THE UNIVERSITY OF SOUTHERN MISSISSIPPI ATHLETIC FOUNDATION. Financial Statements Years Ended June 30, 2014 and 2013

Transcription

1 THE UNIVERSITY OF SOUTHERN MISSISSIPPI ATHLETIC FOUNDATION Financial Statements

2 CONTENTS Independent Auditor's Report 1 2 Financial Statements Statements of Financial Position 3 Statement of Activities Year Ended June 30, Statement of Activities Year Ended June 30, Statement of Functional Expenses Year Ended June 30, Statement of Functional Expenses Year Ended June 30, Statements of Cash Flows 8 Notes to Financial Statements 9 24

3 INDEPENDENT AUDITOR'S REPORT To the Board of Directors The University of Southern Mississippi Athletic Foundation Hattiesburg, Mississippi Report on the Financial Statements We have audited the accompanying financial statements of The University of Southern Mississippi Athletic Foundation (the "Athletic Foundation") which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities, functional expenses and cash flows for the years then ended and the related notes to the financial statements. 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 an opinion on these 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 financial statements are free from material misstatement. 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 entity'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 entity's internal control.

4 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Athletic Foundation as of June 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Hattiesburg, Mississippi December 3,

5 Statements of Financial Position June 30, 2014 and ASSETS Cash and cash equivalents $ 1,957,893 $ 3,169,544 Pledges receivable, net 3,705,804 4,060,168 Present value of amounts due from split-interest agreements 397, ,083 Investments 5,362,390 3,978,075 Other investments 1,060,164 1,104,990 Cash designated for debt service escrow fund 366, ,410 Deferred financing costs, net 62,832 69,435 Land and land improvements 504,223 35,566 Total assets $ 13,417,657 $ 13,149,271 LIABILITIES Accounts payable $ 22,458 $ 70,479 Accrued interest 206, ,289 Notes payable 4,567,652 5,075,166 Bonds payable 3,112,327 3,351,800 Interest rate swap 415, ,130 Total liabilities 8,324,690 9,186,864 NET ASSETS (DEFICIT) Unrestricted (4,905,330) (5,865,299) Temporarily restricted 5,328,609 5,426,631 Permanently restricted 4,669,688 4,401,075 Total net assets 5,092,967 3,962,407 Total liabilities and net assets $ 13,417,657 $ 13,149,271 See accompanying notes. 3

6 Statement of Activities Year Ended June 30, 2014 Unrestricted Temporarily Restricted Permanently Restricted Total REVENUES, GAINS AND OTHER SUPPORT Contributions $ 338,288 $ 4,622,938 $ 389,633 $ 5,350,859 Net investment income - 666, ,453 Change in value of split interest agreement - 37,561-37,561 Contributed support from the University of Southern Mississippi 455, ,720 Gifts in-kind - 392, ,472 Net assets released from restrictions available for use in operations 5,842,099 (5,842,099) - - Total revenues, gains and other support 6,636,107 (122,675) 389,633 6,903,065 EXPENSES Program services Contributions to and support for The University of Southern Mississippi 5,265, ,265,546 Supporting services General and administrative expenses 192, ,718 Fundraising expenses 367, ,567 Total supporting services 560, ,285 Total expenses 5,825, ,825,831 CHANGE IN NET ASSETS FROM OPERATING ACTIVITIES 810,276 (122,675) 389,633 1,077,234 OTHER CHANGES IN NET ASSETS Change in fair value of interest rate swap agreement 53, ,326 Interfund transfers in (out) 96,367 24,653 (121,020) - Total other changes in net assets 149,693 24,653 (121,020) 53,326 CHANGE IN NET ASSETS 959,969 (98,022) 268,613 1,130,560 NET ASSETS (DEFICIT) Beginning of year (5,865,299) 5,426,631 4,401,075 3,962,407 End of year $ (4,905,330) $ 5,328,609 $ 4,669,688 $ 5,092,967 See accompanying notes. 4

7 Statement of Activities Year Ended June 30, 2013 Unrestricted Temporarily Restricted Permanently Restricted REVENUES, GAINS AND OTHER SUPPORT Contributions $ 68,342 $ 8,072,965 $ 34,855 $ 8,176,162 Net investment income - 398, ,399 Change in value of split interest agreement - (13,730) - (13,730) Contributed support from the University of Southern Mississippi 392, ,695 Gifts in-kind - 273, ,587 Net assets released from restrictions available for use in operations 6,981,782 (6,978,495) (3,287) - Total revenues, gains and other support 7,442,819 1,752,726 31,568 9,227,113 Total EXPENSES Program services Contributions and support for the University of Southern Mississippi 6,533, ,533,821 Supporting services General and administrative expenses 186, ,674 Fundraising expenses 290, ,576 Total supporting services 477, ,250 Total expenses 7,011, ,011,071 CHANGE IN NET ASSETS FROM OPERATING ACTIVITIES 431,748 1,752,726 31,568 2,216,042 OTHER CHANGES IN NET ASSETS Change in fair value of interest rate swap agreement 223, ,079 Interfund transfers in (out) (38,999) (147,293) 186,292 - Total other changes in net assets 184,080 (147,293) 186, ,079 CHANGE IN NET ASSETS 615,828 1,605, ,860 2,439,121 NET ASSETS (DEFICIT) Beginning of year (6,481,127) 3,821,198 4,183,215 1,523,286 End of year $ (5,865,299) $ 5,426,631 $ 4,401,075 $ 3,962,407 See accompanying notes. 5

8 Statement of Functional Expenses Year Ended June 30, 2014 Program General and Services Fundraising Administrative Total Advertising $ 85,498 $ - $ - $ 85,498 Amortization - - 6,603 6,603 Accounting fees ,379 15,379 Provision for uncollectible pledges 296, ,090 Bank charges 33, ,840 Computer software 1, ,716 Continuing education 260-1,010 1,270 Donor relations 92, ,547 Dues and subscriptions 5,961-1,531 7,492 Insurance 3,979-10,033 14,012 Interest expense 419, ,121 Investment fees 22, ,598 Legal fees 4, ,913 Meals and entertainment 44, ,446 Meetings, activities and receptions - 68,400-68,400 Office supplies 15,030-1,442 16,472 Postage 1, ,428 Printing 5, ,109 Professional fees 43, ,213 Recognition gifts 26,456-2,439 28,895 Refunds 4,321 1,000-5,321 Rent expense 27, ,991 Repairs and maintenance 123, ,278 Salaries, wages and benefits - 298, , ,082 Scholarships 1,607, ,607,149 Team supplies 101, ,736 Telephone 63, ,215 Travel 218,117-1, ,618 Utilities University, transfers to 2,017, ,018,734 Total expenses $ 5,265,546 $ 367,567 $ 192,718 $ 5,825,831 See accompanying notes. 6

9 Statement of Functional Expenses Year Ended June 30, 2013 Program Services Fundraising General and Administrative Total Advertising $ 49,400 $ - $ - $ 49,400 Amortization - - 6,602 6,602 Accounting fees ,000 13,000 Provision for uncollectible pledges 350, ,025 Bank charges 37, ,627 Computer software Continuing education Donor relations 54, ,315 Dues and subscriptions 7,985-1,196 9,181 Insurance 1,168-8,408 9,576 Interest expense 456, ,502 Investment fees 19, ,075 Legal fees 33, ,322 Meals and entertainment 31, ,534 Meetings, activities and receptions - 52,502-52,502 Office supplies 16,669-1,822 18,491 Postage Printing 7, ,929 Professional fees 94,057 2,374-96,431 Recognition gifts 38, ,050 Refunds 3, ,777 Rent expense 19, ,258 Repairs and maintenance 141, ,548 Salaries, wages and benefits - 235, , ,082 Scholarships 2,067, ,067,982 Team supplies 85, ,579 Telephone 53, ,976 Travel 219,671-1, ,324 Utilities University, transfers to 2,742,176-1,272 2,743,448 Total expenses $ 6,533,821 $ 290,576 $ 186,674 $ 7,011,071 See accompanying notes. 7

10 Statements of Cash Flows Cash flows from operating activities Change in net assets $ 1,130,560 $ 2,439,121 Adjustments to reconcile change in net assets to net cash provided by operating activities Amortization of deferred financing costs 6,603 6,602 Provision for doubtful pledges receivable 296, ,025 Contributions restricted for long-term purpose (389,633) (34,855) Unrealized gains on investments (313,150) (78,041) Realized gains on sale of investments (193,133) (168,671) Change in fair value of interest rate swap agreements (53,326) (223,080) Changes in operating assets and liabilities Pledges receivable 58,274 (1,074,635) Split-interest agreements (7,562) 43,730 Accounts payable (48,021) 14,918 Accrued interest (13,840) (10,742) Net cash provided by operating activities 472,862 1,264,372 Cash flows from investing activities Proceeds from sale of investments 1,471,953 2,290,461 Purchases of investments (2,305,159) (2,184,037) Payments for land and land improvements (411,157) (35,566) Contributions restricted for long-term purpose (57,500) - Net cash (used in) provided by investing activities (1,301,863) 70,858 Cash flows from financing activities Payments on bonds payable (239,473) (228,236) Payments on notes payable (507,514) (397,502) Net (payment to) release from debt service escrow fund (25,296) 40,621 Contributions restricted for long-term purpose 389,633 34,855 Net cash used in financing activities (382,650) (550,262) Net (decrease) increase in cash and cash equivalents (1,211,651) 784,968 Cash and cash equivalents at beginning of year 3,169,544 2,384,576 Cash and cash equivalents at end of year $ 1,957,893 $ 3,169,544 Supplemental disclosures of cash flow information Cash paid during year for interest $ 432,961 $ 467,244 Reconciliation to statement of financial position Cash and cash equivalents, unrestricted $ 166,068 $ 85,673 Cash and cash equivalents, temporarily restricted 1,592,398 2,229,323 Cash and cash equivalents, permanently restricted 199, ,548 Total cash and cash equivalents $ 1,957,893 $ 3,169,544 See accompanying notes. 8

11 Note 1. Summary of Significant Accounting Policies Organization and Nature of Activities The University of Southern Mississippi Athletic Foundation (the "Athletic Foundation") is a nonprofit corporation organized under the laws of the State of Mississippi. It has elected tax-exempt status under Internal Revenue Code Section 501(c)(3) and is exempt from both federal and state income taxes. The Athletic Foundation's mission is to provide support to the University of Southern Mississippi (the "University") athletic programs and booster organizations by conducting fund-raising activities, campaigns and development initiatives for the purpose of securing financial support from the general public. The Athletic Foundation began operations on July 1, 2001, when the predecessor foundation established under the University transferred all funds relating to athletics to the Athletic Foundation. The Athletic Foundation depends on the University to provide facilities and personnel for its operations. Basis of Presentation Financial statement presentation follows the requirements of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 958, Not-for-Profit Entities, under which the Athletic Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets, if applicable. Unrestricted Net assets that are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors. Temporarily Restricted Net assets whose use by the Athletic Foundation is subject to donorimposed restrictions that can be fulfilled by actions of the Athletic Foundation pursuant to those restrictions or that expire by the passage of time. Permanently Restricted Net assets subject to donor-imposed restrictions that the assets be maintained permanently by the Athletic Foundation. Generally, the donors of these assets permit the Athletic Foundation to use all or part of the income earned on related investments to fund athletic scholarships. Use of Estimates 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, 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. 9

12 Note 1. Continued Cash and Cash Equivalents The Athletic Foundation considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. Pledges Receivable Pledges receivable are recorded at net realizable value for all unconditional promises to give. An allowance for uncollectible pledges is recorded using a rate of 2.5 percent of the current pledges receivable balance after specific identifiable write-offs, which approximates historical collection experience. Multi-year pledges are discounted to present value using a risk-free interest rate. The discount rates used for pledges receivable originating in the years ended June 30, 2014 and 2013, was 3.08 percent and 3.22 percent, respectively. Property and Equipment Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets ranging from years. Maintenance and repairs are expensed as incurred. Split Interest Agreements The Athletic Foundation has been named the beneficiary of cash under a charitable remainder trust and a charitable lead trust, whereby the Athletic Foundation has not been named trustee. The amount due from these split interest agreements and the related contribution revenue has been recorded at fair value on the date of the gift. A discount rate commensurate with the risk involved is estimated as of June 30 th of each year. The discount rate for 2014 was 3.08 percent. The discount rate for 2013 ranged from 3.20 percent to 3.22 percent. Investments The Athletic Foundation accounts for investments in accordance with ASC Topic , Accounting for Investments Held by Not-for-Profit Entities. Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Unrealized gains and losses are included in net investment income in the accompanying statements of changes in net assets. Investment income and gains restricted by a donor are reported as increase in temporarily restricted net assets. When the restrictions are met (either by passage of time or by use), net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. 10

13 Note 1. Continued Certificates of deposit held for investment by the Athletic Foundation that are not debt securities are included in "Other investments." Contributions Contributions are recognized as revenues in the period received or when an unconditional promise to give has been made. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in statement of activities as net assets released from restrictions. Gifts in-kind donations of services, property, equipment, marketable securities and other noncash items are recorded as contributions at their estimated fair values at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated assets to a specific purpose. Planned Giving Inventory Planned giving inventory, which includes wills, trusts and estates, are not accrued as they represent conditional promises to give which constitutes a future and uncertain event. Planned giving inventory for the Athletic Foundation as of June 30, 2014 and 2013 consists of insurance policies with face amounts totaling $6,021,000, in which the Athletic Foundation is named beneficiary. Functional Expenses Functional expenses are allocated between program services and supporting services. Supporting services includes fundraising, and general and administrative activities. General and administrative expenses include those expenses that are not directly identifiable with any other specific function, but provide for the overall support and direction of the Athletic Foundation. Advertising The Athletic Foundation expenses advertising costs as incurred. Advertising expenses for the years ended June 30, 2014 and 2013 were $85,498 and $49,400, respectively. Income Taxes The Athletic Foundation evaluates tax positions taken in accordance with ASC Topic 740. The Athletic Foundation had no significant uncertain tax positions at June 30, 2014 or

14 Note 1. Continued Tax periods for all fiscal years after 2010 remain open to examination by the federal and state taxing jurisdictions to which the Athletic Foundation is subject. Deferred Financing Costs Deferred financing costs represents costs associated with the Revenue Bonds Series 2009 that are being amortized on a straight-line basis over the assumed fifteen year amortization period referenced in the bond agreement. These costs totaled $92,755 and are presented net of accumulated amortization of $29,923 and $23,320 as of June 30, 2014 and 2013, respectively. Amortization expense for the next five succeeding fiscal years is expected to be $6,603 each and $29,817 thereafter. Derivative Instruments The Athletic Foundation makes limited use of derivative financial instruments for the purpose of managing interest rate risk. Derivative financial instruments are recorded at fair value. Note 2. Pledges Receivable The amounts of pledges receivable as of June 30, 2014 and 2013, are as follows: Pledges to departmental funds $ 4,252,473 $ 4,622,571 Pledges to endowment funds 47,692 50,192 4,300,165 4,672,763 Less: Discounts for the time value of money 294, ,963 Allowance for uncollectible pledges 299, ,632 Net pledges receivable $ 3,705,804 $ 4,060,168 Contractual maturities of pledges as of June 30, 2014, are due as follows: Within one year $ 1,251,482 In one to five years 2,448,004 After five years 600,679 $ 4,300,165 12

15 Note 2. Continued During fiscal years 2014 and 2013, the Athletic Foundation wrote off certain pledges that were considered uncollectible. Total pledges written off and provisions made to change the allowance for uncollectible pledges, totaled $296,090 and $350,025 for the years ended June 30, 2014 and 2013, respectively. Note 3. Investments Investments as of June 30, 2014, consisted of the following: Fair Value Cost Common stocks $ 2,650,447 $ 2,150,623 U.S. government obligations 627, ,450 Corporate bonds 696, ,325 Mutual funds 1,284,020 1,163,657 Mortgage backed securities 103,376 98,709 Total $ 5,362,390 $ 4,734,764 Investments as of June 30, 2013, consisted of the following: Fair Value Cost Common stocks $ 1,637,772 $ 1,345,506 U.S. government obligations 439, ,306 Corporate bonds 815, ,716 Mutual funds 956, ,543 Mortgage backed securities 129, ,965 Total $ 3,978,075 $ 3,650,036 Investment expenses for the years ended June 30, 2014 and 2013 totaled $22,598 and $19,075, respectively. Investment fees are not netted against investment earnings, but are instead reported as expenses in the statement of activities. The following summarizes the investment returns for the years ended June 30, 2014 and 2013: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Interest and dividend income $ - $ 160,170 $ - $ 160,170 Net unrealized gain - 313, ,150 Net realized gain - 193, ,133 Total investment income $ - $ 666,453 $ - $ 666,453 13

16 Note 3. Continued 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Interest and dividend income $ - $ 151,687 $ - $ 151,687 Net unrealized loss - 78,041-78,041 Net realized gain - 168, ,671 Total investment income $ - $ 398,399 $ - $ 398,399 Note 4. Notes Payable Notes payable as of June 30, 2014 and 2013, consisted of the following: Note payable to private entity, due in a single payment in April 2016, at prime plus.50 percent, 3.75 percent at June 30, 2014 and 2013, unsecured $ 250,000 $ 550,000 Note payable to commercial bank, due in six annual principal and interest payments of $187,906 and one final payment of $2,051,477, maturing December 1, 2017; interest at 5.00 percent; secured by lease income of twelve baseball stadium suites at Pete Taylor Park 2,271,717 2,340,972 Note payable to commercial bank, due in semi-annual payments as stipulated in the note agreement; maturing January 1, 2020; interest at 3.10 percent above the 6 month LIBOR, (3.51 and 3.91 percent at June 30, 2014 and 2013, respectively), to be reset on July 1 and January 1 of each year, and is secured by all current and future contribution agreements and promissory notes as they relate to M.M. Roberts Stadium and Eagle Club Contributions 2,045,935 2,184,194 Total notes payable $ 4,567,652 $ 5,075,166 14

17 Note 4. Continued Aggregate annual maturities of notes payable outstanding at June 30, 2014, for the next five years and thereafter are as follows: Years Ending June 30, 2015 $ 219, , , ,227, ,106 Thereafter 1,194,983 Total $ 4,567,652 Interest expense for 2014 and 2013 was $419,121 and $456,502, respectively. Effective December 18, 2009, the Athletic Foundation entered into an interest rate swap agreement with a financial institution to mitigate its interest rate exposure on the $2,540,000 debt issued to a commercial bank. The agreement covers 100 percent of the outstanding principal balance until its expiration in 2020 and is designated as a fair value hedge of variable rate interest. The swap agreement fixes the interest rate to the Athletic Foundation at 6.81 percent. The floating rate payor is the financial institution and the fixed rate payor is the Athletic Foundation. The floating rate is based on the six month London Interbank Offering Rate ("LIBOR"), as defined in the agreement, plus 3.10 percent. More information regarding the interest rate swap agreement is described in Note 6. Note 5. Bonds Payable A summary of the Foundation's bonds payable is as follows: Revenue Bonds Series 2009 $ 3,112,327 $ 3,351,800 Revenue Bonds Series 2009 consist of debt issued by the Athletic Foundation primarily for the purpose of certain improvements and renovations to the South End Zone of M.M. Roberts Stadium at the University. All current and future contribution agreements and promissory notes as they relate to M.M. Roberts Stadium and Eagle Club Contributions are pledged for the payment of the debt service, in addition to all property and equipment, if any. The bonds have a floating interest rate that is established semiannually on July 1 and January 1. Cash designated for bond retirements (the debt service escrow fund) at June 30, 2014 and 2013 totaled $366,706 and $341,410, respectively.

18 Note 5. Continued Effective December 18, 2009, the Athletic Foundation entered into an interest rate swap agreement with a financial institution, to mitigate its interest rate exposure on the Revenue Bonds Series The agreement covers 100 percent of the outstanding principal balance until its expiration in 2020 and is designated as a fair value hedge of variable rate interest. The swap agreement fixes the interest rate to Athletic Foundation at 4.60 percent. The floating rate payor is a financial institution and the fixed rate payor is the Athletic Foundation. The floating rate is based on the six month London Interbank Offered Rate ("LIBOR"), as defined in the agreement. More information regarding the interest rate swap agreement is described in Note 6. The debt service requirements of the bonds payable at June 30, 2014, and for each of the five subsequent years and thereafter are as follows: Amount 2015 $ 250, , , , ,539 Thereafter 1,734,805 $ 3,112,327 Note 6. Interest Rate Swap Agreements The Athletic Foundation applies the provisions of FASB ASC Topic 815, Derivatives and Hedging, which requires certain derivative financial instruments to be recorded at fair value. The Athletic Foundation held variable rate debt of approximately $5,158,262 and $5,535,995 at June 30, 2014 and 2013, respectively. Interest rate swap agreements are used by the Athletic Foundation to mitigate the risk of changes in interest rates associated with variable interest rate indebtedness. Under such arrangements, a portion of variable rate indebtedness is converted to fixed rates based on a notional principal amount. The interest rate swap agreements are derivative instruments that are required to be marked to market and recorded at fair value on the statement of financial position. At June 30, 2014 and 2013 the aggregate notional principal amount under the interest rate swap agreements, with maturity dates during 2020, totaled $5,158,262 and $5,535,995, respectively, as described in Notes 4 and 5. At June 30, 2014 and 2013, the estimated fair value of the interest rate swap agreements was a liability of approximately $415,804 and $469,130, respectively. The following table represents the interest rate swap liability that is measured at fair value on a recurring basis at June 30, 2014: 16

19 Note 6. Continued Fair Value Level 1 Level 2 Level 3 Interest rate swap agreement, Series 2009 bonds $ 210,526 $ - $ 210,526 $ - Interest rate swap agreement, note payable 205, ,278 - $ 415,804 $ - $ 415,804 $ - The following table represents the interest rate swap liability that is measured at fair value on a recurring basis at June 30, 2013: Fair Value Level 1 Level 2 Level 3 Interest rate swap agreement, Series 2009 bonds $ 239,410 $ - $ 239,410 $ - Interest rate swap agreement, note payable 229, ,720 - $ 469,130 $ - $ 469,130 $ - For the valuation of interest rate swap agreements at June 30, 2014 and 2013, the Athletic Foundation used pricing models based on significant other observable inputs as of the valuation date (Level 2), including prices of instruments with similar maturities and characteristics, interest rate yield curves and measures of interest rate volatility. The value was determined and adjusted to reflect nonperformance risk of both the counterparty and the Athletic Foundation. See Note 13 for definitions of Levels 1, 2 and 3. Note 7. Restricted Net Assets Temporarily restricted net assets available for scholarships and expenses in support of the University's various athletic programs totaled $5,328,609 and $5,426,631 as of June 30, 2014 and 2013, respectively, including $3,613,832 and $3,955,600 of net assets with time restrictions at June 30, 2014 and 2013, respectively. Permanently restricted net assets consisting of endowments primarily established to support University athletic scholarships totaled $4,669,688 and $4,401,075 as of June 30, 2014 and 2013, respectively. Note 8. Deficit in Unrestricted Net Assets During Fiscal Year 2009, the Athletic Foundation borrowed $7,000,000 to supplement the University's expansion of M.M. Roberts Stadium. The University owns the stadium, capital improvements and all assets therein. The transfer of these funds to the University created a 17

20 Note 8. Continued deficit in unrestricted net assets. Management anticipates the deficit will be offset in future years as related contributions are received and payments to relinquish such debt are released from restriction and the corresponding revenue is recorded in unrestricted funds. In fiscal years 2014 and 2013, $377,732 and $356,998, respectively, were released from restriction for this purpose. During fiscal year 2013, the Athletic Foundation adjusted the policy regarding pledges receivable so that all new pledges have at least one-half of the pledged amount free from donor restriction so that those contributions collected can be used to pay down these debts. Note 9. Land and Land Improvements The foundation completed construction on land and improvements associated with a golf practice facility during Fiscal Year This facility consisted primarily of chipping and putting greens for the players. Amounts capitalized included contributed land and professional services in addition to costs incurred by the Athletic Foundation. The balance of each category as of June 30, 2014, is as follows: Amount Land $ 439,671 Land improvements 64,552 $ 504,223 Note 10. Risks, Uncertainties and Concentrations Cash Deposits At June 30, 2014 and 2013, the Athletic Foundation maintained cash deposits at financial institutions, including money market accounts and certificates of deposits that exceeded the Federal Deposit Insurance Corporation ("FDIC") coverage limits by $3,615,104 and $2,913,935, respectively. This subjects the Athletic Foundation to the risk of uninsured loss. Marketable Securities Marketable securities and other investments are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect the Athletic Foundation's net assets. Pledges Receivable Concentrations of credit risk with respect to pledges receivable are primarily due to the large number of contributors comprising the Athletic Foundation's contributor base, which are located primarily in the southwest region of Mississippi. At June 30, 2014, approximately 85 percent of contributors were located in the state of Mississippi. 18

21 Note 11. Related Party Transactions All Athletic Foundation staff are employed by the University. Additionally, the Athletic Foundation is housed on the University's grounds and is provided utilities at no cost. These amounts are recorded at their fair value in the statement of activities, which represent the Athletic Foundation's portion of the costs actually incurred by the University, as unrestricted contributed support and unrestricted expenses. June 30, Wages and benefits $ 449,082 $ 386,082 Facilities 5,973 5,973 Utilities $ 455,720 $ 392,695 Note 12. Endowment Funds The Athletic Foundation's endowment consists of approximately 102 individual funds established to support University athletic scholarships. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The Athletic Foundation classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of subsequent gifts and other income. The remaining portion of the 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 Athletic Foundation. The Athletic Foundation has adopted investment and spending policies, approved by the Board of Directors, for endowment assets that attempt to provide a predictable stream of funding to support current and future operational needs while seeking to maintain the purchasing power of these endowment assets over the long- term. The Athletic Foundation's spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through diversification of asset classes. To satisfy its long-term rate-of-return objectives, the Athletic Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The spending policy calculates the amount of money annually distributed from the Athletic Foundation's various endowed funds, for grant making and administration. The current spending policy is to distribute up to 5 percent of its endowment fund's average fair value of the preceding twelve month period, representing the prior fiscal year. 19

22 Note 12. Continued Accordingly, over the long term, the Athletic Foundation expects to attain an average annual real total return (net of investment management fees) in excess of the spending rate. This is consistent with the Athletic Foundation's objective to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts and investment return. Effective July 1, 2012 the State of Mississippi enacted the Uniform Prudent Management of Institutional Funds Act ("UPMIFA"). The Athletic Foundation considered this new legislation in its interpretation of state law and determined that the current investment policy and endowment agreements are in compliance with UPMIFA. Changes in net assets of donor-restricted endowments during the year ended June 30, 2014, were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Net Endowment net assets beginning of year $ - $ 581,383 $ 4,401,075 $ 4,982,458 Contributions , ,633 Investment income, net of expenses of $22, , ,117 Net appreciation - 323, ,251 Interfund transfers out - - (121,020) (121,020) Amounts appropriated for expenditure - (121,377) - (121,377) $ - $ 1,059,374 $ 4,669,688 $ 5,729,062 Changes in net assets of donor-restricted endowments during the year ended June 30, 2013, were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Net Endowment net assets beginning of year $ - $ 295,497 $ 4,183,215 $ 4,478,712 Contributions ,855 34,855 Investment income, net of expenses of $19, , ,765 Net appreciation - 82,041-82,041 Interfund transfers in , ,292 Amounts appropriated for expenditure - (63,920) (3,287) (67,207) $ - $ 581,383 $ 4,401,075 $ 4,982,458 20

23 Note 12. Continued From time-to-time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or relevant state law requires. As of June 30, 2014 and 2013, there were no individual donor-restricted endowment funds whose fair value fell below the level that the donor or relevant state law requires. Note 13. Fair Value Measurement ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the University has the ability to access. Level 2 Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2014 and Investments - The fair values of long term investments are determined based on quoted market prices (Level 1). See Note 3 for detail of investments. 21

24 Note 13. Continued Present value of amounts due from split-interest agreements - The fair value was determined based on the present value of future cash flows at the current market interest rates based on management's assumptions (Level 3). Fair values of assets measured on a recurring basis at June 30, 2014, are as follows: Level 1 Level 2 Level 3 ASSETS Present value of amounts due from split-interest agreements $ - $ - $ 397,645 Investments 5,362, Other investments 1,060, LIABILITIES Interest rate swap agreements $ - $ 415,804 $ - The following table sets forth a summary of changes in the fair value of the Athletic Foundation's Level 3 assets for the year ended June 30, Split-Interest Agreement Beginning balance $ 390,083 Change in value in split-interest agreements 37,562 Payment from Charitable Remainder Trust (30,000) Ending balance $ 397,645 Fair values of assets measured on a recurring basis at June 30, 2013, are as follows: Level 1 Level 2 Level 3 ASSETS Present value of amounts due from split-interest agreements $ - $ - $ 390,083 Investments 3,978, Other investments 1,104, LIABILITIES Interest rate swap agreements $ - $ 469,130 $ - The following table sets forth a summary of changes in the fair value of the Athletic Foundation's Level 3 assets for the year ended June 30,

25 Note 13. Continued Split-Interest Agreement Beginning balance $ 433,813 Change in value in split-interest agreements (13,730) Payment from Charitable Remainder Trust (30,000) Ending balance $ 390,083 Note 14. Financial Instruments Fair values of the Athletic Foundation's financial instruments are as follows: Carrying Carrying Amount Fair Value Amount Fair Value Cash and cash equivalents $ 1,957,893 $ 1,957,893 $ 3,169,544 $ 3,169,544 Cash designated for debt service escrow fund 366, , , ,410 Pledges receivable, net 3,705,804 3,705,804 4,060,168 4,060,168 Present value of amounts due from split-interest agreements 397, , , ,083 Investments 5,362,390 5,362,390 3,978,075 3,978,075 Other investments 1,060,164 1,060,164 1,104,990 1,104,990 Interest rate swap agreements 415, , , ,130 Notes payable 4,567,652 4,981,608 5,075,166 5,461,860 Bonds payable 3,112,327 3,456,715 3,351,800 3,610,109 The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents - Fair value approximates carrying value due to the initial maturities of the instruments being three months or less. Pledges receivable - The fair value was determined based on the present value of future cash flows at the current market interest rates. Investments - The fair values of long term investments are determined based on quoted market prices. 23

26 Note 14. Continued Other investments The fair values of certificates of deposits were determined based on the cost, plus any interest accrued less any applicable early withdrawal penalties. Present value of amounts due from split-interest agreements - The fair value was determined based on the present value of future cash flows at the current market interest rates based on management's assumptions. Interest Rate Swap Agreement - For the valuation of interest rate swap agreements at June 30, 2014 and 2013, the Athletic Foundation used pricing models based on significant other observable inputs as of the valuation date (Level 2), including prices of instruments with similar maturities and characteristics, interest rate yield curves and measures of interest rate volatility. The value was determined and adjusted to reflect nonperformance risk of both the counterparty and the Athletic Foundation. Notes and Bonds Payable - The fair values of notes and bonds payable are determined based on quoted market prices for the same or similar issues or on the current rates offered to the Athletic Foundation for debt of the same remaining maturities. Note 15. Subsequent Events The Athletic Foundation has evaluated subsequent events through December 3, 2014, the date the financial statements were available to be issued. 24