Georgia Institute of Technology, Atlanta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2010

GEORGIA INSTITUTE OF
TECHNOLOGY
ATLANTA, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED
JUNE 30,2010
Georgia Audits and Accounts
Russell W=Winton
SWte Auditor :

GEORGIA INSTITUTE OF TECHNOLOGY - TABLE OF CONTENTS -
SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXH IBlTS A STATEMENT OF NET ASSETS B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS C STATEMENTOFCASHFLOWS D NOTES TO THE FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION SCHEDULES
1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND
2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND
3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND
4 RECONCILIATION OF SALARIES AND TRAVEL
SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENOTF AUDITSAND ACCOUNTS
270 Washington Street, S.W., Suite 1-1 56 Atlanta, Georgia 30334-8400
January 1 8 , 2 0 1 1

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable G. P. "Bud" Peterson, President Georgia lnstitute of Technology
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of Georgia lnstitute of Technology, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30,2010. These financial statements are the responsibility of the Georgia lnstitute of Technology's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 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 Institute'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 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 audit provides a reasonable basis for our opinion.
As discussed in Note 1,the financial statements of Georgia lnstitute of Technology are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Georgia lnstitute of Technology. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Georgia lnstitute of Technology as of June 30, 2010, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Management's Discussion and Analysis is not a part of the basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Georgia Institute of Technology taken as a whole. The accompanying supplementary information (Schedules 1through 4) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,
~ u s k e lWl . Hinton, CPA, CGFM State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

GEORGIA INSTITUTE OF TECHNOLOGY
Management's Discussion and Analysis

The Georgia lnstitute of Technology (Georgia Tech) is one of the 35 institutions of higher education of the University System of Georgia. Georgia Tech is one of the nation's top research universities, with over $565 million expended on sponsored research activities. The University is a national and international leader in scientific and technological research and education. Distinguished by its commitment to improving the human condition through advanced science and technology, Georgia Tech provides a focused, technology-based education for more than 20,000 undergraduate and graduate students. Accredited by the Southern Association of Colleges and Schools (SACS), Georgia Tech has many nationally recognized programs and is the only technological university consistently ranked in US. News and World Report's listing of America's Top Ten public universities. Undergraduate and graduate programs in Georgia Tech's College of Engineeringare currently ranked in the country's Top Five by U.S. Newsand World Repoft Seven undergraduate engineering programs are ranked in the top five and ten graduate engineering programs are ranked in the top ten of their respective disciplines. Georgia Tech is ranked among the top ten universities for the number of engineering degrees awarded to minority students at the Bachelor's, Master's and Doctoral level by Diverse Issues in Higher Education. These impressive national rankings reflect the academic prestige long associated with the Georgia Tech curriculum. Georgia Tech offers degrees through the Colleges of Architecture, Computing, Engineering, Management, Sciences, and the Ivan Allen College of Liberal Arts. As a leading technological institute, Georgia Tech has over 100 interdisciplinary research centers that consistently contribute vital research and innovation to America's government, industry, and business.

Founded in 1885 to help move Georgia's economy into the industrial age, Georgia Tech exceeded the expectations of its founders by becoming a multi-faceted research institution that serves as a source of new technologies and a driver of economic development. With a clear vision of technology and leadership, the lnstitute provides a cutting edge education for the 21st century.

The lnstitute continues to grow as reflected by the faculty and student numbers below and other comparisons that follow.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2010 Fiscal Year 2009 Fiscal Year 2008

Overview of the Financial Statements and Financia/ Analysis
The Georgia lnstitute of Technology is pleased to present its financial statements for fiscal year 2010, which began July 1,2009, and ended June 30, 2010. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the Institute's financial statements provides an overview of its financial activities for the year. The statements focus on the financial condition, results of operations and cash flows of the lnstitute as a whole, with resources classified for accounting and reporting purposes into five net asset categories: invested in capital assets, net of related debt; restricted-nonexpendable; restricted-expendable; restricted-capital projects and unrestricted. The basis of accounting is full accrual, including capitalization and depreciation of equipment and fixed assets and capitalization and amortization of intangible assets. Comparative data is provided for fiscal year 2 0 1 0 and fiscal year 2009.

Statement of Net Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the Institute as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to readers of the financial statements a fiscal snapshot of the Georgia lnstitute of Technology. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.

From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors.

Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into three categories, nonexpendable, expendable and capital projects. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution.

Statement of Net Assets, Condensed

June 30,2010

June 30,2009

Assets Current Assets Capital Assets, Net Other Assets

65,294,608

Total Assets

Liabilities Current Liabilities Noncurrent Liabilities

Total Liabilities

Net Assets Invested in Capital Assets. Net of Debt
Restricted - Nonexpendable
Restricted - Expendable
Restricted - Capital Projects
Unrestricted

Total Net Assets

The total assets of the institution increased by $79,136,862. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $58,778,751 in the category of Current Assets and an increase of $16,137,036 in the category of Capital Assets, Net. The balance of the increase is mainly in receivablecategories.
The total liabilities for the year increased by $7,211,944. The combination of the increase in total assets of $79,136,862 and the increase in total liabilities of $7,211,944 yields an increase in total net assets of $71,924,918. The increase in total net assets is mostly in the categories of Invested in Capital Assets, Net of Debt, in the amount of $30,845,410 and Restricted Capital Projects in the amount of $20,443,973.
Statement of Revenues, Expenses and Changes in Net Assets
Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.
Statement of Revenues, Expenses and Changes in Net Assets, Condensed

June 30,2010

June 30,2009

Operating Revenues Operating Expenses
Operating Loss Nonoperating Revenues and Expenses Income (Loss) Before Other Revenues,
Expenses, Gains or Losses Other Revenues, Expenses, Gains or Losses Increase in Net Assets Net Assets at Beginningof Year,
as Originally Reported Prior Year Adjustments Net Assets at Beginning of Year, Restated Net Assets at End of Year

$ -197,435,021 243,583,503
$ 46,148,482 18,468,836
$ 1,091,759,975

$ -229,667,833 251,100,555
$ 21,432,722 58,057,023
$ 1,004,962,630

The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows:

Revenue by Source For the Years EndedJune 30,2010 and June 30,2009

June 30,2010

June 30,2009

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other

$ 177,483,251 564,747,448 23,542,501 86,485,013 15,888,634

$ 151,714,908 517,828,642 15,584,108 99,065,680 10,061,076

Total Operating Revenue

Nonoperating Revenue State Appropriations
Federal Stimulus - Stabilization Funds
Grants and Contracts Gifts Investment Income Other

$ 207,583,762 36,834,145 10,929,167 2,975,439 12,163,449 1,433,906

$ 254,937,701 2,280,374 6,732,250
18,321,576 13,064,514 -16,516,9 13

Total NonoperatingRevenue

Capital Grants and Gifts State Other

Total Capital Grants and Gifts

Total Revenues

Expenses (By Functional Classification) For the Years Ended June 3 0 , 2 0 1 0 and June 30,2009
June 30,2010
Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises
Total Operating Expenses
Nonoperating Expenses Interest Expense (Capital Assets)
Total Expenses

June 30,2009

The StatBm&ritof Re\raW'iT'&g,Dpenses and Changes ti1 Net Assets reflects an 'Increase in Operating Revenues, a decrease in NonoperatingRevenues, and a decrease In State Approprlations. Overall, r:~tnua.~fl~t:(?~#LIw.~IIUL!CIJ~.A#..!.(.1~1stm,!n,Idthe graph betow.
Georgia Institute of TechRevenue
(Warnh rnbns)

a"' sm . -

--

m- - --

. + . ..

In the Operating Expenses by Object of Expenditure Class graph below, total operating expenses for
the year were approximately $1,065.8 rnllllon. Slgnfflcant Increases In operating expenses from fiscal year 2009 to flscal year 2010 Include Selarles and Benefits and Travel, Supplles and Other. These categories Increased by $19.9 rnllllon and $22.1 million respectfvely, primarily due to an increase In research operations. Overall operating expenses increased by $41.7 milllon, or 4.1% wer the previousyear.
Georgia Institute of Technology Operating Expenses by Object of Expenditure Class
jdollqps In_mllllorrs)

$0
mr! Salariesand Bgnefits Travel, Supplband

Depreciation

Utilitlw

Sc holanhips and Fellow hlps

In the Opemtlng Expenses by Fundtonal Class graph below, Instruction, Research and Public Service expenses increased by $31.0 million, and Plant Operations and Malntenance increased by $9.2
million. Auxiliary Enterprisesexpense decreased by $9.8 millton, T h e e changes resulted In s $41-7 mlllion increase in operating expenses for the year.
Georgia Institute of Technology Operating Expenses by Functional Class
(dollars In mlllionsj

Instruction, Remarch, Academie, Student, PlantOperationsand Auxiliary Enterpriw Schol~rshipsand

and PublicSrvioe and lnstitrrtional

Maintenance

F~~lowshipe

support

viil

Statement of Cash Flows
The final statement presented by the Georgia lnstitute of Technology is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

Cash Flows for the Years Ended June 30,2010, and 2009, Condensed

June 30,2010

June 30,2009

Cash Provided (Used) By: Operating Activities Noncapital FinancingActivities Capital and Related FinancingActivities Investing Activities

$ -106,702,109 258,507,711 -109,563,694

$ -133,004,982 278,134,846 -152,7 16,740

Net Change in Cash Cash, Beginningof Year

Cash, End of Year

The lnstitute had no individually significant additions of Buildings, Infrastructure or Facilities and Other Improvements for fiscal year 2010.
For additional information concerning Capital Assets, see Notes 1,6,8,9, and 1 0 in the Notes to the Financial Statements.
Long- Term Liabilities
Georgia lnstitute of Technology had Long-Term Liabilities of $559,279,080 of which $40,277,096 was reflected as current liability at June 30, 2010.
For additional information concerning Long-Term Liabilities, see Notes 1and 8 in the Notes to the Financial Statements.

Economic Outlaak
The lnstitute is expecting significant economic challenges in the next fiscal year. Planning guidelines from the USG Chancellor have been received for a 4% to 8% budget cut from the fiscal year 2 0 1 1 state appropriations which is approximately between $9.2 million and $18.5 million for Resident Instruction and the B Units, which consist of Georgia Tech Research lnstitute (GTRI) and Economic Innovation lnstitute (Ell). These cuts are in addition to the permanent cut of $46.4 million in fiscal year 2010 and $20.8 million in fiscal year 2009, totaling $67.2 million or 24% of the fiscal year 2009 base budget for these units. These cuts, coupled with rapidly rising energy costs, increased debt service costs and the institute's strategic planning efforts in the next fiscal year will necessitate management examine all aspects of the Institute's operations, including the primary missions of instruction, research and public service. While every effort is made to absorb the brunt of economic downturns in the support services area, this may not be possible given the magnitude of the downturn and the impact of the proposed budget cut.
Georgia Tech received $36.8 million in Federal stimulus funds in the fiscal year 2010 operating budget to help mitigate cuts. However, the lnstitute does not expect t o receive any stimulus funds in fiscal year 2011.
At the same time, the lnstitute anticipates a bright economic future with the continued growth of sponsored research. Sponsored awards grew to approximately $558 million in fiscal year 2010 which is a 15.4% increase over the previous fiscal year. In fiscal year 2010, sponsored revenue increased by 9.1% to approximately $565 million. The lnstitute expects growth in sponsored research programs to continue in future fiscal years if sufficient funding is available for related facilities and administrative support.
As part of Georgia Tech's move to an undergraduate market tuition rate, the Board of Regents (BOR) approved a major tuition increase of $500 per semester for students taking more than 6 hours and $300 per semester for students taking 6 hours or less. This is in addition to the 25% tuition increase in fiscal year 2010. Georgia Tech 3rd and 4th year students on the BOR's guaranteed fixed for four tuition plans will see no change in their per-credit-hour tuition rate. Graduate students will see a 25% increase in resident tuition and a 5% increase in nonresident tuition. The lnstitute expects similar tuition increases for fiscal year 2012 as it moves its tuition closer to its peer institutions. All students are assessed an Institutional Fee of $194 per semester, which is set to expire fiscal year 2011.
The additional revenue generated from the growth in sponsored awards and the increase in tuition should help to mitigate the stagnant or negative growth in other areas at the Institute.
Mr. Steven G. Swant Executive Vice President Georgia lnstitute of Technology
Dr. G. P. "Bud" Peterson President Georgia lnstitute of Technology

BASIC FINANCIAL STATEMENTS

GEORGIA INSTITUTE OF TECHNOLOGY STATEMENT OF NET ASSETS JUNE 3 0 . 2 0 1 0
Current Assets Cash and Cash Equ~valents Short-Term Investments Accounts Receivable. Net (Note 3) Federal Financ~aAl ssistance Other Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets. Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salar~esPayable Beneflts Payable Contracts Payable Deposits Deferred Revenue (Note 7) Other Liabilities Deposlts Held for Other Organizations Lease Purchase Obllgat~ons Compensated Absences
Total Current L ~ a b ~ l ~ t l e s
Noncurrent Liabilities Lease Purchase Obl~gations Deferred Revenue Compensated Absences
Total Noncurrent L~ab~lities
Total Liabilities
NET ASSETS
Invested in Capital Assets. Net of Related Debt Restricted for:
Nonexpendable Expendable Capital Projects Unrestricted
Total Net Assets
The notes t o the financial statements are an integral part of this statement.
- 2-

GEORGIA INSTITUTE OF TECHNOLOGY STATEMENTOF REVENUES, EXPENSESAND CHANGES IN NET ASSETS
YEAR ENDEDJUNE 30,2010
OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal Federal s t ~ m u l u s State Other
Sales and Servlces of Educational Departments Rents and Royalties Auxil~aryEnterprrses
Residence Halls Bookstore Food Services Parking/Transportation Health Servrces Other Organizatlons Other Operatlng Revenues
Total Operating Revenues
gPERATlNG EXPENSES
Salaries Faculw Staff
Employee Benef~ts Other Personal Services Travel Scholarships and Fellowships utllrtles Supplies and Other Servlces Depreciabon
Total Operating Expenses
Operatlng Income (Loss)
NONOPERATINS REVENUES IEXPENSEa
State Appropriations FederalStimulus -Stabilization Funds Grants and Contracts
Federal Federal Stimulus Gifts Interest and Other Investment Income Interest Expense Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues. Expenses. Gains, or Losses
Capital Grants and Gifts State Other
Total Other Revenues. Expenses, Gains or Losses
Increase (Decrease)in Net Assets
Net Assets - Beglnnlng of Year (As Orlglnally Reported)
Prior Year Adjustments
Net Assets - Beginning of Year. Restated
Net Assets - End of Year
The notes to the financ~asltatements are an Integral part of thls statement

GEORGIA INSTITUTE OF TECHNOLOGY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 30,2010
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loansto Students and Employees Auxiliary EnterpriseCharges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Other Organizations Other Receipts (Payments)
Net Cash Provided (Used)by OperatingActrvities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations
Federal Stimulus - Stabilization Funds
Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other NonoperatingReceipts
Net Cash Flows Provided (Used)by Noncapital FinancingActiv~ties
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchasesof Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES lnterest on Investments Purchase of Investments
Net Cash Provided (Used) by InvestingActivities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginningof Year
Cash and Cash Equivalents - End of Year

GEORGIA INSTITUTE OF TECHNOLOGY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 30.2010
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to ReconcileOperatingIncome to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of InvestmentsRecognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

EXHIBIT "C"

The notesto the financial statements are an integral part of this statement - 5 -

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GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Note 1. Summary of SgniWwntAccounting Policies
Nature of Operations Georgia lnstitute of Technology serves the state, national and international communities by providing its students with academic instruction that advances fundamental knowledge, conducting research to create a better world for mankind, and by disseminating knowledge to the people of Georgia, the nation, and throughout the country.
Reporting Entity Georgia lnstitute of Technology is one of thirty-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Georgia lnstitute of Technology as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Georgia lnstitute of Technology does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Georgia lnstitute of Technology is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial ReoortingStandards.
Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 16 for additional information.
Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the Institute's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year.
New Accounting Pronouncements In fiscal year 2010, Georgia lnstitute of Technology adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for Intangible Assets. The provisions of this Statement generally required retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated.
In addition, Georgia lnstitute of Technology adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 2.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Basis of Accounting For financial reporting purposes, the lnstitute is considered a special-purpose government engaged only in business-typeactivities. Accordingly, the Institute's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the following paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-Institute transactions have been eliminated.
The lnstitute has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The lnstitute has elected to not apply FASB pronouncements issued after the applicable date.
Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State lnvestment Pool and the Board of Regents Short-Term lnvestment Pool.
Short-Term lnvestments Short-Term lnvestments consist of investments of 9 0 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal.
lnvestments lnvestments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The lnstitute accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Diversified Fund and the Georgia Extended Asset Pool are included under Investments.
Accounts Receivable Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the Institute's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Inventories Consumable supplies are recorded on the consumption method and are valued at cost on the Statement of Net Assets using the average-cost basis. Resale lnventories are valued at cost using the average-cost basis.
Noncurrent lnvestments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the Institute's capitalization policy includes all items with a unit cost of $5,000 or greater and the useful life meets or exceeds 5 years. Renovations to Buildings, Infrastructure and Facilities and Other Improvements are capitalized as betterments when the expenditure for the renovation meets or exceeds the capitalization threshold of $100,000. The lnstitute uses the parent/child methodology to track the costs of nonresearch buildings. In this instance, the original asset is considered the "parent" and any improvements that meet the capitalization criteria above are considered "children". The child asset normally takes on the remaining useful life of the parent asset unless it is determined that the child asset increases the useful life of the structure by 25 percent of the original life. In this case, the net book value of the original building is recapitalized along with the eligible improvements as a new asset and the original building asset is retired. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 4 0 to 5 0 years for buildings, 25 to 7 5 years for infrastructure, 20 to 5 0 years for facilities and other improvements, 1 0 years for library books and 5 to 1 0 years for equipment. Nonresearch buildings are generally depreciated over 4 0 to 5 0 years as indicated above. Research buildings are depreciated by building component such as elevators, general structure, HVAC, roof, etc. The useful life of these components is generally between 20 and 5 0 years. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 1 0 to 2 0 years.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financingand Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the lnstitute when complete. For projects managed by the Institute, the lnstitute retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2010, GSFIC transferred capital additions valued at $2,022,346 to Georgia lnstitute of Technology. Of this amount, $248,746 was GSFIC State funded and $1,773,600 was Institutionally funded.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in an lnstitute residence hall.
Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.

GEORGIA I N S m U T E OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Georgia lnstitute of Technology had accrued liability for compensated absences in the amount of $35,336,051 as of July 1,2009. For fiscal year 2010, $22,265,086 was earned in compensated absences and employees were paid $20,050,958, for a net increase of $2,214,128. The ending balance as of June 30, 2010, in accrued liability for compensated absences was $37,550,179.
Noncurrent Liabilities Noncurrent liabilities include (1)liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
Net Assets The Institute's net assets are classified as follows:
Invested in capitalasse6, net of related debt: This represents the Institute's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFlC as discussed previously in Note 1- Capital Assets section.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment
and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The lnstitute may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.
Restriced net assets - expendable: Restricted expendable net assets include resources in which the
lnstitute is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.
Expendable Restricted Net Assets include the following:

Restricted - E&G and Other Organized Activities $ Federal Loans Institutional Loans Quasi-Endowments

2,605,447 6,702,553 6,062,633 26,410,906

Total Restricted Expendable

Restricted net assets - expendable - Gpital Projects: This represents resources for which the lnstitute
is legally or contractually obligated to spend resources for capital projects in accordance with
restrictions imposed by external third parties.

GEORGIA INSmUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Unrestriied net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the Institute, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus). Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of Treasury and Fiscal Services. At June 30, 2010, there was a surplus balance of $122,528.11 to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.
Unrestricted Net Assets includes the following items which are quasi-restricted by management.
R & R Reserve Reserve for Encumbrances Reserve for lnventoty Other Unrestricted
Total Unrestricted Net Assets
When an expense is incurred that can be paid using either restricted or unrestricted resources, the Institute's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.
Income Taxes Georgia Institute of Technology, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.
Classification of Revenues and Expenses The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:
Operating Revenues Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3)sales and services.
Nonoperating Revenues Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, RepatZing Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses Operating expense includes activities that have the characteristics of exchange transactions.
Nonoperating Expenes Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO M E FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the Institute, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the Institute's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the lnstitute has recorded contra revenue for scholarship allowances.
Restatement of Capital Assets, Not Being Depreciated; Capital Assets, Being Depreciated/Amortized; Accumulated Depreciation/Amortization; and Capital Assets, Net
- GASB 35, Basic Financial Statemem - and Management's Discussion and Analysis for Public Colleges
and Univefiities- an amendment of GASBStatement No. 34, was issued November 1999 and effective for the financial statements of Phase I governments for periods beginning after June 15, 2001. This statement required public entities to maintain fixed asset records in a complete, accurate and detailed manner and generally required depreciation to be reported on all capital assets. Due to the implementation of this pronouncement, the lnstitute initiated a project with American Appraisal Associates (AAA) to conduct a building valuation study to identify the cost, accumulated depreciation and useful life for buildings. At the conclusion of this project, AAA issued a report on all buildings for the items listed above.
In fiscal year 2009, the lnstitute embarked upon a project (The Building Project) to review cost, depreciation and depreciation methodology for all nonequipment assets. During this process, the cost of building assets was reconciled to the AAA report. The lnstitute inadvertently reconciled the cost of building assets t o the incorrect cost line on the report, thus removing Federal Funding from the cost of all building assets with this type of funding. The Department of Audits and Accounts (DOAA) issued the lnstitute an "Uncorrected Misstatement" for this issue during the fiscal year 2009 audit. In fiscal year 2010, the lnstitute thoroughly reviewed all building assets with Federal Funding and corrected all issues with cost and accumulated depreciation in the beginning balance for capital assets on the financial statement.
GASB 51, Accounting and Financial Reporting for IntangibleAssets; was issued July 2007 and effective for financial statements for periods beginning after June 15, 2009. This statement establishes accounting and financial reporting requirements for intangible assets such as easements, water rights, timber rights, patents, trademarks, and computer software to reduce inconsistencies and enhance the accounting and financial reporting of these assets among state and local governments. This statement also establishes guidance specific to intangible assets related to amortization and determination of useful life. In fiscal year 2010, the lnstitute identified all intangible assets that met the capitalization threshold in their particular category and retroactively included their cost and accumulated amortization in the July 1,2009, beginning balance for capital assets on the financial statement.
During the fiscal year 2010 year-end review, the lnstitute noted a few additional issues with assets that needed to be corrected. These issues included the following:
1. Prior year Construction Work-in-Progress (WIP)that should have been capitalized; 2. an affiliate organization asset mistakenly included in WIP for the Institute; 3. a building asset incorrectly classified as Infrastructure; and 4. a profile correction for an asset erroneously set up for cost and depreciation purposes.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

All issues with cost and accumulated depreciation for these assets have been corrected in the beginning balance for capital assets on the financial statement.

The net effect on the financial statements for Capital Assets Disclosure in the Beginning Balance Column of Note 6 is as follows:

1. The beginning balance for Capital Assets, Not Being Depreciated for Construction Work-inProgress will be restated and reduced by $1,386,863.
2. The beginning balance for Capital Assets, Being Depreciated for lnfrastructure will be restated and reduced by $2,738,281.
3. The beginning balance for Capital Assets, Being Depreciated for Buildings will be restated and increased by $10,774,021.
4. The beginning balance for Capital Assets, Being Depreciated for Software will be restated and increased by $1,530,895.
5. The beginning balance for Accumulated Depreciation for lnfrastructure will be restated and reduced by $98,551.
6. The beginning balance for Accumulated Depreciation for Buildings will be restated and increased by $434,910.
7. The beginning balance for Accumulated Depreciation for Software will be restated and increased by $535,813.

Overall, the beginning balance for Capital Assets, Net, will be restated and increased by $7,307,600.

Note 2. Deposits and Investmentr

Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the Institute's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the Institute) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.

2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.

3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.

4.

Industrial revenue bonds and bonds of development authorities created by the laws of the

State of Georgia.

5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National MortgageAssociation.

6. Guarantee or insurance of accounts provided by the Federal Deposit lnsurance Corporation.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
At June 30, 2010, the carrying value of deposits was $8,618,996 and the bank balance was $20,756,380. Of the Institute's deposits, $20,685,168 were uninsured. Of these uninsured deposits, $20,685,168 were collateralized with securities held by the financial institution's trust department or agent but not in the Institute's name.
Investments Georgia Institute of Technology maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility each institution has to the citizens of Georgia and which conforms to Board of Regents investment policy. All investments are consistent with donor intent, Board of Regents policy, and applicable Federal and state laws.
The Institute's investments as of June 30, 2010, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

lnvestment Type

Fair Value

Less Than
1 Year

lnvestment Maturity
1 - 5 Years 6 - 10 years

More Than
10 Years

Debt Securities U. S. Treasuries U. S. Agencies Explicitly Guaranteed Implicitly Guaranteed Corporate Debt

7,053 3,854,060 2,583,904

297 673,583 243,998

2,279,858 1,292,621

121,580 1,044,216

6,756 779,039
3,069

Other Investments Bond/Equity Mutual Funds Equity Securities - Domestic Real Estate Held for Investment Purposes
lnvestment Pools Board of Regents Short-Term Fund Diversified Fund Office of Treasuty and Fiscal Services
Georgia Fund 1
Georgia Extended Asset Pool
Total lnvestments

799,341 1,074,101
337,069
152,084

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

The Board of Regents lnvestment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents lnvestment Pool is voluntary. The Board of Regents lnvestment Pool is not rated. Additional information on the Board of Regents lnvestment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - University System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at h~w://www.audits.state.~a.us/interneVsearchR~ts.html.
The Georgia Fund 1lnvestment Pool, managed by the Office of Treasury and Fiscal Services, is not registered with the Securities and Exchange Commission as an investment company, but does operate in a manner consistent with the SEC's Rule 2a7 of the lnvestment Company Act of 1940. This investment is valued at the pool's share price, $1.00 per share. The Georgia Fund 1lnvestment Pool is an AAAm rated investment pool by Standard and Poor's. The Weighted Average Maturity of the Fund is 4 6 days.
The Georgia Extended Asset Pool, managed by the Office of Treasury and Fiscal Services, is not registered with the Securities and Exchange Commission as an investment company. Net Asset Value (NAV) is calculated daily to determine current share price, which was $2.03 at June 30, 2010. The Georgia Extended Asset Pool is an AAA rated investment pool by Standard and Poor's. The Weighted Average Maturity of the Fund is .97 years.
lnterest Rate Risk lnterest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The Institute's policy for managing interest rate risk is to comply with Regent's policy and applicable Federaland State laws.
The Effective Duration of the Short Term Fund is .77 years. Of the Institute's total investment of $71,563,738 in the Short Term Fund, $71,563,738 is invested in debt securities.
The Effective Duration of the Diversified Fund is 3.15 years. Of the Institute's total investment of $40,273,352 in the Diversified Fund, $15,546,013 is invested in debt securities.
Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the Institute will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The Institute's policy for managing custodial credit risk for investments is an integral part of its current investment policies dated May 16, 2005, which specifies how counterparties are selected and how investments are to be held on behalf of the Institute.
At June 30, 2010, $14,249,560 was uninsured and held by the investment's counterparty's trust department or agent, but not in the Institute's name.
Credit Oualitv Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Institute's policy for managing credit quality risk for investments is an integral part of its current investment policies dated May 16, 2005, which identifies approved investment products, and specifies the required credit quality, as applicable, for each investment based upon approved credit rating agencies.

GEORGIA INSTlTUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

The investments subject to credit quality risk are reflected below:

Credit Quality Risk

Fair Value

AAA

AA

A

Related Debt Investments

U. S. Agenc~es

$

Corporate Debt

3,854,060 $ 2,583,904

3,854,060
$

436,140 $ 1,772,882 $

BAA

Unrated

371,813 $

3,069

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The Institute's policy for managing concentration credit risk for investments is an integral part of its current investment policies dated May 16, 2005, which overviews concentration guidelines not allowing more than 20% of the total investment portfolio to be concentrated in anyone other than the U. S. Treasury or other Federal Government agencies.

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2010:

Student Tuition and Fees Auxiliaty Enterprises and Other OperatingActivities Federal Financial Assistance Other

$ 2,081,553 1,602,732
47,309,975 37,787,398

Less Allowance for Doubtful Accounts Net Accounts Receivable

$ 86,793,807

Note 4. Inventories Inventories consisted of the following at June 30, 2010:
Physical Plant Other
Total

Note 5. Notes/Loans Receivable
The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2010. The Program provides for cancellation of a loan at rates of 10%to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the lnstitute for amounts cancelled under these provisions. As the lnstitute determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. The lnstitute has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2010, the allowance for uncollectible loans was approximately $94,219.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Note 6, CapitalAssels Following are the changes in capital assets for the year ended June 30,2010:

Beginning Balance July 1, 2009 (Restated)

Additions

Reductions

Ending Balance June 30, 2010

Capital Assets, Not Being Depreciated: Land Capitalized Collections Construction Work-ln-Progress

$

53,643,001

17,737.435 $

14,982

21.822.218

22.234.252 $

17,670,742

17,752,417 26,385,728

Total Capital Assets, Not Being Depreciated $

93,202,654 $

22,249,234 $

17,670,742 $

97,781,146

Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Library Collections Sofhvare

$

103,396.529 $

1.461.178.007

26,494,050

368,784,244

2,248,699 30,466,868 $
3,360,454 39,295,898

$ 967.101
14,443,583

105,645,228 1.490.677.774
29,854,504 393,636,559

Total Assets Being Depreciated

$ 2,060,917,912 $

79,906,822 $

15,451,048 $ 2,125,373,686

Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Library Collections Software

$

18,027,655 $

299,872,100

8,541,626

228,323,533

69,168,670

535,813

3,077,701 33,872,308 $
937,096 32.553.446
4,739.851 153,090

$ 592,239
14,496,059 40,364

21,105,356 333,152,169
9.478.722 246,380,920
73,868,157 688,903

Total Accumulated Depreciation

$

624,469,397 $

75,333,492 $

15,128,662 $

684,674,227

Total Capital Assets, Being Depreciated, Net $ 1,436,448,515 $

4,573,330 $

322,386 $ 1,440,699,459

Capital Assets, Net

Note 7. Deferred Revenue Current deferred revenue consisted of the following at June 30, 2010:

Prepaid Tuition and Fees Research Other Deferred Revenue

Totals

$ 23,646,513

Long-Term deferred revenue totaled $5,037,500.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL SATEMENTS
JUNE 30, 2010

EXHIBlT "D"

Note 8. Long- Term Liabilities Long-Term liability activity for the year ended June 30, 2010, was as follows:

Beginning Balance July 1, 2009

Additions

Reductions

Ending Balance June 30,2010

Current Portion

Leases Lease Obligations

$ 536,437,275 $ 4,098,600 $ 18,806,974 $ 521,728,901 $ 19,230,392

Other Liabilities Compensated Absences

35,336,051

22,265,086

20,050,958

37,550,179

21,046,704

Total Long-Term Obligations $ 571,773,326 $ 26,363,686 $ 38,857.932 $ 559,279.080 $ 40,277,096

Note 9. Significant Commitments
The Institute had significant unearned, outstanding, construction or renovation contracts executed in the amount of $22,640,135 as of June 30, 2010. This amount is not reflected in the accompanying basic financial statements.
Note 10. Lease Obligations
Georgia lnstitute of Technology is obligated under various operating leases for the use of real property (land, buildings and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property and equipment.
CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2010 and 2038. Expenditures for fiscal year 2010 were $47,143,339 of which $28,336,365 represented interest. Total principal paid on capital leases was $18,806,974 for the fiscal year ended June 30, 2010. Interest rates range from 3.36 percent to 11.0 percent. The following is a summary of the carrying values of assets held under capital lease at June 30,2010:
Facilities and Other Improvements Infrastructure Land Buildings Equipment
Total Assets Held Under Capital Lease
Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms.

GEORGIA INSTlTWE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Georgia lnstitute of Technology had thirteen capital leases with related parties in fiscal year 2010. In November 1997, Georgia lnstitute of Technology entered into a capital lease of $21,560,000 with the Georgia Tech Research Corporation and Georgia Tech Facilities, Inc., both affiliated organizations, for the "Parker H. Petit lnstitute of Bioengineering and Biosciences Building". The lease term is for a 30-year period that began November 1997 and expires May 2028. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $16,915,000 and the amount due (principal and interest) in the next fiscal year is $845,750.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $34,335,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - Global Learning Center". The lease term is for a 29-year period that began August 2003 and expires July 2032. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $29,885,000 and the amount due (principal and interest) in the next fiscal year is $2,265,185.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $56,800,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - College of Management". The lease term is for a 29-year period that began August 2003 and expires July 2032. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $49,480,000 and the amount due (principal and interest) in the next fiscal year is $3,768,736.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $12,298,200 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - Enterprise Innovation Institute". The lease term is for a 29-year period that began August 2003 and expires July 2032. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $10,699,640 and the amount due (principal and interest) in the next fiscal year is $807,532.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $21,365,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - Parking Complex". The lease term is for a 29-year period that began August 2003 and expires July 2032. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $18,755,000 and the amount due (principal and interest) in the next fiscal year is $1,488,663.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $13,010,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - Bookstore". The lease term is for a 19-year period that began August 2003 and expires July 2022. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $9,835,000 and the amount due (principal and interest) in the next fiscal year is $1,186,294.
In August 2001, Georgia lnstitute of Technology entered into a capital lease of $4,490,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Technology Square - Retail Complex". The lease term is for a 19-year period that began August 2003 and expires July 2022. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $3,495,000 and the amount due (principal and interest) in the next fiscal year is $420,806.
In February 2001, Georgia lnstitute of Technology entered into a capital lease of $44,980,000 with the Georgia Tech Foundation, Inc., an affiliated organization, for the "Campus Recreation Center". The lease term is for a 30-year period that began February 2 0 0 1 and expires February 2031. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $38,935,000, and the amount due (principal and interest) in the next fiscal year is $3,067,813.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "Dl'

In July 2003, Georgia lnstitute of Technology entered into a capital lease of $60,485,000 with Georgia Tech Facilities, Inc., an affiliated organization, for the "Married Family Housing Building", including an adjoining parking deck. The lease term is for a 25-year period that began October 2005 and expires June 2030. At June 30, 2010, the remaining long-term debt obligation under the lease was $52,975,000 and the amount due (principal and interest) in the next fiscal year is $4,273,198.
In July 2003, Georgia lnstitute of Technology entered into a capital lease of $9,835,000 with Georgia Tech Facilities, Inc., an affiliated organization, for the "Klaus Advanced Computing Center". The lease term is for a 20-year period that began October 2006 and expires June 2025. At June 30, 2010, the remaining long-term debt obligation under the lease was $8,420,000 and the amount due (principal and interest) in the next fiscal year is $807,688.
In May 2004, Georgia lnstitute of Technology entered into a capital lease of $75,205,000 with Georgia Tech Facilities, Inc., an affiliated organization, for the "Molecular Sciences and Engineering Building". The lease term is for a 29-year period that began September 2006 and expires June 2036. At June 30, 2010, the remaining long-term debt obligation under the lease was $71,210,000 and the amount due (principal and interest) in the next fiscal year is $4,979,500.
In July 2007, Georgia lnstitute of Technology entered into a capital lease of $74,455,494 with Georgia Tech Facilities, Inc., an affiliated organization, for a complex of buildings collectively named "North Avenue Apartments", including an adjoining parking deck. The lease term is for a 25-year period that began July 2007 and expires June 2032. At June 30, 2010, the remaining long-term debt obligation under the lease was $73,044,675 and the amount due (principal and interest) in the next fiscal year is $5,280,000.
In August 2005, Georgia lnstitute of Technology entered into a capital lease of $39,705,000 with Georgia Tech Facilities, Inc., an affiliated organization, for the "Electrical Sub Station". The lease term is for a 30-year period that began October 2007 and expires in December 2037. At June 30, 2010, the remaining long-term debt obligation under the lease was $38,531,324 and the amount due (principal and interest) in the next fiscal year is $3,000,000.
Georgia lnstitute of Technology also has one real property capital lease with an unrelated party. In June 2003, the lnstitute entered into a capital lease of $76,150,584 with the University Financing Foundation Inc., for the "Technology Square Research Building". The lease term is for a 29-year period that began June 2003 and expires June 2032. At June 30, 2010, the remaining long-term debt obligation (principal) under the lease was $76,003,552 and the amount due (principal and interest) in the next fiscal year is $4,638,035. The lnstitute may cancel the lease agreement under prescribed terms if sufficient appropriations, revenues, income, grants or other funding sources are not available. The lnstitute is responsible for most operating costs such as repairs, utilities and insurance for this lease.
The lnstitute is obligated to various parties for the lease purchase of furniture, fixtures, equipment, and plant infrastructure improvements. These leases have various end dates through June 30, 2018. At June 30, 2010, the remaining long-term debt obligation under these agreements was $23,544,710. The amount due (principal and interest) in the next fiscal year is $8,987,535.
OPERATING LEASES Georgia lnstitute of Technology's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years through 2011. Certain operating leases provide for renewal options for periods from one to 25 years at their fair rental value at the time of renewal. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment.

GEORGIA INSTlTUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "DM

DESCRIPTION OF RELATED PARTY LEASES Georgia lnstitute of Technology entered into various real property operating leases with related parties including Georgia Tech Research Corporation (GTRC), Georgia Advanced Technology Ventures (GATV), Inc., and VLP 1,VLP 2 and VLP 3, subsidiaries of GATV. The current agreements are for July 1,2010, through June 30, 2011, with most of the agreements containing a renewal option. Under these agreements, the lnstitute is obligated to pay these related parties a total of $8,870,536 in the next fiscal year.

Georgia lnstitute of Technology's fiscal year 2010 expense for rental of real property and equipment under operating leases was $9,766,456.

FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30,2010, were as follows:

Real Pro~ertvand ECluiDment

Capital

Operating

Leases

Leases

Year Ending June 30: 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2035 2036 - 2038

Total Minimum Lease Payments $ 880,511,879 $ 11,863,096

Less: Interest

358,782,978

Principal Outstanding

Note 11. Retirement Plans
The Georgia lnstitute of Technology participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that the Georgia lnstitute of Technology participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Employees' Retirement System of Georgia The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.
On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1,1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415.
The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1,1982, is an "old plan" member subject to the plan provisions in effect prior to July 1,1982. Members hired on or after July 1,1982 but prior to January 1,2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1,2009 also have the option to change their membership to the GSEPS plan.
Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 1 0 years of creditable service and attainment of age 6 0 or 3 0 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.
Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 2 4 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1,2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the Georgia lnstitute of Technology pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Georgia lnstitute of Technology contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The Georgia lnstitute of Technology is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These Georgia lnstitute of Technology contributions are not at any time refundable to the member or his/her beneficiary.
- 22 -

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Employer contributions required for fiscal year 2010 were based on the June 30, 2007 actuarial valuation for the old and new plans and were set by the Board of Trustees on September 18, 2008 for GSEPS as follows:
Old Plan* New Plan GSEPS
* 5.66% exclusive of contributions paid by the employer on behalf of old plan members
Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits.
Teachers Retirement System of Georgia The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.
On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. BeginningJuly 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.
TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 years of creditable service, regardless of age, or after 1 0 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 6 0 or by 7% for each year or fraction thereof by which the member has less than 3 0 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.
TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2010 were 5.25% of annual salary. The member contribution rate will increase to 5.53% effective July 1,2010. Employer contributions required for fiscal year 2010 were 9.74% of annual salary as required by the June 30, 2007 actuarial valuation. The employer contribution rate will increase to 10.28% effective July 1, 2010.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "DM

The following table summarizes the Georgia lnstitute of Technology contributions by defined benefit plan for the years ending June 30, 2010, June 30,2009, and June 30,2008:

ERS

Required

Percent

Contribution Contributed

TRS

Required

Percent

Contribution Contributed

Regents Retirement Plan
Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIM-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.
Funding Policy Georgia lnstitute of Technology makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2010, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Georgia lnstitute of Technology and the covered employees made the required contributions of $22,648,029 (9.24%) and $12,254,411 (5%), respectively.
AIG-VALIC, American Century, Fidelity, and TIM-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description Georgia lnstitute of Technology participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.
Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBlT "D"

Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2010 amounted to $735,299 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 12. Risk Management
The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Georgia lnstitute of Technology and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both self-insured healthcare plan options provide a maximum lifetime benefit of $2,000,000 per person.
The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of Wellpoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HSA/High Deductible PPO healthcare plan and two fully insured HMO healthcare plan options are also offered to System employees.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Georgia Institute of Technology, as an organizational unit of the Board of Regents of the UniversitySystem of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Georgia lnstitute of Technology is responsible for pollution remediation, including asbestos abatement, for all lnstitute facilities. Asbestos abatement is performed during renovation/construction projects when deemed necessary by lnstitute management. As of June 30, 2010, the lnstitute recorded a liability and expense in the amount of $298,617 for asbestos abatement projects in various lnstitute structures. The liability is reflected on the Statement of Net Assets in Accounts Payable and on the Statement of Revenues, Expenses and Changes in Net Assets in Supplies and Other Services. The liability was determined using the Expected Cash Flow Measurement Technique, which measures the liability as the sum of probability-weighted amounts in a range of possible estimated amounts. The lnstitute does not anticipate any significant changes to the expected remediation outlay. There are no expected recoveries that have reduced the liability. Pollution remediation liability activity in fiscal year 2010 was as follows:

Beginning Balance July 1.2009

Additions

Reductions

Ending Balance June 30,2010

Current Portion

Pollution Remediation

Obligations

$

21,507 $

298,617 $

21,507 $

298,617 $

298,617

Note 13. Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures that are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Georgia lnstitute of Technology expects such amounts, if any, to be immaterial to its overall financial position.
At the request of lnstitute management, on December 15, 2009, Georgia Tech Facilities Inc. (Facilities), a component unit of Georgia Tech (see Note 16), adopted a Declaration of Official Intent to seek the issuance of tax-exempt obligations for the purpose of financing the Academy of Medicine Renovations Project for the benefit of Georgia Tech. This resolution was intended to constitute a "declaration of official intent" within the meaning of Treasury Regulation Section 1.150-2. Facilities and Georgia Tech also entered into an Amended Memorandum of Understanding (MOU) dated February 17, 2010. Under the MOU, Facilities agreed to manage the design and renovation of the project as well as proceed with the financing subject to the lnstitute securing Board of Regents approval. The project has been approved by the Board of Regents, with a budget of $5.0 million. The ground lease and rental agreement have not yet been completed, but it is expected that the project will be completed in fiscal year 2011.
On June 23, 2010, the Board of Regents (BOR) and the lnstitute amended existing agreements with Facilities, the first of which was a 25-year land lease from the BOR to Facilities for the use of the North Avenue Apartments, to include the new North Avenue Apartments Dining facility. At the end of the amended 25-year period, any leasehold improvements will revert to the BOR/lnstitute. The second amendment was a rental agreement between BOR/lnstitute and Facilities for the North Avenue Apartments and is an annual agreement with options to renew on a year-to-year basis. The amended lease amount will approximate $5.9 million annually.
On June 23, 2010, the Board of Regents (BOR) and the lnstitute entered into an agreement with Facilities which was a 30-year land lease from the BOR to Facilities for the use of the new Carbon Neutral Energy Solutions Lab. At the end of the 30-year period, any leasehold improvements will revert to the BOR/lnstitute. The second agreement was a rental agreement between BOR/lnstitute

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

and Facilities for the new Carbon Neutral Energy Solutions Lab facility. The rental agreement is an annual agreement with options to renew on a year-to-year basis. The lease amount will approximate $1.0 million annually. Given that the intent of the lnstitute is to lease the facility for the entire 30year period, it will be treated as a capital lease once the facility is completed and occupied, which is expected to occur in fiscal year 2012.
Litigation, claims and assessments filed against Georgia lnstitute of Technology (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30,2010.
Note 14. Post-Emp/oyment Benefiis Other Than Pension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the UniversitySystem of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The lnstitute pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2009 and 2010 plan years, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2010, there were 1,310 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2010, Georgia lnstitute of Technology recognized as incurred $6,253,357 of expenditures, which was net of $2,872,486 of participant contributions.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Note 15. Natural Classifications with Functional Classifiwtions The Institute's operating expenses by functional classification for fiscal year 2010 are shown below:

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

Salaries Faculty Staff
Employee Benefits Other PersonalServices Travel Scholarshipsand Fellowships Utilities Supplies and Other Services Depreciation

$ 99,079,048 $ 154,200,355 $ 5,661,063 $ 5,628,080 $

262,872

51,979,717

117,101.621 21,435.749

18,636,461

11,838,067

31,821,001

49,300,327

5,976,470

5,713,867

2,466.945

51,582

30.232

543.934

11,665

30,617

2,690,836

11,599,859

969.226

448.910

214,758

370,219 21,567,815
9,100,160

933,224 128,726.854
30,827.071

193,003 9,290.237 1,136,410

39,890 11,151,288
7,071,305

32,061 11,125,906
1,383.828

Total Operating Expenses

$ 216,660,378 $ 492,719.543 $ 45,206,092 $ 48,701,466 $ 27,355,054

Natural Classification

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Auxiliary

Maintenance

Fellowships

Enterprises

Total Operating Expenses

Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation

Total Operating Expenses

Note 16, Affiliated Organizations
In accordance with GASB Statement No. 39, Determining Whether Cetiain Organtzations are Component Units, Georgia Tech Athletic Association, Georgia Tech Facilities, Inc., Georgia Tech Foundation, Inc., and Georgia Tech Research Corporation have been determined to be legally separate, tax exempt organizations whose activities primarily support Georgia Institute of Technology, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, Georgia lnstitute of Technology has not included financial activity for these affiliated organizations in these financial statements.

GEORGIA INSTITUTE OF TECHNOLOGY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Georgia Tech Athletic Association, Georgia Tech Facilities, Inc., Georgia Tech Foundation, Inc., and Georgia Tech Research Corporation have been determined significant to the State of Georgia for the year ended June 30, 2010, and as such, are reported as discretely presented component units in the ComprehensiveAnnual Financial Report of the State of Georgia (CAFR). The significant discretely presented component units issue separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia.

(This page left intentionally blank)

SUPPLEMENTARY INFORMATION

GEORGIA INSTITUTEOF TECHNOLOGY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30.2010
ASSETS
Accounts Receivable Federal Financial Assistance Other
Prepaid Expenditures Inventories Other Assets
Total Assets
LIABILITIESAND FUND EOUIW
Liabilities Cash Overdraft Accounts Payable Encumbrances Payable Deferred Revenue Other Liabilities
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds UncollectibleAccounts Receivable Inventories
Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

Actual amounts were preparedon a prescribed basis of accounting that demonstrates compliance with budgetarystatutes and regulationsof the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.

GEORGIA INSTITUTE OFTECHNOLOGY SUMMARY BUDGET COMPARISONAND SURPLUSANALYSIS REPORT(NON-GAAPBASIS)
BUDGET FUND YEAR ENDED JUNE 30.2010

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfer from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Research Consortium Special Funding Initiative Advanced Technology Development Center GeorgiaTech Research Institute Teaching
Total Expenditures
Excess ofFundsAvailable over EXDenditUreS
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/RevenueS Decrease in Inventories UnreservedFund Balance (Surplus) Returned
to Board of Regents- Unlversivsystem Office
Year Ended June 30,2009 Early Return of Surplus in Current FiscalYear Prior Year Reserved Fund Balance Included in FundsAvailable

BUDGET

ACTUAL

SCHEDULE nT
VARIANCE FAVORABLE (UNFAVORABLE)

SUMMARY OF FUND BALANCE Resewed Department Sales and Servlces Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectlble Accounts Receivable Inventories Total Reserved Unreserved Suroius
Total Fund Balance
Actual amounts were prepared on a prescribed basis of acmuntingthat demonstrates compliance with budgetary statutes and regulations of the State of Georgia, wh~chis a comprehensive basis of accounting other than generally accepted accounting principles.

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Posltlve

Actual

(Nega~ve)

Actual FundsAvallable
Ouer/(Under) Expendttures

Prlor Per~od

Other

Adjustments Adjustments

Early Rernlttance dSurplur

Program Fund
Balances

Transfers

Program Fund Balances

Reserve

Surplus

Total Fund Balance

$

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i2.649CC $

210.377.46014 10.740.49786

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(This page left intentionally blank)

GEORGIA INSTITUTE OF TECHNOLOGY RECONCILIATIONOF SALARIES AND TRAVEL
YEAR ENDED JUNE 30,2010

SCHEDULE "4"

Totals per Annual Supplement

Accruals June 30,2010 June 30,2009

Compensated Absences June 30,2010 June 30.2009

Adjustments

Shared Services on Jointly Staffed Personnel

Georgia State University

Camacho,

Alison

West,

Benjamin

Unidentified Variance

SALARIES

$

561,830,433 $

TRAVEL 16,495,046

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA INSTITUTE OF TECHNOLOGY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2010
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.