all operating leases, except those with terms of a month or less that were not renewed, for the years ending June 30, 2013 and 2012 approximated $3,019,975 and $2,962,694, respectively. Notes to Financial Statements 41

44 NOTE 10 Operating Expenses By Natural And Functional Classifications The University s operating expenses by functional classification were as follows for the years ended June 30, 2013 and 2012: Functional Classification Compensation & Benefits Travel Year Ended June 30, 2013 Contractual Services Utilities Scholarships Commodities Depreciation Other Total Instruction Research Public Service Academic Support Student Services Institutional Support Operation of Plant Student Aid Auxiliary Enterprises Depreciation Loan Fund Expenses Other Total Operating Expenses $ 114,794,204 $ 4,398,364 $ 13,618,660 $ 48,406 $ 3,220,234 $ 6,625,185 $ - $ - $ 142,705,053 27,299,443 1,534,617 14,167,803 6,514 5,419 3,480, ,494,648 3,560, ,857 1,209,488 6, , ,250,515 23,643, ,589 5,354, ,453 7,137, ,825,720 9,467, ,664 2,879,006 13,360 25,700 1,853, ,583,257 18,637, ,725 5,666,660 71,264-1,445, ,216,632 15,455,430 43,565 9,554,489 7,363,872-1,432, ,849,677 55, ,146-33,341,115 2, ,559,447 24,351,492 5,049,281 26,716,481 4,020,018 7,721,414 7,313, ,172, ,198,172-26,198, , , $ 237,265,651 $ 12,573,662 $ 79,326,854 $ 11,530,275 $ 44,357,335 $ 29,603,519 $ 26,198,172 $ 493,227 $ 441,348,695 Functional Classification Compensation & Benefits Travel Year Ended June 30, 2012 Contractual Services Utilities Scholarships Commodities Depreciation Other Total Instruction Research Public Service Academic Support Student Services Institutional Support Operation of Plant Student Aid Auxiliary Enterprises Depreciation Loan Fund Expenses Other Total Operating Expenses $ 109,861,674 $ 4,646,307 $ 13,101,685 $ 46,355 $ 2,321,397 $ 5,496,034 $ - $ - $ 135,473,452 27,474,021 1,586,474 12,630,173 8,239 4,074 1,185, ,888,282 3,383, ,305 1,043,109 6, , ,899,923 21,945, ,139 5,814,651-70,960 6,865, ,364,834 9,196, ,959 2,564,310 12,005 12,758 1,882, ,929,239 16,524, ,480 6,512,248 42,351-1,312, ,811,131 14,554,917 28,804 7,133,966 8,144, , ,730,434 73,421 2, ,004-41,316,671 3, ,640,830 21,993,540 4,038,824 19,649,876 3,457,090 6,987,346 5,541, ,668, ,729,894-24,729, , , $ 225,007,446 $ 11,801,544 $ 68,695,022 $ 11,716,515 $ 50,713,206 $ 23,472,896 $ 24,729,894 $ 516,698 $ 416,653, The University of Mississippi

45 NOTE 11 Construction Commitments And Financing The University has contracted or made commitments for various construction projects as of June 30, Estimated costs to complete the various projects and the sources of anticipated funding are presented below: Estimated Costs Funding Sources To Complete Federal State University Other Buildings Classrooms Coulter Hall $ 16,933,000 $ - $ - $ 16,933,000 $ - Faser Hall Electrical 55, ,000 - Lamar Hall 6,431, ,431,000 - Music Building 3,925, ,925,000 - Sally McDonnell Bardsdale Honors College 6,500, ,500,000 2,000,000 Research Natural Products Center Phase II 27,896,000 21,234,000-6,662,000 - Other Ole Miss 170, ,000 - Johnson Commons West 7,188, ,188,000 - Stockard Martin Hall 376, ,000 - Student Union 49,942,000-9,942,000 39,585, ,000 Turner Center 1,495, ,495,000 - Improvements Other Than Buildings Cooling Tower Replacement 1,500, ,500,000 - Domestic Water Expansions & Improvements 577, ,000 - HVAC System Modficiations 1,750, ,750,000 - Kinard Water Tank 2,395, ,395,000 - New Central Power Plant 1,300,000-1,300, Parking Lots and Roads 1,589, ,589,000 - $ 130,022,000 $ 21,234,000 $ 11,242,000 $ 95,131,000 $ 2,415,000 NOTE 12 Pension Plan Plan Description: The IHL 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 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. Vesting Period: In 2007, the Mississippi Legislature amended the PERS Plan to change the vesting period from four to eight years for members who entered the System after July 1, A member who entered the System prior to July 1, 2007 is still subject to the four year vesting period provided that the member does not subsequently refund their account balance. Funding Policy: PERS members are required to contribute 9.00% of their annual salary, and the institution is required to contribute at an actuarially determined rate. This actuarially determined rate was 12.00% of covered payroll as of July 1, The rate increased to 12.93% as of January 1, 2012 and to 14.26% as of Notes to Financial Statements 43

46 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, 2013, 2012, and 2011, were $15,690,591, $13,435,057, and $11,938,804, respectively, and were 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, 2013, 2012, and 2011 were $8,590,508, $6,930,825, and $6,206,414 respectively. NOTE 13 Donor-Restricted Endowments The net appreciation on investments of donor-restricted endowments that is available for expenditure authorization was $16,203,458 at June 30, 2013 and $11,306,853 at June 30, This amount is included on the Statement of Net Position as follows: FY13 FY Net Position - Expendable for Scholarships and Fellowships $ 5,750,366 $ 4,972,816 Net Position - Expendable for Other Purposes 10,453,092 6,334,037 $ 16,203,458 $ 11,306,853 Most endowments operate on the total-return concept as permitted by the Uniform Management of Institutional Funds Act (Sections through , Mississippi Code Annotated, 1972) as enacted in The annual spending rate for these endowments is 5% of the three-year moving average market value. 44 The University of Mississippi

47 NOTE 14 Federal Direct Lending and Ffel Programs The University distributed $97,727,449 and $102,090,887 for the years ended June 30, 2013 and 2012, respectively, for student loans through the U.S. Department of Education lending programs. These distributions and their related funding sources are included as Noncapital Financing distributions and receipts in the Statements of Cash Flow. NOTE 15 Risk Management Several types of risk are inherent in the operation of an institution of higher learning. The University deals with these risks in several manners. One of these methods is the pooling of resources among institutions. The eight public Mississippi universities have pooled their resources to establish professional and general liability trust funds. Funds have been established for Workers Compensation, Unemployment, and Tort Liability. The Workers Compensation program provides a mechanism for the University to fund and budget for the costs of providing worker compensation benefits to eligible employees. The Program does not pay benefits directly to employees. Funds are set aside in trust, and a third-party administrator is utilized to distribute the benefits to eligible employees. University payments to the Workers Compensation fund for the fiscal years ended June 30, 2013 and 2012 were $1,203,511 and $1,044,532, respectively. The Unemployment Trust Fund operates in the same manner as the Workers Compensation Fund. The Fund does not pay benefits directly to former employees. The Fund reimburses the Mississippi Employment Security Commission for benefits the Commission pays directly to former employees. University payments to the Unemployment Trust Fund for the fiscal years ended June 30, 2013 and 2012 were $87,923 and $109,834, respectively. The Tort Liability Fund was established in accordance with Section of Mississippi State Law. The Mississippi Tort Claims Board authorized the IHL to establish a fund in order to self-insure a certain portion of its liability under the Mississippi Tort Claims Act. Effective July 1, 1993, Mississippi statute permitted tort claims to be filed against public universities. A maximum liability limit of $500,000 per occurrence is currently permissible. During the year ended June 30, 2003, the IHL Board authorized the Tort Fund and subsequently acquired an educator s legal liability policy with a deductible of $1,000,000. The IHL Board designated $1,000,000 of IHL Tort Fund net assets towards any future payment of this deductible. The Tort Claims Pool also purchases a fleet automobile policy. University payments to the Tort Liability Fund for the fiscal years ended June 30, 2013 and 2012, was $99,100 and $0, respectively. The University s payments for the fleet automobile policy and a blanket public official bond for fiscal years 2013 and 2012 were as follows: Fleet Automobile Policy $ 116,275 $ 112,972 Blanket Public Official Bond 2,450 2,450 Notes to Financial Statements 45