UNIVERSITY OF GEORGIA Annual Financial Report (Including Independent Auditor s Report) Fiscal Year Ended June 30, 2016

Transcription

1 UNIVERSITY OF GEORGIA Annual Financial Report (Including Independent Auditor s Report) Fiscal Year Ended June 30, 2016 Athens, Georgia

2 UNIVERSITY OF GEORGIA - TABLE OF CONTENTS - Page SECTION I INTRODUCTORY SECTION MESSAGE FROM THE PRESIDENT LETTER OF TRANSMITTAL SECTION II FINANCIAL INDEPENDENT AUDITOR'S REPORT REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS i BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET POSITION 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 4 C STATEMENT OF CASH FLOWS 6 D NOTES TO THE FINANCIAL STATEMENTS 8 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS RETIREMENT SYSTEM OF GEORGIA 47 2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 48 3 SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA 49 4 SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 50 5 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION 51 SUPPLEMENTARY INFORMATION 6 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 53 7 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 54

3 UNIVERSITY OF GEORGIA - TABLE OF CONTENTS - Page SECTION II FINANCIAL SUPPLEMENTARY INFORMATION SCHEDULES 8 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 56 9 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 60 SECTION III COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

4 SECTION I INTRODUCTORY SECTION

5 Message from the President On behalf of the students, faculty, staff, alumni, and supporters of the University of Georgia, I am pleased to report that the University continued its upward trajectory as a leading public research institution in FY16. As the nation s first state-chartered university and Georgia s flagship institution of higher learning, UGA strives to promote economic development, address critical challenges, and develop leaders across our state. Our land-grant and sea-grant missions inform every activity in which the University engages. Fiscal year 2016 marked the third consecutive record-setting year in fundraising for UGA. More than 67,000 donors contributed $183.8 million in gifts and pledges, a 28 percent increase over last year s record total of $144.2 million. As the University concludes the quiet phase of its comprehensive capital campaign, we have now raised more than $600 million toward our goal of more than $1 billion. In November, we will launch the public phase of the campaign, at which time we will set forth our goals for expanding the University s positive impact on the state, nation, and world. With the help of our donors and support from state leaders, UGA made progress on many key facilities in the past year. Among them, construction was completed on Phase I of the Terry College s new Business Learning Community and on cabins to house students and faculty at the Center for Research and Education at Wormsloe. Groundbreaking ceremonies were held for the Center for Molecular Medicine, the Indoor Athletic Facility, and Phase II of the Business Learning Community. Construction on the Science Learning Center progressed during FY16 and was completed in time for the academic year. Renovations were completed on the Tift Building at our Tifton campus and continued on Baldwin Hall in Athens. The FY17 state budget includes funds for equipment and furnishings for Phase II of the Business Learning Community; design and planning of Phase III, the final phase of the Business Learning Community; renovation of Clarke Howell Hall, which houses the Career Center, Disability Resource Center, and University Testing Services; and renovation of the 4-H cabins at Rock Eagle. All of these capital projects will significantly enhance the University s ability to carry out its teaching, research, and service missions. Demand for a UGA education is greater than ever, as evidenced by the record 22,961 applications received for first-year admission in FY16. This fall s entering class is the most academically qualified and most diverse in the institution s history. The Class of 2020 is the first group of students to participate in the University s new Experiential Learning Initiative, which ensures that all undergraduate students engage in meaningful, hands-on learning outside of the classroom. Students also are benefiting this fall from the $4.4 million faculty hiring initiative launched in FY16, which has brought more than 50 additional faculty members to campus and created more than 300 new course sections, many with fewer than 20 students, to increase the amount of personalized instruction our undergraduate students receive. The University continued to expand its research enterprise in FY16 as well. Research expenditures surged upward by 14 percent over the previous year, and research awards from external funding sources rose 12 percent. The University successfully completed the Presidential Extraordinary Research Faculty Hiring Initiative, bringing five world-class researchers to campus. We also completed the Presidential Informatics Hiring Initiative, hiring eight faculty members who conduct research in the burgeoning field of informatics, which harnesses massive data sets to solve problems of strategic importance to our state and nation. The University of Georgia is securing its position as one of America s great public research institutions, with outstanding students, faculty, and staff members and generous donors who are committed to helping the University reach new heights of excellence. Jere W. Morehead, President

6 Letter of Transmittal September 20, 2016 To Jere W. Morehead, President, University of Georgia: The University of Georgia Annual Financial Report (AFR) includes the financial statements for the year ended June 30, 2016, as well as other useful information that help to ensure the University s accountability and integrity to the public. The AFR includes the Management s Discussion and Analysis, which provides a summary of the University s financial position and results of operations for the fiscal year ended June 30, As you are aware, responsibility for the accuracy of this information and for the completeness and fairness of its presentation, including all note disclosures, rests with the University s management. As noted in the auditor s opinion, the information contained in this report is accurate in all material respects and fairly presents the University s financial position, revenues, expenses, and other changes in net position. The University s system of internal controls is sound and sufficient to disclose material deficiencies in controls to management and to auditors. Additionally, the system of internal controls provides management with reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition. The University s financial records are audited by the Georgia Department of Audits and Accounts on an annual basis. The University s internal auditors also perform fiscal compliance and performance audits of University departments and central business offices, the results of which are shared with the University s management. The audit of the University s schedule of expenditures of federal awards and supplemental schedule of governmental, restricted accounts by agency is performed by Cherry Bekaert and submitted to the Georgia Department of Audits and Accounts in conjunction with the statewide Single Audit. Respectfully submitted, Ryan A. Nesbit Vice President for Finance and Administration Holley W. Schramski Associate Vice President for University Business and Accounting Services Chad Cleveland Controller

7 SECTION II FINANCIAL

8 Greg S. Griffin STATE AUDITOR (404) DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite Atlanta, Georgia December 30, 2016 Kristina A. Turner DIRECTOR (404) Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Mr. Jere W. Morehead, President University of Georgia Ladies and Gentlemen: Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the University of Georgia (Institution), a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2016 and the related notes to the financial statements, which comprise the Institution s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the aggregate discretely presented component units. Those statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as it relates to the amounts included for the aggregate discretely presented component units are based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the University of Georgia Foundation and the University of Georgia Athletic Association, Inc. were not audited in accordance with Government Auditing Standards.

9 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University of Georgia s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University of Georgia's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and aggregate discretely presented component units of the University of Georgia as of June 30, 2016, the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements of the University of Georgia are intended to present the financial position, the changes in financial position, and, where applicable, cash flows of only those portions of the business-type activities and aggregate discretely presented component units of the State of Georgia that are attributable to the transactions of the University of Georgia. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2016, the changes in its financial position, or, where applicable, its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter. As described in Note 1 to the financial statements, in 2016, the University of Georgia adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and GASB Statement No. 79, Certain External Investment Pools and Pool Participants. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through ix and the Schedules of Proportionate Share of the Net Pension Liability, Schedules of Contributions to Retirement Systems and the Notes to the Required Supplementary Information on pages 47 through 51 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is

10 required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the basic financial statements of the University of Georgia. The accompanying supplementary information (Schedules 6 through 9) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information (Schedules 6 through 9) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us and other auditors. In our opinion, based on our audit, the procedures performed as described above, and the report of the other auditors, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 30, 2016, on our consideration of the University of Georgia s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University of Georgia s internal control over financial reporting and compliance. Respectfully, Greg S. Griffin State Auditor

11 REQUIRED SUPPLEMENTARY INFORMATION

12 UNIVERSITY OF GEORGIA Management s Discussion and Analysis Introduction The University of Georgia is one of the 29 institutions of higher education of the University System of Georgia. The University of Georgia was incorporated by an act of the General Assembly on January 27, 1785, and Georgia thus became the first state to charter a state-supported Institution. The University of Georgia, a land-grant and sea-grant Institution with state-wide commitments and responsibilities is the state s flagship institution of higher education. It is also the state s oldest, most comprehensive, and most diversified institution of higher education. Its motto, to teach, to serve, and to inquire into the nature of things, reflects the Institution s integral and unique role in the conservation and enhancement of the state s and nation s intellectual, cultural, and environmental heritage. As a comprehensive land-grant and sea-grant institution, the University of Georgia offers baccalaureate, master s, doctoral and professional degrees in the arts, humanities, social sciences, biological sciences, physical sciences, agricultural and environmental sciences, business, engineering, environment and design, family and consumer sciences, forest resources, journalism and mass communication, education, law, pharmacy, social work, and veterinary medicine. A comparison of faculty and student numbers follow: Faculty Students (Headcount) Students (FTE) Fiscal Year ,937 36,130 34,708 Fiscal Year ,930 35,197 33,550 Fiscal Year ,930 34,536 33,257 Overview of the Financial Statements and Financial Analysis The University of Georgia is pleased to present its financial statements for fiscal year The emphasis of discussions about these statements will be on current year data. Three financial statements are presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. This discussion and analysis of the Institution s financial statements provides an overview of its financial activities for the year. Comparative data are provided for fiscal year 2016 and fiscal year Statement of Net Position The Statement of Net Position is a financial condition snapshot as of June 30, 2016 and includes all assets, deferred outflows of resources, liabilities, and deferred inflows of resources, both current and noncurrent. The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements. The Statement of Net Position is prepared under the accrual basis of accounting which requires revenue and asset recognition when the service is provided, and expense and liability recognition when goods or services are received despite when cash is actually exchanged. i

13 From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the Institution and how much the Institution owes vendors. The difference between assets, deferred outflows of resources, liabilities and deferred inflows of resources (net position) is one indicator of the Institution s financial health. Increases or decreases in net position provide an indicator of the improvement or decline of the Institution s financial health when considered in conjunction with other non-financial conditions, such as facilities and enrollment. Net position is divided into three major categories. The first category, net investment in capital assets, provides the Institution s equity in property, plant and equipment owned by the Institution. The next category is restricted, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable, restricted resources are available for expenditure by the Institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted. Unrestricted resources are available to the Institution for any lawful purpose. Statement of Net Position, Condensed June 30, 2016 June 30, 2015 Assets Current Assets $ 341,993,976 $ 287,108,671 Capital Assets, Net 1,872,768,272 1,838,371,489 Other Assets 212,318, ,120,752 Total Assets 2,427,080,276 2,340,600,912 Deferred Outflows of Resources 68,229,698 56,161,934 Liabilities Current Liabilities 145,462, ,154,552 Noncurrent Liabilities 837,007, ,300,673 Total Liabilities 982,469, ,455,225 Deferred Inflows of Resources 51,897, ,265,753 N et Position Net Investment in Capital Assets 1,590,590,812 1,540,270,363 Restricted Nonexpendable 79,470,009 78,592,600 Expendable 89,039,094 90,906,725 Unrestricted -298,156, ,727,820 Total N et Position $ 1,460,942,929 $ 1,340,041,868 ii

14 Total assets and deferred outflows of resources increased by $98,547,128 which was due to an increase of $49,533,278 in cash and cash equivalents, $34,396,783 in capital assets, which includes the addition of Correll Hall, and an increase of $12,067,764 in deferred outflows of resources related to defined benefit pension plans. The balance of the increase is mainly in receivable categories. Total liabilities and deferred inflows of resources decreased for the year by $22,353,933, primarily due to an increase in net pension liability of $98,602,764, offset by a decrease of $106,368,435 in deferred inflows on the defined benefit pension plan as well as a decrease in lease purchase obligations of $18,364,003, mainly due to the Institution eliminating the capital lease by purchasing the Medical Partnership building from the UGA Real Estate Foundation. The combination of the increase in total assets and deferred outflows of resources and the decrease in total liabilities and deferred inflows of resources yielded an increase in net position of $120,901,061. The increase in net position primarily impacts unrestricted net position in the amount of $71,570,834 as well as an increase in net investment in capital assets of $50,320,449. Statement of Revenues, Expenses, and Changes in Net Position Changes in total net position as presented in the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses, and Changes in Net Position. The purpose of the statement is to present the revenues received by the Institution, both operating and nonoperating, and the expenses paid by the Institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the Institution. Generally, operating revenues are received for providing goods and services to the various customers and constituencies of the Institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the Institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example, state appropriations are non-operating because they are provided by the Legislature to the Institution without the Legislature directly receiving commensurate goods and services for those revenues. iii

15 Statement of Revenues, Expenses and Changes in Net Position, Condensed June 30, 2016 June 30, 2015 Operating Revenues $ 928,263,548 $ 868,848,405 Operating Expenses 1,382,024,298 1,303,040,238 Operating Loss -453,760, ,191,833 Nonoperating Revenues and Expenses 508,074, ,773,160 Income Before Other Revenues, Expenses, Gains or Losses 54,314,245 44,581,327 Other Revenues, Expenses, Gains or Losses 66,586, ,787,074 Increase in Net Position 120,901, ,368,401 Net Position at Beginning of Year, as Originally Reported 1,340,041,868 1,759,737,034 Prior Year Adjustments -574,063,567 Net Position at Beginning of Year, Restated 1,340,041,868 1,185,673,467 Net Position at End of Year $ 1,460,942,929 $ 1,340,041,868 iv

16 The Statement of Revenues, Expenses and Changes in Net Position reflects a positive year, which is represented by an increase in net position at the end of the year. Some highlights of the information presented on this statement are as follows: Revenue by Source For the Years Ended June 30, 2016 and June 30, 2015 June 30, 2016 June 30, 2015 Operating Revenue Tuition and Fees $ 439,728,927 $ 401,047,785 Federal Appropriations 15,750,470 15,427,893 Grants and Contracts 216,017, ,811,353 Sales and Services of Educational Departments 73,256,686 78,180,854 Auxiliary 181,067, ,042,977 Other 2,442,085 6,337,543 Total Operating Revenue 928,263, ,848,405 Nonoperating Revenue State Appropriations 417,681, ,083,488 Grants and Contracts 73,388,417 69,230,533 Gifts 17,097,193 13,865,975 Investment Income 1,485,393 2,431,477 Other 15,875,287 11,521,240 Total Nonoperating Revenue 525,527, ,132,713 Capital Grants and Gifts Federal 469,815 State 24,038,346 83,177,989 Other Capital Gifts and Grants 42,078,655 26,609,085 Total Capital Grants and Gifts 66,586, ,787,074 Total Revenues $ 1,520,378,344 $ 1,475,768,192 v

17 The illustration below is a comparison of the Institution s revenue sources by major category for the years ended June 30, 2016 and June 30, Expenses (By Functional Classification) For the Years Ended June 30, 2016 and June 30, 2015 June 30, 2016 June 30, 2015 Operating Expenses Instruction $ 309,517,081 $ 283,203,969 Research 363,665, ,130,651 Public Service 163,863, ,902,519 Academic Support 103,732,570 98,869,544 Student Services 48,036,527 47,021,984 Institutional Support 82,957,192 74,253,138 Plant Operations and Maintenance 120,103, ,877,755 Scholarships and Fellowships 27,951,973 26,516,244 Auxiliary Enterprises 162,195, ,264,434 Total Operating Expenses 1,382,024,298 1,303,040,238 Nonoperating Expenses Interest Expense (Capital Assets) 17,452,985 18,359,553 Total Expenses $ 1,399,477,283 $ 1,321,399,791 vi

18 Expenses are described above by functional classification. The illustration below is a comparison of the Institution s operating expenses by natural classification for the years ended June 30, 2016 and June 30, Operating revenues increased by $59,415,143 in fiscal year 2016, which included a $38,681,142 net increase in tuition and fees, and a $23,206,124 increase in operating grants and contracts, which are grants that exchange payment for products or services. As a result of additional participation in services provided by Auxiliary units, the Auxiliary revenue increased overall by $6,024,926 with $1,764,049 of the increase in residential housing revenue and a $536,255 increase in health services revenues. Nonoperating revenues increased by $28,395,267 for the year primarily due to a $17,598,202 increase in state appropriations, a $4,157,884 increase in nonoperating grants and contracts, and a $3,231,218 increase in gifts. Total operating expenses increased by $78,984,060, which included a $59,881,576 increase in employee compensation and benefits reflecting the hiring of new faculty, merit increases, an increased cost of health insurance, and an increased cost of retirement plan contributions. Supplies and other services increased by $9,878,848 during the past year, which was primarily associated with an increase in contracts for goods and services used by the institution. Depreciation expense increased by $7,922,025 due to significant capital asset additions from the previous year that had a full year of depreciation in fiscal year vii

19 Statement of Cash Flows The final statement presented by the University of Georgia is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the Institution during the year. Cash flow information can be used to evaluate the Institution s ability to meet financial obligations as they mature. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the Institution. The second part reflects cash flows from non-capital financing activities. This section reflects the cash received and spent for non-operating, non-investing, and non-capital financing purposes. The third part deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth part reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth part reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses, and Changes in Net Position. Cash Flows for the Years Ended June 30, 2016 and June 30, 2015, Condensed June 30, 2016 June 30, 2015 Cash Provided (Used) By: Operating Activities $ -377,835,322 $ -375,337,927 Noncapital Financing Activities 514,903, ,946,457 Capital and Related Financing Activities -93,725, ,148,812 Investing Activities 6,190,505-47,628,423 Net Change in Cash 49,533,278-74,168,705 Cash, Beginning of Year 202,024, ,192,857 Cash, End of Year $ 251,557,430 $ 202,024,152 Capital Assets The Institution had several significant capital asset additions in fiscal year The new $32.0 million Correll Hall was opened in September 2015 with the completion of phase 1 of 3 of the Business Learning Community. This new building is a 74,000 sq. ft. state-of-the-art facility that includes a business innovation lab, multiple project team rooms and a graduate student commons. The project was funded entirely by private donations. In October 2015, the Institution acquired the Fortson 4-H Center, which included 19 buildings and over 75 acres at a value of $2.4 million. In addition, the Institution eliminated a capital lease by purchasing the Medical Partnership building for the School of Social Work s new home. The UGA Athletic Association funded a $13.2 million expansion of the Foley Field baseball complex with a significant portion of the funding coming from private donations. The Institution also has nearly completed work on the $4.5 million electrode boiler, which replaced the aging coal-fired boiler that was shut down over a year ago. The Georgia State Financing and Investment Commission (GSFIC) provided funding of $19 million for various facility renovations and equipment, including completion of the $2.6 million renovation of the Fine Arts Building early in fiscal year The Institution also continues work on the Rock Eagle 4-H Center cabin renovations, the new Griffin Food Product Innovation and Commercialization (PIC) Center, and renovations to the Tift Building on the Tifton campus, all funded by GSFIC. viii

20 For additional information concerning capital assets, see Notes 1, 6, 8, and 13 in the Notes to the Financial Statements. Long-Term Liabilities The University of Georgia had long-term liabilities of $876,321,013 of which $39,313,534 was reflected as current liability at June 30, For additional information concerning long-term liabilities, see Note 8 in the Notes to the Financial Statements. The Notes to the Financial Statements are an integral part of the basic financial statements and communicate information essential for fair presentation. For example, the notes convey information concerning significant accounting policies used to prepare the financial statements, detailed information on cash and investments, receivables, capital leases, compensated absences, retirement and other postemployment benefits, capital assets and a report of operating expenses by function. Economic Outlook The University of Georgia continued to manage and use its resources wisely in fiscal year In line with the expectations of the higher education community, the Institution remains fully committed to being prudent with its resources by spending wisely and allocating strategically to support its core academic and student life missions. As a result of modest increases in operating revenues and state appropriations, the Institution was able to provide increased support to its instruction, research, and public service missions. This increase in support was characterized by hiring new faculty and advisors, implementing new academic initiatives focused on student success, enhancing research activities and economic development, and the construction of state-of-the-art facilities to support the academic work of our faculty and students. As fiscal year 2017 progresses, the Institution will build on its efforts to plan and manage its precious resources to prepare students to lead in a global society, to address grand challenges to improve the human condition, and to fulfill our promise to serve Georgia and the world beyond. Jere W. Morehead, President University of Georgia ix

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22 BASIC FINANCIAL STATEMENTS - 1 -

23 UNIVERSITY OF GEORGIA STATEMENT OF NET POSITION JUNE 30, 2016 EXHIBIT "A" ASSETS Department within the State of Georgia Primary Government Component Units of the State of Georgia Reporting Entity University of University of University of Georgia Georgia Research Georgia Athletic University of Georgia Foundation Foundation, Inc. Association, Inc. Current Assets Cash and Cash Equivalents $ 248,298,027 $ 12,520,353 $ 27,542,099 $ 60,241,958 Short-Term Investments 25,239 90,098,721 Accounts Receivable, Net Receivables - Federal Financial Assistance 6,113,495 Receivables - Other 33,625,813 1,426,960 30,006,947 1,838,232 Due from Component Units 40,894,274 6,595 4,996 Due from Primary Government 786,872 48,130 Investment in Capital Leases - Primary Government 6,417,728 Pledges Receivable 161,592 Contributions Receivable 18,938,217 Inventories 6,626,389 Prepaid Items 6,410, , , ,091 Other Assets 18,699,569 Total Current Assets 341,993, ,487,733 83,651,394 62,467,407 Noncurrent Assets Noncurrent Cash 7,519,229 Due from USO - Capital Liability Reserve Fund 1,767,538 Investment in Capital Leases - Primary Government 266,979,412 Investments 121,690, ,816,633 50,528,536 45,515,888 Notes Receivable, Net 9,389,623 Contributions Receivable 37,323,761 Pledges Receivable 3,878,198 Noncurrent Cash (Externally Restricted) 3,259,403 Investments (Externally Restricted) 76,210,606 Capital Assets, Net 1,872,768,272 26,186,780 19,629, ,022,781 Other Assets 16,114, , ,326 Total Noncurrent Assets 2,085,086, ,319, ,605, ,130,995 Total Assets 2,427,080,276 1,011,807, ,257, ,598,402 Deferred Outflows of Resources Deferred Loss on Defined Benefit Pension Plan 68,229,698 Accumulated decrease in fair value of hedging derivatives 9,470,237 Deferred Loss on Debt Refundings 12,908,125 2,481,498 Total Deferred Outflows of Resources 68,229,698 12,908,125 11,951,735 LIABILITIES Current Liabilities Accounts Payable 30,429, ,626 1,804,847 3,959,903 Salaries Payable 8,934,946 6,647,611 Contracts Payable 6,547,476 Retainage Payable 2,181,070 Deposits 1,272,757 18,645,994 Advances (Including Tuition and Fees) 50,825,435 2,393,215 25,752,444 Deposits Held for Other Organizations 4,643,926 Due to Primary Government 1,981,458 34,360,056 4,552,760 Lease Purchase Obligations - External 34,534 Lease Purchase Obligations - Component Units 6,417,728 Compensated Absences 32,306,391 Liabilities Under Split-Interest Agreements 741,550 Revenue/Mortgage Bonds Payable 9,155,000 4,990,000 Due to Component Units 835,002 4,996 4,574 2,021 Notes and Loans Payable 373, ,541 Pollution Remediation 181,200 Other Liabilities 478, ,603 Total Current Liabilities $ 145,462,248 $ 4,532,774 $ 66,363,686 $ 45,904,

24 UNIVERSITY OF GEORGIA STATEMENT OF NET POSITION JUNE 30, 2016 EXHIBIT "A" Department within the State of Georgia Primary Government Component Units of the State of Georgia Reporting Entity University of University of University of Georgia Georgia Research Georgia Athletic University of Georgia Foundation Foundation, Inc. Association, Inc. Noncurrent Liabilities Lease Purchase Obligations - External $ 17,240 $ $ $ Lease Purchase Obligations - Component Units 266,979,412 Advances 1,164,247 Compensated Absences 13,792,725 Revenue/Mortgage Bonds Payable 267,530,000 94,830,000 Unamortized Bond Discount -136,358 Unamortized Bond Premium 11,586,300 1,886,851 Deposits Held for Other Organizations 595,038 Liabilities Under Split Interest Agreements 9,421,915 Interest Rate Swap 4,273,468 9,470,237 Net Pension Liability 553,580,336 Pollution Remediation 588,932 Notes and Loans Payable 2,048,834 16,791,136 8,516,222 Other Non-current Liabilities 586,684 Total Noncurrent Liabilities 837,007,479 31,081, ,660, ,773,772 Total Liabilities 982,469,727 35,614, ,024, ,678,511 Deferred Inflows of Resources Deferred Gain on Defined Benefit Pension Plan 51,897,318 NET POSITION Net Investment in Capital Assets 1,590,590,812 8,384,685 11,113, ,797,428 Restricted for: Non-expendable 79,470, ,302,060 Expendable 89,039, ,038,762 1,717,920 Unrestricted (Deficit) -298,156,986 95,467,699 74,309,981 67,074,198 Total Net Position $ 1,460,942,929 $ 976,193,206 $ 87,141,118 $ 207,871,626 The accompanying notes are an integral part of these financial statements

25 UNIVERSITY OF GEORGIA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2016 EXHIBIT "B" Department within the State of Georgia Primary Government Component Units of the State of Georgia Reporting Entity University of University of University of Georgia Georgia Research Georgia Athletic University of Georgia Foundation Foundation, Inc. Association, Inc. OPERATING REVENUES Student Tuition and Fees (Net) $ 439,728,927 $ $ $ Gifts and Contributions 53,628,040 Federal Appropriations 15,750,470 Grants and Contracts Federal 125,366,863 Federal Stimulus 29,818 State 20,130,477 Other 70,490, ,445,433 Sales and Services 73,256,686 6,128,913 Rents and Royalties 545,874 4,163,519 30,579,683 Auxiliary Enterprises Residence Halls 54,525,900 Bookstore 4,248,477 Food Services 46,698,115 Parking/Transportation 22,041,207 Health Services 21,625,229 Intercollegiate Athletics 29,416, ,658,981 Other Organizations 2,512,159 Other Operating Revenues 1,896,211 21,847 Total Operating Revenues 928,263,548 63,920, ,046, ,658,981 OPERATING EXPENSES Salaries Faculty 232,593,868 Staff 497,592, , ,598 15,962,520 Employee Benefits 210,687,003 58, ,594 Other Personal Services 861,172 Travel 18,430, ,183 9,356,067 Scholarships and Fellowships 33,333,444 Utilities 32,898,080 Supplies and Other Services 262,326,331 12,103,439 12,627,477 38,683,068 Depreciation 93,302,107 1,313, ,991 8,139,097 Payments to Other Component Units 9,262,569 4,000,000 Payments to or on behalf of the University 47,864, ,021,624 43,089,980 Total Operating Expenses 1,382,024,298 71,849, ,124, ,549,326 Operating Loss -453,760,750-7,928,676 17,922,101 5,109,655 NONOPERATING REVENUES (EXPENSES) State Appropriations 417,681,690 Grants and Contracts Federal 28,110,165 State 6,719,908 Other 38,558,344 Gifts 17,097,193 Investment Income (Endowments, Auxiliary and Other) 1,485,393-13,293, ,351-1,542,111 Interest Expense (Capital Assets) -17,452,985-2,535,002-13,801,208-3,894,171 Other Non-operating Revenues 15,875, ,344 Other Non-operating Expenses -75,003 Net Non-operating Revenues 508,074,995-15,828,492-14,235,215-5,511,285 Income Before Other Revenues, Expenses, Gains, or Losses $ 54,314,245 $ -23,757,168 $ 3,686,886 $ -401,

26 UNIVERSITY OF GEORGIA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2016 EXHIBIT "B" Department within the State of Georgia Primary Government Component Units of the State of Georgia Reporting Entity University of University of University of Georgia Georgia Research Georgia Athletic University of Georgia Foundation Foundation, Inc. Association, Inc. Capital Grants and Gifts Federal $ 469,815 $ $ $ State 24,038,346 Other 42,078,655 Additions to Permanent Endowments 39,205,334 Special Item - Loss on Bond Retirement -1,055,343 Total Other Revenues, Expenses, and Gains or Losses 66,586,816 39,205,334-1,055,343 Increase in Net Position 120,901,061 15,448,166 2,631, ,630 Net Position - Beginning of Year, Restated 1,340,041, ,745,040 84,509, ,273,256 Net Position - End of Year $ 1,460,942,929 $ 976,193,206 $ 87,141,118 $ 207,871,626 The accompanying notes are an integral part of these financial statements

27 UNIVERSITY OF GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2016 EXHIBIT "C" CASH FLOWS FROM OPERATING ACTIVITIES Payments from Customers $ 707,875,214 Federal Appropriations 17,792,557 Grants and Contracts (Exchange) 206,762,184 Payments to Suppliers -544,899,612 Payments to Employees -728,092,452 Payments for Scholarships and Fellowships -33,333,444 Loans Issued to Students -1,855,641 Collection of Loans to Students 1,784,417 Other Payments -3,868,545 Net Cash Used by Operating Activities -377,835,322 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 417,681,690 Agency Funds Transactions -8,375,768 Gifts and Grants Received for Other than Capital Purposes 90,485,610 Other Non-capital Financing Receipts 15,111,772 Net Cash Flows Provided by Noncapital Financing Activities 514,903,304 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Gifts and Grants Received 38,504,050 Proceeds from Sale of Capital Assets 2,124,721 Purchases of Capital Assets -98,486,488 Principal Paid on Capital Debt and Leases -18,414,507 Interest Paid on Capital Debt and Leases -17,452,985 Net Cash Used by Capital and Related Financing Activities -93,725,209 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 4,976,613 Investment Income 1,213,892 Net Cash Provided by Investing Activities 6,190,505 Net Increase in Cash 49,533,278 Cash and Cash Equivalents - Beginning of Year 202,024,152 Cash and Cash Equivalents - End of Year $ 251,557,

28 UNIVERSITY OF GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2016 EXHIBIT "C" RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating Ioss $ -453,760,750 Adjustments to Reconcile Operating Loss to Net Cash Provided (Used) by Operating Activities Depreciation 93,302,107 Change in Assets and Liabilities: Receivables, Net -4,231,905 Inventories -106,433 Prepaid Items -1,311,855 Notes Receivable, Net -71,224 Accounts Payable -1,455,766 Salaries Payable 446,311 Advances (Including Tuition and Fees) 8,036,970 Other Liabilities -1,609,403 Compensated Absences 2,760,061 Net Pension Liability 98,602,764 Change in Deferred Inflows/Outflows of Resources: Deferred Inflows of Resources -106,368,435 Deferred Outflows of Resources -12,067,764 Net Cash Used by Operating Activities $ -377,835,322 NONCASH ACTIVITY Gift of Capital Assets $ 28,082,766 Loss on Disposal of Capital Assets $ -1,361,205 Accrual of Capital Asset Related Payables $ -8,728,546 Capital Assets Acquired by Incurring Capital Lease Obligations $ -50,504 Unrealized Gain/Loss on Investments $ 271,501 The accompanying notes are an integral part of these financial statements

29 UNIVERSITY OF GEORGIA EXHIBIT "D" NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Note 1. Summary of Significant Accounting Policies Nature of Operations The University of Georgia (the Institution) serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country. Reporting Entity As defined by Official Code of Georgia Annotated (O.C.G.A) , the Institution is part of the University System of Georgia (USG), an organizational unit of the State of Georgia (the State) under the governance of the Board of Regents (Board). The Board has constitutional authority to govern, control and manage the USG. The Board is composed of 19 members, one member from each congressional district in the State and five additional members from the state-at-large, appointed by the Governor and confirmed by the Senate. Members of the Board serve a seven year term and members may be reappointed to subsequent terms by a sitting governor. The Institution does not have the right to sue/be sued without recourse to the State. The Institution s property is the property of the State and subject to all the limitations and restrictions imposed upon other property of the State by the Constitution and laws of the State. In addition, the Institution is not legally separate from the State. Accordingly, the Institution is included within the State s basic financial statements as part of the primary government as defined in section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. The accompanying basic financial statements are intended to supplement the State s Comprehensive Annual Financial Report (CAFR) by presenting the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State that is attributable to the transactions of the Institution. In addition, the following discretely presented component units of the State have been included since they have been determined to be essential to the fair presentation to these departmental statements: the University of Georgia Foundation, the University of Georgia Research Foundation, Inc., and the University of Georgia Athletic Association, Inc. These financial statements do not purport to, and do not, present fairly the financial position of the State as of June 30, 2016, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying basic financial statements should be read in conjunction with the State s CAFR. The State s CAFR as of and for the year ended June 30, 2016 has not been issued as of the release of this report. The most recent State of Georgia CAFR can be obtained through the State Accounting Office, 200 Piedmont Avenue, Suite 1604 (West Tower), Atlanta, Georgia or found at The University of Georgia Foundation ( UGA Foundation ) is a not-for-profit foundation that was chartered in 1937 to receive and administer contributions for the support of the academic programs of the Institution. Separately issued financial statements are available at the following address: UGA Foundation, Milledge Centre, Suite 100, 394 South Milledge Ave., Athens, GA The University of Georgia Research Foundation, Inc. ( Research Foundation ) was established in November 1978 to contribute to the educational, research, and service functions of the University of Georgia in securing gifts, contributions, and grants from individuals, private organizations, and public agencies and in obtaining contracts with such individuals or entities for the performance of sponsored research, development, education, or other programs by the various colleges, schools, departments, or other units of the University of Georgia. Separately issued financial statements can be obtained - 8 -

30 UNIVERSITY OF GEORGIA EXHIBIT "D" NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 from the Research Foundation at the following address: University of Georgia Research Foundation, Inc., c/o University Business and Accounting Services, 324 Business Services Building, 456 E. Broad Street, Athens, GA The University of Georgia Athletic Association Inc. ( Athletic Association ) is incorporated as a nonprofit organization created for the express purpose of promoting intercollegiate athletic sports representing the University of Georgia. Separately issued financial statements can be obtained from the Athletic Association at the following address: University of Georgia Athletic Association, Inc., c/o University of Georgia Controller s Office, 456 E. Broad Street, Room 225, Athens, GA See Note 20 for additional information related to Component Units. Basis of Accounting and Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the Institution s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changes in net position and cash flows. The Institution s business-type activities financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. Grants and similar items are recognized as revenues in the fiscal year in which eligibility requirements imposed by the provider have been met. All significant intra-institution transactions have been eliminated. New Accounting Pronouncements For fiscal year 2016, the Institution adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. For fiscal year 2016, the Institution adopted GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. The adoption of this Statement does not have a significant impact on the Institution s financial statements. For fiscal year 2016, the Institution adopted GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of GAAP. The GAAP hierarchy consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The adoption of this Statement does not have a significant impact on the Institution s financial statements