Midwestern State University Wichita Falls, Texas

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2 Midwestern tate niversity Wichita Falls, exas F W hat began in eptember of 1922 as Wichita Falls Junior ollege has developed over the years into Midwestern tate niversity. Growing from its first location on the third floor of the high school at leventh and Broad streets, the college was moved to its current location in 1937 and was renamed Hardin Junior ollege. n 1946, the college achieved senior status and was renamed Hardin ollege only to be renamed again in 1950 to Midwestern niversity. lthough the university became a state-supported institution in 1961, it was not until 1975 that the school was renamed to bear its final name, Midwestern tate niversity. Midwestern tate niversity aspires to be the public liberal arts university of the tate of exas. n FY , the university had an annual budget of $53 million and encompassed six different colleges offering 42 undergraduate programs and 22 master s degree programs. M idwestern tate niversity is located midway between Oklahoma ity and the Dallas-Fort Worth Metroplex and is approximately a two-hour drive to either city. ccessible from a number of state highways, the campus is nestled in a beautiful residential area of Wichita Falls which has a population of 104,000. P O nded M idwestern tate niversity is accredited by the ommission on olleges of the outhern ssociation of olleges and chools to award associate, baccalaureate and master's degrees. M 's three largest academic programs include business, health sciences and education. You can learn more about the cademic Programs at M by visiting our cademic webpage - academics.mwsu.edu. (naudited

3 Midwestern tate niversity Wichita Falls, exas F P O nnual Financial eport (naudited) For the nded ugust 31, 2005 nded (naudited

4 Midwestern tate niversity able Of ontents etter to Oversight gencies 1 etter Of ransmittal 2 Organizational Data 2 F P O Management s Discussion & nalysis 4-13 Basic Financial tatements: xhibit omparative tatement of et ssets 14 xhibit omparative tatement of evenues, xpenses, and hanges in et ssets 16 Matrix of Operating xpenses eported by Function 18 xhibit tatement of ash Flows 20 otes o he Financial tatements chedules: chedule 1 - chedule Of xpenditures of Federal wards 36 chedule 1B chedule of tate Grant Pass hroughs From/o tate gencies 38 chedule 2 Miscellaneous Bond nformation 39 chedule 2B hanges in Bonded ndebtedness 40 chedule 2 Debt ervice equirements 41 chedule 2D nalysis of Funds vailable for Debt ervice 42 chedule 2 Defeased Bonds Outstanding 43 chedule 3 econciliation of ash in tate reasury 44 nded (naudited

5 Midwestern tate niversity MDW VY OGZO D ugust 31, 2005 H BOD OF G F erm xpires February 25, 2006 Mr. Mac W. annedy, Jr., hairman Mr. John. Bridgman Mr. David. tephens erm xpires February 25, 2008 Ms. Pamela Odom Gough Ms. Pat Haywood Mr. Don oss Malone erm xpires February 25, 2010 Mr. tephen. Gustafson Mr. Munir. alani Mr. Ben F. Wible Wichita Falls Wichita Falls Plano Graham Wichita Falls Vernon Wichita Falls Wichita Falls herman Ms. Kathryn. Yeager, egent meritus P PD Dr. Jesse W. ogers VY F OFF O Mr. Juan. andoval Ms. Gail Ferguson Vice President, dministration and Finance ontroller nded (naudited 2

6 M G M F D P O O & Y nded Midwestern tate niversity he objective of Management s Discussion and nalysis is to help readers of Midwestern tate niversity s financial statements better understand the financial position and operating activities of the university for the fiscal years ended ugust 31, 2005 and Management has prepared the financial statements and the related footnote disclosures along with the discussion and analysis. esponsibility for the completeness and fairness of this information rests with the university administration. he following discussion should be read in conjunction with the accompanying transmittal letter, financial statements, and note disclosures. Headcount nrollment Fall Headcount vs F Fall emester nrollment F (naudited) 4

7 F M G M M D P G O M F O D & P O O Y & Y nded (naudited) nded (naudited) he niversity s Financial Position $32,951,722 urrent ssets $26,421,504 $97,342,133 oncurrent ssets Midwestern tate niversity $103,053,249 $24,256,353 urrent iabilities $20,335,573 $38,303,872 oncurrent iabilities ugust 31, 2005 ugust 31, 2004 $40,206,550 $68,932,630 $67,733,6 et ssets he tatement of et ssets he statement of net assets presents the financial position of the university at year end. By reporting information on the university as a whole, the following statements highlight for the reader whether or not the year s activities strengthened or weakened the university s financial position. When revenues and other support exceed expenses, the result is an increase in net assets. he relationship between revenues and expenses represent a measure of the financial condition of the university. ncreases in net assets show an improvement in financial health while decreases often indicate declining financial stability. However, many other non-financial factors, such as the trend in admission applicants, enrollment, student retention, and condition of the buildings must be considered to accurately assess the overall health of the university. n spite of a $6,010,818 increase in net assets from current operations, the university s net assets shows a decline in the amount of $1,199,000 due to a restatement to prior year net assets in the amount of $7,209,818. his restatement was due to the requirement by the tate omptroller s Office that all exas universities should conform to GP and depreciate their library collections. he $7,209,818 represents prior year s accumulated depreciation. s the statement shows below, the university s net assets decreased from $68,932,630 in 2004 to $67,733,630 in urrent ssets $32,951,722 $26,421,504 oncurrent ssets apital ssets 74,724,922 66,541,645 Other 22,617,211 36,511,604 otal ssets 130,293, ,474,753 urrent iabilities $24,256,353 $20,335,573 oncurrent iabilities 38,303,872 40,206,550 otal iabilities 62,560,225 60,542,123 et ssets: nvested in apital ssets 42,905,812 42,228,928 estricted Debt etirement estricted onexpendable 3,246,323 2,970,232 xpendable ontributor estricted 4,206,518 4,207,524 nrestricted*(see next page) 17,374,977 19,525,946 otal et ssets 67,733,630 68,932,630 otal iabilities and et ssets $130,293,855 $129,474,753 5

8 Midwestern tate niversity he following charts indicate the changes in net assets for the year ended ugust 31, 2005 when compared to the previous year. M G M F D P O O & nvested in apital ssets 63.34% et ssets ugust 31, 2005 nrestricted 25.65% estricted 11.00% nvested in apital ssets 61.26% et ssets ugust 31, 2004 estricted 10.41% nrestricte d 28.33% he university reports unrestricted net assets of 25.65% for the year ended ugust 31, 2005 and 28.33% for the prior year. his decrease in unrestricted net assets is due to the university s use of $2,166,700 of HF funds on the OB building that was from prior year s savings, and the purchase of four properties adjacent to campus in the amount of $540,000 was from a quasi-endowment fund. lthough unrestricted, most of these funds have been designated for specific purposes. he following charts show how funds have been allocated: Y nded (naudited) Other 63.80% llocation of nrestricted et ssets ugust 31, 2005 Quasiendow ment 6.99% apital Projects 14.61% Future Budget 7.19% Working apital 4.60% tudent oans 2.81% Other 33.00% llocation of nrestricted et ssets ugust 31, 2004 enew al & Quasiendow ment t eplacemen 10.00% 5% tudent oans 3.00% apital Projects 24.00% Future Budget 21.00% Working apital 4.00% 6

9 O F O M H G F M F P O D P M O O & Y nded (naudited) nded (naudited he niversity s esults of Operations Midwestern tate niversity Midwestern tate niversity he statement of revenues, expenses, and changes in net assets is a presentation of the niversity s operating results for the years ended ugust 31, 2005 and t indicates whether the financial condition has improved or deteriorated. his statement shows the operating results of the niversity, as well as the nonoperating revenues and expenses. Operating revenues include all transactions that result in the sales and/or receipts from goods and services such as tuition and fees, housing, and food services. ertain federal, state, and private grants are considered operating revenues if they are not for capital purposes and are considered a contract for services. nnual state appropriations are budgeted for operations but are considered nonoperating revenues according to generally accepted accounting principles Operating evenue: et tuition and fees $19,007,023 $18,408,377 Grant and contracts 1,495,391 1,336,333 ales and ervice of ducational ctivities 954, ,203 ales and ervices of uxiliary nterprises 3,981,844 3,496,213 Other 583, ,233 otal Operating evenue 26,022,231 24,490,359 Operating xpenses 57,599,243 55,031,818 Operating oss (31,577,012) (30,541,459) onoperating evenues (xpenses): tate ppropriations 20,941,156 20,853,180 Grants (Federal & tate) 6,001,181 5,667,964 Gifts 2,509,958 2,293,662 Other onoperating evenues 22,805 6,020 nvestment ncome 1,087, ,243 nvestment ctivities xpense et ncrease (Decrease) in Fair Value of nvestments (152,282) 26,981 Gain (oss) on ale of apital ssets (246,703) (16,372) et Book Value of apital ssets Disposals (125,370) (89,492) et xpenses ncurred on Bonds ssued 5,012 nterest xpense on apital sset Financing (816,339) (759,385) otal onoperating evenue (xpense) 29,221,457 28,630,813 ncome (oss) Before apital ontributions, dditions to (2,355,555) (1,910,646) ndowments, and pecial tems apital ontributions, dditions to ndowments, & pecial tems apital ontributions 4,968,525 1,500,000 HF ppropriation 3,007,669 3,007,669 dditions to ndowments 410, ,086 ransfers n 5,586 ransfers Out (25,894) (8,314) ncrease (Decrease) in et ssets 6,010,818 2,926,795 et ssets, Beginning of, as estated 61,722,812 66,005,835 et ssets, nd of $67,733,630 $68,932,630 7

10 O F O M H G F M F P O D P M O O & Y nded (naudited) Midwestern tate niversity his chart identifies components of total revenue for the year ended ugust 31, 2005: uxiliary ctivities 6.65% Grants & ontracts 12.53% et uition & Fees 31.76% Gain & ncrease in Fair Value 0.00% otal evenue ugust 31, 2005 Other evenue 1.01% nvestment ncome 1.56% HF ppropriation & dditions to ndow ments 5.71% his chart shows the same information for the year ended ugust 31, 2004 otal evenue ugust 31, 2004 uxiliary ctivities 0.02% Other evenue nvestment ncome 6.10% 0.62% 1.17% Grants & ontracts 12.22% Gain & ncrease in Fair Value tate ppropriations 34.99% Gifts 4.19% ducational ctivities 1.59% tate ppropriations 36.37% nded (naudited et uition & Fees 32.11% HF ppropriation & dditions to ndow ments 5.84% Gifts 4.00% ducational ctivities 1.57% tate appropriations decreased from 36% of total revenues in 2004 to 34% of total revenue in uxiliary activities, investment income, and grants & contracts increased from

11 O F O M H G F M F P O D P M O O & Y nded (naudited) nded (naudited) Midwestern tate niversity Midwestern tate niversity otal operating expenses for the year ended ugust 31, 2005 were $57,599,243 as compared to $55,031,818 for the previous year. hese charts show that the distribution of operating expenses was almost identical for both years. 0.60% entals & eases 0.80% epairs & Maintenance 2.26% Printing & eproduction ommunications & tilities 3.80% Materials & upplies 8.00% ravel 1.51% Professional Fees & upplies 3.64% Printing & eproductiondepreciation 0.57% 6.06% epairs & Maintenance 1.97% entals & eases 0.77% ommunications & tilities 4.01% Materials & upplies 7.72% ravel 1.40% otal Operating xpenses ugust 31, 2005 nterest 0.00% DepreciationBad Debt 7.19% 0.25% & Professional Fees upplies 4.34% nterest 0.00% cholarships 10.07% otal Operating xpenses ugust 31, 2004 Bad Debt 0.26% cholarships 11.18% alaries, Wages, & Fringe Benefits 61.88% alaries, Wages & Fringe Benefits 62.00% 9

12 Midwestern tate niversity O F O H F P O M nded (naudited) he niversity s ash Flows he statement of cash flows presents the significant sources and uses of cash. t is designed to help users assess the niversity s ability to generate future cash flows, its ability to meet obligations as they come due, and its need for external financing. ash provided (used) by: here was a net increase in cash of $38,063. ash Flows Operating activities $(26,063,430) $(24,773,546) oncapital financing activities 31,658,331 29,008,902 apital and related financing activities (1,423,287) (11,667,285) nvesting activities (4,133,551) 7,730,102 et increase (decrease) in cash 38, ,173 ash Beginning of year as restated 3,261,448 2,963,275 ash nd of year $3,299,511 $3,261,448 xhibit, the tatement of ash Flows, shows that the major sources of funds for operating activities are from student tuition and fees and auxiliary enterprises. uition and fees accounted for $20.8 million and auxiliary enterprises, including housing and dining, accounted for $4 million. tate appropriations in the amount of $22 million are the primary source of non-capital financing. lthough the niversity is dependent on these appropriations to continue the current level of operations, the new accounting standards require that this source of funding be reflected as non-operating. Other non-capital financing activities include state and federal grants in the amount of $6 million and gifts in the amount of $3 million. he main sources for financing activities came from the issuance of HF bonds in the amount of $11 million.. ash was used to purchase capital assets in the amount of $15 million and for the payment of principal and interest on capital debt in the amount of $1.5 million. he use of cash in investing activities was also related to the influx of cash when the HF bonds were issued. 10

13 Midwestern tate niversity he niversity s apital ssets and Debt dministration apital ssets M G M F D P O O & Y nded s of ugust 31, 2005, the niversity had $74.7 million invested in capital assets. his figure is net of accumulated depreciation of $62.3 million. Depreciation charges totaled $4.1 million for the current fiscal year. ssets by classification are shown below. apital ssets Before ccumulated Depreciation and and and mprovements $3,436,321 $2,717,554 onstruction in Progress 12,502,739 5,589,806 Buildings and Building mprovements 85,189,018 76,798,133 nfrastructure 7,601,961 7,601,961 Facilities mprovements 4,033,412 4,033,412 Furniture and quipment 8,845,762 7,962,306 Vehicles 1,506,152 1,236,217 Other apital ssets 13,947,937 12,457,234 otal $137,063,302 $118,396,623 he category of other capital assets includes library holdings, artwork, and collections. ssets totaling $6.7 million were placed in service during fiscal year hese include finalization of the HV project and the Boiler project. he $12,502,739 representing construction in progress at the end of the year includes the new Dillard ollege of Business building, the tunnel expansion for utilities, and Pierce Hall (which was not fully complete). Further financial information about the university s capital assets is presented in ote 2 of the notes to the financial statements. (naudited) 11

14 Midwestern tate niversity Debt t year-end, the niversity had $53.6 million in outstanding debt. Outstanding debt for the year ended ugust 31, 2004 was $55.4 million. he table below summarizes the amount of outstanding debt by type of instrument for the year ended ugust 31, 2005 compared with ugust 31, M G M F D P O O & Y Debt repayments made during the year included principal in the amount of $1,137,297 and interest in the amount of $1,255,651, of which $997,260 was capitalized as part of constructed assets and construction in progress. he niversity s revenue bond rating is 2. More detailed bond information is disclosed in chedule 2, 2B, 2, 2D, and 2. Factors hat Will ffect the Future evenue Bonds $27,775,000 $28,735,000 General Obligation Bonds (HF) 11,185,000 11,185,000 ccrued long term interest payable on revenue bonds 13,960,722 15,194,194 apital ease Obligation 581, ,796 ccrued interest payable on capital lease obligations 102,789 23,712 otal $53,604,862 $55,441,702 onstruction is still in progress on the new ollege of Business dministration building. his building of 88,000 square feet will represent the largest, single construction project in the history of Midwestern tate niversity and should be completed pring he ollege of Business dministration with approximately 1,200 majors is the university s largest college. t the present time, the faculty of the college are placed in five different buildings. dministration of this program is near impossible and the college is in need of modern teaching and research equipment, data bases, and libraries. he total cost of the new facility will be $18 million. he source of funds for this building is a combination of private donations, Higher ducation ssistance Funds (HF), and the issue of HF onstitutional ppropriation Bonds. n recognition of a $5,000,000 gift from Kay Dillard to the M haritable rust, the Board of egents has approved the name of the building to be the Dillard ollege of Business dministration nded (naudited) he donation of the Wichita Falls Museum & rt enter to Midwestern tate niversity was finalized after a lengthy process and will be an incalculable addition to the niversity. his will open the doors to many educational programs not only for the niversity but also the community and area schools. Plans are already being made to expand the museum s current collection and renovate the galleries in order to present four to six new exhibitions a year. 12

15 Midwestern tate niversity M G M F D P O O & Pierce Hall reopens after renovations that began in he renovations included updates to accommodate changes in fire codes, transformation of community restrooms into semi-private, remodeled lounge areas and made student rooms more space efficient. he niversity now operates eight separate housing facilities with the combined ability to accommodate over 1,000 students. t is anticipated that the demand for student housing will continue to increase and planning has begun for a new bed apartment-style complex similar to unwatcher Village, which was completed in eptember tate appropriations still comprise the largest source of funding for the niversity. Due to a tate mandated reshuffling of HF funds, the university lost $718,104 in funding for FY and FY Faced with the critical need to upgrade computer hardware and software, the university increased the omputer se Fee from $9.50 to $12.00 per semester credit hour effective pring he Distance ducation ourse Fee was increased from $25 to $32 per semester credit hour effective Fall 2006, and an additional tuition charge of $100 per semester credit hour will be assessed for any course a student takes for the third or more time effective ummer ontinued strong support from alumni, parents and friends resulted in the university s new nnual Fund ampaign tripling its first year expectations with contributions in excess of $200,000. he President s xcellence lub, which has existed since 1984, showed a record contribution of approximately $300,000. he administration of Midwestern tate niversity believes that the university will continue to maintain a strong financial framework that will enable the university to improve programs and effectively manage operating costs. Y nded (naudited) 13

16 F P O naudited Midwestern tate niversity Midwestern tate niversity xhibit omparative tatement of et ssets ugust urrent ssets: ash and ash quivalents: ash on Hand $ 15,595 $ 14,995 ash in Bank 719,013 1,071,881 ash in tate reasury 2,488,631 2,146,703 hort-term nvestments 16,166,739 9,121,764 tate ppropriations 2,452,590 3,768,075 estricted: ash and ash quivalents: ash in Bank 76,272 27,869 ash quivalents hort-term nvestments 744, ,131 otes and oans receivable 13,070 13,935 et eceivables: tudent eceivables 3,586,066 3,868,080 Federal eceivables 174, ,245 Other ntergovernmental eceivables nterest and Dividends 213, ,277 Other eceivables 1,047, ,045 Pledges receivable 300, ,700 onsumable nventories 290, ,162 Prepaid xpenses 4,662,097 4,147,726 otal urrent ssets 32,951,722 26,421,504 oncurrent ssets: estricted: hort-term nvestments 10,087,168 7,301,667 Bond Proceeds eceivable 11,183,485 nvestments 671,466 1,102,669 oans and ontracts 85,918 91,600 Other ong term nvestments 10,772,659 15,332,183 Pledges eceivable-apital Projects 1,000,000 1,500,000 apital ssets, on-depreciable: and and and mprovements $ 3,436,321 $ 2,717,554 onstruction in Progress 12,502,739 5,589,806 Other apital ssets 2,963,878 18,902,938 12,203,800 20,511,160 apital ssets, Depreciable: Buildings & Building mprovements 85,189,018 76,798,133 ess ccumulated Depreciation (43,678,273) 41,510,745 (41,586,406) 35,211,727 nfrastructure 7,601,961 7,601,961 ess ccumulated Depreciation (2,190,407) 5,411,554 (1,879,810) 5,722,151 Facilities and Other mprovements 4,033,412 4,033,412 ess ccumulated Depreciation (1,927,156) 2,106,256 (1,778,039) 2,255,373 Furniture and quipment 8,845,762 7,962,306 ess ccumulated Depreciation (6,064,571) 2,781,191 (5,520,248) 2,442,058 Vehicles 1,506,152 1,236,217 ess ccumulated Depreciation (719,331) 786,821 (868,220) 367,997 Other apital ssets 10,984, ,434 ess ccumulated Depreciation (7,758,642) 3,225,417 (222,255) 31,179 otal oncurrent ssets 97,342, ,053,249 nded otal ssets $ 130,293,855 $ 129,474,753 (naudited 14

17 Midwestern tate niversity B urrent iabilities: ccounts Payable $ 1,796,399 $ 1,421,732 ccrued iabilities 3,380,626 2,938,026 ntergovernmental ccounts Payable 74,882 66,926 mployees' ompensable eave 120, ,124 oom/property Deposits 76,135 71,393 Deferred evenues 15,747,864 14,216,853 etainages and ontracts 625, ,259 Funds Held for Others 67, ,345 evenue Bonds Payable 1,300, ,000 onstitutional ppropriation Bonds 875,000 apital ease Obligations 191, ,915 otal urrent iabilities 24,256,353 20,335,573 oncurrent iabilities: mployees' ompensable eave 900, ,488 oom/property Deposits 228, ,181 evenue Bonds Payable 26,475,000 27,775,000 onstitutional ppropriation Bonds 10,310,000 11,185,000 apital ease Obligations 389, ,881 otal oncurrent iabilities 38,303,872 40,206,550 otal iabilities 62,560,225 60,542,123 nvested in apital ssets, net of related debt 42,905,812 42,228,928 estricted for: Debt etirement onexpendable 3,246,323 2,970,232 xpendable: estricted by ontributor 4,206,518 4,207,524 nrestricted 17,374,977 19,525,946 otal et ssets 67,733,630 68,932,630 otal iabilities and et ssets $ 130,459,320 $ 129,474,753 F P O nded 15 (naudited )

18 F naudited Midwestern tate niversity Midwestern tate niversity xhibit omparative tatement of evenues, xpenses, and hanges in et ssets For the s nded ugust Operating evenues: tudent uition and Fees (net of scholarship allowances of $3,335,737 and $2,783,714, respectively) $ 19,007,023 $ 18,408,377 Federal Grants 621, ,102 Federal Pass-hrough Grants 94, ,424 tate Pass-hrough Grants 617,055 57,245 Other Grants and ontracts 162, ,562 ales and ervices of ducational ctivities 954, ,203 ales and ervices of uxiliary nterprises (net of scholarship allowances of $432,338 and $396,790 respectively) 3,981,844 3,496,213 Other Operating evenue 583, ,233 otal Operating evenues 26,022,231 24,490,359 Operating xpenses: alaries and Wages 28,464,541 27,151,301 Payroll elated osts 7,179,972 6,813,535 Professional Fees and ervices 2,096,201 2,386,888 ravel 868, ,866 Materials and upplies 4,606,513 4,249,796 ommunications and tilities 2,188,433 2,208,398 epairs and Maintenance 1,303,473 1,083,854 entals and eases 460, ,306 Printing and eproduction 348, ,311 Depreciation 4,139,839 3,333,577 Bad Debt xpense 143, ,247 nterest 213 1,220 cholarships 5,799,313 6,151,519 otal Operating xpenses 57,599,243 55,031,818 Operating oss (31,577,012) (30,541,459) P O nded (naudited onoperating evenues (xpenses): tate ppropriations 17,229,737 17,130,992 dditional tate ppropriations 3,711,419 3,722,188 tate Grants 1,184,644 1,119,417 Federal Grants 4,816,537 4,548,547 Gifts 2,509,958 2,293,662 Other onoperating revenues 22,805 6,020 nvestment ncome 1,087, ,243 et ncrease (Decrease) in Fair Value of nvestments (152,282) 26,981 Gain (oss) on ale of apital ssets (246,703) (16,372) et Book Value of apital sset Disposals (125,370) (89,492) Premium on Bonds ssued 5,012 nterest xpense on apital sset Financing (816,339) (759,385) otal onoperating evenues (xpenses) 29,221,457 28,630,813 ncome (oss) Before apital ontributions, dditions to ndowments, and pecial tems (2,355,555) (1,910,646) 16

19 Midwestern tate niversity apital ontributions $ 4,968,525 $ 1,500,000 HF ppropriation 3,007,669 3,007,669 dditions to ndowments 410, ,086 ransfers n 5,586 ransfers Out (25,894) (8,314) ncrease (Decrease) in et ssets 6,010,818 2,926,795 et ssets, Beginning of 68,932,630 77,731,108 estatements (7,209,818) (11,725,273) et ssets, Beginning of, as estated 61,722,812 66,005,835 et ssets, nd of $ 67,733,630 $ 68,932,630 F P O nded (naudited 17

20 F Midwestern tate niversity Midwestern tate niversity Matrix of Operating xpenses eported by Function For the nded ugust 31, 2005 otal Operating Public cademic xpenses nstruction esearch ervice upport alaries and Wages $ 28,464,541 $ 16,872,454 $ 32,733 $ 303,361 $ 1,903,644 Payroll elated osts 7,179,972 3,812,303 2,863 58, ,349 Professional Fees and ervices 2,096, ,610 15,656 43, ,689 ravel 868, ,593 3,956 32, ,894 Materials and upplies 4,606, ,832 17, , ,295 ommunications and tilities 2,188,433 63,075 4,457 22,258 epairs and Maintenance 1,303, , , ,040 entals and eases 460,181 71,841 47,106 21,332 Printing and eproduction 348,402 30, ,732 18,456 Depreciation 4,139,839 Bad Debt xpense 143,461 3, nterest cholarships 5,799,313 otal Operating xpenses $ 57,599,243 $ 22,212,163 $ 72,656 $ 669,219 $ 3,818,440 Midwestern tate niversity Matrix of Operating xpenses eported by Function For the nded ugust 31, 2004 P O nded otal Operating Public cademic xpenses nstruction esearch ervice upport alaries and Wages $ 27,151,301 $ 15,910,388 $ 89,353 $ 318,702 $ 1,795,683 Payroll elated osts 6,813,535 3,325,706 8,288 61, ,876 Professional Fees and ervices 2,386, ,864 19,581 79, ,418 ravel 769, ,800 6,375 41, ,791 Materials and upplies 4,249, ,514 5, , ,388 ommunications and tilities 2,208,398 69,782 3,144 7,974 epairs and Maintenance 1,083,854 84,903 35,026 38,083 entals and eases 426, ,533 60,118 20,721 Printing and eproduction 313,311 20, ,792 10,000 Depreciation 3,333,577 Bad Debt xpense 142,247 5, nterest 1, cholarships 6,151,519 otal Operating xpenses $ 55,031,818 $ 20,778,278 $ 129,387 $ 788,735 $ 3,428,590 (naudited 18

21 Midwestern tate niversity tudent nstitutional Operation & uxiliary ervices upport Maintenance cholarships nterprises Depreciation $ 1,512,324 $ 3,347,667 $ 1,931,747 $ 2,560, ,479 1,118, , , ,829 (449,785) 99, ,596 53,621 82,527 5, , , , ,836 1,650,405 22,448 44,623 1,252, ,450 37, , , ,913 13,253 61,091 17, ,081 77,742 73,421 (4,883) 140, ,177 10,544 21, ,799,313 4,139,839 $ 2,960,863 $ 5,660,795 $ 4,883,897 $ 5,799,313 $ 7,382,058 $ 4,139,839 F tudent nstitutional Operation & uxiliary ervices upport Maintenance cholarships nterprises Depreciation $ 1,473,369 $ 3,252,990 $ 1,958,517 $ 2,352, ,890 1,583, , , ,633 96, , ,031 41,570 60,649 15, , , , ,065 1,679,611 26,244 45,303 1,254, ,853 21, , , ,378 11,942 51,485 17, ,705 96,110 48, ,733 94,818 5,986 16,204 18, ,151,519 3,333,577 $ 2,818,604 $ 5,932,135 $ 4,772,350 $ 6,151,519 $ 6,898,643 $ 3,333,577 P O nded (naudited 18

22 Midwestern tate niversity naudited F P O Midwestern tate niversity xhibit tatement of ash Flows For the s nded ugust ash Flows from Operating ctivities: Proceeds eceived from tudents $ 20,839,013 $ 19,775,821 Proceeds eceived for ponsored Programs 1,447,749 1,314,638 Proceeds eceived from uxiliary nterprises 3,981,844 3,496,213 Proceeds From oan Programs 28,506 16,672 Proceeds From Other evenues 950,790 1,358,884 Payments to mployees (35,594,397) (33,545,905) Payments to uppliers for Good and ervices (17,694,976) (17,170,383) Payments for oans Provided (21,959) (19,486) et ash Provided (sed) by Operating ctivities (26,063,430) (24,773,546) ash Flows from oncapital Financing ctivities Proceeds from tate ppropriations 22,256,641 20,947,945 Proceeds from tate and Federal Grants 6,001,719 5,661,867 Proceeds from ontributed apital 410, ,086 Gifts 2,986,987 2,069,318 Proceeds from Other oncapital Financing ctivities 22,805 ransfers in from Other Funds 5,586 ransfers out to Other Funds (25,894) (8,314) et ash Provided by oncapital Financing ctivities 31,658,331 29,008,902 ash Flows from apital and elated Financing ctivities Proceeds from ssuance of Debt 11,183,485 Proceeds from apital Gifts 1,128,525 Proceeds from HF ppropriations 3,007,669 3,007,669 Proceeds from Disposal of apital ssets 59,818 15,401 Purchase of apital ssets (15,287,867) (12,918,037) Principal Paid on apital elated Debt (1,094,743) (1,096,581) nterest Paid on apital elated Debt (420,174) (675,737) et ash Provided by apital and elated Financing ctivities (1,423,287) (11,667,285) ash Flows from nvesting ctivities Proceeds from nterest and nvestment ncome 976, ,834 Proceeds from ales and Maturities of nvestments 56,148,262 57,069,754 Payments to cquire nvestments (61,258,023) (49,943,486) et ash Provided (sed) by nvesting ctivities (4,133,551) 7,730,102 ncrease (Decrease) in ash and ash quivalents 38, ,173 nded ash and ash quivalents, eptember 1, ,261,448 3,195,524 estatement of ash and ash quivalents* (232,249) (naudited ash and ash quivalents, ugust 31, 2005 $ 3,299,511 $ 3,261,448 20

23 Midwestern tate niversity econciliation to ash and ash quivalents as Displayed on the tatement of et ssets urrent ssets: ash On Hand $ 15,595 $ 14,995 ash n Bank 719,013 1,071,881 ash in tate reasury 2,488,631 2,146,703 estricted: ash n Bank 76,272 27,869 ash quivalents $ 3,299,511 $ 3,261,448 econciliation of Operating ncome (oss) to et ash Provided (sed) by Operating ctivities Operating ncome (oss) $ (31,577,012) $ (30,541,459) djustments to econcile Operating oss to et ash Provided (sed) by Operating ctivities: mortization and Depreciation 4,139,839 3,333,577 Bad Debt xpense 143, ,247 (ncrease) Decrease in eceivables (187,346) (94,336) (ncrease) Decrease in nventories 3,176 (19,346) (ncrease) Decrease in Prepaid xpenses (514,371) 119,115 (ncrease) Decrease in oans 6,547 (2,814) ncrease (Decrease) in Payables 372, ,937 ncrease (Decrease) in Deferred ncome 1,531,011 1,538,421 ncrease (Decrease) in Other iabilities 18,965 11,112 otal djustments 5,513,582 5,767,913 et ash sed by Operating ctivities $ (26,063,430) $ (24,773,546) F P O on ash ransactions et ncrease (Decrease) in FMV of nvestments $ (152,282) $ 26,981 (oss) Gain on sset Disposals (372,073) (121,265) Donated apital sset 3,840,000 24,870 Donated nvestment sset 1,218 24, nded (naudited

24 Midwestern tate niversity ote 1: ummary of ignificant ccounting Policies ntroduction O F O H F P O M nded Midwestern tate niversity is a public institution of higher education and is an agency of the tate of exas. he university s Board of egents is appointed by the Governor of the tate. ccordingly, the university is included in the tate s financial statements. ransactions with the tate relate primarily to appropriations for operations and capital improvements and grants from various state agencies. Basis of Presentation he financial statements of Midwestern tate niversity have been prepared in accordance with the requirements established by the omptroller of Public ccounts nnual Financial eporting equirements. hese requirements follow, as near as practicable, the generally accepted accounting principles as prescribed by the Governmental ccounting tandards Board (GB), including tatement o. 34, Basic Financial tatements and Management s Discussion and nalysis for tate and ocal Governments, and tatement o. 35, Basic Financial tatements and Management s Discussion and nalysis of Public ollege and niversities, issued in June and ovember, Due to the significant changes related to these tatements, the omptroller of Public ccounts does not require the annual financial report to be in compliance with GP. he financial report will be considered for audit by the tate uditor as part of the audit of the tate of exas omprehensive nnual Financial eport; therefore, an opinion has not been expressed on the financial statements and related information contained in this report. he university now follows the business-type activities reporting requirement of GB tatement o. 34 that provides a comprehensive one-line look at the university s financial activities. Basis of ccounting - Proprietary Fund ccounting Proprietary fund reporting focuses on the determination of operating income, changes in net assets, financial positions, and cash flows. he financial statements of the university have been prepared on the accrual basis. ccrual accounting attempts to record a transaction s financial effects in the period in which the transaction occurred, rather than when cash is received or paid. evenues are recorded when they are earned or when the university has a right to receive the revenues. xpenses are recognized when they are incurred. (naudited) 22

25 Midwestern tate niversity O F O H F P O M nded here are four essential elements of accrual accounting. hey are: Deferral of expenditures and the subsequent amortization of the deferred costs. Deferral of revenues until they are earned. apitalization of certain expenses and the subsequent depreciation of the capitalized costs. he accruals of revenues that have been earned and expenses that have been incurred. Proprietary funds use the flow of economic resources measurement focus, which is similar to the focus used by commercial entities. Proprietary funds focus on whether the enterprise is economically better off as a result of the events and transactions that occurred during the fiscal period reported. ransactions and events that improved an enterprise s financial position are reported as revenues or gains. ransactions and events that diminished the economic position of the enterprise are reported as expenses or losses. Both current and longterm assets and liabilities are shown on the statement of net assets. he proprietary statement of revenues, expenses, and changes in net assets is segregated into operating and non-operating sections. Generally, operating activities are those that directly result from the provision of goods and services to customers or are directly related to the principal and usual activity of an enterprise. GB 34 indicates that a consideration for defining a proprietary fund s operating revenues and expenditures is how individual transactions would be classified for purposes of preparing a statement of cash flows according to GB tatement o. 9. ince certain grants are actually contracts for services, they are classified as operating activities. lthough loan activity would normally be classified as an investing activity, lending activities in a university are directly related to the principal and usual activity of the university, and are classified as operating activities. et ssets GB tatement o. 34 reports equity as et ssets rather than fund balance. et assets are classified according to external donor restrictions or availability of assets for satisfaction of university obligations. estricted et ssets represent amounts over which third parties have imposed restrictions that cannot be changed by the Board, including amounts that the Board has agreed to set aside under contractual agreements with third parties. onexpendable restricted net assets are gifts that have been received for endowment purposes, the corpus of which cannot be expended. xpendable restricted net assets represent funds that have been gifted for specific purposes. estricted et ssets includes funds held in the university s permanent endowments and donor restricted funds. (naudited) 23

26 nrestricted et ssets are available for university use, and have been internally designated or reserved for specific purposes such as renewals and replacements, quasi-endowments, capital projects, student loans, budget commitments, and reserves for working capital. ash and ash quivalents Midwestern tate niversity O F O H F P O M ll highly liquid investments with a maturity of three months or less at the time of purchase are considered cash and cash equivalents. nvestments he university reports investments at fair value in the tatement of et ssets. estricted ssets estricted assets are those assets that have third party restrictions or are restricted for specific uses by a contractual obligation. estricted assets include donor restricted funds and proceeds from bond issuances that can only be used for capital projects. nventories nventories include both merchandise inventories on hand for sale and consumable inventories. nventories are valued at cost, and utilize the last-in, first-out method. apital ssets Property, plant and equipment are recorded at cost, or, if acquired by gift, at the fair market value as of the date of the acquisition. Depreciation is provided on physical properties on a straight-line basis over the estimated useful life of the asset. Other ignificant ccounting Policies Other significant accounting policies are set forth in the financial statements and the notes thereto. nded (naudited) 24

27 Midwestern tate niversity O 2: apital ssets summary of changes in apital ssets for the year ended ugust 31, 2005, is presented below. O F O H F P O M nded B-YP V on-depreciable ssets Balance 09/01/04 estatement ompleted P dditions Deletions Balance 08/31/05 and and and mprovements $2,717,554 $718,767 $3,436,321 onstruction in Progress 5,589,806 ($6,723,820) 13,636,753 12,502,739 Other apital ssets 12,203,800 ($10,239,922) 1,000,000 2,963,878 otal on-depreciable ssets: 20,511,160 (10,239,922) (6,723,820) 15,355, ,902,938 Depreciable ssets: Buildings and Building mprovements 76,798,133 6,723,820 2,543,388 ($876,323) 85,189,018 nfrastructure 7,601,961 7,601,961 Furniture and quipment 7,962,306 1,006,917 (123,461) 8,845,762 Vehicles 1,236, ,421 (264,486) 1,506,152 Other apital ssets 253,434 10,239, ,579 (35,876) 10,984,059 Facilities and Other mprovements 4,033,412 4,033,412 otal Depreciable ssets at Historical ost: 97,885,463 10,239,922 6,723,820 4,611,305 (1,300,146) 118,160,364 O BFO DPO 118,396, ,966,825 (1,300,146) 137,063,302 ess ccumulated Depreciation for: Buildings & Building mprovements (41,586,406) (2,554,962) 463,095 (43,678,273) nfrastructure (1,879,810) (310,597) (2,190,407) Furniture and quipment (5,520,248) (660,193) 115,870 (6,064,571) Vehicles (868,220) (102,525) 251,414 (719,331) Other apital ssets (222,255) (7,209,818) (362,445) 35,876 (7,758,642) Facilities and Other mprovements (1,778,039) (149,117) (1,927,156) otal ccumulated Depreciation (51,854,978) (7,209,818) 0 (4,139,839) 866,255 (62,338,380) Depreciable ssets, et $46,030,485 $3,030,104 $6,723,820 $471,466 ($433,891) $55,821,984 (naudited) apital ssets, et $66,541,645 ($7,209,818) 0 $15,826,986 ($433,891) $74,724,922 25

28 O F O H F P O M nded (naudited) ote 3: Deposits and nvestments uthorized nvestments Midwestern tate niversity Midwestern tate niversity is authorized to invest in obligations and instruments as defined in the Public Funds nvestment ct (ec exas Government ode). uch investments include: 1) Obligations of the nited tates or its agencies, 2) Direct Obligations of the tate of exas or its agencies, 3) Obligations of political subdivisions rated not less than by a national investment rating firm, 4) ertificates of deposit, and 5) Other instruments and obligations authorized by statute. Deposits of ash n Bank t ugust 31, 2005, and 2004, the carrying amount of the university s deposits was as follows: Business-type activities: Proprietary Funds urrent ssets ash n Bank $719,013 $1,071,881 Proprietary Funds urrent ssets estricted ash n Bank 76,272 27,869 otal ash n Bank $795,285 $1,099,750 niversity policy and tate tatute require the university s funds be deposited into authorized commercial banks and savings and loan associations. tate statues also require that these financial institutions pledge securities as collateral to secure university deposits. he custodial credit risk for deposits is the risk that, in the event of a bank failure, the university s deposits may not be recovered or the university may not be able to recover collateral securities that are in the possession of an outside party. Deposits are exposed to custodial credit risk if they are not covered by depository insurance and are: 1) ncollateralized. 2) ollateralized with securities held by the pledging financial institution. 3) ollateralized with securities held by the pledging financial institution s trust department or agent but not in the agency s name. he university s bank balance at ugust 31, 2005 was $1,445,299. $100,000 of this amount was covered by FD insurance and $1,345,299 was collateralized with securities pledged by the bank granting the university a first priority security interest in the collateral which was held by the Federal Home oan Bank of Dallas acting as ustodian for the university and the bank. (s defined in 3) above.) 26

29 Midwestern tate niversity O F O H F P O M nded nvestments s of ugust 31, 2005, and 2004, the fair value of the university s investments is presented below: Government:.. reasury ote $ 990,160 $.. gency Obligations 31,068,082 21,319,759 quity 101,950 75,298 Other ommingled Funds-expool 5,870,370 11,774,541 Other ommingled Funds-OG 411, ,816 otal $38,442,159 $33,669,414 redit isk redit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. s of ugust 31, 2005, the university s credit quality distribution for securities with credit risk exposure was as follows:.. Government gency Obligations (FM, FHB, FFB, FHM) $31,068,082 ated ommingled Funds-expool 5,870,370 ated ommingled Funds-OG 411,597 ated oncentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. s of ugust 31, 2005, the university s concentration of credit risk is as follows: ssuer arrying Value % of otal Portfolio Federal Home oan Bank $20,446,601 53% Federal ational Mortgage ssn. 8,572,334 22% expool-ommingled Funds 5,870,370 15% ote 4: hort erm Debt ot pplicable. (naudited) 27

30 Midwestern tate niversity ote 5: ummary of ong erm iabilities hanges in ong-erm iabilities During the year ended ugust 31, 2005, the following changes occurred in liabilities: O F O H F P O M mounts Due Balance Balance Within One Business-ype ctivities dditions eductions ompensable eave $1,017,612 $65,644 $61,963 $1,021,293 $120,713 General Obligation Bond Payable 11,185, ,185, ,000 evenue Bonds Payable 28,735, ,000 27,775,000 1,300,000 apital ease Obligations 303, , , , ,463 otal $41,241,408 $520,496 $1,199,260 $40,562,644 $2,487,176 mployees' ompensable eave Benefit eligible staff and 12-month faculty members can earn annual leave from eight to twenty-one hours per month depending on the respective employee's years of state employment. he tate's policy is that an employee may carry his accrued leave forward from one fiscal year to another fiscal year with a maximum of hours up to 532 for those employees with thirty-five or more years of state service. state employee is entitled to be paid for all unused vacation time accrued, in the event of the employee's resignation, dismissal, separation from tate employment, or transfer to a position that no longer accrues vacation, provided the employee has had continuous employment with the tate for six months. For proprietary fund types an expense and liability are recorded as the benefits accrue to the employee. he liability is determined through the summarization of each employee's annual leave balance multiplied by their respective salary rate. he estimated cumulative amount of this liability is $1,021,293. he niversity made lump sum payments totaling $61,963 for accrued vacation to employees who separated from state service during the fiscal year ended ugust 31, 2005, and payments of $132,584 for ugust 31, nded (naudited) he niversity has an undetermined and unrecorded liability for employee's earned sick leave. ick leave, the accumulation of which is unlimited, is earned at the rate of eight hours per month and is paid only when an employee is absent due to illness or to the estate of am employee in the event of his/her death. he maximum sick leave that may be paid an employee's estate is one-half of the employee's accumulated entitlement or 336 hours, whichever is less. he niversity's policy is to recognize the cost of sick leave when paid. o liability is recorded for non-vesting accumulating rights to receive sick pay benefits. 29

31 Midwestern tate niversity ote:6 apital eases O F O H F P O M nded he niversity has entered into long-term leases for financing the purchase of certain fixed assets. uch leases are classified as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments at the inception of the lease. he following is a summary of original capitalized costs of all such property under lease as well as the accumulated depreciation as of ugust 31: Business-ype ctivities ssets nder apital ease Furniture and quipment $1,220,109 $1,200,257 ess: ccumulated Depreciation (299,873) (459,968) otal et Book Value $920,236 $740,289 Future minimum lease payments under these capital leases, together with the present value of the net minimum lease payments at fiscal year-end, are as follows: Fiscal Business ype ctivities Principal nterest otal 2006 $191,463 $23,924 $215, ,672 16,141 57, ,016 14,446 56, ,752 12,711 56, ,560 10,903 56, ,888 24, ,552 otal Minimum ease Payments $684,140 mount epresenting nterest at Various ates $102,789 Present Value of et Minimum ease Payments $581,351 (naudited) ote 7: Operating ease Obligations ot pplicable ote 8: nterfund Balances/ctivities ot pplicable 30

32 Midwestern tate niversity O F O H F P O M nded ote 9: ontingent iabilities lawsuit involving Midwestern tate niversity is pending. While the ultimate liability with respect to litigation and other claims asserted against the university cannot be reasonably estimated at this time, such liability, to the extent not provided for by insurance or otherwise, is not likely to have a material effect on the university. ote 10: ontinuance ubject to eview ot pplicable to colleges and universities. (exas unset ct) ote 11: isk Financing and elated nsurance he university is exposed to a variety of civil claims resulting from the performance of its duties. t is the university s policy to periodically assess the proper combination of commercial insurance and retention of risk to cover losses to which it may be exposed. urrently there is no purchase of commercial general liability insurance for the university except for the operation of unwatcher Village, which is privatized housing. he niversity does not participate in any risk pools with other government agencies. he university does purchase directors and officers liability insurance. he university s liabilities are reported when it is both probable that a loss has occurred and the amount of that loss can be reasonably estimated. t ugust 31, 2005, there were no known claim liabilities. he tate provides coverage for workers compensation and unemployment benefits from appropriations made to other state agencies for university employees. t ugust 31, 2005, the university was assessed $119,142 for worker s compensation coverage. nemployment compensation is funded on a pay as you go method, with the tate contributing ½ of the cost of benefits and the university contributing the other half for employees paid by tate appropriated funds. he university must pay 100% of the cost of benefits for employees paid from local funds. he university is required by certain bond covenants to carry fire and extended coverage and boiler insurance on buildings financed through the issuance of bonds using pledged uxiliary nterprise or other non- ducational and General Funds. he insurance protects the bond holders from a disruption to the revenue stream that is being utilized to make the bond interest and principal payments. he exas Motor Vehicle afety esponsibility ct requires that every non-governmental vehicle operated on a state highway be insured for minimum limits of liability in the amount of $20,000/$40,000 bodily injury and $15,000 property damage. However, the university has chosen to carry liability insurance on its licensed vehicles in the amount of $250,000/$500,000/$100,000. (naudited) 31

33 Midwestern tate niversity ote 12: egment nformation ot pplicable. O 13: Bonded ndebtedness O F O H F P O M nded (naudited) evenue Bonds Payable Detailed supplemental bond information is disclosed in chedule 2-Miscellaneous Bond nformation, chedule 2B-hanges in Bonded ndebtedness, chedule 2-Debt ervice equirements, chedule 2D-nalysis of Funds vailable for Debt ervice and chedule 2-Defeased Bonds Outstanding General information related to evenue Financing ystem bonds is summarized below: evenue efunding and mprovement Bonds, eries 1998 ssued by the exas Public Finance uthority (PF) on behalf of the niversity. o advance refund uition and General Fee evenue Bonds, eries 1975 and eries 1989 and to renovate Bea Wood and O Donohoe Halls, to construct a health and wellness center and to acquire various equipment ssued eptember 1, 1998 $9,860,000; all bonds authorized have been issued ource of revenue for debt service Pledged evenues, consisting of unrestricted current funds and revenues and unappropriated fund balances available, but not including remissions, governmental appropriations, gifts, grants, and contracts, and student service fees evenue Financing ystem evenue Bonds, eries 2002 ssued by the exas Public Finance uthority (PF) on behalf of the niversity. o pay for campus improvements in heating, ventilating and air conditioning systems; chilled water distribution; street drainage and paving; and other projects including mericans with Disabilities ct (D) accessibility, elevator improvements, safety, and security lighting ssued June 15, 2002 $8,965,000; all bonds authorized have been issued ource of revenue for debt service Pledged evenues, consisting of unrestricted current funds revenues and unappropriated fund balances available, but not including remissions, governmental appropriations and gifts, grants and contracts, Higher ducation ssistance Funds, and student service fees and private gifts 32