The University of Georgia Foundation

Transcription

1 The University of Georgia Foundation Consolidated Financial Statements as of and for the Years Ended June 30, 2009 and 2008, Consolidating Supplemental Schedules as of and for the Year Ended June 30, 2009, and Independent Auditors Report

2 THE UNIVERSITY OF GEORGIA FOUNDATION TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2009 AND 2008: Statements of Financial Position 2 Statements of Activities 3 4 Statements of Cash Flows 5 6 Notes to Consolidated Financial Statements 7 20 CONSOLIDATING SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED JUNE 30, 2009: 21 Schedule of Financial Position 22 Page Schedule of Activities 23 24

3 INDEPENDENT AUDITORS REPORT To the Board of Trustees of The University of Georgia Foundation Athens, Georgia We have audited the accompanying consolidated statements of financial position of The University of Georgia Foundation (the Foundation ) as of June 30, 2009 and 2008, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Foundation at June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedules listed in the table of contents are presented for purposes of additional analysis, are not intended to present the financial position or results of operations of the separate entities, and are not a required part of the basic consolidated financial statements. The supplemental schedules are the responsibility of the Foundation s management. Such supplemental schedules have been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, are fairly stated, in all material respects, when considered in relation to the basic consolidated financial statements taken as a whole. September 25, 2009

4 THE UNIVERSITY OF GEORGIA FOUNDATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, 2009 AND ASSETS: Cash and cash equivalents $ 3,810,815 $ 1,406,499 Temporary investments 36,811,206 39,664,777 Receivables net: Accounts 938,241 1,531,623 Contributions 18,954,133 20,177,023 Notes 46,516 57,115 Accrued interest 941,321 1,456,454 Prepaid expenses and other assets 92,562 78,417 Investment securities 409,978, ,231,416 Real property net of accumulated depreciation of $895,382 and $632,233 27,112,960 27,372,782 Construction in progress 44,187 Works of art 2,375,463 2,375,463 Furniture, fixtures, and equipment net of accumulated depreciation of $768,150 and $708, , ,798 Cash value of life insurance policies 1,770,961 1,688,239 TOTAL $ 503,153,606 $ 646,446,793 LIABILITIES: Accounts payable and accrued expenses $ 1,744,781 $ 1,683,226 Derivative financial instruments 1,389, ,085 Funds held for others 2,709,224 3,625,308 Obligations related to deferred gifts 12,721,377 12,341,775 Notes payable 6,996,749 7,123,366 Total liabilities 25,561,289 25,459,760 NET ASSETS: Unrestricted 7,470,513 33,351,095 Temporarily restricted 173,407, ,560,214 Permanently restricted 296,713, ,075,724 Total net assets 477,592, ,987,033 TOTAL $ 503,153,606 $ 646,446,793 See notes to consolidated financial statements

5 THE UNIVERSITY OF GEORGIA FOUNDATION CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2009 AND CHANGES IN UNRESTRICTED NET ASSETS: Rental income $ 693,409 $ 669,237 Contributions 441, ,050 Royalties Affinity card 140, ,107 Logo licensing 594, ,364 Net realized and unrealized (loss) gain on investments (12,935,750) 889,060 Interest and dividends 255, ,761 Other income net 2,369,494 2,566,534 Total unrestricted revenues and (losses) gains (8,439,937) 5,811,113 Net assets released from restrictions 21,351,803 31,561,469 Transfer of realized and unrealized losses on endowment funds with deficits from temporarily restricted (12,413,659) Total unrestricted revenues, gains, and other support 498,207 37,372,582 EXPENSES: Donor restricted program support 13,007,420 15,420,474 Scholarships 6,056,728 6,049,549 Direct program support 1,966,586 2,016,609 General operations: Alumni association 1,958,559 2,150,267 Administrative services 461, ,469 University services 262, ,000 Foundation board 83, ,234 Management and investment fees 70,043 13,329 Interest expense net 1,121,591 1,144,009 Distributions to beneficiaries 351, ,803 Other expenses 888, ,269 Total expenses 26,227,502 28,824,012 (DECREASE) INCREASE IN UNRESTRICTED NET ASSETS (25,729,295) 8,548,570 (Continued) - 3 -

6 THE UNIVERSITY OF GEORGIA FOUNDATION CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2009 AND CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Contributions $ 5,861,526 $ 11,435,504 Net realized and unrealized loss on investments (122,041,052) (35,569,945) Interest and dividends 4,243,610 7,810,182 Other income net 874, ,612 Increase in annuities payable (533,382) Transfer of funds from (to) permanently restricted net assets 380,209 (847,121) Net assets released from restrictions (21,351,803) (31,561,469) Transfer of realized and unrealized losses on endowment funds with deficits to unrestricted 12,413,659 DECREASE IN TEMPORARILY RESTRICTED NET ASSETS (120,152,378) (47,998,237) CHANGES IN PERMANENTLY RESTRICTED NET ASSETS: Contributions 4,554,712 9,329,003 Interest and dividends 416, ,376 Net realized and unrealized loss on investments (2,054,660) (816,372) Increase in cash surrender value of life insurance 82,722 81,086 Decrease (increase) in annuities payable 153,780 (91,454) Distributions to beneficiaries (1,007,175) (1,027,359) Transfer of funds from (to) temporarily restricted net assets (380,209) 847,121 Other income net 872, ,782 INCREASE IN PERMANENTLY RESTRICTED NET ASSETS 2,638,244 9,157,183 DECREASE IN NET ASSETS (143,243,429) (30,292,484) NET ASSETS: Beginning of year 620,987, ,307,484 Foreign currency adjustment (151,287) (389,132) Transfer of net assets of Real Estate Foundation (6,638,835) End of year $ 477,592,317 $ 620,987,033 See notes to consolidated financial statements. (Concluded) - 4 -

7 THE UNIVERSITY OF GEORGIA FOUNDATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2009 AND CASH FLOWS FROM OPERATING ACTIVITIES: Decrease in net assets $ (143,243,429) $ (30,292,484) Adjustments to reconcile decrease in net assets to net cash (used in) provided by operating activities: Contributions restricted for long-term investment (4,554,712) (9,329,003) Net realized and unrealized loss on investment securities 135,820,890 34,680,885 Net realized and unrealized loss on temporary investments 1,210,572 Net gain on sales of real estate and personal property (53,782) (3,067,237) Net realized and unrealized loss on derivative financial instruments 703, ,109 Depreciation 322, ,989 Interest and dividends restricted for long-term investment (416,607) (600,376) Actuarial loss on deferred gift obligations 1,738,057 1,682,972 Donated property (655,000) (780,778) Transfer of donated property to related party 440,000 Changes in: Accounts receivable, accrued interest, and notes receivable 1,119,114 (495,488) Contributions receivable 1,222,890 (213,577) Prepaid expenses and other assets (14,145) 7,100 Accounts payable and accrued expenses 61, ,333 Funds held for others (916,084) (237,417) Net cash used in operating activities (7,214,939) (7,426,972) INVESTING ACTIVITIES: Capital expenditures (3,700) (1,271,843) Proceeds from sale of real property 144,731 7,875,672 Purchase of investments (217,291,651) (111,507,499) Proceeds from sale of investments 223,366, ,240,261 Increase in cash value of life insurance policies (82,722) (81,086) Net cash provided by investing activities 6,133,008 1,255,505 FINANCING ACTIVITIES: Proceeds from contributions restricted for: Investments in permanently restricted endowments 4,554,712 8,818,328 Investments subject to annuity agreements 510,675 Total proceeds from contributions restricted 4,554,712 9,329,003 (Continued) - 5 -

8 THE UNIVERSITY OF GEORGIA FOUNDATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2009 AND Interest and dividends restricted for long-term investments $ 416,607 $ 600,376 Payments on deferred gift obligations (1,358,455) (1,027,359) Repayments on credit agreements (8,083,918) Repayment on notes payable (126,617) (1,185,039) Advances on notes payable 6,200,000 Net cash provided by financing activities 3,486,247 5,833,063 NET INCREASE (DECREASE) IN CASH 2,404,316 (338,404) CASH AND CASH EQUIVALENTS: Beginning of year 1,406,499 11,052,551 Transfer of cash of Real Estate Foundation (9,307,648) End of year $ 3,810,815 $ 1,406,499 See notes to consolidated financial statements. (Concluded) - 6 -

9 THE UNIVERSITY OF GEORGIA FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2009 AND ORGANIZATION AND PURPOSE The University of Georgia Foundation (the 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 University of Georgia (the University ). The University is governed by the Board of Regents of the University System of Georgia (the Board of Regents ). The Foundation performs the following: Receives contributions and manages funds in accordance with the instructions of the donors. Provides financial support to the University for scholarships, faculty salary supplements, awards and lectureships, travel, research, and other institutional programs. Owns and operates a study-abroad facility in Costa Rica for the benefit of the University through a wholly owned foreign corporation, UGA Ecolodge and Research Station S.A., (the Costa Rica Entity ) established under Costa Rican law. In 1996, the Foundation entered into a cooperative organization agreement with the Board of Regents, which provided administrative services and facilities to the Foundation. In April 2005, the Board of Regents exercised its right to terminate the agreement after a period of 90 days. On July 1, 2005, the Foundation entered into an agreement with the University to provide administrative services and facilities to the Foundation, effectively terminating the cooperative organization agreement. The administrative services and facilities agreement expires on June 30, REAL ESTATE FOUNDATION In 2006, the Board of Trustees of the Foundation agreed to transfer its sole membership of the Real Estate Foundation to the Research Foundation. This transfer was contingent upon a private letter ruling from the Internal Revenue Service accepting the transfer with no negative impact on the tax-exempt status of the Real Estate Foundation s outstanding bond debt. In 2007, the private letter ruling favorable to the transfer was received, and the transfer of sole membership became effective July 1, As a result and in accordance with Financial Accounting Standards Board (FASB) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, amounts related to the Real Estate Foundation have been treated similar to discontinued operations in the accompanying 2008 consolidated statements of activities and cash flows. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting These consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America and include the accounts of the Costa Rica Entity. All balances and transactions between the Foundation and the Costa Rica Entity have been eliminated. Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents

10 Investments Investments in trust funds and securities with an established market value are carried at market value. The market values for investments are estimated based on quoted market prices for those or similar investments where a market price is available or an amount determined by external investment managers if quoted market prices are not available. Investments in securities without an established market value are carried at the current market value as estimated by management of the Foundation. Realized gains and losses are computed using the specific identification method. Temporary investments are held in money market funds and treasury yield accounts and have an original maturity of greater than three months and represent operating funds in excess of immediate cash requirements. Investment Fees Consultants, custodial managers, and investment managers receive payments for the service they provide in managing investment securities for the Foundation. Investment fees paid to investment managers relating to activity in the long-term pool are netted against net realized and unrealized gain (loss) or interest and dividends. Custodial and consultant expenses are paid direct to them and are netted against interest and dividends before distribution to the funds. Short-Term Investment Strategy The investment committee and finance committee approved a three tier investment strategy for cash balances of restricted and unrestricted funds of a short-term nature. The strategy is used as a mechanism to provide unrestricted funding. The short-term pool of money is invested among three investment strategies. The allocations to the three levels take into account cash flow requirements and donor restrictions that include: gifts held for construction, cash flow requirements for annual operations and for the next three years. Based on restrictions the funds are invested across three tiers. Tier 1 is invested in institutional money market funds and short-term US treasuries and includes cash flow requirements for the current year and construction funding. Tier 2 is invested in low duration fixed income funds, A1-P1 commercial paper, treasuries, agencies, CDs, and money market funds and includes cash flow requirements for the next three years. Tier 3 is invested in the Foundation s long-term investment portfolio and is the balance of the short-term funds. The Tier 1 rate is distributed to all restricted and unrestricted funds that participate in the short-term portfolio based on each fund s share of the total short term investments. Any investment returns recognized from Tier 2 and Tier 3 over the annual Tier 1 rate is returned to unrestricted for annual operations. For the period ending June 30, 2009, the net amount of investment returns from Tier 2 and Tier 3 was a loss of $5,665,042. The loss is unrealized at June 30, 2009 and is reflected as a reduction of unrestricted net assets within the consolidated statements of financial position. Real Property Real property includes land, timber, and buildings. Land and timber are stated at cost and are not depreciated. Buildings are stated at cost, less accumulated depreciation. Donated real estate are carried at the estimated market value at the date of the gift. Depreciation is computed using the straight-line method over the lesser of the estimated useful lives of approximately 30 years or the remaining term of the underlying leases (see Note 10). Expenditures for maintenance and repairs are charged to operations as incurred, while renewals and betterments are capitalized. Construction in Progress Construction in progress is stated at cost and includes planning, development, and construction costs, as well as capitalized interest. When construction is complete and the asset is placed in use, assets are transferred at cost to real property. Works of Art The Foundation capitalizes art collections and recognizes contribution revenue at the fair value of the gift at the date of receipt

11 Furniture, Fixtures, and Equipment Furniture, fixtures, and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Impairment The Foundation regularly evaluates whether events and circumstances have occurred that indicate the carrying amount of real property, construction in progress, and furniture, fixtures, and equipment may warrant revision or may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, the Foundation assesses the potential impairment by determining whether the carrying value of such long-lived assets will be recorded through the future undiscounted cash flows expected from use of the asset and its eventual disposition. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded, based on quoted market values, discounted cash flows, or external appraisals, as applicable. In addition, the Foundation regularly evaluates whether events and circumstances have occurred that indicate the useful lives of long-lived assets may warrant revision. Derivative Financial Instruments Derivative financial agreements have been entered into in order to manage interest rate risk associated with a portion of current and future borrowings. In accordance with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, these derivative financial instruments are recorded at fair value in the consolidated statements of financial position. Changes in the fair value of the derivative financial instruments are included in interest expense in the consolidated statements of activities. Contributions Unconditional promises to give are recognized as unrestricted revenue when the underlying promises are received by the Foundation. Gifts of cash and other assets are reported as either temporarily or permanently restricted revenue if they are received with donor stipulations that limit the use of the donated asset. When donor restrictions on cash and other assets reported as temporarily restricted net assets expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are transferred to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. It is the Foundation s policy to use such funds for the restricted purpose as soon as it is practical and prudent. Temporarily restricted net assets are used to provide facility support, including building construction and renovation, and program support of the schools and colleges of the University. The permanently restricted classification is used if the donor stipulations are restricted for a specified purpose, whereby gifts of cash and other assets must be invested in perpetuity to provide a permanent source of income for the Foundation. A substantial portion of the income from permanently restricted net assets is used to provide scholarship and professorship support. The Foundation s endowment spending limit for permanently restricted net assets for each of the years ended June 30, 2009 and 2008, was 4.3% and 4.4%, respectively, of the average market value of the long-term invested assets. Transfers are made between temporarily restricted and permanently restricted net assets as permitted or required by fund agreements with donors. Split-Interest Agreements The Foundation is the remainder beneficiary of certain life income and life interest gifts. Life income gifts are invested in pooled income funds established pursuant to agreements between the Foundation and the banks that serve as trustees of the funds. The principal amount of such gifts has been classified as permanently restricted

12 Life interest gifts consist of real estate in which the donor has retained certain life interests in the property. The fair market value of the gift at the date of receipt has been discounted for the estimated value of the life interest retained by the donor and has been classified as permanently restricted. The real estate value is being accreted to the fair value of the gift at the date of receipt over the estimated life expectancy of the donor. Life Insurance Gifts Life insurance gifts consist of life insurance policies purchased by donors where the Foundation is the beneficiary of the policy. The cash value of life insurance policies, net of policy loans, has been classified as permanently restricted. Rental Income Rental income is recognized when earned and collectability of the associated receivable is reasonably assured. Rental income is recognized on a monthly basis in accordance with the related lease agreement. Any rental payments received but not yet earned are recognized as a liability in the consolidated statements of financial position. Cost of Services The costs of services rendered by the External Affairs Division of the University for fund-raising activities are borne by both the Foundation and the University. The portion of the costs borne by the University is not included in the Foundation s financial statements and was $1,418,445 and $1,974,746 for the years ended June 30, 2009 and 2008, respectively. Essentially, all of these costs would have been incurred by the University even if the Foundation did not exist. In addition, due to the insignificance of certain cost of services rendered to the Foundation by the accounting and certain other departments of the University, such amounts are not charged to the Foundation or included in the Foundation s financial statements. Administrative Fees The Foundation charges an administrative fee to restricted funds and transfers this amount to the unrestricted fund to cover operating expenses. For the years ended June 30, 2009 and 2008, the administrative fees charged were $4,219,396 and $5,265,712, respectively. This fee is calculated quarterly based on a graduated rate structure (from 0.05% to 0.15%) for nonendowed funds and a flat rate for endowed accounts of 0.25% for the years ended June 30, 2009 and The applicable rate is applied to each restricted fund s average fund balance as of the end of each quarter. Such administrative fees are included within temporarily restricted net assets released from restrictions in the consolidated statements of activities. Upon release from restriction, such administrative fees and corresponding income are netted within management and investment fees within the consolidated statements of activities. Estimates in the Consolidated Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Pronouncements In August 2008, the FASB issued FASB Staff Position (FSP) FAS 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds, which provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). UPMIFA is a model act approved by the Uniform Law Commission (ULC; formerly known as the National Conference of Commissioners on Uniform State Laws) that serves as a guideline for states to use in

13 enacting legislation. The provisions of FSP FAS were applied by the Foundation in the year ended June 30, In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Foundation adopted FASB Statement No. 157 for its financial assets and liabilities effective July 1, 2008 (see Note 7 for additional disclosures). As permitted by FSP FAS 157-2, Effective Date of FASB Statement No. 157, FASB Statement No. 157 is effective for nonfinancial assets and liabilities for the Foundation s fiscal year The Foundation continues to evaluate the potential impact of the adoption of FASB Statement No. 157 related to its nonfinancial assets and liabilities. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of FASB Statement No. 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP FAS was effective upon issuance and applies to the Foundation s current financial statements. The application of the provisions of FSP FAS had no effect the Foundation s results of operations or financial condition. In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with FASB Statement No This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, The Foundation adopted this FSP for the fiscal year ended June 30, 2009, and there was no impact on its consolidated financial statements. In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 ( FASB Statement No. 159 ). FASB Statement No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. FASB Statement No. 159 was effective for financial statements issued for fiscal years beginning after November 15, Effective July 1, 2008, the Foundation did not elect the fair value option for any instruments. In May 2009, the FASB issued FASB Statement No. 165, Subsequent Events. This statement sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement is effective for interim and annual periods ending after June 15, The Foundation adopted this statement at June 30, The Foundation has evaluated events and transactions for recognition or subsequent events disclosure in the accompanying financial statements through September 25, In June 2009, the FASB issued FASB Statement No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principle a replacement of FASB Statement No. 162, (the Codification ). The Codification, which was launched on July 1, 2009,

14 became the single source of authoritative nongovernmental United States Generally Accepted Accounting Principles, superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. The Codification eliminates the GAAP hierarchy contained in FASB Statement No. 162 and establishes one level of authoritative GAAP. All other literature is considered nonauthoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, The Foundation will adopt this statement for its annual fiscal year ending June 30, The Foundation does not expect the adoption of this standard to have any material impact on its consolidated financial statements. 4. CONTRIBUTIONS RECEIVABLE Contributions receivable of unconditional promises to give at June 30, 2009 and 2008, consist of the following: Contributions receivable $ 24,256,589 $ 25,884,232 Less allowance for uncollectible contributions (3,940,357) (3,852,970) Less amount representing interest (2.5% and 3.3% at June 30, 2009 and 2008, respectively) (1,362,099) (1,854,239) Net contributions receivable $ 18,954,133 $ 20,177,023 An allowance for uncollectible contributions is necessary as, from time to time, the Foundation may be unable to collect an outstanding pledge recorded as contributions receivable. The allowance is management s estimate of the potential future write-offs of uncollectible contributions and is based on historical write-offs, overdue contributions, and other factors. Contributions receivable beyond one year are discounted to their present value using treasure rates consistent with the life of the pledge. Contributions receivable as of June 30, 2009 are due as follows: In less than one year $ 4,157,278 In one to five years 17,676,716 Beyond five years 2,422,595 Total $ 24,256, NET ASSET ENDOWMENTS The Foundation s endowment funds consist of individual donor restricted endowment funds and funds designated by the Board of Trustees (Board) to function as endowments. The net assets associated with such endowment funds, including those funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. As of July 1, 2008, the Foundation adopted the State of Georgia s UPMIFA, which requires the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. In accordance with FSP FAS 117-1, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the

15 donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. The Foundation made a decision to allow spending from endowment funds based on the current spending policy. Fund spending is limited to the lesser of the established spending rate or available cash balance and investment return. In accordance with UPMIFA, the Foundation considered the following factors in making its determination to appropriate or accumulate endowment funds: The duration and preservation of the fund The purposes of the Foundation and the donor restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and appreciation of investments Other resources of the Foundation The investment policies of the Foundation Where the Board designates unrestricted funds to function as endowments they are classified as unrestricted net assets. The following tables present the Foundation s endowment composition, changes, and net asset classifications as of and for the indicated years (in thousands of dollars): Endowment Net Asset Composition by Temporarily Permanently Type of Fund as of June 30, 2009 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (9,930,073) $ 111,103,186 $ 285,310,207 $ 386,483,320 Board-designated endowment funds 19,932,506 19,932,506 Total funds $ 10,002,433 $ 111,103,186 $ 285,310,207 $ 406,415,826 Changes in Endowment Net Assets Temporarily Permanently for the Year Ended June 30, 2009 Unrestricted Restricted Restricted Total Endowment net assets beginning of year $ 27,725,321 $ 234,330,073 $ 279,169,725 $ 541,225,119 Net asset reclassification due to realized and unrealized losses on endowment funds with deficits (12,413,659) 12,413,659 - Endowment net assets after reclassification 15,311, ,743, ,169, ,225,119 Investment (loss) income (6,926,003) (118,005,039) (124,931,042) Contributions and other revenue 369,093 1,207,703 6,153,677 7,730,473 Appropriation of endowment assets for expenditure (122,670) (17,623,828) (3,224) (17,749,722) Other changes: Adjustments to annuities payable (533,382) (533,382) Interfund activity for endowments with net to nonendowed 1,370,351 (686,000) (9,971) 674,380 Endowment net assets end of year $ 10,002,433 $ 111,103,186 $ 285,310,207 $ 406,415,

16 The disclosure set forth above does not include certain unrestricted assets that do not have donor or board imposed restrictions. Description of Amounts Classified as Permanently Restricted Net Assets and Temporarily Restricted Net Assets (Endowment Only) as of June 30, 2009 Permanently restricted net assets the portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or UPMIFA $ 285,310,207 Total endowment funds classified as permanently restricted net assets $ 285,310,207 Temporarily restricted net assets the portion of perpetual endowments subject to donor restrictions $ 111,103,186 Total endowment funds classified as temporarily restricted net assets $ 111,103,186 Endowment Funds With Deficits From time to time, the fair value of assets associated with individual donor endowment funds may fall below the value of the initial and subsequent donor gift amounts. Donor endowment deficits are classified as a reduction of unrestricted net assets. These deficits resulted from unfavorable market conditions which resulted in negative investment returns. Deficits of this nature reported in unrestricted net assets were $12,413,659 as of June 30, Subsequent recovery of investment market value will reduce previously accrued deficits, with unrestricted amounts reinstated first. Return Objectives and Risk Parameters The Foundation has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of endowment assets. Under this policy, endowment assets are invested in a manner that is intended to yield a long-term rate of return of approximately 9.2% annually, while assuming a moderate level of investment risk. Actual returns in any given year may vary from this amount. Due to the market declines experienced during the year ended June 30, 2009, the long-term goal of 9.2% has not been achieved. Strategies Employed for Achieving Investment Objectives To achieve its long-term rate of return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized gains) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places greater emphasis on equity-based investments to achieve its long-term objectives within prudent risk constraints. Relationship of Spending Policy to Investment Objectives The Foundation s Investment Committee (the Committee ) determines the method to be used to appropriate endowment funds for expenditure. The appropriation amount for the following fiscal year s spending rate is determined using investment values on a calendar year basis. For fiscal year 2009, the spending rate is equal to 4.3% of the preceding 12 calendar quarter end average fair values through December 31, In February 2009, the committee established a 4% spending rate for fiscal year 2010 based on the preceding 12 calendar quarter end average fair values through December 31, In establishing this method, the Committee considered the expected long-term rate of return on the investment of the Foundation s endowment funds. Accordingly, over the long-term, the Foundation expects the current spending policy to allow its endowment to grow at an average of approximately 5% annually, consistent with its intention to maintain the purchasing power of the endowment assets. Depending upon market conditions and the needs and available resources of the Foundation, appropriations for expenditure from individual endowments may be temporarily suspended to facilitate preservation of the individual endowment

17 6. INVESTMENT SECURITIES The market value of investment securities as of June 30, 2009 and 2008, is as follows: Treasury notes $ 231,825 $ 234,316 Managed cash funds 152, ,406 Mutual funds 1,516,159 1,828,504 Common stocks 2,319,010 2,693,996 Bonds 302, ,002 Alternative investments 491, ,950 Split-interest investments 13,987,259 16,727,272 Long-term investment pool 390,977, ,703,970 Total $ 409,978,826 $ 550,231,416 As of June 30, 2009, the long-term investment pool consists of investments in domestic and international equities (46.9%), fixed income instruments (11.9%), private equity investments (7.6%), real estate funds (3.2%), hedge funds (23.8%), timber, gas and oil (3.6%), US Treasury securities (1.1%) and deposits (1.9%) that are held by outside investment managers. As of June 30, 2008, the long-term investment pool consists of investments in domestic and international equities (54.5%), fixed income instruments (10.4%), private equity investments (6.2%), real estate funds (4.5%), hedge funds (16.0%), timber, gas and oil (2.8%), and deposits (5.6%) that are held by outside investment managers. Fair value for financial reporting purposes is based on quoted market prices or an amount determined by external investment managers if quoted market prices are not available. Management reviews and evaluates fair value provided by the external investment managers as well as the valuation methods and assessments used in determining the fair value of such investments. Such estimated fair values (amounting to $119,763,093 and $317,251,384 for investments with estimated fair values based on quoted market prices or other observable market inputs and $290,215,734 and $232,980,032 for investments with estimated fair values provided by external investment managers at June 30, 2009 and 2008, respectively) may differ from the ultimate realizable value of the investments and these differences may be material. Net realized and unrealized gain (loss) on investments include ($68,400,403) and ($34,993,183) for investments with estimated fair values based on quoted market prices and ($67,420,488) and $312,298 for investments with estimated fair values provided by external investment managers at June 30, 2009 and 2008, respectively. 7. FAIR VALUE MEASUREMENTS The Foundation adopted FASB Statement No. 157, Fair Value Measurements (SFAS No. 157) as of July 1, 2008, which, among other things, requires enhanced disclosures about investments that are measured and reported at fair value. SFAS establishes a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available actively quoted prices or

18 for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Investments Investments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: Level I Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments which would generally be included in Level I include listed equity securities, mutual funds, and money market funds. As required by SFAS 157, the Foundation, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Foundation holds a large position and a sale could reasonably impact the quoted price. Level II Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Fair value is determined through the use of models or other valuation methodologies. The types of investments which would generally be included in this category include publicly-traded securities with restrictions on disposition, corporate obligations, and US Government and Agency treasury inflation protected securities, and interest rate derivatives primarily valued using pricing models that rely on market observable inputs such as yield curves. Level III Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Fair value is based on the best information available and is determined by reference to information including, but not limited to, net earnings, the net present value of projected cash flows, balance sheets, public or private transactions, valuations for publicly-traded comparable companies, and consideration of any other pertinent information including the types of securities held and restrictions on disposition. The types of investments which would generally be included in this category include debt and equity securities issued by private entities and partnerships. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Foundation s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment

19 The following table summarizes the levels in the FASB Statement No. 157 fair value hierarchy into which the Foundation s investments fall as of June 30, 2009: Level 1 Level 2 Level 3 Total Assets: Publicly-traded investments $ 253,709,816 $ 87,980,206 $ - $ 341,690,022 Publicly-traded temporary investments 15,402,744 15,402,744 Nonpublicly-traded investments 68,288,802 68,288,802 Total investments $ 253,709,816 $ 103,382,950 $ 68,288,802 $ 425,381,568 Liabilities derivative financial instruments $ - $ (1,389,158) $ - $ (1,389,158) Temporary investments (other than those included in the table above) are held in checking, money market, and treasury reserve accounts and are carried at book value, which approximates fair value. For the year ended June 30, 2009, the changes in investments classified as Level III are as follows: Balance July 1, 2008 $ 88,532,193 Purchases 27,418,352 Sales (21,096,337) Realized and unrealized losses net (26,565,406) Balance June 30, 2009 $ 68,288,802 Net unrealized loss on level 3 holdings held at June 30, 2009 $ (22,846,137) Cash and Cash Equivalents and Temporary Investments The carrying amount approximates fair value because of the short-term maturity of these instruments. Notes Payable The carrying amount approximates fair value because the interest rate approximates the current rates at which similar loans could be obtained from lenders for the same remaining maturities. Other Receivables and Payables The carrying amount of accounts receivable and accounts payable and accrued expenses approximates fair value because of the short-term maturity of these instruments. The carrying amount of contributions receivable approximates their fair value

20 8. NOTES PAYABLE As of June 30, 2009 and 2008, the summary of borrowings is as follows: $6,200,000 note payable $ 6,069,323 $ 6,149,275 $1,117,685 note payable 927, ,091 Total notes payable $ 6,996,749 $ 7,123,366 $6,200,000 Note Payable During 2007, the Foundation signed a $6,200,000 promissory loan agreement with a bank, which expires on November 1, Interest is charged at the bank s 30-day London InterBank Offered Rate (LIBOR) rate plus 32.5 basis points (or 0.325%), or 0.65% and 2.78% at June 30, 2009 and 2008, respectively. Principal and interest are payable monthly. $1,117,865 Note Payable During 2002, the Foundation signed an $880,000 promissory loan agreement with a bank, which was amended during 2005 to increase the borrowed amount to $1,117,865. This agreement expires on May 1, Interest is charged at the bank s 30-day LIBOR rate plus 45 basis points (or 0.45%), or 0.77% and 2.91% at June 30, 2009 and 2008, respectively. Principal and interest are payable monthly. The Foundation has two outstanding interest rate swap agreements effectively changing the interest rate exposure on the $1,117,865 note payable from variable to a 5.75% fixed rate over the term of the note payable and changing the interest rate exposure on the $6,200,000 note payable from variable to a 5.95% fixed rate over the term of the note payable. As of June 30, 2009 and 2008, the fair value of those interest rates swaps was a liability of $1,389,158 and $686,085, respectively. The Foundation recorded a loss on such swaps of $703,073 and $691,109 for the years ended June 30, 2009 and 2008, respectively, as an adjustment to interest expense. The following is a summary as of June 30, 2009, of principal payments due under all borrowings during each of the next five years ending June 30 and thereafter: Years Ending June $ 134, , , , ,585 Thereafter 5,589,958 Total $ 6,996,749 The notes payable require the Foundation to meet certain covenants. At June 30, 2009 and 2008, the Foundation was in compliance with all covenants

21 9. OBLIGATIONS RELATED TO DEFERRED GIFTS The Foundation has a deferred gift program that allows donors to make contributions that provide for certain payments from the contributed assets to specified beneficiaries during their lifetime. The amount payable to the donors is recorded at the present value of the future payments to be made under these agreements. Investments and various trusts held by the Foundation under these agreements were $13,987,259 and $16,727,272 at June 30, 2009 and 2008, respectively. Estimated future annual principal payments on deferred gift obligations as of June 30, 2009, are as follows: Years Ending June $ 577, , , , ,247 Thereafter 10,853,001 13,953,631 Less amount representing interest (rates ranging from 3.19% to 4.32%) (1,232,254) Total $ 12,721,377 In connection with an estate gift, the Foundation committed to pay a beneficiary $300,000 annually, adjusted for a 4% inflation factor. This amount is reduced by the annual distributions from the gift annuity established for the beneficiary s benefit. The present value of this commitment has been recorded as obligations related to deferred gifts. 10. OPERATING LEASES The Foundation is a lessee under operating leases for office space and equipment. Total rent expense for the years ended June 30, 2009 and 2008 was $431,052 and $518,076, respectively. The following is a schedule by years of future minimum rental payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 2009: Years Ending June $ 92, , , , ,172 Thereafter 663,744 Total $ 1,258,